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 these claims on the grounds that:

  • The advertisement expenses were bogus and unverifiable.
  • The assessee failed to establish the genuineness, ownership, and usage of the software for which depreciation was claimed.

The CIT(A) allowed the assessee’s appeal. However, the ITAT reversed the CIT(A)’s order and restored the AO’s findings. The assessee then appealed before the Delhi High Court 

Issues Involved

  1. Whether the web advertisement expenses claimed by the assessee were genuine and allowable under the Income Tax Act.
  2. Whether the assessee was entitled to depreciation on alleged purchase of customized software under Section 32.
  3. Whether the findings of the ITAT were perverse or gave rise to a substantial question of law.

Petitioner’s (Assessee’s) Arguments

  • The ITAT ignored material evidence, including invoices, confirmations, and bank payments.
  • Statement of alleged entry operator (S.K. Gupta) confirmed that actual services were rendered.
  • Similar additions in earlier years and group concerns were deleted and upheld by courts.
  • Non-consideration of cross-examination evidence rendered findings perverse.

Respondent’s (Revenue’s) Arguments

  • The assessee failed to prove genuineness of transactions despite multiple opportunities.
  • Companies providing advertisement services were found non-existent or non-responsive.
  • Evidence showed technological inconsistencies (e.g., services claimed before technology existed).
  • No proof of software development, ownership, or usage was produced.
  • Payments through banking channels do not prove genuineness in cases of accommodation entries.

Court’s Findings / Order

The Delhi High Court dismissed the appeals and held:

  • The ITAT’s findings were pure findings of fact based on detailed evidence analysis.
  • The assessee failed to establish:
    • Actual rendering of advertisement services
    • Genuine purchase and use of software
  • Mere documentation and bank payments are insufficient when surrounding circumstances indicate bogus transactions.
  • Earlier favorable decisions in other years do not apply as each assessment year is independent.
  • No substantial question of law arose for consideration.

Result: Appeals dismissed in favor of Revenue.

Important Clarifications

  • Burden of Proof: Lies on the assessee to establish genuineness of expenses and assets.
  • Accommodation Entries: Payments via cheque do not validate transactions if underlying activity is bogus.
  • Perverse Findings: A finding is not perverse merely because another view is possible; it must be unsupported by evidence.
  • Assessment Year Independence: Each year is assessed separately; past relief does not guarantee future acceptance.

Sections Involved

  • Section 37(1) – Business expenditure (allowability of advertisement expenses)
  • Section 32 – Depreciation on assets (software)
  • Section 133(6) – Inquiry by Assessing Officer
  • Section 131 – Power regarding summons

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

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