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TMI Blog2017 (7) TMI 997X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. 3. On the facts and circumstances of the case, the Ld.ClT(A) has erred in deleting addition of' Rs.l500000/-on account of Capital Expenditure, ignoring the fact that while organizing and funding the seminar for updating of its engineers, benefit of enduring nature was drawn by assessee. 4. On the facts and circumstances of the case, the Ld.CIT(A) has erred in deleting addition of Rs. 6076476/- on account of provision for warranty, ignoring the fact that provision was for meeting liabilities other than ascertained liabilities and hence inadmissible. 5. On the facts and circumstances of the case, the Ld.CIT(A) has erred in deleting addition of Rs. 9332384/- on account of bad debts, ignoring the fact that the assessee failed to realize the amount, and due to oversight as it end, to recover this amount. 6. On the facts and circumstances of the case, the Ld.CIT(A) has erred in deleing addition of j Rs. 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 Rs. 5647/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e execution of the project and the loss was due to the reasons of payment of one-time engineering and license fee to M/s Lurgi Life Science Limited (LLS) and rise in steel prices. 4.2 We have heard the rival submission and perused the materials available on record. We find that the Ld. CIT-A allowed the relief to the assessee observing as under: "6. I have considered the impugned order and the submissions made by the Ld. AR of the assessee. It is not in dispute that the assessee follows the percentage completion method. This is as per the Accounting Standards specified by the ICAI. Judicial notice has been taken of the percentage of completion method in CIT Vs Bilahari Investment (P) Ltd. [2008] 299 ITR 1 (SC). At page 7 & 8, it has been held as under: "On the other hand, the percentage 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such that true profits of the assessee cannot be deduced therefrom. The question as to whether the accounts produced by the assessee was defective/incomplete or not is a question of fact. The Commissioner of Incometax (Appeals) as well as the Income-tax Appellate Tribunal have found that the accounts maintained by the respondent were neither defective nor incomplete. Even the Assessing Officer has not found any fault as such with the system of accounting being followed by the assessee. The Tribunal which is the final fact finding authority has held that considering the nature of the business of the assessee, it was not obligatory to enter into formal agreements with the foreign principals would not render the accounts of the assessee incomplete and would not give justification 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other." 28. In this Court, in its decision dt. 6th May, 2008 in IT ref. No. 229 of 1988 entitled CIT vs. Vishnu Industrial Gases (P) Ltd. had quoted the aforesaid passage and thereafter remarked that the situation does not seem to have changed over the last fifty rears and the Revenue continues to agitate the question whether tax is leviable in a particular year or in some other year. Alas I The aforesaid words of wisdom of Bombay High Court reminded to the Revenue authorities more than two years ago again have not made any dent on the psyche of the 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 Rs. 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdictional High Court in the case of CIT Vs. JK Synthetics Ltd (2009) 222 CTR (Del) 339, held as under: "16. In the case in hand, a temporary agreement was signed between M/s. Lurgi Life Sciences, Germany and the assessee. As per the agreement, the ownership remained with M/s. LLS. The assessee could not patent or apply for patents on any of the products. It, naturally fallows that the assessee could not create further rights in favour of third parties. The agreements also does not transfer the 'fruits of research' of the licensor 'once for all. No secret or process of manufacture was sold by the licensor to the licensee. In such circumstance, I am afraid the stand taken by the assessee that the expenditure was capital in 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 vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The facts that during the year, the assessee made payment to 'Biodiesel Association' for sponsoring of conference on biodiesel. The assessee duly deducted TDS on advertising money paid to the 'Biodiesel Association'. The Ld. Sr. DR submitted that the said payment was for enduring benefit to the assessee and hence it was capital in nature. 6.1 On the contrary, the Ld. AR submitted that the expenditure was for keeping its engineers updated with the latest knowledge relating to set up and install of services in the field of biodiesel and discussions held in the conference helped the technical staff in solving day-to-day problems. The Ld. AR further submitted that in assessment year 2008-09 also the assessee made payment for membership fee and registration fee to 'Biodiesel Association', amounting to Rs. 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. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te limited Rs. 31,48,877/- Rohit surfactant private limited Rs. 23,99,307 M/sSouthern biotechnologies Ltd. Rs. 5,24,492 Astra Bio Plant Bulgaria Rs. 3,800/- Total expenditure Rs. 60,76,476/- 7.2 The Ld. AR submitted that the liability was in the basis of actual valuation, in view of the historical cost and experience of the assessee. In view of the submissions, we are of the opinion that the liability accrued and existed and there was no uncertainty as to incurring of 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come shown in the FY 2003- 04 copies of trading a/c and ledger a/c already filed with letter dt. 05.10.09 4. Regional Research Laboratory (Balaji Oil Indust. Ltd.) 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sister concern. He 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 Rs. 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 5,647/- on account of disallowance of extra depreciation on computer peripherals/accessories. The Ld. Sr. DR submitted that the depreciation of Rs. 5,647/- claimed at the rate of 60% on computer accessories and peripherals amounting to Rs. 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 other hand, submitted that in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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