1998 (3) TMI 177 - AT - Income Tax

Summary

Issues Involved:
1. Excessive estimation of profit by CIT(A).
2. Denial of depreciation on machinery.
3. Alleged suppression of sales.
4. Disallowance of interest paid on loan.

Issue-wise Detailed Analysis:

1. Excessive Estimation of Profit by CIT(A):
- The appellant, Shri Ajay Gupta, contended that the CIT(A)'s estimate of 10% on sales of Rs. 10,05,000 was excessive and that no expenditure was allowed against the estimated profit.
- The CIT(A) reduced the addition made by the Assessing Officer from Rs. 1,80,000 to Rs. 1,00,500, estimating the sales at Rs. 10,05,000 instead of Rs. 18,00,000.
- The Tribunal upheld the CIT(A)'s decision, stating that the accounts of the assessee were unreliable, and the estimate of 10% gross profit was fair given the lack of proper accounts and evidence of expenditure.

2. Denial of Depreciation on Machinery:
- Shri Ajay Gupta claimed depreciation on machinery worth Rs. 37,29,770, which the Assessing Officer denied, citing no evidence of machinery use due to lack of wages, electricity expenses, and requisite electric connection.
- The CIT(A) allowed partial depreciation on specific machinery used for sawing.
- The Tribunal, after considering the evidence and rival submissions, concluded that the machinery was installed and used for business purposes, reversing the CIT(A)'s decision and allowing the full depreciation claim.
- For Shri Anoop Bansal, who claimed depreciation on machinery leased to Shri Ajay Gupta, the Tribunal remitted the matter back to the Assessing Officer for fresh adjudication based on the lease agreement terms.

3. Alleged Suppression of Sales:
- The Assessing Officer added Rs. 3,83,333 for alleged suppression of sales, which the CIT(A) confirmed, citing evidence of sales worth Rs. 4,31,481.
- The Tribunal upheld the CIT(A)'s decision, agreeing that the appellant had indeed suppressed sales and the corresponding addition was justified.

4. Disallowance of Interest Paid on Loan:
- Shri Anoop Bansal's appeal included a ground regarding the disallowance of interest of Rs. 1,79,792 paid to M/s. Goodwill India Ltd. on a loan for machinery, which was treated as a penalty by the Assessing Officer.
- The CIT(A) held that finance charges or interest should be included in the cost of machinery as capital expenditure.
- The Tribunal agreed with the CIT(A), rejecting this ground of appeal and confirming that finance charges should be capitalized as part of the machinery cost.

Separate Judgments by Judges:
- The Judicial Member disagreed with the Accountant Member's view on allowing depreciation for Shri Ajay Gupta, emphasizing the lack of electric load sanction and concrete evidence of machinery use.
- The Third Member (Sr. Vice President) concurred with the Accountant Member, allowing depreciation for Shri Ajay Gupta and remitting Shri Anoop Bansal's depreciation claim back to the Assessing Officer for fresh adjudication based on the lease agreement.

Conclusion:
- Both appeals were partly allowed, with the Tribunal providing detailed reasons for each decision and addressing the points of difference between the members.