2011 (4) TMI 1356 - AT - Income Tax

Summary

Issues Involved:
1. Validity of assessment framed under Section 158BC of the IT Act, 1961.
2. Treatment of purchase of plant and machinery and films from Delhi parties as fictitious and/or bogus.
3. Disallowance of depreciation on new plant and machinery.
4. Disallowance of financial expenses.
5. Levy of interest under Section 158BFA(1) of the IT Act, 1961.
6. Double additions in respect of financial charges for specific assessment years.

Detailed Analysis:

1. Validity of Assessment Framed Under Section 158BC:
The assessee argued that the assessment under Section 158BC was illegal since no search was conducted on the appellant company in its individual corporate capacity. The Tribunal found that a search and seizure action was indeed carried out at the business premises of the assessee company and that there was a warrant of authorization under Section 132(1) of the IT Act, 1961. The Tribunal dismissed the assessee's claim, concluding that the grievance regarding the lack of search was without basis.

2. Treatment of Purchase of Plant and Machinery and Films from Delhi Parties as Fictitious and/or Bogus:
The assessee claimed depreciation on plant and machinery purchased from Delhi-based parties. The AO found several discrepancies, including the absence of transport expenses, octroi payments, and insurance for the machinery. Additionally, blank and brand new bill books of two Delhi-based parties were found at the business premises of the assessee, leading the AO to suspect the genuineness of the transactions. The Tribunal noted that all the machineries were physically found at the business premises of the assessee during the survey and search. It held that the existence of the machineries was established and that the disallowance of depreciation based on suspicion alone could not be justified in a block assessment.

3. Disallowance of Depreciation on New Plant and Machinery:
The AO disallowed the claim for depreciation on the grounds that the purchases were bogus. The Tribunal, however, found that the machineries were physically present and used for business purposes. It concluded that the disallowance of depreciation could not be sustained in a block assessment under Chapter XIV-B of the Act, as there was no evidence found during the search to prove that the depreciation claim was false.

4. Disallowance of Financial Expenses:
The AO disallowed financial expenses related to hire-purchase and lease agreements, suspecting the transactions with Delhi-based parties to be bogus. The Tribunal, however, held that the disallowance of financial expenses could not be justified in a block assessment, as the machineries were physically found and used for business purposes. The Tribunal allowed the assessee's claim for financial expenses.

5. Levy of Interest Under Section 158BFA(1) of the IT Act, 1961:
The Tribunal did not specifically address the issue of the levy of interest under Section 158BFA(1) in detail, but it implied that the issue would not survive in view of the conclusions on the other grounds.

6. Double Additions in Respect of Financial Charges for Specific Assessment Years:
The assessee argued that financial charges for certain assessment years were already disallowed by the assessee in its computation of income. The Tribunal, in view of its conclusions on the other grounds, held that this issue would not survive.

Conclusion:
The Tribunal allowed the appeal by the assessee partly, holding that the disallowance of depreciation and financial expenses could not be sustained in a block assessment under Chapter XIV-B of the Act. It left open the question of whether such disallowances could be made in regular assessments.