D.C.I.T. RG.9(1), MUMBAI V. M/S. GEOSOFT TOPOGRAPHICS (I) PVT.LTD., MUMBAI

ITA 2816/MUM/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2728 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-11-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 01-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG
• Keywords: Business income; Depreciation; Business expenditure; Set aside
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC : MUMBAI BEFORE SHRI D. MANMOHAN, HONBLE VICE PRESIDENT ITA. NO. 2816/MUM/2009 ASSESSMENT YEAR 2004-2005 DCIT, RANGE 9 (1) ROOM NO. 223,AAYAKAR BHAVAN, M.K. ROAD MUMBAI 20. VS. M/S. GEOSOFT TOPOGRAPHICS (I) P. LTD. PRABHU KRUPA, JUNCTION OF 9 TH & 11 TH ROAD, KHAR (WEST), MUMBAI 400 052 PAN AAACG-5925-F (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI ANKUR GARG (D.R.) FOR RESPONDENT : -NONE- ORDER 1. THIS APPEAL IS DIRECTED AGAINST THE ORDER OF TH E CIT(A)-IX, MUMBAI AND IT PERTAINS TO THE ASSESSMENT YEAR 2004- 2005. THE FOLLOWING GROUNDS WERE URGED BY THE REVENUE. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE EXPENSE S OF RS.38,86,830/- AS BUSINESS EXPENSES EVEN THOUGH THE ASSESSEE HAD NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE PREVIOUS YEAR UNDER CONSIDERATION. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 2. THOUGH THE CASE WAS ADJOURNED FROM TIME TO TIME , NONE APPEARED ON BEHALF OF THE ASSESSEE AND HENCE NOTICE WAS DIRECTED TO BE ISSUED THROUGH D.R. INFORMING ASSESSEE ABOUT THE PO STING OF THE APPEAL ON 23-11-2009, WHICH WAS DULY SERVED UPON THE ASSES SEE. HOWEVER, THE 2 BENCH HAVING NOT FUNCTIONED ON THE SAID DATE THE CA SE WAS ADJOURNED FROM TIME TO TIME BY INFORMING THE PARTIES ABOUT TH E NEXT DATE OF HEARING THROUGH THE NOTICE BOARD. HOWEVER, NONE APPEARED ON BEHALF OF THE ASSESSEE ON THIS DATE. UNDER THESE CIRCUMSTANCES, I PROCEED TO DISPOSE OF THE APPEAL EX-PARTE, QUA THE ASSESSEE. 3. I HAVE HEARD THE LEARNED D.R. AND CAREFULLY PER USED THE RECORD. THE ASSESSEE-COMPANY DECLARED A LOSS OF RS. 34,09,858/- FOR THE YEAR UNDER CONSIDERATION. ACCORDING TO THE ASSESSEE , IT CARRIED ON BUSINESS OF DESIGNING AND DEVELOPING, EXPORTING, MA RKETING, SELLING AND LICENSING COMPUTER SOFTWARE AND PROGRAMME PACKAGES INCLUDING CUSTOMIZATION OF DIGITIZING WORK BASED ON GEOGRAPHI C DATA OF ANY NATURE AND DESCRIPTION. IT WAS FURTHER CLAIMED THAT IN THE YEAR UNDER CONSIDERATION THERE WAS NO BUSINESS ACTIVITY AND HE NCE, THE ASSESSEE DECLARED INTEREST ON I.T. REFUND OF RS.2402/- AND S UNDRY CREDIT BALANCE WRITTEN OFF RS.98,159/- AS THE INCOME FOR THE YEAR UNDER CONSIDERATION. AGAINST THIS AMOUNT THE ASSESSEE CLAIMED VARIOUS EX PENDITURE TOTALING TO RS.38,91,469/-. THUS, IT DECLARED LOSS FROM BUSINES S. 4. SINCE THE ASSESSEE ON ONE HAND STATED THAT HE H AS NOT EARNED ANY BUSINESS INCOME BUT CLAIMED BUSINESS EXP ENDITURE, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE-COMPANY TO JUSTIFY THE VARIOUS CLAIMS OF EXPENDITURE AND DEPRECIATION. IN RESPONSE THERETO, THE ASSESSEE CONTENDED THAT THE COMPANY WAS INCORPORATED IN 1997 AND HAD RECEIVED INCOME FROM SOFTWARE BUSINESS AS SERVICE CHARGES. HOWEVER, DURING THE PRESENT YEAR THE COMPANY HAS NOT RECEIVED ANY BUSIN ESS INCOME SINCE IT COULD NOT GET ANY FRESH BUSINESS FROM THE STATE GOV ERNMENT DUE TO SLOW DOWN IN THE SOFTWARE INDUSTRY. SO AS TO VERIFY THE CLAIM, THE ASSESSING OFFICER CALLED FOR THE LAST THREE YEARS ACCOUNTS. THE ASSESSING OFFICER NOTICED THAT EVENTHOUGH WORK-IN-PROGRESS WAS SHOWN FROM YEAR TO YEAR, NO INCOME THEREFROM HAS BEEN DECLARED IN THE EARLIE R YEARS. EVEN IN THIS 3 YEAR THE CAPITAL WORK PROGRESS REMAINED AT THE SAME FIGURE OF RS.2,11,32,046/-. THIS WOULD MEAN THAT FOR ALL THE YEARS THE ASSESSEES CAPITAL WORK-IN-PROGRESS HAS NOT COME TO ANY INCOME EARNING STAGE. WHILE THE WORK-IN-PROGRESS IS SHOWN, THE SCHEDULE O F FIXED ASSETS SHOWS SOFTWARE, ON WHICH DEPRECIATION WAS ALSO CLAIMED. A GAIN THE ASSESSEE HAS CLAIMED LEASE FINANCE CHARGES AND SERVICE CHARG ES WHICH ARE FOR DIGITIZING AND REFERENCING THE MAPS ETC., WHICH WOU LD BE NOTHING BUT PREPARATION OF SOFTWARE WHICH SHOULD HAVE GONE TO A DD WORK-IN-PROGRESS. UNDER THESE CIRCUMSTANCES, THE ASSESSING OFFICER CO NCLUDED THAT THE ASSESSEE COULD NOT HAVE INCURRED ANY EXPENDITURE IN THIS YEAR TO EARN INTEREST ON REFUND AND MISCELLANEOUS ITEMS WRITTEN- OFF. THEREFORE, HE DISALLOWED EXPENDITURE OF RS.38,86,830/-. 5. ON AN APPEAL FILED BY THE ASSESSEE, THE LEARNED CIT(A) HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE WAS WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEDUCTION UNDER SECTION 37 OF THE ACT. 6. AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TRIB UNAL. LEARNED D.R. SUBMITTED THAT THE DECISION OF THE LEARNED CIT (A) IS BASED UPON INCORRECT APPRECIATION OF FACTS AND HENCE, IT IS LI ABLE TO BE SET ASIDE. IN SUPPORT OF HIS CONTENTION, HE ADVERTED MY ATTENTION TO PARA 3.3 OF THE ORDER OF THE LEARNED CIT(A) TO SUBMIT THAT THE ASSE SSEE CONTENDED BEFORE THE LEARNED CIT(A) THAT IT HAD SUBSTANTIALLY INVEST ED IN THE DEVELOPMENT OF GEOGRAPHIC SOFTWARE WHICH WAS COMPLETED IN THE P REVIOUS YEAR. LEARNED D.R. STATED THAT THERE WAS NO CHANGE IN THE WORK-IN-PROGRESS IN THIS YEAR, AND IN THE EARLIER YEAR THERE WAS NO INC OME SHOWN, IN WHICH EVENT THE STATEMENT OF THE ASSESSEE THAT THE DEVELO PMENT OF GEOGRAPHIC SOFTWARE WAS COMPLETED IN THE PREVIOUS YEAR IS CONT RARY TO THE FACTS. SIMILARLY, IN PARAS 3.4 AND 3.5 OF THE ORDER OF THE LEARNED CIT(A), THE ASSESSEE-COMPANY CLAIMED THAT LEASE FINANCE CHARGES WAS INCURRED IN 4 THE COURSE OF ITS NORMAL BUSINESS ACTIVITY. IT WAS ALSO CONTENDED THAT 50% EXPENDITURE WAS DEBITED TO WORK-IN-PROGRESS BEI NG PART UTILISATION OF COMPUTER EQUIPMENTS FOR THE PURPOSE OF SOFTWARE DEVELOPMENT FOR GEOGRAPHIC BUSINESS. HERE ALSO, THE LEARNED D.R. SU BMITTED THAT THERE IS NO UTILIZATION IN THE YEAR UNDER CONSIDERATION. SIM ILARLY IN PARA 3.9 THE LEARNED COMMISSIONER ASSUMED THAT IT WAS AN AMOUNT RECEIVED BY THE ASSESSEE FROM BANK OF PUNJAB, OVERLOOKING THE FACT THAT LEASE FINANCE CHARGES WERE PAID TO BANK OF PUNJAB. IN THIS REGARD , HE HIGHLIGHTED THE FOLLOWING OBSERVATION IN PARA 3.9 OF THE ORDER OF T HE LEARNED CIT(A). HOWEVER, NO BIFURCATION OF SUCH COMPUTER EQUIPMENT LEASED OUT TO THE BANK OF PUNJAB LTD . AND THE EXPENSES INCURRED FOR CARRYING OUT SUCH ACTIVITIES HAS BEEN GIVEN. THE A.O. IS THEREFORE DIRECTED TO ALLOW DEPRECIATION ON SUCH COMPUTER EQUIPMENT GIVEN ON LEASE TO THE BANK OF PUNJAB LTD., FOR BUSINESS PURPOSE AND SIMULTANEOUSLY ALLOW EXPENSES INCURRED FOR CARRYING OUT BUSINESS A CTIVITY, SUBJECT TO VERIFICATION OF THE DETAILS FURNISHED BY THE APPELLANT. 7. IN PARA 3.8 THE LEARNED CIT(A) OBSERVED THAT CO MPANY HAS NOT CLOSED ITS BUSINESS BUT EXPENDITURE WAS INCURRE D DURING THE PERIOD OF DORMANCY OF BUSINESS. LEARNED D.R. SUBMITTED THA T IF THERE IS DORMANCY THERE COULD NOT HAVE BEEN ANY EXPENDITURE WITH REFERENCE TO USE OF COMPUTER EQUIPMENTS ETC., AND HERE ALSO THER E ARE CERTAIN FACTUAL MISTAKES AND THUS THE DECISION RENDERED BY THE LEAR NED CIT(A), BASED UPON INCORRECT APPRECIATION OF FACTS, IS LIABLE TO BE SET ASIDE. 8. I HAVE HEARD THE LEARNED D.R. AND CAREFULLY PER USED THE RECORD. HAVING REGARD TO THE FACTUAL INACCURACIES P OINTED OUT BY THE LEARNED D.R. I AM OF THE VIEW THAT THE ORDER PASSED BY THE LEARNED CIT(A) 5 DESERVES TO BE SET ASIDE, FOR BEING DECIDED AFRESH AFTER EXAMINING THE ISSUES IN THE CORRECT PERSPECTIVE. LEARNED CIT(A) D IRECTED ACCORDINGLY. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS T REATED AS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON DECEMBE R, 2009. (D.MANMOHAN) VICE PRESIDENT MUMBAI, DATE DECEMBER, 2009. VBP/- COPY TO 1. DCIT, RANGE 9 (1), R.NO. 223, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-20. 2. M/S. GEOSOFT TOPOGRAPHICS (I) PVT. LTD. PRABHU K RUPA, JUNCTION OF 9 TH & 11 TH ROAD, KHAR (WEST), MUMBAI 052. PAN AAACG-5925-F 4. CIT(A)-IX, MUMBAI 5. CIT, IX, MUMBAI 6. D.R. SMC BENCH, MUMBAI. 7. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI. SNO DATE INITIALS 1 DRAFT DICTATED ON 09-12-2009 SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR 10-12-2009 SR.P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER V.P. 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER A.M . 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER