Thermax Ltd., Pune V. ACIT,Spl. Range-3, Pune

ITA 1246/PUN/2005

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85276 (ITAT-PUNE)
• Duration Of Justice: 9 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-10-2013
• Assessment Year: 1999-2000
• Appeal Filed On: 17-05-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS M S VERMA
• Assessee Lawyers: H P MAHAJANI
• Keywords: Depreciation; Opportunity of being heard; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 80HHC; 37(1); 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1245/PN/2005 (ASSESSMENT YEAR : 1998-99) THERMAX LIMITED, THERMAX HOUSE, 4, BOMBAY PUNE ROAD, SHIVAJINAGAR, PUNE 411 005. PAN : AAACT3910D . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX, SPECIAL RANGE 3, PUNE. . RESPONDENT ITA NO.1288/PN/2005 (ASSESSMENT YEAR : 1998-99) ADDL. COMMISSIONER OF INCOME TAX, SPECIAL RANGE 8, PUNE. . APPELLANT VS. THERMAX LIMITED, 4, MUMBAI PUNE ROAD, WAKDEWADI, PUNE 411 005. PAN : AACT3910D . RESPONDENT ITA NO.1246/PN/2005 (ASSESSMENT YEAR : 1999-2000) THERMAX LIMITED, THERMAX HOUSE, 4, BOMBAY PUNE ROAD, SHIVAJINAGAR, PUNE 411 005. PAN : AAACT3910D . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE. . RESPONDENT ITA NO.1289/PN/2005 (ASSESSMENT YEAR : 1999-2000) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE. . APPELLANT VS. THERMAX LIMITED, 4, MUMBAI PUNE ROAD, WAKDEWADI, PUNE 411 005. PAN : AACT3910D . RESPONDENT ITA NO.2527/PN/2012 ASSESSEE BY : MR. H. P. MAHAJANI DEPARTMENT BY : MRS. M. S. VERMA, CIT DATE OF HEARING : 24-11-2014 DATE OF PRONOUNCEMENT : 15-12-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED CROSS-APPEALS BY ASSESSEE AND REVENUE ARE DIRECTED AGAINST TWO DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATED 17.02.2005 WHICH, IN TURN, AROSE FROM TH E RESPECTIVE ASSESSMENT ORDERS DATED 28.02.2001 & 26.03.2002 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE A CT) PERTAINING TO THE ASSESSMENT YEARS 1998-99 & 1999-2000 RESPECTIVELY. 2. FIRST, WE TAKE-UP THE CROSS-APPEALS OF THE ASSES SEE AND REVENUE RELATING TO ASSESSMENT YEAR 1998-99 VIDE ITA NO.124 5/PN/2005 & ITA NO.1288/PN/2005 RESPECTIVELY. IN THE APPEAL OF THE ASSESSEE, THE GROUND OF APPEAL NO.1 READS AS UNDER :- 1. THE LD. CIT (APPEALS) ERRED IN NOT ACCEPTING TH E CONTENTION OF THE APPELLANT THAT IT WAS ENTITLED TO DEDUCTION U/S 37(1) FOR THE ENTIRE AMOUNT OF PROCESS KNOW-HOW FEES OF RS.7,16,58,292/- INSTEAD O F DEDUCTION, IN A STAGGERED MANNER U/S 35AB, AS ALLOWED BY THE LD. AS SESSING OFFICER. 3. IN THIS CONTEXT, RELEVANT FACTS ARE THAT IN THE COMPUTATION OF INCOME ASSESSEE CLAIMED A DEDUCTION OF RS.7,16,58,292/- ON ACCOUNT OF PROCESS KNOW-HOW FEE PAID. WHEREAS IN THE BOOKS OF ACCOUNT , ASSESSEE HAD CHARGED TO THE PROFIT & LOSS ACCOUNT ONLY A SUM OF RS.2,29, 97,486/- BEING 1/6 TH PORTION OF THE TECHNICAL KNOW-HOW FEE. IN THE COMPUTATION OF INCOME ANNEXED WITH THE RETURN OF INCOME ASSESSEE CLAIMED THAT THE ENTIRE A MOUNT SHOULD BE ALLOWED AS DEDUCTION U/S 37(1) OF THE ACT. THE ASSESSING O FFICER AS WELL AS THE CIT(A) DENIED THE ASSESSEES CLAIM FOR DEDUCTION U/S 37(1) OF THE ACT AND INSTEAD ITA NO.2527/PN/2012 DEDUCTION HAS BEEN ALLOWED IN TERMS OF SECTION 35AB OF THE ACT AS THE EXPENDITURE WAS FOR ACQUIRING THE USE OF PROCESS KN OW-HOW. THE AFORESAID STAND OF THE ASSESSING OFFICER AS WELL AS THE CIT(A ) IS IN TERMS THEIR STAND FOR THE EARLIER YEARS IN THE ASSESSEES OWN CASE. THIS ASPECT OF THE MATTER IS DISPUTED BY THE ASSESSEE BY WAY OF THE ABOVE GROUND OF APPEAL NO.1. 4. ON THIS ASPECT, ANOTHER ISSUE RELATES TO THE MAN NER IN WHICH THE ASSESSING OFFICER ALLOWED THE DEDUCTION TO THE ASSE SSEE U/S 35AB OF THE ACT. THE ASSESSING OFFICER DETERMINED THE DEDUCTION ALLO WABLE U/S 35AB OF THE ACT WITH REFERENCE TO THE AMOUNTS ACTUALLY PAID DURING THE YEAR UNDER CONSIDERATION. BEFORE THE CIT(A), IT WAS ASSERTED BY THE ASSESSEE THAT IF THE DEDUCTION U/S 35AB OF THE ACT WAS TO BE ALLOWED INS TEAD OF SECTION 37(1) OF THE ACT, THEN THE AMOUNT OF DEDUCTION U/S 35AB OF T HE ACT SHOULD BE DETERMINED NOT ONLY WITH REFERENCE TO THE AMOUNTS A CTUALLY PAID BUT ALSO WITH REFERENCE TO THE AMOUNTS PAYABLE ON ACCOUNT OF THE PROCESS KNOW-HOW FEE, ETC.. THIS ASPECT OF THE MATTER HAS BEEN DECIDED B Y THE CIT(A) IN FAVOUR OF THE ASSESSEE BY RELYING ON THE JUDGEMENTS OF THE HONBL E BOMBAY HIGH COURT IN ADDL.CIT VS. BUCKAU WOLF NEW INDIA ENGINEERING WORK S LTD., 157 ITR 751 (BOM) AND PADAMJEE PULP AND PAPER MILLS LTD. VS. CI T, 210 ITR 97 (BOM) AS ALSO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KALYANI STEELS LTD. VS. DCIT, (1997) 59 TTJ 316. AGAINST T HE AFORESAID DECISION OF THE CIT(A), REVENUE HAS PREFERRED GROUND OF APPEAL NO.1 IN ITS CROSS-APPEAL IN ITA NO.128/PN/2005, WHICH READS AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S 35AB WITH RE FERENCE TO ACCRUED LIABILITY WHEN IN FACT THE KNOW-HOW EXPENSES ARE NOT ACTUALLY PAID. 5. APART FROM THE AFORESAID, ANOTHER ISSUE RELATING TO THE DETERMINATION OF DEDUCTION U/S 35AB OF THE ACT BEFORE THE CIT(A) WAS IN RELATION TO LUMP-SUM FEE FOR KNOW-HOW PAID IN THE EARLIER YEARS. ON THI S ASPECT, ASSESSEE HAD ITA NO.2527/PN/2012 SUBMITTED BEFORE THE CIT(A) THAT IN RESPECT OF THE PROCESS KNOW-HOW FEE IN EACH OF THE PAST YEARS IT HAS BEEN CLAIMING DEDUCTI ON U/S 37(1) OF THE ACT AND THAT THE SAME STOOD REJECTED. THE ASSESSEE CONTEND ED THAT AT LEAST THE DEDUCTION U/S 35AB OF THE ACT CANNOT BE DENIED EVEN IF THE APPEAL OF THE ASSESSEE IS PENDING BEFORE THE TRIBUNAL. THE CIT(A ) CONSIDERED THE PLEA OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 35AB OF THE ACT IN RESPECT OF THE KNOW-HOW FEE WHOSE INN INGS U/S 35AB OF THE ACT HAD BEGAN IN THE PAST AND WHERE THE BALANCE ELIGIBL E PERIOD U/S 35AB OF THE ACT WAS NOT OVER. AGAINST THE AFORESAID DECISION O F THE CIT(A), REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN ITS CROSS -APPEAL :- 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW DEDUCTION OF 35A B IN RESPECT OF LUMPSUM FEE FOR KNOW-HOW PAID IN EARLIER YEARS, WHEN IN FACT TH E PRESENT APPEAL LIES FOR A.Y. 1998-99 ONLY. 2.2 THE CIT(A) OUGHT TO HAVE RESTRICTED HERSELF ON THE ISSUES RELEVANT FOR A.Y. 1998-99 ONLY AND OUGHT TO HAVE NO T CONSIDERED AND DECIDED THE ISSUES PERTAINING TO EARLIER YEAR WHICH WERE NO T SUBJECT MATTER OF APPEAL. 6. SINCE THE AFORESAID CROSS-GROUNDS IN THE APPEAL OF THE ASSESSEE AND THE REVENUE RELATE TO ASSESSEES CLAIM FOR DEDUCTIO N OF THE PROCESS KNOW-HOW FEE PAID, THEY ARE BEING TAKEN-UP TOGETHER. 7. AT THE TIME OF HEARING, THE LD. REPRESENTATIVE F OR THE ASSESSEE QUITE FAIRLY SUBMITTED THAT THE PLEA OF THE ASSESSEE FOR DEDUCTION OF EXPENDITURE INCURRED BY WAY OF PROCESS KNOW-HOW FEE U/S 37(1) O F THE ACT IS LIABLE TO BE DECIDED AGAINST THE ASSESSEE FOLLOWING THE JUDGEMEN T OF THE HONBLE SUPREME COURT IN THE CASE OF M/S DRILCOS (INDIA) PVT. LTD. VS. CIT, (2012) 348 ITR 382 (SC). THEREFORE, FOLLOWING THE RATIO OF THE JUDGEM ENT OF THE HONBLE SUPREME COURT IN THE CASE OF M/S DRILCOS (INDIA) PVT. LTD. (SUPRA), THE EXPENDITURE INCURRED BY THE ASSESSEE FOR ACQUIRING PROCESS KNOW -HOW FEE IS TO BE ALLOWED AMORTIZATION IN TERMS OF SECTION 35AB OF THE ACT. THEREFORE, IN-PRINCIPLE, THE ITA NO.2527/PN/2012 STAND OF THE REVENUE ON THIS ASPECT IS UPHELD AND T HE ASSESSEE FAILS IN ITS GROUND OF APPEAL. 