M/s Binary Semantics Ltd., New Delhi V. ITO, New Delhi

ITA 5679/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6818 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-08-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 22-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: SANJAY KALRA
• Keywords: Deemed to accrue or arise in india; Onus to prove

Judgement Text

1 ITA NO. 5 679.DEL.13 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE PRESIDENT AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO.-5679/DEL/2013 (ASSESS MENT YEAR 2003-04) BINARY SEMANTICS LTD. A-11, 1 ST FLOOR, MEER SINGH COMPLEX KAPASHERA NEW DELHI AABCB0652N (APPELLANT) VS ITO WARD 3(3), NEW DELHI (RESPONDENT) APPELLANT BY SH. SANJAY KALRA, CA RESPONDENT BY SH. S. K. JAIN, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 1/7/2013 PASSED BY CIT(A)-IV, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS:- 1. THAT ON FACTS AND IN LAW THE ORDERS PASSED BY T HE A.O AND PARTLY CONFIRMED BY THE COMMISSIONER OF INCOME TAX (APPEALS) (HEREINAFTER REFERRED TO AS CIT(A) ) AR E BAD IN LAW AND VOID AB-INITIO 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING TH E FOLLOWING DISALLOWANCES OF FOLLOWING. DATE OF HEARING 08.08.2016 DATE OF PRONOUNCEMENT 20.10.2016 2 ITA NO. 5 679.DEL.13 A). THE CIT(A) IS NOT CORRECT IN CONFIRMING DISALLO WANCE OF RS.5,60,000/- FOR THEIR CHARGES PAID TO SOFTWARE TECHNOLOGY PARK OF INDIA, NOIDA, THE DISALLOWANCE I S UNJUST, ARBITRARY & ILLEGAL. B). THE CIT(A) IS INCORRECT IN DENIAL OF DEDUCTION OF RS.1,40,000/- RS, 1,40,000/- ALLOWED BY LD. A.O PAI D TO STPI FOR THEIR CHARGES. THE DENIAL IS UNJUST, ARBI TRARY, ILLEGAL, AND AGAINST FACTS. C). THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CO NFIRMING DISALLOWANCE OF RS.3,35,625/- IN THE ABSENCE OF CONFIRMATION FROM THE PARTY M/S GIGAWARE SOFTWARE SOLUTIONS. THE AMOUNT WAS PAID FOR PURCHASE OF CER TAIN SOFTWARE. THE DENIAL IS UNJUST, ILLEGAL AND AGAINS T FACTS. 3. THE ASSESSEE COMPANY WAS INCORPORATED ON FEBRUAR Y, 1986. DURING THE YEAR THE ASSESSEE WAS ENGAGED IN THE ACT IVITY OF THE TRADING OF GENERIC SOFTWARE AND PROVIDING COMPUTERI ZED SOFTWARE DEVELOPMENT SERVICES FOR THE DOMESTIC AS WELL AS FO R FOREIGN MARKET. THE ASSESSING OFFICER OBSERVED THAT DURING THE YEAR ASSESSEE COMPANY HAS CLAIMED TO HAVE INCURRED EXPENSES OF RS .12.26 LACS ON POWER AND FUEL AS PER PROFIT AND LOSS A/C. IN COMP ARISON TO THE EARLIER YEAR EXPENSE THE AMOUNT SPENT ON POWER AND FUEL IN THE YEAR UNDER REFERENCE IS ON HIGHER SIDE WHEREAS TOTAL TUR NOVER HAS BEEN DECREASED TO 90% FROM LAST YEAR. (LAST YEAR TURNOV ER WAS RS.33,69,22,000/- THIS YEAR TURNOVER WAS RS.2,41,60 ,000/-). THE ASSESSEE WAS ASKED TO JUSTIFY THE SAME. THE ASSESS EE REPLIED THE SAME VIDE LETTER DATED 2/12/2005. THE ASSESSING OFF ICER OBSERVED THAT THE ASSESSEE HAD DEBITED RS. 7 LACS AS SERVICE CHARGES IN PROFIT AND LOSS ACCOUNT. DETAIL FURNISHED IN THIS REGARD S HOWS THAT RS. 7 3 ITA NO. 5 679.DEL.13 LACS RELATES TO REGISTRATION CHARGE FOR GETTING REG ISTRATION WITH SOFTWARE TECHNOLOGY PARK NOIDA FOR AVAILING SERVICE OF STPI. THE ASSESSEE WAS GOING TO START NEW BUSINESS ACTIVITY D URING THE YEAR UNDER CONSIDERATION AND INCURRED RS. 7 LACS ON THE SAME. THESE EXPENSE ARE THE EXPENSES WHICH FALLS UNDER THE AMBI T OF SECTION 35D OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFI CER FURTHER OBSERVED THAT THE ASSESSEE HAD SPENT RS. 7 LACS IN CONNECTION WITH AVAILING THE SERVICES OF STPI MEANS THE ASSESSEE HA D INCURRED THE EXPENDITURE ON EXTENSION OF THE EXISTING BUSINESS. THE ASSESSEE CANNOT CLAIM THESE EXPENSES AS WHOLE. THESE EXPENSE S ARE NOT ROUTINE NATURE AND APPEARING OF ENDURING BENEFIT NA TURE. THEREFORE THESE EXPENSES ARE AMORTIZED BEING EXPENSES OF PRE- OPERATIVE EXPENSES. HOWEVER, AS PER SECTION 35D 1/5 OF RS. 7 LACS IS ALLOWABLE. THUS THE ASSESSING OFFICER DISALLOWED RS . 5,60,000/-. AS RELATES TO THE PURCHASES OF SOFTWARE FROM M/S. GIGA WARE SOFTWARE SOLUTIONS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENT THAT EXHIBITS THE CREDIT BAL ANCE. IN ABSENCE OF ANY DETAIL/CONFIRMATION FROM THE SAID PA RTY, THE OUTSTANDING BALANCE SHOWN TO RS. 3,35,625/- WAS TRE ATED AS A DEEMED INCOME OF THE ASSESSEE UNDER SECTION 41 (1) OF THE INCOME TAX ACT, 1961. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). AS REGARDS TO REGIS TRATION CHARGES FOR GETTING REGISTRATION WITH SOFTWARE TECHNOLOGY PARK, NOIDA FOR 4 ITA NO. 5 679.DEL.13 AVAILING SERVICE OF STPI FOR RS. 7,00,000/-, THE CI T(A) HELD THAT THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE IN SUPPORT OF ASSESSEES CLAIM THAT THESE EXPENSES WERE PERTAINING TO THE AS SESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE COULD NOT GIVE A NY SATISFACTORY REPLY TO THE A.OS REMAND REPORT THAT THE DETAILS P ERTAIN TO THE ASSESSMENT YEAR 2002-03 AND NOT TO THE ASSESSMENT Y EAR UNDER CONSIDERATION. THE CIT(A) FURTHER HELD THAT THE BI LL SUBMITTED BY THE ASSESSEE ARE PERTAINING TO THE FINANCIAL YEAR 2 001-02 WHICH IS RELATING TO THE ASSESSMENT YEAR 2002-03 AND IN THE LEDGER ACCOUNT, THERE WAS CREDIT OF RS.1,00,000/- AS OPENING BALANC E ON 1/4/2002. NONE OF THE BILLS ARE RELATING TO THE ASSESSMENT YE AR 2003-04. THE BILL GIVEN FOR DATACOM CHARGES PERTAIN TO THE PERIO D 1/1/2002 TO 31/3/2002. THE LOCAL ROUTINE CHARGES OF RS.1,05,00 0/- DATED 13/12/2001 WHICH WERE REQUIRED TO BE PAID BY 18/12/ 2001 FOR WHICH CONTRACT WAS MADE ON 3/7/1998. THUS THE CIT( A) HELD THAT THE CLAIM OF PAYMENT OF RS.7,00,000/- DID NOT PERTA IN TO THE YEAR UNDER CONSIDERATION. THEREFORE, THESE ARE NOT THE ADMISSIBLE EXPENSES DURING THE YEAR. THE HON'BLE SUPREME COUR T IN THE CASE OF CIT(A) VS. CALCUTTA AGENCY LTD 19 ITR 191 (HON'B LE SUPREME COURT) AND IN THE CASE OF CIT(A) V R. VENKATASWAMY NAIDU 29 ITR 529 (HON'BLE SUPREME COURT) HAD HELD THAT TO CLAIM AN EXEMPTION, IT IS THE DUTY OF THE ASSESSEE TO SUBSTANTIATE IT W ITH RECORDS AND EVIDENCES. THUS, THE CIT(A) UPHELD THE ORDER OF TH E ASSESSING OFFICER IN MAKING THE DISALLOWANCE OF ENTIRE AMOUNT OF RS.7,00,000/-. FURTHER THE CIT(A) HELD THAT SINCE THE A.O HAS ALLOWED 1/5 TH DEDUCTION U/S 35D, THE SAME REQUIRES TO BE 5 ITA NO. 5 679.DEL.13 WITHDRAWN AND DISALLOWANCE IS REQUIRED TO BE MADE F OR ENTIRE AMOUNT BY RS.7,00,000/-. THUS, DENIED THE DEDUCTION OF RS. 1,40,000/- ALLOWED BY THE ASSESSING OFFICER PAID TO STPI FOR THEIR CHARGES. 5. ON THE ISSUE OF DISALLOWANCE OF RS. 3,35,625/- I N THE ABSENCE OF CONFIRMATION FROM THE PARTY M/S. GIGAWARE SOFTWA RE SOLUTIONS, THE CIT(A) HELD THAT THE ASSESSEE HAS ONLY SUBMITTE D THE COPY OF THE ACCOUNT OF THE PARTY AS APPEARING IN ITS BOOKS OF A CCOUNTS. HOWEVER, NO CONFIRMATION FROM M/S. GIGAWARE SOFTWAR E SOLUTIONS HAS BEEN SUBMITTED. EVEN THE COPY OF THE BANK ACCOU NT FROM WHICH PAYMENT WAS MADE TO M/S. GIGAWARE SOFTWARE SOLUTION S IN NEXT YEAR AS CLAIMED BY THE ASSESSEE WAS NOT PRODUCED EI THER BEFORE THE AO OR BEFORE THE CIT(A) DURING THE APPELLATE PROCEE DINGS. THE CIT(A) FURTHER HELD THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS TO PROVE THE GENUINESS OF THE TRANSACTION DESPITE SPECIFIC O PPORTUNITIES GIVEN BY THE ASSESSING OFFICER. THUS THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. 6. THE LD. AR SUBMITTED THAT THE ANNUAL CHARGES OF STPI GATEWAY FOR TRANSPONDRANCE OF SOFTWARE DEVELOPED. THE ANNUA L CHARGES OF STPI WERE RS. 4 LACS WHICH WERE CLAIMED IN FOUR EQU AL QUARTERLY INSTALLMENTS. THERE WAS SOME DISPUTE OF RS. 3 LACS CHARGES OF EARLIER YEAR WHICH WERE ALSO SETTLED/PAID IN CURREN T YEAR. RS. 1 LAC PAID ON 13.07.2002, PAID ON 14.08.2002 AND PAYABLE AS ON 31.03.2003 IS THE CHARGES FOR THE FY 2002-03 I.E. P REVIOUS YEAR IN 6 ITA NO. 5 679.DEL.13 QUESTION HENCE EXPENSES FOR CURRENT YEAR ONLY NOT R EGISTRATION OR PRIOR PERIOD EXPENSES. RS. 1 LAC PAID ON 15.04.2002 , RS. 1 LAC ON 15.05.2002 AND RS. 1 LAC PAID ON 25.07.2002 ARE FOR THE FY 2001- 02. THESE WERE PENDING AND NOT EXPENSED IN EARLIER YEARS AS THERE WAS SOME DISPUTE BETWEEN ASSESSEE & STPI, WHICH WAS RESOLVED IN CURRENT YEAR AND PAYMENT AND EXPENSES BOOKED. SINCE IT WAS SETTLED IN CURRENT YEAR AND CRYSTALLIZED IN CURRENT YEAR, IT IS TO BE EXPENSED IN CURRENT YEAR ONLY. THE SERVICES UTILIZE D AGAINST THE SAME WERE BOOKED AS INCOME IN EARLIER YEARS. THE AM OUNT WAS NOT EXPENSED SINCE THERE WERE DISPUTES BETWEEN PARTIES ON CERTAIN ISSUES. HOWEVER IT WAS RESOLVED IN CURRENT YEAR AND ACCORDINGLY EXPENSED. THE LD. AR FURTHER SUBMITTED THAT UNDER T HE SCHEME OF STPI, IT INDUSTRIES ARE PROVIDED CERTAIN CONCESSION IN DUTIES, LEVIES AND TAXES. THE SCHEME IS SINGLE POINT CONTACT SERVI CE TO THE STP UNIT WHICH PROVIDES APPROVAL AS A STP UNIT, APPROVA L FOR ENHANCEMENT OF CAPITAL GOODS, ISSUANCE OF GREEN CAR D, GUIDANCE FOR CUSTOM BONDING, CERTIFICATION OF IMPORTS AND EXPORT S, PERMISSION FOR EXCISE EXEMPTION AND DTA SALES AS WELL AS RE-EXPORT , NO OBJECTION CERTIFICATE FOR CHANGE OF NAME AND LOCATION, CST RE IMBURSEMENT. THUS THE LD. AR SUBMITTED THAT THESE ARE NOT REGIST RATION CHARGES AS UNDERSTOOD BY AO FOR STARTING SOME NEW BUSINESS NOR IT FALLS U/S 35D AS CONTEMPLATED. ASSESSEE HAD BEEN IN SOFTWARE DEVELOPMENT & EXPORT FOR YEARS. THE SERVICE CHARGES CHARGED BY STPI ARE ROUTINE IN NATURE & EVERY SOFTWARE EXPORTER HAS TO PAY TO S TPI. ON THE SECOND ISSUE, THE LD. AR SUBMITTED THAT THE COMPANY HAD PURCHASED A SOFTWARE FROM M/S. GIGAWARE SOFTWARE SO LUTIONS FOR 7 ITA NO. 5 679.DEL.13 RS. 3,35,625/- VIDE THEIR INVOICE DATED 06.02.2003 WHICH WAS GIVEN IN THE PAPER BOOK AT PAGE 36 AND PRODUCED BEFORE TH E LOWER AUTHORIZES. THIS WAS RE-SOLD TO AXIS MARKETING, NEW DELHI FOR RS. 4,00,388/-. THE CUSTOMER PAID THE AMOUNT OF RS.4,00 ,000/- ON 18.08.2003 VIDE CHEQUE. M/S GIGAWARE SOFTWARE SOLUT IONS WAS PAID RS. 1,50,000/- ON 18.08.2003 FOR WHICH BANK STATEME NT WAS PRODUCED BEFORE THE AUTHORITIES AND RS. 1,80,327/- ON 08.09.2003. THUS IT IS NOT A CASE OF CESSATION OR OMISSION OF L IABILITY BANK STATEMENT COPY OF ACCOUNT FOR EVIDENCE OF PAYMENT W AS PRODUCED BEFORE THE AUTHORITIES. 7. THE LD. DR RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). 8. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH T HE PARTIES. ON THE FIRST ISSUE IT IS OBSERVED THAT THE ANNUAL C HARGES OF STPI WERE RS. 4 LACS WHICH WERE CLAIMED IN FOUR EQUAL QU ARTERLY INSTALLMENTS. THERE WAS SOME DISPUTE OF RS. 3 LACS CHARGES OF EARLIER YEAR WHICH WERE ALSO SETTLED/PAID IN CURREN T YEAR. RS. 1 LAC PAID ON 13.07.2002, PAID ON 14.08.2002 AND PAYABLE AS ON 31.03.2003 IS THE CHARGES FOR THE FY 2002-03 I.E. P REVIOUS YEAR IN QUESTION HENCE EXPENSES FOR CURRENT YEAR ONLY NOT R EGISTRATION OR PRIOR PERIOD EXPENSES. RS. 1 LAC PAID ON 15.04.2002 , RS. 1 LAC ON 15.05.2002 AND RS. 1 LAC PAID ON 25.07.2002 ARE FOR THE FY 2001- 02. THESE WERE PENDING AND NOT EXPENSED IN EARLIER YEARS AS THERE WAS SOME DISPUTE BETWEEN ASSESSEE & STPI, WHICH WAS RESOLVED IN CURRENT YEAR AND PAYMENT AND EXPENSES BOOKED. SINCE IT WAS 8 ITA NO. 5 679.DEL.13 SETTLED IN CURRENT YEAR AND CRYSTALLIZED IN CURRENT YEAR, IT IS EXPENSED IN CURRENT YEAR BY THE ASSESSEE. THE SAID PAYMENTS ARE IN CHEQUE AND THERE IS NO NECESSITY FOR FURTHER VERIFI CATION OF THE SAME. THE SERVICE CHARGES CHARGED BY STPI ARE ROUTINE IN NATURE & EVERY SOFTWARE EXPORTER HAS TO PAY TO STPI. IT DOES NOT A TTRACT PROVISIONS OF SECTION 35D OF THE ACT. THUS THE CIT (A) AND THE ASSESSING OFFICER FAILED TO TAKE COGNIZANCE OF THE SAME. 9. AS RELATES TO THE SECOND ISSUE THE PURCHASE OF T HE SOFTWARE FROM THE GIGAWARE SOFTWARE SOLUTIONS FOR RS. 3,35,6 25/-, THE LD. AR SUBMITTED ITS BANK STATEMENTS TO THAT EXTENT BEF ORE THE ASSESSING OFFICER. THUS THE FINDING RECORDED BY THE CIT(A) THAT THE BANK ACCOUNT WAS NOT PRODUCED IS INCORRECT. IT IS N OTED THAT THE ASSESSEE HAS PRODUCED THE RELEVANT DOCUMENTS AT THE TIME OF THE ASSESSMENT PROCEEDINGS. THUS THE FINDING GIVEN BY T HE CIT(A) AS WELL AS BY THE ASSESSING OFFICER THAT THE RELEVANT DOCUMENTS WERE NOT PRODUCED IS INCORRECT. 10. IN RESULT, APPEAL IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT 20TH OF O CTOBER , 2016. SD/- SD/- (G. D. AGRAWAL) (SUCHITRA KAMBLE) VICE PRESIDENT JUDICIAL M EMBER DATED: 20/10/2016 R. NAHEED * COPY FORWARDED TO: 9 ITA NO. 5 679.DEL.13 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT R EGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 08.07.2016 PS 2. DRAFT PLACED BEFORE AUTHOR 08.08.2016 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 20.10.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 0 .10.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.