TaxTMI 
TaxTMI 
2016 (4) TMI 83
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....lowance made by the learned Assessing Officer of depreciation of Rs. 84.84,910/- on the purchase of Software of Rs. 4,24,25,05O/- from M/s Macro Infotech Ltd. by the appellant company. 2. That the Hon'ble Commissioner of Income Tax (Appeals) while sustaining the disallowance of deprecation has erred in law as much as facts of the case in violating the principle of natural justice by not providing any opportunity of confronting the information and documents received by the learned Assessing Officer from the learned Director of Income Tax (Inv.) New Delhi and also not providing the opportunity to the appellant for cross examination of Sh. Tarun Goyal who has alleged to have issued bogus bill and accommodation entries to the appellant. 3. That the information received by the learned Assessing Officer from the learned Director Commissioner of Income Tax (Inv.) was used as tool against the appellant for disallowing the deprecation. 4. That the learned Assessing Officer merely relied upon the information received from the learned Director of Income Tax (Inv.) on the face of it without independently verifying the facts of the case. Likewise the Hon'ble C....
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.... and does not required ascertainment on any factual of the case and therefore the ld AR submitted that the same may be admitted. The additional grounds raised for Assessment Year 2008-09, 2009-10 and 2010-11 are identical as under:- "1. That the Hon'ble Commissioner of Income Tax (Appeals) has erred in law as much as facts of the case in sustaining the disallowance made by the learned Assessing Officer of depreciation of Rs. 84,84,910/- on the Softwares of Rs. 4,24,25,050/-purchased by the appellant from M/s Macro Infotech Ltd. 2. That the Hon'ble Commissioner of Income Tax (Appeals) while sustaining the aforesaid disallowance of deprecation has erred in law as much as facts of the case in violating the principle of natural justice by not providing any opportunity of being heard to the appellant for confronting the informations and documents received by the learned Assessing Officer from the learned Director of Income Tax (Inv.) New Delhi and also not providing the opportunity to the appellant for cross examination of Sh. Tarun Goyal who alleged to have issued bogus bills and accommodation entries to the appellant. 3. That the Hon'ble Commissi....
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....ills to various persons. During the course of investigation it was found that one company M/s Macro Infotech Ltd was also formed by Shri Tarun Goyal, who is engaged in issuing bogus bills and it does not have any expertise in software business. During the enquiry after the search and seizure operation it was found that the assessee has purchased software of Rs. 42424550/- from M/s. Macro Infotech Ltd. It was alleged by AO that it in fact the assessee has taken the bogus bills to inflate their expenditure. When the enquiry was conducted by the Intelligence Wing no information was or explanation was provided by the assessee in this matter. Further vide letter dated 19.08.2011 the assessee was further asked about the Macro Infotech Ltd and its transaction with the assessee from Assessment Year 2003-04 to 2009-10 and the assessee was also asked to prove the genuineness of the transaction made with M/s. Macro Infotech Ltd. In response to this the assessee submitted on 28.11.2011 that M/s. Macro Infotech Ltd is engaged in the business of supply of various kinds of the computer software, graphics and other elite products and during FY 2007-08 the assessee has purchased software of Rs. 424....
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....t at all. He submitted that therefore second proviso to section 153A of the Act does not apply and assessment does not abate. The second argument is regarding information received from the premises of Mr. Tarun Goyal during the Search conducted in 2008 and based on the post search enquiries has shown that there are incriminating documents and hence the assessment is correctly made. 11. Provisions of section 153A are as under :- ASSESSMENT IN CASE OF SEARCH OR REQUISITION (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and....
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.... the assessee are dismissed. 15. Other grounds of the appeal are on the merits of the case that the assessee is eligible for depreciation on the software purchased of R 42425050/-. The main argument of the assessee is that the assessee has purchased this software amounting to Rs. 42424550/- from only one company i.e. Macro Infotech Ltd. The details of the payment made by the assessee to these companies is through six cheques of different dates between 24th August 2007 to 29th August 2007 amounting to Rs. 42424550/-. According to the copy of account, payments have been made by the cheque and date of installation of the software was said to be 2nd October 2008 for all the software as stated in the narration of the account for each of the entry of payment. All the invoices of Macro Infotech Ltd were in the month of July and August 2007. The bank statement of the assessee also showed that cheques have been issued in favour of M/s. Macro Infotech Ltd. and for this the assessee submitted the bank statement of its bank account with Bank of Rajasthan Ltd. Subsequently, certificate dated 20th June 2012 from ICICI Bank Ltd ( in which the Bank of Rajasthan has merged with ICICI bank Ltd) w....
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....ose of the business and therefore the claim of depreciation has been rightly disallowed. Regarding the destruction of the software it was sated that there is no confirmation from Sobha Developers Ltd. that how the software destroyed. Regarding the issue of the cross examination of by the assessee, the he relied on the para No.2.3.2 of the learned Commissioner of Income-tax (Appeals) order and said that independent to the statement of other party, assessee could not establish the ownership and user of the asset purchased and further this fact has been corroborated by the statement of Shri Tarun Goyal. In view of this he submitted that depreciation cannot be allowed to the assessee as the purchase of the asset is shown to be fictitious for the reason mentioned in the order of learned Commissioner of Income-tax (Appeals) and AO. 17. We have carefully considered the rival contentions. The brief facts have already been narrated as above. The ld AO has dealt with this issue at Para No.6 Pg. 2 to Pg 6 of the AO‟s order as under:- "6. During the post- search enquiry of the case of Chintels group, it was learnt that in the case of Shri Tarun Goyal, search and seizure opera....
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....t of your transactions with M/s. Marco Infotech Limited during the financial years from 2003-04 to 2009-10. Also furnish Nature and description of products/goods purchased from M/s. Marco Infotech Limited. Also furnish copies of purchase bills obtained from M/s. Marco Infotech and copies of bank statement evidencing payments. The head office and site office of M/s, Macro Infotech Limited were shown as Kama/ Market (1st floor), Dharmawala, Dehradun and the branch office was shown as 13/34, WEA Chamber No. 404, Main Arya Samaj Road, Karoi Bagh, NBW Delhi. On the verification of both the addresses, it had come to the notice that no such company is running from Dehradun's address and the Delhi's address belongs to one Shri Tarun Goyal, who is a Chartered Accountant. The search and seizure action was also conducted at the office of Shri Tarun Goyal by the Investigation Wing, Delhi. During the search It was found that numbers of bogus concerns are running from the address 13/34, WEA Chamber No, 404, Main Arya Samaj Road, Karol Bagh, New Delhi and M/s. Macro Infotech Limited is one of the concern. Therefore you have to prove the genuineness of the transactions made with M/s. Macro....
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.... your query, you have mentioned that in case, our explanation is found unsatisfactory and unconvincing, show cause notice is given to explain as to why the transactions made with M/s Macro Infotech to the extent unexplained may not be treated as "Undisclosed Income" and added to in our returned income for assessment years 2004-05 to 2010-11. We hope the above explanation will be up to your satisfaction as the expenditure incurred by the company .in purchase of the softwares, therefore, it cannot be treated as "Unexplained Income" and added to our assessment for block pen'od of assessment. Further this matter is a matter to be dealt with in the regular assessments and not in Block assessments." 6.3 The assessee company has not offered satisfactory explanation. They have not filed any document about the use of the software and when the software put to use. They have not filed any documentary evidence that they have handed over the document to M/s. Sobha Developers Limited. Even they have also not filed any documentary evidence in respect to the software destroyed because of M/s. Sobha Developers. Ltd. The assessee company has taken the bogus purchase bills of software Rs....
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....re actually existed and was used in the business of the appellant, the appellant stated that it cannot be produced as it got destroyed. This explanation of the appellant clearly indicates that the appellant had produced no evidence of either the existence or the actual user of the software during the previous year relevant. 2.3.1 As per the provisions of the Act, depreciation can be allowed on an asset only if appellant owns it and actually uses it in his business during the previous year relevant. In the instant case, though the appellant, prima facie, produced the invoice as the evidence of purchase of software from M/s Macro Infotech Ltd., but the invoice lost its evidentiary value as soon as it was found that no such company being engaged "in software development business was available on its given address of Dehradun and the address touted as its branch office address was, in fact, "the office address of Shri Tarun Goyal , a chartered accountant, admittedly indulging in the business of accommodation entries to various concerns. The AO had, therefore correctly given specific opportunity to the appellant to justify its claim of depreciation in the light of the results of the enq....
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.... the existence of the software was ever -brought on record. Neither the hardcoded documents were produced nor the digital form was ever shown to have been used by the appellant. The alleged developer of the software was also a physically nonexistent, non- descript company, having no expertise of software development. Therefore, I am of the considered opinion, that the appellant has miserably failed to substantiate its claim of ownership as well as user of the so-called software alleged to have been purchased from M/s Macro Infotech Ltd., a non-descript company, "Welch was found to be one of the 90-odd companies floated by a self-confessed entry operator. 2.3.5 The appellant's AR had placed heavy reliance on the case of CIT v Sangeeta Leasing 343 ITR 428 (Del) to argue that since the AO has not proved any connivance between the appellant and Shri Tarun Goyal, its claim of depreciation should not be disallowed. I have perused the cited case law. In that case, the assessee had entered into a transaction of purchase and lease out of GAS CYLINDERS through a broker. All the documentations were received by her according to which she had purchased the gas cylinders from one Mo....
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....ted out above. Furthermore, the very fact that the invoice has been obtained by issue of cheques in the name of a non-descript. Physically non-existent company having no wherewithal to do the software development work itself indicates towards a pre-ordained transaction entered into by the appellant for getting the benefit of depreciation on such non-existent asset. 2.3.6 Taking into consideration the totality of facts and circumstances as discussed above, it is held that the appellant has not been able to establish either the ownership or user of the alleged software on which depreciation of Rs. 84,84,910/- was claimed and accordingly the action of the AO in disallowing the claim of such depreciation on software is confirmed." 19. Further facts are required to be marshaled in this case as the tribunal is the final fact finding authority. For the purpose of claim of depreciation assessee has submitted following details before the lower authorities. a) Ledger extract of computer, printers and software for the period 01/04/2007 2/31 of March 2008 in respect of software purchased from macro Infotech Ltd. b) Copies of invoices raised by macro Infotech Ltd for purcha....
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....per user amounting to Rs. 66, 50, 000/-. The nomenclature of the software is Open View software with built-in rite fluctuation on Linux platform for sales booking for real estate forms and printing to multilevel radio platform. 26. The 6th software was purchased by invoice No. 06 dated 16th of August, 2007 for 19 users at the rate of rupees 2, 95, 000/- amounting to rupees 56,05,000/-.. The nomenclature of the software is 3 difficulty S Max with subscription consisting of analysis on Linux platform collection of data in peculiar 9000 model multilevel radio platform with multistation function. 27. From the above analysis it is apparent that company has purchased six huge software however there is no expenditure on hardware by the company. Therefore how these softwares are installed and how they were used is not demonstrated by the assessee. 28. The details of payments made to this party are as under. Cheque no Date Amount Date of clearance 701067 24/08/2007 9595000 27/08/2007 701069 26/08/2007 4242000 27/08/2007 701072 26/08/2007 7575000 27/08/2007 701078 28/08/2007 8635500 30/08/2007 701079 29/08/2007 671....
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.... has purchased huge software of approximately Rs. 4.25 crores however there is no addition to the hardware assets of the company. On looking at the balance sheet of the company it is apparent that during the year no such hardware have been purchased. Only addition to the computer is Rs. 4,30,53,004/- which consist of the above software of Rs. 4.25 Crores. Therefore the fact of installing the software in the office of the company is not proved by the assessee. d) Further assessee has purchased the huge software however the assessee could not establish that the software do exits by producing the existence of any „source code‟, utility report, Request for proposal etc. e) Whenever such software is purchased then the it goes through software development life cycle , none of the life cycle of the software development is demonstrated by assessee. f) Further act of providing softwares by the assessee to Sobha Developers Limited is not established i.e. how it was uninstalled and how it was reinstalled in the office of that party. g) Further it is also not established that assessee has entered in to any agreement with the Sobha Developers as t....
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....s were installed in the company and all the purchases were duly incorporated in the books of account of the company. Merely such a bald statement coupled with evidence against the assessee does not prove that an asset if at all owned by the assessee is used for the purposes of the business of the assessee. 34. It is strongly submitted by the assessee that Shri Tarun Goyal 's statement is not given to the assessee and he was also not cross examined by the assessee. In this case assessee has purchased the software therefore it is responsibility of the assessee to prove that assessee has purchased the assets and which are used for the purposes of the business. Statement of Shri Tarun Goyal is not at all relevant for determining the issue of allowance of depreciation on the assets purchased by the company which assessee has failed miserably to prove . Assessee could not prove the strength of the supplier to provide the software mentioned in the bills, assessee could not produce the details whether it has hardware strength of installing such software . it could not also established giving the softwares to sobha developers, It could not establish how the seven other persons have got r....