Adani Enterprises Ltd., Ahmedabad V. The Pr. CIT.-1, Ahmedabad

ITA 1270/AHD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9808 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Assessment record; Revised return
• Section: 143(3); 54F; 14A; 32; 263; 63; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE SHRI R.P. TOLANI, JM & SHRI MANISH BORAD, AM. ITA NO. 1270/AHD/2016 ASST. YEAR: 2009-10 ADANI ENTERPRISE LTD., ADANI HOUSE, NR. MITHAKHALI CIRCLE, NAVRANGPURA, AHMEDABAD. VS. PR. CIT-1, AHMEDABAD. APPELLANT RESPONDENT PAN AABCA 2804L APPELLANT BY SHRI S. N. SOPARKAR, AR RESPONDENT BY SHRI R. I. PATEL, CIT, DR DATE OF HEARING: 11.11.2016 DATE OF PRONOUNCEMENT: 02/12/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS APPEAL BY THE ASSESSEE FOR ASST. YEAR 2009-10 IS DIRECTED AGAINST THE ORDER OF LD. PR.CIT-1, AHMEDABAD, DATED 28/03/2016 ARISING OUT OF ORDER U/S 143(3) R.W.S. 144C OF THE IT ACT, 1961 (IN SHORT THE ACT) FRAMED ON 15.05.2013 BY DCIT, CIRCLE-1(1)( 1), AHMEDABAD. 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE IMPUGNED ORDER PASSED BY THE LEARNED PR. CIT U/S. 2 63 OF THE INCOME- TAX ACT, 1961 IS VOID AND DESERVES TO BE CANCELLED, INTER ALIA , ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 2 (A) FOR THE REASON THAT IT HAS BEEN PASSED WITHOUT JURISDICTION FOR THE FOLLOWING REASONS: (1) THAT EVEN AS SECTION 263 MANDATED THAT THE ORDER SOUGHT TO BE REVISED THERE UNDER HAS GOT TO BE BOTH ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE OR IGINAL ASSESSMENT ORDER PASSED U/S. 143(3) SOUGHT TO BE RE VISED BY LEARNED PRINCIPAL CIT WAS NEITHER ERRONEOUS NOR PRE JUDICIAL TO THE INTERESTS OF THE REVENUE AND, THEREFORE, IT WAS NOT OPEN TO HIM TO EXERCISE ANY JURISDICTION U/S. 263 IN RESPEC T THEREOF; (2) THAT OF THE TWO ISSUES ON WHICH THE IMPUGNED ORDER SEEKS TO REVISE THE ORIGINAL ASSESSMENT ORDER PASSED U/S. 14 3(3), THE SECOND ISSUE RELATING TO DISALLOWANCE OF EXPENDITUR E U/S. 14A HAVING ALREADY BEEN DEALT WITH IN THE APPELLANT'S F IRST APPEAL AGAINST THE ORIGINAL ASSESSMENT ORDER, IT WAS JUST NOT OPEN TO THE LEARNED PRINCIPAL CIT TO EXERCISE ANY JURISDIC TION U/S. 263 IN RESPECT THEREOF; (3) THAT HIS NOTICE U/S. 263 SEEKING TO RAISE TWO ISSUES FOR ASSUMPTION OF JURISDICTION U/S. 263 SUFFERED FROM V AGUENESS INSOFAR AS THE FIRST ISSUE CONCERNING DEPRECIATION ON OFFICE EQUIPMENT WAS CONCERNED; (B) FOR THE REASON THAT IT HAS BEEN PASSED AFTER SU MMARILY DISMISSING THE APPELLANT'S ELABORATE WRITTEN SUBMISSIONS DATED 18.3.2016 IN RESPECT OF BOTH THE ISSUES SOUGHT TO BE DEALT WITH BY IT, SO MUCH SO, THAT THE LEARNED PRINCIPAL CIT HAD NOT EVEN BOTHERE D TO TAKE COGNIZANCE OF THE FACT WHICH WAS ALREADY ON RECORD AND TO WHICH HIS ATTENTION HAD BEEN SPECIFICALLY AND ELABORATELY DRA WN IN THE APPELLANT'S WRITTEN SUBMISSIONS TO HIM, THAT THE SE COND ISSUE RELATING TO DISALLOWANCE OF RS.17.99 CRORE U/S. 14A HAD ALRE ADY BEEN THE SUBJECT MATTER OF THE APPELLANT'S FIRST APPEAL AGAI NST THE ORIGINAL ASSESSMENT ORDER AND THAT THE LEARNED CIT(A) HAD AL READY DECIDED THE APPEAL DIRECTING THE ASSESSING OFFICER TO EXCLU DE INTEREST ON SPECIFIC BORROWINGS ETC. WHILE ARRIVING AT THE QUAN TUM OF DISALLOWANCE U/S. 14A AS CLAIMED BY THE APPELLANT B EFORE HIM, AFTER PROPER VERIFICATION IN THAT BEHALF AND THAT, FOR TH AT REASON, HE HAD NO JURISDICTION TO REVISE THE ORIGINAL ASSESSMENT ORDE R IN THAT RESPECT U/S. 263. 2. WITHOUT PREJUDICE TO THE FOREGOING, IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANT'S CASE, THE LEARNED PRINCIPAL CIT HAS ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 3 GROSSLY ERRED IN ORDERING FOR THE CANCELLATION OF T HE ASSESSMENT ORDER DATED 15.05.2013 PASSED U/S. 143(3) WHEREAS ALL THA T HE WAS REQUIRED TO DO WAS TO ISSUE A DIRECTION FOR RECONSIDERING ON LY THE TWO ITEMS VIZ., DEPRECIATION ON OFFICE EQUIPMENT AND DISALLOWANCE U /S. 14A, IN RESPECT OF WHICH HE REALLY WANTED TO REVISE THE ORIGINAL AS SESSMENT ORDER. 3. THE APPELLANT CRAVES LEAVE TO ADD, AME ND, AND/OR ALTER THE GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF H EARING OF THE APPEAL. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT ASSESS EE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF EXPORT AND IMPOR T OF COMMODITIES. RETURN OF INCOME FOR ASST. YEAR 2009-1 0 WAS FILED ON 24.09.2009 ADMITTING TOTAL INCOME OF RS.132.22 CROR ES FOLLOWED BY REVISED RETURN ON 29.03.2011 SHOWING INCOME AT RS.1 33.79 CRORES. CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND ORDER U/S 143(3) OF THE ACT READ WITH SECTION 144C OF THE ACT WAS PASSE D ON 15.05.2013. ASSESSEES INCOME WAS ASSESSED AT RS.161.59 CRORES AFTER MAKING VARIOUS ADDITIONS INCLUDING DISALLOWANCE U/S 14A AT RS.17.99 CRORES. ASSESSMENT RECORDS WERE CALLED FOR EXAMINATION BY L D. PR. CIT-1, AHMEDABAD AND ASSESSMENT ORDER U/S 143(3) R.W.S. 14 4C OF THE ACT WAS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE IN TEREST OF REVENUE FOR THE FOLLOWING TWO REASONS :- (1) ALLOWING DEPRECIATION ON OFFICE EQUIPMENTS @ 15 % RATHER THAN 10%. (2) CALCULATION OF DISALLOWANCE U/S 14A BY WRONGLY ADOPTING NET INTEREST RATHER THAN GROSS INTEREST. 4. FOR THESE TWO REASONS SHOW CAUSE NOTICE WAS ISSU ED ON 10.3.2016 WHICH WAS REPLIED BY ASSESSEE. IT WAS SUB MITTED BEFORE ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 4 PR.CIT THAT DEPRECIATION ON OFFICE EQUIPMENTS HAS B EEN REGULARLY CLAIMED @ 15% FOR LAST MANY YEARS AND DULY SUPPORTE D BY AUDITED BALANCE SHEET AND ALSO FOR THE REASONS THAT OFFICE EQUIPMENTS ARE PART OF PLANT AND MACHINERY AT WHICH DEPRECIATION @ 15% IS ALLOWABLE. AS REGARDS DISALLOWANCE U/S 14A OF THE A CT IT WAS SUBMITTED THAT AS THAT ISSUE WAS THOROUGHLY EXAMINE D BY THE ASSESSING AUTHORITY. HOWEVER, THE CONTENTIONS OF AS SESSEE DID NOT IMPRESS LD. PR. CIT AND HE WENT AHEAD TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT SETTING ASIDE THE ORDER U/S 143(3) READ WITH SECTION 144C OF THE ACT AS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF REVENUE AND DIRECTED FOR FRESH ASSESSMENT BY OBSERV ING AS BELOW :- 3. I HAVE CAREFULLY CONSIDERED THE CONTENTION OF TH E ASSESSEE AND DO NOT FIND ANY MERIT THEREIN. AS PER SECTION 32 OF THE ACT, DEPRECIATION AT THE PRESCRIBED RATE AS SPECIFIED IN APPENDIX I [RULE 5(1)] IS ALLOWABLE ON THE WDV OF A SSET. DEPRECIATION @ 10% SHALL BE ALLOWED ON OFFICE EQUIPMENT UNDER THE HEAD 'FURN ITURE AND FITTINGS INCLUDING ELECTRICAL FITTINGS' AS OFFICE EQUIPMENT IS NOT AN PLANT & MACHINERY. THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION OF RS.22,16,11,633 /-. SCRUTINY OF RECORDS REVEALED THAT THE DEPRECIATION OF RS.22,16,11,633/- CLAIMED BY THE ASSESSEE INCLUDES DEPRECIATION OF RS.92,19,120/- ON OFFICE EQUIPMENTS @ 15% AS PLANT AND MACHINERY. ACCORDINGLY, THE ASSESSEE WAS ENTITLED FOR DEPRECIA TION OF RS,61,46,079/- ONLY AS AGAINST RS.92,19,120/- ALLOWED. THIS HAS RESULTED I N UNDERASSESSMENT OF INCOME OF RS.30,73,041/-. 4. AS REGARDS THE SECOND ISSUE, THE ASSESSEE COMPAN Y HAS CLAIMED AND WAS ALLOWED SHARE FROM PARTNERSHIP FIRM AMOUNTING TO RS.232,04, 34,287/~ AS EXEMPTED. AS PER PROVISIONS OF SECTION 14A, NO DEDUCTION SHALL BE AL LOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME SHALL BE COMPUTED IN ACCORDANCE WIT H CLAUSE (2) OF RULE 8D OF IT. RULES, 1962. THE DISALLOWANCE OF EXPENDITURE AGAINST THIS EXEMPT INC OME SHOULD HAVE BEEN AS PER SECTION 14A READ WITH RULE 8D. THUS, TH E EXPENDITURE RELATED TO THIS EXEMPT INCOME WAS REQUIRED TO BE DISALLOWED AS PER THE PROVISIONS OF SECTION 14A OF THE ACT 4.1 THE SCRUTINY OF ASSESSMENT ORDER AND OTHER RECORDS REVEAL THAT THE ASSESSEE HAS VOLUNTARILY DISALLOWED RS.1.56 CRORES U/S 14A OF TH E ACT WHICH WAS NOT CONSIDERED BY THE AO WHILE DISALLOWING RS. 17.99 CRORES ,U/S 14A OF THE ACT. CONSIDERING THE GROSS ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 5 INTEREST EXPENDITURE OF RS.266.77 CRORES, THE ACTUA L DISALLOWABLE AMOUNT U/S 14A AMOUNTS TO RS.49.37 CRORES. THIS HAS RESULTED IN SH ORT DISALLOWANCE U/S 14A OF THE ACT AND THEREBY ESCAPEMENT OF INCOME. 5. APPARENTLY, THE AO HAS FAILED TO APPLY THE PROVI SIONS OF THE ACT CORRECTLY AND WITHOUT APPRECIATING FULL FACTS OF THE CASE. HE HAS ALSO FA ILED TO EXAMINE AND VERIFY THE CLAIM OF THE ASSESSEE IN THE COURSE OF ASSESSME NT PROCEEDINGS. LACK OF NECESSARY ENQUIRIES AND VERIFICATION OF FACTS PROPERLY IN ITS ELF IS SUFFICIENT TO HOLD THAT THE ASSESSMENT ORDER IS NOT ONLY ERRONEOUS BUT ALSO PRE JUDICIAL TO THE INTERESTS OF THE REVENUE AND IN THE LIGHT OF AMENDED PROVISIONS OF S ECTION 263, THE ASSESSMENT ORDER IS LIABLE TO BE CANCELLED/SET-ASIDE. 6. ACCORDINGLY, IT IS HELD THAT THE ASSESSMENT ORDE R PASSED U/S 143(3) R.W.S. 144C DATED 15.05.2013 WAS ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF REVENUE. HENCE, THE SAID ASSESSMENT FOR A. Y.2009-10 IS CANCELLED AND T HE AO IS DIRECTED TO MAKE FRESH ASSESSMENT OF THE TOTAL INCOME OF THE ASSESSEE AFTE R TAKING INTO CONSIDERATION HE ISSUES DISCUSSED ABOVE FOR THE SAID ASSESSMENT YEAR AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE AS PER LAW. HE WOULD MAKE NECESSARY VE RIFICATION AND ENQUIRIES AS DEEMED FIT BEFORE COMPLETING THE ASSESSMENT IN THIS CASE. 5. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE VALIDITY OF THE ORDER U/S 263 OF TH E ACT PASSED BY PR.CIT. 6. LD. AR SUBMITTED THAT THE POWERS U/S 263 OF THE ACT CAN BE INVOKED BY LD. PR.CIT ONLY WHEN THE ISSUES TAKEN UP IN THE SHOW CAUSE NOTICE OF LD. PR.CIT ARE NOT DULY EXAMINED AN D VERIFIED BY LD. ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. 7. FURTHER LD. AR SUBMITTED THAT LD. PR.CIT HAS RAI SED TWO ISSUES IN THE NOTICE DATED 10.3.2016. (I) DEPRECIATION ON OFFICE EQUIPMENTS CLAMED @ 15% WHICH WAS HITHERTO WAS ALLOWABLE @ 10%. ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 6 7.1 IT WAS SUBMITTED THAT OFFICE EQUIPMENTS FALL UN DER THE CATEGORY OF PLANT AND MACHINERY AND GENERAL RATE OF DEPRECIA TION IS PRESCRIBED @ 15% ALONG WITH SPECIAL CATEGORY OF PLANT AND MACH INERY AT WHICH DEPRECIATION RATES VARY FROM 15% TO 100% FOR EXAMPL E 60% DEPRECIATION IS ALLOWABLE ON COMPUTERS. OFFICE EQUI PMENTS ARE IN THE NATURE OF MACHINERY ONLY AS THEY ARE EQUIPPED WITH MECHANICAL ITEMS AND ARE DIFFERENT FROM FURNITURE. IT SEEMS THAT LD. PR. CIT HAS CATEGORIZED OFFICE EQUIPMENTS UNDER THE HEAD OFFIC E FURNITURE WHICH IS NOT CORRECT. ALSO THE FACT THAT CANNOT BE DISPUT ED THAT IN PRECEDING SEVERAL ASSESSMENT YEARS ASSESSEE HAS BEEN CONSISTE NTLY CLAIMING DEPRECIATION @ 15% ON THE OFFICE EQUIPMENT AND THE CLAIM HAS ALSO BEEN ALLOWED BY ASSESSING OFFICER IN SOME OF THE YE ARS SUBJECT TO SCRUTINY ASSESSMENT. ALSO IT IS PERTINENT TO NOTE T HAT FOR ASST. YEAR 2010-11 IN THE ASSESSMENT ORDER LD. ASSESSING OFFIC ER TOOK A DIFFERENT VIEW AND RESTRICTED DEPRECIATION ON OFFIC E EQUIPMENTS @ 10% BUT WHEN THE MATTER WAS TAKEN UP BEFORE FIRST A PPELLATE AUTHORITY THE ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE BY LD. CIT(A)-1, VIDE HIS ORDER DATED 5.6.2015 UPHOLDING THE CLAIM OF ASSESSE E OF CHARGING DEPRECIATION ON OFFICE EQUIPMENT @ 15%. IT IS TO FU RTHER MENTION THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALL DET AILS OF CALCULATION OF DEPRECIATION AND PURCHASE OF FIXED ASSETS WERE S UBMITTED BEFORE THE ASSESSING OFFICER AND IF THE SAME ARE FOUND TO BE CORRECT THEN THERE REMAINS NO REASON TO MENTION IT IN THE ASSESS MENT ORDER. LD. ASSESSING OFFICER HAS RIGHTLY FOUND THE CLAIM OF AS SESSEE CHARGING DEPRECIATION @ 15% ON OFFICE EQUIPMENT AS LEGALLY C ORRECT AND, THEREFORE, LD. PR. CIT HAS ERRED IN INVOKING THE PR OVISIONS OF SECTION 263 OF THE ACT FOR QUASHING THE ASSESSMENT ORDER FO R THIS REASON. ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 7 (II) CALCULATION OF DISALLOWANCE U/S 14A OF THE ACT BY TAKING GROSS INTEREST AT THE PLACE OF NET INTEREST. 7.2 LD. AR SUBMITTED REFERRING TO THE PAPER BOOK AB OUT VARIOUS QUERIES RAISED BY ASSESSING OFFICER AND DETAILED RE PLIES GIVEN BY THE ASSESSEE. THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT HAS BEEN COMPREHENSIVELY AND EXHAUSTIVELY DEALT WITH BY ASSE SSING OFFICER IN HIS ORDER FROM PAGES 3 TO 10. AS FAR AS ADOPTION OF VIEW OF CALCULATION OF DISALLOWANCE U/S 14A OF THE ACT BY NET INTEREST RATHER THAN GROSS INTEREST WAS BASED ON HIS APPLICATION OF MIND VIS- -VIS LEGAL JURISPRUDENCE. 7.3 IN VIEW OF ABOVE CONTENTIONS IT IS RESPECTFULLY SUBMITTED THAT THE ORDER OF LD. PR. CIT HAS ERRED IN INVOKING PROVISIO NS OF SECTION 263 OF THE ACT. HE PLACED RELIANCE ON THE JUDGMENT OF HON. SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. VS. CIT 243 ITR 83 (SC) AND THAT OF JURISDICTIONAL HIGH COURT IN THE CASE OF PR .CIT VS. SHRI PRAKASH BHAGCHAND KHATRI IN TAX APPEAL NOS.177 & 178 OF 201 6. 8. ON THE OTHER HAND, LD. DR VEHEMENTLY ARGUED AND SUPPORTED THE ORDER OF LD. PR.CIT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US. THROUGH THIS APPEAL ASSESSEE HAS STRONGLY CHALLENGED THE ORDER OF LD. PR.CIT PASSED U/S 263 F OR REASSESSMENT, WHICH IS BAD IN LAW. WE OBSERVE THAT PR.CIT DRAWING HIS SUPPORT FROM ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 8 THE PROVISIONS OF SECTION 263 OF THE ACT ISSUED NOT ICE DATED 16.7.2016 AND RELEVANT PART OF THE NOTICE READS AS UNDER :- (1) SCRUTINY OF THE ASSESSMENT RECORDS REVEALED THA T THE ASSESSEE'S CLAIM OF DEPRECIATION OF RS.22,16,11,633/- INCLUDES DEPRECIA TION OF RS.92,19>120/- ON OFFICE EQUIPMENTS @ 15% AS PLANT AND MACHINERY. ACCORDINGL Y, THE ASSESSEE WAS ENTITLED FOR DEPRECIATION OF RS.61,46,079/- ONLY AS AGAINST RS.92,19,120/~ ALLOWED THIS HAS RESULTED IN UNDER ASSESSMENT OF INCOME OFRS.30 F 73,041/~. (2) FURTHER SCRUTINY OF ASSESSMENT RECORDS REVEALED THAT THE ASSESSEE COMPANY HAS CLAIMED AND ALLOWED SHARE FROM PARTNERSHIP FIRM AMO UNTING TO-RS.232,04,34,287/- AS EXEMPTED. THE AO HAS DISALLOWED AN AMOUNT OFRS.17.9 9 CRORES U/S 14A OF THE ACT BY ADOPTING NET INTEREST DEBITED IN P&L ACCOUNT AS AGA INST ACTUAL DISALLOWABLE AMOUNT OFRS.49.37 CRORES U/S 14A OF THE ACT THIS HAS RESUL TED INTO SHORT DISALLOWANCE OFRS.3J.38 CRORES. ACCORDINGLY, A NOTICE DATED 10-03-2016 WAS ISSUED I NTIMATING THE ABOVE GROUND, AND CALLING UPON THE ASSESSEE TO SHOW CAUSE WHY APPROPR IATE ORDER U/S 263(1) OF THE ACT SHOULD NOT BE PASSED. 10. FIRST THING TO BE CONSIDERED IS WHETHER LD. PR. CIT HAS RIGHTLY ASSUMED THE POWER U/S 263 OF THE ACT. WE BELIEVE TH AT EXAMINING THE ISSUE IN THE LIGHT OF RATIO LAID DOWN BY HON. SUPRE ME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. (SUPRA) IS OF GREAT IMPORTANCE WHICH READS AS UNDER :- 'A BARE READING OF SECTION 263 OF THE INCOME-TAX AC T, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION BY TH E COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRO NEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER H AS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERE STS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE INCOME-TAX OFFICER IS ER RONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUD ICIAL TO THE REVENUE RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THE PRO VISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COM MITTED BY THE ASSESSING OFFICER; IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECT ION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 9 11. FURTHER WE ALSO LIKE TO OBSERVE THAT HON. GUJAR AT HIGH COURT IN THE CASE OF PR.CIT VS. SHRI PRAKASH BHAGCHAND KHATR I (SUPRA) HAS DEALT SIMILAR ISSUE AND HAS HELD AS UNDER :- 6. IT CAN THUS BE SEEN THAT THOUGH FINAL ORDER AS SESSMENT WAS SILENT ON THIS ASPECT, THE ASSESSING OFFICE HAD CARRIED OUT INQUIRIES ABOUT THE NATURE OF SALE OF LAND AND ABOUT THE VALIDITY OF TH E ASSESSEE'S CLAIM OF DEDUCTION UNDER SECTION 54F OF THE ACT. LEARNED COU NSEL FOR THE REVENUE HOWEVER SUBMITTED THAT THESE INQUIRIES WERE CONFINE D TO THE CLAIM OF DEDUCTION UNDER SECTION 54F OF THE ACT IN THE CONTE XT OF FULFILLING CONDITIONS CONTAINED THEREIN AND MAY POSSIBLY HAVE NO RELEVANCE TO THE QUESTION WHETHER THE SALE OF LAND GAVE RISE TO A LO NG TERM CAPITAL GAIN. LOOKING TO THE TENOR OF QUERIES BY THE ASSESSING OF FICE AND DETAILS SUPPLIED BY THE ASSESSEE, WE ARE UNABLE TO ACCEPT S UCH A CONDITION. IN THAT VIEW OF THE MATTER, THE OBSERVATION OF THE TRIBUNAL THAT THE ASSESSING OFFICER HAVING MADE INQUIRIES AND WHEN TWO VIEWS AR E POSSIBLE, REVISIONAL POWERS COULD NOT BE EXERCISED, CALLED FO R NO INTERFERENCE. SINCE WITH RESPECT TO COMPUTATION AND ASSERTIONS OF OTHER ASPECTS OF DEDUCTION UNDER SECTION 54F OF THE ACT, THE TRIBUNAL HAS REMA NDED THE PROCEEDINGS, NOTHING STATED IN THIS ORDER WOULD AFFECT EITHER SI DE IN CONSIDERATIONS OF SUCH CLAIM. 12. NOW LET US EXAMINE THE FACTS OF THE CASE IN THE LIGHT OF ABOVE RATIOS OF THE JUDGMENTS AS TO WHETHER ASSESSMENT HA S BEEN MADE ON AN INCORRECT FOOTING OR INCORRECT APPLICATION OF LA W AND WHETHER PR. CIT HAS RIGHTLY INVOKED THE POWER U/S 263 OF THE AC T. WE WILL DEAL THE TWO ISSUES RAISED BY PR.CIT ONE BY ONE. 13. FIRSTLY CLAIM OF DEPRECIATION ON OFFICE EQUIPME NTS TO BE ALLOWED @ 10% AT THE PLACE OF 15% CLAIMED BY THE ASSESSEE. PR. CIT WAS OF THE VIEW THAT OFFICE EQUIPMENTS COME UNDER THE HEAD FURNITURE AND FITTINGS AND NOT UNDER PLANT AND MACH INERY WHEREAS ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 10 ASSESSEE HAS CLAIMED DEPRECIATION @ 15% ON THE OFFI CE EQUIPMENT. WE FIND THAT IN THE PRECEDING SEVERAL ASST. YEARS A SSESSEE HAS BEEN CONSISTENTLY CLAIMING DEPRECIATION ON OFFICE EQUIPM ENTS @ 15% WHICH HAS DULY BEEN CERTIFIED BY AUDITORS IN THEIR STATUT ORY REPORT AS WELL AS TAX AUDIT REPORT. IT WAS CONTENDED BY LD. AR OF THE ASSESSEE THAT THIS CONSISTENCE ALLOWANCE OF DEPRECIATION @ 15% BY LD. ASSESSING OFFICER IN THE PRECEDING ASST. YEARS OUT OF WHICH A FEW WERE SUBJECTED TO SCRUTINY ASSESSMENT GAVE A FIRM BELIEF THAT THIS CLAIM IS CORRECT, SETTLED IN LAW AND BASED ON THE WELL ESTAB LISHED PRINCIPLES OF CONSISTENCY APPROACH. WE ALSO OBSERVE THAT THIS ACT ION OF ASSESSEE CLAIMING DEPRECIATION @ 15% GETS FURTHER SUPPORTS F OR ASST. YEAR 2010-11 WHEN ASSESSMENT WAS COMPLETED BY ASSESSING OFFICER TAKING A DIFFERENT VIEW RESTRICTING DEPRECIATION ON OFFICE EQUIPMENTONLY TO THE EXTENT OF 10% BUT WHEN THE MATTER WAS BEFORE LD. CIT(A) THE ISSUE WAS DECIDED IN FAVOUF OF ASSESSEE VIDE HIS OR DER DATED 5.6.2015 WHEREIN LD. CIT(A) OBSERVED AS BELOW :- (L) THE GROUND NO 14 IS AGAINST DISALLOWANCE OF DEP RECIATION OF RS 13,84 ; 895 TREATING OFFICE EQUIPMENT AS FURNITURE & FITTIN GS AND RESTRICTING DEPREDATION @ 10% AS AGAINST CLAIM OF A PPELLANT FOR 15%.THE ASSESSING OFFICER IN THE IMPUGNED ORDER CONTENDED THAT APPELLANT HAS PURCHASED ELECTRIC FAN, EXHAUST FAN, ELECTRIC MACHINE, LCD, TV, PROJECTOR, MIXTURE, GRINDER, WATER PURIFIE R ETC WHICH FALL IN THE CATEGORY OF FURNITURE AND FIXTURES INCLUDING EL ECTRIC FITTINGS AND NOT PLANT & MACHINERY HENCE APPELLANT IS ENTITLED TO DE PRECIATION @ 10% ON SUCH ASSETS. THE APPELLANT HAS REITERATED ITS CO NTENTIONS AS RAISED BEFORE ASSESSING OFFICER AND ARGUED THAT AS PER SET TLED LEGAL LAW OF HON'BLE SUPREME COURT, DEFINITION OF PLANT HAS A VE RY WIDE MEANING AND EVEN BOOKS ARE PLANT. THE APPELLANT HAS ALSO RE FERRED TO PROVISIONS OF SECTION 32A OF THE ACT WHICH RELATES TO INVESTMENT ALLOWANCE ON NEW PLANT & MACHINERIES WHEREIN IT IS STATED IN STATUTE ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 11 THAT OFFICE EQUIPMENT ARE NOT ENTITLED TO SUCH DEDU CTION WHICH MEANS THAT SUCH ASSETS ARE COVERED WITHIN EXPRESSION ' MA CHINERY AND PLANT'. THE APPELLANT RELIES ON DECISION OF AHMEDAB AD ITAT IN THE CASE OF MADHULNDUSTRIES (SUPRA), BOMBAY HIGH COURT IN THE CASE OF CIT V/S PARK DEVIS(LNDIA) LTD AND DECISION OF KARNA TAKA HIGH COURT IN THE CASE OF HINDUSTAN AERONAUTICS LTD. I AM INCLINED TO ACCEPT THE CONTENTION OF APPELLANT . IT IS PERTINENT TO NOTE.THAT PROVISIONS OF SECTION 32A RE LATING TO INVESTMENT ALLOWANCE OF AS WELL AS PROVISIONS OF SECTION 32(II A) RELATING TO ADDITIONAL DEPRECIATION ON PLANT & MACHINERY CLEARL Y STATES THAT SUCH ALLOWANCE OR ADDITIONAL DEPRECIATION AS THE CASE MA Y BE WILL BE AVAILABLE ON NEW PLANT & MACHINERY EXCEPT ANY OFFIC E APPLIANCES HENCE IT IS CLEAR THAT OFFICE EQUIPMENT ARE PART OF PLANT & MACHINERY AND ENTITLED TO DEPRECIATION @ 15% AS PER PROVISION S OF THE ACT.THE HON'BLE BOMBAY HIGH COURT FURTHER IN THE CASE OF CI T V/S PARK DEVIS (INDIA) LIMITED 214 ITR 587 HELD AS UNDER: 'SO FAR AS THE SECOND QUESTION IS CONCERNED, THE ADMIT TED POSITION IS THAT FANS WERE INSTALLED IN THE ADMINISTRATIVE OFFICE OF THE ASSESSEE- COMPANY. THE ONLY QUESTION THAT ARISES FOR CONSIDERATION IS WHETHER THESE FANS CONSTITU TED PLANT AND MACHINERY FOR THE PURPOSE OF GRANT OF DEPRECIATION UNDER SECTION 32 OF T HE ACT. SECTION 32 OF THE ACT PROVIDES FOR ALLOWANCE OF DEPRECIATION IN RESPECT OF BUILDINGS, MACHINERY, PLANT OR FURNITURE OWNED BY THE ASSESSEE AND USED FOR THE PUR POSES OF THE BUSINESS OR PROFESSION. THERE IS NO DISPUTE IN THIS CASE THAT THE FANS WERE OWNED BY THE ASSESSEE AND USED FOR THE PURPOSES OF ITS BUSINESS. THE ONLY QUESTION THAT IS SOUGHT TO BE RAISED IS THAT THE FANS INSTALLED IN THE OFFICE PR EMISES DID NOT AMOUNT TO PLANT OR MACHINERY WITHIN THE MEANING OF SECTION 32 OF THE ACT. WE DO NOT FIND ANY MERIT IN THE CONTENTION IN VIEW OF THE INCLUSIVE DEFINITION OF PL ANT CONTAINED IN CLAUSE (3) OF SECTION 43 OF THE ACT, WHICH READS : ' 'PLANT' INCLUDES SHIPS, VEHICLES, BOOKS, SCIENTIFIC AP PARATUS AND SURGICAL EQUIPMENT USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. ' THUS, THE EXPRESSION 'PLANT' HAS BEEN GIVEN AN EXTEND ED MEANING EVEN TO INCLUDE VEHICLES, BOOKS, SCIENTIFIC APPARATUS, ETC., USED FOR T HE PURPOSE OF BUSINESS OR PROFESSION. IT DOES NOT DEFINE 'PLANT' AS SUCH. IT H AS TO BE CONSTRUED IN THE POPULAR SENSE. SO CONSTRUED, 'PLANT' WILL MEAN AND INCLUDE AP PARATUS USED BY A BUSINESSMAN FOR CARRYING ON HIS BUSINESS. IT IS NOT C ONFINED TO APPARATUS USED FOR MECHANICAL OPERATIONS OR PROCESSES OR INDUSTRIAL BUSINE SS. IN THIS VIEW OF THE MATTER, AS OBSERVED BY THE BOMBAY HIGH COURT IN CIT V. BANK OF INDIA LTD. [1979] 118 ITR 809 , A PARTICULAR ITEM MAY BE 'PLANT' IN THE HANDS OF ONE PERSON, BUT NOT NECESSARILY SO IN THE HANDS OF ANOTHER. AS OBSERVED BY THE SUPREME COURT IN SCIENTIFIC ENGINEERING HOUSE PVT. LTD. V. CIT [1986] 157 ITR 86, THE TEST TO BE APPLIED FOR SUCH DETERMINATION IS : DOES THE ARTICLE FULFILL THE FUNCTION OF A PLANT IN THE ASSESSEE'S TRADING ACTIVITY ? IS IT A TOOL OF HIS TRADE WITH WHICH HE CARRIES ON HIS BUSINESS ? IF TH E ANSWER IS IN THE AFFIRMATIVE, IT WILL BE 'PLANT'. APPLYING THE ABOVE TEST TO THE FACTS OF TH E PRESENT CASE, WE FIND IT DIFFICULT TO HOLD ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 12 THAT FANS INSTALLED IN THE OFFICE PREMISES OF THE A SSESSEE DO NOT CONSTITUTE PLANT OR MACHINERY ELIGIBLE FOR DEPRECIATION UNDER SECTION 3 2 OF THE ACT'. CONSIDERING THE FACTS DISCUSSED HEREIN ABOVE, IT IS THEREFORE, HEID THAT DISALLOWANCE OF DEPRECIATION MADE BY ASSESSING OFFICER FOR RS 13,84,895 IS NOT JUSTIFIED AND DIRECTED TO BE DELET ED. THIS GROUND OF APPEAL IS ALLOWED. 14. IN VIEW OF ABOVE WE FIND THAT IN THE PRECEDING YEARS BEFORE ASST. YEAR 2009-10 ASSESSEE HAS BEEN CLAIMING DEPRE CIATION @15% ON OFFICE EQUIPMENTS WHICH WAS DULY ALLOWED BY THE ASSESSING OFFICER AND IN THE FOLLOWING YEAR LD. CIT(A) HAS CO NFIRMED THE CLAIM OF ASSESSEE. IT SHOWS THAT WHEN THE ASSESSMENT PROCEED INGS WERE IN THE FLOW, AUDITED BALANCE SHEET AND DEPRECIATION CA LCULATION MUST HAVE COME BEFORE LD. ASSESSING OFFICER FOR EXAMINAT ION AND SEEING THE CONSISTENT ALLOWABILITY OF DEPRECIATION @ 15%, HE TOOK A SIMILAR VIEW FOR THIS YEAR ALSO AND DID NOT CONSIDER IT NEC ESSARY TO OBJECT THIS CLAIM. CERTAINLY IT CANNOT BE CONSTRUED THAT HE HAS NOT APPLIED HIS MIND OR HAS NOT MADE ENQUIRIES OR VERIFICATION. THE REFORE, WE FIND THAT ASSESSING OFFICER HAS TAKEN A VIEW WHICH MAY BE DIF FERENT FROM THE VIEW OF PR. CIT OF ASSUMING THAT THERE IS LOSS OF R EVENUE, BUT CERTAINLY CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF REVENUE. 15. THE ISSUE RELATING TO CALCULATION OF DISALLOWAN CE U/S 14A BY TAKING NET INTEREST AT THE PLACE OF GROSS INTEREST ADOPTED IN PROFIT AND LOSS ACCOUNT. AS FAR AS THIS ISSUE IS CONCERNED, THE MATER LOOKS TO BE VERY SIMPLE WHICH IS EVIDENCED BY THE ASSESSMENT ORDER ITSELF. WE FIND THAT SPECIFIC QUERY ABOUT DISALLOWANCE U/S 14A OF THE AC T HAS BEEN CALLED ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 13 FOR BY ASSESSING OFFICER AND REPLIES DATED 4.3.13 A ND 22.3.13 IT HAS BEEN SUBMITTED BY ASSESSEE. DISCUSSIONS HAVE BEEN M ADE WITH REGARD TO THIS DISALLOWANCE IN THE ASSESSMENT ORDER AND ADDITION AT RS.17,99,34,022/- WAS MADE BY APPLYING RULE 8D R.W. S.14A OF THE ACT. LD. ASSESSING OFFICER WHILE CALCULATING INTERE ST DISALLOWANCE TAKING INTEREST EXPENDITURE IS NET INTEREST EXPENDI TURE. ON THE OTHER HAND PR.CIT IN HIS NOTICE DATED 10.3. 2016 STATED THAT INTEREST DISALLOWANCE U/S 14A SHOULD HAVE BEEN CALCULATED BY ADOPTING GROSS INTEREST. FROM GOING THROUGH THE ORD ER OF ASSESSING OFFICER WE ARE OF THE CONSIDERED VIEW THAT THE ISSU E OF DISALLOWANCE U/S 14A OF THE ACT HAS BEEN EXCLUSIVELY DEALT AFTER MAKING NECESSARY ENQUIRIES AND VERIFICATION AND PROPER APPLICATION O F MIND WITH THE AVAILABLE LEGAL JURISPRUDENCE AND IN OUR VIEW TAKIN G BASIS OF CALCULATION U/S 14A OF THE ACT FOR THE PURPOSE OF I NVOKING POWERS U/S 263 OF THE ACT SEEMS TO BE ERRONEOUS. 16. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENTS OF HON. SUPREME COURT AND THAT OF THE JURISDICTIONAL HIGH C OURT, DISCUSSIONS MADE HEREIN ABOVE, IN THE GIVEN FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW THE ASSESSMENT ORDER FRAMED BY THE ASSES SING OFFICER U/S 143(3) R.W.S. 144C OF THE ACT IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. WE THEREFORE, SET ASIDE TH E IMPUGNED ORDER PASSED U/S 263 OF THE ACT BY LD. PR.CIT AND RESTORE THAT OF THE ASSESSING OFFICER PASSED U/S 143(3) R.W.S 144C OF T HE ACT. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 14 17. OTHER GROUNDS OF GENERAL NATURE, WHICH NEED NO ADJUDICATION. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND , DECEMBER, 2016 SD/- SD/- (R.P. TOLANI) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 02/12/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD ITA NO. 1270/ADH/2016 ASST. YEAR 2009-10 15 1. DATE OF DICTATION: 29/11/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 1/12/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 2/12/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: