S.KALPANA,KARUR vs. JCIT, TRICHY

We heard the parties and perused the record. We notice that the assessee is engaged in the business of manufacture of mosquito nets. During the course of assessment proceedings, the Assessing Officer disallowed 10% of labour expenses claimed by the assessee, since he found that the vouchers produced in support of the same were self made vouchers. The assessee also agreed for the said addition. Further, it was noticed that the assessee has received a loan of `50.00 lakhs from a sister concern. On examination of the same, it was found that the same represents a value of machinery purchased by the said sister concern and given to the assessee. The Assessing Officer further noticed that the assessee has claimed depreciation thereon. When enquired, the assessee submitted that it has included the cost of machinery in its fixed assets and it is only using the machinery. Accordingly the assessee submitted that it has claimed depreciation on the value of machinery. However, the Assessing Officer took the view that the sister concern has given the machinery on loan to the assessee and hence the assessee is not entitled for I.T.A.No.2728/Mds/2014. :- 3 -: . depreciation thereon. Accordingly he disallowed the depreciation claimed on the value of the machinery. The Ld CIT(Appeals) also confirmed both the disallowances made by the Assessing Officer.

With regard to the disallowance made out of labour expenses, we notice that the Ld CIT(Appeals) has confirmed the same on the reasoning that the assessee had agreed for the said disallowance during the course of assessment proceedings. Accordingly, the Ld CIT(Appeals) held that the assessee could not be considered as aggrieved by the said disallowance. Before us, the Ld A.R could not show that the said observations made by the tax authorities were wrong. Since the assessee has agreed for the disallowance of 10% of labour expenses during the course of assessment proceedings, we do not find any infirmity in the decision of Ld CIT(Appeals) in rejecting the ground of the assessee on this issue.

The next issue relates to the disallowance of depreciation on the machinery. We notice that the assessing officer has entertained the impression that the sister concern is the owner of the machinery and it has only allowed the assessee to use the same by lending the machinery. However, the contention of the assessee is that the machinery was taken over by the assessee and the value of the same I.T.A.No.2728/Mds/2014. :- 4 -: . was duly included in the Fixed assets by showing corresponding amount as liability payable to the sister concern. The said contention of the assessee effectively means that the assessee has purchased the machinery by borrowing funds from the sister concern, even though the sister concern has first purchased the machinery and later given it to the assessee. In our considered opinion, if the assesses has included the value of machinery as its fixed assets, then the assessee should be considered as the owner only. Since the assessee only has used the machinery for its business purpose, depreciation should be allowed thereon. Since the assessing officer has failed to examine the books of account to examine the above said fact, we are of the view that the same requires examination at his end. Accordingly, we set aside the order of Ld CIT(Appeals) on this issue and direct the Assessing Officer to examine the books of account of the assessee and allow the depreciation, if the assessee has shown the machinery as its fixed asset.

In the result, the appeal of the assessee is treated as partly allowed for statistical purposes.

I.T.A.No.2728/Mds/2014. :- 5 -: . Pronounced accordingly on 05-02-2015 in the open court in the presence of parties after the conclusion of hearing.