Case Law Details
Arcserve India Software Solution Pvt Ltd Vs ACIT (ITAT Delhi)
When the Revenue is accepting the revenue earned which is totally based upon depreciation plus 15% markup, there is no reason to deny depreciation Cost
The case of Arcserve India Software Solution Pvt Ltd vs. ACIT revolves around the disallowance of depreciation claimed by the assessee for the assessment year 2015-16. Despite initial objections raised by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)], the Income Tax Appellate Tribunal (ITAT) Delhi ultimately upheld the depreciation claim, citing justified usage and revenue acceptance.
Analysis: The crux of the dispute lies in the AO’s observation that certain asset bills were not in the name of the assessee and some were dated after the fiscal year. Additionally, the absence of employee expense claims raised doubts regarding asset utilization. However, the appellant argued that assets were procured through its Associated Enterprise (AE) in the USA during the setup phase, with ownership eventually transferred to the assessee. Despite initial issues with invoices, assets were in use, and payments were made within the fiscal year. The appellant’s reliance on a business transfer agreement and operational commencement with assistance from related entities further supported its claim.
Furthermore, the ITAT emphasized the significant fact that the revenue booked by the assessee, based on a markup of 15% over costs, corroborated the legitimacy of the depreciation claim. The tribunal concluded that if revenue is accepted based on depreciation plus markup, denying the corresponding cost is unjustifiable. Therefore, the ITAT ruled in favor of the assessee, allowing the depreciation claim.
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