ACIT, Cir-2(1), Kolkata, Kolkata V. M/s. Aforeserve Com Ltd, Kolkata

ITA 1843/KOL/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2106 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C J SINGH
• Assessee Lawyers: J K GULATI
• Keywords: Right to appeal; Onus to prove; Capital expenditure
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA A BENCH, KOLKATA (BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER) I.T.A NO. 1843/KOL/2017 ASSESSMENT YEAR: 2010-11 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), KOLKATA.............................................APPELLANT VS. M/S. AFORESERVE COM LTD...................................................RESPONDENT 35, C.R. VENUE KOLKATA 700 072 [PAN : AADCA 8568 P] APPEARANCES BY: SHRI J.K. GULATI, FCA, APPEARED ON BEHALF OF THE ASSESSEE . SHRI C.J. SINGH, JCIT, SR. D/R, APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : MAY 13 TH , 2019 DATE OF PRONOUNCING THE ORDER : JUNE 19 TH , 2019 ORDER PER J. SUDHAKAR REDDY, AM :- THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 22, KOLKATA, (HEREINAFTER THE LD. CIT (A)), PASSED U/S 250 OF THE INCOME TAX ACT, 1961 (THE ACT), DT. 03/05/2017, FOR THE ASSESSMENT YEAR 2010-11, ON THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 61,54,250/-, WITHOUT CONSIDERING THAT THE AO HAS EVERY RIGHT TO EXAMINE THE GENUINENESS AND EXPEDIENCY OF THE CLAIM OF THE EXPENSES EVEN THOUGH THE ACCOUNTS ARE AUDITED. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 16,14,500/-, WITHOUT CONSIDERING THE POINT THAT IN THE ABSENCE OF AUTHENTIC DOCUMENTS, THE NATURE OF FOREIGN CURRENCY LOSS, I.E. BUSINESS OR SPECULATION, CANNOT BE ASCERTAINED, HENCE RIGHTLY DISALLOWED BY THE AO. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 7,82,053/- AS FOREIGN TRAVEL EXPENSES, WHEN THE ASSESSEE DID NOT DISCHARGE ITS PRIMARY ONUS TO PROVE THE GENUINENESS OF THE EXPENDITURE AS REGARD FOREIGN TOUR. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE SOFTWARE DEVELOPMENT EXPENSES OF RS. 4,99,954/-, WITHOUT CONSIDERING THE POINT THAT THE SOFTWARE DEVELOPMENT CHARGE WAS CAPITAL EXPENDITURE IN NATURE. 2 I.T.A NO. 1843/KOL/2017 ASSESSMENT YEAR: 2010-11 M/S. AFORESERVE COM LTD 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE REPAIR AND MAINTENANCE EXPENSES OF RS. 2,24,244/-, IGNORING THE FACT THAT THE ASSESSEE FAILED TO PROVE THAT THE TOTAL EXPENDITURE CLAIMED HAD BEEN ATTRIBUTED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. 6. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT{A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS. 71,83,651/- ON ACCOUNT OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES, WITHOUT GOING INTO THE FACT THAT THE ASSESSEE COULD NOT PROVE THE BUSINESS EXPEDIENCY OF THE ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES. 7. DEPARTMENT CRAVES LEAVE TO ADD, ALTER OR MODIFY ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING OF THE APPEAL. 2. WE HAVE HEARD RIVAL CONTENTIONS. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS:- 3. GROUND NO. 1 IS AGAINST THE DELETION OF AN ADDITION OF RS.61,54,250/- BY THE LD. CIT(A). WE FIND THAT THE ASSESSING OFFICER, IN THE REMAND REPORT HAS ACCEPTED THIS CLAIM OF THE ASSESSEE. IN THE REMAND REPORT THE ASSESSING OFFICER STATED THAT THE ASSESSEE HAS FURNISHED DETAILS OF EXPENDITURE AMOUNTING TO RS.60,71,750/- . THIS LEAVES BALANCE OF RS.1,95,984/-. OUT OF THIS, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE OF RS.82,500/- AND CONFIRMED THE DISALLOWANCE OF THE BALANCE. WHEN THE LD. CIT(A) HAS GRANTED RELIEF BASED ON A REMAND REPORT BY THE ASSESSING OFFICER, IN OUR VIEW, THE ASSESSING OFFICER HAS NO RIGHT TO FILE AN APPEAL ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSED. 4. GROUND NO. 2 IS ON THE DELETION OF AN ADDITION OF RS.16,14,500/- UNDER THE HEAD FOREIGN CURRENCY LOSS. HERE, THE LD. CIT(A) HAS HELD THAT THE LOSS IN QUESTION WAS INCURRED DUE TO THE EXCHANGE RATE FLUCTUATIONS. AS THIS LOSS WAS INCURRED ON REVENUE ACCOUNT, THE SAME WAS ALLOWED BY THE LD. CIT(A). THE FINDING OF FACT BY THE LD. CIT(A) ON THIS ISSUE IS EXTRACTED AS UNDER:- 5. QUITE ON THE OTHER HAND THE APPELLANT HAS GIVEN THE DETAILS OF ARRIVING AT THE LOSS OF RS.RS.16,14,500.85/- ROUNDED OFF TO RS.16,14,500/-. THE APPELLANT HAS BEEN ABLE TO TABULATE THE POSTING DATES, DESCRIPTION OF THE EXCHANGE RATE DIFFERENCE, THE AMOUNT DEBITED, THE AMOUNTS CREDITED AND THE NET OF ACCOUNT OF DEBITS AND CREDITS ON ACCOUNT OF THE EXCHANGE RATE DIFFERENCE. SUCH INFORMATION HAS BEEN PREPARED AND SUBMITTED FOR THE DIFFERENT DATES AND THE DEBITED AMOUNT TOTALS RS.20,35,440.10, WHEREAS THE CREDITED AMOUNT TOTALS RS.4,20,939.25, LEAVING A LOSS OF RS.16,14,500.85/-, WHICH HAS BEEN CLAIMED BY THE APPELLANT-ASSESSEE AS THE LOSS 3 I.T.A NO. 1843/KOL/2017 ASSESSMENT YEAR: 2010-11 M/S. AFORESERVE COM LTD ON ACCOUNT OF THE LOSS ON FOREIGN CURRENCY FLUCTUATION. IN THE CIRCUMSTANCES, I AM OF THE CONSIDERED VIEW THAT THE LD. AO WAS NOT JUSTIFIED IN DISALLOWING THE SAME WITHOUT EXAMINING THE REASONS SUBMITTED BY THE APPELLANT. THE IMPUGNED DISALLOWANCE IS THEREFORE DELETED, AND THE GROUND OF APPEAL ALLOWED IN FAVOUR OF THE ASSESSEE-APPELLANT. 4.1. THE LD. D/R COULD NOT CONTROVERT THIS FACTUAL FINDINGS OF THE LD. CIT(A), HENCE WE UPHOLD THE SAME AND DISMISS THIS GROUND OF THE REVENUE. 5. GROUND NO. 3, IS AGAINST THE DELETION OF RS.7,82,053/- BEING FOREIGN TRAVEL EXPENDITURE. 5.1. THE ASSESSING OFFICER DISALLOWANCE OF RS.9,77,567/- ON ACCOUNT OF FOREIGN TRAVEL EXPENSES. THE LD. CIT(A) CONSIDERED THE EVIDENCE AND AT PARA 4 PAGE 10 AND 11 OF HIS ORDER HE HELD AS FOLLOWS:- 4. I FIND FROM THE FINDINGS OF THE LD. AO THAT THE LD. AO HAS HIMSELF MENTIONED THAT THE APPELLANT HAS INCURRED A SUM OF RS.113,54,758/- TOWARDS 'TOURS AND TRAVELING', OF WHICH AS MENTIONED IN THE TAX AUDIT REPORT THE AMOUNT ON FOREIGN TRAVEL WAS RS.9,77,567/-. IT IS SEEN FROM THE ORDER OF THE LD. AO THAT HE HAS ACCEPTED THE BALANCE AMOUNT OF DOMESTIC TRAVEL EXPENDITURE, AND HAS ONLY QUESTIONED THE EXPENDITURE ON FOREIGN TRAVEL. IT IS SEEN THAT THE LD. AO HAS OBSERVED THAT HAD THE CLAIM BEEN GENUINE, THE DETAILS WOULD HAVE BEEN SUBMITTED BEFORE THE APPELLATE AUTHORITY AND THE LD. AO. TO THIS IT HAS BEEN COUNTERED BY THE APPELLANT IN THE REJOINDER THAT THE NECESSARY DETAILS WERE LOST IN A FIRE, AND EVIDENCE OF SUCH LOSS BY WAY OF FIR ETC. HAVE BEEN FILED. I FIND THAT THE DISALLOWANCE MADE BY THE LD. AO HAS ONLY BEEN LIMITED TO THE EXPENDITURE CLAIMED FOR FOREIGN TRAVEL, BUT THE WHOLE OF SUCH EXPENSES HAS BEEN DISALLOWED. I FIND THE LD. AO'S OBSERVATION TO BE CORRECT THAT THAT THE NECESSARY DETAILS RELATING TO THE FOREIGN TRAVEL HAVE NOT BEEN SUBMITTED BEFORE THE APPELLATE AUTHORITY. HOWEVER, COPIES OF THE FIR ETC. HAVE BEEN SUBMITTED. I FIND THAT THE LD. AO HAS LOCATED THE FIGURE OF RS.9,77,567/- FROM THE TAX AUDIT REPORT, AND THE SAME HAS BEEN QUALIFIED BY THE CHARTERED ACCOUNTANT AS PER THE REQUIREMENTS RELATING TO THE DISCLOSURE VIS-A-VIS FOREIGN TRAVEL. THERE CAN BE NO GAINSAYING THAT THE ACCOUNTS HAVE BEEN AUDITED, AND THERE HAS TO BE SOME CREDENCE GIVEN TO THE TAR PREPARED BY THE CHARTERED ACCOUNTANT. THERE IS NO CLEAR WAY OF BEING CERTAIN WHETHER THE RELEVANT DETAILS WERE PRODUCED BEFORE THE LD. AO DURING THE STAGE OF ASSESSMENT, AS CLAIMED BY THE APPELLANT IN THE APPEAL PROCEEDINGS. HOWEVER, AS HAS BEEN SUBMITTED THE ASSESSEE WOULD HAVE A REQUIREMENT FOR FOREIGN TRAVEL FOR BUSINESS PURPOSES, AS IT HAS SEVERAL CLIENTS BEING SERVICED OVERSEAS. IN THE TAR, IT HAS BEEN EXPLICITLY STATED THAT 'THERE WAS FOREIGN CURRENCY EXPENSES DURING THE YEAR OF RS.9,77,567/- INCURRED ON TRAVELING AND BUSINESS PROMOTION EXPENSES BY THE DIRECTORS OF THE COMPANY. ACCORDINGLY, I AM INCLINED TO INFER THAT GIVEN THE NATURE OF BUSINESS, THERE WOULD BE CERTAIN FOREIGN TRAVEL EXPENSES; HOWEVER WITHOUT EXAMINATION OF THE COMPLETE DETAILS, THE POSSIBILITY OF CERTAIN PERSONAL EXPENSES ON ACCOUNT OF FOOD AND TRAVELLING EVEN ON SUCH FOREIGN BUSINESS TRIPS CANNOT BE RULED OUT ENTIRELY. IN THE SAID SITUATION, I AM INCLINED TO DISALLOW 20% OF THE EXPENSES CLAIMED (LE. 20% OF RS.9,77,567/- OR RS.1,95,514/- ) ON ACCOUNT OF SUCH POSSIBILITIES 4 I.T.A NO. 1843/KOL/2017 ASSESSMENT YEAR: 2010-11 M/S. AFORESERVE COM LTD AS DISCUSSED. IN MY CONSIDERED VIEW OF THE MATTER, THE APPELLANT DESERVES TO BE RELIVED OF THE BALANCE DISALLOWANCE, AND IT IS ACCORDINGLY ORDERED. THE GROUND OF APPEAL IS PARTLY ALLOWED AS INDICATED. 5.2. THIS FACTUAL FINDING OF THE LD. CIT(A), COULD NOT BE CONTROVERTED BY THE LD. D/R. WE FIND THAT THE LD. CIT(A) HAS FACTUALLY ANALYZED THE EVIDENCE AND HAS COME TO A REASONABLE CONCLUSION. THUS, WE UPHOLD THE FINDING OF THE LD. CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 6. GROUND NO. 4 IS AGAINST THE DISALLOWANCE OF SOFTWARE DEVELOPMENT EXPENSES OF RS.4,99,954/- . THE LD. CIT(A) AT PARA 15.4. AT PAGE 16 HELD AS FOLLOWS:- 4. I HAVE CLOSELY EXAMINED THE VARIOUS ISSUES EMANATING FROM THE DISALLOWANCES MADE BY THE LD. AO ON THE THREE ITEMS AS MENTIONED. THE 1ST ITEM RELATES TO DISALLOWANCE ON ACCOUNT OF SOFTWARE DEVELOPMENT FOR RS.4,99,354/-. IN THE REMAND REPORT, THE LD. AO HAS STATED THAT EVEN WHILE THE APPELLANT HAS PRODUCED THE RELEVANT DETAILS BEFORE THE APPELLATE AUTHORITY AND THE LD. AO, THE LD. AO IS OF THE OPINION THAT THE BENEFIT DERIVED FROM THIS EXPENDITURE IS OF ENDURING NATURE AND THE SAME BEING CAPITAL EXPENDITURE OUGHT NOT TO BE ALLOWABLE. SUCH OBSERVATION BY THE LD. AO HAS BEEN COUNTERED BY THE APPELLANT IN THE REJOINDER BY SUBMITTING THAT THE EXPENDITURE WAS INCURRED FOR THE REGULAR MAINTENANCE OF SOFTWARE AND WEBSITE OF THE APPELLANT AND WAS OF REVENUE NATURE, AND THIS FACT WAS OVERLOOKED BY THE LD. AO IN THE REMAND REPORT. ON DUE EXAMINATION, I FIND THAT THE EXPENSES IN QUESTION WERE FOR DOMAIN REGISTRATION, RENEWAL OF LICENSE, WINDOWS SERVER PAYMENT FOR A PERIOD OF ONE MONTH, SERVER CHARGES, FACILITY MANAGEMENT CHARGES FOR SPECIFIC PERIODS, DOMAIN NAME RENEWAL, REGISTRATION, WHICH ARE RECURRENT AND REGULAR EXPENSES. I FIND FACTUAL MERIT IN THE CLAIMS OF THE APPELLANT, AND FIND THAT THE LD. AO'S ALLEGATION OF THE EXPENSES BEING OF CAPITAL NATURE IS WITHOUT MERIT AND UNSUBSTANTIATED. I AM THEREFORE INCLINED TO ACCEPT THE CLAIM OF THE APPELLANT, AND ACCORDINGLY THIS ITEM OF DISALLOWANCE IS DELETED. THE 1ST LIMB OF THE GROUND STANDS ALLOWED IN FAVOUR OF THE APPELLANT. 6.1. THIS FACTUAL FINDING OF THE LD. CIT(A) THAT THE EXPENDITURE IN QUESTION IS IN THE REVENUE FIELD, COULD NOT BE CONTROVERTED BY THE LD. D/R. THUS, WE UPHOLD THE FINDING OF THE LD. CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 7. GROUND NO. 5 IS AGAINST THE DISALLOWANCE OF RS.2,24,244/- ON ACCOUNT OF REPAIRS AND MAINTENANCE CHARGES. 7.1. THE ASSESSING OFFICER HAD DISALLOWED AN AMOUNT OF RS.4,4,8,487/- TOWARDS REPAIRS AND MAINTENANCE. THE LD. CIT(A) HAS RESTRICTED THE SUM TO 10% OF THE CLAIM. WE FIND NO REASON TO INTERFERE IN THE SAME. ACCORDINGLY, WE DISMISS THIS GROUND OF THE REVENUE. 5 I.T.A NO. 1843/KOL/2017 ASSESSMENT YEAR: 2010-11 M/S. AFORESERVE COM LTD 8. GROUND NO. 6 IS ON THE DELETION OF AN ADDITION OF RS.71,83,651/- INCURRED ON ACCOUNT OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES. 8.1. THE LD CIT(A) AFTER EXAMINING THE CONTENTIONS OF THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DALMIA CEMENT (2002) 254 ITR 377 (DEL) AND DELETED THE DISALLOWANCE IN QUESTION. THIS FACTUAL FINDING OF THE LD. CIT(A) THAT THE ASSESSEE HAD SUBMITTED THE FULL LIST OF PAYMENTS MADE FOR ADVERTISEMENTS AND THAT HE HAD PRODUCED LARGE NUMBER OF SAMPLE INVOICES/ BILLS AND VOUCHERS ETC. HAS NOT BEEN DISPUTED BY THE LD. D/R. WE FIND NO REASON TO INTERFERE WITH THESE FINDINGS OF THE LD. CIT(A) AND UPHOLD THE SAME. GROUND NO. 6 OF THE REVENUE IS DISMISSED. 9. GROUND NO. 7 IS GENERAL IN NATURE. 10. IN THE RESULT, THIS APPEAL OF THE REVENUE IS DISMISSED. KOLKATA, THE 19 TH DAY OF JUNE, 2019. SD/- SD/- [S.S. GODARA] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 19.05.2019 {SC SPS} COPY OF THE ORDER FORWARDED TO: 1. M/S. AFORESERVE COM LTD 35, C.R. VENUE KOLKATA 700 072 2. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES