SOVEREIGN SECURITIES P. LTD, MUMBAI V. ACIT 4(2), MUMBAI

ITA 9089/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83958 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 20-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LAV KUMAR
• Assessee Lawyers: NISHIT GANDHI
• Keywords: Depreciation; Commercial expediency; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI . . , . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI R.C.SHARMA , ACCOUNTANT MEMBER ITA NO.9089/MUM/2010 (A.Y.2007-08) M/S.SOVEREIGN SECURITIES PRIVATE LIMITED, 5A KHATAU BUILDING, ALKESH DINESH MODI MARG, FORT, MUMBAI 400023 PAN:AAECS5874 (APPELLANT ) VS. THE ACIT 4(2), AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 (RESPONDENT) APPELLANT BY : SHRI NISHIT GANDHI RESPONDENT BY : SHRI LAV KUMAR DATE OF HEARING : 20/10/2014 DATE OF PRONOUNCEMENT : 20 /10/2014 ORDER PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-8 DATED 21/10/2010 FOR ASSESSMENT 2007-0 8. GROUNDS OF APPEAL READ AS UNDER: 1. THE LEARNED ACIT HAS GROSSLY ERRED IN DISALLOW ING THE SOFTWARE EXPENSES OF RS.96,498/- TREATING AS CAPITAL EXPENDITURE. FURTH ER THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME DISALLOWANCE. 2. THE LEARNED ACIT & CIT(A) HAS GROSSLY ERRED IN DISALLOWANCE OF INTEREST PAYMENT ON ACCOUNT OF INTEREST FREE ADVANCES TO BUSINESS ASSOC IATES AND LEARNED CIT(A) CONFIRMED THE SAME. 2. AN AMOUNT OF RS.96,489/- INCURRED BY THE ASSE SSEE ON ACCOUNT OF IRIS SOFTWARE, ANTIVIRUS SOFTWARE ETC. WAS CONSIDERED A S CAPITAL EXPENDITURE AND DEPRECIATION OF RS.28,949/- WAS ALLOWED AND BALANC E AMOUNT OF RS.67,549/- WAS ITA NO.9089/MUM/2010 (A.Y.2007-08) 2 TREATED AS INCOME OF THE ASSESSEE. THE DISALLOWANC E WAS AGITATED BY THE ASSESSEE BEFORE LD. CIT(A). UPON CONSIDERING THE SUBMISSION S MADE BY THE ASSESSEE LD. CIT(A) HAS UPHELD THE DISALLOWANCE ON THE GROUND TH AT THE CONTROVERSY REGARDING SOFTWARE EXPENSES BEING CAPITAL OR REVENUE EXPENDIT URE HAS BEEN PUT TO REST BY INSERTION OF INCLUDING COMPUTER SOFTWARE AT(5)I II OF PART A OF APPENDIX I TO INCOME TAX RULES, 1962 SUBSTITUTING OLD APPENDIX-I W.E. F. 1/4/2003. IT WAS SUBMITTED BY LD. AR THAT FOR ASSESSMENT YEAR 2003-04, SIMILAR DI SALLOWANCE OF RS.1,32,884/- WAS MADE AND VIDE ORDER OF ITAT DATED 30/12/2011 IN ITA NO.6048/MUM/2006 (ASSESSEES APPEAL) AND ITA NO.5639/MUM/2006 (DEPAR TMENTAL APPEAL) THE DISALLOWANCE WAS DELETED AS PER FOLLOWING OBSERVATI ONS: 9. IN RESPECT OF GROUND NO.3 OF APPEAL, WE HAVE HEARD THE LD. REPRESENTATIVES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. WE OBSERV E FROM THE DETAILS AS GIVEN BY AO AT PAGE -4 OF ASSESSMENT ORDER THAT SAID EXPENDITURE A GGREGATING TO RS.1,32,884/- WAS INCURRED BY ASSESSEE FOR UPGRADATION OF SOFTWARE FO R ITS COMPUTER. CONSIDERING THE DECISION OF ITAT, SPECIAL BENCH IN THE CASE OF AMWA Y INDIA ENTERPRISES VS. DCIT, 111 ITD 112 (SB), WE HOLD THAT SAID EXPENDITURE IS REVE NUE IN NATURE. THEREFORE, GROUND NO.3 OF APPEAL TAKEN BY ASSESSEE IS ALLOWED BY REVE RSING THE ORDERS OF AUTHORITIES BELOW. WE MAY STATE THAT DEPRECIATION IF ANY, ALLO WED TO BE ASSESSEE BY CONSIDERING THE SAID EXPENSES AS CAPITAL IN NATURE, SAME SHALL BE REVERSED. HENCE, GROUND NO.3 OF APPEAL IS ALLOWED. 3. ON THIS GROUND WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT NO DETAILS HAS BEEN FILED BY THE ASSESSEE REGARDING BIFURCATION O F THESE EXPENDITURE. IN THIS VIEW OF THE SITUATION, WE CONSIDER IT PROPER TO RESTORE TH IS ISSUE TO THE FILE OF AO FOR FRESH CONSIDERATION OF THE ISSUE IN THE LIGHT OF AFOREME NTIONED DECISION OF THE TRIBUNAL AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. ACCORDINGLY, THIS GROUND IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 4. APROPOS GROUND NO.2, IT WAS SUBMITTED BY LD. AR THAT FOR ASSESSMENT YEAR 2006-07 SIMILAR ISSUE WAS RESTORED BACK TO THE FILE OF AO VIDE ORDER DATED 14/02/2014 IN ITA NO.70/MUM/2010, COPY OF THE ORDER WAS ALSO PLACED ON OUR RECORD. REFERENCE WAS MADE TO THE FOLLOWING OBSERV ATIONS: 8. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. THE A SSESSEES MAIN CONTENTION BEFORE US AS WELL AS BEFORE THE AUTHORITIES BELOW IS THAT THE ADVANCE TO THE SISTER CONCERN SOVEREIGN CLUB WAS FOR THE BUSINESS PURPOSE AND IN ANY CASE, THE ASSESSEE HAD ITA NO.9089/MUM/2010 (A.Y.2007-08) 3 SUFFICIENT INTEREST FREE FUNDS FOR MAKING SUCH AN A DVANCE. FOR ESTABLISHING BUSINESS AND COMMERCIAL EXPEDIENCY FOR MAKING ANY ADVANCE, THE A SSESSEE IS NOT ONLY REQUIRED TO ESTABLISH THE BUSINESS CONNECTION BUT ALSO THE COMM ERCIAL EXPEDIENCY FOR WHICH SUCH AN ADVANCE WAS GIVEN. THIS IS MORE SO, WHEN THE ASSESS EE HAS HUGE INTEREST LIABILITY ON THE BORROWED FUNDS AND AT THE SAME TIME HAS ALSO GIVEN INTEREST FREE FUNDS TO ITS SISTER CONCERN. THE COMMERCIAL AND BUSINESS EXPEDIENCY CAN BE ESTABLISHED BY DEMONSTRATING AND PLACING MATERIAL ON RECORD TO SHOW AS TO HOW TH E BENEFIT HAS ARISEN OR WILL BE DERIVED TO THE ASSESSEE BY ADVANCING SUCH HUGE SUM TO ITS SISTER CONCERN, BECAUSE IN A THIRD PARTY SITUATION, A BROKER WILL NEVER PLACE SU CH A HUGE DEPOSITS WITH THE SUB-BROKER, RATHER IT IS OTHER WAY ROUND, ON A PERUSAL OF THE L EDGER ACCOUNT OF THE SISTER CONCERN, TWO THINGS ARE VERY GLARING, FIRSTLY, THE PAYMENT OF SU B-BROKERAGE TO THE SISTER CONCERN IS THE SAME AMOUNT FOR EVERY MONTH I.E., RS.2,20,400, WHIC H SHOWS THAT SOME FIXED AMOUNT IS BEING PAID AS BROKERAGE WHEREAS THE BROKERAGE ALWAY S DEPEND UPON THE TRANSACTIONS UNDERTAKEN ON BEHALF OF THE ASSESSEE; SECONDLY, EXC EPT FOR TWO OCCASIONS DURING THE YEAR I.E., ON 19TH AND 21ST JULY 2005, WHEN THERE H AS BEEN CREDIT BALANCE, OTHERWISE FOR THE WHOLE YEAR THERE HAS BEEN DEBIT BALANCE IN THE ACCOUNT OF THE SISTER CONCERN. SUCH A SITUATION WILL NOT ARISE IN UNCONTROLLED TRANSACTIO NS WITH THE UNRELATED PARTY. IN THESE CIRCUMSTANCES, IT IS IMPERATIVE THAT THE ASSESSEE S HOULD PLACE FACTS ON RECORD TO ESTABLISH COMMERCIAL EXPEDIENCY. THE ASSESSEES OTH ER PLEA OF HAVING SUFFICIENT INTEREST FREE FUNDS HAS ALSO NEITHER EXAMINED BY THE ASSESSI NG OFFICER NOR BY THE LEARNED COMMISSIONER (APPEALS). THUS, UNDER THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE OF DISALLOWANCE OF INTEREST NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH AND THE ASSESSEE WILL HAVE TO ESTABLISH COMMERCIAL EXPEDIENCY FOR MAKING SUCH A H UGE ADVANCE TO ITS SISTER CONCERN. THE ASSESSING OFFICER WILL ALSO EXAMINE THE ASSESSE ES ALTERNATE PLEA OF AVAILABILITY OF INTEREST FREE FUNDS FOR MAKING SUCH AN ADVANCE AND WILL DECLDE IN ACCORDANCE WITH THE PROVISIONS OF LAW. NEEDLESS TO MENTION HERE THAT TH E ASSESSING OFFICER SHALL PROVIDE DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSE E TO PRESENT ITS CASE. GROUND NO.2, RAISED BY THE ASSESSEE IS THUS ALLOWED FOR STATISTI CAL PURPOSES. 5. LD. AR SUBMITTED THAT AO MAY ALSO BE DIRECTED TO CONSIDER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES LTD., 313 ITR 340 (BOM). 6. AFTER HEARING BOTH THE PARTIES, RESPECTFULLY FOL LOWING THE AFOREMENTIONED DECISION OF CO-ORDINATE BENCH, WHICH IS RENDERED IN THE CASE OF ASSESSEE ITSELF IN RESPECT OF IMMEDIATE PRECEDING YEAR WE RESTORE THIS ISSUE TO THE FILE OF AO FOR RE- ADJUDICATION AS PER DIRECTIONS GIVEN THEREIN. WE M AY ALSO ADD THAT AO SHALL CONSIDER ALL THE DECISIONS AVAILABLE TILL THE DATE FOR RE-AD JUDICATION OF THIS ISSUE AND AFTER GIVING OPPORTUNITY TO THE ASSESSEE THE MATTER SHALL BE RE -ADJUDICATED. THIS GROUND IS ALSO TREATED TO BE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.9089/MUM/2010 (A.Y.2007-08) 4 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 20/10/20 14 !' # $%& 20/10/2014 ! ' SD/- SD/- ( . . /R.C.SHARMA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; $% DATED 20/10/2014 ()* ()* ()* ()* +*') +*') +*') +*') / COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. (.,- / THE RESPONDENT. 3. / ( ) / THE CIT(A)- 4. / / CIT 5. *0' ()% , , / DR, ITAT, MUMBAI 6. '1 2 / GUARD FILE. % % % % / BY ORDER, .*) () //TRUE COPY// 3 33 3 / 4 4 4 4 5 5 5 5 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . % . ./ VM , SR. PS