TMI Blog2019 (4) TMI 1798X X X X Extracts X X X X X X X X Extracts X X X X ..... y the decision of the honourable Delhi High Court in case of Chintel [ 2017 (7) TMI 746 - DELHI HIGH COURT] wherein the assessee could not prove the purchase of the software as genuine transaction as it was also developed by an entry operator controlled company, the honourable Delhi High Court confirmed the disallowance of depreciation on the same Disallowance u/s 40A (2) (b) - excessive and unreasonable a high salary paid to the managing Director as well as the joint managing director - CIT A deleted the disallowance because the managing Dir was also paid salary in earlier year also and she is a qualified professional - HELD THAT:- We have carefully considered the rival contention and find that M/s Monila Goel and Mrs Mamta Goel both are technically qualified as B Tech graduate and BA LLB. Further there is no finding given by the learned assessing officer that expenditure is excessive or is unreasonable having regard to the business need of the assessee as well as the fair market value of the services and the benefit derived or accruing there from to the assessee. In absence of clear-cut findings with respect to the expenditure on these counts, the disallowance u/s 40 A (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contentions of the AO discussed in detail in the assessment order. 4. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the addition of ₹ 4,17,809/- made by the AO u/s 69C of the Act on account of alleged salary paid to Smt. Monila Goel held by the AO as unexplained expenditure by not deciding entirely on merits the contentions of the AO discussed in detail in the assessment order. 5. On the facts and in the circumstances o the case, the Ld. CIT(A) has erred in deleting the disallowance of commission payments of ₹ 90,238/- claimed as paid to Smt. Monila Goel by not deciding entirely on merits the the contentions of the AO discussed in detail in the assessment order. 6. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the disallowance of ₹ 53,525/- claimed as paid to Smt. Monila Goel on account of earned leave encashment by not deciding entirely on merits the contentions of the AO discussed in detail in the assessment order. 3. The revenue has raised the following grounds of appeal in ITA No. 2773/Del/2011 for the Assessment Year 2005-06:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For assessment year 2005 06, assessee filed its return of income on 30/10/2005 declaring income of INR 1856100/ . The assessment under section 143 (3) of the act was passed on 28/12/2007 assessing the total income of INR 7483788/ . Ld AO made three different types of additions/disallowances as under:- I. disallowance on account of bogus web advertisement expenditure of INR 4 350, 000/ II. disallowance on account of bogus software purchase of ₹ 15 Lakhs and depreciation thereon disallowed of INR 450,000/ III. Disallowance on account of excessive salary paid to managing director and joint managing director of INR 827688/ . 6. The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT A XIX, New Delhi who passed an order dated 7/3/2011 deleting all the disallowances. Therefore, revenue is in appeal before us on all three grounds. 7. Similarly for assessment year 2004 05, where the assessee filed its return of income at INR 137280/ and the learned assessing officer has made seven additions/disallowance and determined the total income of INR 11931642/ . The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO was of the view that despite making such a huge expenditure on its own advertisement the company could not garner any new clients. Therefore, it leads AO to make further inquiries about the genuineness of the expenditure incurred. Therefore, he carried out further inquiries. The enquiry showed that the (i) Notices sent under section 133 (6) of the act were issued to all the web advertisement service providers and software developer to submit 1) Confirmed copy of account as on 31.3.2005 2) Details of the transactions entered into with M/s Times A M (India) Ltd in financial year 2004-05. 3) Documentary evidence of work done for M/s Times A M (India) Ltd in respect of which payments were received e.g. Copies of advertisements made in newspaper, etc 4) Any other relevant details pertaining to M/s Times A M (India) Ltd. New Delhi for the above period. 5) Income Tax particulars i.e. PAN / Ward / Circle Notice to one company returned unserved with comments that no such firm exist. From other four companies no replies were received. (ii) Thereafter the ld AO asked assessee to expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. (ix) The learned assessing officer further carried out an enquiry about the domain name registered of all these companies. He found that result of all the websites on which the advertisements are claimed to have been made by the assessee were negative except in case of Travelhind.com, which showed only one entry in the domain history in June 2004 and was discontinued later. Therefore, the learned assessing officer noted that, as the various domain names on which the advertisement has been hosted did not exist at all and found to be negative result. This shows that the websites not at all existed and therefore there was no reason to believe that assessee placed advertisement on such non-existent websites is a genuine expenditure. (x) The learned assessing officer also noted that the invoices produced by the assessee as proof of registry of those companies of one M/s Omega Technologies, which is also controlled by Mr. SK Gupta having the same address. The learned assessing officer interestingly noted that Omega Technologies who provided the registry of these websites have issued the invoices dated 12/11/1998 providing Java server pages to the website ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the customized software purchased by it. When the assessee has not prepared the requirement document for the purpose of purchasing customized software from this software supplier, the learned assessing officer doubted the existence of the purchase of this software. The AO further referred to the inspector‟s enquiry report confronting it to the assessee who did not rebut any of the finding of the inspectors report. (xii) He further stated that merely the incorporation of the companies as well as filing with the registrar of companies or return of income tax does not prove the capabilities of the web advertisement service provider or software developer. Accordingly, he held that the payment made by the assessee for web advertisement and software development is merely an accommodation entry and bogus for the reason that i. such parties are not available at the address ii. assessee also could not produce such persons despite repeated opportunities iii. Neither such concerns attended and responded to the summons not submitted any reply to any of the notices of the department. iv. The report of inspector shows that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quate deduction of tax and source and such evidences are not at all controverted. He further held that cross-examination of Sri SK Gupta on 30/11/2009 Clarified the position with regard to the services rendered by the advertisement companies wherein he has stated that those companies actually provided the services and they have enough infrastructures to provide those services. He also refused to have accepted any cash for the purpose of providing accommodation entries. Thereafter the learned CIT A, stated and relied upon the order in case of FIITJEE limited of the learned CIT appeal, wherein according to him on identical facts and circumstances, the addition has been deleted. Therefore, he also deleted the above addition of ₹ 43,50,000/- for the purpose of web advertisement expenditure and disallowance of depreciation of INR 450,000 on software purchases. The revenue aggrieved with the order of the learned CIT A, preferred an appeal before us. 11. The learned departmental representative vehemently submitted that the order passed by the learned CIT A is grossly erroneous and contrary to the fact and shocking revelation and outcome of the investigation brought o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of summons, noncompliance of notices u/s 133 (6), no confirmation by any of the parties, report of the inspector and the telling finding of the learned assessing officer, with respect to the web advertisement made at various website for which an elaborate technical research made by the assessing officer on domain name, there is no finding of CIT (A). She further stated that CIT A ignored web address provided as to whom the payments were made did not exist. This was proved by AO by searching the history of domains. She specifically referred to page number 11 and 13 of the assessment order. She further referred that the copy of advertisement and printouts furnished by the assessee could be made from any standalone computer as has been shown by the assessing officer even with the dates mentioned therein. She further stated that the learned assessing officer has also conclusively held that any webpage can be designed using HTML tools and standalone computer and the date of the computer can be changed very easily demonstrated by him in the order itself. She further stated that the proof of registry of these websites submitted is also explained at page 13 of the order of the AO. It was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in substance, it does not have real transaction. She further stated that the learned CIT A, has allowed the claim of the assessee merely on the copies of the cheque, payment by the bank, and tax deduction at source certificate as well as normal communication which does not have any evidentiary value So far as the payment for web advertisement services and for purchase of the software. In view of this, she submitted that the order of the learned assessing officer with respect to the above might be confirmed. 13. The learned authorised representative, shri C. S. Agarwal, senior advocate first stated that in assessment year 2004 05 assessing officer had originally accepted the return of income as no notice under section 143 (2) of the income tax had been issued. However, by a notice on 31/3/2009 proceedings under section 147 of the act was initiated. The copy of the reasons recorded has been placed at page number 38 of the paper book and he submitted that the initiation of proceedings on the reasons stated are untenable and is based on no valid material. He further stated that the learned assessing officer while framing assessment has held that the expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. In that case, that company had paid a web advertisement charges to M/s Centenary software private limited and to M/s high-tech computers private limited; such sum has been held allowable as deduction by the coordinate bench by an order dated 7/4/2016. He further stated that in that case the tribunal has held that disallowance made was unsustainable. He further placed on record four orders of the coordinate bench in case of FIITJEE Ltd where such disallowances were deleted. He therefore stated that learned CIT A, was fully justified in holding that the expenditure incurred for the purposes of the business and he placed reliance on the finding of the learned CIT A. He stated that the order of the learned CIT A, clearly reflects that he has considered all the documentary evidences placed on record and after appreciating the evidences has held that disallowances made were entirely untenable, both on facts and in law. He further stated that assessing officer has not disputed the correctness of the books of accounts, which have been maintained in the course of the business. Therefore, he stated that having accepted the books of accounts as correct and complete and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein on identical circumstances the depreciation on the software was disallowed by the AO was confirmed. However, the learned Senior Advocate submitted that the software purchased by the assessee is not proved to be bogus but is a genuine purchase. 17. We have carefully considered the rival contention and perused the orders of the lower authorities. For assessment year 2005 06 assessee has booked expenditure of web advertisement charges in the name of 4 companies amounting to ₹ 43,50,000 and in case of 3 companies in assessment year 2004 05 amounting to ₹ 2270,000/ . On questioned by the AO to prove the genuineness of the web advertisement charges, assessee could submit the copies of invoices and allotment domain name. To explicitly make it clear that Globextech India private limited has been paid a sum of INR 750,000 by the assessee for provision of web advertisement charges. To support and substantiate the allowability of the above expenditure, assessee submitted following details::- I. invoice copies to GlobexTech India Ltd from Omega Technologies Ltd dated 12/11/1998 to show the allotment of domain name Globextechin.com II. letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge number 11 to 16 of the assessment order which conclusively proves that the services could not have been provided by these companies as domain names does not exist, the JSP ( java Server page ) technologies based on which the website of the services providers is claimed to have been launched, did not exist at that time, The learned AO specifically noted that the invoice letters of Omega Technologies dated 12/11/1998, says that they would provide JSP support to the website. (Java server Pages). However, such technology came out with its first version only in June 1999 and upgraded in December 1999. This fact is neither controverted by the assessee nor by the learned CIT A. Therefore, it is apparent that such services were not at all in existence in the whole world on 12/11/1998. There is no answer in the order of the learned CIT A, on all these observations of the learned assessing officer. 19. With respect to the software purchase, the assessee could not produce even a single piece of evidence that how the software was developed as it was customized software. There is no answer about the requirement document of the software, about the development cycle, about the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isement. However, except the information provided to the lower authorities, No fresh information was put to our notice. It was not shown to us how CIT appeal has recorded that how above observations of the AO in the impugned order are met with in the order of sister concern on which he placed heavy reliance in deleting the disallowance. On careful reading of page number 14 of his order, wherein he has quoted para number 5.4 of such order on which he relied, he has simply stated that the payments were made by account payee cheques and the assessee supported it with the necessary evidences. He further stated that the learned assessing officer disallowed the claim out rightly without making any effort of examining any of the companies. However, looking at the facts of the case of assessee, The learned assessing officer issued summons to each of the companies, deputed the inspector who submitted a report about the nonexistence of this companies and further 133 (6) notices remained unserved and unanswered. Perhaps these facts, the learned CIT appeal has lost sight of. The learned CIT A further stated that the AO relied upon the statement of Sri SK Gupta, without affording any opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect that the purchase of the software was, in fact, a bogus transaction not entitled to depreciation cannot be said to suffer from any legal infirmity warranting interference. 22. Now we come to the various decisions relied upon by the learned Senior Advocate submitting that the issue squarely covered in favour of the assessee by quoting the decision of the coordinate benches which also confirmed by the honourable High Court in case of FIITJEE Ltd. 23. We first refer to the decision of the coordinate bench in ITA number 4946/del/2010 for assessment year 2002 03 where in para number 9 of the order it is stated that the assessing officer did not make any effort of examining any of the companies and evidences produced by the assessee and in that case, the addition was only made by the assessing officer on the statement of Shri SK Gupta, without affording any opportunity for crossexamination. In the Present case, the assessing officer has made detailed enquiry. De hors the statement of Shri SK Gupta, assessee has failed to show that it has incurred expenditure for web advertisement and purchased the software. Further, we did not find the observation of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for assessment year 2005 06 and 2004 05 are identical except the amounts in the respective appeal, we allow one and two of the appeal of the AO for assessment year 2004 05 and 2005 06. 30. Now we come to the ground number 3 of the appeal for assessment year 2005 06 where the learned CIT A has deleted the disallowance of INR 8 27688/ made under section 40A (2) (b) on account of excessive and unreasonable a high salary paid to the managing Dir as well as the joint managing director. The learned assessing officer in para number 4 has noted that though the director was working for the company however, how much work did she do for the company and how much salary should be paid to her for that work is the issue. Therefore he disallowed and excessive salary of INR 650,000 in case of managing director and INR 1 77688/ in case of joint managing director. The learned CIT A deleted the disallowance because the managing Dir was also paid salary in earlier year also and she is a qualified professional. 31. The learned departmental representative reiterated findings of the learned assessing officer. 32. The learned Senior Advocate vehemently state ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
