DCIT, Cir.-10,, Pune v. Thermax Babcock & Wilcox Ltd.,, Pune

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 83/PN/07 (A.Y 2003-04) DCIT CIRCLE-10 PUNE .... APPELLANT VS. THEMAX BABCOCK & WILCOX LTD. D-1 MIDC BLOCK CHINCHWAD PUNE-411033 PAN NO. AAACT3908K . RESPONDENT ITA NO. 127/PN/07 (A.Y 2003-04) THERMAX LIMITED (IN RESPECT OF AMALGAMATED COMPANY THERMAX BABCOCK & WILCOX LIMITED) 4 MUMBAI PUNE ROAD PUNE- 411 005 PAN NO. AAACT3908K .... APPELLANT VS. THE ADDL. CIT RANGE-10 PUNE . RESPONDENT ASSESSEE BY : SHRI R.D. ONKAR DEPARTMENT BY : SHRI HARESHWAR SHARMA ORDER PER D. KARUNAKARA RAO AM THESE ARE THE CROSS APPEALS ASSESSEE AS WELL AS REV ENUE ARE IN CROSS APPEALS AGAINST A CONSOLIDATED ORDER OF CIT(A)-III PUNE DATED 11/10/2006 FOR THE ASSESSMENT YEAR 2003-04. APPEALWISE ADJUDICATION IS DONE IN THE PRECEDING PARAGRAPHS. ITA NO. 83 & 127/PN/07 A.Y 2003-04 PAGE 2 OF 5 ITA NO. 127/PN/07 (ASSESSEES APPEAL) 2. AT THE VERY OUTSET LD. COUNSEL FOR THE ASSESSEE F ILED A CHART SHOWING THE CONCISE GROUNDS AND THE REFERENCES GIVING REMARKS AGAIN ST EACH GROUNDS. FOR THE SAKE OF CONVENIENCE THE TABLE IS REPRODUCED AS UN DER:- SR. NO. GROUND ORDER REF. REMARKS 1 AGAINST RESTRICTING THE DEDUCTION OF PROVISION FOR WARRANTY TO THE EXTENT OF 50% OF THE INCREMENTAL WARRANTY PROVISIONS RS. 1 03 23 000/- PAGE 2 PARA 1 OF A.O. PAGES 2 TO 4 PARA 4 TO 4.4 OF CITA COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONORABLE ITAT PUNE IN ASSESSEES OWN CASE FOR THE A.Y 2002-03 (KINDLY REFER PARA 5 INTERNAL PAGE 2 OF THE PHOTOCOPY OF THE ORDER ENCLOSED). ISSUE RESTORED BACK TO THE A.O FOR ASCERTAINING CERTAIN FACTS. 2 AGAINST DISALLOWANCE OF PROVISION FOR LIQUIDATED DAMAGES RS. 27 57 218/- PAGE 2 & 3 PARA 2 OF A.O. PAGES 4 & 5 PARAS 5 TO 5.2 OF CITA COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONOURABLE ITAT PUNE IN ASSESSEES OWN CASE FOR THE A.Y 1997-98. KINDLY REFER INTERNAL PAGE 41 PARA 29.6 OF THE ORDER. (PHOTOCOPY ENCLOSED) 3 AGAINST ADDITION OF RS. 13 53 000/- BEING THE PROFIT IN RESPECT OF CONTRACTS OF SALE OF INDUSTRIAL BOILERS WHEREIN PERCENTAGE OF COMPLETION WAS LESS THAN 25% PAGE 4 PARA 3 OF A.O. PAGES 5 & 6 PARAS 6 TO 6.2 OF CITA COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONOURABLE ITAT PUNE IN ASSESSEES OWN CASE FOR THE PRECEDING A.Y 2001-02 (KINDLY REFER PARAS 7 TO 10 INTERNAL PAGES 3 & 4 OF THE PHOTOCOPY OF THE ORDER ENCLOSED) AND ALSO FOR A.Y 2002-03 (KINDLY REFER PARA 12 INTERNAL PAGES 3 & 4 OF THE PHOTOCOPY OF THE ORDER ENCLOSED. 4 AGAINST DISALLOWANCE OF EDP EXPENSE RS. 9 06 762/- PAGE 4 & 5 PARA 4 OF A.O. PAGE 6 & 7 PARA 7.2 CITA COVERED BY THE DECISION OF HONOURABLE ITAT PUNE IN ASSESSEES OWN CASE FOR THE PRECEDING A.Y 2002-03 (KINDLY REFER INTERNAL PAGES 4 & 5 PARAS 13 TO 15). ISSUE RESTORED BACK TO A.O FOR RE EXAMINATION AS PER GUIDELINES GIVEN BY HONOURABLE SPECIAL BENCH IN THE CASE OF AMWAY 111 ITD 112. 