Omega Technology Pvt. Ltd., Delhi vs Assessee
- CitationI.T.A.No. 4310/DEL/2012
Ratio decidendi
The rule this decision rests on
Where a deduction claimed under the head "income from other sources" is sought under section 57(iii), the question of allowability turns on the expenditure's relation to the earning of the income assessed; an assessee who has not challenged the assessment of the receipt under that head is confined to expenditure relatable to earning that receipt, and the tribunal has allowed or disallowed each item by reference to that test. Expenditure already allowed in an earlier assessment year as a periodic deduction of a capitalised or deferred outlay, where the same deduction is claimed in a later year, cannot be disallowed in a subsequent year without disturbing the earlier assessments, and the claim is to be allowed. Development charges that the assessee fails to substantiate with documentary evidence, and against which the Assessing Officer's independent enquiries found no positive evidence, may be disallowed on that basis. Depreciation claimed on the opening written-down value of a block of assets, where no fresh additions were made during the year, is allowable, and a disallowance of such depreciation is bad in law. A director's salary for which the assessee has produced supporting evidence is to be allowed. Set-off of brought-forward business losses and unabsorbed depreciation is consequential on the foregoing determinations and is remitted to the Assessing Officer for fresh adjudication in accordance with law.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
Assessee by : Sh. Kapil Goel, Adv. Department by : Sh. B.Dhamkanunjna, Sr.DR
ORDER
PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the Assessee against the order of the Ld.CIT(Appeals) -XVIII, New Delhi dated 20.03.2012 pertaining to the A.Y. 2005-06.
2. Though the assessee has raised in all 6 grounds of appeal, at the time of hearing he submitted that he is not pressing ground no.1 to 5. Hence these are dismissed as not pressed.
2.1. The assessee pressed ground no.6 only which reads as under.
"6. That on the facts and in the circumstances of the case and in law, Ld.CIT(A) erred in not appreciating that there is no concept of taxation of gross receipts (just because assessee has offered it) and without prejudice assessee may be assessed on some reasonable profit rate as deemed fit (say 10%)."
3. Facts in brief:- The assessee is a company and is engaged in the
business of software development and consultancy. During the year under
consideration the assessee company has shown a single receipt of ITA 4310/Del/2012 A.Y. 2005-06 Omega Technology P.Ltd., Delhi
Rs.6,48,000/-. Against this receipt the assessee claimed expenses
aggregating to Rs.5,52,894/-, the entire receipt was from M/s NC Infotech.
The assessee filed return of income on 28.9.2007 for the A.Y. 2005-06
declaring income of Rs.22,847/-. The A.O. came to a conclusion that the
assessee has not rendered any services in M/s NC Infotech and the
transaction is a sham transaction. He assessed the receipt as 'income
from other sources'. He also disallowed the expenditure claimed by the
assessee. Aggrieved the assessee carried the matter in appeal without
success. Further aggrieved the assessee is before us.
4. We have heard Shri P.Dhamkanunja, Ld.Sr.D.R. on behalf of the
Revenue and Shri Kapil Goel, the Ld.Counsel for the assessee.
5. Rival contentions heard. On a careful consideration of the facts and
circumstances of the case, on perusal of material on record, orders of the
authorities below, case laws cited, we hold as follows
6. The sole issue that is argued before us is the allowability of
expenditure claimed of Rs.5,52,894/-. The expenditure is as follows:
Development charges -
(a) Incurred during the year - Rs.1,11,250/-
(b) Deferred revenue expenditure - Rs. 1,70,000/-
Total: Rs. 2,81,000/-
Depreciation Rs. 50,241/-
Director's salary Rs. 1,20,000/-
Brought forward losses/depreciation Rs. 1,06,300/-
2 ITA 4310/Del/2012 A.Y. 2005-06 Omega Technology P.Ltd., Delhi
6.1. The Ld.Sr.D.R. Sh.Damkanunja submitted that once the assessee has
not challenged the assessment of the receipt and Rs.6,48,000/- under the
head 'income from other sources', then what is allowable u/s 57(iii), is only
expenditure relatable to the earning of such income. Thus he submits that
the entire claim of the assessee has to be dismissed.
6.2. Mr.Kapil Goel tried to substantiate each expenditure and submitted
that the fact that the assessee has commenced business is not in dispute as
in the earlier A.Ys, the income was assessed under the head 'income from
business or profession' and they were both carry forward business losses as
well as unabsorbed depreciation. He submitted that even if the expenditure
is allowed under the head 'income from business', interhead set off can be
done for the same A.Y.
6.3. We now consider the claim of each of the expenditure.
6.4. (a) Rs.1,70,000/- is 1/5th of the expenditure of Rs.8,50,000/- incurred in the F.Y. 2000-2001. The assessee had already claimed 1/5th of the expenditure in A.Y. 2001-2002 and in the 4 consequent A.Ys. This is the 5th A.Y. of claim. Thus, this expenditure cannot be disallowed at this stage without disturbing the earlier year assessments. In the result we direct the A.O. to allow this claim of the assessee.
(b) Regarding development charges of Rs.1,11,250/- the assessee could not produce any documentary evidence before the A.O. Independent enquiries were done by the A.O. and not positive evidence was found. Under these circumstances we confirm the disallowance of Rs.1,11,250/-.
(c) The next issue is allowability of depreciation. There are no fresh additions during the year. The depreciation is claimed on the block of
3 ITA 4310/Del/2012 A.Y. 2005-06 Omega Technology P.Ltd., Delhi
assets, on the opening written down value. Under these circumstances the disallowance in question is bad in law. We direct that the same be allowed.
(d) Next issue is on disallowance of Director's salary. The assessee has produced evidence for the same. Thus we direct that the same be allowed.
6.5. The last issue is set off of carry forward of business losses and
unabsorbed depreciation. This is consequential. The A.O. may de-novo
adjudicate this issue as per law.
7. In the result the appeal of the assessee is allowed in part.
Order pronounced in the Open Court on 29th June, 2015.
Sd/- Sd/-
[I.C. SUDHIR] [J. SUDHAKAR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dt. the 29th June, 2015
· Manga
Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,
Assistant Registrar, ITAT, Delhi Benches
4
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