2016 (4) TMI 83 - AT - Income Tax

Disallowance of depreciation on software purchased by assessee - Held that - Assessee could not prove the facts that assessee has used these software in the business of the assessee except merely stating that These softwares were installed in the company and all the purchases were duly incorporated in the books of account of the company. Merely such a bald statement coupled with evidence against the assessee does not prove that an asset if at all owned by the assessee is used for the purposes of the business of the assessee. It is strongly submitted by the assessee that Shri Tarun Goyal s statement is not given to the assessee and he was also not cross examined by the assessee. In this case assessee has purchased the software therefore it is responsibility of the assessee to prove that assessee has purchased the assets and which are used for the purposes of the business. Statement of Shri Tarun Goyal is not at all relevant for determining the issue of allowance of depreciation on the assets purchased by the company which assessee has failed miserably to prove . Assessee could not prove the strength of the supplier to provide the software mentioned in the bills, assessee could not produce the details whether it has hardware strength of installing such software . it could not also established giving the softwares to sobha developers, It could not establish how the seven other persons have got right to waive the compensations, It is also not established that what are the compelling reasons for the assessee to waive the compensation of the software destroyed which are not of small value. Therefore we are of the view that statement of Shri Tarun Goyal is not at all relevant for claim of depreciation of the assessee which assessee is required to establish independently. In view of above facts we confirm the finding of CIT (A) in confirming the disallowance of depreciation on software purchased by assessee - Decided against assessee.

Issues Involved:
1. Disallowance of depreciation on software purchases.
2. Violation of principles of natural justice.
3. Use of information from the Directorate of Income Tax (Investigation).
4. Verification of the genuineness of software transactions.
5. Ownership and usage of the software by the assessee.
6. Application of section 153A in the context of search and seizure.

Detailed Analysis:

1. Disallowance of Depreciation on Software Purchases:
The primary issue revolves around the disallowance of depreciation claimed by the assessee on software purchases amounting to Rs. 4,24,25,050 from M/s Macro Infotech Ltd. The Assessing Officer (AO) disallowed the depreciation, amounting to Rs. 84,84,910 for AY 2008-09, Rs. 1,35,75,856 for AY 2009-10, and Rs. 81,14,514 for AY 2010-11, citing that the transactions were bogus. The AO's findings were based on the investigation which revealed that M/s Macro Infotech Ltd was a non-existent entity used for providing accommodation entries and bogus bills. The assessee failed to provide concrete evidence of the software's existence, ownership, and usage in their business operations. The Tribunal upheld the AO's disallowance, emphasizing the lack of substantial evidence to prove the software's existence and usage.

2. Violation of Principles of Natural Justice:
The assessee contended that the principles of natural justice were violated as they were not given an opportunity to confront the information and documents received by the AO from the Directorate of Income Tax (Investigation) and were not allowed to cross-examine Shri Tarun Goyal. The Tribunal noted that the AO did provide an opportunity to the assessee to justify its claim but the assessee failed to produce satisfactory evidence. The Tribunal found no merit in the assessee's argument, stating that the AO's conclusions were not solely based on the information from the Directorate but were also supported by further inquiries.

3. Use of Information from the Directorate of Income Tax (Investigation):
The AO relied on information from the Directorate of Income Tax (Investigation), which indicated that Shri Tarun Goyal operated a network of bogus companies, including M/s Macro Infotech Ltd, which issued fake bills. The Tribunal supported the AO's reliance on this information, noting that the assessee could not substantiate the genuineness of the software transactions or the existence of M/s Macro Infotech Ltd.

4. Verification of the Genuineness of Software Transactions:
The Tribunal scrutinized the evidence provided by the assessee, including invoices, payment details, and bank statements. It found inconsistencies and a lack of credible evidence to prove the software's existence and installation. The Tribunal highlighted that the supplier's address was fictitious and the assessee could not demonstrate the supplier's capability to provide the software.

5. Ownership and Usage of the Software by the Assessee:
For depreciation to be allowed, the assessee must prove ownership and usage of the asset. The Tribunal noted that the assessee failed to provide evidence of the software's installation, usage, or any supporting documentation like installation reports or software development life cycle documents. The Tribunal also found the assessee's claim that the software was handed over to Sobha Developers Ltd and subsequently destroyed to be unsubstantiated.

6. Application of Section 153A in the Context of Search and Seizure:
The assessee argued that the provisions of section 153A could not be applied as there was no incriminating material found during the search. The Tribunal rejected this argument, stating that the assessment for AY 2008-09 was pending at the time of the search and hence, the AO was required to assess the total income afresh. The Tribunal upheld the AO's actions under section 153A, confirming that the assessments were valid.

Conclusion:
The Tribunal dismissed the appeals for AY 2008-09, 2009-10, and 2010-11, upholding the disallowance of depreciation on the software purchases. The Tribunal found that the assessee failed to substantiate the existence, ownership, and usage of the software, and the transactions with M/s Macro Infotech Ltd were deemed to be fictitious. The Tribunal also upheld the application of section 153A, validating the reassessment proceedings initiated by the AO.

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