Bombay High Court
Pr. Commissioner Of Income Tax, Central ... vs Nitin Cylinders Ltd on 31 January, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
2024:BHC-OS:1847-DB
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL (IT) NO. 1040 OF 2018
Principal Commissioner of Income Tax,
Central-2, R. No. 1920, Air India Building,
Nariman Point, Mumbai - 400 021. ...Appellant
Versus
Nitin Cylinders Ltd.,
501, Delta Technology Street,
Hiranandani Garden, Powai,
Mumbai - 400 076.
PAN : AACCN3694A ...Respondent
Mr. Suresh Kumar for Appellant.
None present for Respondent.
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
DATED : 31st January 2024
ORAL JUDGMENT : (Per Dr. Neela Gokhale, J.)
1. Appellant assails judgment and order dated 17 th February 2017
passed by the Income Tax Appellate Tribunal ("ITAT"), 'B' Bench,
Mumbai. While allowing the appeal filed by assessee, the ITAT has
held that capitalization cannot be denied to the assessee merely on a
statement given by him, without adducing evidence of other
necessary parties.
2. Assessee company, the Respondent herein, is engaged in the
manufacture of high-pressure seamless cylinders. Search and seizure
operations were conducted in the group concerns of assessee on 6 th
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September 2007. During the course of assessment proceedings, the
Investigation Wing found and seized incriminating material and
found discrepancies in the construction account of plant and
procurement of steel. A disclosure statement of Shri. Nitin Shah,
Director of assessee company revealed that an amount of Rs. 5.36
crores was shown in his returns to cover an amount of Rs. 3.51 crores
capitalized in assessee company and another sum of Rs. 1.82 crores
to cover other issues. According to the Department, it was revealed
during the pre-search investigation that Respondent company used to
issue cheques to certain persons. Such persons would encash the
cheques and return the amount in cash to the Directors of
Respondent after deducting their commission. In this manner, the
Directors siphoned off cash by issuing cheques against bogus capital
expenses debited in the accounts of Respondent company. An
enquiry carried out by the Assessing Officer ("AO") confirmed that
amounts of Rs. 3,15,00,000/- and Rs. 2,66,03,042/- totalling Rs.
5,71,03,042/- were found to be bogus. The assessment order dated
30th December 2009 under Section 143(3) of the Income Tax Act,
1961 ("the Act") was passed determining the income to be Rs.
30,64,250/-.
3. Assessee challenged the order of AO before the Commissioner
of Income Tax (Appeals) ("CIT(A)"). The CIT(A) by his order dated
5th March 2013 concurred with the order passed by AO and the
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appeal was dismissed. Assessee challenged the order of CIT(A)
before the ITAT which allowed the appeal. It is this order that is
assailed in the present appeal.
4. The following Questions of Law were proposed by Appellant
for determination :
"6.1 "Whether on the facts and in the circumstances of the case
and in Law, the Hon'ble ITAT has failed to consider when the Co-
ordinate Bench of the Hon'ble ITAT vide order dtd. 30/06/2015 in
treating amount of Rs. 3,15,00,000/- and Rs. 2,66,03,042/- being
amounts of cheques issued, but encashed at discount from the
suppliers and Bogus Purchases respectively, capitalized in the books
of account, the assessee company was not eligible for depreciation
on the said amounts?"
6.2 "Whether on the facts and in the circumstances of the case
and in Law, the Hon'ble ITAT failed to consider when Shri. Nitin M.
Shah admitted during the course of search u/s 132(4) of the Act,
as recorded by the ITAT in para 3 of the order, that he will not
claim depreciation on amount of Rs. 3,13,07,498/- and offered the
said amount as part of disclosure of Rs. 5 cr., in his return of
income, he ought to have withdrawn claim of depreciation on the
above amount in the return of income of the assessee company?"
6.3 "Whether on the facts and in the circumstances of the case
and in Law, the Hon'ble ITAT failed to consider that when in the
case of Shri. Nitin M Shah, as reproduced in para 8 of the order,
Ld. CIT(A)'s finding that addition of Rs. 2,66,03,042/- is on bogus
account and depreciation has been wrongly claimed on the
capitalization of said amount, has been accepted by Shri. Nitin M.
Shah and has become final, the assessee company ought to have
withdrawn claim of depreciation on the above amount?"
6.4 "Whether on the facts and in the circumstances of the case
and in Law, order of the Hon'ble ITAT can be said to be perverse
since the finding recorded by it in para 9 of the order is in
complete disregard to the finding recorded by the Co-ordinate
Bench in respect of the amounts of Rs. 3,15,00,000/- and Rs.
2,66,03,042/- in the case of Shri. Nitin M. Shah?"
5. Appellant assails the order passed by the ITAT on various
grounds inter alia including and mainly that firstly, the Tribunal did
not interpret correctly the meaning of sections 28, 32 & 132(4) of the
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Act; secondly, the Tribunal failed to consider an order dated 30th June
2015 passed by the Co-ordinate Bench of the Tribunal in ITA No.
4433/Mum/2013, which treated the amounts alleged to be bogus as
being capitalized in the books of accounts on the basis that assessee
was ineligible for depreciation on the said amount and lastly, the
Tribunal failed to consider that since, Shri. Nitin Shah recorded his
statement that he will not claim depreciation on an amount of Rs.
3,13,07,498/- and offered the said amount as part of disclosure of Rs.
5 crores shown in his return of income, he ought to have withdrawn
his claim of depreciation on the said amount.
6. Heard Mr. Suresh Kumar, learned Counsel appearing for the
Revenue and perused the impugned order. The impugned order
clearly indicates that the Tribunal has analysed the facts of the case in
detail. The Tribunal has examined the documents produced by the
assessee including ledger extracts of the parties, confirmation from
the parties, bank statements and certificate from the registered valuer
showing construction of a building indicating procurement of steel.
Payments for the same were made by cheque and the capitalization
was denied solely based on a statement made by one Shri. Soumil
Parik, Proprietor of M/s. C. K. Enterprises recorded by the
department under Section 131 of the Act. The statement contained a
narration pertaining to issuance and encashment of cheques and
handing over the cash less a commission amount, back to the
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directors of the assessee company. However, this statement has
already been negated by the Co-ordinate Bench of the Tribunal in
another case relating to the similar issue in case of the same assessee.
7. The Tribunal has appreciated the fact that although the AO as
directed by the CIT-39, Mumbai, had issued summons under Section
131 of the Act to five firms, whose personnel had allegedly received
cheques from assessee and encashed the same and returned the cash
to assessee after deducting their commission, the statement could be
recorded only of one Shri. Soumil Parik, Proprietor of M/s. C. K.
Enterprises. Similarly, statements were recorded of other Directors
viz. Mr. Rahul Shah and Mr. Nitin Shah. The recording of statement
of Mr. Nitin Shah has already been negated by the Co-ordinate Bench
of Tribunal in the group concern's case, i.e., Mr. Nitn Shah in ITA No.
4433/Mum/2013 for AY 2008-2009, where the Tribunal after
considering the entire issue has observed that the contention of
department that assessee had made a disclosure of some
unaccounted income in relation to commodity transactions in the
grey market is concerned, neither any evidence in this regard was
found during the course of search action nor in the investigations
during assessment proceedings. The AO had made no enquiry in this
regard and had only relied upon the statement of assessee made
during the search action that in these types of transactions, no
evidence generally is available. Thus, there was no explanation from
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the department to clarify as to what prompted assessee to make such
incriminating declaration in respect of income from commodity
transactions. The Tribunal has also noted that there was no
explanation as to why the AO had not made any enquiry in this
respect during the assessment proceedings. On the basis of facts, and
documents before it, the Co-ordinate Bench of Tribunal thus held
that there was no infirmity in the order of CIT(A) in that matter in
deleting the further additions made by the AO on account of bogus
purchasers capitalized in the account of Nitin Cylinders as the same
were already covered in the income of Rs. 5 crores as declared by the
assessee for that year under consideration. Accordingly, the appeal of
Revenue came to be dismissed by the Tribunal.
8. Thus, the Tribunal has accepted as proved the fact of incurring
expenditure in the purchase of raw material used in construction of
the building. In this regard, the Tribunal has recorded as follows :
"9. We further find from the above facts that the
assessee has produced copies of invoice for purchases
and also the details of opening stock, purchases, sales
and closing stock. Even the assessee has proved the raw
material used in construction of building, which is
supported by valuation report. Merely on a statement,
which was never confronted or no opportunity to cross
examine the party was allowed, in that eventuality the
capitalization cannot be denied to the assessee. We
agree with the Revenue that the statement recorded by
Revenue is a good starting point for making further
investigation but it is not conclusive. The Revenue
should have made further investigation and take it to
logical conclusion but the AO left the job at the initial
point itself, which is clear from the assessment order.
Even the CIT(A) has not carried this matter further. We
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are of the view that suspicion however high, cannot take
place of evidence. In such circumstances and the
coordinate Bench has already considered the issue in
group concerns case, we allowed to these interconnected
issues in assessee's appeal directing the AO to allow
capitalization on both the counts. Accordingly, these two
interconnected issues of the assessee's appeal are
allowed."
9. Considering the observations and findings of the Tribunal
based on a factual appreciation of the case, there is no enunciated
legal position which needs reconsideration, alteration, modification
or clarification or any need to resolve an apparent conflict between a
difference in viewpoints being that of the AO and the CIT(A) as
against that of the ITAT. The entire order of AO is based merely on
the statement of the Director of assessee without summoning or
adducing additional/supplementary evidence of any other person
corroborating the allegation of the department regarding bogus
payments made by assessee. We thus, have no hesitation in holding
that there is no infirmity in the order passed by the Tribunal, least of
all existence of any substantial question of law in the matter.
10. In view of the foregoing, the Appeal is thus dismissed. There
will be no order as to costs.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
GITALAXMI KRISHNA
KRISHNA KOTAWADEKAR
KOTAWADEKAR Date:
2024.02.02
14:45:56 +0545
Gitalaxmi
