Income Tax Appellate Tribunal - Mumbai
Spanco Ltd ( Formelry Knwon As M.S, ... vs Assessee on 3 July, 2012
आयकर अपील य अ धकरण "ई" यायपीठ मंब
ु ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL " E " BENCH, MUMBAI
ी दनेश कमार
ु अ वाल, या यक सद य एवं ी बी. रामकोट य, लेखा सद य के सम ।
BEFORE SHRI DINESH KUMAR AGARWAL, JM AND SHRI B.
RAMAKOTAIAH,AM
आयकर अपील सं./I.T.A. No. 4036 to 4038/Mum/2011
( नधारण वष / Assessment Years 2004-05, 2005-06 & 2006-07)
M/s Spanco Limited, बनाम Deputy Commissioner of
Formerly known as M/s Vs.
Income-Tax 10(2),
Spanco Telesystems & Aaykar Bhavan,
Solutions Ltd., M.K. Road,
B-22, Krishna Bhuvan, Mumbai.
B.S. Deoshi Marg,
Deonar,
Mumbai - 400 088.
थायी लेखा सं./PAN : AAACK95558
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 4466 & 4467/Mum/2011
( नधारण वष / Assessment Years 2005-06 & 2006-07)
D.C.I.T. Cent. Cir. 8, बनाम M/s Spanco Telecommunication
8th floor, & Solution Ltd,
Vs.
Old CGO Bldg. Annexe, B-32, Krishna Bhavan,
M.K. Road, B.S. Doshi Marg,
Mumbai 400 020. Deonar,
Mumbai - 400088.
थायी लेखा सं./PAN : AAACK9555D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ क ओर से/Assessee by : Shri Vijay Mehta
यथ क ओर से/Respondent by : Shri Baban D. Patil
2 ITA Nos. 4036-38/M/2011
& ITA Nos. 4466-67/M/2010
सनवाई
ु क तार ख /Date of Hearing : 3-7-2012
घोषणा क तार ख /Date of Pronouncement : 11-7-2012
आदे श / O R D E R
PER DINESH KUMAR AGARWAL, J.M. :
The appeal in ITA No. 4036/M/2011 for A.Y. 2004-05 is preferred by the assessee, the appeals in ITA Nos. 4037 & 4038/M/2011 and ITA No. 4466 & 4467/M/2011 for assessment years 2005-06 and 2006-07 are cross appeals by the assessee and the Revenue and all are directed against the common order dtd. 14-03-2011 passed by the ld. CIT(A) - 37, Mumbai. Since the facts are identical and common issues are involved, all these appeals are disposed of by this common order for the sake of convenience.
ITA 4036/M/2011 (By assessee for A.Y. 2004-05)
2. Brief facts of the case are that the assessee company is engaged in the business of call centre and development and sale of Software. Survey action u/s 133A of the Income Tax Act, 1961 (the Act) was undertaken in the business premises of the assessee on 9-8-2007 on the basis of statement given by one Mr. K.K. Gupta on 25-7-2007 alleging that the said Mr. Gupta was merely providing bills and entries and that he had been charging commission for his services @ 0.25% of the aggregate transactions entered into by the group with any party. It was noticed that the assessee had entered into transactions worth 3 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010 Rs. 4,62,59,347/- and sold goods worth Rs. 4,73,36,102/- to the entities controlled by the said Mr. K.K. Gupta. Accordingly notice u/s 148 of the Act was issued on 17-10-2007 and served on the same date. In response to the notice u/s 148, the assessee filed return declaring total income at Rs. 45,69,624/- which in fact the income assessed u/s 143(3) of the Act vide order dtd. 26-2-2006. However, the assessment was completed at an income of Rs. 53,89,680/- including the addition on account of commission of Rs. 2,51,698/- vide order dtd. 31-12-2008 passed u/s 143(3) r.w.s. 147 of the Act. On appeal, the ld. CIT(A) partly allowed the appeal.
3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us.
4. Ground No. 1 is against the validity of the assessment u/s 147/148 of the Act.
5. At the time of hearing, the ld. counsel for the assessee submits that he does not want to press the above ground which was not objected to by the ld. D.R.
6. That being so and in the absence of any supporting material placed on record by the ld. counsel for the assessee, the ground taken by the assessee is, therefore, rejected being not pressed.
4 ITA Nos. 4036-38/M/2011
& ITA Nos. 4466-67/M/2010
7. Ground No. 2(a), 2(b) and 2(c) are against the sustenance of addition of commission of Rs. 2,51,698/-.
8. Brief facts of the above issue are that the A.O. on the basis of statement of Mr. K.K. Gupta recorded on oath by DDIT (Inv.) on 25-7-2007 u/s 131 of the Act wherein he has categorically stated that he is merely providing bills and entries and has been charging commission for his services @ 0.25% of the aggregate transactions made by any party asked the assessee as to why the commission @ 0.25% on the aggregate transactions paid by you on obtaining the accommodation entries should not be treated as income of the assessee. In response, the assessee vide letter dtd. 19-12-2008 while asking for cross examination of Mr. K.K. Gupta inter alia stated that the goods purchased and sold to various parties were matched, matching statement clearly shows that each and every transaction with the companies of Mr. Gupta, the assessee made profit ranging between 40% to 45%, the statement of Mr. K.K. Gupta is highly unreliable and there is no reason for the assessee to obtain accommodation entries. However, the A.O. did not accept the assessee's explanation. The A.O. after relying on the statement of Mr. K.K. Gupta worked out the commission of Rs. 2,51,698/- being 0.25% of the total purchases of Rs. 4,62,59,347/- (+) total sales of Rs. 5,44,20,202/- aggregating to Rs. 10,06,79,549/- and added the same to the total income of the assessee. On 5 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010 appeal, the ld. CIT(A) while agreeing with the views of the A.O., confirmed the addition made by the A.O.
9. At the time of hearing the ld. counsel for the assessee, at the outset, submits that despite the request made by the assessee, no cross examination of Mr. K.K. Gupta was provided to the assessee, therefore, the addition made by the A.O. without giving proper opportunity to the assessee is bad in law. He further submits that since the A.O. has accepted the purchases and sales as disclosed by the assessee and books of accounts have not been rejected, on this account also the addition made by the A.O. and sustained by the ld. CIT(A) is not sustainable and the same be deleted.
10. On the other hand, the ld. D.R. supports the order of the A.O. and the ld. CIT(A).
11. We have carefully considered the submissions of rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the A.O. has accepted the purchases and sales as disclosed by the assessee and has not rejected the books of accounts as maintained by the assessee. While making the addition of undisclosed commission of Rs. 2,51,698/-, the A.O. has relied upon the statement of Mr. K.K. Gupta recorded on oath by the DDIT (Inv.) on 25-7-2007 u/s 131 of the Act. However, during the course of assessment proceedings it 6 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010 was stated by the assessee that at the time of statement recorded by the DDIT (Inv.) it was inter alia stated by the assessee that unless all facts with respect to the statement made by Mr. Gupta were given, proper cross examination could not be carried out and hence right to cross examination was reserved. However, during the course of assessment, the assessee has asked for the cross examination which was denied by the A.O. on the ground that the same is untenable and unacceptable.
12. In Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC), the Hon'ble Supreme Court inter alia held that (Headnote - page 714 & 715):
"............But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him..........."
13. In absence of any contrary material placed on record by the Revenue to show that the cross examination of Mr. K.K. Gupta was provided to the assessee, we respectfully following the ratio of the above decision and keeping in view that the assessee in his submissions dtd. 19-12-2008 stated that he is showing profit ranging between 40 to 45% on the purchases has not been uncontroverted by the Revenue even at this stage and also keeping in view the books of accounts have not been rejected, we are of the view that the ld. CIT(A) was not justified in sustaining the addition of commission of Rs. 2,51,698/- and accordingly we delete the same. The grounds taken by the assessee are, therefore, allowed.
7 ITA Nos. 4036-38/M/2011
& ITA Nos. 4466-67/M/2010 ITA No. 4037/Mum/2011 (By assessee for A.Y. 2005-06)
14. Ground No. 1 is against the validity of the assessment u/s 147/148 of the Act.
15. At the time of hearing, the ld. counsel for the assessee submits that he does not want to press the above ground which was not objected to by the ld. D.R.
16. That being so and in the absence of any supporting material placed on record by the ld. counsel for the assessee, the ground taken by the assessee is, therefore, rejected being not pressed.
17. Ground No. 2(a), 2(b) and 2(c) are against the sustenance of addition of commission of Rs. 2,00,229/-.
18. At the time of hearing both the parties have agreed that the facts of the above issue are similar to the facts in assessee's appeal for A.Y. 2004-05, therefore, the plea taken by them in the appeal for the A.Y. 2004-05 may be considered while deciding the above grounds.
19. After hearing the rival submissions and perusing the material available on record, we keeping in view of our findings recorded in para 11 to 13 of this 8 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010 order, delete the addition of Rs. 2,00,229/- sustained by the ld. CIT(A). The grounds taken by the assessee are, therefore, allowed.
20. Ground No. 3 & 4 are against the sustenance of disallowance of deduction u/s 10B of the Act.
21. At the time of hearing the ld. counsel for the assessee very fairly submits that it does not arise as the purchases are not for the unit eligible for deduction u/s 10B of the Act which was not objected to by the ld. D.R.
22. That being so and in the absence of any supporting material placed on record by the ld. counsel for the assessee, the grounds taken by the assessee are, therefore, rejected.
ITA No. 4038/Mum/2011 (By assessee for A.Y. 2006-07)
23. Ground No. 1 is against the validity of the assessment u/s 147/148 of the Act.
24. At the time of hearing, the ld. counsel for the assessee submits that he does not want to press the above ground which was not objected to by the ld. D.R. 9 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010
25. That being so and in the absence of any supporting material placed on record by the ld. counsel for the assessee, the ground taken by the assessee is, therefore, rejected being not pressed.
26. Ground No. 2(a), 2(b) and 2(c) are against the sustenance of addition of commission of Rs. 14,50,790/-.
27. At the time of hearing both the parties have agreed that the facts of the above issue are similar to the facts in assessee's appeal for A.Y. 2004-05, therefore, the plea taken by them in the appeal for the A.Y. 2004-05 may be considered while deciding the above grounds.
28. After hearing the rival submissions and perusing the material available on record, we keeping in view of our findings recorded in para 11 to 13 of this order, delete the addition of Rs. 14,50,790/- sustained by the ld. CIT(A). The grounds taken by the assessee are, therefore, allowed.
29. Ground No. 3 & 4 are against the sustenance of disallowance of deduction u/s 10B of the Act.
30. At the time of hearing the ld. counsel for the assessee very fairly submits that it does not arise as the purchases are not for the unit eligible for deduction u/s 10B of the Act which was not objected to by the ld. D.R. 10 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010
31. That being so and in the absence of any supporting material placed on record by the ld. counsel for the assessee, the grounds taken by the assessee are, therefore, rejected.
ITA No. 4466/Mum/2011 & ITA No. 4467/Mum/2011(Revenue's appeals for assessment years 2005-06 & 2006-07).
32. The common ground taken by the Revenue in both the above appeals reads as under:-
"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of depreciation in respect of portion of value shown in the books which represented over invoicing of assets as detected during the course of survey and in respect of which the Ld. CIT(A) confirmed the addition on commission paid for such bogus bills."
33. Brief facts of the above issue are that it was observed by the A.O. that the assessee has shown purchases of capital goods from the concerns of Mr. K.K. Gupta which are as under:-
Sl No. Name of the concern Amount (Rs.)
1 Triton Infotech Pvt. Ltd. 2,02,00,000
2 Ultimate Mercantile Pvt. Ltd. 3,13,63,308
3 Venkatesh Mercantile Pvt. Ltd. 1,77,48,715
Total 6,93,12,023
The assessee was asked to explain as to why the alleged purchases of capital assets should not be treated as fictitious and depreciation claimed thereon should not be disallowed. It was inter alia explained by the assessee that the 11 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010 purchases are genuine in view of the following evidences (page 7 & 8 of Assessing Officer's order):-
"(a) The factual existence of the said machinery as found under a due diligence conducted by an independent body "Earnest & Young" an accounting firm of high repute with far more credibility than Mr. Gupta.
(b) The authenticated location, testing report and installation report filed before your kind self and already on record as relating to the said machinery.
(c) Some of the said machinery is also part of the demerger arrangement under the order of the Honourable Mumbai High Court, and hence is part of the High Court records. This fact has more value than mere general statements made by the said Mr. Gupta.
(d) The above is in addition to and without prejudice to the submissions already made and on record.
(e) The Annexure hereto relating to the claim of depreciation reinforces what is already on record and explained before you kind self. The increase in output on account of the purchases would not have been possible without the additional machinery. The said Annexure is self explanatory."
It was further stated that necessary documents related to the purchase of assets are already filed before the A.O. It was further stated that the above assets have not been installed in the assessee's centre and the details of its inspection report and verification report was already filed. It was, therefore, submitted that the above assets are being used for business purposes, therefore, the depreciation be allowed. However, the A.O. keeping in view the statement of Mr. Gupta while holding that the veracity of the cost of capital goods disclosed by the assessee in the books cannot be accepted, disallowed 35% of the depreciation on the plant and machinery on adhoc basis. On appeal, the ld. CIT(A), however, deleted the disallowance made by the A.O. 12 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010
34. At the time of hearing the ld. D.R. supports the order of the A.O.
35. On the other hand, the ld. counsel for the assessee relied on the order of the ld. CIT(A).
36. We have carefully considered the submissions of both parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the assessee has installed the above plant and machinery in its business centre and has claimed depreciation thereon. However, the A.O. without any basis has disallowed the depreciation at 35% of the depreciation claimed. On appeal the ld. CIT(A), however, allowed the same vide finding recorded in para 6.3.1. of his order which is reproduced as under:-
"I have carefully and dispassionately considered the facts and circumstances of the case. It is noticed that the appellant had made a written submission before the A.O. on 19.12.2008, wherein, it was stressed that the appellant had filed detailed statement of the impugned assets on which depreciation was claimed. The A.O. has not made any adverse comment on the detailed statement of assets containing all bills with respect to the nature of the assets, the source of purchases, the cost and date on which the same was put to use. The appellant had also furnished sample bills to prove that the assets were purchased by inviting quotations from various parties. It was argued before the A.O. that all purchases were duly backed by delivery challans, testing and installation report. All relevant bills and vouchers with reference to the purchases of such assets were made available to the Income Tax Survey Team and to the A.O. Details of addition to fixed assets were also submitted to the Income Tax Survey Team along with bills and vouchers related thereto. The relevant Plant & Machinery were existing in the premises of the appellant and no discrepancies were pointed out. The aforesaid fixed assets were accepted at Book value by independent Chartered Accountant Firms M/s. Earnest & Young and also by Haribhakti & Co. The appellant as well as the demerged company M/s. Intelnet BPO Services Limited made all necessary and relevant disclosure including that of the latest 13 ITA Nos. 4036-38/M/2011 & ITA Nos. 4466-67/M/2010 financial position and complied with the requirement stipulated in law in Company Petition No. 405 of 2006 connected with Company Application No.542 of 2006. The appellant had also given necessary undertakings before the Honorable Bombay High Court. The Regional Director has filed affidavit and relied upon the report of the Registrar of Companies after examining the scheme and relying upon the report, the Regional Director has certified that the demerger scheme was not prejudicial to the interest of the shareholders, creditors and public interest. The Official Liquidator filed a report before the Honorable Bombay High Court and relied upon the evidence of the C.A.s duly pointed out for scrutiny of the records and books of accounts. The books of accounts of the appellant for five years were duly scrutinized and the C.As. has observed that the affairs of the appellant company were not carried out in a manner prejudicial to the interest of the members and creditors, was also the public interest. Honorable Bombay High Court made the captioned Company Petition No. 405 of 2006 and 406 of 2006 absolute in terms of prayer, clause (a) to (i). In view of the above, it is held that the adhoc disallowance of 35% of the depreciation made by the A.O. is contrary to the facts on record of the Honorable Bombay High Court. Therefore, adhoc disallowance of 35% of the depreciation in A.Ys 2005-06 and 2006-07 are not sustainable and hence not sustained. Ground No.2 of A.Y. 2005-06 and Ground No.2 of A.Y. 2006-07 are allowed. Issue No.4 - adhoc disallowance of depreciation decided in favour of the appellant in AYs 2005-06 & 2006-07."
37. In absence of any distinguishing feature brought on record by the Revenue against the finding of the ld. CIT(A) and keeping in view that it is not the case of the Revenue that the plant and machinery were not installed at the assessee's business premises or the same were not used for the purpose of the business of the assessee or the rate of depreciation claimed by the assessee is not according to the Rules, we are of the view that the estimated disallowance of depreciation made by the A.O. is not sustainable in law and accordingly we are inclined to uphold the findings of the ld. CIT(A) in deleting the same. The grounds taken by the Revenue for the assessment years 2005-06 and 2006-07 are, therefore, rejected.
14 ITA Nos. 4036-38/M/2011
& ITA Nos. 4466-67/M/2010
38. In the result, assessee's appeals are partly allowed and Revenue's appeals stand dismissed.
प रणामतः नधा रती अपील आं शक वीकत
ृ राज व क अपील खा रज क जाती है ।
Order pronounced in the open court on 11-7-2012.
.
आदे श क घोषणा खले
ु यायालय म दनांकः 11-7-2012 को क गई ।
Sd/- sd/-
(B. RAMAKOTAIAH ) (DINESH KUMAR AGARWAL)
लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER
मंुबई Mumbai; दनांक Dated 11/7/2012
व. न.स./ . r.k. , Sr. PS
आदे श क त ल प अ े षत/Copy
षत of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु (अपील) / The CIT(A)-
4. आयकर आयु / CIT
5. वभागीय त न ध, आयकर अपील य अ धकरण, मंुबई /
DR, ITAT, Mumbai
6. गाड फाईल / Guard file.
आदे शानसार
ु / BY ORDER,
स या पत त //True Copy//
उप/
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण,
धकरण, मंुबई / ITAT, Mumbai