DCIT, CIRCLE- 21(1), NEW DELHI V. RAILTEL CORPORATION OF INDIA LTD., NEW DELHI

ITA 1472/DEL/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1997 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 28-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR MITTAL
• Assessee Lawyers: VIJAY KATARIA
• Section: 56; 15; 43; 48; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F” DELHI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.1472/DEL/2018 Assessment Year 2014-15 DCIT, Circle-21(1), New Delhi. v. Railtel Corporation Of India Ltd., 6 th Floor, Block-III, Delhi Technology Park, Shastri Park, New Delhi. TAN/PAN: AABCR7176C (Appellant) (Respondent) Appellant by: Shri Ajay Kumar Mittal, CA. Respondent by: Shri Vijay Kataria, Sr.DR Date of hearing: 11 05 2022 Date of pronouncement: 18 05 2022 O R D E R PER PRADIP KUMAR KEDIA, A.M.: Th e cap tio n ed ap p eal h as b e en fil ed b y th e Rev en u e ag ain st th e o rd er o f th e Co mmiss io n er o f In co me Tax (Ap p eals)-XXV, New Delh i (‘CIT( A)’ in sh o rt) d ate d 1 8 .1 2 .2 01 7 arisi n g fro m th e assess men t o rd er d ated 3 0 .1 2 .20 16 p assed by th e Assessin g Officer (AO) u n d er Sect io n 1 4 3(3 ) of th e In co me Tax Act, 1 9 6 1 (th e Act) co n cern in g AY 20 14 -15 . Th e g rou nd s o f ap peal ra ised b y th e Rev en u e rea d as u n d er: “ 1 . O n t h e f a c t s a n d u n d e r t h e c i rc u m st a n c e s o f t h e c a se , t h e L d . CI T (A ) h a s e rr e d i n l a w a n d f a c t s i n d e l e t i n g th e a d d i t i o n o f R s. 5 , 7 8 , 0 0 , 0 0 0 / - m a d e b y t h e A ss e s si n g O f f i c e r o n ac c o u n t o f a d j u s t m e n t d u e c h a n g e i n t h e d e p r e c i a t i o n r a t e . 2 . O n t h e f a c t s a n d u n d e r t h e c i rc u m st a n c e s o f t h e c a se , t h e I.T.A. No.1472/Del/2018 2 L d . CI T (A ) h a s e r re d i n l a w a n d f a c t s i n d e l e t i n g th e d i sa l l o wa n c e o n a c c o u n t o f l o s s o n r e v a l u a t i o n o f fi x e d a s s e t s f o r R s. 1 , 0 0 , 1 5 , 8 8 2 / - i g n o ri n g t h e p r o v i si o n s o f t h e A c t t o e x c l u d e t h e d i m i n u t i o n i n re v a l u a t i o n o f a ss e t s, a sse s se e c a n n o t b e a l l o w e d t o c l a i m a n y l o s s o n r e v a l u a t i o n o f f i x ed a s se t s wh e t h e r c a l l e d d i m i n u t i o n / d e p re c i a t i o n i n re v a l u e d a s se t s o r b y a n y o t h e r n a m e f o r t h e p u rp o s e o f c o m p u t a t i o n o f t ax a b l e b o o k p r o f i t s u / s . 1 1 5 J B o f t h e I T A c t . ” 2 . Wh en th e mat ter was cal led fo r h ea rin g , ld . co u nsel fo r th e assesse e in th e R ev en u e ap p eal p o in ted o u t th at Grou n d No .1 co n cern s ad ju stme n t d u e acce lera ti o n in th e d ep reciat io n rate o win g to rewo rk ing o f u se fu l lik e o f d ep rec iab le asse ts. It was p o in ted o u t th a t i d en tica l issu e h as aris en in it s o wn case in Assessmen t Year 2 0 12 -13 in ITA No .2 74 3 /Del/2 0 1 6 wh ere th e issu e was set asid e to th e fil e o f th e Assessin g Officer with certa in d irect io n s. Th e fa ct an d issu e b ein g th e same , d irec tio n o f th e Assessee Officer sh o u ld ap p ly mu ta tis mu ta n d is in th e in st an t case. 3 . Ld . DR d id n o t objec t to su ch p ro p osit io n in th e lig h t o f th e d ecisio n ren d ered b y th e Co -o rd in ate Ben ch in it s own case in o th er assess men t y ear. Th e rel ev an t o p erativ e p aragrap h o f th e o rd er o f th e Co -o rd in ate Ben ch o f ITAT is rep ro d u ced h ereu n d er fo r read y re feren ce : “ (3.4 .2 ) Wit h th is bac kg ro un d, we no w co ns id er the fa c ts o f thi s c ase an d re le van t p ro vis io ns of law . Pr ov is io ns un der pa ra gr ap hs 1 1 a nd 13 o f Ac co un ti ng Sta nd ar d- 6 (AS -6) hav e bee n n ot ed by L d. CI T (A ) an d r ele va n t p or tio ns o f the or der of Ld . CI T (A ) ha ve al r ead y be en re pr od uc ed ea rl ie r i n th is o r der . I.T.A. No.1472/Del/2018 3 Vid e p ar ag ra ph 11 of A S- 6, Ma na ge me nt o f t he c o mp a ny i s ves te d wi th p o we r to e xer ci se j ud gm ent i n t he li g ht of tec hn ic al , c om me rc ial , a cc ou nt in g a nd le gal r eq ui remen ts an d it pe rm it s Ma na ge me nt to per io di ca l ly re vi ew t he o ri gin al est im at e o f u se ful lif e o f a n a ss et. F urt he r, un de r p ar a gr ap h 13 o f A S- 6, it i s p e rm itt ed fo r t he c om pa ny t o a pp ly the h igh er rat e of de pr ec ia ti o n w he re t he m an a ge men t es ti ma tes o f t he use fu l li fe o f a n as set i s s ho rt er t ha n tha t e nvi sage d u nd er t he pr ovi si on of t he r e lev an t st at ut es (he re, Th e co mp an ie s Act , 19 56 ). T he pr ov is io ns r eg ar di ng ra te s of d ep re ci at io n ch a rge d by a c om pa ny we r e ex pl ai ne d i n Ci r cul ar d ate d 07 /0 3/ 19 89 iss ue d un de r t he C om pa nie s Ac t, th e r ele va nt po rt ion of wh ich is re pr od uc ed a s u n der : " It ma y be c la ri fie d th at t he r ate s as cont ai ne d in S ch e dul e XIV sh ou ld be vi ew ed a s t he mi ni mu m rat es , a nd , t heref o re, a co mp any s ha ll n ot be pe rm it te d t o ch a rge d ep re ci ation a t ra te s lo wer t ha n t ho se sp eci fi ed in th e s ch ed ule in re la ti on to a sse ts pu rch as es a fte r th e d at e o f ap pl ica bil it y o f th e s ch e dul e. Ho we ver , i f on t he b as is of a b on a fi de t ec hn ol o gical eva lu at io n, hi gh er rat es of de pr ec ia ti o n a re ju sti fi ed , t hey ma y be pr ov ide d wi th p ro per d is clo su re s b y w ay of a no te f or mi ng pa rt of a nn ua l acc o unt ." [ Emp ha si s ad ded b y us .] 3.4 .2 .1 ) It i s, th er e for e, o bv io us t ha t un der A S- 6, h ig he r rate s of d ep re ci ati on fo r as se ts ha ve t o be b as ed on bo na fid e tec hn ol og ic al e va l uat io n o f th e us ef u l lif e o f th e de pr e cia bl e ass et s. Fo r a bo na fid e t ec hn ic al e va lua ti on , i t i s n ece s sar y tha t th e ev al ua tio n sho uld be m ade b y a com pe te nt per s on o r bo dy h avi ng t he r e qui si te t ec hn ica l k no wle dg e an d ex pe rti se . It is f ur th er n ece ssa ry t ha t su ch a n eva lu at io n le ad i ng to I.T.A. No.1472/Del/2018 4 hig he r r ate of d epr ec ia ti on i s a bon a fi de eva lu ation , esp ec ia lly wh en s u ch a n ev al ua ti on r esu lt s in ta x be nef it f or the c om pa ny. A se lf se rv in g e va lu ati on , w hi ch is n ot bo na fi de, lea di ng t o cl ai m of red uc ed t ax b ur de n for th e As sess ee w i ll be a col ou ra bl e de vi ce wi th in t he me ani ng of t he l an dmar k dec is io n o f Ho n' bl e S up re me Co ur t i n t he ca se of McD ow ell an d Co . L td . vs . C om me rci al Ta x O ffi cer 15 4 I TR 1 48 (S C ). A col ou ra bl e dev ic e t o e va de t ax ha s to be re je cte d. (3. 4. 3 ) We h av e alr ead y he ld in f ore go ing p ar ag ra ph (3.2 .1. 1 ) tha t f or t he pu rp ose of det er mi na ti on o f b oo k pr of it s, t he sta tu to ry r ol e of Reg is tr ar o f Co m pa nie s to e xa mi ne and sat is fy t ha t th e ac cou nt s of t he a ss e sse e ar e ma in ta in e d in acc or da nc e wi th th e re qu ire me nt s o f the Co mp an ie s Ac t , ha s the ma nd ate of the Su pre me Co u rt; a nd fu rt her , tha t rep or t (s )/o pi ni on (s ) o f s ta tu to ry au di tor (s ) an d t he re p ort s / opi ni on s / rec om me nd ati on s as a res ul t of Su pp le m ent ar y Au dit ar e n ot fi na l : th es e a re no t o nl y su bj ec t t o a pp ro v al by the co mp an y i n i ts g en er al me et in g, b ut al so su bj e ct t o exa mi na ti on by Re gis tr ar of C om pa n ies a nd hi s s at isfa cti on tha t th e acc ou nt s of th e as se ss ee ar e m ain ta in ed i n acc or d anc e wit h th e re qu ir em e nts o f th e Co mp an i es Ac t. Ho we ve r, o n t he per us al of r ec or ds be fo re us , w hi ch inc lu de s t he Asse s sme nt Or der , th e or de r o f t he L d. C TT (A ), the P ap er b oo k f il ed by the A ss es se e, F or m 35, F or m 36 e tc ; we f in d th at t he b o th th e lo wer a ut ho ri ti es , A O as w ell a s L d. C IT (A ), ha v e not con si de re d wh et h er, a ft er e xa mi n ati on b y Re gi st r ar o f Co mp an ie s, wh eth e r Re gi st ra r o f Co r car es w as sat isfi ed th at the ac co un ts of t h e a ss es see a re ma int ai ne d i n acc or d anc e wit h t he r eq ui re m ent s o f th e C om p ani es Ac t. F ur th e r, o n per us al of re co rd s , w e f in d t ha t t h e re le va nt in fo rm ati on , I.T.A. No.1472/Del/2018 5 wh eth er , a ft er ex am in ati on by Re gis tr ar of Co m pa nies, wh eth er R eg is tr ar of C om pa ni es wa s s at is fi ed th a t the acc ou nt s of th e as ses se e ar e m ai nt ai ned i n acc or da nc e wi th the r eq ui re me nt s of the C om pa ni es A ct ; is n ot av ai la bl e o n ou r rec or ds . Nei th er o f th e t wo s id es, i n the c ou rse o f a pp e lla te pr oce ed in gs in IT AT ha s pr ovi ded d et ail s re g ar din g con st it ut io n o f t he co mm itt ee wh ic h r e co mme n ded lo we r u sef ul lif e o f th e a ss ets an d hi gh er ra te o f d e pre ci at io n. F ur th er mo re, the i nf or ma ti on r eg ar din g te ch ni ca l q ual if ic at io ns, kn ow led ge an d e xp er tis e of th e c om mi tt ee me mb e rs is al so n ot av ai l abl e on o ur re co rd s. Mo re ove r, a co py of t he r ep or t o f th e co mm itt ee i s a ls o n ot a va ila bl e o n ou r rec or ds. On per us al o f the re co rd s, we f in d th at th e q ue ry o f the AO fr om th e A s ses se e as to w hy t he u sef u l l if e of ra di o eq ui pm ent h as b ee n t ak en by thi s co mm itt ee t o t he th ree y ea rs, w he n B SN L (B ha rat S a nch ar Ni ga m Li mit ed ) co nsi de rs t he us ef ul l ife o f r a dio equ ip m ent t o be 12 to 1 5 y ea rs , ha s r em ai ne d u na n sw ere d. I mp or tantl y, the lo wer a ut ho ri ti es, t he AO a s we ll a s th e L d. C IT (A), hav e al so not co ns id er ed w het he r t he Reg is t rar of Co mp an ie s has acc ep te d t he d eci sio n of th e As se s see c om pa ny to c ha rge hig he r r at e o f de p rec ia ti on an d to r edu ce th e u sef ul li fe o f cer ta in de pr ec ia ble as se ts wi th re tr os p ect iv e e ffe ct , a s a r esu lt of w hic h th e As ses se e ha s ma de add iti on al c la i m of dep re ci at io n am ou n tin g t o Rs . 5 2. 74 c r ore s. Si nce th e re le van t inf or ma ti on is no t on ou r re co rd s, we res to re th e mat ter t o th e fil e of t he A O w it h the di rec ti on t o pa ss f res h o rder o n th is iss ue . T hu s, t he or der of the Ld . C IT (A ) is s et as id e on thi s lim it ed is su e an d t he ma tt er in di sp ut e i n t he p resen t ap pea l bef or e u s i s r es to r ed t o t he fi le of th e A O f or fresh or d er o n thi s l im it ed i ss ue . I n th e r es ul t, a pp ea l of t he Rev en ue is p art ly I.T.A. No.1472/Del/2018 6 all ow ed f or s ta tis ti cal p ur po se s. ” 4 . In v iew o f th e co nsen su s arriv ed in th e mat ter we resto re th e issu e b ack to th e fi le o f th e Asses si n g Offic er to i mp l emen t th e d irect io n s as ap p li cab le in AY 2 0 12-1 3 in terms o f th e o rd er of Co -o rd in ate Ben ch . Th e Assessin g Officer sh al l ad j ud icate th e issu e in th e l ig h t o f th e o b serv ati o n s an d fin d in g s o f th e Co - o rd in ate Ben ch in ITA No .27 43 /Del/2 0 1 6 fo r Assessmen t Year 2 0 12 -13 o rd er d ated 2 8 .1 1 .2 01 8 . 5 . Gro un d No .1 o f th e Rev en u e i s al lo wed fo r s ta tisti ca l p u rpo ses. 6 . Gro un d No .2 co n cern s d isallo wan ces o n acco u n t o f lo ss on rev alu at io n o f fix ed assets an d co rresp o n d in g in crease in ‘b ook p ro fits’ fo r th e p u rp o ses o f Sectio n 1 15 JB o f th e Act. Th e ld . co u n sel fo r th e ass essee in th is reg ar d su b mitt ed on fac ts th a t th e assesse e acq u ired eq u ip men ts fro m P3 tech n o lo g ies co st wh ereo f was d etermin ed u nd er sett le men t a t Rs.2 7 5 lak h s. The assets were th erea fter rev alu ed at Rs.1 7 5 .5 4 lak hs an d th e lo ss amo u n tin g to Rs.9 9 .4 6 lak h du e to d etermin at io n o f fair v alu e o f asse t s h as b een sh o wn as ‘lo ss on rev alu atio n o f fix ed asse ts’ in it s fin an c ial sta te men ts . It was co n ten d ed th at th e lo ss in cu rred by the assessee was o n acco u n t o f set tl e men t an d is n o t in th e n ature o f rev alu at io n lo ss as in co rrectly cap tio n ed in t h e fin an ci al sta te men t . It was fu rth er p o in ted o u t th a t th e ass ess ee h as n o t cla i med an y co rresp o nd in g rev alu atio n reserv e in relat i o n to su ch lo ss o n acco u n t o f an y p ro v isio n fo r d imin u tio n in th e v alu e o f asset . It was th u s co n ten d ed th at th e Assessin g Offi cer is n o t en ti tled to d istu rb th e b o o k s resu lts a n d th e assessee i s n o t liab l e to p ay an y altern ativ e t ax o n acco un t o f ad ju st men t i n th e b ook I.T.A. No.1472/Del/2018 7 p ro fit u n d er Sec tio n 1 1 5 JB o n th is sc o re. 7 . Th e Ld . DR fo r th e Rev en u e, o n th e o th er h an d , assai le d th e act io n o f th e CIT(A) and sub mit ted th at th e i mp u g n ed fact o f actu a l wri te o ff o f lo ss o n ac co u n t o f i mp air men t of fi x ed asset is n eith er b o rn e o u t fro m reco rd s nor wou ld b y itsel f allo w th e assesse e to red u c e th e b o o k p ro fit fo r th e p u rp o ses o f Sec t io n 1 1 5 JB o f th e Act. Seen it d iffer en tly , th e i mp u g n ed lo ss is cap ita l lo ss in n atu re which are n o t allo wab le as rev en u e ex p en d itu re ev en u n d er n o rmal p ro v isio n s an d therefo re l iab l e to b e ad ju sted fo r th e p u rp o ses o f d eter min a t io n o f b o o k pro fit which is o n ly alt ern ate sch e me o f tax a t io n in cer tain circu mst an ces . Ld . DR acco rd in g ly relied u po n th e actio n o f th e Assessin g Officer an d u rg ed fo r rev ersal o f th e o rd er o f th e CIT(A). 8 . We h av e carefu l ly co n sid ered th e riv al su b mis sion s. It is th e case o f th e assess e e th at ‘b o o k p ro fit s’ d eclared by th e assesse e as d etermin ed after ad ju stmen t o n acco u n t o f lo ss o n rev alu at io n /red u cti o n in th e v alu e o f fix ed asse t is n o t p ermissib le to b e ad ju s ted fo r th e p u rp o ses o f d etermin at io n o f b o ok p ro fit u n d er Sectio n 1 1 5JB o f th e Ac t. As co n ten d ed , th e bo o k pro fits fo r th e p u rp o ses o f Sec t io n 1 1 5 JB can n o t b e ad ju st ed sav e an d ex cep t th e si tu at i o n s p rov id ed in Ex p lan atio n -I th ereto . I t i s fu rth er case o f th e assesse e th a t th e lo ss aris in g o n acco u n t o f rev alu at io n o f fix ed asset is, in effe c t, th e ac tu al lo ss c lai med o n acco u n t o f d i ffere n ce b etween th e s ett led a mo u n t for acq u isi tio n o f asse t v is-à-v is t h e fair mark e t v al u e th ereo f. It is th u s th e case o f th e ass essee th at su ch ac tu al lo ss o n red u ctio n o f fix ed ass et v alu e is n o t su scep tib le to an y ad ju stmen t as h eld b y th e CIT(A). Th e Rev en u e, o n th e o th er h and , co n ten d s th at th e imp u g n ed I.T.A. No.1472/Del/2018 8 cap it al lo ss o n acco u n t o f rev alu atio n o f fix ed assets as cla i med in th e Fin an cia l Sta t emen t ad mi ts o f n o amb ig u ity fo r th e p u rp o ses o f d et ermin at io n o f b o o k p ro fit an d su ch cap it al loss wh eth er by way o f rev alu atio n an d co rresp on d ing p ro v isio n in th e rev alu at io n o r b y way o f actu al wri te o ff d o n o t ju st ify d ed u ctio n fro m b o o k p ro fits b ein g o f th e cap i ta l acco u n t. 9 . On p eru sal o f th e au d it rep o rt o f th e Assessee-co mp an y , we o b serv e th at th e In d ep end en t Statu to ry Au d ito r h as ex p ressed ‘q u alified ’ o p in io n o n th e fin an cia l s tat e men t an d o n e o f th e q u alific at io n s rela t es to c la im o f lo ss o n rev alu atio n o f ass ets in q u estio n . Th e q u alific at io n o f Aud ito r h as th e effect o f sta tin g th at b o ok pro fits d ecl ared b y th e Assessee d o n o t b ear th e trap p in g s o f tru e an d fair ex p ressio n o f ‘stat e me n t o f p ro fit and lo ss’. Th is b ein g so , it can no t b e said th at b o o k p ro fits d is clo sed in th e fin an c ia l s tat e me n t is sacro san c t an d asse ssee acq uires in d efeas ib l e rig h t in th e ma t ter o f i t s d eclara tio n o f b o o k p ro fits. Seco n d ly , we also fin d meri t in t h e p lea o f th e R even u e th at n o twith stan d in g th e fac t th a t ‘ lo ss o n acco u n t o f rev a lu at io n o f fix ed as set’ d o es n o t arise b y way o f p ro v isio n fo r d i min u t io n in th e v alu e o f asset b u t an actu al lo ss, su ch cap ita l lo s s is n o t a d ed u ctib le lo ss in n atu re n ev erth eless. Th e ex p ressio n ‘in co me d efin ed u n d er Sectio n 2 (2 4 ) o f th e Act d o es n o t inclu d e su ch cap it al lo sses . Th e cap i tal lo ss cl ai med o n acco u n t o f i mp air men t o f ass ets , in o u r v iew, is liab le to b e ad ju sted for th e p u rp o ses o f d etermin at io n o f b o o k p ro fit si mil ar to th e ad ju st men t a v ailab l e in resp ect o f cap i ta l receip ts n o t tax ab le u nd er th e no rmal p ro v isio n s o f th e Act . Th is v iew is su p p o rted b y th e d ecisio n o f th e Co - o rd in ate Ben ch o f ITAT in ITO vs. Ga n esh S a ga r In fra stru ctu re (P. ) Ltd . , (2 0 2 2 ) 1 3 5 ta xma nn .co m 31 3 (Ah med a ba d ). I.T.A. No.1472/Del/2018 9 1 0 . We are th u s o f th e co n sid ered v iew th at th e assess ee is n o t en ti tled to red u ce t h e b o ok p ro fit b y t h e cap ita l lo ss d eb ited to th e P&L acco u n t wh ic h is su b je ct mat ter o f q u al i fic at ion b y Au d ito rs. Su ch cap ital lo ss i s n eith er elig ib le fo r d ed u ctio n un d er th e n o rmal p ro v isio n s n or u nder th e a lt ern ate p ro v isio n s o f t ax at io n . We th u s set as id e th e a ct io n o f th e CIT(A) on th is sco re and resto re th e p o sitio n t ak en b y t h e Assessin g Offic er. 1 1 . In th e resu lt, th e Gro un d No .2 o f th e Rev en u e’s Ap peal is allo wed . 1 2 . In th e co mb in ed re su lt, th e ap p eal o f th e R ev enu e is al lo wed . Order pronounced in the open Court on 18/05/2022. Sd/- Sd/- [SAKTIJIT DEY] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: /05/2022 Prabhat