BHARAT PRTROLEUM CORPORATION LTD., MUMBAI V. PR. CIT CIRCLE-2, MUMBAI

MA 303/MUM/2022

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The case involves Bharat Petroleum Corporation Ltd. (the assessee) contesting a revision order under section 263 of the Income Tax Act, 1961, passed by the Principal Commissioner of Income Tax (PCIT) concerning the assessment year 2016-17. The revision pertained to deductions claimed under section 32AC(1A) for LPG cylinders and regulators, and assets in 'Capital work in progress', as well as an exemption under section 10(34). The Tribunal had previously set aside the PCIT's order on the exemption issue and addressed the other two issues by examining whether the assets in question qualified as 'Plant and Machinery' under the Act. The Tribunal's initial decision included observations on the quantification and verification of eligible assets, which were contested by the assessee as being outside the scope of the appeal. The Tribunal acknowledged the oversight and rectified the mistake by removing the contested observations and directing a re-examination of the claims by the Assessing Officer.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125103 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 4 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 24-08-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 22-06-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 20-10-2022
• Other Referred Cases: CIT vs. ITAT (2010) (322 ITR 359)(Bom), M Visvesvaraya Industrial Research & Development Centre vs. ITAT (2001)(251 ITR 852)(Bom), CIT vs. Mool Chand Shyam Lal (2004)(141 Taxman 322)(All), Malabar Industrial Co. Ltd (243 ITR 83)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Depreciation
• Section: 263; 142(1); 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI B. R. BASKARAN, AM AND SHRI ABY T. VARKEY, JM MA. No. 303/Mum/2022 (Arising out of ITA. No.1601/Mum/2020 (निर्धारण वर्ा / Assessment Year: 2016-17) Bharat Petroleum Corporation Ltd. Taxation Section 4 th Floor, Bharat Bhavan 1, 4 & 6 Currimbhoy Road Ballard Estate, Mumbai- 400001. बिधम/ Vs. PCIT, Circle-2 Room No. 344, Aayakar Bhavan, M. K. Road, Mumbai-400020. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AAACB2902M (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 23/06/2023 घोषणा की तारीख /Date of Pronouncement: 25/08/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: The assessee has filed this Miscellaneous Application submitting that there are mistakes apparent from record in the order dated 05.09.2022 passed in ITA No. 1601/Mum/2020. 2. The Ld A.R submitted that the Ld PCIT passed the revision order u/s 263 of the Act revising the assessment order passed for AY 2016-17 on the following three issues:- (a) Deduction claimed u/s 32AC(1A) of the Act in respect of LPG Cylinders and regulators. (b) Deduction claimed u/s 32AC(1A) of the Act in respect of assets installed during the year, but which were included in ‘Capital work in progress” (c) Exemption claimed u/s 10(34) of the Act. Assessee by: Shri J. D. Mistry & Ms. Gunjan Kakkad Revenue by: Ms. Mahita Nair MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 2 3. The Ld A.R submitted that the Tribunal cancelled the order of Ld PCIT in respect of the third issue cited above, viz., Exemption claimed u/s 10(34) of the Act. He submitted that mistakes apparent from record has occurred in respect of first two issues, cited above. 4. In respect of the first issue relating to deduction claimed u/s 35AC(1A) of the Act in respect of LPG Cylinders and regulators, the Ld PCIT has taken the view that they will not fall under the category of Plant and Machinery and hence the AO had wrongly allowed the deduction thereon u/s 35(AC) of the Act. The Ld A.R submitted that the Tribunal noticed that this issue has been decided in favour of the assessee in the assessee’s own case by the co-ordinate benches in AY 2015-16 (ITA No.1602/Mum/2020) and also in AY 2017-18 (ITA No.1600/Mum/2020), wherein the Tribunal had set aside revision order passed on an identical issue in those years. Accordingly, the Tribunal held that the LPG Cylinders and regulators fall under the category of Plant and Machinery and they are eligible for deduction u/s 35(2AC) of the Act. Accordingly, it was held in paragraph 9 at Page 17 of the impugned order that it did not countenance the finding of Ld PCIT that the LPG Cylinders are not eligible assets for claiming deduction u/s 32AC of the Act. 5. The Ld A.R submitted that, after cancelling the revision order passed by Ld PCIT on the first issue, the Tribunal, however, proceeded to restore the issue again to the file of AO for examining the quantification and verification of eligible assets. The Ld A.R submitted that the question of quantification and verification of eligible assets is not subject matter of revision order passed u/s 263 of MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 3 the Act. The only issue canvassed by Ld PCIT is that the LPG Cylinders and regulators do not fall under the category of ‘Plant & Machinery’ and hence not eligible for deduction u/s 32AC of the Act. However, the Tribunal has proceeded to decide an issue which was not subject matter of appeal and even not disputed by any of the authorities below. Accordingly he contended that the Tribunal has committed a mistake apparent from record in proceeding to decide an issue was not subject matter of appeal and the impugned order. The Ld A.R took support of following case law in support of his contentions:- CIT vs. ITAT (2010) (322 ITR 359)(Bom) M Visvesvaraya Industrial Research & Development Centre vs. ITAT (2001)(251 ITR 852)(Bom) 6. Accordingly, the Ld A.R prayed for rectification of the order passed by the Tribunal on this issue. 7. We heard the parties on this issue and perused the record. A perusal of the impugned revision order passed by the PCIT would show that the Ld PCIT has taken the view that the LPG Cylinders and Regulators are not eligible assets for the purpose of claiming deduction u/s 32AC of the Act. Before the AO, the assessee had given details of purchases of LPG Cylinders and Regulators exceeding Rs.10.00 lakhs. While setting aside this issue, the Ld PCIT has directed the AO to look into the purchases of less than Rs.10.00 lakhs also, apparently for the purpose of rejecting the claim of the assessee on these assets. Thus, there is merit in the contention of the Ld A.R that, only view point of MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 4 the Ld PCIT on this issue is that the LPG Cylinders and Regulators do not fall under the category of ‘Plant & Machinery” and hence they are not eligible for deduction u/s 32AC of the Act. As rightly pointed out by Ld A.R, the issue of quantification and verification was not the issue raised by Ld PCIT. Accordingly, the observation made by the Tribunal on the quantification and verification of eligible assets, is not subject matter of the impugned appeal and hence it has resulted in a mistake apparent from record. Accordingly, we deem it proper to correct the mistake by removing the relevant observations made by the Tribunal in Paragraph 9 of its order. 8. Accordingly, we direct deletion of the following observations made by the Tribunal in paragraph 9 of its order:- “Having held so, as noted, as noted earlier, the list of assets provided by the assessee included items other than LPG Cylinders as well. Whether such other items of additions are eligible for deduction u/s 32AC of the Act has not been looked into either by the Ld PCIT or the AO. Hence, the limited issue regarding quantification and verification of the eligible assets ( as defined in sub-section (4) to Section 32AC of the Act (infra)) is left open, which shall be looked into by the AO de novo uninfluenced by the findings of the Ld PCIT.” 9. On removing the above said observations, the mistake apparent from record would get rectified. Accordingly, the assessee’s request to rectify the above mistake is allowed. 10. The next mistake pointed out by the assessee relates to the issue of deduction claimed u/s 32AC(1A) of the Act in respect of assets MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 5 installed during the year, but which were included in ‘Capital work in progress.” The Ld A.R submitted that, as per the provisions of sec.32AC, the deduction under that section is allowed on the assets “acquired and installed” during the year under consideration. He further submitted that, if the year of the installation is not the year of acquisition, then the deduction shall be allowed in the year of installation. He submitted that Petroleum refinery consisted of many types of machinery, which are integrated together to form the petroleum refinery. Hence, the integrated petroleum refinery shall consist of several machineries, complete by itself. He submitted that the construction of petroleum refinery will take many years to integrate all the machineries. Accordingly, the assessee had claimed deduction u/s 32AC of the Act on the machineries “acquired and installed” during the year under consideration. He submitted that the condition of putting the machinery to use is not specified in sec. 32AC of the Act, unlike sec. 32, where the depreciation is allowable only if the machinery is put to use. The Ld A.R submitted that the assessee keeps the cost of machinery under “Capital work in progress”, till it is put to use, even if the installation of the same has been completed. Once it is put to use, then the cost of said machinery is transferred from ‘Capital work in progress’ to ‘Plant and Machinery account’. He submitted that the assessee has claimed the deduction u/s 32AC of the Act on the cost of all machineries, whose installation has been completed, even it is included in “Capital work in progress account”. He submitted that the assessee has also furnished installation certificate from the technical people to establish that the installation of MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 6 said machineries have been completed. He submitted that the assessee has not claimed depreciation on the machineries included in “Capital work in progress”, since they have not been put to use. He submitted that the Ld PCIT has taken the view that the assets included in ‘Capital work in progress’ cannot be considered to have been installed within the meaning of sec. 32AC of the Act, which is contrary to the provisions of sec. 32AC of the Act. 11. The Learned AR submitted that the assessee has furnished all these details before the Assessing Officer during the course of assessment proceedings and hence it can be said that the Assessing Officer has taken possible view of the matter. He submitted that the Tribunal had overlooked installation certificate furnished in the paper book and also failed to address above said contentions of the assessee. He submitted that the Tribunal has expressed view that there is discrepancy in the quantum of deduction, which has not been examined by the AO. He submitted that there is no discrepancy in the computation made to quantify the deduction claimed u/s 32AC of the Act and all the details relating to the computation have been furnished to the AO. Hence, the above said observation of the Tribunal with regard to the alleged discrepancy in the quantification of computation is contrary to the facts available on record and hence the said observation made on misunderstanding of facts constitutes mistake apparent from record. By placing reliance on the decision rendered by Hon’ble Allahabad High Court in the case of CIT vs. Mool Chand Shyam Lal (2004)(141 Taxman 322)(All), the Ld A.R contended that, MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 7 if the facts of a particular case have been recorded incorrectly or some error has crept in, which does not require any debate and is apparent on record, such a mistake can be corrected in exercise of powers conferred u/s 254(2) of the Act. The Ld A.R submitted that the Tribunal has decided the issue on merits also and expressed the view that the action of learned PCIT in holding that the deduction allowed under section 32AC of the Act in relation to the capital work in progress was erroneous and prejudicial to the revenue. He further submitted that the Tribunal has failed to note that the machinery included in the capital work in progress is ‘complete asset on its own’ and it is eligible for deduction under section 32AC of the Act. He further submitted that the decision so rendered by the Tribunal on merits is contrary to the provisions of under section 263 of the Act, as explained by Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd (243 ITR 83). He submitted that the assessee did not advance its arguments on merits and in any case, the view expressed by the Tribunal is unsupported by any authority. He further submitted that the Tribunal, having decided the issue on merits, has restored the matter to the file of the Assessing Officer for examining as to whether the machinery included in the capital work-in-progress has been installed during the year or not. He submitted that Tribunal has overlooked various vital facts, did not appreciate the facts in proper perspective and thus has committed a mistake apparent from record, which needs to be rectified. MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 8 12. We heard learned DR on this issue and perused the record. We notice that the Tribunal has examined this issue on merits from paragraph 12 to 15 of the order. The contention of Ld A.R is that the Tribunal has not examined the main contention of the assessee that the AO has taken a plausible view in this matter, which arguments falls under the scope of revision proceeding u/s 263 of the Act. It was also pointed out that the Tribunal did not appreciate the fact that there was no contradiction in respect of details furnished in support of the claim made. Further, the Tribunal has decided the issue on merits and its decision is not supported by any authority and further, after deciding the issue on merits, has restored the same issue to the file of AO. According to Ld A.R, the decision rendered on merits is contrary to the provisions of sec.263, wherein the Tribunal is required to examine as to whether the assessment order is erroneous and prejudicial to the interests of revenue, which has been lucidly explained by the Hon’ble Supreme court in the case of Malabar Industrial Co Ltd (supra). In our view, there is merit in the above said submissions of the assessee and accordingly, these mistakes apparent on the face of record require to be corrected. 13. Accordingly, paragraphs 12 to 15 of the order shall be substituted by the following paragraphs:- “12. It is the case of the assessee that the details relating to the machinery included in the capital work-in-progress has been furnished to the Assessing Officer alongwith the installation certificate. It is also the submission of the learned AR that the deduction under section 32AC can be allowed if the machinery MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 9 is acquired and installed i.e. there is no requirement of putting that machinery into the use. It is also submitted that the petroleum refinery is an integrated complex of various machineries and each of those machineries is a complete machinery by itself. Accordingly, it is contended that, once one of the machineries is completely installed, the same shall qualify for deduction under section 32AC of the Act. It was reiterated that the sec. 32AC does not impose the condition that the machinery should be put to use. It was submitted that the above said submissions were made before the AO and further machinery installation certificates were also furnished to the AO. Accordingly, it is contended that the AO has examined this issue and has taken a plausible view of the matter. 13. We noticed from the assessment order that the Assessing Officer has not discussed all these aspects in the assessment order. Further in the notice dated 9.10.2018 issued by the Assessing Officer under section 142(1) of the Act, the Assessing Officer has only asked the assessee to provide calculation of deduction claimed under section 32AC of the Act. We do not find any specific query raised by the AO as to the legal contentions made by the assessee, viz., the deduction u/s 32AC of the Act is allowable if the machinery is acquired and installed, even if the same is not put to use. Further, it is also no discernible as to whether the AO has examined the installation certificates furnished by the assessee. Consequently, it is not disenable as to whether the Assessing Officer has applied his mind on the finer points of the arguments advanced before us. 14. The main contention of the assessee that the machineries included in “Capital work in progress” are eligible for MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 10 deduction u/s 32AC of the Act, even if they were not put to use. It is also submitted that, as per the accounting policy followed by the assessee, the said machineries will form part of “capital work in progress’ and they will be transferred to ‘Plant & machinery’ account, once they are put to use. We notice that these factual aspects have not been examined by the AO. 15. In view of the above, we are of the view that the Ld PCIT was justified in passing the revision order on this issue. However, we notice that the Ld PCIT has expressed a definite view that the claim of the assessee u/s 32AC on work in progress cannot be allowed. In our view, the Ld PCIT should have kept the issue open and should have left to the wisdom of the AO to decide the same. Accordingly, we modify the order of Ld PCIT and direct the AO to examine the claim made by the assessee u/s 32AC of the Act on the value of machineries included in Capital work in progress in accordance with the law, without being influenced by the observations made by Ld PCIT. The assessee is free to advance all contentions before the AO.” 14. In the result, the miscellaneous application filed by the assessee is partly allowed. Order pronounced in the open court on this 25/08/2023. Sd/- Sd/- (B. R. BASKARAN) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER मुुंबई Mumbai; दिनाुंक Dated : 25/08/2023. Vijay Pal Singh, (Sr. PS) MA. No.303/Mum/2022 A.Y. 2016-17 Bharat Petroleum Corporation Ltd. 11 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुुंबई / ITAT, Mumbai 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त / CIT 4. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुुंबई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.