ACIT, New Delhi V. M/s. Victoria Foods (P) Ltd, New Delhi

ITA 4544/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3927 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 28-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 03-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: SANJEEV KWATRA
• Keywords: Capital asset; Depreciation; Wrong claim
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : H NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER I.T.A NO. 4544/DEL/09 ASSTT. YEAR 2006-07 ACIT CENTRAL CIRCLE-8, NEW DELHI. VS. VICTORIA FOODS (P) LTD. B-32, LAWRENCE ROAD INDL. AREA NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI N.K. CHAND, SR. DR RESPONDENT BY: SHRI SANJEEV KWATRA, CA ORDER PER RAJPAL YADAV, JM: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LD. CIT(A) DATED 30 TH OCTOBER, 2009 PASSED FOR ASSTT. YEAR 2006-07. THE REVENUE HAS RAISED TWO GROUNDS OF APPEAL. IN THE FIRST GROU ND IT IS IMPUGNING THE ACTION OF LD. CIT(A), WHEREBY LD. CIT(A) HAS DELETE D THE DISALLOWANCE OF DEPRECIATION OF RS. 57,42,794/-. IN THE SECOND GROU ND THE GRIEVANCE OF REVENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING TH E DISALLOWANCE OF ITA NO. 4544/DEL/2009 ASSTT. YEAR 2006-07 2 INTEREST EXPENSES OF RS. 27,34,673/-. BOTH THESE IS SUES ARE INTERCONNECTED TO EACH OTHER. THEREFORE WE TAKE THE M TOGETHER. 2. THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUT SET SUBMITTED THAT THESE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT IN ITA NO. 383/DEL/09 AND 1440/DEL/2009 PASSED FOR ASSTT. YEAR 2005- 06. HE PLACED ON RECORD COPIES OF THE TRIBUNALS OR DER. THE LD. DR WAS UNABLE TO CONTROVERT THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE. 3. THERE IS NO DISPARITY ON FACTS BETWEEN ASSTT. YE AR 2005-06 AND THIS ASSTT. YEAR. THE TRIBUNAL HAS NOTICED THE FACTS IN ASSTT. YEAR 2005-06 AS UNDER : 2. FIRST WE TAKE THE APPEAL OF THE REVENUE. THE RE VENUE HAS TAKEN THREE GROUNDS OF APPEAL BUT THEY ARE INTERCON NECTED WITH ONE ISSUE. THE GROUNDS TAKEN BY THE REVENUE READ AS UNDER :- 1. ON THE FACTS & AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 3, 06,28,234/- MADE ON ACCOUNT OF BOGUS ADDITIONS TO FIXED ASSETS WHEN THE SO CALLED PARTIES FROM WHOM THE SAME WERE CLAIMED T O HAVE BEEN PURCHASED ARE NON EXISTENT. 2. THAT THE LD. CIT (A) HAS ERRED IN DELETING THE A DDITION OF RS. 25,00,000/- MADE ON ACCOUNT OF CONSUMABLE, GAS, WEL DING ETC. PERTAINING TO BOGUS ADDITION TO FIXED ASSETS. 3. THAT THE LD. CIT(A) HAS ERRED IN ALLOWING ADDITI ON OF RS. 76,57,058/- OUT OF DEPRECIATION AND RS. 19,58,456/ - OUT OF ITA NO. 4544/DEL/2009 ASSTT. YEAR 2006-07 3 INTEREST CLAIMED BY THE ASSESSEE IN RESPECT OF BOGU S ADDITION TO FIXED ASSETS. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMPANY RUNNING A FLOUR MILL WHERE IT IS PRODUCING WHEAT FL OUR CHOKAR, SUJI, MAIDA ETC. IT IS ALSO TRADING IN THESE ITEMS. IT HA S FILED ITS RETURN OF INCOME ON 28.10.2005 DECLARING A LOSS OF RS.4237018 /-. THE RETURN WAS PROCESSED U/S 143(1) ON 31 ST MARCH, 2007. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSTT. AND N OTICE U/S 143 (2) WAS ISSUED AND SERVED UPON THE ASSESSEE ON 3 RD JULY, 2006. ON SCRUTINY OF THE BOOKS OF ACCOUNTS IT REVEALED TO THE AO THAT ASSESSEE HAS SHOWN ADDITION TO FIXED ASSETS AMOUNTI NG TO RS. 4,94,94,852/-. 4. IN ORDER TO PROBE THE ADDITION MADE BY THE ASSES SEE TO THE FIXED ASSETS HE DIRECTED THE ASSESSEE TO FILE DETAI LS OF ADDITIONS MADE TO THE FIXED ASSETS AND THE SOURCE OF INVESTME NT FOR THE ADDITIONS MADE. IN RESPONSE TO THE QUERY OF AO ASSE SSEE FILED THE LETTER DATED 19 TH JULY, 2007 AND SUPPORTING BILLS AND VOUCHERS OF VARIOUS ASSETS PURCHASED DURING THE YEAR. WITH REGA RD TO THE SOURCE OF INVESTMENT IT WAS POINTED OUT BY THE ASSE SSEE THAT FOR PROCURING NEW ASSETS THE COMPANY HAD OBTAINED A TER M LOAN AT RS. 4.94 CRORES FROM STATE BANK OF MYSORE, NAYA BAZ AR, DELHI. ON AN ANALYSIS OF THE DETAILS SUBMITTED BY THE ASSESSE E AO CARVED OUT THE NAME OF THREE ALLEGED SUPPLIER FROM WHOM AS SESSEE HAD PURCHASED VARIOUS TYPES OF STEEL SHEETS, MACHINERY AND ELECTRICAL INSTALLATIONS. THESE SUPPLIERS ARE 1. M/S. MAHAVIR STEEL A 47 NARAINA INDUSTRIAL AREA , NEW DELHI. 2. M/S. GUPTA MACHINERY, 56/B BADLI INDUSTRIAL ARE A PHASE I DELHI. 3. M/S. TECHNO TECH SALES AGENCIES 13943, NAVRANG M ARKET SHRADHANAND MARG, DELHI. 5. THE AO HAS RAISED AN APPREHENSION ABOUT THE GENU INENESS OF BILLS AND VOUCHERS ISSUED BY THESE THREE CONCERN S ON THE GROUND THAT THE BILLS DO NOT BEAR TELEPHONE NUMBER AND ALSO DO NOT INDICATE LCHARGING OF SALES TAX ETC.. IN THE OPINIO N OF AO IT IS DIFFICULT TO ASCERTAIN HOW ASSESSEE HAD PLACED AN ORDER ON SU CH CONCERNS ITA NO. 4544/DEL/2009 ASSTT. YEAR 2006-07 4 WHO ARE NOT HAVING TELEPHONE NUMBER. HE DEPUTED THE INCOME TAX INSPECTOR SHRI R.S. PAWAR TO CARRY OUT SUPPORT INSPECTION. THE INSPECTOR WAS REQUIRED TO COLLECT THE INFORMATION W ITH REGARD TO NATURE OF TRANSACTION ENTERED BY THESE CONCERNS WIT H THE ASSESSEE DURING THE PERIOD 1 ST APRIL , 2004 UPTO 1 ST MARCH, 2005 HE WAS REQUIRED TO COLLECT MONTHWISE DETAILS OF ITEMS / GO ODS SOLD BY THESE CONCERNS TO M/S. VICTORIA FOODS PRIVATE LTD. COPY OF ACCOUNT OF M/S. VICTORIA FOODS PVT. LTD. IN THE BOOKS OF THESE THREE CONCERNS FOR THE PERIOD 1 ST APRIL 2004 UPTO 31 ST MARCH, 2005 AND DETAILS OF THEIR INCOME TAX RETURNS / PAN NUMBER . ACCORDING T O THE AO THE INSPECTOR REPORTED THAT THESE CONCERNS ARE NOT EXIS TING ON THE GIVEN ADDRESS. THE AO HAS REPRODUCED THE REPORT OF THE INSPECTOR ON PAGE 3 AND THEREAFTER DISBELIEVED THE PURCHASES MADE FROM THESE THREE CONCERNS. THESE THREE CONCERNS ALLEGED TO HAVE SUPPLIED GOODS FOR EXPANSION OF THE CAPITAL ASSETS OF THE ASSESSEE TO THE EXTENT OF RS. 30628234/-. AO HELD THAT TO TH IS EXTENT ALLEGED ADDITION TO THE FIXED ASSETS IS BOGUS AND HE MADE A N ADDITION OF RS. 30628234/-. HE FURTHER HELD THAT DEPRECIATION @ 25% CLAIMED BY THE ASSESSEE ON THESE BOGUS ASSETS DESERVES TO B E DISALLOWED, HENCE HE WORKED OUT AN AMOUNT OF RS. 7657058/- ALLE GED TO HAVE BEEN CLAIMED BY THE ASSESSEE AS DEPRECIATION ON THE SE BOGUS ASSETS AND ACCORDINGLY MADE AN ADDITION. SIMILARLY AO HAS OBSERVED THAT SINCE ASSESSEE AVAILED THE TERM LOAN OF RS. 4.94 CRORE THE INTEREST PAID ON THIS TERM LOAN TO THE EX TENT REBUTABLE TO THESE BOGUS ASSETS DESERVES TO BE DISA LLOWED. HE FOUND THAT ASSESSEE HAS PAID TOTAL INTEREST OF RS. 3158775/- ON THE TERM LOAN AND THE INTEREST ALLOCABLE TOWARDS SUCH B OGUS CAPITAL ADDITION HAS BEEN WORKED OUT AT RS. 1958427/-. HE M ADE THE ADDITION OF THIS AMOUNT ALSO. SIMILARLY AO WAS OF T HE OPINION THAT FOR ERECTING THE CAPITAL ASSETS TO THIS MAGNITUDE A SSESSEE MUST HAVE CLAIM BOGUS EXPENSES ON ACCOUNT OF CONSUMABLES , GAS WELDING ETC. HE WORKED OUT THE EXPENSES OF RS. 25 L ACS ALLEGED TO HAVE BEEN CLAIMED BY THE ASSESSEE ON THIS BOGUS CAP ITAL ERECTION. HE ADDED THIS AMOUNT OF 25 LACS ALSO IN THE TOTAL I NCOME OF THE ASSESSEE. 4. ON THE SAME ANALOGY IN THIS ASSTT. YEAR LD. AO H AS DISALLOWED THE DEPRECIATION ON THE CAPITAL ASSET OF HAVING VALUE R S. 3,06,28,234/-. THE DEPRECIATION DISALLOWED IN THIS YEAR IS OF RS. 57,4 2,794/-. SIMILARLY THE ITA NO. 4544/DEL/2009 ASSTT. YEAR 2006-07 5 INTEREST ALLOCATED BY THE AO ON THIS CAPITAL IS OF RS. 27,34,673/-. IN ASSTT. YEAR 2005-06 LD. CIT(A) HAD DELETED THE ADDITION OF RS. 3,06,28,234/- AS WELL AS DISALLOWANCE OF DEPRECIATION AND INTEREST E XPENSES. IN THE PRESENT ASSTT. YEAR THE LD. CIT(A) HAS FOLLOWED THE ORDER OF ITS PREDECESSOR IN ASSTT. YEAR 2005-06. THE TRIBUNAL WH ILE UPHOLDING THE DELETION OF DISALLOWANCE IN RESPECT OF INTEREST AND DEPRECIATION AS WELL AS DELETION OF ALLEGED BOGUS EXPANSION OF CAPITAL A SSET HAS MADE FOLLOWING OBSERVATION :- 11. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION A ND GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE IN ORDER TO DEMONSTRATE THAT IT HAS MADE ADDITION TO FIXED ASSET CONTENDED THAT SUCH ASSETS HAVE DULY BEEN REFLECTED IN THE AUDITED ACCOUNTS. T HEY ARE EXISTING AT THE PREMISES. IT INVITED THE AO TO VERIFY IT PH YSICALLY OR DEPUTE AN INSPECTOR AS DISCERNABLE FROM THE LETTER DATED 2 7.12.2003. APART FROM THE ABOVE STAND OF ASSESSEE IT PRODUCED LEDGER ACCOUNT OF THREE PARTIES WHOSE EXPENSES HAVE BEEN DOUBTED BY T HE AO. IT PRODUCED HOW ITS PRODUCTION HAS BEEN INCREASED FROM 100 TONES TO 400 TONES AND SALES HAVE BEEN GONE FROM RS. 41 CROR E TO RS. 86 CRORE IN ASSTT. YAER 2005-06. ON THE OTHER HAND THE MATERIAL POSSESSED BY THE AO FOR DOUBTING THE CLAIM OF ASSES SEE IS ONLY THE REPORT OF INSPECTOR WHO REPORTED THAT THESE P ARTIES WERE NOT AVAILABLE ON THE GIVEN ADDRESS. THE AO SOUGHT TO MA KE ADDITION U/S 69 OF THE INCOME TAX ACT ON ACCOUNT OF UNEXPLAI NED INVESTMENT. THUS IF WE WEIGH THE CIRCUMSTANCES AND MATERIAL PLACED ON RECORD BY THE ASSESSEE AND THE MATERIAL P OSSESSED BY THE AO THEN SCALE WOULD TILT IN FAVOUR OF THE ASSES SEE. WHENEVER AN EXPLANATION OR DEFENCE OF AN ASSESSEE BASED ON N UMBER OF FACTS SUPPORTED BY EVIDENCE AND CIRCUMSTANCES, REQU IRED CONSIDERATION, WHETHER THE EXPLANATION IS SOUND OR NOT MUST BE DETERMINED NOT BY CONSIDERING THE WEIGHT TO BE ATTA CHED TO EACH SINGLE FACT IN ISOLATION BUT BY ASSESSING THE CUMU LATIVE EFFECT OF ALL THE FACTS IN THEIR SETTING AS A WHOLE. THE AO HAS TOTALLY IGNORED THE OTHER ASPECTS I.E. ENHANCED PRODUCTION CAPACITY , ENHANCED ITA NO. 4544/DEL/2009 ASSTT. YEAR 2006-07 6 POWER CHARGES, ENHANCED ELECTRIC LOAD AND THE TERM LOAN OBTAINED BY ASSESSEE FOR EXPANSION PURPOSE. THE PAYMENTS MAD E BY THE BANK DIRECTLY TO THE SUPPLIER OF MORE THAN 1.55 CRO RE OUT OF THE MAJOR PORTION OF DOUBTED PAYMENT OF RS. 2,81,28,234 /-. HE SIMPLY DISBELIEVED THE VERSION OF ASSESSEE ON THE BASIS OF INSPECTORS REPORT WHICH IS NOT SUBSTANTIATED. THE INSPECTOR HA S NOT RECORDED THE STATEMENT OF THE NEIGHBOURER OR COLLECTED ANY M ATERIAL. THIS RELATES TO FACTUAL ASPECT OF THE CONTROVERSY. EVEN LEGALLY ADDITION IS NOT SUSTAINABLE. THE LD. FIRST APPELLATE AUTHORITY HAS OBSERVED THAT THERE IS NO PROVISION IN THE LAW TO CONTEMPLAT E SUCH ADDITION OF THE VALUE OF FIXED ASSETS ON ACCOUNT OF BOGUS CLAIM . THE ASSESSEE HAS NOT CLAIMED DEDUCTION OF EXPENSES ON ACCOUNT OF PURCHASES MADE BY IT WHICH CAN BE DISALLOWED BY HOLDING BOGUS CLAIM. HERE THE ASSESSEE HAS BEEN ACCOUNTING THE ASSETS IN ITS ACCOUNTS. THESE ARE DULY RECORDED IN THE BOOKS THEN HOW ADDIT ION U/S 69 CAN BE MADE. SECTION 69 READ AS UNDER:- 69. WHERE IN ANY FINANCIAL YEAR THE ASSESSEE IS FO UND TO BE THE OWNER OF ANY MONEY, BULLION, JEWELLERY OR OTHE R VALUABLE ARTICLE AND SUCH MONEY BULLION, JEWELLERY OR VALUAB LE ARTICLE IS NOT RECORDED IN THE BOOKS OF ACCOUNT, IF ANY, MAINT AINED BY HIM FOR ANY SOURCE OF INCOME, AND THE ASSESSEE OFFE RS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF THE INVE STMENTS OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OP INION OF THE ASSESSING OFFICER SATISFACTORY, THE VALUE OF THE IN VESTMENTS MAY DEEMED TO BE THE INCOME OF THE ASSESSEE OF SUCH FINANCIAL YEAR. 12. A BARE PERUSAL OF THIS SECTION WOULD REVEAL THA T IN ORDER TO ATTRACT APPLICABILITY OF THIS SECTION THERE SHOULD BE MATERIAL INDICATING THE OWNERSHIP OF ASSESSEE OVER ANY MONEY BULLION, JEWELLERY OR VALUABLE AND THE VALUES OF SUCH ARTICL E IS NOT RECORDED IN THE BOOKS OF ACCOUNTS IF ANY MAINTAINED BY THE ASSESSEE OR HE FAILED TO EXPLAIN THE SOURCE OF INCOME IN ACQUIRING SUCH VALUABLE ARTICLE. THUS IN THE PRESENT CASE THE AO WAS REQUIR ED TO FIRST ESTABLISH THAT ASSETS / INVESTMENTS AS NOT RECORDED IN THE BOOKS OF ACCOUNT, WHEREAS THE AO WHILE DEALING WITH THE OTHE R ISSUE HIMSELF HAS HELD THAT ASSETS OF RS. 49494852/- ARE EXISTING . TAKING INTO CONSIDERATION ALL THESE DETAILS WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE REVENUE. THEY ARE REJECTED AND CONSEQUENTLY THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 4544/DEL/2009 ASSTT. YEAR 2006-07 7 5. TAKING INTO CONSIDERATION THE ORDER OF THE TRIBU NAL IN ASSTT. YEAR 2005-06 WE DO NOT FIND ANY ERROR IN THE ORDER OF TH E LD. CIT(A) IN THIS YEAR. THE ISSUES ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE WE REJECT BOTH THE GROUNDS RAISED BY THE REVENUE. 6. IN THE RESULT APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.5.2010. [R.C. SHARMA] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER VEENA DATED: 14.5.2010 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT