M/s. Telekonnectors Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1480/CHNY/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73648 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 05-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 20-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DAS GUPTA IRS
• Assessee Lawyers: M VISWANATHAN
• Keywords: Capital expenditure
• Section: 143(3); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ I.T.A. NO.1480/MDS/2012 ( / ASSESSMENT YEAR : 2008-2009) M/S. TELEKONNECTORS LTD, 161, THRIUVALLUVAR SALARI, THRIUVANMIYUR CHENNAI 600 041. [PAN: AAACT9254A] ( !% /APPELLANT) VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(1) CHENNAI -600 034. ( &'!% /RESPONDENT) / APPELLANT BY : SHRI. M. VISWANATHAN, CA / RESPONDENT BY : SHRI. S. DAS GUPTA,I.R.S.,JCIT /DATE OF HEARING : 05-02-2014 /DATE OF PRONOUNCEMENT : 05-02-2014 #( / O R D E R PER DR. O.K. NARAYANAN, VICE PRESIDENT THIS APPEAL FILED BY THE ASSESSEE RELATE S TO THE ASSESSMENT YEAR 2008-2009. THE APPEAL IS DIRECTED AGAINST THE ORDER OF I.T.A.NO.1480/MDS/2012 :- 2 -: COMMISSIONER OF INCOME TAX (APPEALS)-VI, CHENNAI PA SSED ON 09.05.2012. THE APPEAL ARISES OUT OF THE ASSESSMEN T COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IS A COMPANY, MANUFACTURING AND TRADI NG OF ELECTRONIC COMPONENTS, SUCH AS HEAD SET AND ADOPTER S, CONNECTORS, ETC. IT HAD RETURNED A TOTAL INCOME OF D2,13,50,643 /- FOR THE ASSESSMENT YEAR IN APPEAL. IN THE COURSE OF ASSESS MENT PROCEEDINGS, THE ASSESSING OFFICER HAS MADE CERTAIN DISALLOWANCE S AND ADDITIONS. THESE ITEMS WERE TAKEN IN FIRST APPEAL. THE COMMISSIONER OF INCOME TAX (APPEALS) THOUGH ALLOWED CERTAIN CLAIMS OF THE ASSESSEE, HAS CONFIRMED THE REMAINING DISALLOWANCES/ADDITIONS. T HE ASSESSEE IS AGGRIEVED ON THESE ADDITIONS/DISALLOWANCES UPHELD B Y THE COMMISSIONER OF INCOME TAX (APPEALS) AND HAS COME I N SECOND APPEAL BEFORE THE TRIBUNAL. 3. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST TH E DISALLOWANCE/ ADDITION CLAIMED BY THE ASSESSEE COMPANY UNDER SECT ION 35(2)(IIA). THIS DISALLOWANCE AMOUNTS TO D83,28,550/-. ACCORDI NG TO THE ASSESSEE COMPANY, THIS AMOUNT WAS INCURRED AS EXPENDITURE TO WARDS RESEARCH. THIS AMOUNT WAS INCURRED FOR PURCHASE OF COLLABORAT ION SOFTWARE. I.T.A.NO.1480/MDS/2012 :- 3 -: ACCORDING TO THE ASSESSEE COMPANY THIS WAS NECESSAR Y FOR RESEARCH AND DEVELOPMENT. THIS CLAIM OF THE ASSESSEE COMPANY WAS DISALLOWED BY THE ASSESSING AUTHORITY FOR HOST OF REASONS. THE FIRST OBJECTION OF THE ASSESSING AUTHORITY IS THAT THE SOFTWARE IS NOT PUT TO USE BEFORE THE END OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. THE ASSESSING OFFICER HAS ALSO POINTED OUT THAT THE BAS IS OF THE EXPENDITURE HAS NOT BEEN SPECIFIED IN FORM 3CD AND THEREBY THE CLAIM HAS NOT BEEN CERTIFIED. THE ASSESSEE CONTENDS THAT EVEN TH OUGH THE INVOICE DATED 20.03.2008 REFERRED TO THE DELIVERY DATE IN A PRIL 2008, THE ASSET BEING THE SOFTWARE WAS ACTUALLY DOWNLOADED BY THE A SSESSEE AND PUT TO USE DURING MARCH, 2008 ITSELF. BUT THE ASSESSIN G OFFICER REJECTED THE CLAIM OF THE ASSESSEE COMPANY AND MADE DISALLOW ANCE. THIS DISALLOWANCE IS CONFIRMED IN FIRST APPEAL. 4. NOW, IN THE COURSE OF ARGUMENT AND IN THE LIGHT OF THE SUBSEQUENT EVENTS TAKEN PLACE IN THE MATTER OF PURC HASE OF RESEARCH SOFTWARE, IT IS EXPLAINED BEFORE US THAT THE CONTRA CT FOR PURCHASE OF SAID RESEARCH SOFTWARE WAS NEVER DISCHARGED. THE C ONTRACT WAS IN FACT ABORTED. THE ASSESSEE ALSO DID NOT MAKE FULL PAYMEN T OF D83,28,550/-. THE ASSESSEE COMPANY HAS MADE A PAYMENT OF D2,03,06 6/- ON 28.04.2008 AND D2,32,000/- ON 23.6.2010. THESE AMOU NTS TOTAL TO I.T.A.NO.1480/MDS/2012 :- 4 -: D4,35,066/-. THE ASSESSEE WAS NOT SATISFIED WITH T HE PERFORMANCE OF THE SOFTWARE AND AS SUCH FURTHER PAYMENT WAS NOT MA DE. IN VIEW OF THIS, IT IS EXPLAINED BEFORE US THAT THE AMOUNT SHO WN BY THE ASSESSEE PAYABLE TO THE SUPPLIER FOR THE SOFTWARE IS NO MORE PAYABLE AND ACCORDINGLY THE PAYMENT STANDS TO THE CREDIT OF THE SUPPLIER HAS BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSE SSEE COMPANY AS INCOME UNDER SECTION 41(1), FOR THE ASSESSMENT YEAR 2011-12. WHEN WE ASKED THE COUNSEL APPEARING FOR THE ASSESSEE THA T HOW THE AMOUNT CREDITED UNDER SECTION 41(1) HAS BEEN REDUCED TO D4 3,83,147/-, IT WAS REPLIED THAT THE CREDIT BALANCE HAS BEEN CONTINUOUS LY REVISED AT THE END OF EVERY PREVIOUS YEAR ACCORDING TO THE FLUCTU ATION IN THE FOREIGN EXCHANGE RATE. 5. WE HAVE EXAMINED THIS ISSUE IN THE TOTALITY OF THE FACTS OF THE CASE AS PRESENTED BEFORE US. WE FIND THAT THE ASSE SSEE COMPANY NEVER BECAME THE LAWFUL OWNER OF THE SOFTWARE. AS THE SOFTWARE WAS NOT PERFORMING TO THE REQUIREMENT OF THE ASSESSEE C OMPANY, IT IS NOT POSSIBLE TO CONTEND THAT THE ASSESSEE COMPANY HAS U SED THE ASSET FOR BUSINESS PURPOSES IN ANY OF THE RELEVANT PREVIOUS Y EARS. MOREOVER, THE ASSESSEE HAS NOT INCURRED ANY COST BY WAY OF PA YMENT TO THE SUPPLIER EXCEPT THE INITIAL PAYMENT OF D4,35,066/-. THE BALANCE IN THE I.T.A.NO.1480/MDS/2012 :- 5 -: ACCOUNT OF SUPPLIER IN THE NATURE OF SUNDRY CREDITO R HAS BEEN TREATED BY AS INCOME BY THE COMPANY AND OFFERED FOR THE ASS ESSMENT YEAR 2011-12 AT D43,83,147/-. THIS ADJUSTMENT HAS BEEN MADE BY THE ASSESSEE COMPANY, FOR NON-EXISTENT LIABILITY AND NO N-EXISTENT ASSET. THEREFORE BY ALL MEANS, THERE CANNOT BE A CASE OF P URCHASE AND USE OF ASSET BY THE ASSESSEE COMPANY. THEREFORE, IT IS CR YSTAL CLEAR THAT THE ASSESSEE COMPANY IS NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 35(2)(IIA). ACCORDINGLY, WE UPHOLD THE ORDER OF LO WER AUTHORITIES, ON THIS POINT. 6. BUT AT THE SAME TIME, WE CANNOT OVERLOOK THE INITIAL PAYMENT OF D4,35,066/- MADE BY THE ASSESSEE COMPANY TO THE SUPPLIER. THIS AMOUNT IS NOT GOING TO COME BACK TO THE ASSESSEE. I T IS INCURRED BY THE ASSESSEE IN THE COURSE OF CARRYING ON ITS BUSIN ESS. EVEN THOUGH THE AMOUNT WAS PAID FOR ACQUIRING AN ASSET THIS P AYMENT CANNOT BE TREATED AS CAPITAL EXPENDITURE FOR THE SIMPLE REASO N THAT ASSET WAS NOT ACQUIRED AND USED. THEREFORE, WE HAVE TO TREAT TH IS AMOUNT OF D4,35,066/- AS LOSS INCURRED BY THE ASSESSEE IN THE COURSE OF CARRYING ON OF THE BUSINESS. THEREFORE, THIS AMOUNT IS DEDU CTIBLE UNDER SECTION 37 OF THE INCOME- TAX ACT, 1961. ACCORDINGLY, WE DIRECT THE ASSESSING I.T.A.NO.1480/MDS/2012 :- 6 -: OFFICER TO DEDUCT D4,35,066/- FROM THE COMPUTATION OF INCOME OF ASSESSEE AS EXPENDITURE PERMISSIBLE UNDER SECTION 3 7 OF THE INCOME- TAX ACT, 1961. IN VIEW OF THE ABOVE DISCUSSION, THE FIRST ISSUE OF DISALLOWANCE UNDER SECTION 35(2)(IIA) IS DISPOSED O F. 7. THE OTHER ISSUE RAISED BEFORE THE TRIBUNAL IS THE DISALLOWANCE OF REPAIRS AND MAINTENANCE AMOUNTING TO D6,85,075/- . THE ASSESSEE HAD LET OUT A PORTION OF ITS PROPERTY TO A TENANT A ND WAS RECEIVING RENTAL INCOME. THE ASSESSEE SHOWED THE RENTAL INCO ME UNDER THE HEAD INCOME FROM BUSINESS. THE ASSESSING OFFICER HELD THAT RENTAL INCOME IS TO BE ASSESSED UNDER THE HEAD INCOME FRO M HOUSE PROPERTY. ACCORDINGLY, HE BROUGHT THE RENTAL AMOU NT UNDER THE HEAD THE INCOME FROM HOUSE PROPERTY. HE ALLOWED STATUT ORY DEDUCTION AT 30% AVAILABLE TO HOUSE PROPERTY INCOME UNDER SECTIO N 24. ONCE THIS STATUTORY PROVISION IS ALLOWED, THE ASSESSING AUTHO RITY HAS DISALLOWED THE AMOUNT OF D6,85,075/-. ACCORDING TO THE ASSESS EE COMPANY, THE SAID AMOUNT WAS INCURRED TOWARDS REPAIRS AND MAINTE NANCE OF LET OUT PROPERTY. I.T.A.NO.1480/MDS/2012 :- 7 -: 8. AS THE PROPERTY IS OWNED BY THE ASSESSEE COMPANY, THE RENTAL INCOME RECEIVED FROM THE TENANT SHOULD BE AS SESSED AS INCOME FROM HOUSE PROPERTY. THEREAFTER, THE ASSESSEE-COM PANY IS ENTITLED ONLY FOR STATUTORY DEDUCTION. FURTHER CLAIM OF REP AIR AND MAINTENANCE CANNOT BE ALLOWED. THEREFORE, THE LOWER AUTHORITIES ARE JUSTIFIED IN DISALLOWING, REPAIRS AND MAINTENANCE EXPENDITURE OF D6,85,075/-. THIS GROUND ALSO FAILS. 9. THE LAST ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST THE DISALLOWANCE OF OVERRIDING COMMISSION OF D64,500/-. THIS AMOUNT REPRESENTED COMMISSION PAID TO INDIVIDUALS FOR ACHI EVING MINIMUM TURNOVER ENTRUSTED BY THE ASSESSEE COMPANY. THERE IS NO DISPUTE REGARDING THE BONAFIDES OF THE PAYMENT. TDS HAS B EEN DEDUCTED WHEN PAYMENTS WERE MADE. IN THESE CIRCUMSTANCES, W E DO NOT FIND ANY REASON TO DISALLOW THE SAID CLAIM OF D64,500/- . THE ASSESSING AUTHORITY IS THEREFORE DIRECTED TO ALLOW D64,500/- AS DEDUCTION IN COMPUTING THE TAXABLE INCOME. 10. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS PARTY ALLOWED. I.T.A.NO.1480/MDS/2012 :- 8 -: ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY, THE 5 TH OF FEBRUARY, 2014 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) JUDICIAL MEMBER (DR. O.K. NARAYANAN) VICE PRESIDENT DATED:05 TH FEBRUARY, 2014. K.V COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR