KRS FASHION WORKS PRIVATE LIMITED ,BANGALORE vs. INCOME TAX OFFICER WARD-4(1)(2), BANGALORE

The captioned appeal has been filed at the instance of the assessee against the order of CIT(Appeals) dated 31.7.2018 arising from assessment order passed by Assessing Officer (AO) u/s. 143(3) of the Income-tax Act, 1961 [the Act] dated 31.12.2017 relating to assessment year 2015-16.

The solitary grievance of the assessee in the present appeal is towards wrong invocation of section 69C of the Act in the facts and circumstances of the present case.

When the matter was called for hearing, none appeared for the assessee. Accordingly the matter was proceeded ex parte.

The ld. DR relied on the order of the lower authorities.

We have perused the order of CIT(Appeals) and the AO as well as the material placed on record. The applicability of section 69C in the context of the case is in controversy. The assessee in the instance case has made certain additions to the fixed assets during the year amounting to Rs.5,16,723 which was recorded in the books of account. The supporting evidence in the form of bills were, however, produced before the AO to the extent of Rs.1,10,197 only. The additions to the fixed assets to the tune of Rs.4,06,526 has thus remained unsupported. The AO invoked the provisions of section 69C of the Act in respect of depreciation of Rs.36,421 claimed in such unexplained additions to the fixed assets. The CIT(Appeals) also affirmed the action of the AO in the first appeal.

On perusal of the assessment order, it is noticed that the AO has disallowed depreciation on the ground that documentary proof to substantiate the additions to the fixed assets is not available on record. For such reasoning, in our view, section 69C could not be invoked. It is admitted position that requisite entries in the books of account have been made by the assessee in respect of addition to the capital assets. The source of expenditure thus flows from various entries in the books. The capital expenditure on account of fixed assets has not been recorded outside the books. We simultaneously notice that section 69C encompasses within its ambit “expenditure” for which the assessee fails to offer satisfactory explanation. The depreciation in question is in the nature of “allowance/loss” which cannot be equated with expenditure. Thus, section 69C would not apply to an item of revenue nature, otherwise than expenditure. Section 69C, thus, in our view, has no applicability in the facts of the case. The order of the CIT(Appeals) is accordingly set aside and the AO is directed to delete the addition.

In the result, the appeal by the assessee is allowed ex parte.