Commissioner of Income Tax vs M/s. Bohra Industries Limited

Dinesh Maheshwari, J.—By way of this appeal u/s 260A of the Income Tax Act, 1961 [''the Act''], the revenue seeks to question the order dated 16.12.2011 as passed in ITA No. 346/Jodh/2009 whereby the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur [''the Tribunal''] has affirmed the order dated 19.01.2009 as passed by the Commissioner of Income Tax (Appeals), Udaipur [''the CIT(A)] in deleting disallowance, to the tune of Rs. 8,73,445/- towards depreciation on building and Rs. 20,96,267/- towards interest paid to the bank, as ordered by the Assessing Officer [''the AO''] in the assessment order dated 28.12.2007 relating to the respondent-assessee for the assessment year 2005-06. After having heard the learned counsel for the appellant and having perused the material placed on record, we are clearly of the view that essentially the matter relates to appreciation of evidence leading to finding on facts; and no substantial question of law is involved in the case.

The facts and the background aspects, so far relevant for the present purpose, could be noticed in the following: The respondent-assessee is engaged in the business of manufacturer of fertilizers. The assessee filed its return for the assessment year 2005-06 declaring income as ''nil''. Thereafter, the return was revised declaring a loss of Rs. 3,79,286/-. The AO proceeded to complete the assessment by the questioned order dated 28.12.2007. The assessee, inter alia, claimed that there had been addition in the factory building to the tune of Rs. 2,50,08,048/-. The AO asked the assessee to furnish the details and also issued notices to several of the parties referred to in the bills and the books of accounts. The AO, while referring to various alleged shortcomings, lacunae and ambiguities in the bills/vouchers, proceeded to exclude an amount of Rs. 46,81,086/- as claimed to be of labour payment; another sum of Rs. 52,48,660/- as the amount spent on building material like Gitti, cement, sand etc.; and yet another amount of Rs. 75,39,151/- towards other material supplies. Thus, the AO considered a sum of Rs. 1,74,68,897/- to be the bogus capital expenditure and excluded the same for calculation of the allowable depreciation. In this manner, the learned AO disallowed depreciation to the tune of Rs. 8,73,445/-. On the same considerations, the AO held that the alleged cash had not been used for business and hence, the interest payment to the bank for an equivalent amount was also disallowed. Taking the interest rate of the bank loan at 12% per annum, the disallowance on this score was made to the tune of Rs. 20,96,267/-. While making certain other additions, the AO ultimately assessed the total income of the assessee at Rs. 77,22,970/- and passed consequential orders.

Aggrieved by the aforesaid assessment order dated 28.12.2007, the assessee preferred an appeal that was considered and partly allowed by the CIT(A) in his order dated 24.03.2009. On the aforesaid disallowance towards depreciation and interest, the learned CIT(A) did not agree with the observations made by the AO while, inter alia, observing that the AO did not deal with the basic point as to whether construction of the factory building had been carried out or not. The learned CIT(A) also observed that the AO did not make any physical enquiry to verify the exact condition of the factory building and rather proceeded only on the theory part while devoting much of the time in collecting and analyzing the bills/vouchers/wage-sheets and even the aspect of ratio of the building material, masons and labourers. The learned CIT(A) also found the AO not correct in appreciation of the statements of the material suppliers. The CIT(A) also found that every item of purchase, payment, transportation, receipt etc. was recorded properly in the books of accounts and the AO had nowhere pointed out any defect in such books. The CIT(A), therefore, did not approve of disallowance made by the AO with reference to some procedural irregularities and presumptions. The CIT(A) also indicated about the obvious flaws in the AO''s approach where total labour payment was disallowed, which would practically mean that construction of factory building, whatever, was carried out without any labour payment. Similarly, disallowance towards material supplies was also disapproved. The CIT(A), inter alia, observed as under:-

...The AO has nowhere in the assessment order pointed out any defect in the books of account. The disallowance of materials purchased, labour payment and not accepting construction of factory building on some procedural irregularities and presumption is not justified. It is to be mentioned here that the AO has disallowed total labour payment of Rs. 46,81,086/- which means that the construction of factory building even in part was completed without any labour. payment. The AO also made disallowance of Rs. 52,48,660/- claimed for material supply, gitti, cement sand and etc and Rs. 75,39,151/- as other material supply. Here also the position is same as discussed on the point of labour payment. The AO has brought nothing on record to show that the appellant has not incurred expenditure on labour payment and for purchase of material. Therefore, the AO was not justified in disallowing depreciation on building. The disallowance is deleted.

The sixth ground of appeal relates to disallowance of Rs. 20,96,267/- out of interest paid to bank.

This ground is consequential to ground No. 5 above. Following the discussion made for disallowance of depreciation on building, the AO disallowed the bank interest on the amount not utilized for construction. As the disallowance out of depreciation on building has already been deleted, here also the same facts involved, the disallowance of interest is also deleted.

In the department''s appeal against the order so passed by the CIT(A), the Tribunal found that the CIT(A) had considered the relevant aspects minutely before accepting the claim of the assessee; and found no reason to interfere. The Tribunal also indicated that it had not been the case of the department that the assessee had shown excessive valuation of the factory building. It was further found that the bank loan had been obtained for addition to the building or purchasing machinery; and complete vouchers had been furnished before the bank; and yet further, there was no material difference between the value adopted by the valuer and the expenditure shown by the assessee. The Tribunal, inter alia, observed as under:-

8....We have heard rival submissions and considered them carefully. We have gone through the orders of Assessing Officer and ld. CIT(A) and the submissions of ld. A/R and found that ld. CIT (A) has examined the issue thread bear as all the aspects have been taken into consideration. The assessee has maintained complete purchase vouchers and vouchers of payment to the labourers. There were certain technical mistakes or error in writing the name as in one case the name of Ramlal was written as Ramlala, and in one case while making the signature on the vouchers "ji" word was used after the name of the party. This is a routine mistake and if somebody writes ''ji'' after his name, it does not change the character of transaction. The ld. CIT (A) has considered this aspect minutely and then only has accepted the claim of the assessee. Findings of ld. CIT (A) have been reproduced somewhere above in this order which remained uncontroverted. Therefore, we see no reason to interfere with the finding of ld. CIT (A). This is also not the case of the department that assessee has shown excessive valuation of the factory building as assessee is not claiming any subsidy. The bank loan has been obtained for the purpose of erecting additional part of the building or purchasing machinery. The same has been purchased and complete vouchers have been furnished before the Bank for satisfying the bank for taking loan. Valuation has also been obtained by the assessee there was no major difference between the value adopted by the valuer or the expenditure shown by assessee in its books of account. In view of these facts and circumstances, we confirm the order of ld. CIT (A) on this issue.

Interest is a consequential to the main ground as interest paid by assessee was paid on borrowed amount from bank which is allowable as business expenditure. The CIT (A) has allowed the same. Accordingly we confirm the order of ld. CIT (A) on this issue also.

Seeking to question the order of the Tribunal, it is contended that the AO ordered disallowance after deep scrutiny of the material placed before him and the CIT(A) as also the Tribunal have erred in deleting the same. According to the appellant, the question involved in the matter is as to whether the Tribunal was justified in confirming the findings of the CIT(A) in deleting the disallowance while ignoring the evidence brought on record by the AO; and without rebutting the infirmities in the bills/vouchers as pointed out by the AO. In our view, the submissions fall short of making out any substantial question of law for consideration in this appeal.

The grounds as urged and the questions as suggested all essentially relate to the matters of appreciation of evidence for a factual enquiry and rendering of findings on facts about the factory building construction. True it is that the AO disallowed a part of the claim made by the assessee with reference to his view of the material on record. However, the CIT(A) disagreed with the findings of the AO after analyzing the material on record and also after referring to the ground realities as well as obvious inconsistencies in the order of the AO. Then, the Tribunal found no reason to interfere while proceeding on relevant considerations. The matter essentially related to the facts but the approach of the learned AO could not have been approved when the same had been either too theoretical or carried obvious inconsistencies like total disallowance of the claim towards labour payment despite there being addition to the factory building during the period in question.

In an overall comprehension of the matter, we are satisfied that the findings on facts have been rendered by the two appellate authorities in accordance with law and the orders impugned do not appear suffering from any perversity or wrong application of any principle of law. Accordingly and in view of the above, the appeal fails and the same is dismissed summarily.