2015 (10) TMI 2318 - AT - Income Tax

Bogus purchase of M.S.Steel from Dhruv Steel - Held that - The purchases made by assessee were duly supported by various documentary evidences such as inward stamped bills and weigh bridge challans etc. Assessing Officer has not appreciated such evidences, particularly the confirmation of M/s. Dhruv Steel from whom assessee has purchased steel and the fact that if the purchases made by assessee were not genuine, it would not have been able to construct a huge plant of oil, which is evident from the evidences submitted on behalf of assessee. In view of above, CIT(A) held that conclusion reached as to bogus purchase of M.S.Steel in assessment order for AY. 2004-05 was not justified. Accordingly, disallowance made on the basis of observation in assessment order for A.Y. 2004-05 was not justified. We are not inclined to interfere in reasoned finding of CIT(A). - Decided in favour of assessee. Disallowance of the depreciation as being unexplained - CIT(A) deleted addition - Held that - We have upheld the order of CIT(A) on the issue of genuineness of steel transaction whereby he has held the purchase of M.S. Steel from M/s. Dhruv Steel as genuine for A.Y. 04-05. Accordingly, disallowance made by Assessing Officer in subsequent order on point of depreciation was not justified held by CIT(A). In view of this, addition made in both years of disallowing claim of depreciation of building and plant & machinery was rightly held to be unwarranted by CIT(A) and same was rightly deleted by him.- Decided in favour of assessee. Disallowance of interest expenditure incurred by assessee on loan taken from - Held that - Source of loan taken by M/s. Vimal Marketing who has received the same from M/s. Dhruv Steel. Assessing Officer should not go into the source of source of loan taken by assessee. In these circumstances, CIT(A) was justified in allowing assessee s claim of interest expenditure. This reasoned finding of CIT(A) needs no interference from our side - Decided in favour of assessee.

Summary

Issues Involved:
1. Genuineness of the transaction of purchase of M.S. Steel from M/s. Dhruv Steel for A.Y. 2004-05.
2. Disallowance of depreciation for A.Y. 2005-06 and A.Y. 2006-07.
3. Disallowance of interest expenses for A.Y. 2005-06 and A.Y. 2006-07.

Detailed Analysis:

1. Genuineness of the Transaction of Purchase of M.S. Steel from M/s. Dhruv Steel for A.Y. 2004-05:
The Revenue challenged the genuineness of the purchase of M.S. Steel from M/s. Dhruv Steel, alleging it as a bogus transaction. The Assessing Officer (AO) based this conclusion on inquiries that suggested Dhruv Steel's suppliers did not confirm transactions with them, implying that purchases worth Rs. 3,47,86,000/- were merely book entries. The AO also noted that payments made to Dhruv Steel were routed back to the assessee through Vimal Marketing, indicating a circular transaction.

The CIT(A) ruled in favor of the assessee, stating that the purchases were supported by documentary evidence such as bills, weighbridge receipts, and confirmations from Dhruv Steel. The CIT(A) emphasized that the AO failed to provide specific evidence to prove the purchases were bogus. The Tribunal upheld the CIT(A)'s decision, noting that the steel had indeed reached the assessee's factory and that the AO had not adequately disproven the genuineness of the transactions.

2. Disallowance of Depreciation for A.Y. 2005-06 and A.Y. 2006-07:
The AO disallowed depreciation claims for A.Y. 2005-06 (Rs. 79,86,212/-) and A.Y. 2006-07 (Rs. 38,06,882/-) on the grounds that the purchases from Dhruv Steel were bogus. Since the Tribunal upheld the CIT(A)'s finding that the purchase of M.S. Steel from Dhruv Steel was genuine for A.Y. 2004-05, it consequently ruled that the disallowance of depreciation in the subsequent years was unjustified. The Tribunal affirmed the CIT(A)'s decision to delete the disallowance of depreciation.

3. Disallowance of Interest Expenses for A.Y. 2005-06 and A.Y. 2006-07:
The AO disallowed interest expenses for A.Y. 2005-06 (Rs. 24,36,981/-) and A.Y. 2006-07 (Rs. 7,72,360/-), arguing that the loan from Vimal Marketing was essentially the assessee's own funds routed through Dhruv Steel. The CIT(A) granted relief to the assessee, noting that the loan was taken through an account payee cheque, TDS was deducted on interest payments, and the interest income was declared by Vimal Marketing. The Tribunal upheld the CIT(A)'s decision, stating that the AO should not question the source of the loan taken by the assessee, especially when Vimal Marketing was assessed by the same Income Tax Officer without any adverse findings.

Conclusion:
All appeals filed by the Revenue were dismissed. The Tribunal upheld the CIT(A)'s findings on the genuineness of the steel purchase transaction, the validity of the depreciation claims, and the allowability of interest expenses. The judgment was pronounced on January 23, 2015.