1. These appeals of the assessee and revenue have some common grounds and they were argued in a consolidated manner by the learned Counsel and the learned DR Therefore, we find it convenient to pass a consolidated order.
2. This appeal of the revenue was partly allowed by the Hon'ble ITAT, Pune Bench, Pune on 11.09.2003 The assessee moved a miscellaneous application on 21.11.2003 This application was dismissed as withdrawn on 05.04.2005 for the reason that the learned Counsel of the assessee pointed out that the assessee had also carried the matter in appeal to the Hon'ble High Court of judicature at Bombay The Hon'ble Court set aside the order of the Tribunal with a direction to decide the appeal afresh after taking all facts into account A copy of the order of the Hon'ble Court dated 18.01.2005 was also filed In that order, it is mentioned that two important judgments i.e. CIT v. Simplex Concrete Piles (India) Pvt. Ltd. 179 ITR 8 and Anoop Engineering Ltd. v. CIT (2001) 247 ITR 457 were not considered by the Tribunal, though cited before it In view thereof, the order of the Hon'ble ITAT was quashed and set aside and the matter was remanded back to the ITAT to decide the same afresh on all issues That is how this appeal has to be decided afresh on all grounds.
3. The revenue had taken three substantive grounds Ground Nos. 1 & 2 pertain to the taxation of an amount of Rs. 3,60,404/-, representing retention money Ground no 3 pertains to valuation of closing stock and addition made therein of the un-availed modvat credit For the sake of ready reference, these grounds are reproduced below - 1. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 3,60,404/- on account of retention money relying on the Calcutta High Court decision in the case of CIT v. Simplex Concrete Piles 179 ITR 8 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in not appreciating the fact that the retention money amounting to Rs. 3,60,404/- accrued to the assessee as pre the mercantile system and was hence rightly taxed by the AO in the assessment year under consideration.
3. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of Rs. 5,22,944/- made by the AO to cover the under valuation of closing stock on account of unavailed Modvat credit.
4. Before proceeding to decide the matters, it may be mentioned that the Financial Controller of the assessee company, Shri Shailesh J.Shah, swore an affidavit on 12.09.2003 which was filed before us by the assessee in the course of hearing Paragraphs 3 to 6 of the affidavit have a bearing on the decision of the matter Therefore, these paragraphs are reproduced below - 3. After verification of the relevant records and the connected documents, it is confirmed that the retention money amounting to Rs. 3.60,404/- was not received by our company from the customers till the end of the relevant previous year for AY 1993-94 (i.e. till the date 31^st March, 1993) 4. As per the regular system of accounting, whenever any receipts out of the said retention money of Rs. 3,60,404/- was received in the subsequent years, i.e. AY 1994-95, AY 1995-96 and so on, the said amounts were offered to tax as income of the company in those respective years.
5. Through inadvertence, it was stated in our reply dated 12.10.1995, submitted to the DCIT, Special Range III, Pune, in the paper relating to 'Note on Retention Money' that- Though this amount was received by the company, it referred to this as Retention Money, as it takes a view that it cannot be appropriated until the period of guarantee is over In fact, no part of the said retention money of Rs. 3,60,404/- was received during the said previous year (i.e. before 31^st March, 1993) 6. It is also confirmed hereby that no bank guarantees were issued during the said relevant previous year ended on 31^st March, 1993 as regards the retention money.
5.1 In the course of hearing before us, in relation to ground Nos. 1 & 2, the learned DR pointed out that since the affidavit has been filed on the date of hearing, the facts mentioned therein require verification by the lower authorities He also referred to the decision in the case of CIT v. Beema Manufacturers (P.) Ltd. (2003) 130 ITR Taxman 400 (Madras); CIT v. Vinitec Corporation (P.) Ltd. (2005) 146 Taxman 313 (Delhi), in which it was inter-alia held that once an assessee, maintaining accounts on mercantile method, incurs liability, which is to be discharged at a future date, the same is allowable in computing profits based upon the accounts of business These cases were decided in connection with deductability of liability arising on account of future warranty expenses.
5.2 On the other hand, the learned Counsel of the assessee pointed out that the assessee is engaged in the business of manufacturing steam engine equipment. The goods are supplied subject to the warranty that it shall work as per the representation made by the assessee In view of this performance warranty, the buyers pay between 90% to 95% of the price of the goods at the time of delivery Rest of the money is paid on satisfactory performance of the equipment during warranty period In this connection, he referred to Note 1 of Schedule "P", dealing with statement of accounting policies. The note states that - i) revenue is recognized on accrual basis, and ii) the company follows a practice of reversing to sales the retention money held back by the customers at the time of payment of bills. It is accounted thereafter in the year of actual receipt of such retention money by credit to sales. The learned Counsel referred to the decision of Hon'ble Calcutta High Court in the case of CIT v. Simplex Concrete Plies (India) Pvt. Ltd. . In that case, the assessee was crediting 100% of job value to the trading account. From the assessment year 1965-66, it credited only 90% of such amount Thus, the retention money was not credited to the trading account. The AO brought this amount to tax. The Hon'ble Court referred to the terms and conditions of the contract and pointed out that either 10% or 5%, as the case may be, representing retention money, became due to the assessee on completion of the work.
This amount was to be realized by the assessee after fulfillment of the obligation under the contract. Accordingly, it was held that on the dates when the bills were raised, the assessee could not have enforced its right to receive the retention money and, therefore, such amount did not accrue to the assessee as income. The learned Counsel also referred to the decision of Hon'ble Gujarat High Court in the case of Anoop Engineering Ltd. v. CIT (2001) 247 ITR 457, in which it was held that an amount accrues an income to the assessee only when he gets a right to receive the same. However, if the right to receive is not established, the income does not accrue or arise to the assessee. A debt must come into existence before it can be taken as income. In this connection, reliance was also placed on the decision of Hon'ble Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT , which explains the meaning of the term 'debt owed' under the Wealth-tax Act, 1957.
5.3 At this stage, the learned Counsel was required to state the basis on which retention money was offered for taxation in subsequent years.
His argument was that such matter does not exist before the Tribunal and, therefore, it does not have jurisdiction to go into this matter.
For this purpose, he relied on the decision of Hon'ble Calcutta High Court in the case of R.L. Rajgharia v. ITO and Ors. (1997) 107 ITR 347.
In that case, the controversy to be resolved before the Tribunal was whether the loss incurred was in the nature of speculation loss or business loss. The Tribunal also went into the question whether the loss was capital or revenue loss. The Hon'ble Court held that the Tribunal clearly acted beyond its jurisdiction and the assessee could not have been denied relief in the writ petition on the ground that alternative remedy was available. The learned Counsel also relied on the decision of Hon'ble Bombay High Court in the case of New India Assurance Co Ltd., v. CIT. . The finding of the first appellate authority in Nat case was that income on certain insurance policies accrued in the Indian States and, therefore, it could not be taxed in India (British India). On appeal from the revenue, the Tribunal upheld the finding of the first appellate authority, but set aside the assessment and remanded the case directing that the question whether any process for earning that income had been undertaken in British India also may be determined, so that the income could be apportioned between the territories of Indian States and the British India in accordance with the decision in the case of Ahmedbhai Umarbhai (1950) 18 ITR 372 The Hon'ble Court pointed out that the position of the ITAT is the same as that of a Court of appeal under CPC. At page 857, the observations of Mr. Justice Karia from the case of Motor Union Insurance Co. Ltd. were quested wherein it was pointed out that it is not open to the Tribunal itself to raise a ground or permit the party, who has not appealed, to raise a ground, which will work adversely to the appellant. Based upon this observation, It was pointed out that though the judgment of lower court may be supported on any other ground even though it is not raised in the memo of appeal, but that does not permit the Tribunal to urge any other ground which would work adversely to the appellant.
5.4 We have considered the facts of the case and rival submissions.
Before dealing with the contentions of the revenue, we may reproduce the findings of the learned CIT(A), contained in paragraph 3 of his order as below: Before me, the AR stated that the appellant company follows mercantile system of accounting and is engaged in manufacture of Steam Engineering Equipments to the specifications of the customers.
During the year the appellant company entered into supply arrangements with various government concerns. As per the contract entered into by the company, with these concerns, a certain percent of the price was to be paid as advance on acceptance of the contract and part on presentation of dispatch documents, leaving 5/10% on receipt and acceptance of goods subject to performance and workmanship during the warranty period which ranges between 12-18 months. This balance 5/10% could be realized in the year only if the appellant company furnished a bank guarantee for the said amount. It was to be stipulated in the said bank guarantee that if there were any short comings in the workmanship or performance of the material supplied the purchaser was at liberty without reference to the appellant company to recover the amount from the bank. The appellant company therefore reduces the aforementioned 5/10% (total amounting to Rs. 3,60,404/-) from the sales relating to these supplies on the ground that retention money would rightly due to the appellant only on satisfactory performance as per agreement. It was pointed out that the income embedded in these amounts was, therefore, only contingent income bereft of certainty. Whereas it was admitted that the (sic)ellant company could have received these amounts had it given the (sic) guarantee; it was stated that even then the receipt could not partake the character of income since it could not be appropriated until the guarantee period was over. It was, therefore, urged that the retention money of Rs. 3,60,404/- be excluded from the total income of the appellant. Reliance was placed on the decisions of the Calcutta High Court reported in 179 ITR 8 in support of the said contention.
5.5 From the aforesaid finding of the learned CIT(A), it is clear that 5% to 10% of the billed amount becomes receivable subject to performance and workmanship during the warranty period, which ranged between 12 to 18 months. This amount could be realized on furnishing of the bank guarantee stipulating inter-alia that in case of shortcomings the purchaser will be at liberty to recover the amount from the bank without making any reference to the assessee. In view thereof, it is clear that the assessee would be able to re(sic)ze such amount after lapse of at least 12 months or 18 months, as the case may be, after the apply of the equipment. Thus, the contents of the paragraph 3 of the affidavit cannot be doubted. It appears that the assessee had represented before the AO in a letter dated 12.10.1995 that the retention money was received by the company but the same cannot be appropriated anal the expiry of warranty period. In paragraph 5 of the affidavit, this part of the statement was clarified by way of a sworn statement and it was pointed out that no money was received out of the retention money of Rs. 3,67,404/-till he end of previous year relevant to the instant assessment year In view of the finding of the learned CIT(A), this part of the affidavit can also not be ducted. In paragraph 6, it is mentioned that no bank guarantee was given to the customers in the relevant previous year. The learned CIT(A) had pointed out hat as per the terms and conditions of the agreement, the assessee could have issued bank guarantee but even on doing so the receipt of retention money will not partake the character of the revenue receipt till the warranty perod was over. There was no finding of fact by the learned CIT(A) that the ban(sic) guarantee was in fact issued by the assessee to its customers. Thus, there is no reason to disbelieve the contents of the paragraph 6 of the affidavit Paragraph 4 contains averment of the fact that certain portions of the retention money were received in assessment year 1994-95 and 1995-96 and some which were offered for taxation in those years. The case of the learned Counsel was that this was not the issue before us and, therefore, it will be dealt with at the appropriate place when discussing the arguments of the learned Counsel Therefore, in view of the aforesaid, we are of the view that there is no need to verify the affidavits by the lower authorities as it does not conation anything which is contrary to the finding of facts given by the learned CIT(A) Apart from that the learned DR did not make any argument on merits of the case of taxation of this amount in this year except quoting two cases regarding allowability of the future expenditure in performance of the warranty given by the assessee That issue was not raised by the learned Counsel and in any case those decisions go against the revenue However, we need not go into those cases as the assessee had not made any provision for warranty liability.
5.6 The first plank of the argument of the learned Counsel was that retention money does not accrue as income to the assessee. This argument is supported by the decisions reported at 179 ITR 8 and 247 ITR 457. Therefore, we are of the view that since the payment of the retention money is hinged upon the condition of satisfactory performance of the equipment during the warranty period, no debt accrues in favour of the assessee. Therefore, the impugned amount does not accrue as income to the assessee in this year.
5.7 The second issue was regarding accrual of the aforesaid money as income of the assessee. The case of the learned Counsel was that the Tribunal does not have jurisdiction to go into this question. We have considered this matter also. We are of the view that the arguments of the learned Counsel on this issue are not in confirmity with the decision of Hon'ble Bombay High Court in the case of New India Life Insurance Company (supra). The decision of the Hon'ble Court was that the Tribunal cannot raise a ground which will work adversely to the appellant. Thus on facts, the appellant can argue for full or in the alternative for a lesser relief. In this case the revenue is the appellant and not the assessee Further the appeals of this and the subsequent years are pending with us. The assessee had become entitled to receive or had received such amounts in those years. Thus, the real question regarding retention money would break up into two parts, namely, - (i) whether the money retained by the customers is taxable or not and (ii) whether the right to receive arising on account of fulfillment of warranty or the actual receipt amounts to accrual of income Therefore, in the interest of justice, it would be appropriate to touch upon this issue. The case of the assessee in the affidavit is that the monies received out of the retention money were offered for tax in the years in which such monies were received. The learned Counsel was requested to state whether such money should be taxed in the year in which it accrued as income to the assessee as it was following mercantile method of account. The learned Counsel had initially refused to go into the matter, being outside the jurisdiction of the Tribunal, but later on reluctantly stated that it could be taxed in the year of accrual as well because the assessee was following mercantile method of accounting. Having considered this issue, we are of the view that since the assessee follows (sic) method of accounting, there would be no need to postpone the taxation of the amount to the year of receipt as it is clearly taxable in the year of accrual.
5.8 The learned Counsel had also referred to the decision of Hon'ble ITAT, Ahmedabad Bench "C" in the case of Kevin Enterprises v. JCIT (2001) 79 ITD 196, in which it was inter-alia decided that liability arising on account of warrantees and guarantees as well as uncertainties involving possible encashment of bank guarantee had to be taken into account for arriving at true and fair financial results of the company. Such an issue is not there before us in view of our finding that retention money does not accrue as income to the assessee, which takes into account future liabilities, during the warranty period. The learned Counsel also referred to the decision of Hon'ble ITAT, Bombay Bench "B" (TM) in the case of Associated Cables (P) Ltd v.DCIT (1994) 48 ITD 141, a case decided on facts where unconditional bank guarantee was furnished for release of retention money. Such is not the case before us as in the sworn affidavit, the financial controller had stated that no bank guarantee was given.
5.9 The result of the aforesaid discussion is that subject to remarks in paragraph 5.7(supra) ground Nos. 1 & 2 are dismissed.
6. In regard to Ground No. 3, the learned Counsel drew our attention towards the decision of Hon'ble Bombay High Court in the case of CIT v.Indo Nippon Chemical Company Ltd. , which was upheld by he Hon'ble Supreme Court in CIT v. Indo Nippon Chemical Co. Ltd. . It was held that it is not permissible for the AO to adopt 'gross method' for valuation of raw material at the time of purchase and 'net retched' for valuation of closing stock. In other words, the decision of both the Hol'ble Courts was that the closing stock has to be valued in the same (sic) in which the cost is valued at the time of purchase. In view thereof, revenue's appeal in this matter is not sustainable. Thus, this ground is dismissed.
8. This appeal of the assessee was dismissed for non-prosecution vide the order of the ITAT, Pune Bench "B", Pune dated 15.07.2005.
Thereafter, the assessee moved a miscellaneous application on 17.10.2005 requesting for recalling the order. This application was allowed vide the order of Hon'ble ITAT, Pune Bench "B", Pune on 30.12.2005. That is how this appeal is before us. The assessee had taken up three substantive grounds of appeal, which are reproduced for the sake of ready reference: 1. On the facts and in the circumstances of the case and as per law the learned CIT(A) erred in holding that the sum of Rs. 10,43,491 (corrected before us to Rs. 8,18,405/- retained from sales by the customers forms part of the sales and hence should be added to the appellant income.
2. On the facts and in the circumstances of the case & as per law the learned CIT(A) has erred in treating the amount of excise duty and sales tax collected as part of the total turnover while computing the deduction Under Section 80 HHC of the IT Act.
3. On the facts and in the circumstances of the case & as per law the learned CIT(A) has erred in confirming the addition on account of articles gifted to the employees as staff welfare expenses.
8.1 The first ground of appeal is against the finding of the learned CIT(A) that retention money, amounting to Rs. 10,43,491/- (corrected to Rs. 8,8,405/- in the course of hearing before us), forms part of sale proceeds and, hence, includible in the income of the assessee. The facts regarding this grand, represented before the learned CIT(A), are contained in paragraph 2 of his order, which is reproduced overleaf: 2. The first ground of appeal is relating to an addition on account of retention money of Rs. 8,18,405/-. The appellant who was asked to submit his explanation for not treating this as income, stated that similar addition made on account of retention money in AY 1993-94 has been deleted by the CIT(A)-II, Pune. It was further stated that the appellant is following the mercantile system of accounting and the contract entered into with its customers provided that certain percentage of the price was to be paid as advance on acceptance of the contract and part on presentation or dispatch of documents leaving 5/10% on receipt and acceptance of goods subject to performance and workmanship during the warranty period ranging between 12 to 18 months. The balance 5/10% was released if the appellant furnished a bank guarantee for the balance amount. The guarantee stipulates performance of the materials supplied and the purchaser was at liberty without referring to the appellant to recover the amount from the bank. Though this amount was received, it was referred to 'retention money' and that is why it was not appropriated until the period of guarantee was over. In support, reliance was placed in the decision of Associated Cables Pvt. Ltd. 49 TTJ 191 (48 ITD 141) and Simplex Concrete Piles Pvt. Ltd. 179 ITR8. However, the contention of the appellant did not find favour with the AO, as according to him, the taxability of a particular receipt does not depend upon the terms and conditions of the payment. The appellant has raised full value of invoice which was accepted by its customers. As per the mercantile system of accounting, the revenue should be recognized on the acceptance of the invoice by the customer. The appellant has paid excise duty as well as sales tax on full invoice value. The turnover therefore could not be different for the purpose of Income-tax. If some part of it is not received in future due to non-performance, the appellant can claim the amount as bad debt Under Section 36 (1)(vii). Furthermore, as the appellant has received this amount against the bank guarantee, the provisions made for retention money is contingent in nature, not allowable under the IT Act. The decision of CIT (A) has not been accepted by the department and hence not binding on him. The decision in the case of Simplex Piles Pvt. Ltd. cited can also not be applied as the same has not been accepted.
It will be seen that the learned CIT(A) recorded that the retention money was received by the assessee by furnishing bank guarantee. The learned CIT(A), after considering various submissions, came to the conclusion that sales had been made and the debt had become due and, therefore, the appeal of the assessee on this ground was dismissed.
8.2 Before us, the learned Counsel filed an affidavit sworn by the finance controller of the company, Shri Shailesh J. Shah, on 05.06 2006 This is a combined affidavit for AY 1995-96 to AY 1999-00. The relevant portions, contained in paragraphs 2 & 3 of the affidavit, are reproduced for ready reference: 2. The accounting policy of the company in relation to recognition of revenue in respect of retention money is to reverse the sales by the retention money held back by the customers at the time of payment of bills. This retention money is thereafter accounted for as income in the year of actual receipt by credit to sales.
3. After verification of the relevant records and concerned documents, I confirm that the amounts shown as retention moneys for assessment years 1995-96 to 1999-00 being the years for which the appeals are pending before yourself are the amounts which have been retained by the customers from the sales invoice and which have not been received by the company during the relevant previous years.
From the perusal of the order of the learned CIT(A) and the facts mentioned in the affidavit, it will be seen that there is a manifest contradiction, namely, that while it was represented before the learned CIT(A) that the retention money was received, it is mentioned in the affidavit that the retention money was not received in the relevant previous year. In view of this contradiction, there is force in the argument of the learned DR that the said affidavit requires verification. At this stage, the learned Counsel made a statement at the bar that the money was not received in the relevant previous year and that no bank guarantee was furnished. Accepting this statement, a finding of fact is given that retention money, retained by the customers in the previous year relevant to AY 1995-96, was not received by the assessee in that year. Since there was some confusion regarding facts of the receipts of the money, it may be worthwhile to consider the decision of Hon'ble ITAT, Bombay Bench "B" (TM) in the case of Associated Cables (P) Ltd. v. DCIT (1994) 48 ITD 141. The decision of the Hon'ble Tribunal was that keeping in mind the principles of recognition of income, which is the mercantile method of accounting, the retention money could not be recognized as income as long as performance guarantee remained in force. Otherwise also, in a case where unconditional bank guarantee is furnished to the customer under which he had right to take recovery measures from the bank without reference to the assessee if any shortcoming was found in the workmanship, the money does not accrue as income to the assessee. We may also refer to the decision of Hon'ble ITAT, Ahmedabad Bench "C" in the case of Kevin Enterprises v. JCIT (2001) 79 ITR 196, in which provision made for future warranties on a proper basis was held to be deductible as the condition of the warranty was attached with the sale and, therefore, it was not contingent in nature.
8.3 As against the aforesaid, the learned DR relied on the orders of the authorities below 8.4 We have considered the facts of the case and submissions made before us The judgment proceeds on the basis that the assessee neither received any part of retention money in this year nor any bank guarantee was furnished. In such a scenario, our decision in ITA No 1465/PN/96(supra) as clearly applicable, namely, that - i) retention money does not accrue as income to the assessee in this year, and ii) such money accrues as income when the period of warranty lapses on accrual basis It may not be out of place to mention here that similar issue had been decided by way of a written order by the Hon'ble ITAT, Pune Bench "B", Pune in ITA Nos. 265/PN/95, 1045/PN/95, and 1344/PN/96, dated 29 06 2005, of which the AM was the author In that order, a large number of cases were considered and following propositions of law were summarized in paragrah 6: i) the accrual of income takes place when right to receive income arises [171 ITR 41, 161 ITR 524, 61 ITR 395], ii) in a contract, under mercantile method of accounting, the accrual of income takes place when the assessee gets unconditional legal right to receive money under the agreement [192 ITR 15, 179 ITR 8, 48 ITD 141, 247 ITR 457], iii) receipt of money by itself does not lead to accrual of income especially when the assessee has not rendered corresponding service.
iv) the principle of matching of income and corresponding expenditure may be an accountant's view, but under the law the expenditure and income can be treated differently, depending upon whether one or both had accured or not on the basis of method of accounting followed by the assessee and, v) receipt of retention money by furnishing unconditional bank guarantee may or may not amount the accrual of income which will have to be considered on the basis of terms and conditions of the contract However, furnishing of unconditional bank guarantee is attendant with significant risks, and where the agreement provides for acceptance test for satisfactory performance in lieu of which certain money was retained by the contractee, that amount will accrue as income only on satisfactory performance of the test and acceptance by the contractee.
Our aforesaid findings are in line with the principles recorded in that order.
8.5 The result of the aforesaid discussion is that ground No. 1 of the appeal is allowed.
9. 2nd ground of appeal is against the finding of the learned CIT(A) that excise duty and sales-tax form part of the total turnover for the purpose of computing deduction Under Section 80 HHC. This issue stands covered by the decision of Hon'ble Bombay High Court in the case of CIT v. Sudarshan Chemical Industries Ltd. in favour of the assessee. Respectfully following that decision, this ground is allowed.
10.1 3rd ground of appeal is against the finding of the learned CIT(A) that the expenditure incurred on gift articles given to the employees is not deductible in computing the income of the assessee. In this connection, the learned CIT(A) had pointed out that no business purpose can be served by giving gifts to the employees for the reason that even if employees are motivated by receipt of such gifts, the motivation is of no use unless the business of the assessee is promoted. The business can be promoted only by promoting relationship with the clients, and for such services the employees are paid emoluments and annual increments based on their performance.
10.2 In this connection, the learned Counsel filed a copy of the decision of the Hon'ble ITAT Pune Bench "B", Pune in the case of Maharashtra Scooters Ltd., Pune in ITA No. 59/PN/97. Ground No. 4 of that appeal dealt with the issue regarding allowance of the expenditure of Rs. 1,42,036/- incurred on giving the silver medals to permanent employees at the time of the production of one millionth' scooter.
Relying on various case laws, the appeal of that assessee was allowed on this ground and the expenditure was held to be staff welfare expenditure. We do not find any distinction in facts of that and this case except that the occasions are different. Respectfully following that decision, this ground is also allowed.
12. The assessee has taken up three substantive grounds in this appeal, which are reproduced overleaf for the sake of ready reference.- 1. In the facts and circumstances of the case, the CIT(A) has erred legally and factually in upholding the addition of Rs. 10,43,491 being retention money withheld by the customers as per contract.
The CIT(A) ought to have appreciated that these amounts of retention money are retained by customer, as performance warranty have to be fulfilled. Supply of spares and replacement and technical services have to be rendered in the 'subsequent period The CIT(A) has completely confused the facts and circumstance of the appellant, and in drawing conclusions in the appeal on such basis. The addition on account of retention money of Rs. 10,43,491/- made by the AO may, therefore, be deleted.
2. In the facts and circumstances of the case, the CIT(A) has erred legally and factually in upholding the disallowance of Rs. 2,26,718/-being expenses on presentation of articles on the grounds of these not being related to the productivity of the employee, and therefore not allowable. He ought to have appreciated that these expenses are wholly and exclusively for business and are not personal expenses.
3. In the facts and circumstances of the case, the CIT(A) has erred legally and factually in upholding the reworking of the deduction Under Section 80 HHC made by the AO, by including excise duty and sales tax as part of total turnover, and in not following the decisions of ITAT, Bombay, in the case of Ponds (1) Ltd. and of ITAT, Pune Bench, in the case of Sudarshan Chemicals Ltd. The deductions as claimed by the assessee company Under Section 80 HHC may be allowed.
13. The assessee filed "a chart showing amounts received out of the retention money. In the course of hearing before us, the learned Counsel pointed out that these grounds are identical with the grounds in ITA No. 481/PN99 for AY 1995-96. No particular argument was made by the learned DR except that he relied on the decision of learned CIT(A).
Following our decision in ITA No. 481/PN/99, the appeal of the assessee is allowed.
15. The only substantive ground taken in this appeal is regarding taxation of retention money, amounting to Rs. 11,37,727/-. As mentioned in ITA No. 481/PN/99(supra), the facts mentioned in the order of learned CIT(A) on this issue are somewhat different from the facts mentioned in the combined affidavit sworn by the finance controller of the assessee company for assessment years 1996-97 to 1999-00 However, the facts are taken as per the affidavit and the statement made by the learned Counsel at the bar As the issue involved in that and this appeal are identical, the decision of that appeal on this issue is made applicable to this year also.
ITA Nos. 594/PN/02 & 1414/PN/02 for AYs 1998-99 & 1999-00 - Appeals of the assessee 17. The only issue taken in these appeals is regarding retention money The amounts are Rs. 18,15,072/-for AY 1998-99 and Rs. 21,76,787/- for AY 1999-00 The facts are identical with the facts in ITA No. 481/PN/99.
Therefore, the decision in that appeal is ordered to be made applicable to these appeals also