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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI R.S. SYAL, AM & MS SUCHITRA KAMBLE, JM
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 assessment years 2005-06 and 2008-09. Since some of the issues raised in these appeals are common, we are, therefore, disposing them off by this consolidated order for the sake of convenience.
Assessment Year 2005-06 2. The first ground is general, which does not require any specific adjudication.
The second ground is against deletion of disallowance of Rs.6,72,86,626/-, being the addition made by the Assessing Officer u/s 41(1) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’)
Briefly stated, the facts of the case are that the assessee is a Public Sector Undertaking engaged in providing conceptual studies and management consultancy, healthcare facility, design, project management, procurement of health related products and logistic installation. During the course of assessment proceedings, it was observed by the Assessing Officer that there were certain old sundry creditors appearing in the assessee’s balance sheet as at the end of the year. On being called upon to furnish the details of such creditors exceeding Rs.1 lac and remaining static for past three years, the assessee furnished the list, which has been reproduced on pages 2 and 3 of the assessment order. The assessee was required to give reasons as to why the amounts shown as payable to these parties be not taken as cessation of liability chargeable as income u/s 41(1) of the Act. The assessee submitted that the static creditors were still payable. Unconvinced with the assessee’s submissions, the Assessing Officer made addition of Rs.6.72 crore.
The ld. CIT(A) deleted the addition.
After considering the rival submissions and perusing the relevant material on record, it is observed that the assessee is simply acting on behalf of customers/clients and Government. On one hand, it receives money from Government of India which is considered as advance and, on the other hand, it floats tenders and issues contracts to the lowest bidder. The excess money, if any, in this process is returned to the Government. The assessee is simply receiving consultancy charges as its income. The creditors appearing in its balance sheet are not its own creditors. In order to invoke the provisions of section 41(1), it is necessary that there should be an allowance or deduction made in the assessment 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 remission 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 customers/clients and Government and getting consultancy fee from the client on account of services rendered. The sundry creditors as appearing 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 sundry creditors treated as cessation of liability by the Assessing Officer continue to be part of the assessee’s outstanding as per records. The ld. CIT(A) after entertaining the Assessing Officer’s report on additional evidence, in our considered opinion, was right in deleting the addition. We uphold his view. This ground is, therefore, not allowed.
The only other ground taken by the Revenue in its appeal is against the deletion of disallowance of Rs.1,35,20,437/- made by the Assessing Officer on account of decrease in income due to change in method of accounting relating to consultancy fees. The audit report of the assessee mentioned that the assessee changed its method of accounting for consultancy fees in the current year, as a result of which the income for the current year decreased by a sum of Rs.1,35,20,437/-. On being called upon to explain as to why this decreased income be not charged to tax, the assessee submitted that earlier the consultancy fee was being recognized for the incomplete stages which were not billable and contractually not recoverable. A new policy was adopted from this year under which 70% of the fee is recognized at the stage of entering into the agreement and the remaining 30% on receipt of supply from suppliers for installation of equipments/goods. Not convinced with the assessee’s reply, the Assessing Officer made addition of Rs.1,35,20,437/- which came to be deleted in the first appeal.
After considering the rival submissions and perusing the relevant material on record, it is noticed that the assessee gave Note No.4 in Notes to Accounts enclosed with the return of income stating as under:-
“Hitherto the company was recognizing the consultancy fee for “work done but not billable in respect of incomplete stages on the basis of technical certificate from the concerned SBU’s/Functional Department. It was noticed that consultancy fee booked on the basis 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 could not be realized and had to be reversed.
In view of above, it was considered prudent to recognize the consultancy fee on the basis of work/stage, completed as scheduled in agreement with clients. Had the earlier policy been followed the income for the year would have been higher by Rs.135.20 lakhs.”
This shows that with the changed method of depicting consultancy fee, the assessee started recognizing income on the basis of work/stage completed as scheduled in agreement with clients as against the earlier policy of recognizing income on work done even in respect of incomplete stages. This change in the method has resulted in the understatement of income for the current year to the extent of Rs.1.35 crore. This change was necessitated because of advice given by the statutory auditors.
This advice was given by the auditors on the reason that in past same fees was taken as income, but, had to be reversed in the subsequent years. It is not the case of the Revenue that this revised practice of recognizing income has not been consistently followed by the assessee in future. In our considered opinion, the ld. CIT(A) was justified in deleting the addition made by the Assessing Officer on the basis of this better way of recognizing the income.
This ground is not allowed.
Assessment Year 2008-09.
The first ground is against the deletion of addition of Rs.10,63,568/- made by the Assessing Officer in respect 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 Officer simply followed the view taken by him in earlier year. Both the sides are in agreement that the facts and circumstances of this 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.
The only other ground is against the allowing of depreciation @ 60% on computer peripherals like UPS, printers, etc.
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 Hon’ble jurisdictional High Court in CIT vs. BSES Yamuna Powers Ltd., 2010-TIOL-636-HC-DEL-15 deciding the issue in the assessee’s favour. Similar view has 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 depreciation at higher rate on the computer peripherals. This ground is not allowed.