5 AGAINST DISALLOWANCE OF ESTIMATED EXPENDITURE RS. 2 97 362 U/S. 14A PAGE 6 PARA 6 OF A.O. PAGE 9 PARA 9.3 OF CITA COVERED AGAINST THE ASSESSEE BY THE DECISION OF HONOURABLE ITAT PUNE IN ASSESSEES OWN CASE FOR THE A.Y 2002-03 (KINDLY REFER INTERNAL PAGES 7 & 8 PARA 33 OF THE PHOTOCOPY OF THE ORDER ITA NO. 83 & 127/PN/07 A.Y 2003-04 PAGE 3 OF 5 ENCLOSED) 6 AGAINST DISALLOWANCE OF RS. 20 24 382/- BEING THE AMOUNT OF TAX BORNE BY THE APPELLANT ON THE REMUNERATION PAID TO FOREIGN DIRECTOR OF THE COMPANY PAGES 6 & 7 PARA 7 OF A.O. PAGES 10 & 11 PARA 10.3 OF CITA NOT PRESSED 7 AGAINST INCLUSION OF FREIGHT AND PACKING CHARGES RECOVERED IN THE TOTAL TURNOVER FOR COMPUTING DEDUCTION U/S. 80HHC PAGE 7 PARA 8 OF A.O PAGE 12 PARA 11.6 OF CITA COVERED BY THE DECISION OF HONOURABLE ITAT PUNE IN ASSESSEES OWN CASE FOR THE PRECEDING A.Y 2002-03 (KINDLY REFER INTERNAL PAGE 6 PARA 19(A) AND (B) OF THE PHOTOCOPY OF THE ORDER ENCLOSED.) ISSUE RESTORED BACK TO A.O. 8 AGAINST LEVY OF INTEREST U/S. 234D PAGE 14 PARA 12.1 OF CITA COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONOURABLE ITAT PUNE IN THE CASE OF ECTA PROMOTERS P. LTD. 2008-TIOL-337-ITAT-DEL- SB(PHOTOCOPY OF HEAD NOTE ENCLOSED) WHEREIN THE HONOURABLE BENCH HAS HELD THAT PROVISIONS ARE APPLICABLE ONLY FROM 1 ST JUNE 2003 I.E. FROM A.Y 2004-05 AND NOT RETROSPECTIVELY. 3. ON THE OTHER HAND LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE REVENUE. 4. ON HEARING BOTH THE PARTIES WE FIND THAT THE REMARK S GIVEN BY THE ASSESSEE ARE FOUND CORRECT. AT THE VERY OUTSET GROUN D NO. 6 HAS TO BE DISMISSED AS NOT PRESSED . FURTHER THE GROUND NO. 1 AND 4 ARE TO BE SET ASIDE WITH IDENTICAL GUIDELINES IN LINE WITH OUR DECISION FO TH E AY 2002-03. GROUND NO. 2 3 7 AND 8 HAVE TO BE ALLOWED IN FAVOUR OF THE ASSESSEE AS THE ISSUES ARE COMPARABLE ON FACT AND ON LAW. REGARDING GROUND NO. 5 RELATING TO DISALLOWANCE OF ESTIMATED EXPENDITURE U/S. 14A OF THE ACT CONSID ERING THE BINDING JUDGMENT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81 (BOM) THE ISSUE HAS TO BE RESTORED TO THE FILES OF THE A.O FOR RE -ADJUDICATING THE ISSUE AFRESH IN THE LIGHT OF THE SAID JUDGMENT OF THE BOMB AY HIGH COURT. ACCORDINGLY GROUND NO. 5 IS SET ASIDE. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ITA NO. 83 & 127/PN/07 A.Y 2003-04 PAGE 4 OF 5 ITA NO. 83/PN/07 (REVENUES APPEAL) 6. THE CONCISE GROUNDS AND THE REMARKS ARE FILED BY THE ASSESSEES COUNSEL ARE REPRODUCED AS UNDER:- SR. NO. GROUND ORDER REF. REMARKS 1 AGAINST DELETION OF DISALLOWANCE OF RS. 10 56 261/- ON EDP EXPENSES. PAGE 4 & 5 PARA 4 OF A.O. PAGE 6 & 7 PARA 7.2 CITA OPERATIONAL EXPENSES ON DAY TO DAY RUNNING AND MAINTENANCE OF COMPUTER HARDWARE AND SYSTEM ARE REVENUE EXPENSES. THE ASSESSEE HAS INCURRED THE SAID EXPENSES ON AN ONGOING BASIS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS. RELIANCE IS PLACED FOR THE PURPOSE ON THE FAVOURABLE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF VARINDAR AGRO CHEMICALS LTD. 309 ITR 272. HONORABLE PUNE BENCH HAS DEALT WITH THE ISSUE IN ASSESSEES CASE FOR THE A.Y 2002-03. (KINDLY REFER TO INTERNAL PAGES 4 & 5 PARAS 14 & 15 OF THE PHOTOCOPY OF THE ORDER ENCLOSED). 2 AGAINST EXCLUSION OF EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC PAGE 7 PARA 8 OF A.O. PAGE 12 PARA 11.3 OF CITA COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONOURABLE SUPREME COURT IN THE CASE OF LAXMI MACHINE WORKS 290 ITR 667. 7. DURING THE PROCEEDINGS BEFORE US LD. DR FOR THE REV ENUE STATED THAT THE EXPENDITURE OF RS. 10 56 261/- ON ACCOUNT OF OPERATIONAL EXPENSES OF THE EDP EXPENSES IS UNCONNECTED TO THE GROUND NO.4 OF THE AS SESSEES APPEAL TO THE EXTENT THAT THE MATTERS RELATES TO THE NATURE OF THE EXPENSES AND IF THE RELATABLE EDP IS OPERATIONALISED OR OTHERWISE. AS PER LD. COUNSE L THESE EXPENSES RELATES TO OPERATION OF THE EDP AND THEREFORE IT IS AN ALLOWA BLE AND REVENUE EXPENDITURE. THEREFORE THIS ISSUE NEED NOT TO BE SET ASIDE AS DEMANDED BY THE DR. LD. DR FOR THE REVENUE ARGUED STATING THAT THERE A RE NO FACTS ON FILES TO PROVE THAT EDP IN QUESTION ARE PUT TO USE AND THEREFORE THE QUESTION OF MAINTENANCE OF THE SAME WILL ARISE ONLY AFTER THE RELE VANT ASSET IS PUT USE IE OPERATIONALISED. FAIRLY LD. COUNSEL MENTIONED THAT T HIS ISSUE MAY ALSO BE SENT TO THE A.O FOR EXAMINING THE ISSUE FOR THE QUESTIONED FA CTS. 8. WE HAVE HEARD THE PARTIES AND FIND NO REASON TO REF ER THIS ISSUE ALSO TO THE FILES OF THE A.O. A.O IS DIRECTED TO EXAMINE WHE THER THE EXPENDITURE IN QUESTION ARE ANNUAL MAINTENANCE CONTRACT (AMC) IN NATURE OR NOT IN WHICH THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE PROVIDED EDP- ASSETS IN QUESTION ARE ACTUALLY OPERATIONALISED DURING THE PREVIOUS YEAR UNDER ITA NO. 83 & 127/PN/07 A.Y 2003-04 PAGE 5 OF 5 CONSIDERATION. THE A.O SHALL GRANT REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY GROUND NO. 1 OF THE REVENUE IS SET ASIDE . 9. REGARDING THE GROUND 2 WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE APEX COURTS JUDGMENT IN THE CASE OF LAXMI MACHINE WORKS 290 ITR 667. THEREFORE THE ORDER OF THE CIT(A) DOES NO T CALL FOR ANY INTERFERENCE. ACCORDINGLY THE GROUND 2 OF THE REVENUE IS DISMISSED . 10. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 21 ST DAY OF FEBRUARY 2011. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 21 ST DAY OF FEBRUARY 2011. R COPY OF THE ORDER IS FORWARDED TO : 1. DCIT CIRCLE-10 PUNE 2. ASSESSEE 3. CIT(A)-III PUNE 4. CIT-V PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE