2019 (4) TMI 761 - AT - Income Tax

ITAT Allows Depreciation Set-off & Confirms 12.5% Addition

The ITAT upheld the CIT(A)'s decision to allow the set-off of unabsorbed depreciation from AY 1998-99 to 2000-01 against the income for AY 2010-11, based ... Bogus purchases - additions to the tune of 12.5% - HELD THAT:- Hon’ble Supreme Court in the case of Kanchwala Gems v. JCIT [2006 (12) TMI 83 - SUPREME COURT] has held that in best judgment assessment an honest and fair estimate of income is to be made. We at this stage do not want assessee to be relegated to pains of another round of litigation based on material on record. In our considered view based on facts and circumstances of the case, we find that estimation of profit by CIT(A) to the tune of 12.5% of the alleged bogus purchases as income of the assessee over & above what was declared by the assessee in his return of income, is considered to be a reasonable and fair estimate , which we confirm/affirm. In the result, the appeal of the revenue on this ground stood dismissed. Set-off of carried forward depreciation against the income of the current year - HELD THAT:- AO has observed that assessee has already sought set off of this un-absorbed deprecation against the income of years prior to the impugned assessment year which was not allowed by the AO for those years. However, since the claim of the assessee is now allowed by the tribunal as above, the AO is directed to make necessary verification while allowing set off of un-absorbed deprecation for AY 1998-99, 1999-00 and 2000-01 against income of the impugned assessment to ensure that the same was not allowed for earlier years to avoid duplications. CIT(A) has also given similar directions to the AO for verifications to avoid duplication of the same claim. We donot find any infirmity in the order of learned CIT(A) granting relief to the assessee for the impugned assessment year. The Revenue fails. Issues Involved:1. Set-off of carried forward depreciation from AY 1997-98 to AY 2000-01.2. Validity of reassessment proceedings under Section 147.3. Genuineness of purchases and addition of income based on alleged bogus purchases.Issue-Wise Detailed Analysis:1. Set-off of Carried Forward Depreciation:The primary issue was whether the unabsorbed depreciation from AY 1997-98 to AY 2000-01 could be set off against the income for AY 2010-11. The AO disallowed the set-off, citing the restriction of eight years for carrying forward unabsorbed depreciation, which was in effect for AY 1997-98 to AY 2001-02. However, the CIT(A) allowed the set-off based on the amendment by the Finance Act, 2001, which removed the eight-year restriction, allowing indefinite carry-forward of unabsorbed depreciation. The CIT(A) relied on the Gujarat High Court's decision in General Motors India Pvt. Ltd. v. DCIT, which held that unabsorbed depreciation available as of 1st April 2002 could be carried forward indefinitely. The ITAT upheld the CIT(A)'s decision, confirming that the unabsorbed depreciation from AY 1998-99, 1999-2000, and 2000-01 could be set off against the income for AY 2010-11.2. Validity of Reassessment Proceedings:The reassessment proceedings were initiated under Section 147 based on the information that the assessee had availed accommodation entries from persons issuing bogus purchase and sale bills without actual delivery of goods. The assessee did not challenge the reopening of the assessment, and thus, it attained finality. The AO issued a notice under Section 148, and the reasons for reopening were communicated to the assessee. The ITAT noted that the reopening was done within four years from the end of the assessment year, and there was no scrutiny assessment originally framed under Section 143(3) read with Section 143(2).3. Genuineness of Purchases and Addition Based on Alleged Bogus Purchases:The AO added 25% of the alleged bogus purchases to the income, suspecting the genuineness of the transactions based on information from the Maharashtra Sales Tax Department and the inability of the assessee to produce the parties for verification. The CIT(A) reduced this addition to 12.5%, considering the consistency with similar disallowances in previous years. The ITAT upheld the CIT(A)'s decision, noting that the authorities below had taken a plausible view by estimating the profits embedded in the bogus purchases. The ITAT also referenced the Supreme Court's decision in Kachwala Gems v. JCIT, emphasizing that an honest and fair estimate of income should be made in such cases. The ITAT rejected the Revenue's contention to add 100% of the alleged bogus purchases, as there were no clinching and conclusive evidences to justify such an addition.Conclusion:The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the set-off of unabsorbed depreciation and to restrict the addition based on alleged bogus purchases to 12.5%. The ITAT emphasized the importance of a fair and reasonable estimate of income and the need for conclusive evidence to justify higher additions.