2012 (12) TMI 65 - AT - Income Tax

Disallowance of Depreciation on computer peripherals/accessories - held that - Computer accessories and peripherals form an integral part of the computer system as the computer cannot be used without computer accessories and peripherals and consequently they are part of the computer system. Hence they are also entitled to depreciation at the higher rate of 60% - there is no reason to interfere with the order of CIT(A) and accordingly his order is uphold. Hence ground taken by the Department for A.Y. 2006-07 is rejected. Decision in COMMISSIONER OF INCOME TAX Versus BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. 2010 (8) TMI 58 - DELHI HIGH COURT followed. Taxability of Advance from Customers - works contract - held that - Income tax proceedings of one year are not binding on other year and each year is independent from the other. from terms and conditions of the Purchase Order and the Chart placed on record it is clear that the assessee is following the percentage completion of the work as closing work in progress which is shown as opening work progress in next year. The assessee is following said method/policy consistently. On execution of the contract/purchase order the assessee is showing the income of the said contract in the respective assessment year. Therefore the assessee is recognizing revenue upon the completion of the contract i.e. transfer of the significant risk and rewards of ownership to the customers and not on/with reference to receipt of advances as per the Accounting Policy No. 4. The said fact has not been disputed by the department. Considering the said facts and Accounting Policy followed by CIT(A) - CIT(A) has rightly observed that the results of one year cannot be disturbed by picking up and applying a method in isolation when the assessee is following the method of accounting regularly which had been accepted by the Department in the preceding assessment year and the work in progress in the preceding year has been shown as opening work in progress in the subsequent year and the revenue has been recognized on completion of the Purchase Order - order of CIT(A) is upheld and reject the ground taken by the Department.

Summary

Issues Involved:
1. Deletion of addition on account of disallowance of extra depreciation on computer peripherals/accessories.
2. Deletion of addition on account of advance from customers.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Disallowance of Extra Depreciation on Computer Peripherals/Accessories

The department's appeal for A.Y. 2006-07 contended that the CIT(A) erred in law and on facts by deleting an addition of Rs. 29,740/- related to the disallowance of extra depreciation on computer peripherals/accessories. The Assessing Officer (AO) had restricted the depreciation to 15%, arguing that only computer software is eligible for 60% depreciation as per Income-tax rules, not peripherals like printers and scanners. However, the CIT(A) relied on the Delhi High Court's decision in the case of CIT Vs. BSES Yamuna Power Ltd., which held that computer accessories and peripherals are integral parts of a computer system and thus eligible for 60% depreciation. The Tribunal upheld the CIT(A)'s order, noting no reason to interfere given the jurisdictional High Court's ruling. Consequently, the department's ground was rejected.

Issue 2: Deletion of Addition on Account of Advance from Customers

For A.Y. 2006-07, the department challenged the CIT(A)'s deletion of an addition of Rs. 1,08,46,479/- made by the AO, who had treated advances received from MATE as income. The AO argued that the assessee had sufficient time to recognize profit from these advances but failed to do so. The CIT(A) admitted additional evidence under Rule 46A, considering the assessee's consistent accounting method of recognizing revenue upon the transfer of significant risks and rewards of ownership to customers. This method was also accepted by the department in subsequent years. The Tribunal agreed with the CIT(A), emphasizing that the assessee's consistent accounting practice should not be disturbed for a single year. The Tribunal upheld the CIT(A)'s order and rejected the department's ground.

Appeals for A.Y. 2008-09 and A.Y. 2009-10

The department's appeals for A.Y. 2008-09 and A.Y. 2009-10 involved similar issues regarding the deletion of additions on account of advances from customers (Rs. 49,32,250/- and Rs. 54,16,984/-, respectively). The Tribunal noted that the facts and issues were identical to those in A.Y. 2006-07. For the same reasons mentioned in the detailed analysis for A.Y. 2006-07, the Tribunal upheld the CIT(A)'s orders for both years and rejected the department's grounds.

Conclusion

The Tribunal dismissed all three appeals of the Department and the cross objections of the assessee for A.Y. 2006-07, upholding the CIT(A)'s orders across all assessment years. The consistent accounting method followed by the assessee was recognized and accepted, ensuring that revenue recognition aligned with the transfer of significant risks and rewards of ownership, not merely the receipt of advances.