MAN GLAM DRUGS & ORGANIS LTD,MUMBAI vs. DCIT CIR 4(2), MUMBAI

The only issue in dispute in the present appeal is disallowance of depreciation claimed of `51,80,357/–.

Briefly the facts relating to the issue in dispute are, the assessee, a company, is engaged in manufacture and trading of bulk drugs, dyes and intermediates, etc. For the assessment year under dispute assessee filed its return of income on 28.09.2011 declaring total income of `56,14,086/–. In course of assessment proceedings the Assessing Officer found that during a survey under section 133A carried out in the business premises of the assessee it was found that certain purchases claimed to have been made by the assessee are not genuine and merely accommodation entries obtained by the assessee. During the post survey proceedings the information obtained in course of survey was confronted to one of the Directors of the company and a statement was recorded, wherein, it was stated that the three parties against whom the expenditure on account of repair and maintenance was claimed were not directly known to the assessee but were introduced through a broker. Further, the Assessing Officer found, during the survey proceedings the assessee vide letter dated 27.12.2013 submitted before the DDIT, (Inv)–Unit–I(3), Mumbai has furnished a working of excessive depreciation claimed by it which worked out to `51,80,357/–. On the basis of the aforesaid working submitted by the assessee, the Assessing Officer added back the amount of `51,80,357/– on account of excessive depreciation claimed by the assessee. Though, the assessee challenged the aforesaid

The learned Authorised Representative submitted, the addition on account of excess depreciation claimed is only on the basis of a statement recorded from one of the Directors of the company. He submitted, the assets on which the assessee has claimed the aforesaid depreciation were capitalised in the financial year 2006–07, 2007–08 and 2008–09. He submitted, in the preceding assessment years assessee’s claim of depreciation on the very same assets have been allowed by the first appellate authority. He submitted, without properly examining the facts and also without taking note of the fact that depreciation claimed on these assets in the preceding assessment years have been allowed, the departmental authorities have arbitrarily disallowed assessee’s claim of depreciation in the impugned assessment year. He submitted, without any other corroborative evidence, by merely relying upon a statement recorded during survey which has no evidentiary value, depreciation claimed by the assessee cannot be disallowed.

The learned Departmental Representative relied upon the observations of the Commissioner (Appeals) and Assessing Officer.

We have considered rival submissions and perused the materials on record. From the impugned assessment order it is evident that on 4 M/s. Manglam Drugs & Organics Ltd. the basis of certain information found during survey conducted on the assessee revealing that purchases made by the assessee from some of the parties are not genuine, a statement was recorded from one of the Directors of the assessee, wherein, it was stated that the parties in whose name the expenditures were debited were directly not known to the assessee but were introduced through a broker. Further, as it appears, during the survey proceedings the assessee furnished a working of excessive depreciation claimed. On the basis of the aforesaid working furnished by the assessee, the Assessing Officer disallowed part of the depreciation claimed amounting to `51,80,357. It also appears, such disallowance is basically for the reason that purchases of assets on which depreciation was claimed were not genuine. Thus, as could be seen, the basis for disallowance of depreciation is the statement recorded from one of the Directors of the assessee and the working of excessive depreciation submitted by the assessee during survey operation. To counter the reasons for disallowance of depreciation, the learned Authorised Representative’s submission before us is two fold. Firstly, only on the basis of a statement recorded during survey, the Assessing Officer has made the disallowance and secondly, assessee’s claim of depreciation on the assets in preceding assessment year was allowed by the learned Commissioner (Appeals).

Undisputedly, during survey under section 133A, the assessee itself has furnished a working of excessive depreciation claimed by it. Therefore, heavy burden lies on the assessee to establish with supporting evidence the fact that it has not claimed excessive depreciation. The assessee must bring on record cogent evidence to demonstrate that the assets on which it had claimed depreciation are in existence and used in assessee’s business. Unless, assessee establishes its claim of depreciation with proper evidence, it cannot be allowed. Therefore, keeping in view the facts and circumstances of the case, we are inclined to grant an opportunity to the assessee to establish its claim of depreciation by furnishing cogent evidence. Accordingly, we remit the issue back to the Assessing Officer with a direction to decide it afresh after examining the evidences brought on record and in accordance with law. Needless to mention, the Assessing Officer must afford a reasonable opportunity of being heard to the assessee before deciding the issue.

In the result, assessee’s appeal is allowed for statistical purposes.