Income Tax Appellate Tribunal - Ahmedabad
Adani Port & Special Economic Zone Ltd., ... vs Assessee on 29 October, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "A" BENCH
(BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT
MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER)
ITA No: 1362/AHD/2015
(Assessment Year: 2010-11)
Adani Port & Special V/S Addl C.I.T Range-1,
Economic Zone Ltd., Ahmedabad
Adani House, Nr.
Mithakhali Six Road,
Navrangpura,
Ahmedabad-380009
(Appellant) (Respondent)
PAN: AAACG 7917K
Appellant by : Shri S.N. Soparkar, AR
Respondent by : Shri R.I. Patel, CIT/ D.R.
(आदे श)/ORDER
Date of hearing : 14-10-2015
Date of Pronouncement : 29 -10-2015
PER ANIL CHATURVEDI, ACCOUNTANT MEMBER
1. This appeal filed by the Assessee is against order of ld. CIT dated 31.03.2015 for A.Y. 2010-11 passed u/s.263 of the Income-tax Act, 1961.
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2. The relevant facts as culled out from the material on record are as under.
3. Assessee is a company stated to be engaged in the development and operation and maintenance of ports and Special Economic Zone at Mundhra. Assessee electronically filed its return of income for A.Y. 2010-11 on 24.09.2010 declaring total income at Rs. 1,46,39,970/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 28.03.2013 and the total income was determined at Rs. 27,74,59,380/-. Subsequently on examination of the case record of assessment, ld. CIT noticed that (i) Rs. 17.08 crore was required to be disallowed u/s. 14A read with Rule 8D of the Act but only an amount of Rs. 6.12 crore was disallowed by the A.O. (ii) Assessee had claimed deduction of Rs. 3,75,48,727/- on account of amortization value of lease hold land which was not allowable as according to him A.O had completed the assessment without considering the provisions of Section 35D. (iii) Assessee had claimed depreciation at 15% instead of 10% on office equipments and
(iv) Assessee had claimed deduction of Rs. 14,74,336/- u/s. 35D which according to ld. CIT was not allowable as Assessee was in the business of providing services and that the expenses were incurred prior to 1.04.2009. He accordingly issued a notice dated 16.03.2015 calling upon the Assessee to show cause as to why appropriate order u/s. 263 be not passed and in response to which Assessee interalia objected to the initiation of proceedings u/s. 263 and submitted that the notice was without jurisdiction. On merits, on the issue of disallowance of disallowance u/s. 14A it was submitted that the issue was subject matter of appeal before ld. CIT(A) and was considered 3 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 and decided by him in appeal and therefore ld. CIT did not have jurisdiction in terms of clause C of Explanation below sub-section (i) of Section 263. With respect to the amortized value of lease hold land, it was submitted that though in the return of income, the deduction was claimed as "amortization" but the claim represents depreciation and it was Assessee's practice to claim 10% of the opening WDV plus additions and the same has been allowed in earlier years and that Section 35D had no role to play with respect to the deduction. With respect to the depreciation on office equipments that was claimed at 15%, it was submitted that office equipments were in the nature of "plant" and was covered within the block of asset namely "machinery and plant" and therefore Assessee has rightly claimed and had been allowed the depreciation. With respect to the deduction claimed and allowed u/s. 35D, it was submitted that the preliminary expenses were incurred before the commencement of business and were deductible under clause 1 of Section 35D (1) and the same were allowable even to business which were not industrial undertaking or units. Ld. CIT after considering the submissions of Assessee agreed with the submission of Assessee only with respect to the disallowance made u/s. 14A but on the other 3 issues, the submissions of the Assessee were not found acceptable. He accordingly vide order dated 31st March, 2015, held the order passed by the A.O dated 28.03.2013 to be erroneous and prejudicial to the interest of Revenue as according to him the Assessee was allowed inadmissible deductions. He accordingly cancelled the order dated 28.03.2013 framed u/s. 143(3) of the Act and directed the A.O to make fresh assessment of the total income of the Assessee. Aggrieved by the aforesaid order of ld. CIT, Assessee is now in appeal before us and has raised the following grounds:-
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1. In law and in the facts and circumstances of the appellant's case, the impugned order is void and deserves to be cancelled for the reason that it has been passed without jurisdiction. The learned CIT ought to have appreciated, inter alia,:
(a) that since it was the admitted position that the appellant's entire business income was exempt u/s. 80-IAB and since all the issue sought to be raised vide his Notice u/s. 263 concerned computation of business income, even if it were assumed, for the sake of argument only, that the assessment order for the present assessment year was erroneous, it could not be regard as prejudicial to the interests of the Revenue as decisions on those issues, even if they were adverse to the appellant, could only result into enhancement of only such business income of the appellant which was fully exempt u/s. 80-IAB;
(b) that it was not open to him to assume jurisdiction u/s. 263 unless the assessment order was both erroneous and prejudicial to the interests of the Revenue;
(c) that further, as elaborately explained in the appellants written submission dated 23.3.2015 addressed to him, the assessment order for the present assessment year could not be regarded as erroneous in respect of any of the issues that he had sought to raise vide his Notice u/s. 263
2. Without prejudice to the foregoing Ground No. 1, in law and in the facts and circumstances of the appellant's case, the impugned order is void and deserves to be cancelled also for the reason that vide his impugned order, the learned CIT had cancelled the assessment and directed the learned Assessing Officer to make fresh assessment of the appellant's total income for the present assessment year which it was not open to him to order, inter alia, for the following reasons:
(a) for the reason that, as he had himself noted in the impugned order itself, the assessment order for the present assessment year had already been the subject matter of appeal which had been decided by the learned CIT(A) -VI, Ahmedabad, vide Appellate Order dated 17.10.2014 passed in appeal No. CIT(A)-VI/Addl./R.1/160/13/14;
(b) for the reason that when his Notice u/s. 263 had raised only four specific issues [(1) disallowance u/s. 14A read with Rule 8D, (2) deduction by way of amortization of leasehold lands, (3) rate of depreciation on Office Equipment and (4) claim for deduction u/s. 35D] out of which only three had survived even on his own untenable stand (he 5 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 having been satisfied about his lack of jurisdiction over the first issue which had been dealt with in the first Appellate Order), it cannot be open to him to order for the cancellation of the entire assessment and to direct the Assessing Officer to make assessment of the appellant's total income afresh;
(c) for the reason that law was very well settled that provisions stipulating limitation for the time within which assessment for a particular assessment year must be completed had their own sanctity which cannot be violated in the manner he had sought to do by ordering cancellation of the appellant's assessment and by directing the appellant's total income to be computed afresh.
3. Without prejudice to the foregoing Grounds No. 1 and 2, in law and in the facts and circumstances of the appellant's case, the impugned order is void and deserves to be cancelled also because, as only a bare reading thereof shows, it has been passed without even considering the appellant's vital written submissions in their entirety.
4. Without prejudice to the foregoing Grounds, in law and in the facts and circumstances of the appellant's case, the learned CIT has grossly erred in directing the Assessing Officer to move an application u/s. 154 before the learned CIT(A) (who had already decided the appellant's appeal against the assessment order for the present assessment year) raising the issue of quantum of disallowance u/s. 14A read with Rule 8D. He ought to have appreciated, inter alia, that Section 263 did not empower him to issue any such direction which was therefore without jurisdiction and deserved to be cancelled.
5. Without prejudice to the foregoing Grounds No. 1, 2 and 3, in law and in the facts and circumstances of the appellant's case, the learned CIT has grossly erred in failing to appreciate that as explained in the appellant's written submission, in truth and substance, the appellant's claim described as "Amortized value of leasehold land" was for depreciation in respect of leasehold lands and that it had nothing to do whatsoever with Section 35D as assumed by him and further, that since leasehold land was an intangible asset, it was eligible to deduction for depreciation @ 25% as against @10% claimed by the appellant and that it could just not be open to him to regard the assessment order as either erroneous or prejudicial to the interests of the Revenue inasmuch as it granted the appellant's claim of deduction @10%.
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6. Without prejudice to the foregoing Grounds No. 1, 2 and 3, in law and in the facts and circumstances of the appellant's case, the learned CIT has grossly erred in holding that the learned Assessing Officer's action of granting the appellant's claim for depreciation on Office Equipment @15% applicable to Machinery and Plant is erroneous and prejudicial to the interests of the Revenue on the ground that Office Equipment could not be regarded as "Machinery and Plant" and that it was covered by the block of assets "Furniture and fittings" eligible to depreciation @ 10%. He ought to have appreciated that for the reasons elaborately explained in the appellant's written submissions to him, it was only axiomatic that Office Equipment fell in the block of assets "Machinery and Plant" and that by no stretch of the imagination, it could be regarded as covered by the block of assets "Furniture and fittings".
7. Without prejudice to the foregoing Grounds No. 1, 2 and 3, in law and in the facts and circumstances of the appellant's case, the learned CIT has grossly erred in holding that the action of the learned Assessing Officer of granting the appellant's claim of deduction of Rs. 14,74,336 u/s. 35D was erroneous and prejudicial to the interests of the Revenue. He ought to have appreciated that for the reasons elaborately explained in the appellant's written submissions to him, the appellant's claim was absolutely legitimate and impeccable and had been rightly granted by the Assessing Officer.
4. Before us, ld. A.R. submitted that though the Assessee has raised various grounds but the only effective ground which needs to be adjudicated is ground no. 3 with respect to challenging the revisionary order passed by ld. CIT u/s. 263 of the Act.
5. Before us, ld. A.R. submitted that in the present case, the pre requisite conditions specified u/s. 263 of the Act were not satisfied and therefore the proceedings u/s. 263 lacks jurisdiction and are bad in law. He submitted that ld. CIT can revise an order passed by the A.O only on the satisfaction of twin conditions namely (i) the order is erroneous and (ii) it is prejudicial to 7 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 the interest of Revenue. He further submitted that the error envisaged to Section 263 is not one which depends on possibility or guesswork but it should have an actual error either of facts or of law and further the order of A.O cannot be considered as erroneous order prejudicial to the interest of Revenue unless the view taken by the A.O is unsustainable in law and for the aforesaid proposition he relied on the decision of Hon'ble Apex Court in the case of Malabar Industries Co. vs. CIT (2000) 243 ITR 83 (SC).
6. On the merits, on the issue with respect to amortization of lease hold land, claim of depreciation and deduction u/s. 35D, he submitted that during the course of assessment proceedings, A.O had raised specific queries on the aforesaid three issues and in response to the query raised by the A.O., Assessee had furnished the reply. He submitted that vide letter dated 21.03.2013 had submitted the justification with respect the claim of depreciation of lease hold land development along with other details. With respect to the claim of deduction made u/s. 35D, Assessee vide letter dated 08.01.2013 had filed the necessary details along with the chart showing details of claim made in each of the preceding year along with the order in which the initial claim was made. With respect to the claim of depreciation, Assessee vide letter dated 08.11.2012 had filed the chart showing the details of fixed assets acquired during the year along with the depreciation claimed thereon. Ld. A.R. pointed to the copies of the letters of the Assessee which were addressed to the A.O and the copies of which were placed at page 37 to 63 of the paper book. The ld. A.R. therefore submitted that after considering the submissions of Assessee and on being satisfied with the replies given by the Assessee no addition was made by the A.O. He therefore submitted that when the A.O has taken one view with which ld. CIT does not agree, the 8 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 order of A.O cannot be treated as erroneous order pre-judicial to the interest of Revenue unless the view taken by the A.O is unsustainable in law. With respect to the amortization of lease hold land ld. A.R. further submitted that Assessee had not claimed the deduction u/s. 35D but had amortized the cost of lease hold lands over a period of 10 years and in support of which he also pointed to the copy of the computation of income which is placed at page 27 & 28 of the paper book. He therefore submitted that ld CIT has wrongly assumed that Assessee has claimed deduction u/s. 35D on amortization of land. With respect to the claim of depreciation, ld A.R. pointed to the break- up of the addition to office equipments which is placed at page 31 & 32 of the paper book. He pointed out that similar addition to assets were made in earlier years and the claim of depreciation at 15% was allowed by the A.O in scrutiny assessment meaning thereby that it was accepted by the Revenue department that Assessee was right in claiming the depreciation at 15%. He therefore submitted that in the absence of any change in facts, a different view could not be taken by ld. CIT. With respect to the claim of deduction u/s. 35D, he submitted that the issue of Section 35D was examined in the 1st year when the expenses were incurred and after the examination of the claim, the deduction was allowed in the year of incurring of expenditure and subsequent years. He therefore submitted that Assessee cannot be denied the claim of deduction under 35D more so when the claim has been allowed after scrutiny assessments in the past and without disturbing earlier years deductions and for this proposition he relied on the decision of Hon'ble Gujarat High Court in the case of Gujarat Narmada Valley Corporation vs. D.C.I.T. (2014) 369 ITR 763 (Guj.). He further submitted that where two views are possible and the A.O has taken one view on the basis of evidence produced with which the Commissioner does not agree, then in that case the 9 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 order passed by A.O cannot be treated as erroneous and prejudicial to the interest of Revenue, unless the view taken by the A.O is unsustainable in law and for this proposition he relied on the decision of Hon'ble Apex Court of Max India cited in 295 ITR 282 (SC). He further submitted that even otherwise the order of A.O cannot be considered to be pre-judicial to the interest of the Revenue because the entire income under the head "profits and gains of business and profession" is exempt u/s. 80IB and even assuming that if there are certain disallowances, the disallowances would result in increasing the income under that head which would correspondingly go the increase the quantum of deduction u/s. 80IB and in that sense also, the order of A.O cannot be considered to be prejudicial to the interest of Revenue. He therefore submitted that the order of ld. CIT deserves to be quashed both on merits and legally.
7. The ld. D.R. on the other hand supported the order of ld. CIT and further submitted that when A.O has allowed the claim of the Assessee without any discussion, the order passed by the A.O was erroneous and prejudicial interest of Revenue. With respect to the claim of amortization of lease hold land that was allowed by A.O, he submitted that A.O had not examined the claim of the Assessee in the light of provisions of Section 35D(2) as the section does not provide for amortization of land and thus it was wrong application of law at the end of A.O. With respect to claim of depreciation on office equipment at 15%,he submitted that the office equipment cannot be considered to be plant and machinery and therefore Assessee was not eligible to claim the depreciation at 15% and therefore the claim made by the Assessee was not as per law. With respect to the claim of deduction u/s. 35D, he submitted that Assessee was not an industrial undertaking and 10 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 therefore as envisaged in Section 35D of the Act as it had not started its business on or after 01,04,2009 and that the Section has been amended from that date and the amended Section therefore does not apply to the Assessee. With respect to the A.R's contention that even if the disallowances were made the same would go to increase the profits eligible for deduction he submitted that this argument of ld. A.R. cannot be upheld and for this he relied on the decision of Ahmedabad Tribunal in the case of DCIT vs. Rameshbhai Prajapati (2013) 29 Taxman.com 64 (Ahd Tribunal). He also placed reliance on the decisions in the case of CIT vs. Infosis Technologies Ltd. 17 Taxman.com 203 (Karnataka), CIT vs. Jawahar Bhattacharjee 24 Taxman.com 215 (Guwati), Malabar Industrial Company Ltd. vs. CIT 109 Taxman.com 109 Taxman.com66 (SC), CIT vs. Ahsok Logani 11 Taxman.com 208 (Del) and Gee Vee Enterprises vs. Additional CIT 99 ITR 375 (Del). He thus supported the order of ld. CIT(A).
8. We have heard the rival submissions and perused the material on record. The issue in the present case is about the invoking the provisions of Section 263 by ld. CIT.
9. S. 263(1) of the Act, the powers under which ld. CIT has assumed power for revision reads as under:
"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 ITO is erroneous in so far 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."
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10. The reading of the above provisions makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue.
11. Interpretation of Section 263 has been subject matter of consideration in various decisions including the decision in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 where the Hon'ble Apex Court while interpreting Section 263 at para 7 has observed as under:-
7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
12. In the case of CIT vs. Gabriel India Ltd. (1999) 203 ITR 108, the Hon'ble High Court while interpreting Section 263 has held that an order passed by the Assessing Officer cannot be termed as erroneous unless it is not in accordance with law. It further held that section does not visualize the case of substitution of the judgment of the Commissioner for that of the Income Tax Officer and pass the order, unless the decision is held to be erroneous. It further held that Income Tax Officer having exercised the quasi judicial power vested in him in accordance with law and having arrived at a 12 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 conclusion that conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion.
13. Seen in the light of the requirement of provisions of Section 263 and the decisions cited hereinabove, in the present case, it is seen that Section 263 has been invoked on 3 grounds namely the claim of deduction of Rs. 3,75,48,727/- on account of amortized value of lease hold land which according to CIT was not allowable, the claim of depreciation at 15% on office equipment and the deduction of Rs. 14,74,336/- claimed u/s. 35D of the Act. On the aforesaid 3 issues, it is seen that during the course of assessment proceedings, A.O had raised query on all the aforesaid 3 issues and the same were also replied by the Assessee vide letters dated 21.03.2013, 08.01.2013, 08.11.2012, the copies of which are placed in the paper book at page 37 to 79 of the paper book. Thus it is seen that on the aforesaid 3 grounds, the A.O had raised the query, the same were replied by the Assessee and it appears that the reply of the Assessee was found acceptable to the A.O because no addition on these aforesaid 3 issues were made by the A.O in the assessment order.
14. We find that the Hon'ble Apex Court in the case of CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) has held that where two views are possible and ITO has taken one view with which CIT does not agree, order of the A.O cannot be considered as erroneous order prejudicial to the interest of Revenue unless the view taken by the A.O is unsustainable in law. We further find that Hon'ble Bombay High Court in the case of Idea Cellular Ltd. vs. DCIT reported in (2008) 301 ITR 407 (Bom) has held that if a query is raised during the assessment proceedings and responded to by the 13 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 Assessee, the mere fact that it is not dealt with in the assessment order would not lead to conclusion that no mind has been applied to it.
15. On the merits on the issue of amortization of cost of lease hold land, we find on perusing the computation of total income, which is placed at page 27 to 30 of the paper book, that the claim of Assessee of amortized value of lease hold land development was not u/s. 35D whereas ld. CIT in the order has held that the claim of Assessee was u/s. 35D and therefore in such a situation, A.O's order on that issue cannot be considered to be erroneous more so because there was no such claim u/s. 35D by Assessee. As far as the claim of depreciation on office equipments @ 15% is concerned, it is Assessee's submission that the claim of depreciation at 15% on the office equipment which comprises of similar items as are in the present year, has been allowed by the A.O in earlier years in the assessment order passed u/s. 143(3) and those orders have attained finality. As far as the claim of deduction u/s. 35D is concerned it is not the case of the Revenue that the expenses have been incurred in the year under consideration but on the contrary it is assessee's submission that the same have been incurred in earlier years and the deduction u/s. 35D has also been allowed in earlier years. It is also not a case of the Revenue that on the issue of deduction under 35D, deduction for earlier years has been withdrawn by Revenue. In such a situation, without disturbing the earlier years, it cannot be said that the claim of deduction u/s. 35D was not allowable to the Assessee. The aforesaid submissions of ld. A.R has also not been controverted by Revenue. Further, before us Revenue has not brought any material on record to demonstrate that the view taken by the A.O was impermissible view and was contrary to law or was upon erroneous application of legal principles 14 ITA No 1362/Ahd/2015 . A.Y. 2010-2011 initiating the exercising of revisionary powers u/s. 263. Further the case laws was are relied upon by the Revenue are distinguishable on facts and therefore cannot be applied to the facts of the present case. In view of the aforesaid facts, we are of the view that ld.CIT was not justified in resorting to revisionary powers u/s. 263 of the Act. We therefore set aside the order of ld. CIT setting aside the assessment order passed u/s. 143(3) of the Act. Thus the grounds of Assessee are allowed.
16. In the result, the appeal of Assessee is allowed.
Order pronounced in Open Court on 29 - 10 - 2015.
Sd/- Sd/-
(S.S. GODARA) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad