2015 (3) TMI 645 - AT - Income Tax

Disallowance u/s 69C - @ 2% of bogus billing as unexplained expenditure - CIT(A) restricting the disallowance lowing the order of his predecessor for the earlier assessment years on the same issue - Held that - The facts are not in dispute inasmuch as it is also not in dispute that the A.O. has accepted the purchases and sales as disclosed by the assessee and has not rejected the books of accounts as maintained by the assessee. While making the addition of undisclosed commission of ₹ 2,51,698/-, the A.O. has relied upon the statement of Mr. K.K. Gupta recorded on oath by the DDIT (Inv.) on 25-7-2007 u/s 131 of the Act. However, during the course of assessment proceedings it was stated by the assessee that at the time of statement recorded by the DDIT (Inv.) it was inter alia stated by the assessee that unless all facts with respect to the statement made by Mr. Gupta were given, proper cross examination could not be carried out and hence right to cross examination was reserved. However, during the course of assessment, the assessee has asked for the cross examination which was denied by the A.O. on the ground that the same is untenable and unacceptable. In absence of any contrary material placed on record by the Revenue to show that the cross examination of Mr. K.K. Gupta was provided to the assessee, we respectfully following the ratio of precedents of the earlier years and keeping in view that the assessee in his submissions dtd. 19-12-2008 stated that he is showing profit ranging between 40 to 45% on the purchases has not been uncontroverted by the Revenue even at this stage and also keeping in view the books of accounts have not been rejected, we are of the view that the ld. CIT(A) was not justified in sustaining the addition of commission of ₹ 2,51,698/- and accordingly we delete the same. The grounds taken by the assessee are, therefore, allowed. we uphold the order of the CIT(A) sustaining the commission payment at the rate of 0.25% instead of 2%. - Decided against revenue. Disallowance of depreciation on plant and machinery - CIT(A) deleted disallowance - Held that - It is not the case of the Revenue that the plant and machinery were not installed at the assessee s business premises or the same were not used for the purpose of the business of the assessee or the rate of depreciation claimed by the assessee is not according to the Rules, we are of the view that the estimated disallowance of depreciation made by the A.O. is not sustainable in law and accordingly we are inclined to uphold the findings of the ld. CIT(A) in deleting the same. Thus following the earlier years decisions, we uphold the order of the CIT(A) deleting the disallowance of depreciation - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of unexplained expenditure under Section 69C.
2. Disallowance of depreciation on over-invoiced assets.

Issue-wise Detailed Analysis:

1. Disallowance of Unexplained Expenditure under Section 69C:

The Revenue challenged the CIT(A)'s decision to restrict the disallowance of Rs. 1,39,33,163/- under Section 69C to Rs. 17,41,645/-, arguing that the CIT(A) erred by following a precedent where the commission on bogus bills was determined at 0.25%, despite no evidence of such commission being charged during the relevant assessment year.

The brief facts reveal that a search and seizure operation under Section 132 was conducted, uncovering that the assessee-company had transactions with concerns managed by Shri Praveen Jain and Shri Krishna Kumar Gupta. The AO noted that these transactions involved accommodation entries, estimating a 2% commission on sales, resulting in an addition of Rs. 1,39,33,163/- as unexplained expenditure. However, the CIT(A) reduced this to 0.25% based on earlier years' findings, where it was established that Mr. K.K. Gupta charged a 0.25% commission for bogus bills.

The CIT(A) observed that no evidence was found during the search to prove that Shri Praveen Jain charged a commission. Despite this, based on the preponderance of probability, it was assumed that a commission was charged. The AO's basis for a 2% commission was not substantiated, leading the CIT(A) to align with the 0.25% rate from previous years.

The Tribunal upheld the CIT(A)'s decision, noting that the department had not appealed the 0.25% commission rate in previous years, and the assessee had not challenged it for the current year. The Tribunal emphasized that the AO's reliance on statements without providing cross-examination to the assessee was unjustified, referencing the Supreme Court's ruling in Kishinchand Chellaram v. CIT. Consequently, the Tribunal dismissed the Revenue's ground on this issue.

2. Disallowance of Depreciation on Over-Invoiced Assets:

The Revenue contested the CIT(A)'s deletion of the disallowance of depreciation on capital goods, which the AO claimed were over-invoiced. The AO had disallowed 35% of the depreciation on assets purportedly purchased from concerns associated with Shri Krishna Kumar Gupta, following a similar approach in earlier assessment years.

The CIT(A) and Tribunal found that the assessee had provided substantial evidence of the genuineness of the purchases, including due diligence reports, installation reports, and High Court records. The Tribunal noted that the AO's disallowance was arbitrary and lacked a factual basis, as the assets were verified and used for business purposes.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the Revenue had not provided any distinguishing evidence to contradict the findings. The Tribunal confirmed that the disallowance of depreciation was not sustainable, dismissing the Revenue's ground on this issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The disallowance of unexplained expenditure was restricted to 0.25% of the sales, and the disallowance of depreciation on over-invoiced assets was deleted, following the precedents set in earlier assessment years. The order was pronounced in the Open Court on March 10, 2015.