9911796707
TMI Blog2021 (1) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of depreciation of 25% on intangible assets as prescribed under Rule -5 of the Income Tax Rules, 1962 (the rule) r.w. Appendix-I and IA? 2. Whether on the facts and in circumstances of the case, the Ld. CIT (A) is legally justified in deleting disallowance of excess claim of depreciation of Rs. 2,46,81,028/- without considering the findings of the facts recorded by the Assessing Officer (the AO ) in assessment order that the assessee was engaged in development of software for its use in the business and the same were capitalized as asset under head 'software and intangible assets' by the assessee? 3. Whether on the facts and in circumstances of the case, the Ld. CIT (A) is legally justified in deleting disallowance of excess claim of depreciation of Rs. 2,46,81,028/- without considering the fact that the assessee had claimed higher rate of depreciation @60% on 'intangible assets' developed by the assessee in the form of the software for its use in the business and it was not a claim of depreciation on the software purchased by the assessee? 4. Whether on facts and in circumstances of the case, the Ld. CIT (A) is legally justified in allowing relief to the assessee on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s capitalized during the year. He asked to prove its existence by supporting bills as to how these assets came into existence and how the software was purchased or developed in house. Assessee did not file the requisite details and thereby he disallowed the depreciation of Rs. 7, 20, 30,000/- on addition of software and IPR amounting to Rs. 13.36 crores. Second issue is an addition of Rs. 94, 07, 82,500/- under section 68 of the Act. The above sum was received by the assessee against the first call of issue of convertible warrants during this year. The LD AO held that all debentures holder are private limited company and some of them have common directors and auditors. Therefore, assessee has failed to prove the creditworthiness and the genuineness of the transaction. Consequently the assessment order u/s 143(3) of the Act was passed on 28.03.2014 at taxable income of Rs. 10, 47, 99,362/-. 4. Aggrieved by the order the assessee filed appeal before the LD CIT (A). On the issue of disallowance of depreciation of software @60% as claimed by the assessee and allowed by the ld AO @25% as well as the disallowance of depreciation of Rs. 7, 20, 30,000/-on addition during the year from wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number 1 of the assessment order wherein the learned assessing officer has disallowed a sum of Rs. 24,681,028/- on account of higher rate of depreciation claimed by the assessee. He submitted that assessee is only eligible to claim the depreciation at the rate of 25% as the intellectual property rights are the kind of content rights, which comes under the intangible assets. With respect to the depreciation on software capital work in progress of Rs. 35 crores, he referred to para number 4 of the order and stated that when the assessee could not satisfy the assessing officer about the existence of the software, the depreciation has rightly been disallowed of Rs. 72,030,000/-. 8. On the first issue of depreciation, LD AR submitted a detailed paper book showing the chart of asset-wise depreciation at page No. 170 of the paper book. It was further stated that identical disallowances of depreciation on software was made in the case of the assessee for Assessment Year 2009-10, 2010-11 and 2012-13 which travelled up to the level of coordinate bench and coordinate bench has deleted the above disallowances for Assessment Year 2009-10 in ITA No. 6092/Del/2013. He referred to the ground of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of Rs. 61 crores. During the year, assessee has increased its work in progress of Rs. 35.14 crores whereas capitalized only Rs. 13.36 crores. Assessee's income from operation is Rs. 176 crores for this year and Rs. 124 crores in previous year. Assessee is also raised funds from its GDR issue in the earlier years. One subsidiary also was merged with the company as per the amalgamation scheme sanctioned by the Hon'ble Delhi High Court as per its order dated 28.01.2011. The company has the board of directors who are also having exposures in the software industry, which is evident from the report of the Board of Directors. The company has also been instrumental in providing multiple services to government of Delhi Haryana, Punjab, and Andhra Pradesh. The company has also worked with Government of India in unique identification projects. In view of this, it is apparent that company is listed company and carrying on the software development activities therefore there is no reason to doubt that the assets of the company are fictitious. The LD AO has also not brought on record anything to show that the assets appearing in the balance sheets are not real. Against this, the annual accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Ld. CIT (Appeal)-15. Delhi has allowed the same (@ 60% vide the appellate order dated 28/02/2017 in Appeal No. 216/2016-17. 4.3 The assessment for A.Y 2007-08 was completed u/s 143(1). The other assessments for the A.Y 2008-09 and 2009-10 was also completed u/s 143(3) and the depreciation was restricted by the AO to 25% only but the same was allowed @60% by the ld CIT(A)-19, Delhi and the department had filed appeal against the orders of the ld CIT(A) but the Hon'ble Tribunal Delhi has confirmed the orders of the ld CIT(Appeal) and has dismissed the departmental appeal vide the appellate order dated 11.04.207 in ITA No. 6091/Del/2013 for Assessment Year 2008-09 and ITA No. 6092/Del/2013 for AY 2009-10. It is submitted by the assessee that the department has not apparently appealed against the order of the tribunal in the High Court. 4.4 The AO had denied the depreciation @60% during the AY 2010-11 but the same has been allowed by the ld CIT(Appeals)-19, Delhi vide the appellate order dated 26.03.2014 in appeal No. 10-2013-14. Similarly, the AO had denied the deprecation @60% claimed in the AY 2012-13 but the same has been allowed by the ld CIT(Appeals)-15, Delhi vide ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarding the computer software as an intangible assets for the purpose of depreciation. 4.8 I have considered the order of the ld AO and the submissions of the assessee and I find considerable merit in the submission of the assessee that AO has unfairly denied the claim of depreciation on the computer software @60% and restricting the same to 25% only without any valid reasons. It is now accepted norm and as per law that computer software is an intangible asset and the assessee is very eligible for depreciation @60% u/s 32(1) of the Act which has been allowed by the ld CIT(A) and the Hon'ble Tribunal in the earlier years as discussed above. The assessee should not be denied the rightful deprecation @60% merely because the assessee had made a mistake to claim the same in one earlier AY 2003-04 although the assessee has rectified and modified its claim and has made the right of depreciation @60% in the subsequent years. The ld AO is also not justified without any valid reasons to deny the very existence of computer software as an intangible asset in one had and denying the depreciation as a whole while on the other hand the same AO is allowing the depreciation but restricting the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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. Accordingly, Ground Nos. 1 to 4 and 7th of the appeal of the ld AO are dismissed. 12. Ground number 5 and 7 are on the issue of addition of Rs. 940,782,500/- u/s 68 of the act on account of cash credit in the books of accounts. The fact shows that assessee has received during the year sum for issue of convertible warrant amounting to Rs.94,07,82,564.76 crores during assessment year 2012 - 13 and Rs. 61.15 crore during assessment year 2013 - 14. Thus, the assessee has received the money for issue of convertible warrants amounting to Rs. 220 crores to which the shares were allotted subsequently on 28th of April 2012. The learned assessing officer has made an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same person. Therefore, it is apparent that the LD AO has accepted the identity, creditworthiness, and genuineness of the transaction in subsequent years, which is part of the same transaction. He further, stated that the LD AO has not made any enquiry on the details submitted by the assessee. He thus, stated that the assessee has discharged its primary onus. He further referred that order of o the ld CIT(A) on this account stating that the same applicants has deposited the money that the assessee for Assessment Year 2011-12, 2012-13 and 2013-14. The LD AO has accepted the identity capacity and genuineness of the shareholders for assessment year 2012-13 and 13-14; however, for Assessment Year 2011-12 the addition is made. He referred to detailed list of shareholders at page number 196 to 199 of the paper book. He submitted that all the shareholders who are investor for Assessment Year 2011-12 are also investors in assessment year 2012-13 and 13-14 wherein on the identical evidence submitted no addition have been made. He submitted that there is no contravention of any of the provision of SEBI and companies Act. He further stated that all these companies are the group companies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enture. (iii) All debenture holders are private limited companies and some of them have common directors and auditors. The authorized and paid up capitals of most of these companies are less than Rs. 50 lacs but their share application money and share premium is more than Rs. 10 crores. The reserve and surplus of these companies consist only of share premium. As the names of these companies suggest, they should be in various types of business but they are actually not doing such business and only investing in shares of private limited companies and showing very less income i.e. below Rs. 50,000/- not from investment but showing as other income. Therefore, the balance sheet and P&L account of the debenture holder companies are indicative of typical entry operator entities. (iv) On perusal of the bank statements of debenture holder companies, it is seen that the money is rotating among the 27 debenture holder companies and going to the assessee company. For instance, M/s Meritorius Realty Pvt. Ltd. is a debenture holder company giving money to another debenture holder company, M/s Allied Computer International (Asia) Ltd. as under as is evident from the bank statement of Merito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on control convertible warrants of Rs. 94,07,82,500/-in the current year as unexplained credit u/s 68 on the ground that the same are not genuine but the order of the AO. 6.2 The assessee in appeal against the order of the AO and it is submitted that the application money has been received from the various parties for convertible warrant and subsequently the shares have been allotted to the parties and as such there is no case for disbelieving the genuineness of the shareholders. It is submitted that the same applicants had given the money in three different years of current assessment year 2011-12, 2012-13 and 2013-14 and it is only in the current year that the AO has treated the application money as unexplained where is the same for the same assessee has accepted the same application money of Rs. 64.76 crores during the subsequent assessment year 2012-13 as genuine and has not made any such addition as an unexplained credit u/s 68 of the order of the AO u/s 143(3) dated 31.03.2015. It is submitted that the EU has not accepted the Identity of the applicant's as the same our corporate entities but it is only the genuineness of the transaction which has been questioned by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . after considering all the facts and circumstances of the case I am of the view that there is no material evidence or any address finding of the against the associate to treat the application money as unexplained in the current year when the same money from the same parties in the subsequent year has been treated as genuine and accordingly there is no proper justification for the able to make such edition in a very casual manner without any finding and the same is not justified and additions made by the air is not sustainable and accordingly the same is deleted." 18. Brief facts of the case shows that in terms of resolution passed u/s 81 (1A ) of the companies act, 1956 at the extraordinary general meeting of the company held on 3/9/2010 and in the in principle approval received from the National stock exchange and Bombay stock exchange board has allotted 22 crores convertible warrants to be converted into equal number of equity shares of Rs. 10/- each at a price of Rs. 10/- per warrant in the board meeting held on 30/10/2010 on preferential basis. Pursuant to the allotment of convertible warrants, the company received during the financial year 2010 - 11 money aggregating to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se companies were the investor for all the three years and subsequently were allotted the equity shares. Therefore, materially, the learned assessing officer has accepted the identity, creditworthiness of the investor as well as the genuineness of the transaction for assessment year 2012 - 13 and 2013 - 14 on the same material whereas for the assessment year 2011 - 12 the learned assessing officer has made the addition u/s 68 of the income tax act. The subsequent assessment order is placed before us clearly shows that there is no addition made on account of issue of convertible warrants of Rs. 220 crores part of which the sum is received in these years. Such assessment order is not at all disturbed. Even otherwise, the 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 Rs. 220 crores. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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