Appeal details
Counselvise Citation
[2018] 126 COUNSELVISE.COM (IT) 4763 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 8 month(s) 24 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
14-02-2018
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
29-06-2017
Assessment Year
2009-2010
Appeal Filed On
20-05-2016
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , , $ BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NOS. 1431, 1432 & 1433/CHNY/2016 / ASSESSMENT YEARS : 2010-11, 2011-12 & 2012-13 ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -2(1), CHENNAI 600 034. VS. M/S. EAST COAST CONSTRUCTIONS & INDUSTRIES LIMITED, NO. 4, BUHARIA BUILDINGS, MOORES ROAD, CHENNAI 600 006. [PAN: AAACE 1662P] ( / APPELLANT) ( / RESPONDENT) /. I.T.A. NO. 864/CHNY/2015 / ASSESSMENT YEAR : 2010-11 M/S. EAST COAST CONSTRUCTIONS & INDUSTRIES LIMITED, NO. 4, BUHARIA BUILDINGS, MOORES ROAD, CHENNAI 600 006. [PAN: AAACE 1662P] VS. ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -2(1), CHENNAI 600 034. ( / APPELLANT) ( / RESPONDENT) ASSESSEE BY : SHRI. G. BASKAR, ADVOCATE REVENUE BY : SHRI. D. PRABHUMUKUNTHARUN KUMAR, JR. STANDING COUNSEL - /DATE OF HEARING : 14.02.2018 - /DATE OF PRONOUNCEMENT : 14.02.2018 :-2-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THESE APPEALS AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-6, IN ITA NOS. 86, 135 & 138/CIT(A)- 6/2013-14 & 2014-15 DATED 17.03.2016 FOR ASSESSMENT YEARS 2010-11, 2011- 12 & 2012-13, RESPECTIVELY. THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER PASSED U/S. 263BY THE PCITIN ITA NO. 864/2015 FOR A SSESSMENT YEAR 2010-11. 2. M/S. EAST COAST CONSTRUCTIONS & INDUSTRIES LIMI TED, THE ASSESSEE, IS ENGAGED IN CIVIL CONSTRUCTION WORKS LIKE CONSTRUCTI ON OF FLY OVER, UNDER PASS, SEWERAGE, WATER SUPPLY AND TREATMENT ETC., FOR VARI OUS LOCAL BODIES, RAILWAYS AND STATE/CENTRAL GOVERNMENTS. FOR THIS PURPOSE, T HE ASSESSEE HAD ENTERED INTO CONTRACT WITH THE STATE/CENTRAL GOVERNMENTS AN D LOCAL AUTHORITIES TO EXECUTE THE INFRASTRUCTURAL WORKS AS PER THE CONTRA CT AGREEMENT MADE AND CLAIMED DEDUCTION U/S. 80IA FOR THE CONSTRUCTION OF ABOVE INFRASTRUCTURAL WORKS. FOR ASSESSMENT YEARS 2011-12 & 2012-13, T HE ASSESSEE CLAIMED DEDUCTION U/S. 80IA, HOWEVER, FOR THE ASSESSMENT YE AR 2010-11 SINCE ITS GROSS TOTAL INCOME WAS NEGATIVE FIGURE, THE ASSESSEE DID NOT CLAIM. IN THE EARLIER ASSESSMENT YEARS, THE ASSESSEES CLAIM U/S 80IA WAS REFUSED BY THE AO HOLDING THAT THE ASSESSEE IS A MERE CONTRACTOR AND NOT A DEVELOPER. FOR THESE :-3-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 ASSESSMENT YEARS ALSO, THE ASSESSING OFFICER ELABO RATELY DISCUSSED THIS ISSUE AND REFUSED TO ALLOW THE CLAIM U/S. 80IA ON THE FOL LOWING GROUNDS . A) THE INCOME HAS NOT BEEN DERIVED FROM THE DEVELOPMEN T OF INFRASTRUCTURAL FACILITIES. B) THE ASSESSEEE IS NOT THE DEVELOPER OF THE PROJECT B UT A MERE CONTRACTOR C) THE ASSESSSEEIS NOT THE OWNER OF THE PROJECT. 3. AGGRIEVED, THE ASSESSEE FILED APPEALS BEFORE THE CIT(A). THE CIT(A) FOUND THAT THE SAME ISSUE HAS BEEN CONSIDERED AND DECIDED IN ASSESSEES FAVOUR BY THE CHENNAI TRIBUNAL FOR ASSESSMENT YEAR 2004-05. HIS PREDECESSOR HAS ALSO ALLOWED THE CLAIM IN ASSESSMENT YEAR 2008- 09 AND 2009-10 FOLLOWING THE DECISION OF THE TRIBUNAL AND FOLLOWING THEM , THE CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM UNDER SECTION 80IA . AGGRIEVED, THE REVENUE FILED THESE APPEALS AGAINSTTHE DECISIONS OF THE CIT(A) FOR THE SE ASSESSMENT YEARS WITH THE FOLLOWING GROUNDS: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPE ALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS A DEVELOPER AND IS ELIGIBLE FOR DEDUCTION U/S.80IA. 2.1 THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT T HAT THE ASSESSEE CANNOT BE TERMED AS A 'DEVELOPER' AS THE COMPANY WAS ONLY EXE CUTING THE CONTRACT WORK FOR THE GOVERNMENT AUTHORITIES. ACCORDING TO THE EXPLAN ATION 2 TO SEC.801A VIDE FINANCE ACT 2007 (WITH RETROSPECTIVE EFFECT FROM 01.0 4.2000, THE ASSESSEE IS ONLY A WORKS CONTRACTOR. 2.2 THE CIT(A) ERRED IN RELYING ON THE DECISION OF THE ITAT FOR THE ASST.YEAR 2004- 05 IN THE ASSESSEE'S OWN CASE, IN AS MUCH AS THE DE CISION OF THE ITA T FOR THE ASST. :-4-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 YEAR 204-05 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND FURTHER APPEAL HAS BEEN PREFERRED BEFORE THE HON'BLE HIGH COURT OF CHENNAI A ND THE ISSUE HAS NOT REACHED FINALITY. 2.3. IT IS SUBMITTED THAT THE ITAT'S DECISION IN TH E CASE OF ACIT VS. INDWELL LININGS P LTD. REPORTED IN 122 TT J 137 IS SQUARELY APPLICA BLE TO THE FACTS OF THE CASE WHEREIN THE ITAT HAS CLEARLY DISTINGUISHED THE MEAN ING OF THE WORDS 'DEVELOPER' AND 'CONTRACTOR' AND IN THIS CASE THE ASSESSEE TOOK CONTRACT WORK FROM THE GUJARAT GOVERNMENT AND IT BEING A CONTRACTOR AND NOT DEVELO PER, BENEFIT OF DEDUCTION U/S.80 LA WAS NOT AVAILABLE TO THE ASSESSEE. 2.4 IT IS SUBMITTED THAT TWIN CONDITIONS OF INVESTME NT AND EXECUTION OF PROJECT ARE TO BE FULFILLED. IN THE INSTANT CASE, THE ASSESSEE IS NOT MAKING ANY INVESTMENTS AS IT IS CARRYING OUT THE CONTRACT BASED ON THE PERIODICA L PAYMENTS MADE BY THE GOVERNMENT AUTHORITIES AND THE LOCAL AUTHORITIES KE EP A PORTION OF THE CONTRACT AMOUNT AS RETENTION MONEY WHICH WOULD BE RELEASED A FTER CERTIFICATION OF THE QUALITY OF WORK DONE BY THE CONTRACTOR. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE RE LIED UPON DECISIONS IN THE CASE OF M/S. EAST COAST CONSTRUCTIONS AND INDUSTRIES LTD (ASSESSEE'S OWN CASE) AND M/S. BRILLIANT TUTORIALS P. LTD. ARE DISTINGUISHABLE AS THE FORMER RELATES TO THE TAXABILITY OF RETENTION MONEY NOT OFFERED BY THE ASSESSEE AND THE L ATTER WITH REGARD TO THE ALLOWANCE OF ADVERTISEMENT EXPENDITURE. 4. WE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THI S TRIBUNAL IN THE ASSESSEES CASE FOR AY 2004-05 IN ITA 544/2010 DT 1 3.09.2011 ON SAME SET OF FACTS AND LAW HELD IN FAVOUR OF THE ASSESSEE AND TH E CIT(A) HAS FOLLOWED SUCH DECISION AND HENCE WE UPHOLD THE ORDERS OF THE CIT( A) ON THIS ISSUE. THE CORRESPONDING GROUNDS OF THE REVENUE ARE DISMISSED. 5. DEPRECIATION ON UPS: 5.1 WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR S 2010-11, 2011-12 & 2012-13, THE AO FOUND THAT THE ASSESSEE CLAIMED D EPRECIATION ON UPS @ :-5-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 60% BASED ON THE DECISION OF THE DELHI HIGH COURT I N THE CASE OF CIT VS BONANZA PORTFOLIO LIMITED, WHEREIN IT HAS BEEN HELD THAT COMPUTER PERIPHERALS ARE ALSO ENTITLED TO DEPRECIATION @ 60%. HOWEVER, THE AO TREATED THE UPS PROCURED DURING THE IMPUGNED ASSESSMENT YEARSAS NOT PART OF COMPUTERS BUT AS PLANT & MACHINERY AND RESTRICTED THE DEPRECIATIO N. AGGRIEVED, THE ASSESSEE FILED APPEALS BEFORE THE CIT(A) AND THE CIT(A) RELY ING ON THIS TRIBUNAL DECISION IN THE CASE OF SUNDARAM ASSET MANAGEMENT CO. LTD., VS SCIT IN ITA NO. 1774/MDS/2012 DATED 19.07.2013 DIRECTED THE AO TO A LLOW DEPRECIATION @ 60% AS CLAIMED BY THE ASSESSEE. AGGRIEVED, THE REV ENUE FILED THESE APPEALS AGAINST SUCH DECISIONS PLEADING THAT THE CIT(A) ERR ED IN NOT CONSIDERING THE FACT THAT UPS IS NOT AN INTEGRAL PART OF THE COMPUT ER, COMPUTER CAN FUNCTION WITHOUT UPS AND AT BEST IT CAN BE CONSIDERED AS A C HARGER TO PROTECT THE UNSAVED DATA WHEN THERE IS A POWER FAILURE ETC. 5.2 WE HEARD THE RIVAL SUBMISSIONS. SINCE THE CIT ( A) APPLIED THIS TRIBUNAL DECISION IN SUNDARAM ASSET MANAGEMENT CO. VS CIT, W E DO NOT FIND ANY INFIRMITY IN HIS DECISION AND HENCE THE REVENUES G ROUNDS OF APPEAL ON THIS ISSUE ARE DISMISSED . 6. ON THE DISALLOWANCE U/S14A : 6.1 THE ASSESSEE EARNED DIVIDEND INCOME AT RS. 78,2 10/-, 78,210/- & 65,820/- FOR ASSESSMENT YEARS 2010-11, 2011-12 & 20 13-14, RESPECTIVELY. :-6-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 THE AO DISALLOWED RS. 51,84,351/-, RS.12,28,691/-&R S 12,87,194/- U/S. 14A RW RULE 8D FOR ASSESSMENT YEARS 2010-11, 2011-12 & 2012-13, RESPECTIVELY. AGGRIEVED, THE ASSESSEE FILED APPEALS BEFORE THE C IT(A). THE CIT(A) FOLLOWING HIS PREDECESSOR ORDER IN ITA NO. 641/11- 12/A-III DATED 11.12.2012 FOR ASSESSMENT YEAR 2009-10 HELD THAT NO DISALLOWAN CE UNDER RULE 8D(II) IS CALLED FOR AS THE INTEREST THAT CAN BE ATTRIBUTED TO SPECIFIC LOANS ARE NOT TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE. HOWEVE R, THE CIT(A) HELD THAT THE DISALLOWANCE MADE UNDER LIMB (III) OF THE RULE IS CORRECT AND ACCORDINGLY HE RESTRICTED THE DISALLOWANCE TO RS. 7,86,224/-, 7 ,53,072/- & RS.11,91,699/- ,RESPECTIVELY , FOR ASSESSMENT YEARS 2010-11, 2011- 12 & 2012-13. AGGRIEVED, THE REVENUE FILED THESE APPEALS PLEADING THAT THE C IT(A) HAS RELIED ON THE DECISION IN ASSESSEE'S OWN CASE FOR ASST. YEAR 2009 -10 WHEREIN THE ASSESSEE HAD SUBMITTED ADDITIONAL EVIDENCES BEFORE THE CIT(A ), WHEREAS IN THE YEAR UNDER CONSIDERATION, NO SUCH BREAK UP WAS FURNISHED . THE CIT(A) OUGHT TO HAVE CONSIDERED THE BREAK-UP DETAILS OF INTEREST EX PENDITURE WITH REGARD TO THE TERM LOAN AND OTHER LOANS IN RESPECT OF THE YEA R UNDER CONSIDERATION BEFORE GIVING RELIEF ETC 6.2 THE DR ARGUED THE CASE ON THE LINES OF THE ORDE R OF THE AO AND ON THE GROUNDS OF APPEALS . PER CONTRA, THE AR SUBMITTED T HAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 78,210/- & 78,210/- FOR ASS ESSMENT YEARS 2010-11 &2011-12 , RESPECTIVELY. NO BORROWED FUNDS WERE US ED FOR EARNING THE :-7-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 DIVIDEND INCOME. THE ASSESSEE DID NOT CLAIM EXEMPT ION OF THIS DIVIDEND INCOME IN THE COMPUTATION STATEMENTS OF THE RESPECT IVE AY AND PLEADED THAT THE DISALLOWANCES, IF ANY , MAY BE RESTRICTED TO DI VIDEND INCOME EARNED AS PER THE DECISION OF JOINT INVESTMENT VS CIT (2015) 372 ITR 694, DELHI. HE HAS ALSO PLEADED THAT SINCE THE ASSESSEE HAS NOT CLAIME D THE DIVIDEND INCOME AS AN EXEMPTINCOME INTHE COMPUTATION STATEMENTS OF TH E RESPECTIVE AY, EVEN THE RESTRICTION OF THE DISALLOWANCES IN ACCORDANC E WITH THE RATIO OF THE DELHI HC, SUPRA, IS ALSO NOT REQUIRED . HOWEVER, IF IT IS HELD THAT DISALLOWANCES ARE REQUIRED , THEN THE AO MAY BE DIRECTED TO ALLOW THE IMPUGNED DIVIDEND INCOME AS ANEXEMPT INCOME IN THE AYS 2010-11& 11-12 , RESPECTIVELY. 6.3 WE HEARD THE RIVAL SUBMISSIONS. THE ASSESSEE EA RNED DIVIDEND INCOME OF RS. 78,210/-, 78,210/- & 65,820/- FOR ASSESSMENT YEARS 2010-11,2011-12& 2012-13 , RESPECTIVELY. NO BORROWED FUNDS WERE USE D FOR EARNING THE DIVIDEND INCOME. THUS, THE DISALLOWANCES, IF ANY , HAS TO B E RESTRICTED TO THE DIVIDEND INCOME EARNED AS PER THE DECISION OF JOINT INVESTM ENT VS CIT (2015) 372 ITR 694, DELHI. SINCE, THE ASSESSEE PLEADS THAT IT DID NOT CLAIM THE DIVIDEND INCOME AS AN EXEMPT INCOME IN THE COMPUTATION STATE MENTS OF THE AYS 2010- 11 & 11-12, RESPECTIVELY, WE DIRECT THE AO TO VERIF Y THE FACTS AND IF IT IS FOUND CORRECT AS CANVASSED , HE SHALL EXEMPT SUCH DIVIDEN D INCOME AND THEN MAKE APPROPRIATE RESTRICTIONS IN ACCORDANCE WITH THE A BOVE DECISION, AFTER AFFORDING :-8-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 ADEQUATE OPPORTUNITY TO THE ASSESSE. THUS, THE REVE NUES GROUNDS ARE TREATED AS ALLOWED PARTLY. 7. DISALLOWANCE ON EXPENSES PERTAINING TO RETENTION MONEY: 7.1 IN THE ASSESSMENT MADE FOR ASSESSMENT YEAR 2011 -12, THE AO HELD THAT THE ASSESSEE HAS RETENTION MONEY IN WITHHELD PROJEC TS. HOWEVER, CORRESPONDING EXPENDITURE HAS NOT BEEN EXCLUDED BY IT IN ACCORDANCE WITH MATCHING PRINCIPLE AND EXPENDITURE. IN VIEW OF THA T THE AO DISALLOWED 97.44% OUT OF WITHHELD AMOUNT AS RETABLE EXPENDITUR E BASED ON THE ANALOGY THAT THE ASSESSEE HAS EARNED 2.31% & 2.56%, RESPECT IVELY, AS NET PROFIT IN THE IMPUGNED ASSESSMENT YEARS. AGGRIEVED, THE ASSE SSEE FILED APPEALS BEFORE THE CIT(A). THE CIT(A) RELYING ON THE MADRAS HIGH COURT DECISION IN 292 ITR 399, 252 ITR 802, CIT VS EAST COAST CONSTRUCTIONS A ND INDUSTRIES LIMITED, 283 ITR 297 ETC., HELD THAT THE EXPENDITURE NEEDS TO BE ALLOWED IN TERMS OF MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASS ESSEE AS THEY HAVE ACCRUED IN THE REGULAR COURSE OF BUSINESS. THE MA TCHING PRINCIPLE HAS NO APPLICABILITY IN THE PRESENT CONTEXT. HENCE, HE DE LETED THE DISALLOWANCES MADE BY THE AO. AGGRIEVED, THE REVENUE FILED THESE APPEALS. 7.2 WE HEARD THE RIVAL SUBMISSIONS. SINCE, THE ASS ESSEE RELIED ON DECISION OF THIS TRIBUNAL IN ITA NOS. 1176 & 1180/MDS/2016 F OR AYS 2011-12 & 2009-10 :-9-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 DATED 30.11.2016 IN THE CASE OF M/S. EAST COAST CON SULTANTS & INFRASTRUCTURE LTD. THE RELEVANT PORTION OF THE ORDER IS EXTRACTE D AS UNDER: 2. THE ONLY COMMON ISSUE RAISED IN BOTH THE REVENU ES APPEAL IS WITH REGARD TO DELETION OF DISALLOWANCE MADE ON THE EXPEN SES PERTAINING TO THE RETENTION OF MONEYS WITHHELD. 3. AFTER HEARING BOTH THE PARTIES, SIMILAR ISSUE CA ME BEFORE THIS TRIBUNAL IN THE CASE OF M/S CONSOLIDATED CONSTRUCTION CONSORTIUM LTD ., IN/.I.T.A.NOS. 1824/MDS/2011, 875, 701 & 702/MDS/2014 VIDE ORDER D ATED 06.01.2016 WHEREIN HELD THAT:- 12. WE HAVE HEARD BOTH THE PARTIES AND PERU SED THE MATERIAL ON RECORD. GENERALLY, THE EXPENDITURE WHICH IS ACTUALLY INCURR ED OR IS INCURRED IN A RELEVANT YEAR WOULD BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME FROM BUSINESS. SUCH A LIABILITY HAS TO BE IN PRAESENTI. HOWEVER, A T THE SAME TIME, IT RELATES TO THE WORKS UNDERTAKEN BY THE ASSESSEE, COMPLETED CO NTRACT METHOD OF ACCOUNTING IS FOLLOWED WHICH IS CONSISTENT WITH THE ACCOUNTING STANDARDS AND THESE ACCOUNTING STANDARDS ALSO LAID DOWN THE NORMS INDICTING THE PARTICULAR POINT OF TIME WHEN THE PROVISIONS FOR ALL KNOWN LIAB ILITIES AND LOSSES HAVE TO BE MADE. THE MAKING OF SUCH A PROVISION BY THE ASSES SEE APPEARS TO BE JUSTIFIED MORE SO WHEN THE ASSESSEE HAD RECOGNIZED GAIN AS W ELL ON SUCH PROJECT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THIS APPEA RS TO BE IN CONSONANCE WITH THE PRINCIPLE OF MATCHING COST AND REVENUE AS W ELL. THE REASON GIVEN BY THE DEPARTMENT IS THAT THE RETENTION MONEY WHICH IS RECEIVABLE WAS NOT RECOGNIZED AS INCOME AS SUCH, RETENTION PAYMENT ALS O CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSE E. AS RIGHTLY ARGUED BY THE ASSESSEE, BOTH THESE ARE GOVERNED BY DIFFERENT A CCOUNTING STANDARDS. RETENTION PAYMENT IS GOVERNED BY AS-7 ISSUED BY ICA I, NEW DELHI. ON THE OTHER HAND, RETENTION MONEY RECEIVABLE IS GOVERNED BY AS-9. WHAT IS APPLICABLE TO RETENTION MONEY RECEIVABLE CANNOT BE APPLIED TO RETENTION MONEY PAYABLE AS THESE ARE GOVERNED BY DIFFERENT ACCOUNTIN G STANDARD. FURTHER IT IS UNDISPUTED THAT WHENEVER ASSESSEE INCURRED EXPENDIT URE ON THE PROJECT IT IS ADMISSIBLE FOR DEDUCTION. THE ONLY DISPUTE RAISED BY THE REVENUE IS REGARDING THE YEAR OF LIABILITY OF EXPENDITURE. CONSIDERING TH AT THE ASSESSEE-COMPANY IS ASSESSED AT UNIFORM RATE OF TAX, THE ENTIRE EXERCISE OF SEEKING TO DISTURB THE YEAR OF ALLOWABILITY OF EXPENDITURE IS, IN ANY CASE , REVENUE NEUTRAL. WE ARE :-10-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 REMINDED OF THE CLASSIC OBSERVATION MADE BY THE BOMB AY HIGH COURT IN THE CASE OF CIT VSNAGRI MILLS CO. LTD, 33 ITR 681 WHICH READS AS UNDER: WE HAVE OFTEN WONDERED WHY THE INCOME-TAX AUTHORI TIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE INCOME-TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WH ICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DED UCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASS ESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY , TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT O F BONUS WAS GRANTED IN THE ASSESSMENT YEAR 1952-53 OR IN THE ASSESSMENT YEAR C ORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEA R 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENER GIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCE S THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER.' 12.1 THE AFORESAID OBSERVATION OF THE BOMBAY HIGH COU RT WAS REITERATED BY THE DELHI HIGH COURT IN THE CASE OF CIT VSSHRI RA M PISTOS AND RINGS LTD, 220 CTR 404, AS UNDER: 'FINALLY, WE MAY ONLY MENTION WHAT HAS BEEN ARTICUL ATED BY THE BOMBAY HIGH COURT IN CIT V. NAGRI MILLS CO. LTD. [1958] 33 ITR 681 (BOM) AS FOLLOWS : . . . IN THE REFERENCE THAT IS BEFORE US THERE IS NO D OUBT THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE. THE ONLY DISP UTE IS REGARDING THE DATE ON WHICH THE LIABILITY HAD CRYSTALLIZED. I T APPEARS THAT THERE WAS NO CHANGE IN THE RATE OF TAX FOR THE ASSESSMENT YEAR 1983-84 WITH WHICH WE ARE CONCERNED. THE QUESTION, THEREFOR E, IS ONLY WITH REGARD TO THE YEAR OF DEDUCTION AND IT IS A PITY THA T ALL OF US HAVE TO EXPAND SO MUCH TIME AND ENERGY ONLY TO DETERMINE TH E YEAR OF TAXABILITY OF THE AMOUNT.' 12.2 FURTHER, IN OUR OPINION, THE PROVISION FOR ACCR UED LIABILITY WHICH HAS TO BE DISCHARGED AT A FUTURE DATE BY THE ASSESSEE I S AN ALLOWABLE EXPENDITURE. IN THE CASE OF CIT VS MICRO LAND LTD, 347 ITR 613[KARNATAKA :-11-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 HIGH COURT], THE ASSESSEE CLAIMED DEDUCTION U/S 3 7 OF THE ACT FOR PROVISION FOR FUTURE WARRANTY. THE ASSESSING OFFICER OPINED THAT PROVISION FOR FUTURE WARRANTY IS CONTINGENT LIABILITY AND CANNOT BE ALLO WED. THE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD VS CIT, 314 ITR 62, HELD THAT THE PROVISION MADE BY THE ASSESSEE FOR WARRANTY CLAIMS ON THE BASIS OF PAST EXPERIENCE IS ALLOWABLE DEDUCTION U/S 37 OF THE AC T. IN THE CASE OF BHARAT EARTH MOVERS VS CIT, 245 ITR 428, THE SUPREME COURT HELD THAT WHERE THE ASSESSEE HAS INCURRED EXPENDITURE WHICH IS MORE THA N THE PROVISION FOR WARRANTY OBLIGATION MADE IN THE BOOKS OF ACCOUNT, I T CANNOT BE SAID THAT THE PROVISION MADE BY THE ASSESSEE IS NOT CAPABLE OF B EING ESTIMATED WITH THE REASONABLE CERTAINTY THOUGH ACTUAL QUANTIFICATION W AS NOT POSSIBLE AND THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN ALLOWING THE DEDUCTION. THE DELHI HIGH COURT IN THE CASE OF CIT VSERICSSION COMMUNICAT IONS P. LTD, 318 ITR 340, HELD THAT PROVISION FOR WARRANTY CLAIMS ON SCIE NTIFIC BASIS WHICH IS CONSISTENTLY APPLIED BY THE ASSESSEE FOR ITS BUSIN ESS WAS ALLOWABLE AS DEDUCTION. THE MADRAS HIGH COURT IN THE CASE OF CI T VSLUK INDIA PVT. LTD, 239 CTR 440, HELD THAT PROVISION FOR WARRANTY CLAIME D BY APPLYING THE SETTLED PRINCIPLES OF HAVING REGARD TO THE FACT THAT CLAIM WA S BASED ON A SCIENTIFIC APPROACH AND IT WAS WORKED OUT ON THE AVERAGE OF PRE VIOUS YEARS WARRANTY SETTLEMENT IS ALLOWABLE EXPENDITURE. SAME VIEW WAS TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF KONE ELEVAT OR INDIA PVT. LTD VS ACIT, 340 ITR 46. FURTHER, THE SUPREME COURT IN THE CASE OF CALCUTTA CO. LTD VS CIT, 37 ITR 1, HELD THAT WHERE THE ASSESSEE WAS FOL LOWING THE MERCANTILE SYSTEM OF ACCOUNTING IS ENTITLED FOR DEDUCTION OF T HE EXPENDITURE WHICH IS INCIDENTAL TO THE BUSINESS ON ACCRUAL BASIS THOUGH IT WAS NOT ACTUALLY INCURRED DURING THE RELEVANT ACCOUNTING YEAR. THE KERALA H IGH COURT IN THE CASE OF CIT VS INDIAN TRANSFORMERS LTD, 270 ITR 259, HELD T HAT PROVISION CREATED BY THE ASSESSEE FOR AFTER SALES SERVICES BASED ON WARRA NTY WAS TOWARDS A DEFINITE AND ASCERTAINED LIABILITY. ON THE BASIS OF RELEVANT FACTS THE PROVISION CANNOT BE TREATED AS A CONTINGENT LIABILITY AND THE REFORE, THE SAME WAS ALLOWABLE AS DEDUCTION. SAME VIEW WAS TAKEN BY THE DELHI HIGH COURT IN THE CASE OF CIT VS WHIRLPOOL OF INDIA LTD, 242 CTR 245, W HEREIN HELD THAT THE ASSESSEE CONSISTENTLY MAKING PROVISION FOR WARRANTY ON THE BASIS OF ACTUARIAL VALUATION IN RESPECT OF MACHINES SOLD DURING THE YEA R COULD NOT BE PRECLUDED FROM REVISING THIS PROVISION AFTER TAKING INTO CONSID ERATION THAT WARRANTY PERIOD OF THE GOODS SOLD UNDER WARRANTY WAS EXCEEDI NG AND PROVISION ALREADY :-12-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 PROVIDED IN A PARTICULAR YEAR IS FALLING SHORT OF TH E EXPECTED CLAIM THAT MAY BE RECEIVED. SUCH A PROVISION IS BASED ON SCIENTIFIC ST UDY AND ACTUARIAL BASIS AND TO BE ALLOWED AS A BUSINESS EXPENDITURE. HENCE, IN OUR OPINION, THE PROVISION FOR PAYMENT MADE BY THE ASSESSEE TOWARDS SUB-CONTRA CT IS ALLOWABLE EXPENDITURE AS THE ASSESSEE RECOGNIZED THE REVENUE FROM THE SAID CONTRACT AS INCOME IN THE ASSESSMENT YEAR UNDER CONSIDERATIO N. FURTHER, WE MAKE IT CLEAR THAT THE ASSESSEE CANNOT CLAIM THE SAME EXPE NDITURE ON ACTUAL PAYMENT BASIS, OTHERWISE IT AMOUNTS TO DOUBLE DEDUC TION ONE ON THE BASIS OF ACCRUAL AND ANOTHER ON THE BASIS OF ACTUAL PAYMENT . HENCE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THIS RETENTION MONEY PAYME NT ONLY ON ACCRUAL BASIS AND NOT ON ACTUAL PAYMENT BASIS. WITH THESE OBSERV ATIONS, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR QUANTI FICATION. THIS GROUND IS PARTLY ALLOWED. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE REMIT THE ISSUE TO THE FILE OF AO ON SIMILAR LINE. FOLLOWING THE SAME, WE REMIT THE ISSUE TO THE AO ON THE SIMILAR LINES. THE GROUNDS OF APPEAL OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. FOR ASSESSMENT YEAR 2012-13, THE AO MADE AN ADDI TION OF RS. 157,27,760/- BELATED REMITTANCE OF EMPLOYEES CONTR IBUTION TO PF & ESI. AGGRIEVED, THE ASSESSEE FILED AN APPEAL. THE CIT(A ) RELYING ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF CIT VS INDUSTR IAL SECURITY AND INTELLIGENCE INDIA PVT. LTD., IN MDS. 585 & 586 OF 2015 AND MP NO. 1 OF 2015 DATED 24.07.2015 AND THE ITAT DECISION IN THE CASE OF ACIT VS SCM MICRO SYSTEMS (INDIA) LIMITED REPORTED ON 26 ITR(T) 178 A LLOWED THE APPEAL. AGGRIEVED, THE REVENUE FILED AN APPEAL FOR ASSESSME NT YEAR 2012-13. :-13-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 8.1 WE HEARD THE RIVAL SUBMISSIONS. SINCE, THE CIT (A) HAS RELIED ON THE RATIO OF THE JURISDICTIONAL HIGH COURT AND THIS TRI BUNAL DECISION, WE DO NOT FIND ANY REASON TO INTERFERE IN HIS ORDER. THE GROUNDS OF APPEAL FILED BY THE REVENUE ARE DISMISSED. 9. ITA NO. 864/2015 ASSESSEES APPEAL FOR AY 2010-1 1: 9.1 THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER U/S. 263 PASSED BY THE PCIT-2, CHENNAI FOR ASSESSMENT YEAR 2010-11. AT TH E TIME OF HEARING, THE ASSESSEE PLEADED TO WITHDRAW THE APPEAL AND HENCE T HE ASSESSEES APPEAL IS DISMISSED AS WITHDRAWN. 10. IN THE RESULT, THE REVENUES APPEAL IN ITA NO. 1431/16 IS DISMISSED, ITA NOS. 1432/2016 & 1433/2016 ARE PARTLY ALLOWED FOR S TATISTICAL PURPOSE AND THE ASSESSEES APPEAL IN ITA NO. 864/2015 IS DISMISSED AS WITHDRAWN. ORDER PRONOUNCED ON WEDNESDAY, THE 14 TH DAY OF FEBRUARY, 2018 AT CHENNAI. SD/- ( ) (GEORGE MATHAN) '# /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) # /ACCOUNTANT MEMBER :-14-: ITA NO. 1431, 1432, 1433/CHNY/2016 & 864/CHNY/2015 /CHENNAI, 2 /DATED: 14 TH FEBRUARY, 2018 JPV -45676 /COPY TO: 1. 8/ APPELLANT 2. 4:8 /RESPONDENT 3. ; ) (/CIT(A) 4. ; /CIT 5. 64 /DR 6. /GF
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