Powersoft Consulting Pvt. Ltd., Ahmedabad V. The Income tax Officer,Ward-5(2), Ahmedabad

ITA 1222/AHD/2010

• Counselvise Citation: 122220514 RSA 2010
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 19-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A MATHIVANAN
• Assessee Lawyers: M G PATEL
• Keywords: Depreciation; Business expenditure
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO. 1222/AHD/2010 A. Y.: 2006-07 POWERSOFT CONSULTING PVT. LTD., 801, SATKRUT, PARTH SARTHI AVENUE, NR. SHYAMAL CHAR RASTA, AHMEDABAD P. A. NO. AABCP 7988 E VS THE INCOME TAX OFFICER, WARD 5 (2), AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. G. PATEL, AR RESPONDENT BY SHRI A. MATHIVANAN, SR. DR DATE OF HEARING: 09-08-2012 DATE OF PRONOUNCEMENT: 19-10-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL IS FILED BY THE ASSESSEE AGGRIEVED BY THE ORDER OF THE LEARNED CIT( A)-XI, AHMEDABAD DATED 05-03-2012 IN APPEAL NO. CIT(A)-XI/ 663/08-09, FOR THE ASSESSMENT YEAR 2006-07 PASSED U/S 250 READ WIT H SECTION 143(3) OF THE ACT. 2. THE ASSESSEES LONE EFFECTIVE GROUND OF APPEAL S URVIVING FOR ADJUDICATION IS REPRODUCED HEREUNDER FOR REFERENCE: (1). THE LEARNED COMMISSIONER OF INCOME TAX HAS ER RED IN LAW AND AS WELL AS ON FACTS OF THE CASE BY CONFIRMI NG THE DISALLOWANCE OF DEPRECIATION OF RS.3,23,251/-. ITA NO.1222/AHD/2010 (AY: 2006-07) POWERSOFT CONSULTING PVT. LTD. VS ITO, W-5 (2), AHM EDABAD 2 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE BUSINESS OF SOFTWARE DEVELOPMENT. THE ASSESSEE FILE D ITS RETURN OF INCOME ON 16-11-2006 ELECTRONICALLY DECLARING TOTAL INCOME OF RS.1,23,530/-. THEREAFTER THE RETURN WAS PROCESSED U/S 143 (1) OF THE ACT AND SUBSEQUENTLY SELECTED FOR SCRUTINY. THE ASS ESSMENT WAS FINALIZED U/S 143(3) OF THE ACT ON 08-12-2008, WHER EIN THE LEARNED AO HAD DISALLOWED THE ASSESSEES CLAIM OF DEPRECIATION AMOUNTING TO RS.3,23,251/- AND ADDED THE SAME TO THE TOTAL INCOM E OF THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE LE ARNED AO ON PERUSAL OF THE RETURN OF INCOME FILED BY THE ASSESS EE NOTICED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON BUILDING, FURN ITURE & FIXTURE, PLANT & MACHINERY AND COMPUTER AT RS.3,23,251/-. AS THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATI ON, THE LEARNED AO REQUIRED THE ASSESSEE TO SUBSTANTIATE ALLOWABILITY OF ITS CLAIM OF DEPRECIATION. IN RESPONSE THERETO, IT WAS SUBMITTED THAT DURING THE ACCOUNTING YEAR 2005-06 THE ASSESSEE ACHIEVED TURNO VER OF RS.4,06,214/- FROM SALE OF SOFTWARE DEVELOPED BY IT AND THAT SINCE THE ASSESSEE WAS CONTINUING IN USING ITS INFRASTRUCTURE , THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE ASSETS. THE LEARNE D AO CONSIDERING THE ASSESSEES CONTENTION DISALLOWED THE CLAIM OF D EPRECIATION BY INVOKING THE PROVISIONS OF SECTION 32 AND 28(I) OF THE ACT SINCE THE ASSESSEE DID NOT FULFILL THE CONDITIONS LAID DOWN U NDER THESE SECTIONS AND MADE ADDITION OF RS.3,23,251/- TO THE TOTAL INC OME OF THE ASSESSEE. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARN ED CIT(A). HOWEVER, THE LEARNED CIT(A) CONSIDERING THE SUBMISS IONS OF THE ITA NO.1222/AHD/2010 (AY: 2006-07) POWERSOFT CONSULTING PVT. LTD. VS ITO, W-5 (2), AHM EDABAD 3 ASSESSEE AND THE OBSERVATIONS MADE BY THE LEARNED A O, CONFIRMED ORDER OF THE LEARNED AO ON THIS ISSUE BY OBSERVING IN PARA 2.2 OF HIS ORDER. HIS FINDINGS ARE REPRODUCED HEREIN BELOW FOR REFERENCE: 2.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASS ESSING OFFICER IN THE ASSESSMENT ORDER. ON VERIFICATION OF SCHEDUL E -8 OF AUDITED ACCOUNTS I.E. FORMING PART OF P & L A/C. HO WEVER, THIS MAY NOT ITSELF PROVE THAT THE APPELLANT CARRIED ON THE BUSINESS OF DEVELOPMENT OF SOFTWARE DURING THE YEAR. THE SOF TWARE DEVELOPED IN THE EARLIER YEAR COULD HAVE BEEN SOLD / EXPORTED DURING THE CURRENT YEAR. THIS VIEW GAINS SUPPORT FR OM THE FACT THAT THE ONLY EXPENSES DEBITED TO P & L A/C DURING THE YEAR ARE AUDIT FEES (RS.11,224/-), LEGAL FEES (RS.44,010/-), LOSS ON SALE OF COMPUTERS (RS.38,990/-) AND OFFICE MAINTENANCE E XPENSES (RS.6,647/-), IN ALL TOTALING TO RS.99,871/-. IN CO NTRAST THE ELECTRICITY EXPENSES, GUEST HOUSE EXPENSES, INSURAN CE, POSTAGE, RENT, TELEPHONE EXPENSES DEBITED ARE NIL, THOUGH MERCANTILE SYSTEM IS BEING FOLLOWED. FURTHER AS STA TED BY THE A. O., THE APPELLANT VIDE SUBMISSION DATED 18-11-2008 ADMITTED THAT THY STOPPED ALL COMMERCIAL ACTIVITIES. IN OTHE R WORDS, THE ASSETS ON WHICH DEPRECIATION WAS CLAIMED, WERE NOT AT ALL PUT TO USE. NON-CLAIMING OF RENT AND TELEPHONE EXPENSES IN DICATE THE WINDING UP OF BUSINESS. IN THESE CIRCUMSTANCES, I A M OF THE VIEW THAT THE ASSESSING OFFICER IS JUSTIFIED IN MAK ING DISALLOWANCE ON THIS COUNT. THE ADDITION MADE BY TH E A. O. OF RS.3,23,251/- IS CONFIRMED. THIS GROUND OF APPEAL I S DISMISSED. 6. THE LEARNED AR REITERATED HIS SUBMISSIONS MADE BEFORE THE AUTHORITIES AND PRAYED THAT THE ORDER OF THE LEARNE D CIT(A) MAY BE SET ASIDE AND ITS CLAIM OF DEPRECIATION MAY BE ALLO WED. 7. THE LEARNED DR RELIED ON THE ORDERS OF THE AUTH ORITIES BELOW AND SUBMITTED THAT DURING THE YEAR UNDER CONSIDERAT ION THE ASSESSEE HAD NO BUSINESS ACTIVITY DURING THE PREVIOUS YEAR A ND HAD NOT USED ITA NO.1222/AHD/2010 (AY: 2006-07) POWERSOFT CONSULTING PVT. LTD. VS ITO, W-5 (2), AHM EDABAD 4 ANY OF ITS ASSETS FOR THE PURPOSE OF ITS BUSINESS F OR EARNING ANY INCOME OR PROFIT. HENCE, THE ASSESSEE IS NOT ENTITL ED FOR CLAIM OF DEPRECIATION. HE, PRAYED THAT THE ORDERS OF THE LEA RNED CIT(A) MAY BE UPHELD. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIALS ON RECORD INCLUDING THE PAPER BOOK CONTAINING 30 PAGES SUBMITTED BY THE ASSESSEE. THE CONTENTION OF THE REVENUE IS THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE DURING THE PREVIOUS YE AR IN ORDER TO ESTABLISH THAT IT WAS ENGAGED IN BUSINESS ACTIVITY THOUGH IT HAD SHOWN TURNOVER OF RS 4,06,214/- AND DECLARED TOTAL INCOME OF RS.1,23,530/- AND THEREFORE NOT ENTITLED TO DEPRECIATION. HOWEVER IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAD CONDUCTED BUSINESS TRANS ACTIONS BY ACHIEVING A TURNOVER OF RS.4,06,214/- AND ALSO INCU RRED SOME BUSINESS EXPENDITURE IN ORDER TO ACHIEVE THE SAME. FURTHER IT IS NOT A PRE-CONDITION BY ANY STATUTE TO INCUR EXPENDITURE F OR THE PURPOSE OF CONDUCTING BUSINESS OR TO ESTABLISH THE EXISTENCE O F ANY BUSINESS ACTIVITY. ALL THE ACTIVITIES WHICH REVOLVE ROUND TH E BUSINESS MAY NOT RESULT IN FISCAL EXPENDITURE. IT APPEARS FROM THE A BOVE TRANSACTION THAT THE ASSESSEE WAS IN POSSESSION OF SOFT-WARES WHICH HE HAD SOLD DURING THE YEAR. THERE IS NOTHING TO ESTABLISH THAT THE ASSESSEE HAD NOT USED THE BUILDING AND FURNITURE DURING THE PREV IOUS YEAR. SUCH INFERENCE CANNOT BE MADE DUE TO ABSENCE OF ELECTRIC ITY EXPENDITURE. FURTHER, IT IS EVIDENT FROM THE PROFIT & LOSS ACCOU NT OF THE ASSESSEE THAT THE ASSESSEE HAD INCURRED EXPENDITURE SUCH AS OFFICE MAINTENANCE EXPENDITURE OF RS.5,647/- WHICH CLEARLY ESTABLISHES THAT ITA NO.1222/AHD/2010 (AY: 2006-07) POWERSOFT CONSULTING PVT. LTD. VS ITO, W-5 (2), AHM EDABAD 5 THE OFFICE OF THE ASSESSEE WAS IN OPERATION. FROM T HE GIVEN FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT T HE ASSESSEE WAS IN CONTINUANCE OF ITS BUSINESS DURING THE RELEVANT PREVIOUS YEAR AND, THEREFORE, IT IS ENTITLED TO CLAIM THE DEPRECIATION . ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE REVENUE AND DIRECT THE LEAR NED AO TO ALLOW THE CLAIM OF DEPRECIATION TO THE ASSESSEE IN ACCORDANCE WITH LAW ON THE PREMISES THAT THE ASSESSEE WAS IN CONTINUANCE OF IT S BUSINESS DURING THE RELEVANT PREVIOUS YEAR. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19-10-2012. SD/- SD/- (G. C. GUPTA) VICE PRESIDENT (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAK LAK LAK LAKSHMIKANT DEKA SHMIKANT DEKA SHMIKANT DEKA SHMIKANT DEKA / // / COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST.T REGISTRAR, ITAT, AHM EDABAD 1. DATE OF DICTATION: 05-10-2012/17-05-12 - DIREC T ON COMPUTER 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 15-05-2012/17-05-12 OTHER MEMBE R: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./ P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. 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: