TMI Blog2017 (7) TMI 997X X X X Extracts X X X X X X X X Extracts X X X X ..... fying the losses claimed following the percentage completion method, the action of the Assessing Officer in disallowing such losses is arbitrary and not in accordance with law. Addition on account of payment to M/s. Lurgi Life Science (LLS), Germany for drawing charges - CIT-S deleted addition - Held that:- We find that the payment for getting technical know-how in the form of drawing etc. in the year under consideration has also been made in continuation of the agreement dated 03/09/2003 between the assessee and LLS, Germany. Thus, respectfully following the decision of the Tribunal in assessee;s own case there was no independent control of the assessee over the rights. It could only used them for the purpose of business. Article 3.5 also contemplates that the rights are non-exclusive non-transferable basis and for a single use only. If all these clauses are being considered then it would reveal that assessee has not acquired the rights of technical knowhow. Independently, rather it has acquired used of such technical knowhow. There is no enduring benefit to the assessee. Learned First Appellate Authority has appreciated these clause in right perspective and we do not see any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TMI 211 - SUPREME COURT ) accepted the claim of the assessee and allowed the ground raised by the assessee in this respect. Addition on account of disallowance of interest expenses - CIT-A allowed the claim - Held that:- In our opinion, it is well known business practice that the manufacturer ask for advance for executing orders, and thus the advance made by the assessee is part of normal business practice and in the nature of commercial expediency. Thus, the disallowance deserve to be deleted both on the account of the sufficient own capital in the hand of assessee company as well as on the ground of advance made on account of business expediency. In view of above, we are of the opinion that finding of the Ld. Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned and no interference on our part is required. Accordingly, we uphold the same Disallowance of extra depreciation on computer peripherals/accessories - Held that:- CIT-A has followed the decision of the Hon’ble Delhi High Court in the case of CIT Vs. BSES Rajdhani Powers Ltd. (2010 (8) TMI 58 - DELHI HIGH COURT ), wherein the Hon’ble High Court has agreed with the Tribunal that computer acces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case, the Ld.CIT(A) has erred in deleing addition of j ₹ 338462/-on account of disallowance of interest expenses, ignoring the fact that such expenses J was not incurred for business purpose. 7. In the facts and circumstances of the case, th Ld.CIT(A) has erred in law and on facts in deleting addition of ₹ 5647/- on account of disallowance of extra depreciation on computer peripherals/accessories ignoring that as per the IT Rules 60% depreciation is allowable only on computer and computer software and not on computer peripherals and accessories. 2. The facts in brief of the case are that the assessee company was engaged in the business of supply of machinery and equipments and biodiesel plants during relevant period. The assessee filed return of income on 31/10/2007 declaring total income of ₹ 4,06,72,694/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (for short the Act ) was issued and complied with. After making certain additions/disallowances, the income of the assessee was assessed at ₹ 7,82,11,480/- vide assessment completed under section 143(3) of the Act. Aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract. 7. In other words, the assessee has been following the mercantile system of accounting and the percentage of completion method which is an accepted method. This is the method which has regularly been followed by the assessee. The assessee only recognizes the revenue to the estimated total cost of contract. Bills and vouchers were also produced during the hearing. Without specifically rejecting the bills and vouchers, I cannot appreciate that how the Ld. AO can jump to a conclusion based on the losses made by the assessee during the financial year. Here, we may refer with profit, the decision of the Jurisdictional High Court in CIT Vs. Paradise Holidays [2010] 325 ITR 13 (Delhi). The Jurisdictional High Court at Pages 16 17 have held as under: Section 145(3) of Act p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the Assessing Officer to reject them under section 145(3) of the Act. Similarly, the explanation given by the assessee for the tour expenses not reconciling with tour itinerary having been accepted, both by the Commissioner of Income-tax (Appeals) as well as by the Tribunal, the accounts of the assessee cannot be said to be defective on this ground and, therefore, could not have been rejected. If any particular expense claimed by the assessee remained unverified, the Assessing Officer could have disallowed that particular expense. But, that by itself cannot be a ground for rejection of accounts as a whole under section 145(3) of the Act. The finding of fact recorded by the Income-tax Appellate Tribunal has not been shown to be perverse, and hence cannot be interfered with by this court. 8. It is appreciated that the books of accounts have not been rejected in the case. However, the ratio of the decision of the Delhi High Court as excerpted above, cannot be ignored. The assessee has regularly been following the method of accounting as per the accounting standards issued by the ICAI. The percentage of completion method has been judicially recognized by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue. 10. Apart from the above, it is also settled law now that the Department cannot play hot and cold at the same time. In view of the discussions, I am firmly of the belief that the assessee deserves to succeed in Grounds of Appeal No. 2 3. The addition to the tune of ₹ 56,14,565/- is deleted. 4.3 The Ld. CIT-A justified the claim of the loss keeping in view the percentage completion method followed by the assessee. 4.4 We find that the AO has disallowed the loss without rejecting books of accounts of the assessee under provision of section 145(3) of the Act. Further, the AO has disallowed the losses from the two projects merely on the ground that there was a fall in overall gross profit rate of the company as compared to the last year. We find that the assessee has duly explained the reason for the losses. When the project is spread over more than one year and the assessee has followed percentage completion method for recognizing profit from such project, the amount of profit or loss from the project, may vary from year to year. In our opinion, when the assessee has explained the reasons for losses, the action of the AO in rejecting the losses without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature is misconceived, going by the decisions of the Delhi High Court, as extracted above. The assessee deserves to succeed in Grounds of Appeal No. 4 5. 5.2 In assessment year 2006-07 also the assessee made payment to LLS Germany for getting technical know-how under the agreement dated 03/09/2003 between the assessee company and LLS, Germany. The Assessing Officer treated the payment as capital expenditure, however, the Tribunal after analyzing the various terms and conditions of the agreement concluded that the said expenditure was Revenue expenditure. The relevant finding of the Tribunal (supra) for assessment year 2006-07 is reproduced as under: 15. In the light of various authoritative pronouncement referred by the assessee before the Learned Assessing Officer as well as learned CIT(A) and available in the written submissions of the assessee filed before the learned CIT(A) (copy at page 466 to 474 of the paper book), we have considered the agreements. The first objections of the Assessing Officer is that assessing company had acquired ownership rights independently on the technical know-how. Article 11 of the technical cooperation agreement dated 03.09.2003 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de payment for membership fee and registration fee to Biodiesel Association , amounting to ₹ 10.12 lakhs, which was held by the Assessing Officer as capital expenditure, however, the Tribunal in ITA No. 1105/Del/2012 upheld the finding of the Ld. CIT-A, holding the expenditure as revenue in nature. The relevant para of the order of the Tribunal (supra) is reproduced as under: We have heard the rival contentions in light of the material produced and precedent relied upon. We note that the expenditure in this case has been incurred in connection with enabling engineering and other technical staff to participate in conference and discussions organized by the Bio Diesel Association of India. The discussion held in the conferences were academic in nature and highlight the constraints faced by the industry and the new technologies and trends emerging as a result of globalization of economy. The problem faced in day to day working of bio diesel industry also come up from discussions and suggestions made during such discussions help the technical staff in solving the day to day problems. Therefore, we agreement with the Learned Commissioner of Income Tax (A) that it was with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability as it was under contractual legal obligation. The assessee has incurred expenses in subsequent year before finalization of the financial statement. The expenses are related to the project completed in the year under consideration and the corresponding revenue has already been recognized. The assessee debited said expenses as provision of warranty in the year under consideration. In such circumstances, it is evident that while finalizing the financial statement the amount, the expenditure was ascertained. We find that the Ld. CIT-A has allowed the claim of the assessee following the judgment of the Hon ble Apex Court in the case of Rotork Controls India Private Limited (2009) 314 ITR 62. The relevant part of the impugned order is extracted as under: 23. It is clear from the order of the Supreme court that provision for warranty is an ascertained liability as long as it is based on actuarial valuation. This is done on historical cost and on experience of the assessee. Thus, there can be no scope for any disallowance. Assessee succeeds in Ground of Appeal No. 7. 7.3 In our opinion, the finding of the Ld. CIT-A on the issue in dispute is comprehensive and well re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1969842/- Income shown in the FY 01-02 copies of trading a/c and ledger a/c already filed with letter dt. 05.10.09. 5. Fountain Eximp Blue Pvt. Ltd. (Russia Project) 481575/- Income shown in the FY 01-02 copies of trading a/c and ledger a/c already filed with letter dt. 05.10.09 8.3 From the above table it is evident that assessee has already shown above debts as income in earlier years and the Revenue has not disputed the fact of debt shown as income in earlier years. The assessee has demonstrated written off of the bad debts in the year under consideration and thus both the conditions in respect of the above bad debts are fulfilled. The Ld. CIT-A has also following the decision of the Hon ble Supreme Court in the case of TRF Ltd Vs. CIT, (2010) 323 ITR 397 (SC) accepted the claim of the assessee and allowed the ground raised by the assessee in this respect. The relevant part of the order of the Ld. CIT-A is reproduced as under: 26. The issue has drawn the attention of the Delhi High Court repeatedly but the results have been the same, as in CIT Vs. Autometers Ltd. (2007) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further submitted that loan advanced to the Director and two sister concerns were for business purposes. He submitted that advance to the Director, Sh. O P Nambiar was made for his travel expenditure for the purpose of the business of the assessee company and the advance to M/s. Chemical Construction Company Private Limited was given in relation to regular business transactions. 9.2 We find that the Ld. CIT-A observing that the assessee had sufficient funds, which were self generated and the money was advanced for commercial purposes, deleted the disallowance of ₹ 3,38,462/- made by the Assessing Officer. The Hon ble Delhi High Court in the case of CIT Vs. Tin Box Company, 260 ITR 637 (Del) endorsed the finding of the Tribunal that when the capital of the firm and interest free unsecured loans with the appellant far exceeded the amounts advanced to the sister concern and the Department could not point out any specific interest-bearing borrowed funds diverted by the assessee to its sister concern, no disallowance could be made for interest corresponding to the interest free advances to sister concern. The Hon ble High Court dismissed the appeal of the Revenue holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee well in time. In our opinion, it is well known business practice that the manufacturer ask for advance for executing orders, and thus the advance made by the assessee is part of normal business practice and in the nature of commercial expediency. Thus, the disallowance deserve to be deleted both on the account of the sufficient own capital in the hand of assessee company as well as on the ground of advance made on account of business expediency. In view of above, we are of the opinion that finding of the Ld. Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned and no interference on our part is required. Accordingly, we uphold the same. The ground No. 6 of the appeal is accordingly dismissed. 10. In ground No. 7, the Revenue has challenged deleting of addition of ₹ 5,647/- on account of disallowance of extra depreciation on computer peripherals/accessories. The Ld. Sr. DR submitted that the depreciation of ₹ 5,647/- claimed at the rate of 60% on computer accessories and peripherals amounting to ₹ 12,550/- treating the same as computer was not allowable as per the provisions of the Income Tax Act. 10.1 The Ld. AR, on the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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