TaxTMI 
TaxTMI 
2019 (7) TMI 1513
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....tract In Progress (CIP)? 1(b) Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in holding that the method adopted by the Assessing Officer for recognition of contract revenue in respect of negative CIP is incorrect? 1(c) Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in holding on the basis of decision given in the case of Thermax Ltd. in A.Y. 2004-05 and assessee's own case for A.Y. 2004-05, that there is no fault in following AS-7? 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs. 9,53,369/- consisting of provision towards leave travel allowance of Rs. 7,04,178/- and medical reimbursements payable to employees of Rs. 2,49,191/- when the same was held to be contingent and unascertained liability by the AO? 3(a) Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in directing to delete the disallowance of Rs. 1,94,93,177/- claimed as liquidated damages? 3(b) Whether on the facts and circumstances of the "case, the Ld. CIT(A) was justified in terms of provisions contained ....
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..... In practice, this could be a genuine need for many. Within the same entitlements on a cost to company basis, we would henceforth reckon a combined limit for Medical & LTA. Besides, few employees may have to their credit the brought forward balances on account of Medical accruals over the years and/or LTA for one/two years. Such balances will get merged effective 1st October 2003 to form a common pool. LTA withdrawal: Withdrawals towards LTA from this pool will be allowed in multiples of Rs. 1,000/-, subject to the following limits: 1) Employees in grades up to and including P1 : Rs. 40,000/- p.a. 2) Employees in the grades M5 to M3 : Rs. 60,000/- p.a. 3) Employees in the grades M2/M1 : Rs. 80,000/- p.a. Such withdrawals will, off course, be subject to availability of balance to employee's credit and also on employee submitting necessary supporting as per IT act. A detailed note on the taxability of LTA has already been circulated by Finance. It will continue to apply. Amount once claimed by the employee towards LTA can not be refunded back to the Company. An employee can claim L TA maximum twice in a fina....
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....s the relevant extract of the findings of Tribunal on the issue are reproduced here-in-below : "21. On hearing both the sides, we find in the appeal of the assessee and in the appeal of the Revenue, the issue for adjudication relates to the correctness of the adjustments made to the estimated cost qua the "freight outward" to the tune of Rs. 26.55 lakhs. The details and the facts are already narrated in the preceding paragraphs of this order. Perusing the order of the Tribunal for the assessment year 2003-04 (supra), we find, in principle, the income recognition method stands approved by the order of the Tribunal in favour of the assessee. The discussion at para 11 to 13 of the order of the Tribunal is relevant in this regard and the same are extracted as under :- "11. Ground No.2 is with respect to addition made to the contract income. AO noticed that assessee is a manufacturer of industrial boilers and heat transfer equipments and undertakes the projects on contract basis and the contract normally runs over a period of more than one year. The assessee was accounting for income on such projects by following the "Projection Completion method" and was rais....
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....e the grounds raised by assessee and Revenue are inter-connected, both are considered together. 12. Before us, Ld. AR submitted that identical issue arose before Tribunal in assessee‟s appeal for A.Y. 2002-03 and the issue was decided by the Co-ordinate Bench of the Tribunal in assessee‟s favour by following the Tribunal order in A.Ys.1997- 98 to 2002-03. He placed on record the order of Tribunal for A.Ys. 2000-01 to 2002-03 and pointed to the relevant findings of the Tribunal. He submitted that since there are no change in the facts of the case for the year under consideration, therefore following the order of the Tribunal in Assessee‟s own case for earlier years, the issue be decided in favour of the assessee. Ld. DR did not controvert the submissions made by the Ld. AR but however supported the order of AO. 13. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to increasing the income to the extent of provision for profit equalization. We find that identical issue of increase in the contract income arose in assessee‟s own case in A.Ys.2000-01 to 2002-03 and th....
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.... the assessee by following the decision of the Pune Bench of the Tribunal on a similar issue in the case of Thermax Babcock & Wilcox Ltd. vs. DCIT vide ITA Nos.157 & 158/PN/1995 dated 11.05.2001 for assessment years 1990- 91& 1991-92. The Tribunal in its order dated 03.09.2014 (supra) noted that in the case of Thermax Babcock & Wilcox Ltd. (supra) which was a group company of the assessee, the Tribunal upheld the allowability of provision for profit equalization while recognizing incomes on application of percentage of completion method in the case of long term contracts in the light of the AS-7 issued by the ICAI. In view of the decision of the Tribunal in the assessee‟s own case in the preceding assessment year, we do not deal with the issue any further except directing the Assessing Officer to implement the order of the Tribunal dated 03.09.2014 (supra) on this Ground too. As a consequence, whereas Ground of Appeal of the assessee is allowed that of the Revenue is dismissed." There has been no change in the facts and circumstances in the present year, nor there is any change in the accounting treatment given by the assessee. We do not find any reason to deviate fr....
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....e case of reimbursement, there is no profit element. Consequently, recognition income of such reimbursement is not appropriate. Therefore, the order of the CIT(A) on this issue requires to be reversed. Accordingly, assessee is entitled to get relief on this issue also. Thus, ground no.2 of the assessee is allowed and the ground no.1(a) and 1(b) of the Revenue is dismissed." No material has been placed on record by the Revenue to distinguish the facts in the present assessment year. On parity of facts, the findings given by Tribunal in assessment year 2004-05 would mutatis mutandis apply to impugned assessment year. Thus, ground No. 1(a), 1(b) and 1(c) in the appeal by Revenue are dismissed being devoid of any merits. 6. The ground No. 2 of the appeal is in respect of provision towards leave travel allowance and medical reimbursement to the employees. We find that this issue has also been considered by the Co-ordinate Bench of Tribunal while adjudicating the appeal of Revenue in the case of Thermax Limited in ITA No. 1803/PUN/2012 for the assessment year 2004-05. However, in the said appeal the issue was confined to the reimbursement of medical expenditure to the employees.....
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....ubmitted that the customer can recover the compensation in variety of ways like deduction from future payments etc. It was further submitted that the Assessee accounts for the compensation when the same is actually claimed by the customer or when it is deducted by the customer whichever is earlier. It was thus submitted that the nature of compensation was not in the nature of penalty for breach of statutory provision and that such breach was a normal incidence of trade. The submissions of the Assessee were not found acceptable to AO. AO after considering the submissions of the Assessee and after perusing the details furnished by the Assessee noted that the bad debts and liquidated damages as per the assessee are clearly not distinguishable as they are quite overlapping. He further concluded that the amount claimed as liquidated damages are short receipts from customers which have been written off as bad debts or sundry balances written off and that it was neither a case of compensation given by the Assessee nor a case of liquidated damages. He further observed that the claim as write off of bad debts also cannot be allowed as the amounts have not been written off in the bo....
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....calculation of liquidated damages is prescribed in the contract. Based on the clause of the agreement, the customer, in the event of breach of the relevant provisions of the contract, debits the amount due under the contract as liquidated damages or withholds the amount while releasing payments for monies which are otherwise legally due to the Assessee in terms of the contract. Upon such deduction/holding back by the customers, the assessee accounts for the sum and wherever required issues a credit note towards the liquidated damages. In support of his contention of the contracts having clause for liquidated damages, he pointed to the sample purchase orders placed in the paper book. He submitted that the AO‟s conclusion that the issuance of credit notes does not tantamount to effective write off is factually incorrect despite the fact that a credit note is issued whereby the party‟s account is credited with a corresponding debit to the "liquidated damages" account in the books and more so when there is no denying of the fact that there was indeed a breach of contractual conditions. He further submitted that with respect to the claims there has been an accrual o....