2020 (1) TMI 838 - AT - Income Tax

Depreciation on tangible assets denied - addition on the basis of statement recorded during the survey proceeding u/s. 133A - whether on the basis of survey conducted by the Income Tax Department claim of the assessee for depreciation should be allowed or not? - HELD THAT - When we specifically asked about the payment made in order to purchase machinery. Ld. A.R. shown us the payment detail and they were made through banking channels and relevant details of the said payment were shown to us and list of suppliers with invoices of machinery purchased were also submitted before the lower authorities. And ledger account of M/s. Vimpsan Precision Pvt. Ltd. was also submitted before the lower authorities. Apart from that reconciliation chart of plant and machinery with Dalal Mott Macdonald report were also submitted to the effect that machines were very much there and inspection was duly carried out by the surveyor. And Valuation Report certificate dated 26.05.2003 wherein before granting loan IDBI Bank carried out inspection and Valuation Report was duly prepared wherein details of all the machines were given. Assessee requested AO to carry out the physical inspection of the machines. But ld. A.O. did not bother to inspect the same for the reason that ITAT did not give him direction to physically inspect the machines wherein in department appeal filed before the ITAT directed the ld. A.O. that he shall pass reasoned order by giving reasonable sufficient opportunity to the assessee considering the valuation report of Dalal Mott Macdonald and the evidences produced by the assessee for purchase of tangible assets. As we can see, ld. A.O. did not bother to carry out the physical inspection and valuation report of Dalal Mott Macdonald and did not consider evidences such as photograph of the plant and machinery submitted before the ld. A.O. in pursuant to the ITAT direction. We draw support from the case of CIT vs. S. Khader Khan Son 2013 (6) TMI 305 - SC ORDER wherein has held that only on the basis of statement recorded during the survey proceeding u/s. 133A cannot be basis of addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on tangible assets.
2. Verification of purchase bills and payment to suppliers.
3. Consideration of further valuation reports.
4. Opportunity for cross-examination of statements recorded during the survey.
5. Levy of interest and initiation of penalty under various sections of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Tangible Assets:
The primary issue in these appeals is the disallowance of depreciation amounting to ?9,27,36,250 on tangible assets. The Assessee argued that the CIT(A) erred in confirming the AO's action of disallowing depreciation without proper verification. The Tribunal noted that the matter had been remanded previously with specific directions to the AO to reconsider the depreciation claim based on the Dalai Mott MacDonald valuation report and other evidence. The Tribunal found that the AO did not comply with these directions and failed to inspect the machines or consider the valuation report adequately. Consequently, the Tribunal allowed the appeal on this ground, emphasizing that the depreciation claim should be reconsidered based on the provided evidence and the valuation report.

2. Verification of Purchase Bills and Payment to Suppliers:
The Assessee contended that the CIT(A) confirmed the disallowance without verifying purchase bills or payments to suppliers, as directed by the ITAT. The Tribunal observed that the AO had relied on the survey report and statements recorded during the survey without granting the Assessee an opportunity to cross-examine the statements. The Tribunal emphasized that the AO should have verified the purchase bills and payments, and the disallowance could not be justified solely based on the survey report. The Tribunal directed the AO to reconsider the depreciation claim after proper verification of the purchase bills and payments.

3. Consideration of Further Valuation Reports:
The Assessee argued that the CIT(A) did not consider further valuation done by Shri Mukesh M Shah, dismissing it as a self-serving document. The Tribunal noted that the valuation report by Dalai Mott MacDonald, which was found during the survey, corroborated the existence of the assets. The Tribunal held that the CIT(A) should have taken cognizance of the valuation report and directed the AO to evaluate the claim of depreciation considering all relevant valuation reports and evidence.

4. Opportunity for Cross-Examination of Statements Recorded During the Survey:
The Assessee claimed that the CIT(A) confirmed the disallowance without granting an opportunity to cross-examine the statements recorded during the survey. The Tribunal agreed with the Assessee, stating that unless cross-examination is allowed, the statements cannot be used as evidence against the Assessee. The Tribunal directed the AO to allow cross-examination of the statements and reconsider the depreciation claim accordingly.

5. Levy of Interest and Initiation of Penalty:
The Assessee raised grounds relating to the levy of interest under sections 234A, 234B, 234C, and 234D of the Income Tax Act and the initiation of penalty under section 271(1)(c). The Tribunal noted that these issues are consequential and need not be adjudicated separately as the primary issue of depreciation disallowance had been resolved in favor of the Assessee. The Tribunal provided relief to the Assessee, rendering the grounds related to interest and penalty moot.

Conclusion:
The Tribunal allowed all four appeals filed by the Assessee, directing the AO to reconsider the depreciation claim on tangible assets based on proper verification of purchase bills, payments, and valuation reports, and to grant the Assessee an opportunity for cross-examination of statements recorded during the survey. The issues related to the levy of interest and initiation of penalty were deemed consequential and not separately adjudicated.