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 capitalization addition - denial of claim on the basis of statement of Shri Soumil M Parik recorded under section 131 by the department - Held that:- The assessee has produced ledger extracts of the parties, confirmations from these parties, bank statements and also certificate from the register valuer to prove the construction of building, which ultimately proves procurement of steel. Recording of statement of Shri Soumil M Parik recorded under section 131 has already been negated by the coordinate Bench of Tribunal in the group concerns case i.e. Shri Nitin M Shah [2015 (7) TMI 290 - ITAT MUMBAI ] The assessee has produced copies of invoice for purchases and also the details of opening stock, purchases, sales and closing stock. Even the assessee has proved the raw material used in construction of building, which is supported by valuation report. Merely on a statement, which was never confronted or no opportunity to cross examine the party was allowed, in that eventuality the capitalization cannot be denied to the assessee. We agree with the Revenue that the statement recorded by Revenue is a good starting point for making further investigation but it is not conclusive. The Revenue should have made further investigation and take it to logical conclusion but the AO left the job at the initial point itself, which is clear from the assessment order. Even the CIT(A) has not carried this matter further. We are of the view that suspicion however high, cannot take place of evidence. In such circumstances we allowed to these interconnected issues in assessee’s appeal directing the AO to allowed capitalization on both the counts. - Decided in favour of assessee 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.