DCIT, New Delhi V. M/s. Thyssenkrupp Elevator (I) P. Ltd., New Delhi

ITA 4708/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0831 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2008-2009
• Appeal Filed On: 28-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D KAPILA; R R MAURYA
• Keywords: Depreciation; Revised return
• Section: 37(1); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI G.D. AGRAWAL, PRESIDENT & SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO.987/DEL/2014 ASSESSMENT YEAR: 2008-09 THYSSENKRUPP ELEVATOR (INDIA) PVT. LTD., PLOT NO.429, FUNCTIONAL INDUSTRIAL ESTATE, PATPARGANJ, NEW DELHI. V. DCIT, CIRCLE-16(1), NEW DELHI. TAN/PAN: AABCT 6921F (APPELLANT) (RESPONDENT) I.T.A. NO.871 & 4708/DEL/2014 ASSESSMENT YEAR: 2008-09 DCIT, CIRCLE-16(1), NEW DELHI. V. THYSSENKRUPP ELEVATOR (INDIA) PVT. LTD., PLOT NO.429, FUNCTIONAL INDUSTRIAL ESTATE, PATPARGANJ, NEW DELHI. TAN/PAN: AABCT 6921F (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.D. KAPILA, ADV. & SHRI R.R. MAURYA, ADV. RESPONDENT BY: SHRI AMIT JAIN, SR.D.R. DATE OF HEARING: 18 06 2018 DATE OF PRONOUNCEMENT: 17 09 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID CROSS APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST THE IMPU GNED ORDER DATED 12.11.2013, PASSED BY THE CIT (APPEALS) -XI, NEW I.T.AS. NO.987, 871 & 4708/DEL/2014 2 DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143( 3) FOR THE ASSESSMENT YEAR 2008-09. THE APPEAL IN ITA NO.4708/DEL/2014 HAVE BEEN FILED BY THE REVENUE AGA INST THE ORDER DATED 16.06.2014, PASSED BY LD. CIT(APPEA LS)-XI, NEW DELHI AGAINST THE ORDER U/S.154 FOR THE ASSESSM ENT YEAR 2008-09. WE WILL FIRST TAKE UP THE REVENUES APPEAL IN ITA NO.871/DEL/2014, WHEREIN THE REVENUE HAS RAISED THE SOLE GROUND:- 1. LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.8,46,99,684/- ON ACCOUNT OF ADVANCE FROM CUSTOMERS. THESE ADVANCE S IN FACT CONSTITUTE RECEIPT IN THE HANDS OF THE ASSESSEE IN VIEW OF ITS NATURE OF BUSINESS ACTIVITIES. 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT THIS ISSUE STANDS SQUARELY COVERED BY THE DECI SION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE EARLIER YEAR RIGHT FROM THE ASSESSMENT YEARS 2005-06 TO 2007-08 PASSED IN I TAS NO.956, 1118, 3755/DEL/2009 & 3354 & 3488/DEL/2010 ORDER DATED 07.11.2017. 3. THE FACTS IN BRIEF ARE THAT ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MARKETING, SELLING, INSTALLING, COMMISSIONING, SERVICE, REPAIRS, MAINTENANCE AND MODERNIZATION OF ELEVATORS AND ESCALATORS. THE LEAR NED ASSESSING OFFICER FOLLOWING THE EARLIER YEARS ASSE SSMENT ORDERS HELD THAT ADVANCE RECEIVED BY THE ASSESSEE F ROM THE CUSTOMERS IS INCOME OF THE ASSESSEE. THE ASSESSEE H AD SHOWN AN AMOUNT OF RS.41.96 IN HIS BALANCE SHEET AS ADVAN CE FROM I.T.AS. NO.987, 871 & 4708/DEL/2014 3 THE CUSTOMER INCLUDING DEFERRED REVENUE, THE DETAIL S OF WHICH IS AS UNDER:- (A) RS.17.07 CRORES REPRESENTING INITIAL ADVANCE RE CEIVED AGAINST THE CONTRACT (B) RS.2.9 CRORES REPRESENTING UNADJUSTED ADVANCE AGAINST MAINTENANCE CONTRACTS. (C) RS.21.99 CRORES UNADJUSTED ADVANCE REPRESENTING OVER BILLING IN CASE OF NEW INSTALLATION SIGNIFICANT MODERNIZATION JOBS 3.1 ACCORDING TO ASSESSING OFFICER, ADVANCED RECE IVED DURING THE YEAR WHICH REMAINED UNADJUSTED AT THE END OF THE YEAR AND SHOWN IN THE BALANCE SHEET NET OF THE SUM WHICH IS IN THIS YEAR WAS RS.8.47 CRORES, IS INCOME OF THE A SSESSEE AND WHILE DOING SO HE HAS FOLLOWED THE EARLIER ASSESSME NT ORDERS. THE MAIN CONTENTIONS OF THE ASSESSING OFFICER IN TH E EARLIER YEARS WERE AS UNDER:- (A) THE ACCOUNTING SYSTEM ADOPTED BY THE ASSESSEE OVER THE YEARS IS NOTHING TO DO WITH THE STATUTORY PROVISIONS WHIC H PROVIDES FOR MAINTENANCE OF BOOKS OF ACCOUNT IN THE PRESCRIBED W AY; (B) THE ASSESSEE IS A CORPORATE ENTITY AND IS MAND ATORILY REQUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT UND ER THE ACCRUAL SYSTEM OF ACCOUNTING WHICH PRESCRIBES ACCOUNTING FO R EVERY RECEIPTS RECEIVED BY IT; (C) AS AND WHEN ANY MONEY IS RECEIVED FROM ITS CUS TOMERS, THOUGH ADVANCE AS TERMED BY THE ASSESSEE, ITS RECOR DING INTO THE PROPER ACCOUNT IS MANDATORY ON THE PART OF THE ASSE SSEE; (D) THE ASSESSEE HAS TAKEN SUCH SUMS SHOWN IN THE BALANCE SHEET AS LIABILITY WITHOUT ROUTING THEM THROUGH THE P&L ACCOUNT, WHICH IS NOT PERMISSIBLE UNDER THE ACCRUAL SYSTEM O F ACCOUNTING AS PRESCRIBED UNDER THE INDIAN COMPANIES ACT. I.T.AS. NO.987, 871 & 4708/DEL/2014 4 4. ON THE OTHER HAND, THE CASE OF THE ASSESSEE WAS THAT IT HAS BOOKED INCOME OF RS.51.59 CRORES MAINLY FROM TH REE TYPES OF CONTRACTS UNDERTAKEN WITH THE CUSTOMERS CO VERING; (A) NEW CONTRACTS FOR SUPPLY AND INSTALLATION; (B) REPAIR AND MODERNIZATION CONTRACTS; (C) MAINTENANCE CONTRACTS. 4.1. REGARDING ACCOUNTING PRACTICE FOLLOWED BY THE ASSESSEE, IT WAS SUBMITTED THAT SINCE IT WAS FOLLOWING PERCENTAGE OF COMPLETION METHOD REGULARLY, THEREFORE, SUCH AN ACCOUNTING STANDARD CANNOT BE DISTURBED. 5. LD. CIT (A) FOLLOWING THE EARLIER ORDERS AND HAS DELETED THE SAID ADDITIONS. 6. WE FIND THAT IN THE EARLIER YEARS, THE TRIBUNA L HAS DELETED THE SAID ADDITION AFTER OBSERVING AND HOLDI NG AS UNDER:- 32. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. THE ASSESSEE HAS FOLLOWED MERCANTILE ACCOUNTING SYSTEM AND CARRIES ON CONTRACT OF SUPPLY AND INSTALLATION OF ELEVATORS, T HEIR REPAIRS, AND MAINTENANCE. IT FOLLOWED THE PERCENTAGE OF COMPLETI ON METHOD AND ACCORDING TO THE CONTRACTS RS. 7.87 CRORES ARE THE INITIAL ADVANCE RECEIVED AGAINST THE CONTRACT AND RS. 4.87 CORES WE RE UNADJUSTED ADVANCES IN CASE OF NEW INSTALLATION AND MODERNIZAT ION JOB. THE RS.7.87 CRORES IS PURELY AN ADVANCE FOR WHICH WORK IS TO BE DONE THEREFORE; IN THIS YEAR, CORRECTLY NO REVENUE CAN B E RECOGNIZED. FURTHER, REVENUE HAS BEEN RECOGNIZED OUT OF THIS AD VANCE IN SUBSEQUENT YEARS. WITH RESPECT TO RS. 4.87 CRORES I S AN ADVANCE RECEIVED AFTER ADJUSTMENT OF PROGRESSIVE BILLING. T HEREFORE, FROM BOTH I.T.AS. NO.987, 871 & 4708/DEL/2014 5 THESE SUMS NO REVENUE IS TO BE RECOGNIZED DURING TH E YEAR. FURTHER, THE UNADJUSTED ADVANCES ARE OFFERED FOR TAXATION IN SUBSEQUENT YEARS. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE ID CIT(A) IN DELETING THE ADDITION OF RS. 127455308/-. IN THE RE SULT GROUND NO. 2 OF THE APPEAL IS DISMISSED. 6.1 ONCE IT IS AN UNDISPUTED FACT THAT ASSESSEE HAS BEEN FOLLOWING PERCENTAGE OF COMPLETION METHOD AS PRESCRIBED BY AS-7 AND AS-9 AND IN PURSUANCE TO THE SAID SYSTEM O F ACCOUNTING THE ASSESSEE HAS BEEN RECOGNIZING REVENU E IN THE FOLLOWING MANNER:- (A) NEW INSTALLATIONS AND SIGNIFICANT MODERNIZATION JOBS - ON PERCENTAGE OF COMPLETION METHOD WHERE ON THE PERCENTAGE OF COMPLETION METHOD, WHERE THE OUTCOME OF THE CONTRACT CAN BE RELIABLY ESTIMATED, BASED ON PROPOR TION OF THE COST TO THE TOTAL ESTIMATED COST. WHERE THE OUT COME OF THE CONTRACT CANNOT BE RELIABLY ESTIMATED, CONTRACT REVENUE IS RECOGNIZED ONLY TO THE EXTENT OF COST INCURRED, OF WHICH RECOVERY IS PROBABLE. (B) REPAIRS AND SMALL MODERNIZATION JOBS, LASTING FO R A SHORT PERIOD, ON COMPLETION METHOD. (C) METHOD CONTRACTS: REVENUE PERTAINING TO MAINTEN ANCE CONTRACTS IS RECOGNIZED ON TIME BASIS AS PER TERMS OF THE CONTRACT. AND IF THE ADVANCE IS FOR WHICH WORK HAS NOT BEEN D ONE IN THIS YEAR, THEN, REVENUE HAS CORRECTLY NOT BEEN REC OGNIZED AND AS AND WHEN REVENUE HAS BEEN RECOGNIZED, THE SAME H AS BEEN OFFERED FOR TAXATION. ACCORDINGLY, THE AFORESAID FI NDING OF THE I.T.AS. NO.987, 871 & 4708/DEL/2014 6 TRIBUNAL IS REITERATED AND THUS, GROUND RAISED BY T HE REVENUE IS DISMISSED. 7. NOW, WE COME TO THE ASSESSEES APPEAL WHEREIN TH E ASSESSEE HAS RAISED FOLLOWING SUBSTANTIAL GROUNDS:- 3. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ADDITIONS OF RS.(56,26,481) CRORE MADE BY THE LEARNED ASSESSI NG OFFICER IN RESPECT OF 'ADVANCE RECEIVED FROM CUSTOMERS' FOR MA INTENANCE OF ELEVATOR UNDER ANNUAL MAINTENANCE CONTRACT AS ENTER ED INTO BY THE ASSESSEE, WITHOUT APPRECIATING THAT 'ADVANCE RECEIV ED FROM CUSTOMERS' ARE: I) ACCOUNTED FOR AS PER THE RECOGNIZED ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE; AND II) OFFERED TO TAX IN THE NEXT ASSESSMENT YEARS BA SED ON THE ACCOUNTING SYSTEM. 3.1 THAT THE LEARNED CIT(A) HAS ERRED IN MERELY FO LLOWING THE ORDER PASSED IN EARLIER YEARS REGARDING ADDITION IN RESPECT OF ADVANCE RECEIVED FROM CUSTOMERS UNDER AMC CONTRACT, WITHOUT APPRECIATING THAT THE OBSERVATION MADE IN THE EARLIER YEAR ORDER S ARE FACTUALLY ERRONEOUS. 4. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING T HE DISALLOWANCE OF EXPENSES CLAIMED UNDER THE HEAD 'ADVANCES WRITTEN O FF, WITHOUT APPRECIATING THE NATURE OF THE EXPENSES CLAIMED. 4.1 THAT THE LEARNED CIT(A) HAS ON ERRONEOUS INTER PRETATION OF PROVISIONS OF INCOME-TAX ACT, 1961 ('THE ACT'), UPH ELD THE DISALLOWANCE OF 'ADVANCES TO SUPPLIERS WRITTEN OFF' AMOUNTING TO RS. 11,54,061. 4.2 THAT THE LEARNED CIT(A) HAS ON MERE SURMISE, E RRED IN UPHOLDING THE DISALLOWANCE OF RS. 6,46,179 BEING AM OUNT OF 'TDS RECOVERABLE WRITTEN OFF' IN THE BOOKS OF ACCOUNT. 