SIMTO PROPERTY DEVELOPERS LTD, MUMBAI V. ACIT - 10, MUMBAI

ITA 789/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3706 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 13-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMITA VERMA
• Keywords: Unexplained cash credit; Business income; Depreciation; Business expenditure; Corroborative evidences; Non compliance; Unabsorbed depreciation; Set aside
• Section: 201; 68

Judgement Text

1 ITA NO.789/MUM/2019 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY ( JUDICIAL MEMBER) AND SHRI MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) I.T.A. NO. 789 /MUM/2019 (ASSESSMENT YEAR : 20 06 - 07 ) M/S SIMTO PROPERTY DEVELOPERS LTD 34/1003, NRI COMPLEX SEA WOODS ESTATE,PALM BEACH ROAD, NAVI MUMBAI - 400 706 PAN : AAACS5299L VS ACIT - 10, MUMBAI APPELLANT RESPONDENT APPELLANT BY SHRI C.V. JAIN, AR RESPONDENT BY SMT. SMITA VERMA, DR DATE OF HEARING 1 7 / 0 3/ 2021 DATE OF PRONOUNCEMENT 0 7 /0 6 /2021 O R D E R PER SAKTIJIT DEY, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST ORDER DATED 21 - 12 - 201 8 OF LEARNED COMMISSIONER OF INCOME TAX (A PPEALS ) - 10 , MUMBAI FOR THE ASSESSMENT YEAR 20 06 - 07 . 2 ITA NO.789/MUM/2019 2. THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS: 1. ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE & IN LAW THE LEARNED ASSESSING OFFICER (LD. A.O.) AND THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)J HAS ERRED IN NOT FOLLOWING THE DIRECTIONS GIVEN BY THE HON' BLE ITAT. 2. ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF DEPRECIATION OF RS. 2,74,85 8/ - MADE BY LEARNED ASSESSING OFFICER (A.O.) IN RESPECT OF FIXED ASSETS ON THE PRETEXT OF THER E BEING NO BUSINESS DURING THE YEAR UNDER APPEAL, WHEREAS THE SAID FIXED ASSETS WERE ALREADY PUT TO USE IN BUSINESS IN THE PRECEDING PREVIOUS YEAR SO THE SAME FORMED A PART OF THE BLOCK AND THEY WERE USED IN THE CURRENT YEAR AS WELL. 3. THE LEARNED C I T (A) HAS FURTHER ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE ID. A O OF TOTAL BUSINESS EXPENSES AMOUNTING TO RS. 1,95,6077 - , MERELY ON THE BASIS OF DOUBT, SURMISES AND CONJECTURES. 4. WITHOUT PREJUDICE TO OTHER GROUNDS, IN VIEW OF THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) HAS FURTHER ERRED IN UPHOLDING THE AMOUNT OF RS.7,80,1797 - RECEIVED TOWARDS SOFTWARE DEVELOPMENT FEES (EXPORTS), AS UNEXPLAINED CASH CREDITS MERELY ON THE BASIS OF DOUBT, SURMISES AND CONJECTURES. 5. ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. A.O. AND LD. CIT(A) HAVE ERRED IN NOT ALLOWING THE BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION OF EARLIER YEARS. 3. GROUNDS 6 AND 7 BEING GENERAL GROUNDS ARE DISMISSED. 4. IN GROUND 1 ASSESSEE HAS RAISED THE ISSUE OF NON COMPLIANCE WITH THE DIRECTIONS OF THE TRIBUNAL. W HEREAS , IN GROUNDS 2 TO 5 ASSESSEE HAS CHALLENGED DISALLOWANCE OF DEPRECIATION, BUSINESS EXPENSES, NON GRANT OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNAB SORBED DEPRECIATION AND TREATING THE INCOME SHOWN FROM BUSINES S AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT. SINCE , ALL THESE ISS UES ARE INTER - CONNECTED; WE PROCEED TO DISPOSE OF THEM TOGETHER. 5. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A RESIDE NT COMPANY AND IS STATED TO BE ENGAGED IN THE BUS INESS OF SOFTWARE DEVELOPMENT. FOR THE ASSESSMENT YEAR UNDER DISPUTE, ASSESSEE FILED ITS RETURN OF IN COME ON 09 - 11 - 2006 DECLARING NIL INCOME. 3 ITA NO.789/MUM/2019 ASSESSMENT IN CASE O F THE ASSESSEE WAS COMPLETED UNDER SECTION 1 43(3) OF THE ACT VIDE ORDER DATED 26 - 12 - 2006 DETERMINING THE TOTAL INCOME AT RS . 8,30,680/ - BY HOLDING THE RECEIPT FROM BU SINESS AS UNEXPLAINED CREDIT UNDER SECTION 68 OF THE ACT ON THE REASONING THAT THE ASSESSEE HAS NOT CA RRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR. WHILE DOING SO, THE ASSESSING OFFICER ALSO DISALLOWED VARIOUS EXPENDITURE /DEDUCTION CLAIME D AGAINST THE BUSINESS INCOME. ASSESSEE CHALLENGED THE AFORESAID DECISION OF THE ASSESSING OFFICER BEFORE THE FIRST APPELLATE AUTHORITY AND T HEREAFTE R BEFORE THE TRIBUNAL. VIDE ORDER DATED 08 - 05 - 2013, THE TRIBUNAL RESTORED THE MATTER BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDIC ATION WITH CERTAIN DIRECTIONS. IN PURSUANCE TO THE DIRECTIONS OF THE TRIBUNAL, THE ASSESSING OFFICER FRAMED A FRES H ASSESSME NT AND WHILE DOING SO HE AGAIN TREATED THE RECEIPT SHOWN FROM BUSINES S AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT AND FUR THER DISALLOWED THE EXPENDITURE /DEDUCTION CLAIMED BY THE ASSESSEE PRIMARILY ON THE REASONING THAT THE ASSESSEE HAS NOT CARR IED OUT ANY BUSINESS ACTIVITY. WHILE DECIDING ASSESSEES APPEAL, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONCURRED WITH THE VIEW EXPRESSED BY THE ASSESSING OFFICER. 6. RE ITERATING THE STAND TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES, THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED, WITHOUT MAKING PROPER ENQUIRY AND VERIFYING FACTS ON RE CORD, THE ASSESSING OFFICER HAS AGAIN PROCEEDED IN THE SAME MANNER AS WAS DONE BY HIM IN THE OR IGINAL ASSESSMENT PROCEEDINGS. HE SUBMITTED, IN THE PROCESS, THE ASS ESSING OFFICER HAS NOT COMPLIED WITH THE DIRECTIONS OF THE TRIBUNAL. FURTHER, HE SUBMITTED, THE ASSESSEE HAS BROUGHT SUPPORTING EVIDENCE ON RECORD TO DEMONSTRATE THAT IN THE YEAR UNDER CONSIDERATION ASSESSEE HAD CARRIED ON BUSINESS ACTIVITY OF SOFTWARE DEV ELOPMENT AND HAS EARNED INCOME F ROM SUCH ACTIVITY. DRAWING OUR ATTENTION TO THE SOFTWARE 4 ITA NO.789/MUM/2019 DEVELOPMENT AGREEMENT , PURPORTEDLY ENTERED WITH A US BASED ENTITY VIZ. M/S SPARK L ING CARPETS, USA, COPY OF WHICH IS PLACED AT PAGE 84 OF THE PAPER BOOK , LEARNED COUNSE L SUBMITTED, IN PURSUANCE TO THE AGREEM ENT THE ASSESSEE HAS DEVELOPED A SOFTWARE FOR THE FOREIGN CLIENT AND HAS ALSO RECEIVED FEES FROM THE SAID CLI ENT FOR THE SERVICES RENDERED. HE SUBMITTED, THE FEE WAS RECEIVED THROUGH BANKING CHANNEL WITH THE PERMISSIO N O F RESERVE BANK OF INDIA (RBI). FURTHER, HE SUBMITTED, THE SALARY PAID TO TECHNICAL PERSONS FOR DEVELOPING SOFTWARE AND PAYMENT OF ELECTRICITY BILL CLEARLY DEMONSTRATES THAT THE ASSESSEE WAS CARRYING ON BUSINESS ACTIVITY. HE SUBMITTED, BEING COMPLETELY S WAYED AWAY BY THE REPORT SUBMITTED BY THE WARD INSPECTOR OF THE DEPARTMENT AND WITHOUT MAKING PROPER ENQUIRY, THE ASSESSING OFFICER HAS REPEATED THE SAME ADDITION. HE SUBMITTED, SINCE THE ASSESSEE HAS FURNISHED ALL SUPPORTING EVIDENCE TO DEMONSTRATE CARRYING ON BUSINESS ACTIVITY, THE INCOME SHOWN UNDER THE HEAD BUSINESS HAS TO BE ACCEPTED AND THE DEDUCTION CLAIMED ON ACCOUNT OF DEPRECIATION, T HE EXPENSES HAS TO BE ALLOWED. FURTHER, HE SUBMITTED, ASSESSEES CLAIM OF SET OFF OF BROUGHT FORWARD BUSINES S LOSS AND UNABSORBED DEPRECIATION SHOULD ALSO BE ALLOWED. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE , STRONGLY RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER OF INCOME TAX (APPEALS) SUBMITTED, THE ASSESSEE HAVING MISERABLY FAILED TO PROVE WITH SUPPORTING EVIDENCE THAT IT HAS CARRIED OUT ANY BUSINESS ACTIVITY HAS CLAIMED, THE ASSESSING OFFICER HAS RIGHTLY TREATED THE RECEIPTS SHOWN FROM BUSINES S AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT AND HAS ALSO DISALLOW ED V ARIOUS DEDUCTIONS CLAIMED. HE SUBMITTED, THE FACTS BROUGHT ON RECORD THROUGH ENQUIRY CLEARLY ESTABLISH THAT THE ASSESSEE HAD CARRIED ON ANY BUSINESS ACTIVITY. 5 ITA NO.789/MUM/2019 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, THIS IS T HE SECOND VISIT OF THE ASSESSEE TO THE TRIBUNAL. WHILE DISPOSING OF ASSESSEES EARLIER APPEAL IN THE ORDER REFERRED TO ABOVE, THE TRIBUNAL HAD RESTORED THE MATTER BACK T O THE ASSESSING OFFICER DIRECTING THAT THE ISSUE MAY BE DECIDED AFRESH AFTER CONFRONTIN G THE INSPE CTORS REPORT TO THE ASSESSEE. ON PERUSAL OF MATERIALS AVAILABLE ON RECORD, MORE PARTICULARLY, THE OBSERVATIONS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , IT IS NOTICED THAT IN THE FRESH ASSESSMENT PROCEEDINGS, IN PURSUANCE OF DIRECTIONS O F THE TRIBUNAL, THE ASSESSING OFFICER HAD CONFRONTED THE INSPE CTORS REPORT TO THE ASSESSEE. PERTINENTLY, TO ASCERTAIN THE CORRECTNESS OF ASSESSEES CLAIM THAT IT HAD CARRIED ON ACTIVITY OF SOFTWARE DEVELOPMENT, THE ASSESSING OFFICER HAD DEPUTED THE INSPEC T OR TO CONDUCT A FIELD ENQUIRY. IN THE REPORT SUBMITTED, THE INSPECTOR HAS SPECIFICALLY STATED THAT ON A VISIT TO ASSESSEES BUSINESS PREMISES, HE FOUND THAT NO BUSINESS ACTIVITY WAS CARRIED ON INSIDE THE PREMISES AND ONLY SOME BLACK AND WHITE TELEVISION S ET S AND ELECTRONIC COMPONENTS WERE KEPT. FURTHER, FROM LOCAL ENQUIRY, HE FOUND THAT NO BUSINESS ACTIVITY IS BEING CARRIED ON FROM THE SAI D PREMISES FOR LAST FIVE TO SIX YEARS. 9. REFUTING THE AL LEGATIONS MADE BY THE INSPECTOR IN HIS REPORT, THE ASSESSEE H AD FURNISHED SUBMISSION DATED 03 - 07 - 2013 BEFORE THE ASSESSING OFFICER STATING THAT PORTION OF THE SAID PREMISES AND FOR CARRYING OUT SUCH ACTIVITY, THE ASSE SSEE HAS EMPLOYED TWO PERSONS. THE ASSESSEE HAS ALSO REFERRED TO THE SOFTWARE DEVELOPMENT AGREEMENT WITH THE FOREIGN CLIENT AND HAS SUBMITTED THAT AS PER THE REQUIREMENT OF THE CLIENT, SOFTWARE WAS DEVELOPED AND DELIVERED AND THE ASSESSEE RECEIVED THE FEE. AS COULD BE SEEN, THE ASSESSING OFFICER HAS DISBELIEVED THE AFORESAID CLAIM OF THE ASSESSEE FOR VA RIOUS REASONS. HE HAD OBSERVED THAT 6 ITA NO.789/MUM/2019 THERE WAS NO EVIDENCE OF ANY SOFTWARE DEVELOPMENT ACTIVITY CARRIED O UT FROM THE BUSINESS PREMISES. EVEN , THE CONCERNED EMPLOYEES, WHO ACCORDING TO THE ASSESSEE WERE DEVELOPING THE SOFTWARE , COULD NOT CONVINCE THE ASSESSI NG OFFICER THAT THEY ARE TECHNICALLY QUALIFIED TO DEVELOP THE SOFTWARE. FURTHER, HE HAS OBSERVED THAT THE ASSESSEE DID NOT EVEN HAVE THE REQUIRED COMPUTERS AND INTERNET CONNECTION FOR DEVELOPING SOFTWARE. 10. ON A PERUSAL OF THE SUBMISSIONS OF THE ASSESS EE BEFORE THE DEPARTMENTAL AUTHORITIES AND OTHER FACTS AND MATERIALS ON RECORD, WE FIND VARIOUS INCONSISTENCIES. THE ASSE SSEE HAS STATED THAT THE PREMISES FROM WHERE THE ASSESSEE WAS CARRYING OUT SOFTWARE DEVELOPMENT ACTIVITY EARLIER , BELONG ED TO CRYSTAL SOFTWARE SOLUTIONS LTD (FORMERLY, CRYSTAL AUDIO LTD ) ENGAGED IN MANUFACTURING BLACK AND WHITE TELEVISION DURING THE PERIOD 1993 - 1999. ASSESSEE HAS STATED THAT IN OCTOBER, 1999, THE ASSESSEE PURCHASED THE PREMISES ALONG - WITH VARIOUS ITEMS LIKE ELECTRONIC CO MPONENT, BLACK AND WHITE TV SET S , ETC. WHICH WERE STORED IN THE SAID PREMISES . W HEREAS , THEREAFTER THE ASSESSEE HAS AGAIN SUBMITTED THAT A PART OF THE PREMISES WAS GIVEN TO , THE ERSTWHILE OWNER FOR STORAGE OF ITS MATERIAL. IT IS NOT UNDERSTOOD , WHEN THE A SSESSEE HAS PURCHASED THE PREMISES ALONG WITH ALL THE ITEMS LIKE ELECTRONIC C OMPONENTS, TV SETS, ETC. WHERE IS THE QUESTION OF AGAIN ALLOWING THE ERSTWHILE OWNER TO STORE ITS MATERIALS. FURTHER, THE ASSESSEE HAS SUBMITTED THAT A PART OF THE PREMISES WAS LE T OUT TO CRYSTAL SO FTWARE SOLUTIONS LTD. THUS, TH E ASSESSEE HAS NOT COME OUT CLEAR ON FACTS. 11. FURTHER, WE FIND VARIOUS DOUBTS RAISED BY THE ASSESSING OFFICER WITH REGARD TO THE TECHNICAL CAPABILI TY OF THE CONCERNED EMPLOYEES FOR DEVELOPING SOFTWARE , LACK OF INFRASTRUC TURE, ETC. HAVE NOT BEEN PROPE RLY ADDRESSED BY THE ASSESSEE. AT 7 ITA NO.789/MUM/2019 THE SAME TIME, IT IS A FACT ON RECORD THAT IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED A SOFTWARE DEVELOPMENT AGREEMENT WITH A US BASED COMPANY, WHO ALLE GEDLY ENTRUSTED THE ASSES SEE WITH DEVELOPING SOFTWARE . IT ALSO APPEARS, BEFO RE THE DEPARTMENTAL AUTHORITIES THE ASSESSEE HAS FURNISHED CERTAIN DOCUMENTARY EVIDENCE INCLUDING COPIES OF EXPORT INVOICES RAISED TO THE FOREIGN BUYER, PROOF O F PAYMENT RECEIVED T HROUGH BANK, BANKERS CERTIFICATE, BANK STATEMENT SHOWING PAYMENT RECEIVED TO WARDS EXPORT OF SOFTWARE, ETC. HOWEVER, NEITHER THE BANK CERTIFICATE NOR THE BANK STATEMENT HAVE BEEN FILED IN THE PAPER BOOK OR SEPARATELY FURNISHED BEFORE US FOR ENABLING US TO RECORD A CONCLUSIVE FINDING ON THESE EVIDENCES. 12. BE THAT AS IT MAY, THE AFORESAID DOCUMENTARY EVIDENCES STATED TO HAVE BEEN FILED BEFORE THE DEPARTMENTAL AUTHORITIES NEEDS TO BE THOROUGHLY EXAMINED IN THE CONTEXT OF ASSESSEES SUBMISSION REGARDING DEV ELOPMENT OF SOFTWARE FOR A FOREIGN BUYER. AS IT APPEARS, THE DEPARTMENTAL AUTHORITIES HAVE NOT PROPERLY ENQUIRED INTO THESE ASPECTS BY CONDUCTING NECESSARY ENQUIRIES WITH THE CONCERNED BANK OR OTHER REGULATORY AUTHORITIES , INCLUDING RBI , SINCE IT INVOLVES TRANSACTIONS WITH A FOREIGN PARTY INVOLVING REPATRIATION OF MONEY FROM FOREIGN COUNTRY. ONE MORE ASPECT WHICH HAS NOT BEEN EXAMINED IS , WHETHER THE ASSESSE E HAS CARRIED ON SUCH SOFTWARE DEVELOPMENT ACTIVITY , EITHER WITH THE SAME CLIENT OR ANY OTHER CLIENT , IN THE SUBSEQUENT ASSESSMENT YEAR S OR IT IS A STANDALONE TRANSACTION. IF THE ASSESSEE HAS CONTINUED WITH SUCH BUSINESS ACTIVITY IN SUBSEQUENT YEAR S, THEN ASS ESSEES CLAIM CAN BE ACCEPTED. HOWEVER, ALL THESE ASPECTS NEED TO BE PROPERLY ENQUIRED INTO BY THE DEPARTMENTAL AUTHORIT IES , WHICH APPEAR TO HAVE NOT BEEN DONE. 8 ITA NO.789/MUM/2019 13. IN VIEW OF THE AFORESAID, WE ARE INCLINED TO RESTORE THE ISSUE TO THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOR FRESH ADJUDICATION AFTER DUE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. TH E ASSESSEE IS ALSO PERMITTED TO BRING FRESH EVIDENCE ON RECORD TO ESTABLISH ITS CLAIM OF CARRYING ON THE BUSINESS ACTIVITY OF SOFTWA RE DEVELOPMENT. L EARNED COMMISSIONER OF INCOME TAX (APPEALS) WOULD BE FREE TO CON DUCT PROPER ENQUIRY EITHER BY HIMSELF OR GET IT DONE THROUGH THE ASSESSING OFFICER IN TERMS OF OUR OBSERVATION S HEREINABOVE. ASSESSEES CLAIM OF DEDUCTION TOWARDS EXPENSES, DEPRECIATION AS WELL AS SET OFF OF BROUGHT FORWARD LOSS AND UNABSORBED DEPRECIATIO N WOULD ULTIMATELY DEPEND UPON THE OUTCOME OF THE ISSUE AS TO WHETHER THE ASSESSEE HAS CARRIED OUT ANY BUSINESS ACTIVITY OR NOT. IN VIEW OF T HE AFORESAID, WE SET ASIDE THE IMPUGNED ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND RESTORE THE ISSU ES BACK TO HIS FILE FOR FRESH ADJUDICATION IN TERMS OF OUR DISCUSSION ABOVE AND ONLY AFTER PROVIDING DUE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSE S . 9. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S . ORDER PRONOUNCED IN THE OP EN COURT ON THIS 0 7 /0 6 /2021. S D / - S D / - ( MANOJ KUMAR AGGARWAL ) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED : 0 7 / 0 6 /2021. PAVANAN, SR.P.S (ON CONTRACT) 9 ITA NO.789/MUM/2019 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPO ND ENT. 3. THE CIT(A) 4. 4. THE CIT 5. D.R., ITAT, MUMBAI. 6. GUARD FILE. //TRUE COPY// BY ORDER ASS T. REGISTRAR, I.T.A.T., MUMBAI.