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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 ..... r copy of computer and software maintenance which is at page 276 of the assessee’s paper book where the payment details through banking channel has also been placed. Therefore, the genuineness of the expense cannot be doubted. Accordingly, in our considered view, we uphold the order of Ld. CIT(A) and this ground of Revenue’s appeal is dismissed. Capital expenditure incurred for purchase of software expense - CIT(A) has treated the same as revenue in nature and deleted the same - Held that:- 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). Addition on account of bogus sundry creditors - Held that:- From the facts of the case, we find that once the purchase/ sales claimed by assessee had accepted by AO then corresponding sundry creditors/ deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Kumar Kurrel, Ld. Departmental Representative appeared on behalf of Revenue. 2. First issued raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer u/s 40(a)(ia) of the Act on account of expenses incurred on the purchase of software related to computers whereas assessee has claimed the same as computers maintenance expenses. 3. Facts in brief are that assessee in the present case is a Public Limited Company incorporated under the Companies Act, 1956 and engaged in the business of share broking and is also registered with SEBI as a Member of the National Stock Exchange of India. During the course of assessment proceedings, AO observed that assessee has claimed computers and software maintenance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 activities of the assessee in the manner desired by the statutory regulator which wielded absolute authority on its members to exercise their supervisory jurisdiction. In course of remand proceedings, the assessee had produced the copies of the bills and the detail of payments on that behalf which were mostly through banking channel. The assessee maintained books of account which were duly authenticated by supporting vouchers and the complete details in this regard were produced before the AO in course of the remand proceedings. The AO in the remand report did not comment adversely on the evidence adduced on record. AO however choose to import an altogether new dimension to deal with the matter. The only grievance raised by the AO in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 such no liability to deduct tax at source arises and therefore, the action conceived in this respect is wholly unfounded in the circumstances. In such AO misconstrued the legal position in this respect considering extraneous factors not germane to the issue and the Ld. CIT(A) in appreciating the evidence in the correct perspective and came to the opposite finding within the statutory prescription in this respect. On the other hand, Ld. DR vehemently relied on the order of AO. 6. We have heard the rival contentions and perused the materials available on record. We find that AO has made the assessment u/s. 144 of the Act by disallowing the expense claimed by assessee under head computer and software maintenance on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter 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 the judgment of Hon ble High Court of MADRAS in the case of CIT Vs. SOUTHERN ROADWAYS LTD. (2006) 282 ITR 379. The relevant extract of the order is reproduced below. (iv) Whether, in the facts and circumstances of the case, the Tribunal was right in holding that ₹ 24,12,000 paid to HCL for purchase of new computers allowable as a deduction as a revenue expenditure ? 7.2. Insofar as fourth question is concerned, it is not in dispute that the assessee did not claim any expenditure for installation of new computers, but claimed the expenditure for the upgradation of the existing computers. Further, the expenditure was incurred for improving the efficiency of the existing system with a view to keep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹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 there is sale / purchase, there will remain sundry debtors / sundry creditors. Further the assessee earns income from share braking. In share market if a client sales or purchase shares, the transaction of payment takes place after 2-3 days depending upon the delivery of shares received/ made. It is the guideline prescribed by the SEBI, the share Market Regulatory in India. Till then the debit / credit entries will reflect in the books of account of the Broker. Considering those balances as cash credit is totally wrong unjustified. The details of sundry creditors which contain details such as name of the party, address, PAN amount due to him. The copies of Ledger pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the appellant in the remand stage. On the other hand the materials evidence regarding the sundry creditors placed on record supports the claim of the appellant. In the view of the matter, the addition made by the Assessing Officer on account of unexplained sundry creditors is not sustainable. (Reliance is also placed on the decision of the Hon'ble Delhi High Court income CIT vs. P.S.Jain Co. Ltd. (210) 322 ITR 320 (Del)) in this regard. There is another aspect of the matter in the case of CIT vs. Pancham Das Jain (2006) 205 CTR (All) 444, it was held that provisions of Sec.68 are not attracted to amounts representing purchases on credits. It was observed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 is not satisfactory in the opinion of the Assessing Authority, only then the amount may be deemed to be income of the assessee. There is no doubt or dispute that the addition of ₹ 1,77,98,435/- was made without giving any opportunity to the respondent. In the remand proceedings the AO did not issue any summons u/s. 131 of the Act and/or notice u/s. 133(6) of the Act to such addresses as provided by the assessee to verify the existence of such creditors. He further stated that it is also not in dispute that the respondent had regular business transactions with these clients during the previous year relevant to the assessment year under d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein he had accepted the item 'Sundry Creditors' as the said sum of ₹ 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 record. From the aforesaid discussion, we find that assessment framed by AO u/s 144 of the Act by treating the sundry creditors of ₹1,77,98,455/- as bogus. However, Ld. CIT(A) deleted the same by holding that AO has not found out any defect in the purchase/ sales claimed by assessee in the books of account. We also find from the remand report of AO that assessee has produced ledger copy of sundry creditors but AO could not verify the genuineness of such sundry creditors. Now the question before us arises so as to whether the sundry creditors claimed by assessee the amount to unexplained cash credit when the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 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, whereabouts, creditworthiness of vendor and also could not prove genuineness of transaction Whether mere nonverifiablity of sundry creditors ipso facto would not lead to conclusion that sundry creditors were bogus - Held, yes Whether since Assessing Officer had drawn an adverse conclusion only on account of nonverfiability of sundry creditors but there being no dispute as regards purchases and trading results having been accepted, addition made under section 68 was not sustainable Held, yes [Paras 15.2 15.3] [in favour of assessee] Further reliance in the judgment of Ho ..... 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