2010 (5) TMI 676 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of depreciation on building and machinery.
2. Addition made under section 145A.
3. Disallowance out of salary and wages.
4. Disallowance of discount on sale.
5. Addition made under section 68 on account of unsecured loan.
6. Levy of penalty under section 271(1)(c) of the Act.

Detailed Analysis:

1. Disallowance of Depreciation on Building and Machinery:
The Assessing Officer (AO) disallowed the depreciation claimed by the assessee on the grounds that the building and machinery were not put to use. The assessee failed to provide documentary evidence to support the claim that the building was used for storage and the machinery for packing finished products. The AO concluded that the assessee intended to reduce tax liability by claiming depreciation on non-operational assets, leading to a concealed income of Rs. 6,84,109. The CIT(A) found that the AO did not examine whether the assets were used for business purposes and thus, did not uphold the penalty. However, the Tribunal held that the onus was on the assessee to prove the use of assets, which was not done, thus justifying the penalty.

2. Addition Made Under Section 145A:
The AO added Rs. 4,41,002 to the income under section 145A, as the estimated cost of stock was higher than declared by the assessee. The AO concluded that the assessee concealed income by not providing full details. The CIT(A) observed that the assessee furnished details and explanations during penalty proceedings, which the AO ignored. The Tribunal agreed with the CIT(A) that the explanation was bona fide and the AO did not prove it false, thus no penalty was warranted.

3. Disallowance Out of Salary and Wages:
The AO disallowed Rs. 1,57,340, concluding that the assessee made an excess provision for salary and wages to reduce tax liability. The CIT(A) found that the AO did not counter the assessee's explanation that there was no discrepancy. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not prove the explanation false or the claim non-bona fide.

4. Disallowance of Discount on Sale:
The AO disallowed Rs. 7,98,692 claimed as a discount on sales, as the assessee failed to prove its genuineness. The CIT(A) noted that the AO did not inquire into the genuineness during penalty proceedings. The Tribunal disagreed, stating the assessee failed to substantiate its claim with evidence, thus justifying the penalty.

5. Addition Made Under Section 68 on Account of Unsecured Loan:
The AO added Rs. 11,50,728 under section 68, as the assessee failed to prove the identity, genuineness, and creditworthiness of loan creditors. The CIT(A) found that the AO did not call for confirmatory letters. The Tribunal noted that the assessee did not ensure creditors' attendance or provide correct addresses during penalty proceedings. The Tribunal upheld the penalty, as the assessee failed to substantiate its explanation with proper material.

6. Levy of Penalty Under Section 271(1)(c) of the Act:
The AO levied a penalty of Rs. 12,44,269 under section 271(1)(c) for concealment of income and furnishing inaccurate particulars. The CIT(A) deleted the penalty, observing that the AO did not record satisfaction during assessment proceedings. The Tribunal held that the initial burden is on the assessee to prove bona fides and substantiate explanations. The Tribunal partially upheld the AO's penalty, finding that the assessee failed to discharge the burden for disallowance of depreciation, discount on sales, and unsecured loans, but agreed with the CIT(A) on salary and wages and section 145A additions.

Conclusion:
The Tribunal partly allowed the revenue's appeal, upholding penalties related to disallowance of depreciation, discount on sales, and unsecured loans, while agreeing with the CIT(A) on salary and wages and section 145A additions.