2010 (8) TMI 67 - HC - Income Tax

Claim of depreciation - proof of purchase of assets - AO disallowed the depreciation on the ground that the bills of purchase of assets were not produced. - Held that - the vouchers for all fresh purchases during the relevant years were furnished to the Assessing Officer and the balance addition was out of capital work in progress outstanding in the books as on 31st March, 1996 under the head fixed assets - the money was in fact spent by the assessee in purchasing of those fixed assets - order of CIT(A) and ITAT allowing depreciation maintained.

Summary

Issues:
1. Depreciation allowance on certain assets for assessment years 1997-98 and 1998-99.

Analysis:
The judgment involves two appeals concerning the assessment years 1997-98 and 1998-99, stemming from a common order by the Income Tax Appellate Tribunal. The primary issue in the assessment year 1997-98 pertains to the depreciation allowance on specific assets claimed by the assessee but disallowed by the Assessing Officer due to the absence of purchase bills. The core question raised is whether the Tribunal was justified in allowing depreciation despite the lack of evidence presented to the Assessing Officer.

The Assessing Officer disallowed depreciation on assets such as factory building, plant and machinery, and self-fabricated machinery, totaling Rs. 87,52,367, as the necessary vouchers were not produced by the assessee. While certain vouchers were provided for machineries, substantial amounts remained unsupported. The CIT (Appeals) upheld the depreciation claim by stating that all fresh purchase vouchers were submitted, and the remaining addition was from capital work in progress. However, both the Tribunal and CIT (Appeals) failed to provide a detailed rationale or discussion on how the funds were utilized for purchasing fixed assets and their intended use during the relevant assessment year.

Consequently, the High Court set aside the orders of the CIT (Appeals) and ITAT, directing a reevaluation of the case with a thorough examination of the expenditure on fixed assets and their intended utilization. The matter was remitted back to the CIT (Appeals) for detailed consideration and issuance of speaking orders. Additionally, since the assessee was undergoing liquidation, the High Court mandated the issuance of a notice to the Official Liquidator possessing the relevant records before further proceedings could take place.