COMMISSIONER OF INCOME TAX-IV V. SHREE RAMA MULTI TECH LTD

TAX APPEAL NO. 555 of 2012

AI Insights

The case revolves around the appeal by the Commissioner of Income Tax-IV challenging the decisions made by the Income Tax Appellate Tribunal regarding the assessment year 2005-06 for Shree Rama Multi Tech Ltd. The primary issues contested included the disallowance of commission expenses, the depreciation claim on software as an intangible asset, and the additions made under Section 68 of the Income Tax Act concerning unexplained share application money. The Tribunal's decisions, which favored the assessee, were based on detailed examinations of the evidence and adherence to precedents set by the Supreme Court, particularly in the context of the admissibility of certain expenses and the treatment of intangible assets.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 368937 (HC-GUJARAT)
• Appeal Type: High Court cases
• Pronouncement Date: 28-01-2013
• Appeal Filed By: Department
• Assessment Year: 2005-2006
• Other Referred Cases: Commissioner of Income Tax, Andhra Pradesh Vs. Dhanrajgirji Raja Narasinghirji, Commissioner of Income Tax. Vs. Lovely Exports (P) Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SAURABH SOPARKAR; BANDISH SOPARKAR; SWATI SOPARKAR
• Assessee Lawyers: PAURAMI SHETH
• Keywords: Depreciation on intangible assets; Disallowance of commission expenses; Share Application Money; Unexplained share capital
• Section: 68

Judgement Text

"O/TAXAP/555/2012 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 555 of 2012 ================================================================ COMMISSIONER OF INCOME TAX-IV....Appellant(s) Versus SHREE RAMA MULTI TECH LTD....Opponent(s) ================================================================ Appearance: MS PAURAMI B SHETH, ADVOCATE for the Appellant(s) No. 1 MR. SAURABH N. SOPARKAR, SR. COUNSEL with Mr. Bandish Soparkar and Mrs. Swati Soparkar for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 28/01/2013 ORAL ORDER (PER : HONOURABLE MS.JUSTICE SONIA GOKANI) 1. The Department, while challenging the order of the Income Tax Appellate Tribunal for the assessment year 2005-06 in case of the respondent-assessee, has raised following substantial questions for our determination. “1. Whether the Tribunal is right in deleting the addition made on account of disallowance of commission expenses? 2. Whether the Tribunal is right in rejecting the revenue’s appeal filed against the decision of the CIT(A) in deleting the disallowance of claim of depreciation on intangible assets, being software? 3. Whether the Tribunal is right in deleting the addition made u/s 68 of the Act?” Page 1 of 6 Downloaded on : Thu Jun 05 15:21:58 IST 2025 Uploaded by JYOTI V. JANI(HC00213) on Mon Feb 04 2013 O/TAXAP/555/2012 ORDER 2. The first question pertains to deleting the addition made on account of disallowance of commission expenses. This Court while determining Tax Appeal No. 510 of 2012 has dealt with the said issue as follows: “2. The first question pertains to deletion of the addition made on account of disallowance of commission expenses. The commission expenses to the tune of Rs. 1.24 crores (rounded off) was paid out of the said total claim of the expenses of commission. 3. The Assessing Officer had disallowed the same to the tune of 20% on noting that in the preceding year, the commission payment was claimed only at 0.70% whereas in the year under consideration 2005-06, the said claim was of 1.93% of the gross turnover. This was challenged before the Commissioner of Income Tax (Appeals) who confirmed the view of the Assessing Officer even though it was argued before it that no notice was served upon the assessee and on merit also, addition was not justifiable. 4. When challenged in the 2nd Appeal by the assessee, after a detailed hearing, the Tribunal held that it was not open to the department to prescribe what expenditure the assessee should incur and in what circumstances he should incur the expenses. It sought to rely upon the decision of the Apex Court in case of Commissioner of Income Tax, Andhra Pradesh Vs. Dhanrajgirji Raja Narasinghirji reported in 91 ITR 544 for arriving at such findings. In our opinion, sufficiently elaborate discussion already finds place in the order of the Tribunal. Tribunal has appropriately considered the entire gambit of facts presented before it. It also noted the maintenance of books of accounts for the assessee and absence of any defect in such record and therefore, it rightly held that merely because in the subsequent year more expenses are incurred by the assessee by making such comparison, disallowance was not justified. Page 2 of 6 Downloaded on : Thu Jun 05 15:21:58 IST 2025 Uploaded by JYOTI V. JANI(HC00213) on Mon Feb 04 2013 O/TAXAP/555/2012 ORDER 5. We find that essentially, the question is appreciated on the basis of the factual matrix which had emerged on record and secondly, the law made applicable to such facts also as such, indicates no error. No substantial question of law nor any illegality arises which would warrant any interference in this question.” This question, therefore, does not require further consideration. 3. As far as second question is concerned, in Tax Appeal No. 509 of 2012 in case of the very same assessee, where this issue has been decided as under: “The learned CIT(A) on proper examination of evidences and material rightly came to the conclusion that software is intangible asset and was loaded in the system of machine. The learned CIT(A) also rightly held that installation of software could be checked by the technical person whether it was loaded in the system or not. Therefore, the finding in the survey cannot be relied upon. Even the AO has accepted the fact that some of the software were developed locally and installed in the system. The finding of fact recorded by learned CIT(A) find support from the valuation report of assets prepared by Dalal Mott Macdonald which was found in survey which indicated that software developed and installed by the assessee in the system. The assessee produced all the vouchers and receipt for the same which was also examined by learned CIT(A). Nothing is produced before us during the course of arguments to rebut the findings of learned CIT(A). Considering the facts and circumstances of the case in the light of the material on record, we do not find any justification to interfere with the order of the learned CIT(A) in allowing depreciation in respect of all the software purchased and installed during the year.” This question also arose in Tax Appeal No. 506 of 2012. In neither of these appeals we deemed it fit to interfere as it also is a remand to the Assessing Officer. This issue, Page 3 of 6 Downloaded on : Thu Jun 05 15:21:58 IST 2025 Uploaded by JYOTI V. JANI(HC00213) on Mon Feb 04 2013 O/TAXAP/555/2012 ORDER therefore, deserves no further consideration. 4. As far as third question is concerned, the Assessing Officer examined the balance-sheet of the assessee- company which had indicated the amount of Rs. 5.04 crores towards his share application money. On enquiry, a detailed reply was filed by the assessee-respondent and the details of preferential warrants for the year under consideration also were furnished. It appears from the record that assessee-company had issued the preferential warrants as part of the debt recovery process and the said process was formed in the part of the scheme of compromise and arrangement made in Section 391 of the Companies Act with its landers and share holders. The Assessing Officer not being satisfied with the proofs adduced by the company had chosen to disallow the said amount under Section 68 of the Income Tax Act. 5. When challenged before the CIT(Appeals), it found that the respondent-assessee had furnished sufficient evidence in respect of details of their names, addresses, PAN and other details of the share applicants. It also noted that the compromise scheme was placed before this High Court and the requirement of furnishing the name and addresses of the share holders were duly fulfilled. Accordingly, it directed the Assessing Officer to delete the entire additions made under Section 68 of the Act. While so doing it sought to rely upon the decision of Apex Court tendered in case of Commissioner of Income Tax. Vs. Lovely Exports (P) Ltd. reported in 216 CTR Supreme Court page 195. Page 4 of 6 Downloaded on : Thu Jun 05 15:21:58 IST 2025 Uploaded by JYOTI V. JANI(HC00213) on Mon Feb 04 2013 O/TAXAP/555/2012 ORDER 6. Tribunal upheld the order of the CIT(Appeals) in the following manner: “87. The revenue on ground No.3, challenged the order of the learned CIT(A) in directing the AO to allow share application money of Rs. 4,36,00,000/-. The AO disallowed the above amount u/s. 68 of the IT Act being unexplained share application money. The assessee furnished details before the AO which includes details of preferential warrants issued to four companies i.e. Pan Emamy Cosmed Ltd., Vimposn Investments Pvt. Ltd. Shri Vikram Patel and Sharad C. Patel amounting to Rs. 5,04,00,000/-. But the claim of the assessee was rejected treating the same as unexplained share capital money. It was submitted before the learned CIT (A) that addition on account of unexplained share capital was made in respect of share holders namely Vimpson Investments Pvt. Ltd. (Rs. 80 Lacs), Shri Vikram Patel (Rs. 2.40 Crores) and Shri Sharad Patel (Rs. 1.16 Crores) aggregating to Rs. 4,36,00,000/-. The assessee furnished complete details of receipt of share application money along with share application forms, their names, addresses, PAN and other details of the share applicants. Therefore, assessee proved identity of the share applicants, genuineness of the transactions and their creditworthiness. It was also submitted that such share application money was received as a result of compromise scheme placed before the Hon’ble Gujarat High Court. The assessee relied upon several decisions in support of the contention and ultimately the learned CIT(A) found that the issue is covered by decision of the Hon’ble Supreme Court in the case of Lovely Exports, 216 CTR 195 in which it was held that as the shareholders are identified, no addition can be made in the hands of the company as unexplained share capital. The learned CIT(A) accordingly deleted the addition. Both the parties stated that the issue is covered in favour of the assessee by the above judgement of the Hon’ble Supreme Court in the case of Lovely Exports (supra). By following the same decision and considering the findings of the learned CIT(A), we do not find any merit in this ground of appeal of the revenue. Same is accordingly dismissed.” Page 5 of 6 Downloaded on : Thu Jun 05 15:21:58 IST 2025 Uploaded by JYOTI V. JANI(HC00213) on Mon Feb 04 2013 O/TAXAP/555/2012 ORDER 7. It can be noted from the submissions made by learned counsels as also from the material on record that both CIT(Appeals) as well as the Tribunal have duly considered issue and having found complete details of the receipt of share application money, along with the form names and addresses, PAN and other requisite details they found complete absence of the grounds noted for invoking the provision of section 68 of the Income tax Act. Moreover, both rightly had applied the decision of Lovely exports (P)Ltd. (supra) to the case of the respondent assessee. We find no reason in absence of any illegality much less any perversity too to interfere with the order of both these authorities, who have concurrently held the due details having been proved. What of the assessee company had noted to prove it had presented the necessary worth proof before both the authorities and it is not excepted by the assessee company to further prove the source of the deceased. This tax appeal resultantly raises no question of law and therefore do not merit for the consideration and is dismissed. (AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Jyoti Page 6 of 6 Downloaded on : Thu Jun 05 15:21:58 IST 2025 Uploaded by JYOTI V. JANI(HC00213) on Mon Feb 04 2013 "