9911796707
TMI Blog2022 (1) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (Act). All these appeals involve common issues and hence were taken together for hearing. We deem it convenient and proper to pass a common order. 2. First we shall take up for consideration ITA No. 1232/Bang/2005 as a lead case and this appeal by the Revenue against the order dated 31.5.2005 of CIT(A), Gulbarga, relating to AY 2002-03. 3. The issues that needs to be adjudicated in this appeal are as to whether the CIT(A) was justified in deleting the addition made by the AO by disallowing deduction of Capital Expenditure u/Section 35(1)(iv) read with section 35(2) of the Income Tax Act, 1961 (Act) of a sum of Rs. 10,13,29,425/- and whether the CIT(A) was justified in deleting the addition of Rs. 22,92,940/- towards depreciation on assets purchased during the relevant previous year. The Tribunal vide it's order dated 30.11.2009 reversed the order of the CIT(A) and restored the disallowance made by the AO. On appeal by the Assessee against the said order, the Hon'ble High Court of Karnataka in ITA No.140 of 2010 by order dated 1.10.2010 set aside the order of the Tribunal and remanded the issue for fresh consideration in accordance with law. After order of remand by the High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 97,39,738 8. M/S.Sri Mythili Enterprises Rs. 1,00,40,000 9. M/S.Reliable Engineering Co. Rs, 1,35,37,500 10. M/S.Srinivas Industries Rs. 1,07,00,000 Rs. 10,15,19,425 6. To verify the genuineness of the bills/invoices furnished by the Assessee in respect of capital expenditure incurred for R& D Purposes, the AO sent letters to 7 parties to confirm the purchase bills/invoices and also to file the ledger extract of the company. In response to the above letter confirmation letters were received from the 7 persons. Similar letters were sent by the Assessee to the remaining 3 parties also and out of the 3 two persons Srinivasa Industries and Mythili Enterprises did not send any reply. 7. The AO on verification of the Bills and invoices produced by the Assessee found some anomalies therein and therefore to verify the genuineness of the R& D activities carried on by the Assessee, a Survey u/s.133A of the Act was carried out on 24.2.2005 in the following business premises of the Assessee, viz., (i) Factory premises at Kolhar Industrial Area, Bidar; (ii) Factory premises at Cheriyal Village, Sanga Reddy Mandal, AP and (iii) Corporate Office at Secunderaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Veerabhadra Rao was available. He was confronted regarding purchase of Plant & Machinery for scientific research on which deduction was claimed u/s.35(2)(ia) of the Act. He admitted that the entire transactions shown under the head R & D expenditure are bogus and the parties from whom Plant & Machinery was claimed to have been purchased do not exist. He admitted to have made bogus claim for deduction as above and that the bills are all fabricated. 11. There were also admission that the entities which purported to supply machineries to the Assessee were floated by the Assessee in the name of its employees and payments for purchase of plant and machinery were routed through bank account of employees of the Assessee and returned to the Assessee through such accounts either in cash or through bank. 12. In the course of Survey, verification of the suppliers of Plant and Machinery at the address given in the bills and invoices was also carried out and the result of such verification yielded following results: 1. M/s Vision Metal: Plot No.11, Phase-IV Ida Jeedimetis Hyderabad It is ascertained that there is no such concern with that name exists in this address. A firm by name mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annexure-7 Revenue expenditure 28,693,750 As per Annexure-8 A.Y. 2004-05 R&D expenses 65 181,550 As per Annexure-9 A.Y. 2001-02 Capital expenditure P&M equipment purchase Meganet Engineering 35,231,412 As per Annexure-10 ESSEM Equiptech 29,787,282 Asper Annexure-10 Total 308,908,315 15. Another letter dated 18.3.2005 calling for explanation was also issued. Mr.R.Venkat Kalavakolanu, Chairman & MD sent a reply dated 25.3.2005 to the AO stating that the time allowed for compliance was too short and wanted another week's time to file a reply. The AO rejected the plea for grant of time and proceeded to hold that the expenditure claimed as deduction u/s.35(2)(ia) of the Act cannot be allowed, with the following observations: "The above letter received from Sri.Venkat. R.K are rejected on the following rounds: I. The sworn statement recorded from Shri T.V.Narasa Reddy, Vice President (Proj.) is in the normal course and no pressure is used against him. He has given the details about the working of the R&D and the inventory of the plant and machinery found at the factory itself is a proof that they have not invested Crores of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the goads are purchased nor received at the factory, hence the transport expenses are not claimed in the books of accounts. After verifying al! the details, bills / invoices, bank accounts, sworn statement of the employees and bogus confirmation letters it is found out that the entire claim of R&D expenses is false. The CMD and Shri P.Veerabhadra Rao, Vice President (Fin.) have knowingly planned in such a way to manipulate the accounts of the company and to defraud the revenue to avoid the taxes by claiming false expenditure for R&D purpose. The bills furnished when cross verified it is found out that they are non-existing firms, bills are fabricated according to their convenience and the payments are being paid not to the names mentioned in the bills but to their own bogus concerns and to their bank accounts. During the cross verification of bills and vouchers we have received some of the confirmation letters from the bogus parties. This also proves that the confirmation letters are received from non-existing firms which is also fabricated by Sri.P.Veerabhadra Rao himself. After summing up all the evidences collected to prove that the assessee has claimed false expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation / document used Date of receipt 1. Statement recorded on oath of Sri T.V.Narasa Reddy 30.3.2005 2. Statement recorded on oath of 30.3.2005 3. Statement recorded on oath of Smt. V.K.Saipriya 30.3.2005 4. Response of postal dept. in respect of service of letter on Srinivasa Ind. Through DCIT letter dt 18.3.2005, served on C&MD on 24.3.2005 (on hospital bed). 5. Response to postal department in respect of service of lettelr on Reliable Engg. 6. Response of postal Department in respect of service of letter on Mythili Enterp. 7. Response of postal department in respect of service of letter on Hi-tech Electr 8. Response of postal department in respect of service of letter on Raghavendra Enterpr. 9. Response of postal Department in respect of service of letter on Pionner Ind. Pr. 10. Response of postal department in respect of service of letter on Sindhu Traders 11. Statement recorded on oath of Sri P.S.Kutty 30.3.2050 12. Statement recorded on oath of Anil Kumar 30.3.2005 13. Response of postal dept. in respect of service of letter on Mecmain Engg Through DCIT letter dt. 18.3.2005 served on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these equipment are modified for as higher capacities where controls, service fittings, fines for the equipment changing all the tubes, pipe fittings for condensers. Hence, higher batches of Research and Development small volume production can be taken. Vice President (Prod.) is incharge of day to day production activities of the Company and has very negligible knowledge of the Research and Development activities undertaken by the Company which are highly confidential. The company is in to Research and Development for the last 10 years and developed many products earlier years also the company has claimed the research expenses and those assessments are already completed. During the assessment period we repeatedly informed to the assessing officer that these equipment are fabricated equipment, suppliers procure the required parts of the equipment in the market and they assemble the unit and delivery / install at the factory premises. Ours is a one of the only company in Asia to have consistently conducting research and development and introducing products based on peptide chemistry and advanced organic chemistry since the last 10 years. During the last 10 years the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly technical nature of research activities eg. the technical name of the asset as mentioned in the purchase bill / invoice may not always tally with its common name or regular usage name adopted by the workers. In industry , it is not uncommon to call a distillation column as evaporator / seperator or a heat exchanger as condenser. Similarly a purchase bill may describe an item as autoclave but it may still be called commonly as a reactor. In his submission dated 9.5.2005 ate CMD of i7ippellint co. has confirmed that equipments like glass set apparatus, analytical balances, Lyophilizers, cold chamber and clear rooms, analytical instruments, lab equipments and glassware do not normally have life more than 1 year, after continuous operations and hence are discarded for lack of further utility. Similarly after taking some R&D trials equipments like condensers, dryers, centrifuges, reactors etc. are modified as these are designed in such a way that they cater to the company's future developments in small volumes after R&D trials are over. Thus according to information given by appellant company these equipments are modified for higher capacities so that higher batches of R&D / or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions and were therefore not reliable. He also held that whatever be the deficiency in the statement like the person in charge of the affairs not knowing the name of suppliers or about machinery used for R & D etc., have to be ignored because the statements were obtained by exercising pressure. He accepted the retraction of the statement in the form of affidavit of the person who made statement at the time of survey retracting the same. He also held that the AO should have re examined all the persons in the course of assessment proceedings also. 8. Regarding the results of enquiry by the AO about the non existence of the suppliers of the plant and machinery, the CIT(A) held that the enquiries made by the AO were incoherent and inconclusive and therefore the inference drawn by the AO against the Assessee regarding the non existence of suppliers who did not respond to the query letter of the AO cannot be sustained. In this regard the CIT(A) also accepted the plea of the Assessee that the Assessee placed orders to main suppliers and they might have sub contracted to smaller suppliers who operate from time to time and that it is common that such small suppliers shift from one place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence I do not consider it necessary to quash the entire assessment order even when there are certain glaring instances of denial of natural justice to the appellant company. All the five grounds of appeal are answered in favour of appellant company. The A.O. is accordingly directed_ to grant suitable relief to the appellant company and after taking due note of the disallowance sustained at Rs. 1,56,470/-." On identical reasoning the disallowance of depreciation was also deleted. 20. Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal. As already stated the issues that was remanded for fresh consideration by the Hon'ble High Court is as to whether the CIT(A) was justified in deleting the addition made by the AO by disallowing deduction of Capital Expenditure u/s.Section 35(1)(iv) read with section 35(2) of the Income Tax Act, 1961 (Act) of a sum of Rs. 10,13,29,425/ and disallowance of depreciation of Rs. 22,92,940/-. The Official Liquidator through one N.Tatia & Associates, CA filed CO's in which they have reiterated the stand as reflected in the impugned order of CIT(A) deleting the addition made by the AO. We have already held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f payment by serving a letter dated.21.1.2004 to furnish the particulars in whose name the cheque was issued in respect of the machineries alleged to have been purchased from the suppliers situated in Secunderabad. Again by another letter dated 25.2.2004, he has specifically directed the assessee to furnish the details regarding the mode of payment made to the suppliers in respect of machineries, on 4.3.2004, personal appearance was made by Sri Srinath and Sri P.V. Rao on behalf of the assessee. No details were furnished by them as directed by the Assessing Officer. Even on 12.3.2004 they appeared and did not produce evidence regarding machineries purchased but he did not furnish the details regarding mode of payment, date of payment and bank details and further. Therefore, the Assessing Officer has addressed a letter to the two companies from whom the machineries alleged to have been purchased by the assessee to confirm the sale made to the payment, date of delivery and also the very complete nature and description of the machineries. As no confirmation came from the two companies, calling upon them to furnish the details another reminder letter dated 12.3.2004 was sent by the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the person incharge of R & D who made a request for purchase if necessary equipment and the details of the suppliers for supplying the machineries were needed and he was not interest in the formula or any other thing. 13. The Assessing Officer after appreciation of facts & material evidence on record produced by the assessee, he came to the right conclusion and held that the purchase of R & D machineries, they were required to be transported from Secunderabad, which is in Andhra Pradesh to the Karnataka State of Bidar. The provisions under Section 28A, 28AA, and 28B for transport of machineries are applicable for the check post entries,, payment of sale tax entry of the inter state sales tax paid by the Assessee and copy delivered to the check post. The above statutory documents certainly were required to be obtained by the Assessee. In addition to that, the particulars regarding documents in relation to the transit of goods by road to the State and issue of transit costs and check post and registration of transporter, the mode of transport and registration by the Transporter, furnishing those documents by the assessee to substantiate its claim. Without producing the above imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmation, if any, obtained from the companies who have sold The machineries to them. This has also not been done. The assessee was told about the returning of letters of two concerns from whom they purchased machineries and asked to furnish the correct address and also proper confirmations. The letters filed by the assessee on 12.3.2004 though bears letter pads of the two concerns, it is interesting to note that even no telephone number or nature of the proprietorship who signed the letter was available. In this background returns of letters by postal authorities give rise to a reasonable finding that the transactions are not normal and the assessee wants to hide the real facts. 15. The finding of fact recorded by the Assessing Officer in this order is after properappreciation of legal evidence on record by assigning proper and cogent reasons holding that the purchase of machineries and plant by the assessee from the vendor situated at Secunderabad, Hyderabad is not proved by it by producing valid documents of ownership to claim exemption under the provisions of the Act, which finding of fact of the Assessing Officer is found fault with by the Appellate Authorities stating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal of the revenue has to be allowed on the two issues remanded for consideration by the Tribunal. 23. We have considered the submissions and the material on record. The sequence of events in the course of assessment needs to be examined to find out whether the case made out by the AO can be sustained on the basis of probabilities. The Assessee did not file return of income voluntarily. A notice u/s.142(1) of the Act was issued by the AO on 6.3.2003 calling upon the Assessee to file return of income. The Assessee filed the return of income on 25.2.2004. The return was processed u/s.143(1) of the Act on 21.7.2004. Thereafter the case was selected for scrutiny and notice u/s.142(1) was issued on 21.7.20104 calling for books of accounts and another notice dated 17.11.2004 was issued u/s.143(2) calling for details. The AO issued notice u/s.133(6) of the Act between December, 2004 to January, 2005 calling for confirmation from the persons from whom the Assessee claimed that it had purchased machineries for R & D purposes. The AO on verification of bills and invoices furnished by the Assessee for purchase of machineries for R & D purposes noticed some anomalies and these are set out in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We agree with the submission that the order of the Hon'ble Karnataka High Court rendered on identical facts for AY 2001-02 is squarely applicable for AY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 of a sum of Rs. 18,01,687 being 25% of Rs. 72,06,746/- was disallowed by the AO. The CIT(A) allowed the claim of the Assessee for deduction and hence the appeal by the revenue before the Tribunal, raising the following grounds of appeal: 1. The Order of CIT(A) is opposed to Law and the facts of the case as brought out by the AO on various issues dealt by him in the Assessment Order after causing enquiries wherever possible. 2. The decision of CIT(A) in deleting the addition of Rs. 62,38,940 /- made by the AO out of Capital Expenditure claimed u/s35(2)(ia) for R&D activities, Rs. 2,86,93,750 /- under Revenue Expenditure for R&D activities, disallowance of depreciation on assets for non- production of receipts of Rs. 3,10,16,050 /- and disallowance of excess claim of depreciation of Rs. 19,76,778 /- are opposed to Law and facts of the case. 3. The CIT(A) has heavily relied upon the written submissions made by the assessee at the time of hearing without considering the ground fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usted employees-cum-vice presidents, who were faithful to the master were produced for re-verification and not other parities. 8. The CIT(A) has erred in allowing relief after giving a finding that investigation of the matter is at the half-investigated level. Before giving such a finding the CIT (A) using his inherent powers could have caused enquires/ investigations through the A.O.obtaining a remand report. 9. The CIT(A) has failed to appreciate the fact that summons u/s131 could not have been issued by the AO to the parties from whom P&M and other equipments were purchased for examination for want of correct and complete address as the letters sent for verification were returned and independent enquiries caused reveal that the parties did not exist at the given address. 10. The appellant craves leave to add, alter, amend or delete any of the grounds on or before the hearing of appeal. 28. In AY 2002-03, the revenue expenditure claimed by the Assessee u/s.35(1)(i) was allowed by the ITAT in it's order dated 30.11.2009 prior to the order of the Hon'ble Karnataka High Court dated 1.10.2010 remanding the issue of deduction u/s.35(2)(ia) of the Act to the tribunal pursuant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resses of party as per the bills furnished Details of outcome after making the enquiries 1. M/s. Swati Engineering, Plot No.75/3, Phase VI, Industrial Development Area, Jeedimetla, Hyderabad-500 055 Tel No. 23099449 Detail enquiries were made to locate such firm and its address but it could not be found. Enquiries with nearby residents to trace out the party also did not yield any fruitful result. The inmates of the said address could not identify any such party or any firm with such name. However, the phone number given by the assessee was found to be of a small time STD booth owner who over phone informed that some people about 3-4 years back have sought their phone number for which he consented but he informed that he is now not in touch with those people. When the enquiry team visited his office, he was not available as he has gone for taking some orders for soaps and chemicals which is his side business other than running the STD booth. Therefore it is clear that no such firm/agency ever functioned in the said addresss and that the assessee has fabricated bogus bills. Enquiries revealed that no such firm/agency ever functioned in the said address and that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove Same 09-10-02 3,924,000 6 Same as above Ultra Centrifuge 11-12-02 4,080,000 7 Same as above Stainless Steel Reaction Unit 28-01-03 5,068,800 8 Same as above Lab Instruments 15-03-03 6,853,125 9 Royal Engineering Corporation 4 Hari Bhavan, Sivaram Lalwani Road, Behind Jain Mandir, Mulund, Quality Control Instruments and Quality Assurance Instruments 16-06-02 5,304,000 10 Same as above S.S. Membrance Filters and Crystelisers 22-08-02 3,456,000 11 Same as above S.S. Heat Distillation Unit etc. Exchange, 13-10-02 5,035,200 12 Same as above Lyophilizer and laminar flow cabinets 21-12-02 5,670,900 13 Same as above Fluid Heaters ans MS 07-01-03 2,448,000 14 Panama Enterprises, G- 3, Dev Hira Complex, Near Telephone Exchange Road, Brine Chiller and Ultra Purification Water System equipments etc. 16-05-02 4,198,500 15 Same as above S.S. Condencer including pipeline _processor 12-06-02 5,736,000* 16 Same as above Sodium Block Equipments like glasslined reactor etc. 19-09-02 6,335,000 17 Same as above Pilot scale lab infrastructure and modulars 01-12-02 6,340,000 18 Same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RESPECT OF PURCHASES OF PLANT AND MACHINERY FOR Rs. 16,20,85,711/-. S. No. Name and address of seller Amount in Rs. Outcome of the enquiry conducted 1 M/s Deep Engineering Works, No.19, Nataraj Chambers, Bardan Street, Dane Pith, Rajkot 36,761,640 The enquiries revealed that no such firm is functioning in the said address. The name board were showing some other firms in the names of M/s Deep Traders,2) M/s Dream Enterprises and 3) M/s Master Sales Net Work. Enquiries revealed that the shop is owned by one Shri Jayesh Bhai who is doing mainlythe business of sale of biscuits and other bakery products. So, it is clear that no firm dealing in sale of plant and machinery is existing at such an address and never existed. 2 M/s Dream Enterprises, Sri Ram Park, Lane No.2, Kuvadva Road, Near Aashram, Rajkot 36,546,680. This address was found to be of a residential house outside the city limits. At the time of visit of enquiry team, no male member was present in the house. The lady informed that her husband Shri Jayesh Bhai is a small scale wholeseller in biscuits and confectioneries. Therefore as on date no such firm is existing and it never existed in the said remise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be bogus and therefore the AO disallowed 25% depreciation resulting in a disallowance of Rs. 24,02,248/- as depreciation in AY 2002-03. 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 of a sum of Rs. 18,01,687 being 25% of Rs. 72,06,746/- was disallowed by the AO. 36. The aforesaid four additions were deleted by the CIT(A) for identical reasons given by the CIT(A) in the appellate order for AY 2002-03 and by following the said order, which we have elaborately discussed while deciding the appeal of the Assessee for AY 2002-03. 37. The arguments advanced are identical to the one's advanced in the appeal for AY 2002-03. We have considered the same and are of the view that the conclusions arrived at in AY 2002-03 on identical issue will apply to the present AY 2003-04 also. For the reasons stated therein, we allow the grounds of the revenue with regard disallowance of deduction claimed by the Assessee u/s.35(2)(ia) of the Act of a sum of Rs. 1,62,38,940/- being Machinery & Plant claimed to have been acquired and used for Scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant previous year and such purchase partly were found to be bogus and therefore the AO disallowed 25% depreciation resulting disallowanceof depreciation in AY 2002-03 & 2003-04. The opening written down value (wdv) of the assets on which depreciation was claimed by the Assessee in AY 2002-03 & 2003- 04 on the same item of machinery had to be reduced and as a consequence the depreciation of a sum of Rs. 13,51,265 and 3,27,58,414 for AY 2002-03 & 2003-045 had to be disallowed by the AO. The CIT(A) allowed the claim of the Assessee for deduction as he held that the purchases were genuine and hence the appeal by the revenue before the Tribunal, raising the following grounds of appeal: 1. The Order of CIT(A) is opposed to Law and the facts of the case as brought out by the AO on various issues dealt by him in the Assessment Order after causing enquiries wherever possible. 2. The decision of CIT(A) in deleting the addition of Rs. 10,44,64.408/- under Revenue Expenditure for R&D activities, disallowance of depreciation on assets for non-production of receipts of Rs. 2,20,06,294 /-, disallowance of excess claim of depreciation of Rs. 13,51,265 /- and disallowance excess claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appreciated the fact of admission by the assessee that no Research Work was done by the Company coupled with the facts established by the AO that the purchase invoices are bogus, which goes against the assessee. 7.The CIT(A) has erred in coming to a finding that the AO after collecting information has not given opportunity to the assessee without appreciating the fact that an opportunity was provided by the AO which was not made use of fully by the assessee and only two of the trusted employees-cum-vice presidents, who were faithful to the master were produced for re-verification and not other parities. 8.The CIT(A) has erred in allowing relief after giving a finding that investigation of the matter is at the half-investigated level. Before coming to such a finding, the CIT (A) using his inherent powers could have caused enquires/ investigations through the A.O. by obtaining pa remand report. 9. The CIT(A) has failed to appreciate the fact that summons u/s131 could not have been issued by the AO to the parties from whom P&M and other equipments were purchased for examination for want of correct and complete address as the letters sent for verification were returned and inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is bogus. 2 M/s Prosol Scientific Instruments, No.1455, Phase IV, GIDC Industrial Area, Vatva Ahmedabad 28,037,200 The ITI could not find any such supplier. As no such supplier was found, efforts were made to locate by obtaining help from Office of Deputy Superintendent, GIDC, Vatva. On going through the address given in the bill, he informed that no such concern is functioning in the entire industrial area. After going through the area and site map of the entire industrial area, no such address such as plot number 1455 in Phase IV was found. As per the records available in the office of GIDC, Vatva Ahmedabad, the Phase-IV of the industrial area starts with plot number 4000. Therefore it is proved that the assessee has furnished a bogus bill with bogus plot number which never existed. Further here also the telephone number printed in the bill was found to be of a residential house. Therefore it is clearly proved that no such supplier is existing and ever existed. 3 M/s Labindia Instruments, Plot No,.1611, GIDC, Umbergaon, Gujarat 33,792,250 The ITI could not locate any such supplier in spite of making best efforts. With great difficulty, he could reach th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat office is functioning in the said address sinch a long time and no concern with such name has functioned there. The IT1 took the help of post office having jurisdiction over the area and came to know that the post office has not come across any such concern. It was therefore again proved that there is no such supplier and claim of the assessee is bogus. 43. The AO confronted the Assessee with the results of the enquiry and asked to show cause why the claim of depreciation on the addition to fixed assets during the previous year should not be disallowed. Since there was no response, the depreciation claim to the extent of Rs. 2,20,06,294/- was disallowed by the AO. 44. In AY 2002-03 & 2003-04, the Assessee claimed to have purchased assets during the relevant previous year and such purchase was found to be bogus and therefore the AO disallowed depreciation resulting in a disallowance of depreciation in AY 2002-03 & 2003-04. The opening written down value (wdv) of the assets on which depreciation was claimed by the Assessee in AY 2004- 05 on the same item of machinery had to be reduced and as a consequence the depreciation of a sum of Rs. 13,51,265/- and Rs. 3,27,58,414/- was di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee for depreciation of a sum of Rs. 2,14,68,445/-. In AY 2002-03 & 2003-04 & 2004-05, the Assessee claimed to have purchased assets during the relevant previous year and such purchase partly were found to be bogus and therefore the AO disallowed 25% depreciation resulting disallowanceof depreciation in AY 2002-03 & 2003-04 & 2004-05. The opening written down value (wdv) of the assets on which depreciation was claimed by the Assessee in AY 2002-03 & 2003-04 & 2004-05 on the same item of machinery had to be reduced and as a consequence the depreciation of a sum of Rs. 10,13,449, Rs. 2,45,68,811 and Rs. 3,17,86,843 for AY 2002-03 & 2003-04 & 2004-05 respectively had to be disallowed by the AO. The CIT(A) allowed the claim of the Assessee for deduction as he held that the purchases were genuine and hence the appeal by the revenue before the Tribunal, raising the following grounds of appeal: 1) The order of CIT(A) Hubli is opposed to law and facts of the case brought out by A.O. on various issues. 2) The decision of the CIT(A) in deleting the addition of Rs. 10,04,70,753 towards Revenue expenditure U/S 35(1)(i) of the Act for R&D activities, Depn. on Assets for non-production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to note here that the honourable high court of Karnataka, has upheld the decision of the A.O., for the Asst. year 2001-02, on similar issues decided the appeal in favour of Revenue. 10) The appellant craves to leave, add, alter, amend or delete any of the Grounds on or before hearing of Appeal. 50. In AY 2002-03, the revenue expenditure claimed by the Assessee u/s.35(1)(i) was allowed by the ITAT in it's order dated 30.11.2009 prior to the order of the Hon'ble Karnataka High Court dated 1.10.2010 remanding the issue of deduction u/s.35(2)(ia) of the Act to the tribunal pursuant to which we have rendered decision in the earlier part of this order. In the said order the Tribunal held that the revenue expenditure was incurred in the regular course of business and irrespective of the finding by the AO for the other capital expenditure, has to be allowed after due verification by the AO. This order of the Tribunal was not disturbed by the Hon'ble High Court in its order dated 1.10.2010. Therefore the deduction in so far as revenue expenditure incurred by the Assessee is concerned, the facts being identical to AY 2002-03, we direct the AO to verify the nature of expenditure to ens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions requiring initiation of penalty proceedings u/s 271(1)(c). As regards the claim of depreciation of Rs. 2,03,47,056/-is concerned, it has been elaborately discussed that the claims of new additions for plant and machinery have been immensely proved bogus in all preceding assessment years. Further the survey proceedings u/s 133A which is very much relevant for the financial year under consideration has also clearly proved that the assessee has not purchased any major plant and machinery. The assessee is having 2 factories at Bidar and in Village Cheriyal. If any plant and machinery is really purchased, the same can be installed either in factory situated at Bidar or in village Cheriyal. The factory incharge at Bidar Shri P.S. Kutty has admitted in his sworn statement that thereis no production activity at all in this factory since last more than 10 months. The production manager of the factory at village Cheriyal Shri T.V. Narsareddy clearly admitted in his sworn statement during the survey that the quantum of claim of purchase of plant and machinery are highly exxagerated. During the course of survey Shri T.V. Narsa Reddy was shown various bills towards purchases of plant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d are identical to the one's advanced in the appeal for AY 2002-03. We have considered the same and are of the view that the conclusions arrived at in AY 2002-03 on identical issue will apply to the present AY 2005-06 also. For the reasons stated therein, we allow the grounds of the revenue with regard disallowance of depreciation claimed on assets which were claimed to have been addition to the fixed assets during the relevant previous year by the Assessee of a sum of Rs. 2,14,68,445/- and upheld and restore the order of the AO. The addition of depreciation on account of opening wdv being revised owning to findings in AY 2002-03 & 2003-04 & 2004-05 that purchase of fixed assets to the extent was bogus and therefore the opening written down value (wdv) of the assets on which depreciation was claimed by the Assessee in AY 2005-06 on the same item of machinery had to be reduced and as a consequence the depreciation of a sum of Rs. 10,13,449, Rs. 2,45,68,811 and Rs. 3,17,86,843for AY 2002-03 & 2003-04 & 2204-05 respectively disallowed by the AO is also restored. 55. In the result, appeal of the Revenue is partly allowed. 56. ITA No.951/Bang/2009: This is an appeal by the Revenue aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passed by him. When the same were challenged before the Appellate Commissioner, the Appellate Commissioner by a detailed order, has chosen to hold that the appeals filed by the assessees are not maintainable in terms of section 249(4) of the Act. When the same was challenged before the Tribunal, the Tribunal has accepted the order passed by the Commissioner. Thus, we have to see as to whether the order of the Commissioner, confirmed in the appeal before the Tribunal is sustainable or not in terms of the material placed before us or in terms of the submission made by learned counsel for the assessees. Section 249 of the Act provides for "Form of appeal and limitation''. Section 249(4) of the Act would provide for payment of the tax due on the income returned by him for the purpose of admission of the appeal. The said section would read as under: "249.(4) No. appeal under this Chapter shall be admitted unless at the time of filing of the appeal -(a) Where a return has been filed by the assessee, the assessee has paid the tax due on the income retuned by him; or (b) Where no return has been filed by the assessee, the assessee has paid an amount equal to the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of the present case. In the said case, the ld 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). 59. In the result, appeal by the Revenue is allowed. ITA No. 990/Bang/2008: 60. This is an appeal by the Revenue against the order dated 11.3.2008 of CIT(A), Hubli, deleting the penalty imposed on the Assessee u/s.271(1) ( c) of the Act, in relation to AY 2002-03. 61. We have already seen the additions made in AY 2002-03 while dealing with the quantum appeal for AY 2002-03. In respect of the additions so made, the AO initiated penalty proceedings u/s.271(1)( c) of the Act vide notice dated 30.3.2005. All the additions made by the AO were deleted by the CIT(A) but the revenue had filed appeal against the order of CIT(A) in the quantum proceedings. The AO issued another show cause notice dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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