RELIANCE GAS TRASNPORTATION INFRASTRUCTURE LTD, MUMBAI V. ADDL CIT RG 2(2), MUMBAI

ITA 4746/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75194 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 17-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S J SINGH
• Assessee Lawyers: JAHANGIR MISTRY
• Keywords: Business income; Depreciation; Business expenditure
• Section: 143(3); 32; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , !'#$ , % & BEFORE SHRI B.R. MITTAL, JM AND SHRI N.K. BILLAIYA, AM ./ I.T.A. NO.4746/MUM/2012 ( ' ' ' ' / ASSESSMENT YEAR : 2009-2010 M/S. RELIANCE GAS TRANSPORTATION INFRASTRUCTURE LTD., RPL HOUSRE, 3 RD FLOOR, 15, WALCHAND HIRACHAND MARG, BALLARD ESTATE, MUMBAI-400 001 / VS. THE CIT-2, MUMBAI ( % ./ )* ./ PAN/GIR NO. : AABCP 4405E ( (+ / APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY: SHRI JAHANGIR MISTRY ,-(+ / . / RESPONDENT BY: SHRI S.J. SINGH / 01% / DATE OF HEARING : 02.01.2014 23' / 01% / DATE OF PRONOUNCEMENT:10.01.2014 4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT-2, MUMBAI DT.31.05.2012 PASSED U/S. 263 OF THE ACT PERTAINING TO A.Y. 2009-10. ITA NO. 4746/M/2012 2 2. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE AS SESSEE IS THAT THE LD. CIT ERRED IN HOLDING THAT THE AO HAS NOT DONE E NQUIRY BEFORE THE GRANT OF DEPRECIATION FOR PIPELINE THEREBY ERRED IN HOLDING THAT THE ASSESSMENT ORDER PASSED BY THE AO U/S. 143(3) IS ER RONEOUS TO THE EXTENT IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 3. FACTS OF THE CASE ARE THAT THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS SELECTED FOR SCRUTINY ASSESSMENT AND THE SAME WAS COMPLETED U/S. 143(3) OF THE ACT VIDE ORDER DT. 30. 12.2011. THE CIT INVOKING THE POWERS CONFERRED UPON HIM BY VIRTUE OF PROVISIONS OF SEC. 263 OF THE ACT ISSUED NOTICE TO THE ASSESSEE. THE SUBSTANCE OF THE SAID NOTICE IS THAT THE AO HAS FAILED TO VERIFY WHETHER THE ENTIRE SET OF PIPELINE LAID WAS ONE COMPOSITE NET WORK AT THAT POINT OF TI ME OR WERE ITS JOINT NET WORK. ACCORDING TO THE CIT, THE AO DID NOT ENQUIRE TO THE CLAIM OF DEPRECIATION OF THE ASSESSEE U/S. 32 OF THE ACT. A CCORDING TO THE LD. CIT, IN ORDER TO CLAIM DEPRECIATION AN ASSESSEE HAS TO P ROVE THE OWNERSHIP AS WELL AS USAGE OF THE ASSET DURING THE PREVIOUS YEAR FOR THE PURPOSE OF ASSESSEES BUSINESS. IN THE INSTANT CASE, THE AO H AS FAILED IN VERIFYING THE CLAIM THAT HAS RENDERED THE ORDER ERRONEOUS. THE A SSESSEE ATTENDED THE PROCEEDINGS U/S. 263 OF THE ACT AND FURNISHED ALL T HE DETAILS AS AND WHEN CALLED BY LD. CIT. IT WAS CONTENDED THAT ASSESSEE S BUSINESS STOOD SET UP DURING THE YEAR UNDER CONSIDERATION AND ONCE IT IS ESTABLISHED THAT THE BUSINESS IS SET UP THE ASSESSEE IS ENTITLED FOR ALL BUSINESS EXPENSES AND ALLOWANCES. THE DEPRECIATION ALLOWANCE BEING A STA TUTORY ALLOWANCE WAS THEREFORE ALLOWABLE TO THE ASSESSEE. IT WAS FURTHE R CONTENDED THAT THE ASSESSING OFFICER WAS SUPPLIED WITH WHATEVER INFOR MATION WAS ASKED FOR. IT WAS ARGUED THAT NEITHER THERE IS ANY LACK OF SCR UTINY NOR THERE IS ANY MISTAKE IN THE ASSESSMENT ORDER UNDER CONSIDERATION AND THEREFORE, IT ITA NO. 4746/M/2012 3 CANNOT BE SAID THAT THE ASSESSMENT ORDER IS ERRONEO US INASMUCH AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 4. THE ASSESSEE STRONGLY RELIED UPON THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF CIT VS MAX INDIA LTD. 295 ITR 283 AND ALSO ON THE DECISION OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS GABRIEL INDIA LTD. 203 ITR 108 AND IT WAS ST ATED THAT WHERE TWO VIEWS WERE POSSIBLE, THE CIT CANNOT IMPOSE HIS VIE W SIMPLY BECAUSE HE DISAGREES WITH THE AO. THE SUBMISSIONS MADE BY THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE CIT WHO WAS OF THE OPINION THAT WHAT IS UNDER FOCUS IS THE ALLOWABILITY OF DEPRECIATION AND NOT SETTING UP OF BUSINESS. ACCORDING TO THE CIT FOR ANY CLAIM OF D EPRECIATION, IT IS NECESSARY THAT THE ASSESSEE MUST HAVE USED THE ASSE T NOTWITHSTANDING THAT THE BUSINESS IS SET UP. ALLOWANCE WITH RESPECT TO DEPRECIATION IS FURTHER SUBJECT TO THE CONDITION OF THE USE OF THE ASSET. THE AO HAS NOT MADE CONCLUSIVE ENQUIRY AND HAS FAILED IN HIS DUTIES TO SCRUTINIZE THE CASE, PARTICULARLY WITH RESPECT TO COLLECTION OF COMPLETE DETAILS OF THE NATURE OF ASSETS ERECTED BY THE ASSESSEE AND SECONDLY ABOUT T HE PRECISE USE OF THESE ASSETS. THE CIT FINALLY CONCLUDED THAT THE ORDER I S ERRONEOUS BECAUSE THE AO HAS NOT DONE THE ENQUIRIES EXPECTED OF HIM BEFOR E THE GRANT OF DEPRECIATION FOR PIPELINES AND WENT ON TO SET ASIDE THE ASSESSMENT TO LOOK INTO THIS ASPECT OF GRANT OF DEPRECIATION. 5. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. TH E LD. SENIOR COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT DUR ING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO HAS CALLED FOR NECESSARY DETAILS IN RESPECT OF FIXED ASSETS WHICH IS EVIDENT FROM TH E ORDER SHEET ENTRIES DT. 6.9.2011. THE ASSESSEE FURNISHED COMPLETE DETAILS V IDE ITS REPLY DT. 19.9.2011 WHEREIN IT WAS ALSO EXPLAINED THE DETAILS OF INCOME FROM ITA NO. 4746/M/2012 4 TRANSPORTATION OF NATURAL GAS. IT IS THE SAY OF TH E LD. COUNSEL THAT IF THE ASSESSEE IS SHOWING INCOME FROM TRANSPORTATION OF N ATURAL GAS, THIS ITSELF IMPLIES THAT THE PIPELINES WERE READY FOR USE AND I N FACT USED FOR THE PURPOSE OF BUSINESS. THE LD. COUNSEL SUBMITTED THA T THE DEPRECIATION CHART AS EXHIBITED AT PAGE-115 OF THE PAPER BOOK WA S ALSO CONSIDERED BY THE AO BEFORE PASSING THE ORDER U/S. 143(3) OF THE ACT. THE LD. SENIOR COUNSEL FURTHER POINTED OUT THAT VIDE ORDER SHEET E NTRY DT. 12,10.2011, THE AO FURTHER SOUGHT EXPLANATION/DETAILS OF THE INCOME , FINANCIAL CHARGES AND OTHER ITEMS, PLANT AND MACHINERY ON WHICH DEPRE CIATION HAS BEEN CLAIMED FOR WHICH THE ASSESSEE FILED A DETAILED REP LY DT. 24.10.2011 WHICH IS EXHIBITED AT PAGE-116 OF THE PAPER BOOK AND POIN TED OUT THAT AT POINT-4, THE ASSESSEE HAS STATED THAT DETAILS OF ASSETS IN R ESPECT OF WHICH DEPRECIATION IS CLAIMED IS ENCLOSED. THE ASSESSEE A LSO ENCLOSED DETAILS OF LEASEHOLD AND FREEDHOLD LAND. THE SAME WERE CAPITA LIZED IN THE BOOKS OF ACCOUNT. IT IS THE SAY OF THE LD. COUNSEL THAT IT IS NOT POSSIBLE TO SUPPLY GAS IF THE PIPELINES ARE NOT COMPLETED. RE ITERATING HIS RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT COURT IN THE CASE OF CIT VS MAX INDIA LTD. (SUPRA) AND ALSO ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GABRIEL INDIA LTD. (SUPRA), THE LD. COUNSEL ARGUED THAT THE AO HAS ALLOWED DEPRECIATION BECAUSE THE BUSINESS WAS SET UP AND THE ASSETS WERE USED FOR TH E PURPOSES OF BUSINESS. NOW THE CIT WANTS TO MAKE FURTHER ENQUIRIES ON A PO SSIBLE VIEW TAKEN BY THE AO THEREFORE THE CIT IS IMPOSING HIS VIEW ON TH E VIEW OF THE AO WHICH IS AGAINST THE CANONS OF THE SETTLED POSITION OF LAW. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTING THE FINDINGS OF THE LD. CIT, ARGUED THAT IT IS NOT A CASE OF TWO VIEWS AND CIT IS NOT SUBSTITUTING HIS VIEW WITH THA T OF AO. IT IS THE SAY OF THE LD. DR THAT THE AO HAS NOT MADE ANY FURTHER ENQUIRY WHICH HAS ITA NO. 4746/M/2012 5 RESULTED INTO HIS ORDER ERRONEOUS INASMUCH AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. DR RELIED UPON TH E DECISIONS OF THE HYDERABAD BENCH IN THE CASE OF DCIT VS COROMANDAL B IO TECH INDUSTRIES (I) LTD 20 TAXAMNN.COM 520 (HYD) AND IN THE CASE OF LINKWELL TELESYSTEMS (P) LTD 32 TAXMANN. COM 369 AND ALSO ON THE DECISION OF ALLAHABAD HIGH COURT IN THE CASE OF MEERUT ROLLER F LOUR MILLS LTD VS CIT 35 TAXMANN.COM 183. THE LD. DR CONCLUDED THAT THE ORDER OF THE CIT IS IN LINE WITH THE POWERS CONFERRED UPON HIM U /S. 263 OF THE ACT DESERVES TO BE UPHELD. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO GIVEN A THO UGHTFUL CONSIDERATION TO THE RELEVANT MATERIAL EVIDENCES BROUGHT ON RECOR D. A BARE READING OF SEC. 263 MAKES IT CLEAR THAT THE PRE-REQUISITE TO T HE EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER OF THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED WITH TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE AO SOUGHT TO BE REVISE D IS ERRONEOUS; AND (II) IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT, RECOURSE CANNOT BE HAD TO SECTION 263(1) OF THE ACT . FOR THESE OBSERVATIONS, WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT, REPORTED IN (2000) 243 ITR 83 (SC) . FURTHER, THE ERROR ENVISAGED BY SECTION 263 IS NOT ONE WHICH DEPENDS ON POSSIBILITY OR GUESSWORK B UT IT SHOULD BE ACTUALLY AN ERROR OF EITHER OF FACT OR OF LAW. IT IS NOT IN DISPUTE THAT THE AO HAS CALLED FOR THE INFORMATION REGARDING THE CLA IM OF DEPRECIATION. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS SHOWN BUSINESS INCOME FROM TRANSPORTATION OF GAS. IT IS ALSO NOT IN DISPUTE T HAT THE BUSINESS INCOME HAS BEEN ACCEPTED BY THE AO AND THE CIT HAS ALSO NO T CONTROVERTED TO THIS ITA NO. 4746/M/2012 6 FINDING OF THE AO. ONCE THE BUSINESS INCOME HAS BE EN ACCEPTED, IT PROVES BEYOND ALL REASONABLE DOUBTS THAT THE BUSINE SS HAS BEEN SET UP. ONCE THE BUSINESS HAS BEEN SET UP, THE ASSESSEE IS LAWFULLY ENTITLED TO CLAIM ALL BUSINESS EXPENDITURE AND ALLOWANCES. THE AO HAS ALLOWED DEPRECIATION AFTER EXAMINING THE DEPRECIATION CHART FILED BY THE ASSESSEE. OBVIOUSLY, THE AO MUST HAVE BEEN SATISFIED WITH THE CLAIM OF DEPRECIATION VIS--VIS SET UP OF BUSINESS VIS--VIS BUSINESS INCOME. NOW AT THIS STAGE, THE COMMISSIONER IS OF THE OPINION THAT THE AO SHOULD HAVE MADE SOME MORE ENQUIRIES. THE ORDER OF THE AO MAY BE BRIEF AND CRYPTIC BUT THAT BY ITSELF IS NOT SUFFICIENT REASON TO BRAND THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WRITING AN ORDER IN DETAIL MAY BE A LEGAL REQUIREMENT BUT T HE ORDER NOT FULFILLING THIS REQUIREMENT CANNOT BE SAID TO BE ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF THE REVENUE. 7.1. THE ASSESSEES MAIN CONTENTION IS THAT THE AO HAS ALLOWED DEPRECIATION BECAUSE THE BUSINESS WAS SET UP. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INDUSTRIAL SOLVENTS AN D CHEMICALS PVT. LTD. 119 ITR 608 HAS HELD THAT BUSINESS CAN BE SAID TO H AVE BEEN SET UP WHEN REASONABLE QUANTITY OF END PRODUCT IS OBTAINED. I N THIS CASE, THERE IS NOT EVEN AN IOTA OF DOUBT THAT THE ASSESSEE HAS SHOWN B USINESS INCOME FROM TRANSPORTATION OF GAS. ONCE THIS FACT IS ACCEPTED BY THE LD. CIT, IT CANNOT BE SAID THAT THE ASSESSEE IS NOT ENTITLED FOR DEPRE CIATION. THE WHOLE THRUST OF THE PROCEEDINGS U/S. 263 CAN BE SUMMED UP FROM T HE OBSERVATIONS OF THE CIT AT PARA-10 WHEREIN HE HAS SPECIFICALLY MENT IONED THAT WHAT IS UNDER FOCUS IS THE ALLOWABILITY OF DEPRECIATION A ND NOT SETTING UP OF BUSINESS WHEREAS IT IS THE SETTLED POSITION OF LAW THAT DEPRECIATION AND OTHER BUSINESS EXPENSES ARE ALLOWED ONLY WHEN THE B USINESS IS SET UP. THE LD. CIT CANNOT REVISE ORDER MERELY BECAUSE HE D ISAGREES WITH ITA NO. 4746/M/2012 7 CONCLUSION ARRIVED AT BY THE ITO (CIT VS GABRIEL IN DIA LTD). THE SCOPE OF INTERFERENCE U/S. 263 IS NOT TO SET ASIDE MERELY UNFAVOURABLE ORDER AND BRING TO TAX SOME MORE MONEY TO THE TREASURY NOR IS THE SECTION MEANT TO GET AT SHEER ESCAPEMENT OF REVENUE WHICH IS TAKEN C ARE OF BY OTHER PROVISIONS IN THE ACT. IN THE GARB OF EXERCISING PO WER UNDER SECTION 263, THE COMMISSIONER CANNOT INITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS W HICH ARE ALREADY CONCLUDED. 7.2. IN THE PRESENT CASE, THE EVIDENCES BROUGHT ON RECORD CLEARLY SUGGEST THAT THE AO DID MAKE ENQUIRY REGARDING ASSESSEES B USINESS INCOME AND ITS CLAIM OF EXPENDITURE. THE AO DID ALLOW ALL THE BUSINESS EXPENSES AND DEPRECIATION AND AFTER SATISFYING HIMSELF THE AO HA S COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT. THE CITS OBSER VATION AT PARA-15 THAT ANY CLAIM OF DEPRECIATION IT IS NECESSARY THAT THE ASSESSEE MUST HAVE USED THE ASSET, NOTWITHSTANDING THAT A BUSINESS IS SET U P, ALLOWANCE WITH RESPECT TO DEPRECIATION IS FURTHER SUBJECT TO THE CONDITION S OF THE USE OF THE ASSET. THIS OBSERVATION OF THE CIT ALSO DOES NOT HOLD BEC AUSE THE ASSESSEE HAS SHOWN BUSINESS INCOME FROM THE TRANSPORTATION OF GA S. THE CIT HAS ALSO NOT DISPUTED THIS FACT THEREFORE USAGE OF THE ASSET HAS ALSO BEEN ESTABLISHED BY THE ASSESSEE AT THE ASSESSMENT STAGE ITSELF. 7.3. CONSIDERING ALL THESE FACT IN TOTALITY, IN OUR HUMBLE OPINION, THE AO HAS ADOPTED A COURSE PERMISSIBLE IN LAW BACKED B Y FACTS AND JUDICIAL DECISIONS AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE. THE ORDER OF THE ASSESSMENT CANNOT BE TREATED AS ERRONEOUS ORDER AND PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE IN LAW OR ON FACTS. RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MAX IND IA (SUPRA) SQUARELY ITA NO. 4746/M/2012 8 APPLY ON THE FACTS OF THE CASE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT AND RESTORE THAT OF THE AO. APPEAL FILED BY TH E ASSESSEE IS ACCORDINGLY ALLOWED. 8. BEFORE CLOSING, THE THREE DECISIONS RELIED UPON BY THE LD. DR DO NOT SUPPORT THE ORDER OF THE LD. CIT INASMUCH AS I N THOSE CASES THERE WAS NO ENQUIRY MADE BY THE AO. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.01.2014 . 4 / 3' % 5 67 10.1.2014 3 / 8 SD/ SD/- (B.R. MITTAL ) (N.K. BILLAIYA) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 6 DATED 10.1.2014 . . ./ RJ , SR. PS 4 4 4 4 / // / ,0! ,0! ,0! ,0! 9!'0 9!'0 9!'0 9!'0 / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. !;8 ,0 , , / DR, ITAT, MUMBAI 6. 8< = / GUARD FILE. 4 4 4 4 / BY ORDER, -!0 ,0 //TRUE COPY// > >> > / ? ? ? ? ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI