Dy. Commissioner of Income Tax, Hyderabad V. M/s. Verseon India Pvt. Ltd., Hyderabad

ITA 1416/HYD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6286 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 28-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAN KUMAR SINGHANIADR
• Assessee Lawyers: C S SUBRAMANYAM
• Keywords: Business income; Depreciation; Business expenditure; Additional evidence; Reasonable cause; Bad and doubtful debts; Condonation of delay
• Section: 143(3); 144

Judgement Text

ITA NOS 1416 1417 CO 62 OF 2015 VERSEON INDIA PVT L TD HYDERABAD PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS 1416 & 1417/HYD/2013 (ASSESSMENT YEAR:2008-09) DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(3) HYDERABAD VS. M/S. VERSEON INDIA P LTD HYDERABAD PAN: AACCV 2270 L (APPELLANT) (RESPONDENT) C.O.NO.62/HYD/2015 (ARISING OUT OF ITA NO.1416/HYD/2013) A.Y 2008-09 M/S. VERSEON INDIA P LTD HYDERABAD PAN: AACCV 2270 L VS. DY. COMM ISSIONER OF INCOME TAX, CIRCLE 3(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI MOHAN KUMAR SINGHANIA,DR FOR ASSESSEE : SHRI C.S. SUBRAMANYAM DATE OF HEA R ING : 28.07.2016 DATE OF PRONOUNCEMENT : 24 .08.2016 O R D E R PER SMT. P. MADHAVI DEVI, J.M. ITA NO.1416/HYD/2013 THIS IS REVENUES APPEAL AGAINST THE ORDER OF THE CIT (A) DELETING THE DISALLOWANCE MADE BY THE AO OF EXPENDI TURE OF RS.49,01,125. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN OF INCOME FOR THE A.Y 2008-09 ON 30.09.2 008 DECLARING ITA NOS 1416 1417 CO 62 OF 2015 VERSEON INDIA PVT L TD HYDERABAD PAGE 2 OF 7 LOSS OF RS.6,65,47,806. DURING THE ASSESSMENT PROCE EDINGS U/S 143(3) OF THE ACT, AO CALLED FOR VARIOUS DETAILS, B UT THE ASSESSEE COMPANY FAILED TO SUBMIT ANY EVIDENCE IN SUPPORT OF ITS RETURN OF INCOME. AO, THEREFORE, COMPLETED THE ASSESSMENT U/S 144 OF THE ACT. HE OBSERVED THAT THE EXPENDITURE OF RS.6,65,47 ,806 CLAIMED BY THE ASSESSEE AGAINST THE SALE OF RS.2,68,583 IS VERY ABNORMAL. HE THEREFORE, ISSUED SHOW CAUSE NOTICE TO THE ASSES SEE AS TO WHY THE EXPENDITURE INCLUDING DEPRECIATION SHOULD NOT B E DISALLOWED AS THE ASSESSEE HAS FAILED TO JUSTIFY THE NEXUS BET WEEN THE SALES AND THE EXPENDITURE INCURRED. SINCE THERE WAS NO RE PLY FROM THE ASSESSEE, THE AO DISALLOWED BOTH THE DEPRECIATION C LAIM OF RS.5,04,79,831 AND THE EXPENDITURE OF RS.1,63,15,61 4. ACCORDINGLY, HE DISALLOWED THE TOTAL CLAIM OF LOSS OF RS.6,65,47,806/-. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) SUBMITTING THE EVIDENCE IN SUPPO RT OF CLAIM OF ITS EXPENSES AND OTHER DETAILS. THE CIT (A) FORWARD ED THE ADDITIONAL EVIDENCE TO THE AO FOR EXAMINATION AND R EPORT. AO, VIDE HER LETTER DATED 26.04.2013, ACCEPTED THAT THE EVIDENCE HAS BEEN PRODUCED BY THE ASSESSEE FOR ALL THE EXPENDITU RES CLAIMED. IT WAS SUBMITTED THAT THE ASSESSEE HAD CLAIMED A SU M OF RS.49,01,125 AS BAD DEBT ON THE GROUND THAT THE AMO UNT WAS INCURRED ON TERMINATION OF LEASE WITH M/S.ILABS HYD ERABAD TECHNOLOGIES PVT. LTD AND THAT AS PER THE TERMINATI ON OF LEASE DEED DATED 14.02.2007, THE ASSESSEE WAS TO PAY THIS SUM IN SETTLEMENT OF THE DUES. AO ALSO HAD REPORTED THAT T HERE WAS NO REFERENCE IN THE LEASE DEED THAT THIS AMOUNT WAS PA YABLE ON TERMINATION AND FURTHER THAT THE SUM OF RS.49,01,12 5 CONSISTED OF RS.45,88,625 FOR LEASE DUES FROM JUNE, 2006 TO M ARCH, 2007 AND RS.3,12,500 AS OPERATION AND MAINTENANCE FEES FOR THE ITA NOS 1416 1417 CO 62 OF 2015 VERSEON INDIA PVT L TD HYDERABAD PAGE 3 OF 7 SAME PERIOD. AO, THEREFORE, SUBMITTED THAT THE EXPE NDITURE WAS IN THE NATURE OF RENTAL PAYMENT FOR THE A.Y 2007-08 AND DID NOT FULFIL THE CONDITIONS FOR CLAIM OF BAD DEBTS U/S 36 (2) OF THE ACT AND FURTHER THAT THE EXPENDITURE SHOULD HAVE BEEN C LAIMED FOR A.Y 2007-08 AND NOT A.Y 2008-09. 3. IN RESPONSE TO THE REMAND REPORT, THE ASSESSEE S UBMITTED THAT THE ASSESSEE HAD PAID RS.49,01,125 AS SECURITY DEPOSIT TO M/S ILABS HYDERABAD TECHNOLOGIES PVT. LTD AT THE TI ME OF ENTERING INTO THE LEASE DEED WHICH WAS FOREFIETED O N ITS TERMINATION AND SINCE THE ASSESSEE HAS FAILED TO RE COVER THE AMOUNT, HE HAS CLAIMED IT AS BAD DEBT IN THE A.Y 20 08-09. THE CIT(A), THEREFORE, ACCEPTED THE ASSESSEES CONTENTI ONS ON THE EXPENDITURE, EXCEPT FOR THE SUM OF RS.49,01,125 AND HELD THAT THE SAME IS ALLOWABLE ON ACCRUAL BASIS UNDER THE ME RCANDILE SYSTEM OF ACCOUNTING DURING THE A.Y 2007-08 AND NOT FOR THE A.Y 2008-09. AGGRIEVED BY THE RELIEF GIVEN BY THE CIT ( A), THE REVENUE IS IN APPEAL BEFORE US, WHILE AGAINST THE CONFIRMAT ION OF THE DISALLOWANCE OF RS.49,01,125, THE ASSESSEE IS IN CR OSS OBJECTION BEFORE US. 4. AT THE TIME OF HEARING, IT IS BROUGHT TO OUR NOT ICE BY THE LEARNED COUNSEL FOR THE ASSESSEE, THAT THE CROSS OB JECTION OF THE ASSESSEE IS BARRED BY A PERIOF OF 101 DAYS AND AN A PPLICATION FOR CONDONATION OF DELAY HAS BEEN FILED. IN THE SAID AP PLICATION, IT IS STATED THAT THE DELAY IS DUE TO DELAYED AVAILABILIT Y OF INFORMATION ABOUT THE APPEAL PREFERRED BY THE DEPARTMENT AGAINS T THE ORDER PASSED BY THE CIT (A). IT IS STATED THAT SINCE BOTH THE DIRECTORS OF THE COMPANY HAVE BEEN RESIDING OUTSIDE INDIA, IT TO OK TIME TO ITA NOS 1416 1417 CO 62 OF 2015 VERSEON INDIA PVT L TD HYDERABAD PAGE 4 OF 7 OBTAIN PROPER ADVICE AND THE TIME TAKEN IN ENTRUSTI NG OF THE TAX MATTERS TO THE AR OPERATING IN HYDERABAD AND THE TI ME TAKEN BY THEM TO STUDY THE DOCUMENTS AND RENDERING OF NECESS ARY ADVICE BY THEM HAS RESULTED IN THE DELAY. THEREFORE, IT WA S PRAYED THAT THE DELAY MAY BE CONDONED. THE LEARNED DR, HOWEVER, OBJECTED TO THE CONDONATION OF DELAY. 5. HAVING REGARD TO THE RIVAL CONTENTIONS, WE ARE C ONVINCED THAT THE DELAY IS DUE TO REASONABLE CAUSE AND HENCE THE DELAY OF 101 DAYS IS CONDONED AND THE ASSESSEES CROSS OBJEC TION IS TAKEN UP FOR ADJUDICATION ALONG WITH THE REVENUES APPEAL. 6. COMING TO THE REVENUES APPEAL, THE LEARNED DR S UBMITTED THAT THE CIT (A) HAS DELETED THE DISALLOWANCES OF T HE EXPENDITURE ONLY ON THE GROUND THAT THE ASSESSEE HAS FILED THE DETAILS OF THE EXPENDITURE. HE SUBMITTED THAT THE CIT (A) HAS NOT EXAMINED THE ALLOWABILITY OF THE HUGE EXPENDITURE, WHILE THE INC OME OF THE ASSESSEE WAS ONLY A SUM OF RS.2,68,585. ACCORDING T O HIM, THE BUSINESS EXPEDIENCY OF THE EXPENDITURE HAS NOT BEEN CONSIDERED BY THE CIT (A), NOR HAS BEEN COMMENTED UPON BY THE AO IN THE REMAND PROCEEDINGS. THEREFORE, ACCORDING TO HIM, TH E DISALLOWANCE OF THE EXPENDITURE OUGHT TO HAVE BEEN UPHELD BY THE CIT (A). THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS DRAWN OUR ATTENTION TO THE DETAILS OF EXP ENDITURE GIVEN AT PAGE 4 OF THE PAPER BOOK FILED BY THE ASSESSEE, AND SUBMITTED THAT THIS BEING THE FIRST YEAR OF OPERATION, THE AS SESSEE HAS TO INCUR THESE EXPENSES FOR OPERATION OF THE ASSESSEE S BUSINESS ACTIVITIES AND THOUGH THERE WAS NO BUSINESS ACTIVIT Y AS SUCH, INTEREST INCOME ON BANK DEPOSITD WAS OFFERED AS BU SINESS ITA NOS 1416 1417 CO 62 OF 2015 VERSEON INDIA PVT L TD HYDERABAD PAGE 5 OF 7 INCOME AND WAS ACCEPTED BY THE AO AS BUSINESS INCO ME. THEREFORE, ACCORDING TO HIM, WHEN THE INCOME HAS BE EN TREATED AS BUSINESS INCOME, THE ADMINISTRATIVE EXPENDITURE FOR MAINTAINING THE OFFICE OF THE ASSESSEE IS AN ALLOWA BLE BUSINESS EXPENDITURE. HAVING REGARD TO THE DETAILS OF THE EX PENDITURE AT PAGE 4 OF THE PAPER BOOK, WE FIND THAT THESE ARE AL L EXPENDITURE RELATING TO THE MAINTENANCE OF THE OFFICE AND AS SU CH IS ALLOWABLE BUSINESS EXPENDITURE IRRESPECTIVE OF WHETHER THE BU SINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSEE AND WHETHE R INCOME WAS DERIVED THEREFROM. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT (A) ON THIS ISSUE AND THE REVE NUES APPEAL IS DISMISSED. C.O. NO.62/HYD/2015 7. AS REGARDS THE CROSS OBJECTION, THE CIT (A) HAS CONFIRMED THE DISALLOWANCE OF THE FORFEITED SECURITY DEPOSIT HOLDING THAT THE SAME IS NOT ALLOWABLE. FOR COMING TO THIS CONCLUSIO N, THE CIT (A) HAS TAKEN THE DATE OF THE TERMINATION OF THE AGREEM ENT AS 14.02.2007. HOWEVER, BEFORE US, ASSESSEE HAS FILED ADDITIONAL EVIDENCE I.E. COPY OF THE TERMINATION OF THE LEASE DEED DATED 17.05.2007, TO CONVINCE US THAT THE SAID AMOUNT IS ALLOWABLE IN THE A.Y 2008-09 ONLY. IT WAS SUBMITTED THAT THIS DO CUMENT WAS NOT FILED BEFORE ANY OF THE AUTHORITIES BELOW AND I T WAS PRAYED THAT THESE DOCUMENTS MAY BE ADMITTED AND REMANDED T O THE FILE OF THE AO FOR RECONSIDERATION IN ACCORDANCE WITH LA W. WE FIND THAT THE DECISION OF THE CIT (A) IS ON THE GROUND T HAT THE LEASE DEED TERMINATION IS DATED 14.12.2007. AS THE TERMIN ATION OF THE LEASE AGREEMENT IS THE REASON FOR FORFEITURE OF THE SECURITY ITA NOS 1416 1417 CO 62 OF 2015 VERSEON INDIA PVT L TD HYDERABAD PAGE 6 OF 7 DEPOSIT, THE DATE OF TERMINATION ASSUMES IMPORTANCE . THEREFORE, WE DEEM IT FIT AND PROPER TO ADMIT THE ADDITIONAL E VIDENCE FILED BEFORE US AND REMAND THE SAME TO THE FILE OF THE AO FOR RECONSIDERATION IN ACCORDANCE WITH LAW. IF IT IS FO UND THAT THE LEASE HAS BEEN TERMINATED ONLY W.E.F. 17.05.2007, T HEN WE DIRECT THE AO TO ALLOW THE SAID EXPENDITURE DURING THE A.Y 2008-09. 8. IN THE RESULT, CROSS OBJECTION OF THE ASSESSEE I S TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1417/HYD/2013 9. THIS IS REVENUES APPEAL AGAINST THE ORDER OF TH E CIT (A) IN DELETING THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE ACT. BRIEF FACTS OF THE CASE ARE THAT AFTER COMPLETION O F THE ASSESSMENT PROCEEDINGS BY THE AO U/S 144 DISALLOWING THE ENTIR E EXPENDITURE CLAIMED BY THE ASSESSEE, THE AO INITIAT ED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. SINCE THE ASS ESSEE DID NOT COMPLY WITH THE SHOW CAUSE LETTERS IN RESPONSE TO 2 71(1)(C), AO LEVIED THE MINIMUM PENALTY OF RS.2,26,19,599. AGGRI EVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO DELETED THE PENALTY AS DISALLOWANCE OF OTHER THAN THE CLAIM OF BAD DEBT RS.49,01,125 HAS BEEN DELETED BY HIM. EVEN WITH REG ARD TO THE DISALLOWANCE OF BAD DEBT OF RS.49,01,125, THE CIT ( A) DELETED THE PENALTY BY HOLDING THAT MERE MAKING OF INADMISSIBLE CLAIM OF DEDUCTION DOES NOT AMOUNT TO FURNISHING OF INACCURA TE PARTICULARS. AGAINST THIS ORDER OF THE CIT (A), THE REVENUE IS IN APPEAL BEFORE US. HOWEVER, WE HAVE UPHELD THE ORDER OF THE CIT (A) IN DELETING DISALLOWANCE OF EXPENDITURE, THEREF ORE, THE PENALTY ITA NOS 1416 1417 CO 62 OF 2015 VERSEON INDIA PVT L TD HYDERABAD PAGE 7 OF 7 IS NOT LEVIABLE ON THE SAID SUM. AS REGARDS TO THE ISSUE OF PENALTY ON THE FORFEITED SECURITY DEPOSIT, WE HAVE REMANDED THE ISSUE TO THE FILE OF THE AO FOR RECONSIDERATION. HOWEVER, WE AGREE WITH THE FINDINGS OF THE CIT (A) THAT THE PENALTY IS NOT LEV IABLE ON THIS AMOUNT ALSO. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 11. TO SUM UP, REVENUES APPEALS ARE DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST, 2016. S D/ - S D/ - (S.RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED AUGUST, 2016. VNODAN/SPS COPY TO: 1. DY.COMMISSIONER OF INCOME TAX CIRCLE 3(3) HYDERABAD 2. M/S. VERSEON INDIA PVT. LTD. 3-5-823 HYDERABAD BUSI NESS CENTRE, F-9, 4 TH FLOOR, HYDERGUDA, HYDERABAD 500029 3. CIT(A)-IV HYDERABAD 4. CIT III HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER