Xerox India Ltd., Gurgaon V. DCIT, New Delhi

ITA 5389/DEL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7556 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 28-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Depreciation; Tax effect
• Section: 143(3); 244A; 32; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.5389/DEL./2011 (ASSESSMENT YEAR : 2007-08) M/S. XEROX INDIA LIMITED, VS. DCIT, CENTRAL CIRCLE 20, 5 TH & 6 TH FLOOR, NEW DELHI. VATIKA BUSINESS PARK, SECTOR 49, SOHNA ROAD, GURGAON 122 018. (PAN : AABCM8634R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY WADHWA, ADVOCATE REVENUE BY : SHRI N.K. CHAND, CIT DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE ASSESSING OFFICER MADE U/S 143 (3) READ WITH SECTIO N 144C OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE COMPANY IS CONTINUED TO BE ENGAGED IN THE BUSINESS OF TRADING OF XEROGRAPHIC EQUIPMENTS, PRINTERS, SCA NNERS, FAXES MULTI FUNCTIONAL DEVICES, HIGH-END PRINTING EQUIPMENTS AN D ALSO ENGAGED IN TRADING IN PAPER, FAX ROLLS, TRANSPARENCIES SPARES AND PARTS OF THESE EQUIPMENTS AND CONSUMABLES. THE ASSESSEE ALSO CONT INUED TO PROVIDE 2 ITA NO.5389/DEL/2011 POST SALES SERVICES AND MAINTENANCE AND REPAIR OF X EROX PRODUCT AND PRODUCT FRANCHISE FEE CHARGED FROM THESE AUTHORISED SERVICE PROVIDERS. THE RETURN OF INCOME WAS FILED ON 24.09.2007 DECLAR ING INCOME AT RS.15,94,77,090/-. THE ASSESSING OFFICER MADE CERT AIN ADDITIONS OUT OF WHICH THE CIT (A) HAS SUSTAINED CERTAIN ADDITIONS. AGAINST WHICH, THE ASSESSEE IS IN APPEAL BY TAKING THE FOLLOWING GROUN DS :- 1. THAT THE ASSESSMENT ORDER DATED 28.09.2011 PASS ED U/S 143(3) IN PURSUANCE OF DIRECTIONS GIVEN BY THE DISP UTE RESOLUTION PANEL IN THEIR ORDER DATED 24.08.2011 PA SSED U/S 144C(5) OF THE INCOME-TAX ACT, 1961 IS ERRONEOUS IN LAW AND ON FACTS. 2. WHETHER ON THE FACTS AND IN LAW, THE DISPUTE RESOLUTION PANEL IS JUSTIFIED IN DIRECTING THE ASSE SSING OFFICER TO DISALLOW DEPRECIATION OF RS.28,21,208/- ON DE-CA PITALIZED ASSETS BY STATING THAT ASSETS CONVERTED INTO STOCK IN TRADE AT NOMINAL VALUE OF RE.1/- ARE NOT ELIGIBLE FOR DEPREC IATION AS SUCH ASSETS WERE NOT PUT TO USE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY? THAT THE ABOVE DIRECTION GIVEN BY THE DISPUTE RESOL UTION PANEL IS NOT CORRECT AS THE ASSESSEE CONSISTENTLY F OLLOWS THE SAME ACCOUNTING POLICY YEAR TO YEAR AND NO UNDERSTA TEMENT OF INCOME HAS BEEN REPORTED BY ADOPTING SUCH ACCOUNTIN G POLICY. 3. WHETHER ON THE FACTS AND IN LAW, THE DISPUTE RESOLUTION PANEL IS JUSTIFIED IN DIRECTING THE ASSE SSING OFFICER .TO DISALLOW DEPRECIATION OF RS.6,03,122/- ON FIXED ASSETS WRITTEN OFF IN THE BOOKS, DETAILS OF WHICH WERE FIL ED BEFORE THE PANEL, ON THE GROUND THAT THESE ASSETS CEASED TO EX IST AND WERE NOT USED DURING THE YEAR? 4. WHETHER ON THE FACTS AND IN LAW, THE DISPUTE RESOLUTION PANEL IS JUSTIFIED IN DIRECTING THE ASSE SSING OFFICER TO ADD A SUM OF RS.1,39,94,000/- ON THE GROUND THAT BY CHANGING THE ACCOUNTING POLICY OF RECOGNIZING THE S ALE ON 3 ITA NO.5389/DEL/2011 COMPLETION OF INSTALLATION AND ACCEPTANCE BY THE CU STOMERS AS AGAINST ON DELIVERY FOLLOWED IN EARLIER YEARS, THE ASSESSEE COMPANY HAS DEFERRED THE SALES AND HAS UNDERREPORTE D THE PROFIT DURING THE ASSESSMENT YEAR UNDER APPEAL? 4.1 THAT THE ABOVE DIRECTION GIVEN BY THE DISPUTE RESOLUTION PANEL BY STATING THAT FREQUENT CHANGES I N THE METHOD OF ACCOUNTING LEAD TO UNDERREPORTING OF INCO ME, IS NOT CORRECT AS THE METHOD OF ACCOUNTING FOLLOWED FROM F .Y. 2006- 07 IS AS PER THE ACCOUNTING STANDARD - 9 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. 5. THAT THE INTEREST WITHDRAWN U/S 234D AND 244A AN D INITIATION OF PENALTY U/S 271(1)(C) ARE BAD IN LAW. 6. THE APPELLANT CRAVES LEAVE TO ADD, MODIFY OR AME ND ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT TH E TIME OF HEARING. 3. GROUND NOS.1 AND 6 ARE GENERAL IN NATURE AND DOE S NOT REQUIRE ANY ADJUDICATION. 4. GROUND NO.5 IS AGAINST LEVYING THE INTEREST U/S 234D AND WITHDRAWAL OF INTEREST GRANTED 244A AND INITIATION OF PENALTY U/S 271(1)(C). ON THIS, WE HOLD THAT THE CHARGING OF I NTEREST U/S 234D IS MANDATORY AND CONSEQUENTIAL, HENCE DISMISS THIS PLE A OF ASSESSEE. THE WITHDRAWAL OF INTEREST GRANTED U/S 244A IS AS PER L AW AND NO INTERFERENCE IS CALLED FOR, HENCE THIS PLEA OF ASSESSEE IS DISMI SSED. THE GROUND TAKEN FOR INITIATION OF PENALTY U/S 271(1)(C) IS PREMATUR E, HENCE, THIS ISSUE RAISED IN GROUND NO.5 IS DISMISSED. 4 ITA NO.5389/DEL/2011 5. IN THE GROUND NO.2, THE ISSUE INVOLVED IS CONFIR MING THE DISALLOWANCE BY DRP OF DEPRECIATION OF RS.28,21,208 /- ON DE-CAPITALISED ASSETS. 6. WHILE PLEADING ON BEHALF OF THE ASSESSEE, LD. AR SUBMITTED THAT CERTAIN FIXED ASSETS WERE NOT CAPABLE OF USE FOR CA PTIVE CONSUMPTION AND WERE DISCARDED FROM BLOCK OF ASSETS AND CONVERTED I NTO STOCK-IN-TRADE. THIS CONVERSION WAS DONE AT A NOMINAL VALUE WHICH W AS DEDUCTED FROM THE OPENING WDV FROM THE BLOCK ON WHICH THE DEPRECI ATION WAS CLAIMED. HE FURTHER SUBMITTED THAT THE ASSETS CONVERTED INTO STOCK-IN-TRADE ARE GENERALLY USED ASSETS AND INCAPABLE OF ANY FURTHER USE, THEREFORE, THE SALEABLE OR MARKET VALUE OF THESE IS NEGLIGIBLE. S INCE THESE ASSETS ARE BEING TECHNOLOGY PRODUCTS. THEREFORE, THESE ASSETS TEND TO BECOME OBSOLETE IN A VERY SHORT SPAN OF PERIOD AS NEW AND MORE ADVANCED TECHNOLOGY COMES INTO OPERATION. HE FURTHER SUBMIT TED THAT MOST OF THE ASSETS WHICH ARE CONVERTED INTO STOCK-IN-TRADE HAD EITHER BEEN OUTLIVED THEIR USEFUL FUNCTIONAL LIFE OR WERE NOT COST EFFEC TIVE. FURTHER, CERTAIN ASSETS BECAME DEFECTIVE DUE TO WHICH THEY HAD TO BE DE-CAPITALISED. IN THESE CIRCUMSTANCES, THE ASSESSEE WAS JUSTIFIED IN REDUCING THE NOMINAL VALUE FROM RUNNING WDV OF THE BLOCK OF THE ASSETS U NDER WHICH SUCH ASSETS FELL. HE FURTHER SUBMITTED THAT FOR THE TAX TREATMENT, THE DEPRECIATION UNDER THE AMENDED PROVISIONS OF SECTIO N 32 OF THE ACT IS 5 ITA NO.5389/DEL/2011 CALCULATED BY APPLYING THE SPECIFIED RATE TO THE WD V OF BLOCK OF ASSETS. HE FURTHER SUBMITTED THAT AFTER INTRODUCTION OF DEP RECIATION ON BLOCK OF ASSETS CONCEPT W.E.F. 01.04.1988, DEPRECIATION IS A VAILABLE ON THE RELEVANT BLOCK OF ASSETS AND NOT ON INDIVIDUAL ASSETS AS THE INDIVIDUAL ITEM OR ASSET LOSES ITS IDENTITY WHEN IT IS MIXED WITH THE BLOCK OF ASSETS. THE DEPRECIATION IS ALLOWABLE ON THE WDV AT THE END OF THE RELEVANT PREVIOUS YEAR FOR A BLOCK OF ASSETS WHICH WAS COMPUTED BY AD DING TO THE OPENING WDV OF THE SAID BLOCK OF ASSETS, ACTUAL COST OF THE ASSETS ACQUIRED DURING THE YEAR AND DEDUCTING THEREFROM MONEYS PAYABLE INC LUDING SCRAP VALUE, IF ANY, IN RESPECT OF ASSETS SOLD OR DISCARDED DURI NG THE YEAR. IT IS SUBMITTED THAT THE PHRASE MONEYS PAYABLE REFERS T O THE CASH RECEIVED ON ACCOUNT OF SALE OR SCRAPPING OF THE ASSET. LD. AR DRAW OUR ATTENTION TO THE PROVISIONS OF SECTION 43(6)(C) OF THE ACT WHERE THE WDV HAS BEEN DEFINED. HE FURTHER SUBMITTED THAT THE PROVISIONS OF LAW CLEARLY SUGGESTS THAT WHERE THE ASSET WHOSE WDV IS RS.100/- IS DE-CA PITALISED AND VALUED AT RS.1/-, DEPRECIATION ON THE REMAINING RS.99/- SH ALL BE CONTINUED TO BE ALLOWED EVEN THOUGH THE ASSET DOES NOT PHYSICALLY E XIST IN THE BLOCK OF ASSETS. THIS CONCEPT OF DEPRECIATION OF BLOCK OF A SSETS WAS INTRODUCED AND THE ASSETS FORMING PART OF THE BLOCK OF ASSETS NEED NOT BE IDENTIFIABLE, HOWEVER, IT WILL CONTINUE TO FORM A PART OF THE ASS ETS. IF ANY ASSET IS SOLD THEN THE BLOCK OF ASSETS REDUCED BY THE SELLING PRI CE OF THE ASSET AND 6 ITA NO.5389/DEL/2011 DEPRECIATION SHALL BE ALLOWABLE ON THE REMAINING WD V OF BLOCK OF ASSETS. THUS, HE PLEADED THAT IT IS CLEAR FROM THE PROVISIO NS OF LAW THAT IT IS NOT NECESSARY TO CONTINUE TO EXIST OR SHOULD CONTINUE T O BE USED FOR THE BUSINESS PURPOSES FOR THE CLAIM OF THE DEPRECIATION . ONCE THE ASSET IS A PART OF BLOCK OF ASSETS, THE DEPRECIATION CAN BE CO NTINUED TO BE ALLOWED EVEN IF THE SAME IS SOLD OR DE-CAPITALISED OR DEMOL ISHED OR DESTROYED. HE FURTHER SUBMITTED THAT WHERE THE ASSETS HAVE BEEN T RANSFERRED TO INVENTORY AND DULY ACCOUNTED FOR AND WHENEVER THEY ARE SOLD, THE PROFIT ON THEIR SALE SHALL BE ACCOUNTED FOR IN THE PROFIT AND LOSS ACCOUNT. THEREFORE, THERE SHALL BE NO LOSS TO THE REVENUE BY THIS TRANSACTION WHICH IS COMPLETELY ACCORDING TO THE PROVISIONS OF INCOME-TAX ACT, 1961 . HE FURTHER SUBMITTED THAT IN EARLIER PROVISIONS OF THE ACT, TH ERE WAS A CLAUSE FOR TERMINAL DEPRECIATION WHICH WAS ALLOWABLE IN THE YE AR OF SALE OF THE ASSET. UNDER THE CONCEPT OF BLOCK OF ASSETS, THE TERMINAL DEPRECIATION CONCEPT HAS BEEN DONE AWAY WITH AND NOW THE LOSS ON SALE OF ASSETS IS NOT BOOKED IN THE YEAR IN WHICH ASSET IS SOLD. THE DEPRECIATI ON ON SUCH ASSETS CONSTITUTED IN THE BLOCK IS CONTINUED TO BE ALLOWED TILL THE BLOCK REMAINS IN THE BOOKS OF ACCOUNT. HE SUBMITTED THAT SUCH PR OPOSITION OF LAW HAS BEEN ACCEPTED BY THE ITAT IN THE ASSESSEES OWN CAS E IN ITA NO.680/DEL/2006 FOR ASSESSMENT YEAR 2002-03. IN TH AT YEAR, CERTAIN FIXED ASSETS COULD NOT BE LOCATED ON PHYSICAL VERIFICATIO N AND ASSESSEE WROTE OFF 7 ITA NO.5389/DEL/2011 THE SAME IN THE BOOKS OF ACCOUNT. FINALLY, THE ITA T HELD THAT EVEN THOUGH THESE FIXED ASSETS WERE WRITTEN OFF, THE DEP RECIATION SHALL BE CONTINUED TO BE ALLOWED ON THE BLOCK OF ASSETS AFTE R DEDUCTING THE SCRAP VALUE OF THESE ASSETS FROM THE BLOCK OF ASSETS, IF ANY. THE ASSESSEES CASE OF DE-CAPITALISATION / DISCARDING OF ASSETS FROM TH E BLOCK OF ASSETS IS ALSO COVERED BY THE DECISION OF ITAT IN ASSESSEES OWN C ASE, HENCE, DEPRECIATION CANNOT BE DISALLOWED ON THE ASSETS SO DISCARDED DURING THE YEAR UNDER CONSIDERATION. HE FINALLY SUBMITTED THA T THE LEGAL POSITION ON ALLOWABILITY OF DEPRECIATION ON THE ASSETS FORMING A PART OF THE BLOCK OF ASSETS WHICH HAVE BEEN SOLD OR WRITTEN OFF OR NOT F OUND, DISCARDED OR DESTROYED OR DEMOLISHED THAT ONCE AN ASSET IS A PAR T OF THE BLOCK OF ASSETS AND IT IS PUT TO USE, THE DEPRECIATION WILL BE ALLO WED TILL THE BLOCK OF ASSETS CONTINUED TO EXIST EVEN IF THE RELEVANT ASSETS ARE SOLD, DISCARDED, DESTROYED OR DEMOLISHED. SUCH A PROPOSITION HAS BE EN UPHELD BY HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE WHERE AN AS SET FORMING PART OF THE BLOCK OF ASSETS IS NOT FOUND OR IS NOT TRACEAB LE OR IS LOST, THEN ALSO DEPRECIATION CONTINUED TO BE ALLOWED ON SUCH ASSETS AS LONG AS THE BLOCK OF ASSETS DO EXIST. IN THIS CASE, THE ASSESSEE HAS DISCARDED THE ASSETS FROM THE BLOCK OF ASSETS AT A VALUE OF RS.1/- AND HAS TA KEN TO INVENTORY AS STOCK-IN-TRADE AT RS.1/-. THEREFORE, DEPRECIATION WILL CONTINUE TO BE ALLOWED ON THESE ASSETS WHICH HAVE BEEN TAKEN INTO INVENTORY. RELIANCE 8 ITA NO.5389/DEL/2011 WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH CO URT IN THE CASE OF YAHAMA MOTOR INDIA PVT. LTD. REPORTED IN 328 ITR 29 7 (DEL.). HE FURTHER SUBMITTED THAT THERE WAS NO LOSS TO THE REVENUE AS THE ASSET TAKEN AT RS.1/- IN THE INVENTORY WHENEVER THESE WERE SOLD, THE ENTI RE DIFFERENCE BETWEEN SALE PRICE AND COST OF RS.1/- SHALL BE OFFERED TO T AX AS INCOME AND ULTIMATELY, THE REVENUE WILL BE THE NET GAINER. TH E ASSESSEE HAS SUBMITTED COMPLETE DETAILS WHICH HAVE BEEN DISCARDED AND TAKE N TO INVENTORY. THE ASSESSEE HAS STRONG INTERNAL CONTROLS TO RECORD ALL THE ENTRIES. HE PLEADED TO DELETE THE ADDITION. 7. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ASSETS WERE HAVING MA RKETABLE VALUE. IT HAS BEEN CONVERTED TO STOCK-IN-TRADE ON NOMINAL VALUE. THE ACTUAL VALUE OF ASSET HAS TO BE REDUCED FROM THE BLOCK OF ASSETS AS THESE ASSETS WERE TRANSFERRED TO STOCK-IN-TRADE. THESE ASSETS WERE N OT DISCARDED OR DESTROYED. IT WAS ALSO SUBMITTED THAT CERTAIN ASS ETS HAVE BEEN LEASED OUT AGAIN AND THESE HAVE BEEN RE-CAPITALISED IN THE BLO CK OF ASSETS AT THE VALUE AT WHICH SUCH ASSETS WERE DE-CAPITALISED. THUS, TH E ACTUAL VALUE WAS NOT REFLECTED ON TRANSFER. HE ALSO SUBMITTED THAT DEPR ECIATION CANNOT BE ALLOWED ON THE ASSETS WHICH ARE FORMING PART OF THE STOCK-IN-TRADE. HE FINALLY RELIED ON THE ORDERS OF THE AUTHORITIES BEL OW. 9 ITA NO.5389/DEL/2011 8. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF XEROGRAPHIC E QUIPMENTS, PRINTERS, SCANNERS, FAXES, MULTI FUNCTIONAL DEVICES AND CONSU MABLES PARTS THEREOF. THE ASSESSEE LEASED OUT THE EQUIPMENTS TO THE CUSTOMERS ON AN OPERATING LEASE BASIS AND THESE EQUIPMENTS ARE CAPI TALISED AND DEPRECIATION IS CLAIMED FOR TAX PURPOSES IN ACCORDA NCE WITH THE PROVISIONS OF THE ACT. THESE OPERATING LEASED ASSETS WERE RET URNED TO THE ASSESSEE EITHER ON THE TERMINATION OF THE LEASE OR OTHERWISE AFTER A PERIOD OF SIX MONTHS, THEN THE ASSESSEE IS FOLLOWING A PRACTICE T O CONVERT THESE ASSETS INTO STOCK-IN-TRADE AT A NOMINAL VALUE OF RS.1/- AS THESE USED ASSETS ARE NOT HAVING ANY READYMADE MARKET FOR FURTHER LEASING . THIS NOMINAL VALUE IS REDUCED FROM THE BLOCK OF ASSETS. IN SOME OF TH E CASES, THESE ASSETS ARE AGAIN LEASED OUT THEN THEY ARE RECAPITALIZED IN THE BLOCK OF ASSETS AT THE NOMINAL VALUE AT WHICH THESE WERE DECAPITALISED. H OWEVER, CERTAIN USED ASSETS REMAINED IN STOCK-IN-TRADE AND WHENEVER THES E ARE SOLD, THE PROFIT IS OFFERED FOR TAXATION. THIS METHOD OF ACCOUNTING IS BEING FOLLOWED CONSISTENTLY BY THE ASSESSEE. WHEN THE ASSETS ARE RECAPITALIZED AT THE NOMINAL VALUE AT WHICH IT IS DECAPITALISED THEN THE RE IS NO EFFECT ON THE TAXABILITY OF THE ASSESSEE. SIMILARLY, WHENEVER TH ESE USED ASSETS ARE CONVERTED INTO STOCK-IN-TRADE AND SOLD SUBSEQUENTLY AND THE SURPLUS ON THE 10 ITA NO.5389/DEL/2011 SALE IS OFFERED FOR TAXATION THEN THERE IS NO HARM TO THE REVENUE. CONSIDERING ALL THESE FACTS, WE ALLOW THIS GROUND O F ASSESSEES APPEAL. 9. IN THE GROUND NO.3, THE ISSUE INVOLVED IS DISALL OWANCE OF DEPRECIATION OF RS.6,03,122/- ON THE FIXED ASSETS W HICH HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT AND WHERE THE ASSETS CE ASED TO EXIST. THE ASSESSING OFFICER MADE AN ADDITION OF RS.20,99,837/ - IN RESPECT OF FIXED ASSETS WRITTEN OFF DURING THE YEAR. THE DRP IN ITS DIRECTION DATED 24.08.2011 HAS REDUCED THE AMOUNT TO RS.6,03,122/-. THE DRP SUSTAINED THIS AMOUNT ON THE BASIS THAT THIS DISALLOWANCE HAS PAST HISTORY AND THE MATTER HAS TRAVELLED UP TO HIGH COURT AND THE DEPAR TMENTS APPEAL HAS BEEN DISPOSED OFF AND THE HIGH COURT ORDER IS AWAIT ED. 10. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. AT THE OUTSET, LD. AR SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE. IN THE SUBSEQUENT YEAR, I.E. ASSESSMENT YEAR 2008-09, THE DRP ITSELF HAS GIVEN THE RELIEF TO THE ASSESSEE WHICH IS EVIDENT FROM IT S ORDER DATED 30.08.2012. THE RELEVANT PARA IS 3 TO 3.2 OF THE ORDER. THE IS SUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE JU RISDICTIONAL HIGH COURT. THE DRP, IN THE ASSESSMENT YEAR 2008-09, WH ILE DISPOSING OFF THE OBJECTIONS OF THE ASSESSEE ON THE SAME ISSUE, HAS H ELD AS UNDER :- 11 ITA NO.5389/DEL/2011 3. THE AO HAS PROPOSED TO DISALLOW AN AMOUNT OF RS.8,89,960/- ON ACCOUNT OF DEPRECIATION CLAIM IN R ESPECT OF FIXED ASSETS WRITTEN-OFF DURING THE YEAR. 3.1 IT WAS SUBMITTED THAT THE ASSESSEE COULD NOT LO CATE CERTAIN FIXED ASSETS HAVING BOOK VALUE OF RS.22,24, 899/- ON CONDUCTING PHYSICAL VERIFICATION. THEREFORE, THE AS SESSEE DECIDED TO WRITE OFF THE BOOK VALUE OF THE FIXED AS SETS IN ITS PROFIT AND LOSS ACCOUNT SINCE THERE WAS NO SCRAP VA LUE FOR SUCH ASSETS NO ADJUSTMENT WAS MADE TO THE WRITTEN DOWN. VALUE OF THE RESPECTIVE BLOCK OF ASSETS FOR COMPUTING DEPRED ATION UNDER THE PROVISIONS OF THE ACT THE ASSESSEE FURTHER SUBM ITTED THAT OUT OF THESE ASSETS AROUND 92% (IN TERMS OF COST) W ERE PURCHASED PRIOR TO YEAR 2000 AND ANOTHER 7% WERE PU RCHASED BEFORE 2005 BUT AFTER 2000. THESE ASSETS WHICH WERE WRITTEN OFF WERE TANGIBLE MOVABLE ASSETS WHICH OVER A PERIO D OF TIME WOULD HAVE BROKEN OR LOST. THE ASSESSEE ALSO CLARIF IED THAT SAME ISSUE HAS ALREADY BEEN: DECIDED IN FAVOUR OF T HE ASSESSEE IN THE ASSTT. YEAR 2002-03 BY HON'BLE ITAT (DELHI B ENCH). IT WAS ALSO MADE CLEAR THAT THE APPEAL OF THE REVENUE BEFORE JURISDICTIONAL DELHI HIGH COURT AGAINST STANDS DECI DED IN FAVOUR OF THE ASSESSEE. IT WAS FURTHER SUBMITTED TH AT IN THE ASSTT. YEAR 2004-05 IDENTICAL DISALLOWANCE HAS BEEN DELETED BY THE COMMISSIONER OF INCOME TAX (APPEALS). 3.2 WE HAVE CONSIDERED THE MATERIAL ON RECORD. THE HON'BLE DELHI HIGH COURT VIDE ITS ORDER DATED 27.07 .2011 HAS HELD THAT TAX AUTHORITIES WERE NOT JUSTIFIED IN WOR KING OUT THE DEPRECIATION ON BLOCK OF ASSETS BY REDUCING THE VAL UE OF ASSETS WHICH HAVE EITHER TO BE DISCARDED OR DESTROYED OR S OLD OR WRITTEN OFF. THE ITAT'S DECISION TO REMIT THE MATTE R BACK TO THE A.O. TO RECOMPUTE THE DEPRECIATION ONLY AFTER ASCER TAINING THE SCRAP VALUE OF ASSETS WHICH HAVE BEEN DISCARDED OR WRITTEN OFF IN THE BOOKS DURING THE YEAR UNDER CONSIDERATION WA S ENDORSED BY DELHI HIGH COURT ASSESSEE SUBMITTED THAT THE ASS ETS WRITTEN OFF DO NOT HAVE AN SCRAP VALUE AND SECTION 43(6)(C) WHICH DEFINES WDV OF A BLOCK ASSETS STATES THAT THE WDV O F THE ASSETS HAS TO BE REDUCED BY THE MONEY PAYABLE IN RE SPECT OF ANY ASSET FALLING WITHIN THAT BLOCK WHICH IS SOLD O R DISCARDED OR DEMOLISHED OR DESTROYED DURING THE PREVIOUS YEAR TO GETHER WITH THE AMOUNT OF SCRAP VALUE, IF ANY. THE ASSESSE E SUBMITTED THAT THERE IS NO VALUE OF THESE ASSETS AND HENCE NO REDUCTION 12 ITA NO.5389/DEL/2011 NEEDS TO BE MADE. SIMILAR ISSUE HAD COME UP IN THE ASSTT. YEAR 2007-08 AND DRP-II VIDE ITS DIRECTION DATED 24.08.2 011 DECIDED NOT TO INTERFERE WITH THE DRAFT ASSTT. ORDE R AS THE ORDER OF THE HIGH COURT WAS AWAITED. BUT NOW THE ORDER OF DELHI HIGH COURT HAS BEEN RECEIVED AND THE ASSESSING OFFI CER VIDE HER LETTER DATED 06.08.2012 HAS SUBMITTED THAT PROP OSAL FOR FILING SLP AGAINST THE ORDER DATED 27.07.2011 OF DE LHI HIGH COURT WAS SENT TO THE DIRECTORATE OF LEGAL & RESEAR CH, NEW DELHI BUT THE SAME WAS NOT APPROVED FOR FILING SLP. THUS THE ISSUE HAS ATTAINED FINALITY IN FAVOUR OF THE ASSESS EE. THEREFORE, THE PROPOSED ADDITION OF RS.8,89,960/- ON THIS ISSU E IS DIRECTED TO BE DELETED. SINCE THE FACTS OF THE CASE ARE SAME AND THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE JURISDICTIO NAL HIGH COURT IN ASSESSEES OWN CASE, THEREFORE, WE ALLOW THIS GROUN D OF ASSESSEES APPEAL AND DIRECT TO RE-COMPUTE THE DEPRECIATION AND ALLOW THE NECESSARY RELIEF TO THE ASSESSEE. 11. IN THE GROUNDS NO.4 & 4.1, THE ISSUE INVOLVED I S REGARDING MAKING THE ADDITION OF RS.1,39,94,000/- ON THE GROUND THAT BY CHANGING THE ACCOUNTING POLICY OF RECOGNISING THE SALE ON COMPLE TION OF INSTALLATION AND ACCEPTANCE BY THE CUSTOMERS AS AGAINST ON DELIV ERY FOLLOWED IN EARLIER YEARS. 12. WHILE PLEADING ON BEHALF OF THE ASSESSEE, LD. A R SUBMITTED THAT TILL THE JUST IMMEDIATE PRECEDING YEAR, ASSESSEE WAS REC OGNISING REVENUE ON SALE OF CERTAIN EQUIPMENTS WHICH WERE SOLD SUBJECT TO THE CONDITION OF INSTALLATION AT THE PREMISES OF THE CUSTOMERS. THU S, THE REVENUE WAS RECOGNIZED ON THE DELIVERY OF EQUIPMENTS AT THE CUS TOMERS PLACE. 13 ITA NO.5389/DEL/2011 HOWEVER, FROM THE FINANCIAL YEAR 2006-07, WHICH IS THE RELEVANT YEAR FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECO GNISED THE SALES OF ITS PRODUCT/EQUIPMENT ON THE COMPLETION OF INSTALLMENT AND ACCEPTANCE OF THE EQUIPMENTS AT THE CUSTOMERS PREMISES. LD. AR SUBMITTED THAT NO DOUBT, THE ASSESSEE HAS TO CALCULATE ITS INCOME UND ER THE HEAD BUSINESS AND PROFESSION UNDER SECTION 145 OF THE ACT IN ACCO RDANCE WITH METHOD OF ACCOUNTING REGULARLY ADOPTED BY THE ASSESSEE. T HE ASSESSEE HAS FOR BONAFIDE REASONS ADOPTED THIS METHOD OF RECOGNITION OF SALES AS IN MANY OF THE CASES, THE GOODS DELIVERED WERE REPORTED AS THE SALES WERE BECOME NULL AND VOID AND THE AGENTS WERE ALREADY PAID THE COMMISSIONS. THEREFORE, TO COMPLY WITH THE ACCOUNTING STANDARD 9 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH DEALS WITH THE RECOGNITION OF REVENUE, THE ASSESSEE HAS ADOPTED POLICY TO RECOGNI SE THE REVENUE ON THE INSTALLATION AND ACCEPTANCE OF THE EQUIPMENTS ON TH E CUSTOMERS PREMISES. THIS METHOD OF RECOGNISING REVENUE IS BENEFICIAL TO THE ASSESSEE FOR THE BUSINESS AS THE REVENUE IS RECOGNISED WHEN SIGNIFIC ANT RISKS AND REWARDS ON THE OWNERSHIP HAS BEEN TRANSFERRED TO THE BUYERS AND THE ASSESSEE THAT IS SELLER RETAINS NO EFFECTIVE CONTROL OVER THE GO ODS. THEREFORE, THE CHANGE IN ACCOUNTING POLICY WAS NECESSITATED TO ALI GN THE SAME TO COMPLY WITH THE REQUIREMENT OF ACCOUNTING STANDARDS. IT I S ALSO SUBMITTED THAT ASSESSEE, AFTER ADOPTING THIS ACCOUNTING POLICY, IS CONSISTENTLY FOLLOWING 14 ITA NO.5389/DEL/2011 THIS POLICY IN THE SUBSEQUENT YEARS. THE DRPS OBSE RVATION THAT THERE WAS FREQUENT CHANGE IN THE METHOD OF ACCOUNTING IS UNJU STIFIED AND UNSUSTAINABLE. LD. AR ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. EXCEL INDUSTRIES LTD. REPORTED IN 2013- TIOL-52-SC-IT-LB. 13. LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 14. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSEE HAS ADOPTED THE ACCOUNTING POLICY OF RECOGNISING THE SA LES ON COMPLETION OF INSTALLATION AND ACCEPTANCE OF THE GOODS AT CUSTOME RS PREMISES. THIS POLICY IS IN COMPLIANCE TO THE ACCOUNTING STANDARD 9 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS. THE ACCOUNTING POLICY ADOPT ED BY THE ASSESSEE IS SUBSEQUENTLY BEING FOLLOWED IN SUBSEQUENT YEAR. TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD., CITED SUPRA, DEALS WITH SUCH EVENTUALITIES WHEREIN THE HO NBLE SUPREME COURT HAS HELD THAT INCOME ACCRUES WHEN IT BECOMES DUE BU T IT MUST ALSO BE ACCOMPANIED BY A CORRESPONDING LIABILITY OF THE OTH ER PARTY FROM WHOM THE INCOME BECOMES DUE TO PAY THAT AMOUNT. HONBLE SUPREME COURT HAS ALSO HELD THAT INCOME ACCRUED WHEN IT BECOMES DUE B UT IT MUST ALSO BE ACCOMPANIED BY A CORRESPONDING LIABILITY OF OTHER P ARTY TO PAY THE AMOUNT, ONLY THEN CAN IT BE SAID THAT FOR THE PURPO SE OF LIABILITY THAT THE 15 ITA NO.5389/DEL/2011 INCOME IS NOT HYPOTHETICAL AND REALLY ACCRUED TO TH E ASSESSEE. THE RELEVANT PORTION OF THE HONBLE APEX COURT JUDGMENT READ AS UNDER :- ON APPEAL, THE APEX COURT HELD THAT, THE COUNSEL FOR THE REVENUE SUBMITTED THAT IN VIEW OF THE PROVISIONS OF SECTION 28(IV) OF THE ACT, THE VALUE OF THE BENEFIT OBTAINED BY THE ASSESSEE IS ITS INCOME AND IS LIABL E TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON'. WE ARE UNABLE TO ACCEPT THE CONTENTION OF COUNSEL FOR THE REVENUE FOR SEVERAL REASONS. FIRST OF ALL, IT IS NOW WELL SETTL ED THAT INCOME TAX CANNOT BE LEVIED ON HYPOTHETICAL INCOME. IN THE CASE OF MORVI INDUSTRIES LTD. V. COMMISSIONER OF INCOME-TAX (CENTRAL) (2002-TIOL-779-SC-IT-LB) IN WHICH THIS CO URT ALSO CONSIDERED THE DICTIONARY MEANING OF THE WORD 'ACCR UE' AND HELD THAT INCOME CAN BE SAID TO ACCRUE WHEN IT BECO MES DUE. IT WAS THEN OBSERVED THAT: ' THE DATE OF PAYMENT .DOES NOT AFFECT THE ACCRUAL OF INCOME. THE MOMENT THE IN COME ACCRUES, THE ASSESSEE GETS VESTED WITH THE RIGHT TO CLAIM THAT AMOUNT EVEN THO UGH IT MAY NOT BE IMMEDIATELY. THIS COURT FURTHER HELD, AND IN OUR OPINION MORE IM PORTANTLY, THAT INCOME ACCRUES WHEN THERE 'ARISES A CORRESPOND ING LIABILITY OF THE OTHER PARTY FROM WHOM THE INCOME B ECOMES DUE TO PAY THAT AMOUNT; INCOME ACCRUES WHEN IT BECOMES DUE BUT IT MUST ALSO BE ACCOMPANIED BY A CORRESPONDING LIABILITY OF THE OTH ER PARTY TO PAY THE AMOUNT. ONLY THEN CAN IT BE SAID THAT FOR T HE PURPOSES OF TAXABILITY THAT THE INCOME IS NOT HYPOTHETICAL A ND IT HAS REALLY ACCRUED TO THE ASSESSEE; IN SO FAR AS THE PRESENT CASE IS CONCERNED, EVEN IF IT IS ASSUMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEFITS UNDE R THE ADVANCE LICENCES AS WELL AS UNDER THE DUTY ENTITLEMENT PASS BOOK, THERE WAS NO CORRESPONDING LIABILITY ON THE CUSTOMS AUTHO RITIES TO PASS ON THE BENEFIT OF DUTY FREE IMPORTS TO THE ASS ESSEE UNTIL THE GOODS ARE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENEFITS REPRESENT, AT BEST, A HYPOT HETICAL 16 ITA NO.5389/DEL/2011 INCOME WHICH MAY OR MAY NOT MATERIALISE AND ITS MON EY VALUE IS THEREFORE NOT THE INCOME OF THE ASSESSEE; APPLYING THE TESTS LAID DOWN BY VARIOUS DECISIONS O F THIS COURT, NAMELY, WHETHER THE INCOME ACCRUED TO THE ASSESSEE IS REAL OR HYPOTHETICAL; WHETHER THERE IS A CORRESPONDING LIAB ILITY OF THE OTHER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IM PORT TO THE ASSESSEE EVEN WITHOUT ANY IMPORTS HAVING BEEN MADE; AND THE PROBABILITY OR IMPROBABILITY OF REALISATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM A REALISTIC AND PRACTI CAL POINT OF VIEW (THE ASSESSEE MAY NOT HAVE MADE IMPORTS), IT I S QUITE CLEAR THAT IN FACT NO REAL INCOME BUT ONLY HYPOTHET ICAL INCOME HAD ACCRUED TO THE ASSESSEE AND SECTION 28(IV) OF T HE ACT WOULD BE INAPPLICABLE THE FACTS AND CIRCUMSTANCES O F THE CASE. ESSENTIALLY, THE ASSESSING OFFICER IS REQUIRED TO B E PRAGMATIC AND NOT PEDANTIC; SECONDLY, AS NOTED BY THE TRIBUNAL, A CONSISTENT VI EW HAS BEEN TAKEN IN FAVOUR OF THE ASSESSEE ON THE QUESTIONS RA ISED, STARTING WITH THE ASSESSMENT YEAR 1992-93, THAT THE BENEFITS UNDER THE ADVANCE LICENCES OR UNDER THE DUTY ENTITLEMENT PASS BOOK DO NOT REPRESENT THE REAL INCOME OF THE ASSESSEE. CONS EQUENTLY, THERE IS NO REASON FOR US TO TAKE A DIFFERENT VIEW UNLESS THERE ARE VERY CONVINCING REASONS, NONE OF WHICH HAVE BEE N POINTED OUT BY THE COUNSEL FOR THE REVENUE; IT APPEARS FROM THE RECORD THAT IN SEVERAL ASSESSME NT YEARS, THE REVENUE ACCEPTED THE ORDER OF THE TRIBUNAL IN FAVOU R OF THE ASSESSEE AND DID NOT PURSUE THE MATTER ANY FURTHER BUT IN RESPECT OF SOME ASSESSMENT YEARS THE MATTER WAS TAK EN UP IN APPEAL BEFORE THE BOMBAY HIGH COURT BUT WITHOUT ANY SUCCESS. THAT BEING SO, THE REVENUE CANNOT BE ALLOW ED TO FLIP- FLOP ON THE ISSUE AND IT OUGHT LET THE MATTER REST RATHER THAN SPEND THE TAX PAYERS' MONEY IN PURSUING LITIGATION FOR THE SAKE OF IT; THIRDLY, THE REAL QUESTION CONCERNING US IS THE YEA R IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUT E THAT IN THE SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE I MPORTS AND DID DERIVE BENEFITS UNDER THE ADVANCE LICENCE AND T HE DUTY ENTITLEMENT PASS BOOK AND PAID TAX THEREON. THEREFO RE, IT IS NOT AS IF THE REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD 17 ITA NO.5389/DEL/2011 THAT THE RATE OF TAX REMAINED THE SAME IN THE PRESE NT ASSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESS MENT YEAR. THEREFORE, THE DISPUTE RAISED BY THE REVENUE IS ENT IRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. TH ERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WHEN IT WAS QUITE CLEAR THAT NOT ONLY WA S IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANY THING MUCH TO THE PUBLIC COFFERS. WE DISMISS THE CIVIL APPEALS WITH NO ORDER AS TO CO STS, BUT WITH THE HOPE THAT THE REVENUE IMPLEMENTS ITS LITIGATION POLICY A LITTLE MORE PRACTICALLY AND A LITTLE MORE SERIOUSLY . ASSESSEE HAS ADOPTED THIS ACCOUNTING POLICY AS PER STANDARD 9 OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. IT HAS BEEN CON STANTLY FOLLOWED THEREAFTER. REVENUE IS RECOGNISED ON INSTALLATION AND ACCEPTANCE OF GOODS AT THE PREMISES OF THE CUSTOMERS. IN VIEW OF THIS FACTUAL MATRIX, WE HOLD THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF HONBLE SUPREME COURT. WE DIRECT TO DELETE THIS AD DITION. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 12 TH DAY OF DECEMBER, 2014. SD/- SD/- (I.C. SUDHIR) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 12 TH DAY OF DECEMBER, 2014 TS 18 ITA NO.5389/DEL/2011 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A) 5.CIT(ITAT), NEW DELHI. AR/ITAT