Commissioner Of Income Tax, Faridabad v. Shri Subrata Dutta Choudhary

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No. 384 of 2009DATE OF DECISION : 25.11.2009 Commissioner of Income Tax, Faridabad .... APPELLANT Versus Shri Subrata Dutta Choudhary ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTALHON'BLE MR. JUSTICE MEHINDER SINGH SULLAR Present:Ms. Urvashi Dhugga, Advocate, for the appellant-revenue. * * * SATISH KUMAR MITTAL , J. The revenue has filed this appeal under Section 260-A of theIncome Tax Act, 1961 (hereinafter referred to as `the Act'), against the orderdated 28.11.2008, passed by the Income Tax Appellate Tribunal, DelhiBench `G', New Delhi (hereinafter referred to as `the ITAT') in ITA No.4530/Del/2007, pertaining to the assessment year 2004-05. In this case, the assessee filed the return of income on1.11.2004 declaring income of Rs. 26,17,888/-. The assessment wascompleted under Section 143 (3) of the Act vide order dated 27.12.2006 atan income of Rs. 78,96,080/-, by making additions on certain accounts.Against the said order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Faridabad [hereinafter referred toas `the CIT (A)'], who vide his order dated 14.9.2007 partly allowed theappeal and deleted the additions of Rs. 51,32,183/-. Against the said order,the revenue filed appeal before the ITAT, which has been dismissed videthe impugned order, while confirming the deletion of two additions i.e. oneof Rs. 48,45,000/- on account of undeclared sale price of machinery and theother of Rs. 54,714/- + Rs.31,330/- on account of excess depreciationclaimed on office equipment and electric installation, respectively. Now therevenue has filed the instant appeal against the said order, raising thefollowing substantial questions of law :- (i)Whether on the facts and in the circumstances of thecase, the learned ITAT was right in law in upholding theorder of the learned CIT (A) in deleting the addition ofRs. 48,45,000/- made by the Assessing Officer onaccount of undeclared sale price of machinery,disregarding the fact that as per mercantile system ofaccounting being followed by the assessee, he wasrequired to reflect the entire sale price in the Profit &Loss Account ? case, the learned ITAT was right in law in upholding theorder of the learned CIT (A) in deleting the addition ofRs. 48,45,000/- made by the Assessing Officer onaccount of undeclared sale price of machinery,disregarding the fact that as per mercantile system ofaccounting being followed by the assessee, he wasrequired to reflect the entire sale price in the Profit &Loss Account ? (ii)Whether on the facts and in the circumstances of thecase, the learned ITAT was right in law in upholding theorder of the learned CIT (A) in allowing depreciation @25% on electric installations, office equipment etc.,which is a part of block of furniture and fittings, onwhich depreciation is allowable @ 15% as per IncomeTax Rules, 1962? case, the learned ITAT was right in law in upholding theorder of the learned CIT (A) in allowing depreciation @25% on electric installations, office equipment etc.,which is a part of block of furniture and fittings, onwhich depreciation is allowable @ 15% as per IncomeTax Rules, 1962? We have heard the arguments of learned counsel for the revenue and have gone through the impugned order. (ii)Whether on the facts and in the circumstances of thecase, the learned ITAT was right in law in upholding theorder of the learned CIT (A) in allowing depreciation @25% on electric installations, office equipment etc.,which is a part of block of furniture and fittings, onwhich depreciation is allowable @ 15% as per IncomeTax Rules, 1962? case, the learned ITAT was right in law in upholding theorder of the learned CIT (A) in allowing depreciation @25% on electric installations, office equipment etc.,which is a part of block of furniture and fittings, onwhich depreciation is allowable @ 15% as per IncomeTax Rules, 1962? We have heard the arguments of learned counsel for the revenue and have gone through the impugned order. It is admitted position that the assessee got a purchase orderfrom M/s SMS Demag (P) Ltd., for supply of mash seam welder equipmentto TISCO, Jamshedpur for a contract price of Rs. 3,89,66,720/-, inclusive ofexcise duty and sales tax. The said price was to be paid as per the schedule-IV of the agreement. 5% of the contract price for equipment supply waspayable as advance payment within 30 days from the date of order ofacceptance. 80% was to be paid on the various prescriptions mentionedtherein. The other 5% was payable against output of first cold of acceptablequality after satisfactory completion of integrated cold test and otherrequirements. The remaining 10% was payable after the issuance ofprovisional acceptance certificate as per the general conditions for design,manufacture and supply of plants and machinery and equipment and thedelivery of complete drawings and documents including “As builtdrawings” and other requirements. Thus, according to the clause and term ofpayment, only 85% of the contract price for equipment supply was to bepaid during the year under consideration and the remaining 15% was notdue during that year. It is also admitted position that 5% of the contractprice was received by the assessee as per the terms of the agreement in thenext assessment year i.e. assessment year 2005-06 and was duly shown asincome in that assessment year. The rest of 10% was fully received as perthe terms of the agreement in the next to next assessment year i.e assessmentyear 2006-07, which again was shown as income in that assessment year. During the course of arguments, it has not been disputed bylearned counsel for the appellant-revenue that 15% of the contract price wasduly accounted for and shown by the respondent-assessee in his Profit &Loss Account in the next two assessment years i.e. 2005-06 and 2006-07. The Assessing Officer added the aforesaid amount of 15% ofthe contract price i.e. Rs. 48,45,000/- to the income of the assessee in theassessment year in question, and rejected the justification given by theassessee in this regard, while holding that the assessee was followingmercantile system of accounting and since he had booked the expenses ofpurchase of material and other manufacturing expenses in the Profit & Losson mercantile system of accounting and supplied the machinery to thebuyer, therefore, he was bound to show the entire sale price of themachinery in the Profit & Loss Account under the mercantile system ofaccounting in the assessment year under consideration. The learned CIT (A), while deleting the said additions, has heldthat as per the terms of the contract, only 85% of the amount was to bereceived by the assessee till the supply of machinery in the assessment yearunder consideration and the remaining 15% amount was payable to theassessee, after issuance of provisional acceptance certificate and otherrequirements, therefore, the assessee had not acquired the right to receive15% of the price till the conditions of contract were fulfilled. Since the rightto receive 15% of the amount did not materialize during the assessment yearunder consideration, the Assessing Officer was held to be not justified in taking the said amount as income in that assessment year. The learned CIT (A), while deleting the said additions, has heldthat as per the terms of the contract, only 85% of the amount was to bereceived by the assessee till the supply of machinery in the assessment yearunder consideration and the remaining 15% amount was payable to theassessee, after issuance of provisional acceptance certificate and otherrequirements, therefore, the assessee had not acquired the right to receive15% of the price till the conditions of contract were fulfilled. Since the rightto receive 15% of the amount did not materialize during the assessment yearunder consideration, the Assessing Officer was held to be not justified in taking the said amount as income in that assessment year. The learned ITAT has affirmed the order of the CIT (A), whilerelying upon certain decisions of the Supreme Court, wherein it was heldthat the income accrues when assessee acquires right to receive it. In thisregard, the learned ITAT has recorded the following findings : “If the case is examined in the light of aforesaiddecisions we find that the assessee had not received right onlyon 85% of amount which can be enforced in court of law. Nodebt came into existence in respect of balance amount of 15%in respect of which the assessee must have acquired a right toreceive the payment. The balance amount will accrue toassessee on completion of contract as per its terms andconditions. It is also a fact that the assessee had admitted thebalance amount of Rs. 48,45,000/- in subsequent assessmentyear and has been assessed to tax accordingly. The contentionof the Revenue that on matching principle the amount ofexpenditure incurred in respect of the machinery work Rs.48,45,000/- has been debited in the Profit & Loss Account willnot be of much help on the ground that in the subsequent yearthe entire amount of Rs. 48,45,000/- has been subject to taxwithout any debiting of the expenditure in profit and lossaccount. In the light of above discussion vide, the amount ofRs. 48,45,000/- is not assessable in the year underconsideration. The assessee's case is also covered by thedecision of Hon'ble Madras High Court in the case of IgnifluidBoilers (I) Ltd. (Supra). Accordingly, we do not find anyinfirmity in the order passed by Ld. CIT ( A) deleting theaddition.” After hearing learned counsel for the appellant-revenue andgoing through the impugned order, we do not find any ground to interfere inthe aforesaid concurrent findings recorded by the learned CIT (A) and theITAT. The second addition relates to allowing of depreciation onoffice equipment and electric installation like transformer or control panels@ 25% as against 15% as allowed by the Assessing Officer. The assesseeclaimed the aforesaid depreciation @ 25% by treating them as part of plantand machinery, whereas the Assessing Officer made disallowance ofdepreciation on these articles by restricting it to 15% as against 25% bytreating them as part of furniture and fixtures used in the office.Undisputedly, the assessee claimed depreciation @ 25% in respect of Faxmachine, CCTV systems and Nokia mobile set. The learned CIT (A)allowed depreciation on these articles @ 25% while relying on the decisionof this Court inCIT v.Oswal Woolen Mills Ltd.,289 ITR 270. The learnedITAT has confirmed the order of the learned CIT (A), while observing asunder : “... In our considered view, the learned CIT (Appeals) isjustified in allowing the depreciation at the rate of 25 per cent.Now coming to the depreciation on Fax machine and CCTVsystems, these equipments are used in the business of theassessee. The learned CIT (Appeals) has given the reasons forallowance of depreciation at the rate of 25 per cent as they formpart and parcel of plant and machinery. As regards thedepreciation on transformers and control panels etc., the ITA No. 384 of 2009 “... In our considered view, the learned CIT (Appeals) isjustified in allowing the depreciation at the rate of 25 per cent.Now coming to the depreciation on Fax machine and CCTVsystems, these equipments are used in the business of theassessee. The learned CIT (Appeals) has given the reasons forallowance of depreciation at the rate of 25 per cent as they formpart and parcel of plant and machinery. As regards thedepreciation on transformers and control panels etc., the ITA No. 384 of 2009 depreciation is allowable at the rate of 25 per cent. The electricinstallations are part of the transformers. Hon'ble jurisdictionalHigh Court in the case of CIT Vs. Oswal Woolen Mills Ltd.289 ITR 261 (P&H) has decided the issue in favour of theassessee by holding that depreciation will be available ontransformers. The learned CIT (Appeals) has elaboratelydiscussed the issue relating to depreciation allowable on eachitem. In our considered opinion, the learned CIT (Appeals) isjustified in allowing the depreciation on electric installations.Accordingly, we do not find any infirmity in the order passedby the learned CIT (Appeals).” After hearing learned counsel for the appellant-revenue andgoing through the impugned order, we do not find any ground to interfere inthe aforesaid findings, as a finding of fact has been recorded by the learnedITAT. The transformer and control panels cannot be taken as part of officefurniture. The Fax machine and CCTV systems, which are being used in thebusiness of the assessee, have rightly been given depreciation @ 25%, bytreating them as part and parcel of plant and machinery and these itemscannot be treated as part of office furniture. In view of the above, we do not find any merit in the instantappeal and in our opinion no substantial question of law arises from theorder of the ITAT. Dismissed. ( SATISH KUMAR MITTAL )JUDGE November 25, 2009 ndj ( MEHINDER SINGH SULLAR )JUDGE