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Income Tax Appellate Tribunal, BENCH “E”, MUMBAI
Before: SHRI G.S.PANNUAND SHRI PAWAN SINGH
This appeal by the assessee under section 253 of Income Tax Act(‘Act’) is directed against the order of learned CIT(A) – 22, Mumbai dated 16.01.2014 for the Assessment Year 2009-10.
The assessee has raised the following grounds in appeal: - The learned CIT(A) erred in adding ₹.5,19,136/- on account of (i) unconfirmed credit balance in sundry creditors. The learned CIT(A) erred in confirming the addition of ₹.8,29,704/- on (ii) account of unconfirmed unsecured loan. (iii) The learned CIT(A) erred in disallowing depreciation on truck of ₹.56,922/-. (iv) The learned CIT(A) erred in disallowing depreciation on Factory Shed amount of ₹ 68,184/-.
(A.Y: 2009-10) M/s Shree Uma Engineering 3. Brief facts of the case are that assessee is a Partnership Firm engaged in the business of manufacturing of Engineering goods, filed return of income for relevant Assessment Year on 26.09.2009 declaring the total income at ₹.3,43,980/-. The assessment was completed on 29.12.2011 under section 143(3). The Assessing Officer while framing the Assessment Order made an additionof ₹. 5,19,136/- on account of unconfirmed credit balance, added ₹. 8,29,704/- on account of unconfirmed unsecured loan, disallowed the depreciation on vehicle (Truck) of ₹. 56,922/- and of ₹. 68,184/- on Factory Shed. On appeal before ld.CIT(A) the all addition/disallowance was confirmed. Further, aggrieved by the order of Ld.CIT(A) the assessee has filed present appeal before us.
We have heard the learned Authorized Representative of the assessee and the learned Departmental Representative for Revenue and perused the material available on record. Ground No.1 relates to addition of ₹. 5,19,936/- on account of unconfirmed credit balance. The learned AR of the assessee argued that during the assessment the assessee was asked to reconcile the net difference of ₹ 8,03,398/- being difference in the closing balance difference as per the books of the assessee. The assessee submitted that ₹ 2,84,262/- was on account of interest charged by the party on outstanding payment with reference to the balance payment of ₹ 5,19,136/-, the assessee furnished the proper reconciliation of the difference explaining that it has arisen on account of intercompany transaction with sister concern i.e. M/s Uma Electricals. The assessee had explained that M/s Uma Electricals had made payment of (A.Y: 2009-10) M/s Shree Uma Engineering ₹11,50,000/- on behalf of assessee. The Assessing Officer passed the order without considering the submissions and the explanations furnished before him. On the other hand, the learned DR for the Revenue supported the orders of the authorities below.
We have considered the rival submissions of the parties and gone throughthe orders of the authorities below. The Assessing Officer during the assessment proceedings observed that the assessee has shown the purchases from M/s Anil Agency. The said party has shown sales of Rs. 65,95,453/-. And there is a net difference of ₹ 8,05,398/- in the closing balance and in the list of sundry creditors. The assessee was asked to explain and reconcile the difference. The assessee filed reconciliation and contended that its sister concern M/s Shree Uma Electricals has made payment of Rs.11,50,000/- on behalf of assessee to M/s Anil agency. The AO verified the ledger account of M/s Shree Uma Electricals, where the said payment was not recorded. From the reconciliation furnished by the assessee furnished the AO concluded that the assessee could not reconcile the difference of ₹ 5,19,136/- and added the same to the income of the assessee. During the first appellate stage the assessee furnished the details with regards to M/s Anil Agency. The issue was remanded to the AO for his remand report. The AO furnished its remand report on 23.10.2013. In the remand report the AO confirmed that the assessee vide its reply dated 30.12.2011 contended that the corresponding journal entry was passed in the books of account of the assessee on 01.04.2009 by debiting M/s Anil Agency
(A.Y: 2009-10) M/s Shree Uma Engineering and crediting M/s Shree Uma Electricals. The ld CIT(A) concluded that the journal entry was passed on 01.04.2009 in the books of the assessee debiting M/s Anil Agency and crediting M/s Uma Electricals cannot explain the transaction for AY 2009-10. We have seen that the observation of ld CIT(A) is unfounded. The assessee has properly explained the reconciliation. Moreover, there is no revenue effect in such inter- group transaction. The AO has not brought any material if there would be any loss of revenue in transfer of such entry. Considering the fact that the assessee has duly reconciled the entry which has been admitted the by AO in its remand report dated 23.10.2013, this ground of appeal is allowed.
6. The ground No.2 relates to addition of unconfirmed loan. The ld AR for the assessee argued that the AO made the addition of Rs. 8,29,704/- on account of unsecured loan holding that the assessee holding that the assessee failed to reconciled the loan from its sister concern. It was argued that assessee has shown unsecured loan of Rs.53,99,916/- in the name of Uma Electricals the assessee gave proper explanation explaining the reasons for differences in the closing balance in the books of assessee and its sister concern. The discripency occurred due to the reasons that no journal entry was made in the books of assessee. The transfer entry was made without affecting the revenue of either company. The AO as well as the ld CIT(A) doubted for the reasons that the entry was not reflected in the same financial year. On the other hand the ld DR for the revenue supported the order of the authorities below. It was argued that (A.Y: 2009-10) M/s Shree Uma Engineering the assessee has manipulated the related party transactions. The explanation of the assessee is after thought.
7. We have considered the rival submissions of the parties and have gone through the orders of the authorities below. During the year under consideration the assessee has shown unsecured loan of Rs.53,99,916/- in the name of M/s Uma Electricals. On seeking confirmation the AO found that M/s Uma Electricals, which is related concern of assessee have confirmed only Rs.45,70,212/-.
Therefore, the difference of Rs. 8,29,704/- was added as unconfirmed unsecured loan in the income of the assessee. During the first appellate the assessee furnished the reconciliation, on which the AO submitted remand report dated 14.10.2013 filed on 23.10.2013. In the remand proceedings the assessee explained that due to the omission of journal entry in the books of the M/s Uma Electrical the discrepancy occurred and not the item of escaping income. We have seen that in the remand report the AO submitted that the difference was rightly added as the documents were not on record during the assessment proceedings. From the contents of the remand report it is clear that the evidence related with journal entry in the books of account of M/s Uma Electricals was filed only at the stage of remand report. The only objection of the AO was that the journal entry in the books of account of M/s Uma Electricals was not filed during the assessment proceedings. Considering the fact that the assessee has properly reconciled the transfer entry and there is no revenue effect in either of the concern. Moreover, the AO has not brought on (A.Y: 2009-10) M/s Shree Uma Engineering record any adverse material on record against the assessee this ground of appeal is allowed.
8. Ground No.3 relates to the disallowance of depreciation on Truck. The ld AR for the assessee argued that the vehicle was put to use as the vehicle can be used on temporary Registration number. It was further argued that the assessee made the entire payment of cost of purchase before 31.03.2009 and copy of the relevant evidence is filed on record. On the other hand the ld DR for the revenue supported the order of the authorities below. It was further argued by ld DR that there is no evidence that the vehicle was put to use before 01.04.2009.
We have considered the rival submission of the parties and have gone through the order of the authorities below. The AO disallowed the depreciation holding that the Registration Certificate (RC) of the vehicle was issued only on 01.04.2009. The ld CIT(A) confirmed the action of AO holding that unless the vehicle is registered the assessee cannot use it. The contention of the ld AR for the assessee is that the vehicle can be put to use on temporary registration number, however, no such document is placed before us. Considering the facts that no evidence with regards to put to use the vehicle was brought on record before the lower authorities, hence, we do not find any illegality or infirmity in the finding of ld CIT(A) qua this ground of appeal. In the result this ground of appeal is dismissed.
10. Ground No.4 relates to disallowance of depreciation on factory shed. The ld AR for the assessee argued that AO gave his finding that the assessee has not (A.Y: 2009-10) M/s Shree Uma Engineering substantiated with documentary evidence that addition was made in the factory building of the assessee. The AO further observed that no proof of source fund, proof of payment was filed before him. The assessee furnished all the evidence during the assessment. It was brought in the notice that during FY 2007-08 the expenditure was incurred and was shown as work in progress hence, no depreciation was claimed during earlier year. On the other hand the ld DR for the revenue supported the order of authorities below.
We have considered the rival submissions of the ld representatives of the parties and further gone through the order of the authorities below. The AO disallowed the depreciation of the factory shed holding that the assessee has not substantiated with documentary evidence that addition was made in the factory building of the assessee. The AO also hold that no proof of source fund, proof of payment was filed during assessment. During the first appellate stage the ld CIT(A) called remand report form AO. In the remand report the AO mentioned that on verification of record for FY 2007-08, it was seen in the Schedule of fixed Asset annexed with the tax Audit report that assessee has shown ‘ work in progress’ at Rs. 6,81.841/-. Despite the fact that the AO categorically mentioned in the remand report the ‘work in progress’ was shown in AY 2008-09 and was transferred to the factory shed. The ld CIT(A) confirmed the action of AO for disallowing the depreciation. We have seen that the AO has not disputed the ‘work in progress’ (factory shed) in FY 2007-08 claimed by the assessee. The AO further not disputed for put to use the asset during the relevant financial year relevant to the assessment year under (A.Y: 2009-10) M/s Shree Uma Engineering consideration. In our view the assessee is entitled for the depreciation as the asset/ factory shed was added in the asset of assessee during the relevant financial year related with the assessment year under consideration. Thus, this ground of appeal
is allowed. 12. In the result appeal of the assessee is partly allowed. Order pronounced in the open court on the 15th September, 2017.