Gujarat State Fertilizers & Chemicals Ltd., Baroda V. The CIT-I, Baroda

ITA 1402/AHD/2014

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2366 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 08-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Keywords: Depreciation; Opportunity of being heard; Additional depreciation; Question of law; Cost of acquisition; Difference of opinion; Change of opinion; Revenue expenditure
• Section: 43B; 143(3); 32; 263; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 1402/AHD/2014 (ASSESSMENT YEAR: 2009-10) GUJARAT STATE FERTILIZERS & CHEMICALS LTD. P.O. FERTILIZER NAGAR, BARODA- 391750 V/S COMMISSIONER OF INCOME TAX-I, 2 ND FLOOR, AYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA (APPELLANT) (RESPONDENT) ITA. NO: 1419/AHD/2015 (ASSESSMENT YEAR: 2010-11) GUJARAT STATE FERTILIZERS & CHEMICALS LTD. P.O. FERTILIZER NAGAR, BARODA- 391750 V/S PRINCIPAL COMMISSIONER OF INCOME TAX-I, 2 ND FLOOR, AYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA (APPELLANT) (RESPONDENT) PAN: AAACG7996C APPELLANT BY : SHRI SANJAY R. SHAH, A.R. RESPONDENT BY : SHRI R.I. PATEL, CIT/DR ( )/ ORDER DATE OF HEARING : 17 -03-201 6 DATE OF PRONOUNCEMENT : 31-03-2016 ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 2 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST TWO DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX-I, BARODA DATED 11.03.2014 AND 31.03.2015 MADE U/S. 263 OF THE ACT. 2. IN BOTH THESE APPEALS, THE ASSESSEE HAS CHALLENGED THE JURISDICTION OF THE COMMISSIONER. THE GRIEVANCE OF THE ASSESSEE IS THAT THE COMMISSIONER GROSSLY ERRED IN INVOKING THE POWERS C ONFERRED UPON HIM BY THE PROVISIONS OF SECTION 263 OF THE ACT. 3. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISP OSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AS COMMON ISSUES ARE INVOLVED. WE FIRST TAKE UP ITA NO. 1402/AHD/2014 FOR A.Y. 2009-10 4. THE ASSESSMENT ORDER U/S. 143(3) OF THE ACT WAS MAD E BY THE DCIT CIRCLE 1(1), BARODA VIDE ORDER DATED 30.12.2011. 5. INVOKING THE POWERS CONFERRED UPON HIM BY VIRTUE OF SECTION 263 OF THE ACT, THE COMMISSIONER OF INCOME TAX ISSUED NOTI CE TO THE ASSESSEE AFTER EXAMINING THE RECORDS OF THE ASSESSEE. THE CO MMISSIONER WAS CONVINCED THAT THE ASSESSMENT ORDER MADE U/S. 143(3 ) OF THE ACT ON 30.12.2011 WAS ERRONEOUS IN SO FAR AS IT WAS PREJUD ICIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF THE FOLLOWING :- IT IS NOTICED THE DURING THE PREVIOUS YEAR 2008-09 RELEVANT TO A.Y. 2009-10, YOU HAVE CLAIMED DEPRECIATION OF RS. 57,31,18,034/- FOR WIND MILLS, THE ADDITIONAL DEPRECIATION WAS ADMISSIBLE ONLY TO ASSESSEE ENGAGED IN PRODUCTI ON OR MANUFACTURE OF ARTICLES OR ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 3 THINGS. GENERATION AND DISTRIBUTION OF POWER DIES N OT RESULT INTO 'PRODUCTION OR MANUFACTURE OF ARTICLE OR THING'. THUS AS PER PROVI SIONS OF SEC. 32(1)(IIA) R.W.S. 2(29BA) OF THE ACT, YOU WERE NOT ENTITLED FOR ADDITIONAL DE PRECIATION OF RS. 7,22,82,760/-. THIS RESULTED IN UNDER ASSESSMENT.' IT WAS ALSO NOTICED FROM THE P & L A/C RELEVANT TO A.Y. 2009-10, THAT THE ASSESSEE HAD DEBITED RS.92,66,211/- AS OBSOLETE SPARES AND OTHER ITEMS WRITTEN OFF. IF THESE SPARES HAD BEEN CAPITALIZED, THE AMOUNT OF SPARES NOW TREATED AS OBSOLETE AND WRITTEN OFF SHALL BE DEDUCTED FROM THE COST OF PLANT AND MACHINERY FOR D EPRECIATION. IN THE DEPRECIATION CHART NO SUCH DEDUCTION WAS MADE FROM THE WDV OF PL ANT AND MACHINERY. FURTHER IN SCHEDULE 15 TO P & L A/C, RS. 1366.90 AS STORES AND SPARES CONSUMED. THUS IT CAN BE INFERRED THAT STORES AND SPARES ARE TREATED AS REVE NUE EXPENDITURE. SINCE THE SPARES ARE TREATED AS REVENUE EXPENDITURE THE PURCHASE COST WO ULD HAVE ALREADY BEEN DEBITED TO P & L A/C. THE SPARES NOW BECOMING OBSOLETE AND BEING W RITTEN OFF CANNOT AGAIN BE ALLOWED AS A DEDUCTION AS THE AMOUNT WOULD HAVE ALREADY BEE N DEBITED TO P & L A/C AS PURCHASES. SO THE AMOUNT OF OBSOLETE SPARES AND OTH ER ITEMS WRITTEN OFF SHOULD HAVE BEEN DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. THIS BEING NOT DONE RESULTED IN UNDER ASSESSMENT OF INCOME OF RS. 92,66,211/-. 6. ASSESSEE FILED A DETAILED REPLY/EXPLANATION STATING THAT THE ASSESSMENT ORDER MADE U/S. 143(3) OF THE ACT WAS NEITHER ERRON EOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. IT WAS EXPL AINED THAT THE ASSESSEE WAS VERY MUCH ENTITLED FOR CLAIM OF ADDITI ONAL DEPRECIATION AS PER THE PROVISIONS OF LAW. IT WAS FURTHER EXPLAINED THAT THE CLAIM OF DEPRECIATION HAS BEEN EXAMINED AT LENGTH BY THE A.O DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF VTM LTD. 319 ITR 336 IN SUPPORT OF THE CLAIM OF ADDITIONAL D EPRECIATION. 7. ON THE ISSUE OF ALLOWABILITY OF OBSOLETE STORES WRI TTEN OFF, IT WAS EXPLAINED THAT THE A.O HAS SPECIFICALLY CALLED FOR DETAILS AND AFTER ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 4 VERIFYING THE DETAILS AND ALSO THE COMPANY POLICY A ND ACCOUNTING TREATMENT OF OBSOLETE STORES, THE A.O ALLOWED THE C LAIM. 8. THE DETAILED SUBMISSIONS/EXPLANATIONS OF THE ASSESS EE DID NOT FIND FAVOUR WITH THE COMMISSIONER WHO WAS OF THE FIRM BE LIEF THAT THE ASSESSMENT ORDER MADE U/S. 143(3) OF THE ACT IS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE FOLLOWING REASONS:- (A) THE A.O HAD NOT CONSIDERED THE IMPLICATIONS OF THE AMENDMENT BROUGHT IN SECTION 32(1)(IIA) WHILE ALLOWING THE CLAIM OF A DDITIONAL DEPRECIATION, THEREFORE, THE ORDER PASSED BY THE A.O IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. (B) IN SO FAR AS, THE WRITE OFF OF STORES AND SPARE S IS CONCERNED, IT REQUIRES DETAILED EXAMINATION WHICH WAS NOT DONE BY THE A.O AT THE TIME OF ASSESSMENT PROCEEDINGS, THEREFORE, THE ORDER PASSED IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. 9. ACCORDINGLY, THE ORDER DATED 30.12.2011 WAS SET AS IDE. 10. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE L D. COUNSEL ARGUED AT LENGTH REITERATING THAT THE ASSESSMENT ORDER IS NEI THER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. DRAWING OUR ATTENTION TO THE VARIOUS SUBMISSIONS MADE DURING THE COURSE OF THE A SSESSMENT PROCEEDINGS, THE LD. COUNSEL POINTED OUT THAT EACH AND EVERY QUERY HAS BEEN REPLIED AND VERIFIED BY THE A.O BEFORE MAKING THE ASSESSMENT ORDER. THEREFORE, THE OBSERVATIONS OF THE COMMISSIO NER ARE NOTHING BUT CHANGE OF OPINION. IT IS THE SAY OF THE LD. CO UNSEL THAT ON CLAIM OF DEPRECIATION, THE A.O HAS TAKEN A POSSIBLE VIEW WHI CH IS SUPPORTED BY ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 5 JUDICIAL DECISION. HOWEVER, THE COMMISSIONER IS OF A DIFFERENT OPINION WHICH MAKES THE OBSERVATIONS OF THE COMMISSIONER BE ING OF TWO POSSIBLE VIEWS, THEREFORE ON THIS COUNT ONLY, THE L D. COMMISSIONER CANNOT INVOKE THE POWERS CONFERRED UPON HIM U/S. 26 3 OF THE ACT. 11. IN SO FAR AS, THE CLAIM OF WRITE OFF OF OBSOLETE ST ORES AND SPARES ARE CONCERNED, THE LD. COUNSEL POINTED OUT THAT THE ASSESSEE DEBITS CONSUMPTION OF STORES AND SPARES AND NOT PURCHASE C OST TO THE PROFIT AND LOSS ACCOUNT. IT IS THE SAY OF THE LD. COUNSEL THAT THE UNCONSUMED STORES ARE SHOWN AS INVENTORY UNDER THE HEAD CURRE NT ASSETS LOANS AND ADVANCES IN THE BALANCE SHEET. IT WAS STRONG LY CONTENDED THAT THE OBSOLETE STORES AND SPARES WRITE OFF HAVE NEVER BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT AND HAS BEEN WRITTEN OF F AS PER COMPANYS POLICY. 12. PER CONTRA, THE LD. D.R. STRONGLY SUPPORTED THE FIN DINGS OF THE COMMISSIONER. 13. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ASS ESSMENT ORDER MADE U/S. 143(3) OF THE ACT AND ALSO TO THE O RDER OF THE COMMISSIONER MADE U/S. 263 OF THE ACT. THE FIRST TH ING WHICH HAS TO BE CONSIDERED IS WHETHER THE LD. COMMISSIONER HAS R IGHTLY ASSUMED THE POWER U/S. 263 OF THE ACT. THE HONBLE SUPREME COURT IN MALABAR INDUSTRIAL CO. LTD. 243 ITR 83 HAS LAID DOWN THE FO LLOWING RATIO:- 'A BARE READING OF SECTION. 263 OF THE INCOME-TAX A CT, 1961, MAKES IT CLEAR THAT THE PREREQUISITE FOR THE EXERCISE OF JURISDICTION BY TH E COMMISSIONER SUO MOTU UNDER II, IS THAT THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO B E SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUG HT TO BE REVISED IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENTIF THE ORDER OF THE ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 6 INCOME-TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDIC IAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS HUT IS PREJUDICIAL TO THE REVENUE RECOUR SE CANNOT BE HAD TO SECTION 263(1) OF THE ACT. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONL Y WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS' 14. NOW, LET US SEE IN THE LIGHT OF THE ABOVE RATIO, WH ETHER THE ASSESSMENT HAS BEEN MADE ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW. 15. THE FIRST OBSERVATION OF THE COMMISSIONER RELATES T O THE CLAIM OF ADDITIONAL DEPRECIATION. THIS ISSUE IS SQUARELY COV ERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF DIAMINES AND CHEMICALS LTD. IN TAX APPEAL NO. 1061 OF 2013 DATED 02.12.2013 WHEREIN THE HONBLE HIGH COURT HAS ALLOWED THE CLAI M OF ADDITIONAL DEPRECIATION ON SETTING UP OF WIND ELECTRIC GENERAT OR TO AN ASSESSEE WHO WAS ENGAGED IN MANUFACTURE AND SALE OF CHEMICAL S. WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS CONSIDERED AN D FOLLOWED THE DECISION OF THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF VTM LTD. 319 ITR 336 WHICH WAS REFERRED TO AN RELIED UPON BY THE ASSESSEE BEFORE THE COMMISSIONER. 16. THE RELEVANT HEAD NOTE OF THE DECISION OF THE HONB LE HIGH COURT OF GUJARAT READS AS UNDER:- SECTION 32 OF THE INCOME-TAX ACT, 1961 - DEPRECIATI ON - ADDITIONAL DEPRECIATION [WIND ELECTRIC GENERATOR] - ASSESSMENT YEAR 2007-08 - ASSESSEE-COMPANY ENGAGED IN BUSINESS OF MANUFACTURE AND SALE OF VARIOUS TYPES O F CHEMICAL, CLAIMED ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) WITH RESPECT TO COST INCURRED BY IT FOR INSTALLATION OF ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 7 WIND ELECTRIC GENERATOR - ASSESSING OFFICER DISALLO WED SAME ON GROUND THAT ASSESSEE WAS NOT IN BUSINESS OF GENERATION AND DISTRIBUTION OF POWER - WHETHER FOR CLAIMING DEDUCTION UNDER SECTION 32(1)(IIA), IT IS NOT RELEV ANT THAT SETTING UP WIND OF MILL SHOULD BE FOR POWER INDUSTRY - HELD, YES - WHETHER IN ORDER T O 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 PRODU CTION OF ANY ARTICLE OR THING - HELD, YES - WHETHER, IN FACTS OF CASE, ADDITIONAL DEPRECI ATION WAS TO BE ALLOWED O WIND ELECTRIC GENERATOR - HELD, YES [PARAS 3 & 4] [IN FAVOUR OF A SSESSEE] 17. THUS, IT CAN BE SAFELY CONCLUDED THAT THE ALLOWABIL ITY OF THE CLAIM OF ADDITIONAL DEPRECIATION BY THE ASSESSING OFFICER IS BACKED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT O F GUJARAT AND, THEREFORE, CANNOT MAKE THE ASSESSMENT ORDER ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFO RE, IT IS NOT A CASE OF WRONG ASSUMPTION OF LAW. THE OBSERVATIONS OF THE CO MMISSIONER ON THIS ISSUE ARE SET ASIDE. 18. IN SO FAR AS THE CLAIM OF OBSOLETE STOCK WRITTEN OF F IS CONCERNED, WE FIND THAT ON SPECIFIC QUERY MADE BY THE A.O, VID E LETTER DATED 21.10.2011 WHICH IS PLACED AT PAGES 53 TO 59 OF THE PAPER BOOK SUPPORTED BY ANNEXURES FROM PAGES 60 TO 82 OF THE P APER BOOK, THE ASSESSEE EXPLAINED AT POINT NO. 12, THE OBSOLETE SP ARES AND WRITE OFF WHICH WAS SUPPORTED BY A COMPLETE DETAIL WHICH ARE EXHIBITED AT PAGES 60 TO 82 OF THE PAPER BOOK. AT POINT NO. 7, THE ASS ESSEE HAS EXPLAINED THE COMPANY POLICY AND ACCOUNTING TREATMENT FOR OBS OLETE STORES WRITTEN OFF. THE RELEVANT PORTION READ AS UNDER:- NOTE: MCU/AUDIT/07-08 APRIL 19, 2007 SUBJECT: AMENDMENT IN WRITE OFF/DISPOSAL POLICY ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 8 1. AT PRESENT WE HAVE MANAGEMENT APPROVED POLICY FOR W RITE-OFF/ DISPOSAL OF NON- MOVING SPARES, N-(NON-REGULAR) & A-B-C CLASS OF ITE MS AS APPROVED VIDE OUR NOTE REF. DGM(MM)/INV/2004, DATED 28-05-2004 (FLAG-A). 2. AS PER THE POLICY, EVERY YEAR WE TAKE UP THE EXERCI SE OF WRITE-OFF OF NON-MOVING ITEMS, AND CIRCULATE LIST OF ITEMS WHICH HAVE NOT MOVED SI NCE LAST 5 YEARS. BASED ON THE REPLIES RECEIVED FROM VARIOUS USERS, MCU OF MM DEPA RTMENT COMPILES THE REPLIES AND PUTS UP THE FINAL LIST OF THE ITEMS TO BE WRITT EN-OFF FOR MANAGEMENT APPROVAL AFTER RECEIVING WRITE-OFF APPROVAL FROM MANAGEMENT, GENER AL STORES TAKES UP FOR DISPOSAL VIDE E-AUCTION THROUGH MSTC. 3. NOTE OF SHRI VD NANAVATI, COMPANY SECRETARY, DATED 17-04-2007 (FLAG-B) HAS BEEN RECEIVED, REQUESTING TO SUBMIT THE REPORT OF C OMPLIANCE AGAINST THE RESOLUTION NO.254 OF THE MINUTES OF THE FINANCE-CUM-AUDIT COMM ITTEE REPORT. AS PER THE RESOLUTION NO.254, THE SLOW-MOVING/NON-MOVING ITEMS POLICY IS REQUIRED TO BE REVIEWED AS DURATION OF 5 YEARS (CUT-OFF PERIOD) IS TOO LONG, LOOKING TO THE HIGHLY COMPETITIVE MARKET AND THE EXTENT OF AUTOMATION ACH IEVED IN THE INDUSTRY. 4. HENCE, THE PERIOD NEED TO BE REDUCED FROM 5 YEARS T O 3 YEARS SO THAT ITEM WHICH ARE NOT REQUIRED BY THE PLANTS CAN BE EXPEDITIOUSLY REM OVED FROM THE STORES INVENTORY AND INVENTORY REDUCTION MEASURES CAN BE APPLIED FAS T. HENCE IT IS PROPOSED TO REDUCE THE CUT-OFF PERIOD FROM 5 YEARS TO 3 YEARS FOR DECL ARING THE ITEMS NON-MOVING. 5. HOWEVER, AS PER THE EXISTING POLICY, MCU HAS ALREAD Y INITIATED THE WRITE-OFF EXERCISE IN THE MONTH OF FEBRUARY'2007. LIST OF NON-MOVING ITEMS NOT MOVED SINCE LAST 5 YEARS HAVE ALREADY BEEN CIRCULATED TO VARIOUS PLANT S/DEPARTMENTS. MOST OF THE REPLIES HAVE BEEN RECEIVED AND THE EXERCISE IS UNDER FINAL STAGE OF PUTTING UP NOTE. 6. AFTER RECEIVING THE ABOVE APPROVAL FOR THE REDUCTIO N OF CUT-OFF PERIOD, THIS AMENDED POLICY WILL BE IMPLEMENTED IN THE SUBSEQUENT EXERCI SE FOR THE WRITE-OFF IN THE NEXT CALENDAR YEAR, I.E., 01.01.2008. 19. WITH THESE FACTUAL MATRIX ON RECORD, IN OUR CONSIDE RED OPINION AFTER DUE VERIFICATION, THE A.O HAS TAKEN A POSSIBL E VIEW, THEREFORE, THE COMMISSIONER CANNOT INVOKE THE POWERS CONFERRED UPO N HIM U/S. 263 OF THE ACT. ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 9 20. FURTHER, WE FIND THAT THE COMMISSIONER PROCEEDED WI TH THE ASSUMPTION THAT THESE SPARES HAD BEEN CAPITALIZED, THEREFORE, THE AMOUNT OF SPARES NOW TREATED AS OBSOLETE AND WRITTE N OFF SHOULD BE DEDUCTED FROM THE COST OF PLANT AND MACHINERY FOR D EPRECIATION. THE COMMISSIONER ALSO PROCEEDED BY THE ASSUMPTION THAT STORES AND SPARES ARE TREATED AS REVENUE EXPENDITURE WHERE AS THE PURCHASE COST WOULD HAVE ALREADY BEEN DEBITED TO PROFIT AND LOSS ACCOUNT. THEREFORE, THE SPARES NOW BECOMING OBSOLETE AND BEING WRITTEN OFF CANNOT AGAIN BE ALLOWED AS A DEDUCTION AS THE AMOUNT WOULD HAVE ALREADY BEEN DEBITED TO PROFIT AND LOSS ACCOUNT AS PURCHASES. HO WEVER, WHILE CONCLUDING HIS ORDER U/S. 263 OF THE ACT, ON THIS I SSUE, THE OBSERVATION OF THE COMMISSIONER READ AS UNDER:- 4. THE NEXT ISSUE INVOLVED IS CLAIM OF WRITING OFF OF STORES AND SPARES WORKED AT RS. 92,66,211/-. IT HAS BEEN STATED BY THE ASSESSEE THA T IT HAS NOT DEBITED THESE ITEMS OF STORES AT THE TIME OF PURCHASE. AS PER THE CONSISTENT POLI CY OF THE ASSESSEE, ITEMS OF STORES AND SPARES HAVING INDIVIDUAL VALUE OF RS. 10,000/- OR L ESS WERE DEBITED ONLY AT THE TIME OF CONSUMPTION AND, THEREFORE, THERE IS NO DOUBLE CLAI M OF DEDUCTION ON THESE ITEMS. 4.1. THE CONTENTION OF THE ASSESSEE NEEDS DETAILED EXAMINATION WHICH WAS NOT DONE BY THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT PROCEED INGS. APPARENTLY, THE ASSESSING OFFICER HAD NOT MADE ANY EFFORT TO TALLY THE QUANTI TATIVE DETAIL AND EXAMINE THE ACCOUNTING POLICY IN RESPECT OF THESE STORES AND SP ARES OF PARTICULAR DENOMINATION. THE ORDER PASSED, THEREFORE, WAS ERRONEOUS AS WELL AS P REJUDICIAL TO THE INTEREST OF REVENUE. 21. IN THE CASE OF ASHISH RAJPAL 320 ITR 674 HONBLE DE LHI HIGH COURT HAS THE OCCASION TO CONSIDER THE ISSUE WHERE THE NOTICE ISSUED BY THE LD. COMMISSIONER REFERRED TO FOUR ISSUES WHE REAS THE ORDER OF REVISION REFERRED TO NINE ISSUES, THE HONBLE HIGH COURT HELD AS UNDER:- HELD, DISMISSING THE APPEAL, THAT THERE WAS NOTHING ON RECORD WHICH WOULD SHOW THAT THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO RESPOND TO THE DISCREPANCIES WHICH FORMED PART OF ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 10 THE ORDER IN REVISION BUT WERE NOT PART OF NOTICE D ATED MAY 11, 2006. EVEN THOUGH THE NOTICE ISSUED BY THE COMMISSIONER BEFORE COMMENCING THE PROCEEDINGS U/S. 263 REFERRED TO FOUR ISSUES, THE FINAL ORDER PASSED REFERRED TO NINE ISSUES, SOME OF WHICH OBVIOUSLY DID NOT FIND MENTION IN THE EARLIER NOTICE AND HENCE RE SULTED IN THE PROCEEDINGS BEING VITIATED AS A RESULT OF THE BREACH OF THE PRINCIPLES OF NATU RAL JUSTICE. 22. A SIMILAR VIEW WAS TAKEN BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CONTIMETERS ELECTRICALS PVT. LTD. 317 I TR 249 WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER:- THE TRIBUNAL WAS ALSO RIGHT IN HOLDING THAT THE CO MMISSIONER DID NOT EVEN CALLED FOR ANY EXPLANATION OF THE ASSESSEE AND THE ISSUE OF FU LFILLMENT OF THE CONDITIONS OF SECTION 80IA HAD NOT BEEN PART OF THE SHOW CAUSE NOTICE. TH EREFORE, IT COULD NOT FORM THE BASIS FOR REVISION OF THE ASSESSMENT ORDER U/S. 263. NO S UBSTANTIAL QUESTION OF LAW AROSE. 