Facts of the Case

  • The assessee, Chintels India Limited, was engaged in horticulture, agriculture, and real estate business.
  • For AY 2008–09, the assessee filed its return of income on 28 October 2008.
  • No notice under Section 143(2) or Section 142(1) was issued within the statutory period.
  • A search under Section 132(1) was conducted on 26 March 2010.
  • Pursuant to search proceedings, notice under Section 153A was issued for multiple assessment years.
  • The Assessing Officer made an addition of ₹84,84,910 on account of depreciation claimed on software purchased from Macro Infotech Ltd.
  • Revenue found that the supplier company was non-existent and allegedly involved in issuing bogus accommodation bills.
  • The assessee claimed the software was used for business and later transferred to Sobha Developers under a joint development arrangement.
  • The Revenue rejected the explanation due to lack of documentary proof.

 

Issues Involved

Issue 1 (AY 2008–09):

Whether an assessment can be treated as “pending” under Section 153A where no notice under Section 143(2) was issued within the prescribed time?

Issue 2 (AYs 2009–10 and 2010–11):

Whether depreciation on software can be allowed when the assessee fails to establish the genuineness of software purchase and business use?

 

Petitioner’s Arguments (Assessee’s Arguments)

  1. The assessee contended that no notice under Section 143(2) was issued within limitation; hence assessment had attained finality.
  2. CBDT Circular No. 549 clarifies that if notice under Section 143(2) is not issued within time, return becomes final.
  3. Search assessment under Section 153A cannot reopen concluded assessments without incriminating material.
  4. The software purchase was genuine and payments were made through banking channels.
  5. The software was utilized as a marketing and development tool in the joint development project.
  6. Revenue relied upon third-party statements without supplying them to the assessee, violating principles of natural justice.

 

Respondent’s Arguments (Revenue’s Arguments)

  1. Revenue argued that the assessment was still pending on the date of search.
  2. The supplier company (Macro Infotech Ltd.) was found to be non-existent.
  3. The assessee failed to produce evidence proving installation, usage, and transfer of software.
  4. The depreciation claim was based on bogus purchase bills.
  5. Concurrent findings of AO, CIT(A), and ITAT established that the transaction lacked genuineness.

Court Findings / Court Order

For AY 2008–09

The High Court held:

  • Where no notice under Section 143(2) is issued within the prescribed limitation, the return attains finality.
  • Such an assessment cannot be treated as “pending” for purposes of Section 153A.
  • The ITAT erred in holding that the assessment was pending on the date of search.
  • Appeal allowed in favour of the assessee.

For AYs 2009–10 and 2010–11

The High Court held:

  • The assessee failed to establish genuine purchase of software.
  • No credible documentary evidence of installation, use, or transfer existed.
  • The supplier entity was found to be bogus.
  • Depreciation claim was rightly disallowed.
  • Appeals dismissed in favour of Revenue.

Important Clarification

Legal Principle Clarified:

If no notice under Section 143(2) is issued within the statutory period, assessment proceedings attain finality and cannot be treated as pending merely because intimation under Section 143(1) was processed later.

Practical Tax Principle:

Depreciation on software or intangible assets requires proof of:

  • actual purchase,
  • ownership,
  • business use, and
  • genuineness of transaction.

Bogus billing structures cannot support depreciation claims.

Sections Involved

  • Section 132(1) – Search and Seizure
  • Section 143(1) – Processing of Return
  • Section 143(2) – Scrutiny Notice
  • Section 153A – Assessment in Case of Search
  • Section 260A – Appeal to High Court 

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

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.