M/s Dharti Dredging & Infrastructure Ltd., Hyderabad V. The Commissioner of Income Tax-1, Hyderabad

ITA 77/HYD/2014

• Counselvise Citation: 7722514 RSA 2014
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 20-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: S C TIWARI
• Keywords: Depreciation; Assessment record
• Section: 143(3); 201(1); 263; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 77/HYD/2013 ASSESSMENT YEAR : 2009-10 M/S DHARTI DREDGING & INFRASTRUCTURE LTD., HYDERABAD PAN AABCD6612M ASST. COMMISSIONER OF INCOME- TAX, RANGE 1, HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI S.C. TIWARI REVENUE BY SHRI P. SOMA SEKHAR REDDY DATE OF HEARING 21-08-2014 DATE OF PRONOUNCEMENT 15-10-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER DA TED 10/12/2013 OF CIT-I, HYDERABAD FOR THE AY 2009-10. 2. ASSESSEE, IN TOTAL, HAS RAISED SEVEN GROUNDS BEF ORE US. AS CAN BE SEEN FROM THE GROUNDS, APART FROM QUESTIONING TH E VALIDITY OF EXERCISE OF POWER U/S 263, ASSESSEE HAS RAISED OBJE CTION AGAINST THE DIRECTIONS OF CIT FOR EXAMINING THE ISSUES OF ALLOW ABILITY OF DEPRECIATION ON TWO DREDGERS AND APPLICABILITY OF P ROVISIONS OF SECTION 40(A)(IA) ON EQUIPMENT CONTRACTUAL CHARGES. 3. BRIEFLY THE FACTS ARE, ASSESSEE IS A COMPANY. FO R THE AY UNDER CONSIDERATION, IT FILED ITS RETURN OF INCOME ON 29/ 09/2009 DECLARING INCOME OF RS. 2,11,29,290. ASSESSMENT U/S 143(3)IN CASE OF ASSESSEE WAS COMPLETED VIDE ORDER DATED 23/08/2006 BY ACCEPTING 2 ITA NO.77/HYD/2014 M/S DHARTI DREDGING & INFRASTRUCTURE LTD. THE INCOME RETURNED. AFTER COMPLETION OF THE ASSESS MENT AS AFORESAID, CIT IN EXERCISE OF POWER U/S 263 OF THE ACT CALLED FOR THE ASSESSMENT RECORD OF THE ASSESSEE FOR THE IMPUGNED ASSESSMENT YEAR AND AFTER EXAMINING THE SAME ALONG WITH ASSESS MENT RECORD FOR THE AY 2008-09 NOTICED THAT IN AY 2008-09, AO HAS D ISALLOWED ASSESSEES CLAIM OF DEPRECIATION IN RESPECT OF TWO DREDGERS VIZ., TALUNG AND TASING. HOWEVER, WHILE COMPLETING THE AS SESSMENT FOR THE AY 2009-10, AO HAS FAILED TO CONSIDER THE IMPLICATI ON OF DISALLOWANCE OF DEPRECIATION IN THE PRECEDING AY AND HAS ALLOWED DEPRECIATION AS CLAIMED BY ASSESSEE. THE CIT FURTHER NOTICED THAT D URING THE PY RELEVANT TO AY UNDER CONSIDERATION, ASSESSEE HAD PA ID EQUIPMENT CONTRACTUAL CHARGES OF RS. 55,06,46,318 WITHOUT COM PLYING TO THE TDS PROVISIONS. THE AO WHILE COMPLETING THE ASSESSMENT HAS FAILED TO EXAMINE THE APPLICABILITY OF PROVISIONS OF SECTION 40(A)(IA). THE CIT, THEREFORE, WAS OF THE VIEW THAT FOR NON-CONSIDERATI ON OF THE AFORESAID ISSUES, THE ASSESSMENT ORDER PASSED HAS BECOME ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND, ACCORD INGLY HE ISSUED NOTICE DTD. 30/03/2013 REQUIRING ASSESSEE TO SHOW C AUSE AS TO WHY ASSESSMENT ORDER PASSED SHALL NOT BE SET ASIDE. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, ASSESSEE FILED ITS REPLY SU BMITTING THEREIN THAT ASSESSEE HAS MADE APPLICATION U/S 154 OF THE A CT BEFORE THE AO MAKING AN ALTERNATIVE CLAIM THAT AS A RESULT OF DIS ALLOWANCE OF DEPRECIATION ON THE DREDGERS IN THE ASSESSMENT YEAR 2008-09, THE LOSS CLAIMED BY ASSESSEE WOULD AUTOMATICALLY GET EN HANCED. IT WAS, THEREFORE, SUBMITTED THAT WHEN THE APPLICATION U/S 154 IS PENDING BEFORE THE AO, THE REVISIONARY PROCEEDINGS SHOULD B E DROPPED. SO FAR AS ISSUE OF APPLICABILITY OF SECTION 40(A)(IA) ON THE EQUIPMENT CONTRACTUAL CHARGES IS CONCERNED, IT WAS SUBMITTED BY ASSESSEE THAT SINCE THIS ISSUE WAS THOROUGHLY ENQUIRED INTO BY AO AT THE TIME OF ASSESSMENT PROCEEDING AND ONLY THEREAFTER AO HAS PA SSED THE ORDER, IT CANNOT BE SAID THAT THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THE CIT AF TER CONSIDERING THE SUBMISSIONS, HOWEVER, WAS NOT CONVINCED WITH THE SA ME AND 3 ITA NO.77/HYD/2014 M/S DHARTI DREDGING & INFRASTRUCTURE LTD. ULTIMATELY PASSED THE IMPUGNED ORDER U/S 263 SETTIN G ASIDE THE ASSESSMENT ORDER WITH THE FOLLOWING OBSERVATIONS: 2. IN THE APPLICATION MADE U/S 154 THE ASSESSEE BEFORE THE AO HAS MADE AN ALTERNATIVE PLEA FOR RECO MPUTING THE TOTAL INCOME IN THE BACK DROP OF DISALLOWANCE OF DE PRECIATION IN THE AY 2008-09. THE CONTENTION MADE BEFORE THE AO U /S 154 OF THE IT ACT IS ALSO CONSIDERED. ALL THE FACTUAL POSI TION REGARDING THE CORRECTNESS OF THE CLAIM OF DEPRECIATION MADE B Y THE ASSESSEE AND ALSO THE APPLICABILITY OF PROVISIONS U /S 40(A)(IA) OF THE ACT IN RESPECT OF EQUIPMENT CONTRACTUAL CHARGES WAS NOT EXAMINED BY THE AO AT THE TIME OF ORIGINAL ASSESSME NT. AS SUCH, THE ORDER PASSED U/S 143(3) ON 29.12.2011 IS CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE. THEREFORE, AS PER THE PROVISIONS VESTED WITH THE UN DERSIGNED U/S 263 OF THE IT ACT, THE ASSESSMENT ORDER PASSED IS SET ASIDE TO THE FILE OF THE AO, WITH A DIRECTION TO EXAMINE ALL THE ISSUES RELATING TO THE CORRECTNESS OF THE DEPRECIATION CLA IM MADE BY THE ASSESSEE DULY CONSIDERING THE DISALLOWANCE OF D EPRECATION CLAIM IN THE CASE OF THE ASSESSEE FOR THE AY 2008-0 9 AND ALSO THE APPLICABILITY OF PROVISIONS OF SECTION 40(A)(IA ) ON EQUIPMENT CONTRACTUAL CHARGES AND TO RE-DO THE ASSESSMENT AFR ESH. 4. THE LEARNED AR SUBMITTED BEFORE US THAT EXERCISE OF POWER U/S 263 OF THE ACT BY CIT IS UNCALLED FOR AS AO HAS COM PLETED THE ASSESSMENT AFTER MAKING NECESSARY ENQUIRY AND PROPE R APPLICATION OF MIND. IT WAS SUBMITTED THAT SO FAR AS NON CONSIDERA TION OF DISALLOWANCE OF DEPRECIATION ON THE TWO DREDGERS IS CONCERNED, ASSESSEE HAS MADE AN APPLICATION U/S 154 OF THE ACT , BRINGING TO THE NOTICE OF AO AND HAS MADE AN ALTERNATIVE CLAIM FOR ENHANCEMENT OF THE LOSS. THEREFORE, DURING THE PENDENCY OF THE APP LICATION U/S 154, THE CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSE SSMENT ORDER ON THIS ISSUE IN EXERCISE OF POWER U/S 263. SO FAR AS THE I SSUE OF APPLICABILITY OF SECTION 40(A)(IA) ON THE EQUIPMENT CONTRACTUAL C HARGES IS CONCERNED, LEARNED AR SUBMITTED THAT THIS ISSUE WAS THOROUGHLY INQUIRED INTO BY THE AO AT THE TIME OF ASSESSMENT P ROCEEDING AND AFTER CONSIDERING ALL FACTS AND MATERIALS ON RECORD SUBMITTED BY ASSESSEE AND BEING SATISFIED WITH THE FACT THAT ASS ESSEE HAS COMPLIED WITH THE TDS PROVISIONS HAS PASSED ASSESSM ENT ORDER. IN THIS CONTEXT, THE LEARNED AR REFERRED TO HIS REPLY DATED 13/12/2011 4 ITA NO.77/HYD/2014 M/S DHARTI DREDGING & INFRASTRUCTURE LTD. SUBMITTED BEFORE THE AO IN COURSE OF ASSESSMENT PRO CEEDING. LEARNED AR SUBMITTED THAT THE ISSUE WAS ALSO EXAMIN ED BY ITO (TDS) WHILE VERIFYING ASSESSEES COMPLIANCE TO TDS PROVIS IONS. REFERRING TO THE SHOW CAUSE NOTICE ISSUED BY ITO(TDS) ON 16/03/2 011, LEARNED AR SUBMITTED THAT ITO(TDS) SPECIFICALLY INQUIRED IN TO THE ISSUE OF TDS COMPLIANCE ON EQUIPMENT CONTRACTUAL CHARGES OF RS. 5506.46 LAKHS AND AFTER CONSIDERING ASSESSEES REPLY DATED 21/03/2011, ITO(TDS) PASSED AN ORDER U/S 201(1) AND 201(1A) ON 31/03/2011 ONLY CHARGING INTEREST OF RS. 5,14,043 U/S 201(1A) OF TH E ACT. IN THIS CONTEXT, LEARNED AR ALSO DREW OUR ATTENTION TO THE DETAILS OF TDS PAYMENT ON EQUIPMENT CONTRACTUAL CHARGES, SUBMITTED IN THE PAPER BOOK. THUS, IT WAS SUBMITTED THAT WHEN ASSESSEE HAS COMPLIED TO TDS PROVISIONS IN RESPECT OF EQUIPMENT CONTRACTUAL CHARGES AND THE MATTER WAS NOT ONLY ENQUIRED BY ITO(TDS), BUT, ALSO IN COURSE OF SCRUTINY ASSESSMENT PROCEEDING, THE CIT WAS NOT JUS TIFIED IN HOLDING THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF REVENUE FOR NON-CONSIDERATION OF APPLICABILITY O F SECTION 40(A)(IA) ON EQUIPMENT CONTRACTUAL CHARGES. 5. THE LEARNED DR, ON THE OTHER HAND, SUPPORTING TH E ORDER OF THE CIT SUBMITTED THAT AS CIT HAS SIMPLY DIRECTED THE A O TO EXAMINE THE ISSUE OF ALLOWABILITY OF DEPRECIATION ON THE TWO DR EDGERS AND ALSO APPLICABILITY OF SECTION 40(A)(IA), NO PREJUDICE IS CAUSED TO ASSESSEE. SO FAR AS THE ISSUE OF ALLOWABILITY OF DEPRECIATIO N IS CONCERNED, LEARNED DR SUBMITTED , PRIMA-FACIE, THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE AS AO HAS ALLOWED ASSESSEES CLAIM OF DEPRECIATION ON TWO DRE DGERS IGNORING THE DISALLOWANCE OF DEPRECIATION ON THE SAID DREDGERS I N THE PRECEDING AY 2008-09. THUS, ON THIS REASON ALONE, ASSESSMENT ORD ER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. LEARNED DR SUBMITTED THAT EVEN IF ON ONE ISSUE THE ASSESSMENT ORDER IS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF RE VENUE, EXERCISE OF JURISDICTION U/S 263 WILL BE VALID. 5 ITA NO.77/HYD/2014 M/S DHARTI DREDGING & INFRASTRUCTURE LTD. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AS WELL AS THE MATERIALS ON RECORD. AS CAN BE SEEN, CIT HAS HE LD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE FOR THE FOLLOWING TWO REASONS: 1. AO HAS ALLOWED THE CLAIM OF DEPRECIATION IN RESP ECT OF TWO DREDGERS WHEREAS DEPRECIATION CLAIMED ON THESE TWO DREDGERS WERE DISALLOWED IN THE PRECEDING AY 2008-09. 2. AO HAS NOT EXAMINED THE APPLICABILITY OF SECTION 40(A)(IA) BY VERIFYING THE COMPLIANCE TO TDS PROVISIONS ON PAYME NT OF EQUIPMENT CONTRACTUAL CHARGES OF RS. 55,06,46,318/- . 7. SO FAR AS THE FIRST ISSUE OF ALLOWANCE OF CLAIM OF DEPRECIATION ON TWO DREDGERS IS CONCERNED, UNDISPUTEDLY, AO WHILE C OMPLETING THE ASSESSMENT HAS NOT AT ALL APPLIED HIS MIND TO THIS ISSUE AND HAS NOT MADE ANY ENQUIRY. AS CAN BE SEEN FROM THE FACTS AND MATERIALS ON RECORD IN THE PRECEDING AY 2008-09 WHILE EXAMINING ASSESSEES CLAIM OF DEPRECIATION ON THE TWO DREDGERS I.E. TALUNG AND TASING, AO DISALLOWED ASSESSEES CLAIM FOR THE REASON THAT ASS ESSEE CANNOT BE CONSIDERED TO BE THE OWNER OF TWO DREDGERS. ASSESSE ES APPEAL ON THIS ISSUE WAS DISMISSED BOTH BY CIT(A) AS WELL AS BY ITAT. HENCE, CLAIM OF DEPRECIATION ON THE VERY SAME DREDGERS IN AY 2009-10 COULD NOT HAVE BEEN ALLOWED. AO WHILE FRAMING ASSESSMENT FOR THE IMPUGNED AY HAS NOT AT ALL EXAMINED THIS ISSUE AND WITHOUT APPLYING HIS MIND TO THE FACTS AND MATERIALS ON RECORD HAS A LLOWED ASSESSEES CLAIM OF DEPRECIATION EVEN ON THESE TWO DREDGERS. E VEN ASSESSEE ALSO ADMITS THIS FACT IN THE APPLICATION FILED U/S 154 OF THE ACT. IN THE AFORESAID FACTS AND CIRCUMSTANCES, ASSESSMENT ORDER PASSED IS CERTAINLY NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL T O THE INTERESTS OF REVENUE. THE CONTENTION OF LEARNED AR THAT AS ASSES SEE HAS FILED APPLICATION U/S 154, CIT WAS NOT JUSTIFIED IN SETTI NG ASIDE THE ORDER U/S 263, IN OUR VIEW IS DEVOID OF MERIT. CITS POWER U/ S 263 CANNOT BE CURTAILED DUE TO APPLICATION FILED U/S 154 OF THE A CT AS THE PROCEEDINGS 6 ITA NO.77/HYD/2014 M/S DHARTI DREDGING & INFRASTRUCTURE LTD. ARE DIFFERENT. THE APPLICATION FILED U/S 154 WILL B E DEALT WITH BY AO INDEPENDENTLY AS IT IS ON A DIFFERENT ISSUE. THEREF ORE, IN THE AFORESAID FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT CI T WAS JUSTIFIED IN REVISING THE ASSESSMENT ORDER U/S 263 OF THE ACT SO FAR AS THE ISSUE OF ALLOWABILITY OF DEPRECIATION CLAIMED ON THE TWO DREDGERS IS CONCERNED. 8. HOWEVER, SO FAR AS THE SECOND ISSUE OF APPLICABI LITY OF PROVISIONS OF SECTION 40(A)(IA) IS CONCERNED, IN OU R VIEW, ON THIS ISSUE ASSESSMENT ORDER PASSED CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. AS CAN BE SEEN, FROM THE FACTS AND EVIDENCES BROUGHT ON RECORD ITO(TDS) WHILE EXAM INING ASSESSEES COMPLIANCE TO TDS PROVISIONS ISSUED SHOW CAUSE NOTICE ON 16/03/2011, A COPY OF WHICH IS PLACED AT PAGE 12 4 OF ASSESSEES PAPER BOOK, SPECIFICALLY SEEKING ASSESSEES REPLY O N COMPLIANCE TO TDS PROVISIONS ON PAYMENT OF EQUIPMENT CONTRACTUAL CHARGES OF RS. 5506.46 LAKHS. IN COMPLIANCE TO THE SHOW CAUSE NOTI CE, ASSESSEE FILED ITS REPLY ON 21/03/2011 SUBMITTING THE DETAIL S OF PAYMENT OF TDS ON EQUIPMENT CONTRACTUAL CHARGES. AFTER CONSIDERING ASSESSEES REPLY ITO(TDS) PASSED AN ORDER ON 31/03/2011, A COPY OF W HICH IS PLACED AT PAGE 49 OF THE ASSESSEES PAPER BOOK, ONLY CHARG ING INTEREST U/S 201(1A) OF THE ACT OF AN AMOUNT OF RS. 5,14,043. IN COURSE OF SCRUTINY ASSESSMENT PROCEEDING, WHEN AO RAISED A QUERY WITH REGARD TO ASSESSEES COMPLIANCE TO TDS PROVISIONS, ASSESSEE I N ITS REPLY DATED 13/12/2011 BROUGHT ALL THESE FACTS TO THE NOTICE OF AO. AFTER CONSIDERING MATERIALS BROUGHT ON RECORD, AO COMPLET ED THE ASSESSMENT. THEREFORE, WHEN AO HAS MADE ENQUIRY IN RESPECT OF COMPLIANCE TO TDS PROVISIONS ON PAYMENT OF EQUIPMEN T CONTRACTUAL CHARGES AND AFTER CONSIDERING FACTS AND EVIDENCES B ROUGHT ON RECORD HAS COMPLETED THE ASSESSMENT, THE ASSESSMENT ORDER CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE I NTERESTS OF REVENUE FOR ALLEGED NON CONSIDERATION OF APPLICABILITY OF S ECTION 40(A)(IA). FURTHER, WHEN IN THE ORDER PASSED U/S 201 & 201(1A) , NO DEMAND HAS 7 ITA NO.77/HYD/2014 M/S DHARTI DREDGING & INFRASTRUCTURE LTD. BEEN RAISED WITH REGARD TO TDS, AND ONLY INTEREST U /S 201(1A) HAS BEEN CHARGED, IT CANNOT BE SAID THAT ASSESSEE HAS N OT COMPLIED TO TDS PROVISIONS SO FAR AS PAYMENT OF EQUIPMENT CONTR ACTUAL CHARGES IS CONCERNED. THEREFORE, CONSIDERING THE FACTS AND EV IDENCES ON RECORD, WE ARE OF THE VIEW THAT AS AO HAS CONSIDERE D THE ISSUE OF TDS ON EQUIPMENT CONTRACTUAL CHARGES AND SINCE THE ORDER PASSED U/S 201 & 201(1A) ALSO REVEALS THAT ASSESSEE HAS CO MPLIED TO TDS PROVISIONS, DIRECTION OF CIT IN RESPECT OF APPLICAB ILITY OF SECTION 40(A)(IA), IS NOT CORRECT AND THE ASSESSMENT ORDER ON THIS ISSUE CANNOT BE CONSIDERED TO BE ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF REVENUE. IN THE AFORESAID FACTS AND CIRCUMSTANC ES, THOUGH, WE UPHOLD THE VALIDITY OF THE ORDER PASSED U/S 263 OF THE ACT, BUT, AT THE SAME TIME WE DIRECT THE AO TO ONLY EXAMINE THE ISSU E OF ALLOWABILITY OF DEPRECIATION ON THE TWO DREDGERS. THUS, ORDER OF CIT IS MODIFIED TO THE EXTENT INDICATED ABOVE. 9. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 15/10/2014. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 15 TH OCTOBER, 2014 KV COPY TO:- 1) M/S DHARTI DREDGING & INFRASTRUCTURE LTD., 1 ST FLOOR, POINT OF VIEW, B.S. MAKTHA BEGUMPET, HYDERABAD 500 016 2) ACIT, RANGE 1, HYD. 3) CIT-I HYDERABAD. 4)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.