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Facts
The assessee, a co-operative bank, claimed depreciation on software purchases for AY 2020-21. The AO disallowed Rs. 7,96,37,194/- due to lack of evidence. The CIT(A) admitted additional evidence under Rule 46A and, after partial relief, upheld the disallowance to the extent of Rs. 30,85,360/- for unsubstantiated purchases.
Held
The Tribunal found merit in the assessee's submission that the CIT(A) overlooked some invoices submitted as evidence. The Tribunal remitted the issue back to the CIT(A) for re-examination and verification of the balance list of invoices, with a direction to allow depreciation in accordance with law after providing an opportunity of being heard to the assessee. The appeal was allowed for statistical purposes.
Key Issues
Whether the CIT(A) correctly upheld the disallowance of depreciation on software purchases, or if certain supporting invoices were inadvertently overlooked.
Sections Cited
Rule 46A of the Income Tax Rules, 1962
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI RAJ KUMAR CHAUHAN, JM
SVC Co-operative Bank Ltd. ACIT Circle-1(3)(1), Room No. 535, 5th Floor, SVC Tower, Nehru Road, Vs. Santacruz (East), Mumbai-400055. Aayakar Bhavan, M.K. Road, PAN : AAAAT0177C Mumbai-400020. Appellant) : Respondent) : Shri Rajeev Waglay, Advocate Appellant/Assessee by Revenue/Respondent by : Shri Dr. Kishor Dhule, CIT-DR Date of Hearing : 13.06.2024 Date of Pronouncement : 18.06.2024 O R D E R
Per Padmavathy S, AM:
This appeal is against the order of assessment passed by the Commissioner of Income Tax/ National Faceless Appeal Centre, Delhi [for short 'CIT(A)] dated 26.02.2024 for the AY 2020-21. The only grievance raised by the assessee through various grounds of appeal is the disallowance of depreciation on the ground that the assessee has not submitted the evidences to support the purchase of assets.
SVC Co-operative Bank Ltd.
The assessee is a co-operative bank engaged in the business of banking. The assessee filed the return of income for AY 2020-21 on 12.02.2021 declaring a total income of Rs. 120,42,99,680/-. The case is selected for scrutiny under CASS and the statutory notices were duly served on the assessee. The Assessing Officer (AO) during the course of assessment noticed certain discrepancies in the Written Down Value (WDV) as per Form-3CD of intangible assets and called on the assessee to furnish the relevant details. After perusing the details furnished by the assessee the AO held that the assessee could not substantiate the purchase of new software amounting to Rs. 22,41,94,613/- and therefore, the depreciation claimed on the same amounting to Rs. 7,96,37,194/- cannot be allowed as a deduction and accordingly made addition to the income returned by the assessee.
Aggrieved, assessee filed further appeal before the CIT(A). Before the CIT(A) the assessee submitted invoices and other documentary evidences in support of the purchase of software as additional evidence under Rule 46A of the Income Tax Rules, 1962 (the Rules). The CIT(A) admitted the additional evidence and called for remand report from the AO. However, the AO did not furnish any remand report and therefore, the CIT(A) treated the AO does not have any objection of the additional evidence and nor has any comments on the merits. The CIT(A) perused the additional evidences in detail and gave partial relief to the assessee by upholding the disallowance of depreciation to the extent of Rs. 30,85,360/-. The relevant findings of the CIT(A) are extracted below:
“7.9 On examining all the documentary proof in the form of invoices/bills submitted by the appellant in its submissions during the course of appellate proceedings evidencing purchase/development of software of Rs. 22,42,56,613/- during the year under consideration, it is found that appellant has still failed to provide supporting invoices/bills in respect of following amounts of addition to software despite affording multiple opportunities during the appeal proceedings:-
SVC Co-operative Bank Ltd. Date Amount (in Rs.) Vendor 26-Jul-2019 12,07,500 Essen Vision Software Ltd. 11-Oct-2019 17,50,000 AGS Transact Technologies Pvt. Ltd. 07-Nov-2019 1,25,000 AGS Transact Technologies Pvt. Ltd 31-Mar-2020 30,49,950 Essen Vision Software Ltd. 31-Mar-2020 38,81,392 Pentagon System & Services Pvt. Ltd. 1-Jul-2019 23,27,600 Software for Bank's New Website Total 1,23,41,442
Therefore, total value of the intangible asset in the form of software purchased by the appellant during the FY 2019-20 is restricted to Rs. 21,19,15,171/- (Rs. 22,42,56,613/- minus 1,23,41,442/-). As the appellant failed to authenticate the alleged software purchases of Rs. 1,23,41,442/- during both the assessment and appellate proceedings, no depreciation @25% thereon amounting to Rs.30.85,360/- can be allowed to the appellant in respect of the said amount. Therefore, the disallowance of depreciation on intangible assets (software) made by the AO at Rs. 7,96,37,194/- in the impugned assessment order is hereby confirmed to the extent of Rs. 30,85,360/- and the balance disallowance of Rs. 7,65,51,834/- is hereby deleted.”
The ld. AR submitted that the assessee has furnished the supporting document for the entire purchase of software and that the CIT(A) inadvertently missed to consider certain invoices. The ld. AR drew our attention to the details of invoices which were failed to be considered by the CIT(A) in page 5 of Paper Book (PB) as detailed below:
Sr. No. Date Amount Name Submitted on 1 07.10.2019 1,25,000 AGS Transact 25.08.2023 before Technologies Pvt. CIT(A) Ltd. 2 31.03.2020 38,81,392 Pentagon System 10.01.2024 before (40% of base invoice & Services Pvt. CIT(A) value of Rs. 97,03,481) Ltd. 3 26.07.2019 50,49,950 Essen Vision 10.01.2024 before (Excluding GST) Software Pvt. CIT(A) (Wrongly mentioned as Ltd. 30,49,950 by CIT(A) 4 26.07.2019 12,07,500 Essen Vision 17.02.2024 before Software Pvt. CIT(A) Ltd. 5 01.07.2019 23,27,600 Goldmine 17.02.2024 before
SVC Co-operative Bank Ltd. Advertising Ltd. AO 6 11.10.2019 17,50,000 AGS Transact 17.02.2024 before Technologies Pvt. AO Ltd.
Accordingly, the ld. AR prayed that no disallowance of depreciation is warranted on the ground that the purchases were not substantiated by the assessee since the assessee has furnished the supporting evidence for the entire additions made to software.
The ld. DR on the other hand supported the orders of the lower authorities.
We have heard the parties and perused the material available on record. During the course of assessment, the AO disallowed the depreciation on intangible asset for the reason that the assessee did not produce any evidence to support the purchase of software. The CIT(A) based on additional evidences submitted by the assessee gave partial relief to the assessee and upheld the disallowance of depreciation on intangible asset which according to the CIT(A) were not supported by the documentary evidence. From the perusal of the table containing details of invoices submitted before the CIT(A)/AO as extracted above we notice that the assessee has submitted the supporting documents for the list of additions which the CIT(A) held as not furnished (refer table from CIT(A)'s order). Therefore, we see merit in the submission of the assessee that the evidences for entire additions to software purchase were submitted by the assessee and that the CIT(A) has omitted to consider a part of the invoices submitted. However, in our view the bills which have been omitted to be verified by the CIT(A) needs to be examined for determining the allowability of the depreciation on the same. Therefore, we remit the issue of verification of the balance list of invoices, as tabulated in the paper book supporting the purchase of software, back to the CIT(A) with a direction to SVC Co-operative Bank Ltd. examine the same and allow the depreciation in accordance with law. Needless to say that the assessee be given an opportunity of being heard. It is ordered accordingly.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 18-06-2024.