2025 (12) TMI 1642 - AT - Income Tax

Alleged 7.5% cash rebates in construction bills and cogeneration unit depreciation claim, additions and disallowance deleted on appeal

The dominant issues were whether (i) an addition for alleged unaccounted cash payments corresponding to a 7.5% rebate in construction bills was ... Addition of cash returned against the rebate of 7.5% allowed in construction bills - entries found in the seized material contained reference to ‘Bannari Amman’ or BASL’ - HELD THAT:- We find that the AO’s action of estimating unaccounted cash payments in lieu of 7.5% rebate allowed in construction bills was not discernible from the impugned seized material in as much as the third party i.e. the employees of CBPL from whose possession the impugned material was found, had also denied having any unaccounted cash transactions with the assessee. In our view therefore, the impugned addition fell in the realm of conjunctures and surmises. It is obvious that driven by misplaced suspicion, the AO has presumed the assessee would have paid cash in lieu of 7.5% rebate given by CBPL. The findings of the AO is noted to be a mere ipse dixit which is not objectively justifiable by some cogent evidence. For the aforesaid reasons therefore, we thus hold that the Ld. CIT(A) was justified in deleting the impugned addition. Accordingly these grounds are dismissed. Disallowance of excess depreciation claimed by the assessee on cogeneration power unit comprising of boilers, water treatment plant, air cooled condenser etc. - CIT(A) following the order passed by his predecessors deleted the impugned disallowance - HELD THAT:- We find that the impugned issue is no longer res integra. It is observed that this Tribunal in assessee’s own case for AY 2010-11 [2022 (4) TMI 839 - ITAT CHENNAI] has held that, the various components which forms part of cogeneration plant being integral to the cogeneration system is entitled for higher rate of depreciation. Upholding the order of Ld. CIT(A), the Tribunal noted that, the individual components could not be used on standalone basis, except when it forms part of the whole cogeneration system and therefore following the decision of coordinate bench in the case of Sri Sarvaraya Sugars Ltd. [2017 (12) TMI 1220 - ITAT VISAKHAPATNAM] allowed the higher rate of depreciation of 80% (now 40%, in the relevant AY 2019-20) as claimed by the assessee. Appeals of the Revenue are dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether addition for alleged unaccounted cash payments, purportedly representing cash returned against a 7.5% rebate in construction bills, could be sustained solely on the basis of vague third-party seized diaries/loose sheets, coupled with an assumption that a 'modus operandi' admitted in another customer's case would apply to the assessee, despite uncontroverted denials by the searched party's key personnel and absence of corroborative evidence. 2. Whether higher depreciation at 40% was allowable on various components of a cogeneration power unit (including boilers, water treatment plant, air cooled condenser and other integral items), on the footing that such components form an inseparable part of the cogeneration system and are not independently usable on a standalone basis. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Addition for alleged cash returned against 7.5% rebate based on third-party seized notings Legal framework (as discussed/applied): The Tribunal examined the sustainability of an addition treated as unaccounted investment/payment under section 69B, where the Assessing Officer relied on seized material from a third party and proceeded by estimation/extrapolation. The Tribunal applied the principle that while estimation may be permissible in search-related matters, it cannot be arbitrary and must have a basis in material and corroboration. Interpretation and reasoning: The Tribunal found that the seized diaries/loose sheets containing entries against terms like 'Bannari Amman'/'BASL' were vague, ambiguous and unreliable when assessed on a standalone basis. Critically, the Tribunal noted there was no sign/acknowledgment by the assessee in the notings, and no linkage in the seized material to any construction contract particulars such as work orders, invoices, or other identifiers that could objectively connect the notings to the assessee. The Tribunal treated the documents as 'dumb' in the sense that they did not, by themselves, justify fastening liability. The Tribunal further relied on the fact that the searched party's personnel who were connected with the notings denied that any cash was received from the assessee against the 7.5% rebate and also denied that the impugned notings pertained to the assessee. The Tribunal placed weight on the cross-examination in which the denial of cash receipt from the assessee remained consistent. It also accepted the appellate finding that the email relied upon by the Assessing Officer merely reflected cost estimations/working before contract finalisation and did not evidence any cash payment or cash-back arrangement for the 7.5% rebate. The Tribunal rejected the Assessing Officer's approach of presuming that because cash was stated to have been received in another customer's context (15% rebate arrangement), the same pattern must necessarily apply to the assessee's contracts. This was characterised as an impermissible leap based on suspicion and guesswork, particularly where the seized notings did not clearly implicate the assessee and the searched party denied any such dealings. The Tribunal also considered it significant that the same seized notings had been sought to be used to make additions in more than one hand, underscoring the ambiguity and lack of determinative linkage. Conclusions: The Tribunal held that the Revenue failed to discharge the onus of producing independent or clinching corroborative evidence connecting the seized notings to unaccounted cash payments by the assessee. The addition was held to rest on conjectures and surmises and was therefore unsustainable. The deletion of the addition was affirmed for both years (the later year being decided by applying the same reasoning, with only figure variations). Issue 2: Eligibility of cogeneration unit components for depreciation at 40% Legal framework (as discussed/applied): The Tribunal proceeded on the basis of its own prior determination in the assessee's case that components forming an integral part of a cogeneration plant are entitled to the higher rate applicable to the cogeneration system, because such assets are functionally interconnected and not independently operative. Interpretation and reasoning: The Tribunal accepted the appellate view that the relevant items comprised parts of the cogeneration power system and that each item would not have meaningful standalone utility independent of the whole unit. The Assessing Officer's segregation of some components for depreciation at a lower rate was rejected because the Tribunal treated the cogeneration unit as a composite functional system, and its individual components as integral to that system. Conclusions: The Tribunal affirmed allowance of depreciation at 40% on the cogeneration unit components as claimed, following its earlier view that integral parts of the cogeneration system qualify for the higher rate. The Revenue's challenge was dismissed for both years on the same reasoning.