Income Tax Appellate Tribunal - Jaipur
Mewar Chemical Products Ltd. vs Assistant Commissioner Or Income Tax. on 31 January, 1994
Equivalent citations: (1994)50TTJ(JP)80
ORDER
--Depreciation Ratio:
Order under section 263 is cancelled where Commissioner has failed to establish that the assessment order passed by the assessing officer, by which depreciation on boiler at 100% was granted, was erroneous insofar as it was prejudicial to the interest of the revenue.
Facts:
In the show cause notice issued by the Commissioner it was alleged that the assessing officer had allowed claim of depreciation on the boiler acquired by the assessee towards the end of the previous year without making the enquiry as to how the purchase of boiler and its leasing to another concern was for assessee's own business. The second allegation was that the boiler was second-hand, yet the provisions of section 43(1) read with Explanation 3 were not invoked. Third allegation was that the claim of 100% depreciation on higher rate were satisfied and the fourth allegation was that the cost of boiler for depreciation was taken at Rs. 8,17,085 whereas on the basis of details available, it was Rs. 7,77,535.
Held:
The dissatisfaction of the Commissioner arose not because he could find the order erroneous insofar as it was prejudicial to the interests of revenue, but perhaps because the order has been drafted in a way which requires lot of improvement and proper guidance to the assessing officer. The assessing officer has not dealt with the question of acquisition of the boiler and allowance of depreciation on the boiler at 100% in the assessment order. However, the details shows that the assessing officer had made enquiries regarding the acquisition, cost, installation and the use of the boiler which can be gathered from the details furnished before her by the assessee in response to the enquiries made by her. That information coupled with the reports of the statutory auditors and the tax auditors would indicate that the assessing officer felt satisfied regarding the claim of the assessee. In the instant case although the provisions of section 263 empower the Commissioner to make or cause to be made such enquiry as he deems necessary, the Commissioner has brought nothing on record to show that the information furnished by the assessee before the assessing officer was false or incorrect which made her order erroneous insofar as it became prejudicial to the interests of revenue. The Commissioner has failed to establish that the assessment order passed by the assessing officer was erroneous insofar as it was prejudicial to the interests of the revenue and hence his order under section 263 is cancelled.
Application:
Also to current assessment years.
Income Tax Act 1961 s.263 ORDER J. K. VERMA, A. M. :
It is an appeal against the order of learned CIT, Jaipur under s. 263 of the IT Act whereby he had set aside the assessment order framed by the Assessing Officer for being framed afresh after making enquiries regarding the claim of depreciation on the boiler on the lines mentioned in CITs order. In the show cause notice issued by the CIT it was alleged that the Assessing Officer had allowed claim of depreciation on the boiler acquired by the assessee towards the end of the previous year without making the enquiry as to how the purchase of boiler and its leasing to another concern was for assessees own business. The second allegation was that the boiler was second-hand, yet the provisions of s. 43(1) r/w Expln. 3 were not invoked. Third allegation was that the claim of 100% depreciation was allowed without ascertaining whether the conditions for claiming depreciation on higher rate were satisfied and the fourth allegation was that the cost of boiler for depreciation was taken at Rs. 8,17,085 whereas on the basis of details available, it was Rs. 7,77,535.
2. The learned counsel for the assessee vehemently argued that there was no substance in the allegations made by the learned CIT and in spite of the fact that the assessee had filed a detailed reply before the CIT dt. 20th Sept., 1990 meeting all the objections of the CIT, he summarily ignored all those explanations and had passed the impugned order under s. 263 which could not be sustained. The learned counsel pointed out that regarding the allegation that necessary enquiries were not made, the facts on record would show that this allegation was not correct. The assessee had filed its return on 29th Sept., 1987. Thereafter, the case was taken up under s. 143(2) on 25th Oct., 1988 when assessees counsel appeared and the Assessing Officer required the assessee to furnish details. In compliance with the requirements noted on the order sheet, the assessee filed the information alongwith the covering letter dt. 29th Nov., 1988, copies of which particulars have been filed before us as pages 14 to 33 of the paper book. He pointed out that the first sentence of the letter shows that the assessee was furnishing the justification for the purchase of boiler alongwith supporting bills. Thereafter, the matter remained under consideration with the Assessing Officer who passed the assessment order only on 28th Feb., 1989 and hence it is not correct to say that the Assessing Officer did not make necessary enquiry or failed to apply her mind to the question of acquisition of boiler, its use, and the depreciation claimed thereon. He pointed out that the CIT has never stated that the information supplied by the assessee, and which is on Assessing Officers record, was false or without basis. He further explained that since it was the case of limited company the statutory report on the prescribed proforma as required under s. 44AB of the IT Act was also filed and computation of the entire income alongwith supporting details alongwith directors reports and companys auditors reports were filed and they are on the record of the Assessing Officer on the basis of which she had raised the queries and had examined the case. They drew our attention to the fact that the statutory audit report specifically mentioned that depreciation at 100% on the capitalised cost of boiler at Rs. 8,17,085 was as per IT Rules. In compliance with the notice under s. 143(2) the assessee had given the justification for the purchase of the boiler with supporting bills to the effect that the assessee had started leasing business and the reasons why it had started leasing business. Information regarding the party to whom the boiler was leased was supplied and this was supplied to the CIT also and the CIT has found no fault with this information nor had pointed out any mistake in this regard. Regarding the allegation of the CIT that the cost of the boiler worked out to Rs. 7,77,535, the learned counsel claimed that whereas assessees working of cost at Rs. 8,17,085 was certified in the statutory audit report, in the balance sheet, so also on Form No. 3CD as required under s. 44AB nothing was known from where the CIT had taken the figure mentioned in his notice and in his order. The learned counsel pointed out that apart from the above mentioned information, the details of working of cost at Rs. 8,17,085 had been supplied to the Assessing Officer which are on Assessing Officers record. It was further not known from where the CIT got the basis of alleging that it was a second-hand boiler when the vouchers show that it was a new boiler which was got commissioned through expert agencies (page 16A of the paper book). He also explained that the provisions of s. 43(1) nor Expln. 3 to that section as alleged by the learned CIT were applicable to the facts of assessees case because there was nothing to show that the boiler had been used by any other person for purposes of his business or profession and that the main purpose of transfer of such assets to the assessee was the reduction of liability to income-tax by claiming depreciation with reference to enhanced cost. He submitted that even if such a situation were there, it would require the previous approval of the Dy. CIT. He argued that, in fact, even the provisions of Expln. 5 to s. 43(1) were not applicable as explained to the CIT in the written submissions of the assessee.
3. With these arguments and after referring to the decision reported in CIT vs. Kaunda Rice Mills (1989) 178 ITR 446 (P&H), CIT vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom) and 79 STC page 10 the learned counsel prayed that since the order of the CIT based only on doubt and suspicion and since the CIT had failed to meet any of the arguments given by the assessee in writing, the CITs order under s. 263 deserved to be cancelled.
4. The learned Departmental Representative, on the other hand, argued that there was nothing on record to show that the Assessing Officer and applied her mind to the question involved in this case and had allowed assessees claim after application of her mind. He claimed that merely because tax auditors report or statutory auditors report had been filed, the Assessing Officer could not be precluded from making enquiries to form his own opinion. He submitted that the CIT had not given a finding that it was a second-hand boiler and that it was not entitled to higher depreciation; the CIT had only asked the Assessing Officer to examine this point which the Assessing Officer had failed to touch in the assessment order. Similarly regarding application of Expln. to s. 43(1) the learned Departmental Representative claimed that the CIT did not say that it was applicable, he only directed that its applicability should have been examined. He submitted that since the boiler had been purchased towards the end of the previous year, it should have been examined with greater investigative skill.
5. We have carefully considered the rival submissions. In our opinion, the dissatisfaction of the learned CIT arose not because he could find the order erroneous in so far as it was prejudicial to the interests of Revenue, but perhaps because the order has been drafted in a way which requires lot of improvement and proper guidance to the Assessing Officer. We do find that the Assessing Officer has not dealt with the question of acquisition of the boiler and allowance of depreciation on the boiler at 100% in the assessment order. However, we find that the details as furnished before us do show that the Assessing Officer had made enquiries regarding the acquisition, cost, installation and the use of the boiler which can be gathered from the details furnished before her by the assessee in response to the enquiries made by her. That information coupled with the reports of the statutory auditors and the tax auditors would indicate that the Assessing Officer felt satisfied regarding the claim of the assessee. We agree with the submissions made on behalf of the assessee that substantial weight has to be given to the statutory auditors and tax auditors who have been made responsible under the statute to verify and certify the correctness of the claims made by an assessee and although this does not preclude an Assessing Officer from making enquiries yet their reports should not be doubted or suspected without proper basis. In the instant case we find that although the provisions of s. 263 empower the CIT to make or cause to be made such enquiry as he deems necessary, the learned CIT has brought nothing on record to show that the information furnished by the assessee before the Assessing Officer was false or incorrect which made her order erroneous in so far as it became prejudicial to the interests of Revenue. We agree with the submissions of the learned counsel for the assessee that he set aside the order of the Assessing Officer on the basis of suspicions, conjectures and surmises and by making observations e.g. regarding the cost of the boiler at Rs. 7,77,535 which are not supported by anything on record before us. We, therefore, hold that the learned CIT Jaipur has failed establish that the assessment order passed by the Assessing Officer was erroneous in so far as it was prejudicial to the interests of the Revenue and hence his order under s. 263 is cancelled.
6. Appeal filed by the assessee is allowed.