Areva T&D India Ltd., V. ACIT, New Delhi

ITA 1213/DEL/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0767 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-02-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 18-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R MADHAVAN MD TAXATION
• Keywords: Depreciation; Question of law; Revised return; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NOS. 4330/DEL/2009 & 1213/DEL/2010 ASSESSMENT YEAR : 2006-07 AREVA T & D INDIA LIMITED, 19/1, FSSC BUILDING, PALLAVARAM WORKS, CHENNAI 600 043. [PAN:AAACG2115R] VS. THE DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE 2(I)/1(I), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. MADHAVAN, MD (TAXATION) RESPONDENT BY : SHRI SHAJI P. JACOB, ADDL. CIT DATE OF HEARING : 0 5 .0 2 .2013 DATE OF PRONOUNCEMENT : 14.02.2013 ORDER PER S.S. GODARA, JUDICIAL MEMBER THESE TWO ASSESSEES APPEALS ARISE FROM DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) V, NEW DELHI D ATED 17.08.2009 IN APPEAL NO. 183/08-09 AND DATED 01.12.2009 IN APPEAL NO. 182/08-09 RESPECTIVELY FOR THE ASSESSMENT YEAR 2006-07; IN PR OCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 [IN SHORT THE AC T]. I.T.A. NO. 4330/DEL/2009 2. IN THIS APPEAL, THE ASSESSEE RAISED FOLLOWING G ROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX HAS ERR ED IN LAW & ON FACTS & CIRCUMSTANCES OF THE CASE IN DISALLOWING DE PRECIATION ON I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 2 GOODWILL THAT WAS ACQUIRED & PAID FOR AS A PART OF TOTAL PURCHASE OF BUSINESS FROM ALSTOM PROJECTS. 2. THE LEARNED OFFICER HAS ERRED IN NOT ACCEPTING THE SUBMISSIONS OF THE APPELLANT THAT THE GOODWILL WAS ACQUIRED BY WAY OF MAKING PAYMENT OVER AND ABOVE THE NET ASSET VALUE & THAT T HE GOODWILL WAS INTRINSICALLY LINKED WITH TRANSFER OF BUSINESS OPERATIONS. 3. THE LEARNED OFFICER HAS ERRED IN NOT APPRECIATI NG THAT THE APPELLANT HAD IN FACT PAID A SUM OF RS. 16,58,76,00 0 TOWARDS GOODWILL WHICH REPRESENTED THE EXCESS OF NET ASSET VALUE OF THE SELLER COMPANY. AS PART OF SLUMP SALE AGREEMENT, TH E APPELLANT HAD PAID A TOTAL SUM OF RS. 44.7 CRORES AS PURCHASE CONSIDERATION SPLIT BETWEEN NAV OF RS. 28.11 CRORES AND BALANCE OF RS.16.59 CRORES TOWARDS GOODWILL. 4. THE LEARNED OFFICER HAS ERRED IN IGNORING THE S UBMISSIONS OF THE APPELLANT THAT AS PART OF BUSINESS TRANSFER THERE W ERE CERTAIN OTHER INTANGIBLE ASSETS THAT WERE ACQUIRED VIZ., KN OWHOW, EMPLOYEES, BUSINESS INFORMATION, BUSINESS RECORDS E TC. 5. THE APPELLANT CRAVES LEAVE TO ADD, WITHDRAW, AM END OR FOREGO ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL DURING TH E APPELLATE PROCEEDINGS. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, FORMERLY KNOWN AS AREVA T & D SYSTEMS INDIA LTD MERGED WITH AREVA T & D IND IA LIMITED, HAD FILED ITS RETURN OF INCOME ON 27.11.2006 DISCLOSING LOSS OF ` .97,06,238/-. ON 31.03.2008, IT REVISED ITS RETURN. THIS TIME, LOS S AMOUNT DECLARED WAS ` .1,05,41,362/-. PER ASSESSEE, THE REVISION OF RETU RN WAS ATTRIBUTED TO MERGER OF THE EARLIER COMPANY WITH THE PRESENT ASSE SSEE WITH EFFECT FROM 01.01.2006 AS APPROVED BY THE HONBLE DELHI HIGH CO URT VIDE ORDER DATED 14.08.2007. THE FINANCIAL YEAR IN QUESTION WAS ALSO RESTRICTED TO APRIL, 2005 TO DECEMBER, 2005. ON 31.03.2008, ASSESSEES RETURN WAS PROCESSED UNDER I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 3 SECTION 143(1) OF THE ACT. 4. IN SCRUTINY PROCEEDINGS, THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE HAD RAISED A CLAIM OF DEPRECIATION OF ` .3,11,01,728/- @ 25% ON GOODWILL. PER ASSESSEE, THE SAID PAYMENT HAD BEEN MADE AS EXCESS OF NET VALUE OF THE SELLER ENTITY AND ACCOUNTED IT AS GOO DWILL. IN THE ASSESSMENT ORDER DATED 31.12.2008, THE ASSESSING OFFICER DECLI NED THE SAME ON THE BASIS OF THE ASSESSMENT ORDER PERTAINING TO THE PRE CEDING ASSESSMENT YEAR 2005-06, WHEREIN, IT WAS HELD THAT THE GOODWILL IN QUESTION WAS NOT INCLUDED IN THE LIST OF ASSETS SUBJECT MATTER OF THE AGREEME NT. THE ASSESSING OFFICER HAD ALSO HELD IN THE ASSESSMENT ORDER THAT THE ASSE SSEE HAD FAILED TO PROVE THAT THE GOODWILL WAS RELATED TO ITS BUSINESS OR CO MMERCIAL RIGHT IN THE NATURE OF KNOW-HOW, PATENT, COPY RIGHT, TRADE MARK, ETC. IN ASSESSEES APPEAL BEFORE THE CIT(A) AS WELL, THE DISALLOWANCE ABOVE S AID HAS BEEN CONFIRMED. THEREFORE THE ASSESSEE IS IN APPEAL. 5. BY REITERATING THE PLEADINGS MADE IN THE GROUND S ABOVE SAID, THE AR REPRESENTING THE ASSESSEE HAS SUBMITTED THAT THE IS SUE IN HAND IS NO MORE RES INTEGRA, AS THE HONBLE DELHI HIGH COURT HAS AC CEPTED THE RELIEF SOUGHT BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEAR WH ICH WAS DISALLOWED UPTO THE TRIBUNAL. IN SUPPORT OF THE CONTENTIONS, HE HAS PRODUCED ON RECORD COPY OF THE JUDGMENT DATED 30.03.2012 IN ITA NO. 31 5/2010 TITLED AS AREVA T & D INDIA LTD. V. DCIT AND PRAYED FOR ACCEPTANCE OF THE APPEAL. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 4 6. PER CONTRA, THE DR AT THE BEHEST OF THE REVENUE STRONGLY SUPPORT CIT(A)S ORDER AND PRAYED FOR CONFIRMATION OF THE S AME. 7. WE HAVE CONSIDERED THE ISSUE AT LENGTH AND ALSO PERUSED ASSESSMENT ORDER, CIT(A)S ORDER AS WELL AS CASE LAW CITED BY THE ASSESSEE. UNDISPUTEDLY EVEN AS PER REVENUE, THE SAME VERY ISS UE OF DEPRECIATION ON GOODWILL IN QUESTION HAD ARISEN IN THE PRECEDING AS SESSMENT YEAR, WHEREIN THE ASSESSEES SIMILAR CLAIM WAS DECLINED UPTO THE TRIBUNAL. THEREAFTER, IN ASSESSEES APPEAL, THE HONBLE DELHI HIGH COURT HAS ACCEPTED ITS PLEA AS UNDER: 13. IN THE PRESENT CASE, APPLYING THE PRINCIPLE O F EJUSDEM GENERIS, WHICH PROVIDES THAT WHERE THERE ARE GENERAL WORDS F OLLOWING PARTICULAR AND SPECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHALL BE CONFINED TO THINGS OF THE SAME KIND, AS SPECIFIED FOR INTERPRET ING THE EXPRESSION 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' S PECIFIED IN SECTION 32(1)(II) OF THE ACT, IT IS SEEN THAT SUCH RIGHTS N EED NOT ANSWER THE DESCRIPTION OF 'KNOWHOW, PATENTS, TRADEMARKS, LICEN SES OR FRANCHISES' BUT MUST BE OF SIMILAR NATURE AS THE SPECIFIED ASSE TS. ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANGIBLE AS SETS REFERRED IN SECTION 32(1)(II) OF THE ACT PRECEDING THE TERM 'BU SINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE', IT IS SEEN THAT THE AFOR ESAID INTANGIBLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT F ROM ONE ANOTHER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' HAVE BEEN ADDI TIONALLY USED, CLEARLY DEMONSTRATES THAT THE LEGISLATURE DID NOT I NTEND TO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBL E ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE N EITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMST ANCES, THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRICTE D TO ONLY THE AFORESAID SIX CATEGORIES OF ASSETS, VIZ., KNOWHOW, PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES OR FRANCHISES. THE NATURE OF ' BUSINESS OR COMMERCIAL RIGHTS' CAN BE OF THE SAME GENUS IN WHIC H ALL THE AFORESAID SIX ASSETS FALL. ALL THE ABOVE FALL IN THE GENUS OF INTANGIBLE ASSETS THAT FORM PART OF THE TOOL OF TRADE OF AN ASSESSEE FACIL ITATING SMOOTH CARRYING I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 5 ON OF THE BUSINESS. IN THE CIRCUMSTANCES, IT IS OBS ERVED THAT IN CASE OF THE ASSESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS; BUSINESS INFORMATION; BUSINESS RECORDS; CONTRACTS; EMPLOYEES; AND KNOWHOW , ARE ALL ASSETS, WHICH ARE INVALUABLE AND RESULT IN CARRYING ON THE TRANSMISSION AND DISTRIBUTION BUSINESS BY THE ASSESSEE, WHICH WAS HI THERTO BEING CARRIED OUT BY THE TRANSFEROR, WITHOUT ANY INTERRUPTION. TH E AFORESAID INTANGIBLE ASSETS ARE, THEREFORE, COMPARABLE TO A LICENSE TO C ARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANS FEROR. IN THE ABSENCE OF THE AFORESAID INTANGIBLE ASSETS, THE ASSESSEE WO ULD HAVE HAD TO COMMENCE BUSINESS FROM SCRATCH AND GO THROUGH THE G ESTATION PERIOD WHEREAS BY ACQUIRING THE AFORESAID BUSINESS RIGHTS ALONG WITH THE TANGIBLE ASSETS, THE ASSESSEE GOT AN UP AND RUNNING BUSINESS. THIS VIEW IS FORTIFIED BY THE RATIO OF THE DECISION OF THE SU PREME COURT IN TECHNO SHARES AND STOCKS LTD. (SUPRA) WHEREIN IT WAS HELD THAT INTANGIBLE ASSETS OWNED BY THE ASSESSEE AND USED FOR THE BUSINESS PUR POSE WHICH ENABLES THE ASSESSEE TO ACCESS THE MARKET AND HAS AN ECONOM IC AND MONEY VALUE IS A 'LICENSE' OR 'AKIN TO A LICENSE' WHICH IS ONE OF THE ITEMS FALLING IN SECTION 32(1)(II) OF THE ACT. 14. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SA LE AGREEMENT WERE IN THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIM ILAR NATURE' SPECIFIED IN SECTION 32(1)(II) OF THE ACT AND WERE ACCORDINGL Y ELIGIBLE FOR DEPRECIATION UNDER THAT SECTION. 15. IN VIEW OF THE ABOVE, IT IS NOT NECESSARY TO DECIDE THE ALTERNATIVE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT GOOD WILL PER SE IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1 )(II) OF THE ACT IN THE CIRCUMSTANCES, THE SUBSTANTIAL QUESTION OF LAW IS D ECIDED IN THE AFFIRMATIVE AND THIS APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND THE IMPUGNED ORDER IS SET A SIDE. TAKING CUE FROM THE SAME AND MORE SO, IN THE ABSEN CE OF ANY DISTINGUISHING FEATURES POINTED OUT BY THE REVENUE, WE ARE OF THE VIEW THAT THE ASSESSEES CLAIM OF DEPRECIATION RAISED IN THE ASSESSMENT, WHICH WAS DECLINED BY THE ASSESSING OFFICER AS WELL AS CIT(A) , DESERVES TO BE ACCEPTED. THEREFORE, WE ALLOW ASSESSEES APPEAL AND DELETE THE DISALLOWANCE IN QUESTION. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 6 I.T.A. NO. 1213/MDS/2010 8. IN THIS APPEAL, THE GRIEVANCE OF THE ASSESSEE H AS BEEN PLEADED AS HEREIN BELOW: 1. THE LEARNED COMMISSIONER HAS ERRED IN DISALLOW ING THE PROVISION FOR LIQUIDATED DAMAGES AMOUNTING TO RS. 18,92,000/- . 2. THE LEARNED OFFICER HAS ERRED IN NOT FOLLOWING HIS OWN ORDER OF THE IMMEDIATELY PRECEDING YEAR, WHERE HE HAS ALLOWED TH IS CLAIM IN FULL AFTER GIVING DETAILED REASONS FOR DOING SO. 3. THE LEARNED OFFICER HAS ERRED IN DISALLOWING 50 % OF THE SUM OF RS. 75,34,297 REPRESENTING THE SHARE OF EXPENSES PO OLED AND SHARED BY ALL AREVA UNITS TOWARDS INFORMATION TECHN OLOGY & MARKETING SUPPORT ACTIVITIES. 4. THE LEARNED OFFICER HAS ERRED IN WRITING UNRELA TED FACTS WHILE DISALLOWING THE SHARE OF COMMON EXPENSES. HE HAS NO T BEEN CONSISTENT IN HIS DECISION ON THIS MATTER, AS HE HA S BEEN ALLOWING THIS EXPENSE IN THE EARLIER YEARS. 5. THE APPELLANT CRAVES LEAVE TO ADD, WITHDRAW, AM END OR FOREGO ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL DURING TH E APPELLATE PROCEEDINGS. 9. COMMON FACTS APROPOS ARE THAT THE ASSESSEE; FOR MERLY KNOWN AS AREVA T & D INSTRUMENT TRANSFORMERS INDIA PRIVATE L IMITED IS NOW KNOWN AS AREVA T & D INDIA LIMITED, BECAUSE OF A MERGER APPR OVED BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 14.08.2007 WITH E FFECT FROM 01.01.2006. IT HAD FILED ITS RETURN OF INCOME ON 27.11.2006 DECL ARING INCOME OF ` .5,73,39,048/- FOLLOWED BY A REVISED RETURN DATED 31.03.2008 OWING TO THE ABOVE MERGER. THIS TIME, THE INCOME DECLARED WAS ` 52,46,325/-. THE SAME WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 7 10. AS IT IS REVEALED FROM THE ASSESSMENT ORDER, I N SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT AN AMOUNT OF ` .19,38,000/- HAD BEEN CLAIMED IN THE SHAPE OF PROVISION FOR LIQUIDATED DA MAGES PERTAINING TO WARRANTY. IN SUPPORT THEREOF, THE ASSESSEE PLEADED THAT SINCE MOST OF ITS SALE CONTRACTS PROVIDED WARRANTY RANGING FROM 18 MO NTHS TO 24 MONTHS ON THE BASIS OF SCIENTIFIC WORKING; IT WAS ENTITLED FO R THE RELIEF. IN THE ASSESSMENT ORDER DATED 31.12.2008, THE ASSESSING OFFICER DECLI NED TO ACCEPT ASSESSEES EXPLANATION AND HELD THAT IN THE PAST, THE AMOUNT U SED TO BE ADDED BACK, WHICH PROVED THAT IT WAS ONLY AN APPROXIMATION INST EAD OF AN ASCERTAINED LIABILITY. ON THIS PRINCIPLE, HE PLACED RELIANCE ON THE ASSESSMENT FINALIZED FOR THE ASSESSMENT YEAR 2005-06 AND GRANTED RELIEF IN P ART TO THE ASSESSEE TO THE EXTENT OF ` .46,000/- RELATING TO AMOUNT UTILIZED OUT OF EARLIE R YEARS PROVISION AND MADE ADDITION OF BALANCE AMOUNT OF ` .18,92,000/- IN ASSESSEES TOTAL TAXABLE INCOME. SIMILARLY, THE ASSESSEE HAD ALSO CLAIMED A SUM OF ` .75,34,297/- [ ` .63,84,547/- AS ISSCO EXPENSES AND ` .11,49,750/- AS COUNTRY NETWORK EXPENSES]. ON THE BASIS OF ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005- 06, THE ASSESSING OFFICER TERMED THE EXPENSES CLAIM ED AS EXCESSIVE AND UNREASONABLE. ACCORDINGLY, HE RESTRICTED THE CLAIM TO ` .37,67,149/- @ 50% OF THE CLAIM MADE AND ADDED REST OF THE AMOUNT IN A SSESSEES TOTAL INCOME. 11. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPE AL. WE FIND THAT THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 8 CIT(A) HAS UPHELD ASSESSING OFFICERS FINDING QUA W ARRANTY PROVISION BY OBSERVING AS UNDER: 5.13 I HAVE REPRODUCED THE WRITTEN SUBMISSION OF THE ASSESSEE WHICH IS BRIEF AND PRCISED AND CAN BE UNDERSTOOD CLEARLY. T HE AR OF THE ASSESSEE HAS RELIED ON THE RECENT DECISION OF THE SUPREME CO URT IN THE CASE OF ROTORKS CONTROLS INDIA (P)LTD. 314 ITR 0062(SC) WHE RE THE HON'BLE APEX COURT HAS HELD THAT IF PROVISION FOR WARRANTY IS A PART OF SALES CONTRACT AND IS MAINTAINED SCIENTIFICALLY AND BASED ON PAST DATA OF SALES AND YEAR-WISE WARRANTIES CLAIMED BY THE CUSTOMERS I N A SYSTEMATIC MANNER THAN PROVISION FOR WARRANTY WILL BE ALLOWED AS ASCERTAINED LIABILITY. THE ASSESSEE IS A PART OF MULTINATIONAL COMPANY OF FRANCE ORIGIN AND HAVING A TEAM OF GOOD HRD ENGINEERS IN M ANAGING THE PRODUCTION, SALES OF TRANSMISSION EQUIPMENTS OF ELE CTRICAL ENGINEERING, CONSISTING OF HIGH VOLTAGE POWER TRANSMISSION EQUIP MENTS. THEREFORE, THE PROVISION FOR WARRANTY CLAIMED BY THE ASSESSEE IN I TS REVISED RETURN IS ALLOWED AFTER THE DECISION OF THE APEX COURT IN THE ABOVE CITED CASE OF M/S ROTORKS CONTROLS INDIA (P)LTD. 5.14 THE ASSESSEE'S AR ALSO CLAIMED THE PROVISION FOR LIQUIDATED DAMAGES IN THE SIMILAR MANNER AS PROVISION FOR WARR ANTY ON THE GROUND THAT LIQUIDATED DAMAGES ARE CALCULATED SCIENTIFICAL LY ON THE ABOVE BASIS. AS PER THE CONTRACTUAL TERMS, IF THE EXECUTION OF A N ORDER GETS DELAYED, THE CUSTOMER IS ENTITLED TO CLAIM LIQUIDATED DAMAGE S. BASED ON DELAYS OCCURRING IN EACH DELIVERY UNDER THE CONTRACT, THE AMOUNT OF LD IS WORKED IN LINE WITH WHAT HAS BEEN AGREED IN THE CON TRACT. THOUGH, THE AR CLAIMS THIS PROVISION TO BE ALLOWED IN LINE WITH PROVISION FOR WARRANTY, I AM NOT IN AGREEMENT WITH HER BECAUSE TH E TWO PROVISIONS ARE ON DIFFERENT FOOTINGS. THE ASSESSEE CAN CLAIM ACTUA L AMOUNT OF EXPENDITURE INCURRED IN MEETING THE EXTRA EXPENSES ON LIQUIDATED DAMAGES LIKE EXECUTION OF CONTRACTS GETTING DELAYED DUE TO TRANSPORT PROBLEM AND ANY OTHER MANNER INTERLINKED WITH OTHER COMPANIES IN THE EXECUTION OF THE PROJECT. THEREFORE, PROVISION FOR LIQUIDATED DAMAGES IS TREATED AS UNASCERTAINED LIABILITY WHICH IS NOT TO BE ALLOWED UNDER NORMAL PROVISION U/S 37(1) OF THE I.T. ACT. HOWEVER , THE AO, IS DIRECTED TO ALLOW THE CLAIM OF ANY LIQUIDATED DAMAGES INCURR ED BY THE ASSESSEE DURING THE YEAR IN ADDITION TO OTHER EXPENSES INCUR RED IN COURSE OF BUSINESS. THEREFORE, THE ADDITION MADE BY THE AO OF RS.18,92,000/- ON ACCOUNT OF PROVISION FOR LIQUIDATED DAMAGES IS SUST AINED. WHEREAS, ON THE ISSCO AND COUNTRY NET WORK EXPENSES (SUPRA), THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 9 CIT(A)S FINDING READS AS UNDER: 6.1 THE AO HAS SAID THAT THE EXPENDITURE WAS EXCES SIVE AND UNREASONABLE ESPECIALLY WHEN IT IS PAID TO SISTER C ONCERN. THE AO SHOULD HAVE ENQUIRED THE FULL FACTS ABOUT TO WHOM THE AMOU NT HAS BEEN PAID AND WHY IT SHOULD BE ALLOWED IN NORMAL COURSE WHEN IT I S CAPITAL EXPENDITURE. THE EXPENDITURE INCURRED BY THE ASSESSEE FOR INSTAL LING HARDWARE AND SERVERS AND RELATED EQUIPMENTS IN THE NAME OF NETWO RKING IS NOTHING BUT PURCHASE OF PLANT & MACHINERY WHICH CAN BE TREATED AS CAPITAL EXPENDITURE OF THE COMPANY. THEREFORE, THE ASSESSEE IS ENTITLED TO DEPRECIATION ON SUCH INSTALLATION OF HARDWARE IN IT S BUSINESS PREMISES IN ALL CITIES WHERE ITS BUSINESS OFFICES ARE OPERATING . THE AO IS THEREFORE DIRECTED TO ALLOW DEPRECIATION AS PER LAW AFTER GET TING THE DETAILS OF PLANT & MACHINERY/ CONTROL PANELS, COMPUTERS, SERVERS AND OTHER MATERIALS INSTALLED IN THE PROCESS. THEREFORE, I DISALLOW THE WHOLE EXPENDITURE CLAIMED BY THE ASSESSEE OF RS.75,34,297/-(RS.63,84, 547 + 11,49,750/-) AS CAPITAL EXPENDITURE. THE AO IS DIRECTED TO VERIF Y THE ABOVE EXPENDITURE OF THE ASSESSEE AND ALLOW EXPENDITURE A S PER LAW ACCORDINGLY.' IN THIS MANNER, THE ASSESSEE IS AGGRIEVED AND IT IS IN APPEAL. 12. IN THE COURSE OF HEARING, THE ASSESSEE HAS VEH EMENTLY ARGUED THAT THE CIT(A) HAS WRONGLY UPHELD THE FINDINGS OF THE A SSESSING OFFICER QUA THE WARRANTY PROVISION AS WELL AS EXPENSES CLAIMED. THE REFORE, BY DRAWING OUR ATTENTION TO THE FINDINGS ABOVE SAID, IT PRAYS FOR ACCEPTANCE OF APPEAL. 13. OPPOSING THIS, THE REVENUE HAS SUBMITTED THAT THE CIT(A) HAS RIGHTLY CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. 14. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIVAL CONTENTIONS RAISED BY THE PARTIES AND ALSO GONE THROUGH THE ORD ERS OF LOWER AUTHORITIES. COMING TO DISALLOWANCE OF WARRANTY PROVISION ABOVE SAID, WE FIND THAT I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 10 REASONING ADOPTED BY THE ASSESSING OFFICER AS WELL AS CIT(A) IS THAT THE ASSESSEE HAS ONLY FOLLOWED APPROXIMATION METHOD INS TEAD OF TAKING INTO CONSIDERATION THE LIQUIDATED DAMAGES AS CLAIMED BY THE CONCERNED PARTIES. IN APPEAL, THE CIT(A) ALSO HOLDS THAT ONLY LIQUIDAT ED DAMAGES AND ACTUAL EXPENSES INCURRED BY THE ASSESSEE ARE ALLOWABLE. ON A QUERY BEING PUT UP IN THE COURSE OF HEARING, THE AR INFORMS THAT THERE IS NO RECORD MAINTAINED BY THE ASSESSEE RELATING TO THE PURCHASERS WHO HAVE RAISED THEIR RESPECTIVE CLAIMS IN FURTHERANCE TO THE WARRANTY PROVISION IN QUESTION. THIS LEAVES US WITH AN INFERENCE THAT THE ASSESSEE IS NOT FOLLOWIN G ANY SCIENTIFIC COMPUTATION METHOD IN ORDER TO SUPPORT THE CLAIM OF WARRANTY PROVISION. ACCORDINGLY, WE HOLD THAT IN THE ABSENCE OF ANY REC ORD MAINTAINED ON THE CLAIM RAISED BY THE ASSESSEE, THE CIT(A) HAS RIGHTL Y HELD THAT THE LIABILITY IN QUESTION IS AN UNASCERTAINED ONE AND NOT ALLOWABLE. CONSEQUENTLY, QUA THIS GROUND OF THE ASSESSEE, WE CONFIRM THE FINDINGS OF THE CIT(A). 15. SO FAR AS THE NEXT PLEA OF THE ASSESSEE REGARD ING ISSCO AND COUNTRY NETWORK EXPENDITURE IS CONCERNED, WE NOTICE FROM THE CIT(A)S ORDER THAT ON THE ONE HAND HE IS DIRECTING THE ASSESSING OFFICER TO VERIFY AND ALLOW THE EXPENDITURE AND ON THE OTHER HAND, HE HAD DISAL LOWED THE ENTIRE EXPENDITURE OF ` .75,34,297/- CLAIMED BY THE ASSESSEE UNMINDFUL OF T HE FACT THAT THE ASSESSING OFFICER HIMSELF HAD ACCEPTED THE SAME @ 50% (SUPRA). THEREFORE, IN OUR OPINION, THE FINDINGS OF THE CIT( A) IN THIS REGARD ARE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.4330 4330 4330 4330/ // /D DD D/ // /09 & 09 & 09 & 09 & I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 I.T.A. NO. 1213/D/10 11 MUTUALLY CONTRADICTORY. HENCE, WE DELETE THE OPERAT IVE PARA OF THE CIT(A) ORDER THEREFORE, I DISALLOW THE WHOLE EXPENDITURE CLAIMED BY THE ASSESSEE OF RS.75,34,297/-(RS.63,84,547 + 11,49,750/-) AS CAPIT AL EXPENDITURE AND DIRECT THE ASSESSING OFFICER TO PASS A FRESH ORDER AFTER DUE V ERIFICATION OF THE CLAIM RAISED BY THE ASSESSEE IN ACCORDANCE WITH LAW BY AF FORDING ADEQUATE OPPORTUNITY OF HEARING. ACCORDINGLY, THIS GROUND IS PARTLY ACCEPTED FOR STATISTICAL PURPOSE. 16. AS SEQUEL TO OUR ABOVE DISCUSSIONS, I.T.A. NO. 4330/DEL/2009 IS ALLOWED, WHEREAS, I.T.A. NO. 1213/DEL/2010 IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 14 TH OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 14.02.2013 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.