Depreciation allowed in earlier year cannot be disallowed later alleging non-generation of revenue

DCIT Vs Rapipay Finvest P. Ltd (ITAT Delhi)

ITAT Delhi held that it is fact that depreciation on software/ machinery was claimed and duly allowed in F.Y. 2012-2013. However, due to uncertainty of business revenue could not be generated by using the software in F.Y. 2013-14. Accordingly, depreciation cannot be disallowed alleging non-generation of revenue.

Facts-

The Assessee company was incorporated on 06.01.2009 and carrying on the activity of providing IT enables services and BPO services and have shown purchase and sale of “printed books of voter list” from M/s. Vakrangee Software Ltd and M/s. Mindtree Export Pvt. Ltd amounting to Rs. 2,76,75,720/- and Rs. 2,84,57,520/- respectively. Therefore, in order to verify the identity and creditworthiness of the parties and confirm the genuineness of the transaction, issued the notices u/s 133(6) to the said companies on 24.11.2015 and 07.01.2016 at the address mentioned on their bills/ vouchers.

AO alleging that assessee failed to discharge onus of purchases shown from M/s. Vakrangee Software Ltd., the amount of Rs. 2,76,75,720/- is added back to the taxable income of the assessee as bogus purchase.

Ld. Commissioner deleted the addition made by AO. Being aggrieved, revenue preferred the present appeal.

Further, AO disallowed depreciation on the ground that there was no business activity done by the assessee accordingly the assets of the company have not been put to use during the entire year. CIT(A) allowed the depreciation. Being aggrieved, the present appeal is preferred by revenue.

Conclusion-

Held that the ld. Commissioner also held that in case the purchase has to be doubted, then the sale is also not possible and therefore, deserves to be reduced from the assessed income of the Assessee. Admittedly, the Ld. Commissioner made the independent enquires and parties have confirmed the transactions with the Assessee and the sale has been accepted by the Assessing Officer. Even otherwise we do not find any material/reason to controvert the said findings, hence, on the aforesaid analyzations, we concur with the findings of the ld. Commissioner and consequently are inclined not to interfere in the decision of the ld. Commissioner on the issue under consideration.

The Hon’ble Delhi High court in the case of CIT vs. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 0297 also held “as long as the machinery is available for use, though not actually used, it falls within the expression “used for the purposes of the business” and the Assessee can claim the benefit of depreciation.” The Hon’ble High Court also distinguished the discarded and the existing machinery.
In the instant case it is not in controversy that the software/machinery on which the Assessee has claimed depreciation, has not been diminished or discarded but in fact, was put to use by the Assessee in the F.Y. 2012-13 (A.Y. 2013-14) itself and revenue was generated by utilizing the said machinery and the depreciation was allowed in that particular year, however, in the subsequent year, i.e., F.Y. 2013-14 (A.Y. 2014-15) the year under consideration, the Assessee due to uncertainty of business, could not generate revenue by using the software that ipso facto cannot be considered as a basis for disallowing the depreciation claimed.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. These appeals have been preferred by the Revenue Department against the orders dated 05.10.2018 impugned herein passed by the Ld. Commissioner of Income of Tax-9, New Delhi (in short “Ld. Commissioner”) for Assessment Years 2013­14 and 2014-15.

2. First we will decide ITA No. 161/Del/2019 (Assessment Year 2013-14) by grounds wise.

ITA NO. 161/Del/2019

3. In this case, the Revenue department raised the following grounds of appeal.

“On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in allowing the Assessee’s appeal, while the assessing officer held expenses amounting to Rs. 2,76,75,720/-, for the alleged purchase of printing books to be a bogus transaction based on facts of the case and material on record.

Notwithstanding the above ground of appeal, on the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the Disallowance on account of Purchase Shown of Rs. 2,76,75,720/- as the nature of the work done by the supplier for the Assessee does not fall under the exception clause of section 194C and liable for disallowance u/s 40(a)(ia).

3. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the Disallowance on account of Purchase Shown of Rs. 2,76,75,720/- specially when Assessee failed to substantiate before the AO‘as well as before the Ld. CIT(A) whether some modification to the product supplied were made to meet the ‘Requirement or Specification’ of the Assessee being a condition precedent for exception clause of section 194C of the Act to be operative.

4. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the Disallowance on account of data processing charges of Rs. 1,81,25,931/-. As the DOEACC Society (NIELIT) itself confirmed that no work could be outsourced, so there is no question of transaction having taken place during the year.

5. The appellant towards craves to be allowed to add any fresh ground of appeal and / or delete or mend any of the ground of appeal.”

4. By raising GROUNDS no 1 and 2, the revenue/department claimed that Ld. Commissioner was not right in deleting the addition of Rs. 2,76,75,720/- as the said transaction was held as bogus transaction based on the facts of the case and material on record by the AO.

5. Brief facts relevant for adjudication of grounds no 1 & & are that in the instant case the Assessee being engaged in the business of general finance and investment, by filing its return of income on 31.11.2013 declared income of Rs. “Nil” and paid taxes on book profit of Rs. 3,11,038/- u/s 115JB of the Act.

5.1 The case of the Assessee was selected for scrutiny through CASS which resulted into issuance of notice u/s 143(2) of the Act. In response, the Assessee from time to time attended and filed necessary details as asked for by the ld AO.

5.2 The ld. AO by examining the details filed, observed that the Assessee company was incorporated on 06.01.2009 and carrying on the activity of providing IT enables services and BPO services and have shown purchase and sale of “printed books of voter list” from M/s. Vakrangee Software Ltd and M/s. Mindtree Export Pvt. Ltd amounting to Rs. 2,76,75,720/- and Rs. 2,84,57,520/- respectively. Therefore, in order to verify the identity and creditworthiness of the parties and confirm the genuineness of the transaction, issued the notices u/s 133(6) to the said companies on 24.11.2015 and 07.01.2016 at the address mentioned on their bills/ vouchers.

5.3 Consequently, the Assessee was asked to furnish bills and vouchers of expenses claimed in the profit and loss account indicating the mode of payment along with books of accounts. Though the Assessee did not file books of account and bills/vouchers etc. , however, preferred to file reply dated 31.03.2016, by which it was claimed that it had received a purchase order for supply of printed voter list from Mindtree Export Pvt. Ltd and therefore purchased printed voter list in book form, from M/s. Vakrangee Software ltd and supplied to M/s. Mindtree Export Pvt Ltd.

5.4 In order to verify the said transaction of Rs. 2,84,57,520/-. The ld AO issued the notice u/s 133(6) to M/s. Mindtree Exports Pvt. Ltd but the same was returned back with a postal remark “left”. The said fact was brought to knowledge of the Assessee who through its submission dated 11.01.2016 provided another address of M/s. Mindtree Export Pvt. Ltd. On that particular address also further notice u/s 133(6) of the Act was sent on 08.02.2016 by fixing the case for hearing on 15.02.2016. But the confirmation from above party was received only on 29.02.2013 i.e. after the date fixed on 15.02.2016. Therefore, the ld. AO doubted the confirmation.

5.5 The ld. AO also observed on perusal of the bills issued by M/s. Vakrangee Software Ltd showed discrepancies of the transactions related to printing supplementary voter list book of 9 Assembly Constituencies of Rajasthan, as transactions relates with sale and purchase of printed books of voter list.

5.6 The ld. AO also issued 133(6) to Election Commission on dated 04.03.2016. In response to the said notice, Election Commission vide its reply dated 16.03.2016 mentioned that commission has not permitted any private person/ publisher/ agency to compile and then publish printed electoral rolls in the form of printed books/ booklets for sale and no such contract/ tender has been issued to any company by “ECI” for providing printed books of voter list.

5.7 The ld. AO further observed that the Assessee Company has not claimed any transportation charges, regarding the purchase and sale of printed books of voter list. It is impossible to believe that if the books were purchased from an entity i.e. M/s. Vakrangee Software Ltd located in Jaipur, Rajasthan and sold out to an entity i.e. M/s. Mindtree Export Pvt. Ltd situated in Mumbai, no transportation cost has been incurred on the transportation which is evident from the P&L A/c of the Assessee company. It also supports the facts that purchases as shown by the Assessee Company are bogus.

5.8 The ld. AO further observed that moreover the consideration mentioned in purchase and sale transaction of printed books of voter list is not matching with the copy of bank accounts as submitted by the Assessee. A perusal of the P&L Account of the Assessee company shows that the purchase amounting of Rs. 2,76,75,720/- was made from M/s. Vakrangee Software Ltd during the year and that too has not been paid and has been shown as credit . Thus, creditworthiness of M/s. Vakrangee Software Ltd is doubtful especially when the amount received by it, to the tune of Rs. 2,76,75,720/- has not been confirmed.

5.9 The ld. AO further opined that primary onus is on Assessee company to prove the identity, creditworthiness and genuineness of the transactions. The identity should be seen in perspective that it has got a standing in the particular line of activity. Identity is defined in the new shorter oxford dictionary as “The condition or fact of a person or thing being that specified unique person or thing”. In the above case, the Assessee has not been able to prove even the identity of the parties in the context he want to show them i.e. people actually doing some business. The Assessee failed to discharge its onus. On perusal of the bank statement of A/c. No. 5020 0007 5284 34 maintained with HDFC Bank revealed that payments were made to M/s. Vakrangee Software Ltd on 25.08.2015, 27.08.2015, 29.08.2015,29.08.2015, 01.09.2015, 03.09.2015, 09.09.2015, 10.09.2015 and 11.09.2015. On the basis of the above, it is proved that there are concrete evidences which prove that purchase as shown by the Assessee company from M/s. Vakrangee Software Ltd is bogus. Hence, the amount of Rs. 2,76,75,720/- is added back to the taxable income of the Assessee Company as bogus purchase.

6. The Assessee being aggrieved preferred first appeal before the Ld. Commissioner, who during the appellate proceedings, with regard to addition of Rs. 27675720/- qua expenses incurred for purchase of printing Voter lists, asked the Assessee to explain the following points:-

a) As to why the appellant company had received said contract?

b) For what purposes the printed electoral rolls are used?

c) Why the contract was sub-contracted to M/s Vakrangee Limited?

6.1 The Assessee in response to the query raised by the ld commissioner, replied as under:-

“The AR of the appellant company vide written submissions dated 23/10/2017 stated that the appellant company was a subsidiary of M/s Virgo Softech Limited (formerly known as M/s Virgo Micro Services Pvt. Ltd.). The holding company, M/s Virgo Softech Limited was working under several contracts regarding printing of electoral rolls since 1996 and the management had expertise in data entry, generation, printing, distribution and database management of electoral rolls desired by several agencies consisting of Election Commission, political parties and other survey agencies. Further, he furnished copies of certain tenders and experience certificates issued to the holding company evidencing the same. He further contended that since the management of the appellant company had vide experience in this field, the appellant company received the stated contract.

In respect of the use of printed electoral rolls, he explained that these electoral rolls are used for following purposes:-

a) These are required by local administrative officers at various places like district/ tehsil/ village panchayat booth for obtaining claims and objections before finalizing the rolls at large.

b) Survey agencies require these electoral rolls for socio-economic surveys on several parameters like Religions based surveys, Income based surveys, etc.

c) These are required for preparation of Form 6, 7 & 8 consisting of details of additions, deletions and modifications in electoral rolls.

d) Even the preparation of mother electoral rolls incorporating the additions, deletions and modifications requires these printed electoral rolls.

In respect of reason of sub-contracting the assignment to M/s Vakrangee Limited it was clarified that M/s Vakrangee Limited had installed new machinery for printing of electoral rolls and the said technology was not available elsewhere in market; thus, the contract was sub-contracted to M/s Vakrangee Limited.”

6.2 On perusal of the reply filed by the Assessee, the ld. Commissioner also made independent verification of M/s. Vakrangee Ltd (formerly known as Vakrangee Software Ltd) by extracting data from the official website of stock exchange and the Ministry of Corporate Affairs and issuing notice dated 01.08.201 u/s 133(6) of the Act. The notice issued by the ld. Commissioner was served upon M/s. Vakarangee Software Ltd, who vide reply dated 07.08.2018 confirmed the transaction. The ld. commissioner ultimately while considering observation made by the ld. AO and the claim of the Assessee, deleted the addition of Rs. 2,76,75,720/- made by the ld AO on account of disallowance of purchase.

7. By raising grounds no 1 and 2, the revenue/department claimed that Ld. Commissioner was not right in deleting the addition of Rs. 2,76,75,720/- as the said transaction was held as bogus transaction based on the facts of the case and material on record by the AO. Further the ld. Commissioner has erred in law and facts in deleting the disallowance on account of purchase shown of Rs. 2,76,75,720/- as the nature of work done by the supplier for the Assessee, it does not fall under the exception clause u/s 194C and thus liable for disallowance u/s 40(a)(ia) of the Act. Further, the ld. Commissioner erred in law and facts in deleting the said addition, specifically when the Assessee failed to substantiate before the ld. AO as well as before the Commissioner whether same modification to the product supplied were made to meet the “requirement or specification” of the Assessee being a condition precedent for exception clause of section 194C of the Act to be operative.

8. On the contrary, the ld. AR relied upon the impugned order specifically the determination made by the ld. Commissioner on the issue under consideration. With regard to non applicability of the provision of section 194C, the Assessee relied upon the order passed by the Hon’ble Mumbai High Court in case of BDA Ltd ITO (2006) 281 ITR 0099 (Mum HC) and in the case of CIT Vs. Glenmark Pharmaceuticals ltd (2010) 324 ITR 0199 (Mumabi HC).

9. Heard the parties and perused the material available on record and have given thoughtful consideration to the rival contentions of the parties and the orders passed by the authorities below. We observe that the Assessing Officer disallowed the expenses of printing voter list to the tune of Rs.2,76,75,720/- mainly on the grounds that notice sent to Mind Tree Exports Pvt. Ltd., with whom the Assessee made an agreement/contract and to M/s. Vakrangee Softwares Ltd., with whom the Assessee has made sub-contract, were received back and later on confirmation from M/s. Mindtree Export Pvt. Ltd. was received only on 29.02.2013 i.e. after the date fixed on 15.02.2016 therefore, the transaction remained un-confirmed. Further, the Assessee carried out printing at Jaipur (Rajasthan) and the entire expenditure relating to printing of voter list of Rs. Rs.2,76,75,720/- was booked against M/s. Vakrangee Softwares Ltd. and the same was shown by the Assessee company in the list of its creditors. However, no bill/works contract regarding the above said expenses was submitted by the Assessee till date. Further, the Election Commission vide its letter dated 16.03.2016 denied for outsourcing of printing work of voter list, which clearly shows that no voter list was printed by the Assessee company either in the previous year or this year. From the above, it can be seen that the expenses booked by the Assessee company in the name of M/s. Vakrangee Softwares Ltd. are bogus in the absence of any documentary evidence regarding transportation. Further, no agreement with regard to outsourcing of printing work has been submitted by the Assessee which relates to printing of voter list, outsourced to M/s. Vakrangee Softwares Ltd. .

9.1 We observe that the ld. Commissioner thoroughly examined the peculiar facts and circumstances of the case and in order to verify/make independent enquiry, issued the notices u/s. 133(6) of the Act to the supplier, i.e., M/s. Vakrangee Softwares Ltd. at its registered office, which were duly served and complied with. Further, the ld. Commissioner also observed and taken into account, the fact that payment for purchase of the voter list was made in subsequent year as evident from the assessment order for A.Y. 2014-15 and the Assessee substantiated the said payment. The Ld. Commissioner also taken into consideration the peculiar facts to the effect that the Assessing Officer has duly accepted the sales made to M/s. Mind Tree Exports Pvt. Ltd. and thus, genuineness of the business cannot be doubted.

9.2 The ld. Commissioner also held that in case the purchase has to be doubted, then the sale is also not possible and therefore, deserves to be reduced from the assessed income of the Assessee. With regard to the non-confirmation of publishing/order for printing of voter list by the Election Commission, the ld. Commissioner observed that M/s. Mind Tree Export Pvt. Ltd. vide submission dated 29.02.2016 filed in the office of the Assessing Officer has already confirmed the transaction. Since the data was available for public display, though not permitted by the election Commission, it was not impossible to publish the same. Further, since the Assessee has duly furnished confirmations regarding the transaction of sales and purchase and both the buyers and sellers have responded to the notices u/s. 133(6) of the Act, the identity of the supplier and customer and genuineness of the transaction is duly established.

9.3 The ld. Commissioner also taken into consideration non-deduction of TDS and specifically verified the fact by issuing notice u/s. 133(6) of the Act to M/s. Vakrangee Softwares Ltd. to explain whether any raw material was supplied by the appellant company for printing of voter list. In response, the said company clearly stated that no material was supplied by the appellant company for execution of sub-contract.

9.4 The ld. Commissioner by respectfully following the judgments passed by Hon’ble Bombay High Court in the case of BDA Ltd. vs. ITO (2006) 281 ITR 0099 (HC)(Mum) and by the coordinate Bench of the Tribunal in the case of DCIT vs. Eastern Medikit Ltd. (2012) 135 ITD 0461(Del)(Trib) and considering all the aspects, ultimately held that since the transaction is duly covered by the Explanation (iv) to section 194C of the Act, disallowance u/s. 40(a)(ia) of the Act is also not called for.

9.5 Admittedly, the Ld. Commissioner made the independent enquires and parties have confirmed the transactions with the Assessee and the sale has been accepted by the Assessing Officer. Even otherwise we do not find any material/reason to controvert the said findings, hence, on the aforesaid analyzations, we concur with the findings of the ld. Commissioner and consequently are inclined not to interfere in the decision of the ld. Commissioner on the issue under consideration. Hence, grounds No. 1 & 2 stands dismissed.

10 Coming to GROUND no. 3 which pertains to disallowance of Rs. 1,81,25,931/- on account of data processing charges. The ld. AO during the assessment proceedings, on the perusal of the profit and loss account also observed that the Assessee has shown revenue of Rs. 4,92,81,952/- from operation, which includes an income from “NPR” amounting to Rs. 2,08,24,432/-and therefore, raised a query with regard to genuineness of the same.

10.1 The Assessee company vide its submission dated 09.11.2015 submitted that income booked under the head “NPR” is against the bill booked to Virgo Softech Ltd. After deduction of TDS (in contract nature) and excluding service tax, net amount of total bill of Rs. 2,08,24,432/-.

10.2 The Assessee in order to substantiate its claim furnished a copy of contract executed between Virgo Softech Ltd and Virgosoft IT Services Pvt. Ltd. In order to verify, the AO issued notice u/s 133(6) to M/s. Virgo Softech ltd (the holding company) on 23.02.2016. In response , the said company M/s. Virgo Softech Ltd. filed its reply along with copy of work order given by DOEACC SOCIETY (NIELIT) to Virgo Softech Ltd. which was received by the ld AO on 03.03.2016.

10.3 In order to further verify, the ld. AO also issued notice u/s 133(6) of the Act to the Director in charge of DOEACC SOCIETY (NIELIT) on 04.03.2016 through e-mail. In response to which the reply was filed on dated 11.03.2016. On perusal of the reply, it was observed by the AO that in point no. 01 it is clearly mentioned that under no circumstances, the work can be outsourced to any other associate/ franchise/ third party.

10.4 The ld. AO ultimately held that it is rather possible that no transaction took place during the year under consideration.

10.5 The Assessee company was asked to provide the copy of services tax return. On perusal of the bills issued by the Assessee company it was also noticed by the ld. AO that service tax @12.36 is included the billing amount, further till the passing of the assessment order no details or documents have been provided by the Assessee company therefore receipt of Rs. 2,08,24,432/- was treated as “income from other sources”.

10.6 The Assessee also challenged the said addition before the ld. Commissioner and claimed that the reliance on the submissions of Director In-charge of DOEACC SOCIETY (NIELIT) regarding sub-contracting of assignment is misplaced and the attention was invited to Page 1 of the contract executed by M/s Virgo Softech Limited and DOEACC SOCIETY (NIELIT). From the perusal of the contract, it is evident that the definition of contracting parties includes successors, subsidiaries, affiliates and permitted assigns of M/s Virgo Softech Limited. Further, the Ld. AR explained that the reply filed by the Director In-charge is in consonance with the restrictions placed upon sub-contracting to other parties. In view of the above, the Ld. AR claimed that although there was a restriction on sub-contracting or outsourcing to other parties yet there was no such prohibition for subsidiary company and thus, the assignment has been rightfully awarded to the appellant company and the revenue derived from the transaction cannot be assessed as income from Other Sources.

Further, in respect of furnishing of evidence in respect of data processing charges, the AR stated that the necessary details were furnished during the course of assessment proceedings on dated 21/10/2015 and thereafter on 26/02/2016, somehow the AO ignored the same.

10.7 The ld. Commissioner thoroughly considered the determination made by the AO in respect of issue under consideration and the submission of the Assessee, as well as the contract between M/s. Virgo Softech Ltd and DOEACC SOCIETY (NIELIT) and deleted the addition under consideration by holding as under:-

7.4 The submissions of the AR of the appellant company and the executed contract between M/s Virgo Softech Limited and DOEACC SOCIETY (NIELIT) are considered and it is observed that the appellant group has received a contract from DOEACC SOCIETY (NIELIT) and M/s Virgo Softech Limited has assigned the task to the appellant company. Thus, the genuineness of transaction is substantiated.

In respect of restriction on sub-contracting in the contract between M/s Virgo Softech Limited and DOEACC SOCIETY (NIELIT), it is observed that the holding company was duly authorized for sub­contracting to Subsidiary company. Further, there might be breach of terms and conditions of contract between parties, but the same will not change the nature of revenue generated from the said transactions. Thus, the revenue of Rs. 2,08,24,432/- incurred by the appellant is assessed as business income only.

7.5  In respect of the disallowance of NPR expenses it is observed that the appellant has duly furnished the details during the course of assessment proceedings and the claim of the appellant that for earning revenue of Rs. 2,08,24,432/- incurring of expenses of Rs. 1,81,25,931/- on data processing was inevitable and thus, without incurring said expenses earning of revenue was impossible. Further, the said details were again furnished by the appellant during the appellate proceedings.

7.6 In view of the stated circumstances this ground of appeal is allowed and the disallowance of expenses of Rs. 1,81,25,931/-made by the AO is deleted. Appellant -succeeds in this ground of appeal.

10.8 The revenue department has also challenged this addition under consideration before us, mainly on the ground that when the DOEACC SOCIETY itself has confirmed that no work could be outsourced, so there is no question of transaction have been taken place during the year under consideration. Hence, the ld. Commissioner has erred in law and facts in deleting the said disallowance on account of data processing charges.

10.9 On the contrary, the ld. AR relied upon the order impugned herein and emphasized that as per the definition of the contracting parties as mentioned in the contract referred to above includes successors, subsidiaries, affiliates and permitted assigns of M/s. Virgo Softech Ltd. Though, there was a restriction on sub­contracting or outsourcing to other parties, yet there was no such prohibition for subsidiary company and thus, the assignment has been rightfully awarded to the Assessee Company and the revenue derived from the transaction cannot be assessed as income from other sources. Further, in response to furnishing of evidence qua data processing charges, the Assessee claimed to have furnished necessary details, vide submission dated 21.10.2015 and again on 26.02.2016 but the same have been deliberately ignored by the AO.

11 Heard the parties on ground no. 3 and perused the material available on record and also given thoughtful consideration to the rival contention of the parties and perused the orders passed by the Authorities below and the material available on record. We observe that the Ld. Commissioner while perusing the executed contract between M/s Virgo Softech Limited and DOEACC SOCIETY (NIELIT) observed that the Assessee group has received a contract from DOEACC SOCIETY (NIELIT) and M/s Virgo Softech Limited has assigned the task to the Assessee company, thus, the genuineness of transaction is substantiated. In respect of restriction on sub-contracting in the contract between M/s Virgo Softech Limited and DOEACC SOCIETY (NIELIT), it is observed that the holding company was duly authorized for sub-contracting to Subsidiary company. Further, there might be breach of terms and conditions of contract between parties, but the same will not change the nature of revenue generated from the said transactions. Thus, the revenue of Rs. 2,08,24,432/- incurred by the appellant is assessed as business income only. In respect of the disallowance of NPR expenses, the Ld. Commissioner observed that the appellant has duly furnished the details during the course of assessment proceedings and the claim of the appellant that for earning revenue of Rs. 2,08,24,432/- incurring of expenses of Rs. 1,81,25,931/- on data processing was inevitable and thus, without incurring said expenses earning of revenue was impossible. Further, the said details were again furnished by the appellant during the appellate proceedings. In view of the stated circumstances the disallowance of expenses of Rs. 1,81,25,931/- made by the AO is deleted. We have given thoughtful consideration to the determination made by the Ld. Commissioner and observe that the Ld. Commissioner thoroughly considered all factual aspects, sub contract and the submission of the Assessee and the impugned order and then only reached to the conclusion. Even otherwise we do not find any reason or material to controvert the findings of the Ld. Commissioner on the issue in hand and thus inclined not to interfere the same.

Consequently ground no. 3 also stands dismissed.

12. Ground No. 4 is general in nature, hence, needs no independent adjudication.

ITA No. 162/Del/.2018

13. In ITA No. 162/Del/2018 the revenue department has raised following grounds of appeal.

1. “On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the Disallowance on account of Expenses Related to Printing of Voter List of Rs. 3,02,24,520/- as the nature of work done by the supplier for the assessee does not fall under the exception clause of section 194C and liable for disallowance u/s 40(i)(ia).

2. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the Disallowance on account of Expenses Related to Printing of Voter List of Rs. 3,02,24,520/- specially when a failed to substantiate before the AO as well as before the Ld. CIT(A) whether same modification to the product supplied were made to meet the ‘Requirement or Specification’ of the assessee being a condition precedent for exception clause of section 194C of the Act to be operative.

3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing depreciation for Rs. 1,67,58,000/-claimed by assessee and thus is unjust, arbitrary, and against the facts as the details of purchase of software shown as investment without agreement for purchase of such software during the financial year 2012- 13 (i.e. A.Y. 2013-14) which was already assessed wherein depreciation on such ‘investment’ has been disallowed by the AO and no finding of fact regarding the relief on such account given by the Ld. CIT(A). Especially when the assessee itself accepted that the assets was not used for business purpose during the year under consideration and no revenue was generated. On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in law and facts in deleting the disallowance of Rs. 50,000/- on lump-sum/ad-hoc basis out of actual expenses towards subscription & Membership amounting to Rs. 2,05,369/-.

4. The appellant towards craves to be allowed to add any fresh ground of appeal and / or delete or mend any of the ground of appeal.”

13.1 The Revenue Department has raised the issue which pertains to following disallowances of:

(i) 3,02,24,520/- on account of expenses related to printing of voter list.

(ii) allowing depreciation for Rs. 1,67,58,000/-

(iii) 50,000/- on lumpsum/adhoc basis out of actual expenses towards subscription and membership amounting to Rs. 2,05,369/-.

14. The first issue/Ground No. 1 & 2, pertains to the deletion of disallowances, on account of expenses related to printing of voter list. The facts and issues involved in this case, are exactly similar with regard to facts and issues as involved in the case pertain to Assessment Year 2013-14 i.e. in ITA No. 161/Del/2019 except in variation of amount involved. Hence, in view of the decision on the issue under consideration at para-9 of this order, Grounds no. 1 & 2 stands dismissed.

15. Coming to the Ground no. 3/second issue which relates to depreciation of Rs.1,67,58,000/- claimed on fixed assets i.e. software purchased by the Assessee from M/s. Virgo Softech, which was disallowed the ld. AO mainly on the ground that a similar disallowance is made in earlier year. Secondly, the fixed assets were not used during the year under consideration.

Further in the previous year the ld AO in its order dated 28.03.2016 for Assessment Year 2013-14 has conclusively proved that there were no business activity done by the Assessee in view of the fact that the Assessee has shown amount of Rs. 3,99,00,000/- under the head investment and no bills regarding purchase of fixed assets was submitted by the Assessee. Therefore, depreciation claimed by the Assessee is also disallowed this year. The AO also held that without prejudice to the above, the entire work related to the printing of voter list has been shown as outsources to M/s. Vakrangee Software Pvt. Ltd and there is no other expenses regarding business activity of the Assessee company other than the fees of auditor. From this, it can easily be concluded that the assets of the company have not been put to use during the entire year or in fact the Assessee has no assets as proved by the AO in the assessment u/s 143(3) made last year. Since, the facts of the case are not different from the facts of last year. Therefore, the depreciation of Rs. 1,67,58,000/- claimed by the Assessee on the non-existing assets is disallowed and added to the total income of the Assessee.

15.1 The Assessee being aggrieved also challenged the addition under consideration before the ld CIT(A) who allowed the deprecation and deleted the disallowance/addition, by concluding as under:-

7. Ground no. 3 is directed against addition of Rs. 16758000/-. Briefly stated facts of the ground are that the AO in the assessment order disallowed depreciation of Rs. 1,67,58,000/- on the following observations:-

a) That a similar disallowance is made in earlier year.

b) Fixed Assets were not used during the year under consideration.

The appellant company had purchased software amounting to Rs. 3,99,00,000/- from M/s Virgo Softech Limited during the F.Y. 2012-13 pertaining to A.Y. 2013­14 and during the course of assessment proceedings for A.Y. 2013-14 furnished a copy of agreement for transfer of the same to it. However, in the said year the transaction of purchase of software was held to be non-genuine and the claim of depreciation thereupon was disallowed.

As evident from the assessment order the AO has disallowed the claim of depreciation alleging that during the A.Y. 2013-14 the similar disallowance is made.

7.1 The AR of the appellant company in the appellate proceedings for A.Y. 2013-14 submitted that the disallowance made was arising out of a mistake apparent from record. The AR explained that the AO while completing the assessment proceedings for A.Y. 2014- 15 has mis-understood the assessment order for A.Y. 2013-14.

The AR also submitted that during the course of assessment proceedings for A.Y. 2013-14, a copy of agreement for transfer of the software was furnished before the AO and the transfer of software was confirmed by the seller, M/s Virgo Softech Limited u/s 133(6} of the Act. Further, the fact of sale of software by M/s Virgo Softech Limited is also evident from its audited financials for A.Y. 2013-14. In view of the above observation and the fact that the transaction of purchase of software has been accepted in earlier year and the claim of depreciation has been allowed, the disallowance of depreciation on the said basis cannot be upheld.

7.2 The AO has stated that since the fixed assets held by the Assessee company were not used in the year under consideration and there was no revenue using the same no depreciation could be allowed on the same.

7.3 In this regard the AR of the appellant company stated that the Fixed Assets being software were put to use in the earlier year itself and the appellant company had also derived revenue from the same. However, due to uncertainties of business, no revenue could be generated using the said software during the year under consideration.

Further, in respect of the claim of depreciation, the AR stated that the depreciation is claimed as per the provisions of Sec. 32 of the Income Tax Act, 1961 and relied upon the judgement of Hon’ble Delhi High Court in the case of CIT vs Yamaha Motor India (P) Ltd. (2010) 328 ITR 0297 wherein the Hon’ble Court has held as under:-

“7 In fact, we also agree with the ratio of both the decisions which hold that as long as the machinery is available for use, though not actually used, it falls within the expression ”used for the purposes of the business” and the Assessee can claim the benefit of depreciation.

8. The matter can be looked at from another angle also. No doubt, the expression used in s. 32 is “used for the purposes of the businessHowever, this expression has to be read harmoniously with the expression ”discarded” as found in cl. (Hi) of sub-s. (1). Obviously, when a thing is discarded it is not used. Thus ‘use’ and ‘discarding‘ are not in the same field and cannot stand together. However, if we adopt a harmonious reading of the expressions “used for the purposes of the business” and “discarded” then it would show that “used for the purposes of the business” only means that the Assessee has used the machinery for the purposes of the business in earlier years “

7.4 As evident from the facts of the case of the appellant company the software purchased by it was put to use in F.Y. 2012-13 itself and revenue was generated utilizing the same and depreciation is rightfully allowed in said year. Thus, in the subsequent year i.e., the year under, consideration the inability of the appellant company to generate revenue using the said software cannot be held to be the basis for disallowing depreciation claimed.

In view of the factual matrix of the grounds and judicial precedents, (supra) I am of the inclined to hold that the appellant is eligible for depreciation. Hence, disallowance of depreciation of Rs. 1,67,58,000/- is deleted. Appellant succeeds in this ground of appeal.”

15.2 Due to rival claims of the parties, the question emerged, when the Assessee generated the business from the machinery and allowed the deprecation in the previous and subsequent year by the Department, however due to uncertainty of business, could not generate revenue by using the software/machinery though it was ready to use, in a particular year, can that ipso-facto, be considered as a basis for disallowing the depreciation claimed. Answer would be “No”.

15.3 We observe that the Hon’ble Delhi High Court in the case of National Thermal Power Corpn Ltd Vs. CIT (2013) 357 ITR 0253 (Delhi), allowed the depreciation on the “capital construction equipment” kept ready for use in that particular year, but was used actually in the subsequent year.

15.4 The Hon’ble Delhi High court in the case of CIT vs. Yamaha Motor India Pvt. Ltd. (2010) 328 ITR 0297 also held “as long as the machinery is available for use, though not actually used, it falls within the expression “used for the purposes of the business” and the Assessee can claim the benefit of depreciation.” The Hon’ble High Court also distinguished the discarded and the existing machinery.

15.5 The ld. Commissioner by considering the claim made by the Assessee and observation made by the ld. AO on the issue under consideration, observed that the Assessee Company has purchased software to use in FY 2012-13 itself and revenue was generated by utilizing the same, the depreciation was rightfully allowed in the said order. Thus, in the subsequent year i.e. the year under consideration, the inability of the appellant company to generate revenue, using the said software cannot be held to be the basis for disallowing depreciation claimed.

15.6 In the instant case it is not in controversy that the software/machinery on which the Assessee has claimed depreciation, has not been diminished or discarded but in fact, was put to use by the Assessee in the F.Y. 2012-13 (A.Y. 2013-14) itself and revenue was generated by utilizing the said machinery and the depreciation was allowed in that particular year, however, in the subsequent year, i.e., F.Y. 2013-14 (A.Y. 2014-15) the year under consideration, the Assessee due to uncertainty of business, could not generate revenue by using the software that ipso facto cannot be considered as a basis for disallowing the depreciation claimed. Even otherwise, we do not find any reason/material to contradict the finding of the ld. Commissioner, hence, on the aforesaid analyzations, are inclined not to interfere in the decision of the ld. Commissioner on the issue under consideration. Consequently, ground No. 3 also stands dismissed.

16. We observe that vide last 04 lines from bottom of Ground No. 3, the revenue/ department also raised the issue that on the facts and circumstances of the case the ld Commissioner has erred in law and facts in deleting the disallowances of Rs. 50,000/- on lum sum/ adhoc based out of actual expenses towards subscription and membership amounting to Rs. 2,05,369/-.

In fact, no such disallowance was ever made by the ld. AO in the assessment order under consideration and therefore, it never came into consideration before the ld. commissioner for adjudication, thus the question of deletion of adhoc disallowance does not arise at all. It seems that the same has inadvertently been claimed/mentioned in the ground of appeal, hence does not require any independent adjudication.

17. Ground No. 4 is general in nature, hence, needs no independent adjudication.

18. In the result, both the appeals filed by the Revenue Department stands dismissed.

Order pronounced in the open court on 28/12/2022.