2020 (11) TMI 595 - AT - Income Tax

Bogus purchase of machinery - AO merely on the basis of enquiries conducted at the alleged premises of the supplier formed an opinion that it is a case of bogus purchase - HELD THAT - The assessee in order to prove the genuineness of the purchase has furnished invoice and the sanction letter of the bank. The assessee had financed the purchase and installation of the machine from Andhra Bank. The bank had certified that payments were made to. M/s. Span Enterprises, the vendor and M/s. Jupiter Graphics, who had installed the machine. This fact has not been rebutted by the Department. Machine was purchased during the financial year 2008-09 and Inspector visited the premises of the vendors in December, 2014. The possibility of vendors shifting the place of business in between cannot be ruled out. Further, we observe that no finding of fact has been recorded by AO that these parties never had their place of work at the given addresses. Thus, the right course to verify purchase and installation of machine was to visit the premises of the assessee, which the Inspector failed to do. Purchases alleged to be bogus is not a trading asset but a fixed asset. The purchase of fixed asset is not reflected in the P L Account, hence, the same was not claimed by the assessee as an expenditure. Once the expenditure has not been claimed, the same cannot be disallowed. No infirmity in the order of CIT(A) in deleting the addition qua alleged bogus purchase of machinery and allowing assessee s claim of depreciation on the same. - Decided against revenue. Validity of reopening of assessment - AO without disposing the objections by passing a reasoned order has proceeded to pass assessment order - HELD THAT - Hon ble Supreme Court of India in the case of G.K.N. Drive Shafts India Ltd. 2002 (11) TMI 7 - SUPREME COURT has laid down the procedure to be followed by the AO for disposal of the objections and also the time line for filing of objections by the assessee in the case of reopening of assessment. In the present case we find that after reasons were supplied to the assessee, the assessee had not filed any objections against aforesaid reasons for reopening. The objections as referred to at page 27 of the Paper Book are in fact not the objections. No specific ground has been taken by the assessee alleging deficiency in notice. Moreover, the so called objections by the assessee were prior in time to the furnishing of reasons by the Assessing Officer. No objections were filed by the assessee after receipt of reasons. A specific query was made to the ld. Authorized Representative for the assessee as to whether any objections were filed by the assessee after reasons for reopening were supplied by the Assessing Officer, to which the ld. Authorized Representative for the assessee replied in negative. - Decided against assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 148 of the Income Tax Act, 1961.
2. Alleged bogus purchase of machinery and disallowance of depreciation.
3. Condonation of delay in filing cross objections by the assessee.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 148:
The assessee challenged the reopening of assessment by filing cross objections. The assessee argued that the Assessing Officer (AO) did not dispose of the objections against the notice under section 148 by passing a reasoned order before proceeding with the assessment. The AO issued the notice on 07/02/2014, and the assessee responded on 07/04/2014, requesting the reasons for reopening and objecting to the notice. The AO provided the reasons on 07/07/2014. The Tribunal referred to the Supreme Court's decision in G.K.N. Drive Shafts India Ltd. vs. ITO, which mandates that objections to the reopening must be disposed of by a speaking order. However, the Tribunal found that the assessee did not file any objections after receiving the reasons for reopening. The objections referred to were prior to the reasons being furnished. Thus, the Tribunal dismissed the cross objections, finding no merit in the legal grounds raised by the assessee.

2. Alleged Bogus Purchase of Machinery and Disallowance of Depreciation:
The Revenue appealed against the CIT(A)'s order, which deleted the addition of ?57,36,933/- related to alleged bogus purchases and allowed the depreciation claim on the printing machine. The AO had reopened the assessment, suspecting bogus purchases from declared hawala dealers. Notices issued to the vendor M/s. Span Enterprises and installer M/s. Jupiter Graphics were returned unserved. The AO disallowed the cost of machinery, installation, and depreciation. The assessee defended the purchase, providing invoices, bank sanction letters, and evidence of payments made directly by Andhra Bank to the vendors. The Tribunal noted that the AO did not verify the existence of the machine at the assessee's premises. The Tribunal observed that the purchase of a fixed asset, not reflected in the P&L Account, cannot be disallowed if not claimed as an expenditure. The Tribunal upheld the CIT(A)'s order, finding no infirmity in deleting the addition and allowing depreciation, and dismissed the Revenue's appeal as meritless.

3. Condonation of Delay in Filing Cross Objections:
The assessee's cross objections were filed 167 days late, attributed to the death of the assessee, Shri Natwar B. Waghela. The Tribunal examined the affidavit and found the delay to be bona fide and not deliberate. Consequently, the delay was condoned, and the cross objections were admitted for hearing along with the Revenue's appeal.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross objections. The order was pronounced beyond the 90-day period due to the COVID-19 lockdown, which was considered an extraordinary circumstance. The Tribunal referenced a coordinate Bench's decision, which allowed for the exclusion of the lockdown period from the 90-day pronouncement rule. The final order was pronounced on 27th July 2020.