2016 (4) TMI 1321 - AT - Income Tax

Addition made u/s 35 being the amount spent for purchase of plant and machinery - Held that - AO or the ld. DR has not controverted this fact that the R & D program of the assessee has been approved by the Government of India and other relevant appropriate authorities and efforts of the assessee on R & D were awarded by National Award in 2007 and other appreciations by ACMA. We cannot ignore this fact that the assessee s books of account are properly audited and subject to public scrutiny by other statutory bodies such as Registrar of Companies and SEBI etc. which fact cannot be ignored or rejected at the threshold which conclusively supports the claim of the assessee towards purchase of plant and machinery for R & D purpose. On the basis of foregoing discussion we are unable to see any ambiguity or perversity or any other valid reason to interfere with the impugned order of the ld. CIT(A) and thus we uphold the same. Accordingly we approve the conclusion of the ld. CIT(A) who deleted the baseless addition and disallowance made by the AO and hence the sole ground of the Revenue being devoid of merits is dismissed. Disallowance of the software purchase made by the appellant for the purposes of its R&D - Held that - One must not forget that the Revenue which has powers regarding discovery inspection production and calling for evidence as well as survey search and seizure and requisition of books of accounts and the inability of assessee to produce the supplier could not lead to an adverse inference against the assessee that the supplier was bogus or non-existent. In the present case the AO has not made any further investigations or enquiry about the supplier and that too he accepted existence of M/s Exim for other purchases which was effected through the same period. The ld. CIT(A) despite confirmation of accounts placed before AO incorrectly held that there is no confirmation. Per contra the assessee has discharged the onus cast upon it to establish the genuineness and purchases and onus was shifted to the Revenue but not properly discharge by the AO for making the addition. Thus conclusion of the AO as well as the ld. CIT(A) is not sustainable. Hence we demolish the same and Ground Nos. 1 to 3 of the assessee are allowed.

Summary

Issues Involved:
1. Deletion of addition made under Section 35 of the Income Tax Act for purchase of plant and machinery.
2. Disallowance of software purchase for Research and Development (R&D) purposes.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 35 of the Income Tax Act for Purchase of Plant and Machinery:

The Revenue's appeal contested the deletion of an addition of ?1,81,20,360 made under Section 35 of the Income Tax Act, which was claimed by the assessee for the purchase of plant and machinery. The Assessing Officer (AO) had disallowed this deduction, arguing that the assessee failed to provide trustworthy evidence during the assessment proceedings to substantiate the claim.

The Tribunal noted that the AO was influenced by certain dates and imagined an ideal flow of documents. However, the CIT(A) admitted additional evidence and found that the purchases were genuine, supported by valid Sales Tax and Excise Registration, and payments were made through banking channels. The CIT(A) observed that the AO's suspicion was based on doubts and suspicions rather than concrete evidence. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to carry out further investigations to substantiate his claims. The Tribunal concluded that the purchases were genuine, supported by reliable evidence and explanations, and the AO's inferences were unsustainable.

2. Disallowance of Software Purchase for R&D Purposes:

The assessee's appeal challenged the disallowance of ?28,17,360 out of the software purchase made for R&D purposes. The AO had disallowed this amount, arguing that the supplier did not exist and the assessee failed to provide confirmation. The CIT(A) upheld this disallowance, stating that the purchases remained unproved despite various details about the supplier being filed.

The Tribunal noted that the AO had accepted part of the purchases from the same supplier, M/s Exim Trading Company, but disallowed the remaining amount without proper justification. The Tribunal found that the assessee had provided sufficient evidence, including invoices, store receipts, and confirmation from the supplier. The Tribunal referred to the decision of the Hon'ble High Court of Delhi in CIT Vs. Rice India Exports Pvt. Ltd, which held that the inability to produce the supplier could not lead to an adverse inference if the assessee had provided sufficient evidence. The Tribunal concluded that the AO and CIT(A) erred in disallowing the software purchase and allowed the assessee's appeal.

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, upholding the deletion of the addition made under Section 35 for the purchase of plant and machinery and reversing the disallowance of the software purchase for R&D purposes.