DCIT, New Delhi V. M/s. HSCC (India) Ltd., Delhi

ITA 5657/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97586 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIMA BARNWAL
• Assessee Lawyers: RAHUL ADLAKHA
• Keywords: Depreciation; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI R.S. SYAL, AM & MS SUCHITRA KAMBLE, JM ITA NO.3977/DEL/2009 ASSESSMENT YEAR : 2005-06 ITA NO.5657/DEL/2012 ASSESSMENT YEAR 2008-09 DCIT, CIRCLE-12(1), NEW DELHI VS. HSCC (INDIA) LTD., 205, EASTEND PLAZA, PLOT NO.4, DDA-LSC, CENTRE-II, VASUNDHARA ENCLAVE, NEW DELHI. PAN: AAACH0086N (APPELLANT) (RESPONDENT) APPELLANT BY : MS ANIMA BARNWAL, SR. DR RESPONDENT BY : SHRI RAHUL ADLAKHA, CA DATE OF HEARING : 19.10.2015 DATE OF PRONOUNCEMENT : 21.10.2015 ORDER PER R.S. SYAL, AM: THESE TWO APPEALS BY THE REVENUE RELATE TO ASSESSM ENT YEARS 2005-06 AND 2008-09. SINCE SOME OF THE ISSUES RAIS ED IN THESE 2 APPEALS ARE COMMON, WE ARE, THEREFORE, DISPOSING TH EM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEAR 2005-06 2. THE FIRST GROUND IS GENERAL, WHICH DOES NOT REQU IRE ANY SPECIFIC ADJUDICATION. 3. THE SECOND GROUND IS AGAINST DELETION OF DISALLO WANCE OF RS.6,72,86,626/-, BEING THE ADDITION MADE BY THE AS SESSING OFFICER U/S 41(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING ENGAGED IN PROVIDING CONC EPTUAL STUDIES AND MANAGEMENT CONSULTANCY, HEALTHCARE FACILITY, DE SIGN, PROJECT MANAGEMENT, PROCUREMENT OF HEALTH RELATED PRODUCTS AND LOGISTIC INSTALLATION. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THERE WERE C ERTAIN OLD SUNDRY CREDITORS APPEARING IN THE ASSESSEES BALANC E SHEET AS AT THE END OF THE YEAR. ON BEING CALLED UPON TO FURNISH T HE DETAILS OF SUCH 3 CREDITORS EXCEEDING RS.1 LAC AND REMAINING STATIC F OR PAST THREE YEARS, THE ASSESSEE FURNISHED THE LIST, WHICH HAS B EEN REPRODUCED ON PAGES 2 AND 3 OF THE ASSESSMENT ORDER. THE ASSE SSEE WAS REQUIRED TO GIVE REASONS AS TO WHY THE AMOUNTS SHOW N AS PAYABLE TO THESE PARTIES BE NOT TAKEN AS CESSATION OF LIABI LITY CHARGEABLE AS INCOME U/S 41(1) OF THE ACT. THE ASSESSEE SUBMITTE D THAT THE STATIC CREDITORS WERE STILL PAYABLE. UNCONVINCED WITH THE ASSESSEES SUBMISSIONS, THE ASSESSING OFFICER MADE ADDITION OF RS.6.72 CRORE. THE LD. CIT(A) DELETED THE ADDITION. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT TH E ASSESSEE IS SIMPLY ACTING ON BEHALF OF CUSTOMERS/CLIENTS AND GO VERNMENT. ON ONE HAND, IT RECEIVES MONEY FROM GOVERNMENT OF INDI A WHICH IS CONSIDERED AS ADVANCE AND, ON THE OTHER HAND, IT FL OATS TENDERS AND ISSUES CONTRACTS TO THE LOWEST BIDDER. THE EXCESS MONEY, IF ANY, IN THIS PROCESS IS RETURNED TO THE GOVERNMENT. THE AS SESSEE IS SIMPLY RECEIVING CONSULTANCY CHARGES AS ITS INCOME. THE C REDITORS 4 APPEARING IN ITS BALANCE SHEET ARE NOT ITS OWN CRED ITORS. IN ORDER TO INVOKE THE PROVISIONS OF SECTION 41(1), IT IS NECES SARY THAT THERE SHOULD BE AN ALLOWANCE OR DEDUCTION MADE IN THE ASS ESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY, ETC., INCURRED BY THE ASSESSEE AND THEN THE OBTAINING OF SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSI ON OR CESSATION THEREOF. IT IS ONLY THEN THAT THE AMOUNT FOR WHICH REMISSION OR CESSATION IS OBTAINED THAT IT BECOMES CHARGEABLE TO TAX U/S 41(1) OF THE ACT. ADVERTING TO THE FACTS OF THE INSTANT CASE , WE FIND THAT THE ASSESSEE WAS SIMPLY ACTING ON BEHALF OF ITS CUSTOME RS/CLIENTS AND GOVERNMENT AND GETTING CONSULTANCY FEE FROM THE CLI ENT ON ACCOUNT OF SERVICES RENDERED. THE SUNDRY CREDITORS AS APPE ARING IN ITS BOOKS ARE ACTUALLY ON ACCOUNT OF CLIENTS AND NOT OF THE ASSESSEE. IN SUCH CIRCUMSTANCES, THE PROVISIONS OF SECTION 41(1) CANNOT BE APPLIED. IT IS FURTHER A MATTER OF RECORD THAT THE ASSESSEE FURNISHED DETAILS ABOUT THE DISPUTES GOING ON BETWEEN THE TWO SIDES FOR WHICH THE PAYMENTS WERE NOT MADE. THE EXECUTIVE DIRECTOR OF THE ASSESSEE IN HIS CERTIFICATE HAS CONFIRMED THAT ALL THE OUTSTANDING 5 SUNDRY CREDITORS TREATED AS CESSATION OF LIABILITY BY THE ASSESSING OFFICER CONTINUE TO BE PART OF THE ASSESSEES OUTST ANDING AS PER RECORDS. THE LD. CIT(A) AFTER ENTERTAINING THE ASSE SSING OFFICERS REPORT ON ADDITIONAL EVIDENCE, IN OUR CONSIDERED OP INION, WAS RIGHT IN DELETING THE ADDITION. WE UPHOLD HIS VIEW. THIS GROUND IS, THEREFORE, NOT ALLOWED. 6. THE ONLY OTHER GROUND TAKEN BY THE REVENUE IN IT S APPEAL IS AGAINST THE DELETION OF DISALLOWANCE OF RS.1,35,20, 437/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DECREASE IN INC OME DUE TO CHANGE IN METHOD OF ACCOUNTING RELATING TO CONSULTA NCY FEES. THE AUDIT REPORT OF THE ASSESSEE MENTIONED THAT THE ASS ESSEE CHANGED ITS METHOD OF ACCOUNTING FOR CONSULTANCY FEES IN THE CU RRENT YEAR, AS A RESULT OF WHICH THE INCOME FOR THE CURRENT YEAR DEC REASED BY A SUM OF RS.1,35,20,437/-. ON BEING CALLED UPON TO EXPLA IN AS TO WHY THIS DECREASED INCOME BE NOT CHARGED TO TAX, THE AS SESSEE SUBMITTED THAT EARLIER THE CONSULTANCY FEE WAS BEING RECOGNIZ ED FOR THE INCOMPLETE STAGES WHICH WERE NOT BILLABLE AND CONTR ACTUALLY NOT 6 RECOVERABLE. A NEW POLICY WAS ADOPTED FROM THIS YEA R UNDER WHICH 70% OF THE FEE IS RECOGNIZED AT THE STAGE OF ENTERI NG INTO THE AGREEMENT AND THE REMAINING 30% ON RECEIPT OF SUPPL Y FROM SUPPLIERS FOR INSTALLATION OF EQUIPMENTS/GOODS. NO T CONVINCED WITH THE ASSESSEES REPLY, THE ASSESSING OFFICER MADE AD DITION OF RS.1,35,20,437/- WHICH CAME TO BE DELETED IN THE FI RST APPEAL. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT THE ASSESSEE GAVE NOTE NO.4 IN NOTES TO ACCOUNTS ENCLOSED WITH THE RE TURN OF INCOME STATING AS UNDER:- HITHERTO THE COMPANY WAS RECOGNIZING THE CONSULTAN CY FEE FOR WORK DONE BUT NOT BILLABLE IN RESPECT OF INCOMPLETE STAGES ON THE BASIS OF TECHNICAL CERTIFI CATE FROM THE CONCERNED SBUS/FUNCTIONAL DEPARTMENT. IT WAS NOTICED THAT CONSULTANCY FEE BOOKED ON THE B ASIS OF ABOVE WAS NOT DUE AS PER AGREEMENT WITH CLIENTS AND CONTRACTUALLY NOT RECOVERABLE UNTIL COMPLETION OF A PARTICULAR STAGE. PART OF CONSULTANCY FEE ACCOUNTED FOR ON THIS BASIS AS ACCRUED INCOME IN PREVIOUS YEAR CO ULD NOT BE REALIZED AND HAD TO BE REVERSED. 