2011 (12) TMI 531 - AT - Income Tax

Summary

Issues Involved:
1. Cross Objection by the assessee.
2. Deletion of addition out of depreciation on the building.
3. Deletion of disallowance out of interest paid to the bank.

Detailed Analysis:

1. Cross Objection by the Assessee:
The cross-objection was not pressed by the assessee's Authorized Representative (A/R), leading to its dismissal as not pressed.

2. Deletion of Addition Out of Depreciation on the Building:
The department objected to the deletion of an addition of Rs. 8,73,445 out of depreciation on the building. The Assessing Officer (AO) had disallowed this depreciation, suspecting the genuineness of the expenses incurred on the factory building construction. The AO's concerns included irregularities in wage sheets, such as signatures appearing similar, entries written by the same person, and the absence of revenue stamps on payments exceeding Rs. 5,000.

The Commissioner of Income Tax (Appeals) [CIT(A)] examined the evidence, including ledger entries, cash books, wage sheets, bills for construction materials, and inward registers. Despite procedural irregularities, the CIT(A) found no substantial evidence against the construction's authenticity. The CIT(A) noted that the AO did not conduct a physical inspection of the factory building and relied heavily on theoretical analysis. The CIT(A) concluded that the AO's disallowance was based on assumptions and procedural lapses rather than concrete evidence, thus deleting the disallowance of depreciation.

3. Deletion of Disallowance Out of Interest Paid to the Bank:
The department also objected to the deletion of a disallowance of Rs. 20,96,267 out of interest paid to the bank. This disallowance was consequential to the disallowance of depreciation on the building. Since the CIT(A) deleted the disallowance of depreciation, the associated interest disallowance was also deleted. The CIT(A) reasoned that the interest paid on borrowed amounts from the bank, used for business purposes, was allowable as a business expenditure.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, confirming that the disallowance of depreciation and interest was not justified. The ITAT found that the CIT(A) had thoroughly examined the evidence and considered all aspects, including technical errors in documentation, which did not substantiate the AO's claims of bogus expenses. Consequently, the appeal by the department and the cross-objection by the assessee were both dismissed.