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2022 (1) TMI 787 - AT - Income TaxDisallowing deduction of Capital Expenditure u/Section 35(1)(iv) read with section 35(2) - disallowance of depreciation on assets purchased during the relevant previous year - CIT-A deleted the addition - HELD THAT - CIT(A) deleted the addition made purely on the basis that the AO did incomplete enquiry. There was no material whatsoever produced by the Assessee to disprove the conclusions drawn by the AO and positively prove that it purchased machineries in question for R D and that it carried out R D activities. In such circumstances the CIT(A) in our view fell into an error in deleting the addition made by the AO. Perusal of the order of the CIT(A) reveals that the CIT(A) has made observations that the AO could have adopted a better course than what he did but does not go further and call upon the Assessee to produce evidence to substantiate its case. We therefore find force in the contention of the learned DR that the CIT(A) without any valid evidence that the machineries existed and that R D was carried out by the Assessee merely allowed the claim of the Assessee on the basis of a finding that incomplete enquiries were made by the AO. As rightly submitted by him there was not a shred of evidence filed by the Assessee even before CIT(A) to establish with cogent evidence as to how the conclusions of the AO based on outcome of Survey proceedings and enquiries from the purchasers and their whereabouts were not correct. Without such evidence the CIT(A) ought not to have deleted the addition made by the AO. The reference to invoices and description of machineries mentioned therein is of no avail because the invoices were found to be bogus and the machineries found not existing at the time of survey. The CIT(A) has wrongly placed the burden of proving that the Assessee did not carry out R D on the Revenue when it was on the Assessee to prove its case. CIT(A) is not sustainable and the same is reversed and the order of the AO is restored on this issue. The reasoning for restoring the addition made by the AO disallowing deduction u/s.35(2)(ia) of the Act will equally apply to the disallowance of depreciation also and that addition is also restored - Decided in favour of revenue. Addition of depreciation on account of opening wdv being revised owning to findings in AY 2002-02 that purchase of fixed assets was bogus and therefore the opening written down value (wdv) of the assets on which depreciation was claimed by the Assessee in AY 2003-04 on the same item of machinery had to be reduced and as a consequence the depreciation being 25% was disallowed by the AO is also restored. CIT(A) ought not to have admitted the appeal for adjudication because the Assessee had not paid the tax due on the income admitted in the return of income and therefore in terms of Sec.249(4)(a) - HELD THAT - As relying on case of D. Komalakshi 2006 (11) TMI 155 - KARNATAKA HIGH COURT wherein CIT(A) had admitted the appeals despite the fact admitted taxes on income returned was not paid and therefore the said appeal was not maintainable in the light of section 249(4) of the Act. We therefore quash the order of the CIT(A) and allow the appeal of the Revenue and restore the order of the AO. The other grounds of appeal does not require any adjudication in view of the decision regarding maintainability of appeal before CIT(A). Penalty u/s 271(1)(c) - HELD THAT - Out of four additions only two additions viz. disallowance of deduction u/s.35(2)(ia) and Disallowance of depreciation survive after the order of ITAT and Hon ble High Court order in the quantum proceedings. The circumstances under which the additions were made clearly show that the Assessee had concealed particulars of income especially in the light of Explnation-1 to Sec.271(1) of the Act. The Assessee has not discharged his onus that lay on him in law. The CIT(A) is not right in holding that concealment has to be proved beyond doubt before imposing penalty u/s.271(1)(c) of the Act. In the circumstances we restore the order imposing penalty in respect of the aforesaid two additions that survive after the quantum proceedings.
Issues Involved:
1. Disallowance of deduction of Capital Expenditure under Section 35(1)(iv) read with Section 35(2) of the Income Tax Act, 1961. 2. Disallowance of depreciation on assets purchased during the relevant previous year. 3. Validity of the cross objections filed by the Assessee. 4. The genuineness of the capital expenditure and the existence of the suppliers. 5. The legality of the survey conducted by the AO. 6. The validity of the appeal admitted by CIT(A) without the Assessee paying the tax due on the income admitted in the return of income. 7. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance of Deduction of Capital Expenditure: The Tribunal examined whether the CIT(A) was justified in deleting the addition made by the AO by disallowing the deduction of Capital Expenditure under Section 35(1)(iv) read with Section 35(2) of the Income Tax Act, 1961, amounting to ?10,13,29,425/-. The AO had disallowed the deduction on the grounds that the Assessee's claim was based on fabricated and bogus bills from non-existent suppliers. The Tribunal found that the CIT(A) allowed the deduction without substantial evidence from the Assessee proving the genuineness of the expenditure. The Tribunal concluded that the CIT(A) erred in allowing the deduction based on the AO's incomplete enquiry and reversed the CIT(A)'s order, restoring the AO's disallowance. 2. Disallowance of Depreciation on Assets: The Tribunal also addressed whether the CIT(A) was justified in deleting the disallowance of ?22,92,940/- towards depreciation on assets purchased during the relevant previous year. The AO had found that the suppliers of the machinery could not be traced, and the machinery was not found during the survey. The Tribunal held that the CIT(A) had wrongly placed the burden of proof on the Revenue and restored the AO's disallowance of depreciation. 3. Validity of Cross Objections Filed by the Assessee: The cross objections filed by the Assessee through Chartered Accountants N.Tatia & Associates were dismissed by the Tribunal on the grounds that they were purely supportive of the CIT(A)'s order, not duly authorized by the Official Liquidator, and not maintainable as these proceedings were pursuant to a remand by the Hon’ble Karnataka High Court. 4. Genuineness of Capital Expenditure and Existence of Suppliers: The Tribunal examined the AO's findings from the survey and the enquiries made to verify the genuineness of the capital expenditure and the existence of the suppliers. The AO had found that the suppliers were non-existent and the transactions were fabricated. The Tribunal upheld the AO's findings and concluded that the Assessee failed to prove the genuineness of the capital expenditure. 5. Legality of the Survey Conducted by the AO: The Assessee contended that the survey conducted by the AO was illegal as it was conducted outside the AO's territorial jurisdiction. The Tribunal did not find merit in this contention and upheld the findings of the survey. 6. Validity of Appeal Admitted by CIT(A) Without Payment of Tax: For AY 2006-07, the Tribunal found that the CIT(A) admitted the appeal without the Assessee paying the tax due on the income admitted in the return of income, which was a mandatory requirement under Section 249(4)(a) of the Income Tax Act. The Tribunal quashed the order of the CIT(A) for non-compliance with Section 249(4)(a). 7. Imposition of Penalty under Section 271(1)(c): The Tribunal addressed the imposition of penalty under Section 271(1)(c) for AY 2002-03. The AO had imposed the penalty for concealment of income based on the disallowance of deductions and depreciation. The CIT(A) had cancelled the penalty, but the Tribunal restored the penalty for the disallowance of deduction under Section 35(2)(ia) and the disallowance of depreciation, as the Assessee failed to discharge the onus of proving the genuineness of the claims. Conclusion: The Tribunal allowed the Revenue's appeals to the extent remanded by the Hon’ble High Court and partly allowed the other appeals, restoring the AO's disallowances and the penalty imposed under Section 271(1)(c). The cross objections filed by the Assessee were dismissed.
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