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TMI Blog2018 (9) TMI 2149X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 - SU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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. - SHRI G.D. AGRAWAL, PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For the Appellant : Shri S.D. Kapila, Adv. Shri R.R. Maurya, Adv. For the Respondent : Shri Amit Jain, Sr.D.R. ORDER PER AMIT SHUKLA, J.M.: The aforesaid cross Appeals have been filed by the assessee as well as by the Revenue against the impugned order dated 12.11.2013, passed by the CIT (Appeals)-XI, New Delhi for the quantum of assessment passed u/s. 143(3) for the Assessment Year 2008-09. The appeal in ITA No. 4708/Del/2014 have been filed by the Revenue against the order dated 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from its customers, though advance as termed by the assessee, its recording into the proper account is mandatory on the part of the assessee; (d) The assessee has taken such sums shown in the balance sheet as liability without routing them through the P L account, which is not permissible under the accrual system of accounting as prescribed under the Indian Companies Act. 4. On the other hand, the case of the assessee was that it has booked income of Rs. 51.59 crores mainly from three types of contracts undertaken with the customers covering; (a) New contracts for supply and installation; (b) Repair and Modernization contracts; (c) Maintenance contracts. 4.1. Regarding accounting practice followed by the assessee, it was submitted that since it was following 'percentage of completion method' regularly, therefore, such an accounting standard cannot be disturbed. 5. Ld. CIT (A) following the earlier orders and has deleted the said additions. 6. We find that in the earlier years, the Tribunal has deleted the said addition after observing and holding as under:- 32. We have carefully considered the rival contentions. The assessee has followed mercantile accounting system and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned assessing officer in respect of 'Advance received from Customers' for maintenance of elevator under Annual Maintenance Contract as entered into by the assessee, without appreciating that 'Advance received from customers' are: i) accounted for as per the recognized accounting system followed by the assessee; and ii) offered to tax in the next assessment years based on the accounting system. 3.1 That the learned CIT(A) has erred in merely following the order passed in earlier years regarding addition in respect of advance received from customers under AMC contract, without appreciating that the observation made in the earlier year orders are factually erroneous. 4. That the learned CIT(A) has erred in upholding the disallowance of expenses claimed under the head 'advances written off, without appreciating the nature of the expenses claimed. 4.1 That the learned CIT(A) has on erroneous interpretation of provisions of Income-tax Act, 1961 ( the Act ), upheld the disallowance of 'Advances to suppliers written off' amounting to Rs. 11,54,061. 4.2 That the learned CIT(A) has on mere surmise, erred in upholding the disallowance of Rs. 6,46,179 being amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that why this sum should not be treated as income of the assessee. The assessee submitted that out of the sum of Rs. 147768409/- a sum of Rs. 127455308/- is pertaining to the advance from customers including progressive billing and a sum of Rs. 20313101/- is advance billing with respect to the maintenance contracts. Assessee also submitted that it follows the percentage of completion method and therefore the proportionate cost as per the accounting standard 7 issued by the Institute of chartered accountants of India is booked and consequent related revenue is also booked in accordance with the percentage of the work completed with respect to the each client. However, the Ld. assessing officer rejected the contention of the assessee and stated that the assessee is maintaining its books of account on the accrual basis and further the assessee is incurring heavy losses from year to year, therefore, according to the !d assessing officer the devise adopted by the assessee was a mechanism under which its real income remains understated to the extent of the advances which are not routed through the profit and loss account. According to him, these advances are in fact the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f regular accounting standard followed by it. Accordingly, grounds No. 3 and 3.1 is treated as allowed. 12. In so far as the issue of disallowance of expenses claimed under the head 'advances written off, the facts in brief are that the assessee has written off certain advances amounting to Rs. 11,54,061/- given to the suppliers for supply of raw material, however parties had neither supplied the material nor refunded the amount paid as advances. It has been stated by the assessee that it fails to negotiate with the parties, amount was written off as irrecoverable. Learned Assessing Officer has disallowed the same by holding that it has failed to satisfy the conditions of the Section 36(2). 13. Ld. CIT (A) has confirmed the said addition on the ground that no proper application could be filed and no evidence was furnished to substantiate the claim. 14. After hearing both the parties, we find that the main reason for making the disallowance by the Assessing Officer was that this amount was never form part of the income; therefore, it failed the conditions given in Section 36(2). Here, the assessee has given an advance for supply of material which neither supplied nor the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial Area, Meerut Road, Ghaziabad till the year 2005, from where the business activities were carried on. The assessee had payment of Rs. 90,000/- as refundable security deposit as per the term of contract which was refundable at the time of vacation of the premises. The aforesaid premises was vacated by the assessee in the year 2005 and only deposit to the extent of Rs. 50,268/- was refunded and the balance amount Rs. 39,732/- was deducted on account of deduction of repair expenses incurred by the landlord on such premises. The assessee had disputed its liability for repairs and accordingly had not charged the amount as 'repair expenses' in the books of account and once the negotiation failed with the landlord assessee has written off in the books of account. Both learned Assessing Officer and ld. CIT(A) have held that conditions prescribed u/s. 36(2) are not satisfied. In any case, if the amount withheld by the landlord from the security deposit of Rs. 39,732/- 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 bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be adjudicated and after following the judgment of Hon'ble Supreme Court in the case of NTPC Ltd. vs. CIT, reported in (1998) 229 ITR 383, and judgment of Hon'ble Delhi High Court in the case of Areva T D India Ltd. vs. DCIT in ITA No. 315/2010 allowed the admissibility of the additional ground. On the merits, he followed the judgment of Hon'ble Supreme Court in the case of CIT vs. Smiff Securities Ltd., reported in (2012), 348 ITR 302 (SC) that depreciation on intangible assets, viz., goodwill is an allowable expenses. It has been informed by the ld. counsel for the assessee that Hon'ble Delhi High Court in the case of the assessee in the Assessment Year 2003-04 has allowed the depreciation on goodwill following the judgment of Hon'ble Supreme Court in the case of CIT vs. Smiff Securities Ltd., (2012) 348 ITR 302 (SC). In support, he filed the copy of the judgment dated 15.10.2015 passed in ITA No. 305/2015. 23. 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. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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