CIT, Cir.-1, Nashik V. VEL Software Ltd., Nashik

ITA 217/PUN/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56412 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 05-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJIB JAINDR
• Assessee Lawyers: PR AMOD SHINGLE
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C.SUDHIR, JUDICIAL MEMBER AND SHRI D.KARUNAKARA RAO, ACCOUNTAN T MEMBER ITA NO. 217/PN/2010 (ASSESSMENT YEAR: 2005-06) DY.COMMISSIONER OF INCOME TAX, CIRCLE 1, NASHIK .. APPELLANT VS. VEL SOFTWARE LTD., VIJAYALAXMI CHAMBERS ARTILLERY CENTRE ROAD NASIK ROAD,NASHIK .. RESPONDENT PAN AAACV7830N APPELLANT BY: SHRI RAJIB JAIN,DR RESPONDENT BY: SHRI PR AMOD SHINGLE, AR ORDER PER D.KARUNAKARA RAO, A.M .: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) I, NASHIK DATE D 24-11-.2009 FOR ASSESSMENT YEAR 2005-06. 2. FOLLOWING ARE THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL. 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) 1, NASHIK WAS JUSTIFIED IN ALLOWING DEPRECIATION OF RS.4,65,000/- @ 10% ON PORTAL IGNORING THE FACT THA T THE PORTAL WAS NOT USED AT ALL IN THE YEAR AND ALSO THE FACT THAT DEPRECIATION AT RS.4,65,000/- ALLOWED IN EARLI ER YEAR WAS ON ESTIMATED VALUE OF ASSET AND NOT ON PARTIAL USE OF ASSET ? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) 1, NASHIK WAS JUSTIFIED IN DELETING THE ADDITION OF RS.6,37,552 TOWARDS DISALLOWANCE OF BUSINESS EXPENDITURE IGNORING THE FACT THAT THE ASSESSEE COMPANY HAS NOT SUBSTANTIATED ITS CLAIM OF EXPENSES TOWARDS BAD DEBTS , TRANSFER AGENTS AND TELEPHONE EXPENSES ? 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF SALE OF OPHTHALMIC SOFTWARE AND PROVIDING VARIOUS SERVICES IN THE EYE CARE FIELD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS DISALLOWED TOTAL CLAIM OF DEPRECIATION CLAIMED BY T HE APPELLANT ON PORTAL AT RS.46,50,000/- AGAINST THE PART DISALLOWA NCE IN THE EARLIER AYS. THE REASONS FOR DISALLOWANCE OF DEPRECIATION INCLUDE (I) THE WHOLE AMBIT OF ACTION OF ASSESSEE OF RUNNING THE PO RTAL BY MAKING ITA NO 217/PN/10 VEL SO FTWARE LTD. PAYMENT TO M/S PORTAL INDIA HAS NOT BEEN PROVED BEY OND DOUBT.; (II) THE PORTAL EXIST TODAY ALSO MERELY WITH SKELETON AN D NOT HAVING FEATURES AS IT IS EXPECTED EXIST WITH; (III) THE P ORTAL WHICH IS BEING SHOWN AS RUN BY THE ASSESSEE DOES NOT REQUIRE INVES TMENT OF RS.9.30 CRORES. UNDER THESE CIRCUMSTANCES, THE ASS ESSING OFFICER TREATED THE CLAIM OF DEPRECIATION BY THE ASSESSEE T O THE TUNE OF RS.46,50,000/- AS NON BUSINESS EXPENDITURE AND NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND FINALLY HELD INELIGIBLE CLAIM U/S 32 OF THE ACT. FURTHER, THE ASSESSING OF FICER DISALLOWED THE CLAIM OF DEPRECIATION OF RS.3,14,525/- CLAIMED BY T HE ASSESSEE ON OTHER ASSETS SUCH AS BUILDING, FURNITURE, PLANT AND MACHINERY E TC. HE ALSO DISALLOWED BUSINESS EXPENDITURE IE BAD DEBTS , TRANSFER AGENTS AND TELEPHONE EXPENSES AMOUNTING TO RS.6,37,552/- IN ABSENCE OF ANY BUSINESS ACTIVITY. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) 1, NASHIK. BEFO RE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE DEPARTMENT ACCEPTED THE USE OF PORTAL BY ASSESSEE COMPANY FOR ITS BUSINESS FOR ASS ESSMENT YEARS 2003-04, 2004-05 AND 2006-07 AND ALSO ALLOWED DEPRE CIATION AT 10% ON ADHOC BASIS UNDER SIMILAR CIRCUMSTANCES AND THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE HAS NOT USED PORTAL FOR ITS BUSINESS ONLY IN THE ASSESSMENT YEAR 2005-06. IT WAS SUBMITTED THAT IN ASSESSMENT YEAR 2005-06, THER E ARE NO BUSINESS ACTIVITIES CARRIED OUT FROM THE PORTAL (SO FTWARE), WHICH IMPLIES THAT BUSINESS ACTIVITIES WERE CARRIED OUT I N EARLIER YEAR AND LATER YEAR DOES NOT ITSELF PROVE THAT THE ASSET WAS USED IN THE YEAR UNDER CONSIDERATION. THE USE OF ASSET IS TO BE DEC IDED BASED ON THE MATERIAL ON RECORD TO SHOW THAT ASSET WAS ACTUALLY USED. SUCH IS NOT THE CASE WITH ASSESSEE, THE TOTAL DEPRECIATION AT RS.46,50,000/- WAS CORRECTLY DISALLOWED. THE DEPRECIATION AT RS.4 ,65,000/- WAS ALLOWED IN EARLIER YEAR, NOT BASED ON PARTIAL USE O F ASSET BUT ON ESTIMATED VALUE OF ASSET. THEREFORE, DECISION OF L D.CIT(A) OF ALLOWING DEPRECIATION AT RS.4,65,000/- DOES NOT APP EAR TO BE CORRECT ON FACTS. ON CONSIDERING THE FACTS AND PECULIAR CI RCUMSTANCES OF THIS CASE, THE CIT(A) DIRECTED TO ALLOW DEPRECIATION AT 10% I.E. RS.4,65,000/- AS AGAINST DEPRECIATION ON PORTAL CLA IMED BY THE APPELLANT AT RS.46,50,000/- IN THE ASSESSMENT YEAR 2005-06. THIS DECISION HAS BROUGHT PARITY VIS AVIS THE EARLIER AY S. 4. REGARDING OTHER DISALLOWANCES AMOUNTING TO RS.6,37,552 BAD DEBTS, TRANSFER AGENTS AND TELEPHONE EXPENSES, THE CASE OF THE ITA NO 217/PN/10 VEL SO FTWARE LTD. REVENUE IS THAT THE CIT(A) MUST NOT HAVE DELETED TH E ADDITION WHEN THE ASSESSEE COMPANY FAILED TO SUBSTANTIATE ITS CLA IM OF EXPENSES TOWARDS BAD DEBTS, TRANSFER AGENTS AND TELEPHONE EX PENSES. THE CASE OF THE AO IS THAT THE IN RESPECT OF BAD DEBTS ASSESSEE HAS NOT SUBMITTED ANYTHING RELATING TO OFFERING OF THE SAME AS INCOME IN EARLIER YEARS, IRRECOVERABILITY OR NAMES OF THE PAR TIES IN WHOSE NAMES SUCH BAD DEBTS ARE WRITTEN OFF. THE INCURRING OF DISPROPORTIONATE TELEPHONE EXPENSES AT RS.2,14,424/ - FOR A TURNOVER OF RS.18.12 LACS IS NOT JUSTIFIABLE. SAME IS THE C ASE WITH TRANSFER AGENT ACCOUNT EXPENSES. BEFORE CIT(A), THE ASSESSEE CLAIMED THAT THE NATURE OF ABOVE EXPENDITURE ITSELF MAKES IT CLE AR THAT THE SAME WAS BUSINESS EXPENDITURE OF THE LIMITED COMPANY WHO SE BOOKS OF ACCOUNT ARE AUDITED AND OTHER EXPENSES DEBITED IN B OOKS AND ARE APPEARING IN AUDITED P&L A/C. BEFORE THE CIT(A), T HE ASSESSEE ALSO EXPLAINED THE PURPOSE OF EXPENDITURE, FILED ADDRESS ES OF THE TRANSFER AGENT AND ALSO FILED A COPY OF MEMORANDUM OF ASSOCI ATION OF THE COMPANY AUTHORIZING IT TO CARRY ON BUSINESS OF TRAD ING IN MOBILE ALSO. IN VIEW OF THESE FACTS, THE CIT(A) ACCEPTED THE ASSESSEES CONTENTION AND HELD THAT THE ASSESSING OFFICER IS N OT JUSTIFIED IN DISALLOWING THE EXPENSES OF RS.6,37,552/- AND DIREC TED TO ALLOW THE SAME. 5. AS REGARDS DISALLOWANCE OF TOTAL DEPRECIATION ON PO RTAL CLAIMED BY THE APPELLANT AT RS.46,50,000/- IN THE A.Y.2005- 06, THE ASSESSEE SUBMITTED THAT THE REVENUE CANNOT ACCEPT THE ASSESS EES CLAIM IN ONE YEAR AND REJECT THE SAME IN THE OTHER ON THE SA ME FACTS. HE SUBMITTED THAT THE AO PARTLY ACCEPTED THE CLAIM OF DEPRECIATION BY ADMITTING THE USE OF THE IMPUGNED PORTAL BY THE ASS ESSEE COMPANY FOR ITS BUSINESS FOR ASSESSMENT YEARS 2003-04, 2004 -05 AND 2006- 07 AND ALSO ALLOWED DEPRECIATION AT 10%. THE ASSES SEE CLAIMED THAT THE ASSESSING OFFICER IS THEREFORE NOT JUSTIFI ED IN HOLDING THAT THE APPELLANT HAS NOT USED PORTAL FOR ITS BUSINESS ONLY IN THE ASSESSMENT YEAR 2005-06. THE ASSESSEE HAS ALSO RAISED OTHER C ONTENTIONS AS RAISED IN RESPECT OF THE OTHER YEARS UNDER APPEAL. THE ASSESSEE HAS HOWEVER AGREED THAT IN THE ABSENCE OF REQUIRED SUPP ORT SERVICES FROM M/S PORTAL INDIA, THE ASSET WAS UTILIZED TO TH E EXTENT OF LESS THAN 10% OF ITS CAPACITY AND HAS NOT PRESSED THE G ROUND OF APPEAL TO CLAIM OF FULL DEPRECIATION FOR THE REASONS STATE D FOR OTHER YEARS. ON THE OTHER HAND, LD DR FOR THE REVENUE ARGUED STA TING THAT THE ITA NO 217/PN/10 VEL SO FTWARE LTD. ASSESSEE WHEN NOT USED THE ASSETS, IS NOT ENTITLED FOR THE CLAIM OF DEPRECIATION. 6. WE HAVE HEARD THE PARTIES ON THIS ISSUE OF DENIA L OF THE CLAIM OF FULL DEPRECIATION. ON PERUSAL OF THE FACT, WE FI ND THAT THE FACTS ARE MORE OR LESS THE SAME OVER THE ASSESSMENT YEARS 200 3-04, 2004-05 AND 2006-07. AO ALLOWED THE CLAIM OF DEPRECIATION T O THE EXTENT OF 10% OF THE CLAIM. IN OTHER WORDS, THE ASSESSEE WAS FOUND ELIGIBLE FOR PART DEPRECIATION TO THE EXTENT OF 10%, THUS AC CEPTING THE FACT OF OWNERSHIP AND USE OF THE IMPUGNED DEPRECIABLE ASSET S TO THAT EXTENT. THE FACTS HAVE NOT CHANGED FOR THE IMPUGNED AY. IN VIEW OF THE ABOVE FACTS AND CONSIDERING THE FACT THAT THE A SSESSING OFFICER HIMSELF HAS ALLOWED DEPRECIATION AT 10% OF THE AMOU NT OF DEPRECIATION CLAIMED BY THE ASSESSEE ON THE SAID PO RTAL IN EARLIER YEARS A WELL AS SUBSEQUENT YEAR, THERE IS NO JUSTIF ICATION FOR COMPLETE DENIAL OF THE DEPRECIATION CLAIM FOR THIS AY. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEPRECIATION AT 10% I.E. RS.4,65,000/- IN THE ASSESSMENT YEAR 2005-06 ON PAR WITH THE ASSESSMENT YEARS 2003-04, 2004-05 AND 2006-07. THUS THE DECISION OF THE CIT(A) ON THIS ISSUE OF DEPRECIATIO N IS AFFIRMED. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED . 7. REGARDING DELETION OF RS.6,37,552/-, WE FIND THA T THE CIT(A) HAS CONSIDERED VARIOUS ASPECTS OF THE CLAIMS AND HE LD THE DECISION OF THE AO IS NOT JUSTIFIED. CIT(A) HELD THAT THE VE RY NATURE OF THE EXPENDITURE IE BAD DEBTS, TRANSFER AGENTS AND TELEP HONE EXPENSES, ITSELF MAKES IT CLEAR THAT THE SAME WAS BUSINESS EX PENDITURE OF THE LIMITED COMPANY WHOSE BOOKS OF ACCOUNT ARE AUDITED AND OTHER EXPENDITURE DEBITED IN BOOKS AND ARE APPEARING IN A UDITED PROFIT AND LOSS ACCOUNT. FURTHER, THE ASSESSEE HAS EXPLAINED T HE PURPOSE OF EXPENDITURE, FILED ADDRESS OF THE TRANSFER AGENT AN D HAS ALSO FILED COPY OF MEMORANDUM OF ASSOCIATION OF THE COMPANY AU THORIZING IT TO CARRY ON BUSINESS OF TRADING IN MOBILE ALSO. IN VIEW OF THE ABOVE FACTS IT CANNOT BE SAID THAT THE EXPENDITURE CLAIM IS NOT BUSINESS EXPENDITURE. HENCE, WE ARE OF THE OPINION, THE ORDE R OF THE CIT(A) GRANTING RELIEF TO THE ASSESSEE TO THE EXTENT OF R S.6,37,552/- DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GRO UND RAISED BY THE REVENUE IS DISMISSED. ITA NO 217/PN/10 VEL SO FTWARE LTD. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED .. ORDER PRONOUNCED IN THE COURT ON 26 -8-2011. SD/- SD/- (I.C.SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 26 -8-2011 COPY TO:- 1) ASSESSEE 2) THE DCIT, CIRCLE 1,NASHIK 3) THE CIT I NASHIK 4) THE ACIT NASHIK 5) THE DEPARTMENTAL REPRESENTATIVE, B BENCH, I.T.A.T., PUNE. ITA NO 217/PN/10 VEL SO FTWARE LTD. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., PUNE