Gujarat Ambuja Exports Limited, Ahmedabad V. The Pr. CIT-2, Ahmedabad

ITA 1049/AHD/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4891 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 26-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Depreciation; Opportunity of being heard; Audit objection; Period of limitation; Question of law; Competent authority
• Section: 143(3); 142(1); 6; 263; 63

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA NO. 1049/AHD/2018 / ASSESSMENT YEAR: 2013-14 GUJARAT AMBUJA EXPORTS LTD. OPP: MEMNAGAR FIRE STATION NAVRANGPURA, AHMEDABAD. PAN : AAACG 3980 A VS PR.CIT-2, AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI T.P. HEMANI, WITH SHRI P.B. PARMAR, ARS. REVENUE BY : ANSHU PRAKASH, CIT-DR / DATE OF HEARING : 04/10/2018 /DATE OF PRONOUNCEMENT : 26 /10/2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST IM PUGNED ORDER OF LD.PR.CIT-2, AHMEDABAD PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 IN THE ASSTT.YEAR 2013-14. 2. THOUGH THE ASSESSEE HAS TAKEN SEVEN GROUNDS OF A PPEAL, BUT ITS GRIEVANCE REVOLVES AROUND A SINGLE ISSUE VIZ. THE L D.CIT(A) HAS ERRED IN TAKING COGNIZANCE UNDER SECTION 263 OF THE ACT AND SETTING ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO MAKE FRESH ASS ESSMENT. ITA NO.1049/AHD/2018 - 2 - 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF AGRO PROCESSING, MAIZE PROCESSING, COTTON SPINNING ETC. IT ALSO OPERATES WIND MILL, THERMAL POWER PLANTS AND BIOGAS POWER PLANTS FOR POWER GENERATION FOR CAPTIVE PURPOSE. IT HAS FILED ITS R ETURN OF INCOME ON 29.11.2013 DECLARING TOTAL INCOME AT RS.76,03,79,80 0/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) WAS ISSUED ON 4.9.2014. IT WAS DULY SERVED UPON THE ASSESSEE. THE LD.AO HAS PASSED AN ASSESSMENT ORDER UNDER SECT ION 143(3) OF THE ACT ON 21.1.2016. HE DETERMINED TAXABLE INCOME OF THE ASSESSEE AT RS.81,21,02,510/- AS AGAINST RS.76,13,79,802/- DECL ARED BY THE ASSESSEE. ON SCRUTINY OF THE RECORDS, THE LD.COMMISSIONER FOR MED AN OPINION THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL T O THE INTEREST OF REVENUE. HENCE, ACTION UNDER SECTION 263 OF THE ACT REQUIRED TO BE TAKEN AGAINST THE ASSESSEE. HE ISSUED SHOW CAUSE NOTICE D ATED 26.3.2018. COPY OF THE SHOW CAUSE NOTICE IS AVAILABLE AT PAGE NO.23 1 OF THE PAPER BOOK. IT READS AS UNDER: OFFICE OF THE PR.COMMISSIONER OF INCOME-TAX -2, AHMEDABAD 1S' FLOOR, NAVJEEVAN TRUST BUILDING, B/H GUJARAT VI DYAPITH, AHMEDABAD- 380 014, TELEFAX-079-27542603 NO.PR.CIT- 2/ABD/TECH/263/17-18 DATE: 26.3.2018 TO, THE PRINCIPAL OFFICER GUJARAT AMBUJA EXPORTS LTD OPP. MEMNAGAR FIRE STATION NAVRANGPURA, AHMEDABAD SIR/MADAM, SUB : NOTICE U/S 263 OF THE I. T. ACT 1961 A. Y. 2013-14 ITA NO.1049/AHD/2018 - 3 - KINDLY REFER TO THE ASSESSMENT ORDER FOR AY 2013-14 -PASSED ON 21.01.2016. ON PERUSAL OF THE CASE RECORDS, I FIND THAT THE SAID ASSESSMENT ORDER IS LIABLE TO BE RECTIFIED U/S 263 OF THE ACT FOR THE FOLLOWING REASONS: 1) THAT SAID ASSESSMENT ORDER HAS BEEN FRAMED BY THE AO WITHOUT APPLICATION OF HIS MIND AND MAKING DUE ENQUIRIES AN D VERIFICATION IN RESPECT OF THE NATURE AND QUALITIES OF ASSETS TO WHICH DEPRECIATION @ 80% WAS ALLOWED BY THE AO. 2) ON PERUSAL OF THE RECORDS, IT IS SEEN THAT BIO-G AS PLANT, POWER PLANT, ETP WHICH HAVE BEEN PARTLY BOOKED IN THE FIR ST HALF &F THE YEAR AND PARTLY IN THE SECOND HALF. THE AO HAS ALLO WED FULL DEPRECIATION AND HALF DEPRECIATION RESPECTIVELY ON SUCH ASSETS WITHOUT VERIFYING IF THESE ASSETS WHICH HAD BEEN AC QUIRED DURING THE FIRST HALF HAD BEEN ACTUALLY PUT TO OPERATION W ITHOUT THE AID OF THE ASSETS WHICH WERE ADMITTEDLY ACQUIRED IN THE SE COND HALF ? THE AO HAS ALLOWED THE CLAIM OF DEPRECIATION WITHOUT AP PLICATION OF MIND AND WITHOUT MAKING PROPER ENQUIRIES AND VERIFI CATION IN THIS REGARD. 2. IN THIS VIEW OF THE MATTER , I AM OF THE CONSIDE RED OPINION THAT THE IMPUGNED ORDER PASSED BY THE AO IS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF REVENUE AS IT HAS BEEN PASSED WITHOUT P ROPER APPLICATION OF MIND , WITHOUT MAKING ENQUIRIES AND I THEREBY INTEN D TO REVISE THE ORDER U/S 263 OF IT ACT. 3. YOU ARE HEREBY GIVEN AN OPPORTUNITY TO REPRESENT YOUR CASE. THE HEARING IS FIXED ON 27.3.2018 AT 5.30AM, IN THE OFF ICE OF THE UNDERSIGNED EITHER PERSONALLY OR THROUGH AN AUTHORISED REPRESEN TATIVES AND MAY ALSO FILE WRITTEN SUBMISSIONS, IF ANY ON THE SAID DATE. SD/- (RAJKUMAR LACHHIRAMAKA) PR. COMMISSIONER OF INCOME TAX-2 AHMEDABAD. 4. IN RESPONSE TO THE ABOVE SHOW CAUSE NOTICE, THE ASSESSEE HAS FILED A DETAILED REPLY. COPY OF THE SAME IS AVAILABLE ON P AGES NO.233 TO 270 OF THE PAPER BOOK. THE LD.COMMISSIONER HAS ALSO TAKEN NOTE OF SUCH REPLY IN THE IMPUGNED ORDER. THE LD.COMMISSIONER WAS NOT SATISFIED WITH THE ITA NO.1049/AHD/2018 - 4 - EXPLANATION OF THE ASSESSEE AND SET ASIDE THE ASSES SMENT ORDER. HE OBSERVED THAT DEPRECATION AT THE RATE OF 80% HAS BE EN GRANTED ON CERTAIN ASSETS I.E. BOILERS, TURBINE AND BIO-GAS PLANT. AC CORDING TO THE LD.CIT(A) CERTAIN EQUIPMENTS WERE PURCHASED AND INSTALLED IN THE SECOND HALF OF THE ASSESSMENT YEAR. IN THE ABSENCE OF SUCH EQUIPM ENTS PLANT COULD NOT BECOME OPERATIONAL INDEPENDENTLY. HENCE, THE LD.AO DID NOT EXAMINE THE ISSUE PROPERLY WHETHER THE PLANT WAS OPERATIONA L IN THE ABSENCE OF CERTAIN PARTS, WHICH HAVE BEEN INSTALLED IN THE LAT TER HALF OF THE YEAR. IF NOT, HOW IT CAN BE CONSTRUED THAT THE PLANT WAS PUT TO USE? IN THE OPINION OF THE COMMISSIONER, THE AO FAILED TO CONDU CT INQUIRY ON THIS ASPECT, AND THEREFORE, HIS ORDER IS ERRONEOUS, WHIC H DESERVES TO BE SET ASIDE. 5. THE ASSESSEE RAISED MULTI FOLD OF OBJECTIONS BEF ORE THE LD.COMMISSIONER VIZ. THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA/80IC. IN CASE DEPRECIATION IS DISALLO WED, THEN ITS ELIGIBLE PROFIT WOULD INCREASE AND IT WILL GET HIGHER DEDUCT ION UNDER SECTION 80IA/80IC. THERE IS NO PREJUDICE TO THE REVENUE BE CAUSE THIS EXERCISE WILL BE REVENUE NEUTRAL. ON THE ONE HAND, DISALLOW ANCE WILL BE MADE OUT THE DEPRECIATION, ON THE OTHER HAND, DEDUCTION UNDER SECTION 80IA/80IC WOULD BE GRANTED. SOMEHOW, THE LD.COMMI SSIONER DEALT WITH THE ISSUE IN PARA 3.2, BUT FAILED TO RECORD AN Y LOGICAL FINDING. THE FINDING RECORDED BY THE LD.CIT ON THIS ASPECT READS AS UNDER: 3.2 THE CONTENTION OF THE ASSESSEE THAT THAT AS TH E TWIN CONDITIONS OF INVOKING THE PROVISIONS OF SECTION 263 ARE NOT S ATISFIED, IS WITHOUT ANY BASIS. WHETHER THE REDUCTION IN DEPRECIATION WO ULD DECREASE THE DEDUCTION U/S 80IA/80C OF THE IT ACT OR NOT IS NOT RELEVANT IN THE PRESENT CONTEXT AS THE SAID ORDER HAS BEEN PASSED W ITHOUT APPLICATION OF MIND AND/OR WITHOUT MAKING DUE ENQUIRIES AND VER IFICATION WHICH ITA NO.1049/AHD/2018 - 5 - IN TERM OF EXPLANATION 2 APPENDED TO SECTION 263, D EEMS THE SAID ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF REVENUE. 6. THE ASSESSEE FURTHER RAISED AN OBJECTION ON ACCO UNT OF CERTAIN DISALLOWANCE MADE IN THE COMPUTATION OF ELIGIBLE PR OFIT FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80IA/80IC. A DISPUTE AL SO TRAVELLED BEFORE THE LD.CIT(A) AND DISALLOWANCE OF DEPRECIATION HAD DIRECT LINK WITH ADMISSIBILITY OF DEDUCTION UNDER THESE SECTIONS. T HEREFORE, ONCE THE ISSUE RELATING TO COMPUTATION OF DEDUCTION UNDER SE CTION 80IA/80IC TRAVELLED TO THE CIT(A), THE ISSUE OF DISALLOWANCE OF DEPRECIATION WOULD MERGE WITH THAT ISSUE AND NO ACTION UNDER SECTION 2 63 CAN BE TAKEN. ACCORDING TO THE LD.COMMISSIONER, THESE ARE TWO DIF FERENT ISSUES AND HAVE NO INTER-CONNECTION, HENCE, NO MERGER HAD TAKE N PLACE. THE ASSESSEE ALSO TOOK AN OBJECTION THAT ACTION UNDER S ECTION 263 HAS BEEN INITIATED ON AN AUDIT OBJECTION, BUT THE LD.CIT REJ ECTED THIS CONTENTION BY OBSERVING THAT ERROR IN THE ASSESSMENT WAS NOTICED ON EXAMINATION OF THE RECORD. THIS IS WITHIN THE STATUTORY POWER OF PR.COMMISSIONER OF INCOME TAX. IN THIS WAY, THE LD.CIT SET ASIDE THE ASSESSMENT ORDER AND DIRECTED THE AO TO MAKE A FRESH ASSESSMENT. 7. BEFORE US, THE COUNSEL FOR THE ASSESSEE REITERAT ED HIS CONTENTIONS AS WERE RAISED BEFORE THE LD.CIT. IN HIS FIRST FOLD O F CONTENTIONS, HE SUBMITTED THAT NO PREJUDICE HAS BEEN CAUSED TO THE REVENUE IN CASE DEPRECIATION IS BEING GRANTED TO THE ASSESSEE, BECA USE THE MOMENT DEPRECIATION IS TO BE DISALLOWED, THEN ELIGIBLE PRO FIT FOR GRANT OF DEDUCTION UNDER SECTION 80IA/80IC WOULD ENHANCE. T HE ASSESSEE IS, THUS, ENTITLED FOR DEDUCTION UNDER THESE SECTIONS A T 100% OF THE ELIGIBLE PROFIT. THUS, THE LD.COMMISSIONER HAS UNDERTAKEN A FUTILE EXERCISE. ITA NO.1049/AHD/2018 - 6 - 8. IN HIS SECOND FOLD OF CONTENTION, HE SUBMITTED T HAT CLAIM OF DEPRECIATION IS INTEGRAL PART FOR COMPUTATION OF EL IGIBLE PROFIT UNDER SECTION 80IA/80IC, AND ONCE THE DISPUTE RELATING TO COMPUTATION OF DEDUCTION UNDER SECTION 80IA/80IC TRAVELLED TO THE LD.CIT(A), THEN ACCORDING TO THE EXPLANATION 1 OF CLAUSE (C) OF SECTION 263, THE ISSUE WOULD BE MERGED BEFORE THE LD.CIT(A) AND NO INDEPEN DENT ACTION REQUIRED TO BE TAKEN BY THE ADMINISTRATIVE COMMISSI ONER. HE PLACED RELIANCE UPON THE ORDER OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NIRMA CHEMICALS WORKS P.LTD., 309 ITR 67 (G UJ). HE ALSO PLACED ON RECORD COPY OF THE ORDER PASSED IN SCA NO.2818 O F 2018 (GUJ) IN THE CASE OF HARYANA PAPER DISTRIBUTORS P.LTD. 9. IN HIS NEXT FOLD OF CONTENTIONS, HE SUBMITTED, T HE LD.AO HAS CONDUCTED PROPER INQUIRY, AND THEREAFTER TOOK ONE O F THE POSSIBLE VIEWS, THEREFORE, NO ACTION UNDER SECTION 263 OUGHT TO BE TAKEN. FOR BUTTRESSING HIS CONTENTIONS, HE TOOK US THROUGH COPY OF SHOW CA USE NOTICE ISSUED BY THE AO UNDER SECTION 142(1) OF THE ACT. HE SPECIFI CALLY DREW OUR ATTENTION TOWARDS PAGE NO.80 OF THE PAPER BOOK WHER EIN AT SERIAL NO.5 OF THE SHOW CAUSE NOTICE, THE LD.AO HAS CALLED FOR FOL LOWING INFORMATION: 5. COMPLETE DETAILS OF ADDITIONS MADE TO FIXED ASS ETS, INCLUDING WORK IN PROGRESS DURING THE FINANCIAL YEAR 2012-13 ALONG WITH THE COPIES OF BILLS/VOUCHERS EXCEEDING RS. 1 LAKH FOR SUCH ADDITI ONS. ALSO FURNISH COMPLETE DETAILS OF ALL THE DELETIONS MADE TO FIXED ASSETS AND ITS TREATMENT GIVEN IN THE BOOKS OF ACCOUNT AND WHETHER ANY CAPIT AL GAIN IS LEVIABLE ON SUCH TRANSACTIONS. 10. HE CONTENDED THAT THE ASSESSEE HAS SUBMITTED CO MPLETE DETAILS, AND THE AO HAS GONE THROUGH THESE DETAILS. THEREFO RE, IT CANNOT BE SAID THAT THE AO HAS NOT CARRIED OUT ANY INQUIRY. ITA NO.1049/AHD/2018 - 7 - 11. IN THE LAST FOLD OF SUBMISSIONS, HE CONTENDED T HAT REVISIONARY PROCEEDINGS HAVE BEEN INITIATED AT THE INSTANCE OF AUDIT OBJECTION. THE LD.COMMISSIONER WAS NOT JUSTIFIED IN TAKING ACTION UNDER SECTION 263 ON AUDIT OBJECTION. FOR BUTTRESSING HIS CONTENTIONS, HE MADE REFERENCE TO LARGE NUMBER OF DECISIONS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS . CIT, 243 ITR 83 (SC). HE HAS ALSO RELIED UPON HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD., 332 ITR 167 (DEL) AND CIT VS. ME HSANA DISTRICT CO- OP. MILK PRODUCERS UNION LTD., 263 ITR 645 (GUJ) AN D OTHERS. 12. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE AO HAS GRANTED DEPRECIATION AT THE RATE OF 80% ON PLANT & MACHINER Y WHICH WERE NOT ACTUALLY PUT TO USE, BECAUSE IN THE ABSENCE OF CERT AIN PARTS, THE PLANT COULD NOT FUNCTION INDEPENDENTLY. THE ASSESSEE ITS ELF ADMITTED THAT THESE PARTS HAVE BEEN INSTALLED IN THE LATER PART O F THE YEAR, AND THEN HOW IT COULD BE CONSTRUED THAT THE PLANT HAS FUNCTIONED FOR THE FULL YEAR. 13. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD CAREFULLY. SECTION 263 HAS A DIRECT BEA RING ON THE CONTROVERSY, THEREFORE, IT IS PERTINENT TO TAKE NOTE OF THIS SEC TION. IT READS AS UNDER:- 263(1) THE COMMISSIONER MAY CALL FOR AND EXAMINE T HE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOU S IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MA KING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, I NCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLIN G THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. ITA NO.1049/AHD/2018 - 8 - [EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT, FOR THE PURPOSES OF THIS SUB-SECTION,- (A) AN ORDER PASSED ON OR BEFORE OR AFTER THE 1ST DAY O F JUNE, 1988 BY THE ASSESSING OFFICER SHALL INCLUDE- (I) AN ORDER OF ASSESSMENT MADE BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER OR THE INCOME-T AX OFFICER ON THE BASIS OF THE DIRECTIONS ISSUED BY TH E JOINT COMMISSIONER UNDER SECTION 144A; (II) AN ORDER MADE BY THE JOINT COMMISSIONER IN EXE RCISE OF THE POWERS OR IN THE PERFORMANCE OF THE FUNCTION S OF AN ASSESSING OFFICER CONFERRED ON, OR ASSIGNED TO, HIM UNDER THE ORDERS OR DIRECTIONS ISSUED BY THE BOARD OR BY THE CHIEF COMMISSIONER OR DIRECTOR GENERAL OR COMMISSIO NER AUTHORIZED BY THE BOARD IN THIS BEHALF UNDER SECTIO N 120; (B) RECORD SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED ALL RECORDS RELATING TO ANY PROCEEDING UND ER THIS ACT AVAILABLE AT THE TIME OF EXAMINATION BY THE COMMISSIONER; (C) WHERE ANY ORDER REFERRED TO IN THIS SUB-SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTE R OF ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB - SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. (2) NO ORDER SHALL BE MADE UNDER SUB-SECTION (1) AF TER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL Y EAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (2), AN ORDER IN REVISION UNDER THIS SECTION MAY BE PASSED AT ANY TIME IN THE CASE OF AN ORDER WHICH HAS BEEN PASSED IN CONSEQUENCE OF, OR TO GIVE EFFECT TO, ANY FINDING O R DIRECTION CONTAINED IN AN ORDER OF THE APPELLATE TRIBUNAL, NA TIONAL TAX TRIBUNAL, THE HIGH COURT OR THE SUPREME COURT. EXPLANATION.- IN COMPUTING THE PERIOD OF LIMITATION FOR THE PURPOSES OF SUB-SECTION (2), THE TIME TAKEN IN GIVI NG AN OPPORTUNITY TO THE ASSESSEE TO BE REHEARD UNDER THE PROVISO TO SECTION 129 AND ANY PERIOD DURING WHICH ANY PROC EEDING UNDER THIS SECTION IS STAYED BY AN ORDER OR INJUNCT ION OF ANY COURT SHALL BE EXCLUDED. XXXX XXXX XXXX XXX ITA NO.1049/AHD/2018 - 9 - 14. ON A BARE PERUSAL OF THE SUB SECTION-1 WOULD RE VEAL THAT POWERS OF REVISION GRANTED BY SECTION 263 TO THE LEARNED COMM ISSIONER HAVE FOUR COMPARTMENTS. IN THE FIRST PLACE, THE LEARNED COMMI SSIONER MAY CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDINGS UNDER TH IS ACT. FOR CALLING OF THE RECORD AND EXAMINATION, THE LEARNED COMMISSI ONER WAS NOT REQUIRED TO SHOW ANY REASON. IT IS A PART OF HIS AD MINISTRATIVE CONTROL TO CALL FOR THE RECORDS AND EXAMINE THEM. THE SECOND F EATURE WOULD COME WHEN HE WILL JUDGE AN ORDER PASSED BY AN ASSESSING OFFICER ON CULMINATION OF ANY PROCEEDINGS OR DURING THE PENDEN CY OF THOSE PROCEEDINGS. ON AN ANALYSIS OF THE RECORD AND OF TH E ORDER PASSED BY THE ASSESSING OFFICER, HE FORMED AN OPINION THAT SUCH A N ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BY THIS STAGE THE LEARNED COMMISSIONER WAS NOT REQUIRED THE ASSIS TANCE OF THE ASSESSEE. THEREAFTER THE THIRD STAGE WOULD COME. TH E LEARNED COMMISSIONER WOULD ISSUE A SHOW CAUSE NOTICE POINTI NG OUT THE REASONS FOR THE FORMATION OF HIS BELIEF THAT ACTION U/S 263 IS REQUIRED ON A PARTICULAR ORDER OF THE ASSESSING OFFICER. AT THIS STAGE THE OPPORTUNITY TO THE ASSESSEE WOULD BE GIVEN. THE LEARNED COMMISSION ER HAS TO CONDUCT AN INQUIRY AS HE MAY DEEM FIT. AFTER HEARING THE AS SESSEE, HE WILL PASS THE ORDER. THIS IS THE 4TH COMPARTMENT OF THIS SECT ION. THE LEARNED COMMISSIONER MAY ANNUL THE ORDER OF THE ASSESSING O FFICER. HE MAY ENHANCE THE ASSESSED INCOME BY MODIFYING THE ORDER. HE MAY SET ASIDE THE ORDER AND DIRECT THE ASSESSING OFFICER TO PASS A FRESH ORDER. AT THIS STAGE, BEFORE CONSIDERING THE MULTI-FOLD CONTENTION S OF THE LD. REPRESENTATIVES, WE DEEM IT PERTINENT TO TAKE NOTE OF THE FUNDAMENTAL TESTS PROPOUNDED IN VARIOUS JUDGMENTS RELEVANT FOR JUDGING THE ACTION OF THE CIT TAKEN U/S 263. THE ITAT IN THE CASE OF M RS. KHATIZA S. ITA NO.1049/AHD/2018 - 10 - OOMERBHOY VS. ITO, MUMBAI, 101 TTJ 1095, ANALYZED IN DETAIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AND HAS PROPOUNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVER Y TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTIO N WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOU S ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDIC IAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. IF CANN OT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW T AKEN BY THE AO IS UNSUSTAINABLE UNDER LAW (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH L AW AND ARRIVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE ITA NO.1049/AHD/2018 - 11 - TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRATIFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S . 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFA CTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND T HE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISF IED WITH THE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 15. MAIN THRUST OF ARGUMENTS AT THE END OF THE ASSE SSEE IS THAT EVEN IF THE DEPRECIATION IS BEING DISALLOWED, THEN ALSO THE RE IS NO PREJUDICE TO THE REVENUE, BECAUSE WHOLE EXERCISE AT THE END OF T HE COMMISSIONER WOULD REVENUE NEUTRAL. THE MOMENT ADDITION ON ACCO UNT OF DISALLOWANCE OF THE DEPRECATION WOULD BE MADE TO TH E INCOME OF THE ASSESSEE, IT WILL BE ALLOWED AS DEDUCTION UNDER SEC TION 80IA/80IC. IF THAT BE SO, THEN WHERE IS THE PREJUDICE ? IT IS SET TLED POSITION THAT UNLESS TWIN CONDITIONS ARE FULFILLED I.E. ERRONEOUS OF THE IMPUGNED ORDER BEFORE THE LD.COMMISSIONER, AS WELL AS PREJUDICE TO THE RE VENUE ON ACCOUNT OF SUCH ERROR ARE AVAILABLE, ACTION UNDER SECTION 263 IS NOT PERMISSIBLE. 16. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SHRI D.G. GOPALA GOWDA, 354 ITR 501 (KAR) HAD AN OCCASION TO EXAMINE SIMILAR ASPECT, I.E. IF AFTER EXERCISE OF POWER U/S.263, NO TAXABLE INCOME IS UNEARTHED IN THE HANDS OF THE ASSESSEE, THEN, ACTIO N U/S.263 SHOULD NOT BE UPHELD. THE FACTS IN THAT CASE ARE NOTICED BY H ONBLE COURT IN PARA-2 WHICH READ AS UNDER: ITA NO.1049/AHD/2018 - 12 - 2. THE ASSESSEE HAD PURCHASED A SITE AT RUPENA AGR AHARA IN THE FINANCIAL YEAR 1995-96 FOR A CONSIDERATION OF RS.3,46,520/-. HE STARTED CONSTRUCTION OF THE BUILD ING IN APRIL 1999. HE AGREED TO SELL THE SAID PROPERTY UNDER THE AGREEMENT DATED 9-9-2000 IN UNFINISHED CONDITION. U NDER THE TERMS OF AGREEMENT, THE ASSESSEE SHOULD COMPLETE TH E CONSTRUCTION OF THE BUILDING BEFORE EXECUTION OF SA LE DEED WITH THE HELP OF THE FUNDS PROVIDED BY THE PURCHASER. ON 22-11- 2000 THE ASSESSEE EXECUTED A SALE DEED IN FAVOUR OF THE PURCHASER FOR A CONSIDERATION OF RS.1,38,00,000/-. THE ASSESSEE RECEIVED A SUM OF RS.40,00,000/- AT THE TI ME OF AGREEMENT. THE TOTAL COST OF CONSTRUCTION WAS RS.1,04,30,425/-. THEREAFTER, THE ASSESSEE PURCHASE D ANOTHER PROPERTY AT KORAMANGALA. THE ASSESSING OFFICER COMP UTED THE INCOME FROM THE LONG TERM CAPITAL GAINS AT RS.22,17 ,940/- FOR THE SALE OF THE PROPERTY. HOWEVER, THE ASSESSEE WAS EXEMPTED FROM PAYING TAX SINCE THE FUND WAS UTILIZE D FULLY TOWARDS PURCHASE OF ANOTHER PROPERTY AT KORAMANGALA . THE COMMISSIONER OF INCOME TAX ISSUED NOTICE UNDER SECT ION 263 OF THE ACT STATING THAT THE ASSESSING OFFICER WAS N OT JUSTIFIED IN TREATING THE SALE AS LONG TERM CAPITAL GAIN AND ACCORDING TO HIM, IT SHOULD HAVE BEEN TREATED AS SHORT TERM CAPI TAL GAIN. THE ASSESSEE FILED HIS REPLY TO THE SHOW CAUSE NOTI CE. THEREAFTER, THE COMMISSIONER PROCEEDED TO PASS THE ORDER SETTING ASIDE THE ORDER OF ASSESSMENT ON THE GROUND THAT IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. AGGRIEV ED BY THE SAID ORDER, THE ASSESSEE PREFERRED AN APPEAL TO THE TRIBUNAL. THE TRIBUNAL WENT INTO THE FACTUAL ASPECTS AND TOOK NOTE OF THE LEGAL POSITION AS SETTLED IN VARIOUS JUDGMENTS OF THE COURTS AND IN FACT, CALCULATED BOTH THE SHORT TERM AND LON G TERM CAPITAL GAIN AND THEN FOUND THAT THE ASSESSEE IS NO T LIABLE TO PAY ANY TAX. THEREFORE, IT RECORDED THE FINDING THA T EVEN IF THE ORDER OF THE ASSESSING AUTHORITY IS ERRONEOUS, IT I S NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFO RE, SET ASIDE THE ORDER OF THE REVISIONAL AUTHORITY AND GRANTED R ELIEF TO THE ASSESSEE. 17. THE HON'BLE HIGH COURT WHILE UPHOLDING THE ORD ER OF THE ITAT HAS OBSERVED AS UNDER: EVEN IF IT IS ERRONEOUS, UNLESS THE SAID ERRONEOU S ORDER IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, THE COM MISSIONER COULD NOT HAVE EXERCISED THE SAID POWER. FROM THE A DMITTED MATERIAL ON RECORD, THE AMOUNT THAT IS ORDERED TO B E REFUNDED TO THE ASSESSEE IS NOT THE AMOUNT, WHICH IS LAWFULL Y DUE TO THE REVENUE AT ALL, IT WAS AN AMOUNT WHICH IS REVENUE LEGITIMATELY SHOULD HAVE REFUNDED IF ONLY THE CLAIM HAD BEEN ITA NO.1049/AHD/2018 - 13 - IN THE RETURN ENCLOSING THE CERTIFICATES UNDER SECT ION 203. THE SAID AMOUNT SHOULD HAVE BEEN REFUNDED TO THE ASSESS EE. BECAUSE HE WAS HANDICAPPED BY SUCH CERTIFICATES NOT BEING FORWARDED TO HIM, CONSEQUENTLY NOT ABLE TO MAKE THE CLAIM, SUCH A CLAIM WAS NOT MADE. THE MOMENT HE GOT POSSES SION OF THOSE CERTIFICATES ON 12.02.2001, WITHIN TWO YEARS FROM THE DATE OF THE END OF THE ASSESSMENT YEAR HE HAS PUT F ORTH THE CLAIM. THE SAID AMOUNT WAS NOT A LAWFUL AMOUNT TO T HE GOVERNMENT. IT WAS AN AMOUNT WHICH SHOULD HAVE BEEN REFUNDED TO THE ASSESSEE. THEREFORE, THE CONDITION PRECEDENT FOR EXERCISING THE REVISIONAL POWER UNDER SECTION 2 63 OF THE ACT IS THAT THE ORDER UNDER REVISION SHOULD NOT ONL Y BE ERRONEOUS, BUT SUCH ERRONEOUS ORDER SHOULD RESULT I N PREJUDICE TO THE INTEREST OF THE REVENUE. MERE ERRO R WOULD NOT CONFER JURISDICTION TO EXERCISE REVISIONAL POWER UN DER SECTION 263 OF THE ACT. WE HAVE GONE THROUGH THE ORDER PASS ED BY THE REVISIONAL AUTHORITY. IT IS A VERY CRYPTIC ORDE R. IT NEITHER POINTS OUT AN ERROR NOR PREJUDICE WHICH HAS CAUSED TO THE REVENUE. AFTER DECLARING THAT THE ORDER IS PREJUDIC IAL, IT REFERS TO THE NOTICE BEING ISSUED TO THE ASSESSEE AND THE ASSESSEE FILING REPLY TO THE SAID NOTICE AND THEN REVIEW AUT HORITY FEELS THAT IT IS A MATTER TO BE READJUDICATED BY THE ASSE SSING AUTHORITY AND THEREFORE, THE MATTER WAS REMANDED FO R FRESH CONSIDERATION. THIS IS NOT THE WAY, THE REVISIONAL AUTHORITY SHOULD EXERCISE THEIR POWER UNDER SECTION 263 OF TH E ACT. THE ORDER OF REVISIONAL AUTHORITY SHOULD INDICATE THE E RROR COMMITTED BY THE ASSESSING AUTHORITY AND CONSEQUENT IAL PREJUDICE CAUSED TO THE REVENUE BECAUSE OF THE ERRO NEOUS ORDER. UNLESS THESE TWO CONDITIONS EXIST, THE REVIS IONAL AUTHORITY DOES NOT GET JURISDICTION TO PASS ANY ORD ER UNDER SECTION 263 OF THE ACT. ONCE THESE TWO CONDITIONS A RE SET OUT IN THE ORDER, THEN IT IS OPEN TO THE REVISIONAL AUT HORITY TO CONSIDER THE CASE ON MERITS AND PASS FINAL ORDER OR IN ITS VIEW, REQUIRES SOME ADJUDICATION OR ENQUIRY, THE MATTER C AN BE REMANDED TO ASSESSING AUTHORITY. BUT SUCH REMAND SH OULD BE ONLY AFTER SETTING OUT THE FACTS WHICH SHOW ERRONEO US NATURE OF THE ORDER AND THE CONSEQUENTIAL PREJUDICE TO THE REVENUE WHICH CONFER JURISDICTION ON THE REVISIONAL AUTHORI TY. SEEN FROM THAT ANGLE, IN THE IMPUGNED ORDER THOUGH WE CO ULD MAKE OUT WHAT IS THE ERROR COMMITTED BY THE REVISIONAL A UTHORITY, CERTAINLY THERE IS NO IOTA OF EVIDENCE TO SHOW HOW IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ON THE CONTRARY, IN THE REPLY TO THE NOTICE, THE ASSESSEE HAD FILED A S TATEMENT. EVEN IF THE ASSESSMENT IS TO BE MADE SEPARATELY FOR THE LAND ON LONG TERM BASIS AND TO THE BUILDING ON SHORT TER M BASIS, THE ASSESSEE IS NOT LIABLE TO PAY ANY TAX FOR THE B UILDING. THE ASSESSEE HAS DEMONSTRATED THAT IN NO EVENT THE ORDE R PASSED BY THE ASSESSING OFFICER IS PREJUDICIAL TO THE INTE REST OF THE REVENUE. THAT ASPECT HAS NOT BEEN CONSIDERED AND TH ERE IS NO ITA NO.1049/AHD/2018 - 14 - REFERENCE TO THAT ASPECT IN THE ENTIRE ORDER PASSED BY THE REVISIONAL AUTHORITY AND BY A CRYPTIC ORDER, THE MA TTER IS REMANDED TO THE ASSESSING AUTHORITY. THOUGH THE TRI BUNAL WAS NOT EXPECTED TO GO INTO THE MERITS OF THE CASE, IN ORDER TO DEMONSTRATE THAT THE ORDER PASSED BY THE ASSESSING AUTHORITY EVEN IF IT IS ERRONEOUS, IS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEY HAVE SET OUT COMPUTATION OF CAPITAL G AINS AND DEMONSTRATED THAT THE ORDER WAS NOT PREJUDICIAL. TH EREFORE, THE ORDER PASSED BY THE REVISIONAL AUTHORITY IS ILL EGAL AND RIGHTLY IT HAS BEEN SET ASIDE. IN THE LIGHT OF WHAT WE HAVE STATED ABOVE, THE SUBSTANTIAL QUESTION OF LAW IS AN SWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 18. THE HON'BLE HIGH COURT HAS HELD THAT FULFILLMEN T OF TWIN CONDITION IS MUST I.E. ASSESSMENT ORDER SHOULD BE ERRONEOUS A ND IT SHOULD CAUSE A PREJUDICE TO THE REVENUE. IF ANY ONE CONDITION IS L ACKING, THEN ACTION U/S 263 WOULD NOT BE JUSTIFIED. IN THE ABOVE CASE, THE ASSESSMENT ORDER WAS ERRONEOUS BECAUSE THE LEARNED ASSESSING OFFICER FAI LED TO COMPUTE THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN SEPARATELY. BUT THE TRIBUNAL ULTIMATELY ARRIVED AT A CONCLUSION THAT EV EN IF THIS EXERCISE IS BEING DONE, THEN THERE WILL NOT BE ANY TAX LIABILIT Y AND THEREFORE, THERE IS NO NEED TO SET ASIDE THE ASSESSMENT ORDER. THE HON' BLE HIGH COURT HAS UPHELD THIS FINDING OF THE TRIBUNAL. 19. IN THE LIGHT OF THE ABOVE, IF WE CONSIDER THE F ACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THEN IT WOULD REVEAL THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA/80IC. THE MOMENT DEPR ECIATION IS BEING DISALLOWED, IT WILL BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE, AND ACCORDINGLY ENHANCED DEDUCTION WOULD BE GIVEN TO TH E ASSESSEE. THEREFORE, ORDER OF THE LD.COMMISSIONER IS NOT SUST AINABLE ON THIS ISSUE. THE ASSESSEE HAS RAISED SPECIFIC PLEA BEFORE THE LD .COMMISSIONER ALSO, BUT WITHOUT RECORDING ANY LOGICAL FINDING THE LD.CO MMSSIONER JUST SIMPLY IGNORED IT. HE OBSERVED THAT IT WAS NOT REL EVANT IN THE PRESENT ITA NO.1049/AHD/2018 - 15 - CONTEXT, WHEREAS, FULFILLMENT OF ONE OF THE CONDITI ONS, WHICH WAS VERY MUCH RELEVANT. 20. AS FAR OTHER FOLDS OF CONTENTIONS ARE CONCERNED , WE DO NOT SEE ANY NECESSITY TO DEVOTE MORE ENERGY TOWARDS THEM. NO D OUBT THE AO HAS ISSUED A QUESTIONNAIRE INVITING EXPLANATION OF THE ASSESSEE WITH REGARD TO THE DETAILS OF THE ASSETS ADDED IN THE BLOCK OF ASSETS. BUT HE FAILED TO CONDUCT AN INQUIRY WHETHER THE PLANT WAS PUT TO USE OR NOT INSTALLED IN THE FIRST HALF FOR GRANTING OF DEPRECIATION. 21. AS FAR AS CONTENTIONS OF THE ASSESSEE THAT PROC EEDINGS HAD MERGED WITH PROCEEDINGS PENDING BEFORE THE LD.CIT(A) RELAT ING TO COMPUTATION OF DEDUCTION ADMISSIBLE UNDER SECTION 80IA/IC IS CO NCERNED, WE ARE OF THE VIEW THAT BOTH THE ISSUES ARE SEPARATE ISSUES. THE ELIGIBLE PROFIT FOR GRANT OF DEDUCTION UNDER SECTION 80IA/80IC COULD HA VE MANY COMPONENTS VIZ. RENTAL INCOME, INTEREST INCOME, SCR AP SALES, JOB CHARGES WHOSE EXCLUSION OR INCLUSION WOULD LEAD TO A CONTRO VERSY, WHICH MIGHT BE PENDING BEFORE LD.CIT(A). HOW, THE RESOLVING OF THAT CONTROVERSY WOULD GIVE AN IDEA TO THE LD.CIT THAT THE ISSUE OF DEPRECIATION DESERVES TO BE EXAMINED AND CERTAIN DEPRECIATION HAS TO BE D ISALLOWED TO THE ASSESSEE. THIS IS A PERIPHERAL ISSUE, NOT DIRECTLY LINKED WHICH COULD BE CONSTRUED AS MERGED IN THAT PROCEEDING. WE DO NOT FIND ANY MERIT IN THIS FOLD OF CONTENTIONS. 22. SIMILARLY, PERUSAL OF THE SHOW CAUSE ISSUED UND ER SECTION 263 DOES NOT INDICATE THAT IT WAS ISSUED ON THE INSTRUCTIONS OF AUDIT REPORT. IT WAS ISSUED ON APPLICATION OF INDEPENDENT MIND UPON THE RECORD. THE AUDITOR COULD BE AN INFORMER. HAD IT BEEN TREATED AS GOSPEL TRUTH AND ITA NO.1049/AHD/2018 - 16 - ACTION UNDER SECTION 263 IS BEING TAKEN, THEN, THE ASSESSEE WOULD BE JUSTIFIED. BUT WHERE ON AN INFORMATION OF THE AUDI TOR OR FROM ANY OTHER SOURCE, THE COMPETENT AUTHORITY, APPLIED HIS INDEPE NDENT MIND AND THEN TAKEN ACTION UNDER SECTION 263, THEN SUCH ACTION WO ULD NOT BE DECLARED ILLEGAL ON THE GROUND THAT IT WAS TAKEN ON THE AUDI TORS OBJECTION. THE REQUIREMENT UNDER THE LAW IS THAT ON THE INFORMATIO N COME TO THE POSSESSION OF THE COMPETENT AUTHORITY OUGHT TO BE C ONSTRUED BY HIM AND MIND SHOULD BE APPLIED INDEPENDENTLY. IT SHOULD NO T BE UNDER TUTELAGE OF ANY OTHER AUTHORITY. THEREFORE, WE REJECT ALL O THER ALTERNATIVE CONTENTIONS OF THE ASSESSEE. HOWEVER ON NON-FULFIL LMENT OF TWIN CONDITIONS, I.E. NO PREJUDICE IS BEING CAUSED TO TH E REVENUE ON ACCOUNT OF GRANT OF DEPRECATION, WE ALLOW THIS GROUND OF AP PEAL AND QUASH THE ORDER PASSED UNDER SECTION 263 OF THE INCOME TAX AC T, 1961. 23. IN THE RESULT, APPEAL OF THE ASSESSEES IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER, 2018. SD/- SD/- (PRADIP KUMAR KEDIA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER