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2015 (11) TMI 751 - ITAT DELHI

2015 (11) TMI 751 - ITAT DELHI - TMI - Addition u/s 41(1) - CIT(A) deleted the addition - Held that:- the assessee was simply acting on behalf of its customers/clients and Government and getting consultancy fee from the client on account of services rendered. The sundry creditors as appearing in its books are actually on account of clients and not of the assessee. In such circumstances, the provisions of section 41(1) cannot be applied. It is further a matter of record that the assessee furnishe .....

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gainst revenue.

Disallowance on account of decrease in income due to change in method of accounting relating to consultancy fees - CIT(A) deleted the disallowance - Held that:- With the changed method of depicting consultancy fee, the assessee started recognizing income on the basis of work/stage completed as scheduled in agreement with clients as against the earlier policy of recognizing income on work done even in respect of incomplete stages. This change in the method has resulted .....

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) was justified in deleting the addition made by the Assessing Officer on the basis of this better way of recognizing the income. - Decided against revenue.

Depreciation @ 60% on computer peripherals like UPS, printers, etc. - Held that:- This issue is no more res integra in view of the judgment of the Hon'ble jurisdictional High Court in CIT vs. BSES Yamuna Powers Ltd., [2010 (8) TMI 58 - DELHI HIGH COURT] deciding the issue in the assessee's favour entitling assessee to depreciation .....

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convenience. Assessment Year 2005-06 2. The first ground is general, which does not require any specific adjudication. 3. The second ground is against deletion of disallowance of ₹ 6,72,86,626/-, being the addition made by the Assessing Officer u/s 41(1) of the Income-tax Act, 1961 (hereinafter also called 'the Act') 4. Briefly stated, the facts of the case are that the assessee is a Public Sector Undertaking engaged in providing conceptual studies and management consultancy, heal .....

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ed on pages 2 and 3 of the assessment order. The assessee was required to give reasons as to why the amounts shown as payable to these parties be not taken as cessation of liability chargeable as income u/s 41(1) of the Act. The assessee submitted that the static creditors were still payable. Unconvinced with the assessee's submissions, the Assessing Officer made addition of ₹ 6.72 crore. The ld. CIT(A) deleted the addition. 5. After considering the rival submissions and perusing the r .....

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reditors. In order to invoke the provisions of section 41(1), it is necessary that there should be an allowance or deduction made in the assessment for any year in respect of loss, expenditure or trading liability, etc., incurred by the assessee and then the obtaining of some benefit in respect of such trading liability by way of remission or cessation thereof. It is only then that the amount for which remission or cessation is obtained that it becomes chargeable to tax u/s 41(1) of the Act. Adv .....

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e two sides for which the payments were not made. The Executive Director of the assessee in his certificate has confirmed that all the outstanding sundry creditors treated as cessation of liability by the Assessing Officer continue to be part of the assessee's outstanding as per records. The ld. CIT(A) after entertaining the Assessing Officer's report on additional evidence, in our considered opinion, was right in deleting the addition. We uphold his view. This ground is, therefore, not .....

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n being called upon to explain as to why this decreased income be not charged to tax, the assessee submitted that earlier the consultancy fee was being recognized for the incomplete stages which were not billable and contractually not recoverable. A new policy was adopted from this year under which 70% of the fee is recognized at the stage of entering into the agreement and the remaining 30% on receipt of supply from suppliers for installation of equipments/goods. Not convinced with the assessee .....

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e from the concerned SBU's/Functional Department. It was noticed that consultancy fee booked on the basis of above was not due as per agreement with clients and contractually not recoverable until completion of a particular stage. Part of consultancy fee accounted for on this basis as accrued income in previous year could not be realized and had to be reversed. In view of above, it was considered prudent to recognize the consultancy fee on the basis of work/stage, completed as scheduled in a .....

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for the current year to the extent of ₹ 1.35 crore. This change was necessitated because of advice given by the statutory auditors. This advice was given by the auditors on the reason that in past same fees was taken as income, but, had to be reversed in the subsequent years. It is not the case of the Revenue that this revised practice of recognizing income has not been consistently followed by the assessee in future. In our considered opinion, the ld. CIT(A) was justified in deleting the .....

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