M/s. JSW Steel Ltd., Salem V. ACIT, Coimbatore

ITA 1404/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64353 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 27-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: K RAGHU
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER] I.T.A.NO.1404/MDS/2012 ASSESSMENT YEAR : 2007-08 M/S JSW STEEL LTD (SUCCESSOR TO SOUTHERN IRON & STEEL COMPANY LTD) POTTANERI M.KALAPATTI VILLAGE MECHERI, METTUR TALUK SALEM 636453 [PAN AAECS 3306 E] VS HE ACIT COMPANY CIRCLE I(1) COIMBATORE (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. RAGHU RESPONDENT BY : DR. S.MOHARANA, CIT/DR DATE OF HEARING : 25-09-2012 DATE OF PRONOUNCEMENT : 28-09-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASS ESSEE AGAINST THE ORDER OF THE CIT-I, COIMBATORE, DATED 29.3.2012. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: I.T.A.NO.1404/12 :- 2 -: (1) THE LEARNED CIT-I HAS ERRED IN SETTING ASIDE T HE ORDER OF THE AO DATED 23.09.2009, WITHOUT FINDING THE ORDER OF THE AO AS ERRONEOUS, IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. (2) THE LEARNED CIT, HAVING AGREED THAT PRE-OPERATI VE EXPENDITURE ARE NOT COVERED U/S 350, THE PROPOSAL CONTAINED PARAGRAPH 2.0 OF HIS NOTICE WAS NOT VALID, TO ENABLE HIM TO ASSUME JURISDICTION U/S 263 OF THE INCOME TAX ACT, 1961, IN THE FACTS AND THE CIRCUMSTANCES OF TH E CASE AND IN LAW. (3) THE DIRECTION CONTAINED WHILE SETTING ASIDE THE ASSESSMENT, IN PARAGRAPH 4.1 OF THE IMPUGNED ORDER, IN THE BACKGRO UND STATED THEREIN, IS VAGUE AND NOT SUSTAINABLE IN THE FACTS AND CIRCUMST ANCES OF THE CASE AND LAW. (4) FOR THESE AND OTHER ADDITIONAL GROUNDS OF AP PEAL THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE IMPUGNED ORDER U/S 263 OF THE INCOME TAX ACT, 1961 OF THE COMMISSIONER OF INCOME TAX-I, COIMBATORE, DATED 29.03.2012, SETTING ASIDE THE ASSESSMENT, IS UNSUST AINABLE IN LAW AND IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE. 3. THE A.R OF THE ASSESSEE SUBMITTED THAT THE CIT HAD NO JURISDICTION TO PASS ORDER U/S 263 OF THE ACT AS I N THE INSTANT CASE, THE ASSESSING OFFICER HAD ALLOWED INCOME FROM TRIAL RUN OF ` 3487.18 LAKHS AS A DEDUCTION FROM THE PRE-OPERATIVE EXPENDITURE A ND CAPITAL WORK-IN- PROGRESS. HE SUBMITTED THAT ACCORDING TO THE CIT, AS PER SECTION 35D OF THE ACT, PRE-OPERATIVE EXPENDITURE IS TO BE AMOR TIZED OVER A PERIOD OF FIVE YEARS AND ACCORDINGLY THE ASSESSEE SHOULD HAVE CLAIMED AS DEDUCTION IN FIVE EQUAL INSTALMENTS AFTER COMMENCEM ENT OF BUSINESS. THEREFORE, THE ENTIRE TRIAL RUN INCOME IS TO BE TRE ATED AS REVENUE RECEIPT OF THE YEAR OF RECEIPT. THE ASSESSING OFFI CER IN THE ORDER UNDER CONSIDERATION HAS NOT OMITTED TO ASSESS ANY INCOM E RESULTING IN AN I.T.A.NO.1404/12 :- 3 -: ERROR WHICH IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT RECEIVED ANY CAPITAL BY WAY OF ISSUE OF SHARES OR DEBENTURES AND INCURRED EXPENSES IN CONNECTION THEREWITH, HENCE, S ECTION 35D WAS NOT APPLICABLE TO THE PRE-OPERATIVE EXPENDITURE. THERE FORE, THE CIT WAS WRONG IN ISSUING NOTICE U/S 263 OF THE ACT BY HOLD ING THAT AS