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Income Tax Appellate Tribunal, DELHI BENCH, ‘DB’: NEW DELHI
Before: SHRI R.K. PANDA & SHRI N. K. CHOUDHRY
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘DB’: NEW DELHI (Through Video Conferencing) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI N. K. CHOUDHRY, JUDICIAL MEMBER ITA No1555/DEL/2019 [Assessment Year: 2009-10] Metro Frozen Fruits and DCIT, Vegetables Pvt. Ltd. Circle Haridwar, Plot No.22, Rajpur, Vs Uttarakhan Bhagwanpur, Roorkee, Uttrakhand PAN-AAECM4521F Assessee Revenue Assessee by Sh. Piyush Kuchhal, FCA Revenue by Ms. Poonam Sharma CIT-DR Date of Hearing 23.02.2022 Date of Pronouncement 08.03.2022 ORDER PER R.K. PANDA, AM, This appeal filed by the assessee is directed against the order dated 24.01.2019 of the learned CIT(A), Dehradun, relating to Assessment Year 2009-10.
The grounds raised by the assessee are as under:-
On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts. 2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting
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the contention of the assessee that the initiation of the proceedings under Section 147, read with Section 148, is bad and liable to be quashed as the condition and procedure prescribed under the statute have not been satisfied and complied with. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the reassessment proceedings initiated by the learned A.O. are bad in the eye of law as the reasons recorded for the issue of notice under Section 148 are bad in the eye of law and are contrary to the facts. 4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the order passed by Ld AO is bad both in the eye of law and on facts as the same has been reopened on the basis of reasons without there being any whisper that the income has escaped due to the failure on part of the assessee to disclose fully and truly all material facts necessary for assessment, as the same has been reopened after a period of four years from the end of relevant assessment year and the assessment has already been made under Section 143(3). 5. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the notice issued under Section 147 read with Section 148 of the Act is bad in law and barred by limitation in view of the proviso to Section 147, as the same has been issued after a period of four years from the end of the relevant assessment year despite the fact that the original assessment proceedings were completed under Section 143(3) of the Act. 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law rejecting the contention of the assessee that approval having been granted in a mechanical manner is bad in law, hence the consequential proceedings u/s 147 of the Act are illegal and liable to be quashed.
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On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in ignoring the fact that the initiation of reassessment proceedings are bad in law as the same amounts to change of opinion of AO only and not non any fresh material or information. 8. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the reassessment proceedings initiated by the Ld AO are bad in law as the same are based on reasons which are vague. 9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in making an addition of Rs.1,00,02,137/- by making the various additions: i. Unexplained investment in fixed assets 86,47,500/- ii. Depreciation on building 1,80,873/- iii. Excess depreciation11,73,764/- 10. That the above-said additions have been made by indulging in surmises conjecture and without bringing any adverse material on record.” 3. Although, the assessee has raised a number of ground as mentioned above, however the ld. counsel for the assessee restricted his argument to the ground no.9(i) only relating to unexplained investment in fixed assets to the tune of Rs.86,47,500/-. Therefore the other grounds raised by the assessee are dismissed as not pressed and only the ground of appeal no.9(i) is only being taken up for adjudication.
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Fact of the case, in brief, are that the assessee is a company and filed the return of income on 22.09.2019 declaring total income of Rs.970/-. The original assessment was completed u/s 143(3) of the Act on 29.12.2011 determining the total income of the assessee at Rs.47,76,830/- as normal income. Subsequently, the AO initiated reassessment proceedings on the ground that the assessee had not carried forward correct WDV of some assets from AYs 2008-09 to AY 2009-10. He noted that the assessee made additions amounting to Rs.18,08,727/- in the building, (WDV Rs.1,18,44,748/-) during the FY 2008-09 and charged depreciation amounting to Rs.1,80,873/- irregularly on the assets during the year under constructions (work in progress) which was not admissible as the assets were not ready to put to use. The AO further found that the assessee has not carried forward the closing WDV of assets at the beginning of the next year i.e. on 01.04.2008 which led to deduction of excess depreciation amounting to Rs.11,73,764/-. The AO thereafter issued notice u/s 148 of the Act, which was duly served on the assessee. In response to the same, the assessee stated that the return originally filed on 22.09.2009 for AY 2009-10 may be treated as return filed in compliance to notice u/s 148 of the Act.
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4.1. During the course of assessment proceeding, the AO confronted the assessee regarding unexplained investment in the fixed assets. Rejecting the various explanations given by the assessee, the AO made addition u/s 69 of the act by recording the following reasons:-
(i) Unexplained investment in the fixed assets:- I have considered the facts of the case and the reply filed by the assessee. As per reply filed by the assessee, it has received subsidy of Rs.61,80,275/- and Rs.24,67,225/- on machinery and building respectively as per the incentive scheme of the government in AY 2007-08. These amounts of subsidy were deducted by the assessee from the value of the assets in AY 2007-08. However the assessee intentionally deducted the amount of subsidy once again in AY 2008-09 also which led to the incorrect carryforward of value of assets as on 01.04.2008 which is clear from the following chart A.Y. 2008-09 Particulars Rate Addition Total Deduction WDV as on Dep for the WDV as on 01.04.2007 Year 31.03.2008 More than Less than 180 180 Days Days Computer 60% 20,860/- 20,860/- 12,516/- 8,344/- 0 0 0 Machinery 15% 1,27,04,223/ 44,700/- 11,20,664/- 0 1,38,69,587/- 19,96,389/- 1,18,73,198/-
Office 10% 90,97,325/- 1,24,163/- 18,85,296/- 0 1,11,06,784/- 10,16,413/- 1,00,90,371/- Equipments Others 51,24,453/- 0 27,63,811 /- 27,76,846/ 65,76,110/- 0 65,76,110/-
Total 2,69,46,861/ 1,68,863/- 57,69,771/- 27,76,846/ 3,15,73,341/- 30,25,318/- 2,85,48,023/-
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A.Y. 2009-10 Particulars Rate Addition Deduction Total WDV as on Dep for the WDV as on 01.04.2008 Year 31.03.2009 More than Less than 180 Days 180 Days Computer 60% 8,344/- 3,200/- 11,544/- 5,006/- 6,538/- 0 0 Machinery 15% 1,80,53,472/- 18,62,758/- 324984/- 2,02,41,214/- 30,11,809/- 1,72,29,405/- 0 i .1- 77 477/_ Office 10% 1,25,57,597/- 18,75,357/- 1,39,468/- 0 14,50,269/- 1,31,22,153/- Equipments Others 34,74,877/- 30,47,272/- 4,27,605/- 4,27,605/- 0 0 0 Total 3,40,94,290/- 37,38,115/- 4,67,652/- 30,47,272/- 3,52,52,785/- 44,67,084/- 3,07,85,701/- .
From the above two tables it is clear that the WDV of machinery block as on 31.03.2008 was Rs.1,18,73,198/- but WDV of machinery block as on 01.04.2008 has been shown by the assessee at Rs. 1,80,53,472/-. This clearly shows that the assessee has inflated the value of machinery by an amount of Rs.61,80,274/- (Rs. 1,80,53,472/- - Rs. 1.18.73.198/-). Similarly WDV of office equipments as on 31.03.2008 has been shown at Rs. 1,00,90,371/- but WDV of office equipments as on 01.04.2008 has been shown at Rs. 1,25,57,597/-. Thus the assessee has inflated the value of office equipment by an amount of Rs.24,67,226/- (Rs. 1,25,57,597/- Rs. 1,00,90,371/-). Thus the effect of the above exercise is that the value of relevant assets (machinery and office equipments) has been inflated by the assessee by a sum of Rs. 86,47,500/- (61,80,274/- + 24,67,226/-). This is nothing but unexplained investment in various assets by the assessee u/s 69 of the IT Act. The assessee claimed that the subsidy received by the assessee in AY 2007-08 was deducted from the value of assets first in AY 2007-08 and secondly AY 2008- 09 and that when this mistake was noticed by the assessee, he enhanced the value of assets as on 01.04.2008 with the result that the effect of reducing the value of subsidy two times was nullified and the enhanced value of assets as on 01.04.2008 was result of that exercise. The reply of the assessee is not acceptable. The assessee was under legal obligation to have carried forward the correct value of WVD of relevant assets as on 01.04.2008. The right course for the assessee would have been that he should have revised the ITR for AY 2007-08 and AY 2008-09 by revising the correct figure WVD on these assets and thereafter that corrected figures should have been carried
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forwards as on 01.04.2008. But the assessee has not done the same. By not revising the returns for AY 2007-08 and AY 2008-09 and thereafter carrying forward the higher value of WDV of assets, the assessee has committed an accounting fault. The scenario of WDV of relevant assets as on 31.03.2008 and as on 01.04.2008 clearly suggest, that the assessee has “made unexplained investment in the enhancement of value of these assets and therefore the said unexplained investment deserves to be added u/s 69 of the IT Act. Therefore the version and reply of the assessee is not acceptable and the amount of Rs. 86,47,500/- is hereby added to the income of the assessee u/s 69 of the IT Act as unexplained investment in the fixed assets. Penalty proceedings u/s 2Tl(l)("c) is being initiated for concealing particulars of income. (Addition of Rs. 86,47,500/-)” 5. In appeal, the ld. CIT(A) upheld the action of the AO by observing as under:-
“4.6. Decision & Reasons:-
“Now coming to the merits, the main issue raised is the addition u/s 69 of the Income Tax Act, 1961 of Rs.86,47,500/-. In this regard the basic facts are that the assessee got subsidy during the F.Y.06-07 related to A.Y.07-08 the assessee has received a sum of Rs.8647500/- as subsidy (Rs.6180275/- for plant & machinery and Rs.2467225/- for building) under the Capital Investment Incentive Scheme of Govt. The amount of subsidy was duly credited to the account of plant & machinery and building as can be seen from the ledger copies submitted during the Appeal proceedings. This resulted in reduction in the value of plant & machinery & building by the amount of subsidy in the accounting procedure itself. But due to oversight/clerical mistake the amount of subsidy received was again deducted from, the value/block of assets while preparing depredation chart for the purpose of charging depredation as per Income Tax rules. Thus the amount of subsidy has been deducted twice. The double deduction of amount of
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subsidy results into wrong closing value of WDV for the A.Y.07-08 and A.Y.08-09. The error came in the notice of the assesses during the A.Y. 09-10 and therefore the opening WDV as per Income Tax. Soles for A.Y. 09-10 fee; amount of subsidy re- introduced and was taken at revised enhanced value by rectifying the impact of double deduction of amount of subsidy. Admittedly, the mistake on the part of the appellant has occurred in the very first year of 2007-08 wherein he has claimed a double deduction, of subsidy by first actually reducing it in the books of account which w evident from the perusal of the ledger of the building and machinery that has ten filed and then again while drawing out the depreciation chart for A.Y. 07-08 the same amount of subsidy has been claimed again. Now apparently, as stated by the ld. Counsel the mistake has been discovered and this was reintroduced in the year under consideration. It is therefore not surprising that the AO prima facie took it as unexplained investment. The Ld. AR has argued that 11 is obvious from the perusal Of fee records and the facts which are undisputed that there is a mistake apparent from record it is occurring in the first year of business F.Y. 2006-07 relevant to A.Y. 2007-08. However, after considering the facts carefully and going through the depreciation for the current year and the first year he AY 2007-08 if is clear and undisputed that the mistake occurred in the very first year. It is obvious that when the assessee makes such a calm suddenly by introduction of certain amounts enhancing the block value of the depreciated assets, then the AO is duty bound to take adverse cognizance and resort to action under section 147/148 of the Income Tax Act, 1961. The discovery of this mistake in the current year does not given any leeway to the appellant to make a grotesque and absurd claim of revision of WDV on account of subsidy in the present year. The appellant has to go back to the root year when this mistake occurred and take appropriate action accordingly as per law. It is not open to the appellant to suddenly introduce this amount and
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make a claim in the present year. Thus, this ground of appeal therefore fails.” 6. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal.
The ld. counsel for the assessee strongly challenged the order of the Ld. CIT(A) in confirming the addition of Rs.86,47,500/- made by the AO u/s 69 of the Act. The ld. counsel for the assessee drew the attention of the Bench to the provisions of section 69 of the Act and submitted that for invoking the said provisions, there must be some investment and the assessee has no explanation for such investment. The ld. counsel for the assessee drew the attention of the Bench to page 4 of the assessment order and submitted that according to the AO an accounting fault/error was occurred inadvertently by the assessee company. According to the AO the assessee should have rectified the mistake. At the same time, the AO in absence of any concrete finding and convincing himself made addition u/s 69 of the Act especially when the assessee has not made any investment and there was no documentary evidence or circumstantial evidence i.e. any receipt voucher, payment voucher, bills, vouchers, payment proof, etc. of the so called investment, made addition u/s 69 of the Act which is not correct. Referring to the order of
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the Ld. CIT(A), the ld. Counsel for the assessee drew the attention of the Bench to page 7 of the impugned order and submitted that the Ld. CIT(A) has also given a finding that mistake has occurred in the very first year. He submitted that when the mistake is due to some clerical error and the assessee has not made any investment during the impugned assessment year and the error was rectified during the year, therefore, in absence of any unexplained investment made during the year, the provisions of section 69 of the Act are not attracted. He accordingly, submitted that the order of the Ld. CIT(A) be set-aside and the ground raised by the assessee be allowed.
The Ld. DR on the other hand, heavily relied on the order of the AO and the Ld. CIT(A).
We have heard the rival arguments made by both the sides, perused the orders of the A.O. and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We find the AO in the instant case made addition of Rs.86,47,500/- to the total income of the assessee u/s 69 of the Act on the ground that the WDV of plant & machinery as on 31.03.2008 was Rs.1,18,73,198/- but the WDV of machinery & plant as on 01.04.2008 has been shown by the assessee at Rs.1,80,53,472/-, meaning thereby the
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assessee has inflated the value of machinery by an amount of Rs.61,80,274/-. Similarly, the WDV of office equipment as on 31.03.2008 has been shown at Rs.1,00,90,371/-, whereas WDV of office equipments as on 01.04.2008 has been shown at Rs.1,25,57,597/-. Thus, the assessee has inflated the value of office equipment by amount of Rs.24,67,226/- and the effect of the above exercise is that the value of machinery and office equipments has been inflated by the assessee by a sum of Rs.86,47,500/-. We find the ld. CIT(A) upheld the addition made by the AO u/s 69 of the Act, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the ld. counsel for the assessee that since, there is no addition to the fixed assets and the AO does not have any evidence at his disposal regarding any receipt voucher, payment voucher, bills, vouchers payment proof, etc. for any actual investment made by the assessee and since the difference in the WDV at closing of the preceding year and at the beginning of the current year is due to some clerical error which was rectified, therefore, no addition u/s 69 can be made. It is also his submission that when the ld. CIT(A) also has given a finding that the mistake occurred in the
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very first year and it was just clerical mistake even zero impact on tax, no addition u/s 69 is called for.
We find some force in the above argument of the ld. counsel for the assessee. The provisions of section 69 of the Income Tax Act read as under:-
“Unexplained investments. 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.” 11. A plain reading of the above shows that the following two conditions must be satisfied with making the addition u/s 69 of the Act i.e.
i. There must be some investment
ii. The assessee has no explanation for such investment
We find from page 4 of the assessment order, where the AO has observed as under:-
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“The assessee was under legal obligation to have carried forward the correct value of WDV of relevant assets as on 01.04.2008. The right course for the assessee would have been that he should have revised the ITR for AY 2007-08 and AY 2008-09 by revising the correct figure of WDV on these assets and thereafter that corrected figures should have been carried forward as on 01.04.2008. But the assessee has not done the same. By not revising the returns for AY 2007-08 and AY 2008-09 and thereafter carrying forward the higher value of WDV of assets, the assessee has committed an accounting fault.” 13. Similarly, we find the Ld. CIT(A) while deciding the issue against the assessee has observed as under:-
“However, after considering the facts carefully and going through the depreciation for the current year and the first year i.e. AY 2007-08, it is clear and undisputed that the mistake occurred in the very first year.” 14. We, therefore, find merit in the submission of the ld. counsel that when the there is no actual investment of any kind by the assessee during the assessment year especially in absence of any receipt voucher, payment voucher, bills, vouchers payment proof, etc. provisions of section 69 are not applicable and the error is an accounting/clerical error which occurred in the very first year. Therefore, we are of the considered opinion that the disallowance, if any could have been made by re-computing the depreciation on account of wrong figure of closing and opening
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balance of WDV but no addition u/s 69 could have been made. We, therefore, set-aside the order of the ld. CIT(A) and direct the AO to delete the addition made u/s 69 of the Act amounting to Rs.86,47,500/-. However, the AO may re-compute the depreciation on account of difference in the opening and closing balance of the WDV of the fixed assets. The ground raised by the assessee is accordingly partly allowed.
In the result, the appeal of the assessee is party allowed.
Order was pronounced in the open court on 08/03/2022.
Sd/- Sd/- (N. K. CHOUDHRY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi/Dated 08th March, 2022 Shekhar Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT By Order
Assistant Registrar, ITAT, Delhi