Baeurer Infotech Ltd., Ahmedabad V. The Income tax Officer,Ward-1(2), Ahmedabad

ITA 3287/AHD/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9821 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-10-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 13-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Initiation of penalty proceedings; Wholly owned subsidiary; Bad and doubtful debts

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO.3287/AHD/2010 / ASSTT. YEAR: 2004-2005 BAEURER INFOTECH LTD. A/58, NOBLES BUILDING OPP: NEHRU BRIDGE ASHRAM ROAD AHMEDABAD 380 001. PAN : AABCB 5571 B VS ITO, WARD - 1(2) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : MS.URVASHI SHODHAN REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 29/10/2015 / DATE OF PRONOUNCEMENT: 19/01/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF THE LD.CIT(A)-VI, AHMEDABAD DATED 13.10.2010 FOR THE AS STT.YEAR 2004-05. 2. THE FOLLOWING GROUNDS OF APPEAL PROJECTS GRIEVAN CE OF THE ASSESSEE: 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) VI, AHMEDABAD HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE IN FRAMING APPELLATE ORDER U/S.250 OF THE I.T.ACT. FOR A.Y.2004.05 ON 13TH DAY OF OCTOBER, 2010 (2) THE LEARNED CIT(A) VI, AHMEDABAD HAS ERRED IN C ONFIRMING DISALLOWANCE OF BAD DEBTS WRITTEN OFF U/S. 36(1)(VI I) OF THE ACT. RS. 94,66,479/-. ITA NO.3287/AHD/2010 2 (3) THE LEARNED CIT(A) VI, AHMEDABAD HAS ERRED IN C ONFIRMING DISALLOWANCE OF MARKET DEVELOPMENT EXPENSES OF RS.2,64,66,656/-. (4) THE LD. CIT(A) VI, AHMEDABAD HAS ERRED IN REJEC TING GROUND RELATING TO INITIATION OF PENALTY PROCEEDINGS U/S.2 71(1)(C ) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 3010.2004 DECLARING TOTAL LOSS OF RS.22,0 8,326/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMEN T AND NOTICE UNDER SECTION 143(2) WAS ISSUED ON 2.8.2005 WHICH WAS DUL Y SERVED UPON THE ASSESSEE. IN RESPONSE TO THE NOTICE, SHRI JAYENDRA PANDIT, CHARTERED ACCOUNTANT, AUTHORIZED REPRESENTATIVE OF THE COMPAN Y, APPEARED BEFORE THE AO AND SUBMITTED THE DETAILS. IT EMERGES OUT F ROM THE RECORD THAT M/S.BAEURER INFOTECH LTD. (HEREAFTER REFERRED TO AS BIL) IS AN INDIAN COMPANY STARTED ITS OPERATION IN THE YEAR 2000-2001 . THE AREA OF ITS OPERATION IS DEVELOPING, PROCESSING, ALTERING, MODI FYING, IMPROVING, UPGRADING, LICENSING ETC. IN RESPECT OF SOFTWARE DE VELOPMENT AND SOFTWARE PACKAGES. ACCORDING TO THE ASSESSEE, IT H AS RECRUITED COMPUTER ENGINEERS WITH DIFFERENT EXPERIENCE AND PR OFILE, IN THE ACCOUNTING YEAR RELEVANT TO THE ASSTT. YEAR 2000-01 . IT WAS IN THE PROCESS OF SETTING UP THE BUSINESS, AND IT HAD ONLY ONE CUSTOMER VIZ. BAEURER AG, GERMANY, A GERMANY JOINT VENTURE PARTNE R. ACCORDING TO THE ASSESSEE, AFTER ACQUIRING THE REQUISITE SCHEME AND LARGE NUMBER OF MANPOWER, THE ASSIGNMENT WHICH WERE COMING FORTH FR OM BAG WERE NOT SUFFICIENT TO GIVE ENOUGH WORK TO THE CAPACITY CREA TED BY BIL. MOREOVER, THE REMITTANCES EXPECTED TO BE RECEIVED F ROM BAG WERE ALSO GETTING DELAYED. THUS, THE ASSESSEE WAS UNDER PRESS URE FOR SOURCING THE WORK ELSEWHERE. ACCORDING TO THE ASSESSEE, IN A DISCUSSION WITH DIRECTORS OF THE BAG, IT ENVISAGED THAT IN THE PROC ESS OF PROVIDING ON SITE FACILITY, THE SOFTWARE CUSTOMERS IN GERMANY AN D EUROPE WERE LOOKED FOR LOCAL SUPPORT. THUS, IT WAS THOUGHT TO ESTABLISH A 100% SUBSIDIARY IN EUROPE WHICH MAY CREATE BUSINESS COMF ORT FOR DEVELOPING ITA NO.3287/AHD/2010 3 THE BUSINESS IN GERMANY AND EUROPE. THE ASSESSEE H AD ACQUIRED A SHELL-COMPANY FROM THE ERSTWHILE OWNER AT CONSIDERA TION OF ONE EURO, BECAUSE IN THE PROCESS OF GETTING A COMPANY REGISTE RED AND INCORPORATION IN GERMANY, WOULD TAKE MORE TIME, THE REFORE, THE SUBSIDIARY WAS THOUGHT TO BE ESTABLISHED BY ACQUIRI NG AN EXISTING COMPANY. THERE ARE TWO DIRECTORS OF THE COMPANY VI Z. DINESH PATEL AND MR. JOKOB BREITENBACH, WHO HAD GOOD EXPERIENCE AND EXPOSURE IN SOFTWARE MARKING OF GERMANY. THE ASSESSEE WAS TO C ONTRIBUTE 33% OF EXPENDITURE TOWARDS MARKET DEVELOPMENT. WITH THIS BACKGROUND, IN THE RETURN FILED BY THE ASSESSEE, IT HAS CLAIMED BA D DEBT OF RS.94,66,479/- AND MARKET DEVELOPMENT EXPENDITURE O F RS.2,64,66,656/-. BOTH THESE CLAIMS OF THE ASSESSE E HAVE BEEN DISALLOWED BY THE AO. 4. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 5. IN THE GROUND NOS.2 AND 3 (EXTRACTED SUPRA), THE ASSESSEE IS AGGRIEVED NAMELY ON TWO ISSUES. AS FAR AS FIRST IS SUE IN RESPECT OF DISALLOWANCE OF BAD DEBT IS CONCERNED, THE FACTS AR E THAT THE ASSESSEE HAS SUPPLIED SOFTWARE FOR WHICH PAYMENT COULD NOT B E RECEIVED FROM THE BIG. THEREFORE, THE ASSESSEE HAS WRITTEN OFF THE A MOUNTS IN THE YEAR ITSELF. AS FAR AS MARKETING DEVELOPMENT EXPENSES A RE CONCERNED, ACCORDING TO THE ASSESSEE, IT HAS REMITTED THE AMOU NTS TOWARDS STOCK INVESTMENT, WHICH HAS BEEN ADJUSTED BY THE BIG TOWA RDS MARKET DEVELOPMENT EXPENSES, AND THEREFORE, IT HAD INCURRE D THE MARKET DEVELOPMENT EXPENSES OF RS.2,64,66,656/-. THE BIG WENT INTO LIQUIDATION, AND THERE ARE NO CHANCES OF RECOVERY O F THE AMOUNTS REPRESENTING SOFTWARE EXPORT. THE LD. COUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ORDERS OF THE REVENUE AUTHORITIES BEL OW TOOK US THROUGH A MEMORANDUM OF UNDERSTANDING DATED 28.2.2002 AVAIL ABLE ON PAGE NO.12 OF THE PAPER BOOK, WHEREBY, THE SUBSIDIARY WA S AGREED TO BE ESTABLISH. ON THE STRENGTH OF THIS MEMORANDUM OF U NDERSTANDING HE ITA NO.3287/AHD/2010 4 CONTENDED THAT 33% OF THE MARKET DEVELOPMENT COST W AS TO BE BORNE BY THE ASSESSEE. THE LD.COUNSEL FOR THE ASSESSEE, THEREAFTER, DREW OUR ATTENTION TOWARDS PAGE NO.29 OF THE PAPER BOOK. IT IS A LETTER DATED 17.12.2003 WRITTEN BY BAEURER INFOTECH TO THE ASSES SEE. THIS LETTER INDICATES THAT ADJUSTMENT OF JOINT STOCK INVESTMENT FUND TOWARDS MARKET DEVELOPMENT EXPENSES, WHICH ARE RECEIVABLE FROM THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTENTION TO WARDS INSOLVENCY PROCEEDINGS OF BIG IN ORDER TO DEMONSTRATE THAT THE RE ARE NO CHANCES OF RECOVERY OF THE AMOUNTS REPRESENTING EXPORT SOFTWAR E. THUS, IT IS ALLOWABLE AS BUSINESS LOSS. 6. ON THE OTHER HAND, THE LD.DR CONTENDED THAT RIGH T FROM INCEPTION, THE ASSESSEE HAS BEEN CLAIMING BAD DEBTS EVERY YEAR . FROM PERUSAL OF THE CORRESPONDENTS, IT WOULD REVEAL THAT IT IS ONE WAY AFFAIR, VIDE WHICH, THE ASSESSEE REMITTING THE FUNDS ONLY, EITHER IN TH E SHAPE OF EXPORT OF SOFTWARE OR IN THE SHAPE OF INVESTMENT IN STOCK. H E ALSO TOOK US THROUGH THE CORRESPONDENCE BETWEEN THE ASSESSEE AND THE BIG. 7. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD CAREFULLY. WE FIND THAT INSOLVENCY PROCEEDI NGS INITIATED IN THE MONTH OF OCTOBER, 2002, BUT THE ASSESSEE CONTINUED EXPORT UPTO DECEMBER, 2002. THE ASSESSEE VERY MUCH AWARE, BEIN G PROMOTER OF THE COMPANY THAT IT IS NOT FEASIBLE TO CARRY OUT BU SINESS IN SUCH AN ATMOSPHERE. IN ORDER TO CLAIM THE ALLEGED BUSINESS LOSS, ON ACCOUNT OF NON-REALISATION OF EXPORT RECEIPTS, AS WELL AS DEVE LOPMENT EXPENSES, WE FIND THAT THE ASSESSEE HAS PLACED ON RECORD ONLY FE W CORRESPONDENCES. IT HAS NOT PLACED ON RECORD COPY OF THE INVOICE VID E WHICH IT GOT THE ORDER FOR EXPORT OF SOFTWARE. WHAT IS THE NATURE O F SOFTWARE AND WHEN THEY WERE EXPORTED ? THE ASSESSEE FAILED TO GIVE D ETAILS OF THE CUSTOMERS AT WHOSE PREMISES SUCH SOFTWARE WERE INST ALLED. SIMILARLY, THE CORRESPONDENCE INDICATING FORFEITURE OF SUBSTAN TIAL AMOUNT OUT OF THE ALLEGED INVESTMENT IN STOCK AND ADJUSTMENT OF T HAT AMOUNTS ITA NO.3287/AHD/2010 5 TOWARDS MARKET DEVELOPMENT COST, IS ALSO ONE WAY AF FAIR, WHEREAS ONE OF THE DIRECTORS, SHRI DINESH PATEL COULD EASILY IN TERFERE FROM SUCH ADJUSTMENT. THOUGH, WE DO NOT HAVE FIRM EVIDENCE O N RECORD, BUT WE GET AN IMPRESSION FROM THE MATERIAL AVAILABLE ON RE CORD THAT NO ACTUAL BUSINESS IS BEING CARRIED OUT BY THE ASSESSEE, BUT ONLY FUNDS ARE BEING TRANSACTED. IN ORDER TO ARRIVE AT A FIRM CONCLUSIO N, ALL THESE ISSUES REQUIRE FOR DEEPER SCRUTINY FOR EXAMINING CLAIM OF THE ASSESSEE. THEREFORE, WE SET ASIDE THE IMPUGNED ORDER AND REMI T BOTH THE ISSUES TO THE FILE OF THE AO FOR RE-ADJUDICATION. THE ASS ESSEE IS DIRECTED TO SUBMIT COMPLETE DETAILS INCLUDING COPIES OF THE ORD ERS FOR SUPPLY OF SOFTWARE, NATURE OF THE SOFTWARE, DETAILS OF CLIENT S AT WHOSE PREMISES SUCH SOFTWARE WAS ULTIMATELY INSTALLED. ALL THESE ASPECTS ARE TO BE GONE INTO IN ORDER TO ASCERTAIN WHETHER ANY GENUINE BUSI NESS OR AN ATTEMPT TO DO GENUINE BUSINESS WAS EVER MADE BY THE ASSESSE E. THE OBSERVATIONS MADE BY US WILL NOT IMPAIR OR INJURE T HE CASE OF THE AO AND WILL NOT CAUSE ANY PREJUDICE TO THE DEFENCE/EXP LANATION OF THE ASSESSEE. THE OBSERVATIONS WERE MADE ONLY WITH A VIEW TO BRING HOME THE POINT FOR GETTING THE ISSUE INVESTIGATED WITH A LITTLE DEEPER AT THE LEVEL OF THE AO. THE LD.AO SHALL PROVIDE DUE OPPOR TUNITY OF HEARING TO THE ASSESSEE BEFORE RE-ADJUDICATING THE ISSUE. 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 19 TH JANUARY, 2016 AT AHMEDABAD. SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 19/01/2016