Facts of the Case

The appellant, FIITJEE Ltd. (successor of Times A & M (India) Ltd.), claimed deductions for:

  • Web advertisement expenses, and
  • Depreciation on purchase of customized software

for Assessment Years 2004-05 and 2005-06.

The Assessing Officer (AO) disallowed:

  • Web advertisement expenses as bogus, and
  • Software depreciation due to failure to prove genuineness, ownership, and actual use.

The CIT(A) allowed the assessee’s claims. However, the Income Tax Appellate Tribunal (ITAT) reversed the CIT(A)'s order and restored the AO’s findings.

The assessee appealed before the Delhi High Court.

Issues Involved

  1. Whether web advertisement expenses claimed by the assessee were genuine or merely accommodation entries.
  2. Whether depreciation on alleged purchase of customized software was allowable.
  3. Whether findings of the ITAT were perverse and gave rise to a substantial question of law.
  4. Whether reliance on earlier favorable orders for different assessment years was justified.

Petitioner’s Arguments (Assessee)

  • The ITAT ignored material evidence, including the cross-examination of Shri S.K. Gupta, who confirmed that actual services were rendered.
  • Payments were made through banking channels, establishing genuineness.
  • Similar additions in earlier years and group cases were deleted and upheld by courts.
  • The findings of ITAT were perverse and contrary to evidence.

Respondent’s Arguments (Revenue)

  • The assessee failed to prove:
    • Existence of service providers
    • Actual rendering of web advertisement services
    • Authenticity and use of software
  • Enquiries revealed:
    • Companies did not exist at given addresses
    • No compliance to summons under Sections 131 and 133(6)
    • Technology claimed (JSP) was not even available at the relevant time
  • Transactions were accommodation entries, not genuine business expenses.

Court’s Findings / Order

The Delhi High Court held:

  • The ITAT conducted detailed factual analysis and its findings were plausible and evidence-based.
  • The assessee failed to substantiate genuineness of:
    • Web advertisement expenses
    • Software purchase and usage
  • Statement of Shri S.K. Gupta was not the sole basis of disallowance.
  • Earlier favorable decisions in other assessment years do not bind the present case since each year is independent.
  • No perversity was found in ITAT’s order.

Held:
No substantial question of law arises.
Appeals dismissed.

Important Clarifications by the Court

  • Mere payment through banking channels is not sufficient to prove genuineness when accommodation entries are suspected.
  • Burden of proof lies on the assessee to establish:
    • Actual services rendered
    • Ownership and use of software
  • Each assessment year is separate and independent.
  • A finding of fact becomes “perverse” only if:
    • Based on no evidence
    • Or wholly unreasonable

Sections Involved

  • Section 131 – Power regarding discovery, production of evidence
  • Section 133(6) – Power to call for information
  • Section 143 – Assessment
  • Section 147 – Reassessment
  • Depreciation provisions under Income Tax Act

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:6728-DB/VSA06122019ITA8232019.pdf

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