2017 (2) TMI 851 - AT - Income Tax

Tribunal allows appeal, directs AO to capitalize, evidence substantiates claims.

The Tribunal allowed the appeal of the assessee, directing the AO to allow capitalization on both counts. The Tribunal concluded that the evidence ... Bogus expenditure - capitalization of expenditure - reduction from block of fixed assets - genuineness of purchases - evidentiary value of statements recorded during search - investigative duty to verify admissions - suspicion versus proofBogus expenditure - capitalization of expenditure - evidentiary value of statements recorded during search - investigative duty to verify admissions - Addition of Rs. 3.15 crores as bogus capitalization and disallowance of depreciation thereon - HELD THAT: - The Tribunal held that the Assessing Officer's addition based primarily on a statement recorded during search and seizure proceedings could not sustain denial of capitalization where the assessee had produced ledger extracts, confirmations, bank statements, and a valuation report supporting procurement and capitalization. The Bench emphasised that statements recorded during search may be a starting point for inquiry but are not conclusive proof; the revenue ought to have pursued further investigation and taken the matter to a logical conclusion instead of resting the disallowance on that initial statement. In view of concurrent findings in a coordinate bench's decision in the group concerns' proceedings and the assessee's documentary material, mere suspicion could not supplant evidence and the capitalization could not be denied. [Paras 8, 9]Addition of Rs. 3.15 crores treated as bogus capitalization is set aside and capitalization is to be allowed.Genuineness of purchases - bogus expenditure - reduction from block of fixed assets - suspicion versus proof - Disallowance of purchases of steel amounting to Rs. 2,66,03,042/- as bogus and consequent reduction from fixed assets - HELD THAT: - The Tribunal found that the assessee had produced invoices, ledger extracts, payment records and valuation evidence demonstrating procurement and use of steel for construction, whereas the Revenue's case relied on non-appearance of alleged suppliers and a statement recorded during search. The coordinate bench's consideration of the group cases showed the disclosure made by the managing director did not conclusively establish that these purchases were bogus. The Tribunal therefore held that absence of independent corroborative investigation by the AO and mere reliance on the initial statement did not justify treating the purchases as bogus; suspicion alone was insufficient to displace the assessee's documentary proof. [Paras 8, 9]Disallowance of Rs. 2,66,03,042/- as bogus purchases and reduction from block of assets is set aside and capitalization is to be allowed.Final Conclusion: Both additions disallowing capitalization - Rs. 3.15 crores and Rs. 2,66,03,042/- - were set aside by the Tribunal; the Assessing Officer is directed to allow capitalization on both counts and the assessee's appeal is allowed. Issues Involved:1. Inflation of expenditure of Rs. 3.15 crores as cost of fixed assets.2. Bogus expenditure of Rs. 2,66,03,042/- for the purchase of steel.Issue-wise Detailed Analysis:1. Inflation of Expenditure of Rs. 3.15 Crores as Cost of Fixed Assets:The primary issue revolves around the alleged inflation of expenditure amounting to Rs. 3.15 crores, which was claimed as the cost of fixed assets by the assessee. The Assessing Officer (AO) identified discrepancies during a search operation under section 132 of the Income Tax Act, 1961, conducted on the assessee's premises. The AO found that cheques were issued to various parties, but the payments were not made to them. Instead, cash was obtained by discounting these cheques.The AO relied on the statement of Shri Soumil M. Parik, who admitted to encashing the cheques for discounting purposes and returning the cash to the assessee after deducting a commission. Confronted with this evidence, the assessee admitted that depreciation on this amount would not be claimed.The AO added Rs. 3.15 crores to the assessee's income, stating that the confirmations provided by the assessee were stereotyped and appeared to be bogus. The Commissioner of Income-tax (Appeals) [CIT(A)] confirmed this addition, noting that the assessee had been booking bogus bills, leading to inflated expenditure.2. Bogus Expenditure of Rs. 2,66,03,042/- for the Purchase of Steel:The second issue pertains to the addition of Rs. 2,66,03,042/- as bogus expenditure for the purchase of steel. The AO required the assessee to produce the parties from whom the steel was allegedly purchased, but the assessee failed to do so. Consequently, the AO treated these purchases as bogus and disallowed the expenditure under section 69C of the Act.The CIT(A) upheld the AO's decision, stating that the assessee could not prove the genuineness of the purchases. The CIT(A) noted that there was no independent evidence to show the actual and physical delivery of steel from Mumbai to Visakhapatnam. The declaration made by the Managing Director, Shri Nitin M. Shah, admitting discrepancies in the purchase of material, was also taken into account.Tribunal's Findings:The Tribunal considered the rival contentions and the facts of the case. It was noted that the assessee had produced ledger extracts, confirmations from the parties, bank statements, and a certificate from the registered valuer to prove the construction of the building, which indicated the procurement of steel. Payments were made by cheque, and the capitalization was denied solely based on the statement of Shri Soumil M. Parik.The Tribunal referred to a coordinate Bench decision in a related case, where it was observed that the declaration of Rs. 5 crores by the assessee covered the discrepancies in the purchase of material and additions to fixed assets. The Tribunal emphasized that suspicion, however high, cannot replace evidence. It was highlighted that the AO did not conduct further investigations beyond the initial statement, and the CIT(A) did not pursue the matter further.Conclusion:The Tribunal allowed the appeal of the assessee, directing the AO to allow capitalization on both counts. The Tribunal concluded that the evidence provided by the assessee, including invoices, stock details, and the valuation report, substantiated the claims. The Tribunal reiterated that mere suspicion is insufficient without conclusive evidence.Result:The appeal of the assessee was allowed, and the order was pronounced in the open court on 17-02-2017.