23. THE OBSERVATIONS OF THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF D.N. DOSANI 280 ITR 275 NEED WORTH MENTIONING HERE. HELD, THAT, IN THE INSTANCE CASE, THE ASSESSEE WAS CALLED UPON BY THE COMMISSIONER TO TENDER AN EXPLANATION QUA TWO ITEMS MENTIONED IN TH E SHOW CAUSE NOTICE. ON A PLAIN READING OF SECTION 263(1) OF THE ACT, IT WAS APPARE NT THAT THE COMMISSIONER COULD NOT HAVE TREATED ANY FURTHER ITEM OF PARTY OF THE ASSES SMENT ORDER AS BEING ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE WITHOUT GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. THEREFORE, WHAT THE COMMISSIONER HIMSE LF COULD NOT HAVE DONE, COULD NOT BE PERMITTED TO BE DONE BY THE ASSESSING OFFICER WH ILE GIVING EFFECT TO THE ORDER U/S. 263. THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT, IN T HE FRESH ASSESSMENT ORDERS PASSED IN PURSUANCE OF THE CONSOLIDATED ORDER U/S. 263 OF THE ACT, THE ASSESSING OFFICER WAS ENTITLED TO CONSIDER ONLY THOSE TWO ITEMS WHICH HAD BEEN CON SIDERED BY THE COMMISSIONER AND WAS NOT ENTITLED TO CONSIDER ANY OTHER ITEMS AFRESH FOR MAKING ADDITIONS. 24. AFTER GIVING A THOUGHTFUL CONSIDERATION FROM ALL PO SSIBLE ANGLES, IN OUR CONSIDERED OPINION, THE ASSESSMENT ORDER MAD E U/S. 143(3) OF ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 11 THE ACT ON 20.12.2012 DESERVES TO BE UPHELD. WE, TH EREFORE, SET ASIDE THE ORDER OF THE LD. CIT AND RESTORE THAT OF THE A. O, APPEAL FILED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. ITA NO. 1419/AHD/2015 FOR A.Y. 2010-11 25. IN THIS YEAR, THE ASSESSMENT ORDER DATED 08.02.2013 MADE U/S. 143(3) OF THE ACT WAS CONSIDERED BY THE COMMISSIONE R U/S. 263 OF THE ACT AND AFTER CONSIDERING THE RECORDS, THE COMMISSI ONER WAS OF THE VIEW THAT THE ASSESSMENT ORDER U/S. 143(3) OF THE A CT PASSED BY THE A.O ON 08.02.2013 IS TO BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE FOLLOWING REASO NS. 2.1 IT IS NOTICED THAT AS PER P&L ACCOUNT, SCHEDULE -16 (PERSONAL EXPENSES), ASSESSEE HAS DEBITED AN AMOUNT OF RS. 4058.56 LAKH TOWARDS 'CONT RIBUTION TO PROVIDENT, GRATUITY AND SUPERANNUATION (PENSION) FUNDS (INCLUDING PROVISION S)'. IT WAS NOTICED FROM THE AUDITOR'S CERTIFICATE IN FORM 3CD THAT VIDE ITEM NO . 17(1) -ANNEXURE 11, THE AUDITORS HAD STATED THAT PROVISION FOR PAYMENT OF GRATUITY A MOUNTING TO RS. 13,01,07,557/- WAS NOT ALLOWABLE U/S 40A(7) OF THE IT ACT. THEREFORE, THIS AMOUNT WAS REQUIRED TO BE DISALLOWED WHILE COMPUTATION OF TOTAL INCOME. 2.2 IT WAS FURTHER NOTICED FROM P&L ACCOUNT THAT AS SESSEE HAD DEBITED 248.10 LAKH AS 'OBSOLETE SPARES AND OTHER ITEMS WRITTEN OFF. IF ASSESSEE HAD CAPITALIZED THE SPARES, THE AMOUNT OF SPARES NOW TREATED AS OBSOLETE AND WRITTE N OFF SHALL BE DEDUCTED FROM THE W.D.V. OF THE PLANT AND MACHINERY FOR DEPRECIATION PURPOSE AND SECTION 50 OF THE IT ACT WOULD APPLY. NO DISCLOSURE HAS BEEN MADE IN THE AUD IT REPORT. IN CASE OF DEPRECIABLE ASSETS, NO LOSS CAN BE CLAIMED WHEN OTHER ASSETS IN THE SAME BLOCK OF ASSETS REMAINS. FURTHER, IN SCHEDULE-15 (MATERIALS, MANUFACTURING A ND OPERATING PROFITS) TO P & L ACCOUNT, ASSESSEE HAD DEBITED RS. 1537.83 LAKH AS STORES AND SPARES CONSUMED WHICH INDICATES THAT ASSESSEE IS TREATING THE EXPENDITURE AS REVENUE. ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 12 26. IN SO FAR AS THE SECOND ISSUE MENTIONED HEREINABOVE IS CONCERNED, WE HAVE CONSIDERED THIS ISSUE AT LENGTH WHILE DECIDING THE APPEAL IN ITA NO. 1402/AHD/2014. FOR OUR DETAILED D ISCUSSIONS AND REASONS GIVEN THEREIN, IN OUR CONSIDERED OPINION, T HE OBSERVATIONS OF THE COMMISSIONER DO NOT HOLD ANY WATER AND CANNOT M AKE THE ASSESSMENT ORDER MADE U/S. 143(3) OF THE ACT ERRONE OUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 27. COMING TO THE FIRST ISSUE RELATING TO THE DEBIT OF RS. 4058.56 LACS TOWARDS CONTRIBUTION TO PROVIDENT, GRATUITY AND SU PERANNUATION (PENSION) FUNDS. THE COMMISSIONER DREW SUPPORT FROM THE AUDITORS REPORT WHEREIN IT HAS BEEN STATED THAT PROVISION FO R PAYMENT OF GRATUITY WAS NOT ALLOWABLE U/S. 40A(7) OF THE ACT. 28. A PERUSAL OF THE STATEMENT OF TOTAL INCOME EXHIBITE D AT PAGE 45 OF THE PAPER BOOK SHOWS THAT WHILE COMPUTING THE TO TAL INCOME FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ALREADY DISALLOWED U/S. 43B OF THE ACT. THEREFORE, IT CAN BE SAFELY CONCLUD ED THAT THERE IS NO ALLOWANCE OF ANY DEDUCTION DURING THE YEAR UNDER CO NSIDERATION. 29. SURPRISINGLY, WE FIND THAT THE COMMISSIONER WANTED THE A.O TO DISALLOW THE SAME U/S. 40A(7) OF THE ACT. WE FAIL T O UNDERSTAND WHEN THE ASSESSEE HAS NOT CLAIMED ANY DEDUCTION DURING T HE YEAR UNDER CONSIDERATION HOW COULD THE COMMISSIONER DIRECT THE A.O TO DISALLOW THE SAME, WHEN NO DEDUCTION HAS BEEN CLAIMED. 30. SINCE THE DISALLOWANCE MADE BY THE ASSESSEE U/S. 43 B OF THE ACT HAS BEEN ACCEPTED BY THE A.O. THERE IS NO QUESTION OF ANY FURTHER DISALLOWANCE. ITA NOS.1402 /A/14 & 1419/A/15 . A.YS. 2009- 10 & 2010-11 13 31. IN OUR CONSIDERED OPINION, IT SEEMS THAT THE COMMIS SIONER IS APPREHENSIVE THAT SINCE THE ASSESSEE HAS MADE DISAL LOWANCE U/S. 43B OF THE ACT, THE ASSESSEE WILL CLAIM THE DEDUCTION I N THE YEAR IN WHICH THE PAYMENT WILL BE MADE. WE ARE OF THE VIEW THAT S UCH APPREHENSION OF THE COMMISSIONER CAN BE CONSIDERED, IF AT ALL PO SSIBLE, IN THE YEAR OF THE CLAIM OF DEDUCTION. HOWEVER, IN SO FAR AS THE Y EAR UNDER CONSIDERATION IS CONCERNED, WE DO NOT FIND ANY REAS ON IN MAKING THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE I NTEREST OF THE REVENUE. WE ACCORDINGLY SET ASIDE THE ORDER OF THE COMMISSIONER MADE U/S. 263 OF THE ACT AND RESTORE THAT OF THE A. O MADE U/S. 143(3) OF THE ACT. 32. IN THE RESULT, BOTH THESE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 31 - 03 - 2016 SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD