M/s. Online Media Solutions Ltd., Hyd, Hyderabad V. DCIT, Cir-16(3), Hyderabad

ITA 1318/HYD/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0363 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 23-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 14-07-2011
• Court: TRIBUNAL
• Department Lawyers: PALLAVI AGARWAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Depreciation; Bad and doubtful debts
• Section: 147; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 1318/HYD/2011 ASSESSMENT YEAR: 2005-06 M/S. ONLINE MEDIA SOLUTIONS LTD., HYDERABAD [PAN: AAACO3618B] VS DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : S HRI P. MURALI MOHAN RAO, A R FOR REVENUE : SMT. PALLAVI AGARWAL, DR DATE OF HEARING : 23 - 0 6 - 201 5 DATE OF PRONOUNCEMENT : 26 - 0 6 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABAD D ATED 25-04-2011. 2. AT THE OUTSET, LD. COUNSEL DID NOT PREFER THE AD DITIONAL GROUND OF APPEAL RAISED ON THE ISSUE OF REOPENING OF ASSESSME NT U/S. 147 OF THE INCOME TAX ACT [ACT]. SINCE, NO ASSESSMENT U/S. 14 3(3) WAS COMPLETED AND THE REOPENING WAS WITHIN FOUR YEARS, WE ALSO DO NOT FIND ANY MERIT IN THE ADDITIONAL GROUNDS RAISED. IN VIEW OF THIS, GROUND IS DISMISSED AS WITHDRAWN. I.T.A. NO. 1318/HYD/2011 M/S. ONLINE MEDIA SOLUTIONS LTD., :- 2 -: 3. COMING TO THE MAIN GROUNDS OF APPEAL, ASSESSEE H AS RAISED AS MANY AS 13 GROUNDS ON FIVE ISSUES OF ADDITIONS MADE BY THE ASSESSING OFFICER (AO) IN THE ASSESSMENT ORDER. GROUND NO. 2 , 3, 4, 5 AND 9 ARE MATERIAL GROUNDS WHICH ARE AS UNDER: '2. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(3 ), HYDERABAD HAS ERRED WHILE DISALLOWING AN AMOUNT OF RS. 1,84, 81,375/- TOWARDS ADVANCES OTHERS WRITTEN OFF AND THE SAME HAS BEEN CONFIRMED BY THE COMMISSIONER OF INCOME TAX-V, WHI CH IS NOT CORRECT, NOT JUSTIFIED AND BAD IN LAW. 3. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(3 ), HYDERABAD HAS ERRED WHILE DISALLOWING AN AMOUNT OF RS. 19,11 ,589/- TOWARDS UNSECURED LOANS U/S. 68 OF THE INCOME TAX ACT, 196 1 AND THE SAME HAS BEEN CONFIRMED BY THE COMMISSIONER OF INCOME T AX-V, WHICH IS NOT CORRECT, NOT JUSTIFIED AND BAD IN LAW. HENCE, THE ADDITION MAY PLEASE BE DELETED. 4. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(3 ), HYDERABAD HAS ERRED WHILE DISALLOWING AN AMOUNT OF RS. 31,34 ,838/- TOWARDS ADVANCES WRITTEN OFF AND THE SAME HAS BEEN CONFIRM ED BY THE COMMISSIONER OF INCOME TAX-V, WHICH IS NOT CORRECT , NOT JUSTIFIED AND BAD IN LAW. HENCE, THE ADDITION MAY PLEASE BE DEL ETED. 5. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(3 ), HYDERABAD HAS ERRED WHILE DISALLOWING AN AMOUNT OF RS. 1,69, 89,612/- TOWARDS BAD DEBTS WRITTEN OFF AND THE SAME HAS BEE N CONFIRMED BY THE COMMISSIONER OF INCOME TAX-V, WHICH IS NOT COR RECT, NOT JUSTIFIED AND BAD IN LAW. HENCE, THE ADDITION MAY PLEASE BE DELETED. 9. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(3 ), HYDERABAD HAS ERRED WHILE DISALLOWING AN AMOUNT OF RS. 5,70, 47,031/- TOWARDS DEPRECIATION AND THE SAME HAS BEEN CONFIRM ED BY THE COMMISSIONER OF INCOME TAX-V, WHICH IS NOT CORRECT , NOT JUSTIFIED AND BAD IN LAW. HENCE, THE ADDITION MAY PLEASE BE DEL ETED'. THE REST OF THE GROUNDS ARE SUBMISSIONS ON VARIOUS ISSUES WHICH DO NOT REQUIRE ANY ADJUDICATION. I.T.A. NO. 1318/HYD/2011 M/S. ONLINE MEDIA SOLUTIONS LTD., :- 3 -: 4. BRIEFLY STATED, ASSESSEE IS IN THE BUSINESS OF INTERNET SERVICE PROVIDER AND IN THE IMPUGNED ASSESSMENT YEAR FILED RETURN OF INCOME ADMITTING A TOTAL LOSS OF RS. 3,96,52,413/-. AO NO TICED THAT ASSESSEE- COMPANY HAS DEBITED AN AMOUNT OF RS. 1,84,81,375/- TOWARDS ADVANCES WRITTEN OFF INCLUDING CAPITAL GOODS AND THEREFORE, REOPENED THE ASSESSMENT U/S. 147. EVEN THOUGH, AO NOTES THAT AR ATTENDED AND AFTER DISCUSSION, ASSESSMENT IS COMPLETED, HE HOWEV ER, DISALLOWED VARIOUS AMOUNTS ON THE REASON THAT ASSESSEE HAS NOT EXPLAINED PROPERLY/FOR WANT OF PROOF. THE VARIOUS ISSUES CON SIDERED BY THE AO AS CONFIRMED BY CIT(A) ARE DEALT WITH GROUND-WISE: 5. GROUND NO.9: BEFORE ADVERTING TO OTHER GROUNDS, WE INTEND TO DISCUSS GROUND NO.9 FIRST. AO RECORDED IN PARA 3.1 THAT ASSESSEE HAS CLAIMED DEPRECIATION AT 5.24 CRORES ON WDV OF 6.32 CRORES WHICH IS 83% OF THE WDV. HOWEVER, IN PARA 3.5, HE RECORDS T HAT ASSESSEE CLAIMED HUGE DEPRECIATION OF 6.40 CRORES ON WDV OF FIXED ASSETS SHOWN AS RS. 8.62 CRORES. VIDE PARA 3.8, ITEM 'E', AO RE CORDS FURTHER AS UNDER: 'E. DEPRECIATION: ASSESSEE HAD CLAIMED DEPRECIATION OF RS. 45,83,501 ON WDV OF COMPUTERS SHOWN AT RS. 1,06,98 ,740/- AND RS. 5,24,63,530/- ON WDV OF SOFTWARE AND HARDWARE SHOWN AT RS. 6,32,78,926/-. VIDE THIS OFFICE LETTERS DATED 12- 12-2008 AND 16-12- 2008, ASSESSEE'S AR WAS ASKED TO FURNISH PROOF IN SUPPORT OF EXISTENCE OF THESE ASSETS AND WHETHER ALL THESE AS SETS WERE PUT TO USE FOR EARNING A MEAGER RECEIPT OF RS. 80,75 LAKH S. AS THERE WAS NO RESPONSE FROM THE ASSESSEE AND AS NO EVIDENCE W AS FILED IN SUPPORT OF THE EXISTENCE OF THE ABOVE ASSETS AND T HEIR WDV AS ON 31-03-2006, ASSESSEE'S CLAIM OF DEPRECIATION ON TH ESE ASSETS TOTALING TO RS. 5,70,47,031/- IS DISALLOWED AND AD DED'. 6. ASSESSEE CONTESTED BEFORE THE LD.CIT(A) THAT THE DISALLOWANCE IS NOT CORRECT, BUT LD.CIT(A) IN HIS WISDOM CONFIRMED THE DISALLOWANCE AS HE HAS RELIED ON THE INSPECTOR'S REPORT EXTRACTED B Y THE AO AS UNDER: I.T.A. NO. 1318/HYD/2011 M/S. ONLINE MEDIA SOLUTIONS LTD., :- 4 -: '9.2 I HAVE CONSIDERED CAREFULLY THE ARGUMENTS AND FACTS IN THIS CASE. THE FUNDAMENTAL ISSUE, EVEN BEFORE CONSIDERA TION OF PARTICULAR BLOCK OF ASSETS IS THE EXISTENCE OF THE ASSET. AN ASSET CANNOT ENTER A BLOCK, IF ITS VERY EXISTENCE IS NOT THERE. THE APPELLANT HAS NOT SHOWN ANY PROOF TO SUBSTANTIATE ITS CLAIM OF PURCH ASE OF FIXED ASSETS AS PER SCHEDULE 2 BALANCE SHEET. NO DETAIL S HAVE BEEN PROVIDED REGARDING THE FIXED ASSETS. DURING PHYSI CAL INSPECTION, THE INSPECTOR COULD NOT EVEN FIND THE FIXED ASSETS. 9.3 IN VIEW OF THE ABOVE FACTS, I FIND THAT WHEN T HE EXISTENCE OF THE ASSET THEMSELVES IS NOT PROVEN, THERE IS NO QUESTI ON OF ALLOWING DEPRECIATION ON THE SAME'. 7. LD. COUNSEL AT THE OUTSET DREW OUR ATTENTION TO THE COMPUTATION OF INCOME FILED ALONG WITH RETURN OF INCOME TO SUBMIT THAT ASSESSEE'S P&L A/C INDICATE A LOSS OF AN AMOUNT OF RS. 9,76,12,872 /-. FROM THERE, ASSESSEE HAS ADDED BACK I.E., REDUCED THE DEPRECIAT ION CLAIM OF RS. 5,79,60,459/- AND FILED NET LOSS OF RS. 3,96,52,413 /-. SINCE, ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION ON THE ASSETS, QUE STION OF DISALLOWING DEPRECIATION DOES NOT ARISE. THEREFORE, THE GROUND TO THAT EXTENT IS TO BE ALLOWED. 8. ON VERIFICATION OF COMPUTATION OF INCOME FILED A LONG WITH RETURN OF INCOME AS WELL AS PERUSAL OF THE ORDER INDICATE THA T ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION WHILE CLAIMING ONLY LOSS I NCURRED IN THE BUSINESS. THEREFORE, QUESTION OF DISALLOWING THE D EPRECIATION DOES NOT ARISE. FROM THE TABLE OF UN-ABSORBED BUSINESS LOSS/ DEPRECIATION TO BE CARRIED OVER, IT IS EVIDENT THAT THE DEPRECIATION C LAIMED WAS ONLY RS. 61,02,857/- ON THE PART OF ASSETS USED IN THE BUSIN ESS. SINCE THE DISALLOWANCE OF RS. 5,70,47,031/- OF DEPRECIATION D OES NOT ARISE ON THE FACTS OF THE CASE, WE AGREE WITH ASSESSEE'S CONTENT IONS AND DIRECT THE AO TO DELETE THE ADDITION SO MADE. GROUND NO. 9 IS AC CORDINGLY, ALLOWED. I.T.A. NO. 1318/HYD/2011 M/S. ONLINE MEDIA SOLUTIONS LTD., :- 5 -: 9. GROUND NO. 2: AO NOTICED THAT ASSESSEE HAS DISAL LOWED AN AMOUNT OF RS. 1,84,81,375/- TOWARDS ADVANCES WHICH INCLUDE CAPITAL GOODS. THE ENTIRE AMOUNT WAS DISALLOWED AS THE CAPITAL LOSS. IT WAS THE CONTENTION THAT THERE ARE CERTAIN TRADE ADVANCES ALSO WHICH RE QUIRED TO BE ALLOWED AND THAT ENTIRE AMOUNT CANNOT BE DISALLOWED. IN TH E ABSENCE OF ANY DETAILS, BOTH AO AND CIT(A) DID NOT ALLOW THE AMOUN T. IT WAS PLEADED THAT ANOTHER OPPORTUNITY MAY BE GIVEN TO FURNISH TH E NECESSARY AMOUNTS SO AS TO ALLOW THE SAME AS PER THE PROVISIONS OF LA W. ASSESSEE PLEADED THAT THEY WERE NOT IN THE BUSINESS AT THAT POINT OF TIME DURING THE PERIOD OF COMPLETION OF ASSESSMENT AND NOW THEY HAVE RESTA RTED THE BUSINESS, THEY WERE IN A POSITION TO FURNISH THE NECESSARY DE TAILS. IN VIEW OF THAT, WE ARE OF THE OPINION THAT ONE MORE OPPORTUNITY CAN BE GIVEN TO ASSESSEE TO SUBSTANTIATE THE CLAIMS MADE IN THE RETURN OF IN COME / P&L A/C. ASSESSEE IS DIRECTED TO FURNISH NECESSARY DETAILS T O AO AND AO TO EXAMINE WHETHER THE AMOUNTS CAN BE ALLOWED AS WRITE OFF AS PER THE PROVISIONS OF THE ACT. WITH THIS, GROUND NO.2 IS C ONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO. 3 IS WITH REFERENCE TO TREATING AN A MOUNT OF RS. 19,11,589/- UNSECURED LOANS AS INCOME U/S. 68. IN THE ABSENCE OF ANY CONFIRMATION FOR INCREASE IN THE UNSECURED LOANS DU RING THE YEAR, BOTH AO AND CIT(A) TREATED THE SAME AS THE INCOME OF ASS ESSEE. EVEN THOUGH, THERE IS FAILURE ON THE PART OF ASSESSEE IN FURNISHING NECESSARY CONFIRMATIONS TOWARDS INCREASE IN UNSECURED LOANS, THERE IS NOTHING ON RECORD TO INDICATE THAT UNSECURED LOANS ARISE EITHE R DUE TO FRESH CREDIT. IT COULD BE DUE TO INCREASE IN INTEREST ON THE EXIS TING LOANS. THEREFORE, WITHOUT EXAMINING THE DETAILS, IT IS NOT POSSIBLE T O CONFIRM THE SAME JUST BECAUSE, ASSESSEE COULD NOT FURNISH ANY DETAILS. H ERE ALSO LD. COUNSEL PLEADED THAT ASSESSEE CAN FURNISH NECESSARY DETAILS BEFORE THE AO. IN VIEW OF THIS, THIS GROUND IS RESTORED TO THE FILE O F AO TO EXAMINE THE I.T.A. NO. 1318/HYD/2011 M/S. ONLINE MEDIA SOLUTIONS LTD., :- 6 -: NATURE OF CREDIT AND TREAT ACCORDINGLY AS PER THE P ROVISIONS OF LAW AND FACTS. THIS GROUND IS ALLOWED FOR STATISTICAL PU RPOSES. 11. GROUND NO. 4 IS ALSO WITH REFERENCE TO DISALLOW ANCE OF AN AMOUNT OF RS. 31,34,838/- TOWARDS ADVANCES WRITTEN OFF BEI NG CAPITAL IN NATURE. THIS GROUND IS ALSO SIMILAR TO THE ISSUE IN GROUND NO.2 DISCUSSED ABOVE. FOR THE REASONS STATED THERE IN, WE ARE OF THE OPIN ION THAT THIS MATTER IS ALSO CAN BE RE-EXAMINED BY THE AO, AFTER GIVING DUE OPPORTUNITY TO ASSESSEE TO EXPLAIN THE NATURE OF ADVANCES WRITTEN OFF. ACCORDINGLY, GROUND NO. 4 IS ALSO RESTORED TO THE FILE AO. THIS GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 12. GROUND NO. 5 IS WITH REFERENCE TO DISALLOWANCE OF AN AMOUNT OF RS. 1,69,89,612/- TOWARDS BAD DEBTS WRITTEN OFF. IT IS THE SUBMISSION THAT THESE ARE TRADE DEBTS WHICH WERE WRITTEN OFF AND TH ESE WERE ACTUALLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS. WHILE T HERE IS NO DISPUTE WITH REFERENCE TO THE ACTUAL WRITE OFF IN THE BOOKS OF A CCOUNTS, THE AO AND CIT(A) DID NOT ALLOW THE AMOUNT ON THE REASON THAT ASSESSEE DID NOT FURNISH THE NECESSARY DETAILS. CONSEQUENT TO THE D ECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD VS. CIT [32 3 ITR 397 (SC), THERE IS NO NECESSITY FOR ASSESSEE TO JUSTIFY THE B AD DEBTS WRITTEN OFF. IT WOULD BE SATISFYING THE PROVISIONS, IF THE AMOUNTS ARE ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS, BEING TRADING NATURE AS I RRECOVERABLE. AS AND WHEN THEY ARE RECOVERED, THE SAME ARE AUTOMATICALLY TO BE TAXED UNDER THE PROVISIONS OF SECTION 41(1). IN VIEW OF THE SP ECIFIC PROVISIONS OF SECTION 36(1)(VII), WRITE OFF OF THE AMOUNT IS ENO UGH TO ALLOW THE SAME. AS THERE IS NO DISPUTE WITH REFERENCE TO THE FACT T HAT THESE AMOUNTS ARE NOT CAPITAL IN NATURE, AO IS DIRECTED TO ALLOW THE AMOUNTS. THIS GROUND IS CONSIDERED ALLOWED. I.T.A. NO. 1318/HYD/2011 M/S. ONLINE MEDIA SOLUTIONS LTD., :- 7 -: 13. IN THE RESULT, ASSESSEE'S APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JUNE, 2015. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUN TANT MEMBER HYDERABAD, DATED 26 TH JUNE, 2015 TNMM COPY TO : 1. M/S. ONLINE MEDIA SOLUTIONS LTD., C/O. P. MURALI & CO., CHARTERED ACCOUNTANT, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-16(3), HYDERABAD. 3. CIT(APPEALS)-V, HYDERABAD. 4. CIT-IV, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.