Relief for MRF: ITAT Upholds CIT(A) Order Allowing Depreciation and Expenses on Retention Money, Dismisses Revenue’s Appeal [Read Order]
The tribunal noted that the Revenue could not demonstrate any change in facts or law and that the assessee consistently maintained the mercantile system of accounting
The Chennai Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax (Appeals)[CIT(A)] order allowing MRF Ltd. to claim depreciation on retention money for capital assets and expenses on retention money withheld on revenue account, and dismissed the Revenue’s appeal for AYs 2013-14, 2015-16, and 2016-17
The Revenue-appellant, challenged the order dated 31.01.2025 passed by CIT(A) for the Assessment Years (AY) 2013-14, 2015-16, and 2016-17. In this case,MRF Ltd.,respondent-assessee,was engaged in manufacturing and selling automobile tyres, tubes, flaps, and other rubber products.
It filed its return for AY 2013-14 on 28.11.2013, 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 on 29.12.2016 u/s 143(3) of the Act.
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The Assessing Officer (AO) reopened the assessment by issuing a notice u/s 148 on 23.04.2019. After considering objections, the AO reassessed the income on 03.12.2019 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.
The assessee challenged the reassessment before the CIT(A), who granted partial relief. The Revenue appealed against the CIT(A) order before the tribunal for AYs 2013-14, 2015-16, and 2016-17.
The issue was regarding the disallowance of depreciation and expenses on retention money. The 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.
The AO disallowed these amounts, treating them as contingent, and denied additional depreciation of ₹1.49 crore. The assessee appealed, and the CIT(A) allowed the claim, relying on the Tribunal’s earlier decision, and deleted the disallowances of ₹68 lakh and ₹1.49 crore.
The Revenue challenged this decision before us.
The department counsel said the tribunal’s order on this issue was not accepted, and an appeal had been filed in the High Court, so the CIT(A) erred in following the earlier Tribunal order and supporting the AO.
The assessee’s counsel stated that the tribunal had consistently allowed expenditure on retention money (both revenue and capital) in the assessee’s favour in several assessment years, including AY 2014-15, 2017-18, 2018-19, and 2019-20.
The two member bench comprising Aby T Varkey (Judicial Member) and Jagadish (Accountant Member) found that the CIT(A) had allowed the assessee’s claim by following its earlier order.
Since the Revenue could not show any change in facts or law, and considering that the assessee consistently maintained the mercantile system of accounting to compute profits under “Profits and gains of business or profession,” the Tribunal held that the assessee’s claims were in accordance with law.
Accordingly, the appellate tribunal confirmed the CIT(A)’s direction to allow depreciation on retention money for capital assets and retention money withheld on revenue account, and dismissed the Revenue’s grounds of appeal.
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