Assessee's revenue recognition under AS-7 and advance accounting under AS-9 upheld, depreciation on intangible assets allowed under Section 32

The ITAT Delhi upheld the assessee's revenue recognition method under AS-7 (Percentage Completion Method) for elevator contracts, finding it consistently followed and previously approved. The Tribunal sustained the assessee's accounting for Annual Maintenance Contract advances under AS-9, where amounts are initially recorded as advances and proportionately transferred to revenue monthly. Disallowances for TDS recoverable write-offs and depreciation on intangible assets were also decided in favor of the assessee, with the latter supported by HC precedent in Areva T D India Limited and SC decision in Smifs Securities Limited regarding depreciation eligibility under Section 32.

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Issues Involved:

1. Addition of Rs. 15,23,35,414 as 'Advance received from Customers'.
2. Disallowance of Rs. 8,51,913 under 'TDS recoverable written off'.
3. Levy of interest under sections 234B & 234D and withdrawal of interest under section 244A.
4. Deletion of disallowance of Rs. 2,71,50,036 on account of depreciation claimed on intangible assets.

Issue-wise Detailed Analysis:

1. Addition of Rs. 15,23,35,414 as 'Advance received from Customers':

The assessee company contested the addition of Rs. 15,23,35,414 made by the AO and upheld by the CIT(A) as 'Advance received from Customers' under contracts, which the assessee argued did not constitute revenue/income for the relevant assessment year. The CIT(A) failed to appreciate the system of accounting followed by the assessee, the terms of the contracts, and the nature of the business. The CIT(A) ignored orders from earlier years regarding the following of Accounting Standards by the assessee. The High Court of Delhi had accepted the accounting treatment given by the assessee to 'Advance received from Customers' in earlier years, relying on the decision of Taparia Tools Ltd. (SC) (2015) 55 Taxmann.com 361. The Tribunal had also upheld this method of accounting in previous years, and any deviation would lead to a mismatch of cost with revenues. The Tribunal directed the deletion of the addition of Rs. 15,23,35,414.

2. Disallowance of Rs. 8,51,913 under 'TDS recoverable written off':

The assessee argued that the CIT(A) erred in upholding the disallowance of Rs. 8,51,913 debited under 'TDS recoverable written off'. The CIT(A) mechanically followed orders from earlier assessment years without appreciating the nature of the expense. The amounts equivalent to the TDS were withheld by customers but were neither deposited in the government treasury nor claimed by the assessee in earlier years. The write-off was allowable under section 36(1)(vii) read with section 36(2) of the Act. The Tribunal had previously dealt with this issue in favor of the assessee for A.Y. 2008-09. Thus, the ground was sustainable.

3. Levy of interest under sections 234B & 234D and withdrawal of interest under section 244A:

The assessee contended that the CIT(A) erred in confirming the levy of interest under sections 234B & 234D and the withdrawal of interest under section 244A. However, the judgment does not provide specific details on the Tribunal's final decision regarding this ground.

4. Deletion of disallowance of Rs. 2,71,50,036 on account of depreciation claimed on intangible assets:

The Department of Revenue contended that the CIT(A) erred in deleting the disallowance of Rs. 2,71,50,036 made by the AO on account of depreciation claimed on intangible assets. The assessee argued that this issue was covered in its favor for A.Y. 2008-09. The High Court had previously held that the maintenance contracts acquired by the assessee as part of a slump sale constituted the basis of income-earning apparatus and were entitled to depreciation under section 32(1)(ii) of the Act. The Tribunal upheld this view, and the ground was not sustainable.

Conclusion:

The Tribunal dismissed the appeal of the Department of Revenue and allowed the appeal of the assessee. The order was pronounced on 27th September 2024.

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