2016 (10) TMI 321 - AT - Income Tax

Addition u/ 68 - Held that - Unless the genuineness of the source of the sum of money found credited in the assessee s books is satisfactorily established, the assessee cannot be said to have discharged the requisite burden of proof placed on him u/s. 68. The material furnished by the assessee is thus hardly adequate for proving the genuineness (of the credit/s) and/or the capacity of the creditors. The AO, as observed by the ld. CIT(A), has also not examined or sought any further materials in the matter. We, accordingly, vacating the findings of both in relation to the credit for the balance ₹ 58.50 lacs, restore the matter back to the file of the AO to enable the assessee to, once again, establish the credit/s on the anvil of section 68 of the Act. We decide accordingly, and the Revenue gets part relief. Restriction of depreciation qua machinery installed during the first half of the relevant previous year to 50% of the normal depreciation - asset put to use less than 180 days - Held that - Trial production could be caused only upon successful commissioning of all the different parts of the plant, stated to be a lamination plant, i.e., in the main. The trial production expenses, including wastages, would also stand to be capitalized, of which there is no reflection. In view of the foregoing, we therefore have no hesitation in upholding the inference of the additions to the machinery being put to use for less than 180 days during the relevant year and, thus, exigible to depreciation at 50% of the normal rate. The ld. CIT(A) stating that this is a non-issue as the assessee would in any case stand to avail depreciation from the year following, is neither here nor there. And, therefore, only needs to be stated to be rejected. Each year is an independent unit of assessment, and the fact in issue is if the relevant machinery had been put to use for the required period during the relevant previous year, so as to enable the assessee to its claim, as made, or is the same not in accordance with law. That is the only question that is required to be addressed, and the further question that if it was in fact put to use during the relevant year is admitted by both the parties. We decide accordingly, and the Revenue succeeds.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act, 1961.
2. Restriction of depreciation on machinery installed during the first half of the relevant previous year.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act, 1961:

The Revenue's appeal contested the deletion of ?70.43 lakhs added as unexplained cash credits under Section 68. The Assessing Officer (AO) had initially added ?80.43 lakhs, excluding ?10 lakhs credited to M/s. Pushkaraj Packaging India (P.) Ltd., based on their balance sheet and income return. The AO argued that the details provided by the assessee did not prove the creditors' capacity or the genuineness of the transactions.

The Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee had submitted confirmations with verifiable addresses from all shareholders, which the AO did not pursue further. The CIT(A) deleted the addition, leading to the Revenue's appeal. The Tribunal examined whether the materials provided by the assessee were adequate to prove the credits' nature and source under Section 68.

The Tribunal noted that proving a credit requires establishing the identity and capacity of the creditor and the genuineness of the transaction. The AO found the latter two lacking, while the CIT(A) considered them prima facie established. The Tribunal highlighted that confirmations alone do not prove the credit and emphasized the importance of human probabilities and the need for substantial evidence.

For the 64 individuals, including 30 employees, who provided cash, the Tribunal found no material to establish their financial capacity or regular income, confirming the addition of ?11.93 lakhs. For the remaining credits from related parties, the Tribunal found the material furnished by the assessee inadequate to prove genuineness or capacity. The Tribunal vacated the findings for the balance ?58.50 lakhs and restored the matter to the AO for further examination, granting partial relief to the Revenue.

2. Restriction of Depreciation on Machinery Installed During the First Half of the Relevant Previous Year:

The second issue involved the restriction of depreciation on machinery to 50% of the normal rate, as it was put to use for less than 180 days during the relevant year. The assessee claimed the machinery was used for trial production before 30.9.2004, qualifying it for full depreciation.

The Tribunal noted that while trial production qualifies as being put to use, there was no contemporaneous material to establish this. The Tribunal upheld the inference that the machinery was used for less than 180 days, making it eligible for 50% depreciation. The CIT(A)'s statement that this was a non-issue was rejected, emphasizing that each assessment year is independent and the machinery's use period must be established for the relevant year.

Conclusion:

The appeal by the Revenue was partly allowed. The Tribunal restored the matter of unexplained cash credits back to the AO for further examination and upheld the restriction of depreciation on machinery to 50%. The order was pronounced in open court on August 12, 2016.