Income Tax Appellate Tribunal - Delhi
Deputy Commissioner Of Income Tax vs Jindal Drilling And Industries Ltd. on 1 February, 2006
Equivalent citations: (2006)101TTJ(DELHI)85
ORDER
Vimal Gandhi, President
1. This appeal by the assessee [sic-Revenue] for asst. yr. 1989-90 is directed against order of CIT(A) directing the AO to grant deduction of Rs. 41,14,955 in the computation of income under the normal provision as contained in Chapter IV of the IT Act.
2. The facts of the case and dates on which different orders were passed are very important in this case. The original assessment of the assessee under Section 143(3) was made on 18th March, 1991 on loss of Rs. 99,70,090, Book profit for purposes of Section115j was accepted as disclosed.
The aforesaid assessment was subject-matter of appeal and CIT passed an order on 25th Sept., 1991.
3. The CIT exercised his power under Section 263, as according to him, book profit under Section 115J was wrongly taken by the AO. The said book profit was required to be reduced by the amount of loss or depreciation in accordance with provisions of Sub-section (1) of Section 205 of the Companies Act, 1956. He held that assessee had wrongly claimed depreciation on straight-line method. The depreciation as provided in books of account at Rs. 44,23,501 was required to be taken into consideration as against Rs. 89,84,466 worked out by the assessee and claimed as per IT Rules, He accordingly gave directions for re-working of book profit.
In the ultimate para, the learned CIT observed as under :
13. On the facts of the case, as the assessment framed is erroneous, insofar as it is prejudicial to the interest of Revenue, the same is cancelled on the limited issue with the direction that the AO should compute profit under Section 115J as per provisions of the Act and before doing so, adequate opportunity should be allowed to the assessee. For this specific purpose, the assessment stands set aside.
4. The appeal of the assessee against aforesaid order of CIT under Section 263 was rejected by the Tribunal vide order dt. 9th Aug., 2000. The Bench in the penultimate para 15, held as under:
15. On a careful consideration of the facts and circumstances of the case in its entirety and without providing bulk to this order, we would, in view of the foregoing discussion, hold that the learned CIT was legally justified to cancel the AO's order dt. 18th March, 1991 on the limited issue by invoking the powers conferred under Section 263 of the IT Act, with a direction to the AO to compute the book profit under Section 115J as per provisions of the Act.
5. Two more appeals of the assessee for asst. yrs. 1989-90 and 1990-91 were heard and disposed of by Tribunal 'A' Bench as per order dt. 27th Dec, 2000. One of the claim of the assessee in asst. yr. 1990-91 was to allow deduction on account of expenditure of Rs. 41,14,955 incurred for hiring of rigs, while computing book profit.
6. The Revenue authorities had held that above expenses did not pertain to and could not be taken into account in asst. yr. 1990-91. The assessee thereafter had raised an alternative plea that above expenditure be allowed in asst. yr. 1989-90 as per mercantile system of accounting regularly followed by the assessee and more particularly when appeal for 1989-90 was also pending before the Tribunal and was being considered. On the aforesaid plea, the Tribunal noted that assessee as per application dt. 5th March, 1992 had claimed deduction of expenditure of Rs. 41,14,955 in asst. yr. 1989-90.
7. The Tribunal further noted the contention of parties and held as under :
20. The appellant has filed the same ground before us for decision on the subject-matter. The learned Counsel pleaded that the AO rejected the claim of the appellant on the ground that the order under Section 143(3) has been set aside with the specific direction as such claim cannot be entertained. The learned Counsel relied on the case decided by Punjab & Haryana High Court in Atlas Cycle Industries Ltd. v. CIT . The learned Counsel pleaded that expenditure pertaining to 1969-70 disallowed in the appeal for the asst. yr. 1970-71, the Tribunal should allow plea to be raised. The learned Counsel also relied on the decision of Jute Corporation of India Ltd. v. CIT and Anr. and National Thermal Power Co. Ltd. v. CIT and ITO v.- Modi Rubber Ltd. (1993) 45 TTJ (Del) 415 : (1992) 43 ITD 396 (Del). The learned Counsel pleaded that assessment for 1989-90 was set aside by the CIT(A) to be considered de novo and therefore, entire assessment is thrown open upon because AO has been directed to recomputed the book profits and in order to arrive at the total income, the AO has to make a comparison of book profits and income computed under normal provisions of the IT Act.
21. Learned Departmental Representative on the other hand pleaded that allowability or otherwise of a claim can be adjudicated upon by the Tribunal if that arises out of the order passed by ITO. The learned Departmental Representative pleaded that an expenditure of Rs. 41,14,955 is to be decided either under Section 143(3) or under Section 143(3) r/w Section 250 or under Section 154/155 of the IT Act. The learned Departmental Representative pleaded that order under Section 263 was the limited direction to pass order under Section 115J and this order did not disturb the order passed by the AO under Section 143(3).
22. We have heard both the parties. We are of the opinion that CIT(A) has not dealt with this ground while passing his order. We, therefore, refer back this issue to the file of the CIT(A) who will decide the issue in totality along with the merit of the claim and its allowability. He will also allow opportunity of being heard to the AO as well as assessee. The appeal is partly allowed.
In the light of aforesaid observation and after considering facts and circumstances of the case, the learned CIT(A) allowed the deduction in question.
8. The Revenue is aggrieved and has brought the issue in appeal. The learned Departmental Representative vehemently contended that order of the AO was set aside on a limited issue with direction to AO to recompute and allow depreciation as contained in the said order. The AO, therefore, did not have jurisdiction to consider any other question. In these circumstances, it was not possible to enlarge the jurisdiction of an AO and permit him to consider all types of questions. It was accordingly prayed that order of the CIT(A) impugned was erroneous.
9. Shri Ajay Vohra, learned Counsel for the assessee, on the other hand, supported the impugned order of CIT(A). He held that directions were given to the AO in regular appeal which was pending before the Tribunal. He did not dispute that as per directions of the CIT under Section 263 of the IT Act, there was a limited set aside and AO was directed to allow correct depreciation to the assessee. But aforesaid direction did not affect statutory powers of the AO to" allow relief to the assessee. The question whether depreciation of Rs. 41,14,955 was to be allowed in asst. yr. 1990-91 or in the preceding year 1989-90 was concluded and decided much after the assessment order was passed by the AO. The claim of the assessee made in asst. yr. 1990-91 was disallowed on the short ground that same did not pertain to aforesaid year but was to be allowed in other year in accordance with mercantile system of accounting. There is no dispute that as per the aforesaid system, the claim was to be allowed in asst. yr. 1989-90. Accordingly assessee had requested the AO to allow the claim while computing book profit under Section 115J of the IT Act. While Revenue authorities had refused to entertain the claim, the assessee moved the Tribunal and directions dt. 27th Dec, 2000 noted above were issued. The learned CIT(A), on the facts and in the circumstances of the case, rightly allowed the deduction. Shri Vohra relied upon the decision of Madras High Court in the case of CIT v. Geo Industries & Insecticides (I) (P) Ltd. wherein it was held as under:
We are of the view that when the assessee made a claim for consideration of an item for deduction during the course of assessment proceedings, it is the duty of the ITO to examine the claim on the merits of the.claim. The present case is not a case where the assessee made a claim with reference to a matter which was concluded and has become final in the original assessment proceedings. But, on the other hand, it was found in the subsequent year's assessment proceedings that the liability of the assessee had accrued when the suit for injunction filed by the assessee was dismissed by the City Civil Court, Madras, and in view of the subsequent event that the deduction might relate to the present assessment year, the assessee made a claim for deduction of the damages and when such a claim was made, the ITO was bound to examine the claim on the merits and it is not open to him to reject the claim even at the threshold and refuse to entertain the claim. The zeal of the ITO to carry out the directions of the higher authority may be justified, but at the same time it should not prevent him from examining the claim of the assessee on the merits. His duty to make an assessment does not begin and end with carrying out the directions of the CIT and his duty is something more, that is to determine the correct taxable income. We are of the opinion, nothing precludes the assessee from making a claim before the ITO at the time of finalisation of the assessment proceedings and equally nothing prevents the ITO from examining the claim on the merits of the matter. It is well to remember that the assessment was being redone by the ITO within four years from the date of the original assessment order and when he is in the process of the completion of the assessment, he is bound to consider each and every claim preferred by the assessee. Let us imagine a case of a concluded assessment and there are no pending assessment proceedings, but when the assessee makes a claim for deduction of losses, the ITO cannot refuse to entertain the claim and he may reject the claim on the parameters found in Section 154 of the Act. In the instant case, it is a stronger case for the assessee as the ITO was directed to determine the correct total income of the assessee according to law and during those proceedings when the assessee makes a claim, the ITO is bound to consider the claim of the assessee. We are of the opinion that while considering such a claim, the question of' fulfilment of the conditions for rectification is not a sine qua non and even if the conditions to rectify the mistakes are not present, the ITO, in our opinion, should examine the claim of the assessee on the merits of the case. The power of the ITO to make the assessment as observed by this Court in CIT v. Seth Manicklal Fomra is derived from the statutory provisions of Section 143(3) of the Act. Though the Supreme Court in the case of Modi Industries Ltd. v. CIT has held that the jurisdiction of the ITO is derived from the order of the CIT, his jurisdiction to allow or disallow the carry forward losses of the defunct business would be derived from the order of the CIT, but in other respects and for completing the assessment, his powers would be traceable to Section 143(3) of the Act. This Court in Faizunnissa Begum v. Asstt. CED (1995) 214 ITR 749 (Mad) has indicated such an approach and it was held that insofar as other items not considered by the higher authorities are concerned, the power, of the ITO to reassess the income would be traceable to the provisions of the statute. Therefore, the refusal of the ITO even to consider the claim of the assessee is not justifiable and we are of the opinion that both the CIT(A) and the Tribunal were right in directing the ITO to consider the claim of the assessee on the merits of the matter. Though we are not agreeing with the view expressed by the Tribunal that the entire assessment order was set aside by the CIT, still the power of the ITO to consider the claim of the assessee is neither curtailed nor taken away by the order of the CIT. The ITO was bound to consider the claim of the assessee under Section 143(3) of the Act when he was in the final process of assessment in the determination of total income of the assessee as the assessment pursuant to the directions of the CIT has not reached the stage of finality. We find that the Central Board is more liberal in its approach and directed the ITO to consider the claim of statutory deduction even when the assessee has not made such a claim (vide : Circular No. 14 (XL-35) of 1955, dt. 11th April, 1955-Chokshi Metal Refinery v. CIT . We are of the opinion, such an attitude of the ITO would instill confidence in the minds of the taxpayer that his income would be properly determined and he is not required to pay the tax, neither one paise more nor one paise less than what is correctly and rightly due in accordance with and under the provisions of the statute. In this view of the matter, we are of the opinion that the order of the Tribunal is sustainable in law, though for different reasons as stated above.
10. After considering facts and circumstances of the case, we are of the view that decision relied upon by the learned Counsel for the assessee is on all fours. Even in the cited case, there was limited set aside by the higher authorities but the Court on consideration of all these relevant provisions held that claim of deduction based on subsequent events was required to be considered and allowed in accordance with statutory provisions. It was held that even when it was limited set aside, the powers of the AO were required to be considered under the statutory provisions and on consideration of the same, the Court held that claim made by the assessee was required to be allowed.
11. In the present case, deduction of Rs. 41,14,955 towards depreciation was claimed by the assessee in asst. yr. 1990-91. It was held to be not permissible in that year and same was deductible in asst. yr'. 1989-90 as per system of accounting regularly followed by the assessee. The aforesaid deduction could be allowed while computing book profit under Section 115J of IT Act in assessment year under consideration in the light of decision of CIT v. Geo Industries & Insecticides (I) (P) Ltd. (supra) quoted above. We, therefore, do not find any legal infirmity in the impugned order. The same is hereby confirmed.
12. In the result, the appeal of the Department is rejected.