Weir Mineral (India) Pvt. Ltd Vs DCIT (ITAT Delhi)
ITAT Delhi held that royalty income, whose ultimate collection was uncertain and unrecognized in the books by the assessee, cannot be added as undisclosed professional income merely because TDS was deducted on such income
1. Facts of the Case
- Assessee: M/s. Weir Mineral (India) Pvt. Ltd., engaged in the business of manufacturing slurry pumps, valves, spare parts, and related design support services.
- Assessment Year: AY 2012–13.
- Return filed: Declared total income of ₹19,38,19,758.
- Assessment completed u/s 143(3): AO made an addition of ₹79,81,999 towards undisclosed professional income on account of royalty income which was never received or recognized in the books.
- TDS Credit: The assessee had initially claimed TDS on the disputed royalty income but later voluntarily requested the AO to disregard the TDS claim since the income itself was uncertain and not recognized.
2. Assessee’s Key Arguments
- The royalty income was not recognized in the books due to uncertainty in realization.
- As per AS-9 (Revenue Recognition), income should be recognized only when its ultimate collection is reasonably certain.
- The deduction of TDS does not conclusively establish that the income has accrued.
- When income is uncertain, its recognition should be deferred until the uncertainty is resolved.
- Even though TDS was deducted, the assessee should not be taxed on hypothetical or unrealizable income.
- The assessee voluntarily disclaimed the TDS credit, acknowledging that it was not entitled to it.
3. Key Principles from Accounting Standard AS-9
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