IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No. 384 of 2009 DATE OF DECISION : 25.11.2009 Commissioner of Income Tax, Faridabad .... APPELLANT Versus Shri Subrata Dutta Choudhary ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTAL HON'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 the Income Tax Act, 1961 (hereinafter referred to as `the Act'), against the order dated 28.11.2008, passed by the Income Tax Appellate Tribunal, Delhi Bench `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 on 1.11.2004 declaring income of Rs. 26,17,888/-. The assessment was completed under Section 143 (3) of the Act vide order dated 27.12.2006 at an income of Rs. 78,96,080/-, by making additions on certain accounts. Against the said order, the assessee preferred an appeal before the ITA No. 384 of 2009 -2- Commissioner of Income Tax (Appeals), Faridabad [hereinafter referred to as `the CIT (A)'], who vide his order dated 14.9.2007 partly allowed the appeal and deleted the additions of Rs. 51,32,183/-. Against the said order, the revenue filed appeal before the ITAT, which has been dismissed vide the impugned order, while confirming the deletion of two additions i.e. one of Rs. 48,45,000/- on account of undeclared sale price of machinery and the other of Rs. 54,714/- + Rs.31,330/- on account of excess depreciation claimed on office equipment and electric installation, respectively. Now the revenue has filed the instant appeal against the said order, raising the following substantial questions of law :- (i) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the order of the learned CIT (A) in deleting the addition of Rs. 48,45,000/- made by the Assessing Officer on account of undeclared sale price of machinery, disregarding the fact that as per mercantile system of accounting being followed by the assessee, he was required to reflect the entire sale price in the Profit & Loss Account ? (ii) Whether on the facts and in the circumstances of the case, the learned ITAT was right in law in upholding the order 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, on which depreciation is allowable @ 15% as per Income Tax Rules, 1962? We have heard the arguments of learned counsel for the ITA No. 384 of 2009 -3- revenue and have gone through the impugned order. It is admitted position that the assessee got a purchase order from M/s SMS Demag (P) Ltd., for supply of mash seam welder equipment to TISCO, Jamshedpur for a contract price of Rs. 3,89,66,720/-, inclusive of excise 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 was payable as advance payment within 30 days from the date of order of acceptance. 80% was to be paid on the various prescriptions mentioned therein. The other 5% was payable against output of first cold of acceptable quality after satisfactory completion of integrated cold test and other requirements. The remaining 10% was payable after the issuance of provisional acceptance certificate as per the general conditions for design, manufacture and supply of plants and machinery and equipment and the delivery of complete drawings and documents including “As built drawings” and other requirements. Thus, according to the clause and term of payment, only 85% of the contract price for equipment supply was to be paid during the year under consideration and the remaining 15% was not due during that year. It is also admitted position that 5% of the contract price was received by the assessee as per the terms of the agreement in the next assessment year i.e. assessment year 2005-06 and was duly shown as income in that assessment year. The rest of 10% was fully received as per the terms of the agreement in the next to next assessment year i.e assessment year 2006-07, which again was shown as income in that assessment year. ITA No. 384 of 2009 -4- During the course of arguments, it has not been disputed by learned counsel for the appellant-revenue that 15% of the contract price was duly 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% of the contract price i.e. Rs. 48,45,000/- to the income of the assessee in the assessment year in question, and rejected the justification given by the assessee in this regard, while holding that the assessee was following mercantile system of accounting and since he had booked the expenses of purchase of material and other manufacturing expenses in the Profit & Loss on mercantile system of accounting and supplied the machinery to the buyer, therefore, he was bound to show the entire sale price of the machinery in the Profit & Loss Account under the mercantile system of accounting in the assessment year under consideration. The learned CIT (A), while deleting the said additions, has held that as per the terms of the contract, only 85% of the amount was to be received by the assessee till the supply of machinery in the assessment year under consideration and the remaining 15% amount was payable to the assessee, after issuance of provisional acceptance certificate and other requirements, therefore, the assessee had not acquired the right to receive 15% of the price till the conditions of contract were fulfilled. Since the right to receive 15% of the amount did not materialize during the assessment year under consideration, the Assessing Officer was held to be not justified in ITA No. 384 of 2009 -5- taking the said amount as income in that assessment year. The learned ITAT has affirmed the order of the CIT (A), while relying upon certain decisions of the Supreme Court, wherein it was held that the income accrues when assessee acquires right to receive it. In this regard, the learned ITAT has recorded the following findings : “If the case is examined in the light of aforesaid decisions we find that the assessee had not received right only on 85% of amount which can be enforced in court of law. No debt came into existence in respect of balance amount of 15% in respect of which the assessee must have acquired a right to receive the payment. The balance amount will accrue to assessee on completion of contract as per its terms and conditions. It is also a fact that the assessee had admitted the balance amount of Rs. 48,45,000/- in subsequent assessment year and has been assessed to tax accordingly. The contention of the Revenue that on matching principle the amount of expenditure incurred in respect of the machinery work Rs. 48,45,000/- has been debited in the Profit & Loss Account will not be of much help on the ground that in the subsequent year the entire amount of Rs. 48,45,000/- has been subject to tax without any debiting of the expenditure in profit and loss account. In the light of above discussion vide, the amount of Rs. 48,45,000/- is not assessable in the year under consideration. The assessee's case is also covered by the decision of Hon'ble Madras High Court in the case of Ignifluid Boilers (I) Ltd. (Supra). Accordingly, we do not find any infirmity in the order passed by Ld. CIT ( A) deleting the addition.” ITA No. 384 of 2009 -6- After hearing learned counsel for the appellant-revenue and going through the impugned order, we do not find any ground to interfere in the aforesaid concurrent findings recorded by the learned CIT (A) and the ITAT. The second addition relates to allowing of depreciation on office equipment and electric installation like transformer or control panels @ 25% as against 15% as allowed by the Assessing Officer. The assessee claimed the aforesaid depreciation @ 25% by treating them as part of plant and machinery, whereas the Assessing Officer made disallowance of depreciation on these articles by restricting it to 15% as against 25% by treating them as part of furniture and fixtures used in the office. Undisputedly, the assessee claimed depreciation @ 25% in respect of Fax machine, CCTV systems and Nokia mobile set. The learned CIT (A) allowed depreciation on these articles @ 25% while relying on the decision of this Court in CIT v. Oswal Woolen Mills Ltd., 289 ITR 270. The learned ITAT has confirmed the order of the learned CIT (A), while observing as under : “... In our considered view, the learned CIT (Appeals) is justified in allowing the depreciation at the rate of 25 per cent. Now coming to the depreciation on Fax machine and CCTV systems, these equipments are used in the business of the assessee. The learned CIT (Appeals) has given the reasons for allowance of depreciation at the rate of 25 per cent as they form part and parcel of plant and machinery. As regards the depreciation on transformers and control panels etc., the ITA No. 384 of 2009 -7- depreciation is allowable at the rate of 25 per cent. The electric installations are part of the transformers. Hon'ble jurisdictional High Court in the case of CIT Vs. Oswal Woolen Mills Ltd. 289 ITR 261 (P&H) has decided the issue in favour of the assessee by holding that depreciation will be available on transformers. The learned CIT (Appeals) has elaborately discussed the issue relating to depreciation allowable on each item. In our considered opinion, the learned CIT (Appeals) is justified in allowing the depreciation on electric installations. Accordingly, we do not find any infirmity in the order passed by the learned CIT (Appeals).” After hearing learned counsel for the appellant-revenue and going through the impugned order, we do not find any ground to interfere in the aforesaid findings, as a finding of fact has been recorded by the learned ITAT. The transformer and control panels cannot be taken as part of office furniture. The Fax machine and CCTV systems, which are being used in the business of the assessee, have rightly been given depreciation @ 25%, by treating them as part and parcel of plant and machinery and these items cannot be treated as part of office furniture. In view of the above, we do not find any merit in the instant appeal and in our opinion no substantial question of law arises from the order of the ITAT. Dismissed. ( SATISH KUMAR MITTAL ) JUDGE November 25, 2009 ( MEHINDER SINGH SULLAR ) ndj JUDGE