The ITO, Ward-4(1), Ahmedabad V. Explora Infotech Ltd, Ahmedabad

ITA 275/AHD/2007

• Counselvise Citation: 27520514 RSA 2007
• Duration Of Justice: 5 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 15-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Depreciation
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALAN KAMONY, AM) ITA NO.275/AHD/2007: A. Y.: 2003-04 THE INCOME TAX OFFICER, WARD -4(1), ROOM NO.104, 1 ST FLOOR, NAVJIVAN TRUST BUILDING, NAVJIVAN P.O. AHMEDABAD VS EXPLORA INFOTECH LTD., 10 TH FLOOR, ASTRON TECHPARK, OPP. FUN REPUBLIC, SATELITE, AHMEDABAD PA NO. AAACX 0143 J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI VINOD TANWANI, SR. DR RESPONDENT BY SHRI M. K. PATEL, AR DATE OF HEARING: 14-02-2012 DATE OF PRONOUNCEMENT: 27-03-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-VIII, AHMEDABAD DATED 13 TH OCTOBER, 2006, FOR ASSESSMENT YEAR 2003-04 IN APPE AL NO. CIT(A)-VIII /ITO/(4(1)05-06, ON THE FOLLOWING GROUND: 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING TO DELETE THE DISALLOWANCE U/S. 43B OF TH E I. T. ACT OF RS.34,189/- BEING UNPAID EMPLOYERS CONTRIBUTION FOR THE PROVIDENT FUND FOR THE PERIOD MAY TO AUGUST,2002. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF INTEREST RELATABLE TO INTEREST FREE ADVANCES TO SISTER CONCERNS AND INVESTMENT IN SHARES AT RS.1,53,750/- AND RS.33,88,170/- RESPECTIVELY. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A. O. TO RESTRICT THE DISALLOWANCE OF ITA NO.275/AHD/2007 (AY 2003-04): ITO, W-4(1), AHM EDABAD VS M/S. EXPLORA INFOTECH LTD. 2 CONSULTATION CHARGES PAID TO M/S. SYNERGY MANAGEMEN T CORPORATION FROM RS.1.04,025/- TO RS.54,025/-. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE A. O. TO DELETE THE DISALLOWANCE O F RS.25,62,500/- BEING DEPRECIATION @12.5% ON ATM CAR D PRINTING MACHINE PURCHASED DURING THE YEAR. 2. THE BRIEF FACTS OF THE CASE RELATING TO DELETION OF DISALLOWANCE OF RS.34,189/- BEING UNPAID EMPLOYERS CONTRIBUTION TO WARDS PF U/S 43B OF THE IT ACT AS EMERGED FROM THE ORDER OF THE LEAR NED CIT(A) ARE THAT THE AO DISALLOWED A SUM OF RS.74,144/- U/S 43B OF T HE IT ACT ON THE GROUND THAT PF CONTRIBUTION FOR MAY TO AUGUST, 2011 WERE REMITTED BEYOND THE DUE DATES. FROM THE ASSESSMENT ORDER IT IS SEEN THAT THIS AMOUNT INCLUDES A SUM OF RS.39,955/- BEING EMPLOYEE S CONTRIBUTION. BEFORE THE LEARNED CIT(A) IT WAS SUBMITTED THAT THE PAYMENTS WERE MADE WITHIN THE PREVIOUS YEAR AND HENCE THE SAME SH OULD BE ALLOWED U/S 43B OF THE IT ACT. THE LEARNED CIT(A) ALLOWED E MPLOYERS CONTRIBUTION OF RS.34,189 IN VIEW OF AMENDMENT IN S ECTION 43B OF THE IT ACT. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US . 3. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL ON RE CORD. BEFORE US, THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED AO. O N THE OTHER HAND, THE LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT(A) AND SUBMITTED THAT PAYMENT OF PF CONTRIBUTIO N WAS MADE BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE IT ACT AND HENCE NO DISALLOWANCE OR ADDITION CAN BE MADE AND THAT THE L EARNED CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. NOW, IT IS SETTLED PRINCIPLE T HAT BOTH THE EMPLOYEES CONTRIBUTION AS WELL AS THE EMPLOYERS CONTRIBUTION SHALL BE ALLOWED AS ITA NO.275/AHD/2007 (AY 2003-04): ITO, W-4(1), AHM EDABAD VS M/S. EXPLORA INFOTECH LTD. 3 DEDUCTION IF THE SAME ARE PAID BEFORE THE DUE DATE OF FILING OF THE RETURN. RELIANCE IS PLACED ON THE DECISION OF THE HONBLE A PEX COURT IN THE CASE OF CIT VS VINAY CEMENT LTD., (2007) 213 CTR (SC) 26 8. THEREFORE, WE ALLOW THIS ISSUE IN FAVOUR OF THE ASSESSEE. THUS, G ROUND NO.1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 5. REGARDING INTEREST RELATABLE TO ADVANCES TO SIST ER CONCERNS AND INVESTMENT IN SHARES THE AO MADE DISALLOWANCE OF RS .1,53,750/- AND RS.33,88,170/- ON THE BASIS THAT THE ASSESSEE ADVA NCED INTEREST FREE LOANS TO SISTER CONCERNS FOR A SUM OF RS.10.25 LACS AND INVESTED A SUM OF RS.280.88 LACS IN SHARES. THE AO ALSO STATED THA T DURING THE FY 2000-01 THE ASSESSEE HAD TAKEN INTEREST BEARING LOA N OF RS.280.88 LACS AND HELD THAT ASSESSEES INTEREST CLAIM OF RS.35.41 LACS ON BORROWINGS FOR RELEVANT PREVIOUS YEAR IS RECURRING EXPENDITUR E AND IT SHOULD BE TREATED AS RELATABLE DIVERSION OF FUNDS FOR NON-BUS INESS PURPOSE BEING INVESTMENT IN SHARES AND ADVANCES TO SISTER CONCERN . THE AO ALSO STATED THAT DIVIDEND INCOME BEING TAX FREE, INTERES T RELATABLE TO INVESTMENT IN SHARES CAN BE ALLOWED ONLY AGAINST DI VIDEND INCOME AND ACCORDINGLY DISALLOWED 15% ON INVESTMENT IN SHARES AS RELATABLE EXPENSES AND RESTRICTED THE SAME TO RS.33,88,170/-. REGARDING ADVANCES TO SISTER CONCERN, THE AO ESTIMATED DISALL OWANCE AT 15% ON RS.10.25 LACS AND ADDED A SUM OF RS.1,53,750/- TO T HE INCOME OF THE ASSESSEE. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). 5.1 IT WAS SUBMITTED BY THE LEARNED AR BEFORE THE L EARNED CIT(A) THAT THE WHILE THE INTEREST BEARING LOANS WERE TAKEN IN DECEMBER 2000 AND JANUARY 2001 WHEREAS THE INVESTMENTS WERE MADE IN J UNE TO AUGUST,2000, THEREFORE, THE LEARNED AOS OBSERVATI ON WAS NOT CORRECT. IT WAS FURTHER ARGUED THAT THERE WAS NO LINK BETWEEN THE BORROWED FUNDS ITA NO.275/AHD/2007 (AY 2003-04): ITO, W-4(1), AHM EDABAD VS M/S. EXPLORA INFOTECH LTD. 4 AND THE INVESTMENT IN SHARE AND ADVANCES TO SISTER CONCERN AND SOUGHT FOR DELETION OF TOTAL DISALLOWANCE OF RS.35,41,920/ -. THE LEARNED CIT(A) ON PERUSAL OF THE ASSESSMENT ORDER, ARGUMENTS & WRI TTEN SUBMISSIONS OF THE ASSESSEE AND CONSIDERING THE SPECIFIC EXPLANATI ON AND CHRONOLOGICAL EVENTS WITH RESPECT TO THE INVESTMENTS IN SHARES AN D ADVANCES TO SISTER CONCERN, FURNISHED BY THE ASSESSEE DURING THE APPEL LATE PROCEEDINGS, HELD THAT THE FUNDS FOR INVESTMENT IN SHARES AND A DVANCES TO SISTER CONCERNS ARE NOT OUT OF INTEREST BEARING LOANS AND THE DISALLOWANCE MADE BY THE AO IS FACTUALLY WRONG AND NOT LEGALLY P ERMISSIBLE. THE LEARNED CIT(A) ACCORDINGLY DELETED THE DISALLOWANCE . 5.2 BEING AGGRIEVED AND DISSATISFIED WITH THE ABOVE FINDINGS OF THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE OR DERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL ON RE CORD. BEFORE US, THE LEARNED DR RELIED ON THE ORDER OF THE AO. ON THE OT HER HAND, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS HAVING INTEREST FREE FUND OF RS.6,00,00,975/- AS ON 31-03-2002 AND RS.10,94,38,774/- AS ON 31-03-2003 AND THAT THE AO CONTENDED THAT THE ASSESSEE HAD MADE TOTAL INVESTMENT OF RS.2,80,99,302/- AND HAS ARBITRARILY LINKED THE SAME TO INTEREST BEARING LOAN. IT WAS FURTHER SUBMI TTED THAT THE INVESTMENT DOES NOT REFER TO THE YEAR UNDER CONSIDE RATION AS THE SAME WERE MADE IN EARLIER YEARS AND THAT THE AO HAS ALSO NOT POINTED OUT ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE INTEREST F REE ADVANCES AND HAS MADE THE ADDITION WITHOUT GOING TO DEEM IN THE MATTER AND EVEN WITHOUT ISSUING ANY SHOW CAUSE WAS ISSUED TO THE AS SESSEE. IN SUPPORT OF HIS CONTENTIONS, THE LEARNED AR RELIED ON THE DE CISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS REDICO K HAITAN LTD., 274 ITR 354. THE LEARNED DR IN HIS REJOINDER COULD NOT REBU T THE SUBMISSIONS OF ITA NO.275/AHD/2007 (AY 2003-04): ITO, W-4(1), AHM EDABAD VS M/S. EXPLORA INFOTECH LTD. 5 THE LEARNED AR. ON OUT VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE FIRM IN PAPER BOOK PAGE NO.56 IT IS APPARENT THAT T HE ASSESSEE HAS ITS OWN NON-INTEREST BEARING FUNDS AMOUNTING TO RS.6,0 0,00,975/- AND RS.10,94,38,774/- AS ON 31-03-2002 AND 31-03-2003 R ESPECTIVELY WHICH MAKES IT CLEAR THAT THE INVESTMENTS AND THE ADVANCE S MADE BY THE ASSESSEE COULD BE ONLY FROM THAT FUNDS AND, THEREFO RE, THE ADDITIONS MADE BY THE LEARNED AO IS NOT WARRANTED AND ACCORDI NGLY, THE LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION ON THIS COU NT. THEREFORE, GROUND NO.2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 7. BRIEF FACTS RELATING TO GROUND NO.3 OF THE APPEA L OF THE REVENUE WITH RESPECT TO RESTRICTION OF DISALLOWANCE OF CONS ULTATION CHARGES PAID TO M/S. SYNERGY MANAGEMENT CORPORATION FROM RS.1,04,50 0/- TO RS.54,025/- ARE THAT THE AO IN PARA 12 OF THE ASSES SMENT ORDER DISALLOWED THE ABOVE AMOUNT HOLDING THAT THE EXPEND ITURE BEING CONSULTATION CHARGES PAID TO THE PARTY WAS NOT INCU RRED FOR THE PURPOSE OF ASSESSEES BUSINESS. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A), THE LEARNED CIT(A ) RESTRICTED THE DISALLOWANCE TO RS.54,025/- CONSIDERING THE SUBMISS ION OF THE ASSESSEE THAT DURING THE YEAR PAYMENT CONNECTED TO MOBILIZAT ION OF FUNDS WAS ONLY RS.54,025/- AND LOAN WAS ARRANGED BY M/S. SYNE RGY MANAGEMENT CORPORATION AND THE LOAN WAS UTILIZED BY THE ASSESS EE WHICH WAS ALSO CONFIRMED BY M/S. SYNERGY MANAGEMENT CORPORATION. 7.1 BEING AGGRIEVED AND DISSATISFIED WITH THE ABOVE FINDINGS OF THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL ON RE CORD. THE LEARNED DR RELIED ON THE ORDER OF THE AO. THE LEARNED AR OF THE ASSESSEE, ON ITA NO.275/AHD/2007 (AY 2003-04): ITO, W-4(1), AHM EDABAD VS M/S. EXPLORA INFOTECH LTD. 6 THE OTHER HAND, RELIED ON THE ORDER OF THE LEARNED CIT(A) AND SUBMITTED THAT LOAN WAS ARRANGED BY SYNERGY MANAGEMENT CORPOR ATION ON THE RENTAL PROPERTY OF THE ASSESSEE BUT THE SAME WAS UT ILIZED BY THE ASSESSEE ITSELF AND HENCE, EXPENSES WERE PAID BY TH E ASSESSEE AND PLEADED FOR DELETION OF DISALLOWANCE IN FULL. HOWEV ER, AFTER PERUSING THE ORDER OF THE LEARNED CIT(A) IT IS CLEAR THAT THE LO ANS TAKEN BY THE DIRECTORS WERE TRANSFERRED TO THE APPELLANT AND EXP ENDITURE INCURRED FOR OBTAINING SUCH LOANS AMOUNTED TO RS.54,025/- AND TH E SAME WAS ALLOWED BY THE LEARNED CIT(A). BEFORE US, THE REVEN UE COULD NOT COME OUT WITH ANY OTHER COGENT EVIDENCE TO DISPUTE THE C LAIM OF THE ASSESSEE. HENCE, WE ARE INCLINED TO CONCUR WITH THE DECISION OF THE LEARNED CIT(A). THUS, GROUND NO.3 OF THE REVENUES APPEAL IS DISMIS SED. 9. GROUND NO.4 OF THE APPEAL OF THE REVENUE IS RELA TING TO DELETION OF DISALLOWANCE OF RS.25,62,500/- BEING 12.5% DEPRECIA TION ON ATM CARD PRINTING MACHINE PURCHASED BY THE ASSESSEE DURING T HE YEAR UNDER CONSIDERATION. THE AO STATED THAT THE ATM CARD PRIN TING MACHINE WAS PURCHASED ON 17-09-2002 AND MANDATORY CERTIFICATION OF THE MACHINERY BY MASTER CARD INTERNATIONAL WAS OBTAINED IN JANUAR Y, 2003. THE AO FURTHER HELD THAT THE MACHINERY WAS PUT TO USE BY T HE ASSESSEE FOR LESS THAN 180 DAYS AND ACCORDINGLY HE ALLOWED DEPRECIATI ON AT NORMAL RATE OF 50% AND DISALLOWED RS.25,62,500/-. 9.1 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE LEARNED CIT(A) AND IT WAS SUBMITTED THAT THE MA CHINE WAS PUT TO USE ON 17-09-2002 FOR THE PURPOSE OF BUSINESS OF THE AS SESSEE, THE RELEVANT RECORDS IN THIS RESPECT WERE ALSO FURNISHED BEFORE THE AO AND THAT THE AO WAS NOT FACTUALLY CORRECT IN HOLDING THAT THE MA CHINE WAS NOT PUT TO USE BY THE ASSESSEE BEFORE 30-09-2002. THE ASSESSE E FURTHER RELIED ON THE DECISIONS IN THE CASE OF ACIT VS ASHIMA SYNTEX LTD., 122 TAXMAN ITA NO.275/AHD/2007 (AY 2003-04): ITO, W-4(1), AHM EDABAD VS M/S. EXPLORA INFOTECH LTD. 7 230 AND FOREST INDUSTRIES TRAVANCORE LTD. VS CIT, 5 1 ITR 329 IN SUPPORT OF HIS CLAIM AND PLEADED THAT THE DISALLOWANCE OF D EPRECIATION SHOULD BE DELETED. 9.2 THE LEARNED CIT(A) CONSIDERING THE REASONING GI VEN BY THE AO AND ALSO THE ARGUMENTS AND EXPLANATION OF THE ASSESSEE STATED THAT THE ATM CARD PRINTING MACHINE WAS INSTALLED ON 17-09-2002. THE SAME WAS ALSO CONFIRMED BY THE SUPPLIER TO THE AO AND THAT CERTIF ICATION IS NEEDED ONLY FOR PROCURING HIGH BUSINESS VOLUME FROM MAJOR CLIEN TS AND HELD THAT THE AOS VIEW THAT THIS CERTIFICATION IS MANDATORY IS N OT CORRECT. THE CARD CUTTER MACHINE IS AN INDEPENDENT ONE AND NOT INTEGR AL PART OF THE MACHINE AND IT WAS CERTIFIED BY THE SUPPLIER BY DEM ONSTRATION OF FUNCTIONING OF THE MACHINERY CARRIED OUT AT THE TIM E OF ITS INSTALLATION. THE LEARNED CIT(A) ACCORDINGLY DELETED THE ADDITION . 9.3 BEING AGGRIEVED AND DISSATISFIED WITH THE ABOVE FINDINGS OF THE LEARNED CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 9.4 THE LEARNED DR RELIED ON THE ORDER OF THE AO, W HEREAS THE LEARNED AR RELIED UPON THE ORDER OF THE LEARNED CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL ON RE CORD. THE LEARNED CIT(A) HAD CATEGORICALLY MADE A FINDING THAT THE AT M CARD PRINTING MACHINE WAS INSTALLED ON 17-09-2002. THE SAME WAS A LSO CONFIRMED BY THE SUPPLIER OF THE MACHINE AND THERE IS NO DISPUTE ON THAT. WE HAVE ALSO TAKEN NOTE OF THE DECISIONS CITED BY ASSESSEE IN THE CASE OF CIT VS ASHIMA SYNTEX LTD., 251 ITR 133 (GUJ) AND FOREST IN DUSTRIES TRAVANCORE LTD. VS CIT, 51 ITR 329 (KER.). FURTHER, ON SEVERAL OCCASIONS, VARIOUS JUDICIAL PRONOUNCEMENTS HAVE INTERPRETED THAT THE USE OF THE ASSETS ALSO MEANS ASSETS KEPT READY FOR USE THOUGH NOT AC TUALLY USED AND ITA NO.275/AHD/2007 (AY 2003-04): ITO, W-4(1), AHM EDABAD VS M/S. EXPLORA INFOTECH LTD. 8 SUCH ASSETS ARE ENTITLED FOR DEPRECIATION. KEEPING IN VIEW OF THE CASES CITED ABOVE, WE DO NOT HAVE ANY HESITATION TO UPHOL D THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. ACCORDINGLY, WE DISMI SS GROUND NO.4 OF THE REVENUES APPEAL. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF MARCH, 2012 SD/- SD/- (D.K.TYAGI) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/- -- - COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD