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2016 (5) TMI 1008 - ITAT AHMEDABAD

2016 (5) TMI 1008 - ITAT AHMEDABAD - TMI - Claim of depreciation on the purchases of computers - Held that:- In our considered opinion, the circumstantial evidences are in favour of the assessee. The revenue’s rejection of the claim of depreciation is only based on the statements of Parikh couple who were not allowed to be cross examined by the assessee; therefore, their statements are in complete violation of principles of natural justice. On the basis of circumstantial evidences mentioned else .....

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etailed decision/discussion qua first grievance of this appeal. We have no hesitation to hold that the money has been borrowed for the purposes of business and, therefore, any interest paid thereon has to be allowed as business expenditure - Decided against assessee.

Disallowance of deffered revenue expenditure - Held that:- We find that the assessee has strongly contended that it has not floated any public issue nor invited any share application from anybody, neither during the year .....

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therefore, do not find any reason/basis for disallowing the same. We accordingly direct the A.O to delete the addition - Decided in favour of assessee

Disallowance of foreign travelling expenses - Held that:- There is no dispute that the assessee did not furnish complete details of the claim of foreign travel expenditure which it claimed through its computation of income. Even before us no demonstrative evidences have been brought on record to justify the claim in the computation of .....

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on the additional octroi duty of ₹ 1,71,000/- being treated as capital expenditure

Disallowance of bad debts - Held that:- No doubt that as per the ratio laid downin the case of TRF Ltd [2010 (2) TMI 211 - SUPREME COURT ] the assessee need not give the reasons for the write off but at the same time the assessee has to demonstrate that the debt has been taken on the income side in the earlier years as per the provisions of Section 36(2) of the Act, no such demonstrative evidence .....

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A. No: 1600 & 1452/AHD/2014 & C.O. No. 245/Ahd/2014, ITA. No: 1453/Ahd/2014, ITA. No: 804/Ahd/2011 - Dated:- 19-4-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER For The Appellant : Shri Anil Kshatriya with M.K. Parmar For The Respondent : Smt. Vibha Bhalla, CIT/ D.R. PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA Nos. 1600 & 1452/Ahd/14 are cross appeals by the revenue and the assessee against the very same order of the ld. CIT(A)-VI, Ahmedabad dated 20.03. .....

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onsulting charges paid to Satellite Mgt. Services Ltd, even when the assessee had not discharged the onus of establishing the business purpose of such expenditure. 2. The CIT(A) has erred in law and on facts by deleting the disallowance of ₹ 14.59 lacs towards management consultancy fees paid to CAs despite the fact that the assessee had not discharged the onus of establishing the business purpose of such expenditure. 3. The CIT(A) has erred in law and on facts by deleting the disallowance .....

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n the facts and in the circumstances of the case and in law, particularly in view of the ratio laid down by the Hon ble Jurisdictional High Court of Gujarat and as reported in 320 ITR 126, Ground no. 3 of the departmental appeal, on the issue of commission payment of ₹ 11.51, lacs is liable to be dismissed, being not maintenance. 2. On the facts and in the circumstances of the case and in law, particularly in view of the ratio laid down by the Hon ble Jurisdictional High Court of Gujarat a .....

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well as written submissions filed before him. 5. The entire dispute dates back to 28.03.2003, when the original assessment order was made by the A.O u/s. 143(3) of the Act. The assessment order travelled up to the Tribunal and the Tribunal vide order dated 15.10.2010 in ITA No. 1507/Ahd/2005 & 1681/Ahd/2005 observed that since the assessee was granted only two days time for submission of replies on various items of additions proposed by the A.O running into crores of rupees and since the ass .....

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e. If legible copies of the documents and statements were provided on 25.03.2002 then very little time is left for assessee to submit his reply and to carry out cross-examination of the two persons who have now denied to have made any sales to the assessee company. No doubt the assessee has shown purchases from RIPL and VCPL, therefore, to support these purchases onus is on the assessee to produce these parties before the A.O who has already recorded the statement of these two persons and who ha .....

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em. It is in the interest of the assessee company to extent full support to the A.O to enable him to enforce the attendance of these two persons. Merely putting the burden on the A.O and to sit quietly will not be in its interest. If necessary the A.O can issue commission to the other officer of the department where the assessee can also go and confront the two persons. Accordingly, both the appeals are restored to the file of the A.O for deciding afresh. 6. Pursuant to the directions of the Tri .....

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the purchase of computer hardware of the cost of ₹ 2.21 crores from M/s. Rahul Infotech Pvt. Ltd. And M/s. Vandana Computers (P) Ltd. AO had already recorded the statement of these two persons and who have denied to have made any sale to the assessee company. In response to this notice, the assessee vide letter dated 03.11.2011 submitted that Mr. Rahul Parikh and Smt Vandana Parikh left India and settled in Kuwait. Thereafter, vide this office letter dated 14.11.2011, final opportunity giv .....

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with their complete addresses/Mobile numbers and has discharged the onus cast upon the Assessee, in Accordance with the directions of the Hon'ble Tribunal in their order dated 15th October, 2011. The A.O. has requested to the assessee vide order sheet dated 18.11.2011 for crossexamination. The A. R. of the assessee requested for the adjournment on 23.11.2011. The A.R. of the assessee vide order sheet dated 23.11.2011 further requested for the adjournment and the case was adjourned on 28.11. .....

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. The assessee did not produce the two persons before the A.O. after giving the proper opportunity to the assessee company. Therefore, claim of the assessee regarding depreciation and interest payment is not tenable and rejected. The addition was confirmed by the Ld.CIT (A). (Disallowance of ₹ 16,11,32,180/-) 2.Disallowance of expenses regarding foreign travelling : Contention of the assessee is considered. But the ld. CIT (A) has confirmed the addition made by the A.O. Therefore, follow t .....

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ellite management service ltd. Contention of the assessee is considered. But, follow the original order passed by the A.O. Therefore, contention of the assessee is rejected. (Disallowance of ₹ 20,10,000/-) 5.Management consulting paid to M/s. Shah Mehta Majmudar, C.A. amounting ₹ 14,59,000/-. Contention of the assessee is considered. But, follow the original order passed by the A.O. Therefore, contention of the assessee is rejected. (Disallowance of ₹ 14,59,000/-) 6.Disallowanc .....

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uction u/s. 80HHE The assessee has claimed deduction of ₹ 11,51,263/-. The assessing officer has disallowed the entire claim. Thereafter, the assessee has preferred appeal before the CIT(A). Vide order dated 24.03.2005, the Ld. CIT(A) has allowed appeal of the assessee in part. The Ld. CIT(A) has granted relief to the extent of ₹ 2,40,28,712/- u/s. 80HHE and confirmed the disallowance of ₹ 32,93,651/-. Following to the original order passed by the assessing Officer entire claim .....

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ls have been disallowed by the A.O on the basis of assumption that purchases of computer Hardware were bogus and could not be found at the time of survey. It was also brought to the notice of the ld. CIT(A) that substantial part of computers and servers were installed at the office premises of the assessee company located at Nivruti Niwas, Ellisbridge at Ahmedabad and also at Delhi and Mumbai. Since these premises were not surveyed by the Department the computer Hardware installed at these premi .....

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re, the same are also not accepted now. The impugned disallowance of depreciation was upheld. 10. In so far as the claim of interest expenses of ₹ 1,06,89,996/- is concerned, it was explained by the assessee that the loan was not used for the purchase of computer. It was further brought to the notice of the ld. CIT(A) that out of total claim of interest of ₹ 1,06,89,996/-, only ₹ 65,39,348/- was paid to the bank on term loan and remaining interest pertained to other parties. Ne .....

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er supporting evidence. Inadvertently, as claimed by the assessee, a sum of ₹ 16,56,920/- was transferred to pre-operative expenses account and the balance was debited to P & L account, though while computing the taxable income ₹ 16,56,920/- was claimed as revenue expenditure for the year under consideration. The A.O treated the same as a capital expenditure. It was strongly contended by the assessee that accounting entries are not decisive for the claim of expenditure. The ld. C .....

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any law related matters and do not entirely pertain to increase in share capital, the assessee claimed the same to be allowable u/s. 35D of the Act. The ld. CIT(A) at Para 8.2 of his order simply reproduced the findings of his predecessor given in the first round of appeal, the disallowance was upheld. 13. In so far as the disallowance of consulting charges of ₹ 20,10,000/-, Management consulting charges of ₹ 14,59,028/- and Commission of ₹ 11,51,263/- is concerned, the ld. CIT .....

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erved that when this addition was deleted in the first round of appeal, no ground was taken by the revenue before the Tribunal. Therefore, A.O s action in disallowing the commission is beyond the mandate of the Tribunal s order. 14. A similar observation has been made in so far as the claim of deduction u/s. 80HHE is concerned, the ld. CIT(A) observed that since in the first round of litigation, the claim of deduction u/s. 80HHE was allowed by the ld. CIT(A) and since the revenue had not preferr .....

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tating that the Tribunal has only restored the matter relating to the claim of depreciation on purchases of computers, therefore, all other additions/disallowances made by the A.O are beyond the directions of the ITAT. 17. Rival contentions were heard at length. We have carefully perused the orders of the authorities below and have given a thoughtful consideration to the orders of the Tribunal setting aside the order of the ld. CIT(A) in the first round of litigation. 18. At the very outset, we .....

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files of the A.O for fresh adjudication. Hence, cross objections of the assessee are dismissed. 19. Coming to the revenue s appeal which relates to the deletion of addition on account of consulting charges paid to satellite management services, management consulting fees paid to CAs and commission paid to Shri Jayesh Parikh. We find that the Assessing Officer has simply followed the findings of his predecessor given in the first round of litigation. Nothing new has been added which could justif .....

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k has been made by the Tribunal in the first round of litigation, we do not find it necessary to interfere with the findings of the ld. CIT(A). Ground no. 1, 2 & 3 of Revenue s appeal taken together are dismissed. 20. Ground no. 4 relates to the claim of deduction u/s. 80HHE. We find that in the first round of litigation, the ld. CIT(A) has restored this issue to the files of the A.O with similar directions to verify the claim made by the assessee and the A.O while giving appeal effect to th .....

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Coming to the Assessee s appeal in ITA No. 1452/Ahd/2014. 22. The first grievance relates to the claim of depreciation on the purchases of computers. 23. The facts relating to this grievance are that during the course of the assessment proceedings in the first round, the A.O found that the claim of purchase of computers by the assessee was bogus. Necessary enquires were made from Co-Op. Bank of Ahmedabad from where the assessee has taken loan of approximately 6 crores. The information received .....

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assessee stated that the octroi has been paid by the vendor and the same was reimbursed by the assessee. But the A.O was of the firm belief that in either situation the assessee must be having receipts of octroi payment. 24. For verifying the genuineness of the purchases, statement of Rahul Parikh and Vandana Parikh were recorded by the A.O. In the respective statement, both the persons denied of any such transaction with the assessee company. Based on these statements, the claim of depreciation .....

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orded by the A.O. on 21.02.2003. An affidavit of present Directors namely Sahid Sayed and Ketan Parikh were filed with the A.O to establish the genuineness of the purchase of computers. 25. In the de novo proceedings, we find that the A.O did nothing to enforce the attendance of Parikh couple so that the assessee could cross examine them. We also find that no efforts were made by the A.O to dismiss the veracity of the contents of the affidavits of present Directors namely Sahid Sayed and Ketan P .....

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urveyed. Therefore, possibility of computer hardware installed at these premises cannot be ruled out. One more important factor which has to be considered and which goes in favour of the assessee is the claim of short payment of octroi by the octroi department. The assessee has been found to have made short payment of octroi by ₹ 1,71,000/- There is no adverse remark by the revenue authorities in so far as the insurance policies taken to insure the computers. 26. Considering the aforementi .....

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aim of depreciation. We accordingly set aside the findings of the ld. CIT(A) and direct the A.O to allow the claim of depreciation. This ground is accordingly allowed. 27. Next grievance of the assessee relates to the disallowance of interest expenses of ₹ 1,06,89,996/-. 28. During the course of the assessment proceedings, it was explained that the interest paid to Co. Op. Bank of Ahmedabad was on loan taken from this bank for the purposes of business and the amounts were used for the busi .....

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ndings of his predecessor given in the first round of litigation. We have carefully gone through the contents of the facts in issues, there is no dispute that the disallowance is based upon the findings given in the first round of litigation. Since we have held the purchase of computers to be genuine as per our detailed decision/discussion qua first grievance of this appeal. We have no hesitation to hold that the money has been borrowed for the purposes of business and, therefore, any interest p .....

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and was verifiable from the books of accounts and other supporting evidence. However, while making the accounting entries, a sum of ₹ 16,56,920/- was transferred to preoperative expenses account. Taking a leaf out of this accounting entry, the A.O disallowed the expenditure on finding that no demonstrative evidence has been furnished by the assessee in support of its claim. The A.O further observed that the assessee did not debit this amount in its Profit and Loss account but the same has .....

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tify the claim in the computation of income. In the absence of any demonstrative evidence, the claim of the assessee is rightly denied by the revenue authorities. This grievance of the assessee is accordingly dismissed. 32. The next grievance of the assessee relates to the disallowance of ₹ 1,59,028/- as deffered revenue expenditure. 33. The disallowance has been made on the finding that the entire expenditure has been incurred for increase in share of capital. It was explained before the .....

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dings of his predecessor. 34. We have given a thoughtful consideration to the findings of the authorities below. We find that the assessee has strongly contended that it has not floated any public issue nor invited any share application from anybody, neither during the year under consideration nor in the subsequent years. Therefore, there is no question of incurring expenditure on increase of the share capital. We do not find any adverse inference/findings by the lower authorities in so far as t .....

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lowance of octroi payment f ₹ 1,71,000/-. 36. The A.O has made the disallowance simply because it was disallowed in the first round of litigation. In the first round of litigation, it was explained that additional octroi duty of ₹ 1,71,000/- was required to be paid in respect of the additions of Hardware etc. made to the capital block during the year under consideration. This claim of the assessee was denied by the A.O holding that the assessee itself has admitted that the octroi pay .....

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s of the assessee company and on the basis of physical verification carried out by them, a demand of ₹ 1,71,000/- being additional octroi was raised and paid by the assessee. Although necessary details were not furnished before the A.O. However, the payment was duly supported by other documentary and substantial evidences and on the basis of which in the first round of litigation, the ld. CIT(A) directed the A.O to allow depreciation. 38. We fail to understand why the amount has been disal .....

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he grievance of the assessee read as under:- 1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in dismissing the ground raised in appeal that disallowance of depreciation was based not on facts but only on conjectures and surmises and was not valid. 2. On the facts and in the circumstances of the case and without prejudice, the ld. CIT(A) has erred in confirming the disallowance of depreciation of ₹ 2,09,69,161/- simply following orders of his predecessors in e .....

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est expenses of ₹ 21,12,514 simply following his predecessors' orders when the same is set aside and restored back to the file of the Assessing Officer as per Hon'ble ITAT's orders dated 15th October, 2010 in ITA No. 1507 & 1681/Ahd/2005. 5. On the facts and in the circumstances of the case and without prejudice, the order of the learned Commissioner of Income-Tax (Appeals) has erred in disallowing deferred revenue expenditure of ₹ 1,59,028 for this year only, when no .....

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the circumstances of the case and without prejudice, the procedure adopted by the CIT(A) as described hereinabove has resulted in violation of the principles of natural justice and has in turn resulted also in denial of justice. 9. On the facts and in the circumstances of the case and without prejudice, for the point taken in the preceding grounds the order of the C1T(A) cannot stand and deserves to be reversed. 41. At the very outset, the ld. counsel for the assessee stated that he is not pres .....

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us in ITA No. 1452/Ahd/2014 qua ground no. 2 of that appeal. For our detailed discussion therein, we direct the A.O to delete the addition of ₹ 21,12,514/-. 46. Ground no. 5 relates to the disallowance of ₹ 1,59,028/- being treated as deferred revenue expenditure. 47. An identical issue has been considered and decided by us in ITA No. 1452/Ahd/2014 qua ground no. 4 of that appeal. For our detailed discussion therein, we direct the A.O to delete the addition of ₹ 1,59,028/-. 48 .....

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vidences in support of the write off, the A.O disallowed and made addition of ₹ 3,08,76,140/-. 50. Assessee carried the matter before the ld. CIT(A). It was strongly contended that the copies of ledger account as required were given which gave the details of the nature of transactions. It was explained that the transaction with M/s. Global Finance was on account of sale proceeds towards software development charges. After considering the facts and the submissions, the ld. CIT(A) observed t .....

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ully considered the facts in issues before us. No doubt that as per the ratio laid down by the Hon ble Supreme Court, the assessee need not give the reasons for the write off but at the same time the assessee has to demonstrate that the debt has been taken on the income side in the earlier years as per the provisions of Section 36(2) of the Act, no such demonstrative evidence has been furnished, neither before the lower authorities nor before us. We, therefore, decline to interfere with the find .....

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