The ITO, Ward-4(3),, Ahmedabad v. Icenet Net Ltd.,, Ahmedabad

ITA 1575/AHD/2008 | 2004-2005
Pronouncement Date: 17-08-2010 | Result: Partly Allowed

Appeal Details

RSA Number 157520514 RSA 2008
Bench Ahmedabad
Appeal Number ITA 1575/AHD/2008
Duration Of Justice 2 year(s) 3 month(s) 10 day(s)
Appellant The ITO, Ward-4(3),, Ahmedabad
Respondent Icenet Net Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 17-08-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 17-08-2010
Date Of Final Hearing 17-08-2010
Next Hearing Date 17-08-2010
Assessment Year 2004-2005
Appeal Filed On 07-05-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI N.S.SAINI ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.1575/AHD/2008 BLOCK PERIOD: 08.09.90 TO 21.10.99 DATE OF HEARING:16.8.10 DRAFTED:17.8.10 INCOME TAX OFFICER WARD-4(3) AHMEDABAD V/S . ICENET NET LTD. 905 CILICON TOWER B/H PARISEEMA BUILDING OFF- C.G. ROAD AHMEDABAD PAN NO.AAACE4718N (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI R.K. DHUNESTA DR RESPONDENT BY:- SHRI R.T.SHAH AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-IIIV AHMEDABAD IN APPEAL NO.C IT(A)-IIIV/ITO.4(3) /308/06-07 DATED 26-02-2008. THE ASSESSMENT WAS FRAMED BY ITO WARD-4(3) AHMEDABAD U/S143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 18-12-2006 FOR ASSESSMENT YEAR 2004-05 . 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE REGARD ING THE ORDER OF CIT(A) DELETING THE ADDITION OF DISALLOWANCE OF RS.1.50 LA KH ON AD HOC BASIS OUT OF TOTAL PROFESSIONAL FEES. 3. AFTER HEARING THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS OF THE CASE WE FIND THAT CIT(A) HAS CONSIDERED THE PROFESSIONAL FE E BILLS AND THE SAME PROFESSIONAL BILLS WERE CONSIDERED BY ASSESSING OFFICER AS NOTED IN HIS ASSESSMENT ORDER AND AFTER THAT THE CIT(A) HAS DELETED THE ADDITION BY G IVING THE FOLLOWING FINDINGS IN PARA- 2.2 OF HIS APPELLATE ORDER:- ITA NO.1575/AHD/2008 AY 2004-05 ITO WD-4(3) ABD V. ICENET NET LTD. PAGE 2 2.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY. THE A.R. HAS SUBMITTED DETAILS OF PROFESSIONAL FEES ALONG WITH C OPIES OF BILLS AT PAGES 11 TO 64 OF THE PAPER BOOK AND SUBMITTED THAT OUT OF THE PROFESSIONAL FEES OF RS.11 67 785/- NOTHING HAS BEEN INCURRED FOR INCREA SE IN AUTHORIZED SHARE CAPITAL AS THE WORK OF INCREASE IN AUTHORIZED SHARE CAPITAL WAS DONE IN HOUSE AND NOT THROUGH OUTSIDE PROFESSIONALS. IN VIEW OF T HE SAME AS THE A.O HAS ESTIMATED RS.1 50 000/- ON GUESS WORK THE DISALLOW ANCE IS HELD TO BE NOT PROPER AND DISALLOWANCE OF RS.1 50 000/- IS DELETED . 4. WE FIND THAT THE AO HAS PERUSED THE DETAILS AND NOTED THAT NO SEPARATE BILLS FOR PROFESSIONS SERVICES FOR INCREASE IN AUTHORIZED SHARE CAPITALS AND FOR OBTAINING TERM LOAN FROM BANK ARE SHOWN. WE FIND THAT THIS FINDING IS BASED ON THE EVIDENCES WHICH EVENTUALLY AGAIN PRODUCED BEFORE THE CIT(A) A ND CIT(A) HAS CONSIDERED THESE EVIDENCES IN PROPER PERSPECTIVE AND DELETED THE ADD ITION AS NOTED ABOVE. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE AND ACCORDING WE CONFIRM THE SAME. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF BAD DEBTS. FOR THIS R EVENUE HAS RAISED THE FOLLOWING GROUND NO.2 :- 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE DISALLOWANCE OF BAD DEBTS OF RS.2 72 671/-. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESS ING OFFICER HAS CONSIDERED AND MADE DISALLOWANCE OF BAD DEBTS ON THE SALE INVOICES RAISED IN THE RELEVANT FINANCIAL YEAR 2003-04 AND ALSO CLAIMED BAD DEBT IN THE SAME FINANCIAL YEAR. ACCORDING TO THE AO MERELY WRITING OFF IN THE BOOKS OF ACCOUNT IS NO T SUFFICIENT FOR THE CLAIM OF DEDUCTION OF BAD DEBTS. WE FIND FROM THE FACTS OF T HE CASE AND THE CASE RECORDS THAT THESE SALE INVOICES CLAIMED BY THE ASSESSEE AS UNRE COVERABLE AND THE ASSESSEE HAS WRITTEN OFF IN ITS BOOKS OF ACCOUNT AND THE DEP ARTMENT CANNOT INSIST ON DEMONSTRATIVE PROOF OF THE FACT OF THE DEBT BECOMIN G BAD AND WHICH PROVE MUST SATISFIED THE TEST OF INFALLIBILITY. IT IS A QUESTI ON AS TO WHEN THE DEBT BECAME A BAD DEBT WILL HAVE TO BE OBJECTIVELY DETERMINED ON THE MATERIAL ON RECORD AND IT MUST BE DECIDED FROM THE POINT OF VIEW OF POSSIBILITY THE R EALIZATION OF DEBT. BUT NOW THE ISSUE HAS BEEN SETTLED BY HONBLE APEX COURT IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F. LIMITED V. COMMISSIONER OF INCOME TAX ITA NO.1575/AHD/2008 AY 2004-05 ITO WD-4(3) ABD V. ICENET NET LTD. PAGE 3 [2010] 323 ITR 397 (SC). WE FIND THAT THE ASSESSIN G OFFICER HAD MADE THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAS NO T PRODUCED SUFFICIENT EVIDENCE TO SHOW THAT REASONABLE STEPS WERE TAKEN TO RECOVER THE DEBT. HOWEVER THERE IS NO DISPUTE THAT THE ABOVE AMOUNT WAS DULY WRITTEN OF I N THE ASSESSEES BOOKS OF ACCOUNT. ON THE ABOVE FACTS THE DECISION OF HONBL E APEX COURT IN THE CASE OF T.R.F. LIMITED (SUPRA) WOULD BE SQUARELY APPLICABLE WHEREIN THEI R LORDSHIPS HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT 1961 WITH EFFECT FROM APRIL 1 1989 IN ORDER TO OBTAIN A DED UCTION IN RELATION TO BAD DEBTS IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTA BLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HO NBLE APEX COURT WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) O N THIS POINT AND DISMISS THIS GROUND OF THE REVENUES APPEAL. 7. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AS R EGARDS TO ORDER OF CIT(A) DELETING THE ADDITION ON ACCOUNT OF TREATING THE S ALES ADVANCES AS SALE OF THE YEAR UNDER CONSIDERATION AFTER ADMITTING THE FRESH EVIDE NCE IN VIOLATION OF RULE 46A OF IT RULE 1962. FOR THIS REVENUE HAS RAISED THE FOLLOW ING GROUND NO.3 :- 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN DELETING THE ADDITION OF RS.1 01 77 394/- MADE ON ACCOUNT OF TR EATING THE SALES ADVANCES AS SALES OF THE YEAR UNDER CONSIDERATION AFTER ADM ITTING FRESH EVIDENCE IN VIOLATION OF RULE 46A. 8. THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER T REATED THE SALE ADVANCE AMOUNTING TO RS.1 12 31 582/- SHOWN IN SCHEDULE-10 OF THE BALANCE-SHEET AS SALES FOR THE CURRENT FINANCIAL YEAR AND AFTER CONSIDERIN G DISCOUNT OF RS.10 54 188/- NET SALES ADVANCE AMOUNTING TO RS.1 01 77 394/- WAS CON SIDERED AS CURRENT YEARS SALES. THE AO ALSO NOTED THAT THE ASSESSEE-COMPANY CHARGED ON SERVICE TAX ON SALE AS ADVANCE AND ACTUALLY THESE ARE SALES AND NOT SAL E ADVANCE AS RECORDED BY ASSESSEE IN ITS BOOKS OF ACCOUNT. AGGRIEVED ASSESS EE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION BY GIVING F OLLOWING FINDINGS IN PARA-6 OF HIS APPELLATE ORDER:- 6. I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. C AREFULLY. THE A.O HAS HELD THAT THE ALES EXECUTED BY THE APPELLANT BUT SHOWN A S ADVANCE ARE TO BE TREATED AS SALES AND NOT AS ADVANCE AS HE APPELLAN T WAS FOLLOWING MERCANTILE ITA NO.1575/AHD/2008 AY 2004-05 ITO WD-4(3) ABD V. ICENET NET LTD. PAGE 4 SYSTEM OF ACCOUNTING. IF THE FINDING OF THE A.O IS HELD TO BE CORRECT THEN THE SALES SHOWN AS ADVANCE AMOUNTING TO RS.1 01 77 394/ - WHICH HAVE BEEN CONSIDERED BY THE A.O AS SALES OF THIS YEAR ARE TO BE DEDUCTED FROM SALES SHOWN IN THE NEXT YEAR I.E. A.Y 2005-06. IN FACT TH IS IS WHAT HAS BEEN CLAIMED IN ADDITIONAL GROUND OF APPEAL AS OTHERWISE IT AMOU NTS TO DOUBLE TAXATION AND IT HAS NO EFFECT ON REVENUE AS THERE IS NO CHANGE I N THE TAX RATE. THE APPELLANT HAS FOLLOWED CONSISTENTLY THE METHOD OF ACCOUNTING SALES ADVANCE AND THE SALES. THE APPELLANT HAS RAISED INVOICES FOR SALES IN ADVANCES. THE SALES IN RESPECT OF ICE PHONE PINS AND VOIP (VOICE OVER IP S ERVICES) THE SALES HAVE BEEN RECOGNIZED AFTER THE RECEIPT OF INVOICE OF MED IA RING OF SINGAPRE WITH WHICH THE APPELLANT HAS TIED UP FOR PROVIDING THE P REPAID SERVICES. THE APPELLANT IS DEPENDENT ON MEDIA RING TO FIND OUT TH E MINUTES USED AND THE COUNTRIES CALLED UP BY THE CUSTOMERS AND BASED ON D ATA RECEIVED FROM MEDIA RING THE APPELLANT ACCOUNTS ITS INCOME WHICH IS ON THE BASIS OF ACTUAL UTILIZATION OF PINS. SIMILARLY IN RESPECT OF LEASE LINE DOT AND WED HOSTING AND SERVER COLLECTION BILLS ARE RAISED QUARTERLY IN AD VANCE AND THE CHARGES HAVE BEEN ACCOUNTED PROPORTIONATELY AND THE INCOME RELAT ING TO THE PERIOD FALLING IN THE ACCOUNTING YEAR IS ACCOUNTED IN THE CURRENT ACC OUNTING YEAR AND THE INCOME RELATING TO THE SUBSEQUENT ACCOUNTING YEAR I S ACCOUNTED IN THE SUBSEQUENT ACCOUNTING YEAR. THE APPELLANT HAS FOLLO WED THIS METHOD OF ACCOUNTING OVER THE YEARS AND IN THE A.Y. 2003-04 NO DISTURBANCE HAS BEEN MADE TO THE METHOD OF ACCOUNTING OF THE APPELLANT B Y THE A.O. THEREFORE I DO NOT FIND ANY JUSTIFICATION FOR DISTURBING THE METHO D OF ACCOUNTING FOLLOWED BY THE APPELLANT. THE A.R HAS SUBMITTED A CHART AT PAG E 103 OF THE PAPER BOOK SHOWING INCOME AS PER THE METHOD OF ACCOUNTING ACCE PTED IN THE PAST FOR A.Y. 2003-04 2004-05 AND 2005-06. THE ADVANCE SALES PER TAINING TO NEXT ACCOUNTING PERIOD WHICH FALLS IN A.Y. 2005-06 HAVE BEEN ACCOUNTED IN A.Y. 2005-06. THE AUDITORS HAVE ALSO RECOGNIZED THIS MET HOD OF ACCOUNTING AS PROPER AND BEING IN ACCORDANCE WITH ACCOUNTING STAN DARD (AS-9). IN VIEW OF THE SAME THE ADDITION TO SALES MADE BY THE A.O OF R S.1 01 77 394/- IS DELETED. 9. WE HAVE HARD THE RIVAL CONTENTIONS AND GONE THRO UGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSE E IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE ASSESSEE HAS RAISED SALE INVO ICES AND IN THESE SALE INVOICES THE ASSESSEE HAS ALSO CHARGED SERVICE TAX. FIRST OF ALL WE HAVE TO FIND OUT THE NATURE OF BUSINESS OF THE ASSESSEE. AS THE ASSESSEE-COMPAN Y IS ENGAGED IN THE BUSINESS OF INTER-NET SERVICE PROVIDER ALLIED ACTIVITIES AN D ALSO TRADING IN HARD WARE AND SOFTWARE. WE ARE UNABLE TO REACH TO ANY CONCLUSION IN THE ABSENCE OF THE DETAILS OF SERVICE CHARGES FOR PROVIDING INTER-NET SERVICES A S WELL AS TRADING IN HARDWARE AND SOFTWARE. WE FIND THAT THE LOWER AUTHORITIES HAVE N OT GONE INTO DETAILED SALE INVOICES RAISED BY THE ASSESSEE FOR THESE TWO ACTIVITIES. WH ETHER THE ASSESSEE IS MERELY A TRADER OR THE CONTRACT WITH THE CLIENT TO PROVIDE S ERVICE IS SUCH THAT IN THE EVENTUALITY OF NON-USER OF THE SERVICES BY THE CLIENTS WHETHER THE ASSESSEE HAS TO REFUND THE ITA NO.1575/AHD/2008 AY 2004-05 ITO WD-4(3) ABD V. ICENET NET LTD. PAGE 5 INVOICE AMOUNT OR NOT THERE FACTORS NEEDS VERIFICA TION. EVEN OTHERWISE THE REVENUES CLAIM IS THAT THE DETAILS ARE PROVIDED BY THE ASSESSEE TO THE CIT(A) FOR THE FIRST TIME AND THE CIT(A) WITHOUT REFERRING THE SAM E TO THE ASSESSING OFFICER ADMITTED FRESH EVIDENCES IN VIOLATION OF RULE-46A OF IT RULE S 1962. ON QUERY FROM THE BENCH LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT H E IS READY TO PRODUCE THESE BEFORE THE ASSESSING OFFICER IN CASE THE MATTER IS SET ASIDE. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES WE SET ASIDE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO RE- DECIDE IN TERMS OF THE ABOVE DIRECTIONS AFTER PROVI DING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS ISSUE OF THE REVE NUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 17/08/2010 SD/- SD/- (N.S.SAINI) (MAH AVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD DATED : 17/08/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-IIIV AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD