M/s IGNIS Technology Solutions Private Limited , Bangalore V. Income Tax Officer Ward-3(1)(1), Bangalore

ITA 274/BANG/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5758 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 14-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Reassessment proceedings
• Section: 148; 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA Nos. 274 & 43/Bang/2019 Assessment Years : 2013-14 & 2014-15 M/s. iGNIS Technology Solutions Pvt. Ltd., No. 4, Sri Kiran Comforts, No. 10, 30 th Main, Banashankari 3 rd Stage, Bangalore – 560 085. PAN: AACCR9620A Vs. The Income Tax Officer, Ward-3(1)(1), Bangalore. APPELLANT RESPONDENT Assessee by : None Revenue by : Smt. Priyadarshini Besaganni, JCIT (DR) Date of Hearing : 09-12-2021 Date of Pronouncement : 23-12-2021 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals arises out of orders dated 22/11/2018 and 24/12/2018 for Assessment Year 2014-15 and 2013-14 by the Ld.CIT(A)-3, Bangalore. The only issue raised by before this Tribunal is against disallowance of depreciation in respect of software purchased. It is submitted that identical grounds has been raised by assessee for the years under consideration with a difference of quantum of Page 2 of 7 ITA Nos. 274 & 43/Bang/2019 disallowance. At the time of hearing, though none appeared, the Ld.AR had filed letter based on which the appeals are being disposed of. Assessment year 2013-14 2. Brief facts of the case are as under: The scrutiny assessment was completed on 04.03.2016 determining the loss at Rs. 20,64,53,042/-. The Ld.AO observed that for assessment year 2013-14, the auditor of the assessee had reported regarding certain investigations conducted by CBI in case of the assessee. It was reported by the auditor that the assessee had shown purchase of certain software in F.Y. 2010-11 for an amount of Rs.35,09,41,507/-. The assessee shown further expenditure on this software in financial year 2011-12 (Rs.38,40,000/-) and in the F.Y. 2012-13 (Rs.13,59,732/-). The CBI reported that the said software did not have any value and that assessee claimed depreciation on the same. The auditor reported that the CBI investigation revealed of there being a possible fraud in the assessee company so as to sell shares of the company to outsiders and funds from the company were diverted to those outsiders to enable them to purchase its shares. It was also reported by the CBI that the software purchased by the assessee company did not have any value and purchase of the same was only shown to take a term loan of Rs. 25 crores in F.Y.2010-11 from bank and money so received was diverted to outsiders, to enable them to purchase the shares of the company and that the management of the assessee had worked on the instruction of the proposed buyers of the shares of the company. This lead to the issuance of notice u/s. 148 of the Act. The Page 3 of 7 ITA Nos. 274 & 43/Bang/2019 Ld.AO during reassessment proceedings noted that, during FY 2013-14, the assessee had deleted the assets from the schedule of fixed assets as per the Company Act and reason for the same was given that it had not been able to find any customer due to which the economic value of the software was uncertain and was being written off in the books. However for the purpose of income tax, the assessee claimed depreciation at the applicable rate. Since the assessee claimed depreciation on the software in its books of accounts, during reassessment proceedings the Ld.AO asked the assessee to show cause as to why the excess depreciation should not be disallowed. However the assessee failed to give any reasonable explanation for the same. After taking these facts into consideration, the Ld.AO came to the conclusion that excessive depreciation claimed by the assessee on an asset with no value needed to be disallowed. 3. Aggrieved by the order passed by the Ld.AO assessee filed before the Ld.CIT(A). The Ld.CIT(A) based on his own order for assessment year 2014-15 disallowed depreciation claimed by assessee. Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before us. The details filed by the Ld.AR in the letter filed before this Tribunal is scanned and reproduced as under: Page 4 of 7 ITA Nos. 274 & 43/Bang/2019 Page 5 of 7 ITA Nos. 274 & 43/Bang/2019 4. On the contrary, the Ld.Sr.DR submitted that the assessee itself valued the software at NIL. She submitted that software has not been put to use and therefore does not qualify the basic requirement for claiming depreciation. She relied on the observations of authorities below. We have perused the submissions of both sides and perused records placed before us. 5. The categorical observation of the Ld.CIT(A) for assessment year 2014-15 that was followed in AY 2013-14 are as under: “4.4 The appellant has not demonstrated either during the assessment proceedings or appellate proceedings that the asset was ready to be capitalized as the same was ready for sale. In fact the appellant has itself claimed that the market value of the asset was found to be Nil. The appellant has submitted that it could not find customer despite sales effort of 3 years. This claim of the appellant is self contradictory as the appellant has itself admitted that the software purchased had to be developed further to make it workable and so it incurred expenditure over a period of two years on it. So how it could get a customer for the same 3 years or 2 years back? Since the software product itself was not fully functional and there was no possibility of its sale, the expenses could not have been capitalized and treated as part of the fixed assets for claiming depreciation on the same. Capitalization of expenditure incurred for development of a software product occurs only once technological feasibility has been reached and costs are determined to be recoverable. Capitalization ends and amortization begins when the product is available for general release to customers. In the present case the appellant has failed to show that those stages were reached. Further, as per management response to the observations/qualification remarks made by the Auditors in their audit Report, it is mentioned that the appellant company did not have funds to market the software as a standalone product and so the same was written-off. This aspect also shows that the stage of capitalization and claiming depreciation on the same had not arisen in relation to this software. Page 6 of 7 ITA Nos. 274 & 43/Bang/2019 4.5 In view of above, the action of the AO in disallowing the depreciation claim of the appellant is upheld and the grounds of appeal 2 and 3 of the appellant are dismissed.” We do not find any infirmity in the above findings and the same is upheld. Accordingly the grounds raised by assessee for AY 2013-14 stands dismissed. Assessment Year 2014-15 6. As the facts are similar and issue raised is same, the above view taken for AY 2013-14 shall apply mutatis mutandis. Accordingly the grounds raised by assessee for AY 2013-14 stands dismissed. In the result appeal filed by assessee for assessment years 2013-14 & 2014-15 stands dismissed. Order pronounced in open court on 23 rd December, 2021. Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 23 rd December, 2021. /MS / Page 7 of 7 ITA Nos. 274 & 43/Bang/2019 Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore 6. Guard file By order Assistant Registrar, ITAT, Bangalore