UKT Software Technologies Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5425/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4062 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 05-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 02-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K RAVI RAM CHANDRAN
• Keywords: Business income; Opportunity of being heard
• Section: 143(3); 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH H HH H : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI BEFORE SHRI C.L.SETHI, JM AND SHRI B.C.MEENA B.C.MEENA B.C.MEENA B.C.MEENA, AM , AM , AM , AM ITA NO. ITA NO. ITA NO. ITA NO.5425/DEL/2010 5425/DEL/2010 5425/DEL/2010 5425/DEL/2010 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2007 2007 2007 2007- -- -08 0808 08 M/S UKT SOFTWARE M/S UKT SOFTWARE M/S UKT SOFTWARE M/S UKT SOFTWARE TECHNOLOGIES PVT.LTD., TECHNOLOGIES PVT.LTD., TECHNOLOGIES PVT.LTD., TECHNOLOGIES PVT.LTD., AALIANZ HOUSE, II FLOOR, AALIANZ HOUSE, II FLOOR, AALIANZ HOUSE, II FLOOR, AALIANZ HOUSE, II FLOOR, 273, CAPT.GAUR MARG, 273, CAPT.GAUR MARG, 273, CAPT.GAUR MARG, 273, CAPT.GAUR MARG, SRI SRI SRI SRINIWAS PURI, NIWAS PURI, NIWAS PURI, NIWAS PURI, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 065. 110 065. 110 065. 110 065. PAN NO.AABCN7897E. PAN NO.AABCN7897E. PAN NO.AABCN7897E. PAN NO.AABCN7897E. VS. VS. VS. VS. INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -18(1), 18(1), 18(1), 18(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VED JAIN, CA. RESPONDENT BY : SHRI K.RAVI RAMCHANDRAN, SR.DR ORDER ORDER ORDER ORDER PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI PER C.L.SETHI, J , J, J , JM : M : M : M : THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 4.11.2010 PASSED BY LEARNED CIT(A) IN THE MATTER OF AN ASSESS MENT MADE U/S 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) BY THE AO FOR THE AY 2007-08. 2. GROUND NO.1 IS GENERAL IN NATURE AND NEEDS NO AD JUDICATION AS SO STATED BY THE LEARNED COUNSEL FOR THE ASSESSEE. 3. GROUND NOS.2 TO 4 ARE DIRECTED AGAINST LEARNED C IT(A)S ORDER IN CONFIRMING THE ADDITION OF `27,63,505/- DISALLOWED BY THE AO ON ACCOUNT OF TRAINING AND DEVELOPMENT EXPENSES. 4. AN ALTERNATIVE GROUND HAS ALSO BEEN TAKEN BY THE ASSESSEE VIDE GROUND NOS.5 & 6 THAT EVEN IF THE AFORESAID ADDITIO N OF `27,63,505/- IS TAKEN INTO ACCOUNT, THE TOTAL PROFIT OF THE ASSESSE E WILL STILL BE ELIGIBLE ITA-5425/DEL/2010 2 FOR DEDUCTION U/S 10B OF THE ACT AND IN THAT WAY, T HE TOTAL INCOME OF THE ASSESSEE SHALL REMAIN THE SAME. 5. WE SHALL FIRST TAKE UP THE ALTERNATIVE GROUND NO S.5 & 6 TAKEN BY THE ASSESSEE. 6. WITH REGARD TO GROUND NOS.5 & 6, THE ASSESSEE HA S SUBMITTED A SYNOPSIS IN WRITING AS UNDER:- THE ISSUE IN THIS APPEAL IS DISALLOWANCE OF EXPEND ITURE OF RS.27,63,505/- INCURRED BY THE ASSESSEE ON ACCOUNT OF TRAINING AND DEVELOPMENT EXPENSES. THE ABOVE SAID EXPENDITURE HAS BEEN DISALLOWED BY THE AO ON THE GR OUND THAT IN VIEW OF THE STATEMENT GIVEN BY ONE MR.S.K.G UPTA THE ASSESSEE HAS NOT INCURRED THIS EXPENDITURE. TH E ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING I NCOME OF RS.1,37,870/-. THE ASSESSEE HAS GOT INCOME FROM EO U EXEMPTION U/S SECTION 10B WHICH WAS COMPUTED BY THE ASSESSEE AT RS.2,17,069/- AFTER DEDUCTING THE ABOVE SAID EXPENDITURE OF RS.27,63,505/-. IN VIEW OF THE DISALLOWANCE OF ABOVE EXPENDITURE OF RS.27,63,505/- THE CORRESPONDING INCOME FROM EOU WI LL GO UP WHICH WILL BE EXEMPT UNDER SECTION 10B OF THE AC T AND ACCORDINGLY THERE WILL BE NO IMPACT ON THE NET ASSE SSABLE INCOME COMPUTED BY THE ASSESSEE AT RS.1,37,870/-. IN VIEW OF THESE FACTS WITHOUT GOING INTO THE ISSUE OF EXPENDITURE BEING INCURRED OR NOT IT WILL BE APPROP RIATE TO DECIDE GROUND NO.6 ALLOWING INCREASED EXEMPTION UND ER SECTION 10B OF THE ACT CONSEQUENT TO THE INCREASE I N THE ELIGIBLE INCOME BECAUSE OF THE DISALLOWANCE OF SUCH EXPENDITURE. THIS ISSUE IS ALSO COVERED BY THE JUDGMENT OF THE D ELHI TRIBUNAL IN THE CASE OF M/S RAJ SONS JEWELLERS VS. ITO 86 TTJ 1106 WHEREIN IT HAS BEEN HELD THAT BY DISALLOWANCE OF THE EXPENDITURE INCURRED IN COMPUTING THE INCOME FROM EXPORTS THE CORRESPONDING INCOME ELIGIBLE FOR EXEMP TION GETS INCREASED AND AO IS DUTY BOUND TO ALLOW THE SA ME. ITA-5425/DEL/2010 3 ACCORDINGLY THE AO WAS NOT JUSTIFIED IN SIMPLY MAKI NG AN ADDITION OF RS.27,63,505/- TO THE RETURNED INCOME. THUS, WITHOUT GOING INTO THE ISSUE WHETHER EXPENDITURE IN CURRED IS LEGITIMATE OR NOT THE NET ASSESSABLE INCOME WILL BE SAME EVEN AFTER DISALLOWANCE IN VIEW OF INCREASED EXEMPT ION UNDER SECTION 10B. THUS GROUND NOS.1 TO 4 ARE ACAD EMIC IN NATURE. ACCORDINGLY, GROUND NO.5 IN CASE IS DECIDED IN THE MANNER STATED ABOVE, THERE WILL BE NO NEED TO GIVE A FINDI NG ON GROUNDS NO.1 TO 4 AS THERE WILL BE NO REVENUE IMPLI CATION. 7. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THERE IS NO FINDING BY THE AO THAT ASSESSEES INCOME IS EXEMPT U/S 10B OF THE ACT AND, THEREFORE, THE BENEFIT OF DEDUCTION OF INCREAS ED PROFIT U/S 10B IS NOT AVAILABLE TO THE ASSESSEE. 8. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. 9. WE HAVE GONE THROUGH THE COMPUTATION OF INCOME F ILED BY THE ASSESSEE ALONGWITH THE RETURN OF INCOME. THE ASSES SEE HAS SHOWN THE PROFIT BEFORE TAX AS PER PROFIT & LOSS ACCOUNT AT N EGATIVE FIGURE OF `7,96,882/-. THE ASSESSEE ADDED BACK CERTAIN EXPEN SES AMOUNTING TO `7,10,684/-. THE NET LOSS THUS ARRIVED AT IS `86,1 98/-. INTEREST ON FIXED DEPOSIT WAS ADDED TO THE SAME AND THE TOTAL INCOME WAS TAKEN AT `2,17,069/- WHICH HAS BEEN CLAIMED TO BE EXEMPT U/S 10B. THE ASSESSEE HAS SHOWN INCOME FROM OTHER SOURCES AT `1, 37,871/- AND THUS, THE TOTAL INCOME SHOWN BY THE ASSESSEE WAS AT `1,37,871/-. THE AO MADE THE ADDITION OF `27,63,505/- ON ACCOUNT OF DISALLOWANCE OF PROFESSIONAL CHARGES OR SOFTWARE DEVELOPMENT EXPENS ES WHICH WERE HELD TO BE BOGUS BY THE AO. THE AO THUS DETERMINED THE TOTAL INCOME AT `29,01,375/- OR `29,01,380/-. IT IS NOT IN DISP UTE THAT LEGAL AND PROFESSIONAL CHARGES WERE CLAIMED BY THE ASSESSEE I N THE PROFIT & LOSS ACCOUNT OF THE BUSINESS OF THE ASSESSEE, THEREFORE, THE ADDITION OF ITA-5425/DEL/2010 4 `27,63,505/- SEEMS TO BE MADE UNDER THE HEAD BUSINE SS OR PROFESSION. IF THE INCOME OF ELIGIBLE UNIT ELIGIBLE FOR DEDUCTI ON U/S 10B IS INCREASED BY WAY OF DISALLOWANCE OF CERTAIN EXPENDITURE CLAIM ED BY THE ASSESSEE, THE ASSESSEE SHALL BE ELIGIBLE FOR DEDUCT ION IN RESPECT OF THE INCREASED PROFIT ASSESSED BY THE AO. IN THE CASE O F M/S RAJ SONS JEWELLERS 86 TTJ 1106, THE ITAT DELHI BENCH F H AS HELD THAT DEDUCTION U/S 80HHC IS TO BE COMPUTED ON THE BASIS OF ASSESSED PROFITS OR GAINS OF BUSINESS AS FINALLY ASSESSED AF TER TAKING INTO CONSIDERATION THE ADDITION, IF ANY. IN THIS CONNEC TION, THE ITAT HAS RELIED UPON THE FOLLOWING DECISIONS:- (I) SHRIRAM PISTONS & RINGS LTD. VS. ACIT (1995) 81 T AXMAN 164(DEL)(MAG); AND (II) MANDHANA EXPORTS (P) LTD. VS. ACIT (2002) 76 TTJ (MUMBAI) 559. 10. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE F ILE OF THE AO TO ASCERTAIN AS TO WHETHER THE ASSESSEES BUSINESS INC OME IS ELIGIBLE FOR DEDUCTION U/S 10B AND IF IT IS SO FOUND, THE AO IS DIRECTED TO ALLOW DEDUCTION U/S 10B IN RESPECT OF THE INCREASED PROFI T ASSESSED BY THE AO. THE AO SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 11. SINCE THE ASSESSEES CLAIM OF DEDUCTION OF INCR EASED PROFIT U/S 10B IS RESTORED BACK TO THE FILE OF THE AO FOR VERI FICATION AS TO WHETHER THE ASSESSEES BUSINESS INCOME IS ELIGIBLE FOR DEDU CTION U/S 10B OF THE ACT AND THEN TO ALLOW THE DEDUCTION WITH REGARD TO INCREASED PROFIT ASSESSED BY THE AO, GROUND NOS.2 TO 4 TAKEN BY THE ASSESSEE HAVE BECOME REDUNDANT AT THIS STAGE AND SAME ARE ALSO RE STORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN CASE I T IS FOUND THAT THE ADDITION BY WAY OF DISALLOWANCE OF EXPENDITURE IS N OT ELIGIBLE FOR ITA-5425/DEL/2010 5 DEDUCTION U/S 10B OF THE ACT. THE AO SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THIS REGARD. WE ORDER ACCORDINGLY. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 6 TH MAY, 2011. SD/- SD/- (B.C (B.C (B.C (B.C.MEENA .MEENA .MEENA .MEENA) )) ) (C.L.SETHI (C.L.SETHI (C.L.SETHI (C.L.SETHI) )) ) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 06.05.2011. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR