M/s ATW Technologies Pvt. Ltd., Bangalore V. DCIT, Bangalore

ITA 890/BANG/2010

• Counselvise Citation: 89021114 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-04-2012
• Assessment Year: misc
• Appeal Filed On: 12-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C RAMESH
• Keywords: Opportunity of being heard; Non passing of speaking order; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.K SAINI, ACCOUNTANT MEMBER AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER ITA NO.890/ BANG/2010 (ASST. YEAR - 2003-04) M/S ATW TECHNOLOGIES PVT. LTD., UNIT 008-009, LALEHZAR, 45/1-6, PALACE ROAD, BANGALORE. . APPELLANT PAN NO.AADCA 4750H. VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-11(1), BANGALORE. . RESPONDENT APPELLANT BY : SHRI C. RAMESH, CA RESPONDENT BY : SHRI SARAVANAN B, JCIT DATE OF HEARING : 19-04-2012 DATE OF PRONOUNCEMENT : 27-04-2012 O R D E R PER SHRI N.K SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 29.04.2010 OF THE LEARNED COMMISSIONER OF INCOME-TA X (APPEALS) - I, BANGALORE. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED AS MANY AS SEVEN GROUNDS. IN GROUND NOS.1 TO 4, THE ASSESSEE HAS NARRATED THE FA CTS, WHILE GROUND NO.7 IS ITA NO.890/B /10 2 GENERAL IN NATURE. SO THESE GROUNDS DO NOT REQUIRE ANY ADJUDICATION ON OUR PART. 3. THE GRIEVANCE OF THE ASSESSEE VIDE GROUND NO.5 I S THAT THE LEARNED CIT(A) HAS NOT PASSED A SPEAKING ORDER ABOUT THE RE QUIREMENT OF PASSING THE ORDER U/S 170 OF THE INCOME-TAX ACT (HEREINAFTE R REFERRED TO AS THE ACT, IN SHORT). 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE TOOK OVER THE RUNNING BUSINESS OF PARTNERSHIP FIRM CALLED ALL TH INGS WEB, AS A GOING CONCERN WITH ALL ITS ASSETS AND LIABILITIES. THE P ARTNERS OF THE SAID FIRM BECAME THE SHAREHOLDERS AND DIRECTORS OF THE ASSESS EE COMPANY IN THE SAME RATIO, AS THEY HAD CONTRIBUTED CAPITAL IN THE PARTN ERSHIP FIRM. THE ASSESSEE WHILE TAKING OVER THE BUSINESS OF PARTNERSHIP FIRM HAD ALSO TAKEN OVER A CONTRACTUAL OBLIGATION OF THE ERSTWHILE FIRM WHEREI N IT HAD BEEN AGREED THAT ONE OF THE PARTNERS IN THE FIRM (NOW DIRECTOR IN TH E ASSESSEE COMPANY) WILL NOT COMPETE WITH THE BUSINESS OF PARTNERSHIP FIRM B EING A SOFTWARE PROFESSIONAL AND THEREBY COMPETE WITH THE BUSINESS OF PARTNERSHIP FIRM AND FOR THAT PURPOSES IT WAS AGREED BETWEEN THE PARTNER SHIP FIRM AND SAID PARTNER THAT A SUM OF RS.99 LAKHS SHALL BE PAID TO THE SAI D PARTNER AS NON-COMPETE FEE. THIS CONTRACTUAL OBLIGATION OF PAYMENT OF N ON-COMPETE FEE WAS ALSO TAKEN OVER BY THE ASSESSEE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04. THE ASSESSEE HAD DEBITED RS.99 LAKHS AS NON- ITA NO.890/B /10 3 COMPETE-FEE PAYABLE TO ONE OF THE DIRECTORS IN THE PROFITS AND LOSS ACCOUNT. THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND ADDED THE SAME IN THE HANDS OF THE ASSESSEE. 5. THE ASSESSEE CARRIED THE MATTER TO THE LEARNED C IT(A) WHO DELETED THE ADDITION VIDE ORDER DATED 26.11.2007. AGAINST THE SAID ORDER, THE REVENUE FILED AN APPEAL BEFORE THE ITAT IN ITA NO.1279/BANG /2007 WHEREIN VIDE ORDER DATED 25.7.2008, THE ORDER OF THE LEARNED CIT (A) WAS SET ASIDE AND THE MATTER WAS RESTORED BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH. THE AO MADE THE ADDITION AGAIN BY OBSERVING THAT THE ASSES SEE COMPANY HAD ACQUIRED THE FIRM WITH THE ASSETS AND LIABILITIES, WHICH ALREADY EXISTED AND AS THERE WAS NO OBLIGATION FOR THE ASSESSEE COMPANY TO PAY NON-COMPETE-FEE, BY VIRTUE OF THE AGREEMENT, EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT AS PER LAW. THE ASSESSEE AGAIN IN THE SECOND INNING C ARRIED THE MATTER TO THE LEARNED CIT(A), WHO CONFIRMED THE ACTION OF THE AO BY OBSERVING IN PARA 4 OF THE IMPUGNED ORDER AS UNDER : M/S ALL THING WEB WAS A PARTNERSHIP TIRE WITH TWO PARTNERS VIZ. M RAJAGOPAL AND MADHAVI. THEY WERE IN THE LINE OF SA ME BUSINESS AS THE APPELLANT COMPANY I.E SOFTWARE DEVELOPMENT. THE PA RTNERSHIP FIRM AGREED TO PAY THE PARTNER M RAJGOPAL RS.99 LAKHS AS NON-COMPETE FEE AND DEDUCTED THE SAME FROM THE P/L ACCOUNT OF THE P ARTNERSHIP FIRM AND CREDITED THE SAME TO PARTNERS CAPITAL ACCOUNT A S LIABILITY. THUS ON THE DATE OF TAKE OVER OF THE FIRM BY THE APPELLANT COMPANY ON 1.4.2002 LOCK, STOCK AND BARREL, THE LIABILITY GOT TRANSFERR ED TO THE APPELLANT COMPANY IN THE RELEVANT ASSESSMENT YEAR 2003-04. T HEREFORE, THE ISSUE SHOULD BE RESOLVED IN FAVOUR OF THE APPELLANT ON FACTS. HOWEVER THE ITAT DESIRED TO KNOW AS TO APPLICABILITY OF PRO VISIONS OF S.170 I.T ITA NO.890/B /10 4 ACT TO THE FACTS OF THIS CASE. THE A.R POINTS OUT THAT THERE IS NO NECESSITY ON THE PART OF THE SUCCESSOR APPELLANT TO APPLY FOR SUCH AN ORDER TO AO NOR IT IS MANDATORY ON THE PART OF THE AO TO PASS SUCH AN ORDER. I ALSO FIND THAT ON RECORD THERE IS NO SUC H APPLICATION OR NO SUCH ORDER. IN FACT SEC. 170(3) OF I.T ACT PROVIDE S THAT IN CASE OF SUCCESSION, IT SHOULD BE DETERMINED WHO IS LIABLE T O PAY THE INCOME-TAX DUES THE PREDECESSOR OR THE SUCCESSOR? SINCE NO SU CH ORDER IS THERE IT CANNOT BE CONCLUDED THAT THE SUCCESSOR HAS TAKEN OV ER THE LIABILITY LEGALLY SO AS TO ENABLE IT TO CLAIM THE EXPENDITURE AS REVENUE EXPENDITURE. THUS LEGALLY THE TAKE OVER OF THE ASS ETS AND LIABILITY BY THE APPELLANT COMPANY STILL REMAINS A FICTION IN THE EY E OF I.T LAW. IN VIEW OF SUCH LEGAL EXPOSITION, I CONSIDER THE CLAIM OF E XPENDITURE BY THE APPELLANT COMPANY IS NOT ALLOWABLE. THE ISSUE IS D ECIDED AGAINST THE APPELLANT AND IN FAVOUR OF REVENUE. 6. NOW THE ASSESSEE IS IN APPEAL. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE LEARNED CIT(A) HAD NOT ADJUDICATED THE ISSUE RELATING TO AP PLICABILITY OF PROVISION OF SEC. 170 OF THE INCOME-TAX ACT AND THAT THE AO HAS NOT FOLLOWED THE DIRECTION OF THE ITAT WHILE ADJUDICATING THE ISSUE, RESTORED BACK TO HIM. IT WAS POINTED OUT THAT THE ASSESSEE FURNISHED WRITTEN SUBMISSIONS BEFORE THE LEARNED CIT(A) VIDE ANNEXURE B, BUT THOSE WRITTEN S UBMISSIONS WERE NOT APPRECIATED IN RIGHT PERSPECTIVE BY THE LEARNED CIT (A) AND EVEN WITHOUT CONSIDERING THOSE WRITTEN SUBMISSIONS, THE ORDER OF THE AO WAS UPHELD. HE ACCORDINGLY SUBMITTED THAT THE ORDER PASSED BY THE LEARNED CIT(A) IS A NON SPEAKING ORDER AND DESERVES TO BE SET ASIDE. ITA NO.890/B /10 5 8. IN HIS RIVAL SUBMISSIONS, THE LEARNED DR SUPPOR TED THE ORDER OF THE LEARNED CIT(A). 9. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE P ARTIES AND MATERIAL AVAILABLE ON RECORD, IT IS NOTICED THAT THE LEARNED CIT(A) WHILE ADJUDICATING THE ISSUE HAS NOT DISCUSSED ABOUT THE WRITTEN SUBM ISSIONS MADE BY THE ASSESSEE AND IN PARA 4 OF THE IMPUGNED ORDER HAS SI MPLY REPEATED THE OBSERVATION OF THE AO. IN THE PRESENT CASE, IT IS N OTICED THAT THE LEARNED CIT(A) HAS GIVEN A CONTRADICTORY FINDING, ON THE O NE HAND, HE IS SAYING THAT THE ISSUE SHOULD BE CONSIDERED IN FAVOUR OF THE ASS ESSEE ON FACTS AND ON THE OTHER HAND IT HAS BEEN HELD THAT THE CLAIM OF THE E XPENDITURE OF THE ASSESSEE WAS NOT ALLOWABLE. SINCE THE OBSERVATIONS OF THE L EARNED CIT(A) IN PARA 4 OF THE IMPUGNED ORDER ARE CONTRADICTORY, FURTHER MORE, THE LEARNED CIT(A) WHILE DECIDING THE ISSUE HAD NOT DISCUSSED THE CONT ENTION OF THE ASSESSEE WHICH WERE FURNISHED BEFORE HIM VIDE ANNEXURE B, CO PY OF WHICH IS AVAILABLE ON THE RECORD. IT APPEARS THAT THE LEAR NED CIT(A) PASSED THE IMPUGNED ORDER IN SLIP-SHOD MANNER, SO IT IS NOT A PROPER ORDER IN THE EYES OF LAW. WE, THEREFORE, AFTER CONSIDERING THE TOTALITY OF THE FACTS, SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER BACK TO THE F ILE OF THE LEARNED CIT(A) TO BE ADJUDICATED AFRESH IN ACCORDANCE WITH LAW AFT ER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE, WE ALSO DIRECT THE LEARNED CIT(A) TO PASS A SPEAKING ORDER. ITA NO.890/B /10 6 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH APRIL, 2012. SD/- SD/- (P MADHAVI DEVI) (N.K SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER VMS. BANGALORE DATED : 27/04/2012 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.