9911796707
TMI Blog2022 (8) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... w the consistent view taken by the appellate authorities in assessee s own case on a similar issue in the preceding years as well as succeeding years including the decision of the Tribunal for AY 2000-01, we are of the view that the disallowance made by the Assessing Officer on account of depreciation on computers by alleging the purchase of computers as not genuine was not sustainable and the learned CIT(A) was fully justified in deleting the same. In that view of the matter, we uphold the impugned order of the learned CIT(A) on this issue and dismiss Ground No.1 of the Revenue s appeal. Addition on account of interest - 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 - HELD THAT:- CIT(A), 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 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri Anil Kshatriya Shri Alay Anil Kshatriya, ARs For the Revenue : Shri James Kurian, CIT-DR And Ms. Pooja Parekh, Sr. DR ORDER PER P.M. JAGTAP, VICE-PRESIDENT : These two appeals are preferred by the Revenue against two separate orders of learned Commissioner of Income-tax (Appeals)-1, Ahmedabad [ CIT(A) in short] , both dated 06.01.2020, for Assessment Year 1999-2000 and 2001-2002; and since the issues involved therein are common, the same have been heard together and are being disposed of by a single consolidated order along with Cross-Objections filed by the assessee being CO Nos. 74 75/Ahd/2020. 2. First, we take up the Revenue s appeal for AY 1999-2000 being ITA No. 246/Ahd/2020. The main issue involved in this appeal of the 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 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon by the Assessing Officer to support and substantiate its claim for depreciation on computers stated to be purchased from the concerned four parties during the year under consideration. In reply, a detailed list was filed by the assessee of the additions made to the fixed asset during the previous year relevant to AY 1999-2000. It was submitted by the assessee that majority of the computers was purchased from the renowned suppliers of the town and payments against the said purchases were made by account payee cheques. It was also submitted that the assessee-company was in the business of development of computer software and computer hardware formed the prime fixed asset of the assessee-company without which proper business could not have been carried out. It was pointed out that computers worth Rs.7,21,23,503/- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of depreciation and interest paid to bank for term loan working capital, both on the basis of statement of third party recorded by the then A.O. and cross-examination was granted to the assessee, as per his order dated 28. 03.2003. The assessee s appeals were pending then. (3) In the meanwhile, taking base of the order for A.Y.2000-01, the successor officer reopened the assessment for A.Y.1997-98 to 1999-2000, 2001-02 2002-03 and passed reassessment orders u/s 143(3) r.w.s 147 on 23.03.2005 and he made major disallowance on account of depreciation and interest solely relying upon the order for A. Y. 2000-01. (4) Being aggrieved and dissatisfied, the assessee preferred appeals before CIT(A) for A.Ys 1997-98 and 1998-99 and also A.Ys.1999-2000,2001-02 and 2002-03 which were partly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.4 lacs on or before 01/10/2005 and another Rs.4 lacs on or 10/10/2005, with the Registry of this court. It is made clear that if the aforesaid amount is not deposited, the protection granted by this court shall stand vacated. S.O. to 13/10/2005. Thus it is contended that in the grounds of appeal as per order of Hon'ble High Court dated 29th September, 2005 the Official Liquidator was not working in his official capacity. After taking into consideration all these facts, and after considering the submissions of Ld. DR who relied on the order's of CIT(A), we are of the opinion that notice was not properly served by CIT(A). Consequently the assessee was denied all natural justice. Considering this aspects, we restore these appeals to the file of CIT(A) with a direction 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 servin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fault on the part of the assessee the set aside appeals remained to be locked up for considerable time. (10) In the meanwhile, the appeal of the assessee in respect of lead year i.e. A.Y.2000-01 came to be heard and decided by the Hon ble ITAT vide their consolidated orders dated 19/4/2016 in ITA No. 1452/Ahd/2014, whereby both the issues are decided in favour of the assessee. Relevant portion of Tribunal's orders (in respect of depreciation) reproduced below: 24. For verifying the genuineness of the purchases, statement of Rahul Parikh Vandna Parikh were recorded by A.O. In the respective statement, both the persons denied of such transaction with the assessee company. Based on these statements, the claim of depreciation wets 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n term loans taken from Co-operative Bank of Ahmedabad loan as working capital loan. The loan taken were used for the business purpose of the company. It was explained that out of total loan of Rs.5 crore, interest on term loan is paid to Bank and rest of interest pertained others on working capitals. In the first round of litigation, the A.O. did not accept the contention of the assessee because the purchase of computers have been held to be bogus. In the set aside proceeding, the A.O. simply borrowed the findings of his own predecessor given in the first round of litigation. We have carefully gone through the contents of the facts in issues, there is no dispute that the disallowance is based upon the findings given in the first round 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 kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the then Ld.CIT-1, Ahmedabad vide appellate order in dated 22.02.2018 passed in I.T. Appeal no. CIT(A)-I/DCIT-(OSD) R-1 505 504/2016-17, respectively. It is stated that the matter has finally set at rest in favor of the assessee. Photo stat copies thereof are enclosed for ready reference(Exhibit-2). (6) Presently, the appeals for the assessment years 1999-2000, 2001-02 2002-03 are being heard by your honor. 6. The learned CIT(A) found merit in the submissions made on behalf of the assessee company and allowed the claim of the assessee for depreciation on computers for the following reasons given in his impugned order:- I have gone through the material available on record and have 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/-Manan Shah Sd Sd/- I.P.S. Bindra) 11/03/05 , 11/03/05 The certified copies of such order sheet are available and placed on record [P.B.P-63 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 fortif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appeals of the appellant for A.Y. 1997-98 to 2002-03 were set-aside by ITAT which were pending with the FAA. lo the meanwhile, the appeal of the appellant in respect of the lead year i.e. A.Y.2000- 01 came to be heard and decided by the Hon. ITAT vide their consolidated orders dated 19.04.2016 in ITA no. 1452/Ahd/2014, whereby the issue is decided in appellant's favour. Relevant portion of Tribunals orders is reproduced below: 24. For verifying the genuineness of the purchases, statement of Rahul Parikh Vandna Parikh were recorded by A.O. In the respective statement, both the persons denied 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced on record (PBP-39 to 71) has already decided the issue i.e. depreciation on computer hardware in favour of the assessee, by holding that the assessee had genuinely purchased computers and is eligible for claim of depreciation (10) Further, I find that out of the five years' appeals, appeals in respect of A.Y.1997-98 1998-99 have already been decided in favour of the appellant by the then Ld. CIT(A)-1, Ahmedabad vide appellate order dated 22.08.2018 passed in I.T. Appeal no. CIT(A)-1/DCIT(OSD)/R-1/505 504/2016-17. (Exhi.2 enclosed with additional submission dated 19.12.2019.) Thus, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of jurisdictional Tribunal's order dated 19/4/2016 (supra) I am inclined to agree with the submissions made by the appellant in entirety. On appreciation of all the above, I find that there is no justification to disallow the purchases made from the third parties i.e. other than RIPL VCPL or even RIPL VCPL as the same have been allowed by Hon'ble ITAT in appreciation of facts. No evidence or material is brought on record by the A.O.to hold it otherwise, the addition was made on the basis of statements of said persons and no efforts were made by the A.O.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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding recorded by the Assessing Officer on this count. He submitted that supporting evidence including invoices/bills was filed by the assessee in support of its claim for purchases of computers along with copies of ledger accounts of the concerned parties as well as bank statements to prove that payments against the said purchases were made by account payee cheques. He submitted that even in respect of alleged two suppliers Rahul Infotech Pvt. Ltd. (RIPL) and Vandan Computers Pvt. Ltd. (VCPL), their annual accounts and returns of income were filed by the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on order dated 19.04.2016 passed in ITA No.1452/Ahd/2014 decided the same in favour of the assessee vide paragraph Nos. 24 to 26 which read as under:- 24. For verifying the genuineness of the purchases, statement of Rahul Parikh Vandna Parikh were recorded by A.O. In the respective statement, both the persons denied of such transaction with the assessee company. Based on these statements, the claim of depreciation wets 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 atten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... draw an adverse inference in the matter of genuineness of purchase of computers by assessee-company had already resigned as Directors from the concerned companies on 15.10.2001 itself while their statements were recorded by the Assessing Officer on 21.02.2003. The Tribunal, therefore, held that their statements relied upon by the Assessing Officer had no credibility. The Tribunal also noted that the affidavits of the present Directors of companies from whom the computers were stated to be purchased by the assessee had also been filed by the assessee before 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate authorities in assessee s own case on a similar issue in the preceding years as well as succeeding years including the decision of the Tribunal for AY 2000-01, we are of the view that the disallowance made by the Assessing Officer on account of depreciation on computers by alleging the purchase of computers as not genuine was not sustainable and the learned CIT(A) was fully justified in deleting the same. In that view of the matter, we uphold the impugned order of the learned CIT(A) on this issue and dismiss Ground No.1 of the Revenue s appeal 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), howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer under Section 14A of the Act, it is observed that the disallowance of Rs.36,880/- made by the Assessing Officer under Section 14A of the Act was deleted by the learned CIT(A) vide paragraph No.9.2 of his impugned order which reads as under:- 9.2 I have gone through the submission of the appellant and the finding of the A.O. in the assessment order. I find that there is considerable force in the submission of the appellant that the word other than dividends referred to in section 115-0 are inserted by the Finance Act, 2003 effective from 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no adverse finding by the A.O. that the expenditure was not for the purpose of business. Besides, the similar issue was involved in A.Y. 2000-01 wherein, in the appellant's own case the Hon'ble Tribunal vide their orders dated 19.04.2016 (supra) has deleted the addition of Rs.1,59,028/- (page 18 of Exi. 1 enclosed with submission dated 19.12.2019). Therefore, respectfully following the decision of the Hon'ble ITAT I hold that there is no justification in disallowing the same. I accordingly direct the A.O. to delete the addition of Rs.1,59,028/-. 18. The learned CIT(A) thus followed the decision of this Tribunal in assessee s own case for AY 2000-01 on a similar issue to delete the disallowance made by the Assessing Officer on account of preliminary expenses. Further, as found by the learned CIT(A), there was nothing to show that the assessee during the year under consideration had floated any public issue or invited any share application from anybody. At the time of hearing before us, the learned DR has not been able to bring anything on record to rebut or controvert this finding recorded by the learned CIT(A). We, therefore, find no infirmity in the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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