IPCA LABAORATORIES LTD, MUMBAI V. ASST CIT LTU, MUMBAI

ITA 3101/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3819 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 09-02-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 02-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Reopening of assessment; Bogus purchase; Depreciation; Principle of natural justice
• Section: 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I , MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA , ACCOUNTANT MEMBER ITA NO. 3101/MUM/2014 : (A.Y : 200 4 - 05 ) IPCA LABORATORIES LTD., NATVARLAL VEPARI & CO., C.AS ORICON HOUSE, 4 TH FLOOR, 12, K. DUBASH MARG, FORT, MUMBAI PAN : AAACI1220M (APPELLANT) VS ASST. COMMISSIONER OF INCOME - TAX - LTU 29 TH FLOOR, CENTRE NO. 1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI (RESPONDENT) APPELLANT BY : SHRI FARROKH V. IRANI RESPONDENT BY : SHRI NEIL PHILIP (DR) DATE OF HEARING : 09/02/2016 DATE OF PRONOUNCEMENT : 24 /02/2016 O R D E R PER ASHWANI TANEJA , A M : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - 24, MUMBAI (IN SHORT REFERRED TO AS CIT(A)) DT. 3.1.2014 PASSED AGAINST ASSESSMENT ORDER OF THE ASSESSING OFFICER (IN SHORT REFERRED TO AS AO) U/S 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT REFERRED TO AS THE ACT) FOR THE A.Y 2 004 - 05 ON THE FOLLOWING GROUNDS : REOPENING OF ASSESSMENT 1. THE RE - ASSESSMENT PROCEEDINGS INITIATED BY THE AO U/S 147 INITIATED BY THE AO ARE BAD IN LA W AS CONDITIONS REQUIRED TO BE SATISFIED FOR ISSUE OF NOTICE U/S.148 OF THE ACT HAVE NOT BEEN SATISFIED. THE APPELLANT SUBMITS THAT NO INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF FAILURE ON THE PART OF 2 ITA N O . 3101/M UM /2014 IPCA LABORATORIES LTD. THE APPELLANT TO DISCLOSE FULLY AND T RULY ALL MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT. 2. THE IMPUGNED ORDER DATED 13.12.2011 PASSED BY THE AO U/S. 143(3) R.W.S. 147 OF THE ACT, IS BAD IN LAW AS THE SAME HAS BEEN PASSED IN CONTRAVENTION OF RULE OF NATURAL JUSTICE IN AS MUCH A S THE AO RELIED ONLY ON THE STATEMENT MR. SANJAY D. SONAWANI, RECORDED BY THE DDIT (INV.) ON 16.03.2011. NO OPPORTUNITY WAS GIVEN BY THE AO TO CROSS - EXAMINE THE SAID MR. SANJAY D. SONAWANI, DESPITE REQUESTS MADE BY THE APPELLANT VIDE APPELLANT'S REPRESENTA TIVE'S LETTERS DATED 09.11.2011, 14.11.2011 AND 01.12.2011. 3. THE APPELLANT SUBMITS THAT, THERE WAS NO BASIS FOR THE CONCLUSION ARRIVED AT BY THE ASSESSING OFFICER THAT, THE TRANSACTION OF PURCHASES OF SOFTWARE BY THE APPELLANT WAS INFLATED AND BOGUS. NO EVIDENCE IS BROUGHT OUT BY THE AO TO PROVE THAT, THESE ARE INFLATED AND BOGUS PURCHASES. THE AO RELIED SOLELY ON THE STATEMENT OF MR. SANJAY D. SONAWANI WITHOUT BRINGING ANY OTHER EVIDENCE ON RECORD TO SUBSTANTIATE THE ALLEGATION THAT THE INCOME OF THE AS SESSEE HAD ESCAPED ASSESSMENT. 4. THE CIT (A) ERRED IN CONFIRMING THE CONTENTION OF THE AO THAT THERE WAS FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY THE MATERIAL FACTS WHICH HAD RESULTED IN INCOME ESCAPING ASSESSMENT DESPITE AFFIRMIN G THE FACT THAT AO'S INABILITY/FAILURE IN NOT PROVIDING THE OPPORTUNITY TO CROSS - EXAMINE THE SUPPLIER BEING A VALID POINT. THE APPELLANT SUBMITS THAT, ALL THE FACTS AND MATERIALS WERE AVAILABLE BEFORE THE AO. DISALLOWANCE OF DEPRECIATION OF RS. 6,07,500/ - ON PURCHASE OF SOFTWARE 5. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.6,07,500 / - MADE BY THE AO ON PURCHASE OF SOFTWARE U/.S 32(A) PURELY ON SURMISES AND GUESSES WITHOUT CONSIDERING THE FACTS ON RECORD. 6. THE CIT (A) ERRED IN DISALLOWING THE DEPRECIATION BY HOLDING THAT THE APPELLANT HAD NOT DEDUCTED ANY TAX AT SOURCE U/S. 194J OF THE ACT IN RESPECT OF PAYMENT MADE FOR PURCHASE OF SOFTWARE EVEN THOUGH THE PROVISIONS OF SECTION 194J WERE PRIME FACIE NOT ATTRACTED IN THE CASE. THE APPELLANT SUBMITS THAT THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE ON THE PURCHASE OF SOFTWARE. 7. THE CIT (A) ERRED IN HOLDING THAT PAYMENTS MADE BY THE APPELLANT RELATED TO NON - DEDUCTION OF TAX AND WOULD AUTOMATICALLY ATTRACT DISALLOWANCE U/S. 3 ITA N O . 3101/M UM /2014 IPCA LABORATORIES LTD. 40(A)(IA) OF THE ACT. THE APPELLANT SUBMITS THAT PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE IN RESPECT PURCHASE OF SOFTWARE. IN ANY EVENT THE SAID PROVISIONS HAVE BEEN BROUGHT INTO THE STATUTE BY THE FINANCE (NO.2) ACT, 2004 WITH EFFECT FROM 1 ST APRIL 2005 AND THEREFORE THE SAME WERE NOT APPLICABLE IN RESPECT OF THE ABOVE PAYMENT MADE IN THE YEAR RELEVANT TO ASSESSMENT YEAR 2004 - 05. 8. THE APPELLANT SUBMITS THAT THE APPELLANT IS ENTITLED TO DEDUCTION OF RS.6,07,500/ - BY WAY OF DEPRECIATION ON PU RCHASE OF SOFTWARE AS THE SAME WAS PURCHASED BY THE APPELLANT FOR THE PURPOSE OF BUSINESS AND DURING THE COURSE OF BUSINESS. 2. DURING THE COURSE OF THE HEARING, ARGUMENTS WERE MADE BY SHRI F.V. IRANI, LD. COUNSEL OF THE ASSESSEE AND SHRI NEIL PHILIP, LD . DEPARTMENTAL REPRESENTATIVE (IN SHORT REFERRED TO AS DR) ON BEHALF OF THE REVENUE. THE ONLY EFFECTIVE ISSUE PROPERLY ARGUED BY THE LD. COUNSEL RELATES TO DISALLOWANCE OF DEPRECIATION OF RS.6,07,500/ - ON PURCHASE OF SOFTWARE. THE BRIEF FACTS OF THE CA SE ARE THAT THE ASSESSMENT OF THE ASSESSEE WAS RE - OPENED ON THE GROUND THAT SHRI SANJAY D. S ONAWANI, CHAIRMAN OF M/S. WASHINGTON SOFTWARE LTD. DEPOSED ON O ATH U/S 131 OF THE ACT BEFORE THE DY. DIRECTOR OF INVESTIGATION, PUNE THAT THE SAID COMPANY HAD PROVI DED BOGUS BILLS TO THE ASSESSEE - COMPANY. THE ASSESSEE HAD PURCHASED THE SOFTWARE FROM THE SAID COMPANY ON WHICH IT CLAIMED DEPRECIATION IN THE YEAR UNDER CONSIDERATION. 3. DURING THE COURSE OF THE RE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO JUS TIFY ITS CLAIM IN VIEW OF THE STATEMENT OF SHRI SANJAY D. SONAWANI. THE ASSESSEE SUBMITTED INVOICES AND OTHER EVIDENCES AND REQUESTED FOR PROVIDING AN OPPORTUNITY OF CROSS - EXAMINATION. THE AO ISSUED SUMMONS TO SHRI SONAWANI. IN RESPONSE, HE SENT HIS REP LY CONFIRMING HIS STATEMENT BUT DID NOT APPEAR FOR CROSS - EXAMINATION. THE AO MADE THE DISALLOWANCE RELYING UPON THE REPLY OF HIS WITNESS. 4 ITA N O . 3101/M UM /2014 IPCA LABORATORIES LTD. 4. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHEREIN NO RELIEF WAS GIVEN AS THE LD. CIT (A) ALSO PREFERRED TO RELY UPON THE STATEMENT OF THE SAID PERSON READ WITH HIS SUBSEQUENT REPLY. BE ING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. 5 . DURING THE COURSE OF THE HEARING, IT HAS BEEN ARGUED BY SHRI F.V. IRANI, LD. COUNSEL OF ASSESSEE THAT IN THE ABSENCE OF PROPER OPPORTUNITY OF CROSS - EXAMINATION, THE STATEMENT OF THIRD PARTY COULD NOT HAVE BEEN USED AGAINST THE ASSESSEE. IN SUPPORT OF HIS CLAIM, HE RELIED UPON THE JUDG MENT OF THE HON'BLE SUPREME COURT IN THE CASE OF ANDAMAN TIMBER INDUSTRIES V. CCE, 324 E.L.T 641 AND FEW OTHER JUDG MENTS. HE ALSO DREW OUR ATTENTION TO THE COPIES OF THE INVOICES SUBMITTED BEFORE THE LOWER AUTHORITIES. HE ALSO ARGUED THAT THERE WAS APPARENT CONTRADICTION IN THE STATEMENT OF SHRI SONAWANI. IT WAS SUBMITTED THAT SHRI SONAWANI HAD HIMSELF STATED IN THE STATEMENT THAT BILLS ISSUED BY HIM IN F.Y 2003 - 04 WERE GENUINE AND BILLS ISSUED ONLY AFTER THIS YEAR WERE BOGUS. THUS, EVEN IF THE STATEMENT OF SHRI SONAWANI IS TAKEN INTO CONSIDERATION, THE SAME SHOULD BE READ IN FAVOUR OF THE ASSESSEE. IN CASE SAME WAS TO BE USED AGAINST THE ASSESSEE, THEN, OPPORT UNITY OF CROSS - EXAMINATION WAS MUST. 6 . ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED BY HIM THAT EVEN IF SHRI SONAWANI DID NOT APPEAR, BUT HE HAD SENT HIS REPLY CONFIRMING HIS STATEMENT. U NDER SUCH CIRCUMSTANCES, IT WAS NOT JUSTIFIED TO IGNORE THE STATEMENT OF SHRI SONAWANI. 7 . WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES, THE MATERIAL SUBMITTED BEFORE US AS WELL AS THE ARGUMENTS MADE BY BOTH THE PARTIES. WE HAVE ALSO CAREFULL Y GONE THROUGH THE STATEMENT OF SHRI SONAWANI AND THE 5 ITA N O . 3101/M UM /2014 IPCA LABORATORIES LTD. INFERENCES DRAWN BY THE AO. WE FIND SUBSTANCE IN THE ARGUMENTS OF THE LD. COUNSEL THAT THERE WAS SOME CONTRADICTION AND CONFUSION IN THE FACTS NARRATED BY SHRI SONAWANI, PARTICULARLY IN ANSWER NO. 5 RE AD WITH ANSWER NO. 6 OF HIS STATEMENT. IT IS FURTHER NOTED BY US THAT THE STATEMENT OF SHRI SONAWANI SHOULD NOT BE USED AGAINST THE ASSESSEE IN THE ABSENCE OF EFFECTIVE OPPORTUNITY OF CROSS - EXAMINATION. IT IS FURTHER N OTED BY US THAT THE ASSESSEE HAD SUB MITTED PROPER INVOICES DULY SIGNED BY AUTHORIZED SIGNATORY OF M/S. WASHINGTON SOFTWARE LTD. IT IS FURTHER BROUGHT TO OUR NOTICE THAT PAYMENT OF THE SAME HAS BEEN MADE BY CHEQUE. UNDER THESE CIRCUMSTANCES, THE ASSESSEE MAY LIKE TO PUT FORTH ALL THESE FACT S BEFORE SHRI SONAWANI TO EXAMINE THE TRUTH IN HIS STATEMENT. THE AO SHOULD NOT TAKE BIASED OR ONE - SIDED VIEW BY BLINDLY RELYING UPON THE STATEME NT RECORDED BY SOME OTHER AUTHORITY AND IGNORING THE DIRECT DOCUMENTARY EVIDENCES SUBMITTED BY THE ASSESSEE, T HAT TOO, WITHOUT GIVING PROPER OPPORTUNITY OF CROSS - EXAMINATION TO THE PARTIES. IN VIEW OF THESE FACTS, WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO. THE AO SHALL GRANT EFFECTIVE OPPORTUNITY OF CROSS - EXAMINATION BEFORE USING THIS STATEMENT AGAINST THE ASSESSEE. WE FURTHER FIND IT APPROPRIATE THAT THE ASSESSEE MAY ALSO BRING MORE EVIDENCES IN ITS POSSESSION WHICH MAY THROW SOME LIGHT ON THE ACTUAL USER OF THE SOFTWARE BY THE ASSESSEE TO STRENGTHEN ITS CASE. THE ASSESSEE IS FREE TO RAISE ALL LEGAL AND FACTUAL ISSUES BEFORE THE AO. THE AO SHALL RE - ADJUDICATE THIS ISSUE AFTER CONSIDERING ALL THE FACTS AND EVIDENCES IN TERMS OF OUR DIRECTION AS GIVEN ABOVE. 8 . THUS, IN VIEW OF THE AFORESAID DISCUSSION, ALL THE GROUNDS RAISED BY THE A SSESSEE ARE SENT BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH , AND ACCORDINGLY THESE G ROUNDS MAY BE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6 ITA N O . 3101/M UM /2014 IPCA LABORATORIES LTD. 9 . AS A RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 4 T H FEBRUARY, 2016. SD/ - SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER (ASHWANI TANEJA) ACCOUNTANT MEMBER MUMBAI, DATE : 2 4 T H FEBRUARY, 2016 COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, I BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR *SSL* I.T.A.T, MUMBAI