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05-09-2019, Thermax, Section 32(1), Tribunal Pune

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1 week 1 day ago #10725 by amit
Section - 32(1)
Order Date - 05-09-2019
Favouring - Revenue Partly allowed for statistical purpose
Court - Tribunal Pune
Appellant - DCIT
Respondent - Thermax Ltd.
Justice - D. KARUNAKARA RAO, AM & VIKAS AWASTHY, JM
Citation - 919Taxpundit54
Appeal No. - ITA No.402/PUN/2013
Asstt. Year - 2004-05

Order

PER : VIKAS AWASTHY, JM

These appeals by the Department for assessment years 2004-05 & 2005-06 and Cross objection/appeal by the assessee for the aforesaid years are taken up together as the issues involved in both the years are more or less similar in facts.

ITA No.402/PUN/2013 ( By Revenue)
CO No.22/PUN/2014
A.Y.2004-05

2. In ITA No.402/PUN/2013, the Department has assailed the findings of the Commissioner of Income Tax (Appeals)-V, Pune dated 09.11.2012 for the assessment year 2004-05. The assessee has filed cross objection in the aforesaid appeal filed by the Revenue in CO No.22/PUN/2014.

3. The Revenue has assailed the order of the Commissioner of Income Tax (Appeals) by raising following grounds:

“1. Whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of Rs.9,28,819/- on account of operational expenses on EDP, treating the same as revenue expenditure when in fact the said expenses are capital in nature.

2. 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 respect of negative CIP is incorrect?

3. 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 Limited for A.Y.2004-05 that there is no fault in following AS7.

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

4. In Cross Objections, the assessee has raised following grounds of appeal:

“1. The learned CIT(A) erred in sustaining disallowance of warranty provision to the extent of 50% of the gross amount rejecting the contention of the Respondent that 100% of such provision was allowable as a deduction in computing the income of the Respondent for the year under appeal. Claim of the Respondent be allowed.

2. The learned CIT(A) erred in confirming treatment of EDP expenses of Rs.19,98,059/- as capital expenditure. The claim of the Respondent that this expenditure was revenue in nature be allowed.

3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming disallowance of sales commission amounting to Rs.66,25,000/- rejecting the contention of the Respondent that the said expenditure was incurred wholly and exclusively for the purposes of the business of the Respondent.

The learned CIT(A) erred in not appreciating that the disallowance was made on the basis of mere conjectures and surmises and on grounds not germane to the issue and without giving the Respondent, among others, an opportunity of cross examining the recipients of such commission.

The claim of the Respondent be allowed.

The Respondent craves leave to add, to alter, or amend any of the above cross objections if necessary.”

Submissions on behalf of Assessee:

5. Shri H.P. Mahajani appearing on behalf of the assessee submitted at the outset that he is not pressing ground No.1 of cross objections.

6. In respect of ground No.2 of cross objections, the ld. AR of the assessee submitted that during the period relevant to the assessment year under appeal, the assessee paid EDP charges Rs.15,84,258/- and software charges Rs.4,13,801/- aggregating to Rs.19,98 059/-. The aforesaid expenditure was claimed as Revenue expenditure. In assessment proceedings, the Assessing Officer held the aforesaid expenditure as capital in nature and allowed depreciation u/s 32(1) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) on the same.

6.1 In First Appellate Proceedings, the Commissioner of Income Tax (Appeals) relying on his predecessor‟s order in assessee‟s case for assessment year 2003-04 held the expenditure of Rs.9,28,819/- as revenue expenditure and the remaining amount of Rs.10,69,240/- was held as capital expenditure. TheCommissioner of Income Tax (Appeals) directed the Assessing Officer to allow depreciation @60% on the expenditure held on capital account. Thus, the Commissioner of Income Tax (Appeals) granted part relief to the assessee.

6.2 Against the findings of the Commissioner of Income Tax(Appeals) both the assessee and the Revenue are in appeal before the Tribunal.

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