ACIT, CIR.-10, PUNE V. THERMAX LTD., PUNE

MA 245/PUN/2022

AI Insights

The case involves Thermax Limited, a company engaged in manufacturing boilers and heat transfer equipment, which was under scrutiny for its income recognition practices under Accounting Standard 7 (AS-7). The Assessing Officer (AO) had made an addition of Rs.6,91,00,000 to the assessee's income, which was contested and partially relieved by the CIT(A). Both the assessee and the Revenue appealed to the ITAT, which upheld the CIT(A)'s decision based on precedents set in earlier years (A.Y. 1998-99 and 1999-2000) favoring the assessee. The Revenue's subsequent Miscellaneous Applications sought to rectify this decision, arguing that the Tribunal had not addressed specific grounds raised. However, the Tribunal found these applications to be without merit, citing consistency in its previous rulings and the absence of any change in facts or circumstances.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471190 (ITAT-PUNE)
• Duration Of Justice: 8 year(s) 11 month(s) 13 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 22-11-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-11-2024
• Assessment Year: 2000-2001
• Appeal Filed On: 09-12-2015
• Other Referred Cases: Thermax Babcock & Wilcox Ltd. Vs. DCIT
• Laws Referred To: Accounting Standard 7
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: REVENUE EQUALIZATION WHILE APPLYING; ARVIND DESAI
• Assessee Lawyers: VIKSHIT BHARGAVA
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER M.A. Nos.245 and 246/PUN/2022 (Arising out of ITA Nos.1247 and 1290/PUN/2005) \u0001नधा\u0005रण वष\u0005 / Assessment Year: 2000-01 ACIT, Circle-10, Pune Vs. Thermax Limited, Thermax House, 4, Bombay-Pune Road, Shivajinagar, Pune 411 005 PAN : AAACT3910D Applicant Respondent आदेश / ORDER PER R.K. PANDA, VICE PRESIDENT : The Revenue through these Miscellaneous Applications requests the Tribunal to rectify certain mistakes that have crept in the order of the Tribunal dated 30.06.2015. 2. The ld. Departmental Representative (DR) drew the attention of the Bench to the contents of the Miscellaneous Application No.245/PUN/2022 which read as under : “OFFICE OF THE ASSTT. COMMIEEIONER OF INCOME TAX, CIR-10, PUNE IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE Miscellaneous Application No : {Arising out of I.T.A.Nos.1247/PN/2005 & 1290/PN/2005 dated 30.06.2015, for A.Y. 2000-01} Assessee by : Shri Vikshit Bhargava Revenue by : Shri Arvind Desai Date of hearing : 22.11.2024 Date of pronouncement : 22.11.2024 MA Nos. 245 and 246/PUN/2022 Thermax Limited 2 The Asstt. Commissioner of Income Tax, Cir-10, Pune.. . . . . . .Appellant Vs. Thermax Ltd, Thermax House, 4, Bombay-Pune Road, Shivajinagar, Pune - 411 005 PAN : AAACT 3910D . . . . . .Respondent Sub : Miscellaneous Application arising out of I.T.A.Nos.1247/PN/2005 & 1290/PN/2005 dated 31/08/2009 for A.Y. 2001-02 – Reg. While filing appeal, the revenue had raised following ground of appeal which reproduced as under:- \"On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition made on account of provision created by the assessee as per AS-7 and holding that the entire amount accrued to the assessee as per invoice raised is not taxable and the taxable receipt is to be computed on the basis of project completion method\". MAY IT PLEASE YOUR HONOURS: 1. The Hon'ble ITAT, Pune, had passed an order dated 30.06.2015 in the case of appellant named above in I.T.A. Nos. 1247/PN/2005 & 1290/PN/2005 for A.Y. 2000-01 by partly allowing the appeal of the assessee and the Revenue. 2. The facts and the reasons for filing of this Miscellaneous Application are as follows : The assessee company filed its return of income for A.Y. 2000-01 on 30.11.2000 declaring total income of Rs.14,88,97,010/-. Subsequently the case was selected for compulsory scrutiny as per norms. Statutory notices were issued and served on the assessee. Assessment u/s 143(3) for AY 2000-01 was completed on 31.03.2003 determining assessed total income at Rs.16,95,40,830/- after making certain additions/ disallowances. During the course of assessment proceedings, the AO noticed that during the year under consideration, assessee created an additional provision of Rs.6,91,00,000/- for the profit equalization in terms of the Accounting Standard 7 issued by the ICAI. The AO did not accept asssessee's method of recognizing income on the project and accordingly made an addition of Rs.6,91,00,000/- to the current year and simultaneously granted relief of Rs.7,95,12,000/- for the provision disallowed for the previous year. DECISION OF THE Ld.CIT(A): 3. Being aggrieved with the A.O.'s order the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) allowed relief to the assessee to the extent of Rs.5,03,83,000/- and confirmed addition to the extent of Rs.1,80,70,300/-. The Ld. CIT(A) relied on his own decision in assessee's own case for AY 1999-2000 on identical issue wherein the main reason adduced by the Ld. CIT(A) for allowing relief was that the practices followed by the assessee of not recognizing revenue for contracts having value up to Rs.20,00,000/- by applying the 'project completion method' was also not MA Nos. 245 and 246/PUN/2022 Thermax Limited 3 justified and that such projects also be subject to revenue recognition by applying the 'percentage completion method' generally adopted by the assessee. Further, for allowing the relief to the assessee, the Ld. CIT(A) relied on the decision of Pune, ITAT in the case of Subsidiary company Thermax Babcock & Wilcox Ltd., wherein the methodology for revenue equalization while applying the percentage of completion method has been accepted. DECISION OF THE HON'BLE ITAT: 4. Being aggrieved with the Ld.CIT(A)'s order, the Assessee as well as Revenue have both filed second appeal /cross appeal before the Hon'ble ITAT. The Hon'ble ITAT held that in A.Yrs. 1998-99 and 1999-2000, the Tribunal vide its order dated 30.06.2015 in the assessee's own case has upheld the stand of the assessee by following the decision of the Pune Bench of the Tribnual on a similar issue in the case of Thermax Babcock & Wilcox Ltd. Vs. DCIT in ITA Nos. 157, 158/PN/95 vide order dated 11.05.2001 for A.Yrs. 1990-91 and 1991-92, wherein the Tribunal has held that the provision for profit equalization to recognize proportionate revenue on percentage completion basis in case of long term contracts in accordance with the well recognized method of accounting recommended in Accounting Standard 7 issued by the ICAI is fully deductible. Following the same reasoning, the Hon'ble ITAT decided the issue in favour of the assessee. Pr. CIT-5, Pune's comments :- 5. As regards issue of allowing relief of Rs.5,03,83,000/- by Hon'ble ITAT despite the fact specific ground was raised, the Hon'ble ITAT did not comment on it. In the present appeal, the Hon'ble Tribunal merely relying on its own decision in the assessee's case of the preceding assessment year, decided the issue. Since, the Hon'ble Tribunal has not commented upon the ground raised by the Revenue, a Miscellaneous Application was recommended in A.Y. 1998- 99. As there is no change in the facts and circumstances, a miscellaneous application to Hon'ble ITAT may be filed this year also. 6. In view of the above, it is prayed that the order dated 30/06/2015 of the Hon'ble ITAT, Bench \"A\" Pune in ITA Nos. 1247/PN/2005 & 1290/PN/2005, may kindly be recalled and the appeal of the revenue may be decided taking into consideration the facts as mentioned in Para 5 above. 7. The application is submitted in triplicate. A copy of the order sought to be rectified is also enclosed.” 3. He submitted that identical application has been filed by the Revenue in M.A.No.246/PUN/2022 also. It was pointed out by the ld. DR that since Cross Appeals were filed by the assessee as well as the Revenue for the A.Y. 2000-01 and both have challenged the part relief granted by ld.CIT(A), therefore, the Revenue has filed two Miscellaneous Applications raising same contention. He submitted that since the contents of the Miscellaneous Applications are self- MA Nos. 245 and 246/PUN/2022 Thermax Limited 4 explanatory, therefore, the Tribunal should pass appropriate order by rectifying the same or recall the order for adjudication of the issue afresh. 4. The Ld. Counsel for the assessee on the other hand strongly objected to the Miscellaneous Application filed by the Revenue. Referring to Para 5 of the Miscellaneous Application, he submitted that no such Miscellaneous Application has been filed by the Revenue for A.Y. 1998-99. Despite repeated opportunities granted by the Tribunal, the Revenue is yet to provide a copy of the Miscellaneous Application filed, if any. He submitted that since the Tribunal while passing the order has followed the order of the Tribunal in assessee’s own case for A.Y. 1998-99, therefore, the Miscellaneous Applications filed by the Revenue being devoid of any merit should be dismissed. 5. We have heard the rival arguments made by both the sides and perused the record. We find the Tribunal at para 6 and 6.1 of the order has crystallised the grounds raised by the assessee as well as the Revenue in the cross appeals. At para No.4, the Tribunal has recorded the submission of the ld. Counsel for the assessee that majority of the issues raised in the appeals by the assessee as well as the Revenue are decided by the Tribunal in assessee’s own case in A.Y. 1998-99 vide ITA No.1245/PUN/2005 and 1245/PUN/2005 order dated 15.12.2014. We find the Ground of appeal No.1 by the Revenue and Ground of appeal No.3 by the assessee relates to the disallowance of Provision for Profit Equalilsation in terms of AS-7. We find the Tribunal at Para Nos. 9 and 9.1 has decided the issue by observing as under : “9. The third ground raised by the assessee in appeal relates to income recognition from contract in accordance with Accounting Standard 7 of the Institute of Chartered Accountants of India (ICAI). The Revenue in cross appeal for assessment year 2000-01 has also raised this issue as ground No.1. The assessee is manufacturing boilers and heat transfer equipments on contract basis. These contracts are spread over a period of more than one year. The assessee is recognizing income of the projects, on project completion method. The assessee raises invoice on the client as per schedule of payments. The bills MA Nos. 245 and 246/PUN/2022 Thermax Limited 5 raised are always more than the revenue that should be recognized on the basis of project completion method. The adjustment is required to be made to adjust excess billing. The adjustment is made in accordance with AS 7 by creating a provision 'Contribution Equalization Provision'. The Assessing Officer rejected this method of making adjustment by the assessee. In the first appeal, the Commissioner of Income Tax (Appeals) partly accepted the claim of the assessee. Against the finding of theCommissioner of Income Tax (Appeals), both, the assessee and the Revenue have come in appeal. 9.1 We observe that similar issue had come up in the appeal of the assessee and the Revenue for assessment years 1998-99 and 1999- 2000. The Co- ordinate Bench decided the issue in favour of the assessee. The relevant extract of the order of the Tribunal reads as under:- “22. On this aspect, it was a common ground between the parties that in assessment year 1997-98, the Tribunal vide its order dated 03.09.2014 supra) in the assessee's own case has upheld the stand of 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 from the view taken by the Co-ordinate Bench in assessment years 1998-99 and 1999-2000. Accordingly, this ground in the appeal of the assessee is accepted and the ground raised by the Revenue in its appeal is dismissed.” 6. Therefore, the contention of the Revenue in the Miscellaneous Application that the Tribunal has not commented upon the specific ground raised by the assessee/Revenue is erroneous and unfounded. Since the Tribunal has decided the issue by following the order of the Tribunal in assessee’s own case for A.Y. 1998-99 and nothing was brought on record before us that Revenue has filed a Miscellaneous Application against the order of the Tribunal for A.Y. 1998-99 or any contrary view has been taken thereafter either by the Tribunal in assessee’s own case or that the same has been reversed by the Hon’ble MA Nos. 245 and 246/PUN/2022 Thermax Limited 6 High Court, therefore, we do not find any merit in the Miscellaneous Applications filed by the Revenue. Accordingly, both the Miscellaneous Applications filed by the Revenue are dismissed. 7. In the result, both the Miscellaneous Applications filed by the Revenue are dismissed. Pronounced on 22.11.2024. Sd/- Sd/- (ASTHA CHANDRA) (R.K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे / Pune; \u0001दनांक / Dated : 22nd November, 2024 Satish आदेश क\u0002 \u0003ितिलिप अ\tेिषत / Copy of the Order forwarded to : 1. अपीलाथ\f / The Appellant. 2. \r\u000eयथ\f / The Respondent. 3. The Pr. CIT concerned. 4. िवभागीय \rितिनिध, आयकर अपीलीय अिधकरण, “A” ब\u0014च, पुणे / DR, ITAT,”A” Bench, Pune. 5. गाड\u0018 फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune. "