TaxTMI 
TaxTMI 
2019 (4) TMI 1798
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....entirely on merits and by mostly ignoring the various contentions of t AO discussed in detail in the assessment order. 2. The Ld. CIT(A) has erred on facts and in law by deleting disallowance of depreciation of Rs. 9,00,000/- in respect of software, by not adjudicating entirely on merits the contentions of the AO in the assessment order and by ignoring that : (i) The assessee was not able to establish during the assessment proceedings, t genuineness of purchase of software in respect of which depreciation was claimed. (ii) The assessee was not able to establish during the assessment proceedings, the actual use to which the software on which depreciation was claimed was put. (iii) Admission of additional evidence relating to purchase of the said software is in contravention to the provisions of Rule 46A. 3. On facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 12,81,569/- made u/s 40A(2)(b) on account of excessive and unreasonable high salary paid to Smt. Monila Goel, MD holding 14.29% shares in the assessee company and to Smt. Mamta Goel, Joint MD also holding 14.29% shares in the ass....
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....roves that the same was not put to use during the year and therefore depreciation thereon is not allowable." 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 8,27,688/- made u/s 40A(2)(b) on account of excessive and unreasonably high salary paid to Smt Monila Goel, MD holding 14.29% shares in the assessee company and to Smt. Mamta Goel, Joint MD also holding 14.29% shares in the assessee company by not deciding entirely on merits the contentions of the AO discussed in detail in the assessment order." 4. As the learned CIT - A, has allowed the appeal of the assessee for assessment year 2004 - 05 following the order passed by him for assessment year 2005 - 06, Therefore, it is necessary to first deal with the appeal of the revenue for assessment year 2005 - 06. The decisions so reached therein and reason for the same shall then be applied in appeal for assessment year 2004 - 05. 5. Assessee is a public limited company incorporated in the year 1998, engaged in the business of advertisement and publicity since its incorporation. The company is part of "FIIT JEE‟ group of companies in print media. For....
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.... of the learned CIT - A, has preferred appeal before us. 9. Now we 1st come to the ground number 1 of the appeal for assessment year 2005 - 06 which is against the deleting the disallowance of web advertisement expenses of INR 4350000/-. The learned assessing officer noted that assessee has shown total income of INR 90687060/- as gross revenue against which it has debited expenses of INR 87549682/- which resulted into major expenditure towards advertisement cost. On examination of the details, He found that assessee has paid web advertisement expenditure of Rs. 43,50,000/- and dealt with the same after making due enquiries. He also made similar inquiry for software purchases of INR 15,00,000 for development of customized animation software. The findings of the learned assessing officer are elaborately discussed in his order. Therefore, in nutshell the learned assessing officer found that I. These charges were not for the advertisement of "FIITJEE" but for its own advertisement in the name of M/s Times A &M Advertisement Company. During the year and had done work only for its group company i.e. FIITJEE. II. AO was of the view that despite making such a huge expe....
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....ccounts or other documents or even technically qualified persons who can produce before the Department. He also carried out enquiry into the genuineness of the work done by these concerns. Interestingly, the learned AO noted that these companies have provided web advertisement at various websites maintained by them. He also carried out the detailed enquiry of what kind of services assessee has shown allegedly obtained from these companies and what is stated in the bills of that advertisement. (vii) Copy of advertisement submitted by the assessee was also found by AO that it could be taken from a normal standalone computer. This was demonstrated by the AO in his assessment order also. (viii) The company, which registered the domain names of all those companies to whom web advertisement charges have been paid, was also found to be of the same address, which was of one of the concern to whom the charges were paid. That address was found to be a residential address with no business concern. Therefore, the AO noted that even the details of web hosting of all those companies are also bogus. (ix) The learned assessing officer further carried out an enquiry about....
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....e software supplier, assessee named one person and asked AO to conduct enquiry from that gentleman. The AO also asked about the need and uses, which were specified at the time of customization of software or development of the software and the user acceptance test, but no answer was submitted. The AO also noted that in some other assessment also this company was found to be an accommodation entry provider in the name of software supplier. Thereafter, the AO referred to the statement of Sri SK Gupta, where at page number 16 - 21 He mentioned several companies operated by him for providing accommodation entries. On this basis, the assessing officer issued show cause notice to the assessee on 17/12/2007, which is placed at page number 21 - 24 of the assessment order. Therefore, for customized software purchase by the assessee, on technical side assessee could only show the photocopy of the user manual. The assessee was specifically asked to produce the original of user manual as well as the agreement, which assessee never produced. Assessee has also denied the availability of any project report for the customized software purchased by it. When the assessee has not prepared the require....
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.... v. copy of confirmation account of the advertiser with respect to the expenditure incurred on the advertisement vi. further, with respect to the existence of the company, master details of the company, permanent account number, copy of the affidavit from advertiser, vii. With respect to genuineness copy of advertisement given by the advertiser, copy of the bank account cheque number, copy of tax deduction certificate. viii. With respect to the purchase of software, copy of confirmation of account from the software developer, copy of master detail from the site of registrar of companies, copy of letter of software developer from assessee, copy of letter to the assessee from software developer along with the affidavit and it is annexures., copy of manual of M/s Hightech computer private limited and copy of the license agreement with respect to the purchase of software. He noted that the assessee has produced ample evidences and further the payment to the above parties are also through cheques and after making adequate deduction of tax and source and such evidences are not at all controverted. He further held that cross-examination of Sri SK Gupta on....
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....f SK Gupta, he has merely given answer in "yes‟ and "no‟. However, he did not demonstrate any of the capacities for development of the software development or web advertisement on behalf of the companies. Therefore, she stated that the learned CIT - A, has grossly ignored the real findings and the real issue in the appeal of the assessee and deleted the addition. She therefore stated that now the coordinate bench must consider each and every enquiry of AO and the above evidences collected by the assessing officer and failure of the assessee to produce anything in support of purchase of software or of obtaining web advertisement services from these companies. She further stated that with respect to the advertisement expenses, all companies who provided the services to the company allegedly are operating from the same premises, which belongs to Sri SK Gupta. She further stated that notices u/s 133 (6) was issued was received under the same companies‟ stamp at the address of Sri Gupta. She submitted that non-compliance of summons, noncompliance of notices u/s 133 (6), no confirmation by any of the parties, report of the inspector and the telling finding of the learne....
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....her stated that even user acceptance test report was also not shown before the assessing officer. She further stated that if the software is customized then there is a requirement document, the software development document, the software testing document, and software trial or pilot test et cetera. She also referred to the software development life cycle and stated that assessee has never shown any of the steps of such process. In view of this she submitted that the learned CIT - A, has grossly ignored all the relevant details, that an assessee must produce for establishing that it has purchased software. In view of this she submitted that the learned assessing officer has correctly made the addition in the hands of the assessee as it is completely bogus expenditure incurred by the assessee for which assessee does not possess any evidence except mere paperwork such as confirmation, bank statement, et cetera. She stated that all accommodation entry providers provide this kind of information, which is merely paper information, but in substance, it does not have real transaction. She further stated that the learned CIT - A, has allowed the claim of the assessee merely on the copies of....
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....lowed on the same grounds, but were held by him as an allowable expenditure. He further stated that the above order of the learned CIT - A, has been upheld by the honourable High Court on appeal filed by the revenue. Therefore, he held that the basis of making disallowance by the assessing officer does not survive anymore and the issue is squarely covered in favour of the assessee by the decision of the honourable High Court. He further stated that AO had drawn adverse inference against the assessee merely on the basis of statement of Sri SK Gupta with statement had never been confronted to the assessee despite repeated requests. However, Shri SK Gupta at the direction of the learned CIT - A, in the case of M/s FIITJEE Ltd appeared when he was cross examined and stated that he had never alleged that such expenditure incurred are mere accommodation entries. He further stated that in M/s ECI rapiscan has also incurred similar expenditure which too had been disallowed by the learned assessing officer while framing the assessment. In that case, that company had paid a web advertisement charges to M/s Centenary software private limited and to M/s high-tech computers private limited; suc....
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.... officer to make the further enquiry. Therefore, the issue of the cross-examination of the SK Gupta also does not arise. In view of this, she submitted that the claim of the learned Senior Advocate that the issue is squarely covered in favour of the assessee is absolutely devoid of any merit. 15. We have asked the Learned Senior Advocate to provide us with the balance sheet of all the companies who provided web advertisement services and the company who customize the software for the assessee, and also the source code of the software. For all these details, the Learned Senior Advocate expressed his inability for the reason that the companies who provided the web advertisement services were the service provider and the source code of the software is now not available as it was used only for one-year. 16. We have also put to the kind attention of the learned Senior Advocate the decision of the honourable Delhi High Court in case of Chintels India Limited V DCIT 2017-TIOL-1366-HC-DEL-IT wherein on identical circumstances the depreciation on the software was disallowed by the AO was confirmed. However, the learned Senior Advocate submitted that the software purchased by the asses....
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....der who was also surveyed by the income tax department and stated earlier that he is an accommodation entry provider, controls these companies. Therefore, summons under section 131 of the income tax act was issued to these companies. However, nobody complied with those summons. Therefore, the AO deputed the inspector to verify the existence of those companies who reported that no such companies existed at the new addresses given by the assessee. Therefore, further summons were also issued under section 131 to these companies for the compliance, which was received by one person on behalf of all the companies. However, in response to the summons also there was no compliance. Therefore, the assessing officer did not have any other option but to enquire into the genuineness of the claim of the deduction of the above expenditure. The assessing officer noted the various websites stated by those service providers. Detailed enquiry conducted by the AO is mentioned at page number 11 to 16 of the assessment order which conclusively proves that the services could not have been provided by these companies as domain names does not exist, the JSP ( java Server page ) technologies based on which ....
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....the learned CIT appeal failed to notice a startling difference in the level of enquiries made by the learned assessing officer in the present case. With respect to the website advertisement expenditure, the Ld. Assessing officer has conclusively proved that Java server page on which the website of the service provider is maintained, such technology was never in existence. The learned CIT appeal did not have any answer about the same. Further, with respect to the software development the questions raised by the AO about the project and various development cycle for development of the software were never answered by CIT appeal. Leaving aside even the order of the learned CIT appeal, there was no answer from the side of the assessee before any of the lower authorities on these issues but in fact, there was a complete stoic silence. During the course of hearing, we have also asked about the several details of the software development and website advertisement. However, except the information provided to the lower authorities, No fresh information was put to our notice. It was not shown to us how CIT appeal has recorded that how above observations of the AO in the impugned order are met....
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.... developed by an entry operator controlled company, the honourable Delhi High Court confirmed the disallowance of depreciation on the same held as under :- "AYs 2009-10 and 2010-11 24. Turning to the appeals for AYs 2009-2010 and 2010-11 the short question involved is whether the Assessee was able to demonstrate that it was the Assessee which, in fact, purchased the software for a value of over Rs. 4.24 crore from MIL whose address has not been able to be verified by the AO. 25. The Court finds that the 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." 22. Now we come to the various decisions relied upon by the learned ....
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....thereon. Further addition has been deleted in para number 6.1 merely on the on the fact that cross-examination of Sri. SK Gupta was not granted to the assessee. 27. In view of this we are not inclined to agree with the argument of ld AR that issue is squarely covered in favour of the assessee is absolutely devoid of any merit. 28. Now we come to the issue of the cross examination of Shri S K Gupta. Presently there is no statement recorded of Shri SK Gupta by the learned assessing officer during the course of assessment proceedings of the assessee. Further, the learned assessing officer has not made the disallowance on the basis of the statement of Shri SK Gupta but on account of failure of the assessee to substantiate that, it has incurred for web advertisement development charges as well as purchase of customized software on which depreciation is claimed. 29. As the facts for assessment year 2005 - 06 and 2004 - 05 are identical except the amounts in the respective appeal, we allow one and two of the appeal of the AO for assessment year 2004 - 05 and 2005 - 06. 30. Now we come to the ground number 3 of the appeal for assessment year 2005 - 06 where the learned CIT - A ....