2022 (3) TMI 135 - AT - Income Tax

Addition of depreciation - assessee has not filed any appeal against the order passed u/s 143(1) as well as against the assessment framed u/s 143(3) and thus the right of the assessee got forfeited - CIT-A deleted the addition - HELD THAT - We find that the Ld. CIT(A) has correctly allowed the appeal of the assessee by directing the AO to rectify the mistake which has resulted from denial of depreciation to the assessee. We also note that the AO while passing the original assessment as well as assessment in the set aside proceedings has taken wrong figure of total income declared as per return of income filed on 25.09.2010 i.e. 18, 51, 900/- as against the correct figure of 3, 96, 310/-. In view of this we do not find any infirmity in the order of CIT and accordingly same is hereby upheld by dismissing ground no. 1 of the revenue s appeal. Unexplained revenue receipts - assessee has introduced cash out of undisclosed source of income in the guise of business income - CIT-A deleted the addition - HELD THAT -We find that the Ld. CIT(A) has duly considered all the facts on record including correspondences from various parties who have made payments to the assessee on account of works carried out during the year. In the case of HCC Ltd. the said company has given contradictory replies which cannot be treated as reliable. Ld. CIT(A) also noted that the payment has been received from HCC Ltd. By referring to the payment memo of HCC Ltd. which demonstrates the payment by HCC in excess payment than reported by HCC Ltd. In response to reply filed to notice issued u/s 133(6) of the Act. Therefore the revenue reported by the assessee cannot be treated as unexplained revenue on the basis incorrect and contradictory evidences filed by HCC Ltd. CIT(A) noted that the assessee has accounted for the revenue which inter alia included security deposit also. Similarly the assessee has received payments which have been duly accounted for and a finding of facts has been given by the ld CIT(A) to thus effect. Besides the assessee has reported a receipts as revenue arising from small works contracts which were not liable for deduction of tax at source u/s 194C of the Act and therefore not reportable in form 26AS. The Ld. CIT(A) also noted that there is no cash deposits in the bank account and therefore no adverse information can be drawn - CIT-A estimated the profit @ 8% on small contracts of 15, 96, 701/- as suppression of profit cannot be ruled out and thus sustained the addition to the tune of 1, 27, 736/-. Taking all these facts into consideration in totality we do not find any infirmity in the order of the Ld. CIT(A) - Decided against revenue. Undisclosed bills receivable during the year - HELD THAT - CIT(A) allowed the appeal of the assessee by giving a finding of facts that that 1, 22, 73, 108/- as calculated by the AO is in fact is part of opening debtors which have also considered while framing the assessment for A.Y. 2009-10 and there is no closing debtors for the current years. The Ld. CIT(A) also referred to the replies received from various parties namely HCC Coal Mines and OCC Ltd. and recorded a finding that all these balances were already considered in the opening debtors which have also been duly shown in the books of accounts of the assessee. We find that the AO has factually committed a mistake as making the addition on account of receivables which have in fact been recorded by the assessee in his books of accounts in A.Y. 2009-10. We also not that the ld CIT(A) has recorded a finding to this effect while allowing the appeal of the assessee on this ground. Decided against revenue.

Summary

Issues Involved:
1. Deletion of disallowance of ?14,55,585/- towards depreciation.
2. Deletion of addition of ?60,54,990/- on account of unexplained revenue receipts.
3. Deletion of addition of ?1,22,73,108/- under the head undisclosed bills receivable.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of ?14,55,585/- Towards Depreciation:

The revenue's first ground of appeal contested the deletion of the disallowance of ?14,55,585/- towards depreciation by the CIT(A). The assessee's return of income was initially processed under section 143(1), wherein the depreciation claim was rejected, leading to an incorrect income figure of ?18,51,900/-. The case was later selected for scrutiny and assessed under section 143(3), where the income was further adjusted to ?20,01,900/-. The CIT(A) found that the correct income declared by the assessee was ?3,96,310/-, not ?18,51,900/-, and that the disallowance of depreciation was incorrect. The CIT(A) justified the allowance of depreciation by referring to Explanation 5 to Section 32(1) and a Coordinate Bench decision, which mandates granting depreciation irrespective of whether it was claimed in the return. The Tribunal upheld the CIT(A)'s decision, noting that the AO had consistently used the wrong income figure and failed to justify the disallowance of depreciation.

2. Deletion of Addition of ?60,54,990/- on Account of Unexplained Revenue Receipts:

The second issue involved the deletion of an addition of ?60,54,990/- made by the AO on account of unexplained revenue receipts. The AO had compiled details from various sources, including replies to notices issued under section 133(6). The CIT(A) found discrepancies and contradictions in the information provided by HCC and other parties. The CIT(A) accepted the revenue reported by the assessee, which included amounts not liable for TDS under Section 194C and thus not reflected in Form 26AS. The CIT(A) also noted that there were no cash deposits suggesting unaccounted cash. However, the CIT(A) estimated an 8% profit on small contracts, sustaining an addition of ?1,27,736/-. The Tribunal upheld the CIT(A)'s order, agreeing that the revenue reported by the assessee could not be treated as unexplained based on unreliable evidence from third parties.

3. Deletion of Addition of ?1,22,73,108/- Under the Head Undisclosed Bills Receivable:

The third issue pertained to the deletion of an addition of ?1,22,73,108/- made by the AO for undisclosed bills receivable. The AO calculated this amount based on replies from three parties. The CIT(A) found that this amount was part of the opening debtors already considered in the previous assessment year (A.Y. 2009-10) and not closing debtors for the current year. The CIT(A) referred to the replies from HCC, Coal Mines, and OCC Ltd., confirming that these balances were already recorded in the assessee's books. The Tribunal agreed with the CIT(A)'s findings, noting that the AO had erroneously added receivables already accounted for in the previous year, and upheld the CIT(A)'s decision.

Conclusion:

The Tribunal dismissed the revenue's appeal on all grounds, upholding the CIT(A)'s order in its entirety. The Tribunal found no infirmity in the CIT(A)'s detailed and fact-based findings, which correctly addressed the issues of depreciation disallowance, unexplained revenue receipts, and undisclosed bills receivable. The appeal was dismissed, and the order was pronounced in the open court on 23.02.2022.