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TMI Blog2022 (8) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 solution and providing IT consultancy services to domestic as well as overseas clients. The return of income for AY 1999-2000 was filed by the assessee-company on 31.02.1999 declaring a total income of Rs.1,11,97,335/-. The said return was initially processed by the Assessing Officer under Section 143(1) of the Act on 07.03.2001. Subsequently, during the course of assessment proceedings for AY 2000-2001, a survey under Section 133A of the Act was carried out at the premises of the assessee on 07.03.2003. The findings of the said survey as mentioned in the assessment order for AY 2000-01 were as under:-- "1. No insurance cover was taken for the computers 2. No adequate evidences relating to the real purchase of computer hardware were produced. 3. The main directors of the alleged vendor companies Rahul Infotech Pvt. Ltd and Vandan Computers Ltd. were found to be the em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition 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 show that the computers were readily available with the assessee-company. This explanation offered by the assessee was not found acceptable by the Assessing Officer. According to him, there was a failure on the part of the assessee to produce necessary evidence to satisfactorily establish its claim for purchases of computers during the year under consideration. Keeping in view the same as well as the inference drawn in the assessment order for AY 2000- 2001 against the assessee on this issue, the Assessing Officer held that the claim of the assessee of having purchased the computers during the year under consideration was not established. Accordingly, he disallowed the claim of the assessee for depreciation of Rs.2,21,51,688/- on the said computers in the assessment completed under Section 143(3) r.w.s. 147 of the Act vide an order dated 23.03.2005. 5. Against the order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reference. (Exhi.1) (5) At this juncture, it would be worthwhile to refer to Hon'ble ITAT's order in ITA Nos. 385 to 389/Ahd/2006 dated 20/04/2006. Relevant para may be reproduced as below:- "4. As it can be seem from the grounds of appeal produced in earlier part of this order, the main grievance of the assessee is that notice of hearing was not properly served by CIT(A) on assesses. The notices on the strength of which ex-parte order had been passed by CIT (A) were, in fact, served on Official Liquidator, who could not take possession due to stay granted by the Hon'ble High Court, vide order dated 29/09/2005, a copy of which has also been filed along with original appeal as per Annexure-A. The relevant portion of the order is reproduced as under: "1. Mr. P.C. Kavina, Ld. Advocate appearing for the applicant has filed a note with the Registry with the permission of this court to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 serving the notice on assessee as well as taking into consideration the submissions made in that regard. We direct accordingly". (Emphasis Supplied) (6) Relying on the above extracted portion of the operative part of the order, it was strongly contended to appreciate that notice of hearing issued by the then Ld.CIT(A) on 27/10/2005 and 25/11/2005, were not addressed & served properly on the assessee company and the then Ld.CIT(A) had proceeded to dispose off assessee's appeal in without any representation. The procedure adopted by the then Ld.CIT (A) described herein above had resulted into violation of principles of natural justice. Therefore, on appreciation of peculiar facts & circumstances, the Hon'ble ITAT has set aside and restored back it to the file of the CIT(A), for deciding afresh. (7) In the meanwhile, the appeal of the appellant in respect of lead year i.e. A.Y.2000-01 came to be decided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 attendance of Parikh couple so that the assessee could cross examine, them. We also filed that no efforts were made by the A.O. to dismiss the veracity of the contents of the Affidavits of present Directors namely Sahid Sayed & Ketan Parekh; we also find that the payments for purchases of computers have been accepted by the A.O. We also find that parts of the computers have been financed by the bank and no adverse inference has been drawn by the bank while financing the same. The allegation of the revenue that during the course of survey proceedings, the computers were not found at the surveyed premises do not hold any g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowed 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 kind consideration -while deciding the appeals of the appellant. A. Major Issues (i.e. disallowance of depreciation on computer hardware & claim of interest expenses) having already decided in favour of the assessee, stands fully covered by virtue of Hon'ble ITAT's order dated 19/4/2016. (1) At the outset it is submitted that during the course of the assessment proceedings for A. Y. 2000-01, the claims of depreciation on purchase of computer hardwares & interest paid to bank for Term Loan and working capital were disallowed on the basis of statements of third parties recorded by the then A. O. in his office and no cross examination was granted to the assessee, while passing order dated 28/3/2003. The assessee's appeal was pending then. (2) In the meanwhile, taking base of the above order for A.Y.2000-01, the successor A.O. reopened the assessments for the five years i.e. A.Y.1997-98 to 1999-2000 & A.Y.2001-02 and 2002-03 and passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 1,11,97,335/-. (2) Subsequently, the assessment was reopened on the footing that the claim of depreciation in A.Y.2000-01 was disallowed on the basis of statements of Rahul Parikh & Vandana Parikh who alleged that thethe purchases from Rahul Infotech P. Ltd. & Vandan Computers P. Ltd. [RIPL & VCPL, in short] were not genuine. Drawing inference from the assessment order of A.Y. 2000-01, the AO disallowed depreciation of Rs.2,21,51,688/-. (3) Significantly, the entities RIPL & VCPL came into existence on 10.03.1998 & 17.03.1998 respectively. They were assessed to tax. Now, therefore, both the entities having incorporated under Companies Act, presuming them as non-existent in itself is baseless. (4) Even when survey was conducted on 07.03.2003, the survey team did not record any finding that the computes brought in this assessment, were not in possession of the appellant. Thus, the very basis forming the bedrock for assessment for A.Y.2000-01 is wholly absent in the period r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fortified from the order dated 19/04/2016 of I.T.A.T as no appeal against the said decision of the C.I.T.(A) was filed by the department, hence on the principle of consistency the A.O. is bound to follow the same. Thus, there is considerable force in the submissions of the appellate that the A.O. was not justified in disallowing depreciation on the entire purchases made in the year including those made from other entities (Other than RIPL &VCPL). (6B) However, ignoring the above stated facts and without application of mind, the AO has wrongly and unreasonably concluded that the appellant has failed to produce proof of purchase of computers a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dna 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 Sayed and Ketan Parikh were filed with the A.O. to established the .genuineness of the purchase of computers. 25 In the de-novo proceedings, we find that the A.O. did nothing to enforce the attendance of Parikh couple so that the assessee could cross examine them. We a/so fifed that no efforts were made by the A.O. to dismiss the veracity of the contents of the Affidavits of present Directors namely Sahid Sayed & Ketan Parekh; we a/so find that the payments for purchases of computers have been accepted by the A.O We also find that parts of the computers have been financed by the bank and no adverse inference has been drawn by the bank while financing the same. The allegation of the revenue that during the course of survey proceedings, the computers were not found at the surveyed premises do not hold any good, since It is a fact that the entire premises of the assessee located at various places have not been surveyed. Therefore, possibility of computer har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ignoring all these vital facts and material placed on record and without application mind, the AO has wrongly and unreasonably concluded that the appellant has failed to prove its case and has made disallowance. In nutshell, in the reopened assessment, the AO has simply made disallowance based on the assessment for A.Y.2000-01 as is evident from the cut & paste method used in stereo typed assessment order in respect of all the five years under appeal. (13) Having regard to the aforesaid peculiar facts and circumstances of the case, and evidences available on record, and there being no change in facts and / or any material difference in the present appeals, the Hon'ble Jurisdictional Tribunal's orders in lead year i.e. A.Y.2000-01 (supra) are squarely applicable. Therefore, the major issues involved in the present appeals are covered by virtue of orders of Hon'ble ITAT being relied upon by the assessee, as well as by virtue of appellate orders for A.Y.1997-98 & 1998-99 (supra). The revenue has to maintain consistency for the purpose of finality in al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the facts and peculiar circumstances of the case and respectfully following the orders of the Hon. Tribunal dated 19.04.2016 (Supra), the issue is fully covered by virtue of Hon. Tribunal's orders, as well as appellate orders for A.Y. 1997-98 & 1998- 99 (supra). Therefore, I am of the considered view that the appellant had purchased computer hardware and its claim of deprecation thereof has been genuine one and direct the AO to allow the claim of depreciation and delete the disallowance of Rs.2,21,51,688/-." 7. The learned DR submitted that during the course of assessment proceedings in assessee's case for AY 2000-01, a survey under Section 133A of the Act was conducted at the premises of the assessee in order to verify the claim of the assessee for depreciation on computers. He submitted that specific adverse findings were recorded by the Assessing Officer in the assessment completed for AY 2000-01 based on the survey and the claim of the assessee for depreciation on computers was disallowed as the corresponding purchases of computers were not found genuine. He invited our attention to the specific adverse findings recorded by the Assessing Officer in the assessment for AY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer on 21.02.2003 had no credibility. He submitted that affidavits of the present Directors of RIPL and VCPL were also filed by the assessee to establish the genuineness of the purchases of computers made by the assessee from the said parties, but the same was completely ignored by the Assessing Officer. He submitted that the allegation of the Assessing Officer as regards the bogus claim of computers purchased during the year under consideration was based on the assessment order passed in assessee's case for AY 2000-01. He contended that the Tribunal, however, has decided the similar issue involved in AY 2000-01 in favour of the assessee by passing a well-reasoned and well-discussed order. He submitted that even in Assessment Year 2003-04, the similar disallowance made by the Assessing Officer on account of depreciation on computers was deleted by the learned CIT(A) and the Department has accepted the order of the learned CIT(A). He contended that keeping in view all these facts of the case as well as the turnover achieved by the assessee during the years under consideration which was not possible without the computers in question purchased by the assessee and utilize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. In the de-novo proceedings, we find that the A.O. did nothing to enforce the attendance of Parikh couple so that the assessee could cross examine, them. We also filed that no efforts were made by the A.O. to dismiss the veracity of the contents of the Affidavits of present Directors namely Sahid Sayed & Ketan Parekh; we also find that the payments for purchases of computers have been accepted by the A.O. We also find that parts of the computers have been financed by the bank and no adverse inference has been drawn by the bank while financing the same. The allegation of the revenue that during the course of survey proceedings, the computers were not found at the surveyed premises do not hold any good, since it is a fact that the entire premises of the assessee located at various places have not been surveyed. Therefore, possibility of computer hardware installed at those premises cannot be rule out. One more important factor which has to be considered and which goes in favour of the assessee is the claim of short payment of octroi department The assessee has been found to have made short payments of octroi by Rs.1,71,000/-. There is no adverse remark by the revenue authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire premises of the assessee located at various places were not covered under survey operation. The proof of payment of octroi on purchase of computers as produced by the assessee was found by the Tribunal to support the case of the assessee regarding genuineness of the purchase of the computers. Keeping in view all these details and documents, the Tribunal held that the purchase of computers by the assessee-company was genuine and allowed the claim of the assessee for depreciation thereon. 11. It is thus clear that the issue relating to the disallowance of assessee's claim that deprecation on computers as involved in the year under consideration is squarely covered by the decision of this Tribunal in assessee's own case for AY 2000-01 as rightly held by the learned CIT(A) in his impugned order. Moreover, as submitted on behalf of the assessee before the learned CIT(A) as well as before the Tribunal, a similar claim of the assessee was allowed by the learned CIT(A) in AYs 1997-98 and 1998-99 which orders have also relied upon by the learned CIT(A) to give relief to the assessee on this issue vide his impugned orders. At the time of hearing before us, learned Counsel for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reating the same as not for the purpose of business. The learned CIT(A), however, 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 decision of the learned CIT(A) holding the purchase of computers by the assessee-company as genuine and allowing depreciation on the computers so purchased, it follows that the interest expenditure incurred by the assessee on loan borrowed from bank for the purposes of said purchase of computers is allowable as deduction being expenditure incurred wholly and exclusively for the purpose of assessee's business. We accordingly uphold the impugned order of the learned CIT(A) giving relief to the assessee on this issue and dismiss Ground No.2 of the Revenue's appeal for AY 1999-00. 13. As regards the issue raised in Ground No.3 of the Revenue's appeal for AY 1999-2000 relating to the deletion by the learned CIT(A) of the disallowance of Rs.5000/- made by the Assessing Officer under Section 40A(3) of the Act. It is observed that the said payment of Rs.5000/- was made by the assessee on account of advance and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreting retrospectivity of a fiscal statute and looking into the nature and purpose of section 14A(2) & (3) as well as purpose and intent of Rule 8D coupled with the explanatory notes in the Fin. Bill, 2016 & the department's understanding as reflected by circular dated 28.12.2016, the Apex Court was of the opinion that Rule 8D was intended to operate prospectively. Respectfully following the decisions of the Hon'ble Courts including Supreme Court (supra) the disallowance u/s 14A of the Act for the year under consideration is not justified. The same is deleted." 16. The learned CIT(A) thus deleted the disallowance made by the Assessing Officer after taking into consideration the relevant provisions of the Act as inserted from time to time as well as the ratio laid down by the Hon'ble Supreme Court in the case of Essar Technoholdings Ltd (supra) to hold that the disallowance made by the Assessing Officer under Section 14A of the Act for the year under consideration, i.e. AY 2001-02, was not sustainable. At the time of hearing before us, the learned DR has not been able to raise any contention to dispute this position. We, therefore, find no justifiable reason to int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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