2003 (9) TMI 309 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, cites AO's inadequate enquiries & reliance on estimates.

DEPUTY COMMISSIONER OF INCOME TAX. Versus CONCEPT DATA MANAGEMENT (P) LTD.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The AO's failure to conduct thorough enquiries and reliance ... Business expenditure, Unexplained moneys Issues Involved:1. Software development expenses disallowance.2. Deletion of addition on account of advance received from parties.3. Disallowance of commission expenses.4. Application of net profit rate.Issue-wise Detailed Analysis:1. Software Development Expenses Disallowance:The Revenue challenged the CIT(A)'s decision to allow software development expenses amounting to Rs. 6,76,000. The Department argued that the CIT(A) did not provide sufficient reasoning and failed to appreciate the nature of the accounts. They contended that software programs provide enduring benefits, referencing several judicial decisions. The assessee countered that the business primarily involved trading in hardware computers and highlighted that the AO did not follow the CIT(A)'s specific directions for a thorough examination. The AO disallowed the expenses due to non-existent parties and lack of confirmations, despite the assessee's claim of genuine transactions through account payee cheques. The CIT(A) had earlier directed the AO to conduct thorough enquiries, which the AO failed to do, leading to a repeated disallowance without proper investigation. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not make full enquiries or consider the relevant material, thus justifying the deletion of disallowance.2. Deletion of Addition on Account of Advance Received from Parties:The AO added Rs. 8,24,918, considering the advances from 53 parties as bogus liabilities due to the lack of confirmations. The CIT(A) set aside this issue, directing the AO to examine whether the advances fructified into sales in the next year. The AO, in fresh assessment, made an ad hoc disallowance of Rs. 1,25,000, which the CIT(A) deleted, noting that the AO did not follow the directions and made the addition on an estimate basis. The Tribunal agreed with the CIT(A), stating that the AO should have examined specific details rather than making an ad hoc disallowance, thus rejecting the Department's ground.3. Disallowance of Commission Expenses:The AO disallowed the commission expenses of Rs. 2,33,464, which the CIT(A) had set aside for fresh assessment. The AO repeated the disallowance due to the lack of details from the assessee. The CIT(A) observed that the AO did not bring any specific material to justify the disallowance. The Tribunal upheld the CIT(A)'s findings, rejecting the Department's ground as there was no specific evidence against the commission expenses.4. Application of Net Profit Rate:The CIT(A) restored the issue of net profit rate application to the AO, directing him to consider the normal rates declared by other leading companies in the same business. The Tribunal noted that since the matter was restored for fresh consideration, there should be no grievance from the Department. The Tribunal found no error in the CIT(A)'s direction and rejected the Department's ground.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The AO's failure to conduct thorough enquiries and reliance on ad hoc estimates were key reasons for the Tribunal's decision.