The DCIT, Circle-4, Ahmedabad V. M/s. e-Com Opportunities Pvt. Ltd., Ahmedabad

ITA 1032/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6053 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Keywords: Depreciation
• Section: 142(1); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER DATE OF HEARING: 4.06.10 DRAFTED ON:4.06.2010 ITA NO.1032/AHD/2010 ASSESSMENT YEAR : 2006-2007 THE DY.COMMISSIONER OF INCOME TAX, CIRCLE-4, AHMEDABAD, NAVJIVAN TRUST BLDG. OFF. ASHRAM ROAD, AHMEDABAD. VS. E-COM OPPORTUNITIES PVT. LTD., 8 TH FLOOR, WHITE HOUSE PANCHVATI, AMBAWADI, AHMEDABAD. PAN/GIR NO. : AAACE7133R (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K.MISHRA SR. D.R. RESPONDENT BY: NONE O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VIII, A HEMDABAD DATED 27.11.2009. 2. THE GROUNDS TAKEN BY THE REVENUE IN THIS APPEAL READS AS UNDER:- 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE TO RS.3 LAKHS AS AGAINST RS.9,97,0 41/- MADE BY THE A.O. ON ACCOUNT OF PURCHASE. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN N OT APPRECIATING THE FACT THAT THE ASSESSEE WAS GIVEN E NOUGH - 2 - OPPORTUNITIES TO PROVE ITS CLAIM BUT THE ASSESSEE H AS FAILED TO PROVE THE SAME. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS HELD AS UNDER:- 8. THE FOURTH GROUND OF APPEAL IS DIRECTED AGAINST THE DISALLOWANCE OF PURCHASES OF CONSUMABLES AMOUNTING TO RS.9,97,041/-. DURING THE ASSESSMENT PROCEEDINGS TH E A.O ASKED THE APPELLANT TO PROVE THE GENUINENESS OF THE PURCH ASES OF CONSUMABLE GOODS AMOUNTING TO RS.9,97,041/-. HE ISS UED A SHOW CAUSE NOTICE TO THE APPELLANT VIDE LETTER DATED 14 TH AUGUST, 2008 ENCLOSING THEREWITH THE DETAILS OF SUCH EXPENSES AS PER ANNEXURE- N OF THE LETTER. THESE DETAILS ARE MENTIONED BY THE A.O IN PARA 12 OF THE ASSESSMENT ORDER. HE FURTHER NOTED THAT THE APPELLANT'S BUSINESS ACTIVITY WAS TO PROVIDE I.T ENABLED SERVIC ES, BPO SERVICE, BROADBAND, NETWORK AND INTERNET SERVICES. HE OBSERVED THAT THE NETWORK AND OTHER ITEMS USED FOR TRANSMITT ING THE SIGNALS WERE CAPITAL IN NATURE. THE A.O ALSO OBSERVED THAT SIMILAR ISSUE HAD COME FOR CONSIDERATION IN A.Y 2001-02 WHEN SUCH EXPENSES WERE CLAIMED BY THE APPELLANT FOR THE FIRST TIME. T HESE EXPENSES WERE HELD BY THE A.O IN THE ASSESSMENT FOR THE A.Y 2001-02 AS CAPITAL IN NATURE AND ONLY 20% DEPRECIATION ON THEM WAS ALLOWED. THE A.O'S ACTION WAS UPHELD BY THE ID. CIT (A) VIDE ORDER DATED 29.2.2006 WHEREIN HE HAD SIMPLY MODIFIE D THE ORDER OF A.O DIRECTING TO ALLOW DEPRECIATION @ 25% APPLIC ABLE TO PLANT AND MACHINERY. 8.1 THE A.O NOTED THAT SINCE THE APPELLANT WAS ON T HE VERGE OF CLOSING ITS BUSINESS AND ITS SALES PROCEEDS FROM IN TERNET SERVICES WERE REDUCED TO 38% HE CARRIED OUT THE ENQUIRIES WI TH REGARD TO CLAIM OF EXPENSES IN NATURE OF REVENUE AND CAPITAL BOTH. AS A RESULT OF THESE ENQUIRIES HE DETECTED DISCREPANCIES IN THE ACCOUNTS PERTAINING TO SEVEN PARTIES AS MENTIONED BY HIM ON PAGE 8 OF THE ASSESSMENT ORDER. HE NOTED THAT THE NOTICE ISSUED U /S 133(6) TO EXATT TECHNOLOGY P. LTD. COULD NOT BE SERVED. FURTH ER, THE INFORMATION RECEIVED FROM CRUX TECHNOLOGY, KRISHNA ENTERPRISES, AEGIS INFOSYS & JAYTRONICS WERE NOT MA TCHING WITH THE ACCOUNTS MAINTAINED BY THE APPELLANT. HE ACCORD INGLY GRANTED OPPORTUNITY TO THE APPELLANT TO EXPLAIN ITS POSITIO N IN THIS REGARD. HE ALSO ASKED THE APPELLANT TO PRODUCE THE AUTHORIZ ED PERSONS - 3 - FROM THESE PARTIES FOR VERIFICATION OF ACCOUNTS. SI NCE, THE APPELLANT DID NOT COMPLY WITH THE REQUIREMENTS OF T HE A.O HE TREATED THE EXPENSES TO THE TUNE OF RS.9,97,041/- A S UNEXPLAINED AND ADDED THE SAME IN THE INCOME OF THE APPELLANT. 8.2 DURING THE APPELLATE PROCEEDINGS THE LD. A.R OF THE APPELLANT OBJECTED TO THE SAID DISALLOWANCE AND SUBMITTED AS UNDER: 'DURING THE YEAR THE AS DETAILED IN SCHEDULED IN 'K ' ASSESSEE HAS INCURRED MATERIAL COST OF RS.29,13,823/- AS AGAINST SALES OF 52,50,133/- THESE MATERIAL COST CONSIST OF COST OF BANDWIDTH RS.19,16,782 AND COST OF CONSUMABLE RS.9,97,011/-. THE ENTIRE COST OF CONSUMABLE OF RS.9,97,011/- HAS BEEN DISALL OWED AS PER THE DISCUSSION MADE IN PARA 12 AND 13 OF HIS ORDER FOR THE REASON THAT THE APPELLANT HAS FAILED TO ESTABLISH THE IDEN TITY, EXISTENCE AS WELL AS THE CAPACITY TO COMPLETE THE TRANSACTION. F URTHER BECAUSE THE CONCERNED PARTIES COULD NOT BE PRODUCED THE GEN UINENESS OF THE TRANSACTION COULD NOT BE ESTABLISHED AND ACCORD ING TO HIM PRODUCTION OF COPY OF ACCOUNTS OR SHOWING SOME DEBI T ENTRIES IN THE BANK STATEMENT IS NOT CONCLUSIVE EVIDENCE IN IT SELF. AT THE OUTSET, IT WILL BE RELEVANT TO POINT OUT THA T THE LD. A.O. HAS MADE THE ADDITIONS OR DISALLOWED THE GENUINE EXPEND ITURE SIMPLY ON THE BASIS OF DOUBT AND SUSPICION AND THE SUSPICI ON HOWSOEVER STRONG CAN NOT TAKE THE PLACE OF FACTS AND SUCH TYP E OF ADDITIONS / DISALLOWANCES ARE AGAINST THE SETTLED PRINCIPLE OF LAW WHICH IS ALSO BINDING ON HIM. BY LETTER DATED 2ND SEPTEMBER,2008 WITH THE SUBJECT SUBMISSION OF INFORMATION U/S 142(1) THE LD A.O. AS PER PARA 4 (IV)OF THE SAID LETTER DEMANDED JUSTIFICATION OF CLAIM OF COST OF CONSUMABLE OF RS.9,97,040/- WITH REFERENCE TO ADDITION TO FIXE D ASSETS, COST OF BANDWIDTH FOR INTERNET FOR RS.19,16,782/-, INCOME F ROM SALES - SALES OF INTERNET SERVICES 52,50,133/- AND OTHER EX PENSES DEBITED IN PROFIT AND LOSS ACCOUNT, AND FURTHER BY PARA-4 ( V) HE SOUGH COPY OF ACCOUNT OF SUPPLIER CONTAINING FULL DESCRIP TIONS OF EACH ENTRY. IN RESPONSE TO VARIOUS QUERIES OF A.O. ASSESSEE FUR NISHED DETAILS OF CONSUMABLES SHOWING ITEM WISE PURCHASE WITH COPY OF LEDGER ACCOUNT AND BILLS OF MAJOR PURCHASES. STATEMENT SHO WING NAME OF CREDITORS WITH THE OPENING BALANCE, PURCHASES OF CO NSUMABLES, PAYMENTS AND CLOSING DETAILS WAS ALSO FURNISHED AS PER ANNEXURE'. REPRODUCED BY HIM IN PARA-12 OF THE ASSE SSMENT - 4 - ORDER. THE ITEM WISE DETAILS THEREOF OF RS 997040/- IS AGAIN REPRODUCED HEREUNDER. SR. NO NATURE OF CONSUMABLE A/C AMOUNT (RS.) NAME OF PARTY FROM WHOM CONSUMABLES PURCHASED OR PAID IN CASH 1 ETHERNET CARD 8750 AEGIS 2 CABLE EQUIPMENT 48532 COSMO TRADER 3 HUB PURCHASES 313515 AEGIS, ADITYA INFORMATIVE 4 OCTROI EXPENSES 55738 PAID IN CASH 5 FREIGHT AND FORWARDING 5465 PAID IN CASH 6 SABARMATIM NOC EXPENSES 33500 PAID IN CASH 7 CABLE CHEETAH 8615 JAYTRONICS 8 G.I. HOOK PURCHASES 630 PAID IN CASH 9 GALVANIZE WIRE PURCHASE . 19817 PAID IN CASH 10 MULTIMETER PURCHASE 600 PAID IN CASH 11 RJ45 CONNECTOR PURCHASES 3250 PAID IN CASH 12 RUBBER BALL PURCHASES 180 PAID IN CASH 13 BRIDGE PURCHASES 52500 LOGISTIC TECHNOLOGIES 14 LAN CABLE BOX PURCHASES 52600 AEGIS 15 DVD CASTING PURCHASES 950 PAID IN CASH 16 DVDR PURCHASES 3670 PAID IN CASH 17 I.C MATERIAL HUB REPAIRS 5700 PAID IN CASH 18 LG DVD WRITER 3500 PAID IN CASH 19 WIRELESS SET FOR ENGINEER 21550 PAID IN CASH 20 PURCHASE ACCOUNT 36885 AEGIS 21 PURCHASE (BNC CONNECTOR) 1120 PAID IN CASH 22 PURCHASE (ROPE WIRE) 14650 COSMOS TRADER 23 CABLE MAINTENANCE 2100 PAID IN CASH 24 CABLE UTP CAT V 139507 D.D.CABLE TEK PRIVATE LIMITED 25 LIGHTNING PROTECTOR 10603 CREATIVE CONTROL. TIKKO ENTERPRISES 26 CABLE EXPENSES 51827 PAID IN CASH 27 OFC RENTAL 99166.67 INDUSLAND MEDIA AND COMMUNICATIONS LIMITED 28 RENT 570 PAID IN CASH 29 OTHERS 1550 PAID IN CASH TOTAL (RS.) 997040.67 THE PURCHASES OF THE ABOVE ITEMS HAVE BEEN FURTHER CORROBORATED BY FURNISHING ACCOUNTS OF SUPPLIER AND THE COPIES O F INVOICES - 5 - EVIDENCING THE PURCHASE OF THESE ITEMS AND THE COPI ES OF BANK STATEMENTS EVIDENCING PAYMENTS BY CHEQUES. THE ENTIRE ADDITIONS HAS BEEN MADE BY LD A.O. SIMPL Y FOR THE SAKE OF ADDITIONS BY IGNORING THE VARIOUS EVIDENCES ON RECORD AND THE NECESSITY OF SUCH EXPENDITURE FOR THE CONDUCT O F THE BUSINESS OF THE ASSESEEE.' 8.3. I HAVE CONSIDERED THE FACTS AND SUBMISSION OF THE LD. A.R CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT'S VOLUME OF BUSINESS DURING THE RELEVANT PERIOD REDUC ED TO 38% AS COMPARED TO PRECEDING YEAR, YET IT CANNOT BE IMAGIN ED THAT IT COULD CARRY OUT WITHOUT INCURRING DAY TO DAY .EXPEN SES. MOST OF THE EXPENSES UNDER REFERENCE HAVE BEEN INCURRED TO FULFILL THE DAY TO DAY REQUIREMENTS OF THE BUSINESS. SINCE, THE APP ELLANT HAS NOT BROUGHT ON RECORD COMPLETE EVIDENCE IN SUPPORT OF S UCH EXPENSES THEIR ALLOWABILITY IS TO BE DECIDED KEEPING IN VIEW THE SURROUNDING FACTS AND CIRCUMSTANCES OF THE CASE: THEREFORE, AFTER CONSIDERING THE TOTALITY OF THE FACTS IT WOUL D MEET THE ENDS OF JUSTICE IF 30% OF SUCH EXPENSES ARE DISALLOWED. IN VIEW OF THIS, A SUM OF RS.3,00,000 OUT OF THE DISALLOWANCE OF RS.9, 97,041/- IS HEREBY CONFIRMED. THE APPELLANT WILL GET RELIEF OF RS.6,97,041/- ACCORDINGLY. 4. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING INTERNET SERVICES. DURIN G THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED BY LEARNED A SSESSING OFFICER TO PROVE THE GENUINENESS OF THE CASE OF CONSUMABLE GOO DS OF RS.9,97,041/-. THE LEARNED ASSESSING OFFICER OBSER VED THAT NOTICE ISSUED UNDER SECTION 133(6) EXATT TECHNOLOGY P. LTD . COULD NOT BE SERVED. FURTHER, INFORMATION RECEIVED FROM CRUX TEC HNOLOGY, KRISHANA ENTERPRISES, AEGIS INFOSYS AND JAY ELECTRONICS WER E NOT MATCHING WITH THE ACCOUNT MAINTAINED BY THE ASSESSEE. HE REQUIRED THE ASSESSEE TO EXPLAIN THE SAME ALSO TO PRODUCE THE AUTHORITIES PE RSONS FROM THESE PARTIES FOR VERIFICATION OF ACCOUNTS. SINCE, THE A SSESSEE DID NOT COMPLY - 6 - WITH THE REQUIREMENTS OF THE LEARNED ASSESSING OFFI CER, HE TREATED THE EXPENSES OF RS.9,97,041/- AS UNEXPLAINED AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. 5. ON APPEAL BY THE ASSESSEE, THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS) OBSERVED THAT THE VOLUME OF BUSINESS D URING THE YEAR REDUCED TO 38% AS COMPARED TO PRECEDING YEAR. HE A LSO NOTED THAT MOST OF THE EXPENSES UNDER REFERENCE WERE INCURRED TO FULFILL THE DAY TO DAY REQUIREMENTS OF THE BUSINESS. SINCE, THE ASSESS EE HAS NOT BROUGHT ON RECORD COMPLETE EVIDENCE IN SUPPORT OF SUCH EXPE NSES. HE HELD THAT IT WOULD MEET THE ENDS OF JUSTICE THE 30% OF THE EX PENSES ARE DISALLOWED. ACCORDINGLY, HE SUSTAINED DISALLOWANCE OF RS.3 LACS AND DELETED THE BALANCE DISALLOWANCE OF RS.6,97,041/-. 6. NOTICE OF HEARING WAS SENT TO THE RESPONDENT ASS ESSEE VIDE REGISTERED POST WITH A.D. ON 13.05.2010. THE SAME W AS SERVED ON THE ASSESSEE AS EVIDENCED BY THE ACKNOWLEDGEMENT CARED OF THE POST OFFICE PLACED ON RECORD. NONE WAS PRESENT WHEN THE CASE WA S CALLED FOR HEARING AND NEITHER ANY ADJOURNMENT APPLICATION WAS FILED. THE BENCH BEING SATISFIED THAT THE APPEAL CAN BE DISPOSED OFF IN ABSENCE OF RESPONDENT ASSESSEE, HEARD THE APPEAL EX-PARTE QUA THE RESPONDENT ASSESSEE AND PROCEEDED TO DECIDE THE SAME ON THE BA SIS OF THE MATERIALS AVAILABLE ON RECORD. 7. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED DEDUCTION FOR CONSUMABLES AMOU NTING TO RS.9,97,041/-. IN ORDER TO VERIFY THE GENUINENESS OF THE PURCHASES - 7 - MADE, THE LEARNED ASSESSING OFFICER ISSUED NOTICE U NDER SECTION 133(6) AND THE SAID NOTICE COULD NOT BE SERVED IN THE CASE OF EXATT TECHNOLOGY P. LTD. AND INFORMATION RECEIVED FROM CRUX TECHNOLO GY, KRISHNA ENTERPRISES, AEGIS INFOSYS AND JAY ELECTRONICS WERE NOT MATCHING WITH THE ACCOUNTS OF THE ASSESSEE. THE LEARNED ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE THE PARTIES FOR VERIFICATIO N AND TO EXPLAIN THE POSITION. SINCE, NO COMPLIANCE WAS MADE TO THE SAME , THE LEARNED ASSESSING OFFICER MADE ADDITION OF THE ENTIRE AMOUN T OF EXPENSES CLAIMED UNDER THE HEAD CONSUMABLES OF RS.9,97,041/ -. IN APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ESTIMAT ED THE DISALLOWANCE AT RS.3 LACS. THE LEARNED DEPARTMENTA L REPRESENTATIVE SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICE R. WE FIND THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT SHOW BY BRINGING ANY POSITIVE MATERIAL ON RECORD THAT DURING THE YEAR, T HE ASSESSEE HAS NOT UTILISED ANY CONSUMABLES IN CARRYING OUT ITS BUSINE SS. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT SHOW HOW THE ESTIMATION OF DISALLOWANCE OUT OF CONSUMABLES OF RS.3LACS MADE BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) WAS NOT PROPER OR JUSTIFIED. HENCE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON THIS 11 TH DAY OF JUNE 2010. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER - 8 - AHMEDABAD; ON THIS 11 TH DAY OF JUNE, 2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 07.06.2010 ---------------- --- 2. DRAFT PLACED BEFORE AUTHORITY09.06.2010 ------- ------------ 3. DRAFT PROPOSED & PLACED 09.06.2010 ----------- -------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 09.06.2010 --------- ---------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 09.06.2010 ------- ------------- 6. KEPT FOR PRONOUNCEMENT ON 11.06.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 11.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------