Gujarat High Court
Pr. Commissioner Of Incomex ... vs Gujarat State Fertilizer & Chemicals ... on 15 March, 2017
Author: M.R. Shah
Bench: M.R. Shah, B.N. Karia
O/TAXAP/99/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 99 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be
allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair
copy of the judgment ?
4 Whether this case involves a substantial
question of law as to the interpretation of the
Constitution of India or any order made
thereunder ?
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PR. COMMISSIONER OF INCOMEX TAX-VADODARA-
1....Appellant(s)
Versus
GUJARAT STATE FERTILIZER & CHEMICALS LTD....Opponent(s)
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Appearance:
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 15/03/2017
ORAL JUDGMENT
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HC-NIC Page 1 of 10 Created On Mon Aug 14 10:00:34 IST 2017 O/TAXAP/99/2017 JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal, Ahmedabad "A" Bench (hereinafter referred to as "the tribunal") dated 31/03/2016 in ITA No.1402/AHD/2014 for the Assessment Year 2009-10 by which the learned tribunal has allowed the said Appeal preferred by the assessee and has quashed and set aside the order passed by the learned Commissioner in exercise of powers under Section 263 of the Income Tax Act (hereinafter referred to as "the Act"), the revenue has preferred the present Appeal with the following proposed question of law;
"Whether on the facts and in the circumstances of the case, the ITAT was right in law in setting aside the order of the CIT and restore that of the AO, disregarding the applicability of the provisions of Section 263 of the IT Act to the fact of the case?"
[2.0] The assessee filed the return of income for the Assessment Year 2009-10 declaring the total income of Rs.889,61,66,980/-. The assessee claimed the depreciation of Rs.57,31,18,034/- for windmills under Section 32(1)(iia) of the Act. The assessee also debited Rs.92,66,211/- as obsolete stores and spares and other items written off and ultimately while framing scrutiny assessment under Section 143(3) of the Act on 30/12/2011, the Assessing Officer determined the total income of Rs.963,46,05,466/- as against the return of income of Rs.889,61,66,980/-. Learned Commissioner took the order of assessment under suo motu revision under Section 263 of the Act as the revisional authority was of the view that the Page 2 of 10 HC-NIC Page 2 of 10 Created On Mon Aug 14 10:00:34 IST 2017 O/TAXAP/99/2017 JUDGMENT order passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of the revenue on account of the following;
"It is noticed that during the previous year 2008-09 relevant to A.Y. 2009-10, you have claimed depreciation of Rs.57,31,18,034/- for windmills. The additional depreciation was admissible only to assessee engaged in production or manufacture of articles or things. Generation and distribution of power dies not result into "production or manufacture of article or thing". Thus as per provisions of Section 32(1)(iia) read with Section 2(29BA) of the Act, you were not entitled for additional depreciation of Rs.7,22,82,760/-. This resulted in under assessment."
"It was also noticed from the P & L A/c relevant to A.Y. 2009-10, that the assessee had debited Rs.92,66,211/- as obsolete spares and other items written off. If these spares had been capitalized, the amount of spares now treated as obsolete and written off shall be deducted from the cost of plant and machinery for depreciation. In the depreciation chart no such deduction was made from the WDV of plant and machinery. Further in Schedule 15 to P & L A/c, Rs.1366.90 as stores and spares consumed. Thus it can be inferred that stores and spares are treated as revenue expenditure. Since the spares are treated as revenue expenditure the purchase cost would have already been debited to P & L A/c.
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HC-NIC Page 3 of 10 Created On Mon Aug 14 10:00:34 IST 2017
O/TAXAP/99/2017 JUDGMENT
The spares now becoming obsolete and being
written off cannot again be allowed as a deduction as the amount would have already been debited to P & L A/c as purchases. So the amount of obsolete spares and other items written off should have been disallowed and added to the income of the assessee. This being not done resulted in under assessment of income of Rs.92,66,211/-"
[2.1] Notice under Section 263(1) of the Act was issued and served upon the assessee. The assessee filed the written submissions. It was the specific case on behalf of the assessee that at the time of the scrutiny assessment, after examining the case the Assessing Officer granted additional depreciation on windmill, and therefore, it was submitted that no error has been committed by the Assessing Officer in granting the additional depreciation of Rs.7,22,82,760/- as per provisions of Section 32(1)(iia) read with Section 32(1)(iia) of the Act. It was submitted that as such the issue with respect to the additional depreciation of windmill has been concluded by the decision of the Madras High Court in the case of Commissioner of Income Tax Vs. VTM Limited reported in (2009) 319 ITR 336 (Mad). It was also pointed out that the decision of the Madras High Court in the case of VTM Limited(Supra) has been confirmed by the Hon'ble Supreme Court.
[2.2] It was also submitted on behalf of the assessee that even with respect obsolete spares and other items written off is concerned, the same was allowed by the Assessing Officer after applying his mind to the facts of the case and after considering the details submitted by the assessee and the Page 4 of 10 HC-NIC Page 4 of 10 Created On Mon Aug 14 10:00:34 IST 2017 O/TAXAP/99/2017 JUDGMENT annual return filed by the assessee - Company and only thereafter allowed the deduction on obsolete spares and other items written off of Rs.92,66,211/-, and therefore, it was submitted that the order of the Assessing Officer cannot be said to be prejudicial to the interest of the revenue, and therefore, it was requested to withdraw the notice under Section 263 of the Act. Learned Commissioner however set aside the assessment order on both the grounds and remanded the matter to the Assessing Officer in light of the observations made in the order.
[2.3] Feeling aggrieved and dissatisfied with the order passed by the revisional authority in exercise of powers under Section 263 of the Act, the assessee preferred Appeal before the learned tribunal. By the impugned judgment and order the learned tribunal has allowed the said Appeal preferred by the assessee and has quashed and set aside the order passed by the revisional authority in exercise of powers under Section 263 of the Act, which has given rise to the present Appeal under the instance of the revenue.
[3.0] Shri K.M. Parikh, learned advocate appearing on behalf of the revenue has vehemently submitted that in the facts and circumstances of the case the learned tribunal has materially erred in setting aside the order passed by the learned Commissioner by observing that the order passed by the Assessing Officer cannot be said to be prejudicial to the interest of the revenue. However has fairly conceded that so far as ground no.1 on which the learned Commissioner initiated suo motu revisional powers i.e. with respect to depreciation claimed under Section 32(1)(iia) read with Page 5 of 10 HC-NIC Page 5 of 10 Created On Mon Aug 14 10:00:34 IST 2017 O/TAXAP/99/2017 JUDGMENT Section 32(1)(iia) of the Act on windmill is concerned, the same is squarely covered against the revenue in light of the decision of the Division Bench of this Court in the case of Commissioner of Income-tax-1 Vs. Diamines & Chemicals Ltd. reported in [2014]42 Taxmann.com 193(Gujarat).
[3.1] Now so far as ground no.2 on which the learned Commissioner took the assessment order under suo motu revision is concerned, it is vehemently submitted by Shri K.M. Parikh, learned advocate appearing on behalf of the revenue that the learned tribunal has not properly appreciated the facts as well as the clear findings made by the learned Commissioner while passing the order under Section 263 of the Act. It is vehemently submitted that the learned Commissioner found that certain inquiry was not held /conducted by the Assessing Officer while accepting the assessee's claim of written off on obsolete spares and stores worked out at Rs..92,66,211/-, and therefore, the assessment order was found to be erroneous and prejudicial to the interest of the revenue and consequently when the learned Commissioner set aside the order of the Assessing Officer and remitted the matter to the Assessing Officer to re-frame the assessment, the same was not required to be interfered with by the learned tribunal.
Making the above submissions, it is requested to admit /allow the present Appeal.
[4.0] The present Appeal is vehemently opposed by Shri Manish J. Shah, learned advocate appearing on behalf of the assessee. It is submitted that so far as ground no.1 on which Page 6 of 10 HC-NIC Page 6 of 10 Created On Mon Aug 14 10:00:34 IST 2017 O/TAXAP/99/2017 JUDGMENT the Commissioner took the assessment under suo motu revision, that is with respect to depreciation claimed on windmill is concerned, as such, the issue is concluded on merits in favour of the assessee in view of the decision of the Division Bench of this Court in the case of Diamines & Chemicals Ltd.(Supra). It is submitted that as such while passing the impugned judgment and order the learned tribunal has relied upon the decision of the Division Bench of this Court in the case of Diamines & Chemicals Ltd. (Supra). It is further submitted that so far as ground no.2 on which the learned Commissioner took the assessment order under suo motu revision i.e. with respect to the claim of written off obsolete spares and stores is concerned, it is submitted that the learned tribunal has rightly held that the Assessing Officer was justified in allowing the claim of the assessee of written off on obsolete spares and stores and the same cannot be said to be prejudicial to the interest of the revenue. It is submitted that as such even the learned Commissioner in the order under Section 263 of the Act and while interfering with the assessment order observed that the issue needs detail examination, which was not done by the Assessing Officer at the time of assessment proceedings, and therefore, it is submitted that even the learned Commissioner has not given any specific finding with respect to the claim of the assessee of written of obsolete spares and stores and other items. It is submitted that therefore the ground on which the learned Commissioner set aside the order of assessment and remanded the matter to the Assessing Officer was beyond the scope and ambit of Section 263 of the Act, and therefore, the learned tribunal has rightly quashed and set aside the order passed by the revisional authority (Commissioner) under Page 7 of 10 HC-NIC Page 7 of 10 Created On Mon Aug 14 10:00:34 IST 2017 O/TAXAP/99/2017 JUDGMENT Section 263 of the Act.
