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Income Tax Appellate Tribunal - Bangalore

M/S Srinidhi Mines , Bangalore vs The Income Tax Officer Ward-5(2)(2), ... on 25 April, 2019

               IN THE INCOME TAX APPELLATE TRIBUNAL
                       "SMC-B" BENCH : BANGALORE

     BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER

                             ITA No.3084/Bang/2018
                            Assessment Year :2015-16

        M/s. Srinidhi Mines,
        #207, II Floor, Elegance Royale,       The Income Tax
        2nd A Cross,                           Officer,
                                           Vs.
        Sindhi Colony, J.C. Road,              Ward - 5 (2) (2),
        Bangalore - 560 011.                   Bangalore.
        PAN: ACEFS0481P
                   APPELLANT                    RESPONDENT
        Appellant by        : Shri Deepak Chopra, CA
        Respondent by       : Smt. Padma Meenakshi, Addl. CIT (DR)
        Date of hearing           : 08.04.2019
        Date of Pronouncement : 25.04.2019

                                     ORDER
Per Shri A.K. Garodia, Accountant Member

This is an assessee's appeal directed against the order of ld. CIT (A)-5, Bangalore dated 08.08.2018 for Assessment Year 2015-16.

2. The grounds raised by the assessee are as under.

"1. The impugned orders being bad in law and not in accordance with the provisions of law are liable to be quashed. (Tax Effect of above ground: 9,66,577/-) 2.1. Without prejudice, the learned assessing officer has erred in disallowing depreciation allowance without following the due process in law for converting appellant's limited scrutiny into complete scrutiny.

2.2 The learned assessing officer's failure to seek prior approvals for disallowance of appellant's claim for deduction which is outside the scope of limited scrutiny, makes the entire assessment process bad in law and the impugned order is therefore liable to be quashed.

2.3.The learned Commissioner of Income Tax (Appeals) instead of quashing the assessment order has erred in confirming the same. The orders as passed being bad in law and are liable to be quashed. (Tax Effect of above ground: 9,66,577/-) 3.1 Without further prejudice, the learned assessing officer has erred in concluding and the learned CIT(A) has erred in confirming that the ITA No.3084/Bang/2018 Page 2 of 5 activity of transportation of goods by the appellant does not constitute transportation business of hiring or leasing of vehicles.

3.2. On proper appreciation of facts of the case, the appellant has received substantial revenue of Rs. 1.79 crores from transportation of goods and is very much engaged in the transportation business of hiring or leasing of vehicles.

3.3.The conclusion of lower authorities being erroneous and contrary to the facts of the case has to be ignored. (Tax Effect a/above ground. 9,66,577/-) 4.1.The learned assessing officer has erred in restricting the appellant's claim for depreciation allowance only to 15% of the written down value of vehicles block. The learned CIT(A) has erred in confirming the action of the assessing officer.

4.2. On proper appreciation of facts of the case and applicable law the appellant having used the vehicles in the business of running them on hire the correct rate of depreciation on such vehicles is 30%.

4.3.The disallowance of depreciation being erroneous under law and contrary to the facts of appellant's case has to be deleted. (Tax Effect of above ground: 9,66,577/-)

5. In lieu of the above and on other grounds to be adduced at the time of hearing, it is requested that the impugned orders be quashed or at least the disallowance made be deleted. (Cumulative tax effect of all the grounds above: 9,66,577/-)"

3. It was submitted by ld. AR of assessee that ground no. 1 is general and the same is not pressed. Accordingly this ground is rejected as not pressed.

4. Thereafter it was submitted that in the present case, this issue was decided by CIT (A) as per Para no. 5 of the impugned order. He submitted that in this Para, issue was decided by CIT (A) on merit instead of deciding the issue on technical aspect. He submitted that on page no. 47 of paper book is the copy of notice issued by the AO and from the same, it is apparent that this notice u/s. 143(2) is for limited scrutiny and on two aspects i.e.

i) Payment to related persons mismatch

ii) Other expenses claimed in the Profit & Loss a/c.

5. He submitted that the relevant portion of the return of income filed by the assessee is available on page no. 105 of the paper book and in clause 39 of the return of income is the item 'other expenses'. He submitted that in this ITA No.3084/Bang/2018 Page 3 of 5 clause, 18 items of other expenses are listed but this does not include depreciation. Thereafter he pointed out that depreciation is covered under item no. 45 of the return of income. He submitted that therefore, it is apparent that the limited scrutiny is not for the purpose of examining the claim of the assessee for depreciation. It was limited to examine the claim of the assessee on account of other expenses specified by the assessee in clause 39 of the return of income available on page no. 105 of the paper book. He also submitted that as per CBDT instructions dated 29.12.2015 available on pages 49 and 50 of the paper book, it has been specified that questionnaire u/s. 142(1) of IT Act in 'Limited Scrutiny' cases shall remain confined only to the specific reasons / issues for which case has been picked up for scrutiny. It also specified that the scope of enquiry shall be restricted to the 'Limited Scrutiny' issues. It was also specified in clause 3(d) that if it comes to the notice of the AO in course of assessment proceedings in limited scrutiny cases that there is potential escapement of income exceeding Rs. 5 Lakhs (for metro charges, the monetary limit shall be Rs. 10 Lakhs) requiring substantial verification on any other issue(s), then, the case may be taken up for 'Complete Scrutiny' with the approval of the Pr. CIT/CIT concerned. He further submitted that on page no. 51 of the paper book is the instructions dated 14.07.2016 and these instructions are applicable for the cases selected under CASS 2015 and CASS 2016 and therefore, these instructions are applicable in the present case and in this instruction also, it was specified that the general scope of enquiry in scrutiny proceedings should be restricted to the relevant parameters which formed the basis for selecting the case for scrutiny and only in revenue potential cases, it was further provided that 'Complete Scrutiny' could be conducted, if there was potential escapement of income above a prescribed monetary limit, subject to the approval of administrative Pr. CIT/CIT/Pr. DIT/DIT. He submitted that in the present case, the AO has proceeded beyond the issues chosen by him for limited scrutiny without any approval of Pr.

CIT/CIT and therefore, the assessment order is bad in law. The ld. DR of revenue supported the order of CIT (A).

6. I have considered the rival submissions. First of all, I reproduce Para no. 5 from the order of CIT (A). This is as under.

"5. I have considered the above grounds of appeal, statement of facts and written submissions filed by the appellant and also perused the assessment order. The first ground is general in nature and no adjudication is needed. In its 2nd ground the appellant raised that the scope of limited scrutiny is confirmed only to the issues for which purpose the case was taken up on limited scrutiny and the issue of restricting the claim of depreciation on the goods vehicles @ 15% as against the claim of 30% made by the appellant is beyond the limited scrutiny, in this regard the appellant submitted during the appellate proceedings that Technically in the limited scrutiny, other issues not supposed to be examined unless there is an approval from CIT/ PR.CIT, then only it can be wide open to examine issues other than issues raised for the limited scrutiny purpose. The Assessing Officer has examined the entire expenses claimed/debited to profit and loss account as per the requirement of limited scrutiny and proved that the appellant wrongly claimed depreciation @ 30% on the vehicles owned by him claiming that the appellant is in to transportation business, On verification from the records, it is seen that the appellant utilizing its own vehicles to transport the mining material involving extraction of boulders from crushing area and from there to delivering them to the blasting site. The Assessing Officer has given a finding that such transportation is part and parcel of the mining business and as such there is no regular transportation activity whatsoever. Therefore Assessing Officer after considering the explanation to the show cause notice issued during the course of scrutiny has restricted the depreciation @ 15% as against 30% claimed by tile appellant. As there is no infirmity found in this impugned order as the Assessing Officer has followed all the norms in pointing out the wrong claim even it is covered under limited scrutiny proceedings, therefore, the second ground is dismissed."

7. From the above Para reproduced from the order of CIT (A), it is seen that ld.

CIT (A) has also stated in this Para that technically in the limited scrutiny, other issues not supposed to be examined unless there is an approval from CIT/Pr. CIT and after the approval only, it can be wide open to examine issues other than issues raised for the limited scrutiny purpose. But thereafter, the ld. CIT(A) has gone back and she says that AO has examined the entire expenses claimed / debited to profit and loss account as per the requirement of limited scrutiny and proved that the appellant wrongly claimed depreciation @ 30%. We have already seen that as per the limited scrutiny notice appearing on page no. 47 of paper book, only two issues have been identified for examination and these are as under:-

i) Payment to related persons mismatch

ii) Other expenses claimed in the Profit & Loss a/c

8. It is also seen that as per the details of other expenses, available on page no. 105 of the paper book, there are 18 items of expenses but it does not include depreciation. In fact depreciation is covered under item no. 45 on page no. 106 of paper book and not in item no. 39 available on page no. 105 of paper book. Hence, in my considered opinion, in the present case, examination of depreciation is not covered in the two issues selected for examination for limited scrutiny. This is not the case of the revenue that the approval was taken by the AO from CIT/Pr. CIT for converting the scrutiny from limited scrutiny case to total scrutiny case. Hence, in my considered opinion, the AO is not justified in taking up the examination of depreciation claimed which is beyond the issues selected for limited scrutiny without obtaining prior approval from CIT/Pr. CIT. I, therefore, hold that AO was not justified in making disallowance out of the depreciation claim of the assessee and therefore, the same is deleted.

9. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on the date mentioned on the caption page.

Sd/-

(ARUN KUMAR GARODIA) Accountant Member Bangalore, Dated, the 25th April, 2019.

/MS/ Copy to:

1. Appellant 4. CIT (A)

2. Respondent 5. DR, ITAT, Bangalore

3. CIT 6. Guard file By order Assistant Registrar, Income Tax Appellate Tribunal, Bangalore.