ACIT, V. M/s Mecon Limited,

ITA 114/RAN/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85450 (ITAT-RANCHI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 14-03-2014
• Court: TRIBUNAL
• Department Lawyers: DEEPAK ROSHAN JCITLD
• Assessee Lawyers: S SHR S K PODDAR; M K CHOUDHARY ADVOC
• Keywords: Capital expenditure

Judgement Text

INCOME TAX APPELLATE TRIBUNAL, CIRCUIT BENCH, RANCHI BEFORE HON'BLE SHRI H.L. KARWA, PRESIDENT , AND HON'BLE SHRI B.R. BASKARAN, ACCOUNTANT M EMBER ITA NO . 114 /RAN/201 4 A.Y 20 05 - 06 A.C.I.T, CIR - 2, RANCHI VS. M/S. MECON LI MITED PAN: AACCM2119B ( APPELLANT ) ( RESPONDENT ) FOR THE APPELLANT :SH RI DEEPAK ROSHAN, JCIT/LD.DR FOR THE RESPON DENT : S/ SHR S.K PODDAR & M.K CHOUDHARY, ADVOCATES,. LD.ARS DATE OF HEARING : 01 - 12 - 2014 DATE OF PRONOUNCEMENT: 01 - 12 - 2014 O R D E R SHRI B.R. BASKARAN, ACCOUNTANT MEMBER : THIS APPEAL F ILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 2 0 - 12 - 2013 PASSED BY LD. CIT(A) , RANCHI (JHARKHAND) AND IT RELATES TO THE ASSESSMENT YEAR 20 05 - 06 . 2. THE FOLLOWING ISSUES ARE CONTESTED IN THIS APPEAL BY THE REVENUE: - A . DISALLOWANCE OF SUNDR Y CREDITORS B . DISALLOWANCE OF SOFTWARE EXPENSES, AND C . DISALLOWANCE OF EXCESS CLAIM OF INTEREST 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. 4. THE FACTS RELATING TO THE ABOVE ISSUES ARE STATED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNNING OF ENGINEERING AND CONSULTANCY SERVICES AND ALSO EXECUTION OF ENGINEERING PROJECTS. 2 ITA NO. 114 /RAN/14 M/S. MECON LIMITED 5. THE FIRST ISSUE RELATES TO THE LONG OUTSTANDING OF SUNDRY CREDITORS. THE ASSESSING OFFICER NOTICED THAT THE SUNDRY CREDITORS BALANCE DISCLOSED BY THE ASSESSEE AS LIABILITIES CONSIST ING AMOUNT OF RS. 46.11 CRORES WERE OUTSTANDING FOR MORE THAN 3 YEARS. FROM T HE ABOVE SAID OUTSTANDING AMOUNT OF SUNDRY CREDITORS, AN AMOUNT OF RS. 35 CRORES APPROX. WAS SHOWN AS PAYABLE TO EMPLOYEES , G.O.I ETC. TH E ASSESSING OFFICER ASSESSED THE BALANCE AMOUNT OF RS. 11.11 CRORES [RS.46.11 CRORES RS.35.00 CRORES] AS INCOME OF THE ASSESSEE TOWARDS CESS A TION OF LIABILITY . 6. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) NOTICED THAT THE ASSESSEE HAS BEEN REGULARLY R EVIEWING ITS OUTSTANDING LIABILITIES AND WRITING BACK THE SAME TO THE P & L ACCOUNT, WHENEVER IT IS FOUND NOT PAYABLE . ACCORDINGLY, HE DELETED THE ASSESSMENT OF RS.11.11 CRORES BY OBSERVING THAT THE ASSESSING OFFICER HAS ASSESSED THE ABOVE SAID AMOUNT WI THOUT CONSIDERING THE FACTS PREVAILING IN THE CASE OF THE ASSESSEE. 7. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSING OFFICER HAS ASSESSED AN AMOUNT OF RS.11.11 CROR E S ONLY FOR THE REASON THAT THE SAME IS WR ITING BACK FOR MORE THAN 3 YEARS. WE NOTICE THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE SAID LIABILITIES HAS BEEN CEASED TO BE PAYABLE. WE FURTHER NOTICE THAT THE LD. CIT(A) HAS GIVEN A SPECIFIC FINDING THAT THE AS SESSEE IS REGULARLY REVIEWING ITS OUTSTANDING LIABILITIES AND WRITING BACK THE SAME TO ITS P & L ACCOUNT , WHENEVER IT IS FOUND THAT LIABILITIES ARE N O LONGER PAYABLE. UNDER THE SET OF FACTS, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS MADE THE IMPU GNED ASSESSMENT WITHOUT ANY BASIS. HENCE, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ASSESSMENT OF RS. 11.11 CR ORES RELATING TO OUTSTANDING AMOUNT ON SUNDRY CREDITORS. 8. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF SOFTWARE E XPENSES OF RS.4 0 .92 LAKHS CLAIMED BY THE ASSESSEE TREATING THE SAME AS CAPITAL EXPENDITURE. 3 ITA NO. 114 /RAN/14 M/S. MECON LIMITED 9. HOWEVER, THE LD. CIT(A) DELETED THE ADDITION BY FOLLOWING THE DECISION RENDERED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL [ HON'BLE TRIBUNAL, CIRCUIT BENCH, RANCHI ] IN ASSESSEE S OWN CASE IN ITA NOS. 17 & 05/RAN/2013 RELATING TO THE ASSESSMENT YEAR 2007 - 08 . HOWEVER, WE NOTICE THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF SOFTWARE EXPENSES INCURRED BY THE ASSESSEE. WE FURTHER NOTICE THAT DELHI SPECIAL BENC H OF TRIBUNAL [ITAT, DELHI] IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT REPORTED IN (2008) 111 ITD 112 (DEL) HAS CONSIDERED THE QUESTION WHETHER THE EXPENDITURE INCURRED ON ACCOUNT OF COMPUTER SOFTWARE IS REVENUE IN NATURE O R CAPITAL NATURE. WE NOTI CE THAT THE LD.CIT(A) HAS RENDERED HIS DECISION ON THIS ISSUE WITHOUT CONSIDERING T HE SAID DECISION RENDER ED BY THE HON'BLE SPECIAL, ITAT, DELHI IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA) . ACCORDINGLY , WE ARE OF THE VIEW THAT THE ISSUE REQUIRES VERIFI CATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT(A) ON THIS AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO CONSIDER THE ISSUE AFRESH BY OBTAINING THE DETAILS OF SOFTWARE EXPE NSES/EXPLANATION AND ALSO BY CONSIDERING THE SAID DECISION OF THE SPECIAL BENCH, ITAT, DELHI IN THE CASE OF REFERRED ABOVE (SUPRA) AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. 10. NEXT ISSUE RELATES TO THE DISALLOWANCE ON PART OF INTEREST EXPEND ITURE. 11 THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD PAID INTEREST @ 9.06% ON THE LOANS AVAILABLE BY IT, WHEREAS IT HAD RECEIVED INTEREST IN THE RANGE OF 5 TO 5.25% ON THE DEPOSIT S /ADVANCE GIVEN BY IT. ACCORDINGLY, THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE HAS DIVERTED ITS FUNDS FOR NON BUSINESS PURPOSE. ACCORDINGLY, HE DISALLOWED A SUM OF RS.7 .98 CRORES. 12. IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) NOTICED THAT THE ASSESSEE HA D USED LOAN FUNDS FOR ITS SPECIFIC PURPOSE . F OR W HICH THE SAME WAS GRANTED. ACCORDINGLY, HE HELD THAT THERE IS NO QUESTION OF DIVERSION OF THE FUND AS PRESUMED BY THE ASSESSING OFFICER. HENCE, HE DELETED THE DISALLOWANCE. 4 ITA NO. 114 /RAN/14 M/S. MECON LIMITED 13. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE T HAT THE ASSESSING OFFICER DISALLOWED A PART OF INTEREST EXPENDITURE ONLY FOR THE REASON THAT INTEREST EARNED AND THE SAME WAS DIVERTED INTO DEPOSITS/ADVANCES . THE SAME GIVEN BY THE ASSESSEE WAS LESSER THAN THE INTEREST PAID BY THE ASSESSEE. THUS, IT IS NOTICED THAT THE ASSESSING OFFICER HAS NOT SPECIFICALLY POINTED OUT BY DIVERSION OF INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSE. ON THE CONTRARY , THE LD.CIT(A) HAS GIVEN SPECIFIC FINDING THAT THE ASSESSEE HAS USED THE LOAN FUNDS FOR SPECIFIC PURPOSE S FOR WHICH THEY HAVE BEEN SANCTIONED. ACCORDINGLY, THE LD. CIT(A) HAS GIVEN A SPECIFIC FINDING THAT THERE WAS NO DIVERSION OF FUNDS FOR NON BUSINESS PURPOSE. THE LD.DR COULD NOT FURNISH ANY MATERIAL TO CONTRADICT THE FINDINGS GIVEN BY THE LD. CIT(A) U NDER THE SET OF FACTS, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER. 14 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE . PRONOUNCED ACCORDINGLY ON 01 - 12 - 2014 SD/ - SD/ - [ H.L. KARWA ] [ B.R. BASKARAN ] PRESIDENT ACCOUNTANT MEMBER DT. 01 - 12 - 2014 PLACE : RANCHI PP, SR. PS COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT : 2 THE RESPONDENT: 3. .THE CIT, 4.THE CIT(A), 5.DR, ITAT CIRCUIT BENCH, RANCHI 5 ITA NO. 114 /RAN/14 M/S. MECON LIMITED 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT. REGISTRAR 1. DATE OF DICTATION ............. 01 - 12 - 2014 ........ ............... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ........................OTHER MEMBER ..... 02 - 12 - 2014 ........................ 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. ..................... 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT................................ 01 - 12 - - 2014 ................................................... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S ................ 6 . DATE ON WHICH THE FILE GOES TO THE BENCH CLERK ....................................... 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ......................................... 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................................................................................................. 9. DATE OF DESPATCH OF THE ORDER ..............................................................