DCIT 2(2)(2), MUMBAI vs. PRIYA LTD, MUMBAI

M/s. Priya Limited Assessment Year :2014-15 appreciating the fact that purchased software is freely available on internet for downloading for which assessee paid huge amount of Rs. 86,49,923/- to the related party?" 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that unsold software of Rs. 84,04,746/- is lying in closing stock and hence there is no effect on profit without appreciating that as per financial statements of assessee. There is no closing stock of impugned purchases since entire software of Rs.9,66,79,695/- has been sold for of Rs. 10,40,12,930/- in year under consideration?" 2.1 Facts leading to the dispute are that the assessee being resident corporate entity engaged in the business of export / import of chemicals etc. and trading in computer parts was assessed for impugned AY u/s 143(3) on 28/12/2016 by Ld. Assistant Commissioner of Income Tax- Circle 2(2)(2), Mumbai [AO] wherein the income of the assessee was determined at Rs.312.99 Lacs after certain additions as against returned income of Rs.297 Lacs filed by the assessee on 30/09/2014. As evident from grounds of appeal, the sole subject matter of present appeal before us is disallowance of Rs.86.49 Lacs on account of certain purchases made by the assessee. This addition, although discussed in the quantum assessment order dated 28/12/2016, was omitted to be made while computing the income of the assessee and accordingly, the quantum assessment order has been rectified u/s 154 on 13/01/2017 to account for the same. 2.2 During assessment proceedings, it transpired that the assessee purchased certain software from a related entity within the meaning of Section 40A(2)(b) namely Verixo Technologies Pvt. Ltd. The assessee, while furnishing purchases invoices, submitted that it had purchased software from the said entity for resale in the normal course of business. These software was in the nature of Linux Version-1, VMS Ent./Std.

The assessee agitated the same with detailed submissions before Ld. first appellate authority vide impugned order dated 03/10/2017 wherein it was observed that the assessee had not claimed the expenditure since there was debit of Rs.86.49 Lacs by way of purchase of software and corresponding credit of by way of sale of software for Rs.1.16 Lacs and closing stock for Rs.84.04 Lacs and therefore, the stated disallowance was not justified. Aggrieved, the revenue is in further appeal before us.

The Ld. Departmental Representative [DR], supported the stand taken by Ld. AO whereas Ld. Authorized Representative for Assessee, Shri J.P.Bairagra, on the strength of documents placed in the paper- book, submitted that software formed part of closing stock which has been sold in subsequent years as evident from stock records.

We have carefully heard the rival submissions and perused relevant material on record including documents placed in the paper- book. Upon perusal, the undisputed position that emerges is the fact that the assessee has purchased the stated software under 6 bills for resale. The part of these software has been sold by the assessee during impugned AY and the balance software have been reflected as Closing Stock under the head electronics which is evident from closing stock details as placed on page no. 100 of the paper-book. The perusal of quantitative details reveals that the assessee is having closing stock of