ACIT, NEW DELHI vs. M/S. WINGS PHARAMACEUTICALS (P) LTD., NEW DELHI

ORDER

Per L.P. Sahu, Accountant Member:

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.