NORTH KARNATAKA EXPRESSWAY LTD, MUMBAI V. ACIT 10(1), MUMBAI

ITA 3978/MUM/2010

• Counselvise Citation: 397819914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 17-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PA RDEEP SHARMA
• Assessee Lawyers: D V LAKHANI
• Keywords: Depreciation
• Section: 263; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B : MUMBAI BEFORE SHRI D.K. AGARWAL, (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.3978/MUM/2010 ASSESSMENT YEAR : 2005-06 NORTH KARNATAKA EXPRESSWAY LTD. THE IL & FS FINANCIAL CENTRE 7 TH FLOOR, PLOT NO.C-22, G-BLOCK, BANDRA KURLA COMPLEX BANDRA(E) MUMBAI-400 051. ..( APPELLANT ) P.A. NO. (AABCN 3062 F) VS. ASSTT. COMMISSIONER OF INCOME TAX -10(1) MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI D.V. LAKHANI RESPONDENT BY : SHRI PA RDEEP SHARMA DATE OF HEARING : 10.8.2011 DATE OF PRONOUNCEMENT : . AUGUST, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17.3.2010 OF CIT UNDER SECTION 263 OF THE INCOME TAX ACT FOR ASSESSMENT YEAR 2005-06 HOLDING THE ASSESSMENT MADE BY AO T O BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVE NUE. THE ASSESSEE IN THIS APPEAL HAS CHALLENGED THE JURISDICTION OF CIT T O PASS ORDER UNDER SECTION 263 OF THE INCOME TAX ACT. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSMENT ORDER IN THIS CASE FOR ASSESSMENT YEAR 2005-06 WAS ITA NO.3978/M/10 A.Y:05-06 2 PASSED BY AO UNDER SECTION 143(3) OF THE ACT ON 28.12.2 007. IN THE SAID ASSESSMENT ORDER, THE AO ONLY DEALT WITH THE ISSUE RE GARDING DISALLOWANCE OF PAYMENT MADE TO CONTRACTORS/SUB CONTRACTOR UNDER SECTION 40(A)(IA) ON THE GROUND OF DELAY IN PAYMENT O F TDS AND DISALLOWANCE OF EXTRA INTEREST CLAIMED AMOUNTING TO RS.4 0,781/-. SUBSEQUENTLY, THE CIT EXAMINED THE RECORDS AND NOTED T HAT THE AO HAD ALLOWED DEPRECIATION ON TOLL ROAD WHICH WAS OWNED BY GOVERNMENT WITHOUT ANY EXAMINATION. HE, THEREFORE, ISSUED SHOW CA USE LETTER DATED 28.8.2008 ASKING THE ASSESSEE TO EXPLAIN AS WHY ASSESSM ENT SHOULD NOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT ALSO ISSUED ANOTHER SHOW CAUSE NOT ICE VIDE LETTER DATED 2.12.2009 IN WHICH SOME OTHER ERRORS WERE ALSO POINTED OUT CAUSING PREJUDICE TO THE INTEREST OF THE REVENUE, W HICH WERE AS FOLLOWS :- I) THE INTEREST CREDITED IN THE P&L ACCOUNT OF RS.2,09,889 /- INCLUDED INTEREST OF RS.2,01,889/- FROM PUNJAB NATION AL BANK (PNB) BUT THE TDS CERTIFICATE ISSUED BY PNB SHOWED INTER EST INCOME OF RS.4,06,494/-. THUS THERE WAS UNDER ASSESSMENT O F INCOME TO THE TUNE OF RS.2,04,605/- WHICH HAD ACCRUED ON THE FIXED DEPOSITS. II) THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF INTEREST OF RS.2,24,187/- PAID BY THE ASSESSEE ON LATE DEPOSIT OF TDS WHICH HAD BEEN ALLOWED BY THE AO WITHOUT ANY EXAMINA TION WHICH WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. III) THE SCHEDULE OF FIXED ASSETS SHOWED ADDITION OF RS.23,68,8 87/- TO VEHICLES BUT AS PER DETAILS FILED BY ASSESSEE VIDE LETTE R DATED 13.11.2007 ADDITION TO VEHICLES WAS TO THE TUNE OF RS.40,96,398/-. THE AO DID NOT EXAMINE THE DISCREPANCY WHICH HAD CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. 