2022 (3) TMI 838 - AT - Income Tax

Unexplained investment in fixed assets - assessee has inflated the value of machinery and office equipment - As per assessee there is no addition to the fixed assets and the AO does not have any evidence at his disposal regarding any receipt voucher, payment voucher, bills, vouchers payment proof, etc. for any actual investment made by the assessee and since the difference in the WDV at closing of the preceding year and at the beginning of the current year is due to some clerical error which was rectified, therefore, no addition u/s 69 can be made - HELD THAT - When the there is no actual investment of any kind by the assessee during the assessment year especially in absence of any receipt voucher, payment voucher, bills, vouchers payment proof, etc. provisions of section 69 are not applicable and the error is an accounting/clerical error which occurred in the very first year. Therefore, we are of the considered opinion that the disallowance, if any could have been made by re-computing the depreciation on account of wrong figure of closing and opening balance of WDV but no addition u/s 69 could have been made. We, therefore, set-aside the order of the ld. CIT(A) and direct the AO to delete the addition made u/s 69. AO may re-compute the depreciation on account of difference in the opening and closing balance of the WDV of the fixed assets. The ground raised by the assessee is accordingly partly allowed.

Issues Involved:
1. Validity of proceedings under Section 147/148.
2. Reassessment proceedings and reasons recorded for notice under Section 148.
3. Limitation and procedural compliance for reopening assessment.
4. Mechanical approval for reassessment.
5. Change of opinion and fresh material for reassessment.
6. Vague reasons for reassessment.
7. Addition of ? 86,47,500/- as unexplained investment in fixed assets.

Detailed Analysis:

1. Validity of Proceedings under Section 147/148:
The assessee challenged the initiation of proceedings under Section 147, read with Section 148, asserting that the conditions and procedures prescribed under the statute were not satisfied and complied with. The Tribunal did not delve into this issue as the assessee's counsel restricted arguments to the addition of ? 86,47,500/-.

2. Reassessment Proceedings and Reasons Recorded for Notice under Section 148:
The assessee contended that the reassessment proceedings initiated by the A.O. were bad in law as the reasons recorded for issuing the notice under Section 148 were contrary to the facts. The Tribunal did not address this issue specifically as the focus was on the addition of ? 86,47,500/-.

3. Limitation and Procedural Compliance for Reopening Assessment:
The assessee argued that the notice issued under Section 147 read with Section 148 was barred by limitation as it was issued after four years from the end of the relevant assessment year. This issue was not specifically adjudicated by the Tribunal.

4. Mechanical Approval for Reassessment:
The assessee claimed that the approval for reassessment was granted mechanically, making the proceedings illegal. The Tribunal did not specifically address this issue.

5. Change of Opinion and Fresh Material for Reassessment:
The assessee argued that the initiation of reassessment proceedings was based on a change of opinion of the A.O. and not on any fresh material or information. This issue was not specifically addressed by the Tribunal.

6. Vague Reasons for Reassessment:
The assessee contended that the reassessment proceedings were initiated based on vague reasons. The Tribunal did not specifically address this issue.

7. Addition of ? 86,47,500/- as Unexplained Investment in Fixed Assets:
The primary issue adjudicated by the Tribunal was the addition of ? 86,47,500/- as unexplained investment in fixed assets. The A.O. made this addition under Section 69, asserting that the assessee had inflated the value of machinery and office equipment by ? 61,80,274/- and ? 24,67,226/- respectively, leading to a total unexplained investment of ? 86,47,500/-.

The Tribunal examined the facts and found that the difference in the WDV of assets was due to a clerical error where the subsidy received in AY 2007-08 was deducted twice. The Tribunal noted that the A.O. and the CIT(A) acknowledged this clerical mistake. The Tribunal concluded that since there was no actual investment made by the assessee during the assessment year and no evidence of any receipt, payment voucher, or bills for such investment, the provisions of Section 69 were not applicable.

The Tribunal held that the disallowance could only be made by re-computing the depreciation due to the clerical error but not by making an addition under Section 69. Consequently, the Tribunal set aside the order of the CIT(A) and directed the A.O. to delete the addition of ? 86,47,500/- made under Section 69. The A.O. was, however, allowed to re-compute the depreciation based on the correct WDV.

Conclusion:
The Tribunal partly allowed the appeal, focusing on the clerical error in the WDV of fixed assets and directing the deletion of the addition under Section 69, while permitting the A.O. to re-compute the depreciation. Other grounds raised by the assessee were dismissed as not pressed.

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