M/s PRV Info Services Pvt Ltd., Hyderabad V. Deputy Commissioner of Income Tax, Jogipet

ITA 1455/HYD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74457 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 16-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1455/HYD/2011 ASSESSMENT YEAR: 2007-08 M/S PRV INFO SERVICES PVT. LTD., HYDERABAD. PAN AACCP7169E VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(3), HYDERABAD. ASSESSEE RESPONDENT ASSESSEE BY: SRI MOHD. AFZAL REVENUE BY: SRI SOLGY JOSE T KOTTARAM DATE OF HEARING: 02/01/2014 DATE OF PRONOUNCEMENT: 10/01/2014 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 14/06/2011 F OR THE ASSESSMENT YEAR 2007-08 WHEREIN THE ASSESSEE HAS RA ISED THE FOLLOWING SUBSTANTIAL GROUNDS: 2 ). THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER, IN RESPECT OF AGGREGATE ADDITION OF RS. 12,13,272/- INCURRED TOWARDS MOBILE CHARGES AND TEL EPHONE CHARGES, INTERNET CHARGES AND ELECTRICITY CHARGES. 3) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER, IN RESPECT OF ADDITION OF RS. 19 ,33,086/- DEBITED ON ACCOUNT OF DEBIT NOTE OF THE MAIN CONTRA CTOR STATING THE AMOUNT IS NO LONGER PAYABLE TO THE ASSE SSEE ON ACCOUNT OF TERMINATION OF THE CONTRACT. 4) THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER, WHEREIN, AN AMOUNT OF RS. 56,000 /- WAS DISALLOWED U/S 40(A)(IA) WHICH IS IN FACT RECOVERY MADE BY THE MAIN CONTRACTOR. I.T.A. NO. 1455/HYD/2011 M/S PRV INFO SERVICES PVT. LTD. 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF HARDWARE, SOFTWARE AND C OMPUTER EDUCATION AND TRAINING, FILED ITS E-RETURN OF INCOM E FOR THE AY 2007- 08 ON 14/11/2007 ADMITTING TOTAL INCOME OF RS. 35,5 0,630/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143( 3) OF THE ACT BY MAKING THE FOLLOWING ADDITIONS: 1. DISALLOWANCE OF EXPENDITURE TOWARDS ELECTRICITY, TELEPHONE AND INTERNET CHARGES AMOUNTING TO RS. 12,13,272/-. 2. DISALLOWANCE OF EXPENDITURE OUT OF OTHER ADMINIS TRATIVE EXPENSES AMOUNTING TO RS. 19,33,086/-. 3. AS REGARDS GROUND NO. 2 RELATES TO THE EXPENSE O F RS. 12,13,272/- INCURRED TOWARDS MOBILE CHARGES, INTERN ET CHARGES AND ELECTRICITY CHARGES, THE FACTS ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF HARDWARE, SOFTWARE AND C OMPUTER EDUCATION. IT IS UNDER CONTRACTS TO PROVIDE FACULTY TO VARIOUS SCHOOLS WHEREAS THE COMPANY CALLED NIIT WAS TO SUPPLY SYSTE MS, COURSE MATERIAL AND SOFTWARE TO VARIOUS GOVERNMENT RUN SCH OOLS. THE ASSESSEE IS A SUB-CONTRACTOR TO NIIT. DURING THE YE AR, THE ASSESSEE HAD CLAIMED THE FOLLOWING EXPENSES: 1. MOBILE CHARGES AND TELEPHONE CHARGES RS. 4,94,3 24/- 2. INTERNET CHARGES RS. 2,01,963/- 3. ELECTRICITY CHARGES (SCHOOLS) RS. 5,16,985/- TOTAL RS.12,13,272/- =========== THE ASSESSING OFFICER DISALLOWED THE SAID EXPENSES ON THE GROUND THAT THE BILLS AND VOUCHERS PRODUCED BY THE ASSESSE E WERE NOT IN ITS NAME. 4. ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE ARGUED THAT IT HAD OBTAINED A SUB CONTRACT FROM NIIT AND FROM M/S TERA SOFTWARE LTD. IT WAS THE PART OF THE CONTRACT THAT THE ASSESSEE W AS TO PAY FOR ELECTRICITY CHARGES, INTERNET CHARGES, ETC. THE ASS ESSEE FURTHER ARGUED THAT IN THE EARLIER YEARS SUCH EXPENSES WERE ALLOWED. I.T.A. NO. 1455/HYD/2011 M/S PRV INFO SERVICES PVT. LTD. 3 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT THE COPIES OF AGREEMENTS PROVIDED BY THE ASSESSEE ARE NOT CERTIFIED. FURTHER, THE CIT(A) HAD GONE THR OUGH AGREEMENT ENTERED WITH FROM AP GOVT SCHOOLS - POST SCHOOL BUS INESS, BUSINESS DEVELOPMENT ORDER, A NON EXCLUSIVE BUSINES S ASSOCIATION AGREEMENT WITH NIIT DATED 28 TH SEPTEMBER, 2002, WHICH ARE AS FOLLOWS: '1. RECRUIT, TRAIN AND MAINTAIN 1 NOS. OF BUSINESS DEVELOPMENT EXECUTIVES (BDE) FOR EVERY 15 AP GOVT. POST SCHOOL LOCATIONS BY 30/10/2002 FOR MARKET DEVELOPME NT IN THE TERRITORY(S) YOU SHALL ENSURE THAT THE APPOI NTMENT AND CONFIRMATION OF BDE HAS THE PRIOR APPROVAL OF N IIT. THE MINIMUM QUALIFICATIONS WILL BE AS MENTIONED IN THE POST SCHOOL BUSINESS IMPLEMENTATION MANUAL (PSBIM). YOU SHALL BE ENTIRELY LIABLE TO PAY THE SALARIES OF THE BDE SO RECRUITED, TRAINED AND MAINTAINED BY YOU. 2. RECRUIT, TRAIN AND MAINTAIN 2 NOS. OF POST SCHOO L FACULTY (PSF) FOR EVERY POST SCHOOL LOCATION BY 30/12/2002 FOR CONDUCTING THE POST SCHOOL EXECUTION IN THE NON RESIDENTIAL GOVERNMENT SCHOOLS. IT IS PREFE RRED THAT THE SAME FACULTY HANDLING GOVERNMENT SCHOOL EXECUTION IN THE SAID SCHOOLS ARE UTILIZED AS PSFS. YOU SHALL ENSURE THAT THE APPOINTMENT AND CONFIRMATION OF PSF HAS THE P RI OR APPROVAL OF NIIT. THE MINIMUM QUALIFICATIONS WILL BE AS MENTIONED IN THE PSBIM. YOU SHALL BE ENT IRELY LIABLE TO PAY THE SALARIES OF THE PSFS SO RECRUITED, TRAINED AND MAINTAINED BY YOU.' THE CIT(A) NOTED FROM THE ABOVE, THAT IT IS AMPLY C LEAR THAT THERE IS ABSOLUTELY NO REQUIREMENT AND STIPULATION THAT THE ASSESSEE HAS TO INCUR ELECTRICITY AND OTHER CHARGES IN THE SCHOOL. THE ABOVE CLAUSES ARE UNAMBIGUOUS AND CLEAR IN THIS REGARD. THE WORK OF THE ASSESSEE IS TO RECRUIT, TRAIN AND MAINTAIN BUSINESS EXECUTIV ES, SCHOOL FACULTY AND TO PROVIDE GENERAL MARKETING SUPPORT TO NIIT. F URTHER AS PER THE AP GOVERNMENT SCHOOL SERVICES EXECUTION ORDER W ITH NIIT, ANNEXURE-II PROVIDES THE GENERAL AND SPECIFIC OBLIG ATIONS OF THE BUSINESS ASSOCIATE WITH THE ASSESSEE. I.T.A. NO. 1455/HYD/2011 M/S PRV INFO SERVICES PVT. LTD. 4 6. FURTHER, THE CIT(A) OBSERVED THAT IT IS CLEAR T HAT THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE WITH REGA RD TO INCURRING THE EXPENSES IN QUESTION. FINALLY, WHAT HAS BEEN RE LIED UPON BY THE ASSESSEE IS CLAUSE 14.1 OF THE AGREEMENT OF NIIT WITH STATE PROJECT DIRECTOR, DISTRICT PRIMARY EDUCATION PROGRA MME. THIS CONTRACT HAS ONLY LIMITED APPLICATIONS WITH REGARD TO THE ASSESSEE BECAUSE ALL CLAUSES OF THIS CONTRACT ARE N OT TO BE IMPLEMENTED BY THE ASSESSEE. THE WORK OF THE ASSESS EE IS LIMITED TO PROVIDING FACULTY AND MARKETING SUPPORT AND NOTHING ELSE. CLAUSE 14.1 QUOTED BY THE ASSESSEE INFACT STATES THAT WHERE THE SCHOOL EDUCATION DEPT. UTILIZES THE SERVI CES OF THE COMPUTER ROOM, IT SHALL THEN COMPENSATE NIIT ACCORD INGLY, THE STATUTORY CHARGES ARE TO BE PAID BY NIIT AND LATER ON COMPENSATION CAN BE CLAIMED FROM THE DEPARTMENT. TH IS AGREEMENT AND SPECIFIC CLAUSE WAS IN BETWEEN NIIT A ND THE GOVT DEPARTMENT IT HAS NOTHING TO DO WITH THE ASSESSEE. 7. IN VIEW OF THE ABOVE OBSERVATIONS, THE CIT(A) CO NFIRMED THE ADDITION OF RS. 12,13,272/- MADE BY THE ASSESSI NG OFFICER BEING THE EXPENDITURE INCURRED BY THE ASSESSEE TOWA RDS MOBILE CHARGES, ELECTRICITY CHARGES AND INTERNET CHARGES. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES. ACCORDING TO THE LEARNED AR, THE PAYM ENT HAS MADE AS PER THE AGREEMENT THE ASSESSEE ENTERED WITH NIIT AN D IT IS A BUSINESS EXPENDITURE, THEREFORE, THE SAME COULD HAV E BEEN ALLOWED BY THE REVENUE AUTHORITIES. WE ARE OF THE VIEW THA T THE ASSESSEE WAS UNABLE TO PROVE THE EXPENDITURE FOR THE PURPOSE OF BUSINESS AND ALSO ON PERUSAL OF THE AGREEMENT ENTERED BY THE ASSESSEE WITH NIIT, WE FIND THAT THERE IS NO SPECIFIC CLAUSE, WHI CH IMPOSE ON THE ASSESSEE TO INCUR THE EXPENDITURE. BEING SO, IN THE ABSENCE OF NECESSARY EVIDENCE AND PROPER STIPULATIONS IN THE AGREEMENT TO I.T.A. NO. 1455/HYD/2011 M/S PRV INFO SERVICES PVT. LTD. 5 INCUR THE EXPENDITURE, WE ARE NOT IN A POSITION TO UPHOLD THE ARGUMENTS OF ASSESSEES COUNSEL. ACCORDINGLY, WE A RE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE AND D ISMISS THE GROUND NO. 2 RAISED BY THE ASSESSEE IN THIS REGARD. 9. AS REGARDS THE GROUND NO. 3 PERTAINS TO THE DISA LLOWANCE OF RS. 19,33,086/- WITH RESPECT TO M/S TERAM SOFTWARE LTD, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED T HAT THE ASSESSEE HAD SHOWN AN INCOME OF RS. 90,09,086/- FROM COMPUTER WORK AT KAVERI PROJECT. AS AGAINST THIS INCOME, A H UGE EXPENDITURE AMOUNTING TO RS. 1 9,33,086/- WAS CLAIMED UNDER THE HEAD 'OTHER ADMINISTRATIVE EXPENSES'. THE ASSESSEE STATED THAT M/S TERA SOFTWARE HAD SECURED THE CONTRACT FOR COMPUTERIZATI ON OF REGISTRAR AND SUB REGISTRAR FOR LAND REGISTRATION IN THE STAT E OF KARNATAKA. THIS WAS KNOWN AS THE 'KAVERI PROJECT'. THE ASSESSE E WAS ONE OF THE SUB-CONTRACTORS OF M/S TERA SOFTWARE IN IMPLEMENTING THE PROJECT. THE ASSESSING OFFICER ADDED THE SAID EXPEN DITURE BY HOLDING THAT IN THE ABSENCE OF ANY DETAILS ALONG WI TH PROOF FURNISHED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM OF EXPENDIT URE OF RS. 19,33,086/- IN THE SUB-CONTRACT WORK OF TERA SOFTWA RE LTD., THE SAME IS DISALLOWED AND ADDED. 10. BEFORE THE CIT(A), IT WAS SUBMITTED THAT AS THE CLAIMS WERE OFFERED FOR TAXATION ON MERCANTILE SYSTEM OF ACCOUN TING, THEREFORE, WHEN IT WAS MADE CLEAR BY THE CONTRACTOR THAT IT IS NOT PAYABLE TO THE ASSESSEE THE SAME WAS DEBITED TO P&L A/C. IT WA S THEREFORE CONTENDED THAT THE AMOUNT IS ALLOWABLE AS A DEDUCTI ON AND TO THIS EFFECT CERTIFIED COPIES OF DEBIT NOTES WERE ENCLOSE D. 11. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) OBSERVED THAT ALTHOUGH, A COPY OF THE DEBIT NOTE FO R RS. 19,33,086/- HAD BEEN CERTIFIED BY THE ASSESSEE AND SUBMITTED, T HERE IS STILL NO DETAIL AVAILABLE REGARDING THE EXPENSE IN QUESTION. FURTHER, HE I.T.A. NO. 1455/HYD/2011 M/S PRV INFO SERVICES PVT. LTD. 6 OBSERVED THAT IF THE ASSESSEE WAS A SUB-CONTRACTOR WITH M/S TERA SOFTWARE, CERTAINLY THERE WOULD BE A SUB-CONTRACT A GREEMENT AND NO SUCH AGREEMENT HAD BEEN PROVIDED IN SPITE OF THE FA CT THAT THE ASSESSING OFFICER HAD SPECIFICALLY ASKED FOR IT. T HE CIT(A) ALSO OBSERVED THAT EVEN THE ASSESSEE HAD NOT PROVIDED AN Y DETAILS WHATSOEVER WITH REGARD TO WHAT WORK WAS DONE, HOW M ANY PEOPLE WERE EMPLOYED BY IT, WHEN WAS THE WORK COMPLETED SO ON. SINCE NOTHING IS KNOWN WHATSOEVER ABOUT THE SO CALLED CON TRACT WITH M/S TERAM SOFTWARE LTD. AND IN THE ABSENCE OF ANY INFOR MATION, THE CIT(A) HELD THAT NO SUCH EXPENDITURE CAN BE ALLOWED . ACCORDINGLY, HE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS COUNT. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. BEFORE US, THE CONTENTION OF THE ASSESS EE IS SIMILAR AS MADE BEFORE THE REVENUE AUTHORITIES. AS OBSERVED BY THE CIT(A) THE ASSESSEE FAILED TO SUBSTANTIATE THE INCOME AND EXPE NDITURE AND WHEN THE ASSESSEE CLAIMED AN EXPENDITURE, IT IS INC UMBENT UPON THE ASSESSEE TO PROVE THE EXPENDITURE WITH NECESSAR Y VOUCHERS AND RECEIPTS. THEREFORE, IN THE ABSENCE OF THE NECESSAR Y EVIDENCES IN SUPPORT OF THE CLAIM OF THE ASSESSEE, THE REVENUE A UTHORITIES HAVE JUSTIFIED IN DISALLOWING THE CLAIM OF EXPENDITURE O F ASSESSEE. HENCE, WE HAVE NO HESITATION TO CONFIRM THE ACTION OF THE REVENUE AUTHORITIES IN MAKING THE DISALLOWANCE OF RS. 19,33 ,086/- OF EXPENDITURE. ACCORDINGLY, THIS GROUND OF APPEAL OF ASSESSEE IS DISMISSED. 13. THE FOURTH GROUND OF APPEAL RELATES TO THE ADDITION OF RS. 56,000/- U/S 40(A)(IA). THE ASSESSING OFFICER NOTED THAT UNDER T HE HEAD 'OTHER ADMINISTRATIVE EXPENSES', AN AMOUNT OF RS. 56,000 WAS CLAIMED TOWARDS AMC CHARGES. DURING ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAME SHALL NOT BE DISALLOWED U / S, 40(A)(IA) OF I.T. ACT AS NO TDS WAS MADE ON SUCH EXPENDITURE. IN RESPONSE, ASSESSEE'S A.R. H AD FILED A I.T.A. NO. 1455/HYD/2011 M/S PRV INFO SERVICES PVT. LTD. 7 COPY OF ASSESSEE'S ACCOUNT IN THE BOOKS OF TERA SOF TWARE LIMITED AND STATED THAT ON 30.06.2006, RECOVERY WAS MADE FOR CONSUMABLES FOR AN AMOUNT OF RS. 56,000 AND HENCE, TDS PROVISIONS ARE NOT APPLICABLE. WHEN ASKED TO EXPLAI N WHY IT WAS CLAIMED AS AMC, THE ASSESSEE COULD NOT GIVE ANY ANS WER. THE ASSESSEE'S EXPLANATION THAT IT WAS IN FACT RECOVERY MADE TOWARDS CONSUMABLES IS NOT ACCEPTABLE AND HENCE, IN THE ABS ENCE OF TDS MADE ON THE EXPENDITURE OF AMC CHARGES OF RS. 5 6,000. THE SAME IS DISALLOWED U/S. 40(A)(IA) AND ADDED BY THE ASSESSING OFFICER. 14. BEFORE THE CIT(A), THE ASSESSEE STATED THAT ACT UALLY THIS WAS PAYMENT MADE TOWARDS CONSUMABLES. THE CIT(A) HELD T HAT ONCE AGAIN, IT IS SEEN THAT THE DEBIT NOTE GIVEN BY THE ASSESSEE ONLY STATES THAT RECOVERY HAS BEEN MADE FOR SOME CONSUMA BLES AND NO DETAILS WHATSOEVER WERE PROVIDED. THIS ONLY APPE ARS TO BE AN AFTERTHOUGHT AND A SELF-SERVING EVIDENCE BECAUSE TH E ASSESSEE HAD CLEARLY DEBITED THE AMOUNT AS PAYMENT FOR ANNUA L MAINTENANCE CONTRACT. HE, THEREFORE, CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 15. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. IT IS OBSERVED THAT ONCE AGAIN AS NOTED BY THE CIT(A) THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM BY WAY FILING DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM BEFORE THE REVENUE AUTHORITIES. THEREFORE, WE DO NOT HAVE ANY CHOICE EXCEPT TO UPHOLD THE ACTION OF THE REVENUE AUTHORIT IES IN DISALLOWING THE CLAIM OF ASSESSEE. ACCORDINGLY, THI S GROUND OF APPEAL OF ASSESSEE IS DISMISSED. I.T.A. NO. 1455/HYD/2011 M/S PRV INFO SERVICES PVT. LTD. 8 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 10/01/2014. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED /01/2014. KV COPY FORWARDED TO: 1. M/S PRV INFO SERVICES PVT. LTD., C/O MOHD. AFZAL , ADVOCATE, 11-5-465, SHERSONS RESIDENCY, FLAT NO. 4 02, CRIMINAL COURT ROAD, RED HILLS,HYDERABAD 500 004. 2. DCIT, CIRCLE 16(3), HYDERABAD 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD. 5. THE DR, ITAT, HYDERABAD