Icenet Net Ltd., Ahmedabad V. The Income Tax Officer, Ward-2(1)(3), Ahmedabad

ITA 252/AHD/2023

AI Insights

Icenet Net Ltd. appealed against the order of the CIT(A), which had confirmed the disallowances made by the Assessing Officer on certain expenses claimed by the company for the assessment year 2017-18. The primary issues revolved around the disallowance of Rs. 10,00,000 for internet expenses related to a performance guarantee and Rs. 2,00,000 for labor charges, both of which were disallowed as unexplained expenditures. The Tribunal examined whether these expenses were incurred for business purposes and whether the application of Section 115BBE was appropriate. The Tribunal concluded that the expenses were indeed for business purposes and thus allowable, leading to the setting aside of the CIT(A)'s decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299927 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-07-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 17-04-2023
• Other Referred Cases: Neo Constructo Construction Ltd. 218 taxman 24
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Revenue expenditure
• Section: 69C; 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I .T .A . N o . 2 5 2/ A h d /2 0 2 3 ( A s se ss m e nt Y e a r : 20 17- 18 ) I ce ne t. N e t Lt d. 90 5 , Si li co n To w e r , B/ h . Par is ee ma B ui ld in g , O f f . C. G . R o ad , A h me d a b a d-38 0 0 06 V s . I nc o me Ta x O f f ic er War d - 2 ( 1) ( 3 ) , A h me da ba d [ P AN N o. A A AC E4 7 1 8 N ] (Appellant) .. (Respondent) Appellant by : Shri Sanjay R. Shah, A.R. Respondent by : Shri Ramesh Kumar, Sr. D.R. D a t e of H ea r i ng 05.07.2023 D a t e of P r o no u n ce me nt 07.07.2023 O R D E R The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi on 17.02.2023 for A.Y. 2017-18. 2. The grounds of appeal raised by the assessee are as under: “1. The Learned C.I.T. (Appeals) erred in law and on facts in confirming the disallowance of Rs.10,00,000/- made by the learned Assessing Officer on account of internet expenses debited in the books of the Appellant being the amounts debited by the bank on invocation of performance guarantee by the Department of Telecommunication. The C.I.T.(Appeals) erred in confirming the said disallowance on the ground that the said liability was a contingent liability not brought in the books of the Appellant at the time of creation of such contingent liability and has been rightly taxed by the learned Assessing Officer u/s.69C of the Act. Your Appellant submits that the disallowance is not warranted in the facts and circumstances of the case and the same should be directed to be deleted. 2. The Learned C.I.T. (Appeals) erred in law and on facts in confirming the disallowance of expenditure of Rs.2,00,000/- incurred towards the salary paid by the appellant during the year under consideration on the ground that business of the Appellant is closed in the year 2008. It is submitted that there was lull in the business ITA No. 252/Ahd/2023 Icenet Net Ltd. vs. ITO Asst.Year–2017-18 - 2 - of the Appellant and it was never sought to be closed. In any event, such expenditures are necessary for maintaining the corporate status of the Appellant, and hence also, are allowable as business expenditure. It is submitted that it be so held now and the disallowance made by the learned Assessing Officer as confirmed by C.I.T.(Appeals) be deleted. 3. The Learned Assessing Officer erred in law and on facts in taxing the disallowances made at the rate prescribed u/s.115BBE of the Act. It is submitted that the provisions of section 115BBE are not at all applicable to the appellant, and hence, the demand raised by the Assessing Officer as confirmed by the learned C.I.T.(Appeals) by charging the addition made at the tax rate u/s.115BBE be deleted. 4. Your Appellant reserves the right to add, alter, amend and/or withdraw any of the above Grounds of Appeal.” 3. The assessee filed his original return of income for the A.Y. 2017-18 on 06.11.2017 declaring a loss of (-)Rs. 2,74,661/-. The Assessing Officer observed that expenses of Rs. 10,00,000/- was debited in Profit & Loss Account as internet expenses on the other side in the bank account there is a debit entry of Rs. 10,00,000/- with narration “creation of invocation event transaction”. Apart from the above, an amount of Rs. 2,00,000/- was also debited in Profit & Loss Account as labour charges which is also unexplained expenditure as the company has already stopped operating since 2018 as per the narration of Assessing officer. Accordingly, the Assessing Officer completed the assessment under Section 143(3) on 29.11.2019 assessing total income at Rs. 9,25,340/- by disallowing the said expenditure as unexplained expenditure under Section 69C r.w.s. 115BBE of the Income Tax Act amounting to Rs. 12,00,000/-. 4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) dismiss the appeal of the assessee. 5. As regards Ground No. 1, the Ld. A.R. submitted that the assessee has claimed revenue expenditure of Rs. 10,00,000/- during the year under ITA No. 252/Ahd/2023 Icenet Net Ltd. vs. ITO Asst.Year–2017-18 - 3 - consideration as the assessee has given performance guarantee issued by the Indian Overseas Bank to Department of Telecommunication (DOT) and it has been invoked by DOT by sending letter to Indian Bank dated 24.06.2016. The guarantee was given by the bank for business performance. Therefore, in the light of the decision of Hon’ble Gujarat High Court in case of Neo Constructo Construction Ltd. 218 taxman 24, the Ld. A.R. submitted that the performance guarantee is in the nature of compensatory in nature and was incurred for purpose of the business of the assessee and hence allowable under Section 37(1) of the Act. 6. The Ld. D.R. submitted that the business was discontinued and therefore, the assessee cannot claim the same as business purpose. The Ld. D.R. relied upon the assessment order and the order of the CIT(A). 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the bank guarantee was originally for the business purpose with the Department of Telecom which is a mandatory for certain projects. Thus, the observations made by the Assessing Officer that it is not in respect of business appears to be incurred as the performance guarantee was prior to the period on which the assessee was not fully operationalise his business. Therefore, the benefit of Section 37(1) is allowable to the assessee in light of the decision of Hon’ble Gujarat High Court in case of Neo Constructo Construction Ltd. (Supra). Ground No. 1 is allowed. 8. As regards Ground No. 2, the Ld. A.R. submitted that the labour expenses money to Rs. 2,00,000/- claimed by the assessee was paid to one ITA No. 252/Ahd/2023 Icenet Net Ltd. vs. ITO Asst.Year–2017-18 - 4 - staff which was doing administrative / accounting as well as miscellaneous office work and therefore, the same is related to the assessee’s business itself. The Ld. A.R. submitted that the company was not closed too and the administrative as well as accounting of the assessee’s business was operational during the period, therefore, the expenditure is revenue expenditure and the same should have been allowed. 9. The Ld. D.R. relied upon the assessment order and the order of the CIT(A). It is pertinent to note that there was no closure declared by the assessee of its entire business but certain business activities were going on from 2008 till 2016 and therefore, one staff expenses related to salary component was genuine by the assessee as revenue expenditure. Hence, the Ground No. 2 is allowed. 10. As regards Ground No. 3, the Ld. A.R. submitted that the CIT(A) erred in disallowing the addition at the rate prescribed in the Section 115BBE of the Act. The Ld. A.R. submitted that the provisions of Section 115BBe are not at all applicable to the assessee’s case. 11. The Ld. D.R. relied upon the assessment order and the order of the CIT(A). 12. Heard both the parties and perused all the relevant material available on record. From the perusal of the additions it is pertinent to note that the expenditure claimed by the assessee in respect of performance guarantee as well as labour expenses were both explained by the assessee during the ITA No. 252/Ahd/2023 Icenet Net Ltd. vs. ITO Asst.Year–2017-18 - 5 - assessment proceedings and therefore, applying Section 115BBE in assessee’s case is not justifiable. Hence, Ground No. 3 is allowed. 13. As regards additional ground the same are in alternate to Ground No. 1 & 2 in case are dismissed. But since both grounds are allowed hereinabove the same becomes academic, hence not adjudicated. 14. In result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 07/07/2023 Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER Ahmedabad; Dated 07/07/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 06.07.2023 2. Date on which the type draft is placed before the Dictating Member 06.07.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S .07.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .07.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 07.07.2023 7. Date on which the file goes to the Bench Clerk 07.07.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................