2017 (7) TMI 746 - HC - Income Tax

Assessment final for AY 2008-09 where s.143(1) intimation not s.143(2) notice; depreciation claim on bogus software disallowed

HC held that the assessment for AY 2008-09 was final because processing under s.143(1) and an intimation did not constitute an assessment and, absent a ... Validity of assessment - Assessments for Assessment Year 2008-09 pending on the date of the search - Held that:- The Assessee filed its return on 21st October, 2008. The return was processed under Section 143(1) of the Act on 27th March, 2010. It has held by this Court in Indu Lata Rangwala v. Deputy Commissioner of Income Tax (2016 (5) TMI 804 - DELHI HIGH COURT) that the mere processing of a return under Section 143(1) of the Act and the sending of an intimation to the Assessee will not make it an ‘assessment’. At the same time, the consequences of the Department not issuing a notice under Section 143(2) of the Act within the time stipulated as far as the filing of the return in normal course is concerned was not examined either in Commissioner of Income Tax v. Kabul Chawla (2015 (9) TMI 80 - DELHI HIGH COURT) or Indu Lata Rangwala v. Deputy Commissioner of Income Tax (supra). CBDT circular makes it abundantly clear that once an Assessee does not receive a notice under Section 143(2) of the Act within the period stipulated then such an Assessee “can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. The inevitable conclusion, therefore, in the present case, is that the ITAT was in error in holding that the assessment for AY 2008-09 should be treated as ‘pending’ whereas in terms of the above CBDT circular it should be treated as final in respect of which no scrutiny are to be started. - Decided in favour of the Assessee Addition on account of the claim of depreciation on software - Held that:- ITAT has re-examined every shred of evidence to come to clear conclusion that the Assessee was not able to demonstrate the genuineness of the purchase software. Further the story put forth by the Assessee that the software having been handed over to Sobha was also not substantiated by any documentary evidence or even otherwise. On facts, therefore, the concurrent opinions of the AO, CIT(A) and the ITAT to the effect that the purchase of the software was, in fact, a bogus transaction not entitled to depreciation cannot be said to suffer from any legal infirmity warranting interference.- Decided in favour of the revenue Issues Involved:1. Whether the ITAT erred in holding that the assessment for AY 2008-09 was pending on the date of the search.2. Whether the ITAT was correct in confirming the addition on account of the claim of depreciation on software for AYs 2009-2010 and 2010-2011.Issue 1: Assessment for AY 2008-09 Pending on the Date of SearchThe Assessee, engaged in horticulture, agriculture, and real estate, filed its return for AY 2008-09 on 28th October 2008. No notice under Section 143(2) or 142(1) of the Income Tax Act, 1961 ('Act') was received by the Assessee before the deadline of 30th September 2009. A search and seizure operation under Section 132(1) of the Act was conducted on 26th March 2010. The Assessee argued that nothing incriminating was found during the search relevant to AY 2008-09. The AO issued a notice under Section 153A(1) of the Act on 10th March 2011, and the Assessee filed a return declaring the same income as originally declared.The ITAT held that the assessment for AY 2008-09 was pending on the date of the search. The Assessee contended that the assessment had abated due to the absence of a notice under Section 143(2) within the stipulated time. The Assessee referred to CBDT Circular No. 549, which clarified that if no notice under Section 143(2) is issued within the prescribed period, the return filed becomes final, and no scrutiny proceedings can be started.The High Court referenced the Punjab and Haryana High Court's decision in Vipan Khanna v. Commissioner of Income Tax, which supported the Assessee's argument. The Court concluded that the ITAT erred in holding the assessment for AY 2008-09 as pending. Therefore, the ITAT's order was set aside, and the appeal was allowed in favor of the Assessee.Issue 2: Confirmation of Addition on Account of Depreciation on Software for AYs 2009-2010 and 2010-2011For AYs 2009-2010 and 2010-2011, the Assessee claimed depreciation on software purchased from M/s. Macro Infotech Limited ('MIL'). The AO made an addition under 'bogus depreciation claimed,' noting that the Assessee failed to provide documents proving the use of the software. The AO's verification revealed that MIL's addresses were non-existent, and the address in Delhi belonged to a Chartered Accountant, Mr. Tarun Goyal, from whose office several bogus concerns, including MIL, were operating.The Assessee explained that payments for the software were made through cheques, and the software was used as a marketing tool for a joint development project with Sobha Developers Limited ('Sobha'). However, the AO found no documentary evidence supporting the software's handover to Sobha or its destruction. The AO concluded that the Assessee obtained bogus purchase bills from MIL and inflated its expenditure by claiming depreciation.The ITAT re-examined the evidence and concluded that the Assessee failed to demonstrate the genuineness of the software purchase. The ITAT noted inconsistencies in the Assessee's claims and found no proof of the software's use or destruction. Consequently, the ITAT confirmed the disallowance of depreciation for AYs 2009-2010 and 2010-2011.The High Court upheld the ITAT's findings, stating that the Assessee could not substantiate the purchase or use of the software. The Court found no legal infirmity in the ITAT's decision and dismissed the Assessee's appeals for AYs 2009-2010 and 2010-2011.Conclusion:- For AY 2008-09, the ITAT's decision was set aside, and the appeal was allowed in favor of the Assessee.- For AYs 2009-2010 and 2010-2011, the ITAT's decision to disallow depreciation on software was upheld, and the appeals were dismissed.