2015 (7) TMI 408 - AT - Income Tax

Depreciation on computers disallowed - CIT(A) deleted the addition - Held that - Assessee had furnished all the necessary details of the purchases of 100 computer systems from Lavena Sales Co. Pvt. Ltd. like invoice for payment raised by the seller company wherein they had also levied value added tax on the same, their address and that the amount for these computers was paid through a cheque which was duly cleared from the bank account of the assessee. The assessee had also obtained copies of its VAT registration, memorandum and articles of association etc. Only because the said company was not found on the given address after the lapse of three years from the date of the purchase, the Assessing Officer disallowed the claimed depreciation by the assessee on those computers. There is no dispute that to examine genuineness of depreciation claimed under the provisions of sec. 32 of the Act, all that needs to be established is ownership of depreciable assets and their use in the business of the assessee. The Pune Bench of the ITAT in the case of U.B. Engineering Ltd. vs. JCIT (2007 (9) TMI 339 - ITAT PUNE) where the genuineness of purchase of certain gas cylinder was questioned in a claim of depreciation for the same, held that the ownership of the gas cylinder, their use in the business of the assessee and genuineness of payment for such gas cylinders was deemed to be sufficient to prove the genuineness of the transaction. Thus CIT(Appeals) was justified in deleting the disallowance of the claimed depreciation - Decided in favor of assessee. Disallowance of proportion of the Revenue expenditure incurred towards payment of software license fee - the license fee was valid for a period outside the assessment year - Held that - The assessee had purchased software which were annual licenses to be used for the period of one year. These software licenses were not renewed in the next year. The assessee bought another software. The licenses were bought in between the financial years and worked for some part of the next financial year also. Keeping in view this material fact, the disallowance has been made on proportionate basis. The Assessing Officer has dealt with the issue in para Nos. 6.1 to 6.6 of the assessment order. In concluding para No. 6.6, he held that out of ₹ 78,20,800 claimed by the assessee, only ₹ 45,62,133 belong to financial year 2008-09 and remaining amount of ₹ 32,58,667 belong to financial year 2009-10. Therefore, only ₹ 45,62,133 is being allowed as expenses and remaining amount of ₹ 32,58,667 is being added to the income. The Learned CIT(Appeals) has upheld this finding of the Assessing Officer. The orders of the authorities below on the issue is reasoned one, hence, we are not inclined to interfere therewith. The cited decision of the ITAT in the case of assessee itself for the assessment year 2008-09 does not cover the issue - Decided against assessee.

Summary

Issues involved:
1. Deletion of disallowance of depreciation on computers.
2. Disallowance of proportion of revenue expenditure towards software license fees.

Detailed Analysis:

Issue 1: Deletion of disallowance of depreciation on computers
The Revenue challenged the First Appellate Order on the grounds that the assessee failed to prove the genuineness of the purchase of new computers on which depreciation was claimed. The key contention was whether the deletion of disallowance of Rs. 30,82,560 made on account of depreciation on computers was justified. The Senior DR argued that the assessee could not establish the existence of the company from which it claimed to have purchased the computers. Despite various opportunities during the assessment proceedings, the onus of proving the genuineness of the claim was not met by the assessee. However, the AR defended the First Appellate Order by providing detailed evidence of the computer purchase, including invoices, VAT registration, and payment details through cheques. The ITAT noted that the assessee had fulfilled the requirements of ownership and use of the computers for business purposes, as per Section 32 of the Income-tax Act, 1961. Relying on precedents, the ITAT upheld the CIT(A)'s decision to delete the disallowance, emphasizing the genuineness of the transaction based on the evidence provided. Thus, the appeal challenging the deletion of disallowance of depreciation on computers was dismissed.

Issue 2: Disallowance of proportion of revenue expenditure towards software license fees
The assessee contested the disallowance of a proportion of revenue expenditure incurred towards payment of software license fees, arguing that the license fee was valid for a period outside the relevant assessment year. The ITAT found that the claimed expenses of Rs. 32,58,667 were denied by the authorities as they pertained to a different financial year. The software licenses purchased by the assessee were annual licenses used over one year, not renewed the following year. The disallowance was made on a proportionate basis considering the period of usage spanning financial years. The Assessing Officer and CIT(A) upheld the disallowance based on this reasoning. The ITAT distinguished a previous decision cited by the assessee, emphasizing that it did not cover the specific issue at hand. Consequently, the appeal challenging the disallowance of revenue expenditure towards software license fees was rejected. In conclusion, both appeals were dismissed as per the judgment pronounced on 23.03.2015.