2015 (8) TMI 164 - AT - Income Tax

Tribunal affirms CIT(A) decisions, disallows depreciation but overturns purchase disallowance, partially upholds share application addition

The Tribunal upheld the CIT(A)'s decisions on all issues, dismissing the Revenue's appeal. The disallowance of depreciation on energy-saving devices was ... Claim of assessee for depreciation @ 80% of energy saving devices denied - CIT(A) deleting the disallowance - Held that:- The CIT(Appeals) has not given any finding as to whether the plant in question formed part of energy saving plant. He has given relief only on the basis that the effluent treatment plant was installed during the F.Y. 2008-09 relevant to A.Y. 2009-10 and the AO in the assessment order dated 28.3.2011 has accepted the fact that effluent treatment plant was to be treated as energy saving plant on which higher rate of depreciation at 80% has to be allowed. The CIT(A) allowed relief only on the reasoning that in the year of installation; classification of an asset falling within a particular block and being eligible for depreciation at a particular rate; has to be ascertained. Once that is done, in a subsequent year it is not possible for the AO to review the correctness of grant of depreciation in an earlier year. In other words, after the introduction of concept of “block of assets”, the assets loose identity the moment they enter the block and therefore the rate of depreciation of a particular item of depreciable asset cannot be tampered with in a subsequent assessment year. In our view, the reasoning adopted by the CIT(Appeals) is just and proper and calls for no interference. - Decided against revenue. Disallowance of purchases - CIT(A) deleting the disallowance - Held that:- It is no doubt true that it is the duty of assessee to furnish evidence to substantiate expenses in the trading, profit & loss account. According to the assessee, the AO only called for sample vouchers and ledger of purchases and therefore purchase bills were not produced. This fact has not been denied in the remand report filed by the AO before the CIT(Appeals). Therefore, there was sufficient reason for the assessee to file purchase bills evidencing purchase of raw materials and coal before the CIT(A). In the remand report, there is no complaint by the AO that the purchase bills were not believable or the AO did not think it fit to make any further enquiry on the supporting bills filed by the assessee before the CIT(A). In these circumstances, the very basis on which disallowance was made by the AO no longer survives. Even on that basis, the CIT(A) could have allowed relief. Nevertheless, the CIT(A)’s conclusion was on the basis that the AO should have cross-verified from the parties from whom the assessee claimed to have made purchases. In our view, the ultimate conclusions of the CIT(Appeals) that disallowance cannot be sustained is just and proper and calls for no interference. - Decided against revenue. Addition on account of share application money u/s. 68 - CIT(A) deleting the addition - Held that:- It is clear from a reading of the grounds of appeal of the Revenue that, Revenue is satisfied with regard to identity and creditworthiness of the transaction. On this aspect, in the remand report filed by the AO before the CIT(Appeals), no facts have been stated as to why the claim of the assessee and genuineness of the transaction should be doubted. As we have already seen, a sum of ₹ 1.35 crores was received by Balkrishna Malkani from Jitendra Virwani by cheques and the same have been reflected in the income tax returns of Balkrishna Malkani as loans and the corresponding investment in the share application money of the assessee is also reflected. In such circumstances, there is no merit in ground raised by the Revenue - Decided against revenue. Issues Involved:1. Disallowance of depreciation on energy-saving devices.2. Disallowance of purchases due to lack of supporting evidence.3. Addition of share application money under Section 68 of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Depreciation on Energy-Saving Devices:The Revenue contested the CIT(A)'s decision to delete the disallowance of Rs. 20,46,677 on energy-saving devices, arguing that the assessee failed to prove that the plants were part of an energy-saving plant under Rule 5(1) of the I.T. Rules. The CIT(A) had allowed the depreciation based on the assessee's claim that the sewage treatment plant installed in FY 2008-09 was mandatory as per the Karnataka Pollution Control Board (KPCB) requirements and had been consistently depreciated at 80% since AY 2009-10. The CIT(A) noted that the AO had accepted the depreciation rate in the initial year and thus could not alter it in subsequent years due to the concept of 'block of assets.' The Tribunal upheld the CIT(A)'s decision, stating that the reasoning was just and proper, and dismissed the Revenue's grounds.2. Disallowance of Purchases:The AO disallowed 25% of the assessee's claimed expenses on raw material and coal purchases, amounting to Rs. 84,48,518, due to the absence of supporting invoices or documents. The assessee argued before the CIT(A) that the purchases were supported by documentary evidence and that the AO had only requested sample vouchers and the complete ledger of purchases, which were provided. The CIT(A) found that the AO should have cross-verified the purchases by issuing notices under Section 133(6) of the Act if there were doubts about their genuineness. The CIT(A) deleted the disallowance, and the Tribunal agreed, noting that the AO did not dispute the credibility of the purchase bills in the remand report and that the CIT(A)'s conclusion was justified.3. Addition of Share Application Money under Section 68:The AO added Rs. 1,83,09,432 as share application money under Section 68, citing the assessee's failure to prove the identity, creditworthiness, and genuineness of the transaction. The assessee provided a confirmation letter from a director, Mr. Balakrishna Malkani, and details of the source of funds, including a confirmation from Mr. Jitendra Virwani, who lent Rs. 1,35,00,000 to Malkani. The CIT(A) accepted the evidence for Rs. 1.35 crores but upheld the addition for the remaining Rs. 48,09,432 due to lack of proof. The Tribunal found no merit in the Revenue's appeal, noting that the identity and creditworthiness were established, and dismissed the ground.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The CIT(A)'s reasoning and conclusions were found to be just and proper, with no interference warranted.