Making the above submissions, it is requested to dismiss the present Tax Appeal.
[5.0] Heard the learned advocates appearing on behalf of the respective parties at length. At the outset, it is required to be noted that the scrutiny assessment under Section 143(3) of the Act was taken under suo motu revision by the learned Commissioner in exercise of powers under Section 263 of the Act on two grounds, firstly on the ground that the Assessing Officer had wrongly held that the assessee is entitled to additional depreciation under Section 32(1)(iia) read with Section 32(1)(iia) of the Act on windmill and also on the ground that the assessee was not entitled to debit of Rs.92,66,211/- on obsolete spares and stores and other items written off in the Profit and Loss account.
[5.1] Now so far as ground no.1 with respect to the additional depreciation under Section 32(1)(iia) read with Section 32(1)(iia) of the Act on windmill, which was allowed by the Assessing Officer is concerned, at the outset it is required to be noted that the aforesaid issue is now not res integra and the same is concluded by the Division Bench of this Court against the revenue in view of the decision of the Division Bench of this Court in the case of Diamines & Chemicals Ltd.(Supra). The aforesaid is not disputed by Shri K.M. Parikh, learned advocate appearing on behalf of the revenue that while passing the impugned judgment and order the learned tribunal has relied upon the binding decision of the Division Bench of this Court in the case of Diamines & Chemicals Ltd.(Supra). Under the circumstances, the Page 8 of 10 HC-NIC Page 8 of 10 Created On Mon Aug 14 10:00:34 IST 2017 O/TAXAP/99/2017 JUDGMENT learned tribunal has rightly quashed and set aside the order passed by the learned Commissioner with respect to additional depreciation of Rs.7,22,82,760/- claimed by the assessee under Section 32(1)(iia) of the Act on windmill. Under the circumstances, the learned tribunal has rightly quashed and set aside the order passed by the learned Commissioner so far as the additional depreciation claimed by the assessee under Section 32(1)(iia) read with Section 32(1)(iia) of the Act.
[5.2] Now so far as the order passed by the Assessing Officer allowing the assessee to debit Rs.92,66,211/- on obsolete spares and stores and other items written off are concerned, learned Commissioner in exercise of the powers under Section 263 of the Act has set aside the order passed by the Assessing Officer by observing that the contents of the assessee need detailed examination, which was not done by the Assessing Officer at the time of the assessment proceedings. However, it is required to be noted that at the time of passing of the assessment order the said issue was considered by the Assessing Officer in detail and while passing the scrutiny assessment. Even otherwise on the aforesaid ground it was not open for the Commissioner to exercise the powers under Section 263 of the Act. The aforesaid issue has been dealt with by the learned tribunal by observing in paragraph nos.18 to 24. The learned tribunal has specifically observed after considering the Companies policy and accounting treatment of obsolete spares and stores written off and the consistent practice followed by the assessee, items of stores and spares having individual value of Rs.10000 or less were debited only at the time of consumption. The learned tribunal has rightly held that the Assessing Officer is justified in Page 9 of 10 HC-NIC Page 9 of 10 Created On Mon Aug 14 10:00:34 IST 2017 O/TAXAP/99/2017 JUDGMENT accepting he claim of the assessee in debiting Rs.92,66,211/- from the Profit and Loss Account. Under the circumstances, the learned tribunal has observed that the order passed by the Assessing Officer cannot be said to be prejudicial to the interest of the revenue, and therefore, the Commissioner was not justified in interfering with the order passed by the Assessing Officer in exercise of powers under Section 263 of the Act.
[6.0] We are in agreement with the view taken by the learned tribunal. No interference of this Court is called for. No substantial question of law arises as proposed by the revenue. Under the circumstances, the present Appeal deserves to be dismissed and is accordingly dismissed.
(M.R. SHAH, J.) (B.N. KARIA, J.) Siji Page 10 of 10 HC-NIC Page 10 of 10 Created On Mon Aug 14 10:00:34 IST 2017