DCIT, New Delhi V. M/s. CBM Industries Ltd., New Delhi

ITA 1417/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3876 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 21-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: MANU SUD
• Keywords: Capital asset; Depreciation; Rule of consistency; Revenue expenditure

Judgement Text

ITA NO. 1417/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1417/DEL/2011 A.Y. : 2006-07 DCIT, CIRCLE 3 (1), NEW DELHI VS. M/S CBM INDUSTRIES LIMITED, 45, 1 ST FLOOR, COMMUNITY CENTRE, PHASE-1, NARAINA, NEW DELHI (PAN/GIR NO. : AAACC3576C) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. MANU SUD, CA DEPARTMENT BY : MS. Y. KAKKAR, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM PER SHAMIM PER SHAMIM PER SHAMIM YAHYA: AM YAHYA: AM YAHYA: AM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 03.1.2 011 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN DELETING THE ADDITION OF 2486050 /- MADE ON ACCOUNT OF CAPITALIZATION OF BOT (BUILD, OPERATE & TRANSFE R) ASSETS. 3. IN THIS CASE, THE ASSESSEE HAS WRITTEN OFF BOT ASSETS TO THE EXTENT OF ` 24,86,050/- BY DEBITING THE SAME TO TH E PROFIT AND LOSS ACCOUNT. ASSESSING OFFICER OBSERVED THAT SINCE BO T ASSETS ARE CAPITAL GOODS ITEMS WHICH ARE UTILIZED ON REGULAR BASIS FOR ADVERTISING AND PUBLICITY OF THE ASSESSEES CLIENTS AND HENCE PROVI DE ENDURING BENEFIT TO THE ASSESSEE, A QUERY WAS PUT TO THE ASSESSEE AS TO WHY BOT ASSETS WRITTEN OFF NOT BE CAPITALIZED. AFTER CONSIDERING T HE ASSESSEES REPLY, ITA NO. 1417/DEL/2011 2 THE ASSESSING OFFICER NOTED THAT THE BOT ASSETS A RE IN THE NATURE OF CAPITAL GOODS WHICH ARE UTILIZED BY THE ASSESSEE FO R ADVERTISEMENTS ON BEHALF OF THE CLIENTS. THE ASSETS ARE MANUFACTURED /PRODUCED AS PER THE REQUIREMENTS OF THE CLIENT AND HENCE NEW ASSET C OMES INTO EXISTENCE WHICH PROVIDES BENEFITS FOR NUMBER OF YEAR S AND HENCE ARE ENDURING IN NATURE. THAT IS WHY, THE ASSESSEE HAS H IMSELF TERMED, THESE GOODS AS IN THE NATURE OF ASSETS. HOWEVER, THE TREATMENT GIVEN BY THE ASSESSEE IN ITS ACCOUNTS TO WRITE OFF THESE ASSETS CANNOT BE ACCEPTED. ASSESSING OFFICER FURTHER OBSERVED THAT THERE IS NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN INCOME TAX ACT. THE ASSESSEE CANNOT WRITE OFF A CAPITAL ASSET AFTER USE FOR CERT AIN NUMBER OF YEARS WHEN IT IS EVIDENT FROM ITS REPLY THAT THE ASSET IS OF ENDURING NATURE. HE HAS TO CAPITALIZE THE ASSET AND CLAIM DEPRECIATIO N THEREON AS PER THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER, THEREFORE, CAPITALIZED THE SUM OF ` 24,86,050/- AND DEPRECIATION @ 15% WAS ALLOWED THEREON. 4. UPON ASSESSEES APPEAL, IT WAS SUBMITTED TO THE L D. COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASSESS EE HAS CLAIMED THAT THE SAID SUM AS REVENUE EXPENDITURE ON ACCOUNT OF BOT ASSETS WRITE OFF WHICH REPRESENTS 1/5 TH OF TOTAL COST OF THE PROJECT EXECUTED BY THE ASSESSEE BY NOIDA AUTHORITY UNDER AGREEMENT DATE D 24.12.2001 ON BOT BASIS FOR THE PERIOD OF 5 YEARS. THE ASSE SSING OFFICER ON THE OTHER HAND CAPITALIZED THE SUM OF ` 24,86,050/- AND AFTER ALLOWING DEPRECIATION @ 15% THEREON, MADE THE ADDITION OF ` 21,13,142/- IN THE ASSESSEES INCOME. IT WAS FURTHER SUBMITTED THAT T HE ISSUE IS COVERED BY THE ITAT DECISION IN ASSESSEES OWN CASE IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR. CONSIDERING THE SAME, LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT THERE WAS NO CHAN GE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, HENCE, FOLLOWING THE ITA NO. 1417/DEL/2011 3 TRIBUNALS DECISION IN THE IMMEDIATE PRECEDING YEAR, HE DIRECTED THE ADDITION TO BE DELETED. 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. WE NOTE THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED THE ISSUE IN ASSESSEES FAVOUR BY FOLLOWING THE TRIBUNALS DECISION IN ASSESSEES OWN CASE. THE RELEVANT PORTION OF WHICH READS AS UNDER:- 3.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION MADE BEFORE US. IT IS SEEN THAT THE REVENUE HAS ACCEPTED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE FOR SIX YEARS IN RESPECT O F KERALA PROJECT. IT HAS ALSO ACCEPTED THE METHOD FOR FOUR YEARS IN RESPECT OF NOIDA PROJECT. THIS IS THE LAST YEAR FOR KERALA PROJECT AND LAST BUT ONE YEAR O F NOIDA PROJECT. IT HAS NOWHERE BEEN CHALLENGED THAT THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE GIVES DISTORTED PICTURE OF PROFITS. ON THE OTHER H AND, IT HAS BEEN CLAIMED THAT THE METHOD FURNISHES FAIR AND REASONABLE PICTURE OF PROFITS. THEREFORE, THE METH OD SHOULD HAVE BEEN ACCEPTED IN THE FIRST PLACE ON THE PRINCIPLE OF CONSISTENCY AS OTHERWISE THE ASSESSMEN T ITA NO. 1417/DEL/2011 4 OF EARLIER YEARS WILL ALSO HAVE TO BE MODIFIED ACCORDINGLY. IN THE CASE OF IRB INFRASTRUCTURE LIMI TED (SUPRA), THE ASSESSEE WAS ACCOUNTING FOR THE RECEIP TS IN ITS BOOKS OF ACCOUNT BY REDUCING THEM FROM WORK- IN- PROGRESS, LEADING TO NO PROFIT. THE METHOD OF ACCOUNTING WAS SOUGHT TO BE CHANGED BY AMORTIZING THE PROJECT EXPENSES OVER A PERIOD OF 16 YEARS, BEIN G THE PERIOD OF BOT AGREEMENT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THIS DECISION OF T HE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICE R WAS NOT JUSTIFIED IN TAKING A DIFFERENT VIEW FROM TH E EARLIER YEARS. THUS, IT FOLLOWS THAT A CONSISTENT METHOD USED BY THE ASSESSEE OUGHT NOT TO BE CHANGED ESPECIALLY WHEN THE METHOD ADOPTED BY THE ASSESSEE FURNISHED A FAIR AND REASONABLE VIEW OF THE PROFITS . THIS FOLLOWS FROM A NUMBER OF DECISIONS UPHOLDING TH E PRINCIPLE OF CONSISTENCY INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. C.I.T. (1992) 193 ITR 321, RELIED UPON IN THAT CASE. RESPECTFULLY, FOLLOWING THIS DECISION, IT IS HELD THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN ITA NO. 1417/DEL/2011 5 MODIFYING THE BOOKS RESULTS BASED UPON FOLLOWING A CONSISTENT METHOD OF ACCOUNTING. THUS, THIS GROUN D IS ALSO ALLOWED. 6. FOLLOWING THE PRECEDENT AS ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENU E STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23/5/2011, UP ON CONCLUSION OF HEARING. SD/- SD/- [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [A.D. JAIN] [SHAMIM YAH [SHAMIM YAH [SHAMIM YAH [SHAMIM YAHYA] YA] YA] YA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 23/5/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3.CIT 4.CIT (A) 5. DR, IT AT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES