Facts of the Case

The assessee, Chintels India Limited, engaged in horticulture, agriculture and real estate business, filed its return for AY 2008-09. No notice under Section 143(2) or Section 142(1) was issued within the statutory period. Subsequently, a search and seizure operation was conducted under Section 132.

Following the search, notice under Section 153A was issued requiring filing of returns for earlier assessment years. During assessment proceedings, the Assessing Officer disallowed depreciation of Rs. 84,84,910 claimed on software allegedly purchased from Macro Infotech Limited.

The Revenue found that the supplier entity was non-existent and allegedly part of accommodation entry operations. The assessee contended that payment was made through banking channels and that the software was used for business purposes and later handed over under a joint development arrangement. The Assessing Officer rejected the explanation and treated the transaction as bogus.

 

Issues Involved

  1. Whether an assessment can be considered “pending” under Section 153A when no notice under Section 143(2) was issued within limitation?
  2. Whether depreciation on software is allowable where the genuineness of purchase and business use remains unproved?
  3. Whether the ITAT was justified in sustaining additions based on alleged bogus software purchases?

 

Petitioner’s Arguments (Assessee’s Contentions)

  • The assessee argued that in absence of issuance of notice under Section 143(2) within the prescribed period, the return attained finality.
  • It relied on CBDT Circular No. 549 and judicial precedents holding that absence of notice under Section 143(2) ends scrutiny jurisdiction.
  • It contended that the software purchase was genuine, supported by banking transactions and accounting entries.
  • It argued that statements relied upon by Revenue were not supplied, violating principles of natural justice.
  • It submitted that no incriminating material relating to AY 2008-09 was found during the search.

 

Respondent’s Arguments (Revenue’s Contentions)

  • The Revenue contended that the assessment for AY 2008-09 was pending on the date of search and validly assessable under Section 153A.
  • It argued that the supplier company was non-existent and merely issuing bogus bills.
  • It submitted that the assessee failed to prove installation, ownership, or business use of the software.
  • The concurrent factual findings of AO, CIT(A), and ITAT established the bogus nature of the transaction.

 

Court Findings / Order

For AY 2008-09

The Court held that where no notice under Section 143(2) is issued within the statutory period, the return attains finality and cannot be treated as a pending assessment for purposes of Section 153A.

The ITAT erred in treating the assessment as pending. The appeal for AY 2008-09 was allowed in favour of the assessee.

For AY 2009-10 and 2010-11

The Court upheld the concurrent factual findings that the software purchase lacked genuineness.

The assessee failed to prove ownership, installation, and actual business use of the software. Consequently, depreciation was rightly disallowed.

Both appeals were dismissed.

 

Important Clarifications by the Court

1. Finality of Return Without Section 143(2) Notice

If no scrutiny notice under Section 143(2) is issued within the prescribed period, the return becomes final and assessment proceedings terminate.

2. Section 153A Cannot Revive Finalized Assessments Without Basis

A finalized return cannot be treated as pending merely because an intimation under Section 143(1) was issued later.

3. Depreciation Requires Proof of Genuine Asset and Business Use

Mere accounting entries and banking transactions are insufficient without proving existence, ownership, and business utilization of the asset

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:3692-DB/SMD19072017ITA5812016.pdf

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