Amount recoverable given in advance cannot treat as income and depreciation can claim on all asset used for business

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: ‘C’ NEW DELHI

BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND

SHRI A. N. PAHUJA, ACCOUNTANT MEMBER

I.T.A. NO. 2121/Del/2011

Assessment Year: 2007-08

ACIT

Circle-12 (1)

New Delhi

(Revenue)

Vs.

M/s Great Eastern Energy

Corpn. Ltd. Signature Tower

A, 14th Floor, South City,

Gurgaon (Haryana)

PAN: AAACG3345F

 (Assessee)

Revenue by: Sh. Satpal Singh, Sr. DR

Assessee by: Sh. Anuj Tiwari, CA

Hearing on: 30/07/2012

Order Pronounced on the Date: 29/10/2012

ORDER

PER I.C.SUDHIR, JM:

The revenue has questioned the first appellate order on the following grounds:

“1. On the facts and circumstances of the case and in law, the ld. CIT (A) has erred in deleting the addition of Rs.21,63,393/- being the amount receivable from M/s Adkins Services made by AO.

2. On the facts and circumstances of the case and in law, the ld. CIT (A) has erred in deleting the addition of Rs.2,76,01,499/- payable to M/s B.J. Services made by AO.

3. On the facts and circumstances of the case and in law, the ld. CIT (A) has erred in deleting the addition of Rs.17,81,329/- on account of depreciation on building made by AO.”

Ground no. 1

2. The relevant facts are that during the year the assessee derived income from exploring / exploiting and development of Coal-Bed Methane Gas trapped in Coal Cements in Rani Ganj Fields in West Bengal. Vide note no. 9 of Schedule 10 of the balance sheet the assessee explained the nature of the outstanding balance. A loan advances included Rs.21,63,393/- recoverable from M/s Adkins Services Inc (Adkins), a drilling contractor. The contract with Adkins was terminated by the company on the ground of non-performance and continued breach of contract. In addition to the above amount, the company made a claim of Rs.1980.54 lacs for damages on account of delay in providing the services by the said contractor. The contractor also filed a counter claim of Rs.2781 lacs against the company for loss of profit damages etc. which the company disputed. The company filed an application before the Hon’ble High Court of Calcutta for the appointment of Presiding Arbitrator for the initiation of arbitration proceedings. The Hon’ble High Court of Calcutta vide its order dated 18.3.2004 was pleased to appoint the Presiding Arbitrator. It was further explained in the note that necessary adjustment, if any, will be made in the financial statements once the arbitration proceedings are complete. The AO was not satisfied with the claim and held that there is no amount outstanding on the basis that the assessee could not furnish the confirmation from the debtor. The ld. CIT (A) has however deleted the addition, being convinced with the submission of the assessee. This action of the ld. CIT (A) has been questioned by the revenue.

3. In support of the ground the ld. DR has placed reliance on the assessment order, whereas the first appellate order has been relied upon by the ld. AR.

4. Considering the above submissions we find that before the authorities below, the assessee had also furnished party wise details of advance to vendors as on 31.3.2007 in which out of the total advances of Rs.2,37,74,603/-, the name of M/s Adkin’s Services Ltd. was reflected at serial No. 1 showing advance recoverable at Rs.21,63,352/-. The assessee also filed the statement of account of M/s Adkins Services Inc for the period 1.3.99 to 1.3.2000, 1.3.2000 to 13.2.2001 and 1.3.2001-02 to 31.3.2002 showing regular debits and credits. From 1.3.2001-02 to 31.3.2002, the total debits (including opening balance of Rs.6,85,235/-) were Rs.1,01,57,989/- and the total credits of Rs.79,94,596/- resulting a debit balance of Rs.21,63,393/-. It was explained that as the amount was recoverable, as it was given as an advance for drilling to the vendor, the Assessing Officer was not justified in treating the amount as income. The ld. CIT (A) has deleted the addition with this finding that the amount is in the nature of advance given by the assessee company for Co-ordinated drilling work at its local fields and ordinarily, the amount would have been accounted for under services provided by M/s Adkins Services but due to dispute the work has not been fully executed and matter for payment is in arbitration.

Undisputedly, it is neither an undisclosed payment nor in the nature of an unaccounted receipt hence, we do not find reason to interfere with the first appellate order, since the AO was having no basis or justification for making the addition on account of the outstanding recoverable duly disclosed in the books of accounts. The first appellate order in this regard is thus upheld. The ground no. 1 is accordingly rejected.

Ground no. 2

5. The relevant facts are that the assessee had entered into a contract with B.J. Services Co. Middle East Ltd., Post Box No. 34721, Dubai (UAE) for providing cementing and fracturing services for Rani Ganj Coal Fields in West Bengal. A sum of Rs.2,76,01,499/- was due to this party out of which Rs.2,45,98,186/- was remitted to this party on 12.3.2008 (Next Year) deleting the TDS. The AO did not agree with this explanation of the assessee and added the amount of Rs.2,76,01,499/- on account of outstanding liability reflected in the books of accounts as on 31.3.2007 against M/s B.J. Services. The ld. CIT (A) has deleted the addition.

6. Having gone through the orders of the authorities below we find that against the addition, the contention of the assessee remained that in case the Assessing Officer was not satisfied with the explanation of the assessee, he should have examined as to whether this liability represents any expense claimed by the assessee in its profit & loss account, as he had to compute the income of the assessee for the previous year. It was submitted that outstanding liability was in respect of cementing and fracturing services, which had been capitalized by the assessee in its accounts under the head “capital work in progress, Schedule 4”. It was contended that since the expenditure in respect of the outstanding liability was not claimed as expense, it should not have been disallowed for any reason and the Assessing Officer had made the addition without any investigation. The ld. CIT (A) has deleted the addition with this observation that the payment of the sum has been made in the succeeding year on which TDS was also deducted. We find that the AO had made an addition on the basis that the assessee did not furnish the confirmation. He failed to appreciate that it was not a cash credit nor expenditure claimed in the profit & loss account. The Assessing Officer had not examined the nature of the liability and the related facts available on record. He also fails to appreciate that the expenditure has been capitalized. It was also not the case of the Assessing Officer that the expenditure was not incurred. The assessee on the other hand had established that the outstanding payments were made in succeeding years in regular course of business. Under these facts we are of the view that the ld. CIT (A) was justified in holding that the liability of Rs.2,76,01,499/- as on 31.3.2007 was genuine and that the addition of Rs.2,76,01,499/- was made by the AO without appreciation of the facts in totality. We thus uphold the action of the ld. CIT (A) in deleting the addition. Ground no. 2 is accordingly rejected.

Ground no. 3

7. The relevant facts are that the AO disallowed the claimed depreciation on the building on the basis that the building was not yet registered in the name of the assessee company. The contention of the assessee remained that the building in question was acquired in 2005 and was being utilized for the business purposes. Being convinced with the submission of the assessee, the ld. CIT (A) has allowed the depreciation on the basis of decisions relied upon by the assessee before him.

8. Having gone through the orders of the authorities below we find that the claim of the assessee that the building in question was purchased by it and was in use for the purpose of its business was not denied by the AO. The AO has disallowed the claimed depreciation only on the basis that the building was yet to be registered in the name of the assessee company. The assessee claimed that the building was purchased through deed of assignment and agreement for sale in the year 2005 and possession thereof was handed over to the assessee on the payment of agreed sale consideration to the seller. The properties were however, could not register in the name of the assessee company during the period of acquisition and the year of use. The ld. CIT (A) has allowed the claimed depreciation respectfully following the decision of Hon’ble Supreme Court in the case of Mysore Minerals Ltd. Vs. CIT 239 ITR 775 (SC) and of Hon’ble Delhi High Court in the case of Gowersons Publishers P. Ltd Vs. CIT 240 ITR 191 (Del) (FB). The Hon’ble Supreme Court in the case of Mysore Minerals Ltd. Vs. CIT (Supra) has been pleased to hold that anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and or to enjoy its usufruct in his own right, would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the transfer of property Act the registration Act etc. The Hon’ble Court held further that “building owned by the assessee” the expression as occurring in Section 32 (1) of the IT Act, means the person who having acquired possession over the building in his own right uses the same for the purpose of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as the transfer of property Act and the registration Act, etc. generally speaking depreciation is allowable for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business. Similar view has been expressed by the full Bench of the Hon’ble Delhi High Court in the case of Gowersons Publishers P. Ltd. Vs. CIT (Supra), wherein it has been held by the Hon’ble Delhi High Court that the context in which the words “owner or owned by which” used, relates, deriving benefit by way of income or by personal use of property. The real test is the right to enjoy the property as owner. The ratio laid down in these decisions is fully applicable on the issue raised before us in the ground. Respectfully following the same the ld. CIT (A) in our view, has rightly held that the assessee was entitled to the claimed depreciation of Rs.17,81,329/- with direction to the AO to allow the same. The same is upheld. Ground no. 3 is accordingly rejected.

9. Consequently appeal is dismissed.

10. The order is pronounced in the open Court on the day 29/10/2012.

Sd/- Sd/-

(A. N. PAHUJA ) (I.C.SUDHIR)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 29/10/2012

*AK VERMA*

Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(Appeals)

5. DR: ITAT

ASSISTANT REGISTRAR