PRINT SPECIALITIES,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against the Order dated 05.01.2016 of Commissioner of Income Tax (Appeals)-13, Chennai, in for the AY 2008-09 and raised on the following grounds:-

ITA No.1148/Mds/2016 :- 2 -:

1) Issue One: disallowance of depreciation claim Rs.14,29,272/-:

The assessing officer is wrong in disallowing the depredation claimed on Plant and machinery Rs.14,29,272/- and the CIT has erred on confirming the same on the following grounds: a. The Assessing Officer is wrong in disallowing the depredation claim on genuine machinery purchased during the year, while all the conditions laid down for claiming depreciation has been complied with viz. The assessee owns the machine, the machine has been put to use and is used for business purpose. b. The Assessing Officer has failed to appreciate the fact that the entire payment for the purchase of the machine was given by way of DD and has been realized to the account of the vendor of the machine and he has issued receipts for the same. c. The Assessing Officer has failed to appreciate the merits in our submission that the machine has been purchased out of bank loan and the same has been hypothecated to the bank. The bank has conducted inspection and found that the machine is in existence. d. The Assessing Officer is wrong in disallowing the depreciation for the mere fact that notice u/s. 133(6) on the vendor has been returned un-served, while we have given other documentary evidences for the purchase of machines. e. The Assessing Officer is wrong in disallowing the depreciation claim without considering our request for physical verification of the machine. f. The Assessing Officer has failed to appreciate the fact that the advance paid to machine has been shown as Capital work in progress in our accounts. g. The assessing officer has failed to apply the verdict of various courts, wherein it has been held that the depreciation is allowable, if the machine is used even for one day in business. h. The CIT has failed to appreciate the merits of the insurance papers and photographs of the machinery given during the course of the appeal, and has not considered or discussed the same in his order. i. The CIT has relied on the inspection report from the A/O. the assessee has not been given an opportunity to explain/refute the contents of the same either by the A/O or the CIT. j. The CIT has failed to appreciate the fact that the sales tax registration was valid on the date of sale and the status is live. k. The CIT has failed to appreciate the submission that the assessee is a bona fide buyer of the machine, and his onus is to prove that he is in physical possession of the same and cannot be held liable for the mistakes/noncompliance of the vendor.

2) Issue two: addition of loan creditors Rs.2,50,000/-

The Assessing Officer is wrong in adding two unsecured loan creditors Rs.2,50,000/- on the following grounds. a. The Assessing Officer is wrong in saying that no confirmation from the said two loan creditors were produced, while the same were produced vide letter dt. 1/12/2010 in point 3. b. The Assessing Officer has not appreciated the merits of the confirmation given which contains the bank details and cheque no. c. The Assessing Officer has not given us the opportunity for giving further details in respect to this addition, before completing the assessment.

2.0 Ground No.1 is related to the disallowance of depreciation on plant and machinery to the extent of Rs.14,29,272/- by the Assessing Officer (hereinafter referred to as ‘AO’). During the assessment proceedings, the ITA No.1148/Mds/2016 :- 3 -:

AO found that the assessee has purchased plant and machinery for a sum of Rs.78,73,150/- and claimed depreciation of Rs.6,12,545/- and additional depreciation of Rs.8,16,727/-. The assessee furnished the details in the form of purchase invoice, Insurance copy, etc., in support of purchase of plant and machinery. The AO issued notice u/s.136 to the supplier and the letter issued to the supplier was returned un-served with remarks that ‘no such addressee’. The AO observed from the Invoice that the supplier had issued Invoice No.005 on 20.03.2007 for a sum of Rs.9,46,400/- and another Invoice No.001 for Rs.69,26,750/- and left details such as mode of delivery, LR No, DC No., purchase order No., etc., blank. Therefore, the AO disbelieved the genuineness of the purchase of the plant and machinery and disallowed the depreciation claimed by the assessee.

3.0 Aggrieved by the order of the AO, the assessee went on appeal before the Learned Commissioner of Income Tax(Appeal) (hereinafter referred to as ‘Ld.CIT(A)’) and submitted that the assessee has purchased the machinery from M/s.Sri Tirumala Enterprises,Vijayawada in June 2007, they have brought the machinery and installed the same in their business premises. Corporation Bank, Mylapore Branch has sanctioned the term loan and the payment was made directly to the supplier by means of pay orders favouring M/s.Sri Tirumala Enterprises after installation of the machinery. Further, the Ld.AR submitted before the Ld.CIT(A) that M/s.Sri Tirumala Enterprises is not doing any business with ITA No.1148/Mds/2016 :- 4 -: the assessee and cannot doubt the genuineness of the transaction since there was a valid sales tax registration, and the payment was made by pay orders from the bank directly to the suppliers. The assessee furnished photographs of the machinery, insurance details and electricity consumption, etc., and requested the Ld.CIT(A) to delete the addition made by AO. The A.O caused the enquiry through the Additional Range-2, Vijayawada, and found that M/s Tirumala enterprises filed the sales tax returns with the Sales Tax Department 01.07.2007 and filed sales tax return in April, 2008 with NIL turnover and also intimated to the Department that the business was closed on 31.07.2008. The Ld.CIT(A) had issued summons u/s.131 at Vijayawada Office and Visakhapatnam Branch as per the addresses given by the assessee. The summons issued u/s.131 were also returned un-served. During the appeal proceedings the Ld.CIT(A) has given enough opportunities to the assessee to prove the genuineness of transaction but the assessee did not establish the genuineness of transaction. Therefore, the Ld.CIT(A) held that the transaction was not genuine and the assessee was unable to prove the transaction and accordingly dismissed the appeal.

4.0 Aggrieved by the order of the Ld.CIT(A) the assessee filed appeal before us.

Appearing for the assessee, the Ld.AR submitted that the assessee has purchased the machinery from M/s.Sri Tirumala Enterprises in June 2007 and the seller has installed the machinery at the business premises

ITA No.1148/Mds/2016 :- 5 -: of the assessee. The assessee has not taken the delivery challan and LR.

The assessee has taken the bank loan for the purpose of purchase of machinery, payment was made directly to the supplier through bank cheque. Assessee also enclosed the Xerox copy of banker’s cheque issued by Corporation Bank. The assessee has stated that the machinery was received, installed and inspected by the Bank and the insurance company.

The AO could have verified the availability of machinery in the business premises and there is no reason to doubt the purchase of machinery. The Ld.AR contended that purchase is genuine and the machinery is available and hypothecated bank. Therefore, the depreciation is to be allowed in the hands of the assessee.

5.0 On the other hand, Learned Departmental Representative (hereinafter referred to as ‘Ld.DR’) argued that the AO has issued notice u/s.133(6) which was returned un-served with a reason that there is no such address. The assessee has submitted the Invoice dated 20.03.2007 from the supplier bearing No.005 dated 20.03.2007 for Rs.9,10,000/- and invoice No.001 dated 12.06.2007 for Rs.67,25,000/- and which does not bear the mode of delivery challan, etc. The receipts were submitted by the assessee on a letter head from M/s. Sri Tirumala Enterprises, Chennai and Visakhapatnam, instead of Head office, Vijayawada. The Ld.DR argued that the deficiencies of the Invoice issued by M/s.Sri Tirumala Enterprises and the receipts issued by Chennai and Visakhapatnam on different dates leads to suspicion. The Ld.CIT(A) conducted the enquiry through the ITA No.1148/Mds/2016 :- 6 -:

Addl. CIT, Range-2, Vijayawada, as per the Report of Addl. CIT, Range-2, Vijayawada, the firm M/s.Sri Tirumala Enterprises was registered on 01.07.2007 with Commercial Tax Department and closed the business on 31.07.2008 and the turnover declared by M/s.Sri Tirumala Enterprises was NIL. The Ld.CIT(A) issued summons to M/s.Sri Tirumala Enterprises, Vijayawada and Visakhapatnam branches, summons were returned un- served. From the information obtained from Commercial Tax Department shows that there was no sale made by M/s.Sri Tirumala Enterprises to the assessee since it was registered on 01.07.2007 whereas purchases were made by the assessee prior to 01.07.2007. The sales tax returns were also filed with NIL turnover. When the assessee has purchased the machinery from M/s.Sri Tirumala Enterprises, Vijayawada, the payment was made at Chennai by way of Banker’s Cheque payable at Chennai instead of Vijayawada for the reason better known to the assessee. There is no evidence to show that M/s.Sri Tirumala Enterprises was having branch at Chennai. The chronology of events clearly evidence that M/s.Sri Tirumala Enterprises was never registered with Commercial Tax Department before 01.07.2007 and consequently there was no sale of the machinery. The genuineness of the purchase of the machinery has not been established by the assessee. Possession of machinery is different and purchase of new machinery is different. The assessee should own the machinery and unless the genuine purchase is established, the assessee cannot become the legal owner entitling to depreciation. Therefore, the ITA No.1148/Mds/2016 :- 7 -:

Ld.DR argued that the Ld.CIT(A) rightly confirmed the addition it should be upheld.

6.0 We heard the rival submissions and perused the material placed before us.

The Ld.AR has furnished the purchase Invoice, insurance copy, the Xerox copies of pay orders of machinery issued in favour of assessee by the suppliers of machinery M/s.Sri Tirumala Enterprises evidencing purchase of machinery. The photographs of the machinery was also furnished by the assessee. The machinery was purchased from M/s.Sri Tirumala Enterprises, Vijayawada and the payment was made through banker’s cheque payable at Chennai. The notice issued by the AO was returned un-served. The enquiries made with the Commercial Tax Department shows that the firm M/s.Sri Tirumala Enterprises was registered with Sales Tax Department on 01.07.2007 i.e. subsequent to the sale of the plant and machinery. The supplier has closed the business on 31.07.2008 filing NIL returns of sales. All the above events lead to suspicious features but do not disprove the transaction. In the instant case, the assessee had made the payment by bank cheque, furnished the insurance copies and the photographs of machinery which proves the existence and the possession of machinery and two public sector undertakings have inspected the machinery for granting loan by the bank and for insuring the machinery. The assessee has furnished all the evidences regarding the purchase of machinery and we do not find reason

ITA No.1148/Mds/2016 :- 8 -: to disallow the depreciation. Hence orders of lower authorities are set aside and the addition made by the A.O is deleted. The assessee’s ground of the appeal is allowed.

7.0 Ground No.2 is related to the addition on account of loan creditors u/s.68 of the Act.

During the assessment proceedings, the AO found that the assessee has obtained loans from Smt. G.Banumathi & Manjula and the assessee has furnished PAN, bank statements and IT returns. Since the assessee has not furnished the confirmation letters from the creditors, the AO made the addition u/s.68 of the Act. The Ld.CIT(A) confirmed the addition made by the AO. The Ld.AR of the assessee submitted that he has furnished the confirmation letters on 01.12.2010 and the AO has not appreciated the merits of confirmation and not given further opportunity for submitting further details. On the other hand, the Ld.DR relied on the orders of lower authorities.

8.0 We heard the rival submissions and observed that the assessee has furnished confirmations, PAN, bank statements and IT returns. Having furnished all the relevant details, the burden of the assessee has been discharged and it is for the Department to make further enquiries to disprove the transaction. In the Appellant’s case, the AO has not made any such exercise and merely concluded that there was no creditworthiness to the Creditors. We are unable to appreciate the ITA No.1148/Mds/2016 :- 9 -: contention of the AO, since the assessee has furnished the confirmations, PAN, bank statements and IT returns. There is no need to suspect the genuineness and creditworthiness of the loan creditors without having any material. Therefore, the addition made by the AO is deleted and this ground of the appeal is allowed.

In the result, the appeal of the assessee is allowed. 9.0

Order pronounced in the Open Court on 31st January, 2017, at Chennai.