Indo Shell Mould Limited, Coimbatore V. ACIT, Coimbatore

ITA 981/CHNY/2011

• Counselvise Citation: 98121714 RSA 2011
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 06-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY V R DESHMUKH
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Deemed dividend
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER ITA NO.981(MDS)/2011 ASSESSMENT YEAR: 2006-07 M/S.INDO SHELL MOULD LTD., A-9, SIDCO INDUSTRIAL ESTATE KURICHI,COIMBATORE-641018. PAN AAACI4300C. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE I(1), COIMBATORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.SRI DHAR, ADVOCATE RESPONDENT BY : SHRI SANJAY V .R.DESHMUKH, JCIT. DATE OF HEARING : 13 TH SEPTEMBER, 2011 DATE OF PRONOUNCEMENT : 13 TH SEPTEMBER, 2011 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX-I AT COIMBATORE THROUGH HIS PROCEEDINGS DATED 25-3-2011. - - ITA NO.981 OF 2011 2 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGE D IN THE BUSINESS OF MANUFACTURING OF SHELL MOULD CAS T AND IRON CASTING COMPONENTS. THE ASSESSMENT WAS COMPLETED U NDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961, ON 31-1 0-2008. THEREAFTER, THE COMMISSIONER OF INCOME-TAX PERUSED THE RECORDS OF THE CASE. CONSEQUENTLY HE FOUND THAT THE ASSESSE E HAD NOT EXERCISED ITS OPTION WHETHER TO CLAIM DEPRECIATION ON WINDMILLS AT THE RATE OF 7.69% ON STRAIGHT-LINE METHOD OR AT 80% ON DIMINISHING METHOD. THE COMMISSIONER OF INCOME-TAX ALSO FOUND THAT THE ASSESSEE HAD ISSUED EQUITY SHARES BY CAPITALISING THE RESERVE TO SIDBI VENTURE CAPITAL FUND, WHICH AM OUNTED TO PAYMENT OF DEEMED DIVIDEND UNDER SECTION 2(22)(B). IN THE LIGHT OF THE ABOVE FINDINGS, HE SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO PASS A FRESH ORDER IN CONSONANCE WITH THE PROVISIONS OF LAW AND AFTER CONSIDERING THE FACTS OF THE CASE. IT IS AGAINST THE ABOVE ORDER THAT THE ASSESSEE HAS COME IN APPEA L BEFORE US. 3. THE GROUNDS RAISED BY THE REVENUE IN THE PRESEN T APPEAL ARE AS FOLLOWS:- - - ITA NO.981 OF 2011 3 1. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN INVOKING POWERS UNDER SECTION 263 OF THE ACT WHEN THE ORIGINAL ASSESSMENT ORDER WAS NOT ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX ERRED IN DIRECTING THE ASSESSING OFFICER TO ADOPT THE STRAIG HT LINE METHOD IN ALLOWING DEPRECIATION ON WINDMILLS OWNED BY THE APPELLANT CONSIDERING THE FACT THAT TH E APPELLANT HAD EXERCISED ITS OPTION TO CLAIM DEPRECIATION UNDER THE WRITTEN DOWN VALUE BASIS AS PER APPENDIX I READ WITH RULE 5(1A). 3. THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO NOTE THAT THE CLAIM IN THE RETURN OF INCOME WOUL D TANTAMOUNT TO EXERCISE OF OPTION BY THE APPELLANT AND THAT THE HONOURABLE ITAT HAD ALREADY ALLOWED APPEALS ON SIMILAR GROUND. 4. THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO NOTE THAT THE APPELLANT HAD ALREADY OPTED TO CLA IM DEPRECIATION OF 80% ON WINDMILLS AS PER APPENDIX-I UNDER RULE 5(1A) IN THE EARLIER ASSESSMENT YEARS AND WHICH HAD BEEN ACCEPTED BY THE ASSESSING OFFICER AND THAT THERE IS NO NEED TO EXERCISE THE OPTION EVERY YEAR IN THE RETURN OF INCOME AS THE - - ITA NO.981 OF 2011 4 OPTION ONCE EXERCISED WOULD SUFFICE THE PROVISIONS OF LAW. 5. THE LEARNED COMMISSIONER OF INCOME-TAX WAS IN ERROR IN DIRECTING THE ASSESSING OFFICER TO REEXAMINE WHETHER SECTION 2(22) IS ATTRACTED WHEN THE APPELLANT HAD FILED ALL THE PARTICULARS AND PROVED THAT THERE HAS BEEN NO CAPITALIZATION OF PROFITS ATTRACTING THE PROVISIONS OF SECTION 2(22) OF THE ACT. 6. THE LEARNED COMMISSIONER OF INCOME-TAX FAILED TO NOTE THAT THE APPELLANT HAD ALLOTTED SHARES TO SIDBI VENTURE CAPITAL FUND UPON RECEIPT OF FUNDS FROM THEM AND THAT THERE WAS NO CAPITALIZATION OF PROFITS BY ISSUE OF BONUS SHARES. 7. THE LEARNED COMMISSIONER OF INCOME-TAX BRUSHED ASIDE THE DETAILS FILED IN RESPECT OF RECEI PT OF MONEY FROM SIDBI VENTURE CAPITAL FUND TOWARDS ALLOTMENT OF SHARES AND WENT AHEAD IN DIRECTING THE ASSESSING OFFICER TO DO FRESH ASSESSMENT WHEN THERE WAS NO ERROR IN THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER. 8. THE LEARNED COMMISSIONER OF INCOME-TAX THUS ERRED IN DIRECTING THE ASSESSING OFFICER TO MAKE A - - ITA NO.981 OF 2011 5 FRESH ASSESSMENT WHEN THE ORDER OF THE ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO TH E INTERESTS OF REVENUE SO AS TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT AND THE ORDER IS THEREFOR E BAD IN LAW LIABLE TO BE SET ASIDE. 4. WE HEARD SHRI S.SRIDHAR, THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE AND SHRI SANJAY V.R.DESH MUKH, THE LEARNED JOINT COMMISSIONER OF INCOME-TAX, APPEARING FOR THE REVENUE. 5. REGARDING THE QUESTION OF RATE OF DEPRECIATION, IT IS TRUE THAT THE ASSESSEE HAD NOT PLACED ANY FORMAL OP TION, STATING THAT THE ASSESSEE WAS FOLLOWING WRITTEN DOWN VALUE METHOD. BUT IN ITS RETURN OF INCOME, THE ASSESSEE HAD MADE THE CLAIM OF DEPRECIATION, WORKED OUT ON THE BASIS OF DIMINISHIN G VALUE METHOD. IN A SIMILAR SITUATION, THE D-BENCH OF THI S TRIBUNAL HAS HELD IN THE CASE OF K.K.S.K.LEATHER PROCESSORS(P) L TD. VS. ITO, 126 ITD 215, THAT THE ASSESSEE HAS MADE ITS OPTION CLEAR BY SPECIFYING IN THE RETURN OF INCOME THE RATE TO BE A PPLIED FOR COMPUTING DEPRECIATION. THE TRIBUNAL OBSERVED THAT THE RULE DOES NOT PROVIDE ANY PARTICULAR MECHANISM TO BE FOL LOWED BY THE ASSESSEE IN EXERCISING ITS OPTION IN THE MATTER OF DEPRECIATION. - - ITA NO.981 OF 2011 6 WHEN NO SUCH STATUTORY FORMAT IS AVAILABLE, THE OPT ION HAS TO BE EXAMINED FROM THE FACTS OF THE CASE. WHERE AN ASSE SSEE HAS FILED ITS RETURN OF INCOME AFTER CLAIMING DEPRECIAT ION ON ANY PARTICULAR METHOD, THAT RETURN ITSELF IS THE INSTRU MENT OF OPTION TO HOLD THAT THE ASSESSEE HAD OPTED FOR A PARTICULAR M ETHOD. WE FIND THAT THE ABOVE DECISION OF THE TRIBUNAL IS SQU ARELY APPLICABLE TO THE PRESENT CASE. AS THE ASSESSEE HAS ALREADY M ADE ITS INTENTION CLEAR TO OPT FOR THE DIMINISHING VALUE ME THOD, THE DEPRECIATION ALLOWANCE GRANTED BY THE ASSESSING OFF ICER CANNOT BE HELD TO BE ERRONEOUS. ACCORDINGLY, THE FIRST IS SUE DISCUSSED BY THE COMMISSIONER OF INCOME-TAX DOES NOT JUSTIFY EXERCISING HIS POWERS AVAILABLE UNDER SECTION 263 OF THE ACT. 6. REGARDING THE ALLOTMENT OF EQUITY SHARE CAPITAL , IT IS THE CASE OF COMMISSIONER OF INCOME-TAX THAT EQUITY SHARES WERE ISSUED BY THE ASSESSEE COMPANY TO SIDBI VENTURE CAP ITAL FUND BY CAPITALISING ITS RESERVE. BUT THE ASSESSEE HAS MADE IT VERY CLEAR IN HIS REPLY FILED BEFORE THE COMMISSIONER OF INCOME-TAX THAT 13,10,000 EQUITY SHARES OF ` 10/- EACH AT A PREMIUM OF ` 110/- PER SHARE WERE ALLOTTED BY THE ASSESSEE COMP ANY TO SIDBI VENTURE CAPITAL FUND AGAINST A SUM OF ` 15,72,00,000/- - - ITA NO.981 OF 2011 7 PAID BY SIDBI VENTURE CAPITAL FUND TO THE ASSESSEE COMPANY. IT SHOWS THAT THE ASSESSEE COMPANY HAS ISSUED EQUIT Y SHARES IN FAVOUR OF SIDBI VENTURE CAPITAL FUND AGAINST THE CO NSIDERATION OF CASH AS NECESSARY UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956. SHARES AGAINST THE RESERVE OF A PUBLIC LIMIT ED COMPANY CAN BE ISSUED ONLY IN THE FORM OF BONUS SHARES. IT WAS NOT POSSIBLE FOR THE COMPANY UNDER THE PROVISIONS OF TH E COMPANIES ACT TO ALLOT SHARES TO SIDBI VENTURE CAPITAL FUND W ITHOUT CONSIDERATION EITHER IN CASH OR IN CASH-WORTH. 7. THE COMMISSIONER OF INCOME-TAX HAS NOT ENTERED INTO ANY FINDING ON THE ISSUE AS TO WHETHER SHARES WERE ALLOTTED AFTER CAPITALISING THE RESERVE OR AGAINST RECEIPT O F CASH. IT IS CLEAR FROM HIS OBSERVATION THAT ..AS IT APPEARS THAT 1 3,10,000 EQUITY SHARES ISSUED BY WAY OF CAPITALIZATION OF RE SERVE TO SIDBI VENTURE CAPITAL FUND AMOUNTED TO CAPITALIZATION OF PROFITS,... EVEN ACCORDING TO HIM, IT IS ONLY AN ASSUMPTION. F URTHER, THE AMOUNT STATED TO BE TRANSFERRED FROM GENERAL RESERV E FUND TO SHARE CAPITAL ACCOUNT IS ONLY ` 2,62,00,000/-, WHEREAS THE ASSESSEE HAS ALLOTTED 13,10,000 EQUITY SHARES TO SI DBI VENTURE CAPITAL FUND FOR AN AMOUNT OF ` 15,72,00,000/-. - - ITA NO.981 OF 2011 8 8. ON THE OTHER HAND, THE ASSESSING OFFICER HAS EXAMINED ALL THESE MATTERS IN A DETAILED MANNER. I N PARAGRAPH 3 OF THE ASSESSMENT ORDER HE HAS STATED THAT DETAILS WERE EXAMINED, AMONG OTHER THINGS, IN RESPECT OF INCREAS E IN SHARE CAPITAL AS WELL. 9. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, IT IS NOT POSSIBLE TO HOLD THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS. WE FIND THAT THE SECOND REAS ON POINTED OUT BY THE COMMISSIONER OF INCOME-TAX ALSO IS NOT SUFFI CIENT TO INVOKE HIS POWERS AVAILABLE UNDER SECTION 263 OF TH E ACT. 10. IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT THE ASSESSMENT ORDER CANNOT BE CONSIDERED AS E RRONEOUS AND IN SUCH CIRCUMSTANCES THE COMMISSIONER OF INCOM E-TAX HAS NO JURISDICTION TO PASS THE REVISION ORDER UNDER SE CTION 263 OF THE ACT, SETTING ASIDE THE ASSESSMENT ORDER. ACCORDING LY, THE REVISION ORDER IS SET ASIDE. 11. IN RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. - - ITA NO.981 OF 2011 9 ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON TUESDAY, THE 13 TH OF SEPTEMBER, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 13 TH SEPTEMBER, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.