The DCIT Circle-4(1)(1), Ahmedabad V. Smile India Knowledge Services Pvt. Ltd, Ahmedabad

ITA 1924/AHD/2019

AI Insights

The case involves an appeal by the Revenue against the decision of the Commissioner of Income Tax (Appeals) which had deleted the additions made by the Assessing Officer regarding unexplained cash credits and disallowance of depreciation on computer software. The Assessing Officer had initially treated an unsecured loan as unexplained cash credit and disallowed excess depreciation claimed on computer software. The Tribunal examined the evidence presented, including bank statements, audit reports, and responses to notices under Section 133(6), and found that the assessee had adequately substantiated the transactions and the claim for depreciation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114279 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 07-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 29-12-2019
• Other Referred Cases: Rohini Builders vs. DCIT, CIT vs. Apex Therm Packaging Pvt. Ltd., Principal Commissioner of Income Tax vs. RSA GIGI Prints, Dharmadev Finance vs. PCIT, PCIT vs. Gujarat Craft Industries Ltd., M/s. Riddhi Siddhi Corporation vs. ACIT, Voltamp Transformer Ltd. vs. ACIT, Zydus Infrastructure Pvt. Ltd. vs. ACIT, Nasir Khan J. Mahadik vs. ITO, Raghuraji Agro Industries (P) Ltd vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation; Question of law
• Section: 68; 144; 133(6); 143(2); 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The DCIT, Circle-4(1)(1), Ahmedabad (Appellant) Vs Smile India Knowledge Services Pvt. Ltd. 5 th Floor, IFFCO Bhavan, Nr. Shivranjani Overbridge, Satellite, Ahmedabad-38005 PAN: AANCS6986M (Respondent) Assessee Represented: Shri Biren Shah, A.R. Revenue Represented: Shri A.P. Singh, CIT-DR Date of hearing : 08-02-2023 Date of pronouncement : 08-05-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue against the appellate order dated 17-10-2019 passed by Commissioner of Income Tax [Appeals]-8, Ahmedabad arising out of the assessment order passed under section 144 rws 143[3] of the Income Tax Act, 1961 ITA No. 1924/Ahd/2019 Assessment Year 2012-13 I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 2 [hereinafter referred as ‘the Act’] relating to the assessment year 2012-13. 2. Brief facts of the case is that the respondent assessee is a private limited company engaged in the business of digital software development. For the assessment year 2012-13 the assessee filed its return of income declaring a loss of Rs.4,35,52,039/=. The Return was taken for scrutiny assessment and notices under section 143[2] issued to the assessee, but there was no response, hence a final show cause notice dated 03-03-2015 was issued to the assessee. Again the assessee has not responded to the above show cause notice, therefore the Ld. AO passed an ex-party assessment order by making additions namely (i) the unsecured loan of Rs.15,43,73,423/- which is treated as unexplained cash credit and added as income u/s. 68 of the Act and (ii) disallowed excess claim of depreciation on computer software of Rs.14,67,149/- and thereby determined the total income of the assessee as Rs.11,22,88,530/- and demanded tax thereon. 3. Aggrieved against the ex-parte assessment order, the assessee filed an appeal before Commissioner of Income Tax [Appeals]. The Ld. CIT[A] after calling for remand reports from the Assessing Officer, deleted the additions made by the AO by passing a detailed speaking order as follows: It is observed that opening balance in above loan account is Rs. 13,78,32,884 and incremental figure is only Rs.1,65,40,539. This fact is also accepted by the AO in the second Remand Report A reproduced herein above. Infact, this is also evident from a bare reading of the balance sheet and the audit report which AO has ignored, despite the further fact that AO himself in the show cause notice dated 03.03.2015 AO had mentioned the word "increase" in the unsecured loans but still AO added the entire amount including the outstanding balance which is without any reason and legal provisions since section 68 provides for the addition to the I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 3 extent of amounts credited during the years. clearly the opening balance of Rs. 13,78,32,884/- has been treated as unexplained cash credit by the AO inspite of the fact being evident from the balance sheet as well as AO had also given shoe cause notice for increase in the unsecure. loans. Thus, this sum of Rs. 13,78,32,8844- is not sustainable on this count alone 5.9 It is observed that entire unsecured loan is received from holding company who is assessed to tax. The depositor being AKCPL has duly confirmed the transactions with Appellant Company in response to notice under Section 133(6) of the Act. The entire loan is received through account payee cheque which is not disputed by AO. The appellant has already submitted the bank statement of depositor which clearly proves the sources of funds. There is no cash deposit prior to issue of cheque to appellant. On perusal of Audited Annual Accounts of AKCPL it is found that it has net worth of Rs.58.88 crores which clearly justify creditworthiness of such depositor. The document submitted by appellant being confirmation of holding company along with PAN details and Certificate of Incorporation proves the identity of depositor. The funds are received from holding company is apparent from Audited Annual Accounts of both the concerns and same are accepted by the depositor in notice under Section 133(6) of the Act, which proves the genuineness of the transaction. The bank statement of AKCPL along with net worth appearing in Balance Sheet sufficiently proves the balance available with them through its internal accrual or through OD facility clearly prove creditworthiness of the party. 5.10 The AO in the Remand Report dated 13th July, 2017 as reproduced herein above has stated that appellant was time and again required to prove identity, creditworthiness and genuineness of the transaction but has only furnished identity of person against whom unsecured loan is appearing in Balance Sheet. He further stated that--- appellant failed to discharge its onus cast upon by the Statute by providing confirmation, creditworthiness and genuineness of the transaction. This observation of AO is factually incorrect as relevant details being confirmation of depositor along with computation of total income was already submitted by appellant in assessment proceedings vide letter dated 24th November, 2014 reproduced herein above. Further, the appellant has submitted various evidences being confirmation, bank statement, Audited Annual Accounts, return of income as well as details of incorporation at Appellate Proceedings and same were already forwarded to him vide letter dated 4th July, 2016 Even the AO vide letter dated 4th August, 2016 has called for information under Section 133(6) from AKCPL and it has duly complied with all the details which is already reproduced herein above and these facts clearly prove that appellant has fulfilled the onus cast under Section 68 of the Act. So far as observation of AO that on perusal of bank statement of AKCPL, he found that there was no credible balance and occasionally there was debit balance in its Books of Account. On perusal of bank statement of depositor it is found that it was having overdraft facility with HDFC Bank and such funds are used by it for giving advances to appellant. These transactions are duly appearing in the Books of Account of depositor and depositor has net worth of Rs. 58.88 crores hence contention of AO that AKCPL has no credible balance to give advance to appellant cannot be accepted 5.11 In its legal submission the appellant relied upon the following judgments: (i) Rohini Builders reported in 76 TTJ 532 ITAT (AHD) and Hon’ble Gujarat High Court reported in 256 ITR 360. (ii) CIT vs. Apex Therm Packaging Pvt. Ltd. [2014] 42 taxmann.com 47 (Guj.) I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 4 (iii Principal Commissioner of Income Tax vs. RSA GIGI Prints Vide Tax appeal No. 503 of 2017 dated 06/09/217. (iv) Gujarat High Court in case of Dharmadev Finance in 43 taxmann.com 395 (Guj.) (v)PCIT vs. Gujarat Craft Industries Ltd. in Tax Appeal No. 175 of 2018 dated 14/03/2018 (vi) Hon’ble Ahmedabad ITAT in the case of M/s. Riddhi Siddhi Corporation ITA No. 2248/Ahd/2012 dated 20/02/2017. 5.12 Apart from above it is observed that in remand report dated 16th August, 2019 AO has accepted that though he has made addition of Rs. 15,43,73,423 under Section 68 of the Act, amount received during the year is only Rs. 1,65,40,539. The provisions of Section 68 of the Act as reproduced herein above clearly applies to amount received during the year hence in any case opening balance cannot be subject matter of addition under Section 68 of the Act. Reliance is placed on following decisions: (i) Decision of Hon'ble Mumbai I.T.A.T., in the case of ITO VIS Nasir Khan J. Mahadik [2011] 16 taxmann.com 312 (Mum.). (ii) Decision of Hon'ble Allahabad High Court in the case of CIT VIS Raghuraji Agro Industries (P) Ltd [2013] 31 taxmann.com 174 (Allahabad). (iii) Decision of Hon'ble Ahmedabad Tribunal in case of Shri Amit N. KapadiaVsAsstt. Commissioner of Income Tax vide ITA No: 151 & 159/Ahd/2011 dated 11/09/2014 for A.Y 2006-07. 5.13 In view of detailed discussions herein above, it is clear that to prove identity and creditworthiness of the depositor being holding company and genuineness of the transaction, the appellant had filed the requisite details in the form of confirmation, copy of Bank Statement, copy of ITR, ledger account, Audited Annual Accounts, etc., before the Assessing Officer and these transactions are duly confirmed by AKCPL in response to notice under Section 133(6) of the Act. The AO has not found any irregularity in these details. The appellant has clearly satisfied all the conditions as laid down under Section 68 of the Act. In that view of the matter, on facts and following the ratio of relied upon judgments, in my considered view appellant has been able to prove the three ingredients required by the provisions of the Section 68 of the Act. Accordingly, the addition of Rs. 15,43,73,423 is deleted. The AO is directed to delete the same. The related ground of appeal is allowed. ........... 