Income Tax Appellate Tribunal - Madras
Tarapore & Co. vs Deputy Commissioner Of Income Tax on 24 April, 2001
Equivalent citations: [2002]83ITD473(CHENNAI), (2003)79TTJ(CHENNAI)150
ORDER
A. Kalyanasundharam, Senior Vice President
1. The assessee, a partnership concern has filed these two appeals against the orders of the Commissioner of Income-tax (CIT for short) passed under Section 263 of the IT Act, 1961 (hereinafter referred to as the Act) dt. 25th Feb., 1992. The appellant firm in both these appeals had challenged the orders of CIT on the exercise of his powers under Section 263 of the Act as barred by limitation. The challenge is also on merits concerning the depreciation allowable on earth moving machinery. Considering the common issues involved, the appeals were grouped and heard together and are disposed of by this common order.
2. Mr. Ramachandran, the learned counsel for the appellant firm contended that the challenge of invoking of the jurisdiction by the CIT as barred by limitation is clearly borne out of his order. He contended that CIT refers to the order made by the Assessing Officer (AO for short) dt. 31st July, 1989, and states that he proposes to revise the said order. The purpose of revising the order was to withdraw the depreciation allowed on earth-moving machinery because it was used in the construction of a hotel.
He pointed out that the order of AO dt. 31st July, 1989, that the CIT revises an order in which he had given effect to the order made by Commissioner of Income-tax (Appeals) [CIT(A) for short]. These issues were concerning the estimation of income on works contracts. He further contended that AO in this order had stated that the order was initially made by him on 6th March, 1987, and that he is giving effect to the order of CIT(A) on certain issues. He drew our attention to the order of AO and submitted that it does not contain any discussion on. depreciation on earth-moving machinery. He submitted that the discussion is available on the order dt. 6th March, 1987, which was the order initially made by the AO.
He contended that the CIT though is mentioning the date of order as 31st July, 1989, has proceeded to revise that part of the order of AO on which the appellant had not preferred any appeal. He submitted that the part of the order on which the appellant firm had not preferred any appeal is dt. 6th March, 1987, and CIT could revise this part of the order but he could do so within the period permitted under the Act. The time-limit available to CIT for revising the order dt. 6th March, 1987, is two years from 31st March, 1988, and he could not make any revision after 31st March, 1990. He contended that the order of CIT that is dt. 25th Feb., 1992, is therefore barred by limitation and must be quashed.
On merits he contended that earth-moving machinery though may have been used in the contract for construction of a hotel, it was used to excavate the earth and move the earth so excavated for laying of foundation for construction of a multi-storied hotel building, He contended that the machinery was put to use for which it was intended and hence is entitled to depreciation as earth-moving machinery.
3. The learned Senior Departmental Representative Mr. Ravi strongly opposed the pleas raised by the counsel for the appellant firm. He contended that Section 263 has undergone an amendment that is effective from 1st June, 1988, and this amendment gives the CIT full powers of revision of an order made by AO on that part that was not the subject matter of appeal before CIT(A). He drew our attention to the explanations (b) and (c) to Section 263(1) of the Act and submitted that the record and the extension of the portion of the order not a matter of appeal is covered within the powers of CIT. He contended that the submission of the counsel for the appellant for a narrow view of the provision is against the principles laid down by the Supreme Court in Vikrant Tyres Ltd. v. ITO (2001) 247 ITR 821 (SC). He submitted that the order of AO giving effect to the order of CIT(A) is his final order and this is revised by CIT and the said revision is well within time. On merits he contended that the earth-moving machinery if found used for construction of a hotel is entitled to a depreciation as normal machinery only and the special rate is inapplicable.
4. We have considered the rival contentions on the validity of the order of revision and on merits and the case laws referred to during the argument. Considering that the issue in question revolves around the provision of Section 263 of the Act, we reproduce the section hereunder for the sake of facility.
"Section 263--(1) The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests 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,--
(a) an order passed on or before or after the 1st June, 1988, by the AO shall include-
(i) an order of assessment made by the Asstt. CIT or Dy. CIT or the. ITO on the basis of the directions issued by the Jt. CIT under Section 144A;
(ii) an order made by the Jt. CIT in exercise of the powers or in the performance of the functions of an AO conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief CIT or Director General or CIT authorised 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 CIT;
(c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after the 1st June, 1988, the powers of the CIT 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 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."
5. The Section 263 of the Act underwent a modification that was made effective from 1st June, 1988, to get away from the view of Courts that the order of AO merges into the order passed by CIT(A) and therefore CIT could not revise the order of AO. The theory of merger of the orders, the lawmakers felt required a review, and accordingly came with the amendment and introduced an Explanation. By this amendment and Explanation, the lawmaker made it clear that, the part or portion of the order of AO that was not considered by CIT(A) in appeal that is filed either before 1st June, 1988, or after that date, is open for revision by CIT.
The order by AO therefore, has two parts; one, that part that is taken up in appeal before CIT(A) by the assessee and second, that part with which the assessee has no grievance. The order of assessment by AO is to be made by him within the time permitted under the Act and this is so specified under Section 153 of the Act. The AO issues a notice of demand on the assessee under Section 156 of the Act and encloses the assessment order to it. The assessee when filing an appeal to CIT(A) is required to attach the notice'of demand in original to the form of appeal. The Act it is clear recognizes the assessment order and the notice of demand as raised on the assessee as the starting point of proceedings against the assessee.
The assessment order thus passed may be modified consequent to an order by CIT(A) and this is so specified in Section 153 of the Act. Similarly the assessment order may be rectified as permitted under Section 154 of the Act, if it contains any mistake apparent from the record. The assessment order may also be revised as is done in the instant case. The assessment so made could be reopened under Section 147 of the Act, if the AO finds certain income that has escaped the assessment. The Act in Section 2(40) defines regular assessment to mean 'the assessment made under Sub-section (3) of Section 143 or Section 144.
These go to show that it is with the regular assessment that is initially made by AO whether appealed against or not that all subsequent proceedings under the Act are related with insofar as it relates to determination of income under the Act. It is this assessment that gets modified consequent to the order of CIT(A) and with reference to which the AO passes the consequential order stating it as 'under Section 251 r/w Section 143(3) of the Act'. The regular assessment that is not the subject-matter of appeal before CIT(A) could be reviewed by CIT under Section 263 of the Act and this review is permissible within a period of two years from the end of the financial year in which the regular assessment is made. The power of CIT also extends to the order that is made by AO consequent to the order of CIT(A) when he sets aside the assessment to be redone in accordance with law and the time of two years would run from the end of the financial year in which the recompilation or reassessment is made by AO.
In the instant case the order of AO concerning the allowance of depreciation was not the subject-matter of appeal before CIT(A) and according to Section 153 of the Act, the assessments must be completed by AO on 31st March, 1986, and 31st March, 1987, for the asst. yrs. 1983-84 and 1984-85, respectively. However, both the assessments are stated as made on 6th March, 1987. For the asst. yr. 1983-84, AO had indicated that he had modified the order dt. 12th May, 1988. In the instant case the undisputed fact is that the depreciation remained the subject of regular assessment framed on 6th March, 1987, and it was not an issue before GIT(A) and further it is not the case of the Department that the CIT(A) had directed the AO to re-examine the depreciation claim. Therefore, the aspect of depreciation had reached finality so far as the AO is concerned. CIT therefore could, revise this part concerning depreciation up to 31st March, 1990, i.e., two years from the end of the financial year which is 31st March, 1988. The order giving effect to the order of CIT(A) as observed earlier did not require the AO to re-examine the claim of depreciation and the said order did not contain any discussion about depreciation at all. No doubt that the starting point in the modified order is the income as computed earlier but it is only to suggest that after consideration of various issues the computation of income was made and such income is undergoing change because of issues as directed by CIT(A) in his order and therefore, could not be treated as fresh examination of all the aspects by AO.
In the instant case for both the assessment years, CIT had initiated the proceedings under Section 263 of the Act in September, 1991 and made his order on 25th Feb., 1992. In the light of our observations made above we are of the opinion that the initiation of the proceedings is beyond the time permitted under the Act and consequently the order so passed. We therefore, quash the orders of revision for both the assessment years as barred by limitation under the provision of the Act.
The case law relied upon by the senior Departmental Representative reiterates that the interpretation has to be made keeping in mind the intention with which proposition there can be no dispute at all.
Insofar as merit is concerned the earth-moving machinery has been stated as used for the excavation of earth to enable construction of high rise hotel building. The machinery perhaps could be used only for excavation of earth and merely because the removal of earth lead to the construction of high rise hotel building, could not, in our opinion restrict the depreciation which the machinery is entitled to. We set aside the order of CIT accordingly, The appeals, therefore, are decided in favour of the appellant firm and against the Revenue.