2024 (12) TMI 979 - AT - Income Tax

Addition u/s 68 - refund of advances - as argued amount in question pertains to money received back from funds advanced to various parties concerned in the past. - HELD THAT - There are certain noteworthy facts placed before us, which in our view were not appreciated by the Tax Authorities. It has not been doubted by the assessing officer that the advance had been made to the aforesaid parties in the earlier assessment years and this fact has not been disputed by the assessing officer. It has also not been doubted that the amount which was received back by the assessee was through banking channels. Assessee had also furnished details of the parties to whom the advances had been given towards supply of machinery. The primary/only reason why the refund of advances made to the assessee was added in the hands of the assessee u/s 68 of the Act was that the parties to whom advance had been given and party from whom the advance was refunded to the assessee were different (coupled with the fact that the parties from whom the refund was received was a known accommodation entry operator). This alone cannot be a ground for making addition in the hands of the assessee under section 68 of the Act, especially in light of the fact that the refund was received back through banking channels, the fact that advance was given to these parties in the earlier years through banking channels has not been disputed. In case the Department had any doubts regarding the details of party submitted by the assessee and/or with respect to the confirmations from the parties provided by the assessee to the Tax Department, the assessing officer could have issued summons and taken statement of these parties on record/carried out further verification/investigation from these parties. In our view, the assessee has discharged the primary onus under section 68 and taking into consideration the assessee s set of facts, in our view, it is not a fit case where the addition is liable to be confirmed in the hands of the assessee. As assessee had furnished complete details of the parties to whom advances had been given, along with their confirmations and if the Assessing Officer had doubts regarding the genuineness of the refunds given by these parties, he could have carried out further investigation and taken the statements of these parties on record as well. However, no such exercise was done by the assessing officer. Decided in favour of assessee. Disallowance of depreciation on capital assets - assets purportedly purchased from Enterprise as not traceable and was involved in providing accommodation entries - HELD THAT -Assessee has throughout maintained that the assets in question have been installed, commissioned and also put to use. The assessee had also invited the assessing officer to carry out the necessary physical verification to ascertain whether the assets had in fact been purchased by the assessee. The request for physical verification was denied by the assessing officer. The assessee has all throughout maintained that the assets were duly recorded in the books of accounts, the payments were made through banking channels, the assessee had claimed depreciation on these assets in its audited books of accounts and also the AO could have carried out a physical verification to ascertain the fact that the assessee had installed, commissioned and put the asset to use. Thus depreciation on the above aspects should not be denied to the assessee. Levy of penalty u/s 271(1)(c) - As addition of claim of depreciation in the hands of the assessee, we have allowed the appeal of the assessee on merits, in the preceding paragraphs. Accordingly, penalty levied in the hands of the assessee u/s 271(1)(c) with respect to the aforesaid addition is also directed to be deleted. Appeals of the assessee are allowed.

Issues Involved:

1. Addition under Section 68 of the Income Tax Act regarding refund of advances.
2. Disallowance of claim of depreciation under Section 32 of the Income Tax Act.
3. Penalty under Section 271(1)(c) of the Income Tax Act related to the disallowance of depreciation.

Issue-wise Detailed Analysis:

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

The primary issue revolves around the addition of Rs. 4,23,26,800 under Section 68 of the Income Tax Act, which pertains to the refund of advances. The assessee, engaged in the business of manufacturing and trading milk products, was subjected to search operations where it was alleged that credits were received from entities known for providing accommodation entries. The Assessing Officer (AO) made the addition on the grounds that the refunds were received from different parties than those to whom advances were initially given, and these parties were linked to known entry operators. The assessee contended that the amounts were genuine refunds of capital advances made for a project that was later abandoned. The Tribunal noted that the assessee had provided sufficient evidence, including confirmations and bank statements, to support its claim. The Tribunal emphasized that the AO did not conduct independent inquiries to verify the genuineness of the transactions. Citing precedents, the Tribunal held that the assessee had discharged its primary onus under Section 68, and the addition was not justified. Consequently, the addition of Rs. 4,23,26,800 was directed to be deleted.

2. Disallowance of Claim of Depreciation under Section 32:

The second issue concerns the disallowance of depreciation amounting to Rs. 18,92,228 on capital assets purportedly purchased from J S Enterprise. The AO disallowed the depreciation on the grounds that J S Enterprise was not traceable and was involved in providing accommodation entries. The assessee argued that the assets were genuinely purchased, installed, and used for business purposes, and the transactions were duly recorded in the books of accounts. The Tribunal found merit in the assessee's submissions, noting that the AO did not conduct a physical verification of the assets despite the assessee's invitation to do so. The Tribunal concluded that the depreciation claim was justified as the assets were indeed used for business purposes and the payments were made through banking channels. Therefore, the disallowance of depreciation was not warranted, and the assessee's appeal on this ground was allowed.

3. Penalty under Section 271(1)(c):

The final issue pertains to the penalty levied under Section 271(1)(c) concerning the disallowance of depreciation. Since the Tribunal allowed the assessee's appeal regarding the depreciation claim on merits, it directed the deletion of the penalty as well. The Tribunal reasoned that since the disallowance of depreciation was not upheld, the basis for the penalty did not exist, and hence, the penalty was not sustainable.

Conclusion:

In conclusion, the Tribunal allowed both appeals of the assessee. The addition under Section 68 was deleted, the claim of depreciation was upheld, and the penalty under Section 271(1)(c) was also directed to be deleted. The Tribunal emphasized the importance of the AO conducting independent inquiries and relying on concrete evidence rather than mere suspicion.

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