6.2 Decision During the year under consideration, the opening balance of application software was Rs.41,91,857 @ 60% depreciation in previous year). On this block of asset, the appellant provided for depreciation @ 60%. However, the Assessing Officer was of the view that depreciation on application software being license is to be provided @ 25% since these form part of intangibles AO has reasoned that though system software are eligible for depreciation @ 60%, but application software entitled to depreciation @ 25% only. Application software cannot run without the presence of system software and former has nothing to do with basic operation of computer. On the other hand, appellant has argued that there is no distinction between system software and application for the purpose of allowing depreciation @ 60% because Appendix - I of Income Tax Rules, 1962 states that computers including computer software are eligible for depreciation @ 60% and even Note 7 forming part of - table of depreciation states that computer I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 5 software means any computer program recorded on any disc, tape, perforated media or other information storage device. 6.3 Appellant contended that the above issue is squarely covered by the decision of Hon'ble Ahmedabad ITAT in the case of ACIT Vs Voltamp Transformer Ltd. (ITA No. 1676/Ahd/2012) wherein following it has been held as under: "12.1. The assessee has claimed depreciation on computer software at Rs.8,93,192/-. The AO has not allowed the excess depreciation and reduced the same to normal depreciation @ 25%. When the matter was carried before the first appellate authority, Id. CIT(A) has held as follows:- "6.3. Decision: I have carefully perused the assessment order and the depreciation @ 60% claimed by the appellant by holding that it was an application software and should be treated as intangible asset and accordingly it was entitled for depreciation @ 25%. The appellant has submitted that the distinction between system software and application software made by the A.O is not applicable. The claim of the appellant is duly supported by the provisions of the Income Tax Act. It has invited my attention to Note No.7 of the Appendix I which defines the computer software as under: "Computer software means any computer programme recorded on any disk, tape, perforated media or other information storage device." It has further been explained by the appellant that the classification made by AS 26 specifying computer software as intangible asset has no relation with the applicability of depreciation as per I.T. Rules. After considering the explanation of the appellant, I am inclined to accept the view propounded by the appellant. The Income Tax Act does not make any difference between the system software and the application software. The schedule only provides the depreciation @ 60% on the computer software and the term 'computer software' has also been defined in the Appendix 1. The classification made by the Accounting Standards cannot overwrite the definition given in the Income Tax Act. Accordingly, the appellant is entitled to depreciation @ 60%. The grounds of appeal are accordingly allowed." 13. On hearing the submissions of both the sides, we are not inclined to interfere with the legal finding of ld.CIT(A). In our opinion, he has correctly interpreted the Appendix. Therefore, this ground of the Revenue is dismissed." Similar view is also taken by Hon'ble Ahmedabad ITAT in the case of Zydus Infrastructure Pvt. Limited in ITA No. 1464/Ahd/2012, dated 21st July, 2016. Respectfully following the binding judgments as above it is held that the appellant is entitled to depreciation on license @ 60% as part of block of computer. Disallowance made by Assessing Officer for Rs. 14,67,149 is deleted. This ground of Appeal is allowed. I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 6 4. Aggrieved against the appellate order the Revenue is in appeal before us rising the following grounds of appeal: 1) Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 15,43,73,423/- u/s 68 of the Income-tax Act, 1961? 2) Whether the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of depreciation on computers of Rs. 14,67,149/- and holding that the assessee is entitled to depreciation on licence @ 60% as part of block of computer? 5. The Ld. CIT DR Shri. A P Singh appearing for the Revenue strongly supported the grounds of appeals and the assessment order passed by the Assessing Officer, pleaded to uphold the same and allow the revenue appeal. 6. Per contra the Ld. Counsel Shri Biren Shah appearing for the assessee submitted before us a paper book containing 157 pages wherein submissions of the assessee, Rejoinder to the Remand Report, copy of the response filed in response to section 143[2] notices, reply filed in response to show cause notice dated 05-03- 2015, copy of the loan confirmation, copy of ledger account of AKCPL in the books of the assessee, reply filed by the assessee in response to notice u/s.133[6], copy of the bank statement of AKCPL showing back transactions carried with the assessee, copy of the annual report of AKCPL for AY 2012-13, copy of Certificate of Incorporation of AKCPL and copy of ITR filed by AKCPL for the A.Y. 2012-13. The Ld. Counsel further submitted that the Assessing Officer is erred in calling the assessment as an exparte whereas the assessee has replied to the notices u/s. 143(2) vide its reply dated 08.08.2014 filed before the Assessing Officer (which is available at Page No. 36 of the Paper Book) and the show cause I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 7 notice, the assesse replied vide letter dated 05.03.2015 informing about the details furnished to the concerned Assessing Officer, therefore requested to cancel the show cause notice (which is available at Page No. 50 of the Paper Book). Similarly, AKCPL vide its reply dated 10.08.2016 furnished the information u/s. 133(6) of the Act (which is available at Page No. 89 & 90 of the Paper Book). Thus the Ld. counsel pleaded that every information is being provided. However the Ld. A.O. held that the assessment is an exparte assessment which is factually not correct in law. 6.1. The Ld. Counsel further submitted that the addition made by the A.O. is against the provisions of section 68 and during the financial year, the assessee has received unsecured loan of Rs. 1,65,40,539/- only whereas the Assessing Officer added the opening balance also and made an addition of Rs. 15,43,73,423/- u/s. 68 of the Act, which was deleted by the Ld. CIT(A), which does not require any interference. Similarly, claim of depreciation on software which is now settled by various Tribunal Judgments, therefore the addition made of Rs. 14,67,149/- which was deleted by ld. CIT(A) does not require any interference. Thus the Ld. Counsel pleaded to dismiss the Revenue appeal. 7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. As far as the addition made u/s. 68 of the Act, if at all, the assessee could not prove the identity, creditworthiness and genuineness of the transaction. Even, in that case, the A.O. should have upheld addition only to the transaction during the financial I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 8 year done of Rs. 1,65,40,539/- only and added u/s. 68 of the Act. Whereas in the present case, the assessee has filed the confirmation, copy of Bank Statement, Income Tax Return, Ledger Account and Audited Annual Accounts etc. before the Assessing Officer and the same are confirmed by Azure Knowledge Corporation of India Pvt. Ltd. (AKCPL). Further AKCPL in response to the notice issued u/s. 133(6) of the Act by the Assessing Officer, provided the loan transaction with the assessee, with necessary evidences. Thus the Assessing Officer cannot called the assessment order as exparte assessment. Further the Ld. A.O. has not found any contra evidence filed by either the assessee or by AKCPL. In the absence of the same, the ld. A.O. is unjustified in invoking Section 68 of the Act, wherein the assessee has proved the identity, creditworthiness of the loan creditor and the genuineness of the transactions are also proved by producing the bank statement and Income Tax Returns. (i) In this connection, Jurisdictional High Court in the case of DCIT vs. Rohini Builders reported in [2003] 127 taxmann.com 523 held as follows: “Section 68 of the Income-tax Act, 1961 - Cash Credits - Assessing Officer made addition of Rs. 12,85,000/- as unexplained cash credits in respect of loans taken by assessee from 21 parties - Assessee had discharged initial onus by providing identity of all creditors by giving their complete addresses, GIR numbers/permanent account numbers and copies of assessment orders wherever readily available Assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques drawn from bank accounts of creditors - Repayment of loans and interest thereon was also made by account payee cheques by assessee and tax also had been deducted at source on interest payments and remitted - Whether assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors, because under law, assessee can be asked to prove source of credits in its books of account but not source of source Held, yes Whether merely because summons issued to some of creditors could not be served or they failed to appear I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 9 before Assessing Officer, could not be ground to treat those credits as non- genuine Held, yes Whether considering totality of facts and circumstances of case, especially fact that Assessing Officer had not disallowed interest claimed/paid in relation to those credits in assessment year under consideration or even in subsequent assessment years, and tax at source had been deducted out of interest paid/credited to creditors, Tribunal was justified in deleting addition made - Held, yes Whether as there was no substance in appeal and no substantial question of law arose, appeal was liable to be dismissed.” (ii) CIT vs. Ranchhod Jivabhai Nakhava [2012] 21 taxmann.com 159 held as follows: “Section 68 of the Income-tax Act, 1961 Cash credits - Assessment year 2006-07 - Whether once assessee has established that he has taken money by way of account payee cheques from lenders who are all income tax assessees whose PAN have been disclosed, initial burden under section 68 is discharged and then, it is Assessing Officer's duty to ascertain from Assessing Officer of those lenders, whether in their respective returns they have shown existence of such amount of money and have further shown that those amount of money had been lent to assessee Held, yes Whether if Assessing Officers of those creditors are satisfied with explanation given by creditors as regards those transactions, Assessing Officer in question has no justification to disbelive transactions reflected in account of creditors - Held, yes Whether if before verifying such fact from Assessing Officer of lenders of assessee, Assessing Officer decides to examine lenders and asks assessee to further prove genuineness and creditworthiness of transactions, it would be against principles laid down under section 68 - Held, yes [In favour of assessee]” (iii) Decision of Hon'ble Mumbai I.T.A.T., in the case of ITO VIS Nasir Khan J. Mahadik [2011] 16 taxmann.com 312 (Mum.); Section 68 of the Income-tax Act, 1961 Cash credits - Assessment year 2006-07 For relevant assessment year, assessee filed his return declaring certain income In course of assessment, Assessing Officer found that there was certain closing balance appearing in a creditor's account on last date of relevant accounting year - It was further noticed that assessee had been taking loans from said creditor in preceding years and also during assessment year in question -Assessing Officer taking a view that assessee failed to prove genuineness of loan transactions, added said amount to assessee's taxable income under section 68 On appeal, Commissioner (Appeals) opined that opening balance of loan account could not be taken into consideration and, fresh loan taken during relevant year was duly supported by confirmation letter, salary certificate, etc. He thus, deleted addition made by Assessing Officer - Whether Assessing Officer could not make addition in respect of loan taken in preceding years by I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 10 roping in section 68 - Huid, yes - Whether so far as loan taken during relevant assessment year was concerned, since sufficient material was brought on record before Commissioner (Appeals) to highlight that all payments were though bank account and creditor had sufficient creditworthiness, being a highly paid employee abroad. impugned addition was rightly deleted-Held, yes (iv) Decision of Hon'ble Allahabad High Court in the case of CIT VIS Raghuraji Agro Industries (P) Ltd [2013] 31 taxmann.com 174 (Allahabad), the relevant portion of which is reproduced hereunder: "Section 68 of the Income-tax Act, 1961 Cash credits [Loans] - Assessment year 2003-04 During assessment proceedings Assessing Officer noticed that opening balance of unsecured loans was Rs. 1 crore while closing balance of unsecured loans in preceding year was Rs. 60 lakhs - He added amount of difference as undisclosed income of assessee Assessee explained that during earlier year amount of Rs. 1 crore was having two elements, i.e.. unsecured loan of Rs. 30 lakhs and share capital money of Rs. 40 lakhs, but during relevant assessment year, these were clubbed together and consolidated balance of Rs. 1 crore was shown - Whether on facts no money had gone out from books of account and there was merely adjustment of entries, i.e., transfer of figure from one head to another head and, therefore, inference drawn by Assessing Officer could not be sustained - Held, yes [Para 7] [In favour of assessee]" 8. Respectfully following the above Jurisdictional High Court judgments and other judgments, we have no hesitation in confirming the deletion made by Ld. CIT(A) of Rs. 15,43,73,423/-. Thus the grounds raised by the Revenue are devoid of merits and the same is liable to be dismissed. 9. Regarding Ground No. 2 the claim of depreciation on software is no more res integra. Since Co-ordinate Bench of this Tribunal in the case of Voltamp Transformers Ltd. and Zydus Infrastructure Pvt. Ltd. held that the assessee is entitled to depreciation on software @ 60% as part of block of computer. Therefore the disallowance made by the Assessing Officer of Rs. 14,67,149/- which was deleted by Ld. CIT(A) is hereby confirmed and no I.T.A No. 1924/Ahd/2019 A.Y. 2012-13 Page No Smile India Knowledge Services Pvt. Ltd. . vs. DCIT 11 interference is called for. Thus the ground raised by the Revenue is devoid of merits and the same is dismissed. 10. In the result, the appeal filed by the Revenue is hereby dismissed. Order pronounced in the open court on 08-05-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 08/05/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद