2022 (7) TMI 111 - AT - Income Tax

Disallowance of depreciation of plant and machinery claimed - As per AO stainless pipes / tubes were never purchased by the assessee and the assessee took accommodation entry to siphon of black money - in the absence of details as to when the said stainless steel pipes / tubes were put to use by the assessee, AO disallowed the claim of depreciation. HELD THAT - The appellant has stated that the scraps were kept with the appellant and were never sold. This is again very unconvincing. I find from indiamart that value of stainless steel pipe scrap is at least 20% of the cost of new pipes. As the appellant has stated, the pipes were used for carrying hazardous chemicals. Therefore, for safety considerations, such pipes have to be replaced when they are in fairly good condition to avoid the accident. For industries handling hazardous chemicals, it is not possible to wait till the conditions of the pipes deteriorate so much that leakages start. It was necessary for such industries to go for preventive maintenance Therefore, it can be presumed that the condition of the pipes replaced were fairly good from scrap value angle. Therefore the appellant's contention that the scrap was never sold and had little worth is not acceptable. The appellant could not explain how much other materials such as nuts, bolts, brackets, sockets consumed for fitting/installing the pipes/tubes were accounted for in its books though the AO had called for those details in the course of the assessment proceedings.Taking all these facts into consideration, hold that the appellant's claim regarding purchase of pipes/tubes is not correct. In view of the detailed finding of facts recorded by the CIT(A) above and in the absence of any material to controvert the same, we find no reason to interfere with the impugned order passed by the learned CIT(A). Accordingly, the sole ground raised by the assessee in both the appeals is dismissed.

Summary

Issues involved:
Appeals filed against orders disallowing depreciation of plant and machinery for assessment years 2014-15 and 2015-16.

Analysis:
1. The appeals were disposed of ex-parte as the assessee did not appear despite multiple notices. The issue in both appeals was the disallowance of depreciation claimed by the assessee on plant and machinery.

2. The Assessing Officer found discrepancies in the purchase of stainless steel pipes and tubes by the assessee, questioning the necessity and authenticity of the purchase. The AO disallowed the depreciation claim, suspecting it to be an attempt to siphon off black money.

3. The CIT(A) upheld the AO's decision, noting the absence of delivery challans and unsatisfactory explanations regarding installation of the pipes. The CIT(A) found inconsistencies in the appellant's claims, especially regarding the replacement of old pipes and the value of scrap generated.

4. The CIT(A) highlighted that the appellant's submission of using the pipes for replacement contradicted its claim of adding them to fixed assets. The appellant failed to provide convincing evidence of the scrap value, raising doubts about the authenticity of the purchase and installation process.

5. The appellate tribunal, after considering the detailed findings of the CIT(A) and lack of contradictory evidence, upheld the decision to disallow depreciation. The tribunal dismissed the appeals, affirming the lower authorities' orders based on the evidence and explanations presented during the proceedings.