COMMISSIONER OF INCOME TAX AHMEDABAD IV V. SACHITEL COMMUNICATIONS PVT. LTD

TAXAP/527/2014

AI Insights

The case involves the Commissioner of Income Tax Ahmedabad IV as the appellant and Sachitel Communications Pvt. Ltd as the respondent. The dispute centered on the assessment year 2006-07, where the Assessing Officer made several additions to the income of Sachitel Communications, which were later contested. The additions included Rs.2,50,000 for capital expenditure on computer software, Rs.27,60,730 as unexplained and unverifiable expenses, and Rs.61,23,286 concerning unexplained unsecured loans. The Commissioner of Income Tax (Appeals) deleted these additions, a decision which was upheld by the Income Tax Appellate Tribunal. The High Court, after reviewing the submissions and findings of the lower authorities, dismissed the appeal by the Commissioner of Income Tax, agreeing with the conclusions that the additions were not substantiated by adequate evidence.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 726729 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 21-06-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: VARUN PATEL
• Keywords: Capital expenditure; Income Tax; Software purchase; Unexplained expenses; Unsecured loan
• Section: 142(1); 143(2); 115JB

Judgement Text

"O/TAXAP/527/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 527 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================== COMMISSIONER OF INCOME TAX AHMEDABAD IV....Appellant(s) Versus SACHITEL COMMUNICATIONS PVT. LTD....Opponent(s) ====================================== Appearance: MR.VARUN K.PATEL, ADVOCATE for the Appellant(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER Date : 21/06/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 8 O/TAXAP/527/2014 JUDGMENT 1. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal (hereinafter referred to as ‘the tribunal’) dated 20/09/2003 in ITA No.2673/AHD/2010 for the Assessment Year 2006-07, the revenue has preferred the present Tax Appeal with the following proposed questions of law; (a) Whether in the facts and circumstances of the case, the learned ITAT has erred in law in confirming the order of CIT(A) deleting the addition of Rs.2,50,000/- for purchase of computer software made by the Assessing Officer as capital expenditure? (b) Whether in the facts and circumstances of the case, the learned ITAT has erred in law in confirming the order of the CIT(A) deleting the disallowance of Rs.27,60,730/- made by the Assessing Officer as unexplained and unverifiable expenses? (c) Whether in the facts and circumstances of the case, the learned ITAT has erred in law in confirming the order of CIT(A) deleting the addition of Rs.61,23,286/- in respect of unexplained unsecured loan? 2. The assessee filed the return of income on dated 30/11/2006 declaring ‘NIL’ income. The case of the assessee was selected for scrutiny and notice under Section 143(2) of the Income Tax Act (hereinafter referred to as ‘the Act’) was issued, which was served upon the assessee. Thereafter, notice under Section 142(1) of the Act with a questionnaire Page 2 of 8 O/TAXAP/527/2014 JUDGMENT was issued, which was also served upon the assessee. During the year under consideration, the assessee, who was engaged in offering BPO services to various clients and was having a call center, had shown the export receipts of Rs.1,98,86,153/- and domestic receipts of Rs.33,32,841/- as against the total receipt of Rs.9,67,144/-. The assessee had also shown a loss of Rs.19,98,440/- for the year under consideration. The assessee had paid MAT under Section 115JB on book profit of Rs.20,26,177/- and, thereafter, the Assessing Officer made addition of Rs.2,50,000/- for purchase of computer software as capital expenditure. The Assessing Officer also made disallowance of Rs.27,60,730/- as unexplained and unverifiable expenses and also made an addition of Rs.61,23,286/- in respect of unexplained unsecured loan. Consequently, the Assessing Officer determined the income of the assessee at Rs.2,32,42,904/-. 2.1. Being aggrieved and dissatisfied with the order of assessment passed by the Assessing Officer, the assessee preferred appeal before the Commissioner of Income Tax (Appeals). After considering the rival submissions and the documents produced on record, the Commissioner of Income Tax (Appeals) directed to allow the depreciation as claimed and to delete the addition so made to the extent of Rs.30,30,137/- and, therefore, the Commissioner of Income Tax (Appeals) held that the assessee gets part relief of Rs.30,30,137/- since the balance disallowance of Rs.2,79,580/- is held as confirmed. Now so far as the addition of Rs.2,79,580/- made by the Assessing Officer for purchase of computer software holding the same as capital in nature is concerned, the Commissioner of Income Tax (Appeals) directed Page 3 of 8 O/TAXAP/527/2014 JUDGMENT to delete the same by observing in paragraph 4.2 as under; “I have considered the facts of the case and the submissions of the appellant. I am inclined to accept the contentions of the appellant. Two bills viz. Invoice No.VTA/002/05 dated 25/07/2005 of M/s. VOCALL for 15 days Training Programme to staff of appellant for CRM Software specifically designed for BP/KPO Industries and Invoice No. KSL/007 dated 27/07/2005 of M/s. Kasle for Software for CRM Development Speas were submitted with details of payment through cheque of Rs.2.5 lac to evidence its contentions. Since these software are technical software with specific purpose, the same cannot be held as capital asset as per settled proposition. These are related to expenditure on training with License to the main software having single use. The Assessing Officer is, therefore, directed to delete addition so made. The appellant gets relief of Rs.2,50,000/-” 2.2. Regarding the addition of Rs.27,60,730/- made by the Assessing Officer by disallowing the expenses in respect of income is concerned, the Commissioner of Income Tax (Appeals) directed to delete the same by observing in paragraph 5.3 as under; “I have considered the facts of the case and the submissions as advanced by the appellant. I am inclined to accept the contentions of the appellant. The Assessing Officer has not pointed out any specific defect in the claim of such expenditure. Even his disallowing 1/6th of such expenditure has no basis. All these Page 4 of 8 O/TAXAP/527/2014 JUDGMENT expenditure are billed and properly vouched as evidenced from the details so submitted by the appellant. Even appropriate deduction of TDS was also made wherever it is applicable. Only on the basis that the appellant has not submitted complete details, 1/6th disallowance on adhoc basis does not survive the legal basis. Further, when appellant submitted complete details now, the A.O. once again has not pointed out any specific defect or irregularity which requires such disallowance. During the A.Y. 2006-07, the appellant is subjected to Fringe Benefit tax also. It is, therefore, all such expenditure involving any personal element is take care of by FBT. The addition so made by A.O. is not justified. The same is directed to be deleted. The appellant gets relief of Rs.27,60,730/-” 2.3. With respect to the addition of Rs.22,11,811/- made by the Assessing Officer in respect of unexplained creditors is concerned, the Commissioner of Income Tax (Appeals) directed to delete the same by observing in paragraph 6.2. as under; “I have considered the facts of the case and the submissions of the appellant. As discussed in earlier paras, the A.O. made such adhoc addition on account of partial compliance by the appellant during assessment proceedings. The basis of 25% of such creditor for which addition was made is not tenable in the eyes of law. Now, when appellant has submitted complete detail, the A.O. has not put any comment on merit of such details. On the other hand, perusal of such details substantiates claim of the appellant. Therefore, in absence of any Page 5 of 8 O/TAXAP/527/2014 JUDGMENT specific finding against the ground, the A.O. is not justified in making such adhoc addition. The A.O. is directed to delete such addition. The appellant get relief of Rs.22,11,811/-.” 2.4. Similarly with respect to addition of Rs.61,23,286/- in respect of unexplained unsecured loans is concerned, considering the material on record, the CIT(A) directed to delete the same by observing in paragraph 7.3 as under; “I have considered the facts of the case and the submissions as advanced by the appellant. I am inclined to accept the contentions of the appellant. Considering the various evidences submitted by appellant before the A.O. and now also before me in the form of identity (copy of passport and permanent resident card), copy of account showing money received through banking channel and confirmation from the party, the onus stand discharged by the appellant. As far as capacity of the creditor, the reason submitted by appellant appears to be plausible that the party is not cooperating since amount is not refunded and looking to no objection from RBI or any proceedings against such party or appellant from DRI or enforcement, such capacity is proved. The A.O. has not made any adverse comment on such basic ingredients while examining the verification of such loan. No information was called for from any authorities. It is, therefore, in the absence of any adverse comment and considering the evidences, additions made by A.O. is held unjustified and not sustainable in the eyes of law. The A.O. is directed to delete such addition. The Page 6 of 8 O/TAXAP/527/2014 JUDGMENT appellant gets relief of RS.61,23,286/-” 2.5. Being aggrieved and dissatisfied with the aforesaid order passed by the Commissioner of Income Tax (Appeals) in deleting the additions made by the Assessing Officer with respect to the unexplained, unverifiable and unsecured loan in deleting the addition of Rs.2,50,000/- for purchase of computers software made by the Assessing Officer as capital expenditure, the revenue preferred appeal before the tribunal and by impugned order the tribunal has dismissed the appeal confirming the order passed by the Commissioner of Income Tax (Appeals. 3. We have heard Shri Varun Patel, learned advocate appearing on behalf of the appellant-revenue. He is not in a position to satisfy us how the finding recorded by the Commissioner of Income Tax (Appeals) confirmed by the tribunal while deleting the disallowance of Rs.27,60,730/- made by the Assessing Officer as unexplained and unverifiable expenses and deleting the addition of Rs.61,23,286/- in respect of unexplained unsecured loan can be said to be perverse. Considering the aforesaid finding recorded by the Commissioner of Income Tax (Appeals) as well as the tribunal, it cannot be said that the tribunal and the Commissioner of Income Tax (Appeals) have committed any error in deleting the aforesaid disallowance. We are in complete agreement with the view taken by the tribunal as well as the Commissioner of Income Tax (Appeals) while deleting the aforesaid disallowance. Under the circumstances, the proposed question nos. (b) and (c) are held against the revenue and so far as the proposed question no. (a) is concerned, as the amount Page 7 of 8 O/TAXAP/527/2014 JUDGMENT involved is only Rs.2,50,000/-, on the smallness of the amount involved, we decline to entertain the said question. 4. In view of the above, the present appeal deserves to be dismissed and is accordingly dismissed. (M.R.SHAH, J.) (K.J.THAKER, J) Siji Page 8 of 8 "