THERMAX LIMITED,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

PER BENCH : This batch of four cross appeals comprising of two appeals by the assessee and equal number of appeals by the Revenue relate to the assessment years 2007-08 and 2008-09. Since some of the

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issues raised in these appeals are common, we are, therefore,

proceeding to dispose them off by this consolidated order for the

sake of convenience.

that the cross appeals of the assessee for the A.Y. 2006-07 were

simultaneously argued, for which we have passed a separate

detailed order. Some of the issues raised in the instant appeals are

similar to those of the earlier years including the immediately

preceding year. Both the sides are in agreement that facts and

circumstances of such similar grounds are mutatis mutandis similar

to the earlier years, except where separately argued.

A.Y. 2007-08 :

Revenue’s appeal are against the sustenance/deletion of addition on

account of revenue recognition in respect of Freight and contract

activity.

account of liquidated damages. Ground no. 2 of the Revenue’s

appeal is also on the same issue.

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account of claim of depreciation at 80% on certain plant and

machinery.

Revenue’s appeal are against the confirmation/deletion of addition

towards provision of warranty.

decided by the Tribunal in assessee’s favour for the earlier

assessment year. Following the precedents, we decide these

grounds of the appeals in assessee’s favour.

confirmation of addition in respect of Prior period expenses

amounting to Rs.60,67,695/-. Such ground has been dismissed by

the Tribunal in earlier years. Following the same, we dismiss this

ground of appeal as well.

confirmation of sales commission @10% amounting to

Rs.1,18,13,080/-. This ground is similar to the Ground No.1 of the

assessee’s appeal for A.Y. 2006-07 which we have restored for

fresh consideration. However, unlike the immediately preceding

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year, the assessee did produce books of account before the AO for

the year under consideration, who had full opportunity of examining

the same and finding out anything adverse before making any

addition out of the expenses. Despite that, the AO could not point

out any specific defect qua the expense and chose to make an ad

hoc addition. Following the view taken by the Tribunal in earlier

years deleting such ad hoc additions, except the immediately

preceding year for the special reasons as discussed in our order for

the A.Y 2006-07, we order to delete the sustenance of ad hoc

disallowance out of the Commission expense.

confirmation of addition of Rs.4.21 crore towards legal and

professional fees paid to Baker & Mckinsey LLP and others. The

factual scenario of this ground is that the assessee paid a sum of

Rs.8.42 crore towards legal fees paid for Purolite litigation in USA

to Baker and Mckinsey and Silverman Berhheim & Vogel and

Wilentz Goldman & Spitzer P.A. The assessee was called upon to

explain the nature of such payment, in response to which it was

submitted that Purolite filed a Civil action against the assessee

company and its USA subsidiary in the Eastern District of

Pennsylvania, USA on the ground that certain employees leaving

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Purolite joined Thermax Ltd. and shared secret details of Purolite

with the assessee and its USA subsidiary. The assessee submitted

that this expenditure was incurred to defend the litigation. Not

convinced, the AO held that such expenditure was covered by the

Explanation to section 37(1) of the Act as it involved infringement

of rights. He, therefore, disallowed the full amount of expenditure.

The ld. CIT(A) did not approve the action of the AO in invoking the

Explanation to section 37. He, however, observed that the parties

to the litigation were not only the assessee but also its subsidiary in

USA. It was, therefore, held that 50% of the expense should be

allowed as deduction. This is how, the assessee is aggrieved by the

confirmation of addition to the extent of Rs.4,21,00,000/-.

material on record. It is an admitted position that the assessee

incurred Rs.8.42 crore to defend the litigation created by Purolite.

Such litigation was initiated not only against the assessee but also

its USA subsidiary. The benefit of such expenditure in the shape of

fee paid to Baker and Mckinsey LLP and others, has obviously gone

to the assessee in asmuchas it had defended itself. The mere fact

that the subsidiary in the USA also got benefitted by the

expenditure, cannot come in the way of allowing deduction in the

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hands of the assessee. Even in the absence of its USA entity being a

party to the litigation, the assessee was bound to incur such

expenditure to defend itself. The Hon’ble Supreme Court in

Sassoon J. David & Company Private Limited Vs. CIT (1979) 118

ITR 261 (SC) has held that deduction has to be allowed for the

expenditure incurred wholly and exclusively for the purpose of

business even if benefit of such expenditure percolates to someone

else also. Respectfully following the precedent, we decide this

ground in the assessee’s favour and order to delete the addition of

Rs.4.21 crore.

disallowances made on account of Public Relation expenses,

Membership & subscription, Garden expenses, Misc. Expense,

House Magazine expenses, Vehicle expenses, Misc Foreign Travel

Expenses and Telephone expenses.

taken by the Revenue in earlier years in which the ad hoc additions

made by the AO have been finally deleted by the Tribunal.

Following the orders of the Tribunal in the assessee’s own case for

earlier years, this ground of Revenue is not allowed.

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addition of Rs.40,00,930/- on account of Provision for Medical and

LTA expenses. Both the sides agree that the facts and circumstances

of this ground are similar to the Ground No.6 of the Revenue’s

appeal for the A.Y. 2004-05. Relevant discussion has been made in

paras 58 to 60 on pages 39 & 40 of the Tribunal order dated 25-05-

2009 in which such an issue has been determined in assessee’s

favour. Following the same, we uphold the impugned order on this

score.

that of the Department is dismissed.

A.Y. 2008-09 :

Revenue’s appeal are against the confirmation of addition on

account of income recognition from contract activity.

Tribunal in assessee’s own case for the A.Y. 2005-06 in the

assessee’s favour. Relevant discussion has been made in para 8.1

pages 9 to 12 of the order. Following the precedent, we decide this

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issue in favour of the assessee. The ground of the assessee is

allowed and that of the Revenue is dismissed.

deduction on account of Prior period expenses. Here again, both the

sides are in agreement that the facts and circumstances of this

ground are mutatis mutandis similar to the Ground No.2 for the

A.Y. 2005-06 in which such issue has been decided against the

assessee. Following the same view, we decide this ground against

the assessee.

Revenue’s appeal are against the liquidated damages. The

assessee’s ground is in two parts viz., a sum of Rs.6,98,07,700/-

paid to Arsmeta Captive Power Company and the remaining amount

of Rs.1,40,46,812/-. In sofaras the second part of the assessee’s

ground and the ground of the Revenue are concerned, the issue has

been consistently decided by the Tribunal in favour of the assessee.

Following the view taken by the Tribunal in the preceding years, we

allow this part of the assessee’s ground and dismiss that of the

Revenue.

9 ITA Nos.510 & 511/PUN/2014 ITA Nos. 715 & 716/PUN/2014 Thermax Ltd.,

damages of Rs.6.98 crore towards invocation of Bank Guarantee by

the Arsmeta Captive Power Company. The ld. CIT(A) confirmed

the addition.

material on record. It is noticed that the assessee claimed deduction

on a mere invocation of performance bank guarantee on 28-04-

2007. Thereafter, the assessee sought legal remedy and the

injunction granted by the City Civil Court was vacated. The matter

was finally settled in a later year on the assessee paying a sum of

Rs.6.00 crore to Arsmeta Captive Power Company. Till that time,

the assessee could not have claimed deduction of contractual

liquidated damages to Arsmeta Captive Power Company. No

deduction of Rs.6.98 crore is permissible for the year under

consideration as no liability on account of liquidated damages was

finally incurred. The ld. AR contended that the assessee voluntarily

credited Rs.6.98 crore to its Profit and loss account in succeeding

year when it claimed deduction of payment of Rs.6.00 crore. If the

assessee had erroneously credited its income in the succeeding year,

the same can be reversed subject to the relevant provision. We,

therefore, uphold the impugned order on this score.

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confirmation of disallowance of depreciation at 80% in respect of

certain items of plant and machinery instead of allowing

depreciation @25%.

issue has been decided by the Tribunal in the assessee’s favour for

the immediately preceding assessment year and earlier years.

Respectfully following the precedent, we decide this issue in

assessee’s favour.

disallowance u/s.14A. The assessee earned exempt dividend

income of Rs.34.25 crore. The AO invoked the provisions of

section 14A r.w. Rule 8D and accordingly computed the net

disallowance at Rs.244.14 lakh, after allowing the benefit of

Rs.85.63 lakhs as disallowed by the assessee. The ld. CIT(A)

restored the matter to the file of AO with direction to recompute the

disallowance by holding that in computing the average value of

investments, the investments which yield taxable income, should be

excluded. He jettisoned the contention of the assessee that the fixed

assets should be considered at their gross value without excluding

depreciation. He further directed the AO to exclude interest of

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Rs.19.99 lakh incurred in Post Shipment packing credit. All the

above three directions given by the ld. CIT(A) are perfectly in order.

Since the issue has been restored to the AO, we uphold the

impugned order to this extent thereby affirming the specific

directions given in the impugned order.

confirmation of addition of Rs.1,15,00,653/- on account of payment

of commission to Nischal Corporate Services.

material on record, we find that facts and circumstance of this

ground are similar to Ground No.1 of the assessee’s appeal for A.Y.

2006-07. In our order for the said earlier year, we have restored the

matter to the file of AO with certain directions for deciding the issue

afresh. Following the same view, we set-aside the impugned order

and remit the matter to the file of AO for deciding this issue afresh

in accordance with our directions rendered therein.

confirmation of disallowance on account of legal expenses and fees

paid to Baker & Mckinsery LLP amounting to Rs.9.74 crore in

respect of USA litigation. Both the sides agree that the facts and

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circumstances of this ground are similar to Ground No.7 taken for

the A.Y. 2007-08. Following the view taken hereinabove, we allow

this ground of appeal.

Revenue’s appeal are against the confirmation/deletion of addition

towards provision of warranty.

been decided by the Tribunal in assessee’s favour in the earlier

assessment years. Following the precedents, we allow this ground

of appeal in assessee’s favour and dismiss the Revenue’s ground.

disallowance of Public Relation Expenses, Miscellaneous Vehicle

expenses, Foreign Travel expenses and Telephone expenses.

circumstances of this ground are similar to Ground No.3 for the

A.Y. 2005-06 in which the issue has been decided in assessee’s

favour. Following the same, we dismiss this ground of appeal.

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allowed by the ld. CIT(A) in the Provision for medical and LTA

expenses amounting to Rs.90,36,835/-.

ground are similar to Ground No. 6 of the Revenue’s appeal for the

A.Y. 2004-05 wherein this ground was decided in favour of the

assessee. Following the same, we uphold the impugned order and

dismiss this ground as well.

appeal of the Revenue is dismissed.

Order pronounced in the Open Court on 13th September, 2019.

Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 13th September, 2019 सतीश

ITA Nos.510 & 511/PUN/2014 ITA Nos. 715 & 716/PUN/2014 Thermax Ltd.,

आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-2, Nashik 4. The CCIT, Nashik िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “बी” / 5. DR ‘B’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 11-09-2019 Sr.PS 2. Draft placed before author 13-09-2019 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *