SHCIL SERVICES LTD, MUMBAI V. ASST CIT CIR 4(2), MUMBAI

ITA 8757/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4183 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 02-07-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABANIKANT NAYAK
• Assessee Lawyers: AKRAM KHAN SHRI RYAN FERNANDES
• Keywords: Capital asset; Bad and doubtful debts; Revenue expenditure
• Section: 28

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , !'#$ , % &' BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO. 8757/MUM/2011 ( ( ( ( ( / ASSESSMENT YEAR : 2008-09 M/S. SHCIL SERVICES LTD., C/O KALYANIWALLA & MISTRY, ARMY & NAVY BLDG., 3 RD FLOOR, 148, M.G. ROAD, FORT, MUMBAI-400 001 THE ACIT, CIRCLE 4(2), AAYAKAR BHAVAN, MUMBAI-400 020 ') % ./ *+ ./PAN/GIR NO. : AAJCS 5661H ( ), /APPELLANT ) .. ( -.), / RESPONDENT ) ), / / APPELLANT BY : ` SHRI AKRAM KHAN SHRI RYAN FERNANDES -.), 0 / /RESPONDENT BY : SHRI ABANIKANT NAYAK 0 12% / DATE OF HEARING :02.07.2013 34( 0 12% / DATE OF PRONOUNCEMENT :05.07.2013 &5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-8, MUMBAI DT.28.10.2011 PERTAINING TO A.Y. 2 008-09. 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO. 2 HAVING 4 ITEMS I.E. A, B, C & D. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT UNDER THE INSTRUCTI ONS FROM HIS CLIENTS, HE IS NOT PRESSING GROUND NO. 1 AND ITEM (D) OF GROUND NO. 2. THEREFORE, GROUND NO. 1 AND ITEM NO. (D) ARE ACCORDINGLY DISMI SSED AS NOT PRESSED. ITA NO.8757/M/2011 2 3. THE SOLE SURVIVE GROUND RELATES TO THE DISALLOWA NCE OF THE FOLLOWING BAD ADVANCES : A) ACER E SOLUTIONS PVT. LTD., - RS. 3,12,000/- B) CLOVER INFOTECH PVT. LTD. - RS. 82,500/- C) FINANCIAL TECHNOLOGIES (INDIA)LTD - RS. 6,11,31 6/- 4. THE FACTS RELATING TO THESE ITEMS ARE DISCUSSED BY THE AO AT PARA-7, PAGE-8 OF HIS ORDER. DURING THE COURSE OF THE SCRU TINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT TH E ASSESSEE HAS WRITTEN OFF RS. 31,02,545/- UNDER THE HEAD BAD DEBTS. TH E AO FURTHER OBSERVED THAT OUT OF THIS AMOUNT, THE ASSESSEE HAS ALREADY DISALLOWED THE AMOUNT OF RS. 17,07,991/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE WRITE OFF IN THE LIGHT OF THE PROVISIONS OF SEC. 36(2) OF THE ACT. THE ASSESSEE FILED A DETAILED REPLY WHICH HAS BEEN INCORPORATED BY THE AO AT PAGE-8 OF HIS ORDER. AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, THE AO OBSERVED THAT THE AMOUNTS WRITTEN OFF WERE NEVER CR EDITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. THE AO WAS OF TH E FIRM BELIEF THAT TO BE ALLOWED AS BAD DEBT, THE DEBT SHOULD HAVE BEEN PART OF THE INCOME OF THE ASSESSEE IN THE EARLIER YEARS. SINCE NONE OF THE DE BTS WERE PART OF ASSESSEES INCOME IN EARLIER YEARS, THE AO DISALLOW ED THE ENTIRE CLAIM OF BAD DEBTS WRITTEN OF AT RS. 13,94,554/-. THE AO FUR THER OBSERVED THAT THE AMOUNTS REPRESENTING THE DEBTS HAVE BEEN ACTUALLY I NCURRED ON THE CAPITAL ASSETS, THEREFORE, THE SAME CANNOT BE ALLOWED AS A BUSINESS LOSS ALSO. 5. THE ASSESSEE AGITATED THIS MATTER BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS CONSIDERED THIS GRIEVANCE AT PARA-6, PAG E-10 OF HIS ORDER. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) WAS CONVINCED IN RESPECT OF CERTAIN DEBTS AN D DIRECTED THE AO TO ITA NO.8757/M/2011 3 DELETE THE SAME. HOWEVER, FOLLOWING THREE ITEMS RE MAINED CONFIRMED BY THE ORDER OF THE LD. CIT(A) I.E. A) ACER E SOLUTIONS PVT. LTD., - RS. 3,12,000/- B) CLOVER INFOTECH PVT. LTD. - RS. 82,500/- C) FINANCIAL TECHNOLOGIES (INDIA)LTD - RS. 6,11,31 6/- 6. IN RESPECT OF THESE DEBTS, THE ASSESSEE TOOK AN ALTERNATIVE PLEA BEFORE THE LD. CIT(A) AND CLAIMED THAT IF THESE DEB TS ARE NOT ALLOWED AS BAD DEBTS, THE SAME SHOULD BE ALLOWED AS BUSINESS L OSS. IT WAS CLAIMED BEFORE THE LD. CIT(A) THAT THESE DEBTS REPRESENT TH E ADVANCES GIVEN BY THE ASSESSEE FOR THE PURCHASE OF SOFTWARES. SINCE THE SOFTWARES WERE NEVER DELIVERED NOR THE ADVANCE WAS REFUNDED, THE A SSESSEE HAD NO OPTION BUT TO WRITE OFF THESE DEBTS. HOWEVER, THE SUBMISS IONS OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE LD. CIT(A) WHO WAS OF THE OPINION THAT THE ADVANCES WERE GIVEN FOR THE PURCHASE OF THE CAPITAL ASSET THEREFORE, IT COULD NOT BE ALLOWED U/S. 28 AS BUSINESS LOSS. 7. AGGRIEVED BY THIS FINDING OF THE LD. CIT(A), ASS ESSEE IS BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS GIVEN ADVANCES TO THESE THREE PARTIES FOR THE PURCH ASE OF SOFTWARE. DRAWING OUR ATTENTION TO PAGE-38 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS EXHIBIT IS THE PUR CHASE ORDER FOR CERTAIN SOFTWARES WHICH WERE DIRECTLY CONNECTED WITH THE BU SINESS OF THE ASSESSEE. THE INVOICE AMOUNT IS RS. 6,00,000/-, THE ASSESSEE HAD PAID 50% ADVANCE. THE LD. COUNSEL DREW OUR ATTENTION TO PAGE-42 WHICH IS THE PURCHASE ORDER WITH CLOVER INFOTECH PVT. LTD. F OR BACK OFFICE SOFTWARE DEVELOPMENT. THE INVOICE AMOUNT IS RS. 1,65,000/-. THE ASSESSEE HAD ITA NO.8757/M/2011 4 PAID 50% ADVANCE. THE THIRD INVOICE AT PAGE-47 PER TAINING TO FINANCIAL TECHNOLOGIES (INDIA)LTD. INVOICE AMOUNT IS RS. 22, 10,000/-. ASSESSEE HAD PAID RS. 6,11,316/- AS ADVANCE. IT IS THE SAY OF THE LD. COUNSEL THAT SINCE THE ASSESSEE COULD NOT RECEIVE THE SOFTWARES AND EVEN AFTER SOME FOLLOW-UP, THE ASSESSEE COULD NOT RECOVER THE ADVAN CE MADE TO THESE 3 PARTIES, IT HAS WRITTEN OFF AND HAS CLAIMED AS BUSI NESS LOSS. 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. DR THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE SOFTWARES WHICH WERE TO BE PURCHASED WERE OF REVENUE IN NATURE. IT IS THE SAY OF THE LD. DR THAT THE ADVANCES GIVEN FOR THE PURCHASES OF SOFTWARES PERTA IN TO PURCHASE OF A CAPITAL ASSET AND THEREFORE, THE REVENUE AUTHORITIE S HAVE RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCE BROUGHT ON RECORD. THE UNDISPUTED FACT IS THAT THE ASSESSEE IS IN THE BUSINESS OF SHARE BROKING AND PORTFOLIO MANAGEMENT SERVICES. CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE WHICH IS PREDOMINANTLY GOV ERNED BY THE LATEST INFORMATION TECHNOLOGY RELATED SOFTWARES, THE ASSES SEE HAD GIVEN ADVANCES FOR THE PURCHASE/UPGRADATION OF SOFTWARES WHICH HAVE A DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS NOT ADVANCED MONEY TO THESE THREE PARTIES. IT IS ALSO NOT THE CASE OF THE AO THAT THE TRANSACTIONS ARE NOT GE NUINE. THE ONLY REASON FOR DISALLOWING THE CLAIM AS BUSINESS LOSS IS THAT THE ADVANCES HAVE BEEN GIVEN FOR THE PURCHASE OF A CAPITAL ASSET. WHETHER SOFTWARE IS OF CAPITAL IN NATURE OR REVENUE WOULD ALWAYS DEPEND UPON THE USAG E OF THE SOFTWARE. ITA NO.8757/M/2011 5 THE SAME SOFTWARE CAN BE A CAPITAL ASSET IN CASE OF ONE PERSON WHEREAS IT CAN BE A REVENUE IN CASE OF OTHER PERSON DEPENDING UPON THE USAGE. 11. WE HAVE CAREFULLY PERUSED THE INVOICES AND THE NATURE OF SOFTWARES WHICH THE ASSESSEE WAS ABOUT TO PURCHASE. IN OUR H UMBLE OPINION, CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE, WE HAVE NO HESITATION TO HOLD THAT THE SOFTWARES WHICH THE ASSESSEE INTEN DED TO PURCHASE HAD A DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. TH EREFORE, IN OUR CONSIDERATE VIEW, IF THE PURCHASE OF SOFTWARES WOUL D HAVE MATERIALIZED, THE SAME COULD HAVE BEEN A REVENUE EXPENDITURE. CO NSIDERING ALL THESE FACTS IN TOTALITY, IN THE LIGHT OF THE FACTS ON REC ORD, WE DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE AS A BUSINESS LOSS AS THE ADVANCES PERTAINED DIRECTLY TO THE BUSINESS OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JULY, 2013 &5 0 4( % 6 7&8 5.7.2013 4 0 9 SD/- SD/ (H.L. KARWA ) (N.K . BILLAIYA ) / PRESIDENT % &' / ACCOUNTANT MEMBER MUMBAI; 7& DATED 5.7.2013 . . ./ RJ , SR. PS ITA NO.8757/M/2011 6 &5 &5 &5 &5 0 00 0 -1! -1! -1! -1! :!(1 :!(1 :!(1 :!(1 / COPY OF THE ORDER FORWARDED TO : 1. ), / THE APPELLANT 2. -.), / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- 4. ; / CIT 5. !<9 -1 , , / DR, ITAT, MUMBAI 6. 9= > / GUARD FILE. &5 &5 &5 &5 / BY ORDER, .!1 -1 //TRUE COPY// ? ?? ? / @ @ @ @ * * * * (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI