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2018 (9) TMI 2149 - AT - Income TaxDisallowance on account of advance from customers - Accrual of income - These advances in fact constitute receipt in the hands of the assessee in view of its nature of business activities - assessee-company is engaged in the business of marketing, selling, installing, commissioning, service, repairs, maintenance and modernization of elevators and escalators - AO following the earlier years' assessment orders held that advance received by the assessee from the customers is income of the assessee - HELD THAT - This issue is quite similar to the issue raised by the Department because the CIT (A) held that in so far as advances received for maintenance of elevators under annual maintenance contract should be routed through P L account and this issue was decided against the assessee by the ld. CIT(A) in the earlier years. Since similar issue and facts are permeating in this year also, therefore, following the precedence of the earlier years, we hold that the addition sustained by the CIT(A) is to be deleted because assessee has been correctly accounting its income on periodical basis in view of regular accounting standard followed by it. Accordingly, grounds No. 3 and 3.1 is treated as allowed. Disallowance of expenses claimed under the head 'advances written off - assessee has written off certain advances given to the suppliers for supply of raw material, however parties had neither supplied the material nor refunded the amount paid as advances - main reason for making the disallowance was that this amount was never form part of the income; therefore, it failed the conditions given in Section 36(2) - HELD THAT - Here, the assessee has given an advance for supply of material which neither supplied nor the amount paid could be recovered. Such a claim cannot be disallowed as a bad debt, and therefore, to hold that condition of Section 36(2) has not been satisfied would be wholly erroneous. The claim has to be allowable u/s. 37(1) r.w.s. 28 of the Act, being the loss incurred in carrying out the operation of the business. This principle is covered by the judgment of Mysore Sugar Co. Ltd 1962 (5) TMI 3 - SUPREME COURT Accordingly, grounds as raised by the assessee is allowed. Disallowance of TDS recoverable written off and rent deposit written off in the books - as contended that the assessee has disclosed the income pertaining the aforesaid debtors in the earlier years, and therefore, it is bad debt allowable u/s. 36(1)(vii) r.w.s. 36(2) - HELD THAT - Once the aforesaid facts has not been disputed either by the Assessing Officer or by the ld. CIT(A), we do not find any reason as to why such a bad debt should not be allowed because if the assessee has booked the amount of TDS recoverable in its books of account and is offered for its income this writing off the same from the books of account when it was not recoverable same has to be allowed in terms of Section 36(1)(vii) r.w.s. 36(2). Accordingly, this issue is also decided in favour of the assessee. Disallowance on account of rent deposit written off - if the amount withheld by the landlord from the security deposit on the ground that certain repair expenses have been incurred by the landlord on such premises which has not been claimed by the assessee in its books of account then benefits arising out of such repairs having been enjoyed by the assessee exclusively for carrying out its business activities has to be allowed as deduction because it falls in the nature of expenditure and repairs. If the amount shown as refundable deposit has not been received as stated to be spent on repairs without debiting the same to the P L account then writing off of such an amount has to be allowed as deduction and it cannot be held that conditions of Section 36(2) requires to be fulfilled. 'Excess deposit of TDS' written off - when the assessee came to know its mistake, it had to recover the same from the department. Learned Assessing Officer held that TDS amounts cannot be claimed as business losses and disallowed the same which has been confirmed by the ld. CIT(A) also. If it is not in dispute that excess TDS has been deposited and could not be recovered from the Department, then same has to be allowed u/s. 37(1) r.w.s. 28 of the Act. Accordingly, the same is directed to be allowed. CIT(A) admitting additional ground of appeal which the assessee had neither raised at the stage of scrutiny proceedings nor in its revised return and directing AO to verify the claim of the appellant from its record and allow depreciation on the goodwill - HELD THAT - After hearing both the parties, we find that such an additional ground raised by the assessee before the ld. CIT(A) was purely a legal ground admissible in view of the judgment of Hon'ble Supreme Court in the case of CIT vs. Smiff Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT that depreciation has to be allowed on account of intangible assets. Accordingly, depreciation of WDV of the goodwill was allowed. Since both on the issue of admissibility and on the issue of deprecation the matters stands covered, we do not find any substance on the ground by the Revenue and the same is dismissed.
Issues Involved:
1. Deletion of disallowance on account of advance from customers. 2. Addition in respect of advance received from customers for maintenance under Annual Maintenance Contract (AMC). 3. Disallowance of expenses claimed under the head 'advances written off.' 4. Disallowance of TDS recoverable written off. 5. Disallowance of rent deposit written off. 6. Disallowance of excess TDS deposited written off. 7. Levy of interest under sections 234B & 234D and withdrawal of interest under section 244A. 8. Admitting additional ground of appeal regarding depreciation on goodwill. Detailed Analysis: 1. Deletion of Disallowance on Account of Advance from Customers: The Revenue's sole ground of appeal was that the CIT(A) erred in deleting the disallowance of Rs. 8,46,99,684/- on account of advance from customers, which were considered as receipts in the hands of the assessee. The Tribunal noted that the issue was covered by its decision in the assessee's own case for earlier years (Assessment Years 2005-06 to 2007-08). The assessee, engaged in the business of elevators and escalators, followed the 'percentage of completion method' for accounting. The Tribunal reiterated that the advances received were not to be recognized as revenue in the year of receipt if the work was not completed. The CIT(A) had correctly deleted the addition, and the Tribunal dismissed the Revenue's appeal. 2. Addition in Respect of Advance Received from Customers for Maintenance under AMC: The assessee's appeal challenged the addition of Rs. 56,26,481/- for advance received from customers under AMC. The Tribunal found that the issue was similar to the one raised by the Revenue and had been decided in favor of the assessee in earlier years. The Tribunal directed the Assessing Officer to delete the addition, noting that the assessee had correctly accounted for the income on a periodical basis as per its regular accounting standards. 3. Disallowance of Expenses Claimed under the Head 'Advances Written Off': The assessee had written off advances amounting to Rs. 11,54,061/- given to suppliers. The Assessing Officer disallowed the claim, stating that it did not satisfy the conditions of Section 36(2). The Tribunal held that the claim should be allowed under Section 37(1) r.w.s. 28, as it was a loss incurred in carrying out the business, supported by the Supreme Court judgment in CIT vs. Mysore Sugar Co. Ltd. Accordingly, the Tribunal allowed the assessee's claim. 4. Disallowance of TDS Recoverable Written Off: The assessee had written off TDS recoverable from customers who neither provided TDS certificates nor deposited the TDS with the tax department. The Tribunal held that the write-off should be allowed as a bad debt under Section 36(1)(vii) r.w.s. 36(2), as the income had been booked in earlier years. The Tribunal allowed the assessee's claim. 5. Disallowance of Rent Deposit Written Off: The assessee had written off Rs. 39,732/- as rent deposit not refunded by the landlord due to repair expenses. The Tribunal held that the write-off should be allowed as it was an expenditure incurred for carrying out business activities. The Tribunal allowed the assessee's claim. 6. Disallowance of Excess TDS Deposited Written Off: The assessee had inadvertently deposited excess TDS of Rs. 1,648/- and could not recover it from the department. The Tribunal held that the excess deposit should be allowed under Section 37(1) r.w.s. 28. The Tribunal allowed the assessee's claim. 7. Levy of Interest under Sections 234B & 234D and Withdrawal of Interest under Section 244A: The issue of levy of interest was not argued and was treated as not pressed by the Tribunal. 8. Admitting Additional Ground of Appeal Regarding Depreciation on Goodwill: The Revenue's appeal challenged the CIT(A)'s decision to admit an additional ground regarding depreciation on goodwill. The Tribunal found that the additional ground was purely legal and admissible, supported by the Supreme Court judgment in CIT vs. Smiff Securities Ltd. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow depreciation on goodwill. Conclusion: The Tribunal allowed the assessee's appeal and dismissed both appeals of the Revenue, upholding the CIT(A)'s decisions on all contested issues. The order was pronounced in open court on 17th September 2018.
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