General Machinery spares Corporation, CHENNAI V. ITO, CHENNAI

ITA 1378/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90336 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ
• Assessee Lawyers: ANIL NAYAR
• Keywords: Depreciation; Cost of acquisition; Tangible material; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO. 1378/MDS/2014 ( / ASSESSMENT YEAR: 2009-10) M/S. GENERAL MACHINERY SPARES CORPORATION, 30, RANGAN STREET, T.NAGAR, CHENNAI-600 017. VS INCOME TAX OFFICER, WARD-III(4), CHENNAI. PAN: AADFG9067G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. ANIL NAYAR, C.A. /RESPONDENT BY : MR. N.RENGARAJ, CIT /DATE OF HEARING : 23 RD MARCH, 2015 /DATE OF PRONOUNCEMENT : 20 TH MAY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX, CHENNAI-X, DATED 26.03.2014 PASSED UNDER SECTION 263 OF THE ACT FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSEE IN ITS APPEA L CHALLENGING THE ORDER OF THE COMMISSIONER OF INCOME TAX IN HOLDING THAT ASSESSMENT MADE UNDER SECTION 143(3) O F THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS O F THE REVENUE FOR THE REASON THAT ASSESSING OFFICER DID N OT CALL FOR ANY DETAILS IN RESPECT OF INDEXED COST OF ACQUISITI ON APPLIED BY THE ASSESSEE WHILE COMPUTING LONG TERM CAPITAL G AINS. 2 ITA NO.1378/MDS/2014 2. BRIEF FACTS ARE THAT ASSESSEE FILED RETURN OF I NCOME ON 30.07.2009 ADMITTING INCOME OF ` 4,21,82,326/-. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 22 .10.2011 AND ACCEPTED THE INCOME RETURNED. SUBSEQUENTLY, COMMISSIONER ISSUED NOTICE UNDER SECTION 263 OF TH E ACT REQUIRING THE ASSESSEE TO EXPLAIN AS TO WHY THE A SSESSMENT ORDER SHOULD NOT BE SET ASIDE AS THERE IS NO PROPER ENQUIRY BY THE ASSESSING OFFICER IN RESPECT OF INDEXED COST OF ACQUISITION APPLIED BY THE ASSESSEE WHILE COMPUTING LONG TERM C APITAL GAINS. THE COMMISSIONER OF INCOME TAX WAS OF THE VI EW THAT ASSESSING OFFICER WITHOUT CALLING FOR NECESSARY DOC UMENTARY EVIDENCES AND CAUSING NECESSARY ENQUIRIES TO ARRIV E AT THE CORRECT AMOUNT OF COST ACQUISITION ACCEPTED THE WOR KING OF THE ASSESSEE. IN REPLY TO THE SHOW CAUSE NOTICE ISS UED BY THE COMMISSIONER OF INCOME TAX, ASSESSEE SUBMITTED THA T ENTIRE DETAILS REGARDING LONG TERM CAPITAL GAINS W ERE CALLED FOR DURING THE COURSE OF SCRUTINY ASSESSMENT AND FU RNISHED BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFI CER AFTER EXAMINING ALL THESE DETAILS COMPLETED THE ASSESSMEN T ACCEPTING THE CALCULATIONS FURNISHED BY THE ASSESSE E FOR LONG TERM CAPITAL GAINS. THEREFORE, ASSESSEE SUBMITTED T HAT SINCE THE ENTIRE DOCUMENTS IN SUPPORT OF THE WORKING FUR NISHED TO 3 ITA NO.1378/MDS/2014 THE ASSESSING OFFICER DURING THE SCRUTINY ASSESSMEN T PROCEEDINGS WERE CONSIDERED BY THE ASSESSING OFFICE R WHILE PASSING THE ASSESSMENT ORDER, NO ERROR HAD OCCURRED IN THE ORDER OF THE ASSESSING OFFICER WHICH RENDERS IT ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HOWEV ER, COMMISSIONER OF INCOME TAX WITHOUT APPRECIATING THE SUBMISSIONS OF THE ASSESSEE PASSED ORDER UNDER SECT ION 263 OF THE ACT HOLDING THAT ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT I S ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS THE ASSESSING OFFICER, ACCORDING TO HIM, HAS NOT MA DE SUFFICIENT ENQUIRIES AND HAS NOT PROPERLY EXAMINED THE WORKING OF THE CAPITAL GAINS. 3. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE 1 OF THE ASSESSMENT ORDER SUBMITS THAT ASSESSMENT WAS TAKEN UP FOR SCRUTINY FOR EXAMINING SALE OF PROPERTY AND GENUINE NESS OF LONG TERM CAPITAL GAINS INFORMATION AS APPEARING IN THE AIR. THIS WAS SPECIFICALLY MENTIONED IN THE PAGE 1 OF AS SESSMENT ORDER . REFERRING TO PAGE 2 OF THE ASSESSMENT ORDER , COUNSEL FOR THE ASSESSEE SUBMITS THAT IT IS THE FINDING OF THE ASSESSING OFFICER THAT BANK STATEMENTS AND OTHER DOCUMENTS CA LLED FOR 4 ITA NO.1378/MDS/2014 INCLUDING CAPITAL GAIN WORKING HAS BEEN FILED BY TH E ASSESSEE. THE DETAILS OF INVESTMENTS AND EXPENDITURE MADE BY THE ASSESSEE WERE ALSO CALLED FOR AND FILED BY THE ASSE SSEE AND AFTER DUE VERIFICATION OF ALL THESE DETAILS FURNISH ED, THE ASSESSING OFFICER ACCEPTED THE WORKING OF CAPITAL G AIN RETURNED BY THE ASSESSEE. HE FURTHER INVITED OUR AT TENTION TO PAGE 5 OF THE PAPER BOOK WHICH IS A LETTER ADDRESSE D TO THE ASSESSING OFFICER WHEREIN STATEMENT SHOWING COMPUTA TION OF INDEXED COST OF ACQUISITION FOR THE PURPOSE OF CAP ITAL GAIN WAS FURNISHED. HE ALSO INVITED OUR ATTENTION TO PA GE 8 OF THE PAPER BOOK WHICH IS A LETTER DATED 14.9.2011 ADDRES SED TO THE ASSESSING OFFICER, IN THE COURSE OF ASSESSMENT PROCEEDINGS, WHEREIN DETAILS OF SALE OF PROPERTY I NCLUDING COPY OF SALE DEEDS WORKING FOR CAPITAL GAINS WERE A LL FURNISHED BEFORE THE ASSESSING OFFICER. FURTHER HE REFERRED TO PAGE 7 OF THE PAPER BOOK WHICH IS A STATEMENT SHOW ING COST OF ACQUISITION AND COMPUTATION OF INDEXED COST OF ACQUISITION EXPLAINING HOW THE ASSESSEE ARRIVED AT THE INDEXED COST OF ACQUISITION WAS ALSO PLACED BEFORE THE ASSESSING OF FICER. THEREFORE, COUNSEL SUBMITS THAT ALL THE DETAILS WER E PLACED BEFORE THE ASSESSING OFFICER AS CALLED FOR AND ON E XAMINATION OF ALL THESE DETAILS, ASSESSMENT WAS COMPLETED BY T HE 5 ITA NO.1378/MDS/2014 ASSESSING OFFICER ACCEPTING THE INDEXED COST OF ACQ UISITION FOR ARRIVING AT THE CAPITAL GAINS. THEREFORE, SUCH ORDER CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. COUNSEL FURTHER SUBMITS THAT COMMISSIONER OF INCOME TAX WAS OF THE VIEW THAT THERE IS NO PROPER ENQUIRY BY THE ASSESSING OFFICER AND THEREFORE ASSESSMENT ORDE R IS ERRONEOUS. REFERRING TO THE JUDGEMENT OF HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (332 ITR 167), COUNSEL SUBMITS THAT WHEN THE ASSESSEE FURNIS HED ALL THE DETAILS CALLED FOR BY THE ASSESSING OFFICER AN D IF THERE IS INADEQUATE ENQUIRY BY THE ASSESSING OFFICER, THOUGH THE COMMISSIONER HAS A DIFFERENT OPINION IN THE MATTER IS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT. COUNSEL FOR THE ASSESSEE PLACES RELIANCE ON THE DEC ISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . DEVELOPMENT CREDIT BANK LTD. (323 ITR 206) AND SUBM ITS THAT WHEN THE MATERIALS CALLED FOR BY THE ASSESSING OFFICER WERE PLACED BEFORE HIM EVEN THOUGH THERE IS LACK OF PROPER ENQUIRY, THE COMMISSIONER OF INCOME TAX HAS NO JU RISDICTION UNDER SECTION 263 OF THE ACT TO REVISE THE ORDER. C OUNSEL FOR THE ASSESSEE ALSO RELYING ON THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES COMPANY LTD . (243 6 ITA NO.1378/MDS/2014 ITR 83) AND SUBMITS THAT IF THERE ARE TWO VIEWS POS SIBLE AND THE ASSESSING OFFICER ADOPTED ONE OF THE VIEWS, SUC H VIEW CANNOT BE HELD AS ERRONEOUS. 4. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF THE COMMISSIONER OF INCOME TAX IN DIRECTIN G THE ASSESSING OFFICER TO LOOK INTO THE ISSUES AFRESH. 5. HEARD BOTH THE PARTIES. PERUSED ORDERS OF LOWER AUTHORITIES AND THE DECISIONS RELIED ON. IN THIS CA SE, ASSESSMENT WAS SELECTED FOR SCRUTINY FOR EXAMINATIO N OF SALE OF PROPERTY AND GENUINENESS OF LONG TERM CAPITAL GA INS INFORMATION AS APPEARING IN THE AIR . THIS IS ALSO EVIDENT FROM THE ASSESSMENT ORDER. THE ASSESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS CALLED FOR DETAILS REGARDING COMPUTATION OF LONG TERM CAPITAL GAINS, D ETAILS OF SALE OF PROPERTY, INDEXED COST OF ACQUISITION, COP Y OF SALE DEED ETC. THE ASSESSEE SUBMITTED ALL THE INFORMATI ON BY LETTERS DATED 12.10.2011 AND 14.09.2011 RELATING TO COMPUTATION OF CAPITAL GAINS INCLUDING STATEMENT SH OWING INDEXED COST OF ACQUISITION IN COMPUTING THE CAPITA L GAINS AND IT IS VERY MUCH EVIDENT FROM THE ASSESSMENT ORDER T HAT THERE IS A FINDING GIVEN BY THE ASSESSING OFFICER THAT BA NK 7 ITA NO.1378/MDS/2014 STATEMENTS AND OTHER DOCUMENTS WERE CALLED FOR INCL UDING DETAILS OF INVESTMENTS AND EXPENDITURE MADE BY THE ASSESSEE AND THE ASSESSEE HAS FURNISHED ALL THESE DETAILS. T HE ASSESSING OFFICER COMPLETED THE ASSESSMENT ON 22.10 .2011 ACCEPTING THE LONG TERM CAPITAL GAIN REPORTED BY TH E ASSESSEE. THE COMMISSIONER OF INCOME TAX PASSED ORD ER UNDER SECTION 263 OF THE ACT DIRECTING THE ASSESSIN G OFFICER TO CALL FOR NECESSARY EVIDENCE AND DETAILS IN SUPPORT OF THE INDEXED COST OF ACQUISITION OF BUILDING FOR FACTORY SHED AND LOOK INTO THE ISSUES AFRESH, AS ACCORDING TO HIM, T HERE IS NO PROPER ENQUIRY. 6. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO LTD. (SUPRA) HELD AS UNDER:- THE SUBMISSION OF THE COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER THE ASSESSING OFFICER DID NOT CONSIDER THE ASPECT SPECIFICALLY WH ETHER THE EXPENDITURE IN QUESTION WAS REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESSMENT ORDER, WHICH APPARENTLY DOES NOT GIVE ANY REASONS WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE AO HAD NOT APPLIED HIS MIND ON THE ISSUE. THE AO IN THE ASSESSING ORDER IS NOT REQUIRED TO GIVE DETA ILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. THEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. THE COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE. DISTINCTION BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY'. IF THERE WAS ANY 8 ITA NO.1378/MDS/2014 INQUIRY, EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO PASS ORDERS UNDER S. 263, MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQU IRY' THAT SUCH A COURSE OF ACTION WOULD BE OPEN. THE AO HAD CALLED FOR EXPLANATION ON THIS VERY ITEM FRO M THE ASSESSEE AND THE ASSESSEE HAD FURNISHED HIS EXPLANATION VIDE LETTER DT. 26TH SEPT., 2002. THIS FACT IS EVEN TAKEN NOTE OF BY THE CIT HIMSELF IN PARA 3 OF HIS ORDER. THIS CLEARLY SHOWS THAT THE AO HAD UNDERTAKEN THE EXERCISE OF EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DYES ARID TOOLS IS TO BE . TR EATED AS REVENUE EXPENDITURE OR NOT. IT APPEARS THAT SINC E THE AO WAS SATISFIED-WITH THE AFORESAID EXPLANATION, HE ACCEPTED THE SAME. THE CIT IN HIS IMPUGNED ORDER EVEN ACCEPTS THIS. THUS, EVEN THE CIT CONCEDED THE. POSITION THAT THE AO MADE THE INQUIRIES, ELICITED REPLIES AND THEREAFTER- PASSED THE ASSESSMENT ORDER. THE GRIEVANCE OF THE CIT WAS THAT THE AO SHOULD HAVE MADE FURTHER INQUIRIES RATHER THAN ACCEPTING THE EXPLANATION. THEREFORE, IT CANNOT BE SAID THAT IT IS A CASE OF ' LACK OF INQUIRY'.-CIT VS. GABRIAL INDIA LTD. (1993) 114 CTR (BOM) 81 (1993) 203 ITR 108 (BOM) RELIED ON. 7. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DEVELOPMENT BANK LTD. (SUPRA) HELD AS UNDER:- A READING ,OF THE ORDER PASSED BY THE CIT WOULD SHOW THAT THE PRINCIPAL OBJECTION WHICH THE REVISIO NAL AUTHORITY EXPRESSED AGAINST THE ORDER OF THE AO WAS AN ALLEGED FAILURE OF THE AO TO EXAMINE; FIRSTLY WH ETHER THE CAPITAL GAIN OF RS. 1.26 CRORES HAS BEEN EARNED BY THE ASSESSEE ON TRANSACTIONS RELATING TO INVESTMENT S 'HELD TO MATURITY', AND SECONDLY WHETHER THE DEPRECIATION OF RS. 622.39 LAKHS WAS CLAIMED ON INVESTMENTS WHICH WERE HELD AS STOCK-IN-TRADE. NOW FROM THE , MATERIAL ON RECORD BEFORE THE COURT IT I S EVIDENT THAT THE ASSESSEE, IN RESPONSE TO A SPECIFI C QUERY ' OF THE AO DT. 20TH SEPT., 2004 SUPPLIED DE TAILS OF THE LONG-TERM INVESTMENTS HELD FOR A PERIOD IN EXCESS OF ONE YEAR WHICH THE ASSESSEE TREATED AS INVESTMENTS HELD TO MATURITY. THE PROFIT ON THESE INVESTMENTS WAS COMPUTED AT RS. 1.26 CRORES. IN SO FAR AS THE ASPECT OF DEPRECIATION OF RS. 622.39 LAKHS ON INVESTMENTS HELD AS STOCK-IN-TRADE WAS 9 ITA NO.1378/MDS/2014 CONCERNED, THE ASSESSEE HAD SIMILARLY SUPPLIED TO THE A'O DETAILS OF THE CURRENT INVESTMENTS IN RESPO NSE TO THE QUERY OF THE AO. IN ADDITION, IT WOULD ALSO HAVE TO BE NOTED THAT, IN PURSUANCE OF, THE ORDER PASSED BY THE CIT UNDER S. 263, AN ASSESSMENT ORDER CAME TO B E PASSED ON 28TH DEC., 2007. DURING THE COURSE OF THE ASSESSMENT ORDER, THE AO NOTED THAT THE ASSESSEE HAS EXPLAINED DEPRECIATION CLAIMED AGAINST THE INVESTMENTS HELD AND CLASSIFIED AS STOCK-IN-TRADE. THE EXPLANATION OF THE ASSESSEE IN THIS CONNECTION WAS ACCEPTED AND THE AO CAME TO THE CONCLUSION THAT DEPRECIATION OF RS. 622.39 LAKHS HAS BEEN. CLAIMED TOWARDS INVESTMENTS HELD AND CLASSIFIED AS STOCK-IN - TRADE. IN THE ABSENCE OF ANY TANGIBLE MATERIAL TO T HE CONTRARY, THE CIT COULD NOT HAVE TREATED THIS FINDI NG TO BE ERRONEOUS-OR 'TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE OBSERVATION OF THE CIT THAT THE AO HAD ARRIVED AT HIS. FINDING WITHOUT CONDUCTING AN ENQUI RY WAS ERRONEOUS, SINCE AN ENQUIRY WAS SPECIFICALLY HE LD WITH REFERENCE TO WHICH A DISCLOSURE OF DETAILS WAS CALLED FOR BY THE AO AND MADE BY THE ASSESSEE. IN THESE CIRCUMSTANCES, THE TRIBUNAL WAS JUSTIFIED IN COMING TO THE CONCLUSION THAT RECOURSE TO THE POWERS UNDER S. 263 WAS NOT WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. .: IN CONCLUSION, THE HONBLE HIGH COURT HELD THAT SIN CE AN ENQUIRY WAS SPECIFICALLY HELD WITH REFERENCE TO WHI CH A DISCLOSURE OF DETAILS WAS CALLED FOR BY THE ASSESSI NG OFFICER AND MADE BY THE ASSESSEE, THE OBSERVATION OF THE COMMISSIONER OF INCOME TAX THAT ASSESSING OFFICER HAD ARRIVED AT HIS FINDING WITHOUT CONDUCTING ENQUIRY W AS ERRONEOUS AND THEREFORE COMMISSIONER OF INCOME TAX WRONGLY EXERCISED POWERS UNDER SECTION 263 OF THE A CT. 8. IN THIS CASE ALSO, THE DETAILS CALLED FOR BY THE ASSESSING OFFICER WERE FURNISHED BY THE ASSESSEE AND SUCH DET AILS WERE 10 ITA NO.1378/MDS/2014 ACCEPTED BY THE ASSESSING OFFICER AND IN SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT THERE IS A LA CK OF ENQUIRY. THERE WAS AN ENQUIRY, THOUGH IT IS INADEQU ATE AND IN SUCH CIRCUMSTANCES, IN VIEW OF THE ABOVE DECISIONS, THE COMMISSIONER OF INCOME TAX LACKS JURISDICTION UNDER SECTION 263 OF THE ACT TO REVISE THE ASSESSMENT ORDER. THU S, RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE SET A SIDE THE IMPUGNED ORDER OF THE COMMISSIONER OF INCOME TAX A ND ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DAY OF MAY, 2015 . SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 20 TH MAY, 2015 SOMU 12 32 / COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .