Velmurugan Alloys Pvt. Ltd., Coimbatore V. ACIT, Coimbatore

ITA 132/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61268 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 23-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VI KRAMADITYA
• Assessee Lawyers: K RAGHU
• Keywords: Depreciation; Difference of opinion; Change of opinion
• Section: 115JB; 32; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.132/MDS/2012 (ASSESSMENT YEAR: 2007-08 ) M/S. VELMURUGAN ALLOYS PVT.LTD. (NOW MERGED WITH M/S. FLOW LINK SYSTEMS P.LTD) 65/2A-C, PUDUPALAYAM, AVINASHI, COIMBATORE-641 654. PAN: AABCV7002M VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I (3), COIMBATORE. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. K.RAGHU, C.A. RESPONDENT BY : MR. VI KRAMADITYA, JCIT DATE OF HEARING : 27 TH JUNE, 2012 DATE OF PRONOUNCEMENT : 13 TH JULY, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNIN G THE ORDER OF THE CIT DATED 21.12.2011 PASSED UNDER SECTION 263 OF THE INCOME TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS A COMPANY REGISTERED UNDER THE PROVISIONS OF THE COMP ANIES ACT, 1956 ENGAGED IN THE BUSINESS OF STEEL CASTINGS . DURING THE ASSESSMENT YEAR 2007-08, THE ASSESSEE COMPANY AMALGAMATED WITH M/S. FLOW LINK SYSTEMS PVT. LTD., ITA NO.132/MDS/2012 2 COIMBATORE. FOR THE ASSESSMENT YEAR 2007-08, THE AS SESSEE COMPANY HAD FILED RETURN OF INCOME ON 27.10.2007 AD MITTING TOTAL INCOME OF ` 72,47,890/- AND PROFIT UNDER SECTION 115JB AS ` 8,90,689/- . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. NOTICE UNDER SECTION 143(2) WAS ISSUED TO THE ASSESSEE ON 9.9.2009. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 30.12.2009 ACCEPTED THE INC OME RETURNED BY THE ASSESSEE. THE CIT(A) SERVED SHOW CA USE NOTICE DATED 13.6.2011 TO THE ASSESSEE UNDER THE PR OVISIONS OF SECTION 263 ON THE FOLLOWING GROUNDS:- 1.THAT THE ASSESSEE, HAD AMALGAMATED WITH FLOW LINK SYSTEMS PVT. LTD., COIMBATORE WITH EFFECT FROM 1.9.2006 (RELEVANT TO THE ASSESSMENT YEAR 2007-08). SCRUTINY SHOWS THAT THE DEPRECIATION OF ` 2362073 WAS CALCULATED PROPORTIONATELY TILL 31.8.06 I.E. ` 5668976X5/12. ADDITION TO FIXED ASSETS AFTER ADJUSTING DELETIONS TILL 31.8.06 WAS ONLY ` 2759208. THEREFORE, THE TOTAL DEPRECIATION OF THE YEAR IS TO BE DIVIDED PROPORTIONATELY BETWEEN THE ASSESSEE (AMALGAMATING COMPANY) AND THE AMALGAMATED COMPANY BASING ON THE NUMBER DAYS OF USAGE OF THE ASSETS, BY THEM. THE ASSESSEE COULD NOT HAVE USED THE FIXED ASSETS ADDED AFTER 31.8.06 FOR, IT WAS ITA NO.132/MDS/2012 3 IN EXISTENCE TILL 31.8.2006. ACCORDINGLY, THE DEPRECIATION ALLOWABLE TO THE ASSESSEE WORKS OUT T O ` 995077 AS AGAINST CLAIMED AND ALLOWED OF ` 2362073. THEREFORE THE DIVIDING OF THE DEPRECIATION OF ASSETS ADDED AFTER 31.8.06 BETWEEN THE ASSESSEE AND THE AMALGAMATED COMPANY IS NOT IN ORDER. THUS, AS THE ALLOWING OF ` 2363073 INSTEAD OF ONLY ` 995077 IN THE ORDER CONSIDERATION IS AN TO ERROR INASMUCH AS THE SAME IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE IT IS DECIDED TO INVOKE PROVISIONS OF THE SECTION 263 OF THE ACT. THE CIT VIDE ORDER DATED 21.12.2011 DIRECTED THE AS SESSING OFFICER TO REDO THE ASSESSMENT AFRESH WITH REFERENC E TO THE OBSERVATIONS IN HIS IMPUGNED ORDER. THE CIT IN HIS ORDER HELD AS UNDER:- 4.1 PLAIN READING OF THE AFOREMENTIONED PROVISIO N GIVES AN IMPORT THAT, USAGE OF WORDS AS IF AMALGAMATION HAD NOT TAKEN PLACE IS WITH REFERENCE TO APPLICATION OF RATES PRESCRIBED ON THE ASSETS OWNED BY THE AMALGAMATING AND AMALGAMATED COMPANIES IN A PREVIOUS YEAR; AND ACCORDINGLY IS ALLOWED AFTER APPORTIONMENT ON THE BASIS OF NUMBER OF DAYS SUCH ASSET WAS USED BY THEM. THEREFORE, THE DEPRECIATION, CALCULATED AT PRESCRIBED RATES, O N ITA NO.132/MDS/2012 4 THE ASSETS ADDED TO THE AMALGAMATED COMPANY AFTER ITS AMALGAMATION WOULD NOT BE POSSIBLE FOR APPORTIONMENT TO THE AMALGAMATING COMPANY FOR, SUCH ASSET, AS BORNE BY THE FACTS, OBVIOUSLY COULD NOT HAVE BEEN USED BY THE COMPANY AS IT WAS NOT EXISTING. AND, NO ASSET CAN BE ADDED TO THE AMALGAMATING COMPANY OTHER IT GOT AMALGAMATED AS, IT WOULD NOT BE IN EXISTENCE. THUS, DEPRECIATIO N ON ASSETS, ADDED AFTER THE AMALGAMATION IS ALLOWABLE ONLY IN THE HANDS OF THE AMALGAMATED COMPANY I.E. FLOW LINK SYSTEMS (P) LTD. COIMBATORE, OF COURSE, SUBJECTED TO RELEVANT PROVISIONS. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 3. AGGRIEVED AGAINST THE ORDER OF THE CIT, THE ASSE SSEE HAS COME IN APPEAL BEFORE THE TRIBUNAL. THE ASSESSE E HAS ASSAILED THE ORDER OF THE CIT ON THE FOLLOWING GROU NDS:- THE CIT-I, COIMBATORE IS WRONG IN HOLDING THAT THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REV ENUE, EVEN WHEN THE SECOND PROVISO UNDER SECTION 32(1) WAS APPLIED CORRECTLY AND THE DEPRECIATION CALCULATED AT THE PRESCRIBED RATE AND APPORTIONED BETWEEN THE AMALGAMATING AND AMALGAMATED COMPANIES, IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW. 2. THE CIT IS NOT CORRECT IN HOLDING THAT THE APPELLANT WAS ALLOWED DEPRECIATION ON ITS ASSETS TO THE EXTENT OF ` 23,62,073/- INSTEAD OF ONLY ` ITA NO.132/MDS/2012 5 9,95,077/- ELIGIBLE, FOR THE REASONS STATED BY HIM IN THE IMPUGNED ORDER TO RENDER THE ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 3. THE CIT HAS EXCEEDED HIS JURISDICTION IN STATING THAT THE APPELLANT (AMALGAMATING COMPANY) WAS NOT ENTITLED TO DEPRECIATION, IN RESPECT OF THE ADDITIONS TO FIXED ASSETS FROM 1.9.06 NOTWITHSTANDING THE WORDS OF THE PROVISO AS IF THE AMALGAMATION HAD NOT TAKEN PLACE WITH EFFECT FROM 1.9.2006 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 4. THE CIT OUGHT TO HAVE HELD THAT THE QUANTUM OF DEPRECIATION ALLOWED TO THE AMALGAMATING AND AMALGAMATED COMPANIES NOT EXCEEDING THE DEDUCTION CALCULATED AT THE PRESCRIBED RATES, AND APPORTIONED BETWEEN THE COMPANIES PROPORTIONATE TO THE NUMBER OF DAYS BEFORE AND AFTER THE DATE OF AMALGAMATION WAS CORRECT AND THEREFORE DROPPED THE PROCEEDINGS U/S.263 WHICH DID NOT ARISE IN LAW, AND IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE. 4. SHRI K.RAGHU, AUTHORIZED REPRESENTATIVE APPEARIN G ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY AMALGAMATED WITH M/S. FLOW LINK SYSTEMS (P) LTD. WITH EFFECT FROM 1.9.2006. ALL THE ASSETS AND LIABILITIE S OF THE AMALGAMATING COMPANY WERE TAKEN OVER BY AMALGAMATED COMPANY . HE PLACED ON RECORD A COPY OF DEPRECIATIO N STATEMENT FOR THE PERIOD ENDED 31.03.2007 SHOWING T HAT OUT OF THE TOTAL DEPRECIATION OF ` 56,68,976/- DEPRECIATION HAS BEEN ITA NO.132/MDS/2012 6 APPORTIONED ON PRO-RATA BASIS. THE ASSESSEE COMPANY WAS AMALGAMATED WITH M/S. FLOW LINK SYSTEMS PVT.LTD. W ITH EFFECT FROM 1.9.2006. ACCORDINGLY, THE ASSESSEE CLA IMED DEPRECIATION FOR THE PERIOD OF FIVE MONTHS I.E. UPT O 31.08.2006. OUT OF THE TOTAL DEPRECIATION OF ` 56,68,976/-, ` 23,62,073/- HAS BEEN CLAIMED BY THE ASSESSEE- AMALGAMATING COMPANY AND REMAINING AMOUNT OF ` 33,06,903/- HAS BEEN CLAIMED BY AMALGAMATED COMPANY I.E. FLOW LINK SYSTEMS PVT.LTD. THE A.R SUBMITTED THAT A S PER PROVISO TO SECTION 32 IN CASE OF AMALGAMATION OF CO MPANIES, THE DEPRECIATION IS TO BE CALCULATED AT THE PRESCRI BED RATES AS IF SUCCESSION OR AMALGAMATION OR DEMERGER, AS THE CASE MAY BE, HAD NOT TAKEN PLACE AND SUCH DEDUCTION SHALL BE APPORTIONED BETWEEN THE AMALGAMATING AND AMALGAMATE D COMPANIES IN THE RATIO OF THE NUMBER OF DAYS FOR WH ICH THE ASSETS WERE USED BY THEM. HE SUBMITTED THAT BOTH T HE COMPANIES I.E. AMALGAMATING AND AMALGAMATED COMPAN IES WERE LIABLE FOR SIMILAR RATE OF TAX AND BOTH THE CO MPANIES HAD EARNED PROFITS. THE AMALGAMATING AND AMALGAMATED COMPANIES HAVE CLAIMED DEPRECIATION IN ACCORDANCE WITH THE ITA NO.132/MDS/2012 7 PROVISIONS OF SECTION 32 OF THE ACT. HE FURTHER SU BMITTED THAT THE ORDER OF THE CIT UNDER SECTION 263 IS UNCALLED FOR AND ERRONEOUS. THE CIT HAS ERRED IN STATING THAT THE AS SESSEE WAS NOT ENTITLED TO DEPRECIATION IN RESPECT OF THE ADDITIONS TO THE FIXED ASSETS FROM 1.9.2006, NOTWITHSTANDING THE WORDS OF PROVISO AS IF AMALGAMATION HAD NOT TAKEN PLACE WI TH EFFECT FROM 1.9.2006. 5. ON THE OTHER HAND, MR. VIKRAMADITYA, APPEARING O N BEHALF OF THE REVENUE STRONGLY SUPPORTED THE ORDER PASSED BY THE CIT. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPEC TIVE PARTIES AND HAVE GONE THROUGH THE DOCUMENTS ON RECO RD. A PERUSAL OF THE DEPRECIATION STATEMENT FOR THE PERIO D ENDED 31.3.2007 SHOWS THAT THE ASSESSEE HAD CLAIMED DEPRE CIATION ON PRO-RATA BASIS FOR THE PERIOD OF FIVE MONTHS. TH E BALANCE DEPRECIATION HAS BEEN CLAIMED BY THE AMALGAMATED CO MPANY I.E. M/S. FLOW LINK SYSTEMS PVT. LTD. AS PER THE PR OVISO TO SECTION 32 OF THE ACT. AS PER THE STATEMENT MADE A T BAR BY THE AR, BOTH THE COMPANIES HAD EARNED PROFITS FOR R ESPECTIVE YEARS AND BOTH THE COMPANIES WERE LIABLE TO TAX AT SIMILAR ITA NO.132/MDS/2012 8 RATES. THERE COULD NOT BE ANY DIFFERENCE OF INCIDEN CE OF TAX ON THE INCOME OF THE ASSESSEE WHETHER THE DEPRECIATION WOULD HAVE BEEN CLAIMED BY THE AMALGAMATING COMPANY OR AMALGAMATED COMPANY. BE THAT AS IT MAY, THE BENEFIT OF DEPRECIATION HAS BEEN CLAIMED BY EITHER OF THE COMP ANIES ONLY ONCE. MERELY CHANGE OF OPINION CANNOT BE THE B ASIS FOR REVISION UNDER SECTION 263 OF THE ACT. THE CIT HAS TO BE SATISFIED OF TWIN CONDITIONS NAMELY I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; & II) IT IS PREJUDICIAL TO THE INTEREST OF THE REVENU E. IF ONE OF THEM IS ABSENT, THE PROVISIONS OF SECTION 263(1) OF THE ACT CANNOT BE INVOKED. THE PHRASE PREJUDICIAL TO THE INTEREST OF THE REVENUE HAS TO BE READ IN CONJUNCT ION WITH THE ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. WH ERE TWO VIEWS ARE POSSIBLE AND ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE IT CANNOT BE TREATED AS ERRONEOU S ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. IN THE PR ESENT CASE THE TREATMENT OF DEPRECIATION MAY BE ERRONEOUS BUT CERTAINLY ITA NO.132/MDS/2012 9 NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE, AS THE BENEFIT OF DEPRECIATION HAS NOT BEEN CLAIMED BY BOTH THE COMPA NIES AT THE SAME TIME. THE DEPRECIATION STATEMENT PLACED O N RECORD BY THE A.R. SHOWS THAT BOTH THE COMPANIES HAVE CLAI MED BENEFIT OF DEPRECIATION ON PRO-RATA BASIS. IN VIEW OF THE ABOVE, WE HOLD THAT THE IMPUGNED ORDER PASSED BY TH E CIT IS BAD IN LAW AND THEREFORE THE SAME IS SET ASIDE. 7. THUS, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 13 TH DAY OF JULY, 2012 AT CHENNAI. SD/- SD/- ( ABRAHAM P.GEORGE ) ( VIKAS AWASTHY ) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 13 TH JULY, 2012. SOMU COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F .