ACIT CEN CIR 8, MUMBAI V. SPANCO LTD, MUMBAI

ITA 1128/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88443 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 03-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Keywords: Rejection of books of accounts; Unexplained expenditure; Capital asset; Depreciation; Search and seizure; Accommodation entries
• Section: 69C; 143(3); 153A; 131; 132

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI . , , , BEFORE SHRI D KARUNAKARA RAO , A M AND SHRI AMIT SHUKLA , J M ITA NO. 1128 /MUM/201 2 : ASST.YEAR 200 7 - 200 8 THE ASST. COMMISSIONER OF INCOME - TAX CENTRAL CIRCLE 8 MUMBAI. / VS. M/S.SPANCO LIMITED B - 22, KRISHNA BHAVAN B.S.DEOSHI MARG, DEONAR MUMBAI 400 088. PAN : AAACK9555D . ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : SHRI KISHAN VYAS [CIT - DR] /RESPONDENT BY : SHRI VIJAY MEHTA / DATE OF HEARING : 1 0.03.2015 / DATE OF PRONOUNCEMENT : 10. 03.2015. / O R D E R PER AMIT SHUKLA (JM) : THE AFORESAID APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAINST THE ORDER DATED 15.11.2011 , PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - 37 , MUMBAI [CIT(A)] , FOR THE QUANTUM PROCEEDINGS U/S 143(3) R.W.S. 153A , FOR THE ASSESSMENT YEAR 2007 - 2008 , ON THE FOLLOWING GROUNDS OF APPEAL . 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF RS.1,39,33,163/ - U/S 69C @ 2% OF BOGUS BILLING AS UNEXPLAINED EXPENDITURE TO RS.17,41,645/ - FOLLOWING THE ORDER OF HIS PREDECESSOR FOR THE EARLIER ASSESSMENT YEARS ON THE SAME ISSUE CONSIDERING THE STATEMENT OF ONE MR.K.K.GUPTA CONFESSING CHARGING OF COMMISSION @ 0.25% ON BOGUS BILLS WITHOUT DIFFERENTIATING THE FACT UAL POSITION THAT THE SAID MR./GUPTA DID ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 2 NOT PROVIDE ANY BOGUS BILL DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2007 - 2008 AND THE RATIO OF .25% WAS NOT APPLICABLE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION IN RESPECT OF PORTION OF VALUE SHOWN IN THE BOOKS WHICH REPRESENTED OVER INVOICING OF ASSETS AS DETECTED DURING THE COURSE OF SUR VEY AND IN RESPECT OF WHICH THE LD.CIT(A) CONFIRMED THE ADDITION ON COMMISSION PAID FOR SUCH BOGUS BILLS. 2. AT THE OUTSET, THE LEARNED COUNSEL SUBMITTED THAT THE ISSUE RAISED BY THE DEPARTMENT IN GROUND NOS.1 AND 2 ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE EARLIER ORDER OF THE CIT(A) AS WELL AS THE TRIBUNAL. 3. BRIEF FACTS OF THE CASE ARE THAT A SEARCH AND SEIZURE ACTION U/S 132 WAS CONDUCTED IN THE CASE OF THE ASSESSEE - COMPANY AND ITS GROUP CONCERNS ON 18.02.2009. DURING THE COURSE OF SEARCH PROCEED INGS, IT WAS DETECTED THAT THE ASSESSEE - COMPANY HAD ENTERED INTO TRANSACTION WITH A CONCERN MANAGED BY ONE, SHRI PRAVEEN JAIN AND OTHER CONCERN MANAGED BY SHRI KRISHNA KUMAR GUPTA. DURING THE YEAR, THE ASSESSING OFFICER (AO) NOTED THAT THE ASSESSEE HAD MAD E PURCHASES OF RS.66,62,95,692 AND HAS MADE SALE OF RS.69,66,58,158, WHICH WERE ARRANGED BY THESE PARTIES. THE AO NOTED THAT AS IN THE EARLIER YEAR, IT WAS FOUND THAT THESE PERSONS WERE PROVIDING ACCOMMODATION ENTRIES, AND THEREFORE, COMMISSION PAID FOR OB TAINING THESE ACCOMMODATION ENTRIES WAS ESTIMATED AT 2% OF THE SALES AND ACCORDINGLY , ADDITION WAS MADE ON ACCOUNT OF UNEXPLAINED EXPENDITURE U/S 69C. IN THIS YEAR ALSO, THE AO ESTIMATED THE COMMISSION PAYMENT OF 2% ON RS.66,66,58,158 WHICH WORKED OUT TO R S.1,39,33,163, WHICH HAS BEEN ADDED AS UNEXPLAINED EXPENDITURE. THE LEARNED CIT(A) AFTER NOTING DOWN THE ASSESSEE S SUBMISSION, FOUND THAT THE ISSUE IS EXACTLY SIMILAR TO ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 3 DISALLOWANCE OF COMMISSION, WHICH HAD ARISEN IN ASSESSEE S OWN CASE RIGHT FROM ASSESS MENT YEAR 2004 - 2005 TO ASSESSMENT YEAR 2007 - 2008 . IN THE EARLIER YEARS, THE ADDITION ON ACCOUNT OF COMMISSION WAS SUSTAINED AT THE RATE OF 0.25% OF THE AGGREGATE VALUE OF SALE BILL ISSUED BY THESE PERSONS. THE RELEVANT OBSERVATION AND THE FINDING OF THE CIT(A) IS AS UNDER: - 2.6.1 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PAR THE LD. AO, SHRI PRAVEEN JAIN ISSUES ONLY ACCOMMODATION BILLS WITHOUT DELIVERY OF THE GOODS. IN THESE PURCHASES, THERE IS ABSENCE OF NORMAL PROCEDURE THAT ARE FOLLOWED FOR OTHER PURCHASES AND SHRI PRAVEEN JAIN ACCEPTED THAT HE HAS NOT MADE ANY DELIVERY OF GOODS. THESE CIRCUMSTANCES MADE THE ID. AO TO HOLD THAT THESE TRANSACTIONS WERE MERELY ON PAPER AND WERE IN THE NATURE OF ACCOMMODATI ON ENTRIES. ON THE OTHER HAND, THE APPELLANT RELIED ON THE STATEMENT MADE DURING THE COURSE OF SEARCH BY SHRI KAPIL PURI, CHAIRMAN AND MANAGING DIRECTOR OF THE APPELLANT COMPANY THAT TRADING WITH JPK WAS CARRIED OUT ON DO I.E. DELIVERY ORDER BASIS WHICH S PREVALENT IN NATURE OF BUSINESS TO WHICH THE APPELLANT IS SUBJECT TO I.E. INFORMATION TECHNOLOGY. 2.6.2. THE ID. AR SUBMITTED THAT SHRI PRAVEEN JAIN HAS NEVER STATED THAT HE HAD CHARGED SOME COMMISSION FROM THE APPELLANT AND DURING THE COURSE OF THE SEA RCH ON THE APPELLANT, THE DEPARTMENT HAD NOT FOUND ANY EVIDENCE THAT COULD PROVE THE CASE OF THE DEPARTMENT THAT SUCH COMMISSION WAS PAID BY THE APPELLANT. THE ID. AR SUBMITTED THAT DUE DILIGENCE WAS NOT REQUIRED FOR TRANSACTIONS REQUIRING DIFFERENT EQUIPM ENTS OF SPECIFIC BRANDS OR OEMS SINCE THESE EQUIPMENTS WERE OF SPECIFIC BRANDS AND MODELS. LD. AR RELIED ON THE COPY OF PURCHASE ORDERS, ORDERS, INVOICES RAISED BY THE PARTIES (SEIZED BY THE DEPARTMENT) WHICH ARE INDICATORS THAT THESE ARE GENUINE TRANSACTI ONS. LD AR ALSO RELIED ON PAYMENTS FOR PURCHASES AND RECEIPTS FROM SAIES THAT ARE ON BILL TO BILL BASIS AND ACCEPTANCE OF THE TURNOVER AS REFLECTED IN THE ANNUAL ACCOUNTS OF THE APPELLANT BY THE SALES TAX DEPARTMENT AS PER THE VAT RETURNS WHICH INCLUDE TRANSACTIONS W ITH THE AFORESAID PARTIES AND ON WHICH THE APPELLANT HAS ALSO PAID SALES TAX AS PER THE VAT RETURN. THE ID. AR ALSO RELIED ON THE AFFIDAVIT EXECUTED BY 7 PARTIES ON 04.04.2008 CONFIRMING THAT THE TRANSACTIONS WERE GENUINE AND CARRIED OUT WITH BASIC PRUDENT PRINCIPLES OF BUSINESS. THE ID. AR FURTHER RELIED ON THE INCOME SHOWN OUT OF THESE ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 4 TRANSACTIONS. 2.6.3 AFTER CAREFULLY CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AS ELABORATED HEREIN ABOVE, IT IS NOT DISPUTED THAT SHRI PRAVEEN JAIN CONFIRMED THAT THE TRANSACTIONS NEVER RESULTED INTO ANY DELIVERY OF GOODS AND ALSO NO TRANSACTION EXPENSES WERE DEBITED IN THE BOOKS. IT IS APPARENT THAT THE APPELLANT HAD ENTERED INTO TRANSACTION WITH THE SAID SHRI PRAVEEN JAIN AND SAID SHRI PRAVEEN JAIN CONFESSED THAT THESE CONCERNS HAVE NEITHER TAKEN ANY PHYSICAL DELIVERY OF GOODS IN CASE OF THE PURCHASES FROM THE APPELLANT, NOR GIVEN DELIVERY IN THE CASE OF SALES. 2.6.4. ALMOST SIMILAR ISSUE REGARDING DISALLOWANCE OF COMMISSION HAD ARISEN IN THE CASE OF THE AP PELLANT FOR A.Y. 2004 - 05 TO 2006 - 07 ALSO. 2.6.5 IN THAT CASE MY LD, PREDECESSOR, VIDE HIS APPELLATE ORDER DATED 14 -- 03 - 2011 HELD THAT (PARA 2.5 ON PAGE 13): I HAVE CAREFULLY AND DISPASSIONATELY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. I HAVE ALREADY HELD THAT DURING THE COURSE OF INVESTIGATION, ONE MR. K K.GUPTA CONFESSED BEFORE THE INVESTIGATION WING OF THE DEPARTMENT THAT HE WAS IN THE BUSINESS OF PROVIDING BOGUS BILLS / ACCOMMODATION BILLS AND FOR THE SAID PARTIES HE USED TO CHARGE COM MISSION @0.25% OF THE AGGREGATE VALUE OF THE BOGUS BILLS. ON THE BASIS OF SUCH CONFESSIONAL STATEMENT GIVEN BY HIM, THE DEPARTMENT CONDUCTED SURVEY OPERATIONS IN OFFICE PREMISES OF THE APPELLANT AND RECOVERED IMPUGNED BILLS FROM OFFICE PREMISES OF THE APPE LLANT WHICH WERE IN FACT ISSUED BY THE ENTITIES / COMPANIES CONTROLLED BY MR. K K. GUPTA. IN VIEW OF THE ABOVE, THERE IS NO CONTROVERSY THAT THE SAID MR. K K. GUPTA HAD NOT ISSUED THE BILLS TO THE PRESENT APPELLANT THROUGH HIS NUMEROUS ENTITIES / COMPANIES CONTROLLED BY HIM. LEARNED AR S PROPOSITION THAT THE AFORESAID COMMISSION WAS NOT DEBITED IN THE BOOKS AND HENCE CANNOT BE DISALLOWED BY THE AO WILL NOT HOLD WATER BECAUSE SUCH COMMISSION EXPENSES WERE IN THE NATURE OF UNEXPLAINED EXPENDITURE DISALLOWABLE U/S. 69C OF THE ACT. IN VIEW OF FINANCE (NO.2) ACT INSERTING PROVISO WITH EFFECT FROM 01 - 04 - 1999, SUCH UNEXPLAINED EXPENDITURES ARE NOT DEDUCTIBLE. UNDER THE CIRCUMSTANCES, THE ADDITION MADE BY THE AO @0.25% OF THE AGGREGATE VALUE OF BILLS ISSUED BY THE SA ID MR. K K GUPTA TO THE PRESENT APPELLANT ARE CONFIRMED. ACCORDINGLY, THE ADDITION OF FS. 2,51,698/ - FOR A.Y 2004 - 05, RS. 2,00,229/ - FOR A Y 2005 - 06 AND RS. 14,50,790/ - FOR A. Y 2006 - 07 ARE CONFIRMED THE ONLY DIFFERENCE BETWEEN THE FACTS OF EARLIER YEA RS AND THIS YEAR IS ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 