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2015 (7) TMI 685 - AT - Income TaxDisallowance of Provision for warranty obligation - Held that:- As relying on assessee’s own case for assessment years 1998-99 and 1999-2000 [2014 (12) TMI 680 - ITAT PUNE] we find that this issue has been decided in favour of the assessee wherein held that the assessee made a provision on account of provision for warranty with respect to the products sold - Considering the opening balance of provision, the differential amount of provision was debited to the Profit & Loss Account of the year - The provision was made by the assessee on account of the fact that it is under an obligation to provide warranty for a period of one to two years on the products sold by it on account of any manufacturing defect found later - assessee was obliged to replace the product or repair the product free of cost during the period of warranty - thus, the AO is directed to allow the relief – Decided in favour of assessee Amortization of premium paid on leasehold land - Held that:- This issue has been decided against the assessee in assessment years 1998-99 and 1999-2000 by the Tribunal wherein held an accepted position that the issue regarding assessee’s 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 Hon’ble Supreme Court in the case of Govind Sugar Mills Ltd. vs. CIT, (1997 (7) TMI 16 - SUPREME Court ) against the assessee - Decided against assessee. Disallowance of Provision for profit equalizations in terms of AS-7 - Held that:- 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 wherein 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. Accordingly, this ground in the appeal of the assessee is accepted.- Decided against revenue. Disallowance of expenditure on computer software - Held that:- A perusal of the order of the Co-ordinate Bench in assessee’s own case for assessment years 1998-99 and 1999-2000 shows that the Tribunal followed the judgement of the Hon’ble Bombay High Court in the case of CIT vs. Raychem Rpg. Ltd. reported as(2011 (7) TMI 953 - Bombay High Court )upheld the order of the Tribunal whereby the expenditure incurred on acquisition of software which did not form part of the profit making apparatus of the assessee was treated as a revenue expenditure. In the said context, it is to be noted that the CIT(A) has given a finding that expenditure of ₹ 22,16,107/- was incurred on acquisition of software connected with the manufacturing operations of the assessee. Such softwares have been identified as Autocad, project management software, designing software, etc.. The assessee is in the business of manufacturing of boilers and heat transfer equipment and therefore the aforesaid softwares form part of its profits making apparatus and thus it is liable to be considered as capital expenditure in view of the judgement of the Hon’ble Bombay High Court in the case of Raychem Rpg. Ltd. (supra). - Decided against assessee. Disallowance of claim of depreciation @ 100% on plant and machinery installed in Plant No.11. - Held that:- The issue was decided by the Tribunal in assessee’s own case for assessment years 1998-99 and 1999-2000 for assessee’s claim for depreciation 100% with respect to the plant & machinery used in the manufacture of air/gas/fluid heating systems 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. With regard to assessee’s 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%. - Decided against assessee and revenue. Disallowance of expenditure in earning tax free income - Held that:- The issue has been decided against the assessee in earlier assessment years disallowance as confirmed by the CIT(A) has been a subject matter of consideration by the Tribunal in assessment year 1997-98. In view of the aforesaid precedent, the action of the CIT(A) in restricting the disallowance to 2.5% of the gross income is hereby affirmed.- Decided against assessee Addition on account of Lease Rental income - Held that:- The assessee admittedly maintains books of account according to the mercantile system of accounting. However, the assessee in its books of account have not recognized the lease rental income due from (i) Modi Alkalies; (ii) Inertia; (iii) Parasrampuria Industries Ltd.; and, (iv) Parasrampuria International Ltd. on the ground that these companies are in financial distress, therefore, no rental income is recoverable. In our opinion, the correct course of action which the assessee should have followed is to recognize lease rental income from the aforesaid companies in its books and thereafter should have claimed the same as bad debts. The CIT(A) has upheld the findings of the