DCIT Vs MRF Ltd (ITAT Chennai)
Conclusion: Since assessee was maintaining mercantile system of accounting, upon the basis of which the profits or gains were computed and it had been regularly following it, assessee’s claim were in accordance with law and hence CIT(A) had rightly directed to allow depreciation on the retention money on capital account and also allow the retention money with held on revenue account. Considering the nature and volume of business performance of the assessee, the amount spent towards Club and entrance fees was reasonable. Therefore no disallowance was required.
Held: Assessee, was engaged in manufacturing and selling automobile tyres, tubes, flaps, and other rubber products. It filed its return for AY 2013-14 declaring income of ₹790.92 crore. The case was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS ), and the income was assessed at ₹861.76 crore u/s 143(3). AO reopened the assessment by issuing a notice u/s 148. After considering objections, AO reassessed the income u/s 147/143(3) at ₹837.18 crore by making additions for litigation provisions, depreciation on retention money, additional depreciation on retention money, and club expenses. Assessee challenged the reassessment before CIT(A), who granted partial relief. Revenue appealed against CIT(A) order before Tribunal for AYs 2013-14, 2015-16, and 2016-17. The issue was regarding the disallowance of depreciation and expenses on retention money. Assessee had purchase contracts with retention money payable after successful performance of machinery and recorded the liability under the mercantile system. It claimed depreciation on retention money for capital assets and allowance for revenue expenses. AO disallowed these amounts, treating them as contingent, and denied additional depreciation of ₹1.49 crore. Assessee appealed, and CIT(A) allowed the claim, relying on the Tribunal’s earlier decision, and deleted the disallowances of ₹68 lakh and ₹1.49 crore. It was held CIT(A) had allowed the claim of assessee on the issue by following the Tribunal order and since the Revenue couldn’t point out any change in facts or law, respectfully following the Tribunal order in assessee’s own case on the issue and also taking note that since, the assessee was maintaining mercantile system of accounting, upon the basis of which the profits or gains were computed under the head “ Profits and gains of business or profession” for the relevant assessment years and it had been regularly following it, assessee’s claim were in accordance with law and hence CIT(A) had rightly directed AO to allow depreciation on the retention money on capital account and also allow the retention money with held on revenue account. Regarding disallowance of club entrance fees, considering the nature and volume of business performance of the assessee, the amount spent towards Club and entrance fees was reasonable and in support of the claim of the expenditure, assessee had furnished the ledger extract before the AO. Therefore, the same was allowable.