2.1 THE ASSESSEE SUBMITTED THAT, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD FILED THE WORKING OF THE CO MPUTATION OF DEPRECIATION OF RS.60.02 CRORES WHICH INCLUDED DEPRECIAT ION OF ITA NO.3978/M/10 A.Y:05-06 3 RS.59.92 CRORES ON THE ROAD. THE AO HAD PASSED ORDER UND ER SECTION 143(3) AND, THEREFORE, IT COULD NOT BE SAID THAT THE AO HAD NOT APPLIED HIS MIND TO THE ISSUE. THE ASSESSEE REFERRED TO THE DECISI ON OF THE TRIBUNAL IN THE CASE OF NOIDA TOLL BRIDGE LTD. AND I N THE CASE OF RELIANCE PORT & TERMINALS LTD. IN SUPPORT OF THE PLEA THAT DEPRECATION WAS ALLOWABLE. ALTERNATIVELY, IT WAS ALSO SUBMITTED T HAT, IN CASE, DEPRECIATION WAS NOT ALLOWABLE, THE TOTAL COST OF THE A SSET SHOULD BE ALLOWED AS DEDUCTION BY SPREADING THE TOTAL COST OVER T HE PERIOD OF CONTRACT BECAUSE AS PER CONTRACT THE ASSESSEE WAS OBLIGED TO H ANDOVER THE ROAD TO THE GOVERNMENT AUTHORITIES AFTER THE CONT RACT PERIOD. IT WAS ALSO SUBMITTED THAT IN 2006-07, AO HAD ALLOWED DEP RECIATION. THE CIT HOWEVER DID NOT ACCEPT THE PLEA OF THE ASSESSEE THAT AO HAD ALLOWED THE CLAIM AFTER EXAMINATION AND ON APPLICATIO N OF MIND. IT WAS OBSERVED BY HIM THAT THE ISSUE WAS NOT DISCUSSED IN THE A SSESSMENT ORDER NOR THERE WAS ANY QUERY IN THE ORDER SHEET OR B Y WAY OF CORRESPONDENCE DURING THE ASSESSMENT PROCEEDINGS. THE AO HAD DISCUSSED ONLY TWO ISSUES I.E. DISALLOWANCE UNDER SECTION 40(A )(IA) AND DISALLOWANCE OF EXCESS INTEREST IN THE ASSESSMENT ORDER. TH US AO HAD COMPLETED THE ASSESSMENT MECHANICALLY WITHOUT APPLICATION O F MIND. AS REGARDS THE DECISION OF THE TRIBUNAL CITED, THE CIT O BSERVED THAT THE SAME WERE DISTINGUISHABLE. 2.2 IN RELATION TO UNDER ASSESSMENT OF INCOME OF RS.2,04,605/- BEING THE INTEREST ON FIXED DEPOSIT, ASSESSE E SUBMITTED THAT THE SAME HAD BEEN OFFERED TO TAX IN ASSESSMENT YEAR 2006-07 AS TDS HAD BEEN RECEIVED AFTER THE ACCOUNTING PERIOD 2004 -05. IT WAS ALSO SUBMITTED THAT IN VIEW OF PROVISIONS OF SECTION 199 TDS OF RS.42,139/- ALLOWED ON THE ABOVE INTEREST MAY BE WITH DRAWN. AS REGARDS THE ALLOWABILITY OF DEDUCTION ON ACCOUNT OF INT EREST ON TDS, IT ITA NO.3978/M/10 A.Y:05-06 4 WAS SUBMITTED THAT THERE WAS NO PROVISION UNDER THE ACT UNDER WHICH THE INTEREST COULD NOT BE ALLOWED AS DEDUCTION. WITH R EGARD TO ADDITION TO VEHICLES, IT WAS SUBMITTED THAT FOR ASSESSMENT YEAR 200 5-06, THE ASSESSEE HAD CLAIMED DEPRECIATION ONLY ON THE SUM OF RS.23, 68,887/- AND NO DEPRECIATION HAD BEEN CLAIMED ON THE BALANCE AM OUNT OF RS.17,27,511/- AS THE VEHICLE HAD BEEN PURCHASED ON 18.2 .2004 I.E., IN ASSESSMENT YEAR 2004-05. CIT HOWEVER DID NOT ACCEPT THE CONTENTIONS. IT WAS OBSERVED BY HIM THAT THE INTEREST ON FD HAD TO BE DECLARED IN THE YEAR IN WHICH INTEREST INCOME HAD ACCRUED AS PER MERCANTILE SYSTEM BEING FOLLOWED BY THE ASSESSEE AND THE ASSESSEE HAD NO CHOICE TO DECLARE INCOME IN SUBSEQUENT YEARS. THE INTEREST ON TDS WAS PENAL IN NATURE AND WAS NOT ALLOWABLE. AS R EGARDS THE ADDITION TO VEHICLES, THE AO HAD NOT ENQUIRED INTO T HE MATTER NOR SOUGHT ANY CLARIFICATIONS. IT WAS NOT CLEAR AS TO HOW DEP RECIATION WAS NOT CLAIMED ON A SUM OF RS.17,27,511/- BEING COST OF VEH ICLE PURCHASED IN ASSESSMENT YEAR 2004-05. CIT ACCORDINGLY HEL D THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. AGGRIEVED BY THE SAID DECISION, THE A SSESSEE HAS FILED PRESENT APPEAL BEFORE TRIBUNAL. 3 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF INFRASTRUCTURE DEVEL OPMENT. IT HAD CONSTRUCTED THE ROAD AS PER AGREEMENT WITH THE GOVERNMENT ON BUILD, OPERATE AND TRANSFER (BOT) BASIS ON THE LAND OW NED BY GOVERNMENT. THE ROAD WAS REQUIRED TO HE HANDED OVER TO THE GOVT. AFTER THE AGREEMENT PERIOD DURING WHICH ASSESSEE WAS RESPO NSIBLE FOR OPERATION AND MAINTENANCE OF THE ROAD. THIS WAS THE F IRST YEAR WHEN THE ROAD BECAME OPERATIONAL AND, THEREFORE, DEPRECIAT ION WAS CLAIMED. THE ASSESSEE HAD FILED NECESSARY DETAILS OF THE CLAIM OF DEP RECIATION. ITA NO.3978/M/10 A.Y:05-06 5 HE REFERRED TO COMPUTATION OF INCOME PLACED AT PAGE 2-3 OF THE PAPER BOOK IN WHICH DEPRECIATION WAS CLAIMED ON THE ROAD. HE ALSO REFERRED TO THE SCHEDULE OF FIXED ASSETS PLACED AT PAGE-15 OF THE PAPER BOOK IN WHICH OUT OF TOTAL FIXED ASSETS RS.57.27 CRORES, RS.57.23 CR ORES RELATED TO ROAD PROJECT. IT COULD NOT THEREFORE BE SAID THAT THE AO HAD ALLOWED DEPRECIATION WITHOUT APPLICATION OF MIND WHEN THE ROA D WAS THE MAIN ITEM OF DEPRECIATION. IT WAS ALSO SUBMITTED THAT THE DEPRECIATION ON ROAD WAS ALLOWABLE. HE REFERRED TO THE FOLLOWING DECIS IONS OF THE TRIBUNAL IN SUPPORT OF THE CASE. I) ITA NO.1450/AHD./2008 IN THE CASE OF GUJARAT ROAD AN D INFRASTRUCTURE CO. LTD. VS. CIT II) ITA NO.3211/DEL./2006 IN THE CASE OF CIT VS. NOIDA TO LL BRIDGE CO. LTD., III) ITA NO.2082/MDS/2008 IN CASE OF TAMIL NADU ROAD DEVELOPMENT COMPANY LTD. VS. ACIT AND IV) 126 ITD 279 IN THE CASE OF MAHARASHTRA STATE ROAD DEVELOPMENT CORPN. LTD. VS. ACIT 3.1 THE LD. AR FURTHER SUBMITTED THAT MERELY BECAUSE AO HAD NOT DISCUSSED THE ISSUE IN THE ASSESSMENT ORDER, IT COULD NOT BE SAID THAT HE HAD NOT APPLIED HIS MIND TO THE ISSUE. HE REFE RRED TO THE QUERY LETTER OF AO DATED 16.10.2006 PLACED AT PAGE 49 OF T HE PAPER BOOK IN WHICH AO HAD RAISED QUERIES ON VARIOUS ISSUES. HE REFERRE D TO THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF GABRI EL INDIA (203 ITR 108) FOR THE PROPOSITION THAT ASSESSMENT ORDER CANNOT BE SAID TO BE BASED ON NON-APPLICATION OF MIND ONLY ON THE GROU ND THAT THE ISSUE HAD NOT BEEN DISCUSSED IN THE ASSESSMENT ORDER. IT WAS AL SO SUBMITTED THAT DEPRECIATION ON ROAD WAS ALLOWABLE AS PE R THE DECISIONS OF THE TRIBUNAL CITED AND THEREFORE, THE AO HAD TAKE N ONE OF THE ITA NO.3978/M/10 A.Y:05-06 6 POSSIBLE VIEWS AND IN SUCH CASES, ACTION UNDER SECTION 263 CO ULD NOT BE TAKEN. RELIANCE WAS PLACED ON THE JUDGMENT OF HON'B LE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CI T (243 ITR 83). THE LD. AR FURTHER POINTED OUT THAT CIT IN THE SHOW CASUE NOTICE HAD MENTIONED THAT DEPRECIATION WAS NOT ALLOWABLE AS ASSESS EE WAS NOT OWNER OF ROAD BUT IN THE ORDER, HE HAD HELD ASSESSMENT TO BE ERRONEOUS ON THE GROUND THAT THE SAME WAS PASSED WITHOUT ANY ENQUIRY/ APPLICATION OF MIND WHICH WAS NOT PERMITTED. RELIANCE FOR THIS PROPOSITION WAS PLACED ON THE DECISION OF DELHI BEN CH IN THE CASE OF MAXPAK INVESTMENT LTD (13 SOT 67). 3.2 IN RELATION TO INTEREST ON FDR NOT DECLARED THIS YEAR, IT WAS SUBMITTED THAT THE SAME HAD BEEN SHOWN IN ASSESSMENT YEA R 2005- 06 AND THERE WAS NO PREJUDICE TO THE INTEREST OF THE R EVENUE. IT WAS ALSO SUBMITTED THAT INTEREST ON TDS WAS NOT PENALTY AND WAS THUS ALLOWABLE AS DEDUCTION. AS REGARDS THE DETAILS OF ADD ITION TO VEHICLES, IT WAS SUBMITTED THAT THE DETAILS SUBMITTED BY THE ASSESSEE VI DE LETTER DATED 13.11.2007 RELATED TO 15 MONTH PERIOD BUT THE DEPRECIATION HAD BEEN CLAIMED ONLY ON THE ADDITION MADE IN THE RELEVA NT YEAR OF RS.23,68,887/-. THERE WAS THEREFORE, NO ERROR. IT WA S THUS ARGUED THAT ASSESSMENT ORDER WAS PASSED BY THE AO WAS AFTER PROPER APPLICATION OF MIND AND THERE WAS NO PREJUDICE TO THE INTEREST OF REVENUE. ACCORDINGLY IT WAS URGED THAT THE ORDER PASSED BY CIT SHOULD BE SET ASIDE. 3.3 THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF CIT. IT WAS ARGUED THAT THERE WAS NOTHING ON RECOR D TO SHOW THAT THE AO HAD APPLIED HIS MIND TO THE ISSUE. HE REFERRED TO THE QUERY LETTER ISSUED BY AO PLACED AT PAGE-49 OF THE PAPER BOO K TO POINT OUT ITA NO.3978/M/10 A.Y:05-06 7 THAT THERE WAS NO QUERY RAISED IN RELATION TO DEPRECIA TION ON ROAD. THERE WAS NO NOTING IN THE ORDER SHEET OR ANY CORRESPON DENCE IN THE MATTER. THUS THE CLAIM HAD BEEN ALLOWED WITHOUT ANY EXAMINATION OR APPLICATION OF MIND. REGARDING ALLOWABILITY OF DEPRE CIATION ON ROAD IT WAS SUBMITTED THAT ONLY DECLARATION OF DEPRECIATION IN THE ACCOUNTS, WAS NOT RELEVANT WHEN THERE WAS NO EXAMINATION OR APP LICATION OF MIND. THE CLAIM WAS ALLOWED WITHOUT ANY EXAMINATION. COMPLETING THE ASSESSMENT WITHOUT NECESSARY EXAMINATION/ENQUIRY WAS PR EJUDICIAL TO THE INTEREST OF THE REVENUE. RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF RAMPYARI DEVI SARAOGI VS. CIT (67 ITR 84) AND ON THE JUDGMENT OF SMT. TARA DEVI AGGARWAL VS. CIT (88 ITR 323). IT WAS ALSO POINTED OUT THAT CASES CITED O N TAKING ONE OF THE POSSIBLE VIEWS WERE NOT RELEVANT AS AO HAD NOT TAKE N ANY VIEW IN THE MATTER AS THE ASSESSMENT HAD BEEN COMPLETED MECHANICALL Y. AS REGARDS VARIOUS DECISIONS OF THE TRIBUNAL CITED BY THE A SSESSEE, IT WAS POINTED OUT THAT THOSE CASES RELATED TO ROADS BUILT ON B UILD, OWN, OPERATE AND TRANSFER (BOOT) BASIS WHEREAS THE CASE OF THE ASSESSEE WAS ON (BOT) BASIS. IN REGARD TO OTHER ISSUES IT WAS SUBM ITTED THAT THERE WERE CLEAR MISTAKES IN RELATION TO THOSE ITEMS OF INCOME WHICH HAD CAUSED PREJUDICE TO THE INTEREST OF REVENUE. IT WA S ALSO POINTED OUT THAT CIT HAD ONLY SET ASIDE THE ASSESSMENT ORDER AN D RESTORE THE ISSUES TO THE FILE OF THE AO FOR FRESH DECISION IN ACCORDA NCE WITH LAW AND, THEREFORE, THERE WAS NO DECISION OF THE CIT ON TH E MERITS OF THECASE. IN REPLY, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE ROAD HAD BEEN ON LAND TAKEN ON LEASE FROM THE GOVT. AND T HEREFORE, DEPRECIATION WAS ALLOWABLE UNDER THE PROVISIONS OF EXPL ANATION I TO SECTION 32(1). 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RI VAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING LEGAL V ALIDITY OF THE ITA NO.3978/M/10 A.Y:05-06 8 JURISDICTION OF THE CIT UNDER SECTION 263 TO SET ASIDE TH E ASSESSMENT AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REV ENUE. UNDER THE PROVISIONS OF SECTION 263 CIT IS EMPOWERED TO MODIF Y AND ASSESSMENT ORDER PASSED BY AO IN CASE THE ORDER IS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVEN UE. IT IS A SETTLED LEGAL POSITION AS HELD BY HON'BLE SUPREME COUR T IN THE CASE OF RAMPYARI DEVI SARAOGI (67 ITR 84) THAT A STEREOTYPE D ORDER PASSED BY AO WITHOUT MAKING ENQUIRIES WHICH ARE CALLED FOR ON THE FACTS OF THE CASE IS ERRONEOUS WHICH CAUSES PREJUDICE TO THE INTEREST OF THE REVENUE. THE SAME VIEW WAS FOLLOWED BY HON'BLE SUPREM E COURT IN CASE OF SMT. TARA DEVI AGGARWAL (88 ITR 323). FOLLOW ING THE AFORESAID JUDGMENTS, THE HON'BLE SUPREME COURT, THE HO NBLE HIGH COURT OF DELHI IN CASE OF GEEVEE ENTERPRISES LTD. (99 I TR 375) HAVE HELD THAT AN ORDER MAY BE ERRONEOUS NOT ONLY BECAUSE IT CONTAINS SOME APPARENT ERROR OF REASONING OR OF LAW OR OF FACT IN THE FACE OF IT BUT ALSO BECAUSE IT IS A STEREOTYPED ORDER WHICH SIMPLY A CCEPTS WHAT THE ASSESSEE HAS STATED IN THE RETURN AND FAILS TO MAKE EN QUIRIES WHICH ARE CALLED FOR IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1 IN THIS CASE, THE ASSESSEE WHO WAS IN THE BUSINESS OF INFRASTRUCTURE DEVELOPMENT HAD CONSTRUCTED A ROAD ON T HE LAND TAKEN ON LEASE FROM GOVERNMENT. DEPRECIATION IS ALLOWABLE O NLY IN RESPECT OF ASSETS OWNED BY ASSESSEE. THE ASSESSEE HAD CLAIMED DEPRECIATI ON OF RS.59.92 CRORES ON THE ROAD WHICH HAD BEEN ALLOWED BY T HE AO WITHOUT ANY EXAMINATION. THOUGH THE AO RAISED QUERIES ON MAN Y ISSUES VIDE LETTER DATED 16.10.2006 PLACED AT PAGE-39 OF THE PAP ER BOOK BUT THERE WAS NO QUERY RAISED ON ALLOWABILITY OF DEPRECIATION. NOR THERE WAS ANY QUERY ON THIS ISSUE IN THE ORDER SHEET OR BY WAY OF A NY CORRESPONDENCE. CONSIDERING THAT HUGE DEPRECIATION HAD BEEN CLAIMED ITA NO.3978/M/10 A.Y:05-06 9 ON THE ROAD CONSTRUCTED ON THE LAND NOT OWNED BY THE A SSESSEE, THE ISSUE WAS REQUIRED TO BE EXAMINED BY THE AO WHICH WAS NO T DONE. THE ORDER IS THEREFORE, ERRONEOUS AND PREJUDICIAL TO T HE INTEREST OF THE REVENUE FOLLOWING THE JUDGMENTS CITED ABOVE. IT IS NOT A CASE THAT THE AO HAD EXAMINED THE ISSUE BY CALLING FOR NECESSARY DETAIL S AND BY RAISING RELEVANT QUERIES BUT FAILED TO DISCUSS THE ISSUE E LABORATELY IN THE ASSESSMENT ORDER. THE JUDGMENT OF HONBLE HIGH COUR T OF BOMBAY IN CASE OF GABRIEL INDIA (SUPRA), IS THEREFORE, NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. 4.2 THE LD. AR FOR THE ASSESSEE HAS ARGUED THAT DEPRECIA TION WAS ALLOWABLE BASED ON SOME DECISIONS OF THE TRIBUNAL AND THEREFORE, AO HAD TAKEN ONE OF THE POSSIBLE VIEWS AND IN SUCH CASE S ORDER CANNOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. RELIANCE HAS BEEN ON THE CASE OF MALABAR INDU STRIAL CO. (SUPRA) IN WHICH IT HAS BEEN HELD THAT IN CASE AO HAS TA KEN ONE OF THE POSSIBLE VIEWS, ASSESSMENT CANNOT BE SAID TO BE ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BUT THE QUESTION OF TAKING ONE OF THE TWO POSSIBLE VIEWS ARISES ONLY WHEN THE AO H AS TAKEN A VIEW AFTER NECESSARY EXAMINATION OF THE ISSUE. IN CASE AO HAS ALLOWED THE CLAIM MECHANICALLY WITHOUT ANY EXAMINATION, IT CA NNOT BE SAID THAT HE HAS TAKEN ONE OF THE TWO POSSIBLE VIEWS. IT WILL BE A CASE OF PASSING ORDER WITHOUT ANY EXAMINATION WHICH WILL BE OB VIOUSLY ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVEN UE. 4.3 AS REGARDS THE DECISIONS OF THE TRIBUNAL CITED, WE FIND THAT IN CASE OF NOIDA TOLL BRIDGE (SUPRA), THE DEPRECIATION HAD BEEN ALLOWED ONLY ON THE GROUND THAT ROAD WAS NOT A BUILD ING AND THE TRIBUNAL FOLLOWING THE DEFINITION OF BUILDING AS PER APPENDIX-I OF ITA NO.3978/M/10 A.Y:05-06 10 INCOME TAX RULES WHICH ALSO INCLUDED ROADS ALLOWED THE CLA IM. THE ISSUE OF OWNERSHIP WAS THEREFORE, NOT BEFORE THE TRIBUN AL. IN CASE OF GUJARAT ROAD AND INFRASTRUCTURE CO. LTD. (SUPRA), THE ROAD HAD BEEN BUILT ON BUILD, OWN, OPERATE AND TRANSFER BASIS WHICH IS DISTINGUISHABLE FROM THE PRESENT CASE IN WHICH THE ROAD HAD BEEN CONSTRUCTED ON BUILD, OPERATE AND TRANSFER BASIS. IN CA SE OF TAMIL NADU ROAD DEVELOPMENT COMPANY LTD. (SUPRA), THE DEPR ECIATION HAD BEEN ALLOWED ON THE GROUND THAT THE BUILDING ALSO IN CLUDED ROADS. THUS THE OWNERSHIP ISSUE HAD NOT BEEN EXAMINED IN THAT CASE. IN CASE OF MAHARASHTRA STATE ROAD DEVELOPMENT CORPN. LTD. ( SUPRA), THE ROAD CONSTRUCTED AND OWNED BY THE ASSESSEE AND UTILIZED IN THE BUSINESS WAS TREATED AS PLANT AND DEPRECIATION WAS ALLOWED. THUS, IN THAT CASE OWNERSHIP WAS NOT IN DISPUTE. THE CASES CITED ARE THEREFO RE, DISTINGUISHABLE. IN ANY CASE, MERIT OF ALLOWABILITY IS NOT THE ISSUE. IN THE PRESENT CASE THE ISSUE AS POINTED OUT EARLIER IS WHET HER THE CLAIM HAD BEEN ALLOWABLE AFTER NECESSARY EXAMINATION /ENQUIR Y WHICH WERE REQUIRED ON THE FACTS OF THE CASE. IN OUR VIEW, CLAIM H AD BEEN ALLOWED BY AO IN A VERY MECHANICAL MANNER WITHOUT ANY EXAMINA TION OF THE ISSUE, AND THEREFORE, THE ORDER WAS ERRONEOUS AND PREJU DICIAL TO THE INTEREST OF THE REVENUE ON THE ISSUE OF ALLOWABILITY O F DEPRECIATION ON ROAD. 4.4 THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE H AS ALSO ARGUED THAT IN THE SHOW CAUSE NOTICE ISSUED BY CIT, THE ASSESSMENT ORDER WAS HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON THE GROUND OF ALLOWANCE OF DEPRECIATION ON ROAD THOUGH THE ASSESSEE WAS NOT OWNER. HOWEVER, IN THE O RDER PASSED UNDER SECTION 263, THE ORDER HAS BEEN HELD ERRONE OUS AND PREJUDICIAL ON THE GROUND THAT THE AO HAD ALLOWED T HE CLAIM OF ITA NO.3978/M/10 A.Y:05-06 11 DEPRECIATION WITHOUT ANY EXAMINATION AND APPLICATION OF MIND. IT HAS BEEN SUBMITTED THAT THE ORDER PASSED UNDER SECTION 263 O N A GROUND DIFFERENT FROM THE GROUND TAKEN IN THE SHOW CAUSE NOTI CE IS LEGALLY NOT IN ORDER. RELIANCE HAS BEEN PLACED ON THE DECISION OF T HE TRIBUNAL IN THE CASE OF MAXPAK INVESTMENT LTD. (SUPRA). WE HOWEVER , FIND