Depreciation u/s 32 allowable only when asset is put to use for business purpose

LTIMindtree Limited Vs DCIT (ITAT Bangalore)

ITAT Bangalore held that depreciation under section 32 of the Income Tax Act is allowable only when the asset is put to use for the business purpose. Notably, the onus is on the assessee to prove that the assets are put to use for the business purposes only.

Facts- During the course of assessment proceedings, the Assessing Officer observed that the assessee has acquired new assets of Rs. 4,22,01,852/- during the previous year and claimed depreciation of Rs. 2,23,01,237.

The assessee was asked to furnish evidence in respect of the acquisition of new assets. The assessee furnished details of the list of fixed assets addition during FY 2005-06 and enclosed copies of two invoices indicating the purchase of assets worth of Rs. 64,480/- dated 20.08.2005 and Rs. 93,600/- dated 17.08.2005 and in regard to balance of assets, the counsel for the assessee stated that it was very difficult to produce the copies of all the new assets purchased and contended that sample of two assets have already been furnished and requested to complete the assessment on the basis of evidence furnished.

AO after referring to section 32 of the Act observed that the assessee’s AR expressed his difficulty to furnish the evidence with regard to the ownership of the new assets acquired by the assessee during the previous year except for two sample invoices. Hence, it is reasonably presumable that the assessee does not own the properties and thus it is not eligible for claim of depreciation. Hence, the depreciation claimed on the new assets, except the assets relating to which the invoices have been produced is rejected and added to the income returned.

Conclusion- According to the assessee, the assessee has satisfied the ownership of assets and is eligible for depreciation and has relied on the auditor’s report in this regard. But the question arises whether the assets were put to use for business purpose. The assessee has not put forth any evidence regarding use of the assets for business purpose as per the requirement of section 32 of the Act either before the revenue authorities or even before me.

The onus is on the assessee to prove that the assets were put to use for business purposes and merely reliance on the audit report is not sufficient as mentioned above. Merely achieving the turnover of the business is not a criterion to show that assets were used for business purposes. In the remand report, the AO has not given a clear finding, but he has stated that the assessee was unable to prove the claim that assets were used for business purpose and he has given his opinion in the remand report based on the nature of business of the assessee.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This is an appeal filed by the assessee against the order passed by the ld. Commissioner of Income Tax (Appeals)-11, Bengaluru, order dated 14.12.2022 DIN No. ITBA/APL/M/250/2022-23/1047996835(1)for the assessment year 2006-07. On the following grounds of appeal:-

“1. The Order of the Learned Commissioner (Appeals) {in so far as same is prejudicial to the Appellant^ is not justified in law and on facts and circumstances of the case.

2. The Learned Commissioner (Appeals) is not justified in making certain incorrect and perverse observations in so far as conduct of the Appellant during the appellate proceedings.

3. As regards denial of depreciation of Rs. 2,22,06,388/- claimed in respect of fixed assets addition made during the impugned year:

3.1. The Learned Commissioner (Appeals) is not justified in denying depreciation even when the Appellant satisfied all the conditions to justify its claim.

3.2. The Learned Commissioner (Appeals) is not justified in applying user test by failing to appreciate that it was never the basis of the Learned Assessing Officer of denying the depreciation during the assessment proceeding.

3.3. Without prejudice to the above, the Lower Authorities are not justified in denying depreciation when the Appellant discharged its onus of establishing that the assets were put to use for the purpose of business of the Appellant on the basis of auditors’ report, tax audit report and its business exigencies.

3.4. Without prejudice to the above, the Learned Commissioner (Appeals), having not doubted that the appellant acquired the impugned assets at the stated costs during the course of the previous year, is not justified in insisting on absolute evidence of use after the lapse of 16 years rather than applying the principle of “preponderance of probability” and “prudency”.

3.5. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 16,49,963/-in respect of computers & systems by stating that “initial usage requires a proper installation and such date can always be ascertained from the system”, by failing to appreciate that computers & systems do not last for 16 years.

3.6. As regards denial of depreciation of Rs. 2,05,57,909/- in respect of software tools:

3.6.1. The Learned Commissioner (Appeals) ought to have allowed depreciation of Rs. 2,05,57,909/-, when the Learned Assessing Officer in the remand report had stated that “However, considering the nature of business the assessee is engaged in ie. Software development, it is possible that these software tools were used for assessee business purpose”.

3.6.2. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation by stating that “tools requires registration at the time of installation as at that point of time some ‘PIN’ is required to be entered. So the date of first usage of such tools can always be ascertained’, by failing to appreciate that such information would not be available with the Appellant as the shelf life of software does not last for 16 years.

3.6.3. The Learned Commissioner (Appeals) ought to have allowed depreciation on software tools on the same principles on which the depreciation on plant and machinery [Scan Emulator Pod] was allowed.

3.6.4. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 2,05,57,909/- for the impugned AY 2006-07, when the Learned Assessing Officer has accepted that depreciation should be allowed and the Learned Commissioner (Appeals) allowed depreciation in an identical facts and circumstances in the Appellant’s own case for the AY 2007-08.

3.7. As regards denial of depreciation of Rs. 12,808/- in respect of plant and machinery:

3.7.1. The Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 12,808/- in respect of addition to plant and machinery of Rs.1,70,768/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order.

3.7.2. Without prejudice to the above, the Learned Commissioner (Appeals) ought to have allowed depreciation of Rs. 12,808/- on same principles on which the depreciation on plant and machinery of Rs.84,240/-was allowed by him.

3.8. As regards denial of depreciation of Rs, 57,067/- in respect of vehicles:

3.8.1. The Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 57,067/- in respect of addition to Vehicles of Rs. 7,60,896/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order.

3.8.2. Without prejudice to the above, the Learned Commissioner (Appeals) is not justified in denying depreciation by stating that “the appellant could have brought on record the documents relating to the registration of vehicle and it’s insurance to show that the same was put to use. It could have brought on record the log book to show the same was put to use”, by failing to appreciate that such information would not be available with the Appellant as the life of the vehicles does not last for 16 years.

3.9. As regards denial of depreciation of Rs. 1,507/- in respect of office equipments:

3.9.1. The Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 1,507/- in respect of addition to office equipment of Rs. 20,085/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order.

3.9.2. Without prejudice to the above, the Learned Commissioner (Appeals) having stated that “As regards, washing machine, fridge, iron box and mixer grinder, the argument of the appellant that the same wee used for housekeeping work and pantry/ cafeteria for the welfare of the employees, could have some weight, being a normal practice” ,ought to have allowed depreciation on office equipments.

4. As regards the addition of Rs. 26,03,654/- [Rs. 10,62,493/- + Rs.15,41,161/-] in respect of liability written off:

4.1. The Learned Commissioner (Appeals) is not justified in making addition of Rs. 26,03,654/- [Rs. 10,62,493/- + Rs.15,41,161/-] in respect of liability written off by erroneously invoking section 28(iv) of the IT Act.

4.2. The Learned Commissioner (Appeals) is not justified in failing to appreciate that liability written off in respect of depreciable asset (i.e., software tool) falls under section 43(6)(c)(i)(B) and not under section 28(iv) of the IT Act.

4.3. The Learned Commissioner (Appeals) is not justified in failing to appreciate that there are no provisions under IT Act to treat the depreciation allowed in the past years as income in the subsequent year.

4.4. Without prejudice to the above, the Learned Commissioner (Appeals) has failed to appreciate that waiver of any amount payable would amount to receipt of cash which therefore does not fall under section 28(iv) as held in CIT vs. Mahindra and Mahindra Ltd., [2018] 404 ITR 1 (SC).

5. Without prejudice to the above, Lower Authorities having disallowed depreciation and made addition in respect of liability written off ought to have computed the deduction 10A of the IT Act by taking revised profits.

For the above Grounds and for such other Grounds which may be allowed by the Honourable Members to be urged at the time of hearing, it is prayed that the aforesaid Appeal be allowed.”

2. The brief facts of the case are that the assessee filed return of income for the AY 2006-07 on 24.11.2006 declaring total loss of Rs.2,24,61,220/-. The case was selected for a scrutiny under CASS and statutory notices were issued to the assessee. The counsel Sri Tata Krishna, CA appeared from time to time and the documents were furnished. During the course of assessment proceedings, the AO observed that the assessee has acquired new assets of Rs. 4,22,01,852/- during the previous year and claimed depreciation as under:-

S. No	Description of Assets	Amount	% of Depreciation	Amount
1	Computers & Systems	26,46,706	60%	15,88,024
		2,06,463	30%	61,939
2	Software Tools	3,04,45,609	60%	1,82,67,366
		76,35,142	30%	22,90,543
3	Vehicles	7,60,896	7.5%	57,067
4	Office Equipment	2,31,943	15%	34,791
		20,085	7.5%	1,507
	Total Depreciation		2,23,01,237

2.1. The assessee was asked to furnish evidence in respect of the acquisition of new assets. The assessee furnished details of the list of fixed assets addition during the FY 2005-06 and enclosed copies of two invoices indicating the purchase of assets worth of Rs. 64,480/- dated 20.08.2005 and Rs. 93,600/- dated 17.08.2005 and in regard to balance of assets, the AR of the assessee stated that it was very difficult to produce the copies of all the new assets purchased and contended that sample of two assets have already been furnished and requested to complete the assessment on the basis of evidence furnished. The AO after referring to section 32 of the Act observed as under:-

“3.2 As per the provisions of section 32 of the I.T.Act, the depreciation shall be allowed when the assets are owned by the assessee and used for the purpose of business or profession. The assessee was specifically asked to produce the evidence in respect of the ownership of assets. The assessee’s AR expressed his difficulty to furnish the evidence with regard to the ownership of the new assets acquired by the assessee during the previous year except for two sample invoices. Hence, it is reasonably presumable that the assessee does not own the properties and thus it is not eligible for claim of depreciation. Hence, the depreciation claimed on the new assets, except the assets relating to which the invoices have been produced is rejected and added to the income returned. The computation of depreciation disallowed on the new assets is as under;-

Depreciation claimed by the assessee                     Rs.2,23,01,236

Les: Depreciation allowed                                       Rs. 94,848

Amount Disallowed                                                 Rs.2,22,06,388

3. Further, the AO noticed that the assessee has reduced Rs. 10,62,493/-from the total assessable income towards extinguishment of liability in the computation of income statement. In this regard, the assessee explained vide letter dated 24.12.2008 that cost of software tool purchased from M/s. Magma Design Automation Inc. of Rs. 1,47,79,575/- was capitalized and tool was returned when it did not help to develop/design of software and he further stated that the transaction resulted in a net gain of Rs. 10,62,493/- which has been shown as other income during the year 2005-06 under extinguishment of liability account. In the opinion of the AO, the assessee did not elaborate as to how this amount is reducible from the assessable income and accordingly, the AO added to the entire amount as income for the impugned assessment year and completed the assessment.

4. Aggrieved by the order of the AO, the assessee filed appeal before the CIT(Appeals) and submitted detailed written submissions and some additional evidence. The CIT(A) called for a remand report from the AO. The remand reported submitted by the AO on 10.5.2022 was forwarded to the assessee on which the assessee filed a rejoinder. The CIT(Appeals) after considering the entire material, remand report and the rejoinder partly allowed the appeal of the assessee by observing as under:-

“4.3 The submissions of the appellant have duly been considered. As regards the admission of the additional evidence, frequent change in management of the company and employees can be considered as sufficient cause for the failure of the appellant to produce the same during assessment proceedings. So the same ,9 are admitted.

4.4 As regards the argument of the appellant that the AO has changed the reasons for denial of depreciation in his remand report, the same does not have any merit. Non-production of the requisite evidence during assessment proceedings was the fault of the appellant although the same might have been for genuine reasons. However when such additional evidence is produced, the AO cannot be stopped from giving fresh reasons for the disallowance after examining the same. In this case, at the time of assessment the appellant had failed to prove the ownership of the fixed assets. So the depreciation had been disallowed by the AO on the basis of the same and he was not required to examine the aspect of ‘put to use’ or ‘business purpose’. However when the additional evidence was filed, the AO was well within his right to examine the allow ability of the depreciation on the basis of ‘put to use’ or ‘business purpose’ and the onus was upon the appellant to prove the same by bringing sufficient material on record as it had claimed depreciation. The appellant cannot blame the AO for raising the issue after 14 years as here again the fault lay with the appellant of not timely producing the necessary evidence. This is also noted that the appellant had delayed even the appellate proceedings by not attending the hearings repeatedly. In earlier stages it had not even intimated the correct address for service of hearing notices. The AO has correctly examined the additional evidence in details and so the arguments of the appellant on this issue are found to be devoid of any merit.

4.5 The appellant has relied upon the report of the Auditors and claimed that the fixed assets were verified by them. It has relied upon Form 3CD report to claim that the details of days ‘put to use’ is given therein. However these arguments are also devoid of any merit. The Audit report and the verification by the auditors are based on the details produced by the company before them. If these aspects were actually verified by the Auditors, the appellant was free to produce such details before the AO to substantiate its claim about the date on which the assets were put to use. However, the appellant has not done so. So a mere reliance on Form 3CD or Auditors comment would not suffice.

4.6 As regards allowing depreciation in subsequent year, the same would also not help the appellant. If the assets were put to use in the next financial year, that does not prove that the same were used in previous financial year also.

4.7 As regards the claim of the appellant that the assets were put to use on passive basis, the onus was on the appellant to prove the same. A mere reliance on the case laws does not help as the same are based on the facts of those cases. The issue needs to be looked into on the basis of the facts brought on record as to whether the assets could be considered as put to use on passive basis or not. Similarly the argument of the appellant that a prudent businessman would not keep its assts idle, the onus is on the appellant to show that it acted prudently and had put the assets to use.

4.8 Now as regards addition to vehicles, the appellant could have brought on record the documents relating to the registration of vehicle and it’s insurance to show that the same was put to use. It could have brought on record the log book to show that the same was used for business purposes. However, no such evidence has been brought on record. Fixed assets show addition of two vehicles during the year. The invoice related to one is stated to be dated 28.01.2006 (invoice not produced) and for the other it is dated 20.03.2006. However there isn’t any detail of date of actual delivery, date of registration and date of insurance. So on this basis the AO could not have allowed depreciation to the appellant as even passive user of the vehicle is not possible in absence of delivery/registration/insurance. So disallowance of depreciation on the vehicles is upheld.

4.9 For plant and machinery, the details on the invoices show that a Scan Emulator Pod and a starter kit, with total value of Rs 84,240/- were duly delivered on 24.10.2005. Since these items do not need any specific installation and can be used instantly, the depreciation on the same at half the normal rate would be available to the appellant as business usage of the same cannot be doubted or it can always be considered that the same were available for use. However as regards the balance amount of Rs 1,70,768/-, since no such details of the delivery have been produced by the appellant, the depreciation has rightly been disallowed by the AO.

4.10 As regards software tools, it is a common knowledge that usage of such tools requires registration at the time of installation as at that point of time some `PIN’ is required to be entered. So the date of first usage of such tools can always be ascertained. However the appellant has not brought anything on record to show the same. Unless installed, these tools can also not be considered as ready to use. So the action of the AO in disallowing depreciation on these software tools is upheld.

4.11 As regards Computers and Systems, here too it is a common knowledge that their initial usage requires a proper installation and such date can always be ascertained from the system. So the date of first usage of those computers could ays have- been provided by the appellant if it didn’t have anything to hide. This is especially due to the fact that the appellant itself is in the field of computer technology and well aware of this aspect. However the appellant has not brought anything on record to show the same. Unless installed, the computers can also not be considered as ready to use. So the action of the AO in disallowing depreciation on these Computers and Systems is upheld.

4.13 As regards, washing machine, fridge, iron box and mixer grinder, the argument of the appellant that the same were used for housekeeping work and pantry/cafeteria for the welfare of employees, could have some weight, being a normal practice. However, it is noted that the items had been purchased in the t name of an individual (Mr N Salem Khan). This certainly creates a doubt as to whether the items were purchased by someone in the company for his own benefit or for the purpose of the company. A normal procedure would be that a purchase order would be placed by the company to the vendor in its own name and not in the name of any individual even if Director. So the onus was on the appellant to establish that the items were used in the company for its business purpose and not by the said individual. So the action of the AO in disallowing depreciation on these items is upheld.”

5. In respect of the second issue on the income earned by the assessee through extinguishment of liability, the CIT(Appeals) dismissed the ground raised by the assessee and enhanced the income of the assessee by Rs.15,41,161.

6. Aggrieved from the above assessment order, the assessee filed appeal before the Tribunal and synopsis of the assessee submitted which is as under:-

1.1. As regards denial of depreciation of Rs. 2,22,06,388/- claimed in respect of fixed assets addition made during the impugned year: [Ground Nos. 3.1 to 3.5]

1.2. It is submitted that the Learned Assessing Officer disallowed the depreciation allowance of Rs. 2,22,06,388/- claimed on the fixed assets additions made during the impugned assessment year, merely on the basis that the Appellant failed to produce all of the invoices.

1.3. The depreciation schedule as per the provisions of the IT Act is herewith enclosed as Annexure 2.

1.4. The breakup of the additions to fixed assets made during the impugned year is as under:

Sl. No.	Description of Assets	Additions made during April’ 2005 to September’ 2005	Additions made during October 2005 to March’ 2006	Total
1	Plant & Machinery	–	2,55,008	2,55,008
2	Computer & Systems	26,46,706	2,06,463	28,53,169
3	Software Tools	3,04,45,609	76,35,142	3,80,80,751
4	Vehicles	–	7,60,896	7,60,896
5	Office Equipment	2,31,943	20,085	2,52,028
	Total	3,33,24,258	88,77,594	4,22,01,852

1.5. The breakup of the depreciation claimed on the aforesaid fixed assets is as under:

Sl. No.	Description of Assets	Depreciation claimed
1	Plant & Machinery	19,126
2	Computer & Systems	16,49,963
3	Software Tools	2,05,57,908
4	Vehicles	57,067
5	Office Equipment	36,928
	Total	2,23,20,361

1.6. The breakup of the depreciation denied by the Learned Assessing in respect of aforesaid fixed assets is as under:

Sl. No.	Description of Assets	Depreciation claimed
1	Computer & Systems	16,49,963
2	Software Tools	2,05,57,908
3	Vehicles	57,067
4	Office Equipment	36,928
	Total	2,23,01,237
	Less: Depreciation Allowed	94,848
	Depreciation Disallowed	2,22,06,388

1.7. It is submitted that the Learned Assessing Officer, in fact, records the submission of the Appellant that during the assessment proceeding the Appellant could furnish sample copies of invoices (i.e., 2 invoices) were furnished.

1.8. During the assessment proceeding [during 17.11.2008 to 31.12.2008] the Learned Assessing Officer insisted all of the invoices. In this regard, it is submitted that during preceding previous year the Assessee was known as “Purple Vision Technologies Private Limited” and the Appellant did not have any stake in it. During the impugned previous year, the Assessee was acquired by TES Electronic Solutions, Mauritius (A subsidiary of TES Group, Headquartered at France). Consequent to the said acquisition the Assessee company applied for a name change and approval for the name change was obtained from the Registrar of Companies on 07.07.2006 and accordingly the name of the Assessee company was changed to “TES P.V. Electronic Solutions (P) Ltd”. Even at this point in time, the Appellant did not hold any shares in it.

1.9. It is submitted that the Assessee was acquired by MindTree Ltd., on 17.12.2007 and subsequently its name was changed to MindTree Technologies Ltd. Upon company petition filed for merger of the appellant company with that of MindTree Ltd., the Honorable Karnataka High Court approved the merger with the appointed date being 01.04.2008.

1.10. The aforesaid facts were brought to the notice of the Learned Assessing Officer. The Appellant, in the course of assessment proceedings, submitted copy of the fresh certificate of incorporation consequent upon change of name and copy of the order of Honourable Karnataka High Court in respect of merger of companies.

1.11. For the above reasons, the documents regarding fixed assets could not be immediately retrieved by the Appellant. The frequent change in the ownership of the Assessee company as well in its management and employees made it difficult for the Appellant to furnish the necessary documents to the assessing officer.

1.12. In the aforesaid background, it is submitted that the Learned Assessing Officer ought not to have insisted all the bills and invoices in relation to purchase of fixed assets should be furnished within the time frame suggested by him. He ought to have appreciated the difficulty expressed by the Appellant in having to produce the same within such short span of time.

1.13. It is submitted that the invoices could be retrieved by the Appellant only after the assessment. Copies of the invoices were furnished before the Learned Commissioner (Appeals) vide submission dated 09.08.2011.

1.14. In this regard, a reference may be made to the brief background as observed and accepted by the Learned Commissioner (Appeals) [Para 4.1, 4.3, 4.4].

1.15. It is submitted that the Learned Commissioner (Appeals) having accepted the background in which the invoices could not be furnished during the assessment, is not justified in denying depreciation when the Appellant satisfied all the conditions to justify its claim.

1.16. A reference may be made to section 32 of the IT Act.

1.17. It is submitted that the undisputed fact is that lower authorities have accepted that the Appellant is the owner of the fixed assets acquired during the impugned year. Hence, it is submitted that the condition of owning the asset has been satisfied by the Appellant in the instant case.

1.18. It is submitted that the Learned Commissioner (Appeals) is not justified in denying the depreciation on the basis that the Appellant did not demonstrate that the assets have been put to use.

1.19. It is submitted that the Appellant in fact put to use all the assets in the impugned previous year.

1.20. A reference may be made to the relevant extract from the Auditor’s Report, which reads as follows:

2. a) The company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

b) The fixed assets were physically verified during the year by the management in accordance with a programme of verification, which in our opinion provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us no material discrepancies were noticed on such verification.

1.21. It is amply clear that the statutory auditors have verified the particulars regarding the fixed assets. The statutory auditors have also observed that the Appellant had a programme of physical verification of the fixed assets and physical verification of fixed assets was done at reasonable intervals. The statutory auditors have stated that no material discrepancies were noticed on physical verification of the fixed assets.

1.22. In the CARO Report produced during the course of assessment, the statutory auditor had certified the correctness and appropriateness with respect to the fixed assets as under:

> the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;

> the fixed assets have been physically verified by the management at reasonable intervals;

> any material discrepancies were noticed on such verification and if so, the same have been properly dealt with in the books of account;

1.23. A reference may be made to the Tax Audit report in Form 3CD certified by the Chartered Accountant as per the section 44AB of the IT Act, the relevant extracts of which read as follows:

14. Particulars of depreciation allowable as per the income tax., 1961 in respect of each asset or block of assets, as the case may be, in the following form: a) Description of asset/block of assets. b) Rate of depreciation c) Actual cost or written down value as the case may be d) Additions/deductions during the year with dates; in case of addition of an asset, date put to use; including adjustments on account of i. Modified Value Added Tax credit claimed and allowed under the Central Excise Rules, 1944, in respect of assets acquired on or after 1st March, 1944. ii. Change in rate of exchange of currency, and iii. Subsidy or grant or reimbursement, by whatever name called e) Depreciation allowable f) Written down value at the end of the year

Refer Annexure – 5 and 5A  Refer Annexure – 5 and 5A  Refer Annexure – 5  and 5A Refer Annexure – 5 and 5A  Refer Annexure – 5 and 5A  Refer Annexure – 5 and 5A

1.24. Copies of the Annexures 5 & 5A to the Tax Audit Report are herewith enclosed as Annexure 3.

1.25. It may be noted that in Annexures 5 & 5A to the Tax Audit Report, it has been specifically mentioned about no. of days [i.e., less than 180 days or more than 180 days] the asset has been put to use.

1.26. It is amply clear that the Chartered Accountant has verified the Fixed Asset register, verified the invoices and certified that the aforesaid assets have been put to use. Further, in the tax audit report the Chartered Accountant has noted the no. of days for which each of the aforementioned assets were put to use during the impugned previous year.

1.27. It is submitted that the lower authorities are not justified in denying deprecation by completely ignoring the audited financial statements and the tax audit reports which have certified the truthfulness and correctness of the aforesaid additions to fixed assets. They have failed to appreciate that the statutory auditors have verified the additions to fixed assets under CARO and the tax auditors have certified the additions for reporting in Form 3CD.

1.28. It is submitted that the statutory audit and tax audit were conducted by one of the most reputed audit firms i.e., Deloitte Haskins & Sells. The lower authorities ought not to have brushed aside their report and certification. In this regard, we rely on the following decisions:

– CIT vs. Vibhu Talwar [2011] 11 taxmann.com 419 (Delhi);

– UP Financial Corpn. vs. JCIT [2006] 280 ITR 100 (Allahabad);

–ACIT vs. Best & Crompton Engg. Projects Ltd., [2011] 12 taxmann.com 34 (Chennai);

1.29. In Kasat Textiles Pvt. Ltd. vs. ACIT 66 ITD 510 (Pune), it was held that information in a person’s books of accounts, unless proved wrong, should be accepted.

1.30. Thus, it is undisputed fact that the aforesaid Auditor’s Report and Form 3CD have not been disregarded by the lower authorities either during the assessment proceeding or in the remand proceeding. It is also submitted that for all other purposes the lower authorities have accepted the Auditor’s Report and tax audit report in Form 3CD.

1.31. Hence, the Appellant discharged its onus of establishing that the assets were put to use for the purpose of business of the Appellant on the basis of auditors’ report and tax audit report.

1.32. We rely on the decision in Mahanagar Telephone Nigam Ltd., vs. Addl. CIT [2006] 100 TTJ 1 (Delhi) [Paras 76 & 77].

1.33. In the following decisions, the Courts have relied upon auditor’s report and tax audit report:

– CIT vs. S.R. Fragrances Ltd., [2004] 270 ITR 560 (Delhi);

– Rapicut Carbides Ltd., vs. DCIT [1999] 102 Taxman 148 (Ahmedabad – ITAT) (Mag.);

– Milkfood Limited vs. DCIT [2000] 111 Taxman 323 (Delhi) (Mag.);

1.34. It is submitted that the lower authorities have not brought on record to show that the fixed assets were not put to use by the Appellant during the impugned year. Thus, it submitted that both the lower authorities having not dislodged the onus of disproving the claim of the Appellant on the basis of auditor’s report and tax audit report, the Appellant’s reliance on the auditor’s report and tax audit report ought to have accepted. In this regard, reference may be made to the following cases:

• • CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC);
  • UOI and Others v. Garware Nylons Limited and Other AIR 1996 SC 3509: (1996) 10 SCC 413: (1996) 87 ELT 12 (para 15);
  • CIT v. Janki Textiles &Indusstries Ltd. [2003] 264 ITR 579 (Guwahati) (para 3);
  • MOD Creations (P.) Ltd. v. ITO [2013] 354 ITR 282 (Del) (para 14);
  • CIT v. Dharmaja Infrastructure [2019] 265 Taxman 125 (Guj) (para 4);
  • VirjibhaiKalyanbhaiKukadia (2012) 138 ITD 255 (Ahm. – Trib.) (para 15);

1.35. It is also submitted that lower authorities ought not to have denied depreciation relating to the additions during the year when they have otherwise accepted that the Appellant company carried out its business operations. They are not justified in impractically assuming that the business operations with a turnover of Rs.16,96,66,456/- of the Appellant company could have been carried out without the impugned assets.

1.36. It is also submitted that the Learned Assessing Officer in his remand report having stated “However, considering the nature of business the assessee is engaged in ie. Software development, it is possible that these software tools were used for assessee business purpose”, ought to have allowed the depreciation. Such being the case, it is submitted that the depreciation could have been allowed on the basis of business exigency.

1.37. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals), having not doubted that the Appellant acquired the impugned assets at the stated costs during the course of the previous year, is not justified in insisting on absolute evidence of use after the lapse of 16 years rather than applying the principle of “preponderance of probability” and “prudency”.

1.38. It is submitted that lower authorities have not doubted the transaction of purchase of fixed assets. It is also submitted that the lower authorities ought to have appreciated that even after the lapse of 14 years, the Appellant put its efforts to get vendor confirmation for having purchased the software tool.

1.39. It is submitted that the lower authorities ought to have allowed depreciation by applying the principle of “preponderance of probability”.

1.40. It is submitted that the Income-tax Act,1961 is not governed by strict rules of evidence and it is the preponderance of probabilities of events in its normal course of happening governs the fastening of liability under the Act subject of course to the specific stipulations as are contained in the provisions of the Statute. In this regard, we rely on the decision in Dhakeswari Cotton Mills Ltd., vs. CIT (1954) 26 ITR 775 (SC).

1.41. The phrase “preponderance of probability” comes from decision in Charles R. Cooper v. F.W. Slade, (1857-59) 6 HLC 746, which means “more probable and rational view of the case”.

1.42. In Arvind M. Kariya vs. ACIT (2013) 153 TTJ 422 (Mum.) it was held as follows:

“20. Needless to say that income tax proceedings are civil proceedings and the degree of proof required is by preponderance of probabilities, ’’

1.43. In CIT v. Dwarkadish Investment P. Ltd. [2011] 330 ITR 298 (Delhi) HC it was held that where the preponderance of evidence indicates absence of culpability and complexity of the assessee it should not be harassed by the Revenue’s insistence that it should prove the negative.

1.44. In CIT vs. LalBabu (1980) 122 ITR 1006 the Hon’ble Patna High Court held that, the assessees need only to show that his plea stands the test of preponderance of probability. If the assesses give a plausible explanation against the additions made to his income, the onus will then shift to the Department to show that the assessee’s explanation was false or not worthy of belief or that it was not even probable.

1.45. In SEBI vs. Kishore R Ajmera (2016) 6 SCC 368, it was held that surrounding circumstances may be considered in the absence of direct evidence.

1.46. We rely on the following decisions:

• • T. Jayachandran vs. DCIT [2013] 212 Taxman 620 (Madras) [Paras 27 & 28]. The departmental appeal against the said decision was dismissed by the Honourable Supreme Court in DCIT vs. T. Jayachandran (2018) 406 ITR 1 (SC)
  • Monisha R. Jaising vs. DCIT [2019] 101 taxmann.com 519 (Mumbai – Trib.) [Para 16]
  • GTC Industries Ltd. v. ACIT [2017] 164 ITD 1 (Mum. – Trib.) (SB) [Para 46]
  • Smt. MadhuKilla vs. ACIT [2018] 100 taxmann.com 264 (Kolkata – Trib.) [Para 17]
  • Jaya Aggarwal vs. ITO [2018] 254 Taxman 398 (Delhi) [Paras 8 & 9]
  • Nihal Chand Harish Chand & Suresh Chand vs. ACIT [1995] 52 TTJ 585 (Delhi) [Para 5.1]
  • Om ParkashNahar vs. ITO [2022] 100 ITR(T) 345 (Delhi – Trib.)/[2023] 198 ITD 312 (Delhi – Trib.) [Para 10]

1.47. We also rely on the following decisions wherein Courts have applied the principles of “preponderance of probabilities”:

• • UOI vs. GanpatiDealcom (P.) Ltd., [2022] 447 ITR 108 (SC);
  • PCIT vs. Ennoble Construction [2022] 447 ITR 444 (Kar.);

1.48. It is submitted that the lower authorities are not justified in denying depreciation without looking into substance over form. In this regard, we rely on the following decisions:

• • JuggilalKamlapat (1971) 1 SCC 477;
  • Poona Electric Supply 57 ITR 121 SC;
  • Karnataka State Beverages Corporation Ltd. vs. CST (2008) 12 STJ 30 (CESTAT-Bangalore);

1.49. As submitted earlier, it is humanly impossible to carry out the scale of operations achieved by the Appellant without the impugned assets. It is also submitted that it is impractical for the lower authorities to insist on furnishing the evidence, now, regarding asset being put to use which were acquired 16 years back.

1.50. As stated earlier, the Appellant company was subject to change in ownership and management. During the impugned previous year, the present company never had any shares nor any control in the Assessee company. In the light of this, the Appellant furnished whatever maximum it could furnish. Considering this factor, the lower authorities ought not to have insisted on absolute evidence of user.

1.51. We rely on the decision in PCIT vs. Ajmer VidyutVitran Nigam Ltd., (2022) 447 ITR 186 (Raj.).

1.52. The action of the lower authorities in rejecting depreciation in respect of acquisition of assets during the year 2005-06 defies the test of human probability.

1.53. We rely on the decision in PurshottamKhatri vs. CIT (2019) 419 ITR 475 (SC) [Paras 1 & 2].

1.54. We rely on the decision in CIT vs. Allergan India (P.) Ltd., [2015] 371 ITR 38 (Karnataka) [Paras 4, 6 & 7].

1.55. In Smt. Rajrani Gupta v. DCIT [2013] 257 CTR 47 (Bombay) [para 33], it was held that (human probability) is “a degree of probability of a prudent man taking into account the probable behaviour of a reasonable man along with surrounding circumstances.”

1.56. In this regard, we rely on the following cases:

♦ J.S. Parkar vs. V.B. Palekar&Ors., (1974) 94 ITR 616 (Bombay);

♦ CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC);

♦ SumatiDayal vs. CIT, (1995) 214 ITR 801 (SC);

1.57. It is submitted that the human probability test is also applied in the following cases:

• • Rajendran&Ors. vs. ACIT (2006) 204 CTR (Mad) 9;
  • Hacienda Farms (P) LTD. vs. CIT (2011) 239 CTR (Del) 212 (Paras 7 & 8);
  • Major Metals Ltd. vs. UOI and Ors. (2012) 251 CTR (Bom) 385 (paras 23,25,27-28);
  • Pradip Kumar Loyalka vs. ITO (1997) 59 TTJ (Pat)(TM) 655 (paras 6-10 of TM order);
  • ACIT vs. Sampat Raj Ranka (2001) 73 TTJ (Jd) 642;
  • DCIT vsAlokGautam (2010)128 TTJ 532(Luck.) (paras 26-30);
  • CIT vs. Empire Builtech Pvt. Ltd. [2015] 228 Taxman 346 (Del)(Mag.);
  • Umakant B. Agrawal vs. Dy. CIT [2014] 369 ITR 220 (Bom);
  • CIT vs. Narinder Kumar Sekhri [2015] 228 Taxman 35 (P&H)(Mag);
  • Edayanal Constructions vs. CIT [1990] 183 ITR 671 (Ker).

1.58. It is also submitted that the lower authorities in insisting on absolute evidence of use after the lapse of 16 years is not in accordance with the recognised principle of lex non cogitadimpossibilia, i.e., the law does not demand the impossible and impotentiaexcusatlegem, i.e., when there is a disability that makes it impossible to obey the law, the alleged disobedience of the law is excused. In this regard, we rely on the following decisions:

♦ Global One India P. Ltd. vs. ACIT [2014] 31 ITR (Trib.) 722 (Delhi) [Para 12]

♦ Swami Premananda vs. CIT [2009] 180 Taxman 368 (Mad)

♦ In the following decisions, Courts have recognised the principles of impossibility of performance:

→ Dalmia Power Ltd., vs. ACIT (2020) 420 ITR 339 (SC) [Para 8];

→ Life Insurance Corporation of India vs. CIT [1996] 219 ITR 410 (SC);

→ Karnataka State Industrial and Infrastructure Development

→ Corporation Ltd., vs. DCIT [2021] 431 ITR 255 (Karnataka);

→ PCIT vs. Ennoble Construction [2022] 447 ITR 444 (Kar.) [Para C(i)];

→ City Union Bank Ltd., vs. ACIT (2020) 425 ITR 475 (Madras) [Para 14];

→ Lalitha Jewellery Mart (P.) Ltd., vs. DCIT (2017) 399 ITR 425 (Madras) [Para 42];

1.59. In UOI v. Harjeet Singh Sandhu [2001] 5 SCC 593, the court went by the dictionary meaning of the term “impracticable” in proximity with the term “impossibility”. It is submitted that, even in the instant case, the lower authorities insisting on absolute evidence of use after the lapse of 16 years is sheer “impracticable”, thereby it is “impossible” for the Appellant to comply with.

1.60. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 16,49,963/- in respect of computers & systems by stating that “initial usage requires a proper installation and such date can always be ascertained from the system”, by failing to appreciate that computers & systems do not last for 16 years.

1.61. It is submitted that as the computers & systems do not have such long life of 16 years, the Appellant could not show the date installation through the computer systems.

1.62. It is submitted that the Learned Commissioner (Appeals) ought to have appreciated that for computers & systems, as per section 32 read with New Appendix I to Rule 5, the rate of depreciation prescribed is 60%. Thus the computer systems depreciate rapidly at the rate of 60% in a year. Such being the case, the department cannot expect the Appellant to show the date of installation of through the computer systems after the lapse of 16 years.

1.63. It is submitted that the Learned Commissioner (Appeals) is not justified in applying user test by failing to appreciate that it was never the basis of the Learned Assessing Officer of denying the depreciation during the assessment proceeding.

1.64. As submitted earlier, due to frequent change in ownership and management, the appellant could not furnish all the invoices during the assessment proceeding. The Appellant could not also furnish copies of all of the invoices of fixed assets acquired during the FYs 2005-07 and 2006-07 (i.e., AYs 2006-07 to 2007-08) during original assessment proceedings.

1.65. However, the Appellant furnished the copies of the invoices of fixed assets during the first appellate proceedings for the AYs 2006-07 to 2007-08. The Learned predecessor Commissioner (Appeals) called for the remand report for the AYs 2006-07 and 2007-08. Copies of the remand reports for the AYs 2006-07 & 2007-08 are herewith enclosed as Annexure 4 & 5.

1.66. Upon perusal of remand report for the AY 2007-08, it may be noted the Learned Assessing Officer has not applied user lest for the purpose of depreciation.

1.67. In fact, for the AY 2007-08, both, Learned Assessing Officer and the Learned Commissioner (Appeals) have allowed depreciation on assets without applying the user test. Copy of the order of the Learned Commissioner (Appeals) for the AY 2007-08 is herewith enclosed as Annexure 6.

1.68. In identical facts and circumstances, for AY 2007-08 the user test was never the basis of the Learned Assessing Officer of denying the depreciation during the assessment proceeding or during the remand proceeding.

1.69. We rely on the decision in PCIT vs. Petronet V K Ltd., 2016-TIOL-3066-HC-AHM-IT, [Paras 1, 2 & 3].

1.70. It is submitted that during the remand proceeding before the Learned Assessing Officer for AY 2006-07, the Appellant furnished vendor confirmation for having purchased the software tool. It is also submitted that the Appellant furnished copy of the bill of entry for home consumption attested by the Customs authority of India. Even this would establish that the software tool was used upon customs clearance.

1.71. Such being the case, it is submitted that user test cannot be the basis for denying the depreciation for the impugned AY 2006-07.

1.72. In the following decisions, the Courts have applied the “principle of consistency”:

• • Parshuram Pottery Works Ltd. v. ITO [1977] 106 ITR 1 (SC)
  • Bharat Sanchar Nigam Ltd. v. UOI [2006] 282 ITR 273 (SC)
  • CIT v Excel Industries Ltd [2013] 358 ITR 295 (SC)
  • Berger Paints India Ltd. v. CIT [2004] 266 ITR 99 (SC)
  • UOI v. Kaumudini N. Dalal [2001] 249 ITR 219 (SC)
  • UOI v. SatishPannalal Shah [2001] 249 ITR 221 (SC)
  • CIT v. NarendraDoshi [2002] 254 ITR 606 (SC)
  • CIT v. Shivsagar Estate [2007] 257 ITR 59 (SC)
  • RadhaswamySatsang v. CIT [1992] 193 ITR 321 (SC)
  • CIT vsSridev Enterprises [1991] 192 ITR 165 (Karnataka)
  • CIT v. A.R.J. Security Printers [2003] 264 ITR 276 (Delhi)
  • CIT v. Neo Polypack Pvt. Ltd. [2000] 245 ITR 492 (Delhi)
  • CWT v. Allied Finance (P.) Ltd. [2007] 289 ITR 318 (Delhi)
  • F. Varghese No.2 v. State of Kerala [1969] 72 ITR 726 (Ker.)
  • PradipRamanlal Seth v. UOI [1991] 204 ITR 866 (Guj.)
  • Aggarwal Warehousing & Leasing Ltd. [2002] 257 ITR 235 (MP)
  • CIT v. United Vanaspati [2004] 88 ITD 313 (CHD)(TM)

2. As regards denial of depreciation of Rs. 2,05,57,909/- in respect of software tools: [Ground Nos. 3.6.1 to 3.6.4]

2.1. It is submitted that the Learned Commissioner (Appeals) ought to have allowed depreciation of Rs. 2,05,57,909/-, when the Learned Assessing Officer in the remand report had stated that “However, considering the nature of business the assessee is engaged in ie. Software development, it is possible that these software tools were used for assessee business purpose”.

2.2. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation by stating that “tools requires registration at the time of installation as at that point of time some ‘PIN’ is required to be entered. So the date of first usage of such tools can always be ascertained”, by failing to appreciate that such information would not be available with the Appellant as the shelf life of both hardware and software does not last for 16 years.

2.3. It may be noted that the depreciation was allowed by the cit(a) on Scan Emulator Pod. Applying the same principles and reasoning, it is submitted that the Learned Commissioner (Appeals) ought to have allowed depreciation on software tools as well.

2.4. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 2,05,57,909/- for the impugned AY 2006-07, when the Learned Assessing Officer has accepted that depreciation should be allowed and the Learned Commissioner (Appeals) allowed depreciation in an identical facts and circumstances in the Appellant’s own case for the AY 2007-08. Copy of the order of the Learned Commissioner (Appeals) for the AY 2007-08 is enclosed as Annexure 6.

3. As regards denial of depreciation of Rs. 12,808/- in respect of plant and machinery: [Ground Nos. 3.7.1 & 3.7.2]

3.1. It is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 12,808/- in respect of addition to plant and machinery of Rs.1,70,768/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order.

3.2. As submitted earlier, the Appellant claimed total depreciation of Rs.2,46,92,097/- [i.e., in respect of both WDV & assets acquired during the year], the asset wise breakup of the same is as under:

Sl. No.	Description of Assets	Depreciation claimed
1	Plant & Machinery	19,126
2	Computer & Systems	32,14,566
3	Software Tools	2,05,98,380
4	Vehicles	3,24,669
5	Office Equipment	3,30,577
6	Furniture & Fittings	1,29,857
7	Leasehold Improvements	74,923
	Total	2,46,92,097

3.3. The breakup of the depreciation claimed on the fixed assets acquired during the impugned year is as under:

Sl. No.	Description of Assets	Depreciation claimed
1	Plant & Machinery	19,126
2	Computer & Systems	16,49,963
3	Software Tools	2,05,57,908
4	Vehicles	57,067
5	Office Equipment	36,928
	Total	2,23,20,361

3.4. The breakup of the depreciation denied by the Learned Assessing in respect of aforesaid fixed assets is as under:

Sl. No.	Description of Assets	Amount in Rs.
1	Computer & Systems	16,49,963
2	Software Tools	2,05,57,908
3	Vehicles	57,067
4	Office Equipment	36,928
	Total	2,23,01,237
	Less: Depreciation Allowed	94,848
	Depreciation Disallowed	2,22,06,388

3.5. It may be noted that out of the depreciation of an amount of Rs.2,23,20,361/- claimed in respect of fixed assets acquired during the year, the Learned Assessing Officer has denied depreciation of Rs. 2,22,06,388/-.

3.6. Thus, it is submitted that the Learned Assessing Officer has not denied deprecation on the following assets which were acquired during the impugned year:

Sl. No.	Description of Assets	Depreciation allowed
1	Plant & Machinery	19,126
2	Vehicles	57,067
3	Office Equipment	36,928

3.7. Hence, it is submitted that depreciation claimed by the Appellant on plant and machinery has not been denied by the Learned Assessing Officer.

3.8. It is also submitted that the Learned Commissioner (Appeals) has not issued any notice of enhancement during the appellate proceeding.

3.9. Such being the case, it is submitted that it is not permissible for the Learned Assessing Officer to advise on denial of depreciation (i.e., in the remand report) and for the Learned Commissioner (Appeals) to deny the depreciation claimed by the Appellant on plant and machinery.

3.10. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) ought to have allowed depreciation of Rs.12,808/- on same principles on which the depreciation on plant and machinery of Rs.84,240/- was allowed by him.

4. As regards denial of depreciation of Rs. 57,067/- in respect of vehicles: [Ground Nos. 3.8.1 & 3.8.2]

4.1. It is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 57,067/- in respect of addition to Vehicles of Rs. 7,60,896/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order. In this regard, we rely on the submission made in paragraphs 5.2 to 5.6 (supra).

4.2. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation by stating that “the appellant could have brought on record the documents relating to the registration of vehicle and it’s insurance to show that the same was put to use. It could have brought on record the log book to show the same was put to use”, by failing to appreciate that such information would not be available with the Appellant as the life of the vehicles does not last for 16 years.

5. As regards denial of depreciation of Rs. 1,507/- in respect of office equipments: [Ground Nos. 3.9.1 & 3.9.2]

5.1. It is submitted that the Learned Commissioner (Appeals) is not justified in denying depreciation of Rs. 1,507/- in respect of addition to office equipment of Rs. 20,085/-, when in fact the Learned Assessing Officer had not denied the same in the assessment order. In this regard, we rely on the submission made in paragraphs 5.2 to 5.6 (supra).

5.2. Without prejudice to the above, it is submitted that the Learned Commissioner (Appeals) having stated that “As regards, washing machine, fridge, iron box and mixer grinder, the argument of the appellant that the same wee used for housekeeping work and pantry/ cafeteria for the welfare of the employees, could have some weight, being a normal practice”, ought to have allowed depreciation on office equipments.

6. As regards the addition of Rs. 26,03,654/- [Rs. 10,62,493/- + Rs.15,41,161/-] in respect of liability written off: [Ground Nos. 4.1 to 4.4]

6.1. It is submitted that the Learned Commissioner (Appeals) is not justified in making addition of Rs. 26,03,654/- [Rs. 10,62,493/- + Rs.15,41,161/-] in respect of liability written off by erroneously invoking section 28(iv) of the IT Act.

6.2. It is submitted that the software tool was purchased from one M/s.Magma Design Automation Inc. for a sum of Rs. 1,47,79,575/- and the same was capitalized in the books of accounts on 23.06.2004 (i.e., FY 2004-05/AY 2005-06].

6.3. Subsequently, in the impugned AY 2006-07 [i.e., FY 2005-06], it was found that, the tool was of no help in development or designing of software the same was de-capitalized in the books of accounts. This was done by taking the following steps:

a) The original cost of software tool of Rs. 1,47,79,575/- was reduced by the depreciation debited to P&L A/c upto 31.12.2005 of Rs.49,93,512/-.

b) The resultant balance of Rs. 97,86,063/- was debited to an account created by the name ‘Extinguishment of Liability’. Copy of the ledger account of ‘Extinguishment of Liability’ is herewith enclosed as Annexure 7.

c) The balance outstanding in the party’s account towards the above software tool was Rs. 1,08,48,556/- at the time of decapitalisation. The said balance was credited to ‘Extinguishment of Liability’ by debiting the party’s account. Post this entry, the party’s account stood closed.

d) The closing balance in ‘Extinguishment of Liability’ account showed gain of Rs. 10,62,493/-. The same was credited to P&L Account being grouped under ‘Other Income’. Copies of the relevant extract of the P&L Account and Schedule of ‘Other Income’ are herewith enclosed as Annexures 8 & 9.

6.4. It is submitted that, as the above gain is on capital account, the same was reduced from the profits as per P&L Account in the statement of computation of total income.

6.5. It is submitted that the Learned Assessing Office taxed the aforesaid amount of Rs.10,62,493/- under section 41(1) of the IT Act.

6.6. As regards applicability of section 41(1), the Appellant submitted the following to CIT (A) as under:

(1) It is submitted that the software tool written off in the books of accounts is not an expenditure allowable under the IT Act, as the same is capital in nature. Further, admittedly, the same was also never claimed as deduction while computing the total income.

(2) The liability that arose on account of purchase of such capital asset is capital in nature and extinguishment of same is capital receipt.

(3) It may be noted that, as the original liability arose on account of purchase of a software tool which is capital in nature, the subsequent extinguishment of the said liability is also capital in nature. Such extinguishment of liability has to be treated as capital receipt and the same is not liable to be taxed in the hands of the assessee under the IT Act. Hence, the net amount as explained above has been reduced while computing business profits.

(4) A reference may be made to section 41 (1) of the IT Act.

(5) It is submitted that the provisions of section 41 (1) can be invoked only in case where an allowance or deduction has been made in any earlier assessment year in respect of loss, expenditure or trading liability incurred by the Appellant.

(6) It is submitted that it is undoubted that the liability that arose on account of purchase of Software tool which was capitalized in the books of account of the appellant {e., capital liability} is not a trading liability. Such being the case, in the instant case question of allowability/deduction in any earlier assessment years did not arise at all. Hence, the question of invoking section 41 and treating the aforesaid write back of capital liability as income also does not arise.

(7) It is also submitted that section 41 (1) (a) cannot be invoked for the following reasons:

> An allowance or deduction has been made in any earlier assessment year in respect of loss, expenditure or trading liability; AND

> Subsequently, benefit obtained is not in respect of any trading liabilities by way of remission or cessation thereof;

(8) We rely on the following decisions:

• • CIT vs. Mahindra and Mahindra Ltd., [2018] 404 ITR 1 (SC);
  • Nectar Beverages (P.) Ltd., vs. DCIT [2009] 314 ITR 314 (SC);
  • CIT vs. SadenVikas India Ltd 2010-TIOL-82-HC-DEL-IT;
  • Rayala Corporation P. Ltd. vs. ACIT [2009] 319 ITR (AT) 158 (Chennai);

10. It is also submitted that section 41 (2) of the IT Act does not apply to the instant case of the Appellant for the reason that the provisions of section 41 (2) are applicable in a case of assets of an undertaking engaged in generation or generation and distribution of power. In this regard, a reference may be made Circular No. 772, dated 23.12.1998 [Para 16.1].

11. Therefore, it is submitted that the amount of Rs.
10,62,493/- cannot be treated as income in the hands of the Appellant by invoking section 41(1) of the IT Act.

6.7. A reference may be made to paragraph 5.2 of the Order of the Learned Commissioner (Appeals).

6.8. It is submitted that the aforesaid nothings of the Learned Commissioner (Appeals) are perverse for the reason that (i) in so far as applicability of section 41(1), the Appellant had furnished submissions dated 09.08.2011 and 13.12.2022 and (ii) in so far as applicability of section 50, it was explained during the appellate proceedings that the Appellant had reduced the amount of Rs.1,08,48,556/- from the WDV as per the section 50 and also furnished explanation vide submission dated 13.12.2022.

6.9. It is submitted that during the appellate proceeding, the Learned Commissioner (Appeals) accepted that contention of the Appellant that the amount of Rs. 10,62,493/- cannot be taxed as income in the hands the Appellant under section 41(1), by way of issuing notice vide ITBA/APL/F/APL_1/2022-23/1047700761(1), dated 29.11.2022, to treat the Rs. 88,67,745/- as value of benefit arising from business under section 28(iv).

6.10. Thus, it is submitted that the contention that the aforesaid amount of Rs.10,62,493/- cannot be taxed as income in the hands of the Appellant under section 41(1) has been held in favour of the appellant and the same has not been challenged by the department.

6.11. A reference may be made to Paragraphs 5.6, 5.8, 5.10, 5.11 & 5.12 from the order of the Learned Commissioner (Appeals).

6.12. As submitted earlier, the balance amount payable to M/s.Magma Design Automation Inc. was Rs. 1,08,48,556/-. The same was written back as not payable. Thus, it is submitted that the same amounts to waiver of the outstanding by the vendor.

6.13. It is submitted that aforesaid waiver by M/s.Magma Design Automation Inc. of Rs. 1,08,48,556/- was reduced from the block of assets. The same can be seen from the Annexure 5 to Form 3CD. Copy of the said annexure is enclosed as Annexure 2.

6.14. Hence, it is submitted that no benefit accrued to the Appellant as the unpaid liability was reduced from the block of assets.

6.15. Without prejudice to above, it is submitted that the section 28(iv) of the IT Act is not applicable. The said section provides that the value of any benefit or perquisite, whether convertible into money or not, arising from business or profession shall be chargeable to income tax under the head profits and gains of business or profession.

6.16. It clearly says that benefit or perquisite can be in any form, which can be converted into money.

6.17. Therefore, in order to invoke the provision of section 28(iv) of the IT Act, the benefit which is received has to be in some form other than in the shape of money as held in CIT vs. Mahindra and Mahindra Ltd., [2018] 404 ITR 1 (SC).

6.18. We rely on the decision in CIT vs. Mahindra and Mahindra Ltd [2018] 404 ITR 1 (SC) [Para 11, 13 & 17].

6.19. Thus, it is submitted that as per the Hon’ble Supreme Court in Mahindra and Mahindra Ltd (supra), waiver of liability amounts to receipt of cash/ money in the hands of debtor and in such case, section 28(iv) is not applicable.

6.20. A reference may be made to the Finance Bill’ 2023, wherein amendment to section 28(iv) has been proposed.

6.21. A reference may be made to relevant extract from the Memorandum to the Finance Bill’ 2023.

6.22. Thus, it is clear that benefit or perquisite provided is in cash or in kind or partly in cash and partly in kind does not fall within the ambit of section 28(iv). It may be noted that the aforesaid amendment is proposed to come into effect prospectively i.e., FY 2023-24/ AY 2024-25 onwards. Hence, it is submitted that for the impugned AY 2006-07, cash benefit does not fall under section 28(iv) of the IT Act.

6.23. Therefore, it is submitted that section 28(iv) of the IT Act does not apply in the instant case.

6.24. It is submitted that the Learned Commissioner (Appeals) has enhanced the income by erroneously relying on the decision in Binjrajka Steel Tubes Ltd. vs. ACIT [2011] 130 ITD 46 (Hyd.).

6.25. It is submitted that the Learned Commissioner (Appeals) is not justified in failing to appreciate that liability written off in respect of depreciable asset (i.e., software tool) falls under section 43(6)(c)(ii) read with section 43(6)(c)(i) and not under section 28(iv) of the IT Act.

6.26. A reference may be made to section 43 (6) of the IT Act (As applicable for the impugned year).

6.27. Section 43(6)(c), defining WDV of a block of assets, clearly stipulates a reduction from the opening WDV for the ‘moneys payable’ in respect of any asset falling within a block of assets, which is sold or destroyed or demolished or discarded during the relevant previous year.

6.28. As per Advanced Law Lexicon, the meaning of the word ‘discard’ is as under:

> Discard – To cast off as useless or as no longer of services; to put off; to dismiss from employment, confidence or favour to reject.

> Discard – To drop, dismiss, let go or get rid of as no longer useful, valuable or pleasurable.

6.29. In the following decisions, Courts have held that assets, on which depreciation was claimed earlier, has been discarded, the same has to be reduced from the WDV as per section 43(6)(c):

A CIT vs. Yamaha Motor India (P.) Ltd., [2010] 328 ITR 297 (Delhi);

A Mindteck (India) Ltd. vs. ITO (2009) 124 TTJ (Mum) 830;

A Vinyl Chemicals (India) Ltd. vs. DCIT [2008] 25 SOT 235 (MUM.); A DCIT vs. CoromandalBioTech Industries (I) Ltd., [2012] 20 taxmann.com 520 (Hyd.);

6.30. In the instant case, as submitted earlier and it is undisputed fact that in the impugned AY 2006-07 [i.e., FY 2005-06], it was found that, the software tool was of no help in development or designing of software the same was de-capitalized in the books of accounts. In other words, the software tool has been discarded by the Appellant during the impugned year.

6.31. It is also submitted that the Learned Commissioner (Appeals) has accepted that the case of the Appellant is that the asset (i.e., software tool) has been discarded by the Appellant during the impugned year [Refer: Para 5.10].

6.32. Hence, it is submitted that the case of the Appellant falls within the ambit of section 43(6)(c)(ii) read with section 43(6)(c)(i).

6.33. Thus, whenever an individual asset which is already forming part of the block of asset is discarded, the moneys payable in respect of such asset has to be reduced from the WDV.

6.34. For the purpose of section 43 (6) the meaning of the term “moneys payable” would be same as per Explanation (1) to section 41(4).

6.35. The term ‘moneys payable’ includes:

(a) any insurance, salvage or compensation moneys payable in respect thereof;

(b) where the building, machinery, plant or furniture is sold, the price for which it is sold,

6.36. It may be noted that the term ‘moneys payable’ has been defined inclusively.

6.37. As submitted earlier, the instant case of the Appellant is that the asset (i.e., software tool) is ‘discarded’ and not a case of ‘sale’.

6.38. The undisputed fact is that the balance amount of Rs. 1,08,48,556/- was payable by the Appellant to the vendor (i.e., M/s.Magma Design Automation Inc.) in respect of aforesaid discarded software tool and the said entire amount was waived by the said vendor (i.e., M/s.Magma Design Automation Inc.).

6.39. As submitted earlier, as per the Hon’ble Supreme Court in Mahindra and Mahindra Ltd (supra), waiver of liability amounts to receipt of cash/ money in the hands of debtor.

6.40. Applying the ratio of the Hon’ble Supreme Court (supra), the amount of Rs. 1,08,48,556/- waived by the vendor (i.e., M/s.Magma Design Automation Inc.) needs to be regarded as amount received by the Appellant towards discarding of the software tool.

6.41. As demonstrated earlier, the Appellant reduced entire amount of Rs.1,08,48,556/- [which is waived by the vendor] has been reduced from the WDV of the block of asset as per the mandate of section 43(6)(c)(ii) read with section 43(6)(c)(i).

6.42. It is submitted that the Learned Commissioner (Appeals) is not justified in failing to appreciate that there are no provisions under IT Act to treat the depreciation allowed in the past years as income in the subsequent year.

6.43. It is also submitted that depreciation allowed in the past years cannot be treated as income by way of the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession under section 28(iv) of the IT Act.

6.44. It may be noted that section 28 states that “The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,—”. Thus, before any benefit can be taxed under section 28(iv) it must be in nature of “Income”.

6.45. As per section 28 (i) the profit and gains of any business of profession which was carried on by the assessee at any time during the previous year is chargeable to tax under the head “Profits and gains of business or profession”.

6.46. Section 29 provides that income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D.

6.47. From the combined reading of section 28 (i) and section 29, it is submitted that it is the “profit and gains” or “income” which is chargeable to tax under the head “Profits and gains of business or profession”.

6.48. The words “Profits and Gains” referred to in Sections 28 and 29 of the Act deals with only Commercial profits as understood in the Commercial parlance as held by Lord Halsbury in Gresham Life Assce. Soc. V. Styles 3 TC 185 [HL] “in its natural and proper sense i.e. in a sense which no Commercial man would misunderstand”. This principle has been approved by the Privy Council in Pondicherry Railway Co. Ltd. v. CIT 5 ITC 363, and by the Supreme Court in BadridasDaga v. CIT [1958] 34 ITR 10, Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 [SC] and CIT v. BaiShirinbai [K] Kooka [1962] 46 ITR 86.

6.49. We rely on the following decisions:

∝ CIT vs. UP State Industrial Development Corporation (1997) 225 ITR 703 (SC);

∝ CIT vs. Mehsana District Co-Operative Milk Producers Union Ltd. [2005] 146 Taxman 355 [Guj.];

∝ Tamil Nadu Minerals Ltd. vs. JCIT [2005] 95 ITD 294 (Chennai)/[2006] 100 TTJ 738 (Chennai);

6.50. Thus, it is submitted that “income” referred to in section 28 and “profits and gains” referred to in section 28 (i) has to be ascertained on the basis of applying ordinary principles of commercial accounting.

6.51. It is submitted that the Learned Commissioner (Appeals) has erred in treating the deprecation allowed in the earlier year as income for the impugned year.

6.52. In the following decision, Courts have held that depreciation is an allowance:

– CIT vs. Bombay State Transport Corporation (1979) 118 ITR 399, 405 (Bom.);

– CIT vs. EleconEngg. Co. Ltd., (1974) 96 ITR 672 (Guj.) affirmed by the Hon’ble Supreme Court in (1987) 166 ITR 66 (SC);

– CIT vs. Oswal Agro Mills Ltd., [2012] 341 ITR 467 (Delhi);

– JCIT vs. Essar Shipping Ltd., (2006) 102 ITD 71 (Mum.);

6.53. Explanation 5 to section 32 of the IT Act mandates that depreciation shall be allowed whether or not the assessee has claimed depreciation in computing total income.

6.54. A reference may be made to Circular No. 14/ 2001, dated 12.12.2001 [Paras 30.1 to 30.5].

6.55. It is submitted that depreciation is an allowance and mandatorily allowable under the provisions of the IT Act.

6.56. Such being the case, it is submitted that depreciation allowed in the past cannot be regarded as ‘income’ of the subsequent year.

6.57. It is also submitted that it is never been the intention of the legislature to grant allowance for depreciation on one hand and to tax such allowance granted as a benefit chargeable under section 28(iv) thereby nullifying or withdrawing the allowance under section 32. It is also submitted that there is no express provision to such effect.

6.58. We rely on the following decisions:

– HDFC Securities Ltd., vs. ACIT [2011] 9 taxmann.com 23 (Mumbai) [Para 10];

– Shapers India (P.) Ltd., vs. DCIT [2021] 191 ITD 700 (Pune – Trib.) [Paras 7, 10 & 13];

6.59. It is impermissible to invoke section 28(iv) to withdraw the depreciation previously claimed. This will amount to doing indirectly what is not directly permissible. This is not permitted as held in following cases:

α Ajmera Housing Corporation and Another vs. CIT [2010] 326 ITR 642 (SC);

α CIT vs. Kelvinator of India Ltd (2002) 123 ITR 433 (Delhi HC); a Rohitasava Chand vs. CIT [2008] 306 ITR 242 (Delhi HC);

α Maruti Mills (P.) Ltd. vs. UOI [2001] 250 ITR 348 (Raj. HC);

α  AnupamSushilGarg vs. CIT [2004] 265 ITR 474 (Allahabad);

α Chowhan Machinery Mart vs. State of Orissa and Others [2009] 19 VST 178 (Orissa) HC;

6.60. It is fairly well settled principle of interpretation that normally no word or expression used in any statute can be said to be redundant or superfluous. In the instant case, it is submitted that the manner in which the Learned Commissioner (Appeals) has gone about treating the past depreciation as income of the impugned year has rendered sections 43(6)(c)(ii) read with section 43(6)(c)(i)(B) and section 50 redundant. In this regard, we rely on the following decisions:

– CIT vs. Hindustan Bulk Carriers Ltd (2003) 259 ITR 449 (SC);

– CIT vs. Distributors (Baroda) (P.) Ltd. (1972) 83 ITR 377 (SC);

– CIT vs. S. Teja Singh [1959] 35 ITR 408 (SC);

– R & B Falcon (A) Pty. Ltd. vs. CIT [2008] 301 ITR 309 (SC);

– Grasim Industries Ltd vs. Collector of Customs (2002) 128 STC 349 (SC);

– CIT vs. Infosys Technologies Ltd. (2007) 293 ITR 146 (Karn.);

– BalmukundAcharya vs. DCIT and others [2009] 310 ITR 310 (Bom) HC;

6.61. In the following paragraphs, the case in Binjrajka Steel Tubes Ltd. vs. ACIT [2011] 130 ITD 46 (Hyd.), is distinguished as under:

(a) In the said case, during the FY 2003-04 (i.e., AY 2004-05) the assessee purchased machinery for a consideration of Rs. 6 Crores and claimed depreciation on the same. During the subsequent year i.e., FY 2004-05 (i.e., AY 2005-06), by virtue of out of court settlement of dispute, the cost machinery was reduced from Rs. 6 Crores to Rs. 4 Crores. However, in the instant case, there is no dispute with respect to consideration and the consideration remained unchanged. It is rather a case of the vendor consenting for waiver resulting in write back of balance payable of Rs.1,08,48,556/-.

(b) In the said case, the machinery was not sold or discarded or demolished or destroyed during the year. Hence, there was no occasion for the assessee to reduce the same from the written down value of the block of asset under section 43(6)(c)(i)(B) of the IT Act. In the instant case, the software tool was discarded. Therefore, the instant case fell within the ambit of section 43(6)(c)(ii) read with section 43(6)(c)(i)(B) of the IT Act. As per the said provision, the moneys payable in respect of any asset discarded should be reduced from the WDV.

(c) Accordingly, as per the said section, the Appellant treated the waiver of Rs.1,08,48,556/- as moneys payable and reduced same from the WDV.

(d) It is submitted that waiver of payable by the vendor in a subsequent year does not result in translating the depreciation claimed in the past as a benefit arising from business by any stretch of imagination.

(e) It is submitted that in order to invoke section 28(iv) of the IT Act, the benefit which is received has to be in some form other than in the shape of money as held in CIT vs. Mahindra and Mahindra Ltd., [2018] 404 ITR 1 (SC).

(f) It is also submitted that waiver of any amount payable would amount to receipt of cash as held in CIT vs. Mahindra and Mahindra Ltd., [2018] 404 ITR 1 (SC). Hence, even in the instant case, the waiver of outstanding amount payable to M/s. Magma Design Automation Inc. amounts receipt of cash. Thus, section 28(iv) of the IT Act does not get attracted in the instant case.

(g) The aforesaid decision was rendered prior to the decision of the Hon’ble Supreme Court in Mahindra and Mahindra Ltd., [supra]. It is submitted that the aforesaid decision is no longer good law after the decision of the Hon’ble Supreme Court in Mahindra and Mahindra Ltd., [supra].

7. Without prejudice, as regards allowability of deduction under section 10A of the IT Act: {Ground No. 5}

7.1. Without prejudice to the above, Lower Authorities having disallowed depreciation and made addition in respect of liability written off ought to have computed the deduction 10A of the IT Act by taking revised profits.

7.2. It is submitted that during the assessment proceeding the Appellant furnished STP Certificate, Customs Bonded Warehouse License (Customs Certificate) and Form 56F vide submission dated 14.11.2008. Copy of the said submission is herewith enclosed as Annexure 9.

7.3. It is submitted that the eligibility of deduction under section 10A in the case of Appellant is not doubted by Learned Assessing Officer.

7.4. It is submitted that the as the Appellant filed return of income declaring loss of Rs. 2,24,61,220/-, there was no occasion to claim deduction under section 10A in its return of income.

7.5. Without prejudice to the above, assuming without conceding that the depreciation is not allowable for the impugned year, the Appellant is eligible for deduction under section 10A of the IT Act on the assessed income.

7.6. In Board Circular No. 37/2016 dt. 02.11.2016, it has been provided that enhanced deduction under Chapter VI-A would be available on income increased as a result of disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act.

7.7. It is submitted that though the above circular deals with deduction under Chapter VI-A, the same should apply to section 10A as well as the section 10A is a deduction provision after amendment by the Finance Act, 2000 with effect from 1.4.2001. As per CIT v. Yokogawa India Ltd. [2017] 391 ITR 274 (SC), section 10A/ 10AA has to be given at Chapter IV level.

7.8. As per section 29, profits and gains will have to be computed by applying provisions of sections 28-43D. Hence, income as increased as a result of denial of depreciation claimed under section 32 and income enhanced under section 28(iv) being part of profits and gains of eligible undertaking will be eligible for deduction under section 10A deduction.

7.9. If law intended to restrict benefit of enhanced deduction, they would have expressly stated so.

7.10. One such example would be ^1st proviso to section 92C(4) which provides that no deduction under section 10A or section 10AA or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced as a result of a transfer pricing addition.

7.11. In the following decisions the Courts have held that enhanced deduction under section 10A shall be allowable on enhance profits resulting from disallowance:

• • CIT vs. M/s. Course5 Intelligence Private Limited, ITA No. 392/ 2014, dated 01.09.2021 (Kar. HC);
  • Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC);
  • CIT vs. Lionbridge Technologies (P.) Ltd. [2017] 86 taxmann.com101 (Bombay); SLP dismissed in Pr. CIT v. Lionbridge Technologies (P.) Ltd. [2018] 96 taxmann.com 495 (SC);
  • CIT vs. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175 (Bombay);
  • PCIT vs. BMC Software India (P.) Ltd. [2019] 109 com277 (Bom.); SLP dismissed in PCIT vs. BMC Software India (P.) Ltd. [2019] 109 taxmann.com 278 (SC);
  • CIT vs. Purewal and Associates Ltd. [2016] 243 Taxman 392 (HP)/[2016] 286 CTR 297 (HP); SLP dismissed in CIT v. Purewal and Associates Ltd. [2016] 242 Taxman 507 (SC);
  • CIT v. Laxmi Shelters [2018] 406 ITR (St) 11 (SC);
  • California Software Co. Ltd. v. CIT [2020] 422 ITR 514 (Madras);
  • CIT v. S.K. Srigiri& Bros. [2008] 298 ITR 13 (Karnataka);
  • CIT v. Mandavi Builders [ITA No. 307/2015, dt. 22.09.2020, Karnataka];
  • CIT v. Ntrance Customer Services Pvt. Ltd. [2015-TIOL-2748-HC-MUM-IT];
  • ITO v. Keval Construction [2013] 33 com277 (Gujarat) (para 5).

Therefore, it is prayed before this Honourable Tribunal that, considering the above submission of the Appellant, the appeal may be allowed.”

7. On the other hand, the ld. DR relied on the order of the lower authorities and submitted that during the course of assessment proceedings the assessee could not prove the ownership of the assets as well as the active/passive user of the assets. He submitted that section 32 clearly says that first the assets should be owned by the assessee and it should be used for the purpose of the business, but the assessee could not substantiate the ownership of the assets as well as whether the assets were used by the assessee during the impugned year and date of put to use even in the rejoinder to the remand report before the CIT(Appeals). The ld. DR also submitted that assessee’s reliance on the Audit report to contend that the assets were put to use is not final and relied on the judgement of the ITAT Delhi in ITA No. 2743/Del/2016 in the case of DCIT vs. M/s Railtel Corporation of India Ltd.in which it has been held as under:-

“(3.2) The Ld. AR of the assessee failed to bring to our attention any judicial precedents or any statutory provisions to show that the audit report by statutory auditors and/or the opinion of the statutory auditor is binding or final for all statutory authorities; even if the statutory auditor is appointed by the office of CAG and further even if the office of CAG conducts supplementary audit. The report(s)/opinion(s) of statutory auditor(s) are meant to aid and assist the statutory authorities and are not aimed to curtail their discretion, power or role; unless specifically provided under law or intended by necessary implication of specific provisions under law, or so held by binding judicial precedents. This applies even in respect of report(s)/opinion(s) of supplementary audit conducted by the office of CAG.

(3.2.1) In this context, the following portion of the order of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. vs CIT 255 ITR 273, at page 279 (supra) are relevant:

“Assessing Officer under the Income-tax Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by the statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act.” [Emphasis added by us.]

(3.2.1.1) It is thus obvious, that for the purpose of determination of book profits, the statutory role of Registrar of Companies to examine and satisfy that the accounts of the assessee are maintained in accordance with the requirements of the Companies Act; has the mandate of the Supreme Court. It can be readily inferred that report(s)/opinion(s) of statutory auditor(s) and the reports / opinions / recommendations as a result of Supplementary Audit are not final: these are not only subject to approval by the company in its general meeting, but also subject to examination by Registrar of Companies and his satisfaction that the accounts of the assessee are maintained in accordance with the requirements of the Companies Act.

8. The ld. DR has also relied on the judgment of Hon’ble Supreme Court in the case of Sri Padmasundar Rao v State of Tamilnadu, CIVIL APPEAL NO. 2226 OF 1997 [2002] 37 SCL 425 (SC) in which it has been held as under:-

“7A. The Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in Herrington v. British Railways Board [1972] 2 WLR 537. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases.

…………..

11. While interpreting a provision the Court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary—Rishabh Agro Industries Ltd. P.N.B. Capital Services Ltd. [2000] 5 SCC 515 ‘The legislative casus omissus cannot be supplied by judicial interpretative process. Language of section 6(1) is plain and unambiguous. There is no scope for reading something into it, as was done in N. Narasimhaiah’s case (supra). In D.C. Nanjudaiah’s case (supra), the period was further stretched to have the time period run from date of service of the High Court’s order. Such a view cannot be reconciled with the language of section 6(1). If the view is accepted it would mean that a case can be covered by not only clauses (i) and/or (ii) of the proviso to section 6(1), but also by a non-prescribed period. Same can never be the legislative intent.

12. Two principles of construction – one relating to casus omissus and the other in regard to reading the statute as a whole – appear to be well settled. Under the first principle a casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature. ‘An intention to produce an unreasonable result’, said Danckwerts, LJ., in Artemiou v. Procopiou 1966 1 QB 878, ‘is not to be imputed to a statute if there is some other construction available’. Where to apply words literally would ‘defeat the obvious intention of the legislation and produce a wholly unreasonable result’ we must ‘do some violence to the words’ and so achieve that obvious intention and produce a rational construction. [Per Lord Reid in Luke v. I.R.C. 1966 AC 557 where at p. 577 he also observed : ‘this is not a new problem, though our standard of drafting is such that it rarely emerges.]

13. The plea relating to applicability of the stare decisis principles is clearly unacceptable. The decision in Chinnathambi Gounder’s case (supra) was rendered on 22-6-1979 i.e., much prior to the amendment by the 1984 Act. If the Legislature intended to give a new lease of life in those cases where the declaration under section 6 is quashed, there is no reason why it could not have done so by specifically providing for it. The fact that the Legislature specifically provided for periods covered by orders of stay or injunction clearly shows that no other period was intended to be excluded and that there is no scope for providing any other period of limitation. The maxim ‘actus curia neminem gravibit’ highlighted by the Full Bench of the Madras High Court has no application to the fact situation of this case.

14. The view expressed in Narasimhaiah’s case (supra) and D.C. Nanjudaiah’s case (supra), is not correct and is overruled while that expressed in A.S. Naidu’s case (supra) and Oxford English School’s case (supra) is affirmed.

15. There is, however, substance in the plea that those matters which have obtained finality should not be re-opened. The present judgment shall operate prospectively to the extent that cases where awards have been made and the compensations have been paid, shall not be reopened, by applying the ratio of the present judgment. The appeals are accordingly disposed of and the subsequent notifications containing declaration under section 6 are quashed.”

9. The ld. DR has further relied on the judgment of the Hon’ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal v. CIT (2004) 267 ITR 768 (Bom) where it was held that the word “used” in section 32 denotes actually used and not merely ready for use. He also strongly relied on the para 4.5, 4.6 & 4.7 of the CIT(A)’s order. Reliance was also placed on the decision of the coordinate Bench of the Tribunal in G Nataraja v. ITO, ITA No.2198/Bang/2019 which relates to the power of Tribunal in applying the correct provisions of the law.

10. The ld. DR submitted that the ld. AR of the assessee has relied on number of case laws which are not applicable to the present facts of the case.

11. I have heard both the sides, perused the entire material on record and the orders of the lower authorities. According to the assessee, the assessee has satisfied the ownership of assets and is eligible for depreciation and has relied on the auditor’s report in this regard. But the question arises whether the assets were put to use for business purpose. The assessee has not put forth any evidence regarding use of the assets for business purpose as per the requirement of section 32 of the Act either before the revenue authorities or even before me. The ld. AR has relied on the audit report which is not final as held by ITAT Delhi in ITA NO. 2743/Del/2016 in the case of DCIT vs. M/s Railtel Corporation of India Ltd. (supra). Following the above judgment, I reject the arguments of the ld AR that the auditors have accepted the use of assets for business purpose. The ld. AR’s argument that lower authorities have not brought on record to show that the fixed assets were not put to use by the assessee during the impugned year is also not tenable because the onus is on the assessee to prove that the assets were put to use for business purposes and merely reliance on the audit report is not sufficient as mentioned above. Merely achieving the turnover of the business is not a criterion to show that assets were used for business purposes. In the remand report, the AO has not given a clear finding, but he has stated that the assessee was unable to prove the claim that assets were used for business purpose and he has given his opinion in the remand report based on the nature of business of the assessee. However, the assessee was bound to maintain the records and produce evidence in support of its claim of depreciation and therefore the contention of the assessee that it is a very old case after a lapse of 16 years will also not help the case of the assessee. The assessee has also challenged that the CIT(A) has not given depreciation allowance on certain assets as per grounds of appeal whereas the AO has not disallowed depreciation and CIT(A) has also not given any enhancement notice is also not tenable. On going through the assessment order regarding disallowance of depreciation, the AO has disallowed depreciation on Computers and systems, software tools, vehicles and office equipment of Rs.2,22,06,388. The total depreciation claimed by the assessee is Rs.2,23,01,236, out of which the AO has allowed depreciation on purchase of two fixed assets viz., networking equipments, which are eligible for depreciation @ 60% of Rs.93,600 and Rs.64,480 which were purchased by the assessee on 26.8.2005 and 17.8.2005 and part of the computer s & systems of Rs.26,46,706 as evident from page 83 of PB. The CIT(A) has decided the issue only on the disallowance of depreciation on assets considered by the AO and therefore, there was no requirement of giving enhancement notice by the CIT(A) separately.

12. The argument of the assessee that depreciation has been allowed in the successive year is also not tenable since every year is independent assessment year based on the facts of the case. The issue of claim of depreciation u/s. 32 is settled by the decision of the Hon’ble Karnataka High Court in the case of DCIT v. Yellamma Dasappa Hospital, [2007] 159 Taxman 58 (Karnataka) where it has been held as under:-

“6. Section 32 of the Indian Income-tax Act would provide for depreciation. The said section would show that deduction on depreciation is permissible in the event of machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. The said wordings used have been considered by the Courts of law.

7. The assessee strongly relies on various case laws in support of his submissions.

BPL Display Devices Ltd. v. CCE [2005] 10 SCC 275 is a case that arose under Customs Act. In the said case, the wordings used were ‘for use’ . The Supreme Court notices the meaning of ‘for use’ in its judgment, The Supreme Court ruled that no material distinction can be drawn between the loss on account of leakage and loss on account of damage. The words ‘for use’ used in similar exemption notifications have also been construed by this Court earlier in the State of Haryana v. Dalmia Dadri Cement Ltd. to mean ‘intended for use’. The said judgment is not available since the word ‘used’ in the case on hand ‘for use’ stands on a different footing than ‘use’ in terms of the statute.

8. Multican Builders Ltd. v. CIT [2005] 278 ITR 142¹ is a judgment of the Calcutta High Court. In the said case, the Court was considering the leasing of the vehicle for the purpose of depreciation by the Court. That judgment also stands on distinguishable facts.

9. CIT v. Union Carbide (I.) Ltd. [2000] 254 ITR 488² is again a judgment of the Calcutta High Court. In the said case, the Court went into the question as to whether the trial production could be termed as ‘used for the purposes of section 32 of the Act’. That judgment also is not available to the assessee in the case on hand. That was a case in which the Court considered the question as to whether the machinery kept ready for use can be given the benefit of depreciation. In that case, it is seen that the revenue conceded that ‘ready for use’ would mean passing user of the asset’. It was in the light of no contest.

10. In Jagatram Ahuja v. CGT [2000] 246 ITR 609¹is a judgment of the Supreme Court. The Supreme Court notices the object of Gift-tax Act vis-a-vis Estate Duty Act. The Supreme Court ruled that ‘the words and expressions defined in one statute as judicially interpreted do not afford a guide to the construction of the same words or expressions in another statute unless both the statutes are pari materia Statute’.

11. Keshavji Ravji & Co. v. CIT [1990] 183 ITR 1² (SC) is again a judgment of the Supreme Court in which the Court says that the Court could not resort to the so-called ‘equitable construction’ of a taxing statute is not to say that, where a strict literal construction leads to a result not intended to sub-serve the object of the legislation, another construction, permissible in the context, should not be adopted.

12. CST v. Jaswant Singh Charan Singh [1967] 19 STC 469 (SC) is also a judgment of the Supreme Court in which the Supreme Court has said that while interpreting items in Statutes like the Sales-tax Acts, resort should be had not to the scientific or technical meaning of such terms but to their popular meaning or the meaning attached to them by those dealing in them, that is to say, to their commercial sense. There cannot be any quarrel over these well-accepted principles of law. The question is as to whether ready for use is used in terms of section 32.

13. Director of Entry Tax v. Mahindra & Mahindra [2003] 11 SCC 749 was a case with regard to refund of entry tax. The Court notices that this is not a case where a machine had only been displayed. In other words, the machine was started up and its working was shown. It was, therefore, used and it is of no consequence that the use was not for the purpose for which it was made. On facts, the Court ruled that the said machine was used. None of the case laws cited by the assessee is of any help to the assessee in the given situation. On the other hand, there are direct judgments available in favour of the revenue.

14. Federation of Andhra Pradesh Chambers of Commerce & Industry v. State of Andhra Pradesh AIR 2000 SC 2905. It is a case that arose from Andhra Pradesh. The Supreme Court was considering levy of assessment in terms of Andhra Pradesh Non-Agricultural Lands Assessment Act. Section 3 uses the word ‘used’ for the purpose of levy of tax. The Supreme Court noticed in para 4 the judgment of the Full Bench of the Andhra Pradesh High Court in which the Full Bench ruled that it is enough if the land is kept for use for a purpose connected with industrial or commercial undertaking. After noticing, the Supreme Court notices the judgment of the English Court in the case of 1921(1) KB 64. The Court noticed as under:—

“In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used.”

The Court also noticed the judgment of the Supreme Court in the CED v. Kantilal Trikamlal [1976] 4 SCC 643 : AIR 1976 SC 1935. Thereafter, in para 9, the Court ruled as under:—

“We are in no doubt whatever, therefore, that it is only land which is actually in use for an industrial purpose as defined in the said Act that can be assessed to non-agricultural assessment at the rate specified, for land used for industrial purposes. The wider meaning given to the word ‘used’ in the judgment under challenge is untenable. Having regard to the fact that the said Act is a taxing statute, no Court is justified in imputing to the Legislature an intention that it has not clearly expressed in the language it has employed.”

15. From these judgments, what is clear to us is that for the purpose of depreciation, machinery has to be actually used in terms of the Statute. A kept ready theory is not available in the light of the Apex Court rulings.

16. After noticing these judgments, the Madhya Pradesh High Court has ruled that the basic concept underlying the allowance of depreciation is that it should result, as consequence of the machinery being actually used or employed in the earning of income.

17. The Calcutta High Court in CIT Oriental Coal Co. Ltd. [1994] 206 ITR 682¹also noticed the Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265 (SC), and thereafter it ruled that under sub-section (1) of section 32 there should be actual user of plant and machinery for the purposes of business.

18. The Bombay High Court has ruled that the word ‘used’ in section 32 of the Income-tax Act, 1961, denotes that the asset has been actually used and not that it is merely ready for use. The expression ‘used’ means actually used for the purposes of the business. A Special Leave Petition filed against the said judgment stood dismissed ([2004] 266 ITR (St.)  106). We are in agreement with the views expressed by the Bombay, Calcutta and Madhya Pradesh High Courts. In the light of these judgments directly, available on record, we are of the view that the kept ready theory is not available to the assessee for the purpose of claiming depreciation when the Legislature has chosen to use the word ‘used’ we have to give a full meaning to it and avoid reading something not intended by the Legislation. Afterall, these benefits are provided for certain purposes. That purpose is used in terms of the Statute. If the machinery is not used, section 32 is not applicable and hence, the assessee cannot have any benefits, if granted would result in reading something which is not provided in the Statute in terms of section 32.”

13. A similar view has also been taken by the Hon’ble Kerala High Court in the case of CIT v. Malayala Manorama Co. Ltd. [2018] 91 com14 (Kerala).

14. Respectfully following the above judgments and considering the entire facts of the case and submissions of both the parties, I hold that the CIT(Appeals) has rightly disallowed the depreciation on the assets by observing that the assessee was unable to prove that the assets were used for business purpose with cogent evidence. The ld. AR relied on many case laws which are distinguishable on the facts of the present case. Accordingly, grounds No.3 to 3.9.2 raised by the assessee are dismissed.

15. The next issue (ground No.4 to 4.4) is with regard to addition of Rs.26,03,654. During the course of assessment proceedings, the AO observed from the computation of income that the assessee has reduced Rs.10,62,493. In this regard it was submitted by the assessee that it is a capital receipt and arising out of extinguishment of liabilities because the assets purchased in the previous year were returned to the vendor and the balance of liabilities were reduced from the fixed assets, therefore it is not taxable. The CIT(A) has also enhanced the liabilities write off by Rs.15,41,161. The findings of the CIT(Appeals) are as under:-

“5.5 The submissions of the appellant have duly been considered. A perusal of the material available on record shows that in relation to purchase of certain software tools from M/s Magma Design Automation Inc., the appellant had capitalized an amount of Rs 1,47,79,575/- in its books of account on 23.06.2004. This has also been informed by the appellant that during FY 2004-05 it had made a payment of Rs 39,31,019/- to M/s Magma and an amount of Rs1,08,48,556/- only was thus outstanding as on 01.04.2005. During AY 2005-06, while filing its return of income, the appellant had claimed a depreciation of Rs 88,67,745 (@60%) and thus written down value (wdv) in relation to this asset as on 01.04.2005 was Rs 59,11,830/-. During the year under consideration, the appellant came to a conclusion that the said tool was not of any help to it and it decided to return it and de-capitalized the same in its books of accounts. For this purpose, it worked out the allowable depreciation up to 31.12.2005 (as per Company Act) at Rs 49,93,512/-and the depreciated value of the asset at Rs 97,86,063/- {Rs1,47,79,575(-) Rs49,93,512} as on 31.12.2005. Since the amount payable to M/s Magma Design as on 31.12.2005 was Rs.1,08,48,556/-, by extinguishing this liability it arrived at a gain of Rs.10,62,493/- {Rs 1,08,48,556 (-) Rs 97,86,063), which it had treated as being on capital account but disputed by the AO. As regards treatment given in block of asset, it just reduced Rs1,08,48,556/-from the block of asset. The amount of Rs 10,62,493/-was treated as capital receipt and not offered to tax.

5.6 A perusal of the above details shows that although the appellant had treated its liability of Rs 1,08,48,556/- as extinguished, however it had already claimed a depreciation of Rs 65,09,134/- {@60% on Rs 1,08,48,556/-} on this amount in AY 2004-05. So when the liability was extinguished, the benefit of Rs 65,09,134/- was required to be offered by it to tax as per provisions of Section 28(iv) of the Act. The reliance of the appellant on the decision in the case of Mahindra and Mahindra Ltd (supra) is misplaced as the said case was rendered on different facts. In that case the Supreme Court had observed that the assessee had received a loan, a part of which was later on waived off. Under these circumstances the SC had held that the assessee had received cash or money and as such the same was not covered by Section 28(iv) of the Act. However in the case under consideration, no such loan or money/cash was received by the appellant and the amount of Rs 1,08,48,556/- was a liability which had arisen due to purchase of software tools and on it depreciation @60% was claimed by it in AY 2004-05. So as such no cash or money was ever received by it and the provisions of Section 28(iv) of the Act are attracted as the appellant had received a benefit which was arising out of its business i.e. by way of excess claim of depreciation to which it was not actually eligible.

5.7 In the case of Binjrajka Steel Tubes Ltd (supra), the ITAT had dealt with a similar issue and held as follows:

“4. ————- The effective ground No. 2 is with regard to addition of Rs. 2 crores towards remission of liability incurred on purchase of capital goods. In the assessment order, the Assessing Officer observed that as per point No. 3 in the Notes of Accounts, the Auditors have pointed out that by virtue of settlement of dispute with…………………………………

9. We may note at this juncture that even though the dispute before us and the arguments of the parties before us, centre around the provisions of section 41 of the Act, it is well within the powers of this Tribunal to consider any disallowance/addition that may be warranted under any other provision of the Income-tax Act, while giving relief to the assessee in the context of addition made under section 41 of the Act. We are fortified in this behalf by the decision of the Hon’ble Calcutta High Court in the case of Steel Containers Ltd. v. C1T [1978] 112 ITR 995, wherein it was held that when the Tribunal finds that disallowance of a particular expenditure by the authorities below is not proper, the Tribunal is competent to sustain the whole or part of the disputed disallowance under a different section under which it is properly so disallowable. In this view of the matter, the ground raised by the assessee on this issue is partly allowed:”

5.8 Considering above the amount of Rs 65,09,134/-, being the excess depreciation claimed in AY 2004-05, was required to be offered to tax by the appellant as per provisions of Section 28(iv) of the Act. The argument of the appellant that the above decision of the ITAT was no longer holds good in view of the decision of SC in the case of Mahindra and Mahindra Ltd (Supra), is misplaced as the facts of this case is entirely different from the case under consideration and the same has already been discussed supra.

5.9 Although the appellant has tried to distinguish the facts of the decision in the case of Binjrajka Steel Tubes Ltd.(supra) from its own case, however the same is also of no consequence as it is the ratio of the decision which is to be followed. It is important to note that in the case under consideration as well as in the case of Binfrafka Steel Tubes Ltd.(supra) there was purchase of asset at certain price and depreciation was claimed in an earlier year. In subsequent year the cost4ftlie asset was reduced by way of mutual settlement and thus excess depreciation was found to have been claimed in earlier year on the amount so reduced. Thus issue in case under consideration as well as in the case of Binjrajka Steel Tubes Ltd. (supra) was that of treatment of benefit arising out of such excess depreciation claim in the year of settlement of the excess cost. So the ratio of the ITAT decision squarely applies.

5.10 As regards treatment to be given in the block of assets, as per the above referred decision of ITAT the wdv was to be reduced by the amount of liability written off after reducing the excess depreciation which was granted in earlier year. So as per ratio of this decision, in the case under consideration the wdv would have been required to be reduced by Rs 43,39,422/- {Rs 1,08,48,556(-)Rs 65,09,134}. However there is a slight difference in the facts of the case under consideration. While in the case of Binjrajka Steel Tubes Ltd. (supra), the asset continued to be used even after writing of Rs 2 crore and as such depreciation was available on the reduced wdv, however in the case under consideration the use of the asset was discontinued and the asset was de-capitalized in the books. So effectively the treatment of wdv would be in two parts:

(a) Firstly, the effect of extinguishment of liability of Rs 1,08,48,556/-; which would be reduction of Rs 43,39,422/- from wdv as per the above referred decision of ITAT. So the wdv of this asset would be Rs 15,72,408/- {Rs59,11,830 (-)Rs 43,39,422}.

(b) Secondly, the effect of discarding the asset as a whole; which would be the amount receivable in relation to this discarded asset. Since the software tool was returned, its scrap value would be NIL.

5.11 As regards argument of the appellant that the provisions of Section 43 (6)(c)(i)(B) of the Act are applicable, the same is misplaced as the said provision relates to AY 1988-89 only. The relevant applicable provisions are that of Section 43(6)(c)(ii) of the Act. Further the appellant has sought to convey that the word `money payable’ in Section 43(6)(c)(i)(B) of the Act [which is also relevant for Section 43(6)(c)(ii) of the Act] means the amount of Rs1,08,48,556/-, which was payable by it to M/s Magma Design but written off. This interpretation of the section is also misplaced. The meaning of word ‘money payable’ is given in Explanation 4 to clause (c) of Section 43(6) of the act and the same is stated to be as per Explanation below Section 41(4) of the Act. The same reads as follows:

“Explanation.—For the purposes of sub-section (3),—

(1) “moneys payable” in respect of any building, machinery, plant or furniture includes—

(a) any insurance, salvage or compensation moneys payable in respect thereof;

(b) where the building, machinery, plant or furniture is sold, the price for which it is sold,

5.12 As such the amount of Rs 1,08,48,556/- is not the money payable which is required to be reduced from wdv.

5.13 Considering above, effectively an amount of Rs 43,39,422/- only would be required to be reduced from wdv of this asset. Since the appellant had reduced Rs 1,08,48,556/- from the block, so it had claimed lesser depreciation on this block. The same works out to be Rs 39,05,480/{60% of Rs 65,09,134 [being Rs 1,08,48,556(-)Rs 43,39,422]). Considering this, since an amount of Rs39,05,480/- has already been offered to tax by way of claim of lesser depreciation to that extent, the addition which was required to be made in the case of the appellant would be Rs 26,03,654/- {Rs65,09,134(-) Rs 39,05,480}, as against addition of Rs 10,62,493/- made by the AO or Rs 65,09,134/- worked out supra. The addition of Rs 10,62,493/- (being part of Rs 26,03,654/-) is confirmed, although for the reasons as stated above and the income of the appellant gets enhanced by Rs 15,41,161/- as per provisions of Section 251(1)(a) of the Act read with Section 251(2) of the Act. Considering above, the ground of_appeal 14 is dismissed.”

16. The ld. AR of the assessee has relied on the judgment of Hon’ble Apex Court in the case of Commissioner v. Mahindra & Mahindra Ltd. [2018] 404 ITR 1 (SC). The ld. DR relied on the order of lower authorities and submitted that the case law relied by ld. AR is not applicable to the present facts of the case.

17. Heard both the parties and perused the material on record. In case of Commissioner v. Mahindra & Mahindra Ltd. (supra), the Hon’ble Apex Court had observed that the assessee had received a loan, a part of which was later on waived off. Under the circumstances, the Supreme Court held that the assessee had received cash or money and as such the same was not covered by section 28(iv) of the Income Tax Act. But in the case on hand, the assessee had purchased assets and created liability and later on it found that the assets were not suitable for the business and the assets were returned to the vendor. Therefore the case law relied on by the ld. AR in the case of Commissioner v. Mahindra & Mahindra Ltd. (supra) is distinguishable on facts of the case on hand. On careful consideration of the CIT(A)’s order as noted above, I am of the view that the CIT(A) has passed a good and reasoned order and I find no reason to interfere with his order. Accordingly the grounds of the assessee are rejected.

18. Vide Ground No.5 the assessee has raised the issue that if disallowance of the depreciation on assets and liability written off is upheld, computation of revised profits as per the section 10A of the Act is to be allowed. However, this issue was not raised before the CIT(A). In this regard, the ld AR in the written submissions at para 7 has submitted in support of the claim that Circular No.37/2016 dated 2.11.2016 is applicable for the enhanced income disallowed under the business income of the assessee and the assessee is eligible for claiming deduction u/s. 10A of the Act. In this regard, he has also submitted documents which are placed at pages 106 to 127 of PB which are copies of STP certificates, customs bonded warehouse licence (customs certificate and Form 56F) etc. furnished before the AO on 14.11.2008.

19. During the course of hearing, the ld. AR of assessee relied on the judgment of Hon’ble Karnataka High Court in the case of Course5 Intelligence P. Ltd. v. ITO in ITA No.389/2014 & connected case dated 1.9.2021 and Hon’ble Rajasthan High Court in the case of PCIT v. Ajmer Vidyut Vitran Nigam Ltd. in D.B. I.T.A. No.158/2019 and connected cases [2022] 447 ITR 186 (Raj). He submitted that the issue has not been examined in the light of section 10A of the Act by the lower authorities. Since I have upheld the order of the CIT(A) treating the disallowance made as business income and the issue has not been examined in the light of section 10A, therefore considering the documents submitted by the assessee, I remit this issue to the AO for examination in light of section 10A of the Act and decision in accordance with law, after providing opportunity of being heard to the assessee. The assessee is directed not to seek unnecessary adjournments and cooperate in early disposal of the case. This ground is allowed for statistical purposes.

20. Ground No.1 & 2 are general in nature, hence requires no adjudication.

21. In the result, the appeal is partly allowed for statistical purposes.

Order pronounced on this 11^th day of May, 2023.