PER SECTION 35D OF THE ACT PRE-OPERATIVE EXPENDITURE WA S TO BE ALLOWED DEDUCTION IN FIVE EQUAL INSTALMENTS AND THE ENTIRE RECEIPTS FROM TRIAL RUN WAS TAXABLE. HE FURTHER SUBMITTED THAT DURING THE COURSE OF 263 HEARING, WHEN THE ASSESSEE POINTED OUT THIS TO THE CIT, THE CIT IN PARA 4.1 OF HIS ORDER HAS NOTED THAT HE AGREED WITH THE A.R OF THE ASSESSEE THAT PRE-OPERATIVE EXPENSES WHICH ARE INCU RRED BY THE ASSESSEE PRIOR TO THE COMMENCEMENT OF ITS BUSINESS ARE NOT COVERED BY SECTION 35D OF THE ACT. HOWEVER, HE HELD THAT S UCH EXPENSES ARE REQUIRED TO BE CAPITALIZED IN THE BLOCK OF DEPRECIA BLE ASSETS AND THEREFORE, THE ASSESSEES CASE MERITS THE VERIFICA TION OF THE EXPENSES OF ` 3487.18 LAKHS AS PER SCHEDULE-6 TO THE AUDITED PRO FIT & LOSS ACCOUNT AND ACCORDINGLY, DIRECTED THE ASSESSING OFF ICER TO ASCERTAIN THE LIABILITY OR OTHERWISE OF THE EXPENDITURE IN CO MPUTING THE ASSESSABLE INCOME FOR ASSESSMENT YEAR 2007-08. HE ARGUED THAT IF THE TRIAL RUN RECEIPTS ARE CONSIDERED TO BE THE INCOME OF THE ASSESSEE THEN I.T.A.NO.1404/12 :- 4 -: THE CORRESPONDING EXPENDITURE INCURRED TO EARN THE INCOME IS REQUIRED TO BE DEDUCTED. IF THAT IS DONE THEN THERE WILL BE NO SURPLUS WHICH CAN BE TREATED TO BE THE INCOME OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. HENCE, IT WAS HIS SUBMISSION THAT T HE ORDER OF THE CIT PASSED U/S 263 OF THE ACT SHOULD BE CANCELLED. 4. ON THE OTHER HAND, THE CIT/DR SUPPORTED THE ORDER O F THE CIT OBSERVING THAT THE TRIAL RUN RECEIPTS OF ` 3487.18 LAKHS WAS NOT SHOWN BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT AND H ENCE, WAS NOT ASSESSED TO TAX. THE SAME WAS REDUCED FROM PRE-OPE RATIVE EXPENSES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, ORIGINAL ORDER OF ASSESSMENT U/S 143(3) WAS PASSED ON 23.9.2009 ASSESSING TOTAL INCOME OF THE ASSESSEE A T NIL. THEREAFTER THE CIT ISSUED A SHOW CAUSE NOTICE U/S 263 OF THE ACT DATED 11.5.2011 AND THE RELEVANT ISSUE RAISED BY THE CIT IN THE SAID NOTICE IS EXTRACTED AS UNDER: 2.1. AS PER SEC-35D OF THE ACT PRE-OPERATIVE EXPENDITURE IS TO BE AMORTIZED FOR FIVE YEARS; AND, ACCORDINGLY, CLAIMED AS DEDUCTIONS IN FIVE EQUAL INSTALLMENTS AFTER COMMENCEMENT OF BUSINESS. THEREF ORE THE ENTIRE TRIAL-RUN-INCOME IS TO BE TREATED AS REV ENUE RECEIPT OF THE YEAR OF THE RECEIPT. . BUT THE AO, I N THE 'ORDER UNDER CONSIDERATION'. HAS OMITTED TO SO ASS ESS RESULTING IN AN ERROR WHICH IS PREJUDICIAL TO THE I NTERESTS OF THE REVENUE. IN VIEW OF SUCH, IT IS PROPOSED TO INVOKE I.T.A.NO.1404/12 :- 5 -: PROVISIONS OF THE SECTLON-263 OF THE ACT ON THE OR DER UNDER CONSIDERATION' TO REMEDY LOSS TO THE REVENUE. 6. THUS, FROM THE SHOW CAUSE NOTICE, IT IS OBSERVED THAT THE PROCEEDINGS U/S 263 WERE INITIATED AS IN THE OPINI ON OF THE CIT ` 3487.18 LAKHS WAS THE INCOME OF THE ASSESSEE ASSES SABLE TO TAX FOR THE YEAR UNDER CONSIDERATION WHICH WAS OMITTED TO B E ASSESSED IN THE ASSESSMENT ORDER. THE CIT, AFTER CONSIDERING THE S UBMISSIONS OF THE ASSESSEE ON THIS ISSUE WHICH WAS TO THE EFFECT THAT OUT OF ` 3487.18 LAKHS, ` 3204.98 LAKHS REPRESENTS INTER-DIVISIONAL TRANSFER OF THE ASSESSEES UNITS ONLY IN WHICH NO ASSESSABLE INCOME ELEMENT IS EMBEDDED AND THE BALANCE AMOUNT OF ` 282.22 LAKHS WHICH REPRESENTED SALE OF POWER TO TNEB HAS CORRESPONDING EXPENDITURE OF MORE THAN THAT AMOUNT I.E 483 LAKHS, THE CIT ORDERE D U/S 263 AS UNDER: 4. THE A.RS WERE HEARD. THE FOREGOING WRITTEN SU BMISSIONS WERE DULY CONSIDERED. THE ASSESSEES STAND IS THA T, THE EXPENDITURE IN QUESTION I.E PRE-OPERATIVE EXPENSES ARE NOT COVERED BY THE PROVISIONS OF SECTION 35-D OF THE AC T, AND, THEREFORE, ARE ALLOWABLE WHOLLY IN COMPUTING THE TO TAL INCOME, AND, THEREFORE, THE A.O PASSING THE ORDER UNDER CONSIDERATION HAD ALLOWED. ACCORDINGLY, THERE IS NO ERROR WITHIN THE MEANING OF SEC. 263 OF THE ACT. ORDER U NDER CONSIDERATION. 4.1 I AGREE WITH THE A.R THAT, THE PRE-OPERATIVE E XPENSES IS/ARE THE EXPENSE(S) WHICH ARE INCURRED BY AN ASS ESSEE PRIOR TO COMMENCEMENT OF ITS BUSINESS ARE NOT COVERED BY SECTION 35D OF THE ACT. BUT, SUCH EXPENSES ARE REQUIRED TO BE CAPITALIZED WITH THE BLOCK OF DEPRECIABLE ASSETS. IN VIEW OF SUCH, THE ASSESSEES CASE MERITS THE VERIFICATION OF THE EXPENSES OF ` 3487.18 LAKHS (AS PER THE SCHEDULE 6 TO THE I.T.A.NO.1404/12 :- 6 -: AUDITED P&L A/C OF THE ANNUAL GENERAL REPORT: 200 6-07) TO ASCERTAIN ITS ALLOWABILITY OR OTHERWISE IN COMPUTIN G THE ASSESSABLE INCOME, FOR THE A.Y: 2007-08. THE AO IS DIRECTED, ACCORDINGLY. THUS, THE ORDER UNDER CONSIDERATION [PASSED U/S 143(3) DATED: 23-9-10] IS, HEREBY SET-ASIDE WITH DIRECTION S TO THE ASSESSING OFFICER TO RE-DO THE ASSESSMENT AFRESH, W ITH REFERENCE TO THE OBSERVATIONS INTER ALIA, AS PER LA W AND PROCEDURE, AND AFTER HEARING THE ASSESSEE. 7. WE FIND THAT THE ORDER ULTIMATELY HAS BEEN PASSED T O VERIFY THE EXPENSES OF ` 3487.18 LAKHS TO ASCERTAIN ITS LIABILITY OR OTHERW ISE IN COMPUTING THE ASSESSABLE INCOME FOR THE ASSESSMENT YEAR 2007-08. 8. FIRSTLY, WE FIND THAT NO SHOW CAUSE NOTICE WAS ISS UED IN RESPECT OF EXPENSES OF ` 3487.18 LAKHS. FURTHER, EVEN IT IS ASSUMED THAT INCOME OF ` 3487.18 LAKHS REFERRED TO IN SHOW CAUSE NOTICE ISSUED U/S 263 WAS ORDERED BY THE CIT TO BE VERIFI ED BY THE ASSESSING OFFICER THEN ALSO WE FIND THAT INSTANT ORDER PASSED U/S 263 IS NOT SUSTAINABLE AS THE CIT COULD NOT POINT OUT ANY ERRO R IN THE SUBMISSIONS OF THE ASSESSEE IN RESPECT THERETO. THOUGH THE CI T HAS QUOTED THE SUBMISSIONS OF THE ASSESSEE THAT NO ASSESSABLE INCO ME WAS ESTABLISHED IN THE RECEIPT OF ` 3487.18 LAKHS BUT THE CIT HAS NOT DISPUTED THE SAID SUBMISSIONS OF THE ASSESSEE. IN THE ABOVE CIRCUMSTANCES, THE ORDER OF THE CIT IS WITHOUT JURI SDICTION INASMUCH AS NO SHOW CAUSE NOTICE WAS ISSUED IN RESPECT OF EXPE NSES OF ` 3487.18 I.T.A.NO.1404/12 :- 7 -: LAKHS AND NO ERROR IN THE SUBMISSIONS OF THE ASSES SEE IN RESPECT OF RECEIPT OF ` 3487.18 LAKHS WAS POINTED OUT BY THE CIT. WE, THE REFORE, CANCEL THE ORDER OF THE CIT PASSED U/S 263 OF THE ACT ON 29.3.2012 AND ALLOW THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 28 TH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 28 TH SEPTEMBER, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR