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10-07-2019, Thermax Engg. Const, Section 251, Tribunal Pune

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3 months 2 days ago #10054 by amit
Section - 251
Order Date - 10-07-2019
Favouring - Assessee
Court - Tribunal Pune
Appellant - ACIT
Respondent - Thermax Engg. Const. Co. Ltd.
Justice - ANIL CHATURVEDI, AM & VIKAS AWASTHY, JM
Citation - 719Taxpundit150
Appeal No. - ITA Nos.476 & 477/PUN/2014
Asstt. Year - 2009-10 & 2010-11

Order

PER : VIKAS AWASTHY, JM

These two appeals by the Revenue are directed against the orders of Commissioner of Income Tax (Appeals)-II, Nashik for the assessment years 2009-10 and 2010-11, respectively of even dated i.e. 31-12-2013. Since, the facts and grounds raised in both the appeals are similar, these appeals are taken up together for adjudication and are disposed of vide this common order. For the sake of convenience the appeal of Revenue for assessment year 2009-10 is taken up first for adjudication.

ITA No. 476/PUN/2014, A.Y. 2009-10)

2. The grounds raised by the Revenue in appeal are as under :

“1a) Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in deleting the addition of Rs.67,22,000/- made on account of negative Contract In Progress (CIP)?

1(b) Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in holding that the method adopted by the Assessing Officer for recognition of contract revenue in r spect of negative CIP is incorrect?

1(c) Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in holding on the basis of decision given in the case of Thermax Ltd. in A.Y. 2004-05 and assessee's own case for A.Y. 2004-05, that there is no fault in following AS-7?

2. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs.9,53,369/- consisting of provision towards leave travel allowance of Rs.7,04,178/- and medical reimbursements payable to employees of Rs.2,49,191/- when the same was held to be contingent and unascertained liability by the AO?

3(a) Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in directing to delete the disallowance of Rs.1,94,93,177/- claimed as liquidated damages?

3(b) Whether on the facts and circumstances of the "case, the Ld. CIT(A) was justified in terms of provisions contained in Section 251 of the Act in directing the A.O. to verify and allow the claim of Liquidated Damages following the decision in the case of Thermax Ltd for AY. 2004-05?

4. The appellant craves leave to add, amend or alter any of the above grounds of appeal.”

3. Shri R.D. Onkar appearing on behalf of the assessee submitted at the outset that the issue raised in ground No. 1(a), 1(b) and 1(c) of the appeal relating to negative Contract In Progress (CIP) has been adjudicated by the Tribunal against the Department in the case of assessee’s parent company Thermax Limited in ITA No. 1765 & 1803/PUN/2012 for the assessment year 2004-05 decided on 24-05-2019. The Commissioner of Income Tax (Appeals) has allowed this ground of appeal of assessee following the decision of his predecessor in the case of Thermax Limited in assessment year 2004-05. The ld. AR submitted that the issue relates to income recognition from contract activities. The assessee has made Provision for profit equalization in accordance with Accounting Standard 7 issued by the Institute of Chartered Accountants of India.

3.1 In respect of ground No. 2 of the appeal by the Department, the ld. AR submitted that the disallowance was made by Assessing Officer in respect of provision for retirement benefits (Leave Travel Allowance Rs.7,04,178/- and Medical Reimbursement Rs.2,49,191/-, Total Rs.9,53,369/-). The ld. AR submitted that similar disallowance in respect of leave travel allowance was made by the Assessing Officer in the case of assessee’s parent company, Thermax Limited. The issue travelled to the Tribunal. The Tribunal in appeal by the Revenue in ITA No. 1803/PUN/2012 (supra) decided the issue in favour of assessee. The ld.
AR further submitted that the scheme of annual medical reimbursement and leave travel allowance is on identical footing. The ld. AR furnished a short note explaining the schemes. The same is reproduced here-in-below:

“Objective:

Flexibility to employees to draw from a common basket, benefits which are part of his package, based on his/her exigencies and needs.

The Scheme:

Employees currently have distinct entitlements for Annual Medical Reimbursement and LT A. However, since these two limits operate independently, employees are not able to use it judiciously, according to their different needs, across grades and year to year. In practice, this could be a genuine need for many. Within the same entitlements on a cost to company basis, we would henceforth reckon a combined limit for Medical & LTA. Besides, few employees may have to their credit the brought forward balances on account of Medical accruals over the years and/or LTA for one/two years. Such balances will get merged effective 1st October 2003 to form a common pool.

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