INCOME TAX OFFICER-18(3)(3), MUMBAI vs. SHRI SHANTILAL LALCHAND JAIN, MUMBAI

The brief facts of the case as emanating from records are : The assessee is engaged in trading and processing of grey cloths and film production. The assessment in the case of assessee for assessment year 2010-11 was reopened on the basis of information received from the Investigation Wing, Mumbai. As per the information received the assessee has obtained accommodation entries amounting to Rs.68,20,649/- from Ajinkya Multi Trade Pvt. Ltd. During the period relevant to assessment year under appeal, the assessee had allegedly purchased plant and machinery from the aforesaid hawala operator. The Assessing Officer disallowed assessee’s claim of depreciation Rs.10,60,990/- on aforesaid plant and machinery and also the interest expenditure claimed on loan taken against the said machinery. Thus, in total the Assessing Officer disallowed Rs.11,71,078/- on account of bogus purchase of plant and machinery. Against the assessment order dated 17/3/2016 passed under section 143(3) r.w.s. 147 of the Income Tax Act,1961 ( in short 'the Act'), the assessee filed appeal before the CIT(A) challenging reopening of assessment as well disallowance /addition on merits. In first appellate proceedings the CIT(A) rejected assessee’s ground raised against reopening of (A.Y.2010-11) (A.Y.2010-11) assessment. On merits of the addition the CIT(A) restricted disallowance on account of bogus purchase of machinery to 12.5% and directed the Assessing Officer to disallow depreciation proportionately. The Revenue is in appeal against the relief granted by the CIT(A). The assessee has filed cross appeal assailing the addition/disallowance confirmed by the CIT(A).

Shri Sunil Deshpande representing the Department vehemently defending the assessment order submitted that the assessee has failed to discharge its onus in proving genuineness of the dealer and the capital asset purchased. The notice issued under section 133(6) of the Act by the Assessing Officer to the dealer was received back unserved. The assessee has failed to furnish any documentary evidence or the confirmation from the dealer in support of purchase of machinery. The name of dealer from whom the assessee has allegedly purchased plant and machinery appears in the list of hawala operators compiled by the Sales Tax Department, Government of Maharashtra.

On the other hand, Ms. Ritika Aggarwal appearing on behalf of the assessee submitted that the assessee has furnished various relevant documents to discharge his onus in proving genuineness of purchase transaction of plant and machinery. The plant and machinery has been financed by Punjab National Bank. The bank had sanctioned term loan for purchase of plant and machinery. The amount was directly paid by the Bank to Ajinkya Multi Trade Pvt. Ltd. through RTGS. The assessee had furnished copy of Term Loan Statement from Punjab National Bank, copy of purchase invoice of plant and machinery, copy of delivery challan before the Assessing Officer . The assessee had also furnished certificate from the bank and inspection (A.Y.2010-11) (A.Y.2010-11) report before the CIT(A). Merely for the reason that the vendor has not responded to notice issued by Assessing Officer under section 133(6) of the Act, the transaction cannot be held to be bogus. The ld. Authorized Representative for the assessee prayed for deleting the entire addition in respect of purchase of plant and machinery.

Submissions made by rival sides heard, orders of authorities below examined. During first appellate proceedings the assessee produced copies of purchase bills/delivery challan issued by the vendor, ledger account abstracts in the books of assessee for relevant period, term loan statement from Punjab National Bank reflecting the payments made in respect of purchase of plant and machinery, certificate from Punjab National Bank suggesting that the term loan was sanctioned for purchase of machinery and after inspection of the plant and machinery the valuation report. The CIT(A) further observed that the payment was disbursed by the bank to the vendor through RTGS. The CIT(A) sought remand report from the Assessing Officer in respect for the documents furnished by the assessee during first appellate proceedings. The Assessing Officer submitted the remand report vide letter dated 12/03/2018. The CIT(A) after considering the submissions of the assessee, the documents on record and the remand report granted part relief to the assessee by restricting disallowance on plant and machinery to 12.5% and disallowing proportionate depreciation of the said plant and machinery and the payment for purchase of machinery was directly made by bank to the vendor. It is an undisputed fact that the assessee had taken term loan from Punjab National Bank for the purchase of plant and machinery. The bank has confirmed that the machinery purchased was inspected and the valuation report was made thereafter. The report of the bank cannot be summarily rejected. Merely for (A.Y.2010-11) (A.Y.2010-11) the reason that assessee has failed to produce loan sanction letter or the vendor has failed to respond to the notice of Assessing Officer cannot be a reason to suspect that the transaction of purchase of plant and machinery is bogus. I find no reason to reject assessee’s contention. Consequently, the impugned order is quashed and the appeal by assessee is allowed. As a corollary, the appeal by Revenue is dismissed.

To sum up, appeal by the Revenue is dismissed and appeal by assessee is allowed.