Income Tax Act, 1961 – Sections 32(1)(iia) and 263 – Assessment of income – Invoking of revisionary jurisdiction – Setting aside of order of assessment – Appellant/assessee is engaged in business of manufacturing of various specialty chemicals – Assessee filed its return of income for AY 2010-11 – Assessing Officer completed assessment by determining total income of assessee – Principal Commissioner of Income Tax (PCIT) perused assessment records and found that additional depreciation allowed by AO are against provisions of Section 32(1)(iia) of the Act – PCIT invoked revisionary jurisdiction under Section 263 of the Act and set aside order of AO – Whether PCIT has erred in holding that assessment order passed by AO is erroneous in so far as prejudicial to interest of Revenue – HELD – AO called for explanation from assessee on various Plant & Machinery on which additional depreciation claimed and same were furnished by assessee – AO having been satisfied with explanation offered by assessee completed assessment by passing a detailed assessment order – AO has conducted necessary enquiry and verification before passing assessment order – When AO had access to all records of assessee and perusing records and framed assessment order, said assessment order could not be re-opened in exercise of revision power under Section 263 of the Act for making further inquiries – There is no error in order passed by AO so as to justify initiation of revision proceedings under Section 263 of the Act by PCIT – Revision order passed by PCIT is quashed – Appeal is allowed

 

2022-VIL-1631-ITAT-AHM

 

IN THE INCOME TAX APPELLATE TRIBUNAL

AHMEDABAD “D” BENCH

 

ITA No. 1472/Ahd/2015

&

ITA No. 219/Ahd/2017

Assessment Year 2010-11

 

Date of hearing: 20.09.2022

Date of pronouncement: 14.12.2022

 

DIAMINES & CHEMICALS LTD

 

Vs

 

THE PCIT-1, BARODA & DCIT, CIRCLE-1(1), BARODA

 

Appellant by: Shri Yogesh Shah, A.R

Respondent by: Shri Alok Kumar, CIT/D.R. & Shri Atul Pandey, Sr. D.R

 

Bench:

Ms. Annapurna Gupta, Accountant Member

Shri T.R. Senthil Kumar, Judicial Member

 

ORDER

 

PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER:

 

These two appeals are filed by the Assessee are against the order dated 27.03.2015 passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the Ld. Principal Commissioner of Income Tax, Vadodara-1, and another order dated 13.10.2016 passed by the Commissioner of Income Tax (Appeals)-1, Vadodara giving effect to the revision order both relating to the same Assessment Year (A.Y) 2010-11.

 

2. The brief facts of the case is that the assessee is engaged in the business of manufacturing of various specialty chemicals particularly ethylene amine range of products. For the Assessment Year 2010-11, the assessee filed its Return of Income on 14.10.2010 declaring an income of Rs. 12,66,54,590/-. A Revised Return of Income on 31.08.2011 declaring total income of Rs. 12,64,47,550/-. Thereafter another Revised Return was filed on 11.01.2012 declaring total income of Rs. 12,78,75,870/-. The return was taken up for scrutiny assessment and assessment was completed by making disallowance u/s. 80IA of Rs. 18,87,051/- thereby determining the total income as Rs. 12,97,62,921/-.

 

2.1. Ld. PCIT perused the above assessment records and found that the assessee had claimed and allowed depreciation & additional depreciation at the rate of 35% (15 + 20) on several items like Work-in-progress, Pre-Operative expenses which are not eligible for depreciation and additional depreciation which are against the provisions of Section 32(1)(iia) of the Act. Therefore a show cause notice dated 06.01.2015 was issued by ld. PCIT calling for explanation from the assessee. The assesse vide its letter dated 09.02.2015 submitted the claim of additional depreciation by the assessee was fully verified by the Ld. Assessing Officer during the original assessment proceedings under section 143(3). Vide assessee’s letter dated 06.12.2012 details of assets purchased during the financial year on which depreciation has been claimed were furnished as Annexure 4. Vide assessee reply letter dated 02.01.2013 furnished copies of the bills in relation to additions made to fixed assets. Thus the Ld. Assessing Officer after going through the details furnished by the assessee, though the same is not discussed in the assessment order passed u/s. 143(3), it does not mean that the assessing Officer has not considered the issue and it cannot be called as lack of enquiry or inadequate enquiry.

 

2.2. In this connection, the assessee relied upon Jurisdictional High Court Judgment in the case of CIT Vs. Amit Corporation wherein the Jurisdictional High Court held that during the course of framing of assessment, Assessing Officer had access to all records of assessee, and after perusing said records, he framed assessment, said assessment could not be reopened in exercise of Revision power under section 263 for making further inquiries by Commissioner of Income Tax. The assessee further submitted that the Plant & Machinery which were acquired and installed are eligible for deduction u/s. 32(1)(iia) for additional depreciation as the same being part of new EDC Plant (Ethylene Dichloride Plant) commissioned during the financial year. The details of the same as mentioned by the Ld. PCIT in the form of Annexure to his notice u/s. 263, this Annexure page itself shows the additions made to Plant & Machinery for EDC project and the Ld. PCIT has granted normal depreciation on the above addition, which signifies the fact that the assessee acquired and installed during the financial year and hence eligible for additional depreciation also as all other conditions of section 32(1)(iia) are satisfied. Thus the basic show cause notice issued by the Ld. CIT itself is misplaced and does not identify any such error in the Assessment order.

 

2.3. As far as capital work in progress and pre-operative expenses are concerned, the same were also in respect of the new EDC Project which were capitalized on its commissioning and hence became part of block of assets by way of addition to Plant & Machinery during the financial years, which are shown at Page No. 141 of the Paper Book along with the detailed break-up at Page No. 142 & 143. Since the pre-operative expenses and capital work in progress are to be capitalized, so as to form part of actual cost following the Hon’ble Supreme Court decision in Chellapalli Sugar Ltd. 98 ITR 167 (SC), the objection of the Ld. PCIT in this respect also against the accepted judicial proposition. Therefore, the reasoning on which the Ld. PCIT sought to invoke provisions of Section 263 are not germane to the issue and the order of the Ld. A.O. cannot be said to be erroneous or prejudicial to the interest of the Revenue. Thus the Ld. PCIT has not demonstrated how the assessment order passed by the A.O. is erroneous or prejudicial to the interest of Revenue. For these above reasons the assessee requested to drop the Revision proceedings initiated by the Ld. PCIT.

 

2.4. In support of its claims the assessee also relied upon various case laws namely Malabar Industrial Company Ltd. vs. CIT (2000) 243 ITR 83 (SC), CIT vs. Arvind Jewellers (2002) 290 ITR 689 (Guj.), CIT vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom.) and CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC).

 

2.5. The Ld. PCIT considered the above submissions of the assessee and held that the explanations submitted by the assessee is not acceptable since New Plant & Machinery acquired and installed are only eligible for additional depreciation. In the case of Capital Work-in-progress, Pre-operative expenses etc., no acquisition is involved, hence no additional depreciation is allowable. These items do not even qualify for depreciation. Likewise, modification expenses do not qualify for additional depreciation. As the Assessing Officer has not examined the issue while finalizing the assessment. The Assessment order passed by the A.O. is both erroneous and prejudicial to the interest of revenue and the same is set aside with a direction to the A.O. to make due verification and bringing facts on record and pass appropriate assessment order by affording opportunity to the assessee.

 

3. Aggrieved against the revision order, the assessee filed an appeal before us raising the following Grounds of Appeal:

 

Your appellant being aggrieved by the order dated 27th March 2015 passed by the learned Principal Commissioner of Income Tax -1 Baroda, ('CIT') under section 263 of the Income-tax Act, 1961 ('the Act') setting aside the order under section 143(3) of the Act passed by the Deputy Commissioner of Income-tax, Circle-l(l), Baroda ('the learned AO') prefers an appeal against the same on the following grounds, which are without prejudice to each other:

 

1. The order passed by the learned CIT under section 263 of the Act is bad in law as the order of learned AO under section 143(3) was neither erroneous nor prejudicial to the interest of revenue. It is submitted that it be so held now and order passed under section 263 of the Act be quashed.

 

1.1 The learned CIT erred in law in applying provisions of section 263 of the Act to the claim of appellant in connection with depreciation and additional depreciation on additions made to plant & machinery during the year under consideration, as was done by learned AO, as the same was a possible view taken by the learned AO, after duly making necessary inquiries and with due application of mind. It is submitted that when two views are possible and learned AO has adopted one of the views, the same cannot be considered to be erroneous or prejudicial to the interest of the revenue as has been held by the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd 243 ITR 83 and such order cannot be revised under section 263 of the Act. It is submitted that it be so held now.

 

2. Without prejudice to foregoing, even on merits of the case the appellant's claim of depreciation and additional depreciation on additions made to plant & machinery during the year under consideration is an allowable deduction under section 32(1)(iia) of the Act.

 

3. The learned CIT erred in law and on facts in holding that –

 

i) AO has not examined the issue while finalizing assessment; and

 

ii) Capital work-in-progress (WIP) and pre-operative expenses do not qualify for depreciation under section 32(1) of the Act and additional depreciation under section 32(l)(iia) of the Act, as well.

 

It is submitted that order u/s 263 passed by learned CIT based on above incorrect observations be quashed.

 

4. Without prejudice to the foregoing, assuming without accepting the finding of learned CIT that the capital WIP and pre-operative expenses are not eligible for depreciation or rather not to treat the expenses as capital in nature, the same should be allowed as revenue expenditure under section 37(1) of the Act. It is submitted that it be so held now and direction be given to allow deduction of the aforesaid expenses under section 37(1) of the Act, while computing total income of the year under consideration.

 

5. The learned CIT failed to appreciate that –

 

i) the appellant has incurred expenses on the acquisition of new plant and machinery and no modification was done as such on existing plant and machinery; and

 

ii) capital WIP was part of new plant and machinery and as the plant and machinery was installed in the year under consideration, the same was capitalized during the year under consideration.

 

3.1. The Ld. Counsel Mr. Yogesh Shah appearing for the assessee filed before us a detailed Paper Book and case laws compilation and argued the case reiterating the submissions made before Ld. CIT during the revision proceedings. The Ld. A.R. also taken us through the Paper Book and relevant pages 15, 16, 85-91 & 92-138. The assessee also taken us through Jurisdictional High Court Judgment in assessee’s own case for the Assessment Year 2007-08 in Tax Appeal No. 1061 of 2013 dated 02.12.2013 reported in (2014) 42 Taxmann.com 193 (Guj.) wherein it is held that the assessee company engaged in the business of manufacture and sale of various types of chemical, claimed additional depreciation under section 32(1)(iia) which respect to cost incurred by it for installation of Wind Electric Generator. The Assessing Officer disallowed the same on the ground that assessee was not in business of generation and distribution of power – Whether for claiming deduction u/s. 32(1)(iia), it is not relevant that setting up wind of mill should be for power industry – Whether in order to claim additional depreciation, setting up of new machinery or plant should be acquired or installed by an assessee, who is already engaged in business of manufacture or production of any article or thing - in facts of case, additional depreciation was to be allowed on Wind Electric Generator installed by the assessee.

 

3.2. Thus the Ld. A.R. pleaded the view taken by the Ld. A.O. in the original assessment u/s. 143(3) allowing additional depreciation on the assets installed as well as pre-operative expenses and capital work in progress capitalized during the assessment year 2010-11 was not only a possible view, but in fact, in the respectful submission of the appellant, the only view possible and hence following the judgments of the Hon’ble Supreme Court in the case of Malabar Industrial Company 243 ITR 83 as well as Max India Ltd. 295 ITR 282 are squarely applicable to the facts of the case.

 

Therefore the Revision proceeding initiated by the Ld. CIT is required to be quashed and allow the assessee’s appeal.

 

4. Per contra, the Ld. D.Rs. appearing for the Revenue supported the order of the Ld. CIT and relying upon Jurisdictional High Court Judgment in the case of Addl. CIT vs. Mukur Corporation (1978) 111 ITR 0312 (Guj.) wherein is held that it is not necessary that in his order under section 263, the Ld. CIT should come to a firm conclusion that the order of the ITO was erroneous insofar as it was prejudicial to the interest of Revenue – Where the ITO allowed deduction to assessee-firm on capital gains without properly probing into the matter, the initiation of proceedings under section 263 by the Ld. CIT was proper and valid in law.

 

5. We have given our thoughtful consideration and perused the materials available on record including the Paper Book and the case laws filed by the assessee and submissions filed by the Revenue. Though the Original assessment order passed by the Assessing Officer is silent about the allowance the additional depreciation to the assessee. The Assessing Officer has passed a detailed order on the other disallowance namely section 80IA as against the assessee. As rightly pleaded by the Ld. Counsel for the assessee and also seen from the Paper Book filed by the assessee more particularly reply letters dated 12.01.2012, 06.12.2012 & 07.01.2013 at page nos. 15, 85 & 92 of the Paper Book which clearly demonstrated the Assessing Officer called for explanation from the assessee on the various Plant & Machinery on which additional depreciation claimed, the same were furnished by the assessee. The A.O. having been satisfied with the explanation offered by the assessee completed the assessment by passing a detailed assessment order on the other issue of claim of deduction u/s. 80IA. Thus it is not the case of the assessee, the A.O. has not conducted necessary enquiry, verification before passing the assessment order. Such a view of the Assessing Officer was a plausible view and the same cannot be considered as the assessment order to be an erroneous order or prejudicial to the interest of Revenue.

 

5.1. As held by the Jurisdictional High Court in the case of Amit Corporation (cited supra) when the Assessing Officer had access to all records of the assessee and perusing the records and framed assessment order, said assessment order could not be re-opened in exercise of revision power under section 263 for making further inquiries. The jurisdictional case law relied by the Revenue namely Mukur Corporation (cited supra) is a case where no inquiry was conducted by the A.O. while passing the Assessment Order, which facts is not applicable to the facts of the present case on hand.

 

5.2. We are further guided by the Jurisdictional High Court judgment in the case of CIT vs. Arvind Jewellers [2003] 259 ITR 502, wherein the Division Bench referring to the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd. observed that the provisions of Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted and incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous . The Hon’ble Supreme Court judgment has also made it clear that the phrase “prejudicial to the interests of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue. It is further emphatically stated that when an Income- tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order and prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law”.

 

5.3. In this context of the present case, applying ratio of the above referred judgments, the scope of the Commissioner’s power of revision u/s. 263 of the Act would be, when the Assessing Officer conducts no inquiry or proper inquiries or does not apply his mind to the legal issues arising out of the material on record, the Revisional powers would be available to revise an assessment order. On the other hand, if the Assessing Officer has conducted proper inquiries and come to legal conclusions which are plausible, the Ld. PCIT would not be justified in invoking Revisional jurisdiction directing further inquiries or taking a different view. In the present case, the Assessing Officer has issued a detailed notice u/s. 142(1) calling for various details from the assessee and the assessee also had made detailed replies to the above notices with proper evidences and necessary records were being submitted before the Assessing Officer for verification. Thus the Assessing Officer having carried out such detailed inquiries satisfied with the explanation offered by the assessee, it was not open for the Ld. PCIT to thereafter revise the issues on mere apprehensions and surmises. In the light of the above facts and a legal position, we are of the considered view that the Assessing Officer had made detailed inquiries and after applying his mind and satisfied genuineness of the transactions which is plausible view adopted by the Assessing Officer.

 

6. Thus, we find no error in the order passed by the Assessing Officer so as to justify initiation of revision proceedings u/s. 263 by the Ld. PCIT. Therefore the Revision order dated 27-03-2015 is hereby quashed and the grounds of appeal raised by the Assessee are hereby allowed.

 

7. In the result, appeal filed by the Assessee in ITA No. 1472/Ahd/2015 is allowed.

 

8. ITA No. 219/Ahd/2017 is a consequential order passed by the Assessing Officer pursuant to the Revision order dated 27-03-2015 passed under section 263 of the Act. As this Tribunal in ITA No. 1472/Ahd/2015 quashed the above Revision order dated 27-03- 2015. This present giving effect the revision order has no legs to stand in the eyes of law. Consequently, the giving effect assessment order dated 31/08/2015 passed by DCIT, Circle-1(1)(1), Vadodara becomes infructuous.

 

9. In the result, appeal filed by the Assessee in ITA No. 219/Ahd/2017 is dismissed as infructuous in limine.

 

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