1996-VIL-07-ITAT-

Equivalent Citation: ITD 061, 317, TTJ 058, 619,

Income Tax Appellate Tribunal MADRAS

Date: 18.12.1996

SANCO TRANS LIMITED.

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : A. SATYANARAYANA., N. D. RAGHAVAN.

JUDGMENT

Per Shri A. Satyanarayana, Vice President -- These appeals filed by the assessee are against the common order of the Commissioner of Income-tax, Tamilnadu-I, Madras, dated 30-3-1990 for the assessment years 1985-86 and 1986-87. Since a common point is involved in these appeals they are being disposed of by a consolidated order for the sake of convenience.

2. The assessee is a private limited company. The assessment order for the assessment year 1985-86 was passed on 30-3-1988 by the ITO, Companies Circle-I(7), Madras, under section 143(3). In the said assessment order, the Assessing Officer allowed depreciation as under :

Asset W.D.V Rate Amount

Rs. Rs.

Cranes (old) 5,55,392 40% 2,22,157

Cranes (new) 31,91,720 40% 12,76,688

The assessment order for the assessment year 1986-87 was passed on 30-3-1989 by the Assistant Commissioner of Income-tax, Companies Circle-I(Inv.), Madras, under section 143(3). In the said assessment order, he allowed depreciation as under :

Asset W.D.V Rate Amount

Rs. Rs.

Cranes (old) 3,33,235 40% 1,38,394

Cranes (new) 19,15,032 40% 7,66,012

3. Subsequently, the CIT felt that the above assessments were erroneous and also prejudicial to the interest of the revenue. He, therefore, initiated proceedings under section 263 by issuing the notice under section 263 dated 22-3-1990 by observing as under :--

"On a perusal of the assessment records in the above case, it is observed that the assessment completed by the Asstt. Commissioner, Comp. Cir. I (Inv.), Madras, on 30-3-1988 for the assessment years 1985-86 and 1986-87 is erroneous and is also prejudicial to the interest of Revenue due to the reason that the Asstt. Commissioner has wrongly allowed the excess depreciation at 40% instead of 15% on the two crawler cranes.

2. I, therefore, propose to alter, amend, cancel, enhance or set-aside the assessment under the powers vested in me under section . . . . of the . . . . Act with a direction to the Asstt. Commissioner, Co. Cir. I (Inv.) Madras, to redo the same according to law."

The assessee was asked to show cause by 30-3-1990. According to the CIT, who passed the impugned order under section 263, the assessee had appeared and argued as under :--

"The assessee-company contends that a crawler mounted crane is a tractor since the crawler in question is heavily treated and is used for drawing the cranes from one place to another in the course of its operation with the project area. In this regard, he has quoted the Lexicon Webster Dictionary 1978 to prove his point giving definition for crawler and tractor and that the crawler cranes are eligible for depreciation at 40% and not 15% under the Schedule of depreciation under the Act. It is also claimed that the said cranes are motor tractors covered under Appendix-I, part I, item III, section D(9A) viz., Motor Tractor. The definition of crawler is given as 'tread for tractor'. Again for the earlier year 1983-84, the Commissioner of Income-tax (Appeals) held cranes are eligible for higher rate of depreciation of 30% for self use and 40% if given on hire. However, the audit is not accepting the Commissioner of Income-tax (Appeals)'s order on the ground that the characteristics of the machine used is entirely different from cranes to crawler cranes for which it is claimed that 15% is allowable. However, their function is the same. It is the sophisticated machine under the ordinary crane."

It was pointed out to him that these cranes move in the Harbour area like any other transport vehicle and that it is only a machinery mounted on specially built crawler tractor for its specialised operations.

4. However, the CIT did not agree with the submissions of the assessee. He set aside the two assessment orders and directed the ACIT to verify the claim of the assessee regarding the nature of the crane and redo the assessments according to law by observing as under :--

"5. I have carefully considered the arguments of the assessee. On perusal of the records it is seen that crane is not registered as a transport vehicle. This is capable of moving only within the Harbour area in view of the special nature of tracks used.

6. The allowance on depreciation at 40% is, therefore, incorrect. This is an error prejudicial to the interest of revenue.

7. At the time of hearing, the representative has also stated that this is an industrial company which point has not been considered by the Assessing Officer.

8. The entire assessments are therefore set aside. The Asstt. Commissioner is directed to verify the claim of the assessee regarding the nature of the crane and the claim that this is an industrial undertaking and redo the assessment according to law, after giving assessee the reasonable opportunity of being heard."

Aggrieved by the said order under section 263, the assessee filed the present appeals before the Tribunal.

5. The assessee's counsel filed a paper book of 9 pages and urged to the following effect :-- The ACIT, Companies Circle-I (Inv.), Madras-34, issued a letter dated 5-9-1989 to the assessee calling for its objections as to why the depreciation should not be allowed at 15% on crawler cranes as against 40% allowed in the assessment order for the assessment year 1985-86 and the subsequent assessments for the assessment years 1986-87 and 1987-88 rectified. This letter can be seen at page 1 of the paper book. This was received by the assessee on 20-2-1990. The assessee filed its reply dated 14-3-1990 before the ACIT which can be seen at page 2 of the paper book. In the said letter dated 14-3-1990 the assessee urged that the cranes in question were crawler mounted and were purchased from TELCO, that depreciation was claimed at 40% on the basis that the said cranes were Motor Tractors covered under Appendix I, Part I, Item III, Section D(9A), viz., Motor Tractors, harvesting combines. The definitions of the expressions 'Tractor' and 'Crawler' as found in The Lexicon Webster Dictionary (1978 Print) are as under :--

"Crawler" -- . . . a tread for a tractor.

"Tractor" -- A strong, usu. heavy-treaded, motorized vehicle used for pulling or drawing heavy equipment and farm machinery.

It was further urged that a crawler mounted crane is a tractor since the crawler in question is heavily treaded and is used for drawing the cranes from one place to another in the course of its operation within the project area. Accordingly it was submitted that the said assets are eligible for depreciation at 40% and not at 15%. The ACIT did not take any action further for the assessment years 1985-86, 1986-87 and 1987-88. However, on 22-3-1990, the CIT issued notice under section 263 for the assessment years 1985-86 and 1986-87. The said notice can be seen at pages 3 and 4 of the paper book. In the said notice, except merely stating that the ACIT has wrongly allowed excess depreciation at 40% instead of 15% on the two crawler cranes, he has not given any reason as to how the granting of depreciation at 40% can be termed as wrong. Hence the notice itself is illegal and ab initio void. However, the CIT chose to give the reason in his order under section 263 saying that the crane is not registered as a transport vehicle and that it was capable of moving only within the Harbour area in view of the special nature of tracks used and that the allowance of depreciation at 40% was, therefore, incorrect. He has not given any reason as to why he is disagreeing with the contentions of the assessee that crawler mounted crane is not a tractor as per D(9A) of Appendix I, Part I, Item III (Table of rates at which depreciation is admissible). The said D(9A) does not speak of transport vehicles. He further does not say whether the impugned machinery comes under general rate or special rate as mentioned in the said Depreciation Table. Subsequent to the issue of the order under section 263, dated 30-3-1990, the CIT has issued a Corrigendum dated 15-11-1991, which can be seen at page 7 of the paper book. The said Corrigendum reads as under :--

"In the order dated 30-3-1990 a small mistake has crept in. In para 8, while giving directions, the Assessing Officer was directed to verify the claim and redo the assessment according to law after giving the assessee a reasonable opportunity of being heard.

2. The directions should have been 'The Assistant Commissioner is directed to verify the claim of the assessee regarding the nature of the claim, etc., and modify the assessment accordingly after giving the assessee a reasonable opportunity of being heard'.

3. As this is a mistake, the above corrigendum is issued."

This Corrigendum is time-barred and cannot form part of the order under section 263 dated 30-3-1990. According to section 263(2), the order under section 263 shall be made within two years from end of the financial year in which the order sought to be revised was passed. As the assessment order for the assessment year 1985-86 was passed on 30-3-1988, the order under section 263 cannot be passed beyond 31-3-1990. Similarly, as the assessment order for the assessment year 1986-87 was passed on 30-3-1989, the order under section 263 cannot be passed beyond 31-3-1991. Further the CIT cannot set aside the entire assessments. At the most he could have set aside the action of the Assessing Officer in respect of allowance of depreciation in respect of cranes. In addition, the order of the CIT is contradictory. In paragraph 6 the CIT held that allowance of depreciation at 40% was incorrect. In paragraph 8 he directs the ACIT to verify the claim of the assessee regarding the nature of the crane and redo the assessment according to law. Even assuming that the Corrigendum dated 15-11-1991 is permissible under law, the direction of the CIT is confusing and is incapable of implementation. In the said Corrigendum it was stated that. The Assistant Commissioner is directed to verify the claim of the assessee regarding the nature of the claim etc.'. The CIT did not specifically state in the Corrigendum that the ACIT is to verify the claim of the assessee regarding the nature of the crane as he had stated in the order under section 263 dated 30-3-1990. In these circumstances, the impugned order of the CIT under section 263 dated 30-3-1990 should be quashed. As the Corrigendum dated 15-11-1991 is time barred, it should be ignored. Reliance is placed on the judgment in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.).

6. The Departmental Representative submitted that a tractor is an agricultural machine and that a crawler crane cannot be treated as a tractor. Even in the bills produced the description given by the seller TELCO it is shown as crawler crane. The brochure filed says that it is a tractor type crawler and not a crawler type tractor. Hence it is essentially a crawler.

7. We have considered the rival submissions, case law cited, and papers filed before us. The CIT has issued a cyclostyled notice under section 263 by just filling up the blanks without any application of mind to the facts of the case and the issue before him. The Assessing Officer passed the assessment orders for the assessment years 1985-86 and 1986-87 on 30-3-1988 and 30-3-1989 respectively. They were not passed on the same date. Though the two assessment orders were passed by Mr. M. Sriramachandra Murthy, his designations were different for assessment years 1985-86 and 1986-87. Even the date of hearing was mentioned as 27-2-1990 in the cyclostyled proforma notice. It was corrected as 30-3-1990, as the notice itself is dated 22-3-1990. The CIT in his notice under section 263 dated 22-3-1990 stated "that the assessment completed by the Asstt. Commissioner, Comp. Cir. I (Inv.), Madras, on 30-3-1988 for the assessment years 1985-86 and 1986-87...". Factually the assessment order for the assessment year 1985-86 was passed on 30-3-1988 by Mr. M. Sriramachandra Murthy in his capacity as Income-tax Officer, Companies Circle I(7), Madras-34, and the assessment order for the assessment year 1986-87 was passed by Mr. M. Sriramachandra Murthy in his capacity as Assistant Commissioner of Income-tax, Company Circle I(Inv.), Madras-34.

The CIT simply says that "the Asstt. Commissioner has wrongly allowed the excess depreciation at 40% instead of 15% on the two crawler cranes". He did not give any basis or ground to allege that the allowance of depreciation at 40% instead of 15% on crawler cranes is wrong. In other words, how it was "wrongly allowed" was not at all indicated. However, the CIT in his order under section 263 dated 30-3-1990 gave the following grounds for coming to the conclusion that the allowance of depreciation at the rate of 40% was incorrect :--

"5. I have carefully considered the arguments of the assessee. On perusal of the records, it is seen that crane is not registered as a transport vehicle. This is capable of moving only within the Harbour area in view of the special nature of tracks used.

6. The allowance on depreciation at 40% is, therefore, incorrect. This is an error prejudicial to the interest of revenue."

The Hon'ble Calcutta High Court in the case of CIT v. General Trade Agencies [1973] Tax LR 1383 held that where the show-cause notice did not fairly indicate the grounds used by the Commissioner in his order under section 263, the assessee was deprived of fair opportunity to show cause against proposed action and in such a case, the revisional order of the Commissioner cannot be sustained. The same Calcutta High Court in the case of Bagsu Devi Bafna v. CIT [1966] 62 ITR 506, affirmed in Bagsu Devi Bafna v. CIT [1967] 63 ITR 333, held that the Commissioner must disclose in his notice to the assessee, the grounds on which he proposes to revise, to enable the assessee to show cause and to give him an opportunity of being heard. The Hon'ble Orissa High Court held in the case of Rawan Dal & Flour Mills v. CST [1992] 86 STC 409 that the opportunity to be granted must be effective, that it cannot be an empty formality, that a person who is required to show cause must know the basis on which the action is proposed and that obviously, therefore, the notice issued must indicate as to on what grounds the order is considered erroneous insofar as it is prejudicial to the interests of the Revenue. Since the notice under section 263 dated 22-3-1990 did not indicate the ground used the Commissioner in his order under section 263 dated 30-3-1990, the impugned order under section 263 cannot be sustained.

8. When the CIT sought to exercise revisionary powers under section 263 on the sole reason of alleged excess allowance of depreciation at 40% instead of 15% on crawler cranes, he should not have set aside the entire assessments by his order under section 263. For this proposition reliance is placed on the judgment of the Hon'ble Delhi High Court in the case of Addl. CIT v. J.K. D'Costa [1982] 133 ITR 7/9 Taxman 88.

9. According to the CIT, "At the time of hearing, the representative has also stated that this is an industrial company which point has not been considered by the Assessing Officer". The CIT set aside the entire assessments and directed in his order under section 263 dated 30-3-1990 the ACIT to verify the claim of the assessee that it is an industrial undertaking and redo the assessments according to law. This direction of the CIT to the Assessing Officer to verify the claim of the assessee that it is an industrial undertaking is also not permissible in an order under section 263. As held by the Hon'ble Madras High Court in the case of Hindu Bank Karur Ltd. v. Addl. CIT [1976] 103 ITR 553, the power of the CIT under section 263 is restricted only to the errors so far as they are prejudicial to the interests of the revenue and not to any other errors if they are not prejudicial to the interests of the revenue. Thus, even, if there be other errors of the latter variety pointed out by the assessee in the course of section 263 hearing, the Commissioner is to ignore them. In other words, the Hon'ble High Court held that the CIT in an order under section 263 cannot correct the errors prejudicial to the assessee. On this reasoning also we cannot sustain the order of the CIT setting aside the entire assessments.

10. Even the corrigendum dated 15-11-1991 is confusing and vague and cannot save the main order dated 30-3-1990. In the corrigendum dated 15-11-1991, "The Assistant Commissioner is directed to verify the claim of the assessee regarding the nature of the claim, etc., and modify the assessment accordingly. . . ." The corrigendum is not clear as to which claim is to be verified by the Assistant Commissioner. The corrigendum dated 15-11-1991 is time barred. The corrigendum should have been passed and also communicated to the assessee within the period of limitation as held by the Hon'ble Kerala High Court in the case of CIT v. Sree Narayana Chandrika Trust [1995] 212 ITR 456/81 Taxman 199.

11. The machinery under consideration is crawler crane as described in the sale bills issued by TELCO (copies of which have been filed before us). The assessee has filed a brochure containing the photographs and functions and specifications of TATA 320 Crawler Cranes. In the brochure the machine and its use is described as under :--

"Move up" time is practically eliminated with the 4-speed, Independent propel feature of this rugged crawler assembly. Any or all work motions can be continued while in the travel motion. These true, tractor type crawlers, with large diameter sprockets, give greater traction support and stability. They have proved themselves on the toughest of assignments all over the world with their smoothness of travel and long life."

The crawler can be supplied with 5 types of attachments - (1) HOE, (2) CRANE, (3) DRAGLINE, (4) CLAMSHELL, and (5) PILE DRIVER. In the assessee's case the tractor type crawler is fitted with the attachment of crane. Since the assessee is a clearing and forwarding agent, the crawler cranes are used in the Harbour. The CIT is not correct in stating that the crawler crane is capable of moving only within the Harbour area in view of the special nature of tracks used. There are no special tracks in the Harbour for these crawler cranes. These crawler cranes can be operated anywhere. They cannot be termed as machinery and plant for which the general rate of 15% is applicable. This is definitely a machinery and plant for which a special rate is applicable. The description given in IIID(9A) -- Motor Tractors -- is fully applicable. Hence the Assessing Officer is fully justified in granting depreciation to the crawler cranes at 40%.

12. On the above facts and circumstances of the case, we hold that the impugned order of the CIT under section 263 dated 30-3-1990 cannot be sustained. Accordingly we quash the same.

13. In the result, the appeals are allowed

 

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