ACIT, New Delhi V. M/s Vidut Furnaces, New Delhi

ITA 2565/DEL/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69574 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 28-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 28-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: NARESH BANSAL
• Keywords: Additional evidence; Capital expenditure
• Section: 131

Judgement Text

ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.2565/DEL/2010 ASSESSMENT YEAR : 2006-07 ASSTT.COMMISSIONER OF INCOME TAX, VS VIDUT FU RNACES, CIRCLE 23(1), ROOM NO.190, 291-A, HAUZ RANI, C.R. BUILDING, I.P. ESTATE, MALVIYA NAGAR, NEW DELHI. NEW DELHI-110017 (PAN: AACFV5621J) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SAMEER SHARMA, SR. DR RESPONDENT BY : SHRI NARESH BANSAL O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME TAX(A)-XXIII, NEW DELHI DATE D 08.03.2010 IN APPEAL NO. 280/08-09 FOR AY 2006-07. THE GROUNDS R AISED IN THIS APPEAL ARE AS UNDER:- '1. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF RS. 14,85,000/- WHICH WAS DISALLOWED BY THE AO ON ACCOUNT OF SALE COMMISSION AS THE ASSESSEE FA ILED TO SUBSTANTIATE WITH SUPPORTING DOCUMENTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN DELETIN G THE ADDITION OF RS. 22,50,000/- WHICH WAS DISALLOWED BY , THE ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 2 AO ON ACCOUNT OF SALE COMMISSION AS THE ASSESSEE FA ILED TO SUBSTANTIATE WITH SUPPORTING DOCUMENTS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN ADMITTI NG THE ADDITIONAL EVIDENCE IN VIOLATION OF PROVISIONS LAID DOWN UNDER RULE 46A(1) OF THE I.T.RULES . 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN NOT APPRECIATING THE FACT DURING THE COURSE OF ASSESSME NT PROCEEDINGS AND ALSO AT THE STAGE OF APPELLANT PROC EEDINGS THE ASSESSEE HAD FAILED TO SUBSTANTIATE WITH SUPPOR TING EVIDENCES WITH RESPECT TO THE COMMISSION EXPENSES A ND SOFTWARE DEVELOPMENT EXPENSES. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE C OURSE OF HEARING OF THE APPEAL. GROUND NO.3 2. APROPOS LEGAL GROUND NO.3, LD. DR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) HAS ERRED IN LAW AND ON FACTS IN A DMITTING THE ADDITIONAL EVIDENCE IN VIOLATION OF PROVISIONS LAID DOWN UNDER RULE 46A(1) OF THE I.T. RULES, 1962. THE DR FURTHER CONTENDED THAT THE ASS ESSEE DID NOT SUBMIT REQUIRED DOCUMENTARY EVIDENCE BEFORE THE AO, HENCE, THE COMMISSIONER OF INCOME TAX(A) CANNOT ADMIT THE SAME UNDER RULE 46A OF THE RULES EXCEPT IN EXCEPTIONAL CIRCUMSTANCES STIPULATED IN RULE 46A (1) OF THE RULES. 3. REPLYING TO THE ABOVE, THE ASSESSEES REPRESENTA TIVE POINTED OUT PARA NO. 8 TO 14 OF THE IMPUGNED ORDER WHEREIN THE COMMI SSIONER OF INCOME ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 3 TAX(A) HAS DECIDED THE ISSUE OF ADMISSION OF ADDITI ONAL EVIDENCE IN FAVOUR OF THE ASSESSEE. THE AR FURTHER SUBMITTED THAT THE PARTNER OF THE ASSESSEE FIRM HAD THE FILES WITH HIM WHICH COULD NOT BE PROD UCED BEFORE THE ASSESSING OFFICER AS THE SAID PARTNER WAS DEALING W ITH MARKETING AND THE ACCOUNTS DIVISION OF THE ASSESSEE DID NOT HAVE ACCE SS TO THESE FILES. IT WAS FURTHER ADDED BY THE AR THAT AFTER EVIDENCE HAD BEE N SUBMITTED BEFORE THE ASSESSING OFFICER, NO FURTHER QUERY WAS RAISED AND THIS CONDUCT OF THE ASSESSING OFFICER MADE THE ASSESSEE TO BELIEVE THAT HE WAS SATISFIED WITH THE EVIDENCE SUBMITTED DURING THE ASSESSMENT PROCEEDING S. 4. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS AN D CONTENTIONS AND CAREFUL PERUSAL OF THE RELEVANT PART OF THE IMPUGNE D ORDER, AS WELL AS ASSESSMENT ORDER, WE OBSERVE THAT THE ASSESSING OFF ICER HAD CONCLUDED THE ASSESSMENT PROCEEDINGS ON THE BASIS OF EXPLANATION AND EVIDENCE SUBMITTED BEFORE HIM. THE ASSESSING OFFICER HELD THAT THE AS SESSEE FAILED TO FURNISH ANY SUBSTANTIAL PROOF OR ANY WRITTEN AGREEMENT IN R ESPECT OF COMMISSION PAID AND THE ASSESSING OFFICER MADE CERTAIN ADDITIO NS. DURING THE FIRST APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME T AX(A) CONSIDERED THE ISSUE OF ADMISSION OF ADDITIONAL EVIDENCE. FROM TH E IMPUGNED ORDER, WE OBSERVE THAT THE ADDITIONAL EVIDENCE HAS BEEN ADMIT TED BY THE COMMISSIONER ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 4 OF INCOME TAX(A) UNDER RULE 46A OF THE RULES WITH F OLLOWING OBSERVATIONS:- 12. ON THE TOUCHSTONE OF THE PROVISIONS OF LAW, I MAY APPRECIATE THE FACTS. DURING THE COURSE OF HEARING ON 3.3.2010, THE LEARNED AUTHORIZED REPRESENTATIVES OF THE ASSESSEE WERE SPECIFICALLY QUESTIONED AS TO UNDER W HAT EXCEPTIONAL CLAUSE OF RULE 46A(1) DID THEY FALL, WH ICH WOULD JUSTIFY THE ADMISSION OF FRESH EVIDENCE. THE LD. AUTHORIZED REPRESENTATIVES IN THE ORAL ARGUMENT SUBMITTED THAT IT WAS ON ACCOUNT OF CIRCUMSTANCES B EING BEYOND THEIR CONTROL. ELABORATING ON THE SAME, IT WAS CONTENDED THAT THE PARTNER OF THE ASSESSEE FIRM HAD THE FILES WITH HIM WHICH COULD NOT BE PRODUCED AS THE S AID PARTNER WAS DEALING WITH MARKETING AND THEREFORE, T HE ACCOUNTS DIVISION DID NOT HAVE ACCESS TO THE FILES. IT WAS ALSO ADDED, THAT AFTER THE EVIDENCES HAD BEEN ADDUC ED BEFORE THE LEARNED ASSESSING OFFICER, NO FURTHER QU ERY WAS RAISED, WHICH PERSUADED THEM TO BELIEVE THAT HE WAS SATISFIED. 13. I HAVE ALREADY MENTIONED THAT THE LEARNED ASSESSING OFFICER IN REMAND REPORT HAS NOT RAISED A NY OBJECTION TO THE ADMISSION OF ADDITIONAL EVIDENCE. HOWEVER, THE PLEA OF THE ASSESSEE THAT THE ACCOUNTS DIVISION DID NOT HAVE ACCESS TO THE FILES AS THE RE LEVANT PARTNER WAS BUSY IN MARKETING CANNOT COME TO THE RE SCUE OF THE ASSESSEE. THE ASSESSEE FIRM, WAS VERY WELL A WARE THAT THE CASE OF THE ASSESSEE WAS UNDER SCRUTINY. A S SUCH, BY TAKING THE PLEA THAT THE ACCOUNTS DIVISION DID N OT HAVE ACCESS TO THE FILES DUE TO THE MARKETING COMMITMENT S OF THE PARTNER DOES NOT HOLD GOOD. HOWEVER, THE PLEA O F THE ASSESSEE THAT NO FURTHER QUERIES WERE RAISED BY THE LEARNED ASSESSING OFFICER AFTER FURNISHING OF DOCUMENTARY EVIDENCE PERSUADING THEM TO HAVE A BON A FIDE BELIEF THAT THE ASSESSING OFFICER WAS SATISFIE D IS ACCEPTABLE. PERUSAL OF THE ASSESSMENT FOLDER SUGGES TS LIKEWISE AS EVIDENCE FROM THE ORDER SHEET ENTRY DAT ED ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 5 15.12.2008, WHEREIN IT IS WRITTEN THAT THE ITP HAD APPEARED AND HAD SUBMITTED THE DOCUMENTS. 14. IN HLS ASIA LTD VS DCIT (2009) 19 DTR (DEL)(TRIB) 148, IT HAS BEEN HELD THAT IN THE ABSEN CE OF ANY FURTHER QUERY RAISED BY ASSESSING OFFICER, THE ASSESSEE WOULD ENTERTAIN A BONA FIDE IMPRESSION THA T ASSESSING OFFICER WAS SATISFIED WITH THE EVIDENCE BY IT IN CONNECTION WITH ISSUE IN DISPUTE. HENCE, CIT(A) WA S NOT JUSTIFIED IN REFUSING TO ADMIT FURTHER~ EVIDENCE. I N THE CASE IN HAND, THE ASSESSEE IS BETTER PLACED IN AS M UCH AS THE QUERY FOR FILING DETAILS WITH EVIDENCE WITH REG ARD TO AMCS WAS NEVER REQUISITIONED BY THE LEARNED A.O. TH US, THE EVIDENCE AS FILED DURING THE APPELLATE STAGE IS ADMITTED FOR PURPOSES OF DISPOSAL OF THIS APPEAL. 5. IN VIEW OF ABOVE FINDINGS OF COMMISSIONER OF INC OME TAX(A), WE OBSERVE THAT THE COMMISSIONER OF INCOME TAX(A) HAS FOLLOWED RULE 46A FOR ADMISSION OF ADDITIONAL EVIDENCE AND ADDITIONAL EVI DENCE HAD BEEN ACCEPTED AFTER CALLING REMAND REPORT FROM THE ASSESSING OFFI CER AND BY FOLLOWING DUE PROCEDURE AS STIPULATED IN RULE 46A OF THE RULES. IN THE LIGHT OF DISCUSSION MADE HEREINABOVE, WE ARE OF THE OPINION THAT WE ARE UNABLE TO SEE ANY PERVERSITY OR AMBIGUITY IN THE IMPUGNED ORDER PERTA INING TO THE ADMISSION OF ADDITIONAL EVIDENCE. HENCE, GROUND NO. 3 OF THE RE VENUE IS DISMISSED. GROUND NO. 1 6. APROPOS GROUND NO.1, LD. DR SUBMITTED THAT THE C OMMISSIONER OF INCOME TAX(A) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 14,85,000/- WHICH WAS DISALLOWED BY THE AO ON ACCOU NT OF SALE COMMISSION ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 6 CLAIMED BY THE ASSESSEE. THE DR FURTHER CONTENDED THAT THE ASSESSING OFFICER RIGHTLY MADE THE DISALLOWANCE AND ADDITION BECAUSE THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM WITH SUPPORTING DO CUMENTS AND COGENT EVIDENCE. ON THESE SUBMISSIONS OF THE REVENUE, THE ASSESSEES REPRESENTATIVE SUBMITTED THAT THE PAYMENT OF COMMISSION MADE TO M/ S R.D. PROCESS & MACHINE INC., CANADA WAS A GENUINE TRANSACTION AND THE PAYMENT WAS ACCRUED DURING THE FINANCIAL YEAR UNDER CONSIDERATI ON. THE AR FURTHER CONTENDED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, IF PAYMENT ACCRUED DURING THE FINANCIAL YEAR PERTAINING TO A GENUINE TRANSACTION, IT WILL BE ACCOUNTED AND CLAIM ED DURING THE RELEVANT ASSESSMENT YEAR. THE AR POINTED OUT THAT AFTER CAL LING REMAND REPORT FROM THE ASSESSING OFFICER, ADDITIONAL EVIDENCE WAS ADMI TTED BY THE COMMISSIONER OF INCOME TAX(A) AND ON THE BASIS OF S AME EVIDENCE, THE COMMISSIONER OF INCOME TAX(A) RIGHTLY HELD THAT THE PAYMENT OF COMMISSION MADE BY THE ASSESSEE TO M/S R.D. PROCESS & MACHINE INC., CANADA WAS MADE FOR THE SERVICES RENDERED FOR THE P URPOSES OF BUSINESS OF THE ASSESSEE. 7. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS AN D CONTENTIONS OF BOTH THE PARTIES AND CAREFUL PERUSAL OF THE RELEVAN T PART OF THE IMPUGNED ORDER (PARA 15 TO 21), WE OBSERVE THAT THE COMMISSI ONER OF INCOME TAX(A) ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 7 HAS CATEGORICALLY DEALT WITH THE EXPLANATION AND EV IDENCE SUBMITTED BY THE ASSESSEE ABOUT THE CLAIM OF PAYMENT OF COMMISSION T O M/S R.D. PROCESS & MACHINE INC., CANADA. THE COMMISSIONER OF INCOME T AX(A) AFTER DETAILED MARSHALLING OF EVIDENCE REACHED TO A CONCLUSION THA T M/S R.D. PROCESS & MACHINE INC., CANADA HAD RENDERED SERVICES TO THE A SSESSEE AND PAYMENT OF COMMISSION WAS MADE THROUGH FEDERAL BANK, C.P. BRAN CH ON 06.05.2005. THE COMMISSIONER OF INCOME TAX(A) ALSO HELD THAT AS PER INVOICE DATED 04.04.2005 RAISED BY M/S R.D. PROCESS & MACHINE INC ., CANADA, THE PAYMENT ACCRUED DURING THE YEAR UNDER CONSIDERATION . THE COMMISSIONER OF INCOME TAX(A) ALSO RIGHTLY HELD THAT THE ASSESSEE F OLLOWS MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THE ACCRUAL OF LIABILITY COULD ONLY HAVE BEEN POSSIBLE AFTER RAISING OF INVOICE BY THE PERSON WHO HAD RENDERED SERVICES. IN VIEW OF ABOVE FACTUAL MATRIX AND FINDINGS OF COMMIS SIONER OF INCOME TAX(A), WE ARE INCLINED TO HOLD THAT THE CLAIM OF P AYMENT OF COMMISSION MADE BY THE ASSESSEE WAS RELATED TO THE SERVICES RE NDERED BY M/S R.D. PROCESS & MACHINE INC., CANADA AND INVOICE WAS RAIS ED BY THIS FIRM ON THE ASSESSEE DURING THE FINANCIAL YEAR UNDER CONSIDERAT ION. THEREFORE, THE LIABILITY WAS ACCRUED AND ACCOUNTED FOR BY THE ASSE SSEE BY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IN THIS REGARD. HO WEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE PERTAI NING TO PAYMENT OF ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 8 COMMISSION BUT COMMISSIONER OF INCOME TAX(A) AFTER CONSIDERATION OF COGENT EVIDENCE AND EXPLANATION OF THE ASSESSEE RIG HTLY HELD THAT THE PAYMENT WAS MADE FOR THE SERVICES RENDERED TO THE A SSESSEE AND THE COMMISSIONER OF INCOME TAX(A) ALSO FOUND THAT THE A SSESSEE MADE PAYMENT DURING THE NEXT FINANCIAL YEAR ON 06.05.2005. THE DR HAS NOT DISPUTED THIS POINT THAT THE ASSESSEE FOLLOWS THE MERCANTILE SYST EM OF ACCOUNTING, THEREFORE, ACCRUED LIABILITY HAS TO BE ACCOUNTED FO R THE FINANCIAL YEAR OF ACCRUAL AND THE CLAIM OF THE ASSESSEE IN THIS REGAR D CANNOT BE DISPUTED. IN THE LIGHT OF DISCUSSION MADE HEREINABOVE, WE HOLD T HAT THE IMPUGNED ORDER IS BASED ON JUSTIFIED PRINCIPLES OF LAW AND ON THE FAC TS OF THE CASE AND WE ARE UNABLE TO SEE ANY REASON TO INTERFERE WITH THE SAME . ACCORDINGLY, GROUND NO. 1 OF THE REVENUE IS DISMISSED. GROUND NO. 2 8. APROPOS GROUND NO.2, LD. DR SUBMITTED THAT THE A SSESSEE COULD NOT MAKE IT CLEAR AS TO WHY AND FOR WHAT PURPOSE, IMPUG NED SOFTWARE DEVELOPMENT CHARGES WERE INCURRED. THE DR ALSO POI NTED OUT THAT THE ASSESSING OFFICER RIGHTLY OBSERVED THAT THE ASSESSE E FAILED TO FURNISH ANY SALES INVOICE IN SUPPORT OF HIS CLAIM THAT THE ASSE SSEE SOLD FOUR SPECIAL FURNACES ON WHICH THESE SOFTWARE WERE INSTALLED AND IT WAS CLEAR FROM THE SALES REGISTER OF THE ASSESSEE THAT NO SUCH SALE WA S MADE DURING THE YEAR ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 9 UNDER CONSIDERATION AFTER PURCHASE OF THESE SOFTWAR E. THE DR VEHEMENTLY CONTENDED THAT IF FOR THE SAKE OF ARGUMENT, THE CLA IM OF THE ASSESSEE IS TO BE ACCEPTED, THAT SOFTWARE WAS FOR SOME SPECIAL FURNAC ES AND WAS INSTALLED IN FURNACES WHICH WERE SOLD, THEN THE ASSESSEE MUST TR EAT IT AS AN EXPENSE IN THE YEAR IN WHICH SPECIAL FURNACES ARE SOLD. THE DR AL SO CONTENDED THAT THE SOFTWARE DEVELOPMENT CHARGES CLAIMED AS AN EXPENSE CANNOT BE CLAIMED AS REVENUE EXPENSES IN THE YEAR UNDER CONSIDERATION. 9. ON ABOVE CONTENTIONS OF THE REVENUE, ASSESSEES REPRESENTATIVE PLACED RELIANCE ON PARAS 25 TO 27 OF THE IMPUGNED ORDER AN D SUBMITTED THAT FOR CLAIMING AN EXPENDITURE, THE SAME SHOULD HAVE BEEN EXPENDED FOR THE PURPOSE OF BUSINESS AND NOT NECESSARILY FOR THE PUR POSE OF EARNING INCOME, PROFIT OR GAINS. THE AR PLACED RELIANCE ON THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF MADHAV PRASAD JATIA V S C.I.T.(1979) 118 ITR 200(SC) WHEREIN IT HAS BEEN HELD THAT THE EXPRESSION FOR T HE PURPOSE OF BUSINESS IS WIDER THAN THE EXPRESSION FOR THE PURPOSE OF EARNING INCOME, PROFITS OR GAINS. THE AR ALSO CONTENDED THAT THE ASSESSING OFFICER HAS NOT CONDUCTED ANY EXERCISE OR ANY OTHER COERCIVE MEASUR E TO ENSURE THE PRESENCE OF M/S CENTENARY SOFTWARE PVT. LTD. AND THE LD. ASS ESSING OFFICER DID NOT CONFRONT THIS SITUATION TO THE ASSESSEE. THE AR PO INTED OUT THAT THE ASSESSING OFFICER HAS NOT CONCLUDED THAT THE TRANSA CTION BETWEEN THE ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 10 ASSESSEE AND M/S CENTENARY SOFTWARE PVT. LTD. WAS B OGUS. THE AR POINTED OUT THAT AFTER CONSIDERING ADDITIONAL EVIDENCE SUBM ITTED BY THE ASSESSEE AND REMAND REPORT SUBMITTED BY THE ASSESSING OFFICER TH EREON, THE COMMISSIONER OF INCOME TAX(A) RIGHTLY CONCLUDED THA T THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE CONSIDERED AS RE VENUE IN NATURE. THE AR SUPPORTED THE IMPUGNED ORDER AND SUBMITTED THAT GRO UND NO. 2 OF THE REVENUE IS BASELESS. 10. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS A ND CAREFUL PERUSAL OF THE RELEVANT PART OF THE IMPUGNED ORDER, WE OBSERVE THAT THE COMMISSIONER OF INCOME TAX(A) HAS DECIDED THE ISSUE WITH FOLLOWI NG OBSERVATIONS AND FINDINGS:- {25} I HAVE CONSIDERED THE IMPUGNED ORDER AS WELL AS THE REMAND REPORT OF THE LEARNED A.O. THE SUBMISSIONS MADE BY THE LD. AR OF THE ASSESSEE HAS ALSO BEEN CLOSELY PERUSED. IT IS UNDISPUTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED THE INVOICES RAISED BY M/S CENTENARY SOFT WARE PVT. LTD. IT IS ALSO UNDISPUTED THAT NOTICE UNDER S ECTION 131 OF THE ACT WAS ISSUED, TO WHICH NO COMPLIANCE W AS MADE. THE ASSESSEE CONTENDS THAT THE SAID NOTICE WA S NEVER RECEIVED BY THE SAID ENTITY, AS THEY HAD MOVE D OUT FROM THE SAID OFFICE AND HAD ALSO CHANGED THEIR NAM E. PERUSAL OF THE ASSESSMENT FOLDER DOES NOT MANIFEST ANY SUCH COMMUNICATION. HOWEVER, THE ORDER SHEET ENTRIES WHICH HAS FAITHFULLY RECORDED THE REQUISITI ONS MADE, ALSO DO NOT REVEAL THAT THE ASSESSEE WAS CONFRONTED WITH REGARD TO THIS ISSUE OF NON COMPLIA NCE. IT ONLY STATES THAT WHY THE EXPENDITURE SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE? BE THAT AS IT MAY, ASSUMING FOR A ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 11 MOMENT THAT M/S CENTENARY SOFTWARE PVT. LTD., DID N OT RESPOND TO THE NOTICE UNDER SECTION 131, NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE ASSESSEE AS THE RELATIONSHIP BETWEEN THE ASSESSEE AND M/S CENTENARY SOFTWARE PV.T LLTD. IS THAT OF A SUPPLIER AND A PUR CHASER. THE ASSESSEE DOES NOT HAVE ANY CONTROL OVER THE SAI D ENTITY. IN FACT, THE ASSESSEE SHOULD HAVE BEEN ASKE D TO PRODUCE THE SAID ENTITY. THE RECORDS DO NOT SUGGEST THAT ANY SUCH EXERCISE WAS TAKEN OR THAT ANY COERCIVE MEASURES FOLLOWED TO ENSURE THE PRESENCE OF M/S CENTENARY SOFTWARE PVT. LTD. NOR WERE FILED ENQUIRI ES CONDUCTED. {26} NOTWITHSTANDING THE ABOVE, IT IS THE STAND OF THE ASSESSEE THAT THE SOFTWARE DEVELOPED BY M/S CENTENA RY SOFTWARE PVT LTD. WAS EMBEDDED IN GALVANIZING LINES . THE STREAM OF DEVELOPMENT OF THE CASE AS IT APPEARS FROM THE ORDER SHEET ENTRIES SUGGEST THAT THE LEARNED A. O. CONFRONTED THE ASSESSEE THAT WHY THE SAME SHOULD NO T BE TAKEN AS A CAPITAL EXPENDITURE. IF THIS WAS THE CONSIDERATION, CERTAINLY ADVERSE INFERENCE OF NON ATTENDANCE OF M/S CENTENARY SOFTWARE PVT. LTD. CANN OT BE DRAWN AS IT ONLY SUGGEST THAT THE TRANSACTION WA S NOT BOGUS. {27} FURTHER, THE CUSTOMIZE SOFTWARE WAS EMBEDDED I N THE EQUIPMENT, IT MEANS THAT IT WAS PURPORTED TO BE AN ESSENTIAL COMPONENT OF THE GOODS SOLD OR PROPOSED T O BE SOLD. IT IS IMMATERIAL WHETHER THE GOODS EVENTUALLY GOT SOLD. HOWEVER, ONE THING IS CLEAR THAT THE ASSESSEE HAD NOT ACQUIRED ANY EQUIPMENT, PLANT OR MACHINERY WHIC H WAS MEANT FOR ACQUIRING OR BRINGING INTO EXISTENCE OF AN ASSET. THIS WAS AN EXPENDITURE INCURRED ABSOLUTELY FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW TO P RODUCE PROFITS. THIS WAS ALSO NOT AN EXPENDITURE INCURRED FOR ACQUISITION OF SOURCE OF PROFIT, AS THIS WAS ONLY A N EQUIPMENT PROCURED TO BE EMBEDDED IN THE GALVANIZIN G LINES PROPOSED TO BE SOLD. THESE ARE SOME OF THE TE STS, PROVIDED FOR IN THE DECISION OF THE DELHI HIGH COUR T IN CIT VS JK SYNTHETICS LTD (2009) 222 CTR (DEL) 339. THE ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 12 HON'BLE JURISDICTIONAL HIGH COURT HAS LISTED OUT TH E TESTS AFTER A DETAILED DELIBERATION OF THE VARIOUS SUPREM E COURT AND HIGH COURT DECISIONS. AS SUCH, THE EXPENDITURE INCURRED HAS TO BE CONSIDERED AS REVENU E IN NATURE. FOR THE SAKE OF ARGUMENT, AS HAS BEEN DONE BY THE LEARNED A.O , IT HAS BEEN STATED THAT THERE WER E NO SALES IN THE RARAS AND LISCO PROJECTS. ASSUMING FOR A MOMENT THAT THIS CONTENTION IS CORRECT, THIS DOES N OT MADE THE CASE OF THE ASSESSEE ANY WEAK, AS IT IS SE TTLED LAW THAT FOR CLAIMING EXPENDITURE, THE SAME SHOULD HAVE BEEN EXPENDED FOR THE PURPOSE OF BUSINESS AND NOT NECESSARILY FOR THE PURPOSE OF EARNING INCOME, PRO FITS OR GAINS. IN MADHAV PRASAD JATIA VS CLT (1979) 118 ITR 200 (SC) IT HAS BEEN HELD THAT THE EXPRESSION 'FOR THE PURPOSE OF BUSINESS' WAS WIDER IN SCOPE THAN THE EXPRESSION 'FOR THE PURPOSE OF EARNING INCOME, PROF ITS OR GAINS'. FOR THIS PURPOSE, THE DECISIONS OF APEX COU RT IN CIT VS MALAYALAM PLANTATIONS LTD (1964) 53 LTR 140 (SC) AND CIT VS BIRLA COTTON SPINNING AND WEAVING MILLS LTD (1971) 82 ITR 166 (SC) CAN ALSO BE GAINFU LLY REFERRED TO. {28} IN VIEW OF THE DISCUSSION ABOVE, THE ASSESSEE DESERVES TO SUCCEED IN GROUNDS OF APPEAL NO 3(B), 6 & 6.1. 11. IN VIEW OF ABOVE FINDINGS OF THE COMMISSIONER O F INCOME TAX(A), WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OF FICER HAS NOT DISPUTED THE GENUINENESS OF THE CLAIM OF THE ASSESSEE AND THE SA ME HAS NOT BEEN FOUND BOGUS BY THE ASSESSING OFFICER. THE ASSESSING OFFI CER HAS DISALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING THAT THE SOFTWAR E DEVELOPMENT CHARGES CANNOT BE CLAIMED AS EXPENDITURE IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS ALSO HELD THAT THE ASSESSEE F AILED TO FURNISH SALES ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 13 INVOICE IN SUPPORT OF HIS CLAIM AND THE ASSESSEE AL SO FAILED TO ESTABLISH THE FACT THAT THE ASSESSEE SOLD FOUR SPECIAL FURNACES O N WHICH THESE SOFTWARE WERE INSTALLED OR EMBEDDED. PER CONTRA, THE COMMIS SIONER OF INCOME TAX(A) ADMITTED ADDITIONAL EVIDENCE BY FOLLOWING DU E PROCEDURE AS STIPULATED IN RULE 46A OF THE INCOME TAX RULES AND AFTER CONSIDERING ADDITIONAL EVIDENCE AND REMAND REPORT OF THE ASSESS ING OFFICER. THE COMMISSIONER OF INCOME TAX(A) HELD THAT IF M/S CENT ENARY SOFTWARE PVT. LTD. DID NOT RESPOND TO THE NOTICE OF THE ASSESSING OFFICER ISSUED U/S 131 OF THE ACT, NO ADVERSE INFERENCE CAN BE DRAWN AGAINST THE ASSESSEE AS THE RELATIONSHIP BETWEEN THE ASSESSEE AND SOFTWARE SUPP LIER FIRM I.E. M/S CENTENARY SOFTWARE PVT. LTD. IS THAT OF A SUPPLIER AND A PURCHASER. THE COMMISSIONER OF INCOME TAX(A) HAS CATEGORICALLY HEL D THAT THE ASSESSEE SHOULD HAVE BEEN ASKED TO PRODUCE THE SAID ENTITY A ND THE ASSESSING OFFICER HAS NOT UNDERTAKEN ANY SUCH EXERCISE OR ANY COERCIV E MEASURE TO ENSURE THE PRESENCE OF M/S CENTENARY SOFTWARE PVT. LTD. THE C OMMISSIONER OF INCOME TAX(A) ALSO OBSERVED THAT THE CUSTOMIZED SOFTWARE W AS EMBEDDED IN THE EQUIPMENT WHICH MEANS THAT IT WAS PURPORTED TO BE A N ESSENTIAL COMPONENT OF THE GOODS SOLD OR PROPOSED TO BE SOLD. THE COMM ISSIONER OF INCOME TAX(A) HAS ALSO HELD THAT THE IMPUGNED EXPENDITURE INCURRED AS SOFTWARE DEVELOPMENT CHARGES WAS ABSOLUTELY FOR THE PURPOSE OF BUSINESS WITH A VIEW ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 14 TO PRODUCE PROFITS. THE COMMISSIONER OF INCOME TAX (A) HAS ALSO HELD THAT THE EXPENDITURE WAS MADE TO PROCURE THE EQUIPMENT T O BE EMBEDDED IN THE GALVANIZED LINES PROPOSED TO BE SOLD. THEREFORE, T HE EXPENDITURE INCURRED HAS TO BE CONSIDERED AS REVENUE IN NATURE IN THE YE AR UNDER CONSIDERATION. IN THESE CIRCUMSTANCES AND OBSERVATIONS MADE BY THE AS SESSING OFFICER AND FINDINGS IN THE IMPUGNED ORDER, WE OBSERVE THAT PER HAPS THE ASSESSING OFFICER WAS CONFUSED BETWEEN THE EXPLANATION FOR T HE PURPOSE OF BUSINESS AND FOR THE PURPOSE OF EARNING INCOME, PROFITS OR GAINS. THEREFORE, THE ASSESSING OFFICER MADE EMPHASIS TO FIND THE FACT TH AT WHETHER THE ASSESSEE EFFECTED SALE OF SOME SPECIAL FURNACES OR THE ASSES SEE INSTALLED FURNACES WHICH WERE SOLD DURING THE YEAR UNDER CONSIDERATION . RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF MADHAV PRASAD JATIA VS C.I.T. (SUPRA), WE ARE INCLINED TO HOLD THAT IF ANY GENUINE CLAIM OF EXPENSES WHICH HAS BEEN INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION TO PROCURE ESSENTIAL COMPONENT OF THE GOODS SOLD OR PROPOSED TO BE SOLD, THEN THE EXPENDITURE SO CLAIMED DESERVES TO BE TREA TED AS REVENUE IN NATURE AND IF ACTUAL SALE HELD IN ANY OTHER YEAR, EVEN THE N THE CLAIM OF THE ASSESSEE CANNOT BE DENIED OR REJECTED. THE COMMISSIONER OF INCOME TAX(A) RIGHTLY HELD THAT THE EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS CANNOT BE DISALLOWED. ITA NO. 2565/DEL/2010 ASSTT.YEAR: 2006-07 15 12. ON THE BASIS OF DISCUSSION MADE HEREINABOVE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WRONGLY DISALLOWED THE CLAIME D EXPENDITURE WHICH WAS RIGHTLY ALLOWED BY THE COMMISSIONER OF INCOME T AX(A) AS SOFTWARE DEVELOPMENT CHARGES DURING THE YEAR UNDER CONSIDERA TION. WE ARE UNABLE TO FIND ANY VALID REASON TO INTERFERE WITH THE IMPUGNE D ORDER IN THIS REGARD AND GROUND NO. 2 OF THE REVENUE BEING DEVOID OF MERITS IS DISMISSED. GROUND NO.4 13. SINCE GROUND NO. 1 AND 2 OF THE REVENUE HAVE BE EN DISMISSED AS PER FORMER PART OF THIS ORDER, THEREFORE GROUND NO. 4 D OES NOT SURVIVE FOR ADJUDICATION AND WE DISMISS THE SAME. GROUND NO. 5 OF THE REVENUE IS GENERAL IN NATURE WHICH NEEDS NO ADJUDICATION. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.11.2013. SD/- SD/- (G.D. AGRAWAL) (CHANDRAMOHAN GARG) VICE PRESIDENT JUDICIAL MEMBER DT. 29TH NOVEMBER 2013 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. C.I.T.(A) 4. C.I.T. 5. DR BY ORDER ASSTT.REGISTRAR