NO MERIT IN THE ARGUMENTS ADVANCED. CIT HAS ISSUED SHOW CAUSE NOTICE ON THE GROUND OF INCORRECT ALLOWANCE OF DEPRECIATION ON ROAD WHICH IS ALSO THE GROUND TAKEN IN THE ORDER PASSED UNDER SECTION 263 THOUGH THE REASONING MAY BE DIFFERENT. THE ORDER PASSED UND ER SECTION 263 ON A GROUND NOT TAKEN IN THE SHOW CAUSE NOTICE IS CONSID ERED AS LEGALLY INVALID AS THE ASSESSEE HAD NO OPPORTUNITY TO MEET THE G ROUND ON WHICH THE ORDER HAD BEEN PASSED UNDER SECTION 263. IN T HIS CASE WE FIND THAT THE ASSESSEE HAD ADVANCED ARGUMENTS ON THE ASP ECT RELATING TO NON EXAMINATION OF THE ISSUE OR NON APPLICATION OF MIND TO THE ISSUE OF ALLOWANCE OF DEPRECIATION. THUS THE ASSESSEE HAD THE OPPORTUNITY AND ALSO AVAILED THE SAME ON THE ISSUE OF ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ON THE GROUND OF ORDER BEING PASSED WITHOUT ANY EXAMINATION OR APPLICATION OF MIND. THE DECISION OF THE TRIBUNAL IN THE CASE OF MAXPAK INVESTMENT LTD. (SUPRA) RELIED UPON BY THE LD. AR IS DISTINGUISHABLE. IN THAT CASE, OR DER PASSED UNDER SECTION 263 WAS ON AN ISSUE TOTALLY DIFFERENT FROM THE I SSUE RAISED IN SHOW CAUSE NOTICE. IN THE SHOW CAUSE NOTICE, CIT HAD MENT IONED THAT DIVIDEND INCOME WAS EXEMPT AND THEREFORE EXPENSES WERE NOT ALLOWABLE UNDER SECTION 14A AND THAT LOSS UNDER SECTION 7 2 WAS ERRONEOUSLY ALLOWED AS THERE WAS NO BUSINESS ACTIVITY. HOW EVER, IN THE ORDER PASSED UNDER SECTION 263, CIT HELD THAT THE A SSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SECTION 36(1)(III) AS T HERE WAS NO BUSINESS ACTIVITY. THUS, THE ORDER PASSED UNDER SECTION 26 3 WAS TOTALLY ON A DIFFERENT ISSUE IN RESPECT OF WHICH THE ASSESSEE HAD NO T BEEN ITA NO.3978/M/10 A.Y:05-06 12 GIVEN ANY NOTICE OR OPPORTUNITY. THE PRESENT CASE IS DI FFERENT. THE ASSESSEE HAD BEEN GIVEN NOTICE IN RESPECT OF ALLOWANCE OF D EPRECIATION ON ROAD AND ACTION UNDER SECTION 263 WAS ALSO ON THE SAME ISSUE. THE ASSESSEE HAD ALSO AVAILED THE OPPORTUNITY IN RESPECT OF TH E GROUND THAT ALLOWANCE OF DEPRECIATION WITHOUT ANY EXAMINATION OR APPLICATION OF MIND WAS ERRONEOUS WHICH HAD CAUSED PREJUDICE TO THE INT EREST OF THE REVENUE. THE ARGUMENT RAISED THEREFORE, IS REJECTED. 4.5 THE LD. AUTHORISED REPRESENTATIVE ALSO ARGUED TH AT DEPRECIATION WAS ALLOWABLE ON THE ROAD IN VIEW OF THE PROVISIONS OF EXPLANATION-1 TO SECTION 32(1) AS ROAD HAD BEEN BUILT ON THE LAND TAKEN ON LEASE BY THE ASSESSEE. IT HAS BEEN POINTED OUT THAT SINCE THE ROAD HAD BEEN BUILT ON THE LAND IN RESPECT OF WHICH T HE ASSESSEE HAD LEASE HOLD RIGHT, THE ROAD WOULD BE ENTITLED FOR DEP RECIATION UNDER THE PROVISIONS OF EXPLANATION 1 TO SECTION 32(1). HOWEVER, W E FIND THAT EXPLANATION 1 TO SECTION 32(1) APPLIES TO ANY RENOVATI ON / EXTENSION OF CAPITAL NATURE CARRIED OUT IN A BUILDING IN RESPECT OF WHICH THE ASSESSEE HOLDS ONLY LEASE HOLD RIGHTS OR RIGHT OF OCCUPANCY. IN T HE PRESENT CASE THE ASSESSEE WAS HOLDING LEASE HOLD RIGHTS IN RESPECT OF LAN D ON WHICH CONSTRUCTION HAD BEEN CARRIED OUT. THEREFORE, THE PROVI SIONS OF EXPLANATION -1 TO SECTION 32(1) WILL NOT BE APPLICABL E. THE ARGUMENT RAISED IS, THEREFORE, REJECTED. 4.6 THE SECOND ISSUE RELATED TO THE INTEREST ON FDR WI TH PUNJAB NATIONAL BANK, THE DETAILS FILED CLEARLY SHOWED THAT THE ASSESSEE HAD EARNED INTEREST OF RS.4,06,494/- BUT THE INT EREST DECLARED WAS ONLY RS.2,01,889/-. THE ASSESSEE WAS FOLLOWIN G MERCANTILE SYSTEM OF ACCOUNTING. INTEREST INCOME HAD THER EFORE ACCRUED AND WAS REQUIRED TO BE TAXED. THE LD. AR FOR THE ASSESSEE ITA NO.3978/M/10 A.Y:05-06 13 SUBMITTED THAT THE SAID INTEREST INCOME WAS OFFERED IN T HE SUBSEQUENT YEAR AND THEREFORE, THERE WAS NO PREJUDICE TO THE INT EREST OF THE REVENUE. WE ARE UNABLE TO ACCEPT THE CONTENTION RAISED . THE TAX WHICH WAS REQUIRED TO BE PAID IN THE EARLIER YEAR WA S PAID IN THE SUBSEQUENT YEAR AND THEREFORE, THERE IS DEFINITELY SOME LOSS TO THE REVENUE WHICH HAD CAUSED PREJUDICE TO ITS INTEREST. THERE FORE, IN OUR VIEW, THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIA L TO THE INTEREST OF THE REVENUE ON THIS POINT ALSO. 4.7 THE THIRD ISSUE WAS ALLOWABILITY OF DEDUCTION ON A CCOUNT OF INTEREST PAID ON TDS WHICH WAS DEPOSITED LATE. IT HAS B EEN ARGUED ON BEHALF OF THE ASSESSEE THAT INTEREST PAID ON LATE DEPOSI T OF TDS WAS ONLY COMPENSATORY AND NOT PENAL IN NATURE AND THEREFO RE, HAS TO BE ALLOWED. WE SEE NO MERIT IN THE ARGUMENTS ADVANCED. I T IS A SETTLED LEGAL POSITION THAT THE INTEREST PARTAKES THE SAME CHAR ACTER AS THE SUM ON WHICH IT HAS BEEN RECEIVED, AND THEREFORE, NATURE O F INTEREST IS TAX AS THE SAME HAD BEEN PAID ON LATE DEPOSIT OF TAX. TAX IS NOT ALLOWABLE AS DEDUCTION WHILE COMPUTING TOTAL INCOME. THEREFORE, A LLOWING THE DEDUCTION ON ACCOUNT OF INTEREST ON TDS IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 4.8 THE FOURTH ISSUE WAS THE DISCREPANCY IN RELATION TO ADDITION TO THE FIXED ASSETS. THE SCHEDULE OF FIXED ASSETS SHOWED A DDITION TO VEHICLES OF RS.23,68,887/- BUT IN THE LETTER DATED 13. 11.2007, THE ADDITION TO VEHICLES WAS SHOWN AT RS.40,96,398/-. THER E WAS THUS APPARENT DISCREPANCY WHICH WAS REQUIRED TO BE EXAMINED WHICH HAD NOT BEEN DONE BY AO. IT IS POSSIBLE THAT ULTIMATELY T HE DISCREPANCY MAY BE RECONCILED BUT FACT REMAINS THAT THE AO DID NOT MAKE ANY ITA NO.3978/M/10 A.Y:05-06 14 EXAMINATION OR ENQUIRY IN RELATION THERETO AND SUCH O RDER IS THEREFORE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVEN UE. 4.9 FINALLY, WE MAY POINT OUT HERE THAT CIT HAS NOT DECIDED THE ISSUES ON MERIT. HE HAS ONLY RESTORED THIS ISSUE TO T HE FILE OF AO FOR PASSING A FRESH ORDER IN ACCORDANCE WITH LAW AFTER NE CESSARY EXAMINATION. THEREFORE, MERIT IS NOT THE ISSUE BEFORE US. WE ARE ONLY CONCERNED WITH THE JURISDICTION OF CIT UNDER SECTION 263. IN OUR VIEW AS WE HAVE HELD EARLIER THE ORDER OF AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE, WE HOLD THAT EXERCISE OF JURISDICTION BY CIT UNDER SECTION 263 OF THE ACT IS LEGA LLY IN ORDER AND ACCORDINGLY THE ORDER OF THE CIT IS UPHELD. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.8.2011. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30.8.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.