Commissioner Of Income Tax vs Oswal Chemical & Fertilisers Ltd.
2011 Latest Caselaw 1654 Del

*            IN THE HIGH COURT OF DELHI AT NEW DELHI

+                         I.T.A. No.1092/2009

%                    Date of Decision: 23.03.2011

Commissioner of Income Tax                        .... Appellant
                   Through: Mr.Sanjeev Sabharwal, Sr. Standing
                            Counsel

                                Versus

Oswal Chemical & Fertilisers Ltd.                   .... Respondent
                   Through: Mr.C.S. Aggarwal, Sr. Advocate with
                               Mr.Prakash Kumar, Advocate.

CORAM:
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L. MEHTA

1.   Whether reporters of Local papers may be                 NO
     allowed to see the judgment?
2.   To be referred to the reporter or not?                   NO
3.   Whether the judgment should be reported in               NO
     the Digest?


A.K. SIKRI, J. (ORAL)

*

1. For the assessment year 1996-97, the respondent/assessee filed

its return of income declaring loss of Rs.2,39,12,90,363/-. The

assessee is engaged in the manufacturing of fertilisers at a plant

installed at Shahjahanpur, Uttar Pradesh. In this assessment

year, the assessee had, in the return, shown the plant and

machinery worth Rs.6.97 crores purchased from M/s.Bermaco

Industries Ltd. (hereinafter referred to as "the supplier"). The

assessment was framed under Section 143(3) of the Income Tax

Act (hereinafter referred to as "the Act") at a total of

Rs.2,34,79,94,444/-. However, thereafter a notice under Section

148 of the Act was served upon the assessee seeking to reassess

the proceedings on the ground that the assessee had never

purchased aforesaid machinery worth Rs.6.97 crores from the

supplier and it was a bogus purchase and, therefore, the

assessee was not entitled to any depreciation thereupon which

the assessee had claimed and was allowed in the assessment

proceedings. Thereafter, the re-assessment order was passed

by the Assessing Officer on 31st March, 2004 deleting the

depreciation allowed on the aforesaid machinery. The Assessing

Officer while taking the aforesaid course of action based its

decision on the statement of Mr.Viren Ahuja of the supplier, who

had allegedly stated that the machinery was not supplied by the

supplier to the assessee. The Assessing Officer had also taken

note of the fact that the supplier had itself approached the

Settlement Commission and there also it had accepted non

supply of the machinery.

2. The assessee preferred appeal there against before the CIT(A).

The CIT(A) allowed the appeal and set aside the order of the

reassessment order passed by the Assessing Officer. We may

note, at this stage, that in the course of this appeal, the Assessee

had filed written submissions on 6th December, 2004 objecting to

the re-assessment. In his submission, the assessee had

requested to institute following inquiries/providing the following

documents:

"1. An opportunity of corss-examination of Mr.Viren Ahuja.

2. Report of Settlement Commission of investigations made by it in this regard.

3. Copy of application of Bermaco Indus. Ltd. filed before Settlement Commission.

            4.     Evidence available with the         department that the
                   transactions  with    Bermaco        Indus.  Ltd.  were
                   accommodation entries.

5. An on the sport verification of the assets."

3. The grievance of the assessee was that the copy of the

statement of Mr.Viren Ahuja, on the basis of which addition was

made, was not supplied to the assessee by the Assessing Officer.

It was also argued that no opportunity to cross-examine Mr.Viren

Ahuja was provided; so much so even the report of the

Settlement Commission on investigations made in this regard or

the application preferred by the supplier before the Settlement

Commission was not provided to the assessee. The assessee

took a positive stand that the machinery was in fact purchased

and installed, which was brought/transported from Mumbai to

U.P. through ST 31. It is for this reason, the assessee even

offered spot verification of the said machinery. On this request

of the assessee contained in the aforesaid statement dated 6 th

December, 2004, the CIT(A) called for the remand report from

the Assessing Officer under Section 250(4) of the Act. The

Assessing Officer submitted his report dated 24th March, 2006.

As per this report, the factory premises of the assessee at

Shahjahanpur were inspected by the Inspector, who personally

visited there and found that the machinery was in fact installed.

This was stated in the following manner:-

"In your first query you have asked to verify that whether valves and other machinery match the description given by the assessee. To check this issue photograph provided by the assessee were matched with actual plant site on test check basis. And plants as well as valves were found to be physically present on plant site which shows that valves are existing part of machinery."

4. The Assessing Officer, at the same time, in his report, stated that

it was physically impossible to verify each and every piece of

machinery as valves had been placed from ground level to top of

urea tower, which was about 100 meters in height. It was also

stated that the physical appearance of valves gave the

impression that these were quite old. To cross-check the

quantitative description, the bigger valves of size 20", 18" and

16" were checked and found to be correct. In another exercise,

it was also found that valves of different sizes as detailed in

assessee's submission in respect of said offsite section in some

part were checked and the same were found to be tallying with

the actual valves. The report also mentioned that as per the

physical verification made on test-check basis, it could not be

said that there was any discrepancy. He even found merit in the

submissions of the assessee that the valves, the photographs of

which were submitted, were physically lying installed in the

factory and without these valves there could be no production.

After receiving this report, the CIT(A) had deleted the addition

made by the Assessing Officer and took the view that their

machinery was in fact purchased by the assessee and, therefore,

assessee was entitled to depreciation thereupon. The Income

Tax Appellate Tribunal (for short "ITAT") has upheld this order of

the CIT(A) after re-examining the entire issue and accepting the

finding of fact recorded by CIT(A) that machinery was in fact

purchased by the assessee and it was not a case of bogus

purchase.

5. It is clear from the aforesaid that the matter is in the realm of

facts only as to whether it was a case of bogus purchase shown

by the assessee or the assessee had in fact purchased the

machinery on which it had claimed depreciation. It is clear from

the above that the CIT(A) as well as ITAT have arrived at a

finding of fact, that too, on the basis of remand report submitted

by the Assessing Officer himself that machinery was in fact

purchased by the assessee.

6. Detailed discussion in this order also confirmed transportation of

the machinery from the factory of the supplier to the factory of

the assessee where the machinery was installed.

7. The ITAT has given an additional ground to set aside the order,

namely, that Mr.Viren Ahuja was not even produced for cross-

examination. We may record that the actual statement of

Mr.Viren Ahuja has not been produced on record. It appears

from the orders of the authorities below that Mr.Viren Ahuja had

not disputed the supply of the machinery to the assessee. In fact

he had stated that the machinery supplied to the assessee was

not manufactured by the supplier itself and the benefit under

Section 80IA was wrongly claimed by the said supplier and it is

only on that account that the supplier had approached the

Settlement Commission. Therefore, merely the fact that the

supplier had gone to the Settlement Commission would not be of

any relevance inasmuch the issue before the Settlement

Commission was entirely different which pertain to the benefit

wrongly availed by the supplier under Section 80IA of the Act.

8. We are, thus, of the opinion that no question of law arises. This

appeal is accordingly dismissed.

A.K. SIKRI, J.

M.L.MEHTA, J.

MARCH 23, 2011 Dev