8. IN SO FAR AS THE GROUND OF APPEAL NO.1 OF THE RE VENUE RELATING TO THE CIT(A)S DECISION TO ALLOW DETERMINATION OF DEDUCTI ON U/S 35AB OF THE ACT NOT ONLY WITH REFERENCE TO THE AMOUNTS ACTUALLY PAID BU T ALSO WITH REFERENCE TO THE AMOUNTS PAYABLE FOR PROCESS KNOW-HOW IS CONCERNED, THE SAME IN OUR VIEW HAS BEEN APPROPRIATELY DECIDED BY THE CIT(A). NOTA BLY, THE CIT(A) HAS NOTICED THAT ASSESSEE IS FOLLOWING THE MERCANTILE S YSTEM OF ACCOUNTING AND THE WORD PAID HAS BEEN DEFINED IN SECTION 43(2) OF TH E ACT TO INCLUDE THE INCURRENCE OF LIABILITY ALSO. IN COMING TO SUCH CO NCLUSION, THE CIT(A) HAS FOLLOWED THE JUDGEMENT OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE PADAMJEE PULP AND PAPER MILLS LTD. (SUPRA). AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE RELIED UPON THE DEC ISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF M/S AMCO POWER SYSTEMS LTD. VS. ITO VIDE ITA NO.889/BANG/2007 DATED 13.06.2009 WHEREIN THE APPLICABILITY OF THE DEFINITION OF EXPRESSION PAID CONTAINED IN SECTIO N 43(2) OF THE ACT HAS BEEN APPROVED EVEN WHILE DETERMINING THE DEDUCTION ALLOW ABLE U/S 35AB OF THE ACT ON ACCRUAL BASIS. IN THE ABSENCE OF ANY CONTRARY D ECISION BROUGHT OUT BY THE LD. DEPARTMENTAL REPRESENTATIVE BEFORE US, WE HEREB Y AFFIRM THE DIRECTION OF THE CIT(A) ON THIS ASPECT AND ACCORDINGLY REVENUE F AILS ON ITS GROUND OF APPEAL NO.1. 9. NOW, WE MAY TAKE-UP THE GROUND OF APPEAL NOS. 2. 1 & 2.2 IN THE APPEAL OF THE REVENUE WHEREIN THE CIT(A) HAS DIRECT ED THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 35AB OF THE ACT IN RESPECT O F KNOW-HOW FEE WHOSE INNINGS U/S 35AB OF THE ACT HAVE BEGAN IN THE PAST AND WHERE THE BALANCE ELIGIBLE PERIOD U/S 35AB OF THE ACT WAS NOT OVER. ITA NO.2527/PN/2012 10. IN THIS CONTEXT, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT THE ASSESSING OFFICER HAS BEEN ALLOWING DEDUCTION TO TH E ASSESSEE TO THE EXTENT OF 1/6 TH SINCE ASSESSEE ITSELF WAS DEBITING ONLY 1/6 TH OF PROCESS KNOW-HOW FEE IN THE PROFIT & LOSS ACCOUNT AND WHAT THE ASSESSING OFFICER WAS REJECTING WAS THE CLAIM OF THE ASSESSEE MADE IN THE COMPUTATION O F INCOME THAT THE FULL AMOUNT SHOULD BE ALLOWED IN THE FIRST YEAR ITSELF. IN-FACT, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SO FAR AS THE CLAIM OF DEDUCTION OF 1/6 TH COST IS CONCERNED, THE SAME WAS ALLOWED BY THE ASSESSING OF FICER IN THE RESPECTIVE YEARS. IN VIEW OF THE AFORESAID FACTUAL MATRIX, TH E DIRECTION OF THE CIT(A) IS QUITE INFRUCTUOUS AND IN-FACT WAS NOT CALLED FOR. AS A CONSEQUENCE, THE DECISION OF THE CIT(A) ON THIS ASPECT IS SET-ASIDE AS BEING INFRUCTUOUS. THUS FOR STATISTICAL PURPOSES GROUNDS OF APPEAL NO.2.1 & 2.2 OF THE REVENUE ARE TREATED AS ALLOWED. 11. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSE E READS AS UNDER :- 2. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING D ISALLOWANCE OF THE APPELLANTS CLAIM FOR PROVISION MADE IN RESPECT OF WARRANTY OBLIGATION IN THE AMOUNT OF RS.49,62,303/- BEING THE DIFFERENCE B ETWEEN THE CLOSING PROVISION OF RS.3,45,59,744/- AND THE OPENING PROVI SION OF RS.2,95,97,441/-. 12. IN THIS CONTEXT, RELEVANT FACTS ARE THAT THE AS SESSEE MADE A PROVISION OF RS.3,45,59,744/- ON ACCOUNT OF PROVISION FOR WARRAN TY WITH RESPECT TO THE PRODUCTS SOLD. CONSIDERING THE OPENING BALANCE OF PROVISION OF RS.2,95,97,441/- THE DIFFERENTIAL AMOUNT OF PROVISI ON AMOUNTING TO RS.49,62,303/- WAS DEBITED TO THE PROFIT & LOSS ACC OUNT OF THE YEAR UNDER CONSIDERATION. THE SAID PROVISION WAS MADE BY THE ASSESSEE ON ACCOUNT OF THE FACT THAT IT IS UNDER AN OBLIGATION TO PROVIDE WARRANTY FOR A PERIOD OF ONE TO TWO YEARS ON THE PRODUCTS SOLD BY IT ON ACCOUNT OF ANY MANUFACTURING DEFECT FOUND LATER. IN SUCH A SITUATION, ASSESSEE WAS OBL IGED TO REPLACE THE PRODUCT OR REPAIR THE PRODUCT FREE OF COST DURING THE PERIO D OF WARRANTY. THE ASSESSING ITA NO.2527/PN/2012 OFFICER AS WELL AS THE CIT(A) DISALLOWED THE DEDUCT ION ON THE GROUND THAT THE PROVISION FOR WARRANTY WAS ONLY A CONTINGENT LIABIL ITY. THIS STAND OF THE INCOME-TAX AUTHORITIES IS SIMILAR TO THEIR STAND IN THE ASSESSEES OWN CASE IN THE EARLIER ASSESSMENT YEARS. 13. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT IN THE PAST YEARS THE SAID ISSUE HAS BEEN DECIDED IN FAVOU R OF THE ASSESSEE. IN- PARTICULAR, A REFERENCE WAS MADE TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1997-98 VIDE ITA NO.970/PN/2001 DATED 03.09.2014 WHEREIN THE EARLIER DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 19 94-95 AND 1995-96 WAS FOLLOWED AND ISSUE WAS ALLOWED IN FAVOUR OF THE ASS ESSEE. FOLLOWING THE AFORESAID PRECEDENTS, WHICH CONTINUE TO HOLD THE FI ELD, WE DIRECT THE ASSESSING OFFICER TO GIVE EFFECT TO THE AFORESAID PRECEDENTS, AND THE ASSESSEE ACCORDINGLY SUCCEEDS ON THIS GROUND. 14. THE NEXT GROUND OF APPEAL NO.3 READS AS UNDER : - 3. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING D ISALLOWANCE OF APPELLANTS CLAIM FOR DEDUCTION OF AMORTISED AMOUNT OF PREMIUM IN RESPECT OF LEASEHOLD LAND IN THE AMOUNT OF RS.2,25,020/-. 15. IN THIS CONTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE CONCEDED THAT SIMILAR ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN THE PAST YEARS AND IN THIS CONTEXT REFERRED TO THE RECE NT ORDER OF THE TRIBUNAL DATED 03.09.2014 (SUPRA) PERTAINING TO ASSESSMENT YEAR 19 97-98. IT WAS ALSO AN ACCEPTED POSITION THAT THE ISSUE REGARDING ASSESSEE S CLAIM FOR DEDUCTION OF PROPORTIONATE PREMIUM OF LEASEHOLD LAND AMORTIZED A ND CHARGED TO THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION IS LI ABLE TO BE DECIDED IN TERMS OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN TH E CASE OF GOVIND SUGAR MILLS LTD. VS. CIT, (1998) 232 ITR 319 (SC) AGAINST THE ASSESSEE. ITA NO.2527/PN/2012 ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ON THIS ASPECT ARE UPHELD AND ASSESSEE FAILS. 16. THE NEXT GROUND OF APPEAL NO.4 RAISED BY THE AS SESSEE READS AS UNDER :- 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (APPEALS) ERRED IN CONFIRMING ADDITION OF RS.4,00,71,000/- MADE BY THE ASSESSING OFFICER TO THE INCOME OF THE APPEL LANT WHEN IN FACT HE SHOULD HAVE DELETED THE SAME. 17. IN THIS GROUND, THE PRIMARY DISPUTE RELATES TO THE MANNER OF RECOGNIZING INCOME FROM THE CONTRACT ACTIVITY UNDERTAKEN BY THE ASSESSEE. THE ASSESSEE IS A MANUFACTURER OF BOILERS AND OTHER HEAT TRANSFE R EQUIPMENT. IT TAKES-UP SUCH PROJECTS ON CONTRACT BASIS AND EXECUTION OF SU CH CONTRACTS ARE NORMALLY SPREAD OVER A PERIOD OF MORE THAN ONE YEAR. THE AS SESSEE IS ACCOUNTING FOR INCOME OF SUCH PROJECTS ON PERCENTAGE COMPLETION ME THOD IN CASES WHERE VALUE OF THE PROJECT EXCEEDS RS.20,00,000/-. THE A SSESSEE WAS RAISING INVOICES ON THE CLIENTS AS PER THE SCHEDULE OF PAYM ENTS AGREED WITH THEM. THE INCOME RECOGNITION ON SUCH PROJECT WAS, HOWEVER , DONE ON PERCENTAGE COMPLETION METHOD. IT WAS FOUND THAT THE RAISING O F BILL AS PER THE SCHEDULE OF PAYMENTS AGREED WITH THE CLIENTS WAS MORE THAN THE INCOME THAT WAS LIABLE TO BE RECOGNIZED ON THE BASIS OF THE PROJECT COMPLETIO N METHOD. THEREFORE, SUCH EXCESS AMOUNT RECEIVED AS PER THE INVOICES RAISED W AS NOT TREATED AS AN INCOME. THE ASSESSEE MADE REQUISITE ADJUSTMENTS BY CREATING A PROVISION STYLED AS CONTRIBUTION EQUALIZATION PROVISION. D URING THE YEAR UNDER CONSIDERATION, ASSESSEE CREATED AN ADDITIONAL PROVI SION OF RS.2,65,35,431/- FOR THE PROFIT EQUALIZATION IN TERMS OF THE ACCOUNTING STANDARD 7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). THIS AMOUNT REPRESENTED THE DIFFERENCE BETWEEN THE OPENING BALANCE OF THE P ROVISION OF RS.12,30,07,582/- AND THE CLOSING PROVISION OF RS.1 4,95,43,003/-. THE ITA NO.2527/PN/2012 ASSESSING OFFICER DID NOT ACCEPT ASSESSEES METHOD OF RECOGNIZING INCOME ON THE PROJECT AND ACCORDINGLY MADE AN ADDITION OF RS. 14,95,43,003/- TO THE RETURNED INCOME. THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT(A). THE CIT(A) NOTED THAT ENTIRE ISSUE RELATING TO THE INCO ME RECOGNITION ON CONTRACTS WAS A SUBJECT-MATTER OF CONSIDERATION BY THE ASSESS ING OFFICER AS WELL AS BY HIS PREDECESSOR CIT(A) IN ASSESSMENT YEAR 1997-98. IN ASSESSMENT YEAR 1997-98, THE ASSESSING OFFICER HAD DISALLOWED THE E NTIRE PROVISION AND FOLLOWING HIS STAND, HE DISALLOWED THE ENTIRE PROVI SION OF RS.14,95,43,003/- IN THE INSTANT ASSESSMENT YEAR I.E. 1998-99 ALSO. THE CIT(A) FURTHER NOTED THAT IN ASSESSMENT YEAR 1997-98 HIS PREDECESSOR HAD DIRE CTED THE ASSESSING OFFICER TO ALLOW DEDUCTION FOR SO MUCH OF THE PROVI SION AS WAS REPRESENTED BY THE UNREALIZED DEBTORS AT THE YEAR-END. 18. IN THIS BACKGROUND, ASSESSEE CONTENDED BEFORE T HE CIT(A) THAT THE PREDECESSOR CIT(A) IN ASSESSMENT YEAR 1997-98 DID N OT APPRECIATE THE ISSUE IN PROPER PERSPECTIVE BECAUSE REVENUE RECOGNITION C OULD NOT DEPEND ON PAYMENTS MADE BY THE CUSTOMERS. IT WAS ALSO POINTE D OUT THAT SAME ISSUE CAME UP FOR CONSIDERATION SUBSEQUENTLY IN THE CASE OF A GROUP COMPANY, THERMAX SURFACE COATING LIMITED (TSCL) WHEREIN ISSU E WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE CIT(A) NOTED THE DECISION OF THE CIT(A) IN THE CASE OF THERMAX SURFACE COATING LTD. AND ALSO THE FACT THAT THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF A SUBSIDIARY COMPANY, THERM AX BABCOCK & WILCOX LIMITED (TBWL) HAS UPHELD THE METHOD FOR INCOME REC OGNITION WHEREBY A PROFIT EQUALIZATION PROVISION WAS ALLOWABLE WHILE A PPLYING THE PERCENTAGE OF COMPLETION METHOD. FOLLOWING THE AFORESAID PRECEDE NTS, THE CIT(A) ALLOWED THE PLEA OF THE ASSESSEE. THE CIT(A) HELD THAT (I) THE ASSESSEE WAS ENTITLED TO RECOGNIZE INCOME FROM LONG TERM CONTRACTS BY APPLYI NG THE PERCENTAGE OF COMPLETION METHOD AS MANDATED BY AS-7 ISSUED BY ICA I; AND, (II) THE REVENUE RECOGNIZED BY THE AFORESAID METHOD WAS TO BE ACCEPT ED BY THE ASSESSING ITA NO.2527/PN/2012 OFFICER. ACCORDINGLY, THE CIT(A) DIRECTED THE DELE TION OF RS.14,95,43,003/- WHICH HAS BEEN ADDED BY THE ASSESSING OFFICER TO TH E RETURNED INCOME. IN COMING TO SUCH CONCLUSION, THE CIT(A) NOTED THAT TH E ASSESSEE CREATED A PROVISION OF RS.14,95,43,003/- ON ACCOUNT OF PROFIT EQUALIZATION AND THE OPENING PROVISION OF RS.12,30,07,582/- FOR THE SAID PURPOSE WAS WRITTEN-BACK TO THE CREDIT OF THE PROFIT & LOSS ACCOUNT. ACCORD ING TO THE CIT(A), ONLY THE DIFFERENTIAL PROVISION OF RS.2,65,35,431/- (I.E. RS .14,95,43,003/- MINUS RS.12,30,07,582/-) IS CHARGED TO THE PROFIT & LOSS ACCOUNT WHEREAS THE DISALLOWANCE EFFECTIVELY MADE BY THE ASSESSING OFFI CER WAS OF THE ENTIRE PROVISION OF RS.14,95,43,003/-, WHICH WAS WRONG. 19. THE CIT(A) HAVING UPHELD THE STAND OF THE ASSES SEE IN-PRINCIPLE, DIFFERED WITH IT ON TWO ASPECTS. ACCORDING TO THE CIT(A), THE FOLLOWING TWO ADJUSTMENTS MADE BY THE ASSESSEE TO THE INCOME WHIL E APPLYING THE PERCENTAGE OF COMPLETION METHOD WERE NOT JUSTIFIED WHICH HAD THE EFFECT OF REDUCING THE TOTAL INCOME; SUCH ASPECTS WERE (A) S CALING DOWN OF REVENUE FOR DIFFERENT STAGES OF COMPLETION; AND, (B) NON-RECOGN ITION OF REVENUE TILL THE CONTRACTS HAVE PROGRESSED TO THE EXTENT OF 25% OF C ONTRACT VALUE. AS PER THE CIT(A), UNDER THE PERCENTAGE OF COMPLETION METHOD, INCOME FROM CONTRACTS SHOULD BE RECOGNIZED FROM DAY ONE AND NO FURTHER SC ALING DOWN OF INCOME SHOULD BE DONE ON ACCOUNT OF DIFFERENT STAGES OF CO MPLETION. FURTHER, THE CIT(A) HELD THAT THE PRACTICE FOLLOWED BY THE ASSES SEE OF NOT RECOGNIZING REVENUE FOR CONTRACTS HAVING VALUE UP TO RS.20,00,0 00/- BY APPLYING THE PROJECT COMPLETION METHOD WAS ALSO NOT JUSTIFIED AN D THAT SUCH PROJECTS ALSO BE SUBJECT TO REVENUE RECOGNITION BY APPLYING THE PERC ENTAGE COMPLETION METHOD GENERALLY ADOPTED BY THE ASSESSEE. FOR THE AFORESA ID REASONS, THE CIT(A) RETAINED THE DISALLOWANCE TO THE EXTENT OF RS.4,00, 71,000/- OUT OF THE TOTAL DISALLOWANCE OF RS.14,95,43,003/- MADE BY THE ASSES SING OFFICER. ITA NO.2527/PN/2012 20. IN THIS BACKGROUND, ASSESSEE BY WAY OF THE AFOR ESAID GROUND OF APPEAL IS CHALLENGING THE ADDITION OF RS.4,00,71,000/- RET AINED BY THE CIT(A) AND WHEREAS THE REVENUE BY WAY OF GROUNDS OF APPEAL NOS .6.1 TO 6.3 IN ITS CROSS- APPEALS IS CHALLENGING THE RELIEF ALLOWED BY THE CI T(A). THE GROUNDS OF APPEAL NOS.6.1 TO 6.3 RAISED BY THE REVENUE READ AS UNDER :- 6.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.2,65,35 ,431/- BEING THE PROVISION CREATED BY THE ASSESSEE AS PER AS-7 AND HOLDING THA T THE ENTIRE AMOUNT ACCRUED TO THE ASSESSEE AS PER INVOICE RAISED IS NO T TAXABLE AND THE TAXABLE RECEIPT IS TO BE COMPUTED ON THE BASIS OF PROJECT C OMPLETION METHOD. 6.2 THE LD. CIT(A) IS NOT CORRECT IN HOLDING THAT THE APPELLANT HAD CREATED A PROVISION OF RS.14,95,43,003/- ON ACC OUNT OF PROFIT EQUALIZATION AS REQUIRED BY THE MANDATORY ACCOUNTING STANDARD 7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. AT THE SAME TIME O PENING PROVISION OF RS.12,30,07,582/- FOR THE SAME PURPOSE WAS WRITTEN BACK TO THE CREDIT OF THE PROFIT & LOSS ACCOUNT. THOUGH ONLY THE DIFFERENTIA L PROVISION OF RS.2,65,35,431/- IS CHARGED TO THE PROFIT & LOSS AC COUNT THE DISALLOWANCE EFFECTIVELY MADE BY THE A.O. IS OF THE ENTIRE PROVI SION OF RS.14,95,43,003/- FOR THE REASON THAT THE OPENING PROVISION OF RS.12, 30,07,582/- HAS NOT BEEN FOUND TO BE CREDITED TO PROFIT & LOSS ACCOUNT AND O NLY DIFFERENTIAL PROVISION OF RS.2,65,35,431/- HAS BEEN ADDED IN THE ASSESSMENT O RDER BY THE ASSESSING OFFICER. 6.3 THE LD. CIT(A) HAS ERRED IN GIVING RELIEF OF RS .14,95,43,003/- WHILE THE ADDITION MADE BY THE ASSESSING OFFICER IS ONLY FOR RS.2,65,35,431/-. 21. SINCE THE AFORESAID CROSS-GROUNDS IN THE APPEAL OF THE ASSESSEE AND THE REVENUE RELATE TO A COMMON ISSUE OF RECOGNIZING INCOME FROM CONTRACT ACTIVITY, THEY ARE BEING TAKEN-UP TOGETHER. 22. ON THIS ASPECT, IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT IN ASSESSMENT YEAR 1997-98, THE TRIBUNAL VIDE ITS ORDE R DATED 03.09.2014 (SUPRA) IN THE ASSESSEES OWN CASE HAS UPHELD THE S TAND OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRI BUNAL 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 1 990-91 & 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 G ROUP COMPANY OF THE ITA NO.2527/PN/2012 ASSESSEE, THE TRIBUNAL UPHELD THE ALLOWABILITY OF P ROVISION FOR PROFIT EQUALIZATION WHILE RECOGNIZING INCOMES ON APPLICATI ON OF PERCENTAGE OF COMPLETION METHOD IN THE CASE OF LONG TERM CONTRACT S IN THE LIGHT OF THE AS-7 ISSUED BY THE ICAI. IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR, WE DO NO T DEAL WITH THE ISSUE ANY FURTHER EXCEPT DIRECTING THE ASSESSING OFFICER TO I MPLEMENT THE ORDER OF THE TRIBUNAL DATED 03.09.2014 (SUPRA) ON THIS GROUND TO O. AS A CONSEQUENCE, WHEREAS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED THAT OF THE REVENUE IS DISMISSED. 23. THE NEXT GROUNDS OF APPEAL NOS.5 & 6 RAISED BY THE ASSESSEE READ AS UNDER :- 5. THE LD. CIT (APPEALS) ERRED IN CONFIRMING DISAL LOWANCE U/S 35D WITH REFERENCE TO THE GROSS AMOUNT OF CLAIM FOR SUC H DEDUCTION MADE BY THE APPELLANT IN THE FIRST ELIGIBLE YEAR. 6. THE LD. CIT (APPEALS) ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER OF REJECTING THE CONTENTION OF TH E APPELLANT THAT RETENTION MONEY DID NOT ACCRUE TO THE APPELLANT AND WAS ACCO RDINGLY NOT TAXABLE IN THE YEAR UNDER APPEAL. 24. AT THE TIME OF HEARING, THE AFORESTATED GROUNDS OF APPEAL HAVE NOT PRESSED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE AND THE SAME ARE BEING DISMISSED AS NOT PRESSED. 25. THE NEXT GROUND OF APPEAL NO.7 RAISED BY THE AS SESSEE READS AS UNDER :- 7. THE LD. CIT (APPEALS) ERRED IN CONFIRMING DISAL LOWANCE, AS CAPITAL EXPENDITURE, OF AN AMOUNT OF RS.17,97,051/- BEING THE COST OF COMPUTER SOFTWARE. 26. IN THIS CONTEXT, BRIEF FACTS ARE THAT AN EXPEND ITURE OF RS.40,13,159/- INCURRED BY THE ASSESSEE IN RESPECT OF COMPUTER SOF TWARE WAS DISALLOWED BY ITA NO.2527/PN/2012 THE ASSESSING OFFICER TREATING THE SAME TO BE CAPIT AL IN NATURE. THE ASSESSING OFFICER ALLOWED THE RELATED DEPRECIATION ON SUCH EX PENDITURE. BEFORE THE CIT(A), CONTENTION OF THE ASSESSEE WAS THAT SUCH EX PENDITURE WAS LIABLE TO BE TREATED AS A REVENUE EXPENDITURE. THE CIT(A) CONSI DERED THE SUBMISSIONS MADE BY THE ASSESSEE AND CATEGORIZED THE EXPENDITUR E IN TWO PARTS, NAMELY, (A) EXPENDITURE INCURRED FOR ACQUIRING SOFTWARE CON NECTED WITH THE MANUFACTURING OPERATIONS OF THE ASSESSEE; AND, (B) EXPENDITURE INCURRED ON ACQUISITION OF ROUTINE STANDARD SOFTWARES. THE FOR MER CATEGORY OF THE EXPENDITURE WAS CONSIDERED AS RESULTING IN AN ENDUR ING BENEFIT TO THE ASSESSEE AND THEREFORE THE CIT(A) SUSTAINED THE ACT ION OF THE ASSESSING OFFICER OF TREATING IT AS A CAPITAL EXPENDITURE. F OR THE SECOND CATEGORY OF EXPENDITURE, THE CIT(A) HELD THAT THE SAME WAS MORE IN THE NATURE OF CONSUMABLES AND DID NOT RESULT IN ANY ENDURING ADV ANTAGE TO THE ASSESSEE AND THEREFORE HE ALLOWED IT AS A REVENUE EXPENDITUR E. AS A CONSEQUENCE, OUT OF THE TOTAL DISALLOWANCE OF RS.40,13,159/- MADE BY THE ASSESSING OFFICER, AN AMOUNT OF RS.22,16,107/- WAS RETAINED AS ADDITION A ND THE BALANCE OF RS.17,97,051/- WAS DELETED. THE ASSESSEE IS IN APP EAL BEFORE US AGITATING THE ADDITION SUSTAINED TO THE EXTENT OF RS.17,97,051/- WHEREAS THE REVENUE IN ITS CROSS-APPEAL HAS CHALLENGED THE RELIEF ALLOWED BY T HE CIT(A) TO THE EXTENT OF RS.22,16,107/- BY WAY OF GROUNDS OF APPEAL NO.7.1 T O 7.2, WHICH READ AS UNDER :- 7.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN TREATING THE EXPENDITURE OF RS.22,1 6,107/- OUT OF SOFTWARE AS REVENUE EXPENDITURE, WHEN IN FACT IT IS CAPITAL IN NATURE. 7.2 THE LD. CIT(A) OUGHT TO HAVE FOLLOWED DECISION OF HONBLE ITAT DELHI A BENCH IN CASE OF MARUTI UDYOG LTD. VS. DC IT (92 TTJ 987) WHERE IT IS HELD THAT EXPENDITURE ON ACQUISITION OF COMPUTER SO FTWARE IS CAPITAL EXPENDITURE. 27. SINCE THE AFORESAID CROSS-GROUNDS IN THE APPEAL OF THE ASSESSEE AND THE REVENUE RELATE TO THE SAME ISSUE, THEY ARE BEIN G TAKEN-UP TOGETHER. ITA NO.2527/PN/2012 28. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT THE CIT(A) OUGHT TO HAVE ALLOWED THE ENTIRE RELIEF BECA USE EXPENDITURE INCURRED ON ALL KINDS OF SOFTWARE PER-SE IS TO BE UNDERSTOOD AS REVENUE IN NATURE. THEREFORE, THE DISTINCTION SOUGHT TO BE MADE BY THE CIT(A) BETWEEN THE SOFTWARE CONNECTED WITH THE MANUFACTURING OPERATION S AND ROUTINE STANDARD SOFTWARES IS NOT A JUSTIFIABLE GROUND TO TREAT A PA RT OF THE EXPENDITURE AS CAPITAL IN NATURE. 29. ON THE OTHER HAND, THE LD. CIT-DR HAS SUBMITTED THAT THE ACQUISITION OF THE COMPUTER SOFTWARE ENABLES THE ASSESSEE TO DERIV E AN ENDURING ADVANTAGE AND THE SAME IS TO BE CONSIDERED AS CAPITAL IN NATU RE. ACCORDING TO THE LD. CIT-DR EVEN THE AMOUNT CONSIDERED BY THE CIT(A) TO BE REVENUE IN NATURE IS WRONG SINCE EVERY KIND OF SOFTWARE GIVES AN ENDURIN G ADVANTAGE TO THE ASSESSEE, WHICH SHOULD BE REGARDED AS CAPITAL IN NA TURE. 30. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN OUR CONSIDERED OPINION, THE ISSUE REGARDING THE NATURE OF THE EXPE NDITURE INCURRED ON ACCOUNT OF ACQUISITION OF SOFTWARE IS LIABLE TO BE DECIDED IN TERMS OF THE RATIO OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. RAYCHEM RPG. LTD., 346 ITR 138 (BOM.). THE HONBLE BOMBAY HIGH COURT UPHELD THE ORDER OF THE TRIBUNAL WHEREBY THE EXPENDITURE INCUR RED ON ACQUISITION OF SOFTWARE WHICH DID NOT FORM PART OF THE PROFIT MAKI NG APPARATUS OF THE ASSESSEE WAS TREATED AS A REVENUE EXPENDITURE. IN THE SAID CONTEXT, IT IS TO BE NOTED THAT THE CIT(A) HAS GIVEN A FINDING THAT EXPE NDITURE OF RS.22,16,107/- WAS INCURRED ON ACQUISITION OF SOFTWARE CONNECTED W ITH THE MANUFACTURING OPERATIONS OF THE ASSESSEE. SUCH SOFTWARES HAVE BE EN IDENTIFIED AS AUTOCAD, PROJECT MANAGEMENT SOFTWARE, DESIGNING SOFTWARE, ET C.. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF BOILERS AND HEAT T RANSFER EQUIPMENT AND THEREFORE THE AFORESAID SOFTWARES FORM PART OF ITS PROFITS MAKING APPARATUS AND ITA NO.2527/PN/2012 THUS IT IS LIABLE TO BE CONSIDERED AS CAPITAL EXPEN DITURE IN VIEW OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF RAYCHEM RPG. LTD. (SUPRA). THEREFORE, ASSESSEES GRIEVANCE AGAI NST THE DECISION OF THE CIT(A) IN SUSTAINING THE ADDITION OF RS.22,16,107/- IS UNJUSTIFIED HAVING REGARD TO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT I N THE CASE OF RAYCHEM RPG. LTD. (SUPRA). FURTHER, THE CIT(A) HAS RECORDE D A FINDING THAT EXPENDITURE TO THE EXTENT OF RS.17,97,051/- HAS BEEN INCURRED O N ACQUISITION OF ROUTINE STANDARD SOFTWARES SUCH AS WINDOWS 95, MS OFFICE, E TC. WHICH ARE REVENUE IN NATURE. OSTENSIBLY, ASSESSEES BUSINESS IS OF MANU FACTURING OF BOILERS AND OTHER HEAT TRANSFER EQUIPMENT AND THE AFORESAID SOF TWARES MERELY FACILITATE ASSESSEES TRADING OPERATIONS AND/OR ENABLE CONDUCT OF ITS BUSINESS MORE EFFICIENTLY AND THE SAME ARE NOT IN THE NATURE OF T HE PROFIT-MAKING APPARATUS OF THE ASSESSEE COMPANY. THEREFORE, IN OUR VIEW, THE CIT(A) MADE NO MISTAKE IN TREATING THE EXPENDITURE OF RS.17,97,051/- INCUR RED ON ACQUISITION OF ROUTINE STANDARD SOFTWARE AS A REVENUE EXPENDITURE. MOREOV ER, THE SAID DECISION OF THE CIT(A) IS IN LINE WITH THE RATIO OF THE JUDGEME NT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RAYCHEM RPG. LTD. (SUPRA) . IN THE RESULT, THE GROUND OF APPEAL NO.7 OF THE ASSESSEE AS WELL AS TH E GROUNDS OF APPEAL NO.7.1 & 7.2 OF THE REVENUE ARE DISMISSED. 31. THE NEXT GROUND OF APPEAL NO.8 OF THE ASSESSEE READS AS UNDER :- 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (APPEALS) ERRED IN CONFIRMING DISALLOWA NCE OF APPELLANTS CLAIM FOR DEPRECIATION @ 100% IN RESPECT OF THE ITEMS OF PLAN T AND MACHINERY INSTALLED IN PLANT NO.11 OF THE COMPANY. 32. WITH RESPECT TO THE SAID GROUND, THE ISSUE RELA TES TO DEPRECIATION @ 100% CLAIMED BY THE ASSESSEE IN RESPECT OF PLANT & MACHINERY USED IN THE MANUFACTURE OF HEAT PUMPS AND IN RESPECT OF THE PLA NT & MACHINERY USED IN THE MANUFACTURE OF AIR/GAS/FLUID HEATING SYSTEMS. THE CLAIM OF THE ASSESSEE ITA NO.2527/PN/2012 WAS THAT THE AFORESAID ITEMS OF PLANT & MACHINERY A RE ELIGIBLE FOR DEPRECIATION @ 100% BECAUSE THEY ARE USED IN THE MANUFACTURE OF RENEWABLE ENERGY DEVICES. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE, WHICH WAS CARRIED IN APPEAL BEFORE THE CIT(A). 33. IN APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE ASSESSING OFFICER SO FAR AS IT RELATED TO THE PLANT & MACHINERY USED IN THE MANUFACTURE OF HEAT PUMPS. HOWEVER, WITH REGARD TO THE PLANT & MACHINE RY USED IN THE MANUFACTURE OF AIR/GAS/FLUID HEATING SYSTEMS, THE C IT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY NOTICING THAT IT WAS COVERED IN TER MS OF ENTRY 3(XIII)(R) OF THE DEPRECIATION TABLE ANNEXED IN THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). IN THIS BACKGROUND, THE ASSESSEE IS IN AP PEAL CHALLENGING THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF DEPREC IATION @ 100% ON THE PLANT & MACHINERY USED IN THE MANUFACTURE OF HEAT PUMPS A ND THE REVENUE IN ITS CROSS-APPEAL, BY WAY OF GROUNDS OF APPEAL NO.8.1 & 8.2 HAS CHALLENGED THE DECISION OF THE CIT(A) ALLOWING ASSESSEES CLAIM FO R DEPRECIATION @ 100% ON THE PLANT & MACHINERY USED IN THE MANUFACTURE OF AI R/GAS/FLUID HEATING PUMPS. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER :- 8.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN HOLDING THAT 100% DEPRECIATION IS A LLOWABLE ON CERTAIN ITEMS OF OTHER PLANTS (EXCLUDING PLANT NO.11). 8.2 THE LD. CIT(A) FAILED TO APPRECIATE THE FACT TH AT THE AO HAS ELABORATELY DISCUSSED THE ISSUE AND CONCLUDED THAT PLANT & MACHINERY USED IN THE FOUR UNITS MENTIONED THEREIN ARE NOT COVERED BY ITEM 3(XIII)(E) OF APPENDIX I OF IT RULES AS THE PRODUCT MANUFACTURED BY THESE UNITS ARE NOT RENEWABLE ENERGY DEVICES. 34. SINCE THE AFORESAID CROSS-GROUNDS IN THE APPE AL OF THE ASSESSEE AND THE REVENUE RELATE TO THE SAME ISSUE, THEY ARE BEIN G TAKEN-UP TOGETHER. 35. NOW, WE MAY FIRST TAKE-UP ASSESSEES CLAIM FOR DEPRECIATION 100% WITH RESPECT TO THE PLANT & MACHINERY USED IN THE MANUFA CTURE OF AIR/GAS/FLUID ITA NO.2527/PN/2012 HEATING SYSTEMS. IN THIS CONTEXT, IT IS CLEAR NOTE D THAT HAVING REGARD TO THE ENTRY 3(XIII)(R) READ WITH 3(XIII)(E) OF THE DEPREC IATION TABLE ANNEXED TO THE RULES, PLANT & MACHINERY USED FOR THE MANUFACTURE O F AIR/GAS/FLUID HEATING SYSTEMS IS ELIGIBLE FOR DEPRECIATION @ 100%. THE P LEA OF THE ASSESSING OFFICER THAT OTHER ITEMS IN ENTRY IN 3(XIII) CONTAI N A REFERENCE TO SOLAR AND THEREFORE ITEM (E) OF ENTRY 3(XIII) SHOULD ALSO BE READ TO BE REFERRING TO SOLAR AIR/GAS/FLUID HEATING SYSTEMS, IN OUR VIEW, IS NOT JUSTIFIED. THE ASSESSING OFFICER HAS ATTEMPTED TO READ INTO THE STATUTE A WO RD WHICH IS CONSPICUOUS BY ITS ABSENCE. THEREFORE, IN OUR VIEW, HAVING REGARD TO THE ITEM (R) READ WITH ITEM (E) OF ENTRY 3(XIII) OF THE DEPRECIATION TABLE , THE CLAIM OF THE ASSESSEE HAS BEEN RIGHTLY ALLOWED BY THE CIT(A) AND WE FIND NO FORCE IN THE GROUND OF APPEAL RAISED BY THE REVENUE. 36. NOW, WITH REGARD TO ASSESSEES CLAIM FOR ALLOWA NCE OF DEPRECIATION @ 100% IN RESPECT OF PLANT & MACHINERY USED IN THE MA NUFACTURE OF HEAT PUMPS IS CONCERNED, THE SAME HAS BEEN APPROPRIATELY DENIE D BY THE LOWER AUTHORITIES. THE CIT(A) HAS RIGHTLY POINTED OUT TH AT MACHINERY & PLANT USED IN THE MANUFACTURE OF HEAT PUMPS IS NOT ELIGIBLE FOR D EPRECIATION @ 100% AS IT DOES NOT FIND A PLACE IN ANY OF THE ITEMS IN THE DE PRECIATION TABLE WHICH IS ENTITLED FOR DEPRECIATION @ 100%. ON THIS ASPECT, THE ORDER OF THE CIT(A) IS HEREBY AFFIRMED. THUS, GROUND OF APPEAL NO.8 OF TH E ASSESSEE AS WELL AS THE GROUNDS OF APPEAL NOS.8.1 & 8.2 OF THE REVENUE ARE DISMISSED. 37. THE NEXT GROUND OF APPEAL NO.9 RAISED BY THE AS SESSEE READS AS UNDER :- 9. IN THE MATTER OF DEDUCTION U/S 80HHC THE LD. CI T (APPEALS) ERRED HOLDING THAT WHILE COMPUTING TOTAL TURNOVER, THE FIGURE OF EXPORT TURNOVER TO BE INCLUDED THEREIN SHOULD BE TAKEN AS PER THE B OOKS OF ACCOUNT REJECTING THE CONTENTION OF THE APPELLANT THAT THE FIGURE OF EXPORT TURNOVER SHOULD BE THE SAME AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80HHC. ITA NO.2527/PN/2012 38. IN THIS GROUND, THE DISPUTE BETWEEN THE ASSESSE E AND THE REVENUE IS WITH REGARD TO THE MANNER OF COMPUTATION OF ELIGIBL E DEDUCTION U/S 80HHC OF THE ACT WITH RESPECT TO THE PROFITS FROM EXPORT OF GOODS AND MERCHANDISE. THE EXPORT TURNOVER HAS BEEN DEFINED IN EXPLANATION ( B) TO SECTION 80HHC OF THE ACT TO MEAN THE SALE PROCEEDS RECEIVED IN OR BROUGH T INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDA NCE WITH CLAUSE (A) OF SUB-SECTION (2) OF SECTION 80HHC OF THE ACT. THUS, FOR THE PURPOSES OF DETERMINING THE ELIGIBLE DEDUCTION U/S 80HHC OF THE ACT, THE FIGURE OF EXPORT TURNOVER IS TO BE DETERMINED, HAVING REGARD TO THE DEFINITION CONTAINED IN EXPLANATION (B) TO SECTION 80HHC OF THE ACT AND NOT AS RECOGNIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. WHILE DETERMININ G THE FIGURE OF TOTAL TURNOVER, THE ASSESSING OFFICER CONSIDERED THE DOME STIC SALES PLUS THE EXPORT TURNOVER; AND, IN ADOPTING THE FIGURE OF EXPORT TUR NOVER FOR DETERMINING TOTAL TURNOVER, THE FIGURE WAS TAKEN AS PER THE BOOKS OF ACCOUNT INSTEAD OF THE FIGURE OF EXPORT TURNOVER COMPUTED AS PER THE DEFIN ITION CONTAINED IN EXPLANATION (B) TO SECTION 80HHC OF THE ACT. THE A SSESSEE CONTENDED THAT THE FIGURE OF EXPORT TURNOVER EVEN FOR THE PURPOSES OF COMPUTING TOTAL TURNOVER OUGHT TO BE THE FIGURE COMPUTED BY APPLYING THE DEF INITION OF EXPORT TURNOVER CONTAINED IN SECTION 80HHC OF THE ACT. THE ASSESSI NG OFFICER AS WELL AS THE CIT(A) HAVE DIFFERED WITH THE ASSESSEE ON THIS ASPE CT, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 39. IN OUR CONSIDERED OPINION, THE STAND OF THE ASS ESSEE IS QUITE REASONABLE AND JUSTIFIED. THE DEFINITION OF EXPRES SION TOTAL TURNOVER IN SECTION 80HHC OF THE ACT DOES NOT ANY PRESCRIPTION REGARDING THE ELEMENT OF EXPORT TURNOVER COMPRISED IN IT. THE PROFITS ELIGI BLE FOR DEDUCTION U/S 80HHC OF THE ACT ARE COMPUTED AS A PROPORTION OF THE RATIO O F EXPORT TURNOVER DIVIDED BY THE TOTAL TURNOVER OF THE BUSINESS. THEREFORE, IF EXPORT TURNOVER FORMING PART OF NUMERATOR IS CALCULATED AS PER THE DEFINITION CO NTAINED IN SECTION 80HHC OF ITA NO.2527/PN/2012 THE ACT THEN IT WOULD BE APPROPRIATE THAT A SIMILAR FIGURE IS TAKEN AS AN ELEMENT OF THE TOTAL TURNOVER OF THE BUSINESS WHICH IS THE DENOMINATOR. THUS, ON THIS ASPECT ASSESSEE SUCCEEDS AND THE ASSESSING OFFICER IS DIRECTED TO RE- COMPUTE THE ELIGIBLE DEDUCTION U/S 80HHC OF THE ACT ACCORDINGLY. 40. THE NEXT GROUND OF APPEAL NO.10 RAISED BY THE A SSESSEE READS AS UNDER :- 10. THE LD. CIT (APPEALS) FURTHER ERRED IN CONFIRM ING FOLLOWING ITEMS AS FALLING WITHIN THE SCOPE OF EXPLANATION (B AA) OF 80HHC AND EXCLUDING 90% OF SUCH ITEMS FROM PROFITS OF THE BUSINESS :- 1 BROKERAGE RECEIPT NOT TAKEN 1,81,432 2 MISCELLANEOUS RECEIPTS 85,74,379 3 DISCOUNT RECEIVED 1,38,829 4 WAREHOUSE CHARGES RECEIVED 27,300 5 EXCHANGE RATE FLUCTUATION 2,03,92,221 SUB TOTAL 2,93,14,161 THE LD. CIT(A) FURTHER ERRED IN NOT ACCEPTING THE C ONTENTION OF THE APPELLANT THAT, IN ANY EVENT, EXCLUSION UNDER EXPLANATION (BA A) SHOULD ALSO BE NET OF DIRECT EXPENSES INCURRED IN RELATION TO THE SAID IT EMS OF INCOME APART FROM 10% DEDUCTION MANDATED BY THE STATUTE FOR COMMON EX PENSES. 41. AS THE GROUND OF APPEAL SHOWS THE SAME PERTAINS TO THE MANNER OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT. THE STAN D OF THE ASSESSEE IS THAT THE INCOME-TAX AUTHORITIES HAVE WRONGLY APPLIED THE PROVISIONS OF EXPLANATION (BAA) TO SECTION 80HHC AND EXCLUDED 90% OF THE RECE IPTS FROM THE AFORESAID ITEMS OF INCOME IN ORDER TO COMPUTE PROFITS OF THE BUSINESS ELIGIBLE FOR THE BENEFITS OF SECTION 80HHC OF THE ACT. IN THIS CONT EXT, IT IS NOTICED THAT THE STAND OF THE INCOME-TAX AUTHORITIES IS BASED ON THE IR STAND FOR EARLIER YEARS IN THE ASSESSEES OWN CASE. BEFORE US, IT WAS A COMMO N POINT BETWEEN THE PARTIES THAT THE AFORESAID ISSUES HAVE BEEN RESTORE D BACK TO THE FILE OF THE ASSESSING OFFICER BY THE TRIBUNAL IN THE IMMEDIATEL Y PRECEDING ASSESSMENT YEAR OF 1997-98 VIDE ITS ORDER DATED 03.09.2014 (SU PRA). THE ASSESSING ITA NO.2527/PN/2012 OFFICER HAS BEEN DIRECTED TO ADJUDICATE THE ISSUE I N THE LIGHT OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PIL ZER LTD. VS. CIT, 233 CTR 521 (BOM). FOLLOWING THE AFORESAID PRECEDENT, THE ISSUE IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO RE-ADJUDICATE AS PER THE DIRECTIONS OF THE TRIBUNAL IN THE ORDER DATED 0309.2014 (SUPRA). NEE DLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASON ABLE OPPORTUNITY OF BEING HEARD BEFORE ADJUDICATING AFRESH ON THIS GROUND AS PER LAW. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 42. IN THE CROSS-APPEAL OF THE REVENUE, IT HAS RAIS ED GROUND OF APPEAL NO.9.1, 9.2, 10.1 & 10.2 WHICH ALSO RELATE TO THE M ANNER OF COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT, AND THE SAME READ A S UNDER :- 9.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD., CIT(A) ERRED IN DIRECTING TO EXCLUDE SALE OF SCRAP, CLAIM OF REFUNDS INSURANCE, CREDIT BALANCE APPROPRIATED, BAD DEBTS/A DVANCE WRITTEN BACK EXP. FROM THE TOTAL TURNOVER FOR THE PURPOSE OF CALCULAT ING DEDUCTION U/S 80HHC. 9.2 THE LD. CIT(A) IS NOT CORRECT IN HOLDING THAT T HE FOLLOWING ITEMS- (I) CLAIM OF REFUNDS - INSURANCE (II) CREDIT BALANCE APPROPRIATED (III) EXCESS PROVISION WRITTEN BACK - EXP. HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT, PUNE IN ITA NO.907/PN/95 FOR A.Y. 1992-93 FOR THE REASON THAT I N THE SAID ORDER, THE HONBLE ITAT, PUNE BENCH, PUNE HAD OCCASION TO CONS IDER AND DECIDE THE FOLLOWING ITEMS ONLY- (I) SALE OF SCRAP (II) GAIN ON EXCHANGE FLUCTUATION (III) EXCISE REFUND (IV) SALES TAX REFUND (V) BAD DEBTS RECOVERED THEREFORE, THE ITEMS HELD TO BE COVERED BY THE ORDE R OF HON'BLE ITAT, PUNE BY THE LD. CIT(A) IS NOT CORRECT. 10.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DIRECTING TO EXCLUDE SALES TAX AND EXCISE DUTY F ROM THE TOTAL TURNOVER FOR THE PURPOSE OF CALCULATING DEDUCTION U/S. 80HHC. 10.2 THE LD. CIT(A) FAILED TO APPRECIATE THE FACT T HAT THE HON'BLE SUPREME COURT IN THE CASE OF CHOWRINGHEE SALES BUREAU PVT. LTD., 87 ITR 542 AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HINDUSTAN PETROLEUM CORPORATION ITA NO.2527/PN/2012 LTD. (143 ITR 318) HELD THAT THE AMOUNT OF EXCISE D UTY AND/OR SALES TAX COLLECTED BY THE ASSESSEE FORM PART OF THE SALE PRI CE AND HENCE GETS NATURALLY INCLUDED IN THE TURNOVER. 43. ON ALL THESE ISSUES, IT WAS A COMMON POINT BETW EEN THE PARTIES THAT IN THE PRECEDING ASSESSMENT YEAR OF 1997-98 AND FOR AS SESSMENT YEAR 1995-96, THE TRIBUNAL VIDE ITS ORDER DATED 03.09.2014 (SUPRA ) AND ITA NO.252/PN/2001 DATED 30.06.2011 RESPECTIVELY, HAS DECIDED THE ISSU ES IN FAVOUR OF THE ASSESSEE. FOLLOWING THE AFORESAID PRECEDENT, THE A SSESSING OFFICER IS DIRECTED TO RE-WORK THE AMOUNT OF DEDUCTION ELIGIBL E U/S 80HHC OF THE ACT ACCORDINGLY. IN GROUNDS OF APPEAL NO.10.1 & 10.2 A LSO, THE ASPECT OF EXCLUSION OF SALES-TAX AND EXCISE DUTY FROM THE FIG URE OF TOTAL TURNOVER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL IN EARLIER ASSESSMENT YEARS 1997-98 AND 1995-96 VIDE ORDERS DATED 03.09.2 014 (SUPRA) AND 30.06.2011 (SUPRA) RESPECTIVELY. IN VIEW OF THE AF ORESAID PRECEDENT, THE GROUNDS OF APPEAL NO.9.1, 9.2, 10.1 & 10.32 OF THE REVENUE ARE DISMISSED. 44. THE NEXT GROUND OF APPEAL NO.11 RAISED BY THE A SSESSEE READS AS UNDER :- 11. THE LD. CIT (APPEALS) ERRED IN HOLDING THAT 2. 5% OF GROSS DIVIDEND AND TAX FREE INCOME REPRESENTED EXPENDITUR E INCURRED IN RELATION TO SUCH DIVIDEND AND INTEREST-FREE INCOME THEREBY CONF IRMING DISALLOWANCE THEREOF. 45. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT TH E ASSESSING OFFICER ESTIMATED 5% OF GROSS DIVIDEND AND OTHER TAX-FREE I NCOMES AS AN EXPENDITURE INCURRED FOR EARNING OF SUCH INCOME AND DISALLOWED THE SAME. THE CIT(A) FOLLOWING THE DECISION OF HER PREDECESSOR RESTRICTE D THE DISALLOWANCE TO 2.5% OF THE GROSS INCOME. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN APPEAL BEFORE US. ITA NO.2527/PN/2012 46. ON THIS ASPECT, THE LD. REPRESENTATIVE FOR THE ASSESSEE CONCEDED THAT THE DISALLOWANCE AS CONFIRMED BY THE CIT(A) HAS BEE N A SUBJECT-MATTER OF CONSIDERATION BY THE TRIBUNAL IN ASSESSMENT YEAR 19 97-98 AND THE SAME STANDS CONFIRMED VIDE ORDER DATED 03.09.2014 (SUPRA ). IN VIEW OF THE AFORESAID PRECEDENT, THE ACTION OF THE CIT(A) IN RE STRICTING THE DISALLOWANCE TO 2.5% OF THE GROSS INCOME IS HEREBY AFFIRMED. THUS, ASSESSEE FAILS ON THIS GROUND. 47. THE LAST GROUND IN THE APPEAL OF THE ASSESSEE R EADS AS UNDER :- 12. THE LD. CIT (APPEALS) ERRED IN HOLDING THAT TH E FOLLOWING ITEMS OF INCOME WERE NOT DERIVED FROM ELIGIBLE UNDERTAK ING AND WERE ACCORDINGLY NOT ENTITLED TO DEDUCTION U/S 80-I/80-IA : 1. FLUCTUATION IN RATE OF FOREIGN EXCHANGE 59.54 LA KH 2. PREMIUM ON FORWARD CONTRACT 1.93 LAKH 3. PRO RATA ON SALE OF SCRAP AND DUTY DRAW BACK 41. 14 LAKH 4. MISCELLANEOUS RECEIPTS 00.10 LAKH 48. IN TERMS OF THE AFORESAID GROUND, THE CONTENTIO N OF THE ASSESSEE IS THAT THE AFORESAID ITEMS OF INCOME HAVE BEEN UNJUSTLY EX CLUDED FROM THE PROFITS ELIGIBLE FOR THE CLAIM OF DEDUCTION U/S 80-I/80-IA OF THE ACT. 49. AT THE TIME OF HEARING, IN SO FAR AS THE EXCLUS ION OF INCOME BY WAY OF (I) PRO RATA ON SALE OF SCRAP AND DUTY DRAW BACK RS.4 1.14 LAKH; AND, (II) MISCELLANEOUS RECEIPTS RS.00.10 LAKH IS CONCERNED , THE SAME WAS NOT PRESSED BY THE LD. REPRESENTATIVE. ACCORDINGLY, ON THESE TWO ASPECTS, THE ACTION OF THE INCOME-TAX AUTHORITIES OF EXCLUDING S UCH INCOMES FROM THE PROFITS ELIGIBLE FOR THE DEDUCTION U/S 80-I/80-IA OF THE AC T IS HEREBY AFFIRMED. 50. ON THE TWO REMAINING LIMBS, RELATING TO INCOMES BY WAY OF (I) FLUCTUATION IN RATE OF FOREIGN EXCHANGE RS.59.54 LAKH; AND (II) PREMIUM ON FORWARD CONTRACT RS.1.93 LAKH, IT WAS A COMMON PO INT BETWEEN THE PARTIES ITA NO.2527/PN/2012 THAT SIMILAR ISSUE HAS BEEN DECIDED AGAINST THE ASS ESSEE BY THE TRIBUNAL IN ASSESSMENT YEAR 1997-98 VIDE ORDER DATED 03.09.2014 (SUPRA). FOLLOWING THE AFORESAID PRECEDENT, THE ACTION OF THE LOWER AUTHOR ITIES IN EXCLUDING INCOMES BY WAY OF FLUCTUATION IN RATE OF FOREIGN EXCHANGE A ND PREMIUM ON FORWARD CONTRACT FROM THE PROFITS ELIGIBLE FOR THE BENEFIT OF SECTION 80-I/80-IA OF THE ACT IS HEREBY AFFIRMED. THUS, GROUND OF APPEAL NO.12 R AISED BY THE ASSESSEE IS DISMISSED. 51. RESULTANTLY, APPEAL OF THE ASSESSEE FOR ASSESSM ENT YEAR 1998-99 VIDE ITA NO.1245/PN/2005 IS PARTLY ALLOWED. 52. WITH REGARD TO THE CROSS-APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 1998-99 VIDE ITA NO.1288/PN/2005, THE ONLY OTHER GR OUNDS REMAINING ARE GROUNDS OF APPEAL NOS.3.1, 3.2, 4.1, 4.2, 5 AND 11, WHICH ARE BEING TAKEN-UP HEREINAFTER. 53. GROUNDS OF APPEAL NOS.3.1 & 3.2 READ AS UNDER : - 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE ON A CCOUNT OF COMMISSION TO THERMAX CULLIGAN WATER TECHNOLOGIES LTD., WHEN IN F ACT THE SAME ARE NOT ALLOWABLE AS DEDUCTION. 3.2 THE LD. CIT(A) IS NOT CORRECT IN STATING THAT THE A.O. IN THE REMAND REPORT HAS CONFIRMED THAT THE NECESSARY INVO ICE WISE DETAILS AND CALCULATION OF COMMISSION HAS BEEN VERIFIED AND FOU ND TO BE IN ORDER AS THE A.O. IN THE REMAND REPORT DATED 12.05.2003 HAS ONLY STATED THAT THE AMOUNT OF COMMISSION HAS BEEN DEBITED TO COMMISSION A/C, AND THE A.O. HAS NOT STATED THAT CALCULATION OF COMMISSION AND ITS GENUINENESS HAVE BEEN VERIFIED AND IT IS FOUND TO BE CORRECT. 54. IN THIS CONTEXT, THE RELEVANT FACTS ARE AS FOLL OWS. IN TERMS OF A BUSINESS TRANSFER AGREEMENT DATED 29.03.1997, ASSESSEE TRANS FERRED ITS WATER TREATMENT PRODUCT DIVISION TO THERMAX CULLIGAN WATE R TECHNOLOGIES LTD.. IN TERMS OF THE SAID BUSINESS TRANSFER AGREEMENT, THE ENTIRE BUSINESS RELATING TO ITA NO.2527/PN/2012 THE WATER TREATMENT DIVISION WAS TRANSFERRED ON 29. 03.1997 ITSELF. HOWEVER, DUE TO CERTAIN PROCEDURAL FORMALITIES LIKE SALES-TA X REGISTRATION, EXCISE REGISTRATION AND OTHER TRANSFER OF LICENSES, ETC. T HE UNFINISHED JOBS THOUGH BELONGING TO THERMAX CULLIGAN WATER TECHNOLOGIES LT D. WERE RECORDED AS SALES IN THE ACCOUNT BOOKS OF THE ASSESSEE ALONG WI TH THE PROFIT THEREON. SUCH AMOUNT OF PROFIT COMPUTED AT RS.90,00,000/- WAS TRA NSFERRED BY ASSESSEE TO THERMAX CULLIGAN WATER TECHNOLOGIES LTD. AND CLAIME D AS AN EXPENDITURE STYLED AS COMMISSION. THE SAID EXPENDITURE STYLE D AS COMMISSION WAS DISALLOWED BY THE ASSESSING OFFICER BECAUSE ACCORDI NG TO HIM THE BUSINESS TRANSFER AGREEMENT DATED 29.03.1997 DID NOT PROVIDE FOR TRANSFER OF PENDING CUSTOMER ORDERS. HE ALSO NOTED THAT THERE WAS NO A GREEMENT BETWEEN THE ASSESSEE AND THERMAX CULLIGAN WATER TECHNOLOGIES LT D. AS TO HOW SUCH COMMISSION WAS TO BE DETERMINED. IN THIS CONTEXT, THE ASSESSING OFFICER REFERRED TO CLAUSE (3) OF THE BUSINESS TRANSFER AGR EEMENT DATED 29.03.1997, WHICH READS AS UNDER :- SUBJECT TO THE CONDITIONS SET OUT IN THIS AGREEMEN T, GOVERNMENT APPROVALS (IF ANY) AND THE RECEIPT OF ENTIRE CONSID ERATION AS SPECIFIED IN ARTICLE 4 BELOW, ON THE EFFECTIVE DATE, THE TRANSFEROR SHAL L TRANSFER AND THE COMPANY SHALL ACQUIRE THE CURRENT RUNNING ONGOING BUSINESS OF THE WATER TREATMENT PRODUCT DIVISION OF THE TRANSFEROR CONSISTING OF TH E ASSETS (FREE AND CLEAR OF ALL LIENS AND ENCUMBRANCES) PRODUCTS, GOODWILL, RELATIN G TO THE WATER TREATMENT PRODUCT DIVISION, MANPOWER AND INTELLECTUAL PROPERT Y, MORE PARTICULARLY DESCRIBED IN SCHEDULES A, B AND D RESPECTIVELY, BUT EXCLUDING ANY; LIABILITIES RELATING HERETO, PENDING CUSTOMERS ORDERS AND ANY O THER INFORMATION MATERIAL/RELEVANT FOR THE CONDUCT OF THE TRANSFEROR S WATER TREATMENT PRODUCT DIVISION BUSINESS. 55. BEFORE THE CIT(A), ASSESSEE CONTENDED THAT THE ASSESSING OFFICER HAS MISREAD THE AFORESAID CLAUSE (3) OF THE BUSINESS TR ANSFER AGREEMENT. IT WAS EXPLAINED BEFORE THE CIT(A) THAT ASSESSEE WAS TO TR ANSFER THE ENTIRE ONGOING BUSINESS OF THE WATER TREATMENT PRODUCT DIVISION AN D EXCLUDING ONLY LIABILITIES THERETO AND THAT SUCH EXCLUSION DID NOT INCLUDE PEN DING CUSTOMER ORDERS. RATHER, IT WAS CONTENDED THAT THE PENDING CUSTOMER ORDERS WERE INDEED TRANSFERRED TO THERMAX CULLIGAN WATER TECHNOLOGIES LTD.. WITH REGARD TO THE ITA NO.2527/PN/2012 CONDUCT OF BUSINESS BY THE ASSESSEE BEYOND 29.03.19 97 IT WAS EXPLAINED THAT PENDING CERTAIN FORMALITIES, THE BUSINESS WAS CARRI ED ON BY THE ASSESSEE BUT FOR AND ON BEHALF OF THE TRANSFEREE I.E. THERMAX CU LLIGAN WATER TECHNOLOGIES LTD.. THEREFORE, INCOMPLETE JOBS WERE BEING EXECUT ED BY THERMAX CULLIGAN WATER TECHNOLOGIES LTD. BUT IN THE NAME OF THE ASSE SSEE INASMUCH THE INVOICING AND COSTS INCURRED WERE BOOKED IN THE BOO KS OF THE ASSESSEE COMPANY. BUT SINCE THE BUSINESS RIGHTLY BELONGED T O THERMAX CULLIGAN WATER TECHNOLOGIES LTD. FROM 29.03.1997 ONWARDS THE RESUL TANT PROFITS FROM SUCH JOBS WERE ALSO TRANSFERRED TO THERMAX CULLIGAN WATE R TECHNOLOGIES LTD.. SUCH TRANSFER OF AMOUNT WAS REPRESENTED BY RS.90,00 ,000/- IN QUESTION WHICH HAS BEEN DESCRIBED AS COMMISSION. THE CIT(A) CON SIDERED THE SUBMISSIONS PUT-FORTH BY THE ASSESSEE AND ALSO THE REMAND REPOR T OF THE ASSESSING OFFICER AND THEREAFTER CONCLUDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS UNDER :- I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SU BMISSIONS MADE BY THE AR AND THE REMAND REPORT GIVEN BY THE AO. IN M Y OPINION, THE APPELLANT IS ENTITLED TO SUCCEED. THE APPELLANT IS A PUBLIC L IMITED COMPANY. IT HAD PAID COMMISSION OF RS.90 LACS TO A GROUP COMPANY CALLED THERMAX CULLIGAN WATER TECHNOLOGIES LTD. THE APPELLANT HAD TRANSFERRED TO THE SAID THERMAX CULLIGAN ITS BUSINESS OF WATER TREATMENT PRODUCTS. DUE TO CE RTAIN DELAYS IN PROCEDURAL FORMALITIES LIKE SALES TAX REGISTRATION, EXCISE REG ISTRATION, ETC. THE BUSINESS OF THE WATER TREATMENT PRODUCTS DIVISION COULD NOT BE CARRIED ON IN THE NAME OF TCWTL BUT HAD TO BE CARRIED OUT IN THE NAME OF THE APPELLANT THOUGH FACTUALLY IT WAS CARRIED OUT BY TCWTL. THE COMMISSION REPRESE NTS PROFITS ACCOUNTED IN THE BOOKS OF THERMAX IN RESPECT OF SUCH UNFINISHED JOBS EXECUTED BY TCWTL BUT FACTUALLY BOOKED IN THE ACCOUNTS OF THE APPELLA NT IN VIEW OF THE AFORESAID PROCEDURAL DELAYS. THIS PROFIT HAS BEEN EARNED BY T CWTL AND HAS BEEN TRANSFERRED TO IT UNDER THE NAME OF COMMISSION. AS RIGHTLY POINTED OUT BY THE AR, THE BUSINESS TRAN SFER AGREEMENT BETWEEN THE APPELLANT AND THE TCWTL PROVIDED FOR CO MPLETION OF UNFINISHED JOBS OF THE APPELLANT BY THE NEW COMPANY TCWTL. IN MY OPINION, THE ABSENCE OF INDEPENDENT AGREEMENT FOR TRANSFER OF SU CH PROFITS WAS NOT NECESSARY AS THE CONDUCT OF THE PARTIES COUPLED WIT H THE BUSINESS TRANSFER AGREEMENT DATED 29/3/1997 PROVIDED SUFFICIENT SUPPO RT AND JUSTIFICATION FOR THE TRANSFER OF SUCH PROFITS, BY WAY OF COMMISSION. THE AO IN THE REMAND REPORT HAS CONFIRMED THAT THE NECESSARY INVOICE-WISE DETAI LS AND CALCULATION OF COMMISSION HAS BEEN VERIFIED AND FOUND TO BE IN ORD ER. 56. BEFORE US, REVENUE HAS CONTESTED THE ORDER OF T HE CIT(A) BY POINTING OUT THAT THE CLAUSE (3) OF THE AGREEMENT SHOWED THA T THE PENDING ORDERS WERE ITA NO.2527/PN/2012 NOT TRANSFERRED AND THEREFORE THE AFORESAID AMOUNT OF RS.90,00,000/- OUGHT NOT TO HAVE BEEN TRANSFERRED TO M/S THERMAX CULLIGA N WATER TECHNOLOGIES LTD.. ON THE OTHER HAND, THE LD. REPRESENTATIVE FO R THE ASSESSEE RELIED UPON THE ORDER OF THE CIT(A) IN SUPPORT OF THE CASE OF T HE ASSESSEE. 57. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE FACTUAL MATRIX OF THE ASSESSEE HAVING TRANSFERRED ITS ONGOING BUSI NESS OF WATER TREATMENT PRODUCT DIVISION VIDE A BUSINESS TRANSFER AGREEMENT DATED 29.03.1997 IS NOT IN DISPUTE. CLAUSE (3) OF AGREEMENT, WHICH WE HAVE RE PRODUCED IN THE EARLIER PARAS, CLEARLY PROVIDES THAT ONGOING BUSINESS HAS B EEN TRANSFERRED CONSISTING OF ASSETS, PRODUCTS GOODWILL, ETC. AS DESCRIBED IN THE SCHEDULE ANNEXED THERETO TO EXCLUDING ANY LIABILITIES RELATING THERE TO. CLAUSE (3) ALSO SUGGESTS THAT PENDING CUSTOMER ORDERS AND ANY OTHER INFORMAT ION/MATERIAL RELEVANT FOR THE CONDUCT OF THE BUSINESS ALSO STOOD TRANSFERRED TO THE TRANSFEREE COMPANY. THE READING OF CLAUSE (3), AS MADE OUT BY THE ASSES SING OFFICER, IS QUITE MISCONCEIVED AND IT HAS BEEN RIGHTLY CORRECTED BY T HE CIT(A). CLEARLY, THE BUSINESS TRANSFER AGREEMENT ENVISAGED, INTER-ALIA, THE TRANSFER OF PENDING CUSTOMERS ORDERS ALSO. DUE TO CERTAIN DELAY IN PRO CEDURAL FORMALITIES EXPLAINED BY THE ASSESSEE, THE BUSINESS OF THE WATE R TREATMENT PRODUCT DIVISION COULD NOT BE CARRIED ON IN THE NAME OF THE RMAX CULLIGAN WATER TECHNOLOGIES LTD. IMMEDIATELY FROM 29.03.1997 ONWAR DS BUT IT WAS CARRIED OUT IN THE NAME OF THE ASSESSEE FOR A CERTAIN PERIOD. THE INVOICES RAISED AND THE COSTS INCURRED DURING THE INTERREGNUM PERIOD CAME T O BE BOOKED IN THE ACCOUNT BOOKS OF THE ASSESSEE COMPANY WHICH HAVE SI NCE BEEN TRANSFERRED TO THERMAX CULLIGAN WATER TECHNOLOGIES LTD., SUCH DIFF ERENTIAL AMOUNT IS REPRESENTED BY RS.90,00,000/- STYLED AS COMMISSION . THE AFORESAID FACTUAL MATRIX IS NOT DISPUTED AND IN-FACT THE CIT(A) HAS R EFERRED TO A REMAND REPORT SUBMITTED BEFORE HER BY THE ASSESSING OFFICER IN TE RMS OF WHICH THERE IS NO DISPUTE ON SUCH FACTUAL ASPECTS. IN THIS BACKGROUN D OF THE MATTER, WE ITA NO.2527/PN/2012 THEREFORE FIND NO REASONS TO INTERFERE WITH THE CON CLUSION OF THE CIT(A) THAT THE ASSESSEE WAS JUSTIFIED IN CLAIMING DEDUCTION FOR A SUM OF RS.90,00,000/- WHICH REPRESENTED TRANSFER OF PROFITS TO THERMAX CULLIGAN WATER TECHNOLOGIES LTD. FOR THE INTERREGNUM PERIOD WHICH RIGHTLY BELONGED T O IT. AS A RESULT, WE HEREBY AFFIRM THE ORDER OF THE CIT(A) AND REVENUE FAILS IN ITS GROUNDS OF APPEAL NOS.3.1 & 3.2. 58. THE NEXT GROUNDS OF APPEAL NOS.4.1 & 4.2 RAISED BY THE REVENUE READ AS UNDER :- 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BAD DE BTS OF RS.14,82,798/-. 4.2 THE LD. CIT(A) IS NOT CORRECT IN STATING THAT IT IS SEEN FROM THE REMAND REPORT SUBMITTED BY THE A.O. THAT THESE DISC REPANCIES HAVE BEEN MADE GOOD AND THE NECESSARY DETAILS HAVE BEEN FURNI SHED AND EXAMINED. THE A.O. HAS CONFIRMED THAT THESE TWO BAD DEBTS WER E ACTUALLY WRITTEN OFF IN THE BOOKS AS BAD DEBTS FOR THE REASONS THAT NO SUC H CATEGORICAL FINDING IS GIVEN BY THE A.O. IN HIS REMAND REPORT DATED 12.05. 2003. 59. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT AS SESSEE HAD CLAIMED BAD DEBTS IN RESPECT OF THE TWO PARTIES TOTALING TO RS. 14,82,798/-. THE ASSESSEE HAD CLAIMED THAT THE IRRECOVERABLE BALANCES FROM TW O PARTIES, M/S SM DYECHEM AND M/S DHAR CEMENT AMOUNTING TO RS.14,82,7 98/- WERE ACTUALLY WRITTEN-OFF IN THE ACCOUNT BOOKS AND THEREFORE ITS CLAIM WAS WITHIN THE PURVIEW OF SECTION 36(1)(VII) OF THE ACT. THE ASSESSING OF FICER DISALLOWED THE CLAIM ON THE GROUND THAT THE REASONS FOR WRITE-OFF WERE NOT FURNISHED BY THE ASSESSEE. THE CIT(A) HAS SINCE ALLOWED THE CLAIM OF THE ASSES SEE AFTER CONSIDERING THE EXPLANATION FURNISHED BY THE ASSESSEE AND ALSO NOTI CING THAT THE AMOUNTS HAVE BEEN ACTUALLY WRITTEN-OFF AS BAD DEBTS IN BOOK S OF ACCOUNT, WHICH WAS COMPLIANT WITH THE REQUIREMENTS OF SECTION 36(1)(VI I) OF THE ACT. AGAINST THE AFORESAID DECISION OF THE CIT(A), REVENUE IS IN APP EAL BEFORE US. ITA NO.2527/PN/2012 60. ON THIS ASPECT, IN OUR CONSIDERED OPINION, THER E IS NO JUSTIFICATION FOR THE REVENUE TO CONTEST THE DECISION OF THE CIT(A) INASM UCH AS THE IMPUGNED AMOUNTS ARE ACTUALLY WRITTEN-OFF AS IRRECOVERABLE I N THE ACCOUNT BOOKS, WHICH MEETS WITH THE REQUIREMENTS OF SECTION 36(1)(VII) O F THE ACT. MOREOVER, THE STAND OF THE CIT(A) IS IN LINE WITH JUDGEMENT OF TH E HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT, 323 ITR 397 (SC). TH US, ON THIS GROUND ALSO REVENUE FAILS. 61. THE NEXT GROUND OF APPEAL NO.5 RAISED BY THE RE VENUE READS AS UNDER :- 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF CLUB F EES OF RS.2,50,000/-. 62. IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT DU RING THE YEAR UNDER CONSIDERATION, ASSESSEE PAID A SUM OF RS.2,50,000/- AS CORPORATE MEMBERSHIP FEE TO POONA CLUB. THE ASSESSING OFFICE R DISALLOWED THE EXPENDITURE ON THE GROUND THAT IT WAS A CAPITAL EXP ENDITURE BECAUSE IT RESULTED IN AN ENDURING BENEFIT. THE CIT(A) HAS ALLOWED THE CLAIM BY FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF GUJARAT STATE EXPORT CORPORATION LTD. VS. CIT, 209 ITR 649 (GUJ). 63. AFTER CONSIDERING THE OBJECTIONS RAISED BY THE REVENUE, WE DO NOT FIND ANY FORCE IN THE SAME INASMUCH AS THE HONBLE GUJAR AT HIGH COURT IN THE CASE GUJARAT STATE EXPORT CORPORATION LTD. (SUPRA) HELD THAT CLUB MEMBERSHIP FEE INCURRED BY THE ASSESSEE IS A BUSINESS EXPENSE ALLO WABLE U/S 37 OF THE ACT. MOREOVER, THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT, BANGALORE VS. UNITED GLASS MFG. CO. LTD. (CIVIL APP EAL NO.6449 OF 2012) DATED 12.09.2012 ALSO SUPPORTS THE AFORESAID PROPOSITION. AS A CONSEQUENCE, WE ITA NO.2527/PN/2012 HEREBY AFFIRM THE ORDER OF THE CIT(A) ON THIS ASPEC T AND REVENUE FAILS ACCORDINGLY. 64. THE ONLY OTHER GROUND REMAINING IN THE APPEAL O F THE REVENUE IS GROUND OF APPEAL NO.11, WHICH READS AS UNDER :- 11. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN HOLDING THAT SEPARATE UNDERTAKINGS WERE SET UP BY THE ASSESSEE AND DEDUCTION U/S 80-IA IS ALLOWABLE. 65. IN THIS GROUND, DISPUTE PERTAINS TO THE ASSESSE ES CLAIM FOR DEDUCTION U/S 80-I/80-IA OF THE ACT IN RESPECT OF TWO INDUSTR IAL UNDERTAKINGS, NAMELY, (I) WOODPAC (MANUFACTURING) RS.21.84 LACS; AND, (II) PROCESS INTEGRATED BOILERS RS.138.06 LACS. THE ONLY REASON WEIGHING WITH TH E ASSESSING OFFICER TO DENY THE DEDUCTION U/S 80-I/80-IA OF THE ACT IN RES PECT OF THE TWO INDUSTRIAL UNDERTAKINGS WAS THAT SIMILAR CLAIM WAS REJECTED IN THE RE-ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 1992-93. SUBSEQUEN T TO ASSESSMENT YEAR 1992-93, AND UPTO ASSESSMENT YEAR 1997-98 ALSO THE CLAIM WAS DISALLOWED BY THE ASSESSING OFFICER. 66. ON THIS ASPECT, THE CIT(A) NOTED THAT ASSESSMEN T YEAR 1992-93 WAS THE FIRST YEAR WHEN THE ASSESSEE HAD MADE SUCH A CLAIM IN RESPECT OF THE AFORESAID TWO UNDERTAKINGS AS THEY WERE CLAIMED TO HAVE BEEN SETUP IN THE PRECEDING YEAR RELEVANT TO THE ASSESSMENT YEAR 1992 -93. THE CLAIM IN ASSESSMENT YEAR 1992-93 WAS INITIALLY ALLOWED IN TH E REGULAR ASSESSMENT U/S 143(3) OF THE ACT. THE CLAIM WAS DISALLOWED IN THE RE-ASSESSMENT PROCEEDINGS CARRIED OUT FOR ASSESSMENT YEAR 1992-93 BY ISSUANCE OF NOTICE U/S 148 OF THE ACT. FOR ASSESSMENT YEAR 1992-93, T HE ACTION OF THE ASSESSING OFFICER TO INITIATE PROCEEDINGS U/S 147/148 OF THE ACT WAS QUASHED BY THE APPELLATE AUTHORITIES AND IT HAS BEEN STATED BEFORE US IN THE COURSE OF HEARING THAT THE SAME HAS BEEN AFFIRMED BY THE HONBLE BOMB AY HIGH COURT VIDE ITS ITA NO.2527/PN/2012 ORDER IN INCOME TAX APPEAL (L) NO.815 OF 2009 DATED 24 TH JUNE, 2009. FROM ASSESSMENT YEARS 1993-94 TO 1997-98 THE CLAIM OF TH E ASSESSEE FOR DEDUCTION U/S 80-I/80-IA OF THE ACT HAS BEEN UPHELD BY THE TR IBUNAL VIDE ORDER IN ITA NO.1259 TO 1263/PN/2005 DATED 20.05.2011. AT THE T IME OF HEARING, IT HAS ALSO BEEN BROUGHT OUT THAT THE SAID DECISION OF THE TRIBUNAL HAS SINCE BEEN AFFIRMED BY THE HONBLE BOMBAY HIGH COURT VIDE ITS ORDER DATED 30.04.2014. 67. THE AFORESAID FACTUAL MATRIX IS NOT IN DISPUTE AND THEREFORE WE HEREBY AFFIRM THE ORDER OF THE CIT(A) ALLOWING THE CLAIM O F THE ASSESSEE FOR DEDUCTION U/S 80-I/80-IA OF THE ACT WITH RESPECT TO THE INDUS TRIAL UNDERTAKINGS MANUFACTURING PRODUCTS CALLED WOODPAC AND PROCESS I NTEGRATED BOILERS. AS A CONSEQUENCE, THE ORDER OF THE CIT(A) IS HEREBY AFFI RMED. 68. RESULTANTLY, THE APPEAL OF THE ASSESSMENT YEAR 1998-99 VIDE ITA NO.1288/PN/2005 IS TREATED AS PARTLY ALLOWED. 69. IN THE RESULT, THE CROSS-APPEALS OF THE ASSESSE E AND THE REVENUE FOR ASSESSMENT YEAR 1998-99 VIDE ITA NO.1245/PN/2005 & 1288/PN/2005 ARE TREATED AS PARTLY ALLOWED, AS ABOVE. 70. IN SO FAR AS THE CROSS-APPEALS FOR ASSESSMENT Y EAR 1999-2000 ARE CONCERNED, IT WAS A COMMON POINT BETWEEN THE PARTIE S THAT ALL THE ISSUES RAISED THEREIN ARE COVERED BY THE ISSUES WHICH HAVE BEEN DEALT WITH IN THE EARLIER PART OF THIS ORDER FOR ASSESSMENT YEAR 1998 -99 AND THEREFORE OUR DECISION IN THE CROSS-APPEALS FOR ASSESSMENT YEAR 1 998-99 WOULD APPLY MUTATIS-MUTANDIS IN THE CROSS-APPEALS FOR ASSESSMEN T YEAR 1999-2000 ALSO. AS A CONSEQUENCE, FOR THE ASSESSMENT YEAR 1999-2000 ALSO, THE APPEALS OF THE ASSESSEE AS WELL AS THE REVENUE ARE PARTLY ALLO WED. ITA NO.2527/PN/2012 71. RESULTANTLY, THE CAPTIONED APPEALS OF THE ASSES SEE AS WELL AS THE REVENUE ARE TREATED AS PARTLY ALLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DECEMBER, 2014. SD/- SD/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 15 TH DECEMBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE