2021 (1) TMI 993 - AT - Income Tax

Disallowance of depreciation of software @60% - Claim allowed by the ld AO @25% - CIT(A) allowed the claim of assessee - HELD THAT - DR could not show us any reason that why we should deviate from the orders of the coordinate bench in assessee s own case, as far as the rate of depreciation on the software is concerned. With respect to the existence of the work in progress we have already dealt with this issue earlier wherein reading the management discussion and analysis in the director s report clearly shows that assessee has several of the software, it cannot be said that assessee does not have the asset on which depreciation is claimed. Naturally, when the software is developed in-house as stated by the assessee, there cannot be any bill for purchase of the software. The assessee has maintained the books of accounts and shown the work in progress therein which is evident from the fixed assets schedule, on which depreciation is year by year by year claimed and allowed. Though the learned assessing officer has challenged the existence of the software for the first time during the year, however, the assessee has been allowed depreciation at least at the rate of 25% on the software in earlier years also. Thus, the learned CIT A has correctly held that it is not a fictitious asset. Accordingly, we uphold the order of the learned CIT appeal while allowing depreciation on the software holding it to be an actual asset and allowing depreciation thereon at the rate of 60% following the order of the coordinate bench in assessee s own case for earlier years. Addition u/s 68 - cash credit in the books of accounts - HELD THAT - For proving the identity of the party, the assessee submitted the permanent account number, and income tax jurisdiction of the investor company is, Bank statement of the investor company is and copies of the returns of those investors. With respect to the creditworthiness and genuineness of the investor, assessee submitted the audited financial statement of the investor company and bank statement showing the relevant entries of Davidson credits of the investor company is to show the sources of the funds. With respect to the genuineness of the transaction, assessee once again submitted the confirmations of the above parties were issued the convertible warrants. As assessee has submitted the complete details before the assessing officer and therefore the initial onus cast on the assessee has been discharged. Further, the learned assessing officer has also not made any enquiry with respect to the above depositors. The inquiries made in the subsequent years clearly show that assessing officer is satisfied with respect to the creditworthiness and the genuineness of the transaction of issue of shares warrant of ₹ 220 crores. No infirmity in the order of the learned CIT A in deleting the above addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of excess claim of depreciation on software and intellectual property rights.
2. Addition of unexplained cash credits under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Excess Claim of Depreciation on Software and Intellectual Property Rights:
The primary issue was whether the assessee was entitled to claim depreciation at 60% on software and intellectual property rights or at 25% as contended by the Assessing Officer (AO). The AO disallowed the excess depreciation claimed by the assessee amounting to ?2,46,81,028 and further disallowed depreciation of ?7,20,30,000 on the grounds that the software and IPR assets were non-existent.

The assessee argued that it was engaged in software development and had consistently claimed depreciation at 60% in previous years, which had been upheld by the ITAT in earlier cases. The CIT(A) allowed the assessee's claim, following the precedent set by the ITAT in the assessee's own case for earlier years.

The ITAT upheld the CIT(A)'s decision, emphasizing the principle of consistency and judicial discipline. It noted that the AO had not provided any substantial evidence to prove that the software assets were fictitious. The ITAT confirmed that the software developed in-house by the assessee was eligible for 60% depreciation, as had been consistently allowed in prior assessments.

2. Addition of Unexplained Cash Credits under Section 68:
The second issue concerned the addition of ?94,07,82,500 under Section 68 of the Income Tax Act on account of unexplained cash credits. The AO contended that the assessee failed to prove the creditworthiness and genuineness of the transactions related to the convertible warrants issued during the year.

The assessee provided detailed documentation, including bank statements, board resolutions, income tax returns, and audited financial statements of the investors. It was highlighted that the same parties had invested in subsequent years, and the AO had accepted these transactions in those years without making any additions.

The CIT(A) deleted the addition, reasoning that there was no justification for the AO to treat the application money as unexplained when the same money from the same parties had been treated as genuine in subsequent years. The ITAT upheld this decision, noting that the AO had accepted the identity, creditworthiness, and genuineness of the transactions in later years. The ITAT found no material evidence to support the AO's addition for the assessment year 2011-12 and confirmed the CIT(A)'s deletion of the addition.

Conclusion:
The ITAT dismissed the revenue's appeal on both counts. It upheld the CIT(A)'s decision to allow the assessee's claim of 60% depreciation on software and intellectual property rights and confirmed the deletion of the addition under Section 68 for unexplained cash credits. The ITAT emphasized the importance of consistency and the lack of substantial evidence from the AO to justify the disallowances and additions made.