M/S.ACROSEAS CONSULTANCY PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER-9(1)(1), MUMBAI

ITA 363/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5705 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 15-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA S ANJARIA
• Keywords: Depreciation; Corroborative evidences; Revenue expenditure
• Section: 143(3); 133(6); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH SMC, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.363/M/2018 ASSESSMENT YEAR: 2013-14 M/S. ACROSEAS CONSULTANCY PVT. LTD., ACME GHAR, GROUND FLOOR, 19 K ROAD, VILE PARLE (WEST) MUMBAI400 057 PAN: AABCB2732N VS. INCOME TAX OFFICER- 9(1)(1), 3 RD FLOOR, MITTAL COURT, NARIMAN POINT, MUMBAI - 400021 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JITENDRA JAIN, A.R. REVENUE BY : SHRI CHAITANYA S. ANJARIA, D.R. DATE OF HEARING : 01.04.2019 DATE OF PRONOUNCEMENT : 14.05.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 31.10.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. (A) THE HON'BLE COMMISSIONER OF INCOME TAX (A PPEAL) - 16, MUMBAI [CIT(A)] ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 24,42,0 29/- BEING EXPENSES INCURRED FOR DEVELOPMENT OF EDUCATIONAL WEB PORTAL. THE APPELLANT, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, SUBMITS THAT THE EXPENSES INCURRED FOR ACQUIRING EDUCATIONAL WEB POR TAL ARE GENUINE EXPENSES INCURRED IN THE COURSE OF CARRYING ON THE BUSINESS; HENCE, THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT (A) SHALL BE DELETE D. ITA NO.363/M/2018 M/S. ACROSEAS CONSULTANCY PVT. LTD. 2 (B) THE CIT (A) ERRED IN HOLDING THAT THE EDUCATION AL WEB PORTAL BEING AN ASSET IS NOT INTO EXISTENCE; HENCE, THE ALTERNATE PLEA OF THE AP PELLANT FOR ALLOWING THE DEPRECIATION U/S 32 OF THE ACT CANNOT BE ALLOWED. 3. THE FACTS IN BRIEF ARE THAT THE AO DURING THE CO URSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE H AS DEBITED RS.27,37,349/- IN THE P&L ACCOUNT AS BUSINESS PROMO TION EXPENSES DURING THE YEAR INCREASING THE CLAIM OF T HE ASSESSEE DRASTICALLY TO THIS AMOUNT VIS--VIS RS.2,88,051/- IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR. ACCORDINGLY TH E AO CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF THE SAI D EXPENSES ALONG WITH THE SUPPORTING EVIDENCES WHICH WAS REPLI ED BY THE ASSESSEE VIDE LETTER DATED 12.08.2015 THAT RS.24,42 ,029/- WAS PAID TO M/S. ACME HOUSING INDIA PVT. LTD. A RELAT ED PARTY OF THE ASSESSEE FOR PURCHASE OF WEB PORTAL CALLED WWW.GYANCENTRAL.COM . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MEDICAL TRANSCRIPTIONS I.E. TRANSCRIPTIONS AND CONVERTING VARIOUS RECORDED REPORTS AS DICTATED BY THE PHYSICI ANS OR OTHER HEALTHCARE PERSONNEL IN TWO FORMATS AND THUS THE AS SESSEE IS PROVIDING INFORMATION TO VARIOUS INDIAN MEDICAL AN D OTHER UNIVERSITIES /INSTITUTIONS IN INDIA AND ABROAD SUC H TYPE OF SERVICES. THE SAID WEB PORTAL WAS ACQUIRED BY THE ASSESSEE UNDER AN AGREEMENT WITH ACME FOR DISSEMINATING IN FORMATION ABOUT VARIOUS POSSIBLE OPTIONS AVAILABLE IN EDUCAT IONAL FIELD AND TO ENABLE STUDENTS FOR FURTHER STUDIES IN MEDICAL, ENGINEERING AND OTHER FIELDS AND COVERS THE LATEST INFORMATION AND OPPORTUNITIES AVAILABLE IN INDIA AND ABROAD. THE A SSESSEE IN ORDER TO EXPAND ITS BUSINESS HAS PURCHASED THE SAID PORTAL IN ORDER TO ATTRACT MORE STUDENTS. THE SAID PORTAL W AS STARTED BY ACME YEARS AGO AND ASSESSEE COMPANY HAS PAID RS.24,42,049/- TO ACME TOWARDS WEBSITE UPDATING AN D ADDING ITA NO.363/M/2018 M/S. ACROSEAS CONSULTANCY PVT. LTD. 3 CONTENTS TO THE PORTAL. THE AO DID NOT FIND ANY ME RIT IN THE CONTENTIONS OF THE ASSESSEE FOR THE REASON THAT THE SAID PORTAL WAS ACQUIRED ON 31.03.2013 AT FAG END OF THE YEAR A ND NO BUSINESS WAS TRANSACTED THROUGH THE SAID PORTAL A ND NO INCOME WAS GENERATED DURING THE YEAR. THE AO ALSO ISSUED NOTICE UNDER SECTION 133(6) TO ACME ON 16.10.2015 WHICH WAS RESPONDED BY THE SAID SUPPLIER VIDE LETTER DATED 04 .11.2015 IN WHICH IT WAS CONFIRMED BY THE SAID RELATED PARTY TH AT THE WEB PORTAL IN FACT SUPPLIED TO THE ASSESSEE. THE AO AL SO DURING THE COURSE OF ASSESSMENT PROCEEDINGS TRIED TO ACCESS TH E SAID WEB PORTAL ON 15.10.2015, HOWEVER, IT WAS FOUND THAT TH E SAID PORTAL WAS NOT FUNCTIONAL. THUS THE AO CAME TO THE CONCLU SION THAT THE SAID TRANSACTION WAS SHAM/ADJUSTMENT TO REDUCE THE TAX LIABILITY IN THE GARB OF PURCHASE OF WEB PORTAL. U LTIMATELY, THE SAID AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE BY FRAMING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DATE D 18.12.2015 BESIDES MAKING OTHER ADDITIONS. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALS O DISMISSED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 6.2.3 DURING APPELLATE PROCEEDINGS THE ID.A.R. ONCE AGAIN REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND NO FRESH EVIDE NCES IN SUPPORT OF EXISTENCE OF WEBSITE WERE PRODUCED. AT THE TIME OF APPELLATE PR OCEEDINGS I SPECIFICALLY ASKED THE A.R. TO PRODUCE ANY OF THE EVIDENCES WHICH CAN PROVE THAT THE WEBSITE W AS IN EXISTENCE AND IT WAS COMMERCIALLY UTILIZED BY THE A PPELLANT. IN RESPONSE TO THIS THE APPELLANT COULD NOT PRODUCE EVEN A SINGLE EVIDENCE WHICH CAN PROVE THAT WEBSITE WAS ACTUALLY IN EXISTENCE AND COMMERCIALLY EXPLOITE D BY THE APPELLANT COMPANY. IT WAS SPECIFICALLY ASKED TO THE ID. COUNSEL THAT WHET HER ANY REVENUE WAS EARNED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION O R TILL DATE I.E. 31.10.2017. IF AT ALL ANY REVENUE WAS EARNED THEN PLEASE FURNISH THE DETAILS OF THE SAME. THE APPELLANT COULD NOT GIVE ANY SPECIFIC REPLY. IN ABS ENCE OF ANY DOCUMENTARY EVIDENCES IN SUPPORT OF THE CLAIM OF THE APPELLANT, 1 HAVE NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE A.O. WHICH IS BASED ON PROPER FACTS AND INQUIRIES CONDUCTED BY HIM AND AS A RESULT THIS GROUND OF APP EAL IS DISMISSED. ITA NO.363/M/2018 M/S. ACROSEAS CONSULTANCY PVT. LTD. 4 6.2.4 THE APPELLANT HAS TAKEN AN ALTERNATIVE PLEA R EGARDING ALLOWABILITY OF DEPRECIATION U/S.32 OF THE L.T.A CT. AS HELD IN EAR LIER PARAS, THE ASSET WAS NOT IN EXISTENCE, THEREFORE NO DEPRECIATION CAN BE ALLOWED . 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT IN THIS CASE THE WEB PORTAL WAS BOUGHT BY THE ASSESSEE FROM RELATED PARTY ACME VIDE AGREE MENT DATED 31.03.2013 IN ORDER TO EXPAND ITS BUSINESS IN THE F IELD OF MEDICAL PRESCRIPTIONS AND OTHER ARENAS BY TAKING A TTRACTING MORE STUDENTS TO THESE FIELDS. THE LETTER ISSUED B Y THE AO UNDER SECTION 133(6) TO ACME WAS DULY RESPONDED AND IT W AS CONFIRMED THAT THE SAID PORTAL WAS SUPPLIED TO THE ASSESSEE BY THE SAID COMPANY ONLY ON BOOK VALUE BY MAKING REIMB URSEMENT OF THE EXPENDITURE INCURRED BY THE SAID COMPANY INC LUDING EXPENSES OF ADDITION AND UPDATION OF THE SAID PORT AL. IT IS TRUE THAT THE SAID WEB PORTAL WAS ACQUIRED AT THE YEAR END AND NO REVENUE COULD BE FETCHED FROM THE SAID PORTAL TILL 31.03.2013. HOWEVER, ONCE IT IS ESTABLISHED THAT PORTAL WAS THE RE WHICH WAS INSTALLED AND ACQUIRED ON 31.03.2013 THEN THE SAME CAN NOT BE TREATED AS SHAM TRANSACTION PRIMARILY TO CIRCUMVENT THE TAX LIABILITY BY THE ASSESSEE. EVEN THE SUPPLIER HAS CONFIRMED THE TRANSACTION IN RESPONSE TO NOTICE ISSUED UNDER SECT ION 133(6) OF THE ACT. WE CAN NOT ALSO DOUBT THE INSTALLATION OF THE PORTAL AS THE WEB PORTAL WAS ALREADY IN PLACE AND ALSO UPDATE D BY THE SUPPLIER ACME WHO IS A RELATED PARTY AND PORTAL W AS ALSO PURCHASED ON COST TO COST BASIS. THEREFORE, WE ARE OF THE VIEW THAT THE SAID EXPENDITURE IS ADMISSIBLE AS REVENUE EXPENDITURE EVEN THOUGH IT HAS NOT EARNED ANY INCOME DURING THE YEAR AS IT IS CONNECTED TO THE ACTIVITIES EXISTING AND ALSO T HE PROPOSED ACTIVITIES OF THE ASSESSEE. LD. A.R. ALSO FILED BE FORE THE BENCH THE DETAILED DOCUMENTATIONS OF THE SAID PORTAL. IT IS NOT MATERIAL ITA NO.363/M/2018 M/S. ACROSEAS CONSULTANCY PVT. LTD. 5 WHETHER THE PORTAL WAS FUNCTIONAL ON A PARTICULAR D AY WHEN CHECKED BY THE AO IN VIEW OF THESE FACTS, WE ARE I NCLINED TO ALLOW THE APPEAL OF THE ASSESSEE BY SETTING ASIDE T HE ORDER OF LD. CIT(A). THE AO IS DIRECTED ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.05.2019. SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED:14.05.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.