Tribunal overturns AO's additions for unexplained income & disallowed depreciation

The Tribunal allowed the appeal, directing deletion of additions made by the AO regarding unexplained business income and disallowance of depreciation. The Tribunal found the AO lacked proper basis or reasoning for the additions, ruling the liabilities were not fictitious. The disallowance of depreciation without proper examination was also deemed unjustified. The order was pronounced on 29.03.2023.

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Issues involved:
1. Unexplained business income
2. Income from undisclosed sources without adequate justification
3. Disallowance of depreciation without proper examination

Unexplained business income:
The appeal was against the order of the CIT(A) relating to Assessment Year 2008-09. The assessee challenged the addition of Rs. 11,46,695 made by the AO as bad in law. The Counsel submitted that the amount credited to M/s Stambh Engineers was not a fictitious liability as claimed by the AO. They provided evidence including accounts, bank certificates, and bills to support their case. The Tribunal found that all payments were made through cheques, and the account was settled without any balance remaining. It was held that the AO made the addition without proper basis or reasoning, and the liability was not fictitious. Therefore, the addition was directed to be deleted.

Income from undisclosed sources without adequate justification:
The AO had made an addition of Rs. 1,20,325 on the assumption that the disallowed depreciation of Rs. 6,01,627 was income from undisclosed sources. The Counsel argued that this addition was made without any basis or evidence. The Tribunal observed that no depreciation was claimed by the assessee on the capital work-in-progress. As there was no justification for the disallowance, it was set aside and the AO was directed to delete the addition.

Disallowance of depreciation without proper examination:
The AO disallowed depreciation of Rs. 6,01,627 and further disallowed 20% of this amount without sufficient grounds. The Tribunal noted that the assessee had not claimed any depreciation on the capital work-in-progress. The disallowance was solely based on the assumption that excess contract payment was towards building addition income, without any evidence of depreciation claimed. As a result, the disallowance of depreciation and the additional 20% disallowance were found to be unjustified and not sustainable. The AO was directed to delete the disallowance.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, directing the deletion of the additions made by the AO regarding unexplained business income and disallowance of depreciation. The order was pronounced on 29.03.2023.

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