TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 1798
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.... 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 assessee company by not deciding entirely on merits the contentions of the AO ....
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....d 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 assessment year 2005 - 06, assessee filed its return of income on 30/10/2005 declaring income of INR 1856100/-. The assessment under sect....
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....t 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 expenditure on its own advertisement the company could not garner any new clients. Therefore, it leads AO to make further inquiries about the genuineness of the expenditure in....
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....ave 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 the domain name registered of all these companies. He found that result of all the websites on which the advertisements are claimed to have been made by the assessee were negative except in case of Travelhind.com, which showed only one entry in the domain histo....
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.... 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 requirement document for the purpose of purchasing customized software from this software supplier, the learned assessing officer doubted the existence of the purchase of this software. The AO further referred to the inspector‟s enquiry report confronting it to the assessee who did n....
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....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 30/11/2009 Clarified the position with regard to the services rendered by the advertisement companies wherein he has stated that those companies actually provided the services and they have enough infrastructures to provide those services. He also refused to have accepted any cash for the purpose of providing accommodation entries. Thereafter the learned CIT - A, stated and....
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....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 learned assessing officer, with respect to the web advertisement made at various website for which an elaborate technical research made by the assessing officer on domain name, there is no finding of CIT (A). She further stated that CIT A ignored web address provided as to whom the payments were made did not exist. This was proved by AO by searching the history of domains. She spec....
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....ee 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 the cheque, payment by the bank, and tax deduction at source certificate as well as normal communication which does not have any evidentiary value So far as the payment for web advertisement services and for purchase of the software. In view of this, she submitted that the order of the learned assessing officer with respect to the above might be confirmed. 13. The learned a....
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....see 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; such sum has been held allowable as deduction by the coordinate bench by an order dated 7/4/2016. He further stated that in that case the tribunal has held that disallowance made was unsustainable. He further placed on record four orders of the coordinate bench in case of FIITJEE Ltd where such disallowances were deleted. He therefore stated that learned CIT - A, was fully justifi....
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....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 assessee is not proved to be bogus but is a genuine purchase. 17. We have carefully considered the rival contention and perused the orders of the lower authorities. For assessment year 2005 - 06 assessee has booked expenditure of web advertisement charges in the name of 4 companies amounting to Rs. 43,50,000 and in case of 3 companies in assessment year 2004 - 05 amounting to Rs. 2270....
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....ee. 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 the website of the services providers is claimed to have been launched, did not exist at that time, The learned AO specifically noted that the invoice letters of Omega Technologies dated 12/11/1998, says that they would provide JSP support to the website. (Java server Pages). However, such technology came out with its first version only in June 1999 and upgraded in December 1999. This fact is neither controverted by the assessee nor by the le....
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....ith 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 with in the order of sister concern on which he placed heavy reliance in deleting the disallowance. On careful reading of page number 14 of his order, wherein he has quoted para number 5.4 of such order on which he relied, he has simply stated that the payments were made by account payee cheques and the assessee supported it with the necessary evidences. He further stated that the learned assessing officer disallowed the claim out rightly with....
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.... 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 Senior Advocate submitting that the issue squarely covered in favour of the assessee by quoting the decision of the coordinate benches which also confirmed by the honourable High Court in case of FIITJEE Ltd. 23. We first refer to the decision of the coordinate bench in ITA number 4946/del/2010 for assessment year 2002 - 03 where in para number 9 of the order it is stated that the assessing officer did not make any effort of examining any of the companies and ev....
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....earned 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 has deleted the disallowance of INR 8 27688/- made under section 40A (2) (b) on account of excessive and unreasonable a high salary paid to the managing Dir as well as the joint managing director. The learned assessing officer in para number 4 has noted that though the director was working for the company however, how much work did she do for the company and how much salary should be paid to her for that work is the issue. Therefore he disallowed and excessive salary of I....