TMI Blog2022 (1) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out by the Assessee, merely allowed the claim of the Assessee on the basis of a finding that incomplete enquiries were made by the AO. As rightly submitted by him there was not a shred of evidence filed by the Assessee even before CIT(A) to establish with cogent evidence as to how the conclusions of the AO based on outcome of Survey proceedings and enquiries from the purchasers and their whereabouts were not correct. Without such evidence, the CIT(A) ought not to have deleted the addition made by the AO. The reference to invoices and description of machineries mentioned therein is of no avail because the invoices were found to be bogus and the machineries found not existing at the time of survey. The CIT(A) has wrongly placed the burden of proving that the Assessee did not carry out R D on the Revenue, when it was on the Assessee to prove its case. CIT(A) is not sustainable and the same is reversed and the order of the AO is restored on this issue. The reasoning for restoring the addition made by the AO disallowing deduction u/s.35(2)(ia) of the Act will equally apply to the disallowance of depreciation also and that addition is also restored - Decided in favour of reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Revenue : Shri. Sumeer Kumar Singh, CIT(DR)(ITAT), Bengaluru ORDER PER BENCH: ITA No.1232/Bang/2005, 627 628/Bang/2009, 950 951/Bang/2009 are appeals by the Revenue against orders of CIT(A) for AY 2002-03 to 2005- 06 respectively and CO 6 to 10/Bang/2021 are cross objections by the Assessee in those appeals. ITA No.90/Bang/2008 is an appeal by the Revenue against the order of CIT(A) for AY 2002-03 whereby the CIT(A) cancelled the order of the AO imposing penalty on the Assessee u/s.271(1)( c) of the Income Tax Act, 1961 (Act). All these appeals involve common issues and hence were taken together for hearing. We deem it convenient and proper to pass a common order. 2. First we shall take up for consideration ITA No. 1232/Bang/2005 as a lead case and this appeal by the Revenue against the order dated 31.5.2005 of CIT(A), Gulbarga, relating to AY 2002-03. 3. The issues that needs to be adjudicated in this appeal are as to whether the CIT(A) was justified in deleting the addition made by the AO by disallowing deduction of Capital Expenditure u/Section 35(1)(iv) read with section 35(2) of the Income Tax Act, 1961 (Act) of a sum of ₹ 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 5. The AO called for the details of capital expenditure incurred by the Assessee. The Assessee filed details of invoices and bills for purchase of plant machinery and lab equipments. The name of the firm and the amount purchases from each of them was as follows: 1. M/S.Sparco Engineering Works ₹ 90,18,125 2. M/S.Hema Engineering Industries ₹ 1,13,98,125 3. M/S.Vision Metals ₹ 89,92,500 4. M/S.SCS Petro Products ₹ 84,92,500 5. M/S.Saradhi Engineering ₹ 98,44,562 6. M/s.Hi-Watt Power Systems Rs, 98,21,750 7. M/S.Sangram Castings ₹ 97,39,738 8. M/S.Sri Mythili Enterprises ₹ 1,00,40,000 9. M/S.Reliable Engineering Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that none of the machinery stated to have been purchased during the relevant previous year on which deduction was claimed u/s.35(2)(ia) of the Act was found or installed in the R D Department. The Officer conducting the Survey showed the bills and invoices for purchase of Plant and Machinery from 10 different parties and he was asked to verify and confirm whether all the above mentioned plant and machinery were received in the factory and are installed in the R D Department. He confirmed after perusal of the bills and invoices that no machinery or plant found in the bills and invoices was received or installed in the R D Department of ay of the factories. There was a R D Block in this factory premises. It consisted of 2 blocks viz., R D Block and One Kilo Block. R D Block was a hall measuring 15ft. x 20ft. while the Kilo Block measured 10ft. x 20ft. Going by the smallness of the R D Block, the Survey team concluded that it is impossible to install Plant Machinery claimed to have been purchased and used by the Assessee in carrying out scientific research. 10. In the Survey at the Corporate Office at Secundrabad, AP, the Chairman and MD Shri.Venkat R.Kaluvakolan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no idea of the bills and the firm, in which he was a partner. SCS Petro Products has never supplied any material to the JBS company 5. Sangram Castings Plot No.12, Phase-IV, IDA Jeedimetla, Hyderabad Both the firms are in same address It is ascertained that in given address, the above firms premises are not found. But there 3 is some other concerns like Ultra Batteries and M/s Hi-Watt Power Systems P Ltd. are running there respective businesses. Sri Suryanarayana Raju, partner of SCS Petro Products and Director of Hi-Watt Power System P. Ltd has disowned that he had any contacts with the said firms. 13. The AO in page-13 paragraph-13 14 of the order of assessment highlighted as to how R.Venkat Kalavakolanu the Chairman and MD was avoiding summons for his examination by the AO. He has however filed an explanation before the AO in which he claimed that the claim made by him for deduction u/s.35(2)(ia) of the Act was genuine and that the statement of P.Veerabhadra Rao, was recorded under pressure. 14. The AO finally issued a show cause notice dated 17.3.2005 pointing out that the following ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not recorded under any pressure from the department. He himself has admitted that entire transaction of plant and machinery and raw materials purchased for all the years from F.Y. 2000-01 to 2004-05 is fabricated and bogus bills . To prove that these payments are paid to bogus concerns and to their bank accounts standing in the names of the employees of the company he has also furnished the chart of payment like bill No., date of payment, amount, to which concern it is payment, from which bank it is paid for all the above years. The main evidence to the dept. is bogus bills which are verified and found out that all the bills are fictitious and false in nature i.e., such firms are not at all existing . The payments are paid to their own bogus concerns. In view of the above strong evidence is with the Department like Bank account, copies of all the bogus concerns, the objection letter filed by Shri Venkat R.K. is not acceptable, hence the same is being rejected. Transportation charges: The company has purchased during the year P M and lab equipment of ₹ 10,13,29,425/- and raw materials (chemicals) of ₹ 3,24,46,250/-for research and development work and additions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including lab equipment worth of ₹ 10,13,29,425/- and revenue expenditure (raw material) for research and development of ₹ 3,24,46,250/- are disallowed for the above detailed reasons mentioned and added back to the income. 16. Similarly, the Assessee had claimed depreciation on fixed assets purchased during the previous year totaling ₹ 91,71,754/-. On enquiry by the AO, the persons who is stated to have supplied machineries on which depreciation was claimed could not be traced and therefore the depreciation claim on the addition to fixed assets to the extent of ₹ 22,92,940/- was disallowed and added to the total income of the Assessee. 17. The Assessee aggrieved by the order of the AO filed appeal before CIT(A). The contentions of the Assessee before the CIT(A) were as follows: 1. Survey action was conducted on 24.2.2005, which was 35 days before limitation time limit for completing the order of assessment. The statement recorded at the time of Survey were given only on 30.3.2005. The Assessee therefore was not afforded fair opportunity of being heard and there has been a violation of the principles of natural justice. 2. The statement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment in respect of service of letter on Sindhu Traders 11. Statement recorded on oath of Sri P.S.Kutty 30.3.2050 12. Statement recorded on oath of Anil Kumar 30.3.2005 13. Response of postal dept. in respect of service of letter on Mecmain Engg Through DCIT letter dt. 18.3.2005 served on C MD on 24.3.2005 (on hospital bed) 14. Response of postal dept. in respect of service of letter on Winmax Glass Tech 15. Enquiry report of Inspector on purchase of P M from Meemain Engg., Winmax Glass Tech. And Glvder Glass works. -- 6. The Assessee filed affidavit of P.Veerabhadra Rao, (dated 2.5.2005), withdrawing the statement given at the time of Survey as it is contrary to facts and obtained by exercising pressure. 7. There is a reference to the research being highly technical nature and general remarks about drug industry, fine chemical industry et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developed many products earlier years also the company has claimed the research expenses and those assessments are already completed. During the assessment period we repeatedly informed to the assessing officer that these equipment are fabricated equipment, suppliers procure the required parts of the equipment in the market and they assemble the unit and delivery / install at the factory premises. Ours is a one of the only company in Asia to have consistently conducting research and development and introducing products based on peptide chemistry and advanced organic chemistry since the last 10 years. During the last 10 years the company has developed following products. During the last 10 years the company has developed process to improve the yields of production and profitability: Our research capabilities have resulted in an agreement with a multinational company CLARIANT and we have received a trial order from multinational company AVENTIS, Germany. As the fabricator is not the sole manufacturer of the entire equipment, the equipment will not have any brand and all these equipment are made according to our requirem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 ate CMD of i7ippellint co. has confirmed that equipments like glass set apparatus, analytical balances, Lyophilizers, cold chamber and clear rooms, analytical instruments, lab equipments and glassware do not normally have life more than 1 year, after continuous operations and hence are discarded for lack of further utility. Similarly after taking some R D trials equipments like condensers, dryers, centrifuges, reactors etc. are modified as these are designed in such a way that they cater to the company's future developments in small volumes after R D trials are over. Thus according to information given by appellant company these equipments are modified for higher capacities so that higher batches of R D / or small volume production can be taken. In brief, the A.O. does not appear to have appreciated the complex nature of technical terminology utilized while ordering highly confidential research equipments. In these circumstances, there is an element of substance and truth when the learned counsel pleads that the A.O. being ignorant about highly technical aspects involveci has embarked upon the exercise of misinterpreting the information I data available with him, that too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the AO should have re examined all the persons in the course of assessment proceedings also. 8. Regarding the results of enquiry by the AO about the non existence of the suppliers of the plant and machinery, the CIT(A) held that the enquiries made by the AO were incoherent and inconclusive and therefore the inference drawn by the AO against the Assessee regarding the non existence of suppliers who did not respond to the query letter of the AO cannot be sustained. In this regard the CIT(A) also accepted the plea of the Assessee that the Assessee placed orders to main suppliers and they might have sub contracted to smaller suppliers who operate from time to time and that it is common that such small suppliers shift from one place to another and therefore the small suppliers who supplied machiners in FY 2001-02 were not available when inspection was done in the year 2005. 9. The CIT(A) gave a clean chit to the Chairman MD for not attending summons of the AO and he vacated the findings contained in paragraph 13 of the order of assessment for the reason that he was unwell and justed returned from tour of Australia. 19. The final conclusion of the CIT(A) were as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On identical reasoning the disallowance of depreciation was also deleted. 20. Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal. As already stated the issues that was remanded for fresh consideration by the Hon ble High Court is as to whether the CIT(A) was justified in deleting the addition made by the AO by disallowing deduction of Capital Expenditure u/s.Section 35(1)(iv) read with section 35(2) of the Income Tax Act, 1961 (Act) of a sum of ₹ 10,13,29,425/ and disallowance of depreciation of ₹ 22,92,940/-. The Official Liquidator through one N.Tatia Associates, CA filed CO s in which they have reiterated the stand as reflected in the impugned order of CIT(A) deleting the addition made by the AO. We have already held that the CO s are not maintainable and dismissed the same. As already stated none appeared when the appeals were called for hearing, despite service of notice of hearing. We therefore proceed to decide the issue in the appeal after considering the material on record and the submissions of the learned DR. 21. The Learned DR submitted that on almost identical facts identical issue arose f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of machineries, on 4.3.2004, personal appearance was made by Sri Srinath and Sri P.V. Rao on behalf of the assessee. No details were furnished by them as directed by the Assessing Officer. Even on 12.3.2004 they appeared and did not produce evidence regarding machineries purchased but he did not furnish the details regarding mode of payment, date of payment and bank details and further. Therefore, the Assessing Officer has addressed a letter to the two companies from whom the machineries alleged to have been purchased by the assessee to confirm the sale made to the payment, date of delivery and also the very complete nature and description of the machineries. As no confirmation came from the two companies, calling upon them to furnish the details another reminder letter dated 12.3.2004 was sent by the above said companies. Those two letters are unserved on the above two companies and the endorsement made by the postal authorities which is extracted by the Assessing Authorities which reads thus: Party not available incomplete address' and no such address on this road 11.The first letter issued to the above two companies were returned unserved as no such address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d held that the purchase of R D machineries, they were required to be transported from Secunderabad, which is in Andhra Pradesh to the Karnataka State of Bidar. The provisions under Section 28A, 28AA, and 28B for transport of machineries are applicable for the check post entries,, payment of sale tax entry of the inter state sales tax paid by the Assessee and copy delivered to the check post. The above statutory documents certainly were required to be obtained by the Assessee. In addition to that, the particulars regarding documents in relation to the transit of goods by road to the State and issue of transit costs and check post and registration of transporter, the mode of transport and registration by the Transporter, furnishing those documents by the assessee to substantiate its claim. Without producing the above important particulars and documents by the assessee, except producing the invoices, letter correspondence made with the sellers regarding confirmation of supply of goods to its R D Department and proceedings of the Annual General Body Meeting no other documents were furnished to prove the fact that the assessee has acquired the machineries and it is entitled for exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh bears letter pads of the two concerns, it is interesting to note that even no telephone number or nature of the proprietorship who signed the letter was available. In this background returns of letters by postal authorities give rise to a reasonable finding that the transactions are not normal and the assessee wants to hide the real facts. 15. The finding of fact recorded by the Assessing Officer in this order is after properappreciation of legal evidence on record by assigning proper and cogent reasons holding that the purchase of machineries and plant by the assessee from the vendor situated at Secunderabad, Hyderabad is not proved by it by producing valid documents of ownership to claim exemption under the provisions of the Act, which finding of fact of the Assessing Officer is found fault with by the Appellate Authorities stating that the same is erroneous finding, therefore, they have set aside the finding of fact recorded by the Assessing Officer which is not based on material documentary evidence available on record. Therefore, the findings of the Appellate Authorities are erroneous in law for non consideration of the material evidence in justification of the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities. The Assessee did not file return of income voluntarily. A notice u/s.142(1) of the Act was issued by the AO on 6.3.2003 calling upon the Assessee to file return of income. The Assessee filed the return of income on 25.2.2004. The return was processed u/s.143(1) of the Act on 21.7.2004. Thereafter the case was selected for scrutiny and notice u/s.142(1) was issued on 21.7.20104 calling for books of accounts and another notice dated 17.11.2004 was issued u/s.143(2) calling for details. The AO issued notice u/s.133(6) of the Act between December, 2004 to January, 2005 calling for confirmation from the persons from whom the Assessee claimed that it had purchased machineries for R D purposes. The AO on verification of bills and invoices furnished by the Assessee for purchase of machineries for R D purposes noticed some anomalies and these are set out in para 10 of the order of assessment. The main defect noticed was that most of bills sales tax was not charged. He therefore proceeded to conduct a survey at the various factory and corporate office of the Assessee. Statement recorded from the persons incharge of the concerned premises confirmed that no machineries were purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly submitted by him there was not a shred of evidence filed by the Assessee even before CIT(A) to establish with cogent evidence as to how the conclusions of the AO based on outcome of Survey proceedings and enquiries from the purchasers and their whereabouts were not correct. Without such evidence, the CIT(A) ought not to have deleted the addition made by the AO. The reference to invoices and description of machineries mentioned therein is of no avail because the invoices were found to be bogus and the machineries found not existing at the time of survey. The CIT(A) has wrongly placed the burden of proving that the Assessee did not carry out R D on the Revenue, when it was on the Assessee to prove its case. We agree with the submission that the order of the Hon ble Karnataka High Court rendered on identical facts for AY 2001-02 is squarely applicable for AY 2002-03. We also find that in the later order of the Hon ble High Court by which this appeal was remanded to the Tribunal for consideration, this earlier order of the Hon ble Karnataka High Court was not brought to its notice. In the given facts and circumstances of the case, we are of the view that the order of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the AO. The CIT(A) allowed the claim of the Assessee for deduction and hence the appeal by the revenue before the Tribunal, raising the following grounds of appeal: 1. The Order of CIT(A) is opposed to Law and the facts of the case as brought out by the AO on various issues dealt by him in the Assessment Order after causing enquiries wherever possible. 2. The decision of CIT(A) in deleting the addition of ₹ 62,38,940 /- made by the AO out of Capital Expenditure claimed u/s35(2)(ia) for R D activities, ₹ 2,86,93,750 /- under Revenue Expenditure for R D activities, disallowance of depreciation on assets for non- production of receipts of ₹ 3,10,16,050 /- and disallowance of excess claim of depreciation of ₹ 19,76,778 /- are opposed to Law and facts of the case. 3. The CIT(A) has heavily relied upon the written submissions made by the assessee at the time of hearing without considering the ground facts as gathered and subsequently verified independently by AO at the time of assessment proceedings, since the assessee did not cooperate with the AO in furnishing the full information as called for. This has been given a goby by the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the matter is at the half-investigated level. Before giving such a finding the CIT (A) using his inherent powers could have caused enquires/ investigations through the A.O.obtaining a remand report. 9. The CIT(A) has failed to appreciate the fact that summons u/s131 could not have been issued by the AO to the parties from whom P M and other equipments were purchased for examination for want of correct and complete address as the letters sent for verification were returned and independent enquiries caused reveal that the parties did not exist at the given address. 10. The appellant craves leave to add, alter, amend or delete any of the grounds on or before the hearing of appeal. 28. In AY 2002-03, the revenue expenditure claimed by the Assessee u/s.35(1)(i) was allowed by the ITAT in it s order dated 30.11.2009 prior to the order of the Hon ble Karnataka High Court dated 1.10.2010 remanding the issue of deduction u/s.35(2)(ia) of the Act to the tribunal pursuant to which we have rendered decision in the earlier part of this order. In the said order the Tribunal held that the revenue expenditure was incurred in the regular course of business and irrespective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.S. 316 Distillation Unit Capacity - 250 litres 1 no. 11,55,000 6 S.S. Extractor Capacity - 250 litres 1 no. 3,80,000 7 Vacuum Tray Dryer Capacity - 12 trays 1 no. 4,80,000 8 S.S. 316 Centrifuge Capacity - 12 inches 1 no. 3,80,000 9 Pumps for process, vacuum, services 5,00,000 10 Lab Reaction Set, Ups All Glass for Q.C. and 7,50,000 11 Process Control Instruments etc. 7,83,640 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed that the said phone number was allotted to him directly by the BSNL, Hyderabad in the year 1997 and he has never let or gave the said number to any one for any purposes. 3. M/s Meganet Engineering Plot No.3, Swagruha Apartment, Block-A, Kukatpally, Hyderabad No name board or any such firm was found in the said premises. The said address i.e., the plot no.3 belongs to Shri M.S. Naidu who happens to be the senior vice president of the assessee. However, Shri M.S. Naidu himself is not residing in the said house and has been let out to one Shri Hidayatulla Aga who is working as a scientist in APL Research Centre, Hyderabad, He has orally denied that he has ever heard of such firm with the name of M/s Meganet Engneering. 31. The other facts with regard to findings during Survey u/s.133A of the Act are same as in AY 2002-03. The AO therefore concluded that the deduction claimed u/s.35(2)(ia) of the Act was bogus and cannot be allowed. 32. The AO found that the Assessee had claimed depreciation on additions to fixed assets to the extent of ₹ 16,20,85,711/-. The details of the persons from whom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uid Heaters ans MS 07-01-03 2,448,000 14 Panama Enterprises, G- 3, Dev Hira Complex, Near Telephone Exchange Road, Brine Chiller and Ultra Purification Water System equipments etc. 16-05-02 4,198,500 15 Same as above S.S. Condencer including pipeline _processor 12-06-02 5,736,000 16 Same as above Sodium Block Equipments like glasslined reactor etc. 19-09-02 6,335,000 17 Same as above Pilot scale lab infrastructure and modulars 01-12-02 6,340,000 18 Same as above Glass Assembly Unit for vacuum Distillation 19-01-03 1,806,500 19 Same as above Reaction cum distillation unit 23-02-03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liquid Chromatograph 08-08-02 6,078,800 33 Same as above Glass Assembly Units with electrical fittings 12-11-02 1,908,000 34 Same as above S.S. Reactor Complete assembly unit 27-11-02 3,350,000 35 Same as above Advanced HPCL System and production scale purge valve etc. 04-12-02 6,325,000 36 Same as above L.C.M.S. Systems with several specifications 13-02-03 6,330,000 37 Same as above Lab Benches for laboratory specifications 23-03-03 3,374,880 38 All other miscellaneous bills from different All types of electrical equipments Different dates 1,062,180 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not identify any such firm after seeing the bills. 4 M/s Pharma Enterprises, C-3, Dev Hira Complex, Near Telephone Exchange Road, GIDC, Char Rasta, Vapi, Guarat 28,468,230 Enquiries revealed that no such firm is existing at the said address and never existed. The complex is situated in ground floor and 1st floor. The address such as C-3 does not exist in the said complex. Shri Om Sai Infocom is running office at the complex. Shri Rajkumar infomred that he has never heard of any such firm. 5 Royal Engineering Corporation, No.4, Hari Bhavan, Shivram Lalyani Road, Behind Jain Mandir, Mulund, Mum 21,914,100 No such firm was found at the above address and no such firm ever existed in such address. One concern namely M/s Urmi Travels is functioning at the address since 5-6 years. Shri Gitesh Gandhi, proprietor informed that he has never heard of any such concern. 6 Bhuta Enterprises, Nagardas Mansion, Ground Floor, Bhagat Singh Road, Vile Pahe, Mumbai 125,757 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which provides for deduction in respect of expenditure on scientific research, being any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business is remanded to the AO for fresh consideration as was done by the Tribunal in AY 2002-03. The disallowance of depreciation claimed on said assets which were claimed to have been addition to the fixed assets to the extent of ₹ 16,20,85,711/- during the relevant previous year by the Assessee of a sum of ₹ 3,10,16,050/- is upheld and the order of the AO is restored. The addition of depreciation on account of opening wdv being revised owning to findings in AY 2002-02 that purchase of fixed assets to the extent of ₹ 96,08,994/- was bogus and therefore the opening written down value (wdv) of the assets on which depreciation was claimed by the Assessee in AY 2003-04 on the same item of machinery had to be reduced and as a consequence the depreciation of a sum of ₹ 18,01,687 being 25% of ₹ 72,06,746/- was disallowed by the AO is also restored. 38. In the result, appeal of the Revenue is partly allowed. ITA No.628/Bang/2009: 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pposed to Law and facts of the case. 3. The CIT(A) has heavily relied upon the written submissions made by the assessee at the time of hearing without considering the ground facts as gathered and subsequently verified independently by AO at the time of assessment proceedings, since the assessee did not co-operate with the AO in furnishing the full information as called for. This has been given a goby by the CIT(A). 4. The CIT(A) erred in accepting the submission of the assessee that the company was to incur various unexplainable and secret purchases which are of heavy price without appreciating the fact that even such various unexplainable and secret purchase will have to be explained to the satisfaction of the Revenue and the same cannot be ignored to maintain the secrecy of the assessee's trade as otherwise such suppliers if really exists goes scot-free. In fact, the enquiries made reveal that this claim of the assessee is only a cover to hide the bogus purchases of P M, Equipments on which revenue expenditure was claimed along with Depreciation. 5. The CIT(A) erred in accepting the submission of the assessee that the AO expects the assessee after a laps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed reveal that the parties did not exist at the given address. 10. The appellant craves leave to add, alter, amend or delete any of the grounds on or before the hearing of appeal. 41. In AY 2002-03, the revenue expenditure claimed by the Assessee u/s.35(1)(i) was allowed by the ITAT in it s order dated 30.11.2009 prior to the order of the Hon ble Karnataka High Court dated 1.10.2010 remanding the issue of deduction u/s.35(2)(ia) of the Act to the tribunal pursuant to which we have rendered decision in the earlier part of this order. In the said order the Tribunal held that the revenue expenditure was incurred in the regular course of business and irrespective of the finding by the AO for the other capital expenditure, has to be allowed after due verification by the AO. This order of the Tribunal was not disturbed by the Hon ble High Court in its order dated 1.10.2010. Therefore the deduction in so far as revenue expenditure incurred by the Assessee is concerned, the facts being identical to AY 2002-03, we direct the AO to verify the nature of expenditure to ensure no capital expenditure is claimed as deduction. 42. In so far as the claim for deduction on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 3 M/s Labindia Instruments, Plot No,.1611, GIDC, Umbergaon, Gujarat 33,792,250 The ITI could not locate any such supplier in spite of making best efforts. With great difficulty, he could reach the plot number 1611. However it was found that no such supplier is existing in this plot. The entire plot no.1611 in GIDC, Umbergaon is a vacant plot and is not in occupation of any concern. Further on contacting the office of GIDC Umbergaon it was revealed that no such supplier is existing in Umbergaon industrial area. Here the phone number given in the bill was found to be out of order. Therefore it is proved that no such supplier ever existed. 3 Chemtron Tech Devices, No.445, Industrial Area, Cuncolim, Goa 26,593,125 The address could not be located. On visiting the office of Goa Industrial Development Corporation, Cuncolim, it was found that no such concern is existing in that place. Further the plot no.445 given was found to be wrong. As per the information obtained from the office, the plot numbers are allotted as per the size ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. In AY 2002-03 2003-04, the Assessee claimed to have purchased assets during the relevant previous year and such purchase was found to be bogus and therefore the AO disallowed depreciation resulting in a disallowance of depreciation in AY 2002-03 2003-04. The opening written down value (wdv) of the assets on which depreciation was claimed by the Assessee in AY 2004- 05 on the same item of machinery had to be reduced and as a consequence the depreciation of a sum of ₹ 13,51,265/- and ₹ 3,27,58,414/- was disallowed by the AO. 45. The aforesaid additions were deleted by the CIT(A) for identical reasons given by the CIT(A) in the appellate order for AY 2002-03 and by following the said order, which we have elaborately discussed while deciding the appeal of the Assessee for AY 2002-03. 46. The arguments advanced are identical to the one s advanced in the appeal for AY 2002-03. We have considered the same and are of the view that the conclusions arrived at in AY 2002-03 on identical issue will apply to the present AY 2004-05 also. For the reasons stated therein, we allow the grounds of the revenue with regard disallowance of depreciation claimed on assets whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 3,17,86,843 for AY 2002-03 2003-04 2004-05 respectively had to be disallowed by the AO. The CIT(A) allowed the claim of the Assessee for deduction as he held that the purchases were genuine and hence the appeal by the revenue before the Tribunal, raising the following grounds of appeal: 1) The order of CIT(A) Hubli is opposed to law and facts of the case brought out by A.O. on various issues. 2) The decision of the CIT(A) in deleting the addition of ₹ 10,04,70,753 towards Revenue expenditure U/S 35(1)(i) of the Act for R D activities, Depn. on Assets for non-production of receipts of ₹ 2,14,68,445 excess depn. Claimed due to adoption of wrong WDV for A.Y. 2002-2003, 2003-2004, 2004-2005 of ₹ 5,73,69,103. 3) The CIT(A) has accepted the written submission made by the Assessee company and totally ignored the independent verification done by the A.O, at the time of completion of Assessment, even though the assessee company was not forth coming in providing information at the time of assessment. 4) The CIT(A) has erred in accepting return submission of various expenditure for secret purchases of plant and machinery and other equipm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.35(2)(ia) of the Act to the tribunal pursuant to which we have rendered decision in the earlier part of this order. In the said order the Tribunal held that the revenue expenditure was incurred in the regular course of business and irrespective of the finding by the AO for the other capital expenditure, has to be allowed after due verification by the AO. This order of the Tribunal was not disturbed by the Hon ble High Court in its order dated 1.10.2010. Therefore the deduction in so far as revenue expenditure incurred by the Assessee is concerned, the facts being identical to AY 2002-03, we direct the AO to verify the nature of expenditure to ensure no capital expenditure is claimed as deduction. 51. In so far as the claim for deduction on account of depreciation on new assets acquired during the relevant previous year is concerned, the findings of the AO are as follows: NEW ADDITIONS TOWARDS PLANT AND MACHINERY :- The depreciation schedule enclosed to the audit report reveals that following new additions have been made in the financial year under consideration :- S. No. Type of equipment/asset Addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallow the claim of depreciation of these 4 items total amounting to ₹ 11,21,389/- and add to the income available. This amount of addition prima facie appears to be satisfying to the conditions requiring initiation of penalty proceedings u/s 271(1)(c). As regards the claim of depreciation of ₹ 2,03,47,056/-is concerned, it has been elaborately discussed that the claims of new additions for plant and machinery have been immensely proved bogus in all preceding assessment years. Further the survey proceedings u/s 133A which is very much relevant for the financial year under consideration has also clearly proved that the assessee has not purchased any major plant and machinery. The assessee is having 2 factories at Bidar and in Village Cheriyal. If any plant and machinery is really purchased, the same can be installed either in factory situated at Bidar or in village Cheriyal. The factory incharge at Bidar Shri P.S. Kutty has admitted in his sworn statement that thereis no production activity at all in this factory since last more than 10 months. The production manager of the factory at village Cheriyal Shri T.V. Narsareddy clearly admitted in his sworn statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) for identical reasons given by the CIT(A) in the appellate order for AY 2002-03 and by following the said order, which we have elaborately discussed while deciding the appeal of the Assessee for AY 2002-03. 54. The arguments advanced are identical to the one s advanced in the appeal for AY 2002-03. We have considered the same and are of the view that the conclusions arrived at in AY 2002-03 on identical issue will apply to the present AY 2005-06 also. For the reasons stated therein, we allow the grounds of the revenue with regard disallowance of depreciation claimed on assets which were claimed to have been addition to the fixed assets during the relevant previous year by the Assessee of a sum of ₹ 2,14,68,445/- and upheld and restore the order of the AO. The addition of depreciation on account of opening wdv being revised owning to findings in AY 2002-03 2003-04 2004-05 that purchase of fixed assets to the extent was bogus and therefore the opening written down value (wdv) of the assets on which depreciation was claimed by the Assessee in AY 2005-06 on the same item of machinery had to be reduced and as a consequence the depreciation of a sum of ₹ 10,13,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 'After hearing, we have carefully perused the material on record. Both the appellants have filed the return after the search and seizure in terms of the material on record. The returns were considered by the Assessing Officer and thereafter, adverse orders were passed by him. When the same were challenged before the Appellate Commissioner, the Appellate Commissioner by a detailed order, has chosen to hold that the appeals filed by the assessees are not maintainable in terms of section 249(4) of the Act. When the same was challenged before the Tribunal, the Tribunal has accepted the order passed by the Commissioner. Thus, we have to see as to whether the order of the Commissioner, confirmed in the appeal before the Tribunal is sustainable or not in terms of the material placed before us or in terms of the submission made by learned counsel for the assessees. Section 249 of the Act provides for Form of appeal and limitation''. Section 249(4) of the Act would provide for payment of the tax due on the income returned by him for the purpose of admission of the appeal. The said section would read as under: 249.(4) No. appeal under this Chapter sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s we see from the material on record. Under the circumstances, we hold that both the appeals are liable to be rejected by answering the questions of law against the assessees. ' 58. In our considered view, the decision of the Hon'ble High Court, referred to above, is squarely applicable to the facts of the present case. In the said case, the ld CIT(A) had admitted the appeals despite the fact admitted taxes on income returned was not paid and therefore the said appeal was not maintainable in the light of section 249(4) of the Act. We therefore quash the order of the CIT(A) and allow the appeal of the Revenue and restore the order of the AO. The other grounds of appeal does not require any adjudication in view of the decision regarding maintainability of appeal before CIT(A). 59. In the result, appeal by the Revenue is allowed. ITA No. 990/Bang/2008: 60. This is an appeal by the Revenue against the order dated 11.3.2008 of CIT(A), Hubli, deleting the penalty imposed on the Assessee u/s.271(1) ( c) of the Act, in relation to AY 2002-03. 61. We have already seen the additions made in AY 2002-03 while dealing with the quantum appeal for AY 2002-03. ..... 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