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ITO Ward-9 (3) , Kolkata Versus M/s Chanakya Stock Broking Services Ltd.

2016 (7) TMI 325 - ITAT KOLKATA

TDS u/s 194C - Addition u/s 40(a)(ia) - expenses incurred on the purchase of software related to computers whereas assessee has claimed the same as computers maintenance expenses - Held that:- We find that AO has made the assessment u/s. 144 of the Act by disallowing the expense claimed by assessee under head “computer and software maintenance” on the ground that no documentary evidence in support of such expenses were furnished. However, Ld. CIT(A) has deleted the addition by holding that provi .....

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actions were out of purview of TDS provision. The assessee has also submitted the ledger copy of computer and software maintenance which is at page 276 of the assessee’s paper book where the payment details through banking channel has also been placed. Therefore, the genuineness of the expense cannot be doubted. Accordingly, in our considered view, we uphold the order of Ld. CIT(A) and this ground of Revenue’s appeal is dismissed. - Capital expenditure incurred for purchase of software expen .....

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pitalizing the same expense does not arise and we uphold the order of Ld. CIT(A). - Addition on account of bogus sundry creditors - Held that:- From the facts of the case, we find that once the purchase/ sales claimed by assessee had accepted by AO then corresponding sundry creditors/ debtors claimed by assessee cannot be doubted. In the instant case, AO has not accepted the purchase/sales as claimed by assessee without bringing any relevant fact but the corresponding credit has been disallo .....

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ellant : Shri Rajat Kr. Kureel, JCIT-SR-DR For the Respondent : Shri Somnath Ghosh, Advocate & Sarnath Ghosh, Advocate ORDER Per Waseem Ahmed, Accountant Member This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-VIII, Kolkata in appeal No.314/CIT(A)-VIII/Kol/08-09 dated 24.01.2012. Assessment was framed by ACIT, Circle-9 Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 22.11.2008 for assessment y .....

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pital expenditure while holding that the said expenditure were expended towards purchase of computer related software because purchasing of computer or computer software is capital expenditure in nature. 3) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that the sundry creditors stands due to purchase made in credit whereas the assessee has made purchases from recognized stock exchanges where no credit is allowed and not only that, there is no na .....

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. Authorized Representatives appeared on behalf of assessee and Shri Rajt Kumar Kurrel, Ld. Departmental Representative appeared on behalf of Revenue. 2. First issued raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer u/s 40(a)(ia) of the Act on account of expenses incurred on the purchase of software related to computers whereas assessee has claimed the same as computers maintenance expenses. 3. Facts in brief are that assessee in the pr .....

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fore, AO has disallowed the same and added to the total income of assessee. 4. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas assessee submitted that the details of these expenses were never called for by the Ld. AO. In today s era when entire share market runs on computer, then existence of computer & software maintenance charges are natural. Since the accounts of the assessee are subject to audit under various Acts, hence possibility of lack of supporting evidence is rem .....

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. After considering the submissions of assessee Ld. CIT(A) deleted the addition made by AO by observing as under:- …. …. I have considered the submissions made on behalf of the appellant, the contents of the remand report and the evidence produced before me. Considering all the facts, in my opinion, there is no case for any disallowance out of the expenses claimed. Had it been default under sec. 40(a)(ia) for failure on the part of the appellant company deduct tax at source under s .....

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er book which contents pages 1 to 336 and stated that assessee-company deal in share broking activities. Accordingly he had to abide by the rules and regulations framed by the Securities and Exchange Board of India. Under their mandate, the assessee had to maintain the records of its clients in the computer network and accordingly had to obtain the designated software for such purpose. It had therefore no alternative but to compulsorily follow the requirements of its statutory regulator. Thus, t .....

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y through banking channel. The assessee maintained books of account which were duly authenticated by supporting vouchers and the complete details in this regard were produced before the AO in course of the remand proceedings. The AO in the remand report did not comment adversely on the evidence adduced on record. AO however choose to import an altogether new dimension to deal with the matter. The only grievance raised by the AO in the remand report is that it was observed that assessee had paid .....

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since the payments made to these two concerns were towards sale by the assessee, there was no need to deduct any tax at source from such payments made. The AO however, was not impressed with such contention. It was misconceived by the AO that the purchase of software and its updates by the assessee arose out of contractual obligation. It is therefore, an admitted fact that the AO has not correctly appreciated that the transactions is in the nature of purchase which is consequently a sale by the .....

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visions of s. 40(a)(ia) of the Act in circumstances of the case is thoroughly tenuous. In other words, the prognosis arrived at by the futile imagination of AO can never be the criterion for taking the transactions concerned outside the purview of purchase and sale . The only relationship which can subsist in the circumstances between the assessee and said concerns is that of purchaser and seller. It has been clarified that the provisions of this section will not cover contracts for sale for goo .....

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d accordingly, the alleged proposal to invoke the provisions of s. 40(a)(ia) of the Act in the instant case is ultra vires the scope and ambit of such enactment. It is thus axiomatic that the provisions of s. 40(a)(ia) read with s. 194C of the Act were not attracted in the circumstances and as such no liability to deduct tax at source arises and therefore, the action conceived in this respect is wholly unfounded in the circumstances. In such AO misconstrued the legal position in this respect con .....

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e maintenance on the ground that no documentary evidence in support of such expenses were furnished. However, Ld. CIT(A) has deleted the addition by holding that provision of TDS are not applicable to this transactions as the expense was incurred for the purchase of software. In appellate stage, Ld. CIT(A) has also called for remand report from AO which is placed at 24 page of paper book, which reproduced below:- 4. Assessee has produced ledger copy of Computer & Software maintenance wherein .....

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that these expenses have been incurred towards the purchase of software and as such no service was involved. Therefore, in our considered view, that such transactions were out of purview of TDS provision. The assessee has also submitted the ledger copy of computer and software maintenance which is at page 276 of the assessee s paper book where the payment details through banking channel has also been placed. Therefore, the genuineness of the expense cannot be doubted. Accordingly, in our consid .....

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ee instead of capitalizing the same has claimed as revenue expenditure, therefore, it needs to be disallowed. However, Ld. CIT(A) has treated the same as revenue in nature and deleted the same. 9. Aggrieved, Revenue is in appeal before us with the issue that such expense should be treated as capital in nature. 10. From the facts of the case, we find that expense incurred on account of maintenance of computer and software or update them do not create any asset of enduring benefit but merely assis .....

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e relevant extract of the order is reproduced below. "(iv) Whether, in the facts and circumstances of the case, the Tribunal was right in holding that ₹ 24,12,000 paid to HCL for purchase of new computers allowable as a deduction as a revenue expenditure ?" 7.2. Insofar as fourth question is concerned, it is not in dispute that the assessee did not claim any expenditure for installation of new computers, but claimed the expenditure for the upgradation of the existing computers. F .....

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. vs. CIT (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC), after referring to B.P. Australia Ltd. vs. Commr. of Taxation of the Commonwealth of Australia (1966) AC 224 (PC), held that : "What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression 'asset or advantage of an enduring nature was evolved to emphasis the element of a sufficient degree of durability appropriat .....

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ure. Further, the assessee had not acquired any computer software. The expenditure incurred by the assessee has, therefore, to be treated as revenue expenditure. Accordingly, the question is answered in the affirmative, against the Revenue and in favour of the assessee. In the result, both the appeals stand dismissed. Consequently, TCMP No. 1207 of 2005 is also dismissed. Respectfully following the aforesaid decision, we find no reason to interfere in the order of ld. CIT(A). Hence this ground o .....

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77,98,475/- added to the total income of assessee. 12. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas it was submitted that AO has not given to us sufficient opportunity to submit the details & produce evidences. The Ld. AO action of evocation of provision of Sec. 68 to add the amount of sundry creditors in want of evidence as cash credit is not a justified act. The Ld. AO forgot that the assessee has shown purchase / sale of share in the Audited accounts submitted before .....

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es as cash credit is totally wrong & unjustified. The details of sundry creditors which contain details such as name of the party, address, PAN & amount due to him. The copies of Ledger print out of some of those parties, confirmation from some of the parties, copies of their IT return & copies of KYC forms is an evidence to prove the sundry creditors genuineness as well as their existence. It is worth mentioning that scrutiny proceeding of the same assessee has also taken place for .....

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& 2009-10 for your kind reference. As regard the Ld. AO comments under the remand report submitted by him that the assessee has produced list of sundry creditors, but genuineness of sundry creditors could not be found. It is submitted herewith confirmation Letter, copies of their IT returns & copies of KYC forms as proof of their genuineness & existence. These are the additional evidence which may please be admitted since the Ld. AO has not given us sufficient opportunity to produce .....

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e without affording adequate opportunity to the appellant company. Even the Assessing Officer has not discharged his burden of proof in spite of the fact that the appellant has furnished complete list of the sundry creditors. It is undeniable fact that there are bound to be sundry creditor and debtors even for the last day of the financial year. It is true that scope of section 68 is not restricted only to cash entries in accounts and that if credits in account found bogus, the same can be added .....

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ed or bogus in spite of the fact that the Assessing Officer has been given an opportunity to examine the additional evidence put forth by the appellant in the remand stage. On the other hand the materials evidence regarding the sundry creditors placed on record supports the claim of the appellant. In the view of the matter, the addition made by the Assessing Officer on account of unexplained sundry creditors is not sustainable. (Reliance is also placed on the decision of the Hon'ble Delhi Hi .....

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isclosed by the assessee. It had recorded a finding that the two amounts represented the purchases made by the assessee on credit and therefore, the provisions of section 68 could not be attracted in the present case. The view taken by the Tribunal on this issue is sustainable inasmuch as on the basis of the findings recorded b it that these two amounts represented purchases made by the assessee on credit and the purchases and sales having been accepted by the Department, the question of additio .....

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re us. 14. Before us Ld. DR submitted that creditors were not verified at the time of assessment proceedings u/s 144 of the Act with regard to their identity, creditworthiness. He further observed that assessee has submitted the computer prints out in support of its claim for sundry creditors but the verification of the said creditors has not been done by AO during the assessment proceedings. Lastly, he prayed before the Bench that issue may be remitted back to the file of AO for fresh adjudicat .....

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n 68 of the Act come into play only where the AO found that a cash credit is recorded in the books and the assessee offered no explanation as to the nature and source thereof or the explanation offered is not satisfactory in his opinion then such credit may be deemed to be the income of the taxpayer for the corresponding Assessment Year. He further stated that the conditions precedents are as under (1) There shall be a credit appearing in the books of account of the assessee; (2) An opportunity .....

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nd proceedings the AO did not issue any summons u/s. 131 of the Act and/or notice u/s. 133(6) of the Act to such addresses as provided by the assessee to verify the existence of such creditors. He further stated that it is also not in dispute that the respondent had regular business transactions with these clients during the previous year relevant to the assessment year under dispute. The assessee had made purchases transactions and/or settlement worth ₹ 2,74,36,705/- in aggregate during s .....

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from a trading transaction but involves merely deposits and withdrawals. He stated that in the instant case, the item under "Sundry Creditors" represents the payments due to clients on account of sale of shares. In other words the amount is basically credit balance on account of Sundry Debtors. He further stated that AO did not allow opportunity to the respondent to explain the nature of the items subsumed in the item "Sundry Creditors" and reached the conclusion in extreme h .....

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in the previous as well as subsequent assessment years. It is an admitted fact that in the remand proceedings the assessee produced the ledger account of the sundry creditors along with their confirmations as well as bank statements and also produced copies of returns of income in respect of some of them. He however nevertheless conceived that genuineness of the sundry creditors could not be established. This is a misnomer in the circumstances of the case. Further. the amount of ₹ 1,77,98, .....

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the Act do not come into play in as much as the sales recorded in the accounts were not disputed. The amounts outstanding were shown in the balance sheet as sundry creditors as on 31.03.2006 though they were mainly credit balance of the debtors. Ld. AR vehemently relied on the order of Ld. CIT(A). 15. We have heard the rival submissions of the parties and perused the materials available on record. From the aforesaid discussion, we find that assessment framed by AO u/s 144 of the Act by treating .....

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redit when the relevant purchase/sales have already been accepted by AO. From the facts of the case, we find that once the purchase/ sales claimed by assessee had accepted by AO then corresponding sundry creditors/ debtors claimed by assessee cannot be doubted. In the instant case, AO has not accepted the purchase/sales as claimed by assessee without bringing any relevant fact but the corresponding credit has been disallowed. Therefore, in view of the facts of the present case, the addition made .....

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. During last year the trade creditors covering 26 items were to the tune of ₹ 13,89,152. In the current year the trade creditors swelled to ₹ 28,95,779 (51 items). In fact the sundry trade creditors now under consideration include carry forward trade creditors to the tune of ₹ 12,24,290. The assessee had produced ledger details of the tradecreditors as well as confirmatory letters from five major trade creditors vide her letter dt. 25th Oct., 2010. The confirmation letters fil .....

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) is justified in deleting the additions made by the AO. Therefore, we uphold the order of the CIT(A) as correct and in accordance with the law. It is ordered accordingly. Hence, appeal f the Revenue is dismissed. Reliance in the decision of co-ordinate Bench of Lucknow A Bench Third Member in the case of ITO v. Zazsons Exports Ltd. (2015) 55 taxmann.com 522 (Luk) wherein the head note: Section 68 of the Income-tax Act, 1961 - Cash credits (Sundry creditors) - Assessment year 2005-06 - Assessee .....

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add5ress, whereabouts, creditworthiness of vendor and also could not prove genuineness of transaction - Whether mere nonverifiablity of sundry creditors ipso facto would not lead to conclusion that sundry creditors were bogus - Held, yes - Whether since Assessing Officer had drawn an adverse conclusion only on account of nonverfiability of sundry creditors but there being no dispute as regards purchases and trading results having been accepted, addition made under section 68 was not sustainable .....

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