Power plant depreciation dispute over alleged bogus sub-contract costs u/s153C; disallowance deleted, PF and March 2021 items remanded.

Depreciation on a power plant under s.153C was disallowed on the premise that part of the capital cost represented bogus sub-contract payments. The Tribunal held that retracted oral statements, without corroborative seized material linking alleged sub-contractors to cash generation and any return of cash to the assessee, could not override documentary records; excel sheets relied upon lacked evidentiary sanctity and were not incriminating for s.153C, and additions cannot rest on presumptions. The deletion of the depreciation disallowance was upheld and the revenue's grounds were dismissed. For employees' PF contribution, where payment was initiated within time but credited late due to technical glitches, the matter was remanded for bank-balance verification, with deletion directed if funds were available. Depreciation on March 2021 acquisitions was remanded for fresh evidence. Insurance-claim reduction was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether proceedings under section 153C could validly sustain disallowance of depreciation by reducing the cost of a commissioned power plant on the basis of seized third-party documents/soft data and third-party statements, when the seized material related to earlier years and did not establish a document-wise nexus with the assessment years in question.

(ii) Whether depreciation could be disallowed by treating part of capitalised project cost as "bogus" where (a) the plant was demonstrably constructed, commissioned and functional, (b) alleged bogus transactions were between the contractor and its sub-contractors, and (c) the allegation rested substantially on retracted statements and uncorroborated excel data.

(iii) Whether a one-day delay in deposit of employees' contribution to provident fund, allegedly caused by technical/system glitches after online generation of challan within due date, warranted disallowance under section 36(1)(va) read with section 2(24)(x).

(iv) Whether reversal of earlier recognised insurance-claim income, on receipt of surveyor/settlement recommendation limiting the claim, was allowable as an expense/adjustment in the relevant year.

(v) Whether depreciation on new assets claimed to have been acquired and put to use during the year could be denied for want of complete supporting purchase/put-to-use evidence, and whether remand for verification was warranted.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Validity of section 153C action and disallowance of depreciation by reducing project cost as "bogus"

Legal framework (as discussed/applied by the Court): The Court applied the requirement that action and additions under section 153C must be founded on incriminating seized material that pertains to the relevant assessment years and has a nexus with the income sought to be assessed. The Court also applied the principle that statements alone, particularly when retracted and uncorroborated, do not substitute for seized incriminating material.

Interpretation and reasoning: The Court found that the work under the engineering/procurement/construction contract was in fact executed and the plant stood commissioned and operational, supported by invoices and completion/monitoring documentation referred to in the order. The alleged incriminating documents seized during search were work orders, acceptances, guarantees, bills and digital excel data relating to transactions between the contractor and its sub-contractors, and were incidentally connected to an earlier period (financial year 2010-11 / assessment year 2011-12). The Court accepted the appellate finding that the seized material did not support the inference that the assessee had entered into a dubious arrangement to inflate cost, and further noted an internal inconsistency relied upon by the appellate authority: certain digital entries were for January 2011, whereas sub-contract work orders were issued in March 2011, making the "kickback prior to sub-contract" inference implausible on the seized record. The Court emphasised that no independent enquiry was made with relevant third parties or monitoring institutions to corroborate the allegation, no evidence was found of any kickback receipt by the assessee, and the alleged arrangement was not shown through any admissible documentary linkage between the assessee and the sub-contractors.

On evidentiary weight, the Court held that the assessment substantially rested on oral statements of third parties; one key statement was retracted shortly after recording, thereby losing reliability absent corroboration, and the excel sheets relied upon were not treated as incriminating seized material against the assessee and were unsupported by primary records. The Court concluded that, in the absence of corroborative incriminating material connecting the assessee to alleged bogus capital cost, disallowance of depreciation by reducing project cost was unsustainable. It also noted that the alleged payments forming the basis of the "bogus cost" related to earlier years, and the Department had not disturbed the recorded project cost in the year(s) of incurrence; therefore, depreciation on the brought-forward capitalised cost could not be denied on the material relied upon.

Conclusions: The Court upheld deletion of depreciation disallowance for the relevant years where it was made on the alleged "bogus" portion of capitalised cost, holding that the Revenue failed to establish, through incriminating seized material and corroboration, any inflation/over-invoicing or kickback receipt by the assessee; reliance on retracted statements and uncorroborated excel data was insufficient. The Revenue's appeals on this depreciation issue for multiple years were dismissed by applying the same reasoning where facts were identical.

Issue (iii): Disallowance of employees' PF contribution for one-day delay attributed to technical glitch

Legal framework (as discussed/applied): The Court considered the rule that employees' contribution is disallowable if deposited beyond the due date under the relevant welfare legislation, but accepted that exceptional circumstances such as technical/system glitches may warrant relief if payment action was initiated within due date and delay was not attributable to the assessee.

Interpretation and reasoning: The Court examined the challan timestamps and found that the challan was generated online within the due date, while "presentation/realisation" reflected a later date consistent with system/banking processing issues. However, the Court found an evidentiary gap: it was not clear whether sufficient bank balance existed during the period between challan generation and realisation.

Conclusions: The matter was not finally allowed outright; the Court directed the assessing authority to verify availability of sufficient bank balance during the relevant period, and if sufficient balance existed, no disallowance should be made as the delay was attributable to technical glitches. The ground was partly allowed for statistical purposes with remand directions.

Issue (iv): Allowability of reversal of earlier recognised insurance-claim income (reduction in insurance claim)

Legal framework (as discussed/applied): The Court accepted that where an amount was earlier recognised/offered as income on a reasonable basis and later becomes not receivable due to limitation/settlement, the difference can be adjusted in the year of crystallisation; it approved the appellate analogy to bad debt-type adjustment, with the safeguard that any later recovery would be taxable in the year of receipt.

Interpretation and reasoning: The Court noted that earlier recognition of insurance-claim income had not been disputed in those years. Upon receipt of the surveyor's report/recommendation limiting the claim, the assessee reversed the excess income previously recognised and debited it under "other expenses" as reduction in insurance claim. The Court accepted that the limiting information was received before signing the financial statements and therefore appropriately accounted in the year under appeal. It also recorded that the assessee had losses in the relevant years and treated the issue as not causing revenue prejudice on timing.

Conclusions: Deletion of the disallowance was upheld; the reduction in insurance claim was allowable in the relevant year, subject to taxation of any subsequent excess recovery if received later.

Issue (v): Depreciation on new assets allegedly purchased and put to use-lack of complete evidence and remand

Legal framework (as discussed/applied): Depreciation allowance depends on proof of acquisition and put to use. Where the claim is denied for lack of evidence but the assessee seeks an opportunity to furnish complete documentation, remand for verification may be ordered in the interest of justice.

Interpretation and reasoning: The Court observed that the sole basis for disallowance was failure to furnish complete purchase bills/e-way bills and proof of put-to-use, though the assessee asserted it had furnished sample documents and the remaining documents were voluminous. The Revenue did not oppose verification on remand.

Conclusions: The issue was set aside to the assessing authority to verify purchase/supporting documents and put-to-use evidence; depreciation is to be allowed in accordance with law upon such verification. The assessee's ground was partly allowed for statistical purposes.

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