$~22 to 24
*     IN THE HIGH COURT OF DELHI AT NEW DELHI

+                              ITA 581/2016
+                              ITA 707/2016
+                              ITA 731/2016

CHINTELS INDIA LIMITED                                   ..... Appellant
                  Through: Mr. M.S. Syali, Senior Advocate with
                               Mr. Mayank Nagi & Mr. Tarun Singh,
                               Advocates.
                  versus
DEPUTY COMMISSIONER OF
INCOME TAX ­ CIRCLE 8                               ..... Respondent
                  Through: Mr. Asheesh Jain, Senior Standing
                               Counsel for the Revenue.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE PRATHIBA M. SINGH
                                ORDER
%                               19.07.2017
Dr. S. Muralidhar, J.:
1. These are three appeals filed by Chintels India Limited (hereafter
'Assessee') under Section 260A of the Income Tax Act, 1961 (`Act')
against the orders of the Income Tax Appellate Tribunal (`ITAT').

Questions framed
2. ITA No. 581/2016 is directed against an order dated 10 th March,
2016 passed by the ITAT in ITA No. 4808/Del/2012 for the
Assessment Year (`AY') 2008-09. While admitting this appeal on 27th
January, 2017, this Court framed the following question of law:
       "Did the Income Tax Appellate Tribunal (ITAT) fall into error in
       holding that the assessments for Assessment Year 2008-09 were
       pending, on the date of the search i.e. 25.03.2010, in the
       circumstances of the case?"
ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                   Page 1 of 11
3. ITA Nos. 707/2016 and 731/2016 are by the Assessee against the
same impugned order dated 10th March, 2016 passed by the ITAT in
ITA Nos. 4809/Del/2012 for the AY 2009-2010 and 4810/Del/2012 for
the AY 2010-2011 respectively.

4. While admitting these appeals on the same date, i.e., 27th January,
2017, this Court inadvertently framed the same question of law that was
framed for AY 2008-09. However, both the counsel agree that the
question that ought to be framed in both these appeals is:
       "Whether in the facts and circumstances of the case the ITAT
       was correct in law in confirming the addition on account of the
       claim of depreciation on software?"

Background facts
5. The facts in brief relevant to AY 2008-09 are that the
Appellant/Assessee is engaged in the business of horticulture,
agriculture and real estate. For AY 2008-09, the Assessee filed its
return of income on 28th October, 2008. The Assessee maintains that for
this particular AY 2008-09 no notice was received by it under Section
143(2) or 142(1) of the Act. The period of issuing such notice expired
on 30th September, 2009.

6. A search and seizure operation under Section 132(1) of the Act was
conducted at the business and residential premises of the Assessee on
26th March, 2010. The Assessee maintains that relevant to AY 2008-
09, nothing incriminating was found during the search.

7. A notice dated 10th March, 2011 was issued by the AO to the
ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                   Page 2 of 11
Assessee under Section 153A(1) of the Act and asking it to file its
return of income in respect of AYs 2004-05 to 2009-10. In response
thereto the Assessee/AO filed a return on 28th April, 2011 declaring the
same income as was originally declared in the return filed under
Section 139(1) of the Act.

Assessment orders
8. In the consequent assessment order dated 30th December, 2011 for
AY 2008-09, the AO made an addition of Rs. 84,84,910 under the head
`bogus depreciation claimed'. The AO held that the Ass essee had not
filed any document about the use of the software. The software was
supposed to have been purchased from M/s. Macro Infotech Limited
(`MIL'). A detailed questionnaire had been issued to the Assessee on
19th August, 2011 requiring inter alia the Assessee to furnish the nature
and description of the product/goods purchased from MIL, copies of the
purchase bills obtained from MIL as well as copies of the bank
statement of the Assessee evidencing payments.






9. The AO noted that the head office and site office of MIL was shown
to be in Dehradun and a branch in Karol Bagh. However, on
verification of both the addresses, it came to the notice of the AO that
no such company was running from Dehradun. The address in Delhi
belonged to Mr. Tarun Goyal, Chartered Accountant (`CA'). A search
and seizure action was also conducted at the office of Mr. Goyal by the
investigation Wing of the Department. During that search it was found
that a number of bogus concerns were running from the same address,
i.e., 13/34, WEA Chamber No. 404, Arya Samaj Road, Karol Bagh,
ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                    Page 3 of 11
Delhi, which was the address of Mr. Goyal. MIL was also one of those
concerns.

10. The Assessee gave an explanation that all the payments for the
purchase of software for the sum of Rs.4,24,25,050 were made to MIL
through payee's cheques drawn on Bank of Rajasthan; the software was
installed in the Assessee Company and the purchases were duly shown
in the books of accounts. The Assessee added that it was used as a
marketing/sales tool in order to convince Sobha Developers Limited
(`Sobha') to participate in the development of the group housing
project. Later the software was handed over to Sobha for joint use of
development and marketing consequent to entering into a Joint
Development Agreement dated 25th September, 2008 for 32 acres of
land for group housing projects. The Assessee claimed that the project
stood cancelled by a subsequent agreement dated 8th November, 2011
and that the Assessee was informed that the software had been
damaged/destroyed with Sobha and cannot be returned. Accordingly
the Assessee had debited the purchases in the computer software
account and claimed depreciation thereon.

11. The AO concluded that the Assessee had not offered any
satisfactory explanation. No documentary evidence had been produced
to show that the software had been handed over to Sobha Developers.
Even in respect of software destroyed no document had been produced.
It was concluded that bogus purchase bills of software in the sum of
over Rs. 4.24 crore had been obtained from MIL for which they had
issued cheques and taken back cash from Mr. Goyal after payment of
ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                 Page 4 of 11
commission. By claiming depreciation on the software the Assessee had
inflated its expenditure and reduced its income. MIL was held to be a
non-descript company, the business of which was to provide bogus
bills.

12. After the Commission of Income Tax (Appeals) [`CIT(A)']
dismissed the appeal of the Assessee, it Assessee went before the ITAT
in respect of the assessment orders for AY 2008-09; 2009-10 and 2010-
11.

Order of the ITAT
13. In the impugned order, the ITAT examined again the evidence
furnished by the Assessee in support of the purchase of the software of
the value of over Rs. 4.24 crore. It noted that there was no purchase of
any hardware corresponding to the extent of purchase of the software.
How the software was installed and how it was used was not
demonstrated by the Assessee. All payments had been made in August,
2007. For claiming depreciation the Assessee had to establish inter alia
that the asset was partly or fully owned by it and used it for the
purposes of business. Further the act of providing software to Sobha
was not established. The Assessee was only a confirming party in the
cancellation agreement which stated that the software was destroyed
and compensation was waived by the party of the first part (which was
not the Assessee) but the seven persons who were different companies
and individuals. It was not shown how those seven persons had the
right to waive compensation in respect of the software which was the
property of the Assessee and not of the seven persons. Even in the
ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                   Page 5 of 11
cancellation agreement there was no specific reference to any software
having purchased by the Assessee. Accordingly the appeal for AY
2008-09 was dismissed. For AY 2009-10 and 2010-11 for the reasons
already mentioned, the ITAT confirmed the disallowance of
depreciation on software.

14. In regard to AY 2008-09, a specific plea was raised by the
Appellant that the assessment for AY 2008-09 had abated. This was
because no notice had been issued to the Assessee either under Section
143(2) or under Section 142(1) of the Act within the stipulated time.
The ITAT concluded that the date of initiation of search was 25 th
March, 2010 and the date of intimation under Section 143(1) of the Act
was 27th March, 2010. The ITAT concluded that as on the date of
initiation of the search the assessment for AY 2008-09 was pending and
had not abated.

Submissions of Senior counsel for the Assessee
15. Mr. Syali, learned Senior counsel appearing for the Assessee
referred to the CBDT Circular No. 549 dated 31st October, 1989, which
clarified the legal position that when there was a failure to issue a
notice to an Assessee under Section 143(2) of the Act within six months
from the end of the month in which the return is furnished or during
the financial year in which the return is furnished, whichever is later,
then the Assessee "can take it that the return filed by him has become
final and no scrutiny proceedings are to be started in respect of that
return." This CBDT circular was referred to and clarified by the Punjab
and Haryana High Court in Vipan Khanna v. Commissioner of Income
ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                   Page 6 of 11
Tax (2002) 255 ITR 220 (P&H).

16. Mr Syali referred to the decision in Assistant Commissioner of
Income Tax v. Hotel Blue Moon (2010) 321 ITR 362 (SC) to urge that
the notice under Section 143(2) of the Act was a sine qua non for
proceeding with an assessment under Section 153A of the Act.
Reference was also made to the decisions in Commissioner of Income
Tax v. Kabul Chawla (2016) 380 ITR 573 (Del) and Indu Lata
Rangwala v. Deputy Commissioner of Income Tax (2016) 384 ITR
337.

17. On merits of the addition, Mr. Syali submitted that the statement
recorded of Mr. Goyal behind the back of the Assessee was never
furnished to the Assessee. Also the basis on which it was concluded
that the Assessee had made bogus purchase of software was not
provided to the Assessee. In other words it is submitted that the
material on the basis of which the AO came to the conclusion about
income having escaped assessment during the block assessment period
was not forthcoming in the present case. Mr Syali submitted He that
for AYs 2009-10 and 2010-11 the matter should go back to the AO for
afresh examination of all materials with the Assessee being provided
copies of the material that is adverse to it and which formed basis of the
additions made by the AO.

Submissions of Senior Standing counsel for the Revenue
18. On the other hand, Mr. Asheesh Jain, learned Senior Standing
Counsel for the Revenue, submitted that the view taken by the ITAT
ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                     Page 7 of 11
that the assessment for AY 2008-09 should be taken to be pending was
a plausible view. On merits he pointed out that the evidence placed on
record by the Assessee was examined thoroughly by the CIT(A) as well
as the ITAT and there was a categorical finding that the Assessee had
not been able to show that the purchase of software was genuine.
Accordingly it is submitted that the finding of the ITAT, concurrent
with the findings of the AO and the CIT(A) in this regard did not call
for any interference.

AY 2008-09
19. The above submissions have been considered. As far as AY 2008-
09 is concerned, the fact that there was no notice sent to the Assessee
under Section 143(3) of the Act before the deadline, i.e., 30 th
September, 2009, is not in dispute. The CBDT Circular No. 549 dated
31st October, 1989 deals with such a situation. Para 5.13 thereof reads
as under:
       "5.13 A proviso to sub-section (2) provides that a notice under
       the sub-section can be served on the assessee only during the
       financial year in which the return is furnished or within six
       months from the end of the month in which the return is
       furnished, whichever is later. This means that the Department
       must serve the said notice on the assessee within this period, if a
       case is picked up for scrutiny. It follows that if an assessee, after
       furnishing the return of income does not receive a notice under
       section 143(2) from the Department within the aforesaid period,
       he can take it that the return filed by him has become final and no
       scrutiny proceedings are to be started in respect of that return."






20. In Vipan Khanna v. Commissioner of Income Tax (supra), the
Punjab and Haryana High Court referred to the same circular and

ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                      Page 8 of 11
observed that in case where the AO chose to verify the return and frame
an assessment he has to issue a notice under Section 143(2) of the Act
requiring the Assessee to produce his books of accounts and other
material in support of his return. The High Court proceeded to observe:
       "....Thereafter he can make an assessment under sub-section (3)
       of section 143 of the Act. Another important change incorporated
       in sub-section (2) of section 143 of the Act is that the notice
       under this sub-section cannot be served on an assessee after the
       expiry of 12 months from the end of the month in which the
       return is furnished. Therefore, in a case where a return is filed
       and is processed under section 143(1)(a) of the Act and no notice
       under sub-section (2) of section 143 of the Act thereafter is
       served on the assessee within the stipulated period of 12 months,
       the assessment proceedings under section 143 come to an end
       and the matter becomes final. Thus, although technically no
       assessment is framed in such a case, yet the proceedings for
       assessment stand terminated."

21. In the present case, the facts speak for themselves. The Assessee
filed its return on 21st October, 2008. The return was processed under
Section 143(1) of the Act on 27th March, 2010. It has held by this Court
in Indu Lata Rangwala v. Deputy Commissioner of Income Tax
(supra) that the mere processing of a return under Section 143(1) of the
Act and the sending of an intimation to the Assessee will not make it an
`assessment'. At the same time, the consequences of the Department
not issuing a notice under Section 143(2) of the Act within the time
stipulated as far as the filing of the return in normal course is concerned
was not examined either in Commissioner of Income Tax v. Kabul
Chawla (supra) or Indu Lata Rangwala v. Deputy Commissioner of
Income Tax (supra). As notice by the Punjab & Haryana High Court
in Vipan Khanna v. Commissioner of Income Tax (supra), the CBDT
ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                     Page 9 of 11
circular makes it abundantly clear that once an Assessee does not
receive a notice under Section 143(2) of the Act within the period
stipulated then such an Assessee "can take it that the return filed by him
has become final and no scrutiny proceedings are to be started in
respect of that return."

22. The inevitable conclusion, therefore, in the present case, is that the
ITAT was in error in holding that the assessment for AY 2008-09
should be treated as `pending' whereas in terms of the above CBDT
circular it should be treated as final in respect of which no scrutiny are
to be started.

23. Consequently as far as ITA No. 581/2016 is concerned the question
framed by this Court on 27th January, 2017 is answered in the
affirmative, i.e., in favour of the Assessee and against the Revenue. The
impugned order of the ITAT to the extent it negatives the plea of the
Assessee is hereby set aside and the appeal is allowed.

AYs 2009-10 and 2010-11
24. Turning to the appeals for AYs 2009-2010 and 2010-11 the short
question involved is whether the Assessee was able to demonstrate that
it was the Assessee which, in fact, purchased the software for a value of
over Rs. 4.24 crore from MIL whose address has not been able to be
verified by the AO.

25. The Court finds that the ITAT has re-examined every shred of
evidence to come to clear conclusion that the Assessee was not able to

ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                     Page 10 of 11
demonstrate the genuineness of the purchase software. Further the story
put forth by the Assessee that the software having been handed over to
Sobha was also not substantiated by any documentary evidence or even
otherwise. On facts, therefore, the concurrent opinions of the AO,
CIT(A) and the ITAT to the effect that the purchase of the software
was, in fact, a bogus transaction not entitled to depreciation cannot be
said to suffer from any legal infirmity warranting interference.

26. In ITA Nos. 707/2016 & 731/2016, the question framed is answered
in the negative, i.e., in favour of the Revenue and against the Assessee.
These two appeals of the Assessee are accordingly dismissed.




                                                 S. MURALIDHAR, J.



                                             PRATHIBA M. SINGH, J.
JULY 19, 2017
b'nesh




ITA 581/2016 ; ITA 707/2016 & ITA 731/2016                     Page 11 of 11