Assessing Officer in principle which in our opinion is the correct proposition. Accordingly, the same is upheld - Decided against assessee Allowability of deduction under section 80-IA - Held that:- This issue was raised by the Revenue in its appeal for assessment year 1998-99 wherein the Co-ordinate Bench affirmed the findings of the Commissioner of Income Tax (Appeals allowing the claim of the assessee for deduction u/s 80-I/80-IA of the Act with respect to the industrial undertakings manufacturing products called Woodpac and Process Integrated Boilers. - Decided against revenue. Computation of deduction under section 80HHC - AO while recomputing the deduction added excise duty and sales-tax collected in total turnover - Held that:- It is a well-settled law that what has been included in export turnover that it has to be included in total turnover as well. In other words, what has been excluded in export turnover cannot be included in total turnover. As far as miscellaneous receipts are concerned, the contention of the assessee is that the same is covered by the order of the Hon’ble Bombay High Court in the case of Pfizer Ltd. (2010 (6) TMI 433 - Bombay High Court ). We, therefore, remit these issues to the file of the Assessing Officer to re-compute the deduction u/s. 80HHC, accordingly. - Decided in favour of assessee for statistical purposes. Deduction under section 35AB allowed in respect of lump-sum fee for technical know-how paid in earlier years - CIT(A) has directed the Assessing Officer to allow deduction u/s 35AB of the Act in respect of know-how fee whose innings u/s 35AB of the Act have began in the past and where the balance eligible period u/s 35AB of the Act was not over - Held that:- The plea of the assessee for deduction of expenditure incurred by way of process know-how fee u/s 37(1) of the Act is liable to be decided against the assessee following the judgement of the Hon’ble Supreme Court in the case of M/s Drilcos (India) Pvt. Ltd. vs. CIT, (2012 (9) TMI 299 - SUPREME COURT ). CIT(A)’s decision to allow determination of deduction u/s 35AB of the Act not only with reference to the amounts actually paid but also with reference to the amounts payable for process know-how is concerned, the same in our view has been appropriately decided by the CIT(A). Notably, the CIT(A) has noticed that assessee is following the mercantile system of accounting and the word “paid” has been defined in section 43(2) of the Act to include the incurrence of liability also. In coming to such conclusion, the CIT(A) has followed the judgement of the Hon’ble Bombay High Court in the case Padamjee Pulp and Paper Mills Ltd. (1993 (10) TMI 16 - BOMBAY High Court ). It was a common point between the parties that the Assessing Officer has been allowing deduction to the assessee to the extent of 1/6th since assessee itself was debiting only 1/6th of process know-how fee in the Profit & Loss Account and what the Assessing Officer was rejecting was the claim of the assessee made in the computation of income that the full amount should be allowed in the first year itself. Infact, it was a common point between the parties that so far as the claim of deduction of 1/6th cost is concerned, the same was allowed by the Assessing Officer in the respective years. In view of the aforesaid factual matrix, the direction of the CIT(A) is quite infructuous and in-fact was not called for. As a consequence, the decision of the CIT(A) on this aspect is set-aside as being infructuous. - Decided in favour of revenue for statistical purposes. Provisions for reimbursement of medical expenses - CIT(A) allowed claim - Held that:- The amount of medical reimbursement are in the nature of incentives given by the assessee to its employees. It is the discretion of the employee either to claim the amount as medical reimbursement or to accumulate and withdraw the amount at the end of particular service. We do not find any infirmity in the findings of the Commissioner of Income Tax (Appeals) on this issue - Decided in favour of assessee. Non-receipt of TDS certificates - assessee write off the value of TDS certificates, not recovered - Held that:- In the instance case, the assessee under similar circumstances has written off the amount of TDS certificates not received. Therefore, in our considered view it has to be allowed as bad debts. We find no infirmity in the order of CIT(A). - Decided in favour of assessee. CIT(A) has rightly directed the Assessing Officer to exclude 90% of the amount of lease rental for computing deduction under section 80HHC. - Decided against revenue.
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