2016 (7) TMI 324 - AT - Income Tax

Entitlment to depreciation on the written down value as per Section 32 for the entire period - asset put to use - Held that - Admittedly the assessee has shown the production for an amount of ₹ 9900/- in the month of September 1996. (The records of central excise sales Range-1 on 28/09/1996, 29/09/1996 and 30/09/1996.) This register of excise was maintained by the assessee as mentioned by the Assessing Officer in the assessment order. Moreover, once it is submitted by the assessee that the block of assets have been put to use for a period of more than 180 days then the assessee is entitled to depreciation at the rate mentioned in Section 32 of the Act during the relevant assessment year. In our view, the failure of the Assessing Officer to ascertain the usage of plant and machinery in the month of September, 1996, cannot be a ground to disallow the depreciation for the period of more than 180 days. As per Section 32 of the Act, if the asset is put to use for a period of more than 180 days, then the assessee is entitled to depreciation on the written down value as prescribed by the Act. Since the assets were put to use for the period of more than180 days, therefore, the assessee is entitled to depreciation for full year. - Decided in favour of assessee Addition U/s 68 - investment in shares and unsecured loans received by the assessee company - Held that - Once the identity of the creditor has been established and there is no doubt about the genuineness of the transaction, therefore, the source of the source cannot be enquired by the Assessing Officer prior to 2003 amendment under section 68. Accordingly, the addition made with respect to Smt. Premlata Madhok is hereby directed to be deleted. Once the shares have been allotted to Shri Satish Kumar Bhayana and the address has been given then the Assessing Officer is duty bound to conduct the necessary inquiry U/s 131 of the Act to establish or disprove the identity of the person. Since the assessee has discharged the initial onus of disclosing the identity and address of the person, therefore, in our view the ingredients of Section 68 are met and the addition is required to be deleted. Accordingly, we delete the addition in respect of Shri Satish Kumar Bhayana. The identity of the person has been roved by the assessee, address has been provided and the amounts invested by Smt. Bhagyawati and Mr. Rakesh Malhotra were ₹ 50,000/- and ₹ 40,000/-, in our view, this were small amount and there is no positive evidence brought on record by the AO suggesting that these persons are not having means to file share application. In fact, the report suggests that Shri Rakesh Malhotra is a teacher in school, therefore, means of Shri Rakesh Malhotra cannot be doubted. Therefore, in our view the addition is required to be deleted. Accordingly, we delete the addition in respect of Smt. Bhagyawati and Mr. Rakesh Malhotra. Neither the address have been given in respect of this share applicant nor applicant was found as mentioned in the report of the Inspector nor the confirmation has been given by this share allottee. In our view, the assessee has failed to discharge his initial onus to prove the identity of the person, genuineness of the transaction and creditworthiness, therefore, the addition of ₹ 50,000/- in respect of Shri K.K. Nangia is hereby confirmed. Once the identity of the creditor has been established and there is no doubt about the genuineness of the transaction, therefore, the source of source cannot be enquired by the Assessing Officer. Accordingly, the addition made with respect to Shri Ashok Solanki is hereby directed to be deleted.

Issues Involved:
1. Disallowance of depreciation on Plant & Machinery.
2. Addition under Section 68 as cash credit for shares and loans.

Issue-wise Detailed Analysis:

Issue 1: Disallowance of Depreciation on Plant & Machinery

The assessee challenged the disallowance of depreciation amounting to ?29,18,090/- on Plant & Machinery. The Assessing Officer (AO) restricted the depreciation claim to 3/4th, citing that the machinery was not fully utilized before 30/09/1996. The CIT(A) further restricted it to 1/2, stating no evidence was provided to show production started on 28/09/1996.

Upon appeal, the Tribunal observed that the assessee showed production for ?9900/- in September 1996, as per the excise register. The Tribunal noted that once the assets are part of the block of assets and used for more than 180 days, full depreciation is allowable under Section 32 of the Act. The failure of the AO to ascertain the exact usage of machinery in September 1996 was not a valid ground for disallowance. Hence, the Tribunal allowed full depreciation for the year, reversing the CIT(A)'s decision.

Issue 2: Addition under Section 68 as Cash Credit for Shares and Loans

The AO added ?34,23,712/- under Section 68 for unexplained share applications and unsecured loans. The CIT(A) upheld this addition after detailed scrutiny of individual transactions.

Share Applications:

1. Premlata Madhok: The Tribunal found that her identity and transaction genuineness were established, and source of source inquiry was not applicable. Addition of ?25,000/- was deleted.

2. Satish Kumar Bhayana: Address provided, but no confirmation was obtained by AO. Tribunal held that the initial onus was discharged by the assessee. Addition of ?40,000/- was deleted.

3. Bhagyawati and Rakesh Malhotra: Identity proved, and small amounts invested. Tribunal found no positive evidence against their means. Additions of ?50,000/- and ?40,000/- were deleted.

4. Sardar Singh, Saroj Madan, Pankaj Madan, M/s Sarna Intl. (P) Ltd., Mr. Azad, Mrs. Azad, Miss Prerna: No addresses or confirmations provided. Tribunal upheld additions totaling ?5,25,000/-.

5. V.J.S. Chawla and Chinki Chawla: PANs provided, and identities established. Tribunal found insufficient enquiry by AO. Additions of ?25,000/- each were deleted.

6. K.K. Nangia: Identity not established, no confirmation. Tribunal upheld addition of ?50,000/-.

7. Ashok Solanki: Identity and genuineness established, source of source inquiry not applicable. Addition of ?7,44,162/- was deleted.

Unsecured Loans:

1. Essaar Investment: No address or confirmation provided. Tribunal upheld addition of ?2,00,000/-.

2. Shekhar: Address provided, but balance sheet showed he was a salaried employee with no loan capacity. Tribunal upheld addition of ?3,00,000/-.

3. H.R. Tyagi: Major discrepancies in balance sheets. Tribunal upheld addition of ?6,49,550/-.

4. R.P. Tyagi: Non-filer of income tax returns and unserved summons. Tribunal upheld addition of ?3,50,000/-.

5. Sunil Tyagi: Identity and confirmation established, transactions through banking channels. Tribunal deleted addition of ?2,50,000/-.

6. Umesh Tyagi: No reply to Inspector's inquiry, identity not established. Tribunal upheld addition of ?1,50,000/-.

Conclusion:

The Tribunal allowed the appeal partly, granting full depreciation for Plant & Machinery and deleting certain additions under Section 68 while upholding others based on the evidence and inquiries conducted.

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