4.3 THAT THE LEARNED CIT(A) HAS WITHOUT CONSIDERIN G THE FACTS ON RECORD AND ON ERRONEOUS OBSERVATIONS AND INTERPRETA TION OF PROVISIONS I.T.AS. NO.987, 871 & 4708/DEL/2014 7 OF THE ACT, UPHELD THE DISALLOWANCE OF RS. 39,732 B EING AMOUNT OF 'RENT DEPOSIT' WRITTEN OFF IN THE BOOKS OF ACCOUNT. 4.4 THAT THE LD. CIT(A) WITHOUT APPRECIATING THE FA CTS, HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.1,648 BEING AMO UNT OF EXCESS TDS DEPOSITED WRITTEN OFF IN THE BOOKS OF ACCOUNT. 5. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING LEVY OF INTEREST U/S.234B & 234D AND WITHDRAWAL OF INTEREST UNDER SECTION 244 A OF THE ACT. 8. IN SO FAR AS GROUNDS NO.3 AND 3.1 ARE CONCERN, L EARNED COUNSEL SUBMITTED THAT THIS ISSUE ALSO STANDS COVER ED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEA RS WHEREIN TRIBUNAL HAS DELETED THE SAID ADDITION. 9. ON THE OTHER HAND, LEARNED DEPARTMENT REPRESENTA TIVE HAS STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A ). 10. ON A PERUSAL OF THE IMPUGNED ORDER WE FIND THAT, THIS ISSUE IS QUITE SIMILAR TO THE ISSUE RAISED BY THE D EPARTMENT BECAUSE THE LD. CIT (A) HELD THAT IN SO FAR AS ADVA NCES RECEIVED FOR MAINTENANCE OF ELEVATORS UNDER ANNUAL MAINTENANCE CONTRACT SHOULD BE ROUTED THROUGH P&L A CCOUNT AND THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE LD. CIT(A) IN THE EARLIER YEARS. WE FIND THAT THE TRIBU NAL HAS HELD AND DECIDED THIS ISSUE FROM PARAGRAPHS 18 TO 21 IN THE FOLLOWING MANNER: 18. GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE DISALLOWANCE OF RS. 20313101/- REPRESENTING ADVANCE RECEIVED FROM CUSTOMER UNDER ANNUAL MAINTENANCE CONTRACTS ENTERED INTO BY THE ASSESSEE. THE ASSESSEE HAS SHOWN A SUM OF RS. 147768409/- INTO ITS BALANCE SHEET AS ADVANCE RECEIVED FROM THE CUSTOMERS. THE LD. ASSESSING OFFICER ENQUIRED ABOUT THE CLAIM I.T.AS. NO.987, 871 & 4708/DEL/2014 8 OF SUCH ADVANCES RECEIVED BY THE ASSESSEE. THE ASSE SSEE EXPLAINED THAT IT IS ENGAGED IN THE BUSINESS OF INSTALLATION OF THE E LEVATORS AND THEREFORE, ON THE RECEIPT OF THE ORDER THE CUSTOMERS ARE PAYING A DVANCES AT CERTAIN PERCENTAGE ON VARIOUS DATES AND ALSO PAY INITIAL AD VANCE AMOUNT. THE ASSESSEE RAISES THE INVOICES AGAINST THESE ADVANCES IN PHASED MANNER. ACCORDING TO THE TERMS OF THE AGREEMENT, UNTIL THE ADVANCES ARE SET OFF BY RAISING THE BILL, SAME ARE SHOWN AS ADVANCES AND NO REVENUE IS BOOKED TILL THAT TIME. THE LD. ASSESSING OFFICER ASKED THE ASSE SSEE THAT WHY THIS SUM SHOULD NOT BE TREATED AS INCOME OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT OUT OF THE SUM OF RS. 1 47768409/- A SUM OF RS. 127455308/- IS PERTAINING TO THE ADVANCE FROM C USTOMERS INCLUDING PROGRESSIVE BILLING AND A SUM OF RS. 20313101/- IS ADVANCE BILLING WITH RESPECT TO THE M AINTENANCE CONTRACTS. ASSESSEE ALSO SUBMITTED THAT IT FOLLOWS THE PERCENT AGE OF COMPLETION METHOD AND THEREFORE THE PROPORTIONATE COST AS PER THE ACC OUNTING STANDARD 7 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IS BOOKED AND CONSEQUENT RELAT ED REVENUE IS ALSO BOOKED IN ACCORDANCE WITH THE PERCENTAGE OF THE WOR K COMPLETED WITH RESPECT TO THE EACH CLIENT. HOWEVER, THE LD. ASSESSING OFFICER REJECTED THE CONTENTION OF THE AS SESSEE AND STATED THAT THE ASSESSEE IS MAINTAINING ITS BOOKS OF ACCOUNT ON THE ACCRUAL BASIS AND FURTHER THE ASSESSEE IS INCURRING HEAVY LOSSES FROM YEAR TO YEAR, THEREFORE, ACCORDING TO THE !D ASSESSING OFFICER THE DEVISE AD OPTED BY THE ASSESSEE WAS A MECHANISM UNDER WHICH ITS REAL INCOME REMAINS UNDERSTATED TO THE EXTENT OF THE ADVANCES WHICH ARE NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT. ACCORDING TO HIM, THESE ADVANCES ARE IN FA CT THE REVENUE OF THE ASSESSEE AND THEREFORE HE MADE AN ADDITION OF RS. 1 476,68409/- TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED WITH THIS A SSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT (A) WHO GRANTED RELIEF OF RS. 78702572/- AND RS. 48752736/-. HOWEVER, HE CONFIRMED THE ADDITION OF R S. 20313101/- ON ACCOUNT OF MAINTENANCE CONTRACTS. THEREFORE, ASSESS EE IS IN APPEAL AGAINST THE CONFIRMATION OF THE ABOVE ADVANCE WITH RESPECT TO THE MAINTENANCE CONTRACT OF RS. 20313101/-. 19. THE LD AR SUBMITTED THAT THE ABOVE AMOUNT IS AD VANCE FOR THE I.T.AS. NO.987, 871 & 4708/DEL/2014 9 ANNUAL CONTRACT FOR MAINTENANCE OF THE ELEVATOR, WH ICH IS ACCOUNTED FOR AS INCOME OF THE ASSESSEE ON THE PERIOD BASIS. HE SUBM ITTED THAT THIS POLICY IS FOLLOWED BY THE ASSESSEE FOR LAST SEVERAL YEARS CON SISTENTLY AND NO FAULT HAS BEEN FOUND WITH. HE FATHER SUBMITTED THAT IN MAINTE NANCE CONTRACT, WHICH ARE FOR A PERIOD AND THEREFORE, THE AMOUNT OF INCOM E IF RECOGNIZED BASED ON THE PERIOD, IS THE CORRECT ACCOUNTING METHOD. 20. THE ID DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LD CIT(A) AND FURTHER SUBMITTED A CHAR T FROM WHICH HE ASSERTED THAT IT IS NOT THE CASE OF THE ASSESSEE THAT OVER A PERIOD THE AMOUNT OF ADVANCES AND AMOUNT OF REVENUE RECOGNITION ARE BECO MING EQUAL. HE FURTHER THAT HAD THE ASSESSEE FOLLOWED THE CORRECT SYSTEM O F ACCOUNTING, THE PERCENTAGE OF REVENUE RECOGNITION TO ADVANCES RECEI VED SHOULD INCREASE. WITH RESPECT TO THE MAINTENANCE CONTRACT, HE SUBMIT TED THE SAME ARGUMENT. 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS. THE LD CIT(A) HAS CONFIRMED THE ADVANCE FOR MAINTENANCE OF ELEVAT ORS BECAUSE OF THE REASON THAT IT IS NOT REFUNDABLE AND ASSESSEE DID N OT SPENT ANY AMOUNT EXEMPT ON SMALL ITEMS ON STORES. HE FURTHER ERRONEO USLY COMPARED IT WITH WARRANTY EXPENSES. THE ABOVE AMOUNT COMPRISES OF AN NUAL MAINTENANCE CONTRACT AND ASSESSEE IS CORRECTLY ACCOUNTING IT AS INCOME ON THE PERIOD BASIS. THIS METHOD OF ACCOUNTING CANNOT BE FOUND FA ULT WITH AS ASSESSEE IS REGULARLY FOLLOWING THE SAME. IN VIEW OF THIS, W E DIRECT THE ID ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 20313101/- ON ACCOUNT OF ADVANCES RECEIVED. 11. SINCE SIMILAR ISSUE AND FACTS ARE PERMEATING I N THIS YEAR ALSO, THEREFORE, FOLLOWING THE PRECEDENCE OF THE EA RLIER YEARS, WE HOLD THAT THE ADDITION SUSTAINED BY THE LD. CIT( A) IS TO BE DELETED BECAUSE ASSESSEE HAS BEEN CORRECTLY ACCOUNT ING ITS INCOME ON PERIODICAL BASIS IN VIEW OF REGULAR ACCOU NTING STANDARD FOLLOWED BY IT. ACCORDINGLY, GROUNDS NO.3 AND 3.1 IS TREATED AS ALLOWED. I.T.AS. NO.987, 871 & 4708/DEL/2014 10 12. IN SO FAR AS THE ISSUE OF DISALLOWANCE OF EXPEN SES CLAIMED UNDER THE HEAD ADVANCES WRITTEN OFF, THE F ACTS IN BRIEF ARE THAT THE ASSESSEE HAS WRITTEN OFF CERTAIN ADVANCES AMOUNTING TO RS.11,54,061/- GIVEN TO THE SUPPLIERS FOR SUPPLY OF RAW MATERIAL, HOWEVER PARTIES HAD NEITHER SUPPLI ED THE MATERIAL NOR REFUNDED THE AMOUNT PAID AS ADVANCES. IT HAS BEEN STATED BY THE ASSESSEE THAT IT FAILS TO NEGOTI ATE WITH THE PARTIES, AMOUNT WAS WRITTEN OFF AS IRRECOVERABLE. L EARNED ASSESSING OFFICER HAS DISALLOWED THE SAME BY HOLDIN G THAT IT HAS FAILED TO SATISFY THE CONDITIONS OF THE SECTION 36(2). 13. LD. CIT (A) HAS CONFIRMED THE SAID ADDITION ON THE GROUND THAT NO PROPER APPLICATION COULD BE FILED AN D NO EVIDENCE WAS FURNISHED TO SUBSTANTIATE THE CLAIM. 14. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E MAIN REASON FOR MAKING THE DISALLOWANCE BY THE ASSESSING OFFICER WAS THAT THIS AMOUNT WAS NEVER FORM PART OF THE INC OME; THEREFORE, IT FAILED THE CONDITIONS GIVEN IN SECTIO N 36(2). HERE, THE ASSESSEE HAS GIVEN AN ADVANCE FOR SUPPLY OF MAT ERIAL WHICH NEITHER SUPPLIED NOR THE AMOUNT PAID COULD BE RECOVERED. SUCH A CLAIM CANNOT BE DISALLOWED AS A B AD DEBT, AND THEREFORE, TO HOLD THAT CONDITION OF SECTION 36 (2) HAS NOT BEEN SATISFIED WOULD BE WHOLLY ERRONEOUS. THE CLAIM HAS TO BE ALLOWABLE U/S. 37(1) R.W.S. 28 OF THE ACT, BEING TH E LOSS INCURRED IN CARRYING OUT THE OPERATION OF THE BUSIN ESS. THIS PRINCIPLE IS COVERED BY THE JUDGMENT OF HON'BLE SUP REME COURT IN THE CASE OF CIT VS. MYSORE SUGAR CO. LTD., REPORTED I.T.AS. NO.987, 871 & 4708/DEL/2014 11 IN 46 ITR 649 (SC). ACCORDINGLY, GROUNDS NO.4 AND 4 .1 AS RAISED BY THE ASSESSEE IS ALLOWED. 15. SIMILARLY, IN SO FAR AS THE DISALLOWANCE OF TD S RECOVERABLE WRITTEN OFF AND RENT DEPOSIT WRITTEN OF F IN THE BOOKS, SAME REASONING HAS BEEN GIVEN BY THE ASSESSI NG OFFICER AS WELL AS LD. CIT(A). 16. IN SO FAR AS TDS AMOUNT WRITTEN OFF ON ACCOUNT OF ITS NON RECOVERABILITY FROM THE CUSTOMERS, IT HAS BEEN STATED THAT CUSTOMERS HAD DEDUCTED TAX AT SOURCE SERVICES PROVI DED BY THE ASSESSEE AND IN EARLIER YEARS ALSO CERTAIN PAYM ENT FOR SERVICES OF THE ASSESSEE WERE WITHHELD BY THE CUSTO MERS WHICH WERE EQUIVALENT TO THE TDS AMOUNT. THE ASSESS EE HAD BOOKED THE SAME IN TDS RECOVERABLE AMOUNT UNDER THE BOOKS OF ACCOUNT. HOWEVER, THE CUSTOMERS NEITHER PROVIDED THE TDS CERTIFICATES NOR DEPOSITED THE SAME IN THE TAX DEPA RTMENT WHICH WERE SHOWN TO BE EVIDENT FROM FORM 26AS. TH E ASSESSEE HAS TAKEN UP THE MATTER WITH RESPECT TO CU STOMERS AND ONCE THE PAYMENT COULD NOT BE RECEIVED THE ASSE SSEE HAS WRITE OFF THE BALANCE IN ITS BOOKS OF ACCOUNT. IT W AS CONTENDED THAT THE ASSESSEE HAS DISCLOSED THE INCOME PERTAINI NG THE AFORESAID DEBTORS IN THE EARLIER YEARS, AND THEREFO RE, IT IS BAD DEBT ALLOWABLE U/S.36(1)(VII) R.W.S. 36(2). ONCE TH E AFORESAID FACTS HAS NOT BEEN DISPUTED EITHER BY THE ASSESSING OFFICER OR BY THE LD. CIT(A), WE DO NOT FIND ANY REASON AS TO WHY SUCH A BAD DEBT SHOULD NOT BE ALLOWED BECAUSE IF THE ASSES SEE HAS BOOKED THE AMOUNT OF TDS RECOVERABLE IN ITS BOOKS O F ACCOUNT I.T.AS. NO.987, 871 & 4708/DEL/2014 12 AND IS OFFERED FOR ITS INCOME THIS WRITING OFF THE SAME FROM THE BOOKS OF ACCOUNT WHEN IT WAS NOT RECOVERABLE SAME H AS TO BE ALLOWED IN TERMS OF SECTION 36(1)(VII) R.W.S. 36(2) . ACCORDINGLY, THIS ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSE E. 17. IN SO FAR AS THE DISALLOWANCE OF RS.39,732/- ON ACCOUNT OF RENT DEPOSIT WRITTEN OFF, THE RELEVANT FACTS ARE THAT ASSESSEE WAS IN POSSESSION OF THE RENTED PREMISES AT SHREE B ANKEY BIHARI LAL BOARD MILLS, C-33/2, INDUSTRIAL AREA, ME ERUT ROAD, GHAZIABAD TILL THE YEAR 2005, FROM WHERE THE BUSINE SS ACTIVITIES WERE CARRIED ON. THE ASSESSEE HAD PAYMEN T OF RS.90,000/- AS REFUNDABLE SECURITY DEPOSIT AS PER T HE TERM OF CONTRACT WHICH WAS REFUNDABLE AT THE TIME OF VACATI ON OF THE PREMISES. THE AFORESAID PREMISES WAS VACATED BY THE ASSESSEE IN THE YEAR 2005 AND ONLY DEPOSIT TO THE EXTENT OF RS.50,268/- WAS REFUNDED AND THE BALANCE AMOUNT RS39,732/- WAS DEDUCTED ON ACCOUNT OF DEDUCTION OF REPAIR EXPENSES INCURRED BY THE LANDLORD ON SUCH PREMISES. THE ASSESSEE HAD DISPUTED ITS LIABILITY FOR REPAIRS AND ACCORDINGLY HAD NOT C HARGED THE AMOUNT AS REPAIR EXPENSES IN THE BOOKS OF ACCOUNT AND ONCE THE NEGOTIATION FAILED WITH THE LANDLORD ASSESSEE H AS WRITTEN OFF IN THE BOOKS OF ACCOUNT. BOTH LEARNED ASSESSING OFFICER AND LD. CIT(A) HAVE HELD THAT CONDITIONS PRESCRIBED U/S.36(2) ARE NOT SATISFIED. IN ANY CASE, IF THE AMOUNT WITHH ELD BY THE LANDLORD FROM THE SECURITY DEPOSIT OF RS.39,732/- O N THE GROUND THAT CERTAIN REPAIR EXPENSES HAVE BEEN INCUR RED BY THE LANDLORD ON SUCH PREMISES WHICH HAS NOT BEEN CL AIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT THEN BENEFITS ARISING OUT I.T.AS. NO.987, 871 & 4708/DEL/2014 13 OF SUCH REPAIRS HAVING BEEN ENJOYED BY THE ASSESSEE EXCLUSIVELY FOR CARRYING OUT ITS BUSINESS ACTIVITIE S HAS TO BE ALLOWED AS DEDUCTION BECAUSE IT FALLS IN THE NATURE OF EXPENDITURE AND REPAIRS. IF THE AMOUNT SHOWN AS REF UNDABLE DEPOSIT HAS NOT BEEN RECEIVED AS STATED TO BE SPENT ON REPAIRS WITHOUT DEBITING THE SAME TO THE P&L ACCOUNT THEN W RITING OFF OF SUCH AN AMOUNT HAS TO BE ALLOWED AS DEDUCTION AN D IT CANNOT BE HELD THAT CONDITIONS OF SECTION 36(2) REQ UIRES TO BE FULFILLED. 18. LASTLY, ON ACCOUNT OF EXCESS DEPOSIT OF TDS W RITTEN OFF, IT HAS BEEN STATED THAT ASSESSEE WHILE DEPOSITING T HE TDS DEDUCTED FROM THE SALARIES TO THE EMPLOYEES INADVER TENTLY PAID EXCESS AMOUNT OF RS.1,648/- OVER AND ABOVE THE AMOUNT DEDUCTED AS TDS. HOWEVER, WHEN THE ASSESSEE CAME TO KNOW ITS MISTAKE, IT HAD TO RECOVER THE SAME FROM THE DE PARTMENT. LEARNED ASSESSING OFFICER HELD THAT TDS AMOUNTS CAN NOT BE CLAIMED AS BUSINESS LOSSES AND DISALLOWED THE SAME WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A) ALSO. IF IT IS NOT IN DISPUTE THAT EXCESS TDS HAS BEEN DEPOSITED AND COUL D NOT BE RECOVERED FROM THE DEPARTMENT, THEN SAME HAS TO BE ALLOWED U/S.37(1) R.W.S. 28 OF THE ACT. ACCORDINGLY, THE SA ME IS DIRECTED TO BE ALLOWED. 19. THE ISSUE OF LEVY OF INTEREST UNDER VARIOUS SEC TIONS HAS NOT BEEN ARGUED, AND THEREFORE, SAME IS TREATED AS NOT PRESSED. I.T.AS. NO.987, 871 & 4708/DEL/2014 14 20. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND REVENUES APPEAL IS DISMISSED. 21. IN SO FAR AS THE REVENUES APPEAL IN ITA NO.4708/DEL/2014 FOLLOWING GROUNDS HAVE BEEN RAISED :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) ERRED IN ADMITTING ADDITIONAL GROUND OF APPEAL WHICH THE ASSESSEE HAD NEITHER RAISED AT THE STAGE OF SCRUTINY PROCEEDINGS NOR IN ITS REVISED RETURN AND DIRECTING THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE APPELLANT FROM ITS RECORD AND ALLOW DEPRECIATION ON THE GOODWILL. 22. THUS, THE ONLY GROUND RAISED BY THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN ADMITTING THE ADDITIONAL GR OUND OF APPEAL WHICH WAS NOT RAISED DURING THE COURSE OF TH E ASSESSMENT PROCEEDINGS NOR IN THE REVISED RETURN. H ERE, IN THIS CASE, THE ASSESSEE HAS FILED AN APPLICATION U/ S.154 ON THE GROUND IN THE FIRST APPEAL FILED BEFORE THE LD. CIT(A) THE ASSESSEE HAS TAKEN AN ADDITIONAL GROUND IN RESPECT OF CLAIM OF DEPRECIATION OF GOODWILL WHICH COULD NOT BE ADJUDIC ATED. LD. CIT(A) HELD THAT INADVERTENTLY THIS GROUND COULD NO T BE ADJUDICATED AND AFTER FOLLOWING THE JUDGMENT OF HON' BLE SUPREME COURT IN THE CASE OF NTPC LTD. VS. CIT, REP ORTED IN (1998) 229 ITR 383, AND JUDGMENT OF HON'BLE DELHI HI GH COURT IN THE CASE OF AREVA T&D INDIA LTD. VS. DCIT IN ITA NO.315/2010 ALLOWED THE ADMISSIBILITY OF THE ADDITI ONAL GROUND. ON THE MERITS, HE FOLLOWED THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SMIFF SECURITIES LTD., REPORTED IN (2012), 348 ITR 302 (SC) THAT DEPRECIATION ON INTANGIBLE ASSETS, VIZ., GOODWILL IS AN ALLOWABLE E XPENSES. IT I.T.AS. NO.987, 871 & 4708/DEL/2014 15 HAS BEEN INFORMED BY THE LD. COUNSEL FOR THE ASSESS EE THAT HON'BLE DELHI HIGH COURT IN THE CASE OF THE ASSESSE E IN THE ASSESSMENT YEAR 2003-04 HAS ALLOWED THE DEPRECIATIO N ON GOODWILL FOLLOWING THE JUDGMENT OF HON'BLE SUPREME C OURT IN THE CASE OF CIT VS. SMIFF SECURITIES LTD., (2012) 348 ITR 302 (SC). IN SUPPORT, HE FILED THE COPY OF THE JUDGMENT DATED 15.10.2015 PASSED IN ITA NO.305/2015. 23. AFTER HEARING BOTH THE PARTIES, WE FIND THAT SU CH AN ADDITIONAL GROUND RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) WAS PURELY A LEGAL GROUND ADMISSIBLE IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SMIFF SECURITIES LTD. (SUPRA) THAT DEPRECIATION HAS TO BE ALLOWED ON ACCOUNT OF INTANGIBLE ASSETS. ACCORDINGLY, DEPRE CIATION OF WDV OF THE GOODWILL WAS ALLOWED. SINCE BOTH ON THE ISSUE OF ADMISSIBILITY AND ON THE ISSUE OF DEPRECATION THE M ATTERS STANDS COVERED, WE DO NOT FIND ANY SUBSTANCE ON THE GROUND BY THE REVENUE AND THE SAME IS DISMISSED. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2018. SD/- SD/- [G.D. AGRAWAL] [AMIT SHUKLA] PRESIDENT JUDICIAL MEMBER DATED: 17 TH SEPTEMBER, 2018 PKK: