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2016 (2) TMI 89 - AT - Income TaxDisallowance of depreciation - whether the same amount has been disallowed under block assessment proceedings and was assessed as undisclosed income thus the disallowance of depreciation is wrong? - Held that:- The settled legal proposition is that the block assessment and regular assessment are two different assessment proceedings and they will run parallelly. The items that are required to be considered in the block assessment cannot be considered in the regular assessment proceedings and vice versa. Hence the items which have been assessed as undisclosed income in block assessment proceedings cannot be considered/assessed in regular assessment proceedings. According to the Ld A.R the disallowance of depreciation of ₹ 1.36 crores has been assessed as undisclosed income in the block assessment proceedings. Hence the AO cannot assess the same again in the regular assessment proceedings. However, these factual aspects require verification. Accordingly, we set aside this issue to the file of the AO with the direction to examine this claim of the assessee and take appropriate decision in accordance with the law in the light of discussions made supra. Disallowance of Machinery purchase - Held that:- We notice that the assessee has claimed that it has declared the sales of films picturised by using the films of ₹ 1.04 crores referred above. There should not be any doubt that the pictures could not be produced without the use of films and if the sale of pictures is assessed, then the corresponding expenditure should be allowed. Even though the assessing officer has considered the sales also as bogus, he did not exclude the value of sales from the income of the assessee. Since the purchase of films have not been proved by the assessee, we are of the view that this issue should be settled by disallowing some portion of the purchases in order to take care of the deficiencies in the purchase claim. Accordingly, we direct the assessing officer to disallow 20% of the film cost of ₹ 1.04 crores, since the assessing officer has assessed the sale of pictures. We order accordingly. Disallowance of Expenditure related to bogus sales - Held that:- We agree with the contentions of the assessee that the same is beyond the scope of the set aside proceedings. As noticed earlier, though the assessing officer has taken the view that the sale of pictures also is bogus one, he has not eliminated the same from the total income of the assessee. Accordingly, we are of the view that there is no reason to disallow the expenses arrived on a proportionate basis. Accordingly we direct the AO to delete this disallowance Disallowance of finance charges - Held that:- It is not clear as to how the assessee could obtain hire purchase finance facility on the non-existing machineries. If the assessee has actually obtained the hire purchase finance, then the question arises about its utilisation. If the loan obtained has been used by the assessee for business purposes, we are of the view that the finance charges are allowable as deduciton, as the hire purchase finance is only one of the modes of raising loans. Hence, in our view, this issue requires fresh examination. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to examine the manner of utilization of loan availed from the finance companies Disallowance of depreciation - Held that:- In the earlier paragraphs, the assessee has claimed that the above said sum of ₹ 1.36 crores was assessed as undisclosed income of the assessee in the block assessment proceedings. If the said claim is found to be correct, then there is no requirement of adding the same in the regular assessment proceedings. If it is not found to be correct, then it is the responsibility of the assessee to show that the difference amount of ₹ 0.32 crores (1.36 less 1.04) represents the value of machinery on which 100% depreciation is allowable. Further it is also the responsibility of the assessee to show that the machineries worth 0.32 crores was actually purchased. Accordingly, this issue is also set aside to the file of the AO with the direction to examine the same afresh.
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