2022 (5) TMI 940 - AT - Income Tax

Disallowance of depreciation on plant and machinery installed by the appellant company - HELD THAT - In the absence of necessary details, we are inclined to give one more opportunity to the assessee to raise its point of contention before the AO in support of its arguments. It is also seen that the assessee has filed additional papers demonstrating the list of villages where RO Plant has been installed, charts of parties with details remark of Wasmo Project and 9 bills of machineries of WASMO project which are available in the paper book. These papers are necessary to be considered by the AO for adjudicating the issue on hand. Thus in the interest of justice and fair play, we set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. The assessee is also at the liberty to furnish the necessary details before the AO and should extend the full cooperation without fail. Hence the ground of appeal of the assessee is allowed for the statistical purposes. Disallowance of the depreciation claimed with respect to the additions of 5 cars in the block of assets - whether the assessee is eligible to claim the depreciation on the purchase of cars in the manner as provided under section 32? - HELD THAT - We are of the view that there cannot be any disallowance on adhoc basis as far as depreciation is concerned. In view of the above and after considering the facts in totality, the ground of appeal of the assessee is partly allowed for the statistical purposes. Addition u/s 68 - liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties - HELD THAT - We find the assessee in order to establish the genuineness of the transaction and credit worthiness of the directors furnished necessary detail but the revenue authority without pointing any defect in the submission of the assessee treated the amount of share and premium as unexplained cash credit merely on the basis of individuals who lend fund to the directors were not able to explain the sources of funds in their hand. Therefore, we are of the view that assessee had been able to explain the sources of credit of share capital and premium in its books of account. The assessee cannot be made suffer due to some third parties who provided fund to the investor was not able to properly explain the sources fund in their hands. Hence, considering the fact in totality we hereby direct the AO to delete the addition made under section 68 -Thus the ground of appeal raised by the Assessee is hereby allowed. Addition under the provisions of section 40A(2)(b) - AO treated the salary paid to the employee being the relative of the director as excessive and unreasonable in pursuance to the provisions of section 40A(2)(b) - HELD THAT - As nothing has been brought on record by the authorities below by making the comparison of the salary of the employee after having regard to the market which was one of the precondition for invoking the provisions of section 40A(2)(b) of the Act. On this reasoning only, the case of the revenue fails and assessee succeeds. It is also important to note that the amount of salary was accepted by the revenue in the subsequent year. This contention of the learned AR was not doubted by the learned DR appearing on behalf of the Revenue. Thus, we are of the view that the revenue cannot take different stand for different assessment years. In other words, once the revenue has accepted the salary to the employee reasonable to the tune of ₹18 lacs, the same cannot be disturbed in the year under consideration. Accordingly, we set aside the finding of the learned CITA, and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Disallowance being 20% of legal and miscellaneous expenses - HELD THAT - We are of the opinion that such expenses cannot be disallowed as the assessee has already paid the taxes in the form of fringe benefit tax to the revenue. For the balance amount of the expenses being legal and miscellaneous expenses we note that the assessee failed to discharge the onus imposed upon it. However, the fact that the relevant supporting documents were seized by the VAT department cannot be ruled out. It is for the reason that it was not possible for the assessee furnish the necessary details. Therefore it was prayed by the assessee to the AO and learned CIT-A for collecting the necessary details from the VAT department. But we note that the Revenue has not exercised its powers granted under the statute. However to meet the end of justice and to put the end of the ongoing litigation, we are of the view that disallowance of 5% of the legal and miscellaneous expenses will render the justice to the assessee and the Revenue. Hence, the ground of appeal of the assessee is partly allowed whereas ground of appeal the Revenue is dismissed. Addition after rejection the books of the accounts - AO, in the absence of necessary documents/records/informations which were to be furnished by the assessee, doubted on the genuineness of the transactions shown by the assessee in the financial statements - HELD THAT - As we find that the AO has rejected the books result declared by the assessee mainly for the reason that supporting document were not provided as required by the AO. At this juncture it is necessary to note that there was search and seizer operation conducted by the VAT department which prevented the assessee to file necessary supporting evidences during the assessment proceeding. It pertinent to highlight that books account of the assessee has been duly audited by the auditor and there was upward trend in GP ratio and in previous year as well in subsequent year, the book results were accepted by the Revenue. Therefore, without bringing any corroborative material on record suggesting books result in the year under consideration not representing true the book result cannot be rejected merely for not providing the confirmation of the suppliers and supporting bills and voucher with respect to closing stock. See AWADHESH PRATAP SINGH ABDUL REHMAN AND BROTHERS 1993 (12) TMI 28 - ALLAHABAD HIGH COURT We also find pertinent to note that even assuming the closing stock declared by the assessee is undervalued, then also it has tax neutral effect. It is for the reason that such closing stock shall become the opening stock in the next year and therefore there will not be any impact on the income of the assessee except the income of one year will shift to the income of another year. On this reasoning as well, we do not find any merit in the order of the AO. In view of the above and after considering the facts in totality, we do not find any infirmity in the order of the learned CIT (A). Accordingly, we uphold the same. Hence the ground of appeal of the revenue is dismissed. Difference between the income shown by the assessee viz a viz reflected in TDS certificate - HELD THAT - The above difference was treated as income of the assessee and therefore the same was added to the total income of the assessee. However, the assessee has not challenged the impugned addition before the learned CIT-A. The assessee has raised the ground of appeal before us. However, at the time of hearing the learned AR has not advanced any argument or pointed out any infirmity in the order of the AO. Thus in the absence of any argument from the side of the learned AR of the assessee, we do not find any reason to interfere in the finding of the AO. Hence we confirm the same. Thus the ground of appeal of the assessee is hereby dismissed. Disallowance of EMD expenses - HELD THAT - We find that there is no issue to the fact that such forfeiture of the EMD is a business loss which is eligible for deduction - CIT-A has disallowed the same on the reasoning that the assessee failed to furnish the necessary details about the EMD. Indeed, it is the onus upon the assessee to furnish the necessary details for the claim made by it in the income tax return. The assessee has only filed the copy of the ledger which is placed. To our understanding, the copy of the ledger is not sufficient enough to admit the claim of the assessee until and unless it is supported by the documentary evidence. However at the same time, we find that generally these EMD s are provided by way of fixed deposits which are made through the banking channel. It is also a normal practice if the contract is not awarded to the party, the same is returned back to the assessee. But all these details are not available on record. However in the interest of justice and fair play we are inclined to give one more opportunity to the assessee to furnish the necessary details before the AO for fresh adjudication as per the provisions of law. The assessee is at the liberty to furnish the necessary details without delay. It is also directed to the assessee to extend full cooperation during the assessment proceedings. Hence the ground of appeal of the assessee is allowed for the statistical purposes.

Summary

Issues Involved:
1. Disallowance of depreciation on plant and machinery.
2. Disallowance of depreciation on cars.
3. Addition under Section 68 of the Income Tax Act.
4. Addition under Section 40A(2)(b) of the Income Tax Act.
5. Disallowance of various expenses.
6. Rejection of books of accounts under Section 145(3) of the Income Tax Act.
7. Difference in income as per TDS reconciliation.
8. Disallowance of EMD expenses written off.

Detailed Analysis:

1. Disallowance of Depreciation on Plant and Machinery:
The assessee claimed depreciation on plant and machinery amounting to ?48,85,005/-. The Assessing Officer (AO) disallowed the claim due to the absence of necessary details like the date of purchase, installation, commissioning, and put to use. The assessee argued that the documents were seized by the VAT department and provided some evidence like loan sanction letters and payment advice. However, the AO was not satisfied, and the disallowance was confirmed by the CIT-A. The Tribunal noted that the assessee failed to furnish primary documents but acknowledged the difficulty due to the VAT department's seizure. It was held that the genuineness of the plant and machinery was not doubted, and the matter was remanded to the AO for fresh adjudication.

2. Disallowance of Depreciation on Cars:
The assessee claimed depreciation on five cars, but the AO disallowed the claim for three cars (Audi A6, Sonata, and Innova) due to lack of invoices and RC books, and partially disallowed for two cars (Audi A4 and BMW) due to potential personal use. The CIT-A upheld the AO's decision. The Tribunal found discrepancies in the documents provided and remanded the issue to the AO for fresh adjudication. For the remaining two cars, the Tribunal held that the assessee, being a corporate entity, should be allowed depreciation, and any personal use by directors should be treated as perquisites.

3. Addition under Section 68:
The AO added ?6,99,82,515/- as unexplained cash credits under Section 68, questioning the creditworthiness and genuineness of the transactions involving share capital and premium received from directors. The CIT-A confirmed the addition. The Tribunal observed that the assessee provided necessary details like bank statements, ITRs, and financial statements of the directors. It held that the assessee cannot be expected to explain the sources of the source and directed the AO to delete the addition.

4. Addition under Section 40A(2)(b):
The AO disallowed ?15 lakhs paid as salary to an employee, a relative of the director, deeming it excessive compared to the directors' salaries. The CIT-A confirmed the disallowance. The Tribunal noted that the salary was accepted in subsequent years and found no comparison made by the AO with market rates. It directed the AO to delete the addition.

5. Disallowance of Various Expenses:
The AO made an ad hoc disallowance of ?14,98,321/- (20%) of certain expenses due to lack of supporting evidence, which the CIT-A partially upheld. The Tribunal noted that some expenses were subject to fringe benefit tax and should not be disallowed. For legal and miscellaneous expenses, it acknowledged the difficulty due to the VAT department's seizure and reduced the disallowance to 5%.

6. Rejection of Books of Accounts under Section 145(3):
The AO rejected the books of accounts and estimated gross profit, adding ?1,76,15,098/-. The CIT-A deleted the addition, noting the upward trend in gross profit and the acceptance of books in previous and subsequent years. The Tribunal upheld the CIT-A's decision, emphasizing that mere non-furnishing of certain documents due to VAT department's seizure does not justify rejection of books.

7. Difference in Income as per TDS Reconciliation:
The AO added ?10,26,466/- due to differences between income shown in books and TDS certificates. The assessee did not contest this before the CIT-A. The Tribunal upheld the AO's addition as the assessee did not provide any arguments against it.

8. Disallowance of EMD Expenses Written Off:
The AO disallowed ?1,00,750/- claimed as business loss for forfeited EMD, which the CIT-A confirmed due to lack of evidence. The Tribunal remanded the issue to the AO for fresh adjudication, allowing the assessee to furnish necessary details.

Conclusion:
The Tribunal provided detailed directions for fresh adjudication on several issues, emphasizing the need for proper documentation and evidence. It also highlighted the importance of consistency in accepting claims across different assessment years. The appeals were partly allowed for statistical purposes, and the AO was directed to re-examine certain disallowances and additions.