5 THAT IN CONTRAST TO THE CONFESSION BY SHRI GUPTA IN EARLIER YEARS, SHRI PRAVEEN JAIN IN THIS YEAR HAS NOT CONFESSED TO CHARGING OF ANY COMMISSION FROM THE APPELLANT ARID NO INCRIMINATING MATERIAL WAS FOUND IN THE COURSE OF THE SEARCH. H OWEVER, IN MY OPINION IN THESE TYPES OF CASES FOR EXCHANGE OF CASH AGAINST CHEQUE MAY NOT BE FOUND. BUT, BASED ON THE PREPONDERANCE OF PROBABILITY IT IS EVIDENT THAT PRAVEEN JAIN HAS GIVEN ONLY ACCOMMODATION ENTRIES FOR WHICH HE MUST HAVE CHARGED COMMISSIO N. 2.6.6 AFTER ACCEPTING THE CONCLUSION OF THE ID. AO ABOUT THE ACCOMMODATION ENTRIES I NOW PROCEED TO DETERMINE THE QUANTUM OF COMMISSION THAT MUST HAVE BEEN CHARGED BY SHRI PRAVEEN JAIN. 2.6.7 THE LD. AO ON PAGES 11 - 12, PARA 6.6 HELD THAT COMMISSION PAID FOR ACCOMMODATION ENTRIES IS HELD AS UNEXPLAINED EXPENDITURE AND HENCE HE DISALLOWED 2% OF RS. 69,66,58,158/ - AMOUNTING TO RS. 1,39,33,163/ - AS UNEXPLAINED EXPENDITURE UNDER SECTION 69C. IT IS SEEN THAT WHILE DISALLOWING @ 2%, THE LD. AO HAS NOT POINTED OUT THE BASIS TO ADOPT 2%. HE HAS NOT SHOWN THAT SHRI PRAVEEN JAM HAS CONFIRMED CHARGING 2% FOR THE ACCOMMODATION ENTRIES. AT THE SAME TIME AS HELD IN THE EARLIER PARA, SHRI PRAVEEN JAIN HAD ISS UED ACCOMMODATION ENTRIES FOR WHICH HE MUST HAVE CHARGED COMMISSION FROM THE APPELLANT. IT WAS SEEN IN THE EARLIER YEARS THAT SHRI K.K. GUPTA WHO HAD PROVIDED ACCOMMODATION ENTRIES HAD CONFESSED TO CHARGING COMMISSION 0.25%. 4. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT, AGAINST THE SAID ORDER OF THE CIT(A), DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE TRIBUNAL. IN FACT THE ASSESSEE HAD PREFERRED AN APPEAL BEFORE THE TRIBUNAL AGAINST THE CONFIRMATION OF COMMISSION PAYMENT AT THE RATE OF 0.25%. THE TRIBUNAL HAD EVEN DELETED THE SAID COMMISSION PAYMENT BECAUSE THE SAID PARTIES WERE NOT CROSS - EXAMINED AND ASSESSEE HAS BROUGHT ON RECORD THAT NO ACTUAL TRANSACTIONS HAVE TAKEN PLACE FROM THESE PERSONS. HOWEVER, IN THIS YEAR, THE ASSESSEE HAS NOT PREFERRED ANY APPEAL BEFORE THE TRIBUNAL, THEREFORE, THE PAYMENT OF COMMISSION AT THE RATE OF 0.25% SHOULD BE AFFIRMED. ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 6 5. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE, STRONGLY RELIED UPON THE ORDER OF THE AO. 6. AFTER CONSIDERING THE RELEVANT FACTS, SUBMISSIONS OF THE PARTIES AND ALSO THE MATERIAL PLACED ON RECORD, WE FIND THAT SIMILAR ISSUE OF COMMISSION PAYMENT TO THESE PARTIES HAD BEEN SUBJECT MATTER OF DISPUTE RIGHT FROM THE ASSE SSMENT YEAR 2004 - 2005 TO ASSESSMENT YEAR 2006 - 2007. IN THE FIRST APPEAL, THE LEARNED CIT(A), AFTER DETAILED DISCUSSION, HAS HELD THAT COMMISSION PAYMENT SHOULD BE RESTRICTED TO 0.25% LOOKING TO THE VARIOUS FACTS AND CIRCUMSTANCES OF THE TRANSACTIONS INVOLV ED. SUCH A PERCENTAGE OF COMMISSION PAYMENT SO FAR AS THE DEPARTMENT IS CONCERNED, THE SAME HAS ATTAINED FINALITY , BECAUSE NO APPEAL WAS PREFERRED BY THE DEPARTMENT ON THIS ISSUE, ON THE CONTRARY , THE ASSESSEE HAS CHALLENGED THE ENTIRE PAYMENT OF COMMISSIO N ON THE GROUND THAT THE STATEMENT OF THESE PERSONS WERE RECORDED BEHIND THE BACK OF THE ASSESSEE WITHOUT CROSS EXAMINATION. THE TRIBUNAL HAD EVEN DELETED THE SAID ADDITION ON ACCOUNT OF COMMISSION AFTER OBSERVING AND HOLDING AS UNDER: - 11. WE HAVE CAREFU LLY CONSIDERED THE SUBMISSIO NS OF RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE A.O. HAS ACCEPTED THE PURCHASES AND SALES AS DISCLOSED BY THE ASSESSEE AN D HAS NOT REJECTED THE BOOKS OF ACCOUNTS AS MAINTAINED BY THE ASSESSEE. WHILE MAKING THE ADDITION OF UNDISCLOSED COMMISSION OF RS. 2,51,698/ - , THE A.O. HAS RELIED UPON THE STATEMENT OF MR. K.K. GUPTA RECORDED ON OATH BY THE DDIT (INV.) ON 25 - 7 - 2007 U/S 131 OF THE ACT. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS STATED BY THE ASSESSEE THAT AT THE TIME OF STATEMENT RECORDED BY THE DDIT (INV.) IT WAS INTER ALIA STATED BY THE ASSESSEE THAT UNLESS ALL FACTS WITH RESPECT TO THE STATEMENT MADE BY M R. GUPTA WERE GIVEN, PROPER CROSS EXAMINATION COULD NOT BE CARRIED OUT AND HENCE RIGHT TO CROSS EXAMINATION WAS RESERVED. HOWEVER, DURING THE COURSE OF ASSESSMENT, THE ASSESSEE HAS ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 7 ASKED FOR THE CROSS EXAMINATION WHICH WAS DENIED BY THE A.O. ON THE GROUND THAT THE SAME IS UNTENABLE AND UNACCEPTABLE. 12. IN KISHINCHAND CHELLARAM V. CIT (1980) 125 ITR 713 (SC), THE HON BLE SUPREME COURT INTER ALIA HELD THAT (HEADNOTE - PAGE 714 & 715): BUT BEFORE THE INCOME - TAX AUTHORITIES COULD RELY UPON IT, THEY WERE BOUND TO PRODUCE IT BEFORE THE ASSESSEE SO THAT THE ASSESSEE COULD CONTROVERT THE STATEMENTS CONTAINED IN IT BY ASKING FOR AN OPPORTUNITY TO CROSS - EXAMINE THE MANAGER OF THE BA NK WITH REFERENCE TO THE STATEMENTS MADE BY HIM .. 13. IN ABSENCE OF ANY CONTRARY MATERIAL PLACED ON RECORD BY THE REVENUE TO SHOW THAT THE CROSS EXAMINATION OF MR. K.K. GUPTA WAS PROVIDED TO THE ASSESSEE, WE RESPECTFULLY FOLLOWING THE RATIO OF THE AB OVE DECISION AND KEEPING IN VIEW THAT THE ASSESSEE IN HIS SUBMISSIONS DTD. 19 - 12 - 2008 STATED THAT HE IS SHOWING PROFIT RANGING BETWEEN 40 TO 45% ON THE PURCHASES HAS NOT BEEN UNCONTROVERTED BY THE REVENUE EVEN AT THIS STAGE AND ALSO KEEPING IN VIEW THE BOO KS OF ACCOUNTS HAVE NOT BEEN REJECTED, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE ADDITION OF COMMISSION OF RS. 2,51,698/ - AND ACCORDINGLY WE DELETE THE SAME. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, ALLOWED. 7. IN VIEW OF THE AFORESAID FACTS AND PRECEDENTS OF THE EARLIER YEARS AND ALSO THAT THE ASSESSEE IS NOT IN APPEAL BEFORE US, WE UPHOLD THE ORDER OF THE CIT(A) SUSTAINING THE COMMISSION PAYMENT AT THE RATE OF 0.25% INSTEAD OF 2%. ACCORDINGLY, GROUND NO.1 AS RA ISED BY THE REVENUE IS DISMISSED. 8. SO FAR AS THE ISSUE RELATING TO GROUND NO.2, THE LEARNED COUNSEL SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE RIGHT FROM ASSESSMENT YEAR 2004 - 2005 TO 2006 - 2007. 9. IN THE ASSESSMENT ORDER, THE AO NOTED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.66,79,832 ON CAPITAL GOODS, WHICH HAVE BEEN PURPORTED TO ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 8 HAVE BEEN PURCHASED IN THE EARLIER ASSESSMENT YEARS FROM THE CONCERNS ASSOCIATED WITH SHRI KRISHNA KUMAR GU PTA. IN THE ASSESSMENT YEARS 2005 - 2006 AND 2006 - 2007, THE AO HAS DISALLOWED 35% OF THE DEPRECIATION CLAIMED. THUS, FOLLOWING THE EARLIER YEAR ASSESSMENT ORDERS, HE DISALLOWED THE DEPRECIATION AND ADDED BACK TO THE INCOME OF THE ASSESSEE. THE LEARNED CIT(A) TOO , FOLLOWING THE EARLIER ORDER OF THE CIT(A), DELETED THE SAID DISALLOWANCE. IN THE REVENUE S APPEAL FOR ASSESSMENT YEARS 2005 - 2006 AND 2006 - 2007, THE TRIBUNAL HAS UPHELD THE ORDER OF THE CIT(A) AFTER NOTING DOWN THE FOLLOWING FACTS AND HOLDING AS UNDER : - 33. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HAS SHOWN PURCHASES OF CAPITAL GOODS FROM THE CONCERNS OF MR. K.K. GUPTA WHICH ARE AS UNDER: - SL. NO. NAME OF THE CONCERN AMOUNT (RS.) 1 TRITON INFOTECH PVT. LTD. 2,02,00,000 2 ULTIMATE MERCANTILE PVT. LTD. 3,13,63,308 3 VENKATESH MERCANTILE PVT. LTD. 1,77,48,715 TOTAL 6,93,12,023 THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ALLEGED PURCHASES OF CAPITAL ASSETS SHOULD NOT BE TREATED AS FICTITIOUS AND DEPRECIATION CLAIMED THEREON SHOULD NOT BE DISALLOWED. IT WAS INTER ALIA EXPLAINED BY THE ASSESSEE THAT THE PURCHASES ARE GENUINE IN VIEW OF THE FOLLOWING EVIDENCES (PAGE 7 & 8 OF ASSESSING OFFICER S ORDER): - (A) THE FACTUAL EXISTENCE OF THE SAID MACHINERY AS FOUND UNDER A DUE DILIGENCE CONDUCTED BY AN INDEPENDENT BODY EARNEST & YOUNG AN ACCOUNTING FIRM OF HIGH REPUTE WITH FAR MORE CREDIBILITY THAN MR. GUPTA. (B) THE AUTHENTICATED LOCATION, TESTING REPORT AND INSTALLATION REPORT FILED BEFORE YOUR KIND SELF AND ALREADY ON RECORD AS RELATING TO THE SAID MACHINERY. (C) SOME OF THE SAID MACHINERY IS ALSO PART OF THE DEMERGER ARRANGEMENT UNDER THE ORDER OF THE HONOURABLE MUMBAI HIGH COURT, AND HENCE IS PART OF THE HIGH COURT RECORDS. THIS FACT HAS MORE VALUE THAN MERE GENERAL STATEMENTS MADE BY THE SAID MR. GUPTA. (D) THE ABOVE IS ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 9 IN ADDITION TO AND WITHOUT PREJUDICE TO THE SUBMISSIONS ALR EADY MADE AND ON RECORD. (E) THE ANNEXURE HERETO RELATING TO THE CLAIM OF DEPRECIATION REINFORCES WHAT IS ALREADY ON RECORD AND EXPLAINED BEFORE YOU KIND SELF. THE INCREASE IN OUTPUT ON ACCOUNT OF THE PURCHASES WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE ADDI TIONAL MACHINERY. THE SAID ANNEXURE IS SELF EXPLANATORY. IT WAS FURTHER STATED THAT NECESSARY DOCUMENTS RELATED TO THE PURCHASE OF ASSETS ARE ALREADY FILED BEFORE THE A.O. IT WAS FURTHER STATED THAT THE ABOVE ASSETS HAVE NOT BEEN INSTALLED IN THE ASSESSEE S CENTRE AND THE DETAILS OF ITS INSPECTION REPORT AND VERIFICATION REPORT WAS ALREADY FILED. IT WAS, THEREFORE, SUBMITTED THAT THE ABOVE ASSETS ARE BEING USED FOR BUSINESS PURPOSES, THEREFORE, THE DEPRECIATION BE ALLOWED. HOWEVER, THE A.O. KEEPING IN VIEW THE STATEMENT OF MR. GUPTA WHILE HOLDING THAT THE VERACITY OF THE COST OF CAPITAL GOODS DISCLOSED BY THE ASSESSEE IN THE BOOKS CANNOT BE ACCEPTED, DISALLOWED 35% OF THE DEPRECIATION ON THE PLANT AND MACHINERY ON ADHOC BASIS. ON APPEAL, THE LD. CIT(A), HOW EVER, DELETED THE DISALLOWANCE MADE BY THE A.O. 34. AT THE TIME OF HEARING THE LD. D.R. SUPPORTS THE ORDER OF THE A.O. 35. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A). 36. WE HAVE CAREFULLY CONSIDERED THE SUB MISSIONS OF BOTH PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS INSTALLED THE ABOVE PLANT AND MACHINERY IN ITS BUSINESS CENTRE AND HAS CLAIMED DEPR ECIATION THEREON. HOWEVER, THE A.O. WITHOUT ANY BASIS HAS DISALLOWED THE DEPRECIATION AT 35% OF THE DEPRECIATION CLAIMED. ON APPEAL THE LD. CIT(A), HOWEVER, ALLOWED THE SAME VIDE FINDING RECORDED IN PARA 6.3.1. OF HIS ORDER WHICH IS REPRODUCED AS UNDER: - I HAVE CAREFULLY AND DISPASSIONATELY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS NOTICED THAT THE APPELLANT HAD MADE A WRITTEN SUBMISSION BEFORE THE A.O. ON 19.12.2008, WHEREIN, IT WAS STRESSED THAT THE APPELLANT HAD FILED DETAILED STATEMEN T OF THE IMPUGNED ASSETS ON WHICH DEPRECIATION WAS CLAIMED. THE A.O. HAS NOT MADE ANY ADVERSE COMMENT ON THE DETAILED STATEMENT OF ASSETS CONTAINING ALL BILLS WITH RESPECT TO THE NATURE OF THE ASSETS, THE SOURCE OF PURCHASES, THE COST AND DATE ON WHICH THE SAME WAS PUT TO USE. THE APPELLANT HAD ALSO FURNISHED SAMPLE BILLS TO PROVE THAT THE ASSETS WERE PURCHASED BY INVITING QUOTATIONS FROM VARIOUS PARTIES. IT WAS ARGUED BEFORE THE A.O. THAT ALL PURCHASES WERE DULY BACKED BY DELIVERY CHALLANS, TESTING AND INS TALLATION REPORT. ALL RELEVANT BILLS AND VOUCHERS WITH REFERENCE TO THE PURCHASES OF SUCH ASSETS WERE MADE AVAILABLE TO THE INCOME TAX SURVEY TEAM AND TO THE A.O. DETAILS OF ADDITION TO FIXED ASSETS WERE ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 10 ALSO SUBMITTED TO THE INCOME TAX SURVEY TEAM ALONG W ITH BILLS AND VOUCHERS RELATED THERETO. THE RELEVANT PLANT & MACHINERY WERE EXISTING IN THE PREMISES OF THE APPELLANT AND NO DISCREPANCIES WERE POINTED OUT. THE AFORESAID FIXED ASSETS WERE ACCEPTED AT BOOK VALUE BY INDEPENDENT CHARTERED ACCOUNTANT FIRMS M/ S. EARNEST & YOUNG AND ALSO BY HARIBHAKTI & CO. THE APPELLANT AS WELL AS THE DEMERGED COMPANY M/S. INTELNET BPO SERVICES LIMITED MADE ALL NECESSARY AND RELEVANT DISCLOSURE INCLUDING THAT OF THE LATEST FINANCIAL POSITION AND COMPLIED WITH THE REQUIREMENT ST IPULATED IN LAW IN COMPANY PETITION NO. 405 OF 2006 CONNECTED WITH COMPANY APPLICATION NO.542 OF 2006. THE APPELLANT HAD ALSO GIVEN NECESSARY UNDERTAKINGS BEFORE THE HONORABLE BOMBAY HIGH COURT. THE REGIONAL DIRECTOR HAS FILED AFFIDAVIT AND RELIED UPON THE REPORT OF THE REGISTRAR OF COMPANIES AFTER EXAMINING THE SCHEME AND RELYING UPON THE REPORT, THE REGIONAL DIRECTOR HAS CERTIFIED THAT THE DEMERGER SCHEME WAS NOT PREJUDICIAL TO THE INTEREST OF THE SHAREHOLDERS, CREDITORS AND PUBLIC INTEREST. THE OFFICIAL LIQUIDATOR FILED A REPORT BEFORE THE HONORABLE BOMBAY HIGH COURT AND RELIED UPON THE EVIDENCE OF THE C.A.S DULY POINTED OUT FOR SCRUTINY OF THE RECORDS AND BOOKS OF ACCOUNTS. THE BOOKS OF ACCOUNTS OF THE APPELLANT FOR FIVE YEARS WERE DULY SCRUTINIZED AND T HE C.AS. HAS OBSERVED THAT THE AFFAIRS OF THE APPELLANT COMPANY WERE NOT CARRIED OUT IN A MANNER PREJUDICIAL TO THE INTEREST OF THE MEMBERS AND CREDITORS, WAS ALSO THE PUBLIC INTEREST. HONORABLE BOMBAY HIGH COURT MADE THE CAPTIONED COMPANY PETITION NO. 405 OF 2006 AND 406 OF 2006 ABSOLUTE IN TERMS OF PRAYER, CLAUSE (A) TO (I). IN VIEW OF THE ABOVE, IT IS HELD THAT THE ADHOC DISALLOWANCE OF 35% OF THE DEPRECIATION MADE BY THE A.O. IS CONTRARY TO THE FACTS ON RECORD OF THE HONORABLE BOMBAY HIGH COURT. THEREFO RE, ADHOC DISALLOWANCE OF 35% OF THE DEPRECIATION IN A.YS 2005 - 06 AND 2006 - 07 ARE NOT SUSTAINABLE AND HENCE NOT SUSTAINED. GROUND NO.2 OF A.Y. 2005 - 06 AND GROUND NO.2 OF A.Y. 2006 - 07 ARE ALLOWED. ISSUE NO.4 - ADHOC DISALLOWANCE OF DEPRECIATION DECIDED IN F AVOUR OF THE APPELLANT IN AYS 2005 - 06 & 2006 - 07. 37. IN ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT ON RECORD BY THE REVENUE AGAINST THE FINDING OF THE LD. CIT(A) AND KEEPING IN VIEW THAT IT IS NOT THE CASE OF THE REVENUE THAT THE PLANT AND MACHINERY WERE NOT INSTALLED AT THE ASSESSEE S BUSINESS PREMISES OR THE SAME WERE NOT USED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE OR THE RATE OF DEPRECIATION CLAIMED BY THE ASSESSEE IS NOT ACCORDING TO THE RULES, WE ARE OF THE VIEW THAT THE ESTIMATED DISALL OWANCE OF DEPRECIATION MADE BY THE A.O. IS NOT SUSTAINABLE IN LAW AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) IN DELETING THE SAME. THE GROUNDS TAKEN BY THE REVENUE FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 ARE, THEREFORE, R EJECTED. ITA NO. 1128 /MUM/201 2 . M/S. SPANCO LIMITED 11 10. THUS, FOLLOWING THE EARLIER YEARS DECISIONS, WE UPHOLD THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE OF DEPRECIATION ON PLANT AND MACHINERY. ACCORDINGLY, GROUND NO.2 AS RAISED BY THE REVENUE IS DISMISSED. 11 . IN THE RESULT, REVENUE S APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF MARCH, 2015 . SD/ - SD/ - ( D.KARUNA KARA RAO ) ( AMIT SHUKLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 10 TH MARCH, 2015 . DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT , MUMBAI. 4. / CIT(A) - 37 , MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE.