XCELRIS LABS LIMITED,AHMEDABAD V. THE DCIT, CENTRAL CIRCLE-2(1), AHMEDABAD

ITA 32/AHD/2022

AI Insights

Xcelris Labs Limited appealed against the penalty imposed by the Deputy Commissioner of Income Tax, which was confirmed by the Commissioner of Income Tax (Appeals). The penalty was based on the disallowance of depreciation claimed on assets that were either purchased at inflated prices or from non-genuine sources. The Tribunal examined the evidence, including statements from unrelated third parties and documents seized during a search operation at Claris Group, which were linked to the same network of transactions. The Tribunal noted that the appellant had not contested the factual findings regarding the nature of the transactions and the entities involved, which were crucial in determining the legitimacy of the depreciation claims.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711197 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Assessment Year: 2010-2011
• Other Referred Cases: Flourish Purefoods Pvt. Ltd. vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B.P. SRIVASTAVA
• Assessee Lawyers: TUSHAR HEMANI; PARIMALSINH B. PARMAR
• Keywords: Capital asset; Depreciation; Bogus purchase; Principle of natural justice; Accommodation entries; Bogus
• Section: 143(3); 271(1)(c); 32; 132

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE: SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER आयकर अपील सं./I.T.A. No. 32/Ahd/2022 (िनधा[रण वष[ / Assessment Year : 2010-11) Xcelris Labs Limited 1st Floor, Sydney House, Old Premchand Nagar Road, Opp. Satyagrah Chhavni, Bodakdev, Ahmedabad – 380015, Gujarat बनाम/ Vs. Deputy Commissioner of Income Tax Central Circle -2(1), Ahmedabad Öथायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACX0448C (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri Tushar Hemani, Sr. Advocate & Shri Parimalsinh B. Parmar, A.R. Ĥ×यथȸ कȧ ओर से/Respondent by : Shri B. P. Srivastava, Sr. DR Date of Hearing 13/05/2025 Date of Pronouncement 21/07/2025 (आदेश)/ORDER PER SMT. ANNAPURNA GUPTA, AM: The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), Ahmedabad, (hereinafter referred to as “CIT(A)”), dated 06.12.2021 confirming the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2010-11. Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 2 – 2. The grounds raised by the assessee are as under: “1. The learned grossly erred in law and on facts of the case in confirming the action of the Assessing Officer in passing order u/s. 271(1)(c) of the 1.T. Act dated 17/8/2020 imposing penalty of Rs. 19,52,678/ with respect to the addition/disallowance of Rs.63,19,348/ on account alleged excess claim of depreciation by allegedly inflating the WDV of the capital assets and claiming depreciation on alleged capital assets. The said disallowances with respect to which penalty had been levied was made solely on the basis of statement of an unrelated third party recorded u/s. 132(4) in the course of search in another company and therefore the very basis for making the impugned addition falls to the grounds in view of judgment of ITAT, Delhi Bench in the case of Best Infrastructural Pvt. Ltd. 2. The learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the action of the AO in imposing the impugned penalty u/s. 271(1)(c) with respect to an addition made on the basis of a statement u/s. 132(4) of an unrelated third person recorded in the course of Search u/s. 132 in the case of another assessee in utter disregard to the ratio of the judgment of the Hon'ble ITAT, Delhi Bench in case Best Infrastructural (India) Pvt. Ltd., Best Realtors (India) Pvt. Ltd., Best City Developer (India) Pvt. Ltd. and Best City Projects (India) Pvt. Ltd. wherein it was held that an addition made on the basis of statement recorded u/s. 132(4) is not sustainable in law and the said Judgment of the ITAT had been confirmed by the Hon'ble High Court of Delhi in ITA Nos. 11/2017 to 22/2017 and these judgments were specifically brought to the attention of the learned CIT(A) who had ignored the same. 3. The learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the action of the AO in imposing the impugned penalty ignoring the fact that the addition/disallowance of depreciation on which the penalty had been levied, was based on certain loose paper which are nothing but rough computer printouts, seized during the search in the case of Clans Lifesciences Ltd. which cannot be treated as books of accounts or document in the proper sense of the terms. It is therefore prayed that impugned penalty order may please be cancelled. Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 3 – 4. The learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the action of the AO in imposing the impugned penalty ignoring the fact that the appellant has complied with all the conditions necessary for grant of depreciation allowance in accordance with the provisions of section 32(1) of the I.T. Act on the actual cost when the asset was acquired by the appellant in accordance with the provisions of section 43(1) of the I.T Act. It is therefore prayed that impugned penalty order may please be cancelled. 5. The learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the action of the AO in imposing the impugned penalty with respect to the addition/disallowance of appellants legitimate claim of depreciation on the capital assets being plant and machinery which were procured by the appellant, owned by the appellant and used for the purpose of business of the appellant and which are duly reflected in the balance sheet. During the course of assessment proceedings as well as penalty proceedings, the appellant had brought to the notice of the AO that the assets on which depreciation has been claimed genuinely existed and the same can be verified by visiting the premises where the machines are installed and used. 6. The learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the action of the AO in imposing the impugned penalty by placing reliance on the statement of Shri Akshat Shah an unrelated third party alleged to have been recorded during the search u/s. 132(4) without providing the assessee a copy of such statement and also without providing the appellant an opportunity to cross- examine Shri Akshat Shah, who is not an employee of the appellant company, who is not in any way connected with the appellant company and who is a unrelated third party, stranger to the appellant. The impugned additions have been made in violation of the principle of natural justice. It is therefore prayed that impugned penalty order may please be cancelled. 7. The learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the action of the AO in imposing the impugned penalty by placing reliance solely on the assessment order u/s 143(3) r.w.s 153C in utter disregard to the fact that the penalty proceedings are quite distinct and different from the assessment proceedings and the AO is required to record a finding to the effect of commission Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 4 – of default by the assesse for which penalty is sought to be levied. In the order under appeal, the AO has, except for relying on the assessment order, not recorded any finding of fact about the commission of alleged default. It is therefore prayed that impugned penalty order may please be cancelled. 8. The learned Commissioner of Income Tax (Appeals) grossly erred in law and on facts of the case in confirming the action of the AO in imposing the impugned penalty in utter disregard to the ratio of the Supreme Court judgement in the case of CIT vs. Reliance Petroproducts Pvt. Ltd wherein it was held that disallowance by the AO in the assessment order of a claim made by an assessee in the Income Tax return does not constitute the default of furnishing inaccurate particulars of income so as to attract penalty u/s 271(1)(c). It is therefore prayed that impugned penalty order may please be cancelled. 9. Your appellant prays for leave to add, amend and/or alter all or any of the grounds before the final hearing of the appeal.” 3. As transpires from the orders of the authorities below, penalty u/s.271(1)(c) of the Act was levied on the assessee for concealing/furnishing inaccurate particulars of income pertaining to depreciation allowance claimed by the assessee to the extent disallowed in the assessment order framed u/s.143(3) of the Act by the AO and confirmed by the Ld. CIT(A). The disallowance of depreciation was on two counts: i. Depreciation pertaining to inflated cost of purchase of assets amounting to Rs.55,32,934/- and ii. depreciation pertaining to bogus purchase of assets amounting to Rs.7,86,414/-. 4. These disallowances were made on the basis of materials and evidences found during search carried out by the department in the case of Claris Group and its Associates on 04.08.2015. During the Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 5 – course of search, pages nos. 40 to 47 inventorised as Annexure A2 were seized, which were found to contain details of assets with notings like “actual and as per Books”. Two pages were found to be in the form of chart and contained name of supplier, depreciation value of the assets and depreciation for the year 2009, 2010 & 2011. These values were mentioned under the head “actual and as per books”. Further, during search proceedings, Shri Akshat Mohit Shah, Assistant Vice-President (Accounts) in Claris Life Sciences Ltd. in his statement recorded u/s 132(4) of the Act stated the said page to be the actual break up of machinery at Xcelris Labs Ltd., the assessee before us. The AO found the assets noted in the sheet to be purchased by the assessee in F.Y. 2009-10 and subsequent years from the entities mentioned in the chart seized during search at Claris Life Sciences Ltd. and it was also noted that the assets were accounted for to have been purchased at the higher value recorded in the Column “As per Books”. Explanation with regard to the same was sought from the assessee and finding no reasonable explanation being given by the assessee, the AO held that the assets had been accounted for to have been purchased at inflated value and the excess depreciation claimed accordingly, amounting to Rs.55,32,934/-, was disallowed. 5. Similarly, it was noted that the assessee had purchased assets amounting to Rs.3,25,97,490/- from various parties, which were not genuine. Inspector, deputed for verifying the genuineness of the assets, did not find the parties at the given addresses. The said Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 6 – parties were found to have been debarred by the VAT Department of Gujarat. Further, Claris Life Sciences Ltd. in its application filed before the Settlement Commission had accepted to have entered into bogus or non-genuine transaction of capital assets from the aforestated party. Also, Shri Akshat Mohit Shah, Assistant Vice-President (Accounts) in Claris Group had admitted to these parties being bogus firms and entities used for booking bogus purchases. Accordingly, depreciation claimed on the assets purchased from these parties was disallowed amounting to Rs.7,86,414/-. 6. The above additions were confirmed by the Ld. CIT(A) and the assessee was charged with having concealed/furnished inaccurate particulars with respect to the same, inviting penalty u/s.271(1)(c) of the Act amounting to Rs.19,52,678/-, which in turn was confirmed by the Ld. CIT(A). 7. During the course of hearing before us, submissions in writing were filed against the confirmation of penalty levied in the present case. However, the solitary argument raised before us by the Ld. Counsel for the assessee was only with respect to one of the grounds mentioned in the submissions, that under more or less similar facts and circumstances, the ITAT had allowed the claim of depreciation in the case of Flourish Purefoods Pvt. Ltd. vs. DCIT in IT(SS)A No. 518/Ahd/2019, dated 16.12.2024. Copy of the order was placed before us. Ld. Counsel for the assessee pointed out from the said order that in the case of Flourish Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 7 – Purefoods Pvt. Ltd. (supra) identical addition/ disallowance of excess depreciation and bogus depreciation on the basis of evidences found during search conducted on the Claris Group of cases was made and which was confirmed by the Ld. CIT(A). However, the ITAT deleted the disallowance noting that the assessee had all along maintained the assets to having been in the possession of the assessee and had also invited the AO to carry out necessary physical verification of the same, which however, was not done by the AO. Noting the said fact, the ITAT held that depreciation ought not to have been denied to the assessee. Our attention was drawn to para 12 to 16 of the order as under: “12. The brief facts of the case are that the assessee claimed depreciation of Rs. 18,92,228/- on capital assets purchased from JS Enterprise for the assessment year (A.Y.) 2015-16. However, during the assessment proceedings, the Assessing Officer observed that M/s JS Enterprise was not traceable, and there was no valid address for the company. Based on the Inspector's report, the AO observed that the Claris Group, to which M/s Claris Lifesciences Ltd. belongs, had been involved in arranging bogus transactions for capital asset purchases and trading goods. Specifically, Shri Akshat Shah, an assistant vice president (AVP) at Claris, had made a statement during a search operation at his residence on August 4-5, 2015 under Section 132(4), in which he admitted to organizing accommodation entries for Claris with the assistance of various Angadiyas, where cash was paid in exchange for RTGS transfers, and cheques/RTGS were issued against cash payments. The list of firms involved in these bogus transactions, including JS Enterprise and Jalram Finvest Services, was found on Page 9 of Annexure A-1, as shown in the assessment order. Additionally, M/s Claris Lifesciences Ltd. had acknowledged in its application to the Hon'ble Settlement Commission that it was engaged in non-genuine transactions for capital assets with various parties, including JS Enterprise. Given these findings, the AO disallowed the claim of depreciation of Rs. 18,92,228/- for the year under consideration, as the purchase of the capital assets was from JS Enterprise and the same was held to be non-genuine. Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 8 – 13. In the appellate proceedings before Ld. CIT(Appeals), Ld. CIT(Appeals) was of the view that the assessee did not submit any specific arguments regarding the disallowance of depreciation during the appeal proceedings. Upon review, Ld. CIT(Appeals) found no sufficient basis to interfere with the findings of the Assessing Officer in the assessment order. Accordingly, Ld. CIT(Appeals) rejected the assessee's grounds related to the disallowance of depreciation. 14. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals). Before us, the Counsel for the assessee submitted that the Assessing Officer found that the assessee had purchased assets worth Rs. 1,74,60,000/- from J. S. Enterprise during the assessment year (A.Y.) 2013-14. In order to verify the genuineness of this transaction, the AO deputed an Inspector who submitted a report stating that the supplier was not traceable and no address for J. S. Enterprise could be found. Based on this report, the AO issued a show-cause notice to the assessee, questioning the authenticity of the asset purchases and the depreciation claimed on those assets. The notice suggested that the depreciation might have been claimed in excess or was a non-genuine purchase from J. S. Enterprise, covering the assessment years 2013-14 to 2016-17. In response, the assessee had submitted a reply where the assessee affirmed that the purchase of capital goods from J. S. Enterprise was genuine and that these capital goods had been duly installed, commissioned, and put to use for the purposes of the business. The depreciable assets were recorded in the books of accounts, and the assets were owned by the assessee, having already been utilized for business activities. The assessee also submitted that the physical existence of the assets could be verified. The Counsel for the assessee refuted the allegations of the Assessing Officer that Claris Lifesciences Ltd. had admitted to engaging in non-genuine transactions in their application to the Settlement Commission, and submitted that that this claim had no relevance to their case. The Counsel for the assessee assessee argued before us that the claim of depreciation was entirely in accordance with Section 32 of the Income Tax Act, and that when the assets were purchased, J. S. Enterprise had a valid registration with the VAT Department. Therefore, the Counsel for the assessee submitted that no excess or non-genuine depreciation had been claimed for any of the assessment years under consideration. The Counsel for the assessee submitted that the CIT(A) had made an erroneous statement, stating that the assessee had failed to make specific submissions during the appellate proceedings regarding the disallowance of depreciation. In fact, the assessee had submitted detailed arguments on this issue, which were reproduced in the CIT(A)'s order from pages 18-25. On the merits of the case, the Counsel for the assessee submitted that their claim for Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 9 – depreciation was fully justified. The assets purchased from J. S. Enterprise were genuine, had been installed and commissioned, and were in use for business purposes of the assessee. The depreciable assets were recorded in the books of accounts, and the underlying assets were owned by the assessee and already in use. The assessee further argued that the AO had denied their request for a physical verification of the assets. Given these circumstances, the Counsel for the assessee submitted that the impugned addition was unjustified and was liable to be deleted. 15. In response, the Ld. DR placed reliance on the observations made by Ld. CIT(Appeals) in the appellate order. 16. We have heard the rival contentions and perused the material on record. On going through the facts of the case, we observe that the assessee has throughout maintained that the assets in question have been installed, commissioned and also put to use. The assessee had also invited the assessing officer to carry out the necessary physical verification to ascertain whether the assets had in fact been purchased by the assessee. However, the request for physical verification was denied by the assessing officer. The assessee has all throughout maintained that the assets were duly recorded in the books of accounts, the payments were made through banking channels, the assessee had claimed depreciation on these assets in its audited books of accounts and also the assessing officer could have carried out a physical verification to ascertain the fact that the assessee had installed, commissioned and put the asset to use. Accordingly, in light of the above facts, we are of the considered view that depreciation on the above aspects should not be denied to the assessee.” 8. The Ld. Counsel for the assessee, therefore, stated that in identical facts and circumstances, the ITAT having found the disallowance of depreciation to be not sustainable, there was no case for levy of penalty on the same in the case of the assessee. 9. Ld. DR, however, countered by stating that the case of Flourish Purefoods Pvt. Ltd. (supra) was distinguishable on facts since in the said case the disallowance of depreciation pertained only to assets which were found to be bogus. He pointed out that Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 10 – in the present case, the assessee was found to be not only indulging in bogus purchase of assets and claiming depreciation thereon but also in purchasing assets at inflated cost and claiming depreciation on the inflated cost of the assets. He contended, therefore, that the decision of the ITAT in the case of Flourish Purefoods Pvt. Ltd. (supra) was of no assistance to the assessee. He also pointed out that in the present case, the assessee had not filed an appeal to the ITAT and had accepted the order of the Ld.CIT(A) confirming the disallowance of depreciation in the hands of the assessee: that therefore also the assessee cannot derive any benefit from the order of the ITAT in the case of Flourish Purefoods Pvt. Ltd. (supra). 10. We have heard the rival contentions and we are in agreement with the Ld. DR that there is no force in the argument of the Ld. Counsel for the assessee that the disallowance made in the present case of depreciation is maintainable on merits itself being covered by the decision of ITAT in the case of Flourish Purefoods Pvt. Ltd. (supra) and, therefore, no question of levy of penalty on the same u/s. 271(1)(c) of the Act. 11. As rightly pointed out by the Ld. DR, in the case of Flourish Purefoods Pvt. Ltd. (supra), the ITAT had dealt solely with the issue of disallowance of depreciation on bogus/non-genuine purchases of assets while in the facts of the present case, the depreciation disallowed is not only with respect to the bogus purchases of assets but also pertaining to the inflated value of Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 11 – assets. Therefore, as far as the disallowance of depreciation on the inflated value of assets is concerned, which in the present case is Rs.55 Lakhs, the assessee is not benefited in any way by the decision of the ITAT in the case of Flourish Purefoods Pvt. Ltd. (supra). Therefore, with respect to the disallowance of the depreciation pertaining to inflated purchases the argument of Ld. Counsel for the assessee that no penalty is leviable on the same on account of the issue being covered in favour of the assessee in quantum proceedings by the decision of the ITAT in the case of Flourish Purefoods Pvt. Ltd. (supra), is rejected. No other argument having been raised before us against the confirmation of levy of penalty on the same, we see no reason to interfere in the detailed order of the Ld. CIT(A) confirming the levy of penalty on the depreciation disallowed pertaining to inflated cost of assets. 12. With respect to the other portion of depreciation disallowed, pertaining to assets which were found to be bogus, purchased from non-genuine parties ,though on the face of it the issue appears to be identical to that in the case of Flourish Purefoods Pvt. Ltd. (supra), wherein the assessee had taken the plea that he had requested the AO to verify the physical existence of the assets which he had not done and on this basis the relief was granted by the ITAT, We find that though identical argument was shown to have been taken by the assessee before the AO in the present case also requesting the AO to verify the physical existence of the assets, However, we have noted that the assessee has accepted the order of the Ld. CIT(A) confirming the disallowance of Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 12 – depreciation amounting to Rs.7,86,414/- on bogus purchase of assets. The findings of the fact by the Revenue authorities on this issue consistently is that the parties from whom the assets were purchased were not traceable at the stated address by the department. The VAT authorities had debarred these parties from conducting transactions and cancelled their TIN nos. The Assistant Vice-President (Accounts) in Claris Group which was associated with the Abbellion group, to which the assessee belonged, had admitted to the parties from whom the assessee has purchased these assets to be bogus entities. No identity on facts, as found in the case of the assessee, was demonstrated with respect to the Flourish Purefoods Pvt. Ltd. (supra). Ld. Counsel for the assessee has not pointed out that the parties so found to be bogus in the case of the assessee were the same in the case of Flourish Purefoods Pvt. Ltd. (supra) also. Therefore, we hold that no benefit can be derived by the assessee from the order of the ITAT in the case of Flourish Purefoods Pvt. Ltd. (supra) in this regard and that the findings of the facts recorded by the Revenue authorities as noted above based on which a logical finding has been derived by the Revenue authorities of the purchase of assets to be bogus having remained uncontroverted by the assessee, it goes without saying that the assessee has no case at all for not being charged with having concealed/furnished inaccurate particulars of income with respect to claim of depreciation. 13. In view of the same, we see no reason to disagree with the Ld. CIT(A) confirming the levy of penalty on the disallowance of Printed from counselvise.com ITA No. 32/Ahd/2022 [Xcelris Labs Limited vs. DCIT] A.Y. 2010-11 - 13 – depreciation pertaining to bogus assets/inflated assets purchased by the assessee amounting to Rs.7,86,414/-. In view of the above, the order of the Ld.CIT(A) confirming the levy of penalty amounting to Rs.7,86,414/- on the disallowance of excess depreciation is upheld. 14. In the result, appeal filed by the assessee is dismissed. This Order pronounced on 21/07/2025 Sd/- Sd/- (SUCHITRA KAMBLE) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 21/07/2025 S. K. SINHA True Copy आदेश कȧ Ĥितिलǒप अĒेǒषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंिधत आयकर आयुƠ / Concerned CIT 4. आयकर आयुƠ(अपील) / The CIT(A)- 5. ǒवभागीय Ĥितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad Printed from counselvise.com "