Depreciation disallowed on VAT portion of capital goods suspected to be purchased from grey market
ABACUS Case Law Citation
ABCAUS 3364 (2020) (08) ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming disallowance of depreciation on capital assets purchased and used by the assessee.
The appellant assessee had purchased capital goods amounting from two parties. The assessee, during the course of assessment proceedings provided the copies of invoices, delivery challans and bank statements. The items purchased were which were regularly required in his line of business.
he Assessing Officer (AO) observed that the aforesaid two suppliers names appeared in the list of suspicious parties in the website of Sales Tax department classifying them as hawala dealers indulging in providing Bogus purchases entries.
The AO sought to make verification of the veracity of those suppliers. For this purpose, he directed the assessee to purchase the parties before him for examination. The assessee could not produce those parties and submitted that it had made considerable number of purchases of capital goods during the year under consideration and it was practically impossible for them to keep track of all the parties from whom the goods were purchased.
The assessee submitted all the payments were made to the said suppliers by crossed account payee cheques. The assessee also submitted the copy of ledger account of the suppliers as appearing in its books.
The Tribunal found that the fixed assets purchased were duly utilized in the business of the assessee and finished product generated thereon, had been sold and there was no dispute on the same.
However, the Tribunal observed that the assessee was not able to prove beyond doubt, the suspicion that arose in the minds of the revenue in respect of these parties appearing to be in the negative list of sales tax department.
In view of the above, the Tribunal opined that it could be safely concluded that assessee could have purchased these capital goods from the grey market in order to save the liability of VAT.
Since the purchase of capital goods was not in dispute, hence, the Tribunal held that the depreciation attributable to that VAT portion alone should be disallowed in the hands of the assessee.
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