A.H, Multisoft Pvt. Ltd., New Delhi vs Department Of Income Tax

This appeal has been preferred by the Revenue against the

order of the Commissioner of Income Tax (Appeals) - IV, New Delhi

dated 27.12.2012 in appeal no. 327/ 2011-12 for AY 2009-10. 2 ITA NO.1164/ Del/2013

2. The ground raised by the revenue reads as under :-

"1. Whether the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 19,68,410/- made on account of purchase and other expenses ignoring the fact that

(a) From the records there is no stock in hand as such.

(b) The assessee did not enter any actual sale purchase transaction."

3. Briefly stated the facts giving rise to this appeals are that the

assessee filed return of income declaring of loss of Rs. 17,39,750/-.

Subsequently, the case was picked up for scrutiny and a notice u/s

143(2) of the Income Tax Act, 1961 (for short the Act) issued to the

assessee. The assessing officer after seeking explanation from the

assessee observed that the purchases expenses, of Rs. 13,10,000/-,

software development and support expenses Rs. 75,000/- and printing

& stationary expenses amount into Rs. 5,83,410/- as claimed by the

assessee are bogus and hence, these are not allowable. The Ld.

Assessing Officer also observed that loss from exchange fluctuation

of Rs. 3,14,998/- is not a revenue expenditure and hence, the same is

also not allowable. The assessing officer also hold that the receipts

from sale are the income from other sources as there is no denying the

fact that the assessee actually received these amounts and if the 3 ITA NO.1164/ Del/2013

same are not business receipts then otherwise as a revenue receipts

the amount received from sale is an income in the hands of assessee.

The assessing officer finalise the assessment at total income of Rs.

5,43,654/- as against the return income of the assessee.

4. Being aggrieved by the above assessment order the assessee

preferred an appeal before CIT(A) which was partly allowed on the

ground of purchase, software development and support expenses and

stationary & printing expenses. Now, the aggrieved revenue is before

this tribunal with the sole ground as reproduced hereinabove.

5. The Ld. Departmental Representative (DR) placing reliance on

the decision of Hon'ble Supreme Court in the case of Sumati Dayal vs.

CIT 214 ITR 801(SC) and submitted that where any some amount

found credited in the books of accounts of assessee for any previous

year it may be charged to income tax as the income of the assessee,

if the explanation offered by the assessee about the nature and source

thereof is , in the opinion of the assessing officer, not satisfactory. The

Ld. Counsel of the assessee replied that the assessee company

carried out trading in 4 ITA NO.1164/ Del/2013

computer software etc. and the trading/sale in computer software

cannot be held as income from other sources as the assessee is

registered with the VAT department of Government of Delhi vide

registration no. 07170340412 and has regularly being filed its VAT

return. The Ld. Counsel vehemently contended that no sale can be

conducted without any purchase and the assessing officer on one

hand disallowed the purchases made by the assessee and on the

other hand the AO wrongly alleged that the receipts from sale deserve

to be assessed to tax under the head of "income from other sources".

The Ld. Counsel supporting the impugned order submitted that the

CIT(A) took a reasonable and justified approach and deleted the

addition.

6. The Ld. Counsel of the assessee also submitted that the

assessing officer made impugned three additions without any detailed

deliberations and conclusion and it was not just and proper to held

impugned expenses as bogus without pointing out any defect in the

books of account of assessee and without rejecting the same by

following the procedure as stipulated u/s 145(3) of the Act. 5 ITA NO.1164/ Del/2013

7. Replying to the above contentions, the Ld. DR also placed the

rejoinder and submitted that the CIT(A) has simply noted that the AO

has not pointed out any defects in the audited books of accounts of the

assessee which were produced before him and has also not pointed

out any defect in the purchase and sale vouchers produced by the

assessee before him but the CIT(A) has not commented on the merits

of the explanation and documentary evidence filed by the assessee in

support of his claim. The Ld. DR also pointed out that the CIT(A) has

deleted all three additions by recording his file conclusion in para no. 5

of the impugned order but para no. 5 by observing brief points on the

issue of impugned purchase and sales but there is no discussion

about other two issues viz. software development support expenses

and printing and stationary expenses which were held as bogus by the

assessing officer. The Ld. DR strenuously contended that the CIT(A)

granted for the assessee all three issues without any proper, just and

cogent adjudication and therefore the order of the CIT(A) is not

sustainable.

6 ITA NO.1164/ Del/2013

8. On careful consideration of above rival submissions at the very

outset, we observe that the assessing officer made impugned three

additions with following conclusion;

"Conclusion Sale is the secondary aspect to existing stock and/or purchases. From the records it is clear that there was no stock-in-hand as such. The assessee also failed to establish its purchases. As a result, the expenses, claimed to have been connected with the sale-purchase, also cannot be held genuine. Another major head of expenditure, i.e. Printing & Stationary also remains un-established. The only inference that can judiciously be drawn from the above all is that the assessee did not enter into any actual sale-purchase transaction. This whole picture of purchase- sale was painted to set-off the incomes. Thereby the assessee undertook an attempt to evade due taxes on its receipts.

In light of the above, the purchases expenses, Software Development & Support Expenses and Printing & Stationary expenses are held as bogus and hence not allowable. Further, loss from exchange Rate fluctuation is not revenue expenditure in the case of the assessee and hence not allowable. The income from sale is held as " Income From Other Sources", as there us bi denying the fact that the assessee actually received these amounts, if not as business receipt than other-wise, but as a revenue-receipt, i.e. income."

9. We, further, not that the CIT(A) grantly for the assessee by

deleting additions from all three issues which following observations

and conclusions ;

7 ITA NO.1164/ Del/2013

"I have carefully considered the submissions of the ld. AR and perused the assessment order passed by the AO. I find that the AO has based his conclusion on the fact that parties in question namely Surya Traders and Chand Trading Company have filed their income tax return in ITR no. 2 in assessment year 2009-10 and have not shown any income from business or profession and Mihir Impex has not filed any return for assessment year 2009-10. However, the AO has not pointed out any defects in the audited books of the accounts of the assessee which were produced before him. The AO has also not pointed out any defects in the purchase and sales vouchers produced by the assessee before him. The mere fact that the parties from whom the appellant company has claimed purchases are not filing proper income tax returns cannot be held against the appellant. I agree with the submissions of the ld. AR that the AO was free to take action as per law against those parties. The AO himself has mentioned that the assessee has actually received these amounts and the same were revenue receipts though the same were not accepted as business receipts. In view of the above facts and circumstances of the case I agree with the submissions of the ld. AR that the addition made by the AO is not justified. Hence, the same is deleted. These grounds of appeal are allowed."

10. In view of above conclusion of the AO it is clear that the assessing

officer held purchase expenses, software development & support

expense and printing and stationary expenses as bogus and not

allowable. The assessing officer has also noted that from the record it

is clear that there was no stock in hand as such the assessee failed

to establish its purchases. The assessing officer also noted that 8 ITA NO.1164/ Del/2013

another major head of expenditure i.e. Printing & Stationary also

remains unestablished. At this point, we observe that the assessee

has filed a paper book spread over 61 pages where in accept item no.

1, 10, 11, 14 and 17 other 11 documents were very well before the

AO but there is no consideration and deliberations thereon in the

assessment order. In this situation, we are inclined to hold that the

Assessing Officer made additions without giving any findings on the

explanation, details and documents filed by the assessee and without

pointing out any defects in the purchase, sales and other related

vouchers and in the audited books of accounts of the assessee which

were produced before AO during assessment proceedings.

11. From the bare reading of the impugned order we also note that

the CIT(A) has reproduced written submissions of the assessee and

thereafter arguments and submissions of the assessee have been

mentioned and the CIT(A) has granted for the assessee in operative

paragraph no. 5 and reproduced hereinabove. From operative part of

the impugned order we note that the CIT(A) has also note discussed

any written submissions of the assessee, copies of the relevant bills

vouchers, bank statements & other related documents, which were

also filed before us in the paper book of 61 pages and simply 9 ITA NO.1164/ Del/2013

noted that no defects was pointed out by the AO in the purchases and

sale vouchers and audited books of accounts of the assessee and the

CIT(A) agreed with the submissions of the assessee without any

adjudication. We also observe that in operative paragraph no. 5 there

is no observations or findings in regard to the software development

and support expenses and printing and stationary expenses but the

CIT(A) has deleted entire additions made by the AO on all three issues

which is not a proper and justified approach.

12. Under facts and circumstances as noted above, we are inclined to

hold that the revenue authorities below has not properly considered

submissions, details, explanation and other relevant documentary

evidence and related bills and vouchers audited books of accounts of

the assessee and the AO proceeded to make additions without

bringing out any adverse material or facts against the assessee and

without rejecting audited books of accounts of the assessee. At the

same time, we also note that the CIT(A) granted relief for the

assessee by passing a slip short and cryptic order by making only

short deliberations on the issue of purchase and sales and without

any conclusion on other two issues and therefore, orders of the

authorities below suffers ambiguity, perversity and the same are not a 10 ITA NO.1164/ Del/2013

sustainable. Under above noted facts and circumstances, we find a

just and proper to restore the assessment to the file of Assessing

Officer for framing a fresh assessment, after affording few opportunity

of hearing for assessee and without being prejudiced from the earlier

assessment order and impugned order. Accordingly, the main ground

of the revenue is deem to be allowed for statistical purposes.

In the result, appeal of the revenue is allowed for statistical purposes in

the terms as indicated above.

Order pronounced in open court on 17th April, 2015.

Sd/- Sd/- (N.K.Saini) (C.M.Garg) Accountant Member Judicial Member

Dated 17th April, 2015 B.Rukhaiyar

Copy forwarded to 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), New Delhi. AR, ITAT

N. Delhi 11 ITA NO.1164/ Del/2013