Asst. Commissioner of Income Tax Circle-2(2), Hyderabad V. M/s IIC Services (India) Private Limited, Hyderabad

ITA 1635/HYD/2013

• Counselvise Citation: 163522514 RSA 2013
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 28-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUBRAHMANYAM CHIMALAPATI
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1493/HYD/13 : ASSESSMENT YEAR 2010 - 11 M/S. IIC SERVICES (INDIA) PVT. LTD., HYDERABAD ( PAN - AAACI 4455 N ) V/S. ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE 2(2), HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.1635/HYD/13 : ASSESSMENT YEAR 2010 - 11 ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE 2(2), HYDERABAD V/S. M/S. IIC SERVICES (INDIA) PVT. LTD., HYDERABAD ( PAN - AAACI 4455 N ) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUBRAHMANYAM CHIMALAPATI REVENUE BY : SHRI SOLGY JOSE T.KOTTARAM DR DATE OF HEARING 26 .0 6 .2014 DATE OF PRONOUNCEMENT 26.06.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THESE ARE CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE - FOR THE ASSESSMENT YEAR 2010 - 11, AND THEY ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX(APPEALS) III, HYDERABAD DATED 10.9.2013. SINCE ONLY A COMMON ISSUE IS INVOLVED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY COMMON ISSU E INVOLVED IN THESE CROSS APPEALS RELATES TO THE ADDITION MADE ON ACCOUNT OF INFLATION IN EXPENDITURE CLAIMED BY THE ASSESSEE. THOUGH THE ASSESSEE, IN THE ELABORATE GROUNDS RAISED IN ITS APPEAL ITA NO.1493/HYD/2013, ALSO CONTESTED THE JUSTIFICATION FOR TH E EX - PARTE ORDER ITA NO. 1 493 & 1 635 /HYD/201 3 M/S. IIC SERVICES (INDIA) PVT. LTD., HYDERABAD 2 PASSED BY THE CIT(A), THAT ASPECT OF THE APPEAL WAS NOT AGITATED IN THE COURSE OF HEARING ON THE APPEAL, AND HENCE, THE GROUNDS IN THAT BEHALF ARE REJECTED AS NOT PRESSED. 3 . FACTS OF THE CA S E IN BRIEF LEADING TO THE FILIN G O F THESE CROSS APPEALS A R E THAT THE ASSESSEE, A COMPANY ENGAGED IN THE BU S IN E SS OF EXPORT OF SOFTWARE AND T EC H N ICAL SERVI C ES, FILED I T S RETURN O F INCOME FOR THE ASSESSMENT YEAR 2010 - 11 ON 28.9.2010, ADMITTING A TOTAL INCOME OF RS .45,38,643. DU R IN G THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HELD THAT CERTAIN EXPENDITURE HAD BEEN INFLATED BY THE ASSESSEE. HE FOUND THAT IN THE EARLIER YEAR, THE PROFIT MARGIN WAS 18% OF GROSS RECEIP T S WHEREAS IN THE YEAR UNDER APPEAL, IT FELL DOWN TO 0.2% OF THE GROSS RECEIPTS. HE ACCORDINGLY CAME TO TH E CONCLUSION ON THE BASIS OF ACCOUNTS MADE IN THE EARLIER YEARS THAT THE EXPENSE S WERE INFLATED. FOR THESE REASONS AND TAKING INTO ACCOUNT VARIOUS DISCREPANCIES NOTICED IN THE BOOKS OF ACCOUNT , THE ASSESSING OFFICER DISALLOWED EXPENDITURE TO THE TUNE OF RS.2,92,04,439, AS AGAINST EXPENDITURE CLAIMED BY THE ASSESSEE OF R S .8,80,29,702 , AND COMPLETED THE ASSESSMENT ON A TOTAL INCOME OF R S .3,37,43,080 AS AGAINST RETURNED INCOME OF RS .45,38,643, VIDE ORDER OF ASS ESSMENT DATED 31.3.2013 PASSED UNDER S.143(3) OF THE ACT. 4 . ON APPEAL, THE CIT(A) , FOLLOWING THE ORDER OF THE FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 - 06, WHEREIN SIMILAR ADDITION MADE IN IDENTICAL CIRCUMSTANCES HAS BEEN DEALT WITH, QUOTING IN EXTENSO RELEVANT PO R TION OF THE SAID O R DER, RESTR IC TED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO R S .2,20,00,000 ONLY, THEREBY GRANTING RELIEF OF R S .72,04,439 TO TH E ASSESSEE. 5 . AGGRIEVED BY THE ADDITIONS SU S TAIN E D, ASSESSEE FILED A PPEAL , ITA NO. 1493/HYD/2013 , WHEREAS THE REVE N UE CAME UP IN APPEAL , ITA NO.1635/HYD/2013 , CONTESTING THE RELIEF GRANTED BY THE CIT(A). ITA NO. 1 493 & 1 635 /HYD/201 3 M/S. IIC SERVICES (INDIA) PVT. LTD., HYDERABAD 3 6 . WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES. WE FIND THAT TH E IMPUGNED ORDER OF THE CIT(A) IS BASED ON THE CORRESPONDING ORDER OF THE CIT(A) IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 - 06. THE SAID ORDER OF THE CIT(A) FOR ASSESSMENT YEAR 2005 - 06 WAS SUBJECT MATTER OF APPEAL BEFORE THIS TRIBUNAL IN ITA NO.3 18/ H YD/2013 OF THE ASSESSEE AND NO.398/HYD/2013 OF THE REVENUE . T HE TRIBUNAL DEALING WITH THE CORRESPONDING ADDITION ON ACCOUNT OF INFLATED EXPENDITURE, PART OF WHICH HAS BEEN SUSTAINED BY THE CIT(A), VIDE ITS CONSOLIDATED ORDER DATED 19.2.2014, IN THE CR OSS - APPEALS FOR THE ASSESSMENT YEARS 2005 - 056 AND 2006 - 07, HAS HELD AS FOLLOWS - 8. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE DETAILS AS PLACED ON RECORD WITH THE RELEVANT CASE LAW. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT A.O. ISSUED SHOW CAUSE NOTICE WITH REFERENCE TO THE SO CALLED INFLATION IN SALARY EXPENDITURE, WHICH T HE ASSESSEE HAS JUSTIFIED BY FURNISHING VARIOUS DETAILS. WITHOUT ANY FURTHER NOTICE, THE A.O. CALCULATED THE PERCENTAGE OF EXPENDITURE ON DOMESTIC TURNOVER IN EARLIER YEAR AND ARRIVED AT THE SO CALLED EXPENDITURE WHICH ASSESSEE COULD HAVE SPENT FOR EARNING THE INCOME DURING THE YEAR. ACCORDINGLY, OUT OF THE TOTAL CLAIM OF EXPENDITURE, HE DETERMINED THE DOMESTIC EXPENDITURE AT 80% OF THE TURNOVER AND DISALLOWED THE EXPENDITURE. THIS SORT OF BACKWARD CALCULATION, IN THE ABSENCE OF ANY ALLEGATION ABOUT NON - MAI NTENANCE OF BOOKS, NON - FURNISHING OF VOUCHERS, NON - COMPLIANCE OF THE NOTICES, CANNOT BE ACCEPTED AS THE PROVISIONS OF THE ACT ARE VERY SPECIFIC AND CLEAR. A.O. CAN ONLY RESORT TO ESTIMATE OF INCOME UNDER SECTION 145, IF CONDITIONS SPECIFIED THERE IN ARE SA TISFIED. EXPENDITURE CAN BE VERIFIED UNDER SECTION 37(1) AND ONLY AO FINDS OUT THAT EXPENDITURE IS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, HE CAN DISALLOW SUCH EXPENDITURE. THERE IS NO SUCH FINDING IN THIS ORDER. ASSESSEE HAS JUSTIFIED THE EXPENDITURE BY EXPLAINING THE CHANGE OF BUSINESS PROFILE, INCREASE IN CALL CENTRE INCOME AND ALSO BY FURNISHING NECESSARY STATEMENTS AND VOUCHERS BEFORE THE AUTHORITIES. WITHOUT EXAMINING THESE, IN OUR VIEW, A.O. AND CIT(A) ERRED IN RESORTING TO MATHEMATIC AL JUGGLERY SO AS TO DENY THE EXPENDITURE CLAIMED BY THE ASSESSEE. THERE IS NO BASIS FOR A.O. DISALLOWANCE OF THE SO CALLED INFLATED EXPENDITURE AND LEARNED CIT(A) ALSO DID NOT APPLY HIS MIND IN RESTRICTING THE AMOUNT ON AN ADHOC BASIS TO RS.1 CRORE AND R S.1.10 CRORES WITHOUT ANY BASIS. AT LEAST, HE SHOULD HAVE EXAMINED THE CONTENTIONS OF THE ASSESSEE AND PROVED THAT THEY ARE NOT CORRECT. WITHOUT DOING ANYTHING ON RECORD, THIS SORT OF DISALLOWANCE OF EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE ACCEPTED O R JUSTIFIED. IN VIEW OF THIS, WE HAVE NO HESITATION IN CANCELLING THE SO - CALLED DISALLOWANCE OF EXPENDITURE RESORTED BY THE ASSESSING OFFICER. A.O. IS DIRECTED TO ALLOW EXPENDITURE AS CLAIMED. SINCE ITS FACTUAL ISSUE AND MOST OF PRINCIPLES RELIED ON BY THE ITA NO. 1 493 & 1 635 /HYD/201 3 M/S. IIC SERVICES (INDIA) PVT. LTD., HYDERABAD 4 ASSESSEE ALSO SUPPORTS THE CONTENTIONS, WE NEED NOT GO INTO TO ANALYZING THE VARIOUS PRINCIPLES. SUFFICE TO SAY, THAT A.OS ACTION CANNOT BE JUSTIFIED ON THE FACTS OF THE CASE. ACCORDINGLY, DISALLOWANCE IS DELETED. GROUNDS ARE ALLOWED. 7. FACTS AND C IRCUMSTANCES OF THE CASE LEADING TO THE ISSUE INVOLVED IN THESE APPEALS, BEING IDENTICAL TO THOSE CONSIDERED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005 - 06, FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005 - 06, WE DEL E TE EVEN THE ADDITION OF RS.2,20, 00, 000 SUST A INED BY TH E CIT(A) . ACCORDINGLY, GROUNDS OF THE ASSESSEE AGAINST THE ADDITION SUSTAINED ARE ALLOWED, AND THE GROUNDS OF THE REVENUE AGAINST THE RELIEF GRANTED ARE REJECTED. 8. IN THE RESULT, APPEAL OF TH E ASSESSEE , BEING 1493/HYD/2013 IS TREATED AS ALLOWED, AND THE APPEAL OF THE REVENUE, BEING ITA NO.1635/HYD/2013 , IS DISMISSED. O RDER PRONOUNCED IN THE COURT AT THE CONCLUSION OF HEARING ON THESE APPEALS ON 26.6.2014 SD/ - SD/ - ( B.RAMAKOTAIAH ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 26 TH JUNE, 2014 COPY FORWARDED TO: 1. M/S. IIC SERVICES (INDIA) PVT. LTD., BEACON TOWERS, NEAR SAPTAGIRI THEATRE, RTC X ROADS, HYDERABAD 2 . ASSTT . COMMISSIONER OF INCOME - TAX CIRCLE 2(2), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) I I I HYDERABAD 4. COMMISSIONER OF INCOME - TAX II, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S ITA NO. 1 493 & 1 635 /HYD/201 3 M/S. IIC SERVICES (INDIA) PVT. LTD., HYDERABAD 5 1. DATE OF DICTATION ON TO THE COMPUTER 2 6 . 6 .2014 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SENIOR P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER AND OTHER MEMBER 2 6 . 6 .2014 5. DATE ON WHICH THE FAIR ORDER GOES TO THE SR. P.S. 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK. 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 8. DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR 9. DATE OF THE DESPATCH OF THE TRIBUNAL ORDER