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Income Tax Appellate Tribunal, DELHI BENCH ‘H’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This appeal, at the instance of Revenue, arises out of the order dated 21.12.2011 of the ld. CIT(A)-III, Delhi for the assessment year 2005-06 on the following grounds : “
1. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowance ofRs.23,50,000/- made by the Assessing Officer on account of excess depreciation.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.54,47,050/- made by the Assessing Officer on account of unaccounted expenses and investment.
3. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowances of Rs.1,37,084/-, Rs.72,008/-, Rs.53,519/- made by the Assessing Officer out of telephone expenses, vehicle depreciation and vehicle maintenance respectively.
4. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the addition of Rs.10,00,000/- made by the Assessing Officer on account of sale of scrap. 5. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in deleting the disallowances of Rs.7,35,818/- made by the Assessing Officer u/s. 14A of the Income tax Act. 6. The order of the CIT(A) is erroneous and is not tenable on facts and in law.”
2. The brief facts relevant to ground No. 1 are that the assessee is the owner of two units, namely, D-6, Delhi Unit and Baddi Unit. A search and seizure action u/s. 132 of the Act was carried out in Wings Pharmaceuticals group of cases on 14.02.2008 and the assessee company was also covered under the search and accordingly, proceedings u/s. 153A were initiated in the case of assessee company. During the course of search, it was noticed that some of the plants and machineries were shifted by assessee from its D-6, Udyog Nagar Indl. Area Delhi Unit to 35 HPSIDC Industrial Area Baddi unit, Distt. Soin (HP) as noticed from the statements of some of the employees recorded during the search proceedings. Some of the documentary evidences in respect of unaccounted transactions of the assessee as well as its directors were found and seized. From various statements recorded during the course of search, it was noticed that the assessee company has obtained accommodation bills in respect of purchase of machinery. It was also found that the amounts of cheques issues by the assessee were received by the assessee in cash. A survey u/s. 133A was also carried out at Baddi Unit of the assessee on 03.03.2008. As per valuation report, it was found that 89.72% of the machinery installed by the assessee company at its Baddi unit were old. During the search proceedings on 14.02.2008, it was alleged that group had obtained large scale of accommodation bills from M/s. Krishna Machines & Tools, which was operated by Mr. Dinesh Sharma of Ghaziabad. Shri Dinesh Sharma had already been searched by Investigation Wing on 24.10.2007 and earlier by Central Excise and Custom department. As per search by Central Excise Authorities and his statement u/s. 14 of the Central Excise Act recorded, he was operating three firms and accepted that he had been providing accommodation entries to various concerns in Delhi & NCR. He accepted that he has issued bills without supply of machineries to the assessee company during the assessment years 2005-06 and 2006-07. In his statements recorded post search, Shri Dinesh Sharma accepted that he has provided accommodation entries. The assessee has commenced production from May, 2005 at Baddi unit (tax holiday zone unit) whereas no depreciation was claimed in the assessment year 2005-06 for this unit. The assessee produced depreciation chart of this unit, which were produced before the lower authorities for shifting of machinery from D-6 unit to Baddi Unit. The WDV of plant and machinery as on 31.03.2005 of D-6 Delhi Unit as per companies Act was Rs.1,60,50,810/-. Majority of these machineries had been shifted to Baddi Unit during the later part of the period from its Delhi Unit. During the assessment proceedings, the assessee claimed depreciation for its Delhi Unit of Rs.71,91,123/- which includes plant and machinery of D-6 and H-18 both. The assessee could not submit its claim of depreciation for its D-6 unit separately despite giving opportunity by the AO. The value of plant and machinery of D-16 unit and H-18 unit was shown at 1.60 crores and Rs.46 lacs respectively, which represented depreciation of D-6 unit at 77.66%. Therefore, the Assessing Officer estimated the depreciation on the basis of this proportion at Rs.55,84,624/- and accordingly, depreciation of Rs. 23,50,000/- was disallowed and added back to the total income of the assessee on account of major part of machines of D-6 unit were shifted to Baddi unit during latter part of the period. This addition made by the AO stood deleted by the ld. CIT(A) in appeal before him.
3. The DR relied on the order of the AO and submitted that there is no justification to delete the addition made by AO on account of excess depreciation claimed. The ld. AR of the assessee, on the other hand, relied on the order of ld. CIT(A).
4. Having considered the rival submissions and the material available on record we do not find any justification to interfere with the order of ld. CIT(A) on this count. From the list of the machinery purchased by the assessee for the Baddi Unit, it reveals that the purchase of machinery was started from February, 2005 and production at Baddi unit was admittedly commenced from May, 2005 and therefore, no depreciation was claimed on the machinery installed at Baddi Unit for A.Y. 2005-06. It is also an admitted fact and evident that major part of machines at D-6 unit were shifted to Baddi Unit in the later part of the period. Therefore, without going into the question whether and which machines and for what value has been shifted from D-6 unit to Baddi unit during the year, the ld. CIT(A) has rightly observed that the assessee was entitled to claim full depreciation for the whole year, if the machinery has been used for more than 182 days. It is not the case of Revenue that the machines, on which depreciation was claimed by assessee were not put to use for more than 182 days or that the said machinery was not used for the purpose of business. In presence of these facts, we are inclined to sustain the findings of the ld. CIT(A) with respect to deletion of impugned addition. Accordingly, this ground of revenue is liable to be dismissed.
5. The brief facts relevant to ground No. 2 are that during the year the assessee had shown an amount of Rs.10,52,950/- on account of building improvement of 35 HPSIDC, Baddi and errection of machines. The AO estimated these expenses at Rs.65,00,000/- and accordingly made an addition of Rs.54,47,050/- on this head. The ld. CIT(A) deleted this addition vide impugned order, aggrieved by which the Revenue is in appeal before us.
The ld. DR relied on the order of the AO and the ld. AR of the assessee supported the order of the ld. CIT(A).
Having considered the record we find no justification to interfere with the conclusion of the ld. CIT(A) on this count. It is notable that no material or evidence was seized in the search to demonstrate that the assessee had incurred expenses in excess to that shown in the books of account. Moreover, on reference, the DVO, Chandigarh has valued the cost of construction of property No. 35 HPSIDC Baddi at Rs.23,79,000/- on account of building improvement for A.Yrs. 2005-06 to 2007-08, which stands in consonance with the declared expense of Rs.22,37,694/- shown by assessee in its books of accounts. Moreover, this issue has been decided by ITAT, Delhi Bench in assessee’s own case for A.Y. 2006-07 to 2008-09 in 4072 & 4073/Del./2012 in favour of the assessee. Keeping all these facts in view, and respectfully following the decision of ITAT, we are of the considered opinion that the ld. CIT(A) has rightly deleted the addition made by AO for no good reason. Accordingly, ground No. 2 of the Revenue is dismissed.
Adverting to ground No. 3 of appeal of Revenue, it is born out on record that the Assessing has disallowed 1/8th of the telephone expenses, vehicle depreciation & vehicle maintenance on adhoc basis holding that personal element in these expenses cannot be ruled out. No expenditure is pointed out of inadmissible nature. The disallowance on mere suspicion and estimate is not sustainable in view of the decisions of Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills 26 ITR 775 and Sayaji Iron & engineering Co. vs. CIT 253 ITR 749, wherein it has been held that no disallowance is called for on account of personnel use of vehicle/telephone by the directors/officials in the hands of a company. We, therefore, do not find any justification to interfere with the order of the ld. CIT(A) on this count. Accordingly, ground raised by Revenue is dismissed.
The brief facts relevant to ground No. 4 are that the AO on the basis of some notings pertaining to A.Y. 2007-08 and 2008-09, found made on the seized documents during the curse of search proceedings at Baddi Unit, made addition of Rs.10,00,000/- on account of sale of scrap on estimated basis. The ld. CIT(A) deleted the same being based on estimation and surmises without having been substantiated any incriminating material found during the course of search.
The ld. DR relied on the order of the AO and the ld. AR supported the order of ld. CIT(A).
Having considered the material on record, we find that no incriminating material pertaining to the year under consideration was found in the search proceedings to justify the sale of scrap in this year. The alleged notings, whatsoever, pertained to the years 2007-08 and 2008-09. Moreover, the Baddi Unit of assessee commenced production from May, 2005 and therefore, there is no reason to generate the scrap and sale thereof during the assessment year under consideration. We are, therefore, not inclined to interfere with the order of ld. CIT(A) deleting the impugned addition. As a result, ground No. 4 of the Revenue is dismissed.
Coming to the last issue involved in ground No. 5, it is noticed that the AO made disallowance of an amount of Rs.7,35,818/- u/s. 14A read with Rule 8D of the Act. The ld. CIT(A) deleted the addition relying on the decision of Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. 328 ITR 81 (Bom) holding that the Rule 8D is applicable from A.Y. 2008-09 onwards and not the year under consideration.
We have considered the facts on record in the light of findings of ld. CIT(A) and we find that the ld. CIT(A) is quite justified in deleting the addition after following the decision of Hon’ble Bombay High court (supra). Moreover, there is nothing on record to rebut the factual finding recorded by the ld. CIT(A) that the AO has failed to establish any correlation of expenditure with the exempted income. During the year under consideration, there was exempt income for Rs.1,45,161/- and on this income no expenses have apparently been incurred as during the year the investment has decreased from Rs.324.97 lacs to 210.77 lacs. We, therefore, do not find any reason to disturb the finding of CIT(A) that there being no applicability of Rule 8D for A.Y. 2005- 06 and no nexus having been found between the expenses incurred vis-à-vis the exempt income, the disallowance of Rs.7,35,818/- is liable to be deleted. As a result, this ground of Revenue also deserves to be dismissed.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 19.01.2016.