DCIT, Circle-17(1), New Delhi V. MPS Infotecnics Pvt. Ltd., New Delhi

ITA 6939/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7592 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 20-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMITA M BISWAS
• Keywords: Unexplained cash credit; Unexplained investment; Depreciation; Rule of consistency; Scheme of amalgamation
• Section: 143(3); 192; 13; 22; 68

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 6939/DEL/2017 (ASSESSMENT YEAR: 2011-12) THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-17(1), NEW DELHI VS. MPS INFOTECNICS PVT. LTD, (FORMERLY KNOWN AS VISESH INFOTECNIC LTD), 703, ARUNACHAL BUILDING, 19, BARAKHAMBA ROAD, CONNAUGHT PLACE, NEW DELHI PAN: AAACV4805B (APPELLANT) (RESPONDENT) REVENUE BY : MS. PRAMITA M. BISWAS, CIT DR ASSESSEE BY: SHRI R. S. SINGHVI, CA DATE OF HEARING 14/01/2021 DATE OF PRONOUNCEMENT 21/01/2021 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-17 (1), FILES THIS APPEAL, NEW DELHI (THE LEARNED AO) FOR ASSESSMENT YEAR 2011-12, AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 33, NEW DELHI (THE LEARNED CIT (A)) DATED 16 AUGUST 2017 ALLOWING PARTLY THE APPEAL OF THE ASSESSEE. 2. THE LEARNED AO HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION OF RS. 2,46,81,028/- U/S 32(1) OF THE INCOME TAX ACT, 1961 ( THE ACT) ON ASSET CLASSIFIED BY THE ASSESSEE AS SOFTWARE AND INTELLECTUAL PROPERTY RIGHT BY IGNORING THE RATE OF DEPRECIATION OF 25% ON INTANGIBLE ASSETS AS PRESCRIBED UNDER RULE -5 OF THE INCOME TAX RULES, 1962 (THE RULE) R.W. APPENDIX-I AND IA? 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION OF RS. 2,46,81,028/- WITHOUT CONSIDERING THE FINDINGS OF THE FACTS RECORDED BY THE ASSESSING OFFICER (THE AO ) IN ASSESSMENT ORDER THAT THE ASSESSEE WAS ENGAGED IN DEVELOPMENT OF SOFTWARE FOR ITS USE IN THE BUSINESS AND THE SAME WERE CAPITALIZED AS ASSET UNDER HEAD SOFTWARE AND INTANGIBLE ASSETS BY THE ASSESSEE? 3. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANCE OF EXCESS CLAIM OF DEPRECIATION OF RS. 2,46,81,028/- WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE HAD CLAIMED HIGHER RATE OF DEPRECIATION PAGE | 2 @60% ON INTANGIBLE ASSETS DEVELOPED BY THE ASSESSEE IN THE FORM OF THE SOFTWARE FOR ITS USE IN THE BUSINESS AND IT WAS NOT A CLAIM OF DEPRECIATION ON THE SOFTWARE PURCHASED BY THE ASSESSEE? 4. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS LEGALLY JUSTIFIED IN ALLOWING RELIEF TO THE ASSESSEE ON THE BASIS OF ITS EARLIER ORDER IN THE ASSESSEES OWN CASE DESPITE THE FACT THAT PRINCIPLE OF RES-JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS AS EACH ASSESSMENT YEAR IS A SEPARATE YEAR? 5. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS LEGALLY JUSTIFIED IN DELETING ADDITION OF RS. 94,07,82,500/- U/S 68 OF THE ACT, ON ACCOUNT OF CASH CREDITS IN THE BOOKS OF ACCOUNTS BY IGNORING THE FINDINGS OF THE AO THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSEE FAILED TO PROVE THE HERE BASIC CONDITIONS I.E. IDENTITY, CREDITWORTHINESS OF CREDITORS AND GENUINENESS OF TRANSACTIONS IN THIS REGARDS? 6. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) IS LEGALLY JUSTIFIED IN DELETING ADDITION OF RS. 94,07,82,500/- ON ACCOUNT OF UNEXPLAINED CASH CREDITS FOR WANT OF PROPER ENQUIRY BY THE AO BUT WITHOUT MAKING ENQUIRY OR DIRECTING FURTHER ENQUIRY U/S 250(4) OF THE ACT AS LAID DOWN BY HONBLE DELHI HIGH COURT IN CASE OF CIT VS JANSAMPARK ADVERTISING AND MARKETING (P) LIMITED (2015) 375 ITR 373? 7. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD.CIT (A) IS JUSTIFIED IN DELETING DISALLOWANCE OF RS. 7,20,20,000/- ON ACCOUNT OF DEPRECIATION ON ALLEGED ADDITION OF RS. 13.36 CRORES IN SOFTWARE AND INTELLECTUAL PROPERTY RIGHTS BY IGNORING THE FINDINGS OF THE AO THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSEE FAILED TO PROVE THE SUPPORTING BILLS/DOCUMENTS IN RESPECT OF SUCH ENHANCEMENT IN SOFTWARE & IPR? 3. THE BRIEF FACTS OF THE CASE SHOWS THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND DEALER IN SOFTWARE PRODUCTS AND COMPUTER PRODUCTS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/09/2011 DECLARING INCOME OF RS 69,14,860/-. THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY AND ASSESSMENT U/S 143(3) OF THE ACT WAS MADE AT A TAXABLE INCOME OF RS. 1,04,79,29,362/-. THE LD AO MADE CERTAIN DISALLOWANCES, WHICH ARE IN DISPUTE BEFORE US. THE FIRST DISALLOWANCE OF DEPRECIATION ON THE COMPUTER SOFTWARE OF RS. 2,46,81,028/- HOLDING THE DEPRECIATION IS AVAILABLE @ 25% WHEREAS THE DEPRECIATION CLAIMED BY THE ASSESSEE IS AT THE RATE OF 60%. THEREFORE, EXCESS DEPRECIATION CLAIMED OF RS. 2,46,81,028/- WAS DISALLOWED. HE FURTHER DISALLOWED THE DEPRECIATION OF ASSETS OF RS. 7, 20, 30,000/- HOLDING THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF SOFTWARE AND IPR OF 13.36 CRORES WORK IN PROGRESS, WHICH IS CAPITALIZED DURING THE YEAR. HE ASKED TO PROVE ITS EXISTENCE BY SUPPORTING BILLS AS TO HOW THESE ASSETS CAME INTO EXISTENCE AND HOW THE SOFTWARE WAS PURCHASED OR DEVELOPED IN HOUSE. ASSESSEE DID NOT FILE THE REQUISITE DETAILS AND THEREBY HE DISALLOWED THE DEPRECIATION OF RS. 7, 20, 30,000/- ON ADDITION OF SOFTWARE AND IPR AMOUNTING TO RS. 13.36 CRORES. SECOND ISSUE IS AN ADDITION OF RS. 94, 07, 82,500/- UNDER SECTION 68 OF THE ACT. THE ABOVE SUM WAS RECEIVED BY THE ASSESSEE AGAINST THE FIRST CALL OF ISSUE OF CONVERTIBLE WARRANTS DURING THIS YEAR. THE LD AO HELD THAT ALL DEBENTURES HOLDER ARE PRIVATE LIMITED COMPANY AND SOME OF THEM HAVE COMMON DIRECTORS AND AUDITORS. THEREFORE, ASSESSEE PAGE | 3 HAS FAILED TO PROVE THE CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTION. CONSEQUENTLY THE ASSESSMENT ORDER U/S 143(3) OF THE ACT WAS PASSED ON 28.03.2014 AT TAXABLE INCOME OF RS. 10, 47, 99,362/-. 4. AGGRIEVED BY THE ORDER THE ASSESSEE FILED APPEAL BEFORE THE LD CIT (A). ON THE ISSUE OF DISALLOWANCE OF DEPRECIATION OF SOFTWARE @60% AS CLAIMED BY THE ASSESSEE AND ALLOWED BY THE LD AO @25% AS WELL AS THE DISALLOWANCE OF DEPRECIATION OF RS. 7, 20, 30,000/-ON ADDITION DURING THE YEAR FROM WORK IN PROGRESS, FOLLOWING THE DECISION OF THE COORDINATE BENCH IN CASE OF THE ASSESSEE IN EARLIER YEARS, THE LEARNED CIT A ALLOWED THE CLAIM OF THE ASSESSEE. WITH RESPECT TO THE ADDITION U/S 68 OF THE ACT OF RS. 94,07,82,500/- THE LD CIT(A) DELETED THE ADDITION FOR THE REASON THAT THIS IS THE FIRST CALL OF WARRANTS DURING THE YEAR, IN SUBSEQUENT YEAR SECOND CALL WAS MADE AND IN THIRD YEAR THIRD CALL WAS MADE. THE TOTAL ISSUE OF RS 220 CRORES WAS RECEIVED IN THREE DIFFERENT YEARS. IN THE FIRST YEAR I.E. THE IMPUGNED ASSESSMENT YEAR THE LEARNED ASSESSING OFFICER MADE THE ADDITION WITH RESPECT TO THE SAME PARTIES AND THE SAME TRANSACTION U/S 68 OF THE ACT WHEREAS HERE NUMBER TWO AND YEAR NUMBER THREE, FOR THE SAME PARTIES, FOR THE SAME INSTRUMENT, AFTER ENQUIRY BY THE AO, NO ADDITION IS MADE. HE FURTHER HELD THAT THERE IS NO MATERIAL EVIDENCE OR ANY ADVERSE FINDING OF THE LD AO AGAINST THE ASSESSEE TO TREAT THE APPLICATION MONEY AS UNEXPLAINED IN THE CURRENT YEAR WHEN THE SAME MONEY FROM THE SAME PARTIES IN THE SUBSEQUENT YEAR HAS BEEN TREATED AS GENUINE AND ACCORDINGLY THERE IS NO PROPER JUSTIFICATION FOR THE AO TO MAKE SUCH EDITION IN A VERY CASUAL MANNER WITHOUT ANY FINDING AND THE SAME IS NOT JUSTIFIED AND ADDITIONS MADE BY THE AO IS NOT SUSTAINABLE AND ACCORDINGLY THE SAME WAS DELETED. 5. THUS REVENUE AGGRIEVED BY THE ABOVE ORDER AND IN APPEAL BEFORE US BY FOLLOWING TWO COUNTS:- I. DISALLOWANCES OF DEPRECIATION DELETED OF RS. 7, 20, 30,000/- AS WELL AS HOLDING, THAT ASSESSEE IS ENTITLED FOR DEPRECIATION @60%. (GROUND NUMBER 1 4 AND 7 OF THE APPEAL) II. AGAINST DELETION OF ADDITION OF RS. 94, 07, 82,500/- U/S 68 OF THE ACT. (GROUND NUMBER 5 AND 6 OF THE APPEAL) 6. GROUND NUMBER 1 4 AND 7 ARE WITH RESPECT TO THE DISALLOWANCE OF THE DEPRECIATION ON THE SOFTWARE DELETED BY THE LEARNED AND CIT A. THE CONTROVERSY INVOLVED IS, ACCORDING TO THE LEARNED ASSESSING OFFICER THE SOFTWARE IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 25% WHEREAS AS PER THE ASSESSEE THE RATE OF DEPRECIATION ON SOFTWARE IS 60%. FURTHER THE LEARNED ASSESSING OFFICER HAS ALSO STATED THAT THE DEPRECIATION CLAIM OF THE ASSESSEE ON THE SOFTWARE OF 13.65 CRORES AND CONSEQUENT DEPRECIATION THEREON OF 7.20 CRORES IS FOR NON-EXISTENT ASSETS. PAGE | 4 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED ASSESSING OFFICER. HE EXTENSIVELY READ THE PARA NUMBER 1 OF THE ASSESSMENT ORDER WHEREIN THE LEARNED ASSESSING OFFICER HAS DISALLOWED A SUM OF 24,681,028/ ON ACCOUNT OF HIGHER RATE OF DEPRECIATION CLAIMED BY THE ASSESSEE. HE SUBMITTED THAT ASSESSEE IS ONLY ELIGIBLE TO CLAIM THE DEPRECIATION AT THE RATE OF 25% AS THE INTELLECTUAL PROPERTY RIGHTS ARE THE KIND OF CONTENT RIGHTS, WHICH COMES UNDER THE INTANGIBLE ASSETS. WITH RESPECT TO THE DEPRECIATION ON SOFTWARE CAPITAL WORK IN PROGRESS OF 35 CRORES, HE REFERRED TO PARA NUMBER 4 OF THE ORDER AND STATED THAT WHEN THE ASSESSEE COULD NOT SATISFY THE ASSESSING OFFICER ABOUT THE EXISTENCE OF THE SOFTWARE, THE DEPRECIATION HAS RIGHTLY BEEN DISALLOWED OF 72,030,000/. 8. ON THE FIRST ISSUE OF DEPRECIATION, LD AR SUBMITTED A DETAILED PAPER BOOK SHOWING THE CHART OF ASSET-WISE DEPRECIATION AT PAGE NO. 170 OF THE PAPER BOOK. IT WAS FURTHER STATED THAT IDENTICAL DISALLOWANCES OF DEPRECIATION ON SOFTWARE WAS MADE IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10, 2010-11 AND 2012-13 WHICH TRAVELLED UP TO THE LEVEL OF COORDINATE BENCH AND COORDINATE BENCH HAS DELETED THE ABOVE DISALLOWANCES FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 6092/DEL/2013. HE REFERRED TO THE GROUND OF THAT ORDER WHEREIN, THIS ISSUE IS CONSIDERED. HE FURTHER REFERRED TO PAGE NO. 5 OF THAT DECISION WHEREIN, IT IS STATED THAT THE ABOVE ISSUE HAS BEEN CONSIDERED IN ITS ENTIRETY. HE FURTHER REFERRED TO THAT DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 IN ITA NO. 4025/DEL/2014 DATED 08.01.2018 WHEREIN IDENTICAL ISSUE HAS BEEN DEALT IN PARA NUMBER 6. HE FURTHER REFERRED TO THE ORDER OF THE COORDINATE BENCH IN ITA NO. 3778/DEL/2017 FOR ASSESSMENT YEAR 2012-13 DATED 28-01-2020 WHEREIN, THE ABOVE ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH IN PARA NO. 6 AND ALLOWED IN FAVOUR OF THE ASSESSEE. IN VIEW OF THIS, HE SUBMITTED THAT GROUND NOS. 1 TO 4 AND 7 ARE COVERED IN FAVOUR OF THE ASSESSEE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRADING OF COMPUTER HARDWARE, SOFTWARE, AND PERIPHERALS PRODUCTS AND ENGAGED IN SOFTWARE DEVELOPMENT. IT ALSO PROVIDES IT SOLUTION AND PRODUCT SUPPORT, NETWORKING AND SYSTEM INTEGRATION AND IT ENABLED SERVICES. HE SUBMITTED THAT THE APPELLANT COMPANY HAD DEVELOPED CERTAIN IN HOUSE SOFTWARE. THE DIRECTORS REPORTS IN MANAGEMENT DISCUSSION AND ANALYSIS STATED THAT THE COMPANY'S INFRA SERVICES DIVISION HAS THE SOFTWARE PRODUCT AND PLATFORM BY THE NAME (INFRA SERVE). BUSINESS SOFT SOFTWARE IS WIDELY DEPLOYED IN THE SERVICES OF PHARMACEUTICAL, MANUFACTURING, CHEMICAL, SALES, AND DISTRIBUTION SCHEMES. IT APPLIES THE POWER OF INFORMATION TECHNOLOGY TO VARIOUS BUSINESS ISSUES AND BUSINESS PROCESSES. BUSINESS PRO AUTOMATES CRITICAL FUNCTION AND ENTERPRISES APPLICATION. POWER PRO IS ALSO A READY TO IMPLEMENT ERP PRODUCT IN SMALL AND MEDIUM BUSINESS SCHEMES. V-APPS IS PAGE | 5 CUSTOMIZED SOFTWARE DEVELOPMENT DIVISION WHICH PROVIDES DEVELOPMENT SERVICES OF WEB BASED AND CLIENT SERVER TECHNOLOGIES. SIGNDOMAIN.COM IS INTRODUCED FIRST ICANN ACCREDITED DOMAIN REGISTRATION. INFRA SERVE WEB HOSTING SOLUTION OF VIL DEDICATED SERVICES LOCATED IN SERVER FARMS IN INDIA AND US. THEREFORE, IT IS APPARENT THAT COMPANY IS PROVIDING THE SOFTWARE SERVICES AND IS DEVELOPING SOFTWARE. LOOKING AT THE DEPRECIATION SCHEDULE OF THE ASSESSEE, ASSESSEE HAS OPENING GROSS BLOCK OF SOFTWARE AND IPR SERVICES OF RS. 90 CRORES. IT HAS ALSO THE WORK IN PROGRESS WITH RESPECT TO THE SOFTWARE DEVELOPMENT ACTIVITIES OF RS. 61 CRORES. DURING THE YEAR, ASSESSEE HAS INCREASED ITS WORK IN PROGRESS OF RS. 35.14 CRORES WHEREAS CAPITALIZED ONLY RS. 13.36 CRORES. ASSESSEES INCOME FROM OPERATION IS RS. 176 CRORES FOR THIS YEAR AND RS. 124 CRORES IN PREVIOUS YEAR. ASSESSEE IS ALSO RAISED FUNDS FROM ITS GDR ISSUE IN THE EARLIER YEARS. ONE SUBSIDIARY ALSO WAS MERGED WITH THE COMPANY AS PER THE AMALGAMATION SCHEME SANCTIONED BY THE HONBLE DELHI HIGH COURT AS PER ITS ORDER DATED 28.01.2011. THE COMPANY HAS THE BOARD OF DIRECTORS WHO ARE ALSO HAVING EXPOSURES IN THE SOFTWARE INDUSTRY, WHICH IS EVIDENT FROM THE REPORT OF THE BOARD OF DIRECTORS. THE COMPANY HAS ALSO BEEN INSTRUMENTAL IN PROVIDING MULTIPLE SERVICES TO GOVERNMENT OF DELHI HARYANA, PUNJAB, AND ANDHRA PRADESH. THE COMPANY HAS ALSO WORKED WITH GOVERNMENT OF INDIA IN UNIQUE IDENTIFICATION PROJECTS. IN VIEW OF THIS, IT IS APPARENT THAT COMPANY IS LISTED COMPANY AND CARRYING ON THE SOFTWARE DEVELOPMENT ACTIVITIES THEREFORE THERE IS NO REASON TO DOUBT THAT THE ASSETS OF THE COMPANY ARE FICTITIOUS. THE LD AO HAS ALSO NOT BROUGHT ON RECORD ANYTHING TO SHOW THAT THE ASSETS APPEARING IN THE BALANCE SHEETS ARE NOT REAL. AGAINST THIS, THE ANNUAL ACCOUNT SHOWS THAT THE ASSESSEE HAS SEVERAL PLATFORMS FOR SOFTWARE SERVICES. THEREFORE WE DO NOT FIND ANY SUBSTANCE IN THE FINDING OF THE LEARNED ASSESSING OFFICER THAT ASSESSEE HAS NOT SHOWN THAT ASSETS OF SOFTWARE IS IN EXISTENCE. THE ISSUE OF DEPRECIATION OF SUCH SOFTWARE WHERE IT IS ALLOWABLE @25% OR @ 60% HAS ALREADY BEEN DECIDED BY THE CO-ORDINATE BENCH IN ASSESSESS OWN CASE SINCE FOR ASSESSMENT YEAR 2008-09 THAT THE ASSESSEE IS ENTITLED TO DEPRECIATION @ 60% OF SUCH SOFTWARE. THE LD CIT (A) HAS ALSO FOLLOWED THE ORDER OF THE CO-ORDINATE BENCH WHILE ALLOWING THE CLAIM OF THE ASSESSEE. HE HELD AS UNDER :- 10. THE LD CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE VIDE PARA NO. 4 AT PAGE NO. 2 TO 7 OF THE ORDER AS UNDER:- 4. GROUND NO.1 AND 2:- THE APPELLANT HAS CHALLENGED THE DISALLOWANCE OF DEPRECIATION ON SOFTWARE @60% AS CLAIMED BY THE APPELLANT AND ALLOWING THE SAME @25% AND GROUND NO. 5:- THE APPELLANT HAS CHALLENGED DISALLOWANCE OF DEPRECIATION OF RS. 7,20,30,000/- @60 ON THE COMPUTERS SOFTWARES. 4.1 THE FACTS EMANATING FROM THE ORDER OF THE A.0 AND THE SUBMISSIONS OF THE ASSESSEE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF TRADING OF COMPUTER HARDWARE, SOFTWARE AND PERIPHERALS PRODUCTS AND ALSO ENGAGES IN COMPUTER SOFTWARE PAGE | 6 DEVELOPMENT. THE OLD NAME OF THE. ASSESSEE WAS M/S VISHESH INFOTECOICS LTD WHICH HAS BEEN SUBSEQUENTLY CHANGED TO NEW AND CURRENT NAME NTS MPS INLOTECNICS LTD. THE ASSESSEE COMPANY HAS FRIED RETURN OF INCOME FOR THE A. V 2011-12 DECLARING INCOME OF RS. 69.14.860/- AND THE CASE WAS TAKEN UP FOR SCRUTINY. THE ASSESS.EE HAS BEEN FOLLOWING THE REGULAR PRACTICE OF DEVELOPING THE SOFTWARE AND TREATING THE SAME AS WORK-IN-PROGRESS AFTER CAPITALIZATION- AND SUBSEQUENTLY SELLING THE SOFTWARE RIGHTS TO VARIOUS PARTIES AND THE SALE CONSIDERATION FROM THE COMPUTER SOFTWARE RIGHTS WERE TREATED AS REVENUE RECEIPTS AND AS INCOME OF THE ASSESSES. 4.2 THE ASSESSEE ELIGIBLE FOR REVISED RATE OF DEPRECIATION ON THE COMPUTER SOFTWARE 60% FROM THE A.Y 2003-04 BUT THE SAME WAS WRONGLY CLAIMED AT THE OLD RATE OF 25% ONLY WHICH WAS SUBSEQUENT MODIFIED AND THE DEPRECIATION WAS CLAIMED A 60% FROM A.Y 2004-05 ONWARDS. THE DEPRECIATION ON THE CAPITALIZED COMPUTER SOFTWARE WORK -IN- PROGRESS WAS ALSO CLAIMED DURING THE ASSESSMENT YEAR 2005-06 BUT THE SAME WAS RESTRICTED TO 25% ONLY BY THE AX). THE ASSESSES HAD PREFERRED APPEAL AGAINST THE ORDER OF THE A.0 AND THE LD. CIT (APPEAL)-15. DELHI HAS ALLOWED THE SAME (@ 60% VIDE THE APPELLATE ORDER DATED 28/02/2017 IN APPEAL NO. 216/2016-17. 4.3 THE ASSESSMENT FOR A.Y 2007-08 WAS COMPLETED U/S 143(1). THE OTHER ASSESSMENTS FOR THE A.Y 2008-09 AND 2009-10 WAS ALSO COMPLETED U/S 143(3) AND THE DEPRECIATION WAS RESTRICTED BY THE AO TO 25% ONLY BUT THE SAME WAS ALLOWED @60% BY THE LD CIT(A)-19, DELHI AND THE DEPARTMENT HAD FILED APPEAL AGAINST THE ORDERS OF THE LD CIT(A) BUT THE HONBLE TRIBUNAL DELHI HAS CONFIRMED THE ORDERS OF THE LD CIT(APPEAL) AND HAS DISMISSED THE DEPARTMENTAL APPEAL VIDE THE APPELLATE ORDER DATED 11.04.207 IN ITA NO. 6091/DEL/2013 FOR ASSESSMENT YEAR 2008-09 AND ITA NO. 6092/DEL/2013 FOR AY 2009-10. IT IS SUBMITTED BY THE ASSESSEE THAT THE DEPARTMENT HAS NOT APPARENTLY APPEALED AGAINST THE ORDER OF THE TRIBUNAL IN THE HIGH COURT. 4.4 THE AO HAD DENIED THE DEPRECIATION @60% DURING THE AY 2010-11 BUT THE SAME HAS BEEN ALLOWED BY THE LD CIT(APPEALS)-19, DELHI VIDE THE APPELLATE ORDER DATED 26.03.2014 IN APPEAL NO. 10-2013-14. SIMILARLY, THE AO HAD DENIED THE DEPRECATION @60% CLAIMED IN THE AY 2012-13 BUT THE SAME HAS BEEN ALLOWED BY THE LD CIT(APPEALS)-15, DELHI VIDE APPELLATE ORDER DATED 27/02/2017 IN APPEAL NO. 217/2016-17. 4.5 THE ASSESSEE HAS OPENING WORK IN PROGRESS OF COMPUTER SOFTWARES OF RS. 60.18 CRORES AS ON 01.04.2010 AND THE ASSESSEE HAD ADDED WORK IN PROGRESS OF RS. 35.14 CRORES DURING THE CURRENT AY BUT THE SAME WAS NOT COMPLETE AND THE ASSESSEE HAD CLAIMED THE ACTUAL CAPITALIZED WORK IN PROGRESS OF RS. 13.36 CRORES ON WHICH TE ASSESSEE HAD CLAIMED THE DEPRECATION ON COMPUTER @60% OF RS. 7,20,30,000/- BUT THE SAME HAD BEEN DENIED ASSET BUT THEY ARE FICTITIOUS ASSETS TO ALLOW SUCH DEPRECIATION VIDE THE ORDER OF THE LD AO WHICH HAS BEEN CHALLENGED BY THE ASSESSEE IN GROUND NO. 5. 4.6 THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LD AO AND THE DENIAL OF DEPRECATION @60% AND RESTRICTING THE SAME TO 25% ONLY AND AS SUCH ALLOWING THE DENIAL OF DEPRECIATION OF RS. 2,46,81,028/- VIDE THE ORDER OF THE LD AO WHICH HAS BEEN CHALLENGED BY THE ASSESSEE IN GROUND NO. 1 AND 2. 4.7 THE ASSESSEE HAS SUBMITTED THAT THE ASSESSES IN THE BUSINESS OF TRADING OF COMPUTER HARDWARE, SOFTWARE AND PERIPHERALS PRODUCTS AND ALSO ENGAGES IN SOFTWARE' DEVELOPMENT AND THE ASSESSEE IS VERY MUCH ELIGIBLE FOR DEPRECIATION @ 60% WHICH HAS BEEN REPEATEDLY DENIED BY THE LD AO IN VARIOUS ASSESSMENT YEARS BUT THE SAME HAS BEEN ALLOWED BY THE LD, CIT (APPEAL) FOR THE AY 2005-06, 2008-09, 2009-10, 2010-11, 2012-13 AND ALSO BY THE HON'BLE DELHI TRIBUNAL IN THE A.Y 2008-09 AND 2009-10. IT IS SUBMITTED THAT THERE IS NO JUSTIFICATION FOR DENIAL OF ELIGIBLE PAGE | 7 DEPRECIATION @60% AND THE SAME SHOULD BE ALLOWED RELYING ON THE EARLIER ORDERS OF THE LD.CIT (APPEAL) AND HONBLE TRIBUNAL. IT IS ALSO SUBMITTED THAT THE AO HAS NOT APPRECIATED THE FACTS OF THE CASE THAT THE ASSESSEE IS IN THE BUSINESS OF COMPUTER SOFTWARE DEVELOPMENT WHICH IS AN INTANGIBLE ASSET U/S 32(1) AND THE ASSESSEE IS VERY MUCH ELIGIBLE FOR DEPRECIATION @60% WHICH HAS BEEN UNFAIRLY DENIED TO THE ASSESSES IN EVERY YEAR BUT THE SAME HAS BEEN ALLOWED BY THE LD. CLT(APPEALS) AND HONBLE TRIBUNAL IT IS SUBMITTED THAT DURING THE CURRENT A.Y ASSESSES HAS CAPITALIZED THE WORK IN PROGRESS OF RS. 13.36 CRORES ON WHICH THE ASSESSEE HAS CLAIMED THE DEPRECIATION OF RS. 720,30,000/- @60 % IN A RIGHTFUL MANNER WHICH HAS BEEN UNFAIRLY DENIED AND REJECTED BY LD AO. THE ASSESSED ALSO RELIED ON THE LANDMARK CASE OF TATA CONSULTANCY SERVICES VS. STATE OF ANDHRA PRADESH 192 CTR 257/ 137 STC 620 REGARDING THE COMPUTER SOFTWARE AS AN INTANGIBLE ASSETS FOR THE PURPOSE OF DEPRECIATION. 4.8 I HAVE CONSIDERED THE ORDER OF THE LD AO AND THE SUBMISSIONS OF THE ASSESSEE AND I FIND CONSIDERABLE MERIT IN THE SUBMISSION OF THE ASSESSEE THAT AO HAS UNFAIRLY DENIED THE CLAIM OF DEPRECIATION ON THE COMPUTER SOFTWARE @60% AND RESTRICTING THE SAME TO 25% ONLY WITHOUT ANY VALID REASONS. IT IS NOW ACCEPTED NORM AND AS PER LAW THAT COMPUTER SOFTWARE IS AN INTANGIBLE ASSET AND THE ASSESSEE IS VERY ELIGIBLE FOR DEPRECIATION @60% U/S 32(1) OF THE ACT WHICH HAS BEEN ALLOWED BY THE LD CIT(A) AND THE HONBLE TRIBUNAL IN THE EARLIER YEARS AS DISCUSSED ABOVE. THE ASSESSEE SHOULD NOT BE DENIED THE RIGHTFUL DEPRECATION @60% MERELY BECAUSE THE ASSESSEE HAD MADE A MISTAKE TO CLAIM THE SAME IN ONE EARLIER AY 2003-04 ALTHOUGH THE ASSESSEE HAS RECTIFIED AND MODIFIED ITS CLAIM AND HAS MADE THE RIGHT OF DEPRECIATION @60% IN THE SUBSEQUENT YEARS. THE LD AO IS ALSO NOT JUSTIFIED WITHOUT ANY VALID REASONS TO DENY THE VERY EXISTENCE OF COMPUTER SOFTWARE AS AN INTANGIBLE ASSET IN ONE HAD AND DENYING THE DEPRECIATION AS A WHOLE WHILE ON THE OTHER HAND THE SAME AO IS ALLOWING THE DEPRECIATION BUT RESTRICTING THE SAME @25% IN PLACE OF 60% AND AS SUCH IT IS CLEAR MISUNDERSTANDING AND MIS- APPRECIATION OF THE FACTS OF THE CASE. 4.9 AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE VIEW THAT SO FAR THE ISSUE OF THE CLAIM OF ALLOWING DEPRECIATION @60 % IN GROUND NO. 1 AND 2 IS CONCERNED THE SAME HAVE BEEN ALLOWED BY LD COLLEAGUES IN THE EARLIER AYS AND THE SAME HAS BEEN UPHELD BY THE HONBLE TRIBUNAL AND THE DEPARTMENT HAS ALSO APPARENTLY NOT CHALLENGED THE SAME IN THE HIGH COURT AND ACCORDINGLY THERE IS NO JUSTIFICATION TO DENY THE DEPRECIATION AND AS SUCH THE AO IS DIRECTED TO ALLOW THE DEPRECIATION @60% AND THE APPEAL OF THE ASSESSEE IN GROUND NO. 1 AND 2 IS ALLOWED. 4.10 SO FAR AS THE ISSUE OF ALLOWING THE DEPRECIATION ON THE COMPUTER SOFTWARES IN GROUND NO. 5 IS CONCERNED THE AO IS NOT JUSTIFIED TO TREAT THE CAPITALIZED WORK IN PROGRESS COMPUTER SOFTWARE AS FICTITIOUS WITHOUT ANY VALID REASON AS THE COMPUTER SOFTWARE AS AN ASSET IN ACCEPTED BY THE SAME AO IN THE SAME ORDER IN THE CASE OF THE SAME ASSESSEE AND ACCORDINGLY THE ADDITIONS OF DENYING THE DEPRECIATION THE DEPRECIATION IS DELETED AND THE APPEAL OF THE ASSESSEE IN GROUND NO. 5 IS ALLOWED. 11. THE LD DR COULD NOT SHOW US ANY REASON THAT WHY WE SHOULD DEVIATE FROM THE ORDERS OF THE COORDINATE BENCH IN ASSESSEES OWN CASE, AS FAR AS THE RATE OF DEPRECIATION ON THE SOFTWARE IS CONCERNED. FURTHER, THOUGH THE PRINCIPLES OF RES JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS BUT THE PRINCIPLE OF CONSISTENCY AND JUDICIAL DISCIPLINE REQUIRES US TO FOLLOW THE ORDERS OF THE CO-ORDINATE BENCH IN ASSESSEE S OWN CASE UNLESS THEY ARE DISTINGUISHED BY THE REVENUE. FURTHER, WITH RESPECT TO THE EXISTENCE OF THE WORK IN PROGRESS WE HAVE ALREADY DEALT PAGE | 8 WITH THIS ISSUE EARLIER WHEREIN READING THE MANAGEMENT DISCUSSION AND ANALYSIS IN THE DIRECTORS REPORT CLEARLY SHOWS THAT ASSESSEE HAS SEVERAL OF THE SOFTWARE, IT CANNOT BE SAID THAT ASSESSEE DOES NOT HAVE THE ASSET ON WHICH DEPRECIATION IS CLAIMED. NATURALLY, WHEN THE SOFTWARE IS DEVELOPED IN-HOUSE AS STATED BY THE ASSESSEE, THERE CANNOT BE ANY BILL FOR PURCHASE OF THE SOFTWARE. THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS AND SHOWN THE WORK IN PROGRESS THEREIN WHICH IS EVIDENT FROM THE FIXED ASSETS SCHEDULE, ON WHICH DEPRECIATION IS YEAR BY YEAR BY YEAR CLAIMED AND ALLOWED. THOUGH THE LEARNED ASSESSING OFFICER HAS CHALLENGED THE EXISTENCE OF THE SOFTWARE FOR THE FIRST TIME DURING THE YEAR, HOWEVER, THE ASSESSEE HAS BEEN ALLOWED DEPRECIATION AT LEAST AT THE RATE OF 25% ON THE SOFTWARE IN EARLIER YEARS ALSO. THUS, THE LEARNED CIT A HAS CORRECTLY HELD THAT IT IS NOT A FICTITIOUS ASSET. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LEARNED CIT APPEAL WHILE ALLOWING DEPRECIATION ON THE SOFTWARE HOLDING IT TO BE AN ACTUAL ASSET AND ALLOWING DEPRECIATION THEREON AT THE RATE OF 60% FOLLOWING THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER YEARS. ACCORDINGLY, GROUND NOS. 1 TO 4 AND 7 TH OF THE APPEAL OF THE LD AO ARE DISMISSED. 12. GROUND NUMBER 5 AND 7 ARE ON THE ISSUE OF ADDITION OF 940,782,500/ U/S 68 OF THE ACT ON ACCOUNT OF CASH CREDIT IN THE BOOKS OF ACCOUNTS. THE FACT SHOWS THAT ASSESSEE HAS RECEIVED DURING THE YEAR SUM FOR ISSUE OF CONVERTIBLE WARRANT AMOUNTING TO 94,07,82,564.76 CRORES DURING ASSESSMENT YEAR 2012 13 AND 61.15 CRORE DURING ASSESSMENT YEAR 2013 14. THUS, THE ASSESSEE HAS RECEIVED THE MONEY FOR ISSUE OF CONVERTIBLE WARRANTS AMOUNTING TO 220 CRORES TO WHICH THE SHARES WERE ALLOTTED SUBSEQUENTLY ON 28 TH OF APRIL 2012. THE LEARNED ASSESSING OFFICER HAS MADE AN ADDITION U/S 68 OF THE INCOME TAX ACT TO THE EXTENT OF SUM RECEIVED DURING THE YEAR FOR CONVERTIBLE WARRANTS AMOUNTING TO 940,782,500. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE EXTENSIVELY REFERRED PARA NUMBER 3.3 OF THE ORDER OF THE LEARNED ASSESSING OFFICER AND STATED THAT WHEN THE ASSESSEE HAS FAILED TO PROVE THE CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTION, MERE FILING OF THE PROOF OF THE IDENTITY OF CREDITORS AND THAT THE TRANSACTIONS ARE MADE BY ISSUE OF CHEQUES ARE NOT SUFFICIENT. HE THEREFORE STATED THAT THAT THE LEARNED ASSESSING OFFICER HAS CORRECTLY MADE THE ADDITION U/S 68 OF THE INCOME TAX ACT. 14. WITH RESPECT TO GROUND NO. 5 AND 6 IT WAS SUBMITTED THAT M/S. POSITIVE CONSOLE PRIVATE LIMITED AMALGAMATED INTO ASSESSEE COMPANY AS PER AMALGAMATION SCHEME SANCTIONED BY HONBLE DELHI HIGH COURT VIDE ORDER DATED 28/01/2011. IT WAS STATED THAT ASSESSEE COMPANY HAS MADE A TOTAL ISSUE FOR 220 CRORES OF CONVERTIBLE WARRANTS. DURING THE YEAR ASSESSEE RECEIVED RS. 94,07,82,500/- AGAINST THE CONVERTIBLE WARRANTS. THE BALANCE SUM WAS RECEIVED IN ASSESSMENT YEAR 2012 13 AND ASSESSMENT YEAR THOUSAND 13 14. IT WAS FURTHER STATED THAT THE ABOVE SUM OF RS. 94.08 CRORES RECEIVED AGAINST THE CONVERTIBLE WARRANTS ON PAGE | 9 PREFERENTIAL BASIS FROM PROMOTERS AND NON-PROMOTERS CATEGORY. ASSESSEE HAS FILED THE COPIES OF THE BANK STATEMENT, COPY OF THE BOARD RESOLUTION, COPY OF INCOME TAX RETURN AND AUDITED FINANCIAL STATEMENT OF THE INVESTOR ALONG WITH THEIR CONFIRMATION. HE OTHERWISE SUBMITTED THAT FOR ASSESSMENT YEAR 2012-13 THE IDENTICAL SHARES WARRANTS FROM THE SAME PARTY HAS BEEN ACCEPTED BY THE LD AO WHILE PASSING AN ASSESSMENT ORDER FOR ASSESSMENT YEAR 2012-13. HE SPECIFICALLY REFERRED TO PAGE NUMBER 206 TO 241 BEING ASSESSMENT DETAILS FOR ASSESSMENT YEAR 2012-13. HE REFERRED TO QUERY LETTER DATED 02.12.2013 IN CASE FOR ASSESSMENT YEAR 2012-13 WHEREIN, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF CREDIT FOR SHARE WARRANTS. HE FURTHER REFERRED THAT THE LD AO FOR THAT YEAR ALSO RAISED THE QUERY FOR UNEXPLAINED CASH CREDIT. HE FURTHER STATED THAT THE LD AO WANTED TO MAKE THE ADDITION OF THE ABOVE ISSUE FOR ASSESSMENT YEAR 2012-13 ON SIMILAR LINES AS ADDITIONS MADE FOR ASSESSMENT YEAR 2011-12. HOWEVER, AFTER CONSIDERING SUBMISSION ON THE IDENTICAL DETAILS IN THE SUBSEQUENT YEAR THE LD AO DID NOT WISH TO MAKE THE ADDITION ON THAT ACCOUNT FROM THE SAME PERSON. THEREFORE, IT IS APPARENT THAT THE LD AO HAS ACCEPTED THE IDENTITY, CREDITWORTHINESS, AND GENUINENESS OF THE TRANSACTION IN SUBSEQUENT YEARS, WHICH IS PART OF THE SAME TRANSACTION. HE FURTHER, STATED THAT THE LD AO HAS NOT MADE ANY ENQUIRY ON THE DETAILS SUBMITTED BY THE ASSESSEE. HE THUS, STATED THAT THE ASSESSEE HAS DISCHARGED ITS PRIMARY ONUS. HE FURTHER REFERRED THAT ORDER OF O THE LD CIT(A) ON THIS ACCOUNT STATING THAT THE SAME APPLICANTS HAS DEPOSITED THE MONEY THAT THE ASSESSEE FOR ASSESSMENT YEAR 2011-12, 2012-13 AND 2013-14. THE LD AO HAS ACCEPTED THE IDENTITY CAPACITY AND GENUINENESS OF THE SHAREHOLDERS FOR ASSESSMENT YEAR 2012-13 AND 13-14; HOWEVER, FOR ASSESSMENT YEAR 2011-12 THE ADDITION IS MADE. HE REFERRED TO DETAILED LIST OF SHAREHOLDERS AT PAGE NUMBER 196 TO 199 OF THE PAPER BOOK. HE SUBMITTED THAT ALL THE SHAREHOLDERS WHO ARE INVESTOR FOR ASSESSMENT YEAR 2011-12 ARE ALSO INVESTORS IN ASSESSMENT YEAR 2012-13 AND 13-14 WHEREIN ON THE IDENTICAL EVIDENCE SUBMITTED NO ADDITION HAVE BEEN MADE. HE SUBMITTED THAT THERE IS NO CONTRAVENTION OF ANY OF THE PROVISION OF SEBI AND COMPANIES ACT. HE FURTHER STATED THAT ALL THESE COMPANIES ARE THE GROUP COMPANIES AND EVEN THE SOURCE OF THE FUNDS ARE ALSO ESTABLISHED AS STATED IN THE ORDER OF THE LD AO ITSELF. MERELY BECAUSE SOME COMMON ENTITIES ARE ADVANCING MONEY TO THE DEBENTURE HOLDERS, WHICH IS IN TURN INVESTOR IN THE ASSESSEE COMPANY DOES NOT MAKE AN AMOUNT OF INVESTMENT IN THE WARRANT AS UNEXPLAINED INVESTMENT. HE THEREFORE, SUBMITTED THAT THE LD CIT (A) HAS RIGHTLY DELETED THE ADDITION. 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. 16. THE LD AO MADE THE ADDITION AS PER PARA 3.3 OF HIS ORDER:- PAGE | 10 3.3 THE SUBMISSIONS OF THE ASSESSEE CONSIDERED AND FOUND NOT ACCEPTABLE AS ON PERUSAL OF DOCUMENTS SUBMITTED, THE FOLLOWING FACTS EMERGE WHICH QUESTIONS THE CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS:- (I) IN SUPPORT OF THE CLAIM BY THE ASSESSEE THAT DEBENTURES WERE ISSUED WHICH WERE CONVERTED INTO SHARES BEFORE 31.03.2011, NO PROSPECTUS DETAILING TERMS AND CONDITIONS FOR ISSUE OF DEBENTURES WAS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. NO INTEREST ON DEBENTURES HAS BEEN PAID AND CLAIMED AS EXPENSE IN THE PROFIT & LOSS ACCOUNT. THE NATURE, THE PURPOSE, THE REQUIREMENT AND THE TERMS AND CONDITIONS FOR ISSUE OF DEBENTURE WERE NOT EXPLAINED NOR WERE ANY SUPPORTING DOCUMENTS FILED DURING THE ASSESSMENT PROCEEDINGS. IT IS PERTINENT TO NOTE HERE THAT THE SCHEME OF AMALGAMATION WAS SANCTIONED ON 28.01.2011 AND THE ASSESSEE COMPANY OPENED THE ACCOUNT IN YES BANK IN WHICH THE MONEY WAS RECEIVED FROM 07.09.2010 TO 16.03.2011. THE CLAIM OF THE ASSESSEE IS THAT THEY SIMPLY ISSUED DEBENTURES AND CONVERTED INTO EQUITY SHARES PENDING MERGER APPLICATION IN HIGH COURT. HOWEVER, THIS CLAIM HAS NOT BEEN SUBSTANTIATED BEFORE ME. (II) AS PER THE GOVT, REVISED GUIDELINES DATED 17.04.1982 FOR ISSUE OF DEBENTURES TO THE PUBLIC BY PUBLIC LIMITED LISTED COMPANIES, IT HAS BEEN LAID DOWN THAT THE AMOUNT OF ISSUE OF DEBENTURES IN THE CASE OF WORKING CAPITAL REQUIREMENTS SHALL NOT EXCEED 20 PER CENT OF THE GROSS CURRENT ASSETS, LOANS AND ADVANCES. IN THE CASE OF THE ASSESSEE COMPANY, AS PER THE BALANCE SHEET AS ON 31.03.2010 CURRENT ASSETS ARE OF RS. 99,31,21,490/- AND 20% OF IT COMES TO RS. 19,86,24,298/-. THE QUANTUM OF ISSUE OF DEBENTURE IN THE CASE OF THE ASSESSEE SHOULD NOT EXCEED RS. 19,86,24,298/-. HOWEVER, THE DEBENTURES HAVE BEEN ISSUED FOR RS. 94,07,82,500/- IN CONTRAVENTION OF THE GUIDELINES FOR ISSUE OF DEBENTURE. (III) ALL DEBENTURE HOLDERS ARE PRIVATE LIMITED COMPANIES AND SOME OF THEM HAVE COMMON DIRECTORS AND AUDITORS. THE AUTHORIZED AND PAID UP CAPITALS OF MOST OF THESE COMPANIES ARE LESS THAN RS. 50 LACS BUT THEIR SHARE APPLICATION MONEY AND SHARE PREMIUM IS MORE THAN RS. 10 CRORES. THE RESERVE AND SURPLUS OF THESE COMPANIES CONSIST ONLY OF SHARE PREMIUM. AS THE NAMES OF THESE COMPANIES SUGGEST, THEY SHOULD BE IN VARIOUS TYPES OF BUSINESS BUT THEY ARE ACTUALLY NOT DOING SUCH BUSINESS AND ONLY INVESTING IN SHARES OF PRIVATE LIMITED COMPANIES AND SHOWING VERY LESS INCOME I.E. BELOW RS. 50,000/- NOT FROM INVESTMENT BUT SHOWING AS OTHER INCOME. THEREFORE, THE BALANCE SHEET AND P&L ACCOUNT OF THE DEBENTURE HOLDER COMPANIES ARE INDICATIVE OF TYPICAL ENTRY OPERATOR ENTITIES. (IV) ON PERUSAL OF THE BANK STATEMENTS OF DEBENTURE HOLDER COMPANIES, IT IS SEEN THAT THE MONEY IS ROTATING AMONG THE 27 DEBENTURE HOLDER COMPANIES AND GOING TO THE ASSESSEE COMPANY. FOR INSTANCE, M/S MERITORIUS REALTY PVT. LTD. IS A DEBENTURE HOLDER COMPANY GIVING MONEY TO ANOTHER DEBENTURE HOLDER COMPANY, M/S ALLIED COMPUTER INTERNATIONAL (ASIA) LTD. AS UNDER AS IS EVIDENT FROM THE BANK STATEMENT OF MERITORIUS REALTY PVT. LTD. 21.07.2010 RS.93.72 LACS 21.07.2010 RS. 91.28 LACS 22.07.2010 RS. 49.75 LACS PAGE | 11 22.07.2010 RS. 65.25 LACS SIMILARLY, M/S ACACIO TRADELINK PVT. LTD. IS A DEBENTURE HOLDER COMPANY AND AS PER ITS BANK STATEMENT IT HAS GIVEN MONEY TO ANOTHER DEBENTURE HOLDER COMPANY I.E. M/S ALLIED COMPUTER INTERNATIONAL (ASIA) LTD. OF RS. 96,87,500/- ON 04.10.2010. (V) FROM THE BANK STATEMENTS OF DEBENTURE OF HOLDING COMPANIES, IT IS SEEN THAT SOME COMMON ENTITIES ARE ADVANCING MONEY TO THE DEBENTURE HOLDER COMPANIES WHICH IN TURN ARE TRANSFERRING TO THE ASSESSEE COMPANY, FOR INSTANCE M/S KAVYA SHARE PVT. LTD. HAS GIVEN MONEY TO M/S ANVITA REAL ESTATE PVT. LTD. AND M/S GAZALA CONSTRUCTIONS PVT. LTD. AND THESE TWO COMPANIES IN TURN HAVE TRANSFERRED THE FUNDS TO THE ASSESSEE COMPANY I.E. M/S VISESH INFOTECNICS LTD. THE DETAILS ARE AS UNDER:- M/S ANVITA REAL ESTATE PVT. LTD. DATE PARTICULARS DEBIT (RS.) CREDIT (RS.) 07.09.2010 M/S KAVYA SHARE PVT. LTD. 7,00,000 07.09.2010 M/S KAVYA SHARE PVT. LTD. 8,00,000/- 08.09.2010 M/S VISESH INFOTECNIS LTD. 15,00,000/- M/S GAZALA CONSTRUCTIONS PVT. LTD. DATE PARTICULARS DEBIT (RS.) CREDIT (RS.) 06.09.2010 M/S. KAVYA SHARE PVT. LTD 57,00,000/- 06.09.2010 M/S. KAVYA SHARE PVT. LTD 07.09.2010 M/S. VISESH INFOTECNIS LTD 1,02,00,000/- THUS, THE ADDITION HAS BEEN MADE U/S 68 OF THE INCOME TAX ACT BY THE LEARNED ASSESSING OFFICER. 17. ON APPEAL, THE LD CIT (A) DELETED THE ADDITION HOLDING AS UNDER :- GROUND NO. 4:- THE APPELLANT HAS CHALLENGED AGAINST EDITION OF RS. 94,07,82,500/- RECEIVED AN ISSUE OF FULLY CONVERTIBLE WARRANT AS UNEXPLAINED CREDIT U/S 68 OF THE IT ACT. 6.1 THE FACTS EMANATING FROM THE ORDER OF THE LEARNT AND SUBMISSIONS OF THE ASSESSEE THAT THE ASSESSEE IS IN BUSINESS OF TRADING OF COMPUTER HARDWARE SOFTWARE AND PERIPHERALS PRODUCTS AND ALSO ENGAGED IN COMPUTER SOFTWARE DEVELOPMENT THE ASSESSEE HAS RECEIVED THE CONVERTIBLE WARRANT OF RS. 94,07,82,500/- DURING THE CURRENT ASSESSMENT YEAR 2011-12 AND RS. 64.76 CRORES DURING THE ASSESSMENT YEAR 2012-13 AND RS. 61.15 CRORES DURING THE ASSESSMENT YEAR 2013-14 AND AS SUCH THE ASSESSEE HAD RECEIVED THE MONEY FOR CONVERTIBLE WARRANT OF RS. 220 CROSS FOR WHICH THE SHARES WERE ALLOTTED SUBSEQUENTLY ON 28.4.2012. THE AO HAS RESTRICTED THE APPLICATION MONEY OFF ON CONTROL CONVERTIBLE WARRANTS OF RS. 94,07,82,500/-IN THE CURRENT YEAR AS UNEXPLAINED CREDIT U/S 68 ON THE GROUND THAT THE SAME ARE NOT GENUINE BUT THE ORDER OF THE AO. 6.2 THE ASSESSEE IN APPEAL AGAINST THE ORDER OF THE AO AND IT IS SUBMITTED THAT THE APPLICATION MONEY HAS BEEN RECEIVED FROM THE VARIOUS PARTIES FOR CONVERTIBLE WARRANT AND SUBSEQUENTLY THE SHARES HAVE BEEN ALLOTTED TO THE PARTIES AND AS SUCH THERE IS NO CASE FOR DISBELIEVING THE GENUINENESS OF THE SHAREHOLDERS. IT IS SUBMITTED THAT THE PAGE | 12 SAME APPLICANTS HAD GIVEN THE MONEY IN THREE DIFFERENT YEARS OF CURRENT ASSESSMENT YEAR 2011-12, 2012-13 AND 2013-14 AND IT IS ONLY IN THE CURRENT YEAR THAT THE AO HAS TREATED THE APPLICATION MONEY AS UNEXPLAINED WHERE IS THE SAME FOR THE SAME ASSESSEE HAS ACCEPTED THE SAME APPLICATION MONEY OF RS. 64.76 CRORES DURING THE SUBSEQUENT ASSESSMENT YEAR 2012-13 AS GENUINE AND HAS NOT MADE ANY SUCH ADDITION AS AN UNEXPLAINED CREDIT U/S 68 OF THE ORDER OF THE AO U/S 143(3) DATED 31.03.2015. IT IS SUBMITTED THAT THE EU HAS NOT ACCEPTED THE IDENTITY OF THE APPLICANT'S AS THE SAME OUR CORPORATE ENTITIES BUT IT IS ONLY THE GENUINENESS OF THE TRANSACTION WHICH HAS BEEN QUESTIONED BY THE AO MERELY ON GUESSWORK AND ON SUSPICION THAT THERE ARE INTER CORPORATE TRANSACTION AMONG THE GROUP COMPANIES. IT IS SUBMITTED THAT THE ASSESSEE HAD SUBMITTED THE FULL DETAILS ABOUT THE IDENTITY, CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTION AND ALSO THE CONFIRMATION IS IN THE FORM OF THE COPIES OF INCOME TAX RETURNS WITH AUDITED PROFIT AND LOSS ACCOUNT AND AUDITED SHEETS ETC BANK STATEMENT AND ALL OTHER SUPPORTING DOCUMENTS IT IS SUBMITTED THAT THE ASSESSEE HAS HAD ALSO SUBMITTED SOME OF THE SCRUTINY ASSESSMENT ORDER U/S 143(3) OF SOME OF THE APPLICANT'S LIKE M/S. OMKAM CAPITAL MARKET (P) LTD VIDE ORDER DATED 16/02/2015 FOR THE ASSESSMENT YEAR 2012-13, M/S. OMKAM SECURITIES PVT. LTD VIDE ORDER DATED 22.07.2014 FOR THE ASSESSMENT YEAR 2012-13 AND M/S. PATLIPUTRA INTERNATIONAL LTD VIDE ORDER DATED 04.03.2016 FOR THE ASSESSMENT YEAR 2012-13. 6.3 IT IS IT IS SUBMITTED THAT THE AIR HAD MADE THE ADDITIONS STICK PROVISION OF SECTION 68 MERELY ON THE BASIS OF SOME SUSPICIONS AND DOUBTS AND WITHOUT MAKING ANY ACTUAL ENQUIRY OR WITHOUT ANY FINDING AND WITHOUT ANY PROOF THAT THE IDENTITY CREDITWORTHINESS AND THE GENUINENESS OF THE APPLICANTS ARE IN ANY WAY NON-EXISTENCE OF THE TRANSACTIONS ARE NOT GENUINE IT IS SUBMITTED THAT THE AIR IS NOT JUSTIFIED TO MAKE THE ADDITION UNDER SECTION 68 WITHOUT MAKING A CLEAR CASE AGAINST THIS IS THAT THE APPLICATION MONEY FOR THE CONVERTIBLE BONDS ARE THE SOURCES ON MONEY IN ANY WAY IT IS SUBMITTED THAT THE IS NOT JUSTIFIED TO MAKE THE ADDITIONS MERELY ON THE GROUND THAT THERE ARE INTER CORPORATE AND INTERGROUP TRANSACTIONS WHICH IS COMMON FEATURE IN THE GROUP COMPANIES WITHOUT PROVIDING ANY AGAINST THE ASSESSEE THAT THE SAME TRANSACTIONS ARE NOT GENUINE ARE THEY SAME ARE BOGUS IN ANY WAY THE ASSESSEE ALSO RELIED ON PLETHORA OF CASE LAWS TO CLAIM THAT THE AIR IS NOT JUSTIFIED TO MAKE ANY ADDITION AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 WITHOUT BRINGING ANY MATERIAL EVIDENCE REGARDING THE IDENTITY CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION AGAINST THE ASSESSEE. 6.4 I HAVE CONSIDERED THE ORDER OF THE LEARNT AND THE SUBMISSIONS OF THE ASSESSEE AND FIND CONSIDERABLE MERIT IN THE SUBMISSIONS OF THE ASSESSEE THAT THE IS NOT JUSTIFIED TO MAKE ANY ADDITIONAL UNDER THE STRICT PROVISION OF CASH CREDIT UNDER SECTION 68 WITHOUT PROOF PROVING THAT THERE ARE ANY FALSE TRANSACTION IN THE SUBSEQUENT ASSESSMENT YEARS. AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE VIEW THAT THERE IS NO MATERIAL EVIDENCE OR ANY ADDRESS FINDING OF THE AGAINST THE ASSOCIATE TO TREAT THE APPLICATION MONEY AS UNEXPLAINED IN THE CURRENT YEAR WHEN THE SAME MONEY FROM THE SAME PARTIES IN THE SUBSEQUENT YEAR HAS BEEN TREATED AS GENUINE AND ACCORDINGLY THERE IS NO PROPER JUSTIFICATION FOR THE ABLE TO MAKE SUCH EDITION IN A VERY CASUAL MANNER WITHOUT ANY FINDING AND THE SAME IS NOT JUSTIFIED AND ADDITIONS MADE BY THE AIR IS NOT SUSTAINABLE AND ACCORDINGLY THE SAME IS DELETED. 18. BRIEF FACTS OF THE CASE SHOWS THAT IN TERMS OF RESOLUTION PASSED U/S 81 (1A ) OF THE COMPANIES ACT, 1956 AT THE EXTRAORDINARY GENERAL MEETING OF THE COMPANY HELD ON 3/9/2010 AND IN THE IN PRINCIPLE APPROVAL RECEIVED FROM THE NATIONAL STOCK EXCHANGE AND BOMBAY STOCK EXCHANGE BOARD HAS ALLOTTED 22 CRORES CONVERTIBLE WARRANTS TO BE CONVERTED INTO EQUAL NUMBER OF EQUITY PAGE | 13 SHARES OF 10/ EACH AT A PRICE OF 10/ PER WARRANT IN THE BOARD MEETING HELD ON 30/10/2010 ON PREFERENTIAL BASIS. PURSUANT TO THE ALLOTMENT OF CONVERTIBLE WARRANTS, THE COMPANY RECEIVED DURING THE FINANCIAL YEAR 2010 11 MONEY AGGREGATING TO 94.08 CRORES OUT OF 220 CRORES. THE ABOVE FUNDS WERE RAISED FOR THE EXPANSION OF THE COMPANYS OPERATION IN IT AND ITES SEGMENT. THE COMPANY HAS ALSO MADE A GDR ISSUE IN EARLIER YEARS TO FINANCES OPERATION. OUT OF THE TOTAL ISSUE OF 220 CRORES THE BALANCE SUM WAS RECEIVED IN FINANCIAL YEAR ENDED ON 31 ST OF MARCH 2012. THEREFORE, IT IS APPARENT THAT PART OF THE SUM WAS RECEIVED IN FINANCIAL YEAR ENDED ON 31 ST OF MARCH 2011 AND THE BALANCE SUM WAS RECEIVED IN FINANCIAL YEAR ENDED ON 31 ST OF MARCH 2012 AND 2013. PRECISELY A SUM OF 94.07 CRORES WAS RECEIVED IN FINANCIAL YEAR ENDED ON 31 ST OF MARCH 2011, SOME OF 64.76 CRORE WERE RECEIVED IN FINANCIAL YEAR ENDED ON 31 ST OF MARCH 2012 AND 61.15 CRORES WERE RECEIVED IN FINANCIAL YEAR ENDED ON 31 ST OF MARCH 2013. THIS IS THE COMPLETE BREAKUP OF 220 CRORES RECEIVED BY THE ASSESSEE ON ACCOUNT OF ISSUE OF WARRANTS. NATURALLY, THE APPLICANT OF THE WARRANT REMAINED THE SAME IN ASSESSMENT YEAR 2011 12 AND IN SUBSEQUENT ASSESSMENT YEARS. THE ASSESSEE HAS SUBMITTED A DETAILED CHART AT PAGE NUMBER 196 OF THE PAPER BOOK STATING THE NAME, ADDRESS AND PERMANENT ACCOUNT NUMBER OF ALL THESE ALLOT TEES WHO REMAIN SAME FOR ALL THE THREE YEARS. THE LEARNED ASSESSING OFFICER THOUGH HAD MADE ADDITION U/S 68 OF THE INCOME TAX ACT IN THIS YEAR HOWEVER, IN SUBSEQUENT YEAR, HE EXAMINED THE IDENTITY, CREDITWORTHINESS, AND GENUINENESS OF THE ALL THE PARTIES ARE ALLOTTEES OF THESE WARRANTS. AFTER COMPLETE EXAMINATION HE PASSED AN ORDER U/S 143 (3) OF THE ACT FOR THAT YEAR WHEREIN HE DID NOT MAKE ANY ADDITION U/S 68 WITH RESPECT TO THESE SAME PARTIES AND ACCEPTED THEIR IDENTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. FOR PROVING THE IDENTITY OF THE PARTY, THE ASSESSEE SUBMITTED THE PERMANENT ACCOUNT NUMBER, AND INCOME TAX JURISDICTION OF THE INVESTOR COMPANY IS, BANK STATEMENT OF THE INVESTOR COMPANY IS AND COPIES OF THE RETURNS OF THOSE INVESTORS. WITH RESPECT TO THE CREDITWORTHINESS AND GENUINENESS OF THE INVESTOR, ASSESSEE SUBMITTED THE AUDITED FINANCIAL STATEMENT OF THE INVESTOR COMPANY AND BANK STATEMENT SHOWING THE RELEVANT ENTRIES OF DAVIDSON CREDITS OF THE INVESTOR COMPANY IS TO SHOW THE SOURCES OF THE FUNDS. WITH RESPECT TO THE GENUINENESS OF THE TRANSACTION, ASSESSEE ONCE AGAIN SUBMITTED THE CONFIRMATIONS OF THE ABOVE PARTIES WERE ISSUED THE CONVERTIBLE WARRANTS. IT IS FURTHER SUBMITTED THAT THESE COMPANIES WERE THE INVESTOR FOR ALL THE THREE YEARS AND SUBSEQUENTLY WERE ALLOTTED THE EQUITY SHARES. THEREFORE, MATERIALLY, THE LEARNED ASSESSING OFFICER HAS ACCEPTED THE IDENTITY, CREDITWORTHINESS OF THE INVESTOR AS WELL AS THE GENUINENESS OF THE TRANSACTION FOR ASSESSMENT YEAR 2012 13 AND 2013 14 ON THE SAME MATERIAL WHEREAS FOR THE ASSESSMENT YEAR 2011 12 THE LEARNED ASSESSING OFFICER HAS MADE THE ADDITION U/S 68 OF THE INCOME TAX ACT. THE SUBSEQUENT ASSESSMENT ORDER IS PLACED BEFORE US CLEARLY SHOWS THAT PAGE | 14 THERE IS NO ADDITION MADE ON ACCOUNT OF ISSUE OF CONVERTIBLE WARRANTS OF 220 CRORES PART OF WHICH THE SUM IS RECEIVED IN THESE YEARS. SUCH ASSESSMENT ORDER IS NOT AT ALL DISTURBED. EVEN OTHERWISE, THE ASSESSEE HAS SUBMITTED THE COMPLETE DETAILS BEFORE THE ASSESSING OFFICER AND THEREFORE THE INITIAL ONUS CAST ON THE ASSESSEE HAS BEEN DISCHARGED. FURTHER, THE LEARNED ASSESSING OFFICER HAS ALSO NOT MADE ANY ENQUIRY WITH RESPECT TO THE ABOVE DEPOSITORS. THE INQUIRIES MADE IN THE SUBSEQUENT YEARS CLEARLY SHOW THAT ASSESSING OFFICER IS SATISFIED WITH RESPECT TO THE CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSACTION OF ISSUE OF SHARES WARRANT OF 220 CRORES. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT A IN DELETING THE ABOVE ADDITION. IN THE RESULT GROUND NUMBER 5 AND 6 OF THE APPEAL OF THE LEARNED ASSESSING OFFICER ARE DISMISSED. 19. ACCORDINGLY, APPEAL FILED BY THE LEARNED ASSESSING OFFICER IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/01/2021. SD/- SD/- (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21/01/2021 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI PAGE | 15 DATE OF DICTATION 21.01.2021 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21.01.2021 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 21.01.2021 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/ PS 21.01.2021 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 21.01.2021 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 21.01.2021 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 21.01.2021 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21.01.2021 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER