ITO 10(3)-4, MUMBAI V. GTL INFRASTRUCTURE LTD, NAVI MUMBAI

ITA 5487/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8277 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 12-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 05-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation

Judgement Text

ITA NO. 5487/MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH, MUMBAI [CORAM : PRAMOD KUMAR AM AND V DURGA RAO, JM] ITA NO. 5487/MUM/09 ASSESSMENT YEAR: 2005-06 INCOME TAX OFFICER WARD 10(3)(4), MUMBAI 400 020 .. APPEL LANT VS. GTL INFRASTRUCTURE LIMITED .. RESPONDEN T ELECTRONIC SADAN 1, MIDC TTC INDUSTRIAL ESTATE MAHAPE, NAVI MUMBAI 400 701 PAN : AACCG2107K APPEARANCES: A K NAYAK, FOR THE APPELLANT VIJAY MEHTA , FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR : 1. THIS IS AN APPEAL FILED BY THE ASSESSING OFFICER AND IT CALLS INTO QUESTION CORRECTNESS OF THE ORDER DATED 31 ST JULY 2009, PASSED BY THE CIT(A) FOR THE ASSESSMENT YEAR 2005-06. 2. IN THE FIRST GROUND OF APPEAL FOLLOWING GRIEVANC E IS RAISED: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN ALLOWING DEPRECIATIO N IGNORING THE FACT (I) THE ASSESSEE HAD NO MANPOWER OR INFRASTRUCTURE TO RUN THE SOFTWARE, (II) THE ASSESSEE HAS ACQUIRED ONLY THE L ICENCE OF USE OF SOFTWARE, AND (III) NO REVENUES ARE REALIZED ON THE USE OF SOFTWARE. ITA NO. 5487/MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 2 OF 6 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE A SSESSEE IS ENGAGED IN THE BUSINESS OF, AS NOTED BY THE ASSESSING OFFICER, PR OVIDING MANAGED NETWORK SERVICES AND TELECOM INFRASTRUCTURE FACILITY. DUR ING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS 61,27,471, ON TELECOMMU NICATION INFRASTRUCTURE SOFTWARE WORTH RS 4,90,21,930, BUT THE ASSESSEE WA S NOT INFACT ENTITLED TO THE DEPRECIATION SO CLAIMED. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INVOICE FURNISHED BY THE ASSESSEE DOES NOT EVIDENCE THE FACT OF PURCHASE AS THE ASSESSEE HAS NOT FILED COPIES OF FINAL BILL, DE LIVERY CHALLAN AND INSTALLATION REPORT. HE ALSO NOTICED THAT THE ASSESSEE HAS PURCH ASED STRATEGIC MANAGEMENT SYSTEM SOFTWARE AND PROCESS CONTROL SYST EM SOFTWARE, THAT, FROM THE DETAILS FURNISHED BY THE ASSESSEE, IT CAN BE EASILY GATHERED THAT SERVERS, CONTROL MACHINERY, NETWORK PLATFORM, OPERA TING SYSTEM, COMPUTERS, ROUTERS, HUBS AND RELATED EQUIPMENTS ARE A MUST FOR SUCCESSFUL IMPLEMENTATION OF THE SOFTWARE CLAIMED TO HAVE BEEN PURCHASED BY THE ASSESSEE., AND THAT PERUSAL OF PROFIT AND LOSS AC COUNT ALSO SHOWS THAT THE ASSESSEE HAD NEITHER THE STAFF NOR ANY EXPENSES TOW ARDS COMPUTERS AND NETWORKING DURING THE RELEVANT PREVIOUS YEAR FOR CA RRYING OUT THE BUSINESS. HE ALSO NOTED THAT ENTIRE REVENUES OF THE ASSESSEE WERE ONLY RS 11,31,600 AND THESE REVENUES REPRESENTED CONSULTANCY SERVICES AND TELECOM INFRASTRUCTURE CHARGES. IT WAS THUS CLEAR, ACCORDIN G TO THE ASSESSING OFFICER, THAT ENTIRE BUSINESS OPERATIONS WERE OUTSOURCED, AN D THAT THE ASSESSEE COULD NOT HAVE PUT THE SOFTWARE PURCHASED TO ANY USE. THE ASSESSING OFFICER FURTHER NOTED THAT THE SOFTWARE WAS PURCHASED ON 1 5 TH MARCH 2005, AND THAT ONLY CREDIT FOR SERVICE CHARGES FOR PROVISIONING CH ARGES FOR TELECOM INFRASTRUCTURE SERVICES WAS ON 31 ST MARCH, AND EVEN THE SAID SERVICES FOR WHICH BILL WAS SO RAISED DID NOT REQUIRE ANY USE OF COMPUTER SERVICES. HE WAS, THEREFORE, OF THE VIEW THAT THE ASSET WAS NOT PUT TO USE. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER DECLINED DEPREC IATION ON SOFTWARE. AGGRIEVED BY THE DISALLOWANCES SO MADE, ASSESSEE CA RRIED THE MATTER IN APPEAL BEFORE THE CIT(A). LEARNED CIT(A) NOTED THAT THE PURCHASE ORDER FOR SOFTWARE WAS PLACED ON 11 TH MARCH 2005, REQUISITE ADVANCE PAYMENT MADE ON 15 TH MARCH 2005, DELIVERY WAS TAKEN ON 17 TH MARCH 2005, AND THAT EVIDENCE IN ITA NO. 5487/MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 3 OF 6 SUPPORT OF THESE FACTS WERE DULY FURNISHED BY THE A SSESSEE. IT WAS FURTHER NOTED THAT SAID SOFTWARE WAS USED BY THE ASSESSEE O N EXISTING TELECOMMUNICATION NETWORK INFRASTRUCTURE OF GTL LIM ITED, ASSESSEE COMPANYS HOLDING COMPANY, AND THUS ALL THE NECESSA RY PRECONDITIONS FOR DEPRECIATION ON SOFTWARE WERE SATISFIED. IT WAS ALS O NOTED THAT, AS ALSO SUBMITTED BY THE ASSESSEE BEFORE THE ASSESSING OFFI CER VIDE LETTER DATED 19 TH JULY 2007, ADDITIONS TO THE FIXED ASSETS OF THE CO MPANY ARE IN THE NATURE OF TELECOMMUNICATION INFRASTRUCTURE SOFTWARE WHICH ARE BEING USED ON SHARING BASIS WITH MOBILE TELECOM OPERATORS OF GTL. TAKING ALL THESE FACTORS INTO ACCOUNT, LEARNED CIT(A) DELETED THE DISALLOWANCE OF DEPRECIATION. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEF ORE US. 4. HAVING HEARD THE RIVAL CONTENTION AND HAVING PER USED THE MATERIAL ON RECORD, WE SEE NO REASONS TO INTERFERE IN THE STAND SO TAKEN BY THE CIT(A). WE HAVE NOTED THAT, AS EVIDENT FROM THE MATERIAL BEFOR E US, THE FACT OF PURCHASE OF MACHINERY, ITS DELIVERY AND INSTALLATION ARE NOT IN DOUBT. COPIES OF RELEVANT DOCUMENTS HAVE BEEN FILED BEFORE US, AND ALL THESE DOCUMENTS ARE SAID TO HAVE BEEN FILED BEFORE BOTH THE AUTHORITIES AS WELL. WE HAVE ALSO NOTED THAT REVENUES FROM USE OF THE SOFTWARE HAVE ALSO BEEN AC COUNTED FOR IN THE BOOKS OF ACCOUNTS AND DULY BROUGHT TO TAX. AS EVIDENT FRO M LETTER DATED 14 TH MARCH 2005, A COPY OF WHICH IS FILED BEFORE US AT PAGE 10 OF THE PAPERBOOK, THERE WAS AN ARRANGEMENT FOR USE OF THE SOFTWARE BY GTL F OR WHICH THE ASSESSEE WAS PAID RS 5,00,000 PER MONTH. A COPY OF INVOICE FOR SUCH USE, FOR LAST FORTNIGHT OF MARCH 2005, WAS ALSO PLACED BEFORE US AT PAGE 12 OF THE PAPERBOOK. THE USE OF SOFTWARE, THEREFORE, CANNOT B E DOUBTED EITHER. IN THESE CIRCUMSTANCES, AS THE LEARNED CIT(A) RIGHTLY NOTES, ALL THE CONDITIONS FOR CLAIM OF DEPRECIATION WERE DULY SATISFIED. IN OUR CONSIDE RED VIEW, THEREFORE, THERE WAS NO INFIRMITY IN THE IMPUGNED RELIEF GRANTED BY THE CIT(A). WE APPROVE AND UPHOLD THE ACTION OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 5. GROUND NO. 1 IS THUS DISMISSED. 6. IN GROUND NO. 2, THE ASSESSING OFFICER HAS RAISE D THE FOLLOWING ITA NO. 5487/MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 4 OF 6 GRIEVANCE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, WHETHER THE LEARNED CIT(A) IS JUSTIFIED IN ALLOWING THE REIMBUR SEMENT OF COST OF MANPOWER IGNORING THE FACT THAT THE ASSESSEE HAD NO T PRODUCED ANY EVIDENCE TO PROVE THAT SUCH EXPENSES WERE WHOLLY AN D EXCLUSIVELY INCURRED FOR THE PURPOSES OF BUSINESS. 7. AS REGARDS MANPOWER DEVELOPMENT COSTS OF RS 29,9 7,568, THE ASSESSING OFFICER NOTED THE ASSESSEES EXPLANATION THAT THIS PAYMENT REPRESENTS REIMBURSEMENT OF MANPOWER COSTS IN RESPECT OF MANPO WER COSTS INCURRED FOR ASSESSEES WORK AND FOR EXECUTING THE ORDERS OF THE CLIENTS FOR EARNING INCOME. THE ASSESSEE WAS CALLED UPON TO FURNISH CO MPLETE DETAILS OF THE PERSONS WHO HAVE SO WORKED FOR THE ASSESSEE, BUT TH E DETAILS FILED BY THE ASSESSEE DID NOT REALLY SATISFY THE ASSESSING OFFIC ER. HE NOTED THAT ONE OF THE EMPLOYEES OF GLOBAL TELE SYSTEM, WHO IS CLAIMED TO HAVE WORKED FOR THE ASSESSEE, WAS NEW DELHI BASED WHEREAS PROJECT WAS E XECUTED IN MUMBAI. HE ALSO NOTED THAT COMPLETE DETAILS ARE NOT ON RECORD. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED RS 29,97,568 ON ACCOUNT OF MANPO WER DEPLOYMENT COSTS AS WELL. WHEN THE MATTER TRAVELLED IN APPEAL BEFORE TH E CIT(A), HE NOTED THAT THE ASSESSEE DOES NOT HAVE ANY MANPOWER OF ITS OWN AND IT HAD TO GET THE WORK DONE BY USING THE EMPLOYEES OF ITS GROUP COMPANIES. THE CLAIM OF DEDUCTION WAS ONLY IN RESPECT OF DEBIT NOTES RECEIVED FROM TH E GROUP COMPANIES IN RESPECT OF MANPOWER SO USED, WHICH WAS USED FOR THE PURPOSES OF COMPANYS WORK. AS REGARDS THE ALLEGED DISCREPANCY IN ADDRESS OF ONE OF THE EMPLOYEES, THE CIT(A) NOTED THAT THIS ALLEGATION IS FACTUALLY INCORRECT INASMUCH AS FORM 16 SHOWED THE ADDRESS OF THE EMPLOYEE AT NAVI MUMBA I AND THAT, IN ANY EVENT, MERELY BECAUSE AN ADDRESS IS WRONG, ENTIRE M ANPOWER COSTS CANNOT BE DISALLOWED. THE CIT(A) ACCORDINGLY DELETED THE DISA LLOWANCE. THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 8. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE SEE NO REASONS TO INTERFERE IN THE MATTE R. AS LEARNED CIT(A) RIGHTLY NOTES, THE PAYMENT IS MADE TO THE GROUP COMPANIES T OWARDS REIMBURSEMENTS OF MANPOWER COSTS AND THE PAYMENTS ARE BASED ON DEB IT NOTES. IT IS ALSO NOT IN ITA NO. 5487/MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 5 OF 6 DISPUTE THAT THE REVENUES ON ACCOUNT OF WORK SO DON E HAS ALREADY BEEN ACCOUNTED FOR AND TAKEN NOTE OF. AS REGARDS THE DIS CREPANCY POINTED OUT, WHICH CANNOT BE SOLE BASIS FOR DISALLOWANCE ANYWAY, THE ALLEGED DISCREPANCY DID NOT REALLY EXIST. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO CONTROVERT THESE FINDINGS. IN VIEW OF THESE DISCUSSIONS, AS A LSO BEARING IN MIND ENTIRETY OF THE CASE, THE DISALLOWANCE WAS RIGHTLY DELETED B Y THE CIT(A) AND THERE IS NO NEED TO INTERFERE IN THE MATTER. 9. GROUND NO. 2 IS ALSO DISMISSED. 10. IN GROUND NO. 3, THE ASSESSING OFFICER HAS RAIS ED THE GRIEVANCE AGAINST DISALLOWANCE UNDER SECTION 40A (IA) IN RESPECT OF M ANPOWER DEPLOYMENT COSTS, BUT AS NONE OF THE AUTHORITIES BELOW HAVE GIVEN ANY FINDINGS IN RESPECT OF THE SAME, THE SAME IS RESTORED TO THE FILE OF THE ASSES SING OFFICER FOR DEALING WITH THE SAME BY WAY OF A SPEAKING ORDER IN ACCORDANCE W ITH THE LAW, BY WAY OF A SPEAKING ORDER AND AFTER GIVING A DUE AND FAIR OPPO RTUNITY OF HEARING TO THE ASSESSEE. TO THIS EXTENT, THIRD GROUND OF APPEAL I S ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT TODAY ON 7 TH DAY OF MARCH, 2011. SD/- SD/- (V DURGA RAO ) (PRAMOD KUMA R) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; 7 TH DAY OF MARCH , 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER , MUMBAI 4. COMMISSIONER (APPEALS) , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, G BENCH, MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI ITA NO. 5487/MUM/09 ASSESSMENT YEAR: 2005-06 PAGE 6 OF 6