Divyashree Infrastructure Vs DCIT (ITAT Bangalore)
Since the assessee was undertaking construction of the projects, all the URD purchases have been included in the “Capital work in progress” account. We notice that the assessing officer has identified URD purchases every year and he has held them to be bogus in nature, i.e., according to AO, the assessee has inflated the expenses by accounting URD purchases. We noticed that the AO did not make addition of the alleged inflated/bogus expenses in the respective years. However, the AO has taken the view that the depreciation claimed should be disallowed. Since the assessee did not claim any depreciation in AY 2008-09 to 2013-14, there was no occasion for the AO to make any addition as per the view taken by him. Since the assessee had claimed depreciation in AY 2014-15 only, the AO disallowed the depreciation so claimed in A.Y. 2014-15.
We find that the assessment order is silent as to the quantum of alleged bogus/inflated expenses. As pointed out by Ld A.R, there are technical specifications regarding the quantum of consumption of various materials in the construction of a building. The moot question is, if the alleged bogus/inflated purchases are removed from the value of construction, whether the same would meet the technical specifications relating to quantum of usage of various materials required for construction of building. Admittedly, this exercise has not been carried out. There was no occasion for the assessee to carry out the said exercise, since it has maintained its stand that all URD purchases are genuine. However, the AO has not done the same. We also notice that the AO has also not effectively dealt with legal effect of the retraction of the sworn statement given by Shri Shyama Raju. However, we do not find it necessary to deal with these questions for the reasons discussed in the ensuing paragraphs.
Be that as it may, we noticed that the assessing officer did not make any addition with regard to the URD purchases, which were considered to be bogus or inflation of expenses, in the respective years. In our considered view, without making addition of alleged bogus/inflated expenses, the A.O. could not have disallowed the depreciation alone in A.Y. 2014-15. Accordingly, we are of the view that the disallowance of depreciation made by the A.O. in assessment year 2014-15 is not justified in the facts and circumstances of the case.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
All these appeals filed by the respective assessees and the appeals of the revenue are directed against the orders passed by Ld. CIT(A)-11, Bengaluru. All these appeals relate to the assessment years 2008-09 to 2014-15. All these appeals were heard together and are being disposed of by this common order, for the sake of convenience.
M/s Divyashree Infrastructure
2. We shall first take up the appeals filed by M/s Divyashree Infrastructure. The said assessee is challenging the decision of Ld. CIT(A) in confirming the disallowance of depreciation made by the A.O. in assessment year 2014-15. Even though no specific addition was made in assessment years 2008-09 to 2013-14, since the observations made by the A.O. in those years has culminated into addition in AY 2014-15 and since those observations were confirmed by Ld. CIT(A), the assessee has filed appeals for AY 200809 to 2013-14 also.
3. The facts relating to the issue contested by M/s Divyashree Infrastructure are stated in brief. The assessee is a Partnership Firm and is engaged in the business of construction and renting out of commercial buildings. A search & seizure action was carried out in the case of M/s. Shyama Raju& Company (I) Pvt. Ltd. on 20.3.2014, which is a group company of the assessee herein. During the course of search, certain documents belonging to the assessee herein were seized and hence, the A.O. initiated proceedings u/s 153C of the Income-tax Act,1961 [‘the Act’ for short] for assessment years 2008-09 to 2013-14. The assessment was completed for those years u/s 143(3) r.w.s. 153C of the Act. The assessment of assessment year 2014-15 was completed u/s 143(3) of the Act.
4. During the course of search, it was noticed that the assessee M/s Divyashree Infrastructure was purchasing materials from unregistered dealers (herein after referred as “URD purchases”). Such kind of purchases were in the nature of sand, size stones, crushing rock fine, stone dust, gravel, wet mix, jelly, hollow blocks, solid blocks, soiling, etc. It was also noticed that the standard operating procedures prescribed for accounting receipt of materials were not followed in respect of above said purchases. Some of the employees also confirmed that the prescribed procedures have not been followed in respect of some of the URD purchases. Accordingly, during the course of search proceedings, the Chairman and Managing Director of assessee company, Shri Shyama Raju was enquired about URD purchases, in view of certain discrepancies noticed in not following standard operating procedures in respect of the above said purchases. As noted earlier, the query was also based on statement given by certain employees of the company. In the sworn statement, Shri Shyama Raju deposed against the genuineness of the URD purchases. According to the Ld. A.R., the statement was taken from Shri Shyama Raju in the wee hours of 22.3.2014 (search commenced on 20.3.2014) and Shri Shayamaraju had to depose to ward off enormous amount of trauma and stress. The Ld A.R further submitted that Shri Shayamaraju obtained copy of sworn statement subsequently on 20.6.2014 and he immediately filed a letter dated 27.6.2014 retracting his statement and further clarifying the issue of URD purchases in detail. In that letter, Shri Shyama Raju also made it clear that URD purchases of the assessee are of genuine purchases.
5. The details of URD purchases identified in various years are tabulated below:-
