Skyline E-Tech, Ernakulam v. DCIT, Ernakulam

ITA 292/COCH/2011 | 2005-2006
Pronouncement Date: 27-07-2012

Appeal Details

RSA Number 29221914 RSA 2011
Bench Cochin
Appeal Number ITA 292/COCH/2011
Duration Of Justice 1 year(s) 3 month(s)
Appellant Skyline E-Tech, Ernakulam
Respondent DCIT, Ernakulam
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2012
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 27-07-2012
Assessment Year 2005-2006
Appeal Filed On 27-04-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND B.R.BASKAR AN AM I.T.A. NO. 292/COCH/2011 ASSESSMENT YEAR: 2005-06 SKYLINE E-TECH RAJAJI ROAD ERNAKULAM-682 035 VS. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2(2) ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI SATHYANARAYANAN V. CA REVENUE BY SMT. S. VIJAYAPRABHA JR. DR DATE OF HEARING 21/06/2012 DATE OF PRONOUNCEMENT 27/07/2012 O R D E R PER B.R.BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 03-03-2011 PASSED BY THE LD. CIT KOCHI U/S. 263 OF THE ACT AND IT RE LATES TO THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IS QUESTIONING THE VALIDITY OF THE REV ISION ORDER PASSED BY THE LD. CIT. 2. THE FACTS RELATING TO THE SAID CASE ARE STATED I N BRIEF. THE ASSESSMENT IN THE HANDS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERAT ION WAS COMPLETED BY THE ASSESSING OFFICER ON 26-12-2008 U/S. 143(3) R.W.S. 147 OF THE ACT. ON EXAMINATION OF THE ASSESSMENT RECORD THE LD. CIT NOTICED THAT THE ASS ESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THE FOLLOWING POINTS:- (A) THE ASSESSEE HAS DEVELOPED SOFTWARE NAMED AS Q UADRA SOFTWARE. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE-FIRM VA LUED THE SAID SOFTWARE AT RS. 57 LAKHS. IT BROUGHT THE SAME AS ITS INTANGIBLE ASS ET IN ITS BOOKS OF ACCOUNTS BY MAKING CORRESPONDING CREDIT TO THE CAPITAL AND CURR ENT ACCOUNTS OF THE PARTNERS. I.T.A. NO.292./COCH/2011 2 THE LD. CIT NOTICED THAT THE ASSESSING OFFICER DID NOT EXAMINE THE SAID ENTRIES FROM THE ANGLE OF SEC. 47(XIII). (B) THE AO AS PER ASSESSMENT HAS PROPOSED TO DISA LLOW EXPENSES INCURRED FOR DEVELOPMENT OF SOFTWARE WHICH WERE INCURRED IN REL ATION TO SOFTWARE WHICH WAS REVALUED CAPITALIZED AND TRANSFERRED TO A COMPANY. THE ASSESSEE HAD SHOWN AN AMOUNT OF RS.21 03 579/- UNDER SOFTWARE DEVELOP MENT WORK-IN-PROGRESS. HOWEVER THE AO DID NOT MAKE ANY DISALLOWANCE AS PR OPOSED BY HIM. (C) THE ENTIRE BUSINESS OF THE FIRM WAS CLAIMED T O BE TRANSFERRED TO THE COMPANY AS ON 31-12-2004 AND THE TRANSACTION WAS CL AIMED TO BE NOT A TRANSFER U/S. 47(XIII) OF THE ACT. VARIOUS CONDITIONS PRESCR IBED UNDER CLAUSES (A) TO (E) ARE REQUIRED TO BE FULFILLED FOR AVAILING THE BENEFIT P ROVIDED U/S. 47(XIII). NO VERIFICATION IS SEEN TO HAVE BEEN MADE DURING THE COURSE OF ASSESSMENT IN RELATION TO THE APPLICABILITY OF SECTION 47(XIII). (D) THE BUSINESS IS CLAIMED TO BE SUCCEEDED BY A C OMPANY W.E.F. 01-01-2005. FOR ALLOWING DEPRECIATION ON ASSETS PROVISIONS CON TAINED IN 5 TH PROVISO TO SECTION 32(1) WERE NOT APPLIED IN THE ASSESSMENT. ACCORDINGLY THE LD CIT ISSUED NOTICE TO THE ASSESS EE AND AFTER CONSIDERING THE EXPLANATIONS GIVEN BY THE ASSESSEE THE LD. CIT SET ASIDE THE ASSESSMENT ORDER WITH THE DIRECTION TO THE AO TO RE-DO THE SAME AFRESH. AGGR IEVED BY THE ORDER OF THE LD. CIT THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS ON THE ISSUE S PRESSED BEFORE US AND ALSO PERUSED THE RECORD. AT THE TIME OF HEARING THE LD . COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE-FIRM CONSISTED OF TWO PARTNERS NA MED SHRI JOSEPH PHILIP AND SHRI K.V. ABDUL AZEEZ. ON 31-12-2004 THE ASSESSEE-FIRM WAS CONVERTED INTO PRIVATE LIMITED COMPANY IN ACCORDANCE WITH THE PROVISIONS OF SEC. 4 7(XIII) OF THE INCOME TAX ACT. ACCORDINGLY THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR 2005-06 WAS THE PERIOD FROM 01-04-2004 TO 31-12-2004. THE ASSESSEE-FIRM WAS CARRYING ON THE BUSINESS OF DEVELOPMENT OF SOFTWARE REQUIRED FOR REAL ESTATE AC TIVITIES UNDER THE TRADE NAME QUADRA SOFTWARE. PRIOR TO THE CONVERSION OF THE ASSESSEE-FIRM INTO A PRIVATE LIMITED COMPANY THE PARTNERS VALUED THE GOODWILL RELATING TO THE ABOVE SAID SOFTWARE AT RS. 57 LAKHS AND THE SAME WAS BROUGHT INTO THE BOOKS AS IN TANGIBLE ASSETS BY MAKING CORRESPONDING CREDIT TO THE PARTNERS ACCOUNTS. I.T.A. NO.292./COCH/2011 3 4. WE HAVE GONE THROUGH THE ASSESSMENT ORDER. APPARENTLY ALL THE FACTUAL DETAILS EXPLAINED BY THE LD COUNSEL DID NOT FIND PLACE IN T HE ASSESSMENT ORDER. THE VERY FACT THAT THE ASSESSEE-FIRM WAS CONVERTED INTO A PRIVATE LIMITED COMPANY DURING THE YEAR UNDER CONSIDERATION WAS NOT BROUGHT ON RECORD BY TH E ASSESSING OFFICER. AS POINTED OUT BY THE LD. CIT WITH REGARD TO THE ISSUE (A) AND (C) IT IS NOT CLEAR WHETHER THE ASSESSING OFFICER DID EXAMINE THE ISSUE OF APPLICAB ILITY OF PROVISIONS OF SEC. 47(XIII) TO THE CONVERSION OF THE INSTANT ASSESSEE FIRM INTO A PRIVATE LIMITED COMPANY. 5. WITH REGARD TO THE SECOND ISSUE (B) WE NOTICE T HAT THE ASSESSING OFFICER HAS MADE CERTAIN OBSERVATIONS IN PARA 4 OF THE ASSESSME NT ORDER BUT IN OUR VIEW THE SAME IS INCOMPLETE. FOR THE SAKE OF CONVENIENCE WE EXT RACT BELOW PARA 4 OF THE ASSESSMENT ORDER:- 4. THE ASSESSEE WAS ASKED TO FILE THE DETAILS OF T HE ADDITION TO THE CAPITAL MADE IN THE CASE OF THE PARTNERS. THE ASSESSEE HAS STAT ED VIDE THEIR LETTER DATED 29.10.2007 THAT THE CONTRA (SIC. QUADRA) SOFTWARE I N RESPECT OF THE BUILDING INDUSTRY DEVELOPED BY THEM WAS ASSESSED BY THE PAR TNERS AT RS. 57 LAKHS AND THIS AMOUNT WAS DIVIDED BETWEEN THE EXISTING PARTNE RS JOSEPH AND K.V. ABDHUL IN EQUAL SHARES IN THE RESPECTIVE ACCOUNT. THE ASS ESSEE WAS ASKED THE BASIS OF THE VALUATION OF THE QUADRA SOFTWARE IN VIEW OF THE FACT THAT THE ENTIRE EXPENSES INCURRED FOR THE DEVELOPMENT HAS BEEN ALREADY DEBIT ED IN THE P&L A/C. THE ACCOUNT HAS VARIOUS EXPENSES INCLUDING SOFTWARE DEV ELOPMENT WORK IN PROGRESS DEBITED IN THE P&L A/C. IN VARIOUS YEARS. UNDER T HE CIRCUMSTANCES THE ADDITION TO THE BALANCE SHEET ON THE BASIS OF VALUATION OF T HE SOFTWARE BY THESE PARTNERS IS WITHOUT ANY BASIS AND HENCE IS LIABLE TO BE DISA LLOWED. HOWEVER AS POINTED OUT BY LD CIT THE AO DID NOT M AKE ANY DISALLOWANCE. THESE FACTS CLEARLY SHOW THAT THERE IS ABSENCE OF PROPER APPLIC ATION OF MIND ON THE PART OF AO ON THIS ISSUE. 6. THE ASSESSING OFFICER ALSO DID NOT DISCUSS ABOUT THE APPLICABILITY OF THE 5 TH PROVISO TO SEC. 32(1) OF THE ACT WITH REGARD TO THE CLAIM OF DEPRECIATION. 7. ADMITTEDLY THE ASSESSMENT ORDER DID NOT DISCUSS ANYTHING ABOUT THE ISSUES (A) (C) AND (D) MENTIONED IN PARAGRAPH 2 SUPRA. IT IS NOW SETTLED PROPOSITION OF LAW AS I.T.A. NO.292./COCH/2011 4 EXPLAINED BY HONBLE SUPREME COURT IN THE CASE OF M ALABAR INDUSTRIAL CO. LTD (243 ITR 83) THAT THE VIEW TAKEN BY THE AO ON A PARTICULAR ISSUE CAN BE CONSIDERED AS ONE OF THE POSSIBLE VIEWS THEN IT WOULD FALL OUTSIDE THE SCOPE OF REVISION PROCEEDINGS. IT WAS NOT SHOWN TO US THAT THE ASSESSING OFFICER DID EXAM INE THESE ISSUES APPLIED HIS MIND AND HAS TAKEN ONE OF THE POSSIBLE VIEWS. WITH REGA RD TO THE ISSUE (B) THERE IS CLEAR LACK OF APPLICATION OF MIND ON THE PART OF THE AO. IT WAS ALSO NOT SHOWN TO US THAT THE VIEW EXPRESSED BY LD CIT IS NOT SUSTAINABLE UNDER T HE PROVISIONS OF THE ACT. UNDER THESE CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY I N THE REVISION ORDER PASSED BY LD CIT. 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY O N 27-07-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 27TH JULY 2012 GJ COPY TO: 1. SKYLINE E-TECH RAJAJI ROAD ERNAKULAM-682 035 2.THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2(2 ) ERNAKULAM. 3.THE COMMISSIONER OF INCOME-TAX KOCHI 4. D.R. I.T.A.T. COCHIN BENCH COCHIN. 5. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T COCHIN