Tribunal overturns CIT(A) decision on depreciation claim for boilers, reinstates Revenue's disallowance

The Tribunal upheld the Revenue's appeal, overturning the CIT(A)'s decision to allow higher depreciation claimed by the assessee on boilers. The Tribunal found that the assessee failed to provide adequate evidence to support the claim for 80% depreciation on high-efficiency boilers. The CIT(A)'s acceptance of additional evidence without proper verification procedures was deemed improper. Consequently, the Tribunal reinstated the Assessing Officer's disallowance of Rs. 4,54,45,709/-, ruling in favor of the Revenue.

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Issues Involved:
1. Disallowance of Rs. 4,54,45,709/- claimed as depreciation on boilers by the assessee.
2. Admissibility of additional evidence under Rule 46A of the Income Tax Rules, 1962.

Issue 1: Disallowance of Rs. 4,54,45,709/- Claimed as Depreciation on Boilers by the Assessee

The Revenue's primary grievance was the deletion of a disallowance amounting to Rs. 4,54,45,709/-, which was initially disallowed by the Assessing Officer (AO) due to an excess claim of depreciation on boilers. The assessee, engaged in manufacturing and trading of yarn, fabrics, and garments, had filed a revised return claiming 80% depreciation on plant and machinery, specifically on boilers, instead of the originally claimed 15%. The AO did not take cognizance of this revised return and determined the taxable income without considering the higher depreciation claim.

Upon appeal, the first appellate authority (CIT(A)) took cognizance of the revised return and directed the AO to re-adjudicate the issue. The AO, upon re-adjudication, maintained the disallowance, stating that the assessee failed to furnish evidence proving that the boilers qualified as high-efficiency boilers eligible for 80% depreciation as per the Income Tax Rules.

The CIT(A) allowed the assessee's claim, noting that the boilers in question were BFBC (bubbling fluidized bed combustion) boilers, which are eligible for 80% depreciation under the category of "specialized boilers and furnaces" in the Income Tax Act. The CIT(A) also observed that the AO had allowed depreciation at 80% in subsequent years and had not disputed the genuineness of the transactions.

Issue 2: Admissibility of Additional Evidence under Rule 46A of the Income Tax Rules, 1962

The Revenue argued that the assessee did not produce sufficient evidence during the assessment proceedings to justify the higher depreciation claim. The AO had requested evidence multiple times, but the assessee failed to provide adequate proof. The CIT(A) considered additional evidence, including a certificate from a chartered engineer, which was not produced before the AO during the assessment proceedings.

The Tribunal noted that Rule 46A of the Income Tax Rules, 1962, outlines specific conditions under which additional evidence can be admitted by the appellate authority. The CIT(A) admitted the additional evidence without following the prescribed procedure, which includes giving the AO an opportunity to examine the evidence and record reasons for its admission.

The Tribunal found that the CIT(A) did not adhere to these procedural requirements and accepted the additional evidence without proper verification. The Tribunal also observed that the chartered engineer's certificate, dated after the assessment order, did not specify whether the engineer had inspected the boiler or on what basis the certificate was issued. Additionally, the invoices provided by the assessee were found to be inconsistent and did not clearly demonstrate the installation of the high-efficiency boiler.

Conclusion:

The Tribunal concluded that the assessee failed to provide sufficient evidence to substantiate the claim of installing a high-efficiency boiler eligible for 80% depreciation. The CIT(A)'s decision to allow the higher depreciation was based on incomplete and improperly verified documents. Consequently, the Tribunal set aside the CIT(A)'s findings, restored the AO's order, and confirmed the disallowance of Rs. 4,54,45,709/-.

The appeal of the Revenue was allowed, and the order was pronounced on 28th January 2021 at Ahmedabad.

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