ACIT, New Delhi V. M/s. Cosmic Softech Ltd., New Delhi

ITA 2168/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82172 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Assessee Lawyers: SIDHARTH SHANKER
• Keywords: Depreciation; Deemed dividend
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI C.M. GARG, JM ITA NO. 2168 /DEL/2012 AY : - 200 7 - 08 ACIT, CIRCLE 3(1) VS. COSMIC SOFTECH LTD. NEW DELHI A 14, MOHAN COOPERATIVE ESTATE NEW DELHI PAN: AABCC 8576 C (APPELLANT) (RESPONDENT) A SSESSEE BY : SHRI SIDHARTH SHANKER, ADV. DEPARTMENT BY : S MT.PARWINDER KAUR, SR. D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AND IS DIRECTED AGAINST THE ORDER DATED 22. 2 .2012 OF LD.CIT(A) - V I, NEW DELHI PERTAINING TO THE AY 200 7 - 08 . 2. FACTS IN BRIEF: - THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND I.T.ENABLED SERVICES, THE BUSINESS SCHOOL AS WELL AS EXPORT OF JEWELLERY. IT FILED ITS E - RETURN OF INCOME ON DECLARING LOSS OF RS.4, 09 ,76,119/ - . THE AO PASSED AN ORDER U/S 143(3) ON 10.12.2009 DETERMINING TOTAL ASSESSED LOSS AT RS.1,49,27,320/ - INTER ALIA MAKING CERTAIN DISALLOWANCES AND MAKING AN ADDITION U/S 2 ( 22 ) (E). AGGRI EVED THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY ALLOWED THE APPEAL OF THE ASSESSEE. 3. AGGRIEVED THE REVENUE HAS FILED APPEAL ON THE FOLLOWING REVISED GROUNDS. 1. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDIT ION OF RS.54,44,948/ - MADE BY THE AO ON ACCOUNT OF ADVERTISEMENT EXPENSES. ITA 2168/DEL/2012 AY 2007 - 08 COSMIC SOFTECH LTD. 2 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS.1,03,25,387/ - ON ACCOUNT OF ADVANCE FEE. 3. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITIO N OF RS.14,175/ - ON ACCOUNT OF EXTRA DEPRECIATION CLAIMED ON COMPUTER PERIPHERALS. 4. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS.1,00,00,000/ - MADE U/S 2(22)(E) OF THE I.T.ACT. 5. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RI GHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 4. WE HAVE HEARD SMT.PARWINDER KAUR, LD.SR.D.R. ON BEHALF OF THE REVENUE AND SHRI SIDHARTH SHANKER, THE LD.COUNSEL FOR THE ASSESSEE. 5. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ON PERUSAL OF ORDERS OF AUTHORITIES BELOW, MATERIAL PLACED ON RECORD AND CASE LAWS CITED, WE HOLD AS FOLLOWS. 6. GROUND NO.1 IS AGAINST DELETION OF ADDITION OF RS.54,44,948/ - MADE BY THE AO ON ACCOUNT OF ADVERTISEMENT EXPENSES. SIMILAR ADDITION WAS MADE IN THE PREVIOUS ASSESSMENT YEAR AND W HEN THE MATTER CAME UP TO THE TRIBUNAL DURING THE AY 2006 - 07 IN THE ASSESSEE S OWN CASE, WHERE IN ITS ORDER IN ITA NO.1964/DEL/2011 AT PARA 10 THE TRIBUNAL HAD HELD AS FOLLOWS. 10. IN THE PRESENT CASE, ADMITTEDLY, AN EXPENDITURE ON ADVERTISEMENT WAS MADE BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS AND IN THE NATURE OF REVENUE. THE ASSESSING OFFICER HAS NOT RAISED ANY OBJECTION ABOUT THE AMOU NT OF ADVERTISEMENT EXPENDITURE. WE ARE UNABLE TO SEE ANY JUSTIFIED REASON ON WHICH THE ADVERTISEMENT EXPENDITURE INCURRED DURING THE YEAR UNDER CONSIDERATION WAS SPREAD OVER A PERIOD OF FIVE YEARS BY THE ASSESSING OFFICER. ON THE OTHER HAND, ID. COMMISSI ONER OF INCOME TAX(A) RIGHTLY HELD THAT THE ADVERTISEMENT EXPENDITURE OF REVENUE IN NATURE SHOULD BE ALLOWED IN THE YEAR IN WHICH IT WAS ACTUALLY INCURRED. WE ARE UNABLE TO SEE ANY INFIRMITY OR PERVERSITY IN THE FINDINGS OF ID. COMMISSIONER OF INCOME TAX(A ). ACCORDINGLY, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HON'BLE HIGH COURT OF DELHI IN THE CASE ITA 2168/DEL/2012 AY 2007 - 08 COSMIC SOFTECH LTD. 3 OF JAIN PARABOLIC SPRINGS LTD. (SUPRA), GROUND NO. 2 OF THE REVENUE IS DISMISSED. 6.1. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND. 7. GROUND NO.2 IS AGAINST THE DELETION OF AN ADDITION OF RS.1,03,25,387/ - ON ACCOUNT OF ADVANCE FEES. SIMILAR ISSUE HAS TRAVELLED TO THE TRIBUNAL FOR THE AY 2008 - 09 AND 2009 - 10 IN THE ASSESSEE S OWN CASE AND THE TRIBUNAL IN ITA NOS. 2169 AND 2170/DEL/2012 HAS AT PARA 5 HELD AS FOLLOWS. 5. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF C I T VS. DINESH KUMAR GOEL REPORTED IN 331 ITR 10 AND THE JUDGMENT OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF AC I T VS. MOHINDRA HOLIDAY & RESORT REPORTED IN 131 TTJ PAGE 1. HE ALSO RELIED UPON THE DECISION OF THE ITAT, D ELHI IN THE CASE OF CAREER LAUNCHER (INDIA) LTD. VS. ACIT REPORTED IN 131 ITD 414. ON THE OTHER HAND, LEARNED DR RELIED UPON THE ASSESSMENT ORDERS. W E HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. IN THE CASE OF DINESH KUMAR GOEL (SUPRA), THE ASSESSEE WAS RUNNING A COACHING INSTITUTE. HE HAD RECEIVED THE TOTAL FEES OF THE ENTIRE COURSES HAVING THE DURATION OF TWO YEARS. THE FEE WAS NON - REFUNDABLE. THE ASSESSEE CONTENDED THAT THE FEE SHOULD BE SPREAD OVER TO THE YEARS FO R WHICH THE COACHING WAS TO BE MADE, WHEREAS THE REVENUE WAS OF THE VIEW THAT BECAUSE THE MONEY WAS NON - REFUNDABLE AND AS PER THE AGREEMENT, STUDENTS HAVE TO PAY THE ENTIRE FEE IN ADVANCE AT THE TIME OF ADMISSION, THEREFORE, IT IS ASSESSABLE IN THE YEAR OF RECEIPT. HON'BLE DELHI HIGH COURT REJECTED THE. CONTENTIONS OF THE REVENUE AND AFTER FOLLOWING THE JUDGMENT IN THE CASE OF E.D. SASOON & CO. LTD. VS. CIT REPORTED IN 26 ITR 27 HELD THAT BECAUSE THE SERVICES ARE TO BE RENDERED IN TWO - YEARS, THEREFORE, T HE ENTIRE FEE HAD TO BE SPREAD OVER IN TWO YEARS. SIMILARLY, THE SPECIAL BENCH OF THE ITAT IN THE CASE OF MOHINDRA HOLIDAY & RESORT (SUPRA) HAS HELD THAT WHERE SERVICES ARE REQUIRED TO BE RENDERED IN VARIOUS YEARS THE RECEIPTS HAVE TO BE SPREAD OVER ITA 2168/DEL/2012 AY 2007 - 08 COSMIC SOFTECH LTD. 4 THE Y EARS FOR WHICH THE SERVICES ARE REQUIRED TO BE RENDERED. THE PRESENT ASSESSEE HAS ALSO CONTENDED BEFORE THE ASSESSING OFFICER THAT THOUGH IT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BUT A PARTICULAR RECEIPT WOULD ATTAIN THE CHARACTER OF INCOME WHEN IT HAS ACCRUED A RIGHT TO RECEIVE THE INCOME IN ITS HANDS. THE INCOME IN THE CASE OF THE ASSESSEE WOULD ACCRUE AT THE TIME OF RENDERING OF SERVICES OR AT THE TIME WHEN THE RELEVANT COURSES ARE TAUGHT TO THE STUDENTS. LEARNED FIRST APPELLATE AUTHORITY HAS OB SERVED THAT TAXABILITY OF THE RECEIPTS ARE NOT IN DISPUTE. THE DISPUTE RELATES TO THE YEAR OF TAXABILITY. THE ASSESSEE HAD ITSELF OFFERED THESE RECEIPTS FOR TAX IN SUBSEQUENT YEARS I.E. 2009 - 10 AND 2010 - 11. THE RATE OF TAX IS ALSO SAME IN BOTH THE ASSES SMENT YEARS. THUS, TAKING INTO CONSIDERATION THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF DINESH KUMAR GAEL (SUPRA) AND THAT OF THE SPECIAL BENCH OF THE IT AT, WE ARE OF THE VIEW THAT LEARNED FIRST APPELLATE AUTHORITY HAS RIGHTLY DELETED THE AD DITION. WE DO NOT FIND ANY MERIT IN THE APPEALS OF THE REVENUE. THEY ARE DISMISSED. 7.1. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE DISMISS THIS GROUND OF REVENUE. 8. GROUND NO.3 IS ON THE ISSUE OF ALLOWABILITY OF EXTRA DEPRECIATION O N COMPUTER PERIPHE RALS. THIS ISSUE IS COVERED BY THE JUDGEMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE EARLIER AY IN THE CASE OF CIT VS. BSES RAJDHANI POWERS LTD. IN ITA NO.1266/2010 WHEREIN VIDE ORDER DT. 31.8.2010 IT HAS BEEN HELD AS UNDER: WE ARE IN AGREEMENT WIT H THE VIEW OF THE TRIBUNAL THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANNERS AND SERVER ETC. FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM. IN FACT, THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUEN TLY, AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. ITA 2168/DEL/2012 AY 2007 - 08 COSMIC SOFTECH LTD. 5 8.1. RESPECTFULLY FOLLOWING THE DECISION OF HON BLE DELHI HIGH COURT , WE UPHOLD THE FINDING OF THE FIR ST APPELLATE AUTHORITY AND DISMISS GROUND NO.3 OF REVENUE. 9. GROUND NO.4 IS AGAINST DELETION OF AN ADDITION OF RUPEES 1 CRORE MADE U/S 2 ( 22 )(E). THE LD.CIT(A) AT PARAS 9.4 TO 9.6 OF HIS ORDER HELD AS FOLLOWS. 9.4 NOW ADVERTING TO THE CASE OF THE APPELLANT COMPANY, IT IS SEEN THAT THE APPELLANT COMPANY HAS NOT RECEIVED ANY LOAN DURING THE RELEVANT A.Y. FROM MAHARISHI AYURVEDA PRODUCT PVT. LTD. (MAPPL) AND M/S PICASSO DIGITAL MEDIA. MOREOVER, NO SHARE HOLDER OWING SHARES OF 10% OF AMOUNT OF THE EQUITY CAPITAL IN MAPPL AND PICASSO DIGITA L MEDIA IS HOLDING SHARES OF MORE THAN 20% IN THE APPELLANT COMPANY. IT IS ALSO SEEN THAT M/S GLOBAL ESTATE IS A PROPRIETORSHIP CONCERNED. WHICH IS BEYOND THE AMBIT OF SEC. 2(22)(E). SIMILARLY, MAHARISHI FOUNDATION IS NOT A COMPANY. NO LOAN HAS BEEN RECEIV ED BY THE APPELLANT W COMPANY FROM IT DURING THE RELEVANT A.Y. IT IS ALSO SEEN THAT M/S MAHARISHI VEDIC CONSTRUCTION CORPORATION PVT. LTD. AND M/S TRANS BHARAT AVIATION PVT. LTD. ARE NOT HAVING ANY ACCUMULATED PROFIT. MOREOVER, NO SHARES HOLDER OWING SHAR ES OF 10% OF AMOUNT OF THE EQUITY CAPITAL IN THE AFORESAID TWO COMPANIES IS HOLDING SHARES OF MORE THAN 20% IN THE APPELLANT COMPANY. SIMILARLY, IN OTHER COMPANIES NAMELY MAHARISHI SOLAR TECHNOLOGY PVT. LTD., MAHARISHI HOUSING DEVELOPMENT CORPORATION PVT. LTD AND MAHARISHI MEDICAL CORPORATION PVT. LTD. NO SHARE HOLDER IS HOLDING SHARES OF 10% OF AMOUNT OF THE EQUITY CAPITAL IS HOLDING SHARES OF MORE THAN 20% IN THE APPELLANT COMPANY. THEREFORE, THE PROVISIONS OF SEC. 2(22)(E) ARE NOT AT ALL APPLICABLE IN THE CASE OF THE APPELLANT COMPANY. THE AO HAD INVOKED THE SPECIFIC PROVISIONS OF S.2(22)(E) OF THE ACT, BUT HAS NOT ESTABLISHED AS TO HOW THE TRANSACTIONS IN THE PRESENT CASE ARE COVERED UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE I.T.ACT. THE AO HA S ALSO NOT CLARIFIED AS TO HOW THE DEEMED DIVIDEND IS WORKED OUT AT RS.1,00,00,000/ - . 9.5. IT IS FURTHER SEEN THAT THE IDENTICAL ISSUE WAS DECIDED BY MY PREDECESSOR IN APPEAL NO. 195/2008 - 09 VIDE ORDER DT. 9.2.11 IN THE CASE OF THE APPELLANT COMPANY FOR THE A.Y. 2006 - 07. THE RELEVANT EXTRACTS OF THE AFORESAID ORDER IS REPRODUCED BELOW. 7.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF LD. AR AND HAVE GONE THROUGH THE ASSESSMENT ORDER. ALTHOUGH THE AO HAS INVOKED THE SPECIFIC PROVISIONS OF SECT ION 2(22)(E) OF THE ACT, HOWEVER IT IS NOT ESTABLISHED AS TO HOW THE TRANSACTIONS IN THE PRESENT CASE GOT COVERED UNDER THESE PROVISIONS, NOR HAS IT BEEN CLARIFIED AS TO HOW THE DEEMED DIVIDEND IS WORKED OUT AT RS.67,88,000/ - . ON PAGE 4 TO 6 OF THE ASSES SMENT ORDER, THE ASSESSING ITA 2168/DEL/2012 AY 2007 - 08 COSMIC SOFTECH LTD. 6 OFFICER HAS DISCUSSED THE SHAREHOLDING PATTERN OF 6 COMPANIES INCLUDING THE APPELLANT COMPANY. THE AMOUNTS OF LOANS OR DEPOSIT ARE REPRODUCED ON PAGE 3 & 4 OF THE ASSESSMENT ORDER. THE WORKING OF RS.67,88,000/ - IS NOT LINKED UP W ITH THESE DETAILS. IN SUCH CIRCUMSTANCES, I FIND THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED AND THE SAME IS DIRECTED TO BE DELETED. ' 9.6 SINCE THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR OF APPEAL IS SAME AS IN THE ASSESSMENT YEAR 2006 - 07, RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF MY PREDECESSOR AND ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE, THE AO IS DIRECTED TO DELETE THE IMPUGNED ADDITION OF RS 1,00,00,000 MADE U/S 2(22)(E) OF THE I.T. ACT. 9.1. THE TRIBUNAL IN ITS ORDER FOR THE EARLIER AY IN THE ASSESSEE S OWN CASE 2006 - 07 AT PARA 20 HAS HELD AS FOLLOWS : 20. THEREFORE, WE ARE OF THE OPINION THAT THIS ISSUE DESERVES TO BE RESTORED TO THE FILE OF AO FOR DE NOVO ADJUDICATION ACCORDING TO THE LETTER AND SPIRIT OF THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE AO WILL DECIDE THE ISSUE WITHOUT BEING PREJUDICIAL TO OUR OBSERVATIONS MADE HERE IN THIS ORDER AFTER AFFORDING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE RESPONDENT. ACCORDINGLY, GROUND NO.4 OF THE R EVENUE IS ALLOWED AS ABOVE. 9.2. CONSISTENT WITH THE VIEW TAKEN THEREIN WE SET ASIDE THE MATTER TO THE FILE OF AO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 10 . IN THE RESULT REVENUE S APPEAL IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH DECEMBER ,2014. SD/ - SD/ - ( C.M. GARG ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 10 TH DECEMBER , ,2014 *MANGA ITA 2168/DEL/2012 AY 2007 - 08 COSMIC SOFTECH LTD. 7 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR