Indonet Global Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1564/CHNY/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9542 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 18-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Business expenditure; Tax effect; Capital expenditure
• Section: 143(3); 10(10D)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . , # [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1057/MDS/2013 % % / ASSESSMENT YEAR : 2006-07 THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE-II(3) CHENNAI VS. M/S INDONET GLOBAL LTD IIND FLOOR, KAKANI TOWERS KHADER NAWAZ KHAN ROAD CHENNAI 600 034 [PAN AAACI 6476 K] ( ( /APPELLANT) ( )*( /RESPONDENT) ./ I.T.A.NO.1564/MDS/2013 % % / ASSESSMENT YEAR : 2006-07 M/S INDONET GLOBAL LTD IIND FLOOR, KAKANI TOWERS KHADER NAWAZ KHAN ROAD CHENNAI 600 034 VS. THE ASST. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE-II(3) CHENNAI [PAN AAACI 6476 K] ( ( /APPELLANT) ( )*( /RESPONDENT) DEPARTMENT BY : SHRI P. RADHAKRISHNAN, JCIT ASSESSEE BY : SHRI S. SRIDHAR, ADVOCATE , / DATE OF HEARING : 24 - 0 2 - 2016 , / DATE OF PRONOUNCEMENT : 05 - 05 - 2016 / O R D E R PER A.MOHAN ALANKAMONY, AM:- THESE TWO APPEALS ARE FILED BY THE REVENU E AND THE ASSESSEE RESPECTIVELY AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I, COIMBATORE, DATED ITA NO.1057 & 1564/13 :- 2 -: 27.2.2013, IN APPEAL NO.410/08-09/A-III, FOR THE AS SESSMENT YEAR 2006-07. REVENUES APPEAL - ITA NO.1057/MDS/2013:- 2. AT THE OUTSET, WE FIND THAT, TAX EFFECT WITH RES PECT TO THE APPEAL IN ITA NO. 1057/MDS/2013 FILED BY THE REVENU E IS BELOW TEN LAKHS. IT IS PERTINENT TO MENTION THAT THE CBDT IN ITS CIRCULAR NO.21/2015 DATED 10.12.2015 HAD INSTRUCTED ITS OFFI CERS TO WITHDRAW ALL THE APPEALS PENDING BEFORE THE ITAT WH ERE THE TAX EFFECT IS LESS THAN ` 10 LAKHS. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THIS CIRCULAR OF CBDT IS BI NDING ON THE OFFICERS OF THE DEPARTMENT. HENCE, THE REVENUE CAN NOT PROCEED FURTHER IN THIS APPEAL. ACCORDINGLY, THE APPEAL ST ANDS DISMISSED. ASSESSEES APPEAL - ITA NO.1564/MDS/2013:- 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF DEVELOPING SOFTW ARE, SOFTWARE SERVICES AND POWER GENERATION, FILED ITS E -RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 28.10.200 5. INITIALLY THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF TH E ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) O F THE ACT ITA NO.1057 & 1564/13 :- 3 -: WHEREIN THE ASSESSING OFFICER MADE SEVERAL ADDITION S / DISALLOWANCES WHICH WAS SIGNIFICANTLY UPHELD BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 4. IN THE APPEAL OF THE ASSESSEE, EXTENSIVE AND E LABORATE GROUNDS ARE RAISED AND THEY ARE CONCISED AND ADJUDI CATED HEREIN BELOW:- GROUND NO.1: DISALLOWANCE OF RS.4,57,200/- BEING EXPENDITURE INCURRED TOWARDS PUBLIC ISSUE: 5. THE ASSESSEE HAS WRITTEN OFF RS.4,57,200/- AS PU BLIC ISSUE EXPENSES. THE ASSESSEE HAD EXPLAINED BEFORE THE LEARNED ASSESSING OFFICER THAT, DURING THE RELEVANT ASSESSM ENT YEAR, THE ASSESSEE HAD PAID AN AMOUNT OF RS.22,86,000/- AS BR OKERAGE TO BANK OF MADURA FOR PLACEMENT OF THE EQUITY SHARES OF THE ASSESSEE COMPANY AMOUNTING TO RS.3.96 CRORES. THE L EARNED ASSESSING OFFICER OPINED THAT THE EXPENDITURE INCUR RED EVEN FOR EXPANSION OF CAPITAL CANNOT BE TREATED AS REVENUE E XPENDITURE CITING THE DECISION OF THE HONBLE APEX COURT IN TH E CASE OF BROOK BOND INDIA LTD. VS. CIT (1997) REPORTED IN 225 ITR 798. ACCORDINGLY HE DISALLOWED THE SAME. ON APPEAL, THE LEARNED ITA NO.1057 & 1564/13 :- 4 -: COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER AGREEING WITH HIS VIE W. 5.1 AT THE OUTSET, WE FIND THAT THIS ISSUE IS COVER ED BY THE HONBLE APEX COURT DECISION CITED SUPRA, WHEREIN TH E HONBLE APEX COURT HELD AS FOLLOWS:- EXPENDITURE INCURRED BY A COMPANY IN CONNECTION WITH THE ISSUE OF SHARES WITH A VIEW TO INCREASE IT S SHARE CAPITAL, IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY AND IS CAPITAL EXPENDITURE, EVEN THOUGH IT MAY INCIDENTALLY HELP IN THE BUSINESS OF THE COMPANY AND IN THE PROFIT MAKING. 5.2 FOLLOWING THE RATIO LAID DOWN BY THE HONBLE AP EX COURT, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE O RDERS OF THE REVENUE. THEREFORE THIS GROUND RAISED BY THE ASSESS EE IS DECIDED AGAINST IT. GROUND NO.2: DISALLOWANCE OF RS.2,80,000/- BEING THE AMOUNT WRITTEN OFF AS BAD DEBT: 6. THE ASSESSEE HAD WRITTEN OFF RS.2,80,000/- AS BA D DEBT BEING THE LOAN GIVEN TO MR. ANUP KUMAR. THE LEARNE D ASSESSING OFFICER DISALLOWED THE SAME BECAUSE THE CONDITIONS LAID DOWN IN SECTION 36(1)(VI) OF THE ACT WAS NOT FULFILLED. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIR MED THE ITA NO.1057 & 1564/13 :- 5 -: ORDER OF THE LEARNED ASSESSING OFFICER BECAUSE THE ASSESSEE DID NOT FURNISH ANY DETAILS REGARDING THE AMOUNT ADVANC ED TO MR. ANUP KUMAR. WE ALSO DO NOT FIND IT NECESSARY TO INT ERFERE WITH THE ORDERS OF THE REVENUE BECAUSE EVEN BEFORE US AT THI S STAGE, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS IN REGARD TO THE LOAN EXTENDED TO MR. ANUP KUMAR. THEREFORE WE ARE NOT AB LE TO ASCERTAIN WHETHER THE LOAN WAS GIVEN DURING THE COU RSE OF THE BUSINESS OF THE ASSESSEE AND FOR THE BUSINESS PURPO SE OF THE ASSESSEE OR DUE TO ITS CREDIT SALE. HENCE, WE HEREB Y CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) ON THIS ISSUE. GROUND NO.3: DISALLOWANCE OF RS.38,00,000/- BEING THE AMOUNT WRITTEN OFF AS MISCELLANEOUS EXPENDITURE: 7. THE ASSESSEE HAS INCURRED VARIOUS EXPENSES IN REGAR D TO ITS BUSINESS EXPANSION AMOUNTING TO RS.95,00,000/- DURI NG THE ASSESSMENT YEAR 1999-2000 AS DETAILED HEREIN BELOW: - I) PAID TO SARAN ENTERPRISES FOR EARLY APPROVAL AND PUBLIC ISSUE RS.50,00,000 II) PAID TO SUBUTHI FINANCE FOR PLACEMENT OF SHARES RS.20,00,000 III) PAID TO SUHASINI TRADERS FOR IDENTIFICATION OF SITES, RS.25,00,000 VETTING OF DOCUMENTS ETC. TOTAL RS.95,00,000 ITA NO.1057 & 1564/13 :- 6 -: OUT OF THE TOTAL EXPENDITURE OF RS.70,00,000/- INCU RRED DURING THE ASSESSMENT YEAR 1999-2000 AND RS.25,00,000/- INCURR ED DURING THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HAS WRIT TEN OFF RS.57,00,000/- AS ON 31.03.2005 WHICH INCLUDED 50% OF RS.25,00,000/- BEING THE EXPENDITURE INCURRED DURIN G THE ASSESSMENT YEAR 2005-06. THE BALANCE OUTSTANDING AM OUNT OF RS.38,00,000/- WAS WRITTEN OFF IN THE BOOKS OF ACCO UNTS BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR WHICH INC LUDED 50% OF RS.25,00,000/- EXPENDITURE INCURRED DURING THE ASSE SSMENT YEAR 2005-06. THE LEARNED ASSESSING OFFICER DISALLOWED T HE ENTIRE AMOUNT SINCE IT WAS INCURRED WITH RESPECT TO THE IS SUE OF EQUITY SHARES OF THE ASSESSEE COMPANY. ON APPEAL, THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE EX PENDITURE OF RS.12,00,000/- AS DEDUCTION BEING 50% OF EXPENDI TURE INCURRED DURING THE ASSESSMENT YEAR 2005-06 BECAUSE IT WAS INCURRED TOWARDS BUSINESS EXPENDITURE AND NOT FOR THE PURPOS E OF THE EXPANSION OF THE CAPITAL BASE OF THE ASSESSEE COMPA NY. WITH RESPECT TO OTHER EXPENDITURES, THE LEARNED COMMISSI ONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER BECAUSE IT WAS INCURRED TOWARDS ISSUE OF EQUITY SHARE CAPITAL AND THEREFORE FALLS IN THE FIELD OF CAPITAL EXPENDITURE. ITA NO.1057 & 1564/13 :- 7 -: 7.1 WE FIND MERIT IN THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) BECAUSE HE HAS RIGHTLY DISA LLOWED THE EXPENDITURE INCURRED TOWARDS ISSUE OF SHARE CAPITAL RELYING IN THE DECISION OF THE HONBLE APEX COURT CITED SUPRA. THE REFORE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH HIS ORDER O N THIS ISSUE. GROUND NO.4: DISALLOWANCE OF RS.12,00,000/- BEING THE AMOUNT WRITTEN OFF AS LOSS ON INVESTMENT: 8. THE ASSESSEE COMPANY HAD INVESTED IN EQUITY SH ARES AMOUNTING TO RS.12,00,000/- IN THE COMPANY M/S. MON EY SHOPEE NETWORK LTD. THE ASSESSEE COMPANY WROTE OFF THIS AM OUNT AS LOSS ON INVESTMENT BECAUSE THAT COMPANY HAD BECOME INOPERATIVE AND THE POSSIBILITY OF BECOME OPERATION AL WAS RULED OUT. THE LEARNED ASSESSING OFFICER DISALLOWED THIS LOSS ON INVESTMENT CLAIMED BY THE ASSESSEE BECAUSE THE ASSE SSEE COMPANY DID NOT BRING ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO C ONFIRMED THE ORDER OF THE LEARNED ASSESSING OFFICER BECAUSE THE ASSESSEE COMPANY DID NOT FURNISH ANY EVIDENCE TO SHOW THAT M /S. MONEY SHOPPEE NETWORK LTD. HAS BECOME DEFUNCT. ITA NO.1057 & 1564/13 :- 8 -: 8.1 EVEN ON THIS ISSUE, WE DO NOT FIND ANY SCOPE TO INTERFERE WITH THE ORDERS OF THE REVENUE BECAUSE FROM THE FAC TS OF THE CASE IT IS APPARENT THAT THE COMPANY HAS INVESTED IN THE SHARES OF M/S MONEY SHOPEE NETWORK LTD., AND SHOWN UNDER THE HEAD INVESTMENT. ONLY WHEN SUCH SHARES ARE SOLD, CAPI TAL GAIN/LOSS WILL ARISE IN THE CASE OF THE ASSESSEE. HOWEVER IN THIS CASE BEFORE US, THE ASSESSEE HAS NEITHER SOLD THE SHARES NOR CO NVERTED THE INVESTMENT INTO STOCK-IN-TRADE. THEREFORE, WE CONFI RM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. GROUND NO.5: ADDITION OF RS.20,25,000/- BEING THE KEYMANS INSURANCE BONUS : 9. IT WAS OBSERVED BY THE LEARNED ASSESSING OFF ICER THAT THE ASSESSEE HAD EXCLUDED AN AMOUNT OF RS.20,25,000/- F ROM THE TAXABLE INCOME OF THE ASSESSEE BEING KEYMAN INSURAN CE BONUS. ON QUERY, IT WAS EXPLAINED BY THE LEARNED COUNSEL O F THE ASSESSEE THAT THIS AMOUNT REPRESENTS BONUS ACCRUED ON KEYMAN INSURANCE POLICY TAKEN IN THE NAME OF SHRI K.V.BALA KRISHNAN, DIRECTOR OF THE COMPANY. SINCE THE ACCRUED BONUS ON KEYMAN INSURANCE POLICY IS AN INCOME OF THE ASSESSEE, THE LEARNED ASSESSING OFFICER BROUGHT THE SAME INTO THE TAX NET . ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CO NFIRMED THE ITA NO.1057 & 1564/13 :- 9 -: ORDER OF THE LEARNED ASSESSING OFFICER BECAUSE AS P ER THE PROVISIONS OF SECTION 10(10D) OF THE ACT, THE AMOU NT RECEIVED ON THE MATURITY OF THE KEYMAN INSURANCE POLICY IS TAXA BLE ALONG WITH THE BONUS RECEIVED BY THE ASSESSEE COMPANY. WE FIN D MERIT IN THE ORDERS OF THE REVENUE BECAUSE THE PROVISIONS OF SECTION 10(10D) OF THE ACT SPECIFICALLY EXCLUDES ANY SUM R ECEIVED UNDER KEYMAN INSURANCE POLICY FROM THE INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME UNDER CHAPTER III OF THE ACT. THEREFORE, WE HEREBY CONFIRM THE ORDER OF THE REVENUE ON THIS ISS UE. 10. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE A ND THE APPEAL OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 5 TH MAY, 2016, AT CHENNAI. SD/ - SD/ - ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER / CHENNAI 1 / DATED: 5 TH MAY, 2016 SOMU ITA NO.1057 & 1564/13 :- 10 - : , )23 43 / COPY TO: 1 . ( / APPELLANT 4. 5 / CIT 2. )*( / RESPONDENT 5. 3 ) / DR 3. 5 () / CIT(A) 6. % / GF , )23 43 / COPY TO: 1 . ( / APPELLANT 3. 5 () / CIT(A) 5. 3 ) / DR 2. )*( / RESPONDENT 4. 5 / CIT 6. % / GF