M/s Mouse Systrain Pvt. Ltd., Gadag V. DCIT, Hubli

ITA 856/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5604 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-04-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 30-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P H NARAGUNDKAR
• Assessee Lawyers: P C CHADAGA
• Keywords: Depreciation; Principle of natural justice; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 856/BANG/2010 ASSESSMENT YEAR : 2001-02 M/S. MOUSE SYSTRAIN PVT. LTD., OPP. VARDHAMAN MARKET GAJANAN COMPLEX, STATION ROAD, GADAG. : APPELLANT VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HUBLI. : RESPONDENT APPELLANT BY : SHRI P.C. CHADAGA, AR RESPONDENT BY : SHRI P.H. NARAGUNDKAR, ADDL.CIT(DR) O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL INSTITUTED BY THE ASSESSEE COMPANY IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (A), HUBLI IN ITA NO. 25/CIT (A) HBL/07-08 DATED: 26.3.2010 FOR THE ASSESSMENT YEAR 2001-02 . 2. THE ASSESSEE COMPANY [THE ASSESSEE IN S HORT] HAS RAISED FIVE GROUNDS IN ITS GROUNDS OF APPEAL. HOWEVER, ON A DE CISIVE PERUSAL, THE SUBSTANCE OF ITS GRIEVANCE IS REDUCED TO A LONE GRO UND THAT ITA NO.856/BANG/2010 PAGE 2 OF 8 THE LD. CIT (A) WAS NOT JUSTIFIED IN UPHOLDING THE STAND OF THE AO IN BRINGING TO TAX THE ENTIRE RECEIPT OF RS.7 LAKHS UN DER THE HEAD INCOME FROM OTHER SOURCES. 3. BEFORE VENTURE TO LOOK INTO THE GRIEVANCE OF TH E ASSESSEE, IT WAS NOTICED THAT THERE WAS A SLIGHT DELAY OF TWO DAYS I N PREFERRING THIS APPEAL. THE ASSESSEE, THROUGH ITS DIRECTOR, FURNISHED AN AF FIDAVIT DATED 28.9.2010 WHEREIN IT WAS AFFIRMED THAT ON CLOSURE OF ITS BUSI NESS DUE TO LOSSES, ONE OF THE DIRECTORS TAKEN UP EMPLOYMENT WITH HDFC STANDAR D LIFE DUE TO WHICH HE WAS MOST OF THE TIME AWAY FROM THE HEADQUARTERS AND THAT THE OTHER DIRECTOR HAD CHOSEN TO SETTLE DOWN AT CHENNAI, THER E WAS A DELAY OF TWO DAYS IN PREFERRING THE APPEAL WHICH WAS BEYOND HIS CONTROL AND BONA FIDE. IT WAS, THEREFORE, PLEADED THAT THE DELAY MAY BE CO NDONED. 3.1. CONSIDERING THE REASONING FOR THE DELAY OF TWO DAYS IN FILING THE APPEAL AGAINST THE IMPUGNED ORDER OF LD. CIT (A), T HE DELAY WAS CONDONED AND THE REGISTRY WAS DIRECTED TO PLACE THE ASSESSEE S APPEAL ON RECORD. 4. REVERTING BACK, THE FACTS OF THE ISSUE FOR ADJUDICATION, BRIEFLY, ARE THAT THE ASSESSEE IN SOFTWARE DEVELOPMENT AND COMPU TER EDUCATION BUSINESS HAD FURNISHED ITS RETURN, ADMITTING A LOSS OF RS.2.91 LAKHS. 4.1. DURING THE COURSE OF ASSESSMENT PROCEED INGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD SET UP ITS BUSINESS IN MARCH 2000 AND DURING THE ACCOUNTING PERIOD UNDER CONSIDERATION, THE ASSE SSEE WAS ABOUT TO SET UP A UNIT CATERING TO THE NEEDS OF NIT. BEING QUER IED BY THE AO, IT WAS CLARIFIED THAT THE REVENUE HAD STARTED ONLY FROM AP RIL 2001. HOWEVER, THE AO HAD NOTICED THAT DURING THE ACCOUNTING PERIOD UN DER CHALLENGE, THE ITA NO.856/BANG/2010 PAGE 3 OF 8 ASSESSEE HAD SHOWN RECEIPTS RESULTING FROM A SOFTWA RE PROJECT - DIGITIZATION OF THE RECONNAISSANCE SURVEY INTO COMPUTER FORMATS USING AUTOCAD - FOR M/S. PADMASHREE CONSULTANTS, MUMBAI. THE ASSESSEE HAD, IN ITS PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ETC., CLAIMED EX PENDITURE INCLUDING DEPRECIATION TO THE EXTENT OF RS.9.91 LAKHS. AFTER CONSIDERATION OF THE DETAILED FURNISHED BY THE ASSESSEE, THE AO WAS OF T HE VIEW THAT 5IT IS SEEN THAT THE WORK, IF ANY, WAS COMPLETE D IN TWO MONTHS I.E., MAY & JUNE, 2000. THE NATURE OF WORK IS NOT CLEAR. THE EXPENSES, IF ANY, INCURRED FOR THIS PROJECT ARE NOT ASCERTAINABLE. EVEN OTHERWISE, THE ASSESSEE COMPANY DID NOT HAVE A NY INFRASTRUCTURE FACILITIES TO UNDERTAKE AND COMPLETE SUCH WORK. HENCE, THE EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT ENCLOSED WITH THE RETURN OF INCOME LIKE STAFF COST, FINANCE COST AND ADMINISTRATION COST ETC., ARE NOT CONSIDERED RELEVA NT TO THE RECEIPTS OF RS.7 LAKHS. HENCE, THE ENTIRE PROJECT FEES RECE IVED AT RS.7 LACS ARE TREATED AS INCOME FROM OTHER SOURCES. SINCE, T HE ASSESSEE HAS NOT STARTED ITS BUSINESS; NO OTHER EXPENSES OR LOSS ARISING OUT OF SUCH EXPENSES IS CONSIDERED. 5. AGGRIEVED, THE ASSESSEE TOOK UP T HE ISSUE WITH THE THEN LD. CIT (A) FOR SUCCOR. THE THEN CIT (A) HAD OBSERVED THAT SOME OF THE ITEMS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE WERE CAPITAL IN NATURE, THEREFORE, THE LOSS WAS NOT ALLOWED, AND, THUS, THE INCOME WILL BE COMPUTED AS NIL. SUBSEQUENTLY, THE ASSESSEE HAD APPROACHED T HE HON'BLE TRIBUNAL FOR RELIEF. THE HONBLE TRIBUNAL HAD, AFTER CONSID ERATION OF RIVAL SUBMISSIONS, RESTORED THE ISSUE ON THE FILE OF THE CIT (A) FOR FRESH CONSIDERATION [ITA NO.1386/BANG/05 DATED 29.3.2007] ON THE GROUND THAT - 4. ON GOING THROUGH THE FACTS, WE FIND THAT THE LE ARNED CIT (A) IN FACT DID NOT CONSIDER THE RELEVANT DOCUMENTS WHILE GIVING HIS FINDING. IN OUR VIEW THE ISSUES RAISED BY BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE AND LEARNED COUNSEL FOR ASSESSEE NEEDS TO BE RECONSIDERED BY THE LEARNED CIT(A) AFTER GIVI NG REASONABLE ITA NO.856/BANG/2010 PAGE 4 OF 8 OPPORTUNITY TO THE ASSESSEE IRRESPECTIVE OF THE FIN DING REACHED BY THE CIT (A)S ORDER DT. 12.7.2005. 6. WHILE CONSIDERING THE ISSUE AFRESH A S PER THE DIRECTIONS OF THE HONBLE TRIBUNAL CITED SUPRA, THE LD. CIT (A) HAD T AKEN INTO ACCOUNT THE CONTENTIONS OF THE ASSESSEES A.R, THE FINDING OF T HE THEN CIT (A) AND ALSO THE REMAND REPORT OF THE AO AND DELIBERATED THE ISS UE AT LENGTH. IN HIS FINDING, THE LD. CIT (A) HAS OBSERVED THUS 4.2. ON EXAMINATION OF THE BILLS &VOUCHERS, I FOUND THAT THE VOUCHERS PERTAINED TO THE FY 2001-02 WHICH ARE RELE VANT TO THE AY 2002-03 AND NOT RELEVANT TO THE AY 2001-02, THE YEA R OF APPEAL. IT IS, FURTHER, NOTICED THAT THE VOUCHERS ARE NOT COMP LETE AND NOT COVER ALL THE EXPENSES CLAIMED BY THE APPELLANT. ALL THE VOUCHERS ARE SIMILAR IN NATURE AND APPEAR TO HAVE BEEN PREPARED BY THE SAME PERSON FOR WHOLE OF THE YEAR AND SEEM TO BE THE SEL F MADE VOUCHERS. THE APPELLANT HAS NOT ADDUCED ANY OTHER EVIDENCE OR BOOKS OF ACCOUNT IN SUPPORT OF HIS (SIC) ITS CLAIM FOR EXPEN SES. THE AO IN HIS ORDER HAS ESTABLISHED THAT THE APPELLANT DID NOT HA VE INFRASTRUCTURE FOR CARRYING OUT THE JOB WORK IN THE MONTH OF JULY. THE WORKS ORDER DATED 28.4.2000 IS QUITE VAGUE AND DOES NOT CLEARLY BRING OUT THE TERMS AND CONDITIONS AND THE NATURE OF THE JOB TO B E ACCOMPLISHED. THE APPELLANT COMPANY HIMSELF (SIC) ITSELF IN THE S TATEMENT OF FACTS HAS STATED ON THE PROMISE NOTE THE APPELLANTS REV ENUE STARTED ONLY FROM APRIL 01. THE APPELLANT HAS RECEIVED TH E PAYMENT OF RS.7 LAKHS ON 17 TH JULY, 2000 ITSELF WHEREAS THE APPELLANT COMPANY ITSELF STATED THAT REVENUE WOULD START FROM APRIL, 2001. ON SCRUTINY OF EXPENSES CLAIMED, IT IS SEEN THAT NONE OF THE EX PENDITURE IS IN THE NATURE OF CAPITAL. THEREFORE, THE QUESTION OF DISA LLOWING THE LOSS BY NOT ALLOWING CAPITAL EXPENDITURE DOES NOT ARISE AS HAS BEEN DONE BY THE LD. CIT (A). SIMILARLY, IN THE ABSENCE OF ANY CAPITAL EXPENDITURE, THE ALLOWING OF CAPITAL EXPENDITURE PR IOR TO COMMENCEMENT OF THE BUSINESS AS REVENUE EXPENDITURE ALSO IS OF NO RELEVANCE. THE ONLY QUESTION OF RELEVANCE WHICH AR ISES FOR CONSIDERATION IS WHETHER THE EXPENSES CLAIMED BY TH E APPELLANT HAVE BEEN INCURRED IN THE COURSE OF BUSINESS FOR EARNING RECEIPT OF RS.7 LAKHS. THIS QUESTION HAS BEEN ANSWERED IN THE PARA S WHEREIN IT IS PROVED THAT THE APPELLANT COULD NOT ESTABLISH THE N EXUS BETWEEN THE RECEIPT AND THE EXPENSES CLAIMED. IN THE FACTS AND CIRCUMSTANCES, THE STAND TAKEN BY THE AO ORIGINALLY THAT THERE IS NO NEXUS BETWEEN THE RECEIPT OF RS.7 LAKHS AND EXPENSES CLAIMED, APP EARS TO BE JUSTIFIED IN AS MUCH AS THAT THE APPELLANT COULD NO T SUBSTANTIATE ITS ITA NO.856/BANG/2010 PAGE 5 OF 8 CLAIM OF EXPENSES AT ALL STAGES. THEREFORE, THE AO IS JUSTIFIED IN BRING TO TAX THE ENTIRE RECEIPT OF RS.7 LAKHS UNDER THE HEAD INCOME FROM OTHER SOURCES. 7. STUNG BY THE FINDING OF THE LD. CIT (A), THE AS SESSEE HAS AGAIN COME UP WITH THE PRESENT APPEAL. IT WAS THE CASE O F THE ASSESSEE THAT IT WAS DOING THE BUSINESS DEVELOPMENT OF SOFTWARE AND COMPUTER EDUCATION AND COMMENCED ITS BUSINESS IN THE FINANCIAL YEAR RE LEVANT TO THE AY 2001- 02. IT WAS, FURTHER, CONTENDED THAT IT HAD CLAIME D EXPENSES IN ITS AUDITED P & L ACCOUNT UNDER VARIOUS HEADS INCLUDING THAT OF S ALARY, INTEREST, ADMINISTRATIVE EXPENSES SUCH AS ELECTRICITY, ADVERT ISEMENT, OFFICE MAINTENANCE ETC. DURING THE COURSE OF HEARING, TH E LD. A R FURNISHED A PAPER BOOK CONTAINING 1 43 WHICH CONSIST, AMONG O THERS, COPIES OF (I) WORK ORDERS OF M/S.PADMASHRI CONSULTANTS, MUMBAI; ( II) BANK STATEMENTS; BESIDES (I) INVOICES, BILLS, VOUCHERS ETC., (II) NI IT LICENSE AGREEMENT; (III) CORRESPONDENCE WITH NIIT ETC., 7.1. ON THE OTHER HAND, THE LD. D R W AS EMPHATIC IN HIS URGE THAT THE LD. CIT (A) TOOK A STAND TO UPHOLD THE FINDINGS OF THE LD. AO AFTER ANALYZING THE ISSUE IN DEPTH. IT WAS, THEREFORE, P LEADED THAT THE FINDING OF THE LD. CIT (A) REQUIRES NO INTERVENTION OF THE BEN CH AT THIS STAGE. 8. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, ATTENTIVELY PERUSED THE RELEVANT CASE RECORDS AND ALSO THE DOCU MENTARY EVIDENCES ADDUCED BY THE LD. A R TO STRENGTHEN HIS ARGUMENTS ON THE ISSUE. 8.1. IT IS AN UNDISPUTED FACT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IN SPITE OF REPEATED QUERIES, THE AO W AS NOT FACILITATED WITH REQUIRED PARTICULARS; EVIDENCE ETC., TO VERIFY THE ASSESSEES CLAIM. WHILE ITA NO.856/BANG/2010 PAGE 6 OF 8 SUBMITTING HIS REMAND REPORT ALSO, THE AO HAD DRAWN THE LD. CIT (A)S ATTENTION TO THE EFFECT THAT THE VOUCHERS SUBMITTED BY THE ASSESSEE WAS NEITHER RELATING TO THE RELEVANT FINANCIAL YEAR NOR THEY WERE VERIFIABLE ETC., AND, HENCE, REMAINS UNSUBSTANTIATED AS THE ASSESSEE HAD NOT PRODUCED THE BOOKS OF ACCOUNT ETC. 8.2. ON HIS PART, THE LD. CIT (A) HAD ALSO THE SAME STORY TO AVER THAT 4.2. ON EXAMINATION OF THE BILLS AND VOUCHERS, I F OUND THAT THE VOUCHERS PERTAINED TO THE F.Y 2001-02 WHICH ARE REL EVANT TO THE AY 2002-03 AND NOT RELEVANT TO THE AY 2001-02, THE YEAR OF APP EAL.. 8.3 . HOWEVER, ON A GLANCE OF THE PAPER BOOK FURNISHED BY THE LD. A R DURING THE COURSE OF HEARING, WE FIND THAT (I) PADMASHRI CONSULTANTS OF MUMBAI IN THEIR COMMUNICAT ION DT.28.4.2000 [SOURCE: P 15 OF PB AR] HAVE ISSUED WO RK ORDER OF DIGITIZATION OF MUMBAI CITY AND ALSO REDUCING IN W RITING THE SCOPE OF WORK, COMMERCIAL TERMS, TERMS OF PAYMENTS ETC., (II) VIDE ITS SUBSEQUENT COMMUNICATION DT.7.7.2000 [REFE R: P NO. 17 OF PB] PLACED FURTHER WORK ORDER FOR DIGITIZATION O F OTHER THREE CITIES I.E., DELHI, CALCUTTA AND CHENNAI; (III) PADMASHRI CONSULTANTS IN THEIR LETTERS DT: 17.7.200 0 MADE ADVANCE PAYMENTS THROUGH CHEQUES, TOTALING TO RS.7 LAKHS AGAINST THEIR PURCHASE ORDER REFERRED ABOVE; (IV) ALSO FURNISHED A BUNCH CONTAINING COPIES OF INVOIC ES, RECEIPTS/BILLS, CASH/CHEQUE PAYMENT VOUCHERS WITH REGARD TO PURCHASE OF UPS, PRINTER, H.P. COLOUR MONITOR, VARI OUS ELECTRONIC AS WELL AS ELECTRIC GOODS, FURNISHING MA TERIALS ETC., PERTAINING TO THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THESE ABOVE MATERIALS HAVE NOT BEEN PLACED BEFORE THE AO EITHER DURING THE COURSE OF ASSESSMENT PROCEEDIN GS OR SUBSEQUENT REMAND REPORT PROCEEDINGS. HOWEVER, THE LD. CIT (A ) HAD FAIRLY CONCEDED THAT THE ASSESSEE WAS IN RECEIPT OF RS.7 L AKHS THROUGH ITA NO.856/BANG/2010 PAGE 7 OF 8 BANKING CHANNELS IN THE RELEVANT FINANCIAL YEAR FRO M M/S. PADMASHRI CONSULTANTS (SURVEY & CIVIL ENGINEERING CONSULTANTS ). AS COULD BE SEEN FROM THE COPIES OF THE WORK ORDERS RECEIVED FR OM PADMASHRI CONSULTANTS WHICH CONTAINED ALL THE PARTICULARS, THE LD, CIT (A) HAD, HOWEVER, CONTRADICTED THAT THE WORK ORDER WAS QUIT E VAGUE AND DID NOT CLEARLY BRING OUT THE TERMS AND CONDITIONS AND THE NATURE OF THE JOB TO BE ACCOMPLISHED ETC., 8.4. IN VIEW OF THE ABOVE AND ALSO I N THE INTERESTS OF NATURAL JUSTICE, WE ARE OF THE CONSIDERED VIEW THAT THE ENT IRE MATTER REQUIRES FRESH CONSIDERATION BY THE LD. AO IN LIEU OF CHANGED SCEN ARIO IN THE SENSE THAT WHILE CONCLUDING THE ASSESSMENT PROCEEDINGS THE DOC UMENTARY EVIDENCE PLACED BEFORE THIS BENCH WAS NOT MADE AVAILABLE BY THE ASSESSEE FOR THE PERUSAL OF THE AO AND, THUS, THE AO WAS MADE TO CON CLUDE THE ASSESSMENT ON THE BASIS OF MATERIALS AVAILABLE ON RECORD. 8.5. IN VIEW OF THE ABOVE, THE ISSUE IS REMITTED BACK ON THE FILE OF THE LD. AO WITH A SPECIFIC DIRECTION TO LOOK INTO THE M ATTER WITH REFERENCE TO THE DOCUMENTARY EVIDENCE WHICH WILL BE FURNISHED BY THE ASSESSEE IN THE SHAPE OF (I) WORK ORDERS OF M/S.PADMASHRI CONSULTAN TS, MUMBAI; (II) BANK STATEMENTS; BESIDES (I) INVOICES, BILLS, VOUCHERS E TC., (II) NIIT LICENSE AGREEMENT; (III) CORRESPONDENCE WITH NIIT ETC., AND TO TAKE APPROPRIATE ACTION IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AFTER PROVIDING A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEA RD. IT IS ORDERED ACCORDINGLY. ITA NO.856/BANG/2010 PAGE 8 OF 8 9. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF MAY, 2011. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 13 TH MAY, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.