UN ITED GAVLA LTD, BELLARY V. DCIT CEN CIR 33, MUMBAI

ITA 4323/MUM/2009

• Counselvise Citation: 432319914 RSA 2009
• Duration Of Justice: 5 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 03-06-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH RANJAN PRASAD
• Assessee Lawyers: MANISH SANGHVI
• Keywords: Depreciation; Search and seizure; Valuation report; Validity of assessment
• Section: 133(6); 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NOS.4320 TO 4324/MUM/2009 ( / ASSESSMENT YEARS :2003-04 TO 2007-08) M/S UNITED GAVLA LTD, 126, 3 RD STAGE, MUNDARGI INDL. AREA, BANGALORE ROAD, BELLARLY -583101. / VS. DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE -33, OLD CGO BUILDING, M K ROAD, MUMBAI- 400020 ( / APPELLANT) .. ( !' / RESPONDENT) ./ #$ ./PAN/GIR NO. : AAACU4697E % / APPELLANT BY : SHRI MANISH SANGHVI !' & % /RESPONDENT BY : SHRI RAJ ESH RANJAN PRASAD ' ( & ) * / DATE OF HEARING : 25.8.2014 +, & ) * /DATE OF PRONOUNCEMENT : 28. 8.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THE FIVE APPEALS FILED BY THE ASSESSEE AR E DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)- CENTRAL VIII, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEARS 2003-04 TO 2007-08. SINCE THE ISSUES URGED IN THESE APPEALS ARE IDENTICAL IN NATURE, THEY WERE HEARD TOGETHER AND ARE BEING D ISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE, IN ALL THESE YEARS, IS AGGRIEVED B Y THE DECISION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION PER TAINING TO FACTORY SHED. I.T.A. NOS.4320 TO 4324/MUM/2009 2 3. THE FACTS RELATING TO THE ABOVE ISSUE ARE STATE D IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF GALVANIZED PLAIN AND CORRUGATED SHEETS. THE DEPARTMENT CARRI ED OUT SEARCH AND SEIZURE OPERATION U/S 132 OF THE INCOME TAX ACT, 1961, (THE ACT) IN THE VARIOUS BUSINESS/RESIDENTIAL PREMISES OF THE COMPANIES/DIRE CTORS/RELATED PERSONS BELONGING TO THE BALAJI GROUP OF CASES. THE GROUP HAD SETUP STEEL MANUFACTURING PLANTS IN THE NAME OF KARNATAKA STRIPS PVT LTD AND THE ASSESSEE COMPANY IN BELLARY IN KARNATAKA. DURING THE COURSE OF SEARCH IT WAS UNEARTHED THAT THE BALAJI GROUP HAS INFLATED THE VALUE OF PLANT AND M ACHINERY BY OBTAINING BOGUS BILLS FROM THE PERSONS WHO HAVE NEITHER RENDERED AN Y SERVICE NOR PROVIDED ANY EQUIPMENT. IT WAS NOTICED THAT THE ASSESSEE HEREIN HAD OBTAINED BOGUS BILLS FROM A COMPANY FROM A CONCERN NAMED M/S MISHRA ENGI NEERING WORKS (HEREINAFTER THE ABOVE SAID CONCERN). THE SEARCH TEAM ALSO UNEARTHED CERTAIN DOCUMENTS RELATING TO THE ASSESSEE COMPANY FROM THE RESIDENCE OF SHRI DEVESH AGARWAL AT BANGALORE AND ALSO FROM THE RESIDENCE O F KUMUDINI SURESHCHANDRA AGARWAL AT ALIGARH. ACCORDINGLY, THE AO ISSUED NO TICES U/S 153C OF THE ACT IN RESPECT OF THE ASSESSMENT YEARS 2001-02 TO 2006-07. 4. DURING THE YEARS UNDER CONSIDERATION, THE ASSESS EE HAS DEBITED TOTAL DEPRECIATION OF RS.1,66,66,047/- IN ITS PROFIT & LO SS ACCOUNT. THE AO ASKED THE ASSESSEE TO FURNISH DETAILS OF ASSETS, BOTH OLD AND THAT PURCHASED DURING THE YEARS UNDER CONSIDERATION. FROM THE DETAILS, IT W AS NOTICED THAT THE ASSESSEE HAS PURCHASED GOODS FROM M/S MISHRA ENGINEERING WOR KS. HENCE, THE AO ASKED THE ASSESSEE TO PRODUCE THE ABOVE SAID PARTY AND AL SO TO FURNISH EVIDENCE TO JUSTIFY THE CLAIM OF DEPRECIATION ON THE ASSETS ALL EGEDLY PURCHASED FROM THE I.T.A. NOS.4320 TO 4324/MUM/2009 3 ABOVE SAID PARTY. FURTHER, THE AO ALSO ISSUED NOTI CE U/S 133(6) TO THE ABOVE SAID PARTY. HOWEVER, THE ASSESSEE COULD NOT PRODUC E THE ABOVE SAID PARTY AND THERE WAS NO COMPLIANCE TO THE NOTICE ISSUED U/S 13 3(6) OF THE ACT. ACCORDINGLY, THE AO CAME TO THE CONCLUSION THAT THE ALLEGED PURCHASES OF MACHINERY /ASSETS FROM THE ABOVE SAID CONCERNS ARE NOT GENUINE. THE ASSESSEE, HOWEVER, SUBMITTED BEFORE THE AO THAT THE PAYMENTS FOR PURCHASE OF ASSETS WERE MADE BY WAY OF ACCOUNT PAYEE CHEQUES AND IT HA S ALSO DEDUCTED TAX AT SOURCE FROM THE SAID PAYMENT. FURTHER, IT WAS SUBM ITTED THAT THE DETAILS RELATING TO THE PURCHASE OF ASSETS WERE GIVEN IN THE AUDIT R EPORT. ACCORDINGLY, IT WAS CONTENDED THAT THE PURCHASES MADE FROM THE ABOVE SA ID CONCERNED ARE GENUINE. 5. THE AO NOTICED THAT THE INQUIRIES WERE CONDUCTED WITH REGARD TO THE ABOVE SAID PARTY WHILE FINALIZING THE ASSESSMENT OF M/S KARNATAKA STRIPS PVT LTD., A SISTER CONCERN OF THE ASSESSEE. THE SAID ENQUIRI ES REVEALED THAT THE PAYMENTS MADE TO M/S MISHRA ENGINEERING WORKS WERE RETURNED BACK TO M/S KARNATAKA STRIPS PVT LTD. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE ASSESSEE HEREIN ALSO WOULD HAVE OBTAINED BACK THE MONEY FROM THE ABOVE S AID COMPANY. IT APPEARS THAT THE ITEMS PURCHASED AGGREGATING TO RS.36,76,77 5/- FROM THE ABOVE SAID PARTY WAS CAPITALIZED UNDER THE HEAD FACTORY SHED . THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE FACTORY SHED DURING THE YEARS U NDER CONSIDERATION. HENCE THE AO DISALLOWED THE DEPRECIATION CLAIMED ON THE A MOUNT OF RS.36,76,775/- REFERRED ABOVE IN ALL THE YEARS UNDER CONSIDERATION , WHICH ARE DETAILED BELOW : AY 2003-04 AY 2004-05 AY 2005-06 AY 2006-07 AY 200 7-08 FACTORY SHED 3676775 DEPRECIATION 183839 349294 314364 282928 254635 I.T.A. NOS.4320 TO 4324/MUM/2009 4 6. THE ASSESSEE CHALLENGED THE DISALLOWANCE OF DEPR ECIATION MADE BY THE AO BY FILING THE APPEALS BEFORE THE LD. CIT(A), BUT C OULD NOT SUCCEED. THE ASSESSEE HAD ALSO URGED MANY LEGAL GROUNDS BEFORE THE LD. CI T(A), BUT ALL OF THEM WERE REJECTED BY THE FIRST APPELLATE AUTHORITY. AGGRI EVED, ASSESSEE HAS FILED THESE APPEALS BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE BEFORE US. WE FIRST PROCEED TO ADJUDICATE THE ISSUE RELATING TO DISALLOWANCE OF DEPRECIATION. WE NOTICE THAT THE A SSESSEE HAS CONSTRUCTED BUILDING FOR ITS FACTORY PURPOSES AND THE VALUE OF THE SAME STOOD AT RS.2,89,79,334/- AS ON 31.3.2004. HOWEVER, THE AO HAS REFUSED TO ACCEPT THE CLAIM OF PURCHASES MADE FROM M/S MISHRA ENGINEERING WORKS. THOUGH IN THE ASSESSMENT ORDER, IT IS MENTIONED THAT THE GROUP HA D PURCHASED BOGUS BILL TOWARDS PURCHASE OF PLANT & MACHINERY, YET WE NOTIC E THAT THE ASSESSING OFFICER, IN THE INSTANT CASE, HAS CHOSEN TO DISALLOW THE DEP RECIATION CLAIMED ON FACTORY SHED. THE NEXUS BETWEEN THE FACTORY BUILDING AND T HE SUPPLIES MADE BY THE ABOVE SAID COMPANY WAS NOT BROUGHT ON RECORD BY THE ASSESSING OFFICER. 8. BE THAT AS IT MAY, WE NOTICE THAT THE AO HAS MAINLY PLACED RELIANCE ON THE INQUIRIES CONDUCTED WHILE MAKING ASSESSMENT IN THE HANDS OF THE SISTER CONCERN OF THE ASSESSEE NAMELY M/S KARNATAKA STRIPS PVT LTD , TO DRAW ADVERSE INFERENCE AGAINST THE ASSESSEE IN RESPECT OF PURCHASES MADE F ROM THE ABOVE SAID CONCERN. THUS, IT IS NOTICED THAT THE AO DID NOT MAKE ANY IN DEPENDENT INQUIRY IN THE ASSESSMENT PROCEEDINGS RELATING TO THE PRESENT ASSE SSEE. INSTEAD, WE NOTICE THAT THE AO HAS DRAWN ADVERSE INFERENCE AGAINST THE ASSESSEE ONLY FOR THE I.T.A. NOS.4320 TO 4324/MUM/2009 5 REASON THAT THE ASSESSEE COULD NOT PRODUCE THE ABOV E SAID SUPPLIER BEFORE HIM. THE ASSESSING OFFICER HAS FAILED TO MAKE ANY TYPE O F ENQUIRY AND ALSO FAILED TO BRING ANY MATERIAL ON RECORD TO SUPPORT ITS VIEW TH AT THE BUILDING COST WAS INFLATED BY RS.36.76 LAKHS. WE NOTICE THAT THE ASS ESSING OFFICER DID NOT REFER THE MATTER OF VALUATION ALSO TO THE VALUATION OFFICER. INSTEAD, WE NOTICE THAT THE ASSESSEE HAS FURNISHED A VALUATION REPORT OBTAINED FROM A CHARTERED ENGINEER TO THE ASSESSING OFFICER. WE NOTICE THAT THE ASSESSIN G OFFICER HAS FAILED TO EXAMINE THE SAME DURING THE COURSE OF ASSESSMENT PROCEEDING . A PROPER EXAMINATION OF THE REPORT OBTAINED FROM THE CONCERNED TECHNICAL PE RSON WOULD HAVE CLARIFIED THE POSITION. 9. FROM THE WRITTEN SUBMISSIONS FILED BY THE ASSE SSEE, WE NOTICE THAT THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDIN G, ASKED FOR THE COMPLETE DETAILS RELATING TO THE ENQUIRIES CONDUCTED IN THE CASE OF THE SISTER CONCERN WITH REGARD TO THE TRANSACTIONS OF MISHRA ENGINEERING WO RKS. HOWEVER, ACCORDING TO THE ASSESSEE, THE ASSESSING OFFICER DID NOT SUPPLY THOSE MATERIALS TO THE ASSESSEE, EVEN THOUGH THE AO HAD DRAWN ADVERSE CONC LUSIONS BASED ON THOSE MATERIALS. THE OPPORTUNITY ASKED BY THE ASSESSEE T O CROSS EXAMINE THE ABOVE SAID PARTY WAS ALSO NOT PROVIDED. 10. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS FAILED TO ESTABLISH THAT THE PURCHASES MADE FROM THE ABOVE SAID PARTY ARE NOT GENUINE. IN THE ABSENCE OF ANY CORROBORATI VE MATERIAL, IT CAN ONLY BE HELD THAT THE ASSESSING OFFICER HAS ARRIVED AT SUCH A CONCLUSION ONLY ON SURMISES AND CONJECTURES. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE I.T.A. NOS.4320 TO 4324/MUM/2009 6 ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING A P ORTION OF BUILDING COST, I.E., THE AMOUNT OF RS.36,76,775/- AS BOGUS. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE DEPRECIATION CLAIMED ON THE ABOVE SAID AMOUNT. ACCORDINGLY, THE LD CIT(A) WAS ALSO NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION ON ALL THE YEARS UNDER CONSIDERATION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF DEPRECIATION MADE BY HIM IN ALL THE YEARS UNDER CONSIDERATION. 11. THOUGH THE ASSESSEE HAS RAISED MANY LEGAL GR OUNDS CHALLENGING THE VALIDITY OF ASSESSMENT PROCEEDINGS CARRIED U/S 153C OF THE ACT, WE DO NOT FIND IT NECESSARY TO ADJUDICATE THEM, SINCE WE HAVE DELETED THE ADDITION ON MERITS. 12. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014 . +, ' - ./ 0 1 28TH AUGUST, 2014 , & 2( 3 SD /- SD/- ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER . ' ( MUMBAI: 28TH AUGUST,2014. . . ./ SRL , SR. PS I.T.A. NOS.4320 TO 4324/MUM/2009 7 ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. ' 6) ( ) / THE CIT(A)- CONCERNED 4. ' 6) / CIT CONCERNED 5. 78 2 !)9 , * 9 , . ' ( / DR, ITAT, MUMBAI CONCERNED 6. 2 : ( / GUARD FILE. ; ' / BY ORDER, TRUE COPY < # (ASSTT. REGISTRAR) * 9 , . ' ( /ITAT, MUMBAI