Income Tax Appellate Tribunal - Ahmedabad
Adani Wilmar Ltd., Ahmedabad vs Assessee on 24 September, 2015
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ 'C' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI MANISH BORAD, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.1654/Ahd/2015
नधा रण वष /Asstt. Year: 2009-2010
Adani Wilmar Ltd. DCIT, Cir.1
Fortune House Vs Ahmedabad.
Nr. Navrangpura Railway Crossing
Navrangpura
Ahmedabad.
PAN : AABCA 8056 D
अपीलाथ / (Appellant) तयथ
् / (Respondent)
Assessee by : Shri S.N. Soparkar with
Shri P.M. Mehta
Revenue by : Smt. Vibha Bhalla, Sr.DR
सन
ु वाई क तार ख/Date of Hearing : 28/08/2015
घोषणा क तार ख /Date of Pronouncement: 24/09/2015
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
The present appeal is directed at the instance of the assessee against the order of the Principal Commissioner of Income-Tax-1, Ahmedabad dated 31.3.2015 passed u/s.263 of the Income Tax Act, 1961 for the Asstt.Year 2009-10.
2. The grievance of the assessee is that the ld.CIT has erred in taking cognizance under section 263 of the Income Tax Act and setting aside the assessment order for fresh adjudication.
ITA No.1654/Ahd/2015 23. The brief facts of the case are that the assessee has filed its return of income on 9.9.2009 declaring total income of Rs.72,29,65,644/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income Tax Act was issued on 23.6.8.2010 which was duly served upon the assessee by speed post. The ld.AO has passed the assessment order under section 143(3) on 30.3.2013. After going through the record, the ld.Commissioner has formed an opinion that action under section 263 deserves to be taken against the assessee. Accordingly, he issued a show cause notice on 16.3.2015. A copy of the show cause notice is available at page no.1 of the paper book, which reads as under:
"No.CIT-1/ABD/263/25/AWL/2014-15 Dated : 16.3.2015 To The Director/Principal Officer M/s.Adani Wilmar ltd.
Fortune House Nr.Adani House Nr.Mithakali Six Roads Ahmedabad.
(PAN - AABCA8056D) Sub: Initiation of proceedings u/s.263 of the I.T.At I.T.Act - Adani Wilmar Ltd.
A.Y.2009-10 - Regarding.
******* The undersigned called for and examined the assessment order for A.Y.2009-10. The assessment in this case was completed under section 143(3) of the I.T.At, 1961 on 30.3.2013 determining total income at Rs.72,83,77,916/-.
1. It is seen that the assessee has claimed depreciation @60% on computer equipments, UPS and SAP instead of depreciation @15% on computer equipments & UPS and 25% on SAP license. It appears that the AO has completed the assessment without appreciating the provisions of section 32 of the Act.
2. It is further seen that the assessee has claimed additional depreciation of Rs.23.35 la on fire safety equipments, weight scale, printer, storage tank etc. It appears that the AO has completed the assessment ITA No.1654/Ahd/2015 3 without appreciating the provisions of section 32(1)(iia) of the Act.
2. In view of the above, it appears to the undersigned that the order dated 30.3.2013 passed under section 143(3) of the I.T.Act, 1961 by the DCIT, Circle-1, Ahmedabad is erroneous and prejudicial to the interest of Revenue within the meaning of section 263(1) of the I.T.Act, 1961.
3. You are, therefore, requested to show cause as to why appropriate order under section 263(1)of the I.T.Act, 1961 be not passed in your case to eliminate the above errors. For this purpose, the hearing in your case is fixed on 20/3/2015 at 3.30PM at the above address.
You may attend personally or through an authorized representative on the scheduled date and time or submit your written reply within supporting evidences. In case nothing is heard from you by the said date, it shall be presumed that you have nothing to state in this matter which shall then be decided on merits.
Sd/-
(Y.K. BATRA) Pr.Commissioner of Income-tax 1 Ahmedabad."
4. The ld.Commissioner has passed the order under section 263 on 31.3.2015. He set aside the assessment order and directed the AO to make a fresh assessment order of the total income of the assessee for the Asstt.Year 2009-10.
5. The ld.counsel for the assessee, while impugning the order of the ld.Commissioner has contended in his first fold of submission that the ld.Commissioner has intended to take cognizance of section 263 qua two issues, viz. (i) that the assessee has claimed depreciation at 60% on computer equipments, UPS and SAP instead of depreciation at the rate of 15% on computer peripheral and at the rate of 25% on SAP licence, and (ii) that the assessee has claimed additional depreciation of Rs.23.35 lakhs on fire safety equipments, weigh scale, printer, storage tank etc. The ld.Commssioner has cancelled the complete assessment ITA No.1654/Ahd/2015 4 and directed the AO to make fresh assessment order. He took us through the last paragraphs of the order passed by the ld.commissioner. According to the ld.counsel of the assessee, at the most, the ld.Commissioner could set aside the assessment order qua these two issues, because there are large number of other issues in the assessment order. In next fold of contention, he appraised us the scope of section 263 and when the ld.Commissioner can take action against the assessee. The AO has issued a show cause notice under section 142(1) and specifically inquired on this issue. The ld.counsel for the assessee drew our attention towards page no.21 of the paper book, wherein copy of the notice dated 9.12.2012 is placed on record. At Sr.No.5, the AO has called following details:
"5. Pl. provide the details of fixed assets acquired during the year:
Sr.No. Name Amount Block Date of Date Invoice
of (Rs.) purchase of put No."
Asset to use
According to the ld.counsel for the assessee, the ld.AO has called for the details and the assessee has duly replied the show cause notice. The ld.AO has taken one of the possible views which cannot be interfered by the ld.commissioner. On the strength of the following decisions, he contended that the deprecation on computer and computer peripherals is admissible at the rate of 60%.
"2. In present case, the assessee has capitalized software expenses, UPS and claimed depreciation @ 60% as same are integral part of computer and cannot run independently and/or installed to work efficiently and smoothly. Reliance placed on:
Sr.NO. Name of case Citation Ratio
law
1. BSES Yamuna 358 ITR 47 Depreciation @ 60%
Power Ltd. (Del.) on computer
peripherals such as
printers, scanners,
ITA No.1654/Ahd/2015
5
servers etc.
2. Navneet ITA # Depreciation @ 60%
Publications (I) 1137/Mum/2010 on SAP software.
Ltd
3. Ushodaya 41 Depreciation @ 60%
Enterprises Ltd. taxmann.com on computer
304 (Hyd.) peripherals such as
printers, scanners,
software, modems,
switches, hubs,
cable/cards etc.
4. Macwber 33 Depreciation on UPS
Engineering taxmann.com at rate at which
System (I) (P.) 587 (Mum.) deprecation was
Ltd. allowable to
computers."
6. Alternatively, he contended that software expenses incurred on SAP licence ought to have been allowed as revenue expenditure. In support of his contentions, he placed on record copies the following decisions:
Varinder Agro Chemicals Ltd. : 309 ITR 272 (P&H) Rober Bosch India Ltd. : 50 taxmann.com 275 (Kar.) Karuru Vysya Bank Ltd. : 54 taxmann.com 324 (Mad.) Lubrizol India Ltd. : 37 taxmann.com 294 (Bom.)
7. The ld.counsel of the assessee further contended that if there is no inquiry, then the assessment can be branded as erroneous. But inadequacy cannot be ground for taking action under section 263 of the Income Tax Act. For buttressing this contention, he relied upon the following decisions and paled on record copies of these decisions.
Max India Ltd. : 295 ITR 282 (SC)
Amit Corporation : 21 taxmann.com 64 (Guj.)
Sunbeam Auto Ltd. : 332 ITR 167 (Del.)
Vikas Polymers : 341 ITR 537 (Del.)
Gabriel India Ltd. : 203 ITR 108 (Bom.)
8. On the other hand, the ld. DR relied upon the order of the ld.Commissioner. She pointed out that printers, UPS cannot be equated ITA No.1654/Ahd/2015 6 with the computer and depreciation cannot be granted at the rate of 60%. The approach of the AO by not making discussion on this issue is an erroneous approach. The ld.Commissioner has rightly taken action under section 263 of the Income Tax Act. She further contended that additional depreciation on the asset, which is not part of the plant & machinery involved in manufacturing activity cannot be granted. For this purpose, she took us through section 32(1)(iia) of the Income Tax Act. The ld.counsel for the assessee, on the other hand, rebutted the contentions of the ld.CIT-DR with regard to this proposition. He has placed on record copy of the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Diamines & Chemicals, (2014) 42 taxmann.com 193 (Guj). He pointed out that in order to claim additional depreciation, the only requirement is that the assessee should be in the business of manufacture and production of any article or thing, and it should acquire the asset within the time frame provided in section 32(1). The assessee fulfilled those conditions. It is engaged in the manufacturing.
It was not necessary for the assessee to use those particular assets actively in the manufacturing activity.
9. We have duly considered the rival contentions and gone through the record carefully. Section 263 has a direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:-
"263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
[Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-ITA No.1654/Ahd/2015 7
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) "record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
ITA No.1654/Ahd/2015 810. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. Explanation-1 has been substituted by the Finance Act 1998 (26 of 1988). It threw a light to some extent the scheme of the Act. Under clause (a) of the Explanation, it has been provided that an order of the assessment made by the Income Tax Officer on the basis of a direction issued by the Jt. Commissioner u/s 144A would be an order of the Income Tax Officer. In other words, if directions of binding nature were issued by a higher authority translated into the order of the Income Tax Officer, then that order would be considered of the Assessing Officer and not of the higher authorities. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it ITA No.1654/Ahd/2015 9 pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263.
(i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law
(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.
(vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.ITA No.1654/Ahd/2015 10
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.
(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
11. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 referred by ld. Counsel for the assessee, and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note:
"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his ITA No.1654/Ahd/2015 11 submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open".
12. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon'ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon'ble court on pages 386 of journal read as under:-
"... it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return.
The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry... It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word 'erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."
13. The light of the above, let us examine the facts of the present case. As far as the first proposition of the ld.counsel for the assessee is concerned, we find merit. The whole assessment order cannot be cancelled, because it contained large number of issues. The ld.CIT ITA No.1654/Ahd/2015 12 sought to take action under section 263 qua two issues only, and to that extent the assessment would only be set aside. Therefore, subject to over overall findings in this appeal, we modify the order of the ld.Commissioner to the extent that in case the order under section 263 is being upheld, which we are going to discuss in subsequent paragraphs, then the assessment order is to be considered as set aside only qua two issues, and not the complete assessment order.
14. The ld.AO has issued a show cause notice and invited explanation of the assessee qua the details of fixed assets and the depreciation claimed by it on this point, meaning thereby, he has applied his mind on the claim of depreciation made by the assessee. The Hon'ble Delhi High Court in the case of BSES Yamuna Power ltd. (supra) has held that depreciation at the rate of 60% will be admissible on computer peripherals. Prior to this decision, there are large number of orders at the end of the ITAT, and the ITAT is unanimous in its approach on this issue. Thus, a possible view can be taken by the AO with regard to the admissibility of depreciation on UPS, scanner etc. at the rate of 60%. It is one of the possible views, which the AO has taken. As far as the depreciation at the rate of 60% allowed to the assessee on SAP licence is concerned, we are of the view that the AO has investigated the issue and took an opinion that it might have not been reflected specifically in the assessment order. If the ld.Commissioner has a different opinion on this issue, then it would become a debatable one. According to the assessee, in various judgements, it has been held that the software expense is to be allowed as revenue expenditure. Considering the nature of its debatable-ness, we are of the view that the assessment order cannot be branded as an erroneous order on this issue. As far as third part is concerned, we find this aspect is squarely covered by the decision of the Hon'ble Gujarat High Court. The observation of the Hon'ble Court I para-3 and 4 read as under:
ITA No.1654/Ahd/2015 13"3. Heard Shri K.M. Parikh, learned Counsel appearing on behalf of the revenue and perused the impugned judgment and order passed by the ITAT. At the outset, it is required to be noted that the assessee claimed the deduction under Section 32(1)(iia) of the Income-tax Act with respect to the cost incurred by it for installation of the Wind Electric Generator. The Assessing Officer disallowed the same and made the addition of Rs.1,17,98,030/- by observing that as the assessee is not in the business of generation and distribution of power, the assessee shall not be entitled to deduction under Section 32(1)(iia) of the Income-tax Act of Rs.1,17,98,030/-. The said addition has been deleted by the CIT(A) relying upon the decisions of the Madras High Court in the case of VTM Ltd (Supra) and in the case of Hi Tech Arai Ltd. (Supra). In both the aforesaid decisions, the Madras High Court had an occasion to consider the similar issue and it is held that while claiming the deduction under Section 32(1)(iia) of the Income-tax Act setting up wind-mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. Considering the aforesaid facts and circumstances and considering the relevant provisions of Section 32(1)(iia) of the Income-tax Act, which was prevailing at the relevant time, i.e. during the year under consideration, it cannot be said that the ITAT by applying the ratio of decision of the Madras High Court in the case of VTM Ltd. (Supra) and in the case of Hi Tech Arai Ltd. (Supra) has committed any error in deleting the addition of Rs.1,17,98,030/- on account of disallowance of additional depreciation of Wind Electric Generator.
4. We see no reason to interfere with the impugned judgment and order passed by the ITAT. No question of law, much less substantial question of law arises in the present Tax Appeal. Hence, the present Tax Appeal deserves to be dismissed and is accordingly dismissed."
15. The assessee as an entity ought to be engaged in the manufacturing activity. It ought to have installed plant & machinery. It is not necessary that new machinery should be part of the manufacturing activity. The additional deprecation will be admissible. This also to be termed as debatable issue and the ld.AO has taken a view of this aspect, which could not be subject to action under section ITA No.1654/Ahd/2015 14
263. The AO has invited the explanation of the assessee, gone through the details submitted by it, and thereafter, allowed the depreciation including additional depreciation as per law. His view may not get approval from the point of view of the ld.Commissioner, but, the opinion of the AO is also a possible view, and therefore, no action under section 263 can be justified. On due consideration of these facts and circumstances, we allow the appeal of the assessee, and quash the order passed by the ld.Commissioner under section 263 of the Act.
16. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 24th September, 2015 at Ahmedabad.
Sd/- Sd/- (MANISH BORAD) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER