TMI Blog2008 (11) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. But, the assessee cannot postpone recognition of the same beyond the stages mentioned by us in the preceding lines. In this regard, it is also noted that there is no dispute in regard to these aspects before us, hence, it can safely be concluded that except for amount represented by performance bank guarantee, the assessee is accounting for revenue from such transactions at the appropriate stages and if such stage has not been achieved during the year, then, the same has been shown as advance. Having stated so, we have already taken into consideration factual, accounting, commercial and legal aspects in detail hereinbefore and, accordingly, we hold that there is no merit in the claim of the assessee not to recognize the amount represented by the performance bank guarantee as revenue of the year of sales - this ground of the assessee in all the years under consideration is dismissed. Eligibility of the assessee' s claim for deduction under s. 80-IA of the Act on the profits of turnover of trading goods - whether the profit of trading activities can be considered as eligible for deduction under s. 80-IA of the Act or not? - HELD THAT:- The assessee has placed hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, involved common issues, hence, these were heard together and disposed of through this consolidated order for the sake of convenience. 2. We have heard both the sides and have also perused the materials placed on record and applicable legal position. 3. The assessee has submitted a chart which depicts the issues involved in each of assessment year. For the sake of convenience, the details furnished in this chart are reproduced as under: ----------------------------------------------------------- Sl. ITA No. Asst. yr. Asst. yr. Asst. yr. Asst. yr. No. 1994-95 1995-96 1996-97 1997-98 ----------------------------------------------------------- 1. 1139/ s. 80-IA s. 80-IA s. 80-IA s. 80-IA Mum/ Trading Trading Trading Trading 2003 turnover turnover turnover turnover ----------------------------------------------------------- 2. 1140/ Provision Provision - - Mum/ for for 2003 warranty warranty ----------------------------------------------------------- 3. 483/ Allowed Allowed Retention Retention Mum/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serial No. 4 of the chart was not pressed in all the assessment years, hence, the relevant ground in each year is dismissed as not pressed. 6. The issue regarding provision for warranty at serial No. 2 of the chart pertaining to asst. yr. 1994-95 was not pressed, hence, dismissed as not pressed. 7. The issue raised at serial No. 5 in asst. yrs. 1996-97 to 2001-02 is in respect of lease premium. The learned counsel for the assessee was fair enough to state that this issue was covered against the assessee by the decision of Special Bench of the Tribunal in the case of Jt. CIT vs. Mukund Ltd. (2007) 109 TTJ (Mumbai)(SB) 172 : (2007) 291 ITR 249 (Mumbai)(SB)(AT), hence, we dismiss the relevant ground in each year. 8. The learned counsel for the assessee, thereafter, proceeded with the issue relating to treatment of retention money as raised at serial No. 3. He submitted that in asst. yr. 1996-97, this issue first arose, hence, he proceeds to deal with the matter firstly in that year. He also submitted that the same issue was raised in asst. yr. 1997-98 by way of additional ground and, since all the facts were on record and it required no investigation into facts, hence, this addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was manufacturing and supplying standard equipments and it was also engaged in trading, hence, it could not be said that right to receive such amount had not accrued to the assessee at the time of supply of material to its customers as the transaction got completed when the goods were delivered to the customer. It was also noted by the AO that no expenditure had been incurred by the assessee till the date of completion of assessment proceedings as no performance guarantee had been invoked till that date. It was also noted by the assessee that there was no mention of liability in the financial statements nor any provision had been made by the assessee on this count in the books of account, hence, the AO held that it was nothing more than a contingent liability. The AO also held that income chargeable under the head profits and gains of business or profession was to be computed either on the basis of cash system of accounting and mercantile system of accounting regularly followed by the assessee and the assessee could not follow a different method for working out its profit for tax purposes which was not even recognized by the assessee itself or its auditors. Accordingly, he rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revised return for making such claim, the learned counsel submitted that this issue was involved only in the asst. yr. 1996-97 and not in other years. The learned counsel drew our attention to the income computation chart filed along with the return of income, copy of the same is at pp. 17 to 20, wherein this fact had been mentioned and contended that this aspect was examined by the Tribunal in the case of Chicago Pneumatic India Ltd. vs. Dy. CIT (2007) 15 SOT 252 (Mumbai), wherein the Tribunal after considering the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC) had held that the AO was obliged to give due relief to the assessee or entertain its claims if admissible as per law even though the assessee had not filed revised return, hence, the assessee's claim could not be rejected on technical grounds. In this regard, he also placed reliance on the following judicial decisions: (i) Chokshi Metal Refinery vs. CIT (1977) 107 ITR 63 (Guj); (ii) Bhartiya Engineering Corpn. (P) Ltd. vs. R.G. Deshpande, Addl. CIT (1979) 11 CTR (Bom) 293 : (1981) 130 ITR 442 (Bom). A query was also raised by the Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstallation and commissioning when UPS systems are imported by customers from assessee's associate concerns situated abroad. During the course of hearing. the assessee has submitted copy of performance security bond in relation to supply made to ITI whereas the Bench desired for submission of tender documents, other terms and conditions of supplies and installation and commissioning, which have not been submitted, as promised, hence, we are constrained to take a view on the basis of material on record. Clause (1) of such performance security bond provides some insights into the various eventualities which could arise between the assessee and its customer in future, hence, we consider it proper to reproduce the same as under: "The bank hereby irrevocably and unconditionally guarantees to ITI Ltd. that the bidder shall render all necessary and efficient services which may be required to be rendered by the bidder in connection with and/or for the performances of the said contractor and further guarantees that the goods which shall be supplied by the bidder under the said contract shall be actually performing the work required of it to the satisfaction of ITI Ltd. and shall be free f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is very important, as in such situation, when the delivery is made, the property in goods is transferred to the buyer and, thereafter, it is the buyer who has to bear the risk and rewards of ownership. This leads to another legal consequence whereby a legally enforceable debt is created in favour of the assessee at that very point and, therefore the whole income is accrued to the assessee immediately on delivery of the product to the customer as far as sale value of the product is concerned. As far as the installation and commissioning activity is concerned, the income thereon shall normally accrue to the assessee at the moment when such services are rendered by the assessee and, therefore, the total amount received by the assessee i.e., sale value of the product as well as installation and commissioning charges are to be accounted for as income at two stages i.e., income from sale at the time of delivery of the product and income from installation and commissioning at the time of rendering of the specified services. It is important to reiterate here that the assessee has received the total amount payable by the customer at the time of delivery only, hence, there can be a case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the hands of the assessee. 13.1 Whatever has been stated by us hereinbefore is also supported by the AS-9, relating to revenue recognition, issued by ICAI wherein it has been provided that in respect of a transaction involving sale of goods, the revenue should be recognized when the seller has transferred the property in goods to the buyer for a consideration and the transfer of property in goods, in most cases, results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. In the present case, we have already held that when the goods have been delivered to the buyer by the assessee, the property in goods has been transferred to the buyer in terms of provisions of Sales of Goods Act, 1930, hence, the revenue has to be recognized in the period when such delivery has been made. In the Accounting Standard, it has also been provided that the recognition of revenue can be postponed if there exists uncertainties regarding the ultimate collection, however, in the present case the assessee has already received the amount of sale consideration though it has provided the bank guarantee for satisfactory performance and compliance with the terms and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not applicable to the present case. As regards the reliance placed by the assessee on the decision of Hon'ble Gujarat High Court in the case of Anup Engineering Ltd., we find that there was a dispute between the supplier and the customer as regards to quality/configuration of product/material supplied and which is not the case here, hence, the ratio of that decision is also not applicable. Thus, on merits, the assessee does not have any case. As far as the technical ground of rejection is concerned, which is involved only in one year, the same stands covered in favour of the assessee by the decision of the Tribunal in the case of Chicago Pneumatic India Ltd., hence, we hold that the order of the learned CIT(A) is not correct to that extent. 14. Before parting with this issue, we consider it pertinent to deal with the other aspect of the issue involved i.e., once the assessee is postponing the revenue recognition in such situations, in spite of following the mercantile system of accounting, the assessee is not following the principle of matching which requires the assessee to match cost with revenue and vice versa. Further, there is accounting concept of periodicity which requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at the appropriate stages and if such stage has not been achieved during the year, then, the same has been shown as advance. Having stated so, we have already taken into consideration factual, accounting, commercial and legal aspects in detail hereinbefore and, accordingly, we hold that there is no merit in the claim of the assessee not to recognize the amount represented by the performance bank guarantee as revenue of the year of sales. Accordingly, we dismiss this ground of the assessee in all the years under consideration. 15. The only issue which remains to be adjudicated in these appeals is regarding eligibility of the assessee' s claim for deduction under s. 80-IA of the Act on the profits of turnover of trading goods. 16. The facts, in brief, are that assessee claimed deduction under s. 80-IA of the Act in asst. yr. 1996-97 at Rs. 69,45,300, being 30 per cent of the profits and gains of new industrial undertaking. The AO as per Annex. 9A of the notes of account found that assessee had sold 6,529 UPS and 17 PEC systems which had been purchased from outside. Besides these, it also sold 7,404 UPS and 30 PEC systems manufactured by it during the year under consideration. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioning and warranty services for UPS were given by the assessee, hence, both types of activities were closely integrated and, therefore, the assessee was entitled for deduction under s. 80-IA of the Act on both the activities. The learned counsel also submitted a chart showing trading turnover from asst. yrs. 1994-95 to 2001-02 and contended that generally trading turnover was 15 per cent of the total turnover except for asst. yrs. 1995-96 and 1996-97, wherein some new products had been launched which were imported and sold and subsequently, these products were manufactured by the industrial undertaking owned by the assessee company, hence, in these years particularly, the assessee was entitled for deduction under s. 80-IA of the Act on such trading turnover. The learned counsel also contended that the language in s. 80-IA was wider in scope as compared to the language employed in other similar incentive sections because in this section, it were the profits of the business of the undertaking which were eligible for deduction. The learned counsel placed reliance on the decision of the Tribunal in the case of Asstt. CIT vs. Maxcare Laboratories Ltd. (2005) 92 TTJ (Cuttack) 179 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies were closely integrated and, therefore, these were to be treated as business of the industrial undertaking specially when new products were subsequently manufactured by such undertaking. He also argued that the facts of the present case were stronger than the facts of the case before the Tribunal in the case of Chaman Lal Sons and that, being a decision of a Co-ordinate Bench was binding on the Tribunal. 18. The learned Departmental Representative, on the other hand, placed strong reliance on the order of learned CIT(A). 19. We have considered the submissions made by both sides, material on record and orders of authorities below. The nature of activities undertaken by the assessee have been narrated in detail in this appeal hereinbefore, hence, not repeated. The only question which requires our adjudication is whether the profit of trading activities can be considered as eligible for deduction under s. 80-IA of the Act or not. The learned counsel for the assessee has relied on the decision of the Tribunal in the case of Maxcare Laboratories Ltd. and the decision of the Tribunal in the case of Chaman Lal Sons. The assessee has also placed reliance on the decision of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt even under accounting norms as per business entity concept which means that owner and business entities are distinct and separate. An industrial undertaking is established to carry out manufacturing, production or processing activities and not for carrying out trading activities, hence, in our opinion, the trading activities are to be treated as carried out by assessee company and not by the industrial undertaking. As regards the assessee's contention that these products were manufactured by such industrial undertaking subsequently, hence, trading activities relating to such products carried on in the year under consideration should be considered as part of industrial undertaking does not stand to our reason because both these aspects are independent of each other as the assessee company may be trading in various products of the same line to offer wide range of products to its clients and in those years, such trading activities would only be of the assessee company and in the year of manufacture of such products by the industrial undertaking owned by the assessee company, the industrial undertaking would be entitled for deduction under s. 80-IA of the Act in respect of products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mind, there does not remain any scope for doubt that an assessee and an industrial undertaking are recognized distinctly under the statute. Sec. 80-I provides that where the gross total of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel...... It is evident, the legislature has been conscious of the distinction between an assessee and the industrial unit, etc., i.e., its income earning apparatus. So, once a distinction between an assessee as a company and its industrial unit set up by it is kept in mind, the confusion of treating the income of the assessee company from all its sources as the income of the industrial unit will not survive. Therefore, once it is accepted that the company has its own existence as an assessee and industrial unit is one of its profit earning apparatus, the view that the income of an assessee, who owns only one industrial unit, from all the sources has got to be treated as income of the industrial undertaking is bound to fail. If the contention on behalf of the assessee that the income of a company who owns only one industrial undertaking, say unit No. 1, has got to be treated as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or developing, maintaining and operating any infrastructure facility etc., mentioned therein, hence, these words have been used to show the nature of business of activities which could be eligible for deduction under s. 80-IA of the Act and, therefore, these words do not enlarge the scope of the deduction. We also find in s. 80HH of the Act, the words in sub-s. (1) were "profits and gains derived from industrial undertaking or the business of a hotel" and in s. 80-IA, the words "any business of" have been used as prefix to 'hotel', which also support our view in this regard as stated in the preceding lines. Hence, in our opinion, the provisions of s. 80-IA are not wider in scope as compared to the s. 80HH. (ii) Similarly, as per s. 80-IA(2)(iii) and/or (iv), an industrial undertaking should be engaged in the manufacturing or produce articles or things or to operate its cold storage plant or plants or in the generation and distribution of power that means the words "any business of an industrial undertaking" used in sub-s. (1) has to be read in conjunction with the activities of such undertaking as defined in sub-s. (2) and profits and gains of only those activities could be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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