DINESH MAHESHWARI,J. - (1.) BY way of this appeal under Section 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.
(2.) 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 percent 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.
(3.) 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 labouor 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. 14. The sixth ground of appeal relates to disallowance of Rs.20,96,267/ - out of interest paid to bank. 15. 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." ;