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February 14, 2023

Depreciation that was permitted in a prior year cannot be denied subsequently on the grounds that no revenue was generated

by CA Shivam Jaiswal in Income Tax

Depreciation that was permitted in a prior year cannot be denied subsequently on the grounds that no revenue was generated

Fact and issue of the case

Brief facts relevant for adjudication of grounds no 1 & & are that in the instant case the Assessee being engaged in the business of general finance and investment, by filing its return of income on 31.11.2013 declared income of Rs. “Nil” and paid taxes on book profit of Rs. 3,11,038/- u/s 115JB of the Act.

The case of the Assessee was selected for scrutiny through CASS which resulted into issuance of notice u/s 143(2) of the Act. In response, the Assessee from time to time attended and filed necessary details as asked for by the ld AO.

The ld. AO by examining the details filed, observed that the Assessee company was incorporated on 06.01.2009 and carrying on the activity of providing IT enables services and BPO services and have shown purchase and sale of “printed books of voter list” from M/s. Vakrangee Software Ltd and M/s. Mindtree Export Pvt. Ltd amounting to Rs. 2,76,75,720/- and Rs. 2,84,57,520/- respectively. Therefore, in order to verify the identity and creditworthiness of the parties and confirm the genuineness of the transaction, issued the notices u/s 133(6) to the said companies on 24.11.2015 and 07.01.2016 at the address mentioned on their bills/ vouchers.

Consequently, the Assessee was asked to furnish bills and vouchers of expenses claimed in the profit and loss account indicating the mode of payment along with books of accounts. Though the Assessee did not file books of account and bills/vouchers etc. , however, preferred to file reply dated 31.03.2016, by which it was claimed that it had received a purchase order for supply of printed voter list from Mindtree Export Pvt. Ltd and therefore purchased printed voter list in book form, from M/s. Vakrangee Software ltd and supplied to M/s. Mindtree Export Pvt Ltd.

In order to verify the said transaction of Rs. 2,84,57,520/-. The ld AO issued the notice u/s 133(6) to M/s. Mindtree Exports Pvt. Ltd but the same was returned back with a postal remark “left”. The said fact was brought to knowledge of the Assessee who through its submission dated 11.01.2016 provided another address of M/s. Mindtree Export Pvt. Ltd. On that particular address also further notice u/s 133(6) of the Act was sent on 08.02.2016 by fixing the case for hearing on 15.02.2016. But the confirmation from above party was received only on 29.02.2013 i.e. after the date fixed on 15.02.2016. Therefore, the ld. AO doubted the confirmation.

The ld. AO also observed on perusal of the bills issued by M/s. Vakrangee Software Ltd showed discrepancies of the transactions related to printing supplementary voter list book of 9 Assembly Constituencies of Rajasthan, as transactions relates with sale and purchase of printed books of voter list.

The ld. AO also issued 133(6) to Election Commission on dated 04.03.2016. In response to the said notice, Election Commission vide its reply dated 16.03.2016 mentioned that commission has not permitted any private person/ publisher/ agency to compile and then publish printed electoral rolls in the form of printed books/ booklets for sale and no such contract/ tender has been issued to any company by “ECI” for providing printed books of voter list.

The ld. AO further observed that the Assessee Company has not claimed any transportation charges, regarding the purchase and sale of printed books of voter list. It is impossible to believe that if the books were purchased from an entity i.e. M/s. Vakrangee Software Ltd located in Jaipur, Rajasthan and sold out to an entity i.e. M/s. Mindtree Export Pvt. Ltd situated in Mumbai, no transportation cost has been incurred on the transportation which is evident from the P&L A/c of the Assessee company. It also supports the facts that purchases as shown by the Assessee Company are bogus.

The ld. AO further observed that moreover the consideration mentioned in purchase and sale transaction of printed books of voter list is not matching with the copy of bank accounts as submitted by the Assessee. A perusal of the P&L Account of the Assessee company shows that the purchase amounting of Rs. 2,76,75,720/- was made from M/s. Vakrangee Software Ltd during the year and that too has not been paid and has been shown as credit . Thus, creditworthiness of M/s. Vakrangee Software Ltd is doubtful especially when the amount received by it, to the tune of Rs. 2,76,75,720/- has not been confirmed.

The ld. AO further opined that primary onus is on Assessee company to prove the identity, creditworthiness and genuineness of the transactions. The identity should be seen in perspective that it has got a standing in the particular line of activity. Identity is defined in the new shorter oxford dictionary as “The condition or fact of a person or thing being that specified unique person or thing”. In the above case, the Assessee has not been able to prove even the identity of the parties in the context he want to show them i.e. people actually doing some business. The Assessee failed to discharge its onus. On perusal of the bank statement of A/c. No. 5020 0007 5284 34 maintained with HDFC Bank revealed that payments were made to M/s. Vakrangee Software Ltd on 25.08.2015, 27.08.2015, 29.08.2015,29.08.2015, 01.09.2015, 03.09.2015, 09.09.2015, 10.09.2015 and 11.09.2015. On the basis of the above, it is proved that there are concrete evidences which prove that purchase as shown by the Assessee company from M/s. Vakrangee Software Ltd is bogus. Hence, the amount of Rs. 2,76,75,720/- is added back to the taxable income of the Assessee Company as bogus purchase.

Observation of the court

We observe that vide last 04 lines from bottom of Ground No. 3, the revenue/ department also raised the issue that on the facts and circumstances of the case the ld Commissioner has erred in law and facts in deleting the disallowances of Rs. 50,000/- on lum sum/ adhoc based out of actual expenses towards subscription and membership amounting to Rs. 2,05,369/-.

In fact, no such disallowance was ever made by the ld. AO in the assessment order under consideration and therefore, it never came into consideration before the ld. commissioner for adjudication, thus the question of deletion of adhoc disallowance does not arise at all. It seems that the same has inadvertently been claimed/mentioned in the ground of appeal, hence does not require any independent adjudication.

Ground No. 4 is general in nature, hence, needs no independent adjudication.

In the result, both the appeals filed by the Revenue Department stands dismissed. Order pronounced in the open court on 28/12/2022.

Read the full order from here



The tribunal has ruled in favour of the assessee and dismiss the appeal.

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