UHDE INDIA P. LTD,MUMBAI vs. ADDL CIT RG 10(3), MUMBAI

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ITA 1691/MUM/2012Status: DisposedITAT Mumbai09 April 2019AY 2006-0730 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided the issues as follows: Regarding provisions for costs on completed contracts (Grounds 1-4) and cost overruns (Ground 5), the judgment indicates these were part of the grounds of appeal but the detailed reasoning and decision for these specific grounds are omitted in the provided text. However, the summary table lists these as additions made by the AO. Regarding income from contracts accounted under the Percentage of Completion Method (Grounds 7-11), the detailed reasoning and decision are omitted in the provided text. The summary table lists this as an addition of Rs. 28,84,90,428/- Regarding excess of progress billings over inventories for incomplete contracts under the Completed Contract Method (Grounds 12 & 13), the Tribunal held that the assessee had accumulated costs and revenues in the Balance Sheet by following the CCM. Since the revenue had accepted such accumulation in AYs 2004-05 & 2005-06, and no revenue leakage was established, the Tribunal found the revenue's action in disturbing the consistent method unjustified. Consequently, the addition of Rs. 3,96,15,600/- was deleted, and these grounds were allowed. Regarding software maintenance expenses (Ground 14), the Tribunal held that annual maintenance charges cannot be capital in nature. Given that the issue was covered in the assessee's favor by Tribunal orders for earlier years and the revenue's appeal was dismissed by the Bombay High Court, the expenditure was held to be revenue in nature and fully allowable. The depreciation allowed against it was reversed. This ground was allowed. Regarding TDS credit (Ground 15), the Tribunal directed the AO to verify the assessee's claim for TDS credit withdrawn in AY 2005-06 and allow it as permissible under the law. This ground was allowed for statistical purposes. Grounds 6, 16, and 17 were noted as 'Not Pressed' and hence not adjudicated. Ground 18, concerning interest under Section 234B, was deemed consequential and not delved into. The operative direction was that the appeal stands partly allowed.

What were the facts?

The assessee, Thyssenkrupp Industrial Solutions (India) Pvt. Ltd. (formerly Uhde India Private Ltd.), filed an appeal for Assessment Year 2006-07 against an order of the Commissioner of Income-Tax (Appeals). The Assessing Officer (AO) had assessed the assessee's income at Rs. 65.80 Crores, significantly higher than the returned income of Rs. 20.46 Crores, after making additions and disallowances. The assessee is a corporate entity engaged in supplying processors and designing, constructing, and commissioning plants for various industries. The appeal challenges several disallowances and additions made by the AO and confirmed by the CIT(A), including provisions for costs on completed contracts, cost overruns, income from contracts under the Percentage of Completion Method, excess of progress billings, software maintenance expenses, TDS credit, and depreciation. The appeal also contests the levy of interest under Section 234B.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the disallowance of provision for costs incurred on completed contracts amounting to Rs. 9,49,35,320/- was justified (Grounds 1-4). 2. Whether the disallowance of provision for cost overruns on incomplete contracts amounting to Rs. 1,92,34,146/- was justified (Ground 5). 3. Whether the addition of Rs. 28,84,90,428/- as income in respect of contracts accounted under the Percentage of Completion Method was justified (Grounds 7-11). 4. Whether the addition of Rs. 3,96,15,600/- representing the excess of progress billings over inventories for incomplete contracts under the Completed Contract Method was justified (Ground 12 & 13). 5. Whether the disallowance of software maintenance expenses amounting to Rs. 1,11,10,064/- as capital expenditure was justified (Ground 14). 6. Whether credit for TDS of Rs. 3,82,678/- withdrawn in AY 2005-06 and pertaining to contracts completed in AY 2006-07 should be granted (Ground 15). 7. Whether depreciation @60% on the opening balance of software expenses capitalized in earlier assessment years amounting to Rs. 44,77,753/- should be granted (Ground 16). 8. Whether the amount of Rs. 30,000/- being Short Term Capital Gain was taxed twice (Ground 17). 9. Whether the levy of interest under Section 234B was justified (Ground 18). Assessee's Contentions: - Provisions for costs on completed contracts were made as per the regular method of accounting and included provisions for liquidated damages. - Provisions for cost overruns were justified. - Income from contracts under the Percentage of Completion Method was accounted for as per regular accounting methods, sanctified by Accounting Standards, and the addition resulted in taxing gross receipts without allowing deductions. - The excess of progress billings over inventories for incomplete contracts under CCM was consistent with prior years accepted by the revenue. - Software maintenance expenses were revenue in nature, as supported by Tribunal orders for earlier years and a dismissed revenue appeal by the Bombay High Court. - TDS credit should be granted. - Depreciation at 60% should be allowed on capitalized software expenses. - Short Term Capital Gain was taxed twice. - Interest under Section 234B is consequential. Revenue's Contentions: - Provisions for costs on completed contracts were unascertained liabilities without scientific basis. - The AO opined that though substantial work was done and invoices raised for CCM contracts, no profit was shown, leading to the addition of the differential amount. - The AO considered software maintenance charges to be capital in nature. - The AO considered the excess of progress billings over inventories as income. - The AO considered the addition of Rs. 28,84,90,428/- under POC method justified. - The revenue argued that upon change of accounting method, revenues from CCM projects were to be offered to taxation.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 234B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “F” BENCH, MUMBAI

Before: HON’BLE SHRI SAKTIJIT DEY, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

माननीय ौी श""जीत दे, "याियक सदःय एवं माननीय एवं माननीय माननीय एवं एवं माननीय माननीयौीमनोजकुमारअमवाल, लेखासदःयकेसम"। माननीय माननीय BEFORE HON’BLE SHRI SAKTIJIT DEY, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ (िनधा"रणवष" / Assessment Year: 2006-07) Thyssenkrupp Industrial Solutions Additional Commissioner of (India) Private Limited Income Tax, Range-10(3) बनाम/ [CIN : U74200MH1977PTC020041] Mumbai [formerly known as Uhde India Private Ltd.] Vs. Uhde House, L.B.S.Marg Vikhroli (West),Mumbai-400 083 "थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACU-1416-H (अपीलाथ"/Appellant) (""थ" / Respondent) : Percy Pardiwala,M.M.Golvala, Ld. ARs Assessee by : Vidisha Kalra, Nitin R. Waghmode, Ld. DRs Revenue by : सुनवाईकीतारीख/ : 18/01/2019 Date of Hearing घोषणाकीतारीख / : 09/04/2019 Date of Pronouncement आदेश / O R D E R Per Manoj Kumar Aggarwal (Accountant Member)

1.

Aforesaid appeal by assessee for Assessment Year [AY] 2006- 07 contest the order of the Ld. Commissioner of Income-Tax 2 Thyssenkrupp Industrial Solutions (India) Pvt. Ltd. Assessment Year :2006-2007 (Appeals)-22[CIT(A)], Mumbai, Appeal No. CIT(A)-22/Addl.CIT- 10(3)/IT.612/09-10dated 16/12/2011on following grounds of appeal: -

1. The learned Commissioner of Income Tax (Appeals) erred in disallowing provision for costs incurred on completed contracts amounting to Rs.9,49,35,320/-

2. The learned Commissioner of Income Tax (Appeals) erred in not considering that the provisions were made as per the regular method of accounting followed by the appellant.

3. The learned Commissioner of Income tax (Appeals) failed to consider the detailed facts submitted in case of provision made on Kanoria Chemicals & Industries Ltd. Contract, including for liquidated damages payable.

4. The learned Commissioner of Income Tax (Appeals) erred in holding that liquidated damages for delay in completion were optional.

5. The learned Commissioner of Income Tax (Appeals) erred in disallowing provisions for cost overruns on incomplete contracts-Rs.1,92,34,146/-

6. The learned Commissioner of Income tax (Appeals) erred in not deleting provisions for costs on completed contracts amounting to Rs.14,66,21,872/- which has been disallowed in earlier assessment years and were utilized/written back in the current year.

7. The learned Commissioner of Income Tax (Appeals) erred in confirming taxation of an amount of Rs.28,84,90,428/-, as income, in respect of contracts accounted under “Percentage of Completion” (POC) Method.

8. The learned Commissioner of Income Tax (Appeals) erred in not considering that the appellant was following a regular method of accounting, sanctified by Accounting Standards.

9. The learned Commissioner of Income Tax (Appeals) failed to consider that the addition made o Rs.28,84,90,428/- has resulted in taxing gross receipts, without allowing deduction for expenditure required to earn such receipts.

10. Without prejudice to ground Nos. 7 to 9 above, the Assessing Officer erred in not allowing deduction (following his own method) where the sale proceeds recognized by the Appellant were higher than the billings done during the year.

11. The appellant submits the finding of the learned Commissioner of Income Tax (Appeals) that the appellant failed to produce evidence that monies under contract were received in advance, is with due respect, a perverse finding.

12. The learned Commissioner of Income Tax (Appeals) erred in taxing the excess of progress billings over inventories, amounting to Rs.3,96,15,600/- as income, in respect of contracts accounted under the 3 Thyssenkrupp Industrial Solutions (India) Pvt. Ltd. Assessment Year :2006-2007 “Completed Contract Method” and which were incomplete as on 31st March, 2006.

13. The learned Commissioner of Income Tax (Appeals) erred in rejecting the regular method of accounting followed by the appellant and accepted by the department in the past.

14. The learned Commissioner of Income Tax (Appeals) erred in disallowing software maintenance expenses amounting to Rs.1,11,10,064/- on the ground that the same was capital expenditure.

15. The learned Commissioner of Income Tax (Appeals) erred in not granting credit in respect of TDS o Rs.3,82,678/- withdrawn in Assessment Year 2005-06, and pertaining to contracts completed in Assessment Year 2006- 2007.

16. The learned Commissioner of Income Tax (Appeals) erred in not granting depreciation @60% on opening balance of software expenses capitalized in earlier assessment years amounting to Rs.44,77,753/-.

17. The learned Commissioner of Income Tax (Appeals) erred in not excluding the amount of Rs.30,000/- being Short Term Capital Gain, taxed twice by the Assessing Officer.

18. The learned Commissioner of Income Tax (Appeals) erred in confirming levy of interest u/s 234B. The assessment for impugned AY was framed by Ld. Additional Commissioner of Income Tax, Range-10(3), Mumbai [AO] in scrutiny assessment u/s 143(3) of the Income Tax Act, 1961 on 23/12/2009 wherein the income of the assessee was assessed at Rs.65.80 Crores after certain additions / disallowances as against returned income of Rs.20.46 Crores e-filed by the assessee on 31/10/2006. During impugned AY, the assessee being resident corporate entity was stated to be engaged in supply of processors, designing, construction and commissioning of complete plants for chemical fertilizers, petrochemical, refining& other related industries. 2.1 The name of the assessee company has undergone change from Uhde India Private Limited to Thyssenkrupp Industrial Solutions 4 Thyssenkrupp Industrial Solutions (India) Pvt. Ltd. Assessment Year :2006-2007 (India) Private Limited videcertificate of incorporation pursuant to change of name issued by

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