TaxTMI 
TaxTMI 
2022 (8) TMI 455
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....e Revenue as raised in Ground No.1 relates to the deletion by the learned CIT(A) of the addition of Rs.2,21,51,688/- made by the Assessing Officer on account of disallowance of assessee's claim for depreciation on computers. 3. The assessee, in the present case, is a company which is engaged in the business of development of software, customized software solution and providing IT consultancy services to domestic as well as overseas clients. The return of income for AY 1999-2000 was filed by the assessee-company on 31.02.1999 declaring a total income of Rs.1,11,97,335/-. The said return was initially processed by the Assessing Officer under Section 143(1) of the Act on 07.03.2001. Subsequently, during the course of assessment proceedings for AY 2000-2001, a survey under Section 133A of the Act was carried out at the premises of the assessee on 07.03.2003. The findings of the said survey as mentioned in the assessment order for AY 2000-01 were as under:-- "1. No insurance cover was taken for the computers 2. No adequate evidences relating to the real purchase of computer hardware were produced. 3. The main directors of the alleged vendor companies Rahul ....
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....3/- were purchased during the year under consideration and because of this addition to the core fixed asset, the assessee-company could able to increase its income to Rs.11,07,68,774/- during the year under consideration from Rs.5,40,27,565/- of the previous year. It was submitted that inventory was taken during the course of survey proceedings which itself was sufficient to show that the computers were readily available with the assessee-company. This explanation offered by the assessee was not found acceptable by the Assessing Officer. According to him, there was a failure on the part of the assessee to produce necessary evidence to satisfactorily establish its claim for purchases of computers during the year under consideration. Keeping in view the same as well as the inference drawn in the assessment order for AY 2000- 2001 against the assessee on this issue, the Assessing Officer held that the claim of the assessee of having purchased the computers during the year under consideration was not established. Accordingly, he disallowed the claim of the assessee for depreciation of Rs.2,21,51,688/- on the said computers in the assessment completed under Section 143(3) r.w.s. 147 of ....
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.... allowed & further appeals to ITAT against the said orders of the Ld. C.I.T.(A). As a result, the Hon'ble ITAT vide their consolidated order dated 24/04/2006 for all the above assessment years set aside these appeals and restored back the same to the file of the Ld.CIT (A) for deciding the appeals as per provision of law. A Photostat copy of Hon'ble ITAT's order is enclosed for ready reference. (Exhi.1) (5) At this juncture, it would be worthwhile to refer to Hon'ble ITAT's order in ITA Nos. 385 to 389/Ahd/2006 dated 20/04/2006. Relevant para may be reproduced as below:- "4. As it can be seem from the grounds of appeal produced in earlier part of this order, the main grievance of the assessee is that notice of hearing was not properly served by CIT(A) on assesses. The notices on the strength of which ex-parte order had been passed by CIT (A) were, in fact, served on Official Liquidator, who could not take possession due to stay granted by the Hon'ble High Court, vide order dated 29/09/2005, a copy of which has also been filed along with original appeal as per Annexure-A. The relevant portion of the order is reproduced as under: "1. Mr.....
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....ction to serve proper notice to the assessee and thereafter decide these appeals as per provisions of law after giving reasonable opportunity of hearing to the assessee. With this direction these appeals are restored to the file of CIT(A). As we have restored all the appeals to the CIT(A), we do not express any opinion on merits of additions contested in these appeals which will be decided by CIT(A) after serving the notice on assessee as well as taking into consideration the submissions made in that regard. We direct accordingly". (Emphasis Supplied) (6) Relying on the above extracted portion of the operative part of the order, it was strongly contended to appreciate that notice of hearing issued by the then Ld.CIT(A) on 27/10/2005 and 25/11/2005, were not addressed & served properly on the assessee company and the then Ld.CIT(A) had proceeded to dispose off assessee's appeal in without any representation. The procedure adopted by the then Ld.CIT (A) described herein above had resulted into violation of principles of natural justice. Therefore, on appreciation of peculiar facts & circumstances, the Hon'ble ITAT has set aside and restored back it to the file of the....
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....s disallowed As mentioned elsewhere, the ITAT restored the issue to the files of the A.O. for fresh adjudication. During the course of assessment proceedings, it was brought to the notice of the A.O. that the Parikh couples have left India for good and are now settled at Kuwait. It was also brought to the notice of the A.O. that Rahul & Vandna had already resigned as Directors from their respective companies with effect from 15/10/2001. Therefore, there was no credibility in their statements recorded by A.O. on 21/02/2003. The affidavits of present Directors Sahid Saved and Ketan Parikh were filed with the A. O. to establish the genuineness of the purchase of computers. 25. In the de-novo proceedings, we find that the A.O. did nothing to enforce the attendance of Parikh couple so that the assessee could cross examine, them. We also filed that no efforts were made by the A.O. to dismiss the veracity of the contents of the Affidavits of present Directors namely Sahid Sayed & Ketan Parekh; we also find that the payments for purchases of computers have been accepted by the A.O. We also find that parts of the computers have been financed by the bank and no adverse inference has....
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.... of litigation. Since we have held the purchase of computers to be genuine as per our detailed decision / discussion qua first grievance of this appeal. We have no hesitation ^to hold that the money has been borrowed for the purpose of business and therefore any interest paid has to be allowed as business expenditure. The second grievance is accordingly allowed''. (11) In the back drop of the above, the following is being submitted or kind consideration -while deciding the appeals of the appellant. A. Major Issues (i.e. disallowance of depreciation on computer hardware & claim of interest expenses) having already decided in favour of the assessee, stands fully covered by virtue of Hon'ble ITAT's order dated 19/4/2016. (1) At the outset it is submitted that during the course of the assessment proceedings for A. Y. 2000-01, the claims of depreciation on purchase of computer hardwares & interest paid to bank for Term Loan and working capital were disallowed on the basis of statements of third parties recorded by the then A. O. in his office and no cross examination was granted to the assessee, while passing order dated 28/3/2003. The assessee....
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....e carefully gone through the written submission of the appellant and also the oral arguments advanced by the AR and after critical examination of the same, it is observed as follows: (1) That for the year under consideration, the appellant submitted its return of income on 31.12.1999 duly supported by statutorily required Tax Audit Report u/s 44AB of the Act and report in Form no. 10CCA. The same was processed u/s 143(1) of the Act on 07.03.2001 determining total income of Rs. 1,11,97,335/-. (2) Subsequently, the assessment was reopened on the footing that the claim of depreciation in A.Y.2000-01 was disallowed on the basis of statements of Rahul Parikh & Vandana Parikh who alleged that thethe purchases from Rahul Infotech P. Ltd. & Vandan Computers P. Ltd. [RIPL & VCPL, in short] were not genuine. Drawing inference from the assessment order of A.Y. 2000-01, the AO disallowed depreciation of Rs.2,21,51,688/-. (3) Significantly, the entities RIPL & VCPL came into existence on 10.03.1998 & 17.03.1998 respectively. They were assessed to tax. Now, therefore, both the entities having incorporated under Companies Act, presuming them as non-existent in itself is....
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....to 65]. (6A) Another vital aspect of the matter is that during this year, out of the fixed assets in the block of computers, purchased from referred two entities [RIPL & VCPL] is of Rs 1.70 lakhs only. On this depreciation worked out to Rs.53,88,160/- only [P.B.P. 27 & 60-61] Whereas, the AO has disallowed Rs. 2,21,51,688/- i.e. the entire claim of depreciation, including WDV & purchase from other third parties. Thus, there is non-application of the mind of the AO. (6B) It is also noticed that in the appellant's own case, in the A.Y.2003-04, the claim of the appellant of depreciation on purchase of computer hardwares from third parties have been allowed by the then C.I.T.(A)-VI, Ahmedabad vide his appellate order dated 25/3/2014 as evidenced from the order giving appeal effect dated 20/05/2014.(Anne.3 to Brief Notes dated 19/12/2019).The said decision has been accepted by the department as also fortified from the order dated 19/04/2016 of I.T.A.T as no appeal against the said decision of the C.I.T.(A) was filed by the department, hence on the principle of consistency the A.O. is bound to follow the same. Thus, there is considerable force in the submissions of ....
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....of such transaction with the assessee company. Based on these statement, the claim of depreciation was disallowed. As mentioned elsewhere, the ITAT restored the issue to the files of the A.O. for fresh adjudication. During the course of assessment proceedings, it was brought to the notice of the A.O. that the Parikh couples have left India for good and are now settled at Kuwait. It was also brought to the notice of the A.O. that Rahul & Vandna had already resigned as Directors from their respective companies with effect from 15/10/2001. Therefore, there was no credibility in their statements recorded by A.O. on 21/02/2003. The affidavits of present Directors Sahid Sayed and Ketan Parikh were filed with the A.O. to established the .genuineness of the purchase of computers. 25 In the de-novo proceedings, we find that the A.O. did nothing to enforce the attendance of Parikh couple so that the assessee could cross examine them. We a/so fifed that no efforts were made by the A.O. to dismiss the veracity of the contents of the Affidavits of present Directors namely Sahid Sayed & Ketan Parekh; we a/so find that the payments for purchases of computers have been accepted by the A.O....
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....us, the matter has finally set at rest in favour of the appellant. (11) I also find that the AO, in all fairness, was duty bound to make some efforts to bring some evidence on record to reject appellant's claim. However, a perusal of the record reveal that the AO did nothing and simply preferred a short cut method and proceeded to pass the orders in the pattern of assessment order that was passed for A.Y. 2000-01, ignoring/overlooking material evidence placed on record and passed impugned orders in respect of 5 years at a one go, on a single day i.e. on 20.03.2005. (12) Thus, ignoring all these vital facts and material placed on record and without application mind, the AO has wrongly and unreasonably concluded that the appellant has failed to prove its case and has made disallowance. In nutshell, in the reopened assessment, the AO has simply made disallowance based on the assessment for A.Y.2000-01 as is evident from the cut & paste method used in stereo typed assessment order in respect of all the five years under appeal. (13) Having regard to the aforesaid peculiar facts and circumstances of the case, and evidences available on record, and there bei....
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....to dismiss the veracity of the contents of affidavits filed by the present directors. The payments for the purchases of computers have been made by account payee cheques. No evidence is brought on record that the computers were physically not available for the year under consideration. Finally, all other evidences produced before A.O. and available on record goes to establish beyond doubt that the appellant had purchased computers and is eligible for the claim of depreciation on it. (15) Considering the totality of the facts and peculiar circumstances of the case and respectfully following the orders of the Hon. Tribunal dated 19.04.2016 (Supra), the issue is fully covered by virtue of Hon. Tribunal's orders, as well as appellate orders for A.Y. 1997-98 & 1998- 99 (supra). Therefore, I am of the considered view that the appellant had purchased computer hardware and its claim of deprecation thereof has been genuine one and direct the AO to allow the claim of depreciation and delete the disallowance of Rs.2,21,51,688/-." 7. The learned DR submitted that during the course of assessment proceedings in assessee's case for AY 2000-01, a survey under Section 133A of the Ac....
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.... along with the relevant ledger accounts to show the source from which the said entities had purchased the computers which were sold to the assessee-company. He submitted that even the proof of payment of octroi and insurance cover against computers purchased and installed by the assessee-company was produced. He submitted that the evidence to show that Shri Rahul Parikh and Vandana Parikh had already resigned as Directors from RIPL and VCPL on 15.10.2001 was filed by the assessee to show that their statements recorded by the Assessing Officer on 21.02.2003 had no credibility. He submitted that affidavits of the present Directors of RIPL and VCPL were also filed by the assessee to establish the genuineness of the purchases of computers made by the assessee from the said parties, but the same was completely ignored by the Assessing Officer. He submitted that the allegation of the Assessing Officer as regards the bogus claim of computers purchased during the year under consideration was based on the assessment order passed in assessee's case for AY 2000-01. He contended that the Tribunal, however, has decided the similar issue involved in AY 2000-01 in favour of the assessee by passi....
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....essment proceedings, it was brought to the notice of the A.O. that the Parikh couples have left India for good and are now settled at Kuwait.. It was also brought to the notice of the A.O. that Rahul & Vandna had already resigned as Directors from their respective companies with effect from 15/10/2001. Therefore, there was no credibility in their statements recorded by A.O. on 21/02/2003. The affidavits of present Directors Sahid Saved and Ketan Parikh were filed with the A. O. to establish the genuineness of the purchase of computers. 25. In the de-novo proceedings, we find that the A.O. did nothing to enforce the attendance of Parikh couple so that the assessee could cross examine, them. We also filed that no efforts were made by the A.O. to dismiss the veracity of the contents of the Affidavits of present Directors namely Sahid Sayed & Ketan Parekh; we also find that the payments for purchases of computers have been accepted by the A.O. We also find that parts of the computers have been financed by the bank and no adverse inference has been drawn by the bank while financing the same. The allegation of the revenue that during the course of survey proceedings, the compute....
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....re the Assessing Officer to establish the genuineness of the said purchases, but no efforts were made by the Assessing Officer to dismiss the veracity of the contents of the said affidavits. As further noted by the Tribunal, the purchase of computers by the assessee was financed by the bank and there was no adverse inference drawn by the bank regarding the genuineness of the purchases. Even the allegation of the Revenue that the computers were not found during the course of survey was found to be baseless by the Tribunal considering the fact that the entire premises of the assessee located at various places were not covered under survey operation. The proof of payment of octroi on purchase of computers as produced by the assessee was found by the Tribunal to support the case of the assessee regarding genuineness of the purchase of the computers. Keeping in view all these details and documents, the Tribunal held that the purchase of computers by the assessee-company was genuine and allowed the claim of the assessee for depreciation thereon. 11. It is thus clear that the issue relating to the disallowance of assessee's claim that deprecation on computers as involved in the year un....
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.... for AY 1999-2000. 12. As regards the issue involved in Ground No.2 of the Revenue's appeal for AY 1999-2000 relating to the deletion by the learned CIT(A) of the disallowance of Rs.23,28,416/- made by the Assessing Officer on account of interest, it is observed that the same is consequential in nature inasmuch as the claim of the assessee on purchase of computers having been held to be not genuine, the interest expenditure incurred by the assessee in respect of loan borrowed for the said purchase of computers was disallowed by the Assessing Officer by treating the same as not for the purpose of business. The learned CIT(A), however, accepted the claim of the assessee for the purchase of computers as genuine and consequentially deleted the disallowance made by the Assessing Officer on account of interest. Since we have upheld the decision of the learned CIT(A) holding the purchase of computers by the assessee-company as genuine and allowing depreciation on the computers so purchased, it follows that the interest expenditure incurred by the assessee on loan borrowed from bank for the purposes of said purchase of computers is allowable as deduction being expenditure incurred wholl....
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....m 01.04.2004. Thus, the expenditure if any related to earning of dividend income is excluded from admissibility u/s 57 of the Act only from 01.04.2004. Further the provisions of Rule 8D which have been notified with effect from 24.03.2008 are not retrospective in nature and shall apply with effect from A.Y.2008-09. I have also gone through the case laws relied by the appellant (P.B.P.34). Recently the Hon'ble Supreme Court in a case of CIT Vs. Essar Technoholdings Ltd reported in [2018] 401 ITR 445 has held that applying the principle of statutory interpretation for interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of section 14A(2) & (3) as well as purpose and intent of Rule 8D coupled with the explanatory notes in the Fin. Bill, 2016 & the department's understanding as reflected by circular dated 28.12.2016, the Apex Court was of the opinion that Rule 8D was intended to operate prospectively. Respectfully following the decisions of the Hon'ble Courts including Supreme Court (supra) the disallowance u/s 14A of the Act for the year under consideration is not justified. The same is deleted." 16. The learned CIT(A) thus d....