ACIT, New Delhi V. M/s. Nov Sara India Pvt. Ltd., New Delhi

ITA 6180/DEL/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6345 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 21-03-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 18-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Assessee Lawyers: PALLAVI
• Keywords: Depreciation; Opportunity of being heard; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.6143/DEL/2013 ASSESSMENT YEAR : 2007-08 ITA NO.1685/DEL/2014 ASSESSMENT YEAR : 2008-09 NOV SARA INDIA PVT. LTD., (NOW KNOWN AS SARA SAE PVT. LTD.), E-30, ANAND NIKETAN (BASEMENT), NEW DELHI. PAN: AAACS6857L VS. ACIT, CIRCLE-13(1), NEW DELHI. ITA NO.6180/DEL/2013 ASSESSMENT YEAR : 2007-08 ITA NO.1789/DEL/2014 ASSESSMENT YEAR : 2008-09 ACIT, CIRCLE-13(1), NEW DELHI. VS. NOV SARA INDIA PVT. LTD., (NOW KNOWN AS SARA SAE PVT. LTD.), E-30, ANAND NIKETAN (BASEMENT), NEW DELHI. PAN: AAACS6857L (APPELLANT) (RESPONDENT) ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 2 ASSESSEE BY : SHRI SANJIV SAPRA, FCA & MS PALLAVI, CA DEPARTMENT BY : SHRI RAJESH KUMAR, SR. DR & MS NIRUPAMA KOTRU, CIT, DR DATE OF HEARING : 21.03.2017 DATE OF PRONOUNCEMENT : 22.03.2017 ORDER PER BENCH: THESE FOUR CROSS APPEALS TWO BY THE ASSESSEE AND EQUAL NUMBER BY THE REVENUE RELATE TO ASSESSMENT YEARS 2007-08 AND 2008-09. SINCE SOME OF THE ISSUES RAISED IN THESE APPEALS AR E COMMON, WE ARE, THEREFORE, PROCEEDING TO DISPOSE THEM OFF BY THIS C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEAR 2007-08 2. GROUND NO.1 OF THE REVENUES APPEAL IS AGAINST T HE DELETION OF ADDITION OF RS.6,95,404/- MADE BY THE ASSESSEE ON A CCOUNT OF COMMISSION. FACTS OF THIS GROUND ARE THAT THE ASSE SSEE PAID COMMISSION FOR THE ABOVE SUM WHICH WAS DISALLOWED BY THE ASSES SING OFFICER FOR ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 3 LACK OF ANY DOCUMENTARY EVIDENCE IN SUPPORT OF SUCH PAYMENT. THE LD. CIT(A), FOLLOWING HIS VIEW FOR THE ASSESSMENT YEAR 2006-07, DELETED THE ADDITION. THE REVENUE IS AGGRIEVED AGAINST THE DELE TION OF THIS ADDITION. 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITS ORDER DA TED 18.01.2016 FOR THE A.YS. 2004-05 TO 2006-07. ADDITION MADE ON THE SAM E COUNT FOR THE A.Y. 2006-07 HAS BEEN DELETED BY OBSERVING THAT THE COMMISSION WAS PAID TO DIRECTORS AS PER BOARD RESOLUTION, AFTER DU E DEDUCTION OF TAX AT SOURCE. IN THE ABSENCE OF ANY DISTINGUISHING FEATUR E HAVING BEEN BROUGHT TO OUR NOTICE BY THE LD. DR IN THE FACTS OF THE INS TANT YEAR VIS--VIS THE PRECEDING YEAR, RESPECTFULLY FOLLOWING THE PRECEDEN T, WE UPHOLD THE DELETION OF DISALLOWANCE. 4. GROUND NO.1.2 IS AGAINST THE DELETION OF DISALLO WANCE OF FOREIGN COMMISSION PAYMENT BY INVOKING THE PROVISIONS OF SE CTION 40(A)(I) OF THE ACT. THE FACTUAL MATRIX OF THIS GROUND IS THAT THE ASSESSEE PAID COMMISSION TO FOREIGN AGENTS FOR A SUM OF RS.48,17, 517/-. THE ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 4 ASSESSING OFFICER OPINED THAT TAX OUGHT TO HAVE BEE N DEDUCTED AT SOURCE FROM THIS PAYMENT. IN THE ABSENCE OF THE ASSESSEE HAVING WITHHELD ANY TAX BEFORE PAYMENT, THE ASSESSING OFFICER MADE DISA LLOWANCE U/S 40(A)(I) OF THE ACT. THE LD. CIT(A) VIDE PARA ON P AGE 6 OF THE IMPUGNED ORDER, DIRECTED THE ASSESSING OFFICER TO VERIFY IF THE RELEVANT CIRCULAR OF CBDT WAS WITHDRAWN SUBSEQUENT TO THE DATE ON WHICH THE PAYMENT WAS MADE BY THE ASSESSEE. IF IT WAS SO, THEN, THE ADDI TION SHOULD NOT BE SUSTAINED. THAT IS HOW, THE LD. CIT(A) RESTORED TH E MATTER TO THE ASSESSING OFFICER WITH NECESSARY DIRECTION. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE LD. CIT(A) HAS SIMPLY RESTORED THE MATTER TO THE FILE OF ASSESSING OFFICER FOR MAKING NECESSARY VERIFICATION IN REGARD TO THE APPLICABILITY OF THE RELEVANT CIRC ULAR TO THE COMMISSION PAYMENT, WHICH IS GERMANE TO THE ISSUE. FINDING NO FAULT WITH THIS DIRECTION, WE UPHOLD THE IMPUGNED ORDER. THIS GROU ND IS NOT ALLOWED. 6. GROUND NO.2 OF THE REVENUES APPEAL IS AGAINST A LLOWING RELIEF IN RESPECT OF DEDUCTION U/S 80IC. THE ASSESSEE CLAIME D DEDUCTION U/S 80IC ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 5 FOR A SUM OF RS.19,16,38,092/-. THE ASSESSING OFFI CER REJECTED THIS CLAIM FOLLOWING THE VIEW TAKEN IN EARLIER YEAR. TH E LD. CIT(A), FOLLOWING ORDERS PASSED BY HIS PREDECESSOR FOR THE A.YS. 2004-05 TO 2006-07, DECIDED THE ISSUE OF SUBSTANTIAL EXPANSIO N IN FAVOUR OF THE ASSESSEE. GROUND NO.1 OF THE ASSESSEES APPEAL IS A LSO IN RESPECT OF DEDUCTION U/S 80IC WHICH WAS DISALLOWED BY THE ASSE SSING OFFICER ON CERTAIN ITEMS OF INCOME SUCH AS COMMISSION, INCENTI VES AND SERVICE CHARGES ETC. THE ASSESSING OFFICER HELD SUCH ITEMS OF INCOME AS NOT `DERIVED FROM INDUSTRIAL UNDERTAKING AND, HENCE, I NELIGIBLE FOR DEDUCTION U/S 80IC. THE LD. CIT(A) DID NOT ACCEPT THE ASSESSEES CLAIM ON THIS SCORE. THAT IS HOW BOTH THE SIDES ARE IN A PPEAL ON THEIR RESPECTIVE STANDS. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT ISSUE RELEVANT TO THE REVENUES APPEAL CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN TH E ASSESSEES OWN CASE FOR THE PRECEDING YEAR. THE TRIBUNAL HAS UPHELD TH E GRANTING OF DEDUCTION U/S 80IC ON THE QUESTION OF SUBSTANTIAL EXPANSION. ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 6 RESPECTFULLY FOLLOWING THE SAME, WE DISMISS THE REV ENUES GROUND. AS REGARDS THE ELIGIBILITY OF DEDUCTION U/S 80IC ON IT EMS OF INCOME, SUCH AS, COMMISSION, EXPORT INCENTIVE AND SERVICE CHARGES ET C., THE TRIBUNAL HAS RESTORED THIS MATTER VIDE PAGE 44 OF ITS ORDER FOR A FRESH ADJUDICATION AT THE END OF THE AO. RESPECTFULLY FOLLOWING THE PREC EDENT, WE ALSO SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT TH E MATTER TO THE FILE OF ASSESSING OFFICER FOR DECIDING IT IN CONFORMITY WIT H THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS EARLIER ORDER. 8. THE ONLY OTHER GROUND WHICH SURVIVES IN THE REVE NUES APPEAL IS AGAINST DEDUCTION FOR `PRIOR PERIOD EXPENSES. THE ASSESSEE CLAIMED DEDUCTION FOR A SUM OF RS.29,11,799/- BY CLAIMING T HIS AMOUNT AS `PRIOR PERIOD EXPENSES. THE ASSESSING OFFICER NEGATIVED THE ASSESSEES CLAIM. THE LD. CIT(A) SET ASIDE THE ASSESSMENT ORD ER ON THIS ISSUE AND DIRECTED THE ASSESSING OFFICER TO VERIFY IF THESE E XPENSES ACTUALLY AROSE DURING THE YEAR EVEN THOUGH PERTAINING TO EARLIER Y EAR. IF SO, THEN, THE AMOUNT SHOULD BE ALLOWED AS DEDUCTION. THE REVENUE IS UPSET WITH THIS DIRECTION. ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 7 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER. DIRECTION HAS BEEN GIVEN FOR VERIFICATION IF THE LI ABILITY FOR THE EXPENSES GOT CRYSTALISED DURING THE YEAR. UNDER MERCANTILE SYSTEM OF ACCOUNTING, AN EXPENDITURE BECOMES DEDUCTIBLE WHEN IT IS INCURR ED AND AN EXPENDITURE IS INCURRED WHEN LIABILITY TO PAY IT IS CRYSTALISED. WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LD. CIT(A) WHICH IS IN CONFORMITY WITH THE ABOVE PRINCIPLE OF RECORDING EX PENSES UNDER THE MERCANTILE SYSTEM OF ACCOUNTING. THIS GROUND IS NOT ALLOWED. 10. THE LD. AR DID NOT PRESS GROUND NO.2 OF THE ASSESSEES APPEAL, WHICH IS HEREBY DISMISSED. 11. IN THE RESULT, BOTH THE APPEALS ARE PARTLY A LLOWED FOR STATISTICAL PURPOSES. ASSESSMENT YEAR 2008-09 12. THE FIRST GROUND OF THE REVENUES APPEAL IS AGA INST ALLOWING OF DEDUCTION U/S 80IC IN RESPECT OF UNIT-1 AMOUNTING T O RS.50,34,885/-. THE ASSESSING OFFICER, FOLLOWING HIS VIEW ABOUT THE SUBSTANTIAL ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 8 EXPANSION, DID NOT ALLOW DEDUCTION U/S 80IC FROM I NCOME UNDER UNIT-1. THE LD. CIT(A) OVERTURNED THE ASSESSMENT ORDER ON T HIS POINT. 13. HAVING GONE THROUGH THE FACTUAL MATRIX OF THIS GROUND, WE FIND THAT THE FACTS ARE, MUTATIS MUTANDIS , SIMILAR TO THOSE OF PRECEDING YEAR. WHILE DEALING WITH THE IDENTICAL ISSUE, WE HAVE UPH ELD THE IMPUGNED ORDER GRANTING DEDUCTION U/S 80IC IN RESPECT OF UNI T-1, WHICH, IN TURN, IS BASED ON THE VIEW TAKEN BY THE TRIBUNAL IN THE ASSE SSEES OWN CASE IN PRECEDING YEAR. WE, THEREFORE, UPHOLD THE SAME. THI S GROUND IS NOT ALLOWED. 14. GROUND NO.2 IS AGAINST THE DELETION OF DISALLOW ANCE OF DEDUCTION U/S 80IC AMOUNTING TO RS.1,21,27,566/- AGAINST INCO ME FROM UNIT-2. SUCCINCTLY, THE FACTS OF THIS GROUND ARE THAT THE A SSESSING OFFICER FOUND THE ASSESSEE TO HAVE MADE STOCK TRANSFERS FROM UNIT -1 TO UNIT-2 FOR A SUM OF RS.4.76 CRORE. THE AO NOTICED THAT THE ASSE SSEE DECLARED TOTAL PROFIT BEFORE DEPRECIATION AMOUNTING TO RS.8.66 CRO RE ON A TURNOVER OF RS.33.99 CRORE FROM UNIT-2. IT WAS OPINED THAT DEDU CTION COULD NOT BE ALLOWED IN RESPECT OF INTER-UNIT TRANSFER OF STOCK. BY PROPORTIONATELY ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 9 WORKING OUT THE AMOUNT OF PROFIT RELATABLE TO STOCK TRANSFER WORTH RS.4.76 CRORE, THE ASSESSING OFFICER DENIED DEDUCTI ON U/S 80IC AMOUNTING TO RS.1,21,27,566/-. THE LD. CIT(A) DELE TED THE ADDITION. THE REVENUE WANTS RESTORATION OF THE DISALLOWANCE. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THERE IS NO PROVIS ION U/S 80IC WHICH DEBARS INTER-UNIT TRANSFERS OF STOCK. THE ONLY PROV ISION, AS RIGHTLY NOTED BY THE LD. CIT(A) WITH REFERENCE TO TRANSFER OF GOO DS AND SERVICES, IS CONTAINED IN SECTION 80IC(7) READ WITH SECTION 80IA (8), WHOSE RELEVANT PART IS AS UNDER:- SEC.80-IC(7): THE PROVISIONS CONTAINED IN SUB-SEC TION (5) AND SUB- SECTIONS (7) TO (12) OF SECTION 80-IA SHALL SO FAR AS MAY BE, APPLY TO THE ELIGIBLE UNDERTAKING OR ENTERPRISE UNDER THIS S ECTION. SEC.80-IA (8): WHERE ANY GOODS [OR SERVICES] HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS [OR SERVICES] H ELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE AR E TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDER ATION IF ANY FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBL E BUSINESS DOES NOT CORRESPOND TO THE MARKET VALUE OF SUCH GOODS [OR SE RVICES], AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUS INESS SHALL BE COMPUTED AS IF THE TRANSFER IN EITHER CASE HAS BEEN MADE AT THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THAT DATE. ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 10 PROVIDED THAT, WHERE IN THE OPINION OF THE ASSESSIN G OFFICER, THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBL E BUSINESS IN THE MANNER HEREINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OFFICER MAY COMPUTE SUCH PROFITS AND GAIN S ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. EXPLANATION FOR THE PURPOSE OF THIS SUB-SECTION MARKET VALUE IN RELATION TO ANY GOODS OR SERVICES MEANS THE PRICE T HAT SUCH GOODS [OR SERVICES] WOULD ORDINARILY FETCH IN THE OPEN MARKET . 16. IT IS MANIFEST FROM THE LANGUAGE OF SECTION 80I A(8) THAT THE ASSESSING OFFICER CAN RECOMPUTE DEDUCTION U/S 80IC BY TAKING STOCK TRANSFER AT MARKET VALUE, IF THE TRANSFER OF STOCK FROM INELIGIBLE BUSINESS TO ELIGIBLE BUSINESS DOES NOT CORRESPOND TO ITS MAR KET VALUE. IN THE INSTANT CASE, THE ASSESSEE PURCHASED RAW MATERIAL I N UNIT-1 FROM INDEPENDENT PARTIES WHICH WAS TRANSFERRED TO NEWLY SET UP UNIT-2 ON COST TO COST BASIS WITHOUT ANY MARK UP. THIS FINDING IS CONTAINED IN PARA 4.4.4 OF THE IMPUGNED ORDER, WHICH HAS NOT BEEN CON TROVERTED BY THE LD. DR WITH ANY MATERIAL. THUS, IT IS CLEAR THAT THE S TOCK TRANSFER FROM UNIT- 1 TO UNIT-2 CORRESPONDS WITH ITS MARKET VALUE. AS THE ASSESSEE IS OTHERWISE ELIGIBLE FOR DEDUCTION U/S 80IC IN RESPEC T OF UNIT-1, WHICH HAS ALSO BEEN GRANTED BY THE ASSESSING OFFICER TO THAT EXTENT, WE HOLD THAT THE PROPORTIONATE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER, ON AN ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 11 INAPT INTERPRETATION OF THE PROVISION, CANNOT BE SU STAINED. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUN D IS NOT ALLOWED. 17. GROUND NO.3 OF THE REVENUES APPEAL IS AGAINST THE DIRECTION GIVEN BY THE LD. CIT(A) ON DEDUCTION OF RS.16,41,607/- BE ING THE AMOUNT OF PRIOR PERIOD EXPENSES. HERE AGAIN, WE FIND THAT THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) PROCEEDED IN THE SAME MANNER AS THEY DID IT FOR THE PRECEDING YEAR. AS THE LD. CIT(A) HAS RESTORED THE MATTER TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION AS DISCUSSED ABOVE, FOLLOWING THE VIEW TAKEN FOR THE ASSESSMENT YEAR 2007-08, WE ARE NOT INCLINED TO DISTURB THE IMPUGNED ORDER ON THIS SCORE. 18. GROUND NO.1, 2, 2.1 AND 2.3 OF THE ASSESSEES A PPEAL ARE AGAINST NOT ALLOWING DEDUCTION U/S 80IC IN RESPECT OF COMMI SSION, EXPORT INCENTIVE AND SERVICE CHARGES ETC. AS THE FACTS AN D CIRCUMSTANCES OF THESE GROUNDS ARE SIMILAR TO THOSE OF EARLIER YEAR, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF ASSESSING OFFICER FOR DECIDING IT IN CONFORMITY WITH THE DIRECTION GIVEN BY THE TRIBUNAL IN ITS EARLIER ORDER. ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 12 19. GROUND NO.2.2 OF THE ASSESSEES APPEAL IS AGAIN ST CONFIRMATION OF DISALLOWANCE OF RS.1,13,550/- TOWARDS SOFTWARE EXPE NSES, WHICH WAS TREATED BY THE REVENUE AUTHORITIES AS CAPITAL EXPEN DITURE. THE ASSESSEE CLAIMED DEDUCTION OF RS.1,13,550/- TOWARDS SOFTWARE EXPENSES. THE LD. CIT(A) APPROVED THE VIEW OF THE ASSESSING OFFICER I N TREATING IT AS A CAPITAL EXPENDITURE, BUT, DIRECTED TO ALLOW DEPRECI ATION ON THE AMOUNT CAPITALIZED. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. ON A SPECIFIC QUERY, THOUGH TH E LD. AR PLACED ON RECORD A COPY OF THE ACCOUNT OF `SOFTWARE DEVELOPME NT EXPENDITURE INCURRED BY IT, BUT, FULL DETAILS OF SUCH EXPENSES WERE NOT AVAILABLE. IN THE ABSENCE OF SUCH DETAILS, WE CANNOT ADJUDICATE U PON THE TREATMENT OF SUCH EXPENDITURE AS REVENUE OR CAPITAL. WE, THEREF ORE, SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH, AFTER ALLOWING A REA SONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NOS.6143 &6180 /DEL/2013 & ITA NOS.1685&1789/DEL/2014 13 21. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 22.03.201 7. SD/- SD/- [SUCHITRA KAMBLE] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 22 ND MARCH, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.