Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI G. D. AGRAWAL & SMT SUCHITRA KAMBLE
ORDER PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 1/7/2013 passed by CIT(A)-IV, New Delhi. 2. The grounds of appeal are as follows:-
“1. That on facts and in law the orders passed by the A.O and partly confirmed by the Commissioner of Income tax (Appeals) (hereinafter referred to as “CIT(A)” ) are bad in law and void ab-initio 2. That the Learned Commissioner of Income tax (Appeals) has erred both in law and on facts in confirming the following disallowances of following. a). The CIT(A) is not correct in confirming disallowance of Rs.5,60,000/- for their charges paid to Software Technology Park of India, Noida, the disallowance is unjust, arbitrary & illegal. b). The CIT(A) is incorrect in denial of deduction of Rs.1,40,000/- Rs, 1,40,000/- allowed by Ld. A.O paid to STPI for their charges. The denial is unjust, arbitrary, illegal, and against facts. c). That the CIT(A) erred on facts and in law in confirming disallowance of Rs.3,35,625/- in the absence of confirmation from the party M/s Gigaware Software Solutions. The amount was paid for purchase of certain software. The denial is unjust, illegal and against facts.
The assessee company was incorporated on February, 1986. During the year the assessee was engaged in the activity of the trading of generic software and providing computerized software development services for the domestic as well as for foreign market. The Assessing Officer observed that during the year assessee company has claimed to have incurred expenses of Rs.12.26 lacs on power and fuel as per profit and loss a/c. In comparison to the earlier year expense the amount spent on power and fuel in the year under reference is on higher side whereas total turnover has been decreased to 90% from last year. (Last year turnover was Rs.33,69,22,000/- this year turnover was Rs.2,41,60,000/-). The assessee was asked to justify the same. The assessee replied the same vide letter dated 2/12/2005. The Assessing Officer observed that the assessee had debited Rs. 7 lacs as service charges in profit and loss account. Detail furnished in this regard shows that Rs. 7 lacs relates to registration charge for getting registration with software Technology park Noida for availing service of STPI. The assessee was going to start new business activity during the year under consideration and incurred Rs. 7 lacs on the same. These expense are the expenses which falls under the ambit of Section 35D of the Income Tax Act, 1961. The Assessing Officer further observed that the assessee had spent Rs. 7 lacs in connection with availing the services of STPI means the assessee had incurred the expenditure on extension of the existing business. The assessee cannot claim these expenses as whole. These expenses are not routine nature and appearing of enduring benefit nature. Therefore these expenses are amortized being expenses of pre-operative expenses. However, as per Section 35D 1/5 of Rs. 7 lacs is allowable. Thus the Assessing Officer disallowed Rs. 5,60,000/-. As relates to the purchases of software from M/s. Gigaware Software Solutions, the Assessing Officer observed that the Assessee has not furnished any document that exhibits the credit balance. In absence of any detail/confirmation from the said party, the outstanding balance shown to Rs. 3,35,625/- was treated as a deemed income of the assessee under Section 41 (1) of the Income Tax Act, 1961.
Aggrieved by the order of the Assessing Officer, the Assessee filed appeal before the CIT(A). As regards to registration charges for getting registration with Software Technology Park, Noida for availing service of STPI for Rs. 7,00,000/-, the CIT(A) held that the assessee failed to produce any evidence in support of assessee’s claim that these expenses were pertaining to the assessment year under consideration. The Assessee could not give any satisfactory reply to the A.O’s remand report that the details pertain to the Assessment Year 2002-03 and not to the assessment year under consideration. The CIT(A) further held that the bill submitted by the assessee are pertaining to the Financial Year 2001-02 which is relating to the Assessment Year 2002-03 and in the ledger account, there was credit of Rs.1,00,000/- as opening balance on 1/4/2002. None of the bills are relating to the Assessment Year 2003-04. The bill given for Datacom charges pertain to the period 1/1/2002 to 31/3/2002. The local routine charges of Rs.1,05,000/- dated 13/12/2001 which were required to be paid by 18/12/2001 for which contract was made on 3/7/1998. Thus the CIT(A) held that the claim of payment of Rs.7,00,000/- did not pertain to the year under consideration. Therefore, these are not the admissible expenses during the year. The Hon'ble Supreme Court in the case of CIT(A) Vs. Calcutta Agency Ltd 19 ITR 191 (Hon'ble Supreme Court) and in the case of CIT(A) V R. Venkataswamy Naidu 29 ITR 529 (Hon'ble Supreme Court) had held that to claim an exemption, it is the duty of the assessee to substantiate it with records and evidences. Thus, the CIT(A) upheld the order of the Assessing Officer in making the disallowance of entire amount of Rs.7,00,000/-. Further the CIT(A) held that since the A.O has allowed 1/5th deduction u/s 35D, the same requires to be withdrawn and disallowance is required to be made for entire amount by Rs.7,00,000/-. Thus, denied the deduction of Rs. 1,40,000/- allowed by the Assessing Officer paid to STPI for their charges.
On the issue of disallowance of Rs. 3,35,625/- in the absence of confirmation from the party M/s. Gigaware Software Solutions, the CIT(A) held that the assessee has only submitted the copy of the account of the party as appearing in its books of accounts. However, no confirmation from M/s. Gigaware Software Solutions has been submitted. Even the copy of the bank account from which payment was made to M/s. Gigaware Software Solutions in next year as claimed by the assessee was not produced either before the AO or before the CIT(A) during the appellate proceedings. The CIT(A) further held that the assessee failed to discharge the onus to prove the genuiness of the transaction despite specific opportunities given by the Assessing Officer. Thus the CIT(A) confirmed the order of the Assessing Officer on this issue.
The Ld. AR submitted that the annual charges of STPI gateway for transpondrance of software developed. The annual charges of STPI were Rs. 4 lacs which were claimed in four equal quarterly installments. There was some dispute of Rs. 3 Lacs charges of earlier year which were also settled/paid in current year. Rs. 1 lac paid on 13.07.2002, paid on 14.08.2002 and payable as on 31.03.2003 is the charges for the FY 2002-03 i.e. previous year in question hence expenses for current year only not registration or prior period expenses. Rs. 1 lac paid on 15.04.2002, Rs. 1 lac on 15.05.2002 and Rs. 1 lac paid on 25.07.2002 are for the FY 2001- 02. These were pending and not expensed in earlier years as there was some dispute between assessee & STPI, which was resolved in current year and payment and expenses booked. Since it was settled in current year and crystallized in current year, it is to be expensed in current year only. The services utilized against the same were booked as income in earlier years. The amount was not expensed since there were disputes between parties on certain issues. However it was resolved in current year and accordingly expensed. The Ld. AR further submitted that under the scheme of STPI, IT industries are provided certain concession in duties, levies and taxes. The Scheme is single point contact service to the STP unit which provides approval as a STP unit, approval for enhancement of capital goods, Issuance of green card, guidance for custom bonding, certification of imports and exports, permission for excise exemption and DTA sales as well as re-export, No objection certificate for change of name and location, CST reimbursement. Thus the Ld. AR submitted that these are not registration charges as understood by AO for starting some new business nor it falls u/s 35D as contemplated. Assessee had been in Software Development & export for years. The service charges charged by STPI are routine in nature & every software exporter has to pay to STPI. On the second issue, the Ld. AR submitted that the company had purchased a software from M/s. Gigaware Software Solutions for Rs. 3,35,625/- vide their invoice dated 06.02.2003 which was given in the paper book at page 36 and produced before the lower authorizes. This was re-sold to Axis Marketing, New Delhi for Rs. 4,00,388/-. The customer paid the amount of Rs.4,00,000/- on 18.08.2003 vide cheque. M/s Gigaware Software Solutions was paid Rs. 1,50,000/- on 18.08.2003 for which bank statement was produced before the authorities and Rs. 1,80,327/- on 08.09.2003. Thus it is not a case of cessation or omission of liability Bank statement copy of account for evidence of payment was produced before the authorities.
The Ld. DR relied on the orders of the Assessing Officer and the CIT(A).
We have perused all the records and heard both the parties. On the first issue it is observed that the annual charges of STPI were Rs. 4 lacs which were claimed in four equal quarterly installments. There was some dispute of Rs. 3 Lacs charges of earlier year which were also settled/paid in current year. Rs. 1 lac paid on 13.07.2002, paid on 14.08.2002 and payable as on 31.03.2003 is the charges for the FY 2002-03 i.e. previous year in question hence expenses for current year only not registration or prior period expenses. Rs. 1 lac paid on 15.04.2002, Rs. 1 lac on 15.05.2002 and Rs. 1 lac paid on 25.07.2002 are for the FY 2001- 02. These were pending and not expensed in earlier years as there was some dispute between assessee & STPI, which was resolved in current year and payment and expenses booked. Since it was settled in current year and crystallized in current year, it is expensed in current year by the assessee. The said payments are in cheque and there is no necessity for further verification of the same. The service charges charged by STPI are routine in nature & every software exporter has to pay to STPI. It does not attract provisions of Section 35D of the Act. Thus the CIT (A) and the Assessing Officer failed to take cognizance of the same.
As relates to the second issue the purchase of the software from the Gigaware Software Solutions for Rs. 3,35,625/-, the Ld. AR submitted its bank statements to that extent before the Assessing Officer. Thus the finding recorded by the CIT(A) that the bank account was not produced is incorrect. It is noted that the assessee has produced the relevant documents at the time of the Assessment proceedings. Thus the finding given by the CIT(A) as well as by the Assessing Officer that the relevant documents were not produced is incorrect.
In result, appeal is allowed.
The order is pronounced in the open court 20th of October, 2016.