TaxTMI 
TaxTMI 
1998 (3) TMI 177
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....by the assessee during the previous year. "(c) That the learned CIT(A) has not appreciated the fact that whereas the assessee had purchased 'Keruing Logs', Eucalyptus Timbers etc., it had sold plywood, block board and flush doors etc. (d) That the learned CIT(A) has erred in confirming the ACIT's action in confirming the disallowance of depreciation on machinery costing Rs. 35,96,984 (Rs. 37,34,732- 1,37,748) installed and used for manufacture of plywood/boards etc. 4. That the learned CIT(A) has erred in confirming the addition of Rs. 3,88,333 for alleged suppression of sales." ITA No. 180 of 1994 is the appeal by Shri Anoop Bansal wherein the grounds taken are as under:— "1. That the learned CIT(A) as well as the assessing authority has failed to appreciate the facts and circumstances of the case and have thereby erred in denying the assessee the benefit on the depreciation on machinery. That the learned CIT(A) has confused the issue in holding that the depreciation on the entire machinery was claimed in the hands of Shri Ajay Gupta to whom the machinery had been leased out and the same was disallowed in his hands. The depreciation on machinery belonging to Shri Aj....
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....f fixed assets, the value of machinery as on 31st March, 1988 was shown at Rs. 34,22,510 and a sum of Rs. 3,07,259 was the amount capitalised on account of pre-operative expenses thereby bringing the value of machinery over which depreciation was claimed to Rs. 37,29,770. This was the machinery which was claimed to have been purchased by the assessee in his proprietary concern M/s. Punjab Plywood from which the assessee has claimed to manufacture plywood and other related articles for purposes of his business. 4. Besides this machinery valuing Rs. 37,29,770, Shri Ajay Gupta has also claimed to have taken on lease machinery belonging to Shri Anoop Bansal valuing Rs. 35,97,252 which was claimed to have been used by the assessee Shri Ajay Gupta in respect of which depreciation was not claimed by him but was claimed by Shri Anoop Bansal. Shri Ajay Gupta has claimed a sum of Rs. 1,80,000 on account of lease charges having been paid to Shri Anoop Bansal for the lease of machinery belonging to Shri Anoop Bansal. The Assessing Officer, however, found that out of the value of Rs. 35,97,252 the machinery which was claimed to have been hired by Shri Ajay Gupta from Shri Anoop Bansal, the mac....
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....see in his premises in July, 1987 but the manufacturing processes were undertaken by the assessee w.e.f. 1-1-1988 as full-scale production could not be undertaken as the load required had not been sanctioned by the Punjab State Electricity Board. It was submitted that an application for extension of load was made by the assessee and necessary deposits were made in the shape of security and installation charges for Rs. 43,580 on 7-3-1988. It was submitted that the Asstt. Engineer of the PSEB had raised objections that the load could not be sanctioned in the same premises for two units but the position was clarified that it was the same unit under a different name which was carrying on the business. It was submitted that due to paucity of funds the assessee had undertaken the production with the employment of 4-5 workers who had to be utilised for working on different machines as all the machines could not be run with the electric load available. It was submitted that the assessee had also done the job work to cover up the expenses. It was also submitted that the assessee had carried on the manufacturing activity only in the last quarter of the accounting year under consideration and....
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....was submitted that the details of purchases clearly indicated that the timber logs were processed with the help of glue and chemicals into plywood which was sold by the assessee to M/s. Glass Palace and also to other parties. Accordingly it was submitted that the departmental authorities were not justified in denying the claim of depreciation to the assessee in respect of the machinery owned by the assessee merely because the payments on accounts of wages, electricity etc. were partly debited in the books and were partly made outside the books by the assessee. 7. The ld. D.R. supported the order of the ld. CIT(A) and further submitted that the Assessing Officer had exhaustively dealt with the claim of the assessee in paras 8 to 8.3 of the assessment order and had clearly established that the sanctioned load was just sufficient to carry on the sawing activity of timber into logs but was not sufficient for carrying on the manufacturing of plywood which was a continuous process and required a higher sanctioned load. She accordingly submitted that the departmental authorities were justified in denying the claim of depreciation to the assessee because the machinery although installed w....
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....rly because the Assessing Officer had given a finding that the assessee had sold goods manufactured by it in the form of plywood to M/s. Glass Palace valuing Rs. 4,31,481 although in the books the sale price was shown at Rs. 43,148 only. The finding of the Assessing Officer that these Sales represented the plywood purchased by the assessee locally was not borne out from record as no such purchases were debited in the books of account nor any evidence found at the time of search that the assessee had purchased plywood from the market. In this view of the matter, we are of the opinion that the departmental authorities were not justified in denying the claim of depreciation to the assessee Shri Ajay Gupta in respect of machinery belonging to him worth Rs. 37,29,770. We accordingly reverse the order of the CIT(A) on this point and allow the ground of the assessee. 9. As regards the claim of Shri Anoop Bansal for the depreciation in respect of the machinery leased out by him to Shri Ajay Gupta for which Shri Ajay Gupta had paid a sum of Rs. 1,80,000 to Shri Anoop Bansal, the learned Counsel for the assessee has not been able to furnish a copy of the lease agreement between Shri Ajay Gu....
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....imed any depreciation in respect of leased assets belonging to Shri Anoop Bansal although the orders passed by the lower authorities are not very clear about it as to whether they have denied the claim of depreciation in respect of the assets owned by Shri Ajay Gupta as well as the assets leased out by Shri Anoop Bansal to Sh. Ajay Gupta. However, on the case of Sh. Anoop Bansal the finding is that since the claim of depreciation in the case of Shri Ajay Gupta has been denied as the machinery was not actually used for purposes of manufacturing, the claim of depreciation in the case of Shri Anoop Bansal was also denied. In this view of the matter, we are of the opinion that the matter regarding claim of depreciation in the case of Shri Anoop Bansal Prop. M/s. Standard Carriers requires fresh examination in the light of the agreement of lease entered into by Shri Anoop Bansal with Shri Ajay Gupta pursuant to which lease rent of Rs. 1,80,000 was received by Shri Anoop Bansal from Shri Ajay Gupta and the decision regarding the claim of depreciation will depend upon the interpretation of the terms of the lease agreement as to whether it is the lessor or the lessee who is entitled to dep....
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....nd draft of Rs. 5 lakhs, purchases have been made only to the extent of Rs. 2,05,000 as is clear from the copy of account of the appellant confirmed by M/s. Varat Timber Assam Private Limited, and extracted above. Thus the total purchases and sales can be adopted to the extent of Rs. 10,05,000. only (Rs. 8,00,000 + Rs. 2,05,000). As regards the application of gross profit rate at 10 per cent, the submission of the appellant cannot be accepted because no proper accounts of the sales have been maintained and sales are outside the books of account. Therefore, the estimate of 10 per cent gross profit rate seems to be the fair estimate of gross profit and no interference is called for. So is the case with not allowing any expenditure out of the gross profit so worked out by the Assessing Officer by applying G.P. rate of 10 per cent because there is no evidence of any expenditure having been incurred. Thus, the action of the Assessing Officer in applying gross profit rate at 10 per cent and in not allowing further deduction on account of expenditure was justified and is accordingly confirmed. However, the figures of sales have to be adopted at Rs. 10,05,000 instead of at Rs. 18 lakhs and....
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....d of appeal pertaining to depreciation in the case of Shri Ajay Gupta, I.T.A. No. 786/Chd./1992, the facts, arguments of the respective representatives of the parties are very well recorded in the proposed order in paras 1 to 7 and in order to avoid repetition, these are not being reproduced again. After having heard the rival submissions, perusing the record, I find that search operation was carried out on 16-2-1990 and 17-2-1990 and machinery etc. found at that time could not establish the factum of machinery having been installed in the year under appeal and would not help the assessee's case. Similarly, erection of hydraulic hot press and payment of charges of installation of boiler too cannot be the decisive factor for allowing depreciation in the hands of the assessee. Since the basic requirement for running of machinery is the sanction of electric load, which was admittedly not there, and there is also no concrete evidence of manufacturing of plywood and because there are lot of things out of books in this case and taking into consideration all the facts and circumstances of the case and adopting the basis and conclusion of the learned first appellate authority as mine, I am....
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....President): The following points of difference are referred to me: ITA 786/Chd./92 "Whether, on the facts and in the circumstances of the case, the view of the Accountant Member that the assessee is entitled to depreciation on machinery installed and used for manufacturing ply is correct, or the view of the Judicial Member that the assessee is not entitled to depreciation because basic requirement of sanction of electric load was not admittedly there and, moreover, factum of machinery having been installed in the relevant year, does not get established, if the same is found to be there at the time of search in February, 1990, in correct?" ITA No. 180/Chd./1994 "Whether, on the facts and in the circumstances of the case, the view of the Accountant Member that the issue of depreciation on machinery leased out by the assessee should be looked into afresh after due enquiry is correct or the view taken by the Judicial Member that the claim of depreciation even in the case of the assessee should be disallowed when claim of depreciation has not been accepted (by J.M.) in Ajay Gupta's case (ITA No. 786 of 92)?" The facts giving rise to the above points of difference are in the consol....
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.... used for the purpose of business of the assessee because there was no manufacturing expenses on account of wages, electricity and other incidental expenses. It was also found by the Assessing Officer that the requisite electric connection was not sanctioned to the assessee. He, therefore, came to the conclusion that the assessee was not entitled to depreciation on the machinery valuing Rs. 37,29,770. On appeal, the learned CIT(A) allowed depreciation on part of the machinery as follows: (i) DD Saw Rs. 34,840 (ii) Belt Sender Rs. 36,400 (iii) Multiple Ripsaw Rs. 30,160 (iv) Thickness planner Rs. 18,200 (v) Electric motor Rs. 18,148 ....
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....s manufactured were defective and no sale of scrap had been shown. In that view of the matter, the sale shown by the assessee at Rs. 43,148 was increased to Rs. 4,31,481 on account of suppressed sale and addition of Rs. 3,88,331 was sustained by the CIT (A) and the Tribunal. It is not the case of the Assessing Officer that these items were purchased as readymade by the assessee and sold as such. This addition was sustained by the CIT(A) and the Tribunal. From the order of the Assessing Officer it is seen that an addition of Rs. 1,80,000 was also made on account of income on the unaccounted turnover. The details of purchases and sales of goods were not available. The said addition was reduced to Rs. 1 lakh by the CIT(A) and the same was upheld by the Tribunal. Having regard to the overall position, I am of the view that the assessee has to be given the benefit of depreciation. Firstly, the purchase of machinery has not been doubted. The installation of the machinery also was not doubted. The main reason why it was alleged that the machinery was not operated was the absence of electric connection in the name of the assessee. This lacuna is duly plugged by the payment of electric char....