ACIT, Pune V. THERMAX LTD, Pune

ITA 1803/PUN/2012

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9958 (ITAT-PUNE)
• Duration Of Justice: 6 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-04-2019
• Assessment Year: 2004-2005
• Appeal Filed On: 10-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P U N A Y; S B PRASAD ITA NOS
• Assessee Lawyers: H P MAHAJANI; SANJAY BHAVE
• Keywords: Gift; Business income; Depreciation; Business expenditure; Principle of natural justice; Rule of consistency; Additional depreciation; Earning of tax free income; Proportionate interest; Bad and doubtful debts; Commercial expediency; Rule 8D; Set aside
• Section: 43B; 80HHC; 14A; 80IB; 80G; 250; 80IA; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO. 1765/PUN/2012 / ASSESSMENT YEAR : 2004-05 THERMAX LIMITED, 14, MUMBAI PUNE ROAD, WAKDEWADI, PUNE-411 003. PAN : AAACT3910D ....... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE / RESPONDENT . / ITA NO. 1803/PUN/2012 / ASSESSMENT YEAR : 2004-05 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE ....... / APPELLANT / V/S. THERMAX LIMITED, THERMAX HOUSE, 14, MUMBAI PUNE ROAD, WAKDEWADI, PUNE-411 003. PAN : AAACT3910D / RESPONDENT ASSESSEE BY : SHRI H. P. MAHAJANI & SHRI SANJAY BHAVE REVENUE BY : SHRI S. B. PRASAD 2 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 / DATE OF HEARING : 16.04.2019 / DATE OF PRONOUNCEMENT : 24.05.2019 / ORDER PER D. KARUNAKARA RAO, AM : THESE CROSS-APPEALS BY THE ASSESSEE AND REVENUE ARE FILED AGAINST THE ORDER OF THE LD. CIT(APPEALS)-5, PUNE DATED 29.06.2012 FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF STEAM BOILERS, HEAT EXCHANGERS, WATER TREATMENT PLANT, WATER TREATMENT RESINS, WATER TREATMENT CHEMICALS, CARBON AND METAL FILM RESISTORS, RELATED ACCESSORIES ETC. THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS.51.40 CRORES FOR THE YEAR UNDER CONSIDERATION. AT THE END OF THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), THE ASSESSING OFFICER ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS.61.41 CRORES AS AGAINST RETURNED INCOME OF THE ASSESSEE OF RS.51.40 CRORES AFTER MAKING SERIES OF ADDITIONS AS PER PARA 22 OF THE ASSESSMENT ORDER WHICH IS SCANNED AND EXTRACTED AS UNDER :- 22. SUBJECT TO THE ABOVE, THE TOTAL INCOME OF THE ASSESSEE IS COMPUTED AS UNDER: INCOME FROM BUSINESS (AS PER COMPUTATION OF INCOME) RS. 52,85,31,712/ - ADD: ADDITIONS/DISALLOWANCES AS PER THE BODY OF THE ASSESSMENT ORDER A) AMORTIZATION OF LEASE HOLD LAND AS PER PARA 4 RS. 2,66,396/ - B) ADDITION ON ACCOUNT OF NEGATIVE CIP (AS - 7) AS PER PARA 5 RS. 3,72,84,000/ - C) PRIOR YEAR EXPENSES AS PER PARA 6 RS. 3,23,912/ - D) LIQUIDATED DAMAGES AS PER PARA 7 RS. 92,59,000/ - 3 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 E) LEASE RENTALS AS PER PARA 8 RS. 1,53,21,302/ - F) DEPRECIATION AS PER PARA 9 RS. 58,73,012/ - G) SHORT TERM INCENTIVE PLAN AS PER PARA 10 RS. 23,21,000/ - H) OUT OF CLUB EXPENSES AS PER PARA 11 RS. 7,00,000/ - I) PUBLIC RELATION EXPENSES AS PER PARA 12 RS. 25,000/ - J) MISC. EXPENSES AS PER PARA 13 RS. 2,97,310/ - K) VEHICLE EXPENSES AS PER PARA 14 RS. 6,10,150/ - 1) FOREIGN TRAVEL EXPENSES AS PER PARA 15 RS. 23,24,891/ - M) RESIDENTIAL TEL. EXPENSES AS PER PARA 16 RS. 3,89,225/ - N) PROVISION FOR MEDICAL EXPENSES AS PER PARA 17 RS. 48,22,069/ - O) DISALLWOANCE U/S 14 A AS PER PARA 20 RS. 27,71,000/- RS. 47,00,000/- P) DISALLOWANCE COMMISSION AS PER PARA 21 RS. 68,09,886/ - ADDITIONS RS. 9,40,98,153/ - BUSINESS INCOME RS. 62,26,29,865/ - INCOME FROM OTHER SOURCES RS. 2,61,41,377/ - GROSS TOTAL INCOME RS. 64,87,81,242/ - LESS: CHAPTER VIA DEDUCTIONS RS. 1,57,79,332/- RS. 1,43,88,000/- RS. 2,50,000/- RS. 3,46,38,000/- A) U/S. 80HHC B) U/S. 80IB C) U/S. 80G TOTAL INCOME RS. 61,41,43,242/ - ROUNDED OFF TO RS. 61,41,43,240/ - 3. AGGRIEVED WITH THE ASSESSMENT ORDER, THE ASSESSEE APPROACHED BEFORE THE LD.CIT(APPEALS) CONTENDING AGAINST THE ADDITIONS MADE BY THE ASSESSING OFFICER. THE LD.CIT(APPEALS) GRANTED PARTIAL RELIEF TO THE ASSESSEE. 4. AGGRIEVED WITH THE ORDER OF THE LD.CIT(APPEALS), ASSESSEE AND THE REVENUE BOTH ARE IN APPEALS BEFORE US. WE SHALL NOW TAKE UP THE APPEAL-WISE ADJUDICATION IN THE FOLLOWING PARAGRAPHS. ITA NO.1765/PUN/2012 (BY ASSESSEE) A.Y. 2004-05 5. IN ITA NO.1765/PUN/2012, THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 4 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 1. PREMIUM ON LEAVE HOLD LAND: THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING APPELLANTS CLAIM FOR DEDUCTION OF AMORTIZED AMOUNT OF PREMIUM IN RESPECT OF LEASEHOLD LAND IN THE AMOUNT OF RS.2,69,628/-. 2. REVENUE RECOGNITION : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN SUSTAINING ADDITION UNDER THIS HEAD TO THE EXTENT OF RS.26.55 LACS BY HOLDING THAT THE ADJUSTMENT MADE BY THE LEARNED AO IN RESPECT OF FREIGHT WAS JUSTIFIED. THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT FREIGHT PAID BY THE APPELLANT AND FREIGHT RECOVERED FROM THE CUSTOMER WERE NOT RELEVANT FOR DETERMINING THE STAGE OF COMPLETION OF ANY PROJECT AND WERE THEREFORE RIGHTLY NOT CONSIDERED BY THE APPELLANT FOR THIS PURPOSE. THE ADDITION SUSTAINED BY THE LEARNED CIT(A) BE DELETED THE LEARNED CIT(A) FURTHER ERRED IN OMITTING TO DIRECT THE AO TO ALLOW DEDUCTION FOR A SUM OF RS.13,69,648/- BEING THE AMOUNT OF INCOME ALREADY BROUGHT TO TAX AY 2003-04 PURSUANT TO THE ORDER OF THE CIT(A) FOR THAT YEAR. 3. PRIOR YEAR EXPENSES: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS. 3,23,912/-. 4. LIQUIDATED DAMAGES: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A), ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION FOR LIQUIDATED DAMAGES ONLY TO THE EXTENT THE AMOUNTS DEBITED ARE FOUND SUPPORTED BY THE 'CLAUSE FOR LIQUIDATED DAMAGES' INSTEAD OF ALLOWING THE CLAIM IN ITS ENTIRETY. THE CLAIM OF THE APPELLANT BE DIRECTED TO BE ALLOWED IN FULL EITHER AS LIQUIDATED DAMAGES OR AS BAD DEBTS OR AS A BUSINESS LOSS. 5. DEPRECIATION : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF REJECTING THE CONTENTION OF THE APPELLANT THAT IT WAS ENTITLED TO CLAIM DEPRECIATION @ 100% IN RESPECT OF CERTAIN ITEMS OF PLANT AND MACHINERY WHICH WERE SO ENTITLED IN ACCORDANCE WITH APPENDIX TO INCOME-TAX RULES, 1962 AND INSTEAD ALLOWING DEPRECIATION @25%. THE LEARNED CIT(A) ERRED IN MECHANICALLY FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A Y 2003-04 WHILE REJECTING THE FACTS OF THE CASE AND ALSO LOSING SIGHT OF THE FACT THAT IN EARLIER YEARS SIMILAR CLAIM OF THE APPELLANT WAS ALLOWED. THE CLAIM OF THE APPELLANT FOR FURTHER DEPRECIATION OF RS.58,73,012/- BE DIRECTED TO BE ALLOWED. 5 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 6. SHORT TERM INCENTIVE PLAN: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAVING ACCEPTED THE CONTENTION OF THE APPELLANT THAT LIABILITY UNDER THE STIP SCHEME HAD CRYSTALLIZED DURING THE PREVIOUS YEAR RELEVANT TO THE YEAR UNDER APPEAL, OUGHT TO HAVE DIRECTED THE AO TO ALLOW DEDUCTION FOR RS. 4,86,48,820 /- BEING THE FULL AMOUNT OF SUCH LIABILITY AND INSTEAD DIRECTING HIM TO ALLOW DEDUCTION FOR RS.23,21,000. THE LEARNED CIT(A) FAILED TO NOTICE THE FACT THAT WHILE MAKING THE AFORESAID ADDITION OF RS. 23,21 ,000 THE AO HAD IN FACT DISALLOWED IN FULL THE SAID SUM OF RS. 4,86,48,820/- BUT HAD ALLOWED DEDUCTION FOR RS.463.70 LACS (487.01-437.46-26.24) BEING PROVISION FOR STIP DISALLOWED IN AY 2003-04 BUT PAID/REVERSED IN THE PREVIOUS YEAR RELEVANT TO AY 2004-05. THE LEARNED AO BE DIRECTED TO ALLOW FURTHER RELIEF OF RS.4,86,48,820/-. 7. DEDUCTION U/S.80HHC IN THE MATTER OF DEDUCTION U/S.80HHC THE LEARNED CIT(A) ERRED IN A) DIRECTING INCLUSION OF BALANCE WRITTEN BACK RS.22,72,000/- AS PART OF TOTAL TURNOVER. B) CONFIRMING EXCLUSION UNDER EXPLANATION (BAA) OF 90% OF THE FOLLOWING: CLAIMS AND REFUNDS (RS.35,68,363/-), BALANCE WRITTEN OFF NOW RECOVERED (RS.67,80,532/-); PREMIUM OF FORWARD CONTRACTS (6,32,505/-), OTHER RECEIPTS (RS.6,23,95,946/-), EXPORT INCENTIVE ( RS.4,51,90,553/-). C) CONFIRMING EXCLUSION FROM ELIGIBLE PROFITS OF BUSINESS, LOSS/EXPENSES ON FOREIGN REPRESENTATIVE OFFICES RS.5,30,06,437/- ON THE BASIS OF CIT(A) ORDER FOR AY 2003-04 AND THEREBY IGNORING THE RELIEF ALLOWED BY THE LEARNED CIT(A)S IN YEARS PRIOR THERETO. D) THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE CONTENTION OF THE APPELLANT THAT LOSS OF FOREIGN REPRESENTATIVE OFFICES SHOULD GO TO INCREASE THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S.80HHC INSTEAD OF IGNORING THE SAME. E) REDUCING THE PROFITS OF THE BUSINESS BY RS.451.90 LACS BY NOT ALLOWING DEDUCTION WITH REFERENCE TO THE PROPORTIONATE EXPORT INCENTIVE (DEPB 156.45 & DUTY DRAW BACK RS.295.45). 6. GROUND NO.1 RELATES TO THE CLAIM FOR DEDUCTION OF PROPORTIONATE PREMIUM ON LEASEHOLD LAND AMORTIZED RS.2,66,396/- WHICH HAS BEEN WRONGLY REFERRED TO AS RS.2,69,628/- IN THE GROUNDS OF APPEAL. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 4 OF THE ASSESSMENT ORDER AND THE LD. 6 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 5 OF APPELLATE ORDER AND CONFIRMED THE ADDITION. 7. IN THE LIGHT OF THE ORDER OF THE LD. CIT(APPEALS) AGAINST THE ASSESSEE ON THIS ISSUE BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THIS ISSUE STANDS COVERED BY THE SERIES OF DECISIONS OF THE TRIBUNAL AGAINST THE ASSESSEE. 8. IN THIS REGARD, BRINGING OUR ATTENTION TO PARA 7 TO 10 OF THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1055 & 1056/PUN/2009 FOR THE ASSESSMENT YEAR 2003-04 ORDER DATED 12.03.2019, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE. 9. THE LD. DR FOR THE REVENUE HEAVILY RELIED ON THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL ON THIS ISSUE. 10. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE AND PERUSED THE PARA 7 TO 10 OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE (SUPRA.). FOR THE SAKE OF COMPLETENESS, THE SAME ARE EXTRACTED AS UNDER: 7. GROUND NO.1 IS WITH RESPECT TO DISALLOWANCE OF PREMIUM IN RESPECT OF LEASEHOLD LAND. AO ON PERUSING THE DETAILS OF EXPENDITURE NOTICED THAT ASSESSEE HAD DEBITED AN AMOUNT OF RS.2,69,628/- BEING AMORTIZATION OF PREMIUM PAID ON LEASEHOLD LAND. AO NOTED THAT SIMILAR EXPENDITURE CLAIMED BY THE ASSESSEE IN EARLIER YEARS WAS DISALLOWED BY THE AO AND THE ACTION OF AO WAS ALSO UPHELD BY LD.CIT(A). HE THEREFORE, BY FOLLOWING THE REASONING OF AO AND CIT(A)S DECISION OF EARLIER YEARS, DISALLOWED THE CLAIM. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A), WHO DISMISSED THE SAME BEING NOT PRESSED. AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, AT THE OUTSET, LD. AR FAIRLY CONCEDED THAT IDENTICAL ISSUE AROSE IS ASSESSEES APPEAL BEFORE TRIBUNAL IN A.YS. 2000-01 TO 2002-03 AND THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. HE POINTED TO THE RELEVANT FINDINGS OF THE TRIBUNAL. HE THEREFORE SUBMITTED THAT THE ISSUE 7 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 BE DECIDED ACCORDINGLY. LD. DR DID NOT CONTROVERT THE SUBMISSIONS MADE BY THE LD. AR BUT SUPPORTED THE ORDER OF LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO CLAIM OF AMORTIZATION OF PREMIUM PAID FOR LEASEHOLD LAND . IN THE YEAR UNDER CONSIDERATION, THE LD.CIT(A) VIDE PARA NO 6.1 OF THE ORDER DISMISSED THE GROUND RAISED BY THE ASSESSEE AS NOT PRESSED. THE ASSESSEE IS THEREFORE NOW BEFORE US. WE FIND THIS ISSUE WAS THE SUBJECT MATTER BEFORE THE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS IN ASSESSEES OWN CASE IN A.YS. 2000-01 TO 2002-03 AND THE ISSUE WAS DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL AGAINST THE ASSESSEE BY HOLDING AS UNDER : 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO CLAIM OF AMORTIZATION OF PREMIUM PAID FOR LEASEHOLD LAND. WE FIND THAT IDENTICAL ISSUE OF AMORTIZATION OF PREMIUM ON LEASEHOLD LAND AROSE IN ASSESSEES OWN CASE IN A.YRS. 2000-01 AND 2001- 02. THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE COORDINATE BENCH OF THE TRIBUNAL BY HOLDING AS UNDER : 8.1 THE LD. AR OF THE ASSESSEE FAIRLY SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN ASSESSMENT YEARS 1998-99 AND 1999-2000 BY THE TRIBUNAL. WE OBSERVE THAT THIS ISSUE HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH IN ASSESSMENT YEARS 1998-99 AND 1999-2000 AND HAS DECIDED THE SAME AGAINST THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS :- 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 RECENT ORDER OF THE TRIBUNAL DATED 03.09.2014 (SUPRA) PERTAINING TO ASSESSMENT YEAR 1997- 98. IT WAS ALSO AN ACCEPTED POSITION THAT THE ISSUE REGARDING ASSESSEES CLAIM FOR DEDUCTION OF PROPORTIONATE PREMIUM OF LEASEHOLD LAND AMORTIZED AND CHARGED TO THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION IS LIABLE TO BE DECIDED IN TERMS OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GOVIND SUGAR MILLS LTD. VS. CIT, (1998) 232 ITR 319 (SC) AGAINST THE ASSESSEE. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ON THIS ASPECT ARE UPHELD AND ASSESSEE FAILS. ACCORDINGLY, GROUND NO. 2 IN THE APPEAL OF ASSESSEE IS DISMISSED. 15. WE THUS FIND THAT THE CO-ORDINATE BENCH, RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF GOVIND SUGAR MILLS LIMITED (SUPRA) DECIDED THE ISSUE AGAINST THE ASSESSEE. FURTHER, IN VIEW OF THE LD. ARS SUBMISSION THAT THE ISSUE IN THE YEAR UNDER CONSIDERATION IS SIMILAR TO A.Y. 2000-01 AND 2001-02 AND SINCE IN THOSE YEARS THE ISSUE WAS DECIDED AGAINST THE ASSESSEE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) AND THUS, THE ASSESSEES GROUND IS DISMISSED. 10. BEFORE US, LD AR HAS NOT POINTED TO AS DISTINCTION IN THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION AND THAT OF EARLIER YEARS. WE THEREFORE FOLLOWING THE SAME REASONING AS GIVEN BY THE CO-ORDINATE BENCH WHILE DECIDING THE ISSUE IN ASSESSEES OWN CASE IN AY 2000-01 TO 2002-03, FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THE ASSESSEES GROUND IS DISMISSED. 8 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 FROM THE ABOVE, IT IS EVIDENT THAT THIS ISSUE IS PERENNIALLY BEING ADJUDICATED BY THE TRIBUNAL AND THE SAME IS DECIDED IN FAVOUR OF THE REVENUE. CONSIDERING THE COMMONNESS OF THE FACTS AS WELL AS THE SETTLED LEGAL PROPOSITION, WE ARE OF THE OPINION THAT THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE REVENUE FOR THE YEAR UNDER CONSIDERATION ALSO. THUS, GROUND NO.1, RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED . 11. GROUND NO.2 RELATES TO THE INCOME RECOGNITION FROM CONTRACT ACTIVITY AND ADDITION UNDER THIS HEAD TO THE EXTENT OF RS.26.55 LACS. 12. BRIEFLY STATED THE RELEVANT FACTS INCLUDE THAT THE ASSESSEE TAKES WORK CONTRACTS FROM THE CLIENTS AND EARNS CONTRACT INCOME. AT THE TIME OF ENTERING INTO THE CONTRACT, RAISING INVOICES OF SALE AND THE TIMELINE FOR PAYMENT SCHEDULE IS AGREED UPON. THE ASSESSEE RECEIVES THE PAYMENTS AS PER THE SCHEDULE. NOTWITHSTANDING THE ABOVE, REGARDING THE INCOME RECOGNITION, THE ASSESSEE FOLLOWS ACCOUNTING STANDARD 7 (AS 7) AND THE PERCENTAGE COMPLETION METHOD FOR RECOGNIZING THE TAXABLE INCOME, WHEN THE SAID CONTRACTS SPREAD OVER MANY YEARS I.E. CONTRACTS IN PROGRESS (CIP). AT TIMES, THE ASSESSEE RECEIVES MORE SALES RECEIPTS WHICH IS MUCH HIGHER THAN THE INCOME DULY RECOGNIZED BASED ON THE ABOVE PRINCIPLE OF PERCENTAGE COMPLETION METHOD CUM- AS 7. TAXABILITY OF SUCH EXCESS RECEIPTS IS THE MATTER OF LITIGATION. EXPLAINING THE SAID EXCESS, THE ASSESSEE SUBMITTED THAT IT CONSISTENTLY FOLLOWED THE METHOD OF AS-7 CUM- PERCENTAGE COMPLETION METHOD OVER THE YEARS AND THE SAID EXCESS IS EVENTUALLY TAXED ON COMPLETION OF THE CONTRACT. THE PERCENTAGE COMPLETION METHOD FOLLOWED BY THE ASSESSEE INVOLVES THE QUANTIFICATION OF TAXABLE INCOME BASED ON THE PROPORTION BETWEEN THE TOTAL ESTIMATED COST OF A PROJECT AND THE EXPENDITURE INCURRED ON THE PROJECT DURING THE YEAR ON THE SAID CONTRACTS IN PROGRESS (CIP). THE ASSESSEE 9 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 OBJECTED TO THE NEGATIVE CIP IN RESPECT OF THE CONTRACTS EXECUTION WHICH COMMENCED ON 01 ST APRIL, 2003 QUA THE MODIFIED AS-7. OTHERWISE, THE ASSESSING OFFICER ACCEPTED THE CALCULATION OF PROFITS IN RESPECT OF ALL THE CONTRACTS WHICH REGISTERED POSITIVE CIP, WHERE AMOUNT OF REVENUE RECOGNIZED BASED ON THE PERCENTAGE COMPLETION METHOD IN PROPORTIONATE TO THE ORDER VALUE IS MORE THAN WHAT IS CREDITED TO THE PROFIT & LOSS ACCOUNT BY WAY OF SALES. THE ASSESSING OFFICER ALSO ACCEPTED NEGATIVE CIP LINKED PROFITS WHERE THE AMOUNT RECOGNIZED THE SAME BASIS IS LESS THAN WHAT IS CREDITED TO THE PROFIT & LOSS ACCOUNT BY WAY OF SALES. HOWEVER, IN RESPECT OF SUCH NEGATIVE CIP CASES EXECUTED COMMENCING FROM 01 ST APRIL, 2003, THE ASSESSING OFFICER REJECTED THE ASSESSEES WORKING OF COST INCURRED VERSUS ESTIMATED COST OF THE PROJECT. INSTEAD, ASSESSING OFFICER ADOPTED SALES INVOICES RAISED VERSUS ORDER VALUE. FURTHER, THE ASSESSING OFFICER ALSO ADJUSTED THE ESTIMATED COST OF THE CONTRACT BY LODGING WARRANTY PROVISIONS ETC. IN THE PROCESS, THE ASSESSING OFFICER DISTURBED THE METHOD ADOPTED BY THE ASSESSEE OVER THE YEARS. CONSEQUENT TO THE MODIFIED AS-7, WHICH IS IN EFFECT FROM 01 ST APRIL, 2003 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER ADDED THE FREIGHT OUTWARD INCURRED FOR DELIVERY OF GOODS TO THE CUSTOMERS AND THE RECOVERY THEREOF AS PART OF THE RECEIPTS. IN THE PROCESS, THE ASSESSING OFFICER IGNORED THE FACT BY GIVING THE ADJUSTMENT TO THE OUTWARD COST, WHICH SHOULD NOT IMPACT ULTIMATE PROFITS TO THE ASSESSEE IN THE SAID CONTRACT AND MERELY IN THE CASE OF REIMBURSEMENT. EVENTUALLY, ON ACCOUNT OF NEGATIVE CIP, THE ASSESSING OFFICER DISALLOWED A SUM OF RS.3,72,84,000/- AS PER THE DISCUSSION GIVEN IN PARA 5 OF THE ASSESSMENT ORDER. 13. DURING THE FIRST APPELLATE PROCEEDINGS, ON THE SAID ISSUE OF NEGATIVE CIP EXECUTED COMMENCED FROM 01.04.2003, THE ASSESSEE IS GIVEN ENTIRE RELIEF AS 10 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 PER THE DISCUSSION GIVEN IN PARA 10 OF THE ORDER OF THE CIT(A). IN THE PROCESS, THE CIT(A) CONFIRMED THE METHOD OF RECOGNITION OF INCOME ADOPTED BY THE ASSESSEE RELYING ON PERCENTAGE COMPLETION METHOD AND AS-7. THE CIT(A) DISALLOWED THE SELECTIVE APPROACH OF THE ASSESSING OFFICER. THE RELEVANT LINES FROM PARA 10 OF THE ORDER OF THE CIT(A) ARE EXTRACTED AS UNDER :- 10. . IN THIS CASE THE A.O. HAS ADOPTED A SELECTIVE APPROACH IN MODIFYING THE REVENUE RECOGNITION WITHOUT ANY PROPER BASIS. THE A.O. HAS ADOPTED THE FORMULA OF INVOICES RAISED/ TOTAL CONTRACT VALUE ONLY IN RESPECT OF PROJECTS WHICH STARTED DURING THE YEAR AND WHICH HAVE NEGATIVE CIP AS ON 31.03.2004 FOR DETERMINING STAGE OF COMPLETION. IN RESPECT OF ALL OTHER CONTRACTS THE A.O. HAS NOT INTERFERED. THEREFORE, THE APPROACH TAKEN BY THE A.O. IS WITHOUT ANY LOGIC AND CANNOT BE UPHELD. THE APPELLANT GETS RELIEF OF RS.345.35 LACS. 14. ON THE OTHER ISSUES OF THE NEED OF ADJUSTMENT OF ESTIMATED COST ON ACCOUNT OF WARRANTY COST, THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS PER THE DISCUSSION GIVEN IN PARA 12 OF THE ORDER OF THE CIT(A). FOR THE SAKE OF COMPLETENESS, THE SAID PARA IS EXTRACTED HEREUNDER :- 12. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. PROVISIONS OF WARRANTY ARE NO DOUBT AN ALLOWABLE EXPENDITURE AND ALSO APPROVED BY AS 7 BUT THE SAME HAS TO BE CALCULATED ON SCIENTIFIC BASIS AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA P. LTD. VS. CIT (2009) 314 ITR PAGE 62. THE APPELLANT OBJECTED THE ACTION OF THE A.O. STATING THAT THE WORKING OF THE A.O. HAS DISTORTED THE ENTIRE WORKING FOR ALL TIME TO COME AND ALSO THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL IN THE ULTIMATE ANALYSIS. THE A.O. HAS APPLIED THE WARRANTY EXPENSES ON THE BASIS OF AVERAGE OF PAST THREE YEARS FIGURES WHICH IS 0.69% AS AGAINST 1.25% SHOWN BY THE APPELLANT. PROVISION FOR WARRANTY EXPENSES UPTO 2% HAS BEEN HELD TO BE REASONABLE IN MANY DECISIONS OF THE TRIBUNAL. THE APPELLANT HAS WORKED OUT THE DISALLOWANCE ON ACCOUNT OF THIS METHOD ADOPTED BY THE A.O. WHICH COMES TO RS.3.94 LACS. THIS AMOUNT IS TOO SMALL TO UPHELD THE ACTION OF THE A.O. THEREFORE, THE A.O. IS DIRECTED TO DELETE ADDITION OF RS.3.94 LACS ON ISSUE OF ADJUSTMENT TO COST ON ACCOUNT OF WARRANTY EXPENSES. THIS SUB- GROUND IS THUS ALLOWED. 15. HOWEVER, ON THE ISSUE OF ADJUSTMENT OF ESTIMATED COST ON ACCOUNT OF FREIGHT OUTWARDS, THE CIT(A) SUSTAINED THE ADDITION AS PER THE DISCUSSION GIVEN IN PARA 14 AND THE SAME IS EXTRACTED HEREUNDER :- 11 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 14. I HAVE CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. SINCE THE FREIGHT CHARGES WERE RECOVERED BY THE APPELLANT COMPANY IN PURSUANCE TO THE CONTRACT THE A.O. WAS VERY MUCH JUSTIFIED IN TREATING THE SAME TO BE PART OF THE CONTRACT AND REDUCING THE COST ACCORDINGLY. THEREFORE, THERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE ASSESSING OFFICER ON THIS ACCOUNT. ACCORDINGLY, ADDITION OF RS.26.55 LACS IS SUSTAINED. 16. AT THE END, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO RECALCULATE THE ESTIMATED COST AS PER THE DISCUSSION GIVEN IN PARA 15 OF HIS ORDER. THE SUMMARY OF THE DECISION OF THE CIT(A) ON THIS ISSUE IS GIVEN IN PARA 15 OF HIS ORDER AND THE SAME IS EXTRACTED HEREUNDER :- 15. TO SUM UP THE ISSUE BRIEFLY, IT IS SEEN THAT THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF CONTRACT MANUFACTURING AS FAR AS THE ISSUE RAISED IN THE GROUND IS CONCERNED. THE BOOKS OF ACCOUNT IN RESPECT OF SUCH CONTRACT WORK IS PREPARED ON THE BASIS OF REVISED AS7 WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE PAST AND IN CASE OF ONE OF THE GROUP CONCERNS AT THE LEVEL OF ITAT TOO. THE APPELLANT HAS CHANGED THE REVENUE RECOGNITION ON THE BASIS OF PERCENTAGE COST INCURRED WITH REFERENCE TO THE TOTAL COST OF THE PROJECT AS PER REVISED AS7 GUIDELINES WHICH WAS EFFECTIVE FOR THE CONTRACTS SIGNED AFTER 1/4/2003. THE SALES ARE RECOGNISED ON THE BASIS OF INVOICES RAISED AS THE GOODS ARE DESPATCHED FROM THE FACTORY ON WHICH EXCISE AND OTHER DUTIES ARE REQUIRED TO BE PAID. SINCE CONTRACT WORK IS COMPLETED, IN MORE THAN ONE YEAR, THE REVENUE RECOGNITION IS MADE AS PER AS7. SINCE SALES ARE SOME TIMES HIGHER THAN THE COST OF THE WORK COMPLETED, NEGATIVE CIP IS SHOWN. THE A.O HAS SELECTIVELY REJECTED THE WORKING OF NEGATIVE CIP IN RESPECT OF CONTRACT ENTERED INTO DURING THE YEAR 2003-04. AS HELD IN THE PRECEDING PARAS THIS APPROACH OF THE A.O IS WITHOUT ANY LOGIC AND THEREFORE CANNOT BE UPHELD. AS REGARDS ADJUSTMENT IN COST ON ACCOUNT OF WARRANTY EXPENSES TO THE ACTION OF THE A.O FAILS WHILE IN RESPECT OF FREIGHT RECEIVED THE ACTION OF THE A.O. IS UPHELD. THE LEARNED COUNSEL OF THE APPELLANT WAS ASKED TO GIVE THE WORKING OF DISALLOWANCE ON ACCOUNT OF NEGATIVE CIP WHICH IS AS UNDER: NEGATIVE CIP : RS.342.35 LACS ADJUSTMENT OF ACCOUNT OF WARRANTY : RS.3.94 LACS ADJUSTMENT OF ACCOUNT OF COST : RS.26.55 LACS THUS, THE APPELLANT GETS RELIEF OF RS.346.29 LACS (RS.372.84 26.55). THE GROUND IS THUS PARTLY ALLOWED. 17. IN THE BACKGROUND OF THE ABOVE FACTS AND AGGRIEVED WITH THE ORDER OF THE CIT(A), THE LD. COUNSEL RAISED THE GROUND RELATING TO INCLUSION OF THE FREIGHT OUTWARD TO THE EXTENT OF RS.26.55 LAKHS. FURTHER, AGGRIEVED WITH THE 12 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 RELIEF GRANTED BY THE CIT(A) IN FAVOUR OF THE ASSESSEE ON THE ISSUE OF NEGATIVE CIP AND WARRANTY ISSUE , THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 18. BEFORE US, ON THE ISSUE OF ADOPTION OF AS-7 AND THE PERCENTAGE COMPLETION METHOD, LD. COUNSEL SUBMITTED THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF SERIES OF DECISIONS. REFERRING TO THE DECISION OF ITAT IN ASSESSEES OWN CASE VIDE ITA NO.1055 & 1056/PUN/2009 FOR THE ASSESSMENT YEAR 2003-04 DATED 12.03.2019, THE LD. COUNSEL SUBMITTED THAT THE ISSUE RELATING TO THE ADOPTION OF THE SAID METHOD OF RECOGNIZING INCOME OF THE ASSESSEE IN RESPECT OF SUCH CONTRACTS IS NOW SETTLED BY THE SAID DECISION OF THE TRIBUNAL. REFERRING TO THE NOTE FILED BY THE ASSESSEE ON THIS ISSUE BEFORE US, LD. COUNSEL BROUGHT OUR ATTENTION TO THE PRECEDENTS IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1997-98 TO 2003-04, LD. COUNSEL FILED A WRITTEN SUBMISSION IN FAVOUR OF ACCEPTING THE METHOD OF ACCOUNTING VIDE AS-7 AND THE PERCENTAGE COMPLETION METHOD. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARAS OF THE WRITTEN SUBMISSION ARE EXTRACTED HEREUNDER :- THE ASSESSEE HAD MADE A PROVISION OF RS. 4,87,01,000/- FOR AY 2004-05 FOR INCENTIVE PAYABLE TO THE EMPLOYEES UNDER STIP. THE AO DISALLOWED THE SAME FOLLOWING ORDER FOR AY 2003-04. THE AO HOWEVER ALLOWED DEDUCTION FOR THE AMOUNT PAID/REVERSED RS. 4,63,70,760/- IN RESPECT OF SIMILAR INCENTIVE FOR AY 2003-04, PROVISION FOR WHICH WAS DISALLOWED IN AY 2003-04. HE ACCORDINGLY DISALLOWED THE NET AMOUNT OF RS. 23.21 LACS THE CIT(A) HELD THAT LIABILITY OF RS. 4,86,48,820/- FOR AY 2004-05 HAD CRYSTALLIZED DURING THE YEAR AND WAS THEREFORE ALLOWABLE. HE HOWEVER ALLOWED RELIEF ONLY FOR RS. 23.21 SINCE THAT WAS THE AMOUNT THAT WAS DISALLOWED BY THE AO. THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO ALLOW DEDUCTION FOR CRYSTALLIZED LIABILITY OF RS. 4,86,48,820/- WHICH WAS THE ISSUE BEFORE HIM. THE ACTION OF THE AO IN ALLOWING DEDUCTION IN RESPECT OF STIP FOR AY 2003-04 WAS CONSEQUENTIAL TO THE DISALLOWANCE MADE BY HIM WHILE COMPLETING THE ASSESSMENT FOR AY 2003-04. 13 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 THE DISALLOWANCE MADE BY THE AO IN AY 2003-04 HAS BEEN UPHELD VIDE PARA 30-34. THE TRIBUNAL HAS HOWEVER DIRECTED THAT DEDUCTION SHOULD BE ALLOWED FOR AMOUNTS PAID UNDER THE SCHEME. THIS IS WHAT THE AO HAS DONE IN AY 2004-05. THE AO SHOULD THEREFORE BE DIRECTED TO ALLOW DEDUCTION FOR RS.4,86,48,820/- IN PLACE OF DEDUCTION FOR RS.23.21 LACS DIRECTED TO BE ALLOWED BY THE CIT(A). THE GROUND OF THE DEPARTMENT NEEDS TO BE CONSEQUENTIALLY DISMISSED. 19. FURTHER, REFERRING TO THE CHANGES IN ACCOUNTING BROUGHT BY THE AS-7 APPLICABLE TO THE PERIOD FROM 01.04.2003 ONWARDS, LD. COUNSEL SUBMITTED THAT TILL THE LAST YEAR, THE POSITIVE OR NEGATIVE CONTRACT-WISE CONCLUSIONS WERE SHOWN AS PROFIT EQUALIZATION ADJUSTMENT AND THE SAME EFFECT IS NOW ACHIEVED BY REFLECTING THE DIFFERENCE AS NEGATIVE CIP OR POSITIVE CIP, AS THE CASE MAY BE. IN EFFECT, THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE EVEN AFTER AMENDMENT TO AS-7 IS ONE AND THE SAME IN SPIRIT. FURTHER, REFERRING TO THE AS-7 AND ITS ADOPTION BY THE ASSESSEE, LD. COUNSEL SUBMITTED THAT THE EXAMPLES DEMONSTRATING THE WORKING OF INCOME QUA THE AS-7, ARE ANNEXED TO THE NOTE. THE DETAILED WORKING OF INCOME PLACED BEFORE US RELATES TO A CIP WITH PRASAD CONSTRUCTIONS. 20. ON THE OTHER HAND, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF THE ASSESSING OFFICER. 21. ON HEARING BOTH THE SIDES, WE FIND IN THE APPEAL OF THE ASSESSEE AND IN THE APPEAL OF THE REVENUE, THE ISSUE FOR ADJUDICATION RELATES TO THE CORRECTNESS OF THE ADJUSTMENTS MADE TO THE ESTIMATED COST QUA THE FREIGHT OUTWARD TO THE TUNE OF RS.26.55 LAKHS. THE DETAILS AND THE FACTS ARE ALREADY NARRATED IN THE PRECEDING PARAGRAPHS OF THIS ORDER. PERUSING THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2003-04 (SUPRA), WE FIND, IN PRINCIPLE, THE INCOME RECOGNITION METHOD STANDS APPROVED BY THE ORDER OF THE TRIBUNAL IN 14 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 FAVOUR OF THE ASSESSEE. THE DISCUSSION AT PARA 11 TO 13 OF THE ORDER OF THE TRIBUNAL IS RELEVANT IN THIS REGARD AND THE SAME ARE EXTRACTED AS UNDER :- 11. GROUND NO.2 IS WITH RESPECT TO ADDITION MADE TO THE CONTRACT INCOME. AO NOTICED THAT ASSESSEE IS A MANUFACTURER OF INDUSTRIAL BOILERS AND HEAT TRANSFER EQUIPMENTS AND UNDERTAKES THE PROJECTS ON CONTRACT BASIS AND THE CONTRACT NORMALLY RUNS OVER A PERIOD OF MORE THAN ONE YEAR. THE ASSESSEE WAS ACCOUNTING FOR INCOME ON SUCH PROJECTS BY FOLLOWING THE PROJECTION COMPLETION METHOD AND WAS RAISING INVOICES AS PER THE SCHEDULED PAYMENTS AGREED WITH THE CLIENTS BUT AT THE SAME TIME HAD CREATED PROVISION TOWARDS CONTRIBUTION EQUALIZATION PROVISION TO ADJUST EXCESS BILLING. DURING THE YEAR, THE PROVISION OF CONTRIBUTION EQUALIZATION DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS RS.4,53,93,679/-. AO NOTICED THAT THE EXCESS AMOUNT REALIZED AS PER THE INVOICES WAS NOT OFFERED AS REVENUE RECEIPTS AND TO THAT EXTENT PROFIT WAS NOT OFFERED AS INCOME. AO WAS OF THE VIEW THAT SINCE THE INVOICES WAS RAISED AS PER THE AGREED SCHEDULE; THE INVOICE VALUE SHOULD BE TREATED AS REVENUE RECEIPTS. HE FURTHER NOTICED THAT IDENTICAL ISSUE AROSE IN A.Y. 1997-98 WHEREIN IT WAS HELD THAT THE VALUE REFLECTED IN INVOICES RAISED AS PER AGREED SCHEDULE WITH THE CLIENTS WAS TO BE TREATED AS REVENUE RECEIPTS. AO THEREFORE HELD THAT THE PROVISION OF RS.4,53,93,679/- CANNOT BE ALLOWED. HE ACCORDINGLY DISALLOWED THE SAME AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A), WHO GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER : 7.2. I FIND THAT THE ISSUE HAS ELABORATELY BEEN DEALT WITH BY MY PREDECESSOR IN APPELLANTS CASE IN APPEAL FOR A.Y. 2002-03, WHEREIN IT WAS HELD BY HIM THAT ALTHOUGH, IN PRINCIPLE, THE APPELLANT CANNOT BE FOUND FAULT WITH FOR HAVING FOLLOWED ACCOUNTING STANDARD-7 IN THE MATTER OF REVENUE RECOGNITION AND ACCORDINGLY, MAKING PROVISIONS FOR EQUALIZATION, ITS ACTUAL WORKING IS NOT ABOVE SCRUTINY. HE HELD THAT THE APPELLANT WAS NOT JUSTIFIED IN OMITTING TO RECOGNIZE REVENUE WHEREVER COMPLETION WAS LESS THAN 33% OF THE TOTAL PROJECT OR WHERE THE CONTRACTS WERE LESS THAN RS.25 LACS. THE LD.CIT(A) ALSO DISAPPROVED THE APPELLANTS ACT OF FURTHER SCALING DOWN TOWARDS CONTINGENCIES/UNFORESEEABLE LOSSES. THE FACTS OF THE CASE DURING THIS YEAR ARE IDENTICAL TO THOSE IN A.Y. 2002-03 AND I FIND NO REASON TO FORM A VIEW OTHER THAN THAT OF MY PREDECESSOR. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO WORK OUT THE EXCESS PROVISION IN THE LIGHT OF THE OBSERVATION MADE BY LD.CIT(A) IN A.Y.2002-03 AND RESTRICT THE DISALLOWANCE TO THAT EXTENT. DECIDED ACCORDINGLY. AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS NOW IN APPEAL BEFORE US. REVENUE IS ALSO AGGRIEVED BY ORDER OF CIT(A) TO THE EXTENT OF RELIEF GRANTED BY HIM AND HAS THEREFORE RAISED GROUND NO.2 IN ITS APPEAL. SINCE THE GROUNDS RAISED BY ASSESSEE AND REVENUE ARE INTER-CONNECTED, BOTH ARE CONSIDERED TOGETHER. 12. BEFORE US, LD. AR SUBMITTED THAT IDENTICAL ISSUE AROSE BEFORE TRIBUNAL IN ASSESSEES APPEAL FOR A.Y. 2002-03 AND THE ISSUE WAS DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES FAVOUR BY FOLLOWING THE TRIBUNAL ORDER IN A.YS.1997-98 TO 2002-03. HE PLACED ON RECORD THE ORDER OF TRIBUNAL FOR A.YS. 2000-01 TO 2002-03 AND POINTED TO 15 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 THE RELEVANT FINDINGS OF THE TRIBUNAL. HE SUBMITTED THAT SINCE THERE ARE NO CHANGE IN THE FACTS OF THE CASE FOR THE YEAR UNDER CONSIDERATION, THEREFORE FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS, THE ISSUE BE DECIDED IN FAVOUR OF THE ASSESSEE. LD. DR DID NOT CONTROVERT THE SUBMISSIONS MADE BY THE LD. AR BUT HOWEVER SUPPORTED THE ORDER OF AO. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO INCREASING THE INCOME TO THE EXTENT OF PROVISION FOR PROFIT EQUALIZATION. WE FIND THAT IDENTICAL ISSUE OF INCREASE IN THE CONTRACT INCOME AROSE IN ASSESSEES OWN CASE IN A.YS.2000-01 TO 2002-03 AND THE COORDINATE BENCH OF THE TRIBUNAL DECIDED THE ISSUE IN ASSESSEES FAVOUR BY FOLLOWING THE TRIBUNAL ORDER FOR A.YS. 1997-98 TO 2000-01, BY HOLDING AS UNDER: 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO INCREASING THE INCOME TO THE EXTENT OF PROVISION FOR PROFIT EQUALIZATION. WE FIND THAT IDENTICAL ISSUE OF INCREASE IN THE CONTRACT INCOME AROSE IN ASSESSEES OWN CASE IN A.Y. 2000-01 AND 2001-02 AND THE COORDINATE BENCH OF THE TRIBUNAL DECIDED THE ISSUE IN ASSESSEES FAVOUR BY FOLLOWING THE TRIBUNAL ORDER FOR A.YRS. 1997-98, 1998-99 AND 1999-2000, BY HOLDING AS UNDER: 9. THE THIRD GROUND RAISED BY THE ASSESSEE IN APPEAL RELATES TO INCOME RECOGNITION FROM CONTRACT IN ACCORDANCE WITH ACCOUNTING STANDARD 7 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). THE REVENUE IN CROSS APPEAL FOR ASSESSMENT YEAR 2000-01 HAS ALSO RAISED THIS ISSUE AS GROUND NO.1. THE ASSESSEE IS MANUFACTURING BOILERS AND HEAT TRANSFER EQUIPMENTS ON CONTRACT BASIS. THESE CONTRACTS ARE SPREAD OVER A PERIOD OF MORE THAN ONE YEAR. THE ASSESSEE IS RECOGNIZING INCOME OF THE PROJECTS, ON PROJECT COMPLETION METHOD. THE ASSESSEE RAISES INVOICE ON THE CLIENT AS PER SCHEDULE OF PAYMENTS. THE BILLS RAISED ARE ALWAYS MORE THAN THE REVENUE THAT SHOULD BE RECOGNIZED ON THE BASIS OF PROJECT COMPLETION METHOD. THE ADJUSTMENT IS REQUIRED TO BE MADE TO ADJUST EXCESS BILLING. THE ADJUSTMENT IS MADE IN ACCORDANCE WITH AS 7 BY CREATING A PROVISION CONTRIBUTION EQUALIZATION PROVISION. THE ASSESSING OFFICER REJECTED THIS METHOD OF MAKING ADJUSTMENT BY THE ASSESSEE. IN THE FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) PARTLY ACCEPTED THE CLAIM OF THE ASSESSEE. AGAINST THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS), BOTH, THE ASSESSEE AND THE REVENUE HAVE COME IN APPEAL. 9.1 WE OBSERVE THAT SIMILAR ISSUE HAD COME UP IN THE APPEAL OF THE ASSESSEE AND THE REVENUE FOR ASSESSMENT YEARS 1998-99 AND 1999-2000. THE CO-ORDINATE BENCH DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL READS AS UNDER:- 22. ON THIS ASPECT, IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT IN ASSESSMENT YEAR 1997-98, THE TRIBUNAL VIDE ITS ORDER DATED 03.09.2014 (SUPRA.) IN THE ASSESSEES OWN CASE HAS UPHELD THE STAND OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL ON A SIMILAR ISSUE IN THE CASE OF THERMAX BABCOCK & WILCOX LTD. VS. DCIT VIDE ITA NOS.157 & 158/PN/1995 DATED 11.05.2001 FOR ASSESSMENT YEARS 1990- 91& 1991-92. THE 16 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 TRIBUNAL IN ITS ORDER DATED 03.09.2014 (SUPRA) NOTED THAT IN THE CASE OF THERMAX BABCOCK & WILCOX LTD. (SUPRA) WHICH WAS A GROUP COMPANY OF THE ASSESSEE, THE TRIBUNAL UPHELD THE ALLOWABILITY OF PROVISION FOR PROFIT EQUALIZATION WHILE RECOGNIZING INCOMES ON APPLICATION OF PERCENTAGE OF COMPLETION METHOD IN THE CASE OF LONG TERM CONTRACTS IN THE LIGHT OF THE AS-7 ISSUED BY THE ICAI. IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR, WE DO NOT DEAL WITH THE ISSUE ANY FURTHER EXCEPT DIRECTING THE ASSESSING OFFICER TO IMPLEMENT THE ORDER OF THE TRIBUNAL DATED 03.09.2014 (SUPRA) ON THIS GROUND TOO. AS A CONSEQUENCE, WHEREAS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED THAT OF THE REVENUE IS DISMISSED. THERE HAS BEEN NO CHANGE IN THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR, NOR THERE IS ANY CHANGE IN THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE. WE DO NOT FIND ANY REASON TO DEVIATE FROM THE VIEW TAKEN BY THE CO-ORDINATE BENCH IN ASSESSMENT YEARS 1998-99 AND 1999-2000. ACCORDINGLY, THIS GROUND IN THE APPEAL OF THE ASSESSEE IS ACCEPTED AND THE GROUND RAISED BY THE REVENUE IN ITS APPEAL IS DISMISSED. 19. BEFORE US, SINCE BOTH THE PARTIES HAVE ADMITTED THAT THE FACTS OF THE CASE IN THE PRESENT GROUND ARE IDENTICAL TO THAT OF EARLIER YEARS AND SINCE IN EARLIER YEARS, THE ISSUE HAS BEEN DECIDED BY CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES FAVOUR, WE THEREFORE FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS AND FOR SIMILAR REASONS, ALLOW THE GROUND OF ASSESSEE AND THUS, THE ASSESSEES GROUND NO.4 IS ALLOWED AND REVENUES GROUND NO.2 IS DISMISSED. 14. BEFORE US, SINCE BOTH THE PARTIES HAVE ADMITTED THAT THE FACTS OF THE CASE IN THE PRESENT GROUNDS ARE IDENTICAL TO THAT OF EARLIER YEARS AND SINCE IN EARLIER YEARS, THE ISSUE HAS BEEN DECIDED BY CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES FAVOUR, WE THEREFORE FOLLOWING THE REASONING OF THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS AND FOR SIMILAR REASONS, ALLOW THE GROUND OF ASSESSEE AND THUS THE ASSESSEES GROUND NO.2 IS ALLOWED AND REVENUES GROUND NO.2 IS DISMISSED. 22. FROM THE ABOVE DISCUSSION AND THE ARGUMENTS MADE OUT BY THE LD. COUNSEL FOR THE ASSESSEE, WE FIND THE AS-7 WHICH EXISTED PRIOR TO LETTER DATED 01 ST APRIL, 2003 CONTINUES TO REMAIN THE SAME; BUT FOR MINOR CHANGES. THERE ARE MINOR CHANGES IN RELATION TO THE COMPUTATIONAL ISSUES. HOWEVER, THERE IS NO CHANGE SO FAR AS COST BASED PERCENTAGE COMPLETION METHOD IN CONCERNED. THEREFORE, THE COMPUTATION OF RECOGNITION INCOME IS CONCERNED, THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE AND THE SAME DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, RELEVANT GROUNDS STAND ALLOWED IN FAVOUR OF THE ASSESSEE. 17 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 23. FURTHER, SO FAR AS ADJUSTMENTS MADE BY THE ASSESSING OFFICER TO THE ESTIMATED COST IS CONCERNED, THE CIT(A) ALREADY GRANTED PART RELIEF TO THE ASSESSEE. WITH REFERENCE TO THE FREIGHT OUTWARD TO BE INCLUDED IN THE ESTIMATED TOTAL COST, WE FIND IT IS A CASE OF REIMBURSEMENT OF THE ACTUAL COST INCURRED BY THE ASSESSEE. THE INCLUSION IN THE TOTAL ESTIMATED COST WHEN THE SAME IS RETURNED HAS NO EFFECT ON THE INCOME ASPECT. THEREFORE, BEING THE CASE OF REIMBURSEMENT, THERE IS NO PROFIT ELEMENT. CONSEQUENTLY, RECOGNITION INCOME OF SUCH REIMBURSEMENT IS NOT APPROPRIATE. THEREFORE, THE ORDER OF THE CIT(A) ON THIS ISSUE REQUIRES TO BE REVERSED. ACCORDINGLY, ASSESSEE IS ENTITLED TO GET RELIEF ON THIS ISSUE ALSO. THUS, GROUND NO.2 OF THE ASSESSEE IS ALLOWED AND THE GROUND NO.1(A) AND 1(B) OF THE REVENUE IS DISMISSED. 24. GROUND NO.3 RELATES TO THE DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.3,23,912/-. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 6 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) HAS DEALT WITH THIS ISSUE VIDE PARA 16 OF THE APPELLATE ORDER. 25. THE LD. COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THIS ISSUE IS COVERED BY THE A SERIES OF DECISIONS BY THE TRIBUNAL AGAINST THE ASSESSEE. IN THIS REGARD, BRINGING OUR ATTENTION TO PARA 15 TO 17 OF THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1055 & 1056/PUN/2009 FOR THE ASSESSMENT YEAR 2003-04 ORDER DATED 12.03.2019, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE. 26. THE DR FOR THE REVENUE HAS PLACED RELIANCE ON THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL ON THIS ISSUE. 18 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 27. WE HAVE HEARD BOTH THE SIDES AND HAVE PERUSED THE PARA 15 TO 17 OF THE TRIBUNALS ORDER WHERE THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE. FOR THE SAKE OF COMPLETENESS, THE SAME ARE EXTRACTED AS UNDER: 15. GROUND NO.3 IS WITH RESPECT TO PRIOR PERIOD EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT THOUGH THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT HAD CLAIMED EXPENSES TO THE EXTENT OF RS.2,76,870/- WHICH PERTAINED TO PRIOR PERIOD. ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO AO. AO WAS OF THE VIEW THAT SINCE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT SHOULD HAVE BOOKED THE EXPENSES IN THE RESPECTIVE YEARS. HE WAS THEREFORE OF THE VIEW THAT THE EXPENSES PERTAINING TO PRIOR YEARS AGGREGATING TO RS.2,76,870/- ARE NOT ALLOWABLE AND ACCORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A), WHO DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING AS UNDER : 8.3 THE SUBMISSION HAS BEEN CONSIDERED. IN PRINCIPLE, I AGREE WITH THE APPELLANTS VIEW THAT EXPENDITURE IS DEDUCTIBLE IN THE YEAR IN WHICH LIABILITY TO PAY ARISES. HOWEVER, IN THE CASE UNDER CONSIDERATION, AS STATED BY THE APPELLANT, THE AMOUNT IN QUESTION REPRESENTS THE COMMISSION REMITTED DURING THE YEAR TO FOREIGN PARTIES ON THE SALES THAT HAVE TAKEN PLACE IN EARLIER YEARS. SINCE THE COMMISSION IS LINKED WITH THE SALES, THE LIABILITY TO PAY COMMISSION HAS ARISEN IN THE RESPECTIVE YEARS IN WHICH THE SALES HAVE TAKEN PLACE AND THEREFORE, IT CANNOT BE ALLOWED AS DEDUCTION FROM THE INCOME OF THIS YEAR. THE COMMISSION CANNOT BE CONSIDERED AS DEDUCTIBLE DURING THIS YEAR ON THE GROUND THAT THE SAME HAS BEEN REMITTED DURING THE YEAR. ACCORDINGLY, THIS GROUND OF APPEAL FAILS. AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS NOW IN APPEAL BEFORE US. 16. BEFORE US, LD. AR REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER FAIRLY SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES APPEAL IN AY 2002-03 AND THE GROUND WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL. HE THEREFORE SUBMITTED THAT THE ISSUE BE DECIDED ACCORDINGLY. LD.D.R. ON THE OTHER HAND, DID NOT CONTROVERT THE SUBMISSIONS OF LD AR AND SUPPORTED THE ORDER OF LOWER AUTHORITIES.17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. BEFORE US BOTH THE PARTIES HAVE FAIRLY ADMITTED THAT THE ISSUE IN THE YEAR UNDER CONSIDERATION IS IDENTICAL TO THAT OF AY 2002-03. IN AY 2002-03, THE COORDINATE BENCH OF TRIBUNAL HAD DECIDED THE ISSUE AGAINST THE ASSESSEE BY OBSERVING AS UNDER : 30. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE GRANTING PARTIAL RELIEF HAS NOTED THAT SOME OF THE EXPENSES GOT CRYSTALLIZED DURING THE YEAR AND THEREFORE HE DIRECTED THE AO TO ALLOW THE SAME. HE ALSO NOTED THAT FOR SOME OF THE EXPENSES THE RELEVANT INVOICES, BILLS, STATEMENTS ETC., WERE RECEIVED PRIOR TO THE RELEVANT PREVIOUS YEARS AND FOR SOME OF THE EXPENSES ASSESSEE DID NOT FURNISH ANY DETAILS OR EVIDENCE TO SUBSTANTIATE THE CRYSTALLIZATION OF THE LIABILITY DURING THE YEAR UNDER CONSIDERATION. HE FURTHER DIRECTED THE AO TO CONSIDER THE EVIDENCE AND THEREBY GRANTED PARTIAL RELIEF TO THE ASSESSEE. BEFORE US, ASSESSEE HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD.CIT(A) NOR HAS PLACED THE DETAILS OF 19 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 EXPENDITURE TO SUBSTANTIATE ITS STAND THAT THE LIABILITY GOT CRYSTALLISED DURING THE YEAR UNDER CONSIDERATION. BEFORE US, ASSESSEE HAS ALSO NOT PLACED THE DETAILS OF EXPENSES. BEFORE US, REVENUE HAS ALSO NOT PLACED ANY MATERIAL TO POINT OUT ANY FALLACY IN THE FINDINGS OF LD.CIT(A). IN SUCH A SITUATION, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THE GROUND NO.7 OF THE ASSESSEE IS DISMISSED AND LIKEWISE THE GROUND OF REVENUE IS ALSO DISMISSED. IN VIEW OF THE SUBMISSIONS OF THE BOTH THE PARTIES AS NOTED HEREINABOVE, WE FOLLOWING THE REASONING OF THE CO-ORDINATE BENCH WHILE DECIDING THE APPEAL FOR AY 2002-03 AND FOR SIMILAR REASONS, FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THE GROUND NO.3 OF THE ASSESSEE IS DISMISSED. FROM THE ABOVE, IT IS EVIDENT THAT THIS ISSUE IS PERENNIALLY BEING ADJUDICATED BY THE TRIBUNAL AND THE SAME IS DECIDED IN FAVOUR OF THE REVENUE. CONSIDERING THE COMMONNESS OF THE FACTS AS WELL AS THE SETTLED LEGAL PROPOSITION, WE ARE OF THE OPINION THAT THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE REVENUE FOR THE YEAR UNDER CONSIDERATION ALSO. THUS, GROUND NO.3, RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED . 28. GROUND NO. 4 RELATES TO LIQUIDATED DAMAGES . THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 7 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 19 OF THE APPELLATE ORDER. 29. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1055 & 1056/PUN/2009 FOR THE ASSESSMENT YEAR 2003-04 DATED 12.03.2019. 30. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 31. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE PARA 12 TO 25 OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE WHEREIN THIS ISSUE WAS DECIDED IN 20 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 FAVOUR OF THE ASSESSEE. FOR THE SAKE OF COMPLETENESS, THE SAME IS EXTRACTED AS UNDER: 22. GROUND NO.5 OF ASSESSEES APPEAL AND GROUND NO.3 OF REVENUES APPEAL IS WITH RESPECT TO LIQUIDATED DAMAGES. 22.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD DEBITED RS 200.26 LACS UNDER THE HEAD LIQUIDATED DAMAGES. THE ASSESSEE WAS ASKED TO JUSTIFY IT TOWARDS THE ALLOWABILITY ALONG WITH THE EVIDENCES. ASSESSEE INTER-ALIA SUBMITTED THAT ASSESSEE MANUFACTURES WATER TREATMENT PLANTS, POLLUTION CONTROL EQUIPMENTS ETC AND THESE ARE MANUFACTURED AS PER THE ORDER AND REQUIREMENTS OF THE CUSTOMERS. THE CONTRACTS INVOLVES MEDIUM TO LONG TERM CONTRACTS WHICH INCLUDE ACTIVITIES LIKE PRE-DESIGN, DISCUSSION WITH THE CLIENTS, DRAWINGS, DESIGNS, PROCUREMENT, FABRICATION, ERECTION, COMMISSIONING AND INSTALLATION OF THE EQUIPMENTS WHICH IS FOLLOWED BY PERFORMANCE GUARANTEE ACCORDING TO THE AGREED CONDITIONS. THE CONTRACTS GENERALLY CONTAIN CLAUSES FOR PAYMENT OF COMPENSATION IN THE FORM OF LIQUIDATED DAMAGES WHICH ARE USUALLY PAYABLE AT STIPULATED PERCENTAGE OF THE CONTRACT VALUE. SOME-TIMES THE CONTRACTS PROVIDES FOR COMPENSATION FOR NON PERFORMANCE OR SATISFACTORY PERFORMANCE OF THE PRODUCTS SUPPLIED BY THE ASSESSEE. THE PAYMENT OF COMPENSATION/LIQUIDATED DAMAGES IS MADE TO ENSURE GOOD CUSTOMER RELATIONSHIP AND FUTURE BUSINESS. IT WAS FURTHER SUBMITTED THAT THE CUSTOMER CAN RECOVER THE COMPENSATION IN VARIETY OF WAYS LIKE DEDUCTION FROM FUTURE PAYMENTS ETC. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE ACCOUNTS FOR THE COMPENSATION WHEN THE SAME IS ACTUALLY CLAIMED BY THE CUSTOMER OR WHEN IT IS DEDUCTED BY THE CUSTOMER WHICHEVER IS EARLIER. IT WAS THUS SUBMITTED THAT THE NATURE OF COMPENSATION WAS NOT IN THE NATURE OF PENALTY FOR BREACH OF STATUTORY PROVISION AND THAT SUCH BREACH WAS A NORMAL INCIDENCE OF TRADE. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO AO. AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND AFTER PERUSING THE DETAILS FURNISHED BY THE ASSESSEE NOTED THAT THE BAD DEBTS AND LIQUIDATED DAMAGES AS PER THE ASSESSEE ARE CLEARLY NOT DISTINGUISHABLE AS THEY ARE QUITE OVERLAPPING. HE FURTHER CONCLUDED THAT THE AMOUNT CLAIMED AS LIQUIDATED DAMAGES ARE SHORT RECEIPTS FROM CUSTOMERS WHICH HAVE BEEN WRITTEN OFF AS BAD DEBTS OR SUNDRY BALANCES WRITTEN OFF AND THAT IT WAS NEITHER A CASE OF COMPENSATION GIVEN BY THE ASSESSEE NOR A CASE OF LIQUIDATED DAMAGES. HE FURTHER OBSERVED THAT THE CLAIM AS WRITE OFF OF BAD DEBTS ALSO CANNOT BE ALLOWED AS THE AMOUNTS HAVE NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS. HE ACCORDINGLY DENIED THE CLAIM AND MADE ADDITION OF RS 200.26 LACS. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO IN PRINCIPLE AGREED WITH THE CLAIM OF ASSESSEE BUT HOWEVER DIRECTED THE AO TO VERIFY THE ASSESSEES CLAIM TO THE EXTENT SUPPORTED BY THE CLAUSE OF LIQUIDATED DAMAGES AS PER CONTRACT AND DECIDE ACCORDINGLY. THE RELEVANT FINDINGS OF CIT(A) ARE AS UNDER: THE SUBMISSION HAS BEEN CAREFULLY CONSIDERED BY ME. THE APPELLANT COMPANY HAS ALSO FURNISHED BEFORE ME THE PARTYWISE DETAILS OF LIQUIDATED DAMAGES OF RS.200.26 LAKHS. IT HAS ALSO FILED SAMPLE COPIES OF PURCHASE ORDERS OF A FEW CUSTOMERS OF THE APPELLANT COMPANY CONTAINING CLAUSE OF LIQUIDATED DAMAGES ACCORDING TO WHICH PENALTY AT THE PRESCRIBED RATE IS LEVIABLE IN CASE OF DELAY IN SUPPLY OF GOODS ORDERED. ON PERUSAL OF THESE DOCUMENTS, IN PRINCIPLE, I AGREE WITH THE CLAIM OF THE APPELLANT COMPANY THAT THE LIQUIDATED DAMAGES, ARISING OUT OF THE TERMS OF THE PURCHASE ORDERS, SCHEDULE, ARE ALLOWABLE AS BUSINESS EXPENDITURE. THE CASES RELIED UPON BY THE ASSESSING OFFICER WHILE DISALLOWING THE LIQUIDATED DAMAGES OF RS.200.26 LAKHS HAVE ALSO BEEN 21 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 SUCCESSFULLY DISTINGUISHED BY THE APPELLANT BY EXPLAINING THE DIFFERENCE IN THE FACTS OF APPELLANTS CASE FROM THE FACTS OF THOSE CASES. IN THIS VIEW OF THE MATTER, I DIRECT THE ASSESSING OFFICER TO VERIFY AND ALLOW THE APPELLANTS CLAIM OF LIQUIDATED DAMAGES OUT OF RS.200.26 LAKHS TO THE EXTENT THE AMOUNTS DEBITED UNDER THIS HEAD ARE FOUND SUPPORTED BY THE CLAUSE OF LIQUIDATED DAMAGES. DECIDED ACCORDINGLY. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE AND REVENUE ARE NOW IN APPEAL BEFORE US. 23. BEFORE US, LD AR REITERATED THE SUBMISSIONS MADE BEFORE AO AND CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENGINEERING GOODS, HEAT TRANSFER EQUIPMENTS SUCH AS BOILERS, HEAT PUMPS, MANUFACTURE OF WATER TREATMENT PLANTS, WASTE WATER MANAGEMENT SYSTEM, POLLUTION CONTROL SYSTEMS ETC. SOME OF THE CONTRACTS PROVIDE FOR ANCILLARY ACTIVITIES LIKE ERECTION AND COMMISSIONING OF THE MANUFACTURED EQUIPMENTS. THE CONTRACTS WHICH THE ASSESSEE ENTERS INTO WITH THE CUSTOMERS GENERALLY CARRY A CLAUSE OF PAYMENT OF LIQUIDATED DAMAGES IN THE EVENT OF DELAY OF DELIVERIES, NON-PERFORMANCE OF SUPPLY OF GOODS ETC AND THE METHODOLOGY OF CALCULATION OF LIQUIDATED DAMAGES IS PRESCRIBED IN THE CONTRACT. BASED ON THE CLAUSE OF THE AGREEMENT, THE CUSTOMER, IN THE EVENT OF BREACH OF THE RELEVANT PROVISIONS OF THE CONTRACT, DEBITS THE AMOUNT DUE UNDER THE CONTRACT AS LIQUIDATED DAMAGES OR WITHHOLDS THE AMOUNT WHILE RELEASING PAYMENTS FOR MONIES WHICH ARE OTHERWISE LEGALLY DUE TO THE ASSESSEE IN TERMS OF THE CONTRACT. UPON SUCH DEDUCTION/HOLDING BACK BY THE CUSTOMERS, THE ASSESSEE ACCOUNTS FOR THE SUM AND WHEREVER REQUIRED ISSUES A CREDIT NOTE TOWARDS THE LIQUIDATED DAMAGES. IN SUPPORT OF HIS CONTENTION OF THE CONTRACTS HAVING CLAUSE FOR LIQUIDATED DAMAGES, HE POINTED TO THE SAMPLE PURCHASE ORDERS PLACED IN THE PAPER BOOK. HE SUBMITTED THAT THE AOS CONCLUSION THAT THE ISSUANCE OF CREDIT NOTES DOES NOT TANTAMOUNT TO EFFECTIVE WRITE OFF IS FACTUALLY INCORRECT DESPITE THE FACT THAT A CREDIT NOTE IS ISSUED WHEREBY THE PARTYS ACCOUNT IS CREDITED WITH A CORRESPONDING DEBIT TO THE LIQUIDATED DAMAGES ACCOUNT IN THE BOOKS AND MORE SO WHEN THERE IS NO DENYING OF THE FACT THAT THERE WAS INDEED A BREACH OF CONTRACTUAL CONDITIONS. HE FURTHER SUBMITTED THAT WITH RESPECT TO THE CLAIMS THERE HAS BEEN AN ACCRUAL OF LIABILITY AND THE CUSTOMER ENFORCING THE RIGHT VESTED BY DEDUCTING THE SUM FROM THE PAYMENTS WHICH ARE OTHERWISE DUE TO THE ASSESSEE. HE FURTHER SUBMITTED THAT AO HAS CONFUSED THE ISSUE OF CLAIM OF LIQUIDATED DAMAGES WITH THE ISSUE OF CLAIM OF BAD DEBTS AND THAT THE CLAIM OF BAD DEBTS HAS BEEN ACCEPTED BY HIM. HE FURTHER SUBMITTED THAT THE RELIANCE PLACED BY AO IN THE CASE OF N. SUNDARESWARAN VS CIT REPORTED IN 226 ITR 142 IS MISPLACED AS THE FACTS ARE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE AS IN THAT CASE THE CONTRACT DID NOT CONTAIN PROVISION FOR LIQUIDATED DAMAGES AND HAD ONLY DEALT WITH THE CASE WHERE THE MATTER WAS TO BE REFERRED TO ARBITRATION. HE FURTHER SUBMITTED THAT THE FACTS IN THE CASE OF CIT VS. SESHASAYEE INDUSTRIES LTD.(242 ITR 691) ARE DISTINGUISHABLE AND THEREFORE NOT APPLICABLE TO THE PRESENT FACTS OF THE ASSESSEE. HE THEREAFTER SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED DURING THE COURSE OF BUSINESS AND IS FOR THE PURPOSE OF BUSINESS MORE SO WHEN CIT(A) HAS ACCEPTED THE ALLOWABILITY OF CLAIM OF LIQUIDATED DAMAGES AS BUSINESS EXPENDITURE. HE FURTHER SUBMITTED THAT HONBLE APEX COURT IN THE CASE OF SA BUILDERS (288 ITR 1) HAS HELD THAT TO THE EXTENT THAT THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER LEGAL OBLIGATION BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT IS INCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. IT HAS FURTHER HELD THAT COMMERCIAL EXPEDIENCY IS A TERM OF WIDE IMPORT AND HAS BEEN HELD TO INCLUDE SUCH EXPENDITURE AS A PRUDENT BUSINESSMEN INCURS FOR THE PURPOSE OF BUSINESS. HE FURTHER SUBMITTED THAT NO 22 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 DISALLOWANCE OF LIQUIDATED DAMAGES WERE MADE IN EARLIER YEARS THOUGH THE ASSESSEE WAS FOLLOWING SIMILAR METHODOLOGY FOR ACCOUNTING. LD AR THEREAFTER SUBMITTED THAT WHEN CIT(A) HAD ACCEPTED THE ALLOWABILITY OF CLAIM FOR LIQUIDATED DAMAGES AS A BUSINESS EXPENDITURE THEN HE SHOULD HAVE NOT DIRECTED THE AO TO ALLOW DEDUCTION TO THE EXTENT THERE WERE LIQUIDATED DAMAGES CLAUSES IN THE PURCHASE ORDERS. HE THEREFORE REITERATED THAT WHEN THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS AND DURING THE COURSE OF BUSINESS, THE CLAIM OF ASSESSEE FOR ALLOWING THE EXPENDITURE BE UPHELD. 24. LD DR ON THE OTHER HAND TOOK US THROUGH THE ORDER OF AO AND SUBMITTED THAT ASSESSEE DID NOT FURNISH THE REQUIRED DETAILS AS CALLED FOR BY THE AO AND IN THE ABSENCE OF THE REQUIRED DETAILS, AO WAS FULLY JUSTIFIED IN DISALLOWING THE EXPENSES. WITH RESPECT TO THE DIRECTIONS OF CIT(A) TO AO TO VERIFY THE DETAILS AND ALLOW THE EXPENSES, HE SUBMITTED THAT CIT(A) U/S 251(1)(A) HAS THE POWER TO CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT BUT DOES NOT HAVE THE POWER TO SET ASIDE AS THE POWER OF SETTING ASIDE HAS BEEN WITHDRAWN BY FINANCE ACT 2001 W.E.F 01.06.2001. HE THEREFORE SUBMITTED THAT CIT(A) OUGHT NOT HAVE SET ASIDE THE MATTER TO AO FOR VERIFICATION AND DIRECTED THE AO TO DECIDE THE CLAIM OF ASSESSEE. HE THUS SUPPORTED THE ORDER OF AO. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO ALLOWING THE EXPENDITURE TOWARDS LIQUIDATED DAMAGES. IN THE PRESENT GROUND IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ACCEPTED THE CLAIM FOR LIQUIDATED DAMAGES/COMPENSATION. WE FIND THAT CIT(A) HAS IN PRINCIPLE ACCEPTED THE ALLOWABILITY OF CLAIM FOR LIQUIDATED DAMAGES AS A BUSINESS EXPENDITURE. IT IS A SETTLED LAW THAT THE EXPENDITURE IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT IS INCURRED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY. COMMERCIAL EXPEDIENCY IS A TERM OF WIDE IMPORT AND HAS BEEN HELD TO INCLUDE SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE INCURRED THOUGH NOT UNDER ANY LEGAL OBLIGATION BUT STILL IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF INCURRED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY AND THE METHOD OF RECOGNITION IS FOLLOWED FROM YEAR TO YEAR. THE ASSESSEE IS FOLLOWING THE SAID METHOD IN EARLIER YEARS AND NO DISALLOWANCE HAS BEEN MADE. BEFORE US, NO MATERIAL HAS BEEN PLACED BY THE REVENUE THAT THE EXPENDITURE IS NOT A GENUINE EXPENDITURE OR HAS BEEN INCURRED TO BENEFIT ANY GROUP CONCERNS. CONSIDERING THE TOTALITY OF THE FACTS WE ARE OF THE VIEW THAT THE EXPENDITURE IS ALLOWABLE. THUS, THE GROUND OF ASSESSEE IS ALLOWED AND THAT OF REVENUE IS DISMISSED. FROM THE ABOVE, IT IS EVIDENT THAT THE PUNE BENCH OF THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. NOW, IT IS A SETTLED LAW THAT SUCH EXPENDITURE IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT IS INCURRED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY. COMMERCIAL EXPEDIENCY IS A TERM OF WIDE IMPORT AND HAS BEEN HELD TO INCLUDE SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE INCURRED THOUGH NOT UNDER ANY LEGAL OBLIGATION BUT STILL IT IS ALLOWABLE AS A BUSINESS 23 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 EXPENDITURE IF INCURRED ON THE GROUNDS OF COMMERCIAL EXPEDIENCY AND THE METHOD OF RECOGNITION IS FOLLOWED FROM YEAR TO YEAR. BEFORE US, NO MATERIAL HAS BEEN PLACED BY THE REVENUE THAT THE EXPENDITURE IS NOT A GENUINE EXPENDITURE OR HAS BEEN INCURRED TO BENEFIT ANY GROUP CONCERNS. CONSIDERING THE TOTALITY OF THE FACTS WE ARE OF THE VIEW THAT THE EXPENDITURE IS ALLOWABLE. HENCE, GROUND NO.4 RAISED IN APPEAL BY THE ASSESSEE IS ALLOWED. 32. GROUND NO.5 RELATES TO DISALLOWANCE OF CLAIM FOR DEPRECIATION @100% ON PLANT & MACHINERY INSTALLED IN PLANT NO.4, 8 AND 11 OF THE COMPANY. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 9 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 25 OF THE APPELLATE ORDER. 33. REFERRING TO PARA 26 TO 29 OF THE ORDER OF THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1055 & 1056/PUN/2009 (SUPRA.), THE LD. AR OF THE ASSESSEE FAIRLY SUBMITTED THAT CLAIM OF DEPRECIATION WITH RESPECT TO PLANT & MACHINERY INSTALLED IN PLANT NO.4 AND 8 HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND THAT FOR PLANT NO.11 HAS BEEN DECIDED AGAINST THE ASSESSEE. 34. THE LD. DR FOR THE REVENUE HAS PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 35. WE HAVE HEARD BOTH THE SIDES AND PERUSED PARA 26 TO 29 OF THE TRIBUNALS ORDER WHEREIN THE PUNE BENCH OF THE TRIBUNAL HAS DECIDED THE ISSUE BY OBSERVING AS UNDER : 26. GROUND NO.6 IS WITH RESPECT TO DISALLOWANCE OF HIGHER DEPRECIATION. 24 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 26.1. ON PERUSING THE DEPRECIATION CHART, AO NOTICED THAT ASSESSEE HAD CLAIMED DEPRECIATION AT HIGHER RATE OF 80% DEPRECIATION ON PLANT NOS.4 AND 8 AND 11 WHEREIN IT WAS MANUFACTURING SHELL TYPE BOILERS AND ABSORPTION COOLING DEVICES . IT WAS ASSESSEES CONTENTION THAT THESE ITEMS OF PLANT AND MACHINERY WERE USED IN THE MANUFACTURE OF RENEWABLE ENERGY DEVISES AND THEREFORE IT WAS ELIGIBLE FOR HIGHER RATE OF DEPRECIATION OF 80%. THE SUBMISSIONS OF THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO AO. AO WAS OF THE VIEW THAT DUE TO THE TYPE OF EQUIPMENTS THAT WERE MANUFACTURED BY THE ASSESSEE WITH THE AFORESAID MACHINES, THE AFORESAID MACHINES PER SE DID NOT QUALIFY FOR HIGHER DEPRECIATION AS THOSE MACHINERIES COULD BE USED FOR MANUFACTURING OF OTHER TYPES OF MACHINERY AS WELL AND THAT IT CANNOT BE SAID THAT THE MACHINERIES WERE USED WHOLLY AND EXCLUSIVELY FOR MANUFACTURING THE ENERGY SAVING MACHINERIES. HE ACCORDINGLY HELD THAT ASSESSEE WAS ONLY ELIGIBLE FOR NORMAL DEPRECIATION OF 25% ON SUCH MACHINERIES . HE ACCORDINGLY DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION OF RS.17,25,103/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD CIT(A), WHO FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A.Y 2002-03, UPHELD THE ORDER OF AO BY OBSERVING AS UNDER : 12.3 THIS ISSUE HAS ELABORATELY BEEN DEALT WITH BY MY PREDECESSOR WHO WHILE ADJUDICATING UPON THIS ISSUE IN ASSESSEE'S APPEAL FOR AY. 2002-03 OBSERVED AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE GROUND RAISED BY THE APPELLANT AND THE ARGUMENTS OF THE LD.AUTHORISED REPRESENTATIVE. FIRST COMING TO PLANT NO.11 I.E., ABSORPTION COOLING DIVISION, WHICH MANUFACTURES HEAT PUMPS, THE STAND TAKEN BY THE ASSESSING OFFICER WILL HAVE TO BE CONFIRMED. ENTRY NO.3(III)(C)(C) SPECIFICALLY DEALS WITH HEAT PUMPS. IT PROVIDES FOR DEPRECIATION ON HEAT PUMPS AT THE RATE OF 100%. THIS ENTRY WILL NOT APPLY TO THE APPELLANT AS THE APPELLANT DOES NOT OWN / USE THE HEAT PUMPS. INSTEAD, IT MANUFACTURES THEM. THIS ENTRY ALSO DOES NOT COVER THE PLANTS AND MACHINERIES MANUFACTURING HEAT PUMPS. HENCE PLANT NO.11 WOULD FALL OUTSIDE THE PURVIEW OF ENTRY NO.3(III)(C)(C). IT IS THE APPELLANTS ARGUMENT THAT HEAT PUMPS WOULD COME UNDER ENTRY 3(XII)(E) I.E., AIR / GAS / FLUID HEATING SYSTEMS. NOTHING HAS BEEN ADDUCED TO ESTABLISH THAT THE HEAT PUMPS MANUFACTURED BY THE APPELLANT ARE IN THE NATURE OF SUCH HEATING SYSTEMS. FURTHER, EVEN WHILE IT HAS BEEN SUBMITTED THAT A HEAT PUMP IS ALSO A RENEWAL ENERGY DEVICE, NO EVIDENCES HAVE BEEN ADDUCED IN THIS REGARD APART FROM STATING THAT IT IS A WASTE HEAT RECOVERY EQUIPMENT. IF THE HEAT PUMP IS A WASTE HEAT RECOVERY EQUIPMENT THE SAME WILL COME UNDER ENTRY NO.3(III)(C)(C) IN WHICH CASE THE APPELLANT WOULD NOT BE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 100% SINCE IT IS NOT THE OWNER USER OF THE HEAT PUMPS. IT ALSO NEEDS TO BE MENTIONED THAT BY THE APPELLANTS OWN SUBMISSION THE HEAT PUMPS REQUIRE MINIMUM ELECTRICITY FOR RUNNING THE COMPRESSOR, HENCE THE SAME CANNOT BE REGARDED AS RENEWAL ENERGY DEVICES. FOR THESE REASONS, THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE APPELLANTS CLAIM OF DEPRECIATION ON THE MACHINERIES IN PLANT NO.11 AT THE RATE OF 100% AND IN RESTRICTING THE ADMISSIBLE DEPRECIATION TO A RATE OF 25% IS HEREBY CONFIRMED. COMING TO THE REMAINING PLANTS AND MACHINERIES UNDER DISCUSSION I.E., PLANTS NO.4 AND 8, THE APPELLANTS ARGUMENTS HAVE BEEN ALREADY NOTED. THE ASSESSING OFFICER WAS CERTAINLY NOT JUSTIFIED IN HOLDING THAT ENTRY 3(XII)(E) APPLIES ONLY TO SOLAR HEATING SYSTEM. THERE IS NOTHING IN THIS ENTRY ENABLING SUCH A CONCLUSION. IN THE 25 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 ABSENCE OF ANY PREFIX SUCH AS SOLAR ANY RENEWAL ENERGY DEVICE BEING IN THE NATURE OF AN AIR / GAS / FLUID HEATING SYSTEM WILL BE COVERED BY THIS ENTRY. HOWEVER, THE CRUCIAL QUESTIONS IS IF THE PRODUCTS MANUFACTURED BY THE APPELLANT ARE RENEWAL ENERGY DEVICES AS DISTINGUISHED FROM ENERGY SAVING DEVICES WHICH ARE COVERED BY ENTRY NO.3(III). DURING THE COURSE OF THE APPEAL PROCEEDINGS, THE APPELLANT WAS ASKED TO OBTAIN AND FURNISH CERTIFICATE FROM EXPERTS TO THE EFFECT THAT THE MULTITHERMS, SHELLMAX, FLUIDPACS AND BI-DRUM BOILERS ARE IN THE NATURE OF RENEWAL ENERGY DEVICES. THE APPELLANT WAS ALSO ASKED TO SUBMIT COPIES OF BROCHURES, PAMPHLETS AS MAY BE AVAILABLE WITH REGARD TO THE SPECIFICATIONS AND FUNCTIONING OF THESE PRODUCTS. THE DETAILS / EVIDENCES THUS CALLED FOR HAVE NOT BEEN FURNISHED. IN THE CIRCUMSTANCES, I HAVE TO HOLD THAT THE APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIATE THAT THESE PRODUCTS ARE IN THE NATURE OF RENEWAL ENERGY DEVICES BEING AIR/GAS/FLUID HEATING SYSTEMS. IT IS ALSO CLEAR FROM ENTRY 3(XIII) THAT ALL THE SUB-ITEMS FIGURING IN THIS ENTRY, INCLUDING SUB-ENTRY (R), HAVE TO BE IN THE NATURE OF RENEWAL ENERGY DEVICES. THE STARTING WORDS VIZ. RENEWAL ENERGY DEVICES BEING QUALIFY ALL THE SUB-ITEMS INCLUDING (R). THIS WOULD INDICATE THAT EVEN THE MACHINERY AND PLANT USED IN THE MANUFACTURE OF ANY OF THE ABOVE SUB-ITEMS WILL THEMSELVES HAVE TO BE IN THE NATURE OF RENEWAL ENERGY DEVICES. OR ELSE, (R) WOULD HAVE COME AS A SEPARATE ENTRY AND NOT AS A SUB-ITEM IN ENTRY NO.3(XIII). NOTHING HAS BEEN ADDUCED TO SHOW THAT THE PLANTS AND MACHINERIES IN RESPECT OF WHICH DEPRECIATION AT THE HIGHER RATE HAS BEEN CLAIMED ARE IN THE NATURE OF RENEWAL ENERGY DEVICES. FOR THESE REASONS, I DO NOT SEE ANY VALID REASON FOR INTERFERING WITH THE STAND TAKEN BY THE ASSESSING OFFICER I.E., IN REJECTING THE APPELLANTS CLAIM OF DEPRECIATION ON THE PLANTS AND MACHINERIES IN QUESTION @ 100% AND IN ALLOWING DEPRECIATION ON THE SAID PLANTS AND MACHINERIES @ 25% ONLY. CONSEQUENTLY, THE RESULTANT DISALLOWANCE MADE BY THE ASSESSING OFFICER IS HEREBY CONFIRMED AND THE GROUND RAISED BY THE APPELLANT AGAINST SUCH DISALLOWANCE DISMISSED. AGGRIEVED BY THE ORDER OF LD.CIT(A) ASSESSEE IS NOW IN APPEAL BEFORE US. 27. BEFORE US, LD. AR REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FAIRLY ADMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES APPEAL BEFORE HONBLE ITAT IN A.YS. 2000-01 TO 2002-03. THE TRIBUNAL WHILE DECIDING THE APPEALS FOR AY 2002-03, HAS DECIDED THE ISSUE WITH RESPECT TO CLAIM OF ADDITIONAL DEPRECIATION ON PLANT NOS.4 AND 8 IN FAVOUR OF THE ASSESSEE AND PLANT NO.11 AGAINST THE ASSESSEE. LD. DR DID NOT CONTROVERT THE SUBMISSIONS MADE BY THE LD. AR BUT HOWEVER SUPPORTED THE ORDER OF AO. 28. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO ALLOWING HIGHER RATE OF DEPRECIATION ON CERTAIN MACHINERIES. WE FIND THAT IDENTICAL ISSUE OF DISALLOWANCE OF HIGHER DEPRECIATION AROSE IN ASSESSEES OWN CASE IN A.YS. 2002-03. THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE DECIDING THE APPEAL IN ITA NOS.259 & 276/PUN/2006 ORDER DATED 30.11.2017 DECIDED THE ISSUE PARTLY IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER : 26. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO ALLOWING HIGHER RATE OF DEPRECIATION ON CERTAIN MACHINERIES. WE FIND THAT IDENTICAL ISSUE OF DISALLOWANCE OF HIGH DEPRECIATION AROSE 26 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 IN ASSESSEES OWN CASE IN A.YRS. 2000-01 AND 2001-02. THE COORDINATE BENCH OF THE TRIBUNAL WHILE DECIDING THE APPEAL IN ITA NOS. 1247 & 1248/PN/2005 DECIDED THE ISSUE PARTLY IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 11. THE FIFTH GROUND IN APPEAL OF THE ASSESSEE IS WITH RESPECT TO CLAIM OF 100% DEPRECIATION ON PLANT AND MACHINERY. THE REVENUE HAS ALSO IMPUGNED THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE AS GROUND NO.2 IN ITS APPEAL. 11.1 THE ASSESSEE HAD CLAIMED 100% DEPRECIATION ON ITS PLANT AND MACHINERY IN PLANT NO.3, PLANT NO.4, PLANT NO.8, PLANT NO.10 AND PLANT NO.11. IN THE FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) ACCEPTED THE CONTENTIONS OF THE ASSESSEE IN RESPECT OF ALL THE PLANTS EXCEPT PLANT NO.11. THE ASSESSEE HAS COME IN SECOND APPEAL WITH RESPECT TO THE CLAIM OF DEPRECIATION @ 100% IN RESPECT OF ITEM OF PLANT NO.11. WHEREAS, THE REVENUE IN ITS APPEAL HAS ASSAILED THE FINDINGS OF THE COMMISSIONER OF INCOME TA THE COMMISSIONER OF INCOME TAX (APPEALS) IN RESPECT OF ALL THE PLANTS EXCEPT PLANT NO.11. 11.2 SIMILAR CLAIMS WERE MADE BY THE ASSESSEE IN RESPECT OF PLANT NO. 11 AND THE REVENUE IN RESPECT OF OTHER PLANTS (EXCLUDING PLANT NO. 11). THE ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1998-99 AND 1999-2000 AS UNDER :- 35. NOW, WE MAY FIRST TAKE-UP ASSESSEES CLAIM FOR DEPRECIATION 100% WITH RESPECT TO THE PLANT & MACHINERY USED IN THE MANUFACTURE OF AIR/GAS/FLUID HEATING SYSTEMS. IN THIS CONTEXT, IT IS CLEAR NOTED THAT HAVING REGARD TO THE ENTRY 3(XIII)(R) READ WITH 3(XIII)(E) OF THE DEPRECIATION TABLE ANNEXED TO THE RULES, PLANT & MACHINERY USED FOR THE MANUFACTURE OF AIR/GAS/FLUID HEATING SYSTEMS IS ELIGIBLE FOR DEPRECIATION @ 100%. THE PLEA OF THE ASSESSING OFFICER THAT OTHER ITEMS IN ENTRY IN 3(XIII) CONTAIN 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 WORD 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 ALLOWANCE OF DEPRECIATION @ 100% IN RESPECT OF PLANT & MACHINERY USED IN THE MANUFACTURE OF HEAT PUMPS IS CONCERNED, THE SAME HAS BEEN APPROPRIATELY DENIED BY THE LOWER AUTHORITIES. THE CIT(A) HAS RIGHTLY POINTED OUT THAT MACHINERY & PLANT USED IN THE MANUFACTURE OF HEAT PUMPS IS NOT ELIGIBLE FOR DEPRECIATION @ 100% AS IT DOES NOT FIND A PLACE IN ANY OF THE ITEMS IN THE DEPRECIATION 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 THE ASSESSEE AS WELL AS THE GROUNDS OF APPEAL NOS.8.1 & 8.2 OF THE REVENUE ARE DISMISSED. 27 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 THE ISSUE RAISED BY BOTH THE SIDES ARE IDENTICAL TO THE ONE ALREADY ADJUDICATED BY THE TRIBUNAL. BOTH THE SIDES HAVE NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE TRIBUNAL IN EARLIER ASSESSMENT YEARS. WE FIND NO REASON TO TAKE A CONTRARY VIEW. ACCORDINGLY, THE GROUND WITH RESPECT TO CLAIM OF DEPRECIATION IN ASSESSEES APPEAL AND THE APPEAL OF REVENUE IS DISMISSED. 27. BEFORE US, SINCE BOTH THE PARTIES HAVE ADMITTED THAT THE FACTS OF THE CASE IN THE PRESENT GROUND ARE IDENTICAL TO THAT OF EARLIER YEARS, WE THEREFORE FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE OF EARLIER YEARS AND FOR SIMILAR REASONS HOLD THAT ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION @ 100% WITH RESPECT TO PLANT AND MACHINERY USED IN THE MANUFACTURE OF AIR / GAS / FLUID SYSTEMS BUT IS NOT ELIGIBLE FOR 100% DEPRECIATION IN RESPECT OF PLANT AND MACHINERY USED IN THE MANUFACTURE OF HEAT PUMPS. THUS THE GROUND OF ASSESSEE IS PARTLY ALLOWED. 29 . BEFORE US, SINCE BOTH THE PARTIES HAVE ADMITTED THAT THE FACTS OF THE CASE IN THE PRESENT GROUND ARE IDENTICAL TO THAT OF EARLIER YEARS, WE THEREFORE FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y 2002-03 AND FOR SIMILAR REASONS HOLD THAT ASSESSEE IS ELIGIBLE TO CLAIM DEPRECIATION @ 80% WITH RESPECT TO PLANT AND MACHINERY USED PLANT NOS.4 AND 8 IN THE MANUFACTURE OF AIR / GAS / FLUID SYSTEMS BUT IS NOT ELIGIBLE FOR 100% DEPRECIATION IN RESPECT OF PLANT AND MACHINERY USED IN THE MANUFACTURE OF HEAT PUMPS. THUS, THE GROUND OF ASSESSEE IS PARTLY ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT THE CLAIM OF DEPRECIATION WITH RESPECT TO IMPUGNED PLANT & MACHINERY IS ALLOWABLE PROTONTO. CONSIDERING THE COMMONNESS OF THE FACTS AS WELL AS THE SETTLED LEGAL PROPOSITION, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER NEEDS TO BE DIRECTED TO FOLLOW THE SAID ORDER OF THE TRIBUNAL (SUPRA). ACCORDINGLY, GROUND NO.5 RAISED IN APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. 36. GROUND NO.6 RELATES TO THE SHORT TERM INCENTIVE PLAN (STIP) OF RS.4,86,48,820/- ON ACCOUNT OF PROVISION FOR PERFORMANCE INCENTIVE PAYABLE TO EMPLOYEES. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 10 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 30 OF THE APPELLATE ORDER. 28 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 37. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ASSESSMENT YEAR 2003-04, PROVISION FOR AMOUNTS PAYABLE UNDER THE STIP WAS DISALLOWED BY THE ASSESSING OFFICER FOR THE REASON THAT THE PLAN WAS APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY AS ITS MEETING HELD AFTER THE CLOSE OF THE ACCOUNTING YEAR. ON THESE FACTS, THE DISALLOWANCE WAS UPHELD BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO.1055 & 1056/PUN/2009 (SUPRA.) BUT WITH A DIRECTION THAT DEDUCTION WOULD BE ALLOWED FOR AMOUNTS PAID UNDER THE SCHEME. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE LD. CIT(A) IN HIS ORDER HAS OBSERVED THAT THE SCHEME WAS APPROVED BY THE BOARD OF DIRECTORS ON 28.05.2003 I.E. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05 AND HENCE, THE ENTIRE LIABILITY OF RS.4,86,48,820/- HAS CRYSTALLIZED DURING THE YEAR ITSELF. THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE LD. CIT(APPEALS) ALLOWED RELIEF FOR RS.23.21 LACS FOR THE REASON THAT THE ASSESSING OFFICER HAD DISALLOWED ONLY RS.23,21,000/- WITHOUT REALIZING THAT THE ASSESSING OFFICER WHILE MAKING NET DISALLOWANCE HAD ALLOWED DEDUCTION FOR RS.463.70 LACS BEING INCENTIVE PAID/WRITTEN BACK UNDER THE PLAIN FOR A.Y.2003-04 BECAUSE THE SAME WAS DISALLOWED BY HIM IN A.Y.2003-04. 38. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 39. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE ORDER OF THE TRIBUNAL IN ITA NO.1055 & 1056/PUN/2009 (SUPRA.) WHEREIN THOUGH THE TRIBUNAL HAS UPHELD THE DISALLOWANCE WITH A DIRECTION THAT DEDUCTION WOULD BE ALLOWED FOR PAYMENTS MADE UNDER THE SCHEME. PARA 30 TO 34 OF THE TRIBUNALS ORDER ARE RELEVANT IN THIS REGARD AND THE SAME ARE EXTRACTED AS UNDER: 29 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 30. GROUND NO.7 IS WITH RESPECT TO DISALLOWANCE OF RS 4.63 CRORES (ROUNDED OFF) OF SHORT TERM INCENTIVE PLAN (STIP): 31. AO ON PERUSING THE TAX AUDIT REPORT NOTICED THAT ASSESSEE HAD CREATED A PROVISION OF RS.4,63,70,760/- FOR SHORT TERM INCENTIVE PLAN AND THE AMOUNT WAS UNPAID TILL 30.09.2003. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAME WAS NOT COVERED U/S 36(1)(III) OR 43B OF THE ACT AND THE ENTIRE PROVISION NOT BE DISALLOWED AS IT WAS NOT INCURRED DURING THE YEAR. ASSESSEE INTER-ALIA SUBMITTED THAT FOR PROMOTING GROWTH AND PROSPERITY OF THE ASSESSEE, A POLICY FOR PAYING AN ANNUAL INCENTIVE TO ALL THE EMPLOYEES WAS FORMULATED. THE QUANTUM OF ANNUAL INCENTIVE WAS TO BE BASED ON THE PERFORMANCE OF EACH DIVISION AND ALSO OF EACH EMPLOYEE OF THAT DIVISION. IT WAS FURTHER SUBMITTED THAT THE PAYMENT OF BONUS ACT DOES NOT APPLY TO SUCH PAYMENTS AS THOSE EMPLOYEES WERE DRAWING SALARY IN EXCESS OF RS.3,500/- PM. IT WAS FURTHER SUBMITTED THAT THE UNPAID AMOUNT OUT OF THE SCHEME WAS REVERSED IN THE NEXT YEAR AND OFFERED TO TAX. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO AO. AO WAS OF THE VIEW THAT THE SCHEME THAT WAS FORMULATED WAS TO BE IMPLEMENTED ONLY AFTER THE CLOSE OF FINANCIAL YEAR AND THERE WAS NO STIP POLICY DURING THE YEAR MORE SO AS THE SCHEME WAS APPROVED BY THE BOARD OF DIRECTORS ON 28.05.2003. HE FURTHER NOTED THAT THE AMOUNTS WERE DISBURSED TO THE EMPLOYEES AFTER THE CLOSE OF FINANCIAL YEAR AND IT WAS INCLUDED IN FORM 16 OF THE CONCERNED EMPLOYEES DURING F.Y 2003-04. HE THEREFORE CONCLUDED THAT THERE WAS NO INCENTIVE PLAN DURING THE YEAR UNDER CONSIDERATION AND THE LIABILITY OF RS.4,63,70,760.- DID NOT ACCRUE OR ARISE DURING FY 2002-03 AND FURTHER THE LIABILITY COULD NOT BE TERMED TO BE AS PROVISION FOR KNOW LIABILITY AND THEREFORE NOT ALLOWABLE AS EXPENDITURE. HE ACCORDINGLY DISALLOWED THE CLAIM OF EXPENDITURE AND MADE ADDITION OF RS.4,63,70,760/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO UPHELD THE ORDER OF AO BY OBSERVING AS UNDER : 13.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT. AS ALREADY MENTIONED IN PARA 8.3 ABOVE, AN EXPENDITURE IS DEDUCTIBLE IN THE YEAR IN WHICH LIABILITY TO INCUR THE EXPENDITURE ARISES. IN THE PRESENT CASE, AS RIGHTLY POINTED OUT BY THE ASSESSING OFFICER, THE COMPANY BECAME LIABLE TO PAY THE INCENTIVE ONLY ON 28.05.2003, THE DATE WHEN THE SCHEME RECOMMENDED BY THE VICE PRESIDENT (HR) WAS APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY. SINCE THE PROVISION HAS BEEN MADE ON THE BASIS OF THE NEW SCHEME, APPELLANTS ARGUMENT BASED UPON THE FACT THAT IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR, THE COMPANY DID HAVE A SCHEME FOR PAYMENT OF INCENTIVES TO ITS EMPLOYEES, DOES NOT APPEAR TO HAVE ANY FORCE. AFTER ALL, THE PROVISION HAS NOT BEEN MADE ON THE BASIS OF THE OLD SCHEME. 13.4 SO FAR AS APPELLANTS RELIANCE ON JUDICIAL PRONOUNCEMENTS IS CONCERNED, A CURSORY APPRAISAL OF THE FACTS OF THE CASES RELIED UPON BY THE APPELLANT REVEALS THAT THESE CASES ARE BASED ON FACTS WHICH ARE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE. IN THE CASE OF UNITED MOTORS (I) LTD., 181 ITR 347, A PROVISION WAS MADE PURSUANT TO THE NOTICE OF TERMINATION OF AWARDS GIVEN BY THE TRADE UNION. THEREFORE, ON THE FACTS OF THE CASE, THE HONBLE COURT HELD THAT AN IMPENDING LIABILITY AROSE, PURSUANT TO THE TERMINATION. NO SUCH SITUATION IS FOUND IN THE CASE OF THE APPELLANT. SIMILARLY, THE PROVISION MADE ON A REASONABLE BASIS FOR PAYMENT TO BE MADE TO THE WORKERS WAS HELD AS ALLOWABLE 30 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 DEDUCTION IN THE CASE OF MAHINDRA UGENE STEEL COMPANY LTD. 250 ITR 84 BECAUSE AS PER TERMS AND CONDITIONS OF THE WAGE SETTLEMENT ENTERED INTO BY THE ASSESSEE-COMPANY, THERE WAS A LIABILITY ON THE ASSESSEE COMPANY TO MAKE LUMPSUM PAYMENT TO THE WORKERS UNDER THE CONCILIATION PROCEEDINGS. IN THE PRESENT CASE, NO SUCH LIABILITY IS THERE ON THE APPELLANT COMPANY. I THEREFORE, UPHOLD THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING PROVISION FOR SHORT TERM INCENTIVE PLAN OF RS.4,63,70,760/-. THE DISALLOWANCE IS CONFIRMED. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW BEFORE US. 32. BEFORE US, LD AR REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD.CIT(A) AND FURTHER SUBMITTED THAT EVEN IN THE IMMEDIATELY PRECEDING FINANCIAL YEAR THE ASSESSEE DID HAVE A SCHEME FOR PAYMENT OF INCENTIVES TO IT EMPLOYEES BUT HOWEVER IN THE YEAR UNDER CONSIDERATION A MODIFIED SCHEME WAS INTRODUCED WHICH WAS BASED ON THE PERFORMANCE OF THE DIVISION AND PERFORMANCE OF EACH INDIVIDUAL EMPLOYEE OF THE DIVISION. HE SUBMITTED THAT THE PERFORMANCE WHICH WAS THE BENCHMARKED FOR PAYMENT RELATED TO FY 2002-03. HE POINTING TO THE RESOLUTION OF THE COMMITTEE WHICH IS PLACED IN THE PAPER BOOK SUBMITTED THAT THE COMMITTEE MERELY OBSERVED THAT THE AMOUNT OF COMPENSATION PAYABLE UNDER STIP WAS IN LINE WITH THE PAYMENT WHICH WAS GIVEN EARLIER AND THEREFORE APPROVED THE SAME AND THEREFORE IT CANNOT BE SAID THAT THE SCHEME WAS APPROVED FOR THE FIRST TIME. HE FURTHER SUBMITTED THAT THE TAX WITH REFERENCE TO THE AMOUNT WAS DEDUCTED U/S 192 OF THE ACT AT THE TIME OF PAYMENT. HE FURTHER SUBMITTED THAT IF AT ALL ANYTHING WAS POSTPONED, IT WAS THE QUANTIFICATION OF THE LIABILITY WHICH WAS BASED ON CERTAIN NORMS EVOLVED BY THE COMPANY. HE FURTHER SUBMITTED THAT ANY DIFFICULTY IN QUANTIFYING THE LIABILITY WOULD NOT MAKE AN EXISTING LIABILITY INTO A CONTINGENT LIABILITY IF THE LIABILITY HAS DEFINITELY ARISEN DURING THE YEAR AND THAT THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE BEEN QUANTIFIED AND DISCHARGED AT A FUTURE DATE AND FOR THE AFORESAID PROPOSITION HE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS REPORTED IN 245 ITR 428 (SC). HE FURTHER RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CALCUTTA CO., LTD REPORTED IN 37 ITR 1 (SC) SUBMITTED THAT ANY DIFFICULTY IN THE ESTIMATION OF THE LIABILITY WOULD NOT CONVERT THE ACCRUED LIABILITY INTO A CONDITIONAL ONE. HE FURTHER SUBMITTED THAT IF THE AMOUNT IS HELD TO BE NOT ALLOWABLE THEN IN SUCH A SITUATION THE ASSESSEE BE GRANTED THE RELIEF OF THE AMOUNT THAT HAS BEEN OFFERED TO TAX. HE THEREFORE SUBMITTED THAT AO AND WRONGLY HELD THE LIABILITY TO HAVE NOT ARISEN DURING THE YEAR AND THEREFORE THE ORDER OF AO WHICH HAS BEEN UPHELD BY CIT(A) BE SET ASIDE. 33. LD. DR ON THE OTHER HAND TOOK US THROUGH THE OBSERVATIONS OF AO AND SUBMITTED THAT AFTER CONSIDERING THE MATERIAL ON RECORD AO HAD COME TO THE CONCLUSION THAT THE ASSESSEE BECAME LIABLE TO PAY THE INCENTIVE ONLY ON 28.05.2003, BEING THE DATE WHEN THE SCHEME WAS APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY. IN SUCH A SITUATION THE AO HAD RIGHTLY DISALLOWED THE EXPENSES. HE THUS SUPPORTED THE ORDER OF LOWER AUTHORITIES. 34. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO ALLOWABILITY OF PROVISION MADE FOR SHORT TERM INCENTIVE PLAN TO THE EMPLOYEES. IT IS ASSESSEES SUBMISSION THAT IT HAS BEEN CONSISTENTLY PAYING PERFORMANCE BASED INCENTIVES IN THE PAST AND WHICH HAS BEEN ALLOWED. HOWEVER, DURING THE YEAR, THE ASSESSEE HAS BOOKED THE EXPENDITURE ON WHOLESOME BASIS. WE FURTHER FIND THAT PRE-DECLARED SCHEME IS DATED 22.12.2002 31 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 RECOMMENDED BY THE VP HR AND IT WAS BY THE COMMITTEE ONLY ON 28.05.2003 I.E., AFTER THE CLOSE OF YEAR. THE AO HAS GIVEN A FINDING THAT THE AMOUNTS WERE NOT CREDITED TO RESPECTIVE EMPLOYEES ACCOUNT IN THE INSTANT YEAR. HENCE, WE FIND NO MERIT IN CLAIM OF ASSESSEE. BUT THE ASSESSEE IS ENTITLED TO DEDUCTION OF AMOUNTS, IF ANY PAID UNDER THE PROPOSED SCHEME. IN THE RESULT, THE GROUND NO.7 OF THE ASSESSEE IS PARTLY ALLOWED. IT IS EVIDENT FROM THE TRIBUNALS ORDER (SUPRA), THERE IS DIRECTION THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF AMOUNTS, IF ANY PAID UNDER THE PROPOSED SCHEME. THE LD. COUNSEL FOR THE ASSESSEE FILED COPY OF SHORT TERM INCENTIVE PLAN FOR FY 2003-04 AND COPY OF BOARD RESOLUTION DATED 05.09.2003 WHICH IS PLACED AT 328 TO 333 OF THE PAPER BOOK. IN THE INSTANT CASE, THE LD. CIT(APPEALS) VIDE PARA 33 OF HIS ORDER HAS OBSERVED AS UNDER: 32. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS THE REPLY OF THE APPELLANT. THE STIP SCHEME HAS BEEN APPROVED BY THE COMPANY BOARD ON 28.05.2003 I.E. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. 40. CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE, THE DIRECTION OF TRIBUNALS ORDER IN ASSESSEES OWN CASE AND OBSERVATION OF THE LD. CIT(A) TO THE EFFECT THAT THE STIP SCHEME HAS BEEN APPROVED BY THE COMPANY BOARD ON 28.05.2003, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEDUCTION FOR RS.4,86,48,820/-. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION AS CLAIMED BY THE ASSESSEE. HENCE, GROUND NO.6 RAISED IN APPEAL BY THE ASSESSEE IS ALLOWED . 41. GROUND NO.7 AND ITS SUB-GROUNDS RELATES TO THE DEDUCTION U/S.80HHC OF THE ACT. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 18 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 41 OF THE APPELLATE ORDER. 32 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 42. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(APPEALS) CONFIRMED THE EXCLUSION UNDER EXPLANATION (BAA) OF 90% AND ALSO FROM ELIGIBLE PROFITS OF BUSINESS, LOSS/EXPENSES ON FOREIGN REPRESENTATIVE OFFICES IGNORING THE RELIEF ALLOWED BY THE LD. CIT(APPEALS) IN YEARS PRIOR THERETO. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE LD. CIT(APPEALS) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT LOSS OF FOREIGN REPRESENTATIVE OFFICES SHOULD GO TO INCREASE THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S.80HHC INSTEAD OF IGNORING THE SAME. THE LD. COUNSEL ALSO SUBMITTED THAT THE LD. CIT(APPEALS) REDUCED THE PROFITS OF THE BUSINESS BY RS.451.90 LACS BY NOT ALLOWING DEDUCTION WITH REFERENCE TO THE PROPORTIONATE EXPORT INCENTIVES (DEPB 156.45 & DUTY DRAW BACK RS.295.45). 42.1 THE LD. COUNSEL FOR THE ASSESSEE PRAYED THAT THE MATTER MAY BE REMITTED TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. AVANI EXPORTS REPORTED IN 2015 (232) TAXMAN 357 AND M/S. TOPMAN EXPORTS VS. CIT, CIVIL APPEAL NO.1699 OF 2012. 43. THE LD. DR FOR THE REVENUE HAS PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 44. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE CASE RECORDS. WE HAVE ALSO CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF AVANI EXPORTS AND TOPMAN EXPORTS (SUPRA.). WE OBSERVE THAT THE LD. CIT(APPEALS), WHILE DEALING WITH THIS ISSUE, HAS NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE THAT LOSS OF FOREIGN REPRESENTATIVE OFFICES SHOULD GO TO INCREASE THE PROFITS OF THE BUSINESS ELIGIBLE FOR DEDUCTION U/S.80HHC INSTEAD OF IGNORING THE SAME. ON PERUSAL OF THE RECORDS, IT REVEALS THAT THERE 33 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 NEEDS CERTAIN CLARIFICATION WHILE EXCLUSION OF 90% OF THE CLAIMS AND REFUNDS, BALANCES WRITTEN OFF NOW RECOVERED, PREMIUM OF FORWARD CONTRACTS, OTHER RECEIPTS AND EXPORT INCENTIVES UNDER EXPLANATION (BAA). IT IS ALSO CLEAR THAT THE ASSESSING OFFICER AS WELL AS THE LD. CIT(APPEALS) DID NOT CLARIFY THE MATTER CORRESPONDING WITH THE DECISIONS OF THE HON'BLE SUPREME COURT OF INDIA AS MENTIONED ABOVE AS EXPLANATION (BAA). 45. CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS ISSUE NEEDS CERTAIN CLARIFICATION IN RESPONSE TO THE EXPLANATION (BAA) AS WELL AS THE DECISIONS OF THE HON'BLE SUPREME COURT. ACCORDINGLY, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER CONSIDERING THE HON'BLE SUPREME COURT DECISION AS MENTIONED ABOVE. THE ASSESSING OFFICER SHALL PROVIDE REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE IN ACCORDANCE WITH SET PRINCIPLES OF NATURAL JUSTICE. HENCE, GROUND NO.7 AND ITS SUB GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES . 46. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1803/PUN/2012 ( BY REVENUE) A.Y. 2004-05 47. IN ITA NO.1803/PUN/2012, THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1(A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE METHOD ADOPTED BY THE ASSESSING OFFICER FOR RECOGNITION OF CONTRACT REVENUE IN RESPECT OF NEGATIVE CIP IS INCORRECT? 1(B) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN HOLDING ON THE BASIS OF DECISION GIVEN IN A.Y. 2003-04 THAT THERE IS NO FAULT IN FOLLOWING AS-7. 2(A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING TO DELETE THE DISALLOWANCE OF RS.92.59 LACS CLAIMED AS LIQUIDATED DAMAGES? 34 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 2(B) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN TERMS OF PROVISIONS CONTAINED IN SECTION 251 OF THE ACT IN DIRECTING THE A.O. TO VERIFY AND ALLOW THE CLAIM OF LIQUIDATED DAMAGES FOLLOWING THE DECISION IN THE ASSESSEE'S OWN CASE FOR A.Y. 2003-04. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.1,53,21,302/- MADE BY THE A.O. ON ACCOUNT OF LEASE RENT ON ACCRUAL BASIS? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON SHORT TERM INCENTIVE PLAN OF RS. 23,21,000/- WHEN THE A.O. HAS MADE ADDITION OF THE INCREMENTAL AMOUNT ONLY AND THE ASSESSEE WAS ALREADY GRANTED RELIEF FOR AMOUNT PAID OF RS.437.46 LACS AND PROVISIONS WRITTEN BACK OF RS.26.24 LACS. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCES MADE ON ACCOUNT OF PUBLIC RELATION EXPENSES, MISCELLANEOUS EXPENSES, VEHICLE EXPENSES, FOREIGN TRAVEL EXPENSES AND TELEPHONE EXPENSES, WHEN THE SAME WERE NOT SUBSTANTIATED WITH PROPER VOUCHERS AND ALSO WHEN THE CIT(A) HAS DIGRESSED FROM THE DECISION GIVEN IN A.Y.2003-04 BY HIS PREDECESSOR. 6. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 48,22,069/- ON ACCOUNT OF PROVISION FOR MEDICAL EXPENSES WHEN THE SAME WAS HELD TO BE CONTINGENT IN NATURE BY THE A.O. 7(A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN ADOPTING THE FIGURE OF RS. 1,43,07,009/- AS PER REPORT IN FORM 10CCAC AND NOT THE FIGURE OF RS. 1,43,93,260/- AS PER ACCOUNTS SUBMITTED BY THE ASSESSEE, ON ACCOUNT OF TRADING EXPORTS IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC. 7(B) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN ADOPTING THE FIGURE AS PER REPORT IN FORM 10CCAC AND NOT THE FIGURE AS PER ACCOUNTS SUBMITTED BY THE ASSESSEE, ON ACCOUNT OF MANUFACTURING EXPORTS IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC. 8. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN NOT REDUCING 90% OF THE LEASE RENTAL FROM THE ELIGIBLE PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC. 9. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80HHC OF THE ACT CAN BE REDUCED BY THE AMOUNT OF DEDUCTION ALLOWED U/S.80IB OF THE ACT. 10. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.27.70 LACS MADE U/S 14A BEING PROPORTIONATE INTEREST ATTRIBUTABLE TO THE EXEMPT INCOME WITHOUT ASSIGNING ANY REASON FOR GRANTING RELIEF TO THE ASSESSEE. 11. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF COMMISSION PAID ON SALES, WHEN THE SAME WERE NOT JUSTIFIABLE AND ALSO WHEN NO PROOF OF SERVICES RENDERED WERE FURNISHED. 35 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 12. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 48. GROUND NOS.1(A) AND 1(B) RAISED IN APPEAL BY THE REVENUE ARE INCIDENTAL TO THE GROUND NO.2 OF ASSESSEES APPEAL. SINCE WE HAVE ADJUDICATED ALL THE RELEVANT ISSUES WHILE DECIDING WITH THE GROUND NO.2 IN ASSESSEES APPEAL, THE GROUND NOS. 1(A) AND 1(B) RAISED IN APPEAL BY THE REVENUE ARE DISMISSED . 49. GROUND NOS. 2(A) AND 2(B) RAISED IN APPEAL BY THE REVENUE ARE IDENTICAL TO GROUND NO.4 OF ASSESSEES APPEAL. SINCE, WE HAVE ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE AND ALLOWED THE GROUND NO.4 IN ASSESSEES APPEAL, GROUND NOS. 2(A) AND 2(B) RAISED IN APPEAL BY REVENUE ARE DISMISSED . 50. GROUND NO.3 RELATES TO THE LEASE RENTAL INCOME OF RS.1,53,21,302/-. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 8 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 23 OF THE APPELLATE ORDER. 51. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN ITA NO.1055 & 1056/PUN/2009 (SUPRA.) IN FAVOUR OF THE ASSESSEE. 52. THE LD. DR FOR THE REVENUE HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 53. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE PARA 65 TO 68 OF THE TRIBUNALS ORDER WHEREIN THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 36 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 65. GROUND NO.4 IS WITH RESPECT TO THE ACTION OF CIT(A) IN DIRECTING DELETION OF ADDITION OF RS 1.53 CRORE ON ACCOUNT OF LEASE RENT. 66. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SELF MANUFACTURED PRODUCTS IN THE PAST. THE ASSESSEE WAS ASKED TO GIVE THE DETAILS OF THE LEASE RENTALS WHICH WAS FURNISHED BY THE ASSESSEE AND IT WAS FURTHER SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION NO ASSETS HAVE BEEN GIVEN ON LEASE AND THERE WAS NO ACCRUAL OF THE LEASE RENTALS DURING THE YEAR. IT WAS FURTHER SUBMITTED THAT IN AY 2002-03 SIMILAR ADDITION WAS MADE BY AO BUT THE SAME WAS DELETED BY CIT(A). THE SUBMISSIONS MADE BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO AO AND ALSO NOTED THAT THE ORDER OF CIT(A) HAS NOT BEEN ACCEPTED BY THE REVENUE AND APPEAL HAS BEEN FILED BEFORE THE TRIBUNAL. HE THEREAFTER MADE ADDITION OF RS.1.53 CRORES. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO DELETED THE ADDITION BY HOLDING AS UNDER : IT IS SEEN THAT THE ISSUE INVOLVED IN THIS GROUND OF APPEAL IS SQUARELY COVERED BY THE ORDER OF CIT(A) IN THE CASE OF THE APPELLANT IN ASSESSMENT YEARS 2001-02 AND 2002-03. IN THE YEAR UNDER CONSIDERATION, THE FACTS OF THE CASE ARE IDENTICAL TO THOSE IN EARLIER ASSESSMENT YEAR VIZ A.Y. 2002-3 AND THE ASSESSING OFFICER, HAS MADE THE ADDITIONS OF RS.1,53,21,302/- MERELY ON THE BASIS OF ADDITION MADE ON THIS SCORE IN A.Y. 2002-03 IN ORDER TO KEEP THE ISSUE ALIVE. AFTER CAREFUL CONSIDERATION, I AM INCLINED TO AGREE WITH THE FINDING OF MY PREDECESSOR THAT THE ADDITION OF RS.1,53,21,302/- WITH REFERENCE TO THE SUBJECT LEASES WAS WITHOUT ANY BASIS. ACCORDINGLY, THE ADDITION OF RS.1,53,21,302/- IS DIRECTED TO BE DELETED. AGGRIEVED BY THE ORDER OF CITA(A), REVENUE IS NOW BEFORE US. 67. BEFORE US. LD DR SUPPORTED THE ORDER OF AO. LD AR ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT IN THE YEAR UNDER APPEAL THERE WAS NO SUBSISTING LEASE AGREEMENTS. HE FURTHER SUBMITTED THAT IN EARLIER YEAR, THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY THE AO HAS BEEN UPHELD BY THE TRIBUNAL. HE THUS SUPPORTED THE ORDER OF CIT(A). 68.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO ADDITION MADE ON ACCOUNT OF LEASE RENTALS. BEFORE US IT IS SUBMITTED THAT IN EARLIER YEAR THE ADDITION HAS BEEN DELETED BY THE TRIBUNAL. BEFORE US, NO FALLACY HAS BEEN POINTED OUT BY THE REVENUE IN THE ORDER OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A ) AND THUS THE GROUND OF REVENUE IS DISMISSED. FROM THE ABOVE, IT IS EVIDENT THAT WHEN THE ASSETS WERE NOT LEASED OUT LIKE IN THE ASSESSMENT YEAR 2002-03 ABOVE, THE LEASE INCOME CANNOT BE TAXED AS DIRECTED BY THE TRIBUNAL THE ISSUE IN FAVOUR OF THE ASSESSEE. THE CIT(A) RIGHTLY DELETED THE ADDITION. RESPECTFULLY, FOLLOWING OUR DECISION, GROUND 37 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 NO.3 RAISED IN APPEAL BY THE REVENUE IS RIGHTLY DISMISSED BY THE CIT(A) AND THE SAME DOES NOT CALL FOR INTERFERENCE. 54. GROUND NO.4 RAISED IN APPEAL BY THE REVENUE IS IDENTICAL TO THE GROUND NO.6 OF ASSESSEES APPEAL. SINCE, WE HAVE ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE AND ALLOWED THE GROUND NO. 6, GROUND NO.4 RAISED IN APPEAL BY THE REVENUE IS DISMISSED . 55. GROUND NO.5 RELATES TO THE AD-HOC DISALLOWANCE ON ACCOUNT OF PUBLIC RELATION EXPENSES, MISCELLANEOUS EXPENSES, VEHICLE EXPENSES, FOREIGN TRAVEL EXPENSES AND TELEPHONE EXPENSES. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 12 TO 16 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 36 OF THE APPELLATE ORDER. 56. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE VIDE PARA 41 TO 44 OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE ITA NO.1055 & 1056/PUN/2009 (SUPRA.). 57. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE PARA 41 TO 44 OF THE TRIBUNALS ORDER WHEREIN THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARAGRAPHS ARE EXTRACTED AS UNDER: 41. GROUND NO 10 IS WITH RESPECT TO ADHOC DISALLOWANCE OF EXPENSES. 41.1. AO NOTICED THAT ASSESSEE HAD INCURRED EXPENSES OF RS. 11,40,130/- UNDER THE HEAD OF PUBLIC RELATION EXPENSES. AO NOTICED THAT THE EXPENSES INCLUDED EXPENSES ON ACCOUNT OF SMALL GIFTS, LUNCH WITH GUESTS ETC. AO WAS OF THE VIE THAT ASSESSEE HAD NOT ESTABLISHED THE REASONABLENESS AND EXCLUSIVITY OF THE EXPENSES FOR THE PURPOSES OF BUSINESS. HE ACCORDINGLY DISALLOWED RS 50,000 AS BEING NON VERIFIABLE IN NATURE. AO ALSO NOTICED THAT ASSESSEE HAD INCURRED EXPENSES UNDER THE HEAD OF MEMBERSHIP AND SUBSCRIPTION, GARDEN EXPENSES, MISCELLANEOUS EXPENSES AND HOUSE MAGAZINE WHICH WERE CLUBBED UNDER MISCELLANEOUS EXPENSES. AO WAS OF THE VIEW THAT SINCE THE REASONABLENESS AND GENUINENESS OF THE AFORESAID EXPENSES WERE NOT FULLY VERIFIABLE, HE 38 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 DISALLOWED 5% OF TOTAL EXPENSES OF RS.51,55,605/- RESULTING INTO DISALLOWANCE OF RS 2,57,780/-. SIMILARLY WITH RESPECT TO VEHICLE EXPENSES, AO DISALLOWED RS 725168/- (BEING 5% OF THE VEHICLE EXPENSES AS BEING NOT INCURRED FOR THE PURPOSE OF BUSINESS. WITH RESPECT TO FOREIGN TRAVEL EXPENSES HE NOTED THAT OUT OF THE EXPENSE OF RS 3,11,62,875/-, RS 16,30,830/- WAS TOWARDS MISCELLANEOUS EXPENSES WHICH WAS DISALLOWED BY HIM ON ACCOUNT OF FAILURE ON THE PART OF THE ASSESSEE TO PRODUCE THE FULL DETAILS. OUT OF THE RESIDENTIAL TELEPHONE EXPENSES, HE DISALLOWED 5% OF THE EXPENSES (RS.3,73,617/-) FOR THE REASON THAT PERSONAL ELEMENT OF EXPENSE COULD NOT BE RULED OUT. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW BEFORE US. 42. BEFORE US, LD AR REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y 2002-03 BEFORE THE TRIBUNAL AND THE ISSUE WAS DECIDED IN ASSESSEES FAVOUR. HE PLACED ON RECORD THE ORDER OF TRIBUNAL FOR A.Y 2002-03 AND POINTED TO THE RELEVANT FINDINGS OF THE TRIBUNAL. HE FURTHER SUBMITTED THAT THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL IS SIMILAR TO THAT OF A.Y 2002-03 AND THEREFORE FOLLOWING THE DECISION OF A.Y 2002-03, THE ADDITION BE DELETED. HE FURTHER SUBMITTED THAT IN THE SUBSEQUENT YEARS, CIT(A) HAS DELETED SUCH ADHOC DISALLOWANCES. LD DR ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 43. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO DISALLOWANCE OF VARIOUS EXPENSES ON ADHOC BASIS. WE FIND THAT IDENTICAL ISSUE OF ADHOC DISALLOWANCE AROSE IN ASSESSEES OWN CASE IN A.Y 2002-03 WHERE SUCH DISALLOWANCE WAS DELETED BY THE CO-ORDINATE BENCH OF TRIBUNAL BY OBSERVING AS UNDER : 36. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, WE FIND THAT THE DISALLOWANCE OF EXPENSES UNDER VARIOUS HEADS HAS BEEN MADE BY THE AO ON ADHOC BASIS. LD.CIT(A) HAS GRANTED PARTIAL RELIEF TO THE ASSESSEE. WITH RESPECT TO DISALLOWANCE OF VEHICLE EXPENSES, THE AO DISALLOWED THE EXPENSES FOR THE REASON THAT PERSONAL USE OF EXPENSES CANNOT BE RULED OUT. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS A LIMITED COMPANY. WITH RESPECT TO A DISALLOWANCE OF EXPENSES BEING PERSONAL IN NATURE IN CASE OF LIMITED COMPANY, WE FIND THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND ENGINEERING COMPANY (SUPRA) HAS HELD THAT A LIMITED COMPANY BY ITS VERY NATURE CANNOT HAVE PERSONAL USE. IN THE ABSENCE OF ANY CONTRARY BINDING DECISION IN FAVOUR OF REVENUE, WE RELYING ON THE AFORESAID DECISION OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF SAYAJI IRON & ENGG. CO. (SUPRA), HOLD THAT NO DISALLOWANCE OF VEHICLE EXPENSES ON ACCOUNT OF BEING PERSONAL IN NATURE IS CALLED FOR IN THE PRESENT CASE. AS FAR AS THE DISALLOWANCE OF OTHER EXPENSES ON ADHOC BASIS IS CONCERNED, WE FIND THAT AO HAS NOT POINTED OUT ANY EXPENSES WHICH ARE NOT FOR THE PURPOSE OF BUSINESS. FURTHER IT IS NOT IN DISPUTE THAT THE ASSESSEES BOOKS OF ACCOUNTS ARE REGULARLY MAINTAINED, AUDITED AND NO DISCREPANCIES HAVE BEEN POINTED OUT BY THE AUDITOR OR THE REVENUE. THE DISALLOWANCE HAS BEEN MADE ON ADHOC BASIS. BEFORE US, ASSESSEE HAS SUBMITTED THAT NO SUCH ADHOC DISALLOWANCE HAS BEEN MADE IN SUBSEQUENT YEARS IN SCRUTINY PROCEEDINGS AND THIS FACT HAS NOT BEEN CONTROVERTED BY REVENUE. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT NO 39 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 DISALLOWANCE OF EXPENSES ON ADHOC BASIS IS CALLED FOR IN THE PRESENT CASE AND THUS THE GROUND OF THE ASSESSEE IS ALLOWED. 44. BEFORE US, NO DISTINGUISHING FEATURE IN THE FACTS OF THE CASE UNDER CONSIDERATION AND THAT OF EARLIER YEARS HAS BEEN POINTED OUT BY THE REVENUE. BEFORE US, THE SUBMISSION OF LD AR THAT IN SUBSEQUENT YEARS CIT(A) HAS DELETED THE ADHOC DELETIONS MADE BY AO HAS NOT BEEN CONTROVERTED BY REVENUE. IN SUCH CIRCUMSTANCES AND FOLLOWING THE REASONING AS GIVEN WHILE DECIDING THE ASSESSEES APPEAL FOR AY 2002-03 AND FOR SIMILAR REASONS, HOLD THAT NO DISALLOWANCE OF EXPENSES ON ADHOC BASIS IS CALLED FOR IN THE PRESENT CASE. WE THEREFORE DIRECT ITS DELETION. THUS THE GROUND OF ASSESSEE IS ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING OUR DECISION, GROUND NO.5 RAISED IN APPEAL BY THE REVENUE IS DISMISSED . 58. GROUND NO.6 RELATES TO THE PROVISION FOR MEDICAL EXPENSES OF RS.48,22,069/-. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 39 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 39 OF THE APPELLATE ORDER. 59. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE VIDE PARA 69 TO 71 OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE ITA NO.1055 & 1056/PUN/2009 (SUPRA.). 60. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE PARA 69 TO 71 OF THE TRIBUNALS ORDER WHEREIN THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARAGRAPHS ARE EXTRACTED AS UNDER: 69. GROUND NO 5 IS WITH RESPECT TO DELETION OF ADDITION ON ACCOUNT OF MEDICAL EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS MADE ADDITIONAL PROVISION OF RS 7,54,000 FOR THE MEDICAL EXPENSES. THE AO WAS OF THE VIEW THAT THE PROVISION WAS WITHOUT QUANTIFICATION AND THE AMOUNT DID NOT CRYSTALISED. HE ACCORDINGLY DISALLOWED RS 7,54,000 AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE 40 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 CARRIED THE MATTER BEFORE CIT(A) WHO DELETED THE ADDITION BY OBSERVING AS UNDER : 17.3 I FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE APPELLANT BY THE ORDER OF CIT(A) IN APPELLANTS OWN CASE IN A.Y. 2002-03. AFTER CAREFUL CONSIDERATION, I DO NOT FIND ANY REASON TO FORM A VIEW OTHER THAN THAT FORMED BY MY PREDECESSOR. ACCORDINGLY, THIS GROUND OF APPEAL SUCCEEDS. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW BEFORE US. 70. BEFORE US LD DR SUPPORTED THE ORDER OF CIT(A). LD AR ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT IN AY 2001-02 THE IDENTICAL ISSUE WAS DECIDED BY TRIBUNAL IN ASSESSEES FAVOUR. HE FURTHER SUBMITTED THAT THE ISSUE WAS NOT CHALLENGED BY THE DEPARTMENT IN AY 2002-03. HE THUS SUPPORTED THE ORDER OF CIT(A). 71. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO DISALLOWANCE OF ADDITIONAL MEDICAL EXPENSES. WE FIND THAT CIT(A) WHILE DECIDING THE ISSUE IN ASSESSEES FAVOUR HAD RELIED UPON THE ORDER OF HIS PREDECESSOR FOR AY 2002-03. BEFORE US, LD AR SUBMITTED THAT IN AY 2002-03 CIT(A) ON IDENTICAL FACTS HAD DECIDED THE ISSUE IN ASSESSEES FAVOUR AND THE ISSUE WAS NOT AGITATED BY THE REVENUE. THE AFORESAID CONTENTION OF THE LD AR HAS NOT BEEN CONTROVERTED BY THE REVENUE. WE FURTHER FIND THAT IDENTICAL ISSUE IN AY 2002-03 WAS DECIDED IN ASSESSEES FAVOUR. IN VIEW OF THE AFORESAID FACT, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. FROM THE ABOVE, IT IS EVIDENT THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING OUR DECISION, GROUND NO.6 RAISED IN APPEAL BY THE REVENUE IS DISMISSED . 61. GROUND NO.7(A) AND 7(B) RELATES TO THE DEDUCTION U/S.80HHC. THE ASSESSING OFFICER DISCUSSED THIS ISSUE VIDE PARA 18 OF THE ASSESSMENT ORDER AND THE LD. CIT(APPEALS) DEALT WITH THIS ISSUE VIDE PARA 41 OF THE APPELLATE ORDER. 62. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE VIDE PARA 50 OF THE TRIBUNALS ORDER IN ASSESSEES OWN CASE ITA NO.1055 & 1056/PUN/2009 (SUPRA.). 41 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 63. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE PARA 50 OF THE TRIBUNALS ORDER WHEREIN THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. FOR THE SAKE OF COMPLETENESS, THE RELEVANT PARAGRAPH IS EXTRACTED AS UNDER: 50. THE NEXT ITEM IN GROUND OF APPEAL NO.11(A) IS EXCHANGE DIFFERENCE, WHEREIN THE LD.A.R. FOR THE ASSESSEE FAIRLY ADMITTED THAT THE SAID DIFFERENCE TO THE EXTENT OF SALES WOULD FORM PART OF THE TOTAL TURNOVER AND THE BALANCE NEEDS TO BE EXCLUDED. WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT EXCHANGE DIFFERENCE TO THE EXTENT OF SALES WOULD BE INCLUDED AS PART OF THE TOTAL TURNOVER. WITH RESPECT TO GROUND NO.7 OF REVENUE, WE FIND THAT CIT(A) HAS HELD THAT ASSESSEE HAD TAKEN THE FIGURE OF EXPORT TURNOVER OF RS 1.11 CRORE AS PER THE STATUTORY MANDATE WHILE CALCULATING THE DEDUCTION U/S 80HHC. NO FALLACY HAS BEEN POINTED OUT BY THE REVENUE IN THE FINDINGS OF CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) ON THIS ASPECT. THUS, GROUND OF APPEAL NO.11(A) RAISED BY THE ASSESSEE IS PARTLY ALLOWED AND GROUND OF APPEAL NO.7 RAISED BY THE REVENUE IS DISMISSED. FROM THE ABOVE, IT IS EVIDENT THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING OUR DECISION, GROUND NO.7(A) & 7(B) RAISED IN APPEAL BY THE REVENUE IS DISMISSED . 64. GROUND NO.8 RELATES TO REDUCING 90% OF THE LEASE RENTAL FROM THE ELIGIBLE PROFIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC OF THE ACT. THIS GROUND IS INTERLINKED WITH GROUND NO.3 OF THE REVENUES APPEAL. 65. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE ADDITION OF LEASE RENTALS HAS BEEN DELETED BY THE CIT(A) (SUBJECT MATTER OF GROUND NO.3 MENTIONED ABOVE), GROUND NO.8 WOULD NOT SURVIVE. 66. THE LD. DR FOR THE REVENUE HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD. 42 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 67. WE HAVE PERUSED THE CASE RECORD AND HEARD THE RIVAL CONTENTIONS. WE ARE OF THE CONSIDERED VIEW THAT SINCE ADDITION OF LEASE RENTALS HAS BEEN DELETED BY THE LD. CIT(A) AND GROUND NO.3 OF REVENUES APPEAL HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, GROUND NO.8 WOULD NOT SURVIVE AND LIABLE TO BE DISMISSED. ACCORDINGLY, GROUND NO.8 RAISED IN APPEAL BY THE REVENUE IS DISMISSED . 68. GROUND NO.9 RELATES TO THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80HHC OF THE ACT CAN BE REDUCED BY THE AMOUNT OF DEDUCTION ALLOWED U/S.80IB OF THE ACT. 69. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED AT THE OUTSET THAT LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES LTD. REPORTED IN 332 ITR 421 WHEREIN IT HAS BEEN HELD THAT WHERE DEDUCTION IS ALLOWABLE U/S.80-IA(1) THEN DEDUCTION UNDER OTHER PROVISIONS OF HEADING C OF CHAPTER VIA HAS TO BE RESTRICTED TO THE PROFITS OF THE BUSINESS THAT REMAINS AFTER EXCLUDING THE PROFITS ALLOWED AS DEDUCTION SECTION 80-IA SO THAT THE TOTAL DEDUCTION ALLOWED UNDER THE HEADING C DOES NOT EXCEED THE PROFITS OF THE BUSINESS. 70. THE LD. DR FOR THE REVENUE HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 71. WE HAVE PERUSED THE CASE RECORD AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE LD. CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE AFTER FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES LTD. (SUPRA.) BY OBSERVING AS UNDER: 43 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 55. AFTER CAREFULLY CONSIDERING THE FACTS OF THE CASE IT IS SEEN THE ISSUE IS COVERED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE ABOVE CASE. THE A.O IS DIRECTED TO RE-COMPUTE THE DEDUCTIONS FOLLOWING THE ABOVE ORDER OF HON'BLE BOMBAY HIGH COURT. THUS, THE SUB GROUND IS ALLOWED FOR STATISTICAL PURPOSES. WE ALSO OBSERVE THAT THE ASSESSING OFFICER HAS PRIMARILY REDUCED THE ENTIRE AMOUNT OF PROFITS ALLOWED AS DEDUCTION U/S.80-IA FROM THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80HHC OF THE ACT AND COMPUTED DEDUCTION U/S.80HHC ON SUCH REDUCED PROFITS AND THIS ISSUE IS NOW SETTLED BY THE DECISION OF THE BOMBAY HIGH COURT (SUPRA.) WHEREIN IT HAS BEEN HELD THAT DEDUCTIONS U/S.80-IA AND 80HHC ARE TO BE COMPUTED IN THE MANNER PRESCRIBED IN THOSE SECTIONS; ONLY IT SHOULD BE ENSURED THAT IN RELATION TO THE PROFITS DERIVED BY THE 80IA UNDERTAKING THE TWO DEDUCTION TAKEN TOGETHER SHOULD NOT EXCEED THE PROFIT OF THE UNDERTAKING. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE ORDER OF THE LD. CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.9 RAISED IN APPEAL BY THE REVENUE IS DISMISSED . 72. GROUND NO.10 RELATES TO THE DISALLOWANCE U/S.14A OF THE ACT OF RS.27.70. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD SHOWN DIVIDEND INCOME OF RS.18.69 CRORES CLAIMING TO THE EXEMPT. THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE U/S.14A OF THE ACT AMOUNTING TO RS.27.71 LACS BEING PROPORTIONATE INTEREST AND EXPENSES @2.5% OF EXEMPTED INCOME AMOUNTING TO RS.47,00,000/-. 73. DURING THE FIRST APPELLATE PROCEEDINGS, THE LD. CIT(A) OBSERVED THAT THIS ISSUE IS COVERED BY THE APPELLATE ORDER OF ASSESSMENT YEAR 2002-03 IN 44 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 WHICH DISALLOWANCE WAS RESTRICTED TO 2.5% OF THE EXEMPT INCOME AND ASSESSING OFFICER WAS DIRECTED TO RESTRICT THE DISALLOWANCE TO RS.47,00,000/-. 74. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO DISALLOWANCE OF THE INTEREST AT ANY POINT OF TIME. INTEREST PAID DURING THE YEAR WAS RS.40 LACS WHICH INCLUDES INTEREST ON CASH CREDIT OF RS.77,297/-, POST SHIPMENT CREDIT RS.22,35,764/- AND OTHER BANK INTEREST OF RS.16,86,939/-. THEREAFTER, THE LD. COUNSEL FOR THE ASSESSEE HAS DEPICTED THE POSITION OF OWN FUNDS AND BORROWED FUNDS WHICH IS AS UNDER: RS. CRORES. 31.03.03 31.03.04 SHARE CAPITAL 71.79 23.83 RESERVES AND SURPLUS 319.17 346.70 TOTAL OWN FUNDS 390.66 370.53 BORROWED FUNDS 0.00 0.00 INVESTMENTS 276.08 239.64 75. WE HAVE PERUSED THE CASE RECORD. WE FIND THAT NO DISALLOWANCE WAS MADE U/S.14A IN RESPECT OF INTEREST IN THE PAST. ONLY INTEREST INCURRED WAS BY WAY OF POST SHIPMENT CREDIT WHICH IS ALWAYS LEVIED ON CREDIT UTILIZED FOR SPECIFIC PURPOSE FOR WHICH IT IS GRANTED NO PROPORTION THEREOF CAN BE DISALLOWED UNDER SECTION 14A AS ATTRIBUTABLE TO EXEMPT INCOME. IN THE PRESENT YEAR RULE 8D IS NOT APPLICABLE. THEREFORE, EXPENSES RELATED TO EARNING OF EXEMPT INCOME ARE REQUIRED TO BE ESTIMATED. THE LD. CIT(A) WHILE RESTRICTING THE DISALLOWANCE TO 2.5% OF THE EXEMPT INCOME, HAS PLACED RELIANCE ON THE EARLIER APPELLATE ORDER. IT IS A WELL SETTLED LAW THAT THE RULE OF CONSISTENCY SHOULD BE FOLLOWED. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER OF THE LD. CIT(A) IS WELL REASONED AND IT DOES NOT CALL FOR ANY INTERFERENCE. HENCE, GROUND NO.10 RAISED IN APPEAL BY THE REVENUE IS DISMISSED. 45 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 76. GROUND NO.11 RELATES TO THE DELETING THE ADDITION MADE ON ACCOUNT OF COMMISSION PAID ON SALES WHEN THE SAME WERE NOT JUSTIFIABLE AND ALSO WHEN NO PROOF OF SERVICES RENDERED WERE FURNISHED. 77. DURING THE RELEVANT YEAR, THE ASSESSEE HAS CLAIMED COMMISSION PAYMENT OF RS.15,00,000/-, RS.4,50,000/-, RS.4,60,000/-, RS.13,99,886/- AND RS.30,00,000/- TO M/S. MCC RESOURCES, KOLKATA, M/S. AYUSHI ABHIYANTA, KOLKATA, M/S. ENCEE RAIL LINKERS, MUMBAI, M/S. TOTAL LOGISTICS INDIA PVT. LTD., MUMBAI AND M/S. GLOBAL BOARDS LTD., MAHAD, MAHARASHTRA RESPECTIVELY. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DISALLOWED SALES COMMISSION PAID TO AGENTS PRIMARILY ON THE GROUND THAT THESE AGENTS COULD NOT FURNISH ANY DOCUMENTARY EVIDENCES IN SUPPORT OF SERVICES RENDERED BY THE AGENTS. THE SAID PARTIES WERE NOT ABLE TO FURNISH DOCUMENTARY EVIDENCES TO SHOW THAT SERVICES WERE RENDERED BY THEM. THE ASSESSING OFFICER ALSO OBSERVED IN THE ASSESSMENT ORDER THAT HE MADE INQUIRIES IN THE MATTER BY ISSUING SUMMONS U/S.131 OF THE ACT. THEY WERE ALSO CALLED UPON BY HIM TO FURNISH SUPPORTING DOCUMENTARY EVIDENCE FOR EXPENDITURE INCURRED BY THEM FOR THE SAID SERVICES. THE ASSESSING OFFICER FURTHER OBSERVED THAT NONE OF THE COMMISSION AGENTS ARE IN POSSESSION OF ANY EVIDENCE TO SUGGEST THAT THEY WERE IN CONSTANT TOUCH WITH THE CLIENTS OF THE ASSESSEE FOR AWARD OF CONTRACTS AND ALSO FOR RELEASE OF PAYMENTS. MOREOVER, THEY ARE ALSO NOT IN POSSESSION OF ANY EVIDENCES FOR THE CORRESPONDING EXPENSES INCURRED BY THEM FOR EARNING OF THE SAID COMMISSION INCOME. IN VIEW OF THE FAILURE OF THE PARTIES TO FURNISH THE REQUIRED EVIDENCE, THE ASSESSING OFFICER DISALLOWED THE COMMISSION. 46 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 78. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE LD.CIT(A) HAS DELETED THE ADDITION AS PER DISCUSSION GIVEN IN PARAS 59 TO 62 OF THE APPELLATE ORDER AND HAS PLACED STRONG RELIANCE OF THE ORDER OF THE LD. CIT(A). 79. THE LD. DR FOR THE REVENUE HAS PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 80. WE HAVE PERUSED THE CASE RECORD AND HEARD THE RIVAL CONTENTIONS. WE OBSERVE THAT DURING ASSESSMENT PROCEEDINGS, AS REQUIRED BY THE ASSESSING OFFICER, PARTIES FAILED TO SUBMIT PROOF OF RENDERING OF SERVICES WHILE THEY ARE IN CONSTANT TOUCH WITH THE RESPECTIVE PARTIES IN SUBSEQUENT YEARS. DESPITE SUFFICIENT AND REASONABLE OPPORTUNITIES, THE SAID FIVE PARTIES HAVE NOT BEEN IN A POSITION TO FURNISH REQUISITE DOCUMENTARY EVIDENCES TO DEMONSTRATE THAT THE SERVICES WERE ACTUALLY RENDERED BY THEM TO THE ASSESSEE. IT IS ALSO APPARENT FROM THE ORDER OF THE LD. CIT(A) DURING FIRST APPELLATE PROCEEDINGS THAT THE PARTIES WERE NOT ABLE TO PROVIDE ANY PROOF OF RENDERING OF SERVICES. THEREFORE, IT IS EVIDENT FROM THE ASSESSMENT ORDER AS WELL AS APPELLATE ORDER THAT THE SAID FIVE PARTIES HAVE NOT RENDERED ANY SERVICES TO THE ASSESSEE. REGARDING RENDERING OF SERVICES BY THE SAID FIVE PARTIES, THE ORDER OF THE LD. CIT(A) IS VERY SILENT AND DOES NOT DEAL WITH THE ISSUE IN PROPER PERSPECTIVE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT WITH REGARD TO THIS ISSUE, THE ORDER OF THE LD. CIT(A) IS NOT CONSIDERED AS WELL REASONED. HENCE, THE IMPUGNED ORDER IS SET ASIDE AND GROUND NO.11 RAISED IN APPEAL BY THE REVENUE IS ALLOWED . 81. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. 47 ITA NOS. 1765 & 1803/PUN/2012 A.Y.2004-05 82. TO SUM UP, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 24 TH DAY OF MAY, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; / DATED : 24 TH MAY, 2019. SB/ SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS)-5, PUNE. 4. THE CCIT, PUNE. 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / PRIVATE SECRETARY , / ITAT, PUNE.