7 IN VIEW OF ABOVE, IT WAS CONSIDERED PRUDENT TO RECOGNIZE THE CONSULTANCY FEE ON THE BASIS OF WORK/STAGE, COMPLETED AS SCHEDULED IN AGREEMENT WIT H CLIENTS. HAD THE EARLIER POLICY BEEN FOLLOWED THE INCOME FOR THE YEAR WOULD HAVE BEEN HIGHER BY RS.135.20 LAKHS. 8. THIS SHOWS THAT WITH THE CHANGED METHOD OF DEPIC TING CONSULTANCY FEE, THE ASSESSEE STARTED RECOGNIZING I NCOME ON THE BASIS OF WORK/STAGE COMPLETED AS SCHEDULED IN AGREE MENT WITH CLIENTS AS AGAINST THE EARLIER POLICY OF RECOGNIZIN G INCOME ON WORK DONE EVEN IN RESPECT OF INCOMPLETE STAGES. THIS CH ANGE IN THE METHOD HAS RESULTED IN THE UNDERSTATEMENT OF INCOME FOR THE CURRENT YEAR TO THE EXTENT OF RS.1.35 CRORE. THIS C HANGE WAS NECESSITATED BECAUSE OF ADVICE GIVEN BY THE STATUTO RY AUDITORS. THIS ADVICE WAS GIVEN BY THE AUDITORS ON THE REASON THAT IN PAST SAME FEES WAS TAKEN AS INCOME, BUT, HAD TO BE REVER SED IN THE SUBSEQUENT YEARS. IT IS NOT THE CASE OF THE REVENU E THAT THIS REVISED PRACTICE OF RECOGNIZING INCOME HAS NOT BEEN CONSIST ENTLY FOLLOWED BY THE ASSESSEE IN FUTURE. IN OUR CONSIDERED OPINIO N, THE LD. CIT(A) 8 WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON THE BASIS OF THIS BETTER WAY OF RECOGNIZ ING THE INCOME. THIS GROUND IS NOT ALLOWED. ASSESSMENT YEAR 2008-09. 9. THE FIRST GROUND IS AGAINST THE DELETION OF ADDI TION OF RS.10,63,568/- MADE BY THE ASSESSING OFFICER IN RES PECT OF STATIC CREDITORS BY ADMITTING ADDITIONAL EVIDENCE WITHOUT PROVIDING OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE SAME. IT CAN BE SEEN FROM THE ASSESSMENT ORDER THAT THE ASSESSING O FFICER SIMPLY FOLLOWED THE VIEW TAKEN BY HIM IN EARLIER YEAR. BO TH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF TH IS GROUND ARE, MUTATIS MUTANDIS , SIMILAR TO THOSE OF GROUND NO.2 FOR ASSESSMENT YEAR 2005-06. FOLLOWING THE VIEW TAKEN HEREINABOVE , WE UPHOLD THE IMPUGNED ORDER DELETING THIS DISALLOWANCE. THIS GROUND FAILS. 10. THE ONLY OTHER GROUND IS AGAINST THE ALLOWING O F DEPRECIATION @ 60% ON COMPUTER PERIPHERALS LIKE UPS, PRINTERS, E TC. 9 11. AFTER HEARING BOTH THE SIDES AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COU RT IN CIT VS. BSES YAMUNA POWERS LTD., 2010-TIOL-636-HC-DEL-15 DECIDING THE ISSUE IN THE ASSESSEES FAVOUR. SIMILAR VIEW H AS BEEN TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. DATACRAFT INDIA LTD., (2010) 133 TTJ (MUM) (SB) 377 . IN VIEW OF THE ABOVE PRECEDENTS, WE UPHOLD THE IMPUGNED ORDER GRANTING D EPRECIATION AT HIGHER RATE ON THE COMPUTER PERIPHERALS. THIS GROU ND IS NOT ALLOWED. 12. IN THE RESULT, BOTH THE APPEALS STAND DISMISSED . DECISION PRONOUNCED IN THE OPEN COURT ON 2 1 ST OCT., 2015. SD/- SD/- (SUCHITRA KAMBLE) (R.S. SYAL) JUDICIAL MEMBER ACCONTANT MEMBER DATED, 21 ST OCTOBER, 2015. DK 10 COPY FORWARDED TO: - 1. APPELLANT : 2. RESPONDENT : 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR