Decision Craft Analytics Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 1162/AHD/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5920 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 05-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KRUPESH PATEL
• Keywords: Depreciation; Corroborative evidences
• Section: 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE JUSTICE P.P. BHATT, PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ITA NOS.1161 & 1162/AHD/2015 ( / ASSESSMENT YEARS : 2007-08 & 2008-09) DECISION CRAFT ANALYTICS LTD. 601, SHAHPATH-II OPP. RAJPATH CLUB SG HIGHWAY, AHMEDABAD / VS. THE DCIT CIRCLE-1 AHMEDABAD ./ ./ PAN/GIR NO. : AABCC 5157 E ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI KRUPESH PATEL, AR / RESPONDENT BY : SHRI VINOD TANWANI, SR.DR / DATE OF HEARING 03/01/2019 !'# / DATE OF PRONOUNCEMENT 21 /01/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST THE SEPARATE ORDERS OF THE COMMISS IONER OF INCOME TAX (APPEALS)1, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEA L NO.CIT(A)- VI/DCIT, CIR-1/137 AND 39/2013-14 NOW-245 & 244/CIT (A)-1 DATED 27/02/2015 & 20/02/2015 ARISING IN THE ASSESSMEN T ORDER PASSED UNDER S.143(3) R.W.S.147 OF THE INCOME TAX ACT, 1961(HERE INAFTER REFERRED TO AS 'THE ACT') AND PENALTY ORDER PASSED U/S.271(1)(C) O F THE ACT DATED 21/03/2013 AND 26/03/2013 RELEVANT TO ASSESSMENT Y EARS (AYS) 2007- 08 & 2008-09 RESPECTIVELY. ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 2 - 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND IN ITS APPEALS:- IN ITA NO.1161/AHD/2015 FOR AY 2007-08 THE LEARNED CIT(A) ERRED IN LAW WHILE DENYING EXEMP TION OF RS.46,37,858/- U/S.10A OF INCOME TAX ACT, 1961. IN ITA NO.1162/AHD/2015 FOR AY 2008-09 THE LEARNED CIT(A) ERRED IN LAW IN UPHOLDING PENALT Y U/S.271(1)(C) OF INCOME TAX ACT, 1961. 3. FIRST, WE DEAL WITH ASSESSEES APPEAL IN ITA NO. 1162/AHD/2015. THE SOLITARY ISSUE RAISED BY THE ASSESSEE IS THAT T HE LD.CIT(A) ERRED IN CONFIRMING THE PENALTY IMPOSED BY THE ASSESSING OFF ICER U/S 271(1)(C) OF THE ACT. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND IT ENABLED SERVICES. THE ASSESSEE FOR THE YEAR UNDER CONSIDER ATION FILED ITS RETURN OF INCOME DECLARING LOSS OF RS. 8,21,23,365/- ONLY. T HE ASSESSING OFFICER IN THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 30/11/2010 DETERMINED THE LOSS AT RS. 8,06,05,099/- AFTER MAKING THE DISALLOWANCES/ADDITIONS TO THE TOTAL INCOME OF THE ASSESSEE. AMONG OTHER THINGS, THERE WAS A DISALLOWANCE OF SOFTWARE EXPENS ES AMOUNTING TO RS. 6,26,672/- ONLY. AS SUCH, THE ASSESSEE CLAIMED SOF TWARE EXPENSES AMOUNTING TO RS. 10,47,700/- AS REVENUE EXPENSES. HOWEVER, THE ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 3 - ASSESSING OFFICER TREATED THE SAME AS CAPITAL IN NA TURE AND ACCORDINGLY DISALLOWED THE SAME AFTER DEDUCTING THE DEPRECIATIO N THEREON. SUBSEQUENTLY, THE ASSESSING OFFICER INITIATED PENAL TY PROCEEDINGS BY ISSUING NOTICE U/S 274 R.W.S. 271(1)(C) OF THE ACT ON ACCOUNT OF FURNISHING INACCURATE PARTICULARS OF INCOME. 5. HOWEVER, THE ASSESSEE FAILED TO REPLY IN RESPONS E TO THE NOTICE ISSUED BY THE ASSESSING OFFICER. THEREFORE, THE AS SESSING OFFICER HELD THE ASSESSEE GUILTY FOR FURNISHING INACCURATE PARTI CULARS OF INCOME AND ACCORDINGLY LEVIED THE PENALTY OF RS. 3,52,656/- BE ING 100% OF THE AMOUNT OF TAX SOUGHT TO BE EVADED. 6. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO TH E LD.CIT(A). THE ASSESSEE BEFORE THE LD.CIT(A) SUBMITTED THAT THE AD DITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SOFTWARE EXPENSES W AS A DEBATABLE ISSUE. THEREFORE, PENALTY U/S.271(1)(C) OF THE ACT CANNOT BE IMPOSED. 6.1. THE ASSESSEE ALSO SUBMITTED THAT HE HAD NOT FI LED THE APPEAL AGAINST THE QUANTUM ADDITION CONFIRMED BY THE LD.CIT(A) TO BUY THE PEACE OF MIND. 6.2. HOWEVER, THE LD.CIT(A) DISREGARDED THE CONTENT ION OF THE ASSESSEE BY OBSERVING THAT THE ADMISSION OF THE DIS ALLOWANCE OF THE CLAIM TO BUY THE PEACE OF MIND DOES NOT ABSOLVE THE ASSES SEE FROM THE PENALTY TO BE IMPOSED U/S 271(1)(C) OF THE ACT. THE LD.CI T(A) ALSO OBSERVED ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 4 - THAT THE ASSESSEE HAD NOT MADE ANY SPECIFIC SUBMISS ION AGAINST THE PENALTY IMPOSED BY THE ASSESSING OFFICER. ACCORDIN GLY, THE LD.CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 7. BEING AGGRIEVED BY THE ORDER OF LD.CIT(A), NOW T HE ASSESSEE IS IN APPEAL BEFORE US 8. THE LD.AR BEFORE US REITERATED THE SUBMISSIONS A S MADE BEFORE THE LD.CIT(A), WHEREAS THE LD.DR SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSES SEE HAS INCURRED AN EXPENSE ON THE SOFTWARE AMOUNTING TO RS. 10,47,700/ - WHICH WAS CONSIDERED BY THE AO AS CAPITAL NATURE. ACCORDINGLY , THE AO ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AFTER ALLO WING DEPRECIATION ON SUCH EXPENDITURE. ACCORDINGLY, THE AO IN HIS ASSESS MENT ORDER FRAMED UNDER SECTION 143(3) OF THE ACT INITIATED PENALTY P ROCEEDINGS ON ACCOUNT OF FURNISHING INACCURATE PARTICULARS OF INCOME WHIC H WAS SUBSEQUENTLY LEVIED IN THE PENALTY ORDER AND CONFIRMED IN BY THE LEARNED CIT (A). 9.1. NOW THE ISSUE BEFORE US ARISES WHETHER TH E ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME BY TREATING SOFTWA RE EXPENSES AS REVENUE IN NATURE. IN THIS REGARD, WE FIND THAT THE ASSESSE E HAS FURNISHED ALL THE PARTICULARS OF SOFTWARE EXPENSES CLAIMED IN THE INC OME TAX RETURN. AS ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 5 - SUCH THERE WAS NO DELIBERATE ACT ON THE PART OF THE ASSESSEE TO FURNISH INACCURATE PARTICULARS OF INCOME BY CLAIMING SOFTWA RE EXPENSES AS REVENUE IN NATURE. THEREFORE, IN OUR CONSIDERED VIE W THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT IS UNSUSTAINABLE IN THE GIVEN FACTS AND CIRCUMSTANCES. IN THIS REGARD WE FIND SUPPORT AND G UIDANCE FROM THE JUDGMENT OF HONBLE PUNJAB AND HARYANA HIGH COURT I N THE CASE OF CIT VS. SIDDHARTHA ENTERPRISES REPORTED IN 184 TAXMAN 4 60 WHEREIN IT WAS HELD AS UNDER: 5. WE ARE UNABLE TO ACCEPT THE SUBMISSION. THE JUDGME NT OF THE HON'BLE SUPREME COURT IN DHARAMENDRA TEXTILES PROCE SSORS' CASE (SUPRA) CANNOT BE READ AS LAYING DOWN THAT IN EVERY CASE WHERE PARTICULARS OF INCOME ARE INACCURATE, PENALTY MUST FOLLOW. WHAT HAS BEEN LAID DOWN IS THAT QUALITATIVE DIFFERENCE BETWE EN CRIMINAL LIABILITY UNDER SECTION 276C AND PENALTY UNDER SECTION 271(1) (C) HAD TO BE KEPT IN MIND AND APPROACH ADOPTED TO THE TRIAL OF A CRIM INAL CASE NEED NOT BE ADOPTED WHILE CONSIDERING THE LEVY OF PENALTY. E VEN SO, CONCEPT OF PENALTY HAS NOT UNDERGONE CHANGE BY VIRTUE OF THE S AID JUDGMENT. PENALTY IS IMPOSED ONLY WHEN THERE IS SOME ELEMENT OF DELIBERATE DEFAULT AND NOT A MERE MISTAKE. THIS BEING THE POSI TION, THE FINDING HAVING BEEN RECORDED ON FACTS THAT THE FURNISHING O F INACCURATE PARTICULARS WAS SIMPLY A MISTAKE AND NOT A DELIBERA TE ATTEMPT TO EVADE TAX, THE VIEW TAKEN BY THE TRIBUNAL CANNOT BE HELD TO BE PERVERSE. 9.2. WE ALSO NOTE THAT THE HONBLE COURT DELIVERE D THE ABOVE JUDGEMENT AFTER CONSIDERING THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS [2008] 306 ITR 277/ 174 TAXMAN 571 . THUS WE HOLD THAT THERE WAS NO DELIBERATE ACT ON THE PART OF THE ASSESSEE TO TREAT CAPITAL EXPENSES AS REVENUE IN NATURE. ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 6 - 9.3 WE ALSO NOTE THAT THE ASSESSEE HAS CLAIMED SOFT WARE EXPENSES UNDER THE HEAD SOFTWARE EXPENSES AS EVIDENT FROM THE ORDER OF THE AO WHICH SHOWS THAT THE SOFTWARE EXPENSES WERE CLAIMED AS REVENUE IN NATURE UNDER THE BONA FIDES BELIEF. HAD THE INTENTI ON OF THE ASSESSEE BEEN MALAFIDE THEN IT SHOULD HAVE CLAIMED THE SAME UNDER ANY OTHER HEAD TO AVOID THE ATTENTION. IN THIS REGARD WE PLACE OUR RE LIANCE ON THE ORDER OF ITAT PUNE BENCH IN THE CASE OF KANBAY SOFTWARE INDI A PVT. LTD. 122 TTJ 721 WHEREIN IT WAS HELD AS UNDER: WHETHER OR NOT A PERSON HAS ACTED BONA FIDE REFLEC TS THE STATE OF HIS MIND IN RESPECT OF HIS CONDUCT, AND, THEREFORE, THE ASSESSEE HAS HIS INHERENT LIMITATIONS IN ESTABLISHING THIS ASPECT OF THE MANNER. ALL THAT THE ASSESSEE CAN DO IS TO EXPLAIN THE CIRCUMSTANCES IN WHICH HE HAS ACTED IN A PARTICULAR MANNER AND SET OUT THE RELATE D FACTS. THE EXPLANATION FOR BONA FIDES, AT THE COST OF REPETITI ON, NEEDS TO BE CONSIDERED IN A FAIR AND OBJECTIVE MANNER AND IN TH E LIGHT OF HUMAN PROBABILITIES. AS LONG AS THE EXPLANATION GIVEN BY THE ASSESSEE IS IN THE LIGHT OF THE HUMAN PROBABILITIES, THERE ARE NO FACT UAL ERRORS OR INCONSISTENCIES, AND IT IS SUPPORTED BY REASONABLE SUPPORTING EVIDENCES REGARDING FACTUAL ELEMENTS EMBEDDED THEREIN, IF ANY , THE BONA FIDES SHOULD BE TAKEN AS PROVED. THE ASSESSEE'S EXP LANATION REGARDING BONA FIDES OF THE CLAIM DOES NOT SUFFER F ROM ANY APPARENT CONSISTENCIES OR FACTUAL ERRORS AND IT IS QUITE IN TUNE WITH THE HUMAN PROBABILITIES. THERE IS NO GOOD REASON TO REJECT TH E SAME AS UNACCEPTABLE FOR THE PURPOSE OF MAKING OF THE CLAIM OF DEDUCTION BEING COVERED BY THE DEEMING FICTION UNDER EXPLANATION 1 TO SECTION 271(1)(C). 9.4. IN VIEW OF THE ABOVE, WE HOLD THAT THE PENA LTY LEVIED BY THE AO AND SUBSEQUENTLY CONFIRMED BY THE LEARNED CIT (A) U NDER SECTION 271(1)(C) OF THE ACT IS NOT SUSTAINABLE. THEREFORE, WE REVERSE THE ORDER OF THE LOWER AUTHORITIES. HENCE THE GROUND OF APPEAL O F THE ASSESSEE IS ALLOWED. ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 7 - ITA NO.1161/AHD/2015 FOR AY 2007-08 10. THE SOLITARY ISSUE RAISED BY THE ASSESSEE IS THAT LEARNED CIT(A) ERRED IN UPHOLDING THE ORDER OF THE AO BY DENYING T HE EXEMPTION OF RS. 46,37,858/- U/S.10A OF INCOME TAX ACT, 1961. 11. THE FACTS OF THE CASE ARE THAT THE ASSESSEE I N THE PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF SOFT WARE DEVELOPMENT AND IT ENABLED SERVICES. THE AO DETERMINED THE TOTA L INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IN THE OR DER FRAMED UNDER SECTION 143(3) OF THE ACT DATED 29 TH DECEMBER 2009 AT 1,64,25,801/- ONLY. 11.1. THERE WAS ALSO BROUGHT FORWARD LOSS OF RS. 41,45,011/- PERTAINING TO THE ASSESSMENT YEAR 2005-06. 11.2. THE AO WHILE DETERMINING THE DEDUCTION AVAI LABLE TO THE ASSESSEE UNDER SECTION 10A OF THE ACT FIRSTLY SET OFF THE BR OUGHT FORWARD LOSSES FOR RS. 41,45,011/- AGAINST THE INCOME DETERMINED UNDER SECTION 143(3) OF THE ACT AT 1,64,25,801/-. THUS THE AO WORKED OUT THE DEDUCTION AVAILABLE TO THE ASSESSEE UNDER SECTION 10A OF THE ACT ON THE BALANCE AMOUNT OF 1,22,80,790/- ONLY. THE AO AS SUCH WORKED OUT THE DEDUCTION UNDER SECTION 10A OF THE ACT AT 1,15,43,943/- AFTER SETTING OFF THE BROUGHT FORWARD LOSSES. ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 8 - 12. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LE ARNED CIT (A) WHO ALSO CONFIRMED THE ORDER OF THE AO. 13. BEING AGGRIEVED BY THE ORDER OF THE LEARNED C IT (A) ASSESSEE IS IN APPEAL BEFORE US. 14. THE LEARNED AR BEFORE US SUBMITTED THAT THE DEDUCTION UNDER SECTION 10A OF THE ACT IS AVAILABLE BEFORE SETTING OFF THE ELIGIBLE LOSS. 15. THE LEARNED DR BEFORE US VEHEMENTLY SUPPORT ED THE ORDER OF THE LOWER AUTHORITIES. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. THE SOLITARY ISSUE IN THE INST ANT CASE RELATES TO THE FACT WHETHER THE DEDUCTION UNDER SECTION 10A NEEDS TO BE WORKED OUT AFTER SETTING OFF THE BROUGHT FORWARD LOSSES. IN TH IS REGARD, WE NOTE THAT THE IMPUGNED ISSUE IS WELL SETTLED NOW BY THE JUDGM ENT OF HONBLE SUPREME COURT IN THE CASE OF CIT & ANR. VS. M/S YOK OGAWA INDIA LTD. IN CIVIL APPEAL NO. 8498 OF 2013. THE RELEVANT EXTRACT OF THE CASE (SUPRA) IS AS UNDER: 17. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRST PROVISO TO SECTIONS 10A(1) ; 10A (1A) AND 10A (4)] THAT THE UNIT THAT IS CONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS T HE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOU S CIRCULAR OF THE DEPARTMENT (NO.794 DATED 09.08.2000) UNDERSTOOD THE SITUATION, IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTIO N OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HA S TO BE MADE ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 9 - INDEPENDENTLY AND, THEREFORE, IMMEDIATELY AFTER THE STAGE OF DETERMINATION OF ITS PROFITS AND GAINS. AT THAT STA GE THE AGGREGATE OF THE INCOMES UNDER OTHER HEADS AND THE PROVISIONS FOR SE T OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70 , 72 AND 74 OF THE ACT WOULD BE PREMATURE FOR APPLICATION. THE DEDUCTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENCEMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI OF THE ACT FOR ARRIVING AT THE TOT AL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. 16.1. FROM THE ABOVE JUDGMENT OF THE HONBLE SUPR EME COURT THERE REMAINS NO AMBIGUITY THAT THE ASSESSEE SHALL WORK O UT THE DEDUCTION UNDER SECTION 10A OF THE ACT FROM ITS TOTAL INCOME BEFORE ALLOWING THE BROUGHT FORWARD LOSSES. WE HOLD ACCORDINGLY. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 17. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E ARE ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 21/01/2019 SD/- SD/- ( JUSTICE P.P. BHATT ) ( WASEEM AHMED ) PRESIDENT ACCOUNTANT MEMBER AHMEDABAD; DATED 21/01/2019 &.., .(.. / T.C. NAIR, SR. PS ITA NOS.1161 & 1162/AHD/2015 DECISION CRAFT ANALYTICS LTD. VS. DCIT ASST.YEARS - 2007-08 & 2008-09 - 10 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-1, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION 9.1.19(DICTATION PAD 8 PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 9.1.19 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.25.1.2019 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25.1.2019 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER