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TMI Blog2016 (7) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) is correct by not disallowing the capital expenditure while holding that the said expenditure were expended towards purchase of computer related software because purchasing of computer or computer software is capital expenditure in nature. 3) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that the sundry creditors' stands due to purchase made in credit whereas the assessee has made purchases from recognized stock exchanges where no credit is allowed and not only that, there is no name of any stock exchanges in the list provided by the assessee before the Ld. CIT(A). 4) Whether, on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in admitting new evidence without recording the reasons for its admission in contravention of provision of Rule 46A(2) and not given reasonable opportunity to the assessing authority to examine the new evidence or to produce any evidence in rebuttal as required under Rule 46A(3)." Shri Somnath Ghosh and Shri Sarnth Ghosh, Ld. Authorized Representatives appeared on behalf of assessee and Shri Rajt Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sec. 194C of the Act, the Assessing Officer ought to have given specific finding in the assessment order after brining on material on record. This is not the case therefore, the claim of the appellant should prevail. The addition of Rs. 2,51,525/- made by way of disallowance of expenses out of computer software maintenance charges is deleted. This ground of appeal is allowed." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 5. Before us Ld. AR submitted index of paper book which contents pages 1 to 336 and stated that assessee-company deal in share broking activities. Accordingly he had to abide by the rules and regulations framed by the Securities and Exchange Board of India. Under their mandate, the assessee had to maintain the records of its clients in the computer network and accordingly had to obtain the designated software for such purpose. It had therefore no alternative but to compulsorily follow the requirements of its statutory regulator. Thus, the expense on account of maintenance of computer networks and software or updating such software did not create any asset of enduring benefit but merely served the purpose of carrying on the activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords, the prognosis arrived at by the futile imagination of AO can never be the criterion for taking the transactions concerned outside the purview of 'purchase and sale'. The only relationship which can subsist in the circumstances between the assessee and said concerns is that of purchaser and seller. It has been clarified that the provisions of this section will not cover contracts for sale for goods [CIRCULAR NO.681/F.No.275/54/93-ITB (1994) 206 ITR (ST) 299]. There is no dispute that there was a contract which in the instant case amounted to contract for sale of goods and not works contract so to invite the mischief of s. 194C of the Act. In the instance case, there was no contract subsisting between the assessee and the two concerns for carrying out any work on its behalf and nothing has been brought on record to the contrary by the AO apart from is baseless imagination on the issue and accordingly, the alleged proposal to invoke the provisions of s. 40(a)(ia) of the Act in the instant case is ultra vires the scope and ambit of such enactment. It is thus axiomatic that the provisions of s. 40(a)(ia) read with s. 194C of the Act were not attracted in the circumstances and as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital expenditure incurred by assessee for purchase of software expense. 8. At the outset we find that the issue raised in this ground by Revenue is connected with the first ground of appeal and it was submitted that the expense incurred on the purchase of software amounts to capital expenditure but assessee instead of capitalizing the same has claimed as revenue expenditure, therefore, it needs to be disallowed. However, Ld. CIT(A) has treated the same as revenue in nature and deleted the same. 9. Aggrieved, Revenue is in appeal before us with the issue that such expense should be treated as capital in nature. 10. From the facts of the case, we find that expense incurred on account of maintenance of computer and software or update them do not create any asset of enduring benefit but merely assist the assessee to carry out its activities in the manner desired by statutory regulator. As such, we find that no fixed asset is coming into existence out of the expense incurred for the purchase of software. Hence, in our considered view, the issue of capitalizing the same expense does not arise and we uphold the order of Ld. CIT(A). In this connection we are putting our reliance in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand dismissed. Consequently, TCMP No. 1207 of 2005 is also dismissed." Respectfully following the aforesaid decision, we find no reason to interfere in the order of ld. CIT(A). Hence this ground of appeal of Revenue is dismissed. 11. Next ground raised by Revenue in this appeal that Ld. CIT(A) erred in deleting the addition made by AO on account of bogus sundry creditors. During the course of assessment proceeding assessee failed to produce any documentary evidence in support of its sundry creditors shown in the balancesheet for an amount of Rs.1,77,89,435/-. Accordingly, AO treated the same as unexplained cash credit u/s 68 of the Act and disallowed the sundry creditors of Rs.1,77,98,475/- added to the total income of assessee. 12. Aggrieved, assessee preferred an appeal before Ld. CIT(A) whereas it was submitted that AO has not given to us sufficient opportunity to submit the details & produce evidences. The Ld. AO action of evocation of provision of Sec. 68 to add the amount of sundry creditors in want of evidence as cash credit is not a justified act. The Ld. AO forgot that the assessee has shown purchase / sale of share in the Audited accounts submitted before him. When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. Apparently, the assessment has been made in haste without affording adequate opportunity to the appellant company. Even the Assessing Officer has not discharged his burden of proof in spite of the fact that the appellant has furnished complete list of the sundry creditors. It is undeniable fact that there are bound to be sundry creditor and debtors even for the last day of the financial year. It is true that scope of section 68 is not restricted only to cash entries in accounts and that if credits in account found bogus, the same can be added. However this is not the case of the appellant. The sundry creditor are evidently trade creditors. Even the same Assessing Officer has found existence of same set of sundry creditors after verification under sec. 133(66) of the IT Act as genuine in assessments made under scrutiny for subsequent assessment years, i.e. for Assessment Years 2007-08 and 2009-10. The Assessing Officer has not brought any material on record to support his finding that the sundry creditors are not genuine or unexplained or bogus in spite of the fact that the Assessing Officer has been given an opportunity to examine the additional evidence put forth by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it is an admitted fact that in the instant case the AO had made an addition of Rs. 1,77,98,435/- by invoking the provisions of section 68 of the Act by conceiving that the outstanding amount payable on account of Sundry Creditors were allegedly unexplained. He stated that there is no dispute that the assessee maintained books u/s. 44AA of the Act which was duly audited under the statutory requirement of section 44AB of the Act. The provisions of section 68 of the Act come into play only where the AO found that a cash credit is recorded in the books and the assessee offered no explanation as to the nature and source thereof or the explanation offered is not satisfactory in his opinion then such credit may be deemed to be the income of the taxpayer for the corresponding Assessment Year. He further stated that the conditions precedents are as under (1) There shall be a credit appearing in the books of account of the assessee; (2) An opportunity for submitting an explanation as to the nature and source of such credit entry appearing within the books of account is to be provided to the assessee; and (3) The assessee offers no explanation or such explanation offered by him i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with their confirmations as well as bank statements and also produced copies of returns of income in respect of some of them. He however nevertheless conceived that genuineness of the sundry creditors could not be established. This is a misnomer in the circumstances of the case. Further. the amount of Rs. 1,77,98,436/- disclosed on account of "Sundry Creditors" by the assessee were actually outstanding amount to be paid to its clients and were paid subsequently during the previous year relevant to the assessment year 2007-2008. He stated that AO framed the assessment order u/s. 143(3) of the Act for the AY 2007-08 wherein he had accepted the item 'Sundry Creditors' as the said sum of Rs. 1,77,98,436/- was a mere outstanding amount against sales and hence the provisions of Sec. 68 of the Act do not come into play in as much as the sales recorded in the accounts were not disputed. The amounts outstanding were shown in the balance sheet as sundry creditors as on 31.03.2006 though they were mainly credit balance of the debtors. Ld. AR vehemently relied on the order of Ld. CIT(A). 15. We have heard the rival submissions of the parties and perused the materials available on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries on his own ha added back to income the entire trade creditors outstanding without any justification. In such circumstances of the case, we are of the view that the CIT(A) is justified in deleting the additions made by the AO. Therefore, we uphold the order of the CIT(A) as correct and in accordance with the law. It is ordered accordingly. Hence, appeal f the Revenue is dismissed." Reliance in the decision of co-ordinate Bench of Lucknow "A" Bench Third Member in the case of ITO v. Zazsons Exports Ltd. (2015) 55 taxmann.com 522 (Luk) wherein the head note: "Section 68 of the Income-tax Act, 1961 - Cash credits (Sundry creditors) - Assessment year 2005-06 - Assessee company was carrying on business of export of finished leather and manufacture of shoe uppers and shoes - While framing assessment, Assessing Officer required assessee to furnish complete lit of persons from whom raw hides of goats were purchased and from whom advance in shape of credit had been taken by assessee and to whom huge amounts were payable - Not being satisfied with reply given by assessee, Assessing Officer made addition under section 68 on ground that assessee failed to give postal add5ress, whereabo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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