ACIT, Hyderabad V. M/s Pyro Netwroks Pvt. Ltd., Secunderabad

ITA 1337/HYD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9748 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: P M S KAMA RAJU
• Keywords: Capital asset; Opportunity of being heard; Bad and doubtful debts; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT & SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A. NO. 1337/HYD/2010 (ASSESSMENT YEAR 2005-06) THE ASST. CIT CIRCLE 16(3) HYDERABAD VS. M/S. PYRO NETWORKS PVT. LTD., SECUNDERABAD PAN: AACCP5961A APPELLANT RESPONDENT APPELLANT BY: SHRI K.V.N. CHARYA RESPONDENT BY: SHRI P.M.S. KAMA RAJU O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 06.08.2010 FOR THE ASSESSMENT YEAR 2005-06. 2. THE FIRST GROUND OF APPEAL RAISED BY THE REVENUE IS GENERAL IN NATURE. 3. THE SECOND GROUND OF APPEAL RAISED BY THE REVENUE IS WITH REGARD TO DELETING OF ALLOWANCE RELATING TO ACULAB CARD AND SS7 CARD. THE ASSESSING OFFICER TREATED THIS EXPENDITURE AS CAPIT AL EXPENDITURE AND DISALLOWED THE SAME DUE TO THEIR ENDURING BENEFIT. ON APPEAL THE CIT(A) ALLOWED TH E SAME SINCE THE ASSESSEE IS IN THE BUSINESS OF I.T.A. NO. 1337/HYD/2010 M/S. PYRO NETWORKS PVT. LTD. ===================== 2 DEVELOPMENT OF TELE-COMMUNICATION SOFTWARE. AS A PART OF ITS SALES CONTRACT WITH MOBILE SERVICE PROVIDERS, THE ASSESSEE PURCHASED ACULAB HARDWARE EQUIPMENT AND SS7 CARD FOR ITS CLIENTS. THE ASSESSEE DEVELOPED SOFTWARE WHICH WAS IMBEDDED IN THE AFOREMENTIONED HARDWARE. BOTH THE HARDWARE AND SOFTWARE WERE SOLD TO ITS CUSTOMERS. THIS PRODUCT ENABLES THE PREPAID CUSTOMERS TO RECHARGE IN A VISITING NETWORK USING THE RECHARGE VOUCHERS O N MOBILE PHONES. THESE CARDS ARE NOT OWNED BY THE ASSESSEE AS WELL AS NOT PUT TO USE BY THE ASSESSEE AND PURCHASED BY THE ASSESSEE FOR ITS CLIENTS. THE ASSESSEE ADDS VALUE TO THIS HARDWARE BY EMBEDDING SPECIFIC SOFTWARE INTO IT. THE RESULTANT PRODUCT I S THEN SOLD TO ITS CLIENTS AS CLEARLY EVIDENCED BY TH E BOOKS OF ACCOUNT AS WELL AS THE INVOICES. THE CIT( A) HELD THAT THIS IS NOT A CAPITAL ASSET OWNED BY THE ASSESSEE. THE HARDWARE IS NOT WITH THE ASSESSEE AT ALL, NOR IS THE ASSESSEE IS RECEIVING ANY ONGOING MONETARY BENEFIT OUT OF IT. THE CIT(A) HELD THAT I T IS CLEARLY STOCK-IN-TRADE IN THE HANDS OF THE ASSESSEE . 4. IN VIEW OF THE ABOVE FACTS, THE CIT(A) HELD THAT THE HARDWARE IN QUESTION IS NOT AN ASSET OWNED BY THE ASSESSEE. RATHER, IT IS A PURCHASE MADE BY THE I.T.A. NO. 1337/HYD/2010 M/S. PYRO NETWORKS PVT. LTD. ===================== 3 ASSESSEE AND HAS BEEN RIGHTLY CLASSIFIED AS STOCK-I N- TRADE WHICH WAS THEN SOLD TO VARIOUS CUSTOMERS AFTE R ADDING VALUE TO IT IN THE FORM OF EMBEDDED SOFTWARE . THE CIT(A) HELD THAT THE EXPENDITURE IS CLEARLY IN THE FORM OF PURCHASES AND IS REVENUE EXPENDITURE AND ACCORDINGLY HE DIRECTED THE ASSESSING OFFICER TO DELETE THE AFOREMENTIONED ADDITION. 5. THE LEARNED DR SUBMITTED THAT WHILE DECIDING THE ISSUE AS ABOVE THE CIT(A) CONSIDERED CERTAIN BI LLS WHICH WERE FILED BEFORE HIM AS EXHIBIT NO. 1. ACCORDING TO THE LEARNED DR THESE INFORMATIONS WHICH ARE BASIS FOR DECIDING THE ISSUE WERE NOT BEFORE THE ASSESSING OFFICER AND, ACCORDINGLY SOUGH T TO AFFORD AN OPPORTUNITY TO GO THROUGH THESE DOCUMENTS BY THE ASSESSING OFFICER. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE ACCEDE TO THE REQUEST O F THE LEARNED DR. ACCORDINGLY, WE DIRECT THE ASSESSE E TO SUBMIT ALL THE INFORMATIONS THAT WERE SUBMITTED BEFORE THE CIT(A) DURING THE FIRST APPELLATE STAGE. ACCORDINGLY, THE ORDER OF THE CIT(A) ON THIS ISSUE IS SET ASIDE AND THE MATTER IS REMITTED BACK TO THE FI LE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. IT IS I.T.A. NO. 1337/HYD/2010 M/S. PYRO NETWORKS PVT. LTD. ===================== 4 NEEDLESS TO SAY THAT THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTE R AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. 7. GROUNDS OF APPEAL NOS. 3 AND 4 RAISED BY THE REVENUE ARE INTER-RELATED WITH REGARD TO THE DELETI ON OF ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUN T OF BAD DEBTS. ACCORDING TO THE LEARNED DR, THE CIT(A) CONSIDERED CERTAIN EVIDENCES WHICH WERE NOT CONFRONTED TO THE ASSESSING OFFICER AND THERE IS VIOLATION OF RULE 46A OF INCOME-TAX RULES, 1962. 8. WE HAVE HEARD BOTH THE PARTIES. BEFORE THE CIT(A), THE ASSESSEE HAD PRODUCED THE DETAILS OF LEDGER EXTRACT. ACCORDING TO THE LEARNED DR, THIS IS FRESH EVIDENCE THAT WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NO SERIOUS OBJECTION FOR REMANDING THE MATTER BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. WE ACCEDE TO THE REQUEST OF THE LEARNED DR. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE MATTER IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE IN THE LIG HT I.T.A. NO. 1337/HYD/2010 M/S. PYRO NETWORKS PVT. LTD. ===================== 5 OF THE MATERIALS SUBMITTED BEFORE CIT(A). THE ASSESSING OFFICER SHALL AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. GROUNDS OF APPEAL NOS. 5, 6 AND 7, RAISED BY THE REVENUE, ARE WITH REGARD TO EXCLUSION OF FREIGH T, INSURANCE AND TELEPHONE CHARGES FROM EXPORT TURNOVER. 10. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE. IN VIEW OF THE ORDER OF THE TRIBUNAL CHENNAI SPECIA L BENCH IN THE CASE OF SAK SOFT LTD. VS. CIT, 121 TTJ 865 (SB) (CHENNAI), THE ABOVE COMPONENTS ARE TO BE REDUCED FROM THE EXPORT AS WELL AS TOTAL TURNOVER WHILE DECIDING THE EXEMPTION U/S. 10A OF THE INCOME-TAX ACT, 1961. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS CONFIRMED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH, 2011. SD/- (G.C. GUPTA) VICE PRESIDENT SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 25 TH MARCH, 2011 TPRAO I.T.A. NO. 1337/HYD/2010 M/S. PYRO NETWORKS PVT. LTD. ===================== 6 COPY FORWARDED TO: 1. THE A CIT, CIRCLE 16(3), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. M/S. PYRO NETWORKS PVT. LTD., NO. 403, SHRIJI MEHTA PARK, RASOOLPURA, SECUNDERABAD. 3. THE CIT(A) - V, HYDERABAD. 4 THE CIT - IV, HYDERABAD 5. THE DR A BENCH, ITAT, HYDERABAD