ACIT, New Delhi V. M/s. Netlink Software Pvt. Ltd., New Delhi

ITA 244/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2677 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 16-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 13-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Commercial expediency
• Section: 142(1); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SH. O. P. KANT, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO. 244/DEL/2014 (ASSESSMENT YEAR: 2009-10) ACIT CIRCLE-13(1) NEW DELHI VS. NETLINK SOFTWARE PVT. LT D. G-3, GROUND FLOOR, COMMUNITY CENTRE, C-BLOCK NARAINA VIHAR, NEW DELHI. PAN : AA C CN5731A (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SHIVRAJ SINGH, SR. DR SH. H. K. CHAUDHARY, CIT, DR RESPONDENT BY : SH. GAGAN KUMAR, ADV. SH. MANOJ NAGRATH, CA. DATE OF HEARING : 04.07.2017 DATE OF PRONOUNCEMENT : 31.07.2017 O R D E R PER BEENA A. PILLAI, J.M : 1. THE PRESENT APPEAL HAS BEEN FILED BY REVENUE AGAIN ST ORDER DATED 15.10.2013 PASSED BY LD. CIT(A)-XVI, NEW DELH I, FOR ASSESSMENT YEAR 2009-10 ON THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 10A OF THE ACT OF RS.1,42,07,482/- TO THE ASSESSEE COMPANY NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT PUR CHASED NEW PLANT & MACHINERY AND BUILDING BUT THE SAME HAV E BEEN TAKEN ON LEASE FROM THE COMPANY TO WHICH THE ASSESSEE HAS DIRECT AFFILIATION. 1.1 ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 10A OF 2 ITA NO. 244/DEL/2014 (AY 2009-10) THE ACT OF RS.1,42,07,482/- TO THE ASSESSEE COMPANY NOT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT PUR CHASED NEW PLANT & MACHINERY AND BUILDING, AND ALSO NOT CONSIDERING THE FACT THAT THE ASSESSEE FAILED TO FU RNISH ANY EVIDENCE WHICH COULD PROVE ITS CLAIM THAT BUSIN ESS OF THE ASSESSEE IS NOT A RECONSTRUCTION OF THE ALREADY EXISTING BUSINESS AND HENCE VIOLATED THE PROVISIONS OF SEC. 10B(2)(II) AND (III) OF THE ACT. 2. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY FR ESH GROUNDS OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: ASSESSEE FOR THE YEAR UNDER CONSIDERATION FILED ITS RETURN OF INCOME ON 22.09.2009 DECLARING NIL INCOME AND BOO K PROFIT UNDER SECTION 115 JB OF RS.1,19,82,341/-. THE RETUR N WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND THE C ASE WAS SELECTED FOR SCRUTINY. ACCORDINGLY, NOTICES UNDER S ECTION 143(2) OF THE ACT AND FURTHER NOTICES UNDER SECTION 142(1) ALONG WITH QUESTIONNAIRE WERE ISSUED. IN RESPONSE TO THESE NOT ICES REPRESENTATIVES OF ASSESSEE APPEARED BEFORE LD. AO AND FILED ALL THE RELEVANT DETAILS AS CALLED FOR. THE CASE WAS DI SCUSSED WITH LD. AO. 3. DURING ASSESSMENT PROCEEDINGS, LD. AO CALLED UPON ASSESSEE TO JUSTIFY DEDUCTION CLAIMED UNDER SECTION 10A OF THE ACT. ASSESSEE SUBMITTED THAT CLAIM WAS BASED ON CER TIFICATE ISSUED BY THE AUDITORS AND WAS IN ACCORDANCE WITH P ROVISIONS OF SECTION 10A(5) OF THE ACT. LD. AO OBSERVED THAT ASS ESSEE HAD VIOLATED PROVISIONS OF SECTION 10A, AS THERE WAS A RECONSTRUCTION OF AN ALREADY EXISTING BUSINESS, AND UNIT WAS FORME D BY TRANSFER OF PLANT AND MACHINERY PREVIOUSLY USED. LD. AO WAS OF THE 3 ITA NO. 244/DEL/2014 (AY 2009-10) OPINION THAT ALLEGED NEW UNIT WAS FORMED AS A CASE OF CONSTRUCTION OF AN ALREADY EXISTING BUSINESS. 4. AGGRIEVED BY DISALLOWANCE MADE BY LD. AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO DELETED ADDI TIONS. 5. AGGRIEVED BY ORDER OF LD. CIT(A) REVENUE IS IN APP EAL BEFORE US NOW. 6. LD. CIT DR SUBMITTED THAT ONLY ISSUE IS IN RESPECT OF THE DEDUCTION UNDER SECTION 10A BEING ALLOWED BY LD. CI T(A) EVEN THOUGH THERE WAS A VIOLATION OF PROVISIONS OF SECTI ON 10A. HE SUBMITTED THAT LD. CIT(A) FAILED TO APPRECIATE THAT ASSESSEE HAD NOT PURCHASED NEW PLANT AND MACHINERY AND BUILDING BUT SAME HAVE BEEN TAKEN ON LEASE FROM COMPANY TO WHICH ASSE SSEE HAS DIRECT AFFILIATION. HE SUBMITTED THAT COST OF PLANT AND MACHINERY TAKEN ON LEASE AMOUNTED TO RS.26,07,762/- AS HAS R ECORDED BY LD. AO IN HIS ORDER, AND ASSESSEE HAS PAID BUILDIN G RENT AND OFFICE EQUIPMENT RENT AMOUNTING TO RS. 1.31 CRORE. 7. LD. CIT DR SUPPORTED ORDER OF LD. AO, AS PLANT AND MACHINERY LEASED TO ASSESSEE WAS PREVIOUSLY USED BY A GROUP COMPANY THEREBY VIOLATING CONDITIONS STIPULATED IN SECTION 10A(2)(II) OF THE ACT. HE SUBMITTED THAT CONDITIONS OF SUBSTANTIAL EXPANSION HAS NOT BEEN COMPLIED WITH BY ASSESSEE. 8. ON THE CONTRARY, ASSESSEE SUBMITTED THAT STPI UNDE RTAKING IS NOT A RECONSTRUCTION OF BUSINESS CARRIED OUT BY ITS SUBSIDIARY COMPANY. IT WAS SUBMITTED BY LD. AR THAT ASSESSEE W AS INCORPORATED ON 26.03.2007 AND WAS A WHOLLY OWNED S UBSIDIARY OF NETLINK SOFTWARE GROUP AMERICA IC (NSGAI) A MICH IGAN- BASED ENTITY, INCORPORATED UNDER LAWS OF US. HE SUBMITTED THAT SHAREHOLDING IN NSGPC WAS EQUALLY HELD BY SH. ANURA G 4 ITA NO. 244/DEL/2014 (AY 2009-10) SRIVASTAVA AND DILIP DUBEY AND THAT BOTH COMPANIES HAD DIFFERENT SHAREHOLDING STRUCTURE AND PROVIDED SOFTW ARE DEVELOPMENT SERVICES TO ITS PARENT COMPANY BEING NS GAI, AND PRIMARILY CATERED TO DASS INTERNATIONAL INC. LD. AR SUBMITTED THAT DURING YEAR UNDER CONSIDERATION ASSESSEE ENTE RED INTO CONTRACT WITH INTERNATIONAL CLIENT AND DECISION TO SET UP A CAPTIVE UNIT WAS TO CATER TO THE NEW INTERNATIONAL CLIENT. LD. AR SUBMITTED THAT CONTRACT WITH DASS INTERNATIONAL INC . WAS CANCELLED IN THE YEAR ENDED ON MARCH 2008 AND NSGP L, LOST ITS ENTIRE BUSINESS. CONSEQUENTLY IT HAD NOT RECEIVED ANY INCOME BY WAY OF SOFTWARE DEVELOPMENT DURING ASSESSMENT YE AR UNDER CONSIDERATION. IT WAS UNDER THE CIRCUMSTANCES THAT NSGPL LEASED OUT A PORTION OF ITS BUILDING AND ASSETS TO ASSESSEE TO CIRCUMVENT THE SITUATION OF FURTHER LOSSES AND TO H AVE A REGULAR REVENUE STREAM. 9. IT HAS BEEN SUBMITTED THAT BUSINESS OF SOFTWARE DEVELOPMENT CARRIED OUT BY NSGPL AND ASSESSEE IS BE ING OPERATED FROM SEPARATE PREMISES AND SEPARATE BOOKS OF ACCOUNTS WASBEING MAINTAINED BETWEEN BOTH THESE COMPANIES. 10. LD. AR SUBMITTED THAT IT WAS ON THESE REASON THAT LD. CIT(A) GRANTED CLAIM UNDER SECTION 10A OF THE ACT. 11. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN THE LIGHT OF RECORDS PLACED BEFORE US. 12. IT IS OBSERVED THAT ASSESSEE HAS NOWHERE PRODUCED LEASE AGREEMENT BETWEEN NSGPL AND IT SELL FOR LEASE OF TH E PLANT AND MACHINERY. EVEN ASSUMING THE COMMERCIAL EXPEDIENCY, TERMS OF LEASE AGREEMENT PLAYS AN IMPORTANT ROLE TO IDENTIFY ACTUAL INTENTION OF THE PARTIES. DURING, THE TIME OF HEARI NG WE HAD 5 ITA NO. 244/DEL/2014 (AY 2009-10) CALLED FOR LEASE AGREEMENT BETWEEN PARTIES FOR WHIC H LD. AR SUBMITTED THAT HE SHALL DO IT DURING THE COURSE OF DAY. HOWEVER, EVEN AFTER A PERIOD OF 2 WEEKS WE HAVE NOT RECEIVED ANY COPY OF LEASE AGREEMENT AS SUBMITTED B Y LD. AR. 13. IN THE INTEREST OF JUSTICE, WE ARE OF CONSIDERED O PINION THAT ISSUE MAY BE SET ASIDE TO LD. CIT(A) TO VERIFY CLAI M OF ASSESSEE ON THE BASIS OF LEASE AGREEMENT ENTERED INTO BETWEE N NSGPL AND ASSESSEE. LD. CIT(A) MAY CALL FOR LEASE AGREEMENT A ND ON THE BASIS OF TERMS OF AGREEMENT ASSERTING TRUE NATURE O F TRANSACTION, WHETHER BEING A SIMPLE LEASE OR TRANSFER OF PLANT AND MACHINERY IN GARB OF LEASE AS CONTEMPLATED 10A(2)(III). 14. WITH THE ABOVE DIRECTIONS, WE ALLOW GROUND RAISED BY REVENUE FOR STATISTICAL PURPOSES. IN THE RESULT APPEAL FILED BY THE REVENUE STANDS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 JULY, 2017 . SD/- SD/- (O. P. KANT) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 31.07.2017 @M!T/BINITA COPY OF ORDER TO: - 1) THE APPELLANT; 2) THE RESPONDENT; 3) THE CIT; 4) THE CIT(A)-, NEW DELHI; 5) THE DR, I.T.A.T., NEW DELHI; TRUE COPY BY ORDER I TAT, NEW DELHI