SOFTCELL TECHNOLOGIES LTD, MUMBAI V. ADDL CIT 7(2),

ITA 4709/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6148 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 01-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 07-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANT LAL
• Keywords: Depreciation; Opportunity of being heard; Non-deduction of tax; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI VIJAY PAL RAO, JM ITA NO.4709/MUM/2010 : ASST.YEAR 2007-2008 M/S.SOFTCELL TECHNOLOGIES LIMITED 301 PRABHADEVI INDUSTRIAL ESTATE 408 VEER SAVARKAR MARG, PRABHADEVI MUMBAI 400 025. PAN : AADCS0965J. VS. THE ADDL.COMMISSIONER OF INCOME-TAX CIRCLE 7(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI MANISH KANTH & PORUS KAKA RESPONDENT BY : SHRI HEMANT LAL O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 26.02.2010 IN RELATION TO ASSESSMENT YEAR 2007-200 8. 2. FIRST GROUND ABOUT THE CONFIRMATION OF DISALLOWA NCE OF RS.2,28,013 OUT OF CONVEYANCE EXPENSES WAS NOT PRESSED BY THE LEARNED A.R. THE SAME IS, THEREFORE, DISMISSED. 3. GROUND NOS.2 AND 3 ARE AGAINST CONFIRMATION OF D ISALLOWANCE OF PURCHASES OF RS.65,41,72,734 AND COMMISSION OF RS.46,21,900 U/S. 40(A)(IA) OF THE INCOME-TAX ACT FOR NON-DEDUCTION OF TAX AT SOURCE. BRIEFLY STA TED THE FACTS OF THESE GROUNDS ARE THAT THE ASSESSEE MADE PAYMENT OF RS.65.41 CRORES F OR PURCHASE OF SOFTWARE FOR WHICH NO DEDUCTION OF TAX AT SOURCE WAS MADE. SIMIL ARLY COMMISSION PAYMENT OF RS.46.21 LAKHS WAS MADE TO M/S.SOFTWARE SPECTRUM PT Y. LTD. AUSTRALIA WITHOUT DEDUCTION OF TAX AT SOURCE. THE AUTHORITIES BELOW, RELYING ON THE JUDGEMENT OF THE KARNATAKA HIGH COURT IN CIT VS. SAMSUNG ELECTRONICS LTD. [(2010) 320 ITR 20 9 (KAR.)], CAME TO HOLD THAT IN THE ABSENCE OF ANY DEDUCTION OF TAX AT SOURCE MADE BY ITA NO.4709/MUM/2010 M/S.SOFTCELL TECHNOLOGIES LIMITED. 2 THE ASSESSEE FROM THE PAYMENTS SO MADE, THE AMOUNT WAS REQUIRED TO BE DISALLOWED U/S.40(A)(IA). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE BASIS FOR MAKING AND S USTAINING THE DISALLOWANCE IN RESPECT OF THESE TWO GROUNDS IS THE JUDGEMENT IN TH E CASE OF SAMSUNG ELECTRONICS LTD. (SUPRA) . THE HONBLE SUPREME COURT IN G.E.INDIA TECHNOLOGY CENTRES LTD. VS. CIT [(2010) 327 ITR 456 (SC)] HAS SET ASIDE THE VIEW THAT THE DEDUCTION OF TAX DEDUCTED AT SOURCE HAS TO NECESSARILY FOLLOW FROM T HE PAYMENTS MADE TO NON- RESIDENT UNLESS PERMISSION IS TAKEN FROM A.O. U/S.1 95. IN THIS CASE THE HONBLE SUPREME COURT HAS HELD THAT A PERSON PAYING INTERES T OR ANY OTHER SUM TO A NON- RESIDENT IS LIABLE TO DEDUCT TAX U/S.195 ONLY IF SU CH SUM IS CHARGEABLE TO TAX IN INDIA AND NOT OTHERWISE. SINCE THE ISSUE WAS NOT EXAMINED ON MERITS, THE HONBLE SUPREME COURT REMITTED THE MATTER TO THE HIGH COURT FOR DE NOVO CONSIDERATION OF THE CASE. AS IN THE INSTANT CASE ALSO THE AUTHORITI ES BELOW HAVE MADE AND UPHELD THE DISALLOWANCE SIMPLY ON THE GROUND THAT THE TAX WAS NOT DEDUCTED AT SOURCE, WITHOUT EXAMINING WHETHER SUCH SUM IS CHARGEABLE TO TAX IN INDIA OR NOT, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THIS MATTER TO THE FILE OF A.O. FOR TAKING A FRESH DECISION AS PER LAW AFTER ALLOWING A REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5. GROUND NO.4 IS AGAINST THE CONFIRMATION OF DISAL LOWANCE OF RS.56,623 OUT OF COMPUTER CONSUMABLES ON THE GROUND THAT THE SAME AR E CAPITAL IN NATURE. THE LEARNED A.R. FAIRLY CONCEDED THAT IF THIS AMOUNT WA S TO BE CAPITALIZED THEN DEPRECIATION SHOULD HAVE BEEN ALLOWED. NO SERIOUS O BJECTION WAS RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THIS ISSUE. WE, THEREFORE, UPHOLD THE ACTION OF THE LEARNED AUTHORITIES BELOW IN CAPITALIZATION OF THE COMPUTER ITEMS AND DIRECT TO ALLOW DEPRECIATION AS PER RULES. ITA NO.4709/MUM/2010 M/S.SOFTCELL TECHNOLOGIES LIMITED. 3 6. GROUND NO.5 IS AGAINST THE CONFIRMATION OF ADDIT ION OF RS.5,50,229 ON ACCOUNT OF VAT. THE ASSESSING OFFICER INCLUDED THE VAT COMPONENT IN THE VALUATION OF CLOSING STOCK BY APPLYING PROVISIONS O F SECTION 145A OF THE ACT. THE LEARNED CIT(A) UPHELD THE ACTION OF THE ASSESSING O FFICER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SECTION 145A WAS INSERTED BY THE FINANCE (N O.2) ACT, 1998 WITH EFFECT FROM 1.4.1999. IT PROVIDES THAT THE VALUATION OF PU RCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOM E CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE AND FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS ETC. PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AS ON THE DATE OF VALUATION. ACCORDING TO THE PRESCRIPTION OF THIS SECTION, WHICH IS APPLICAB LE TO THE YEAR UNDER CONSIDERATION, THE AMOUNT OF TAX, DUTY, CESS ETC. IS LIABLE TO BE INCLUDED IN THE VALUE OF PURCHASES, SALES, OPENING AND CLOSING STOCK. IT IS NOT APPROPR IATE TO INCLUDE THE CLOSING MODVAT IN THE FIGURE OF CLOSING STOCK WITHOUT MODIFYING T HE FIGURES OF PURCHASES, SALES AND OPENING STOCK. THE HONBLE JURISDICTIONAL HIGH COUR T IN CIT VS. MAHALAXMI GLASS WORKS PVT. LTD. [(2009) 318 ITR 116 (BOM.)] AND THE HONBLE DELHI HIGH COURT IN CIT VS. MAHAVIR ALLUMINIUM [(2008) 297 ITR 77 (DEL. )] HAVE HELD TO THIS EXTENT. AS THE AUTHORITIES BELOW HAVE NOT ADJUSTED OTHER FI GURES WITH THE AMOUNT OF TAX, DUTY, CESS ETC., WE SET ASIDE THE IMPUGNED ORDER AN D RESTORE THE MATTER TO THE FILE OF A.O. FOR DECIDING IT AFRESH IN ACCORDANCE WITH THE AFORE-NOTED JUDGEMENTS AND THE PROVISIONS OF SECTION 145A. 8. LAST GROUND IS AGAINST CONFIRMATION OF DISALLOWA NCE OF RS.25,000 OUT OF LEGAL AND PROFESSIONAL FEES. THE ASSESSEE CLAIMED D EDUCTION OF RS.25,000 TOWARDS PAYMENT OF LEGAL AND PROFESSIONAL CHARGES FOR GETTI NG ISP LICENCE. THE ASSESSING ITA NO.4709/MUM/2010 M/S.SOFTCELL TECHNOLOGIES LIMITED. 4 OFFICER HELD IT TO BE CAPITAL EXPENDITURE AND MADE ADDITION FOR THE SAME. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD IT IS FOUND THAT A SUM OF RS.25,000 WAS PAID AS LEGAL AND PROFESSIONAL CHARGES IN RESPECT OF LICENCE WHILE CARRYING ON THE BUSINESS. BY NO STANDARD, CAN IT BE CHARACTERIZED AS CAPITAL EXPENDITURE. WE, THEREF ORE, OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND ORDER FOR THE DELETION OF THIS AD DITION. 10. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 9 TH DAY OF MARCH, 2011 . SD/- SD/- (VIJAY PAL RAO) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 9 TH MARCH, 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) XIII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.