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आदेश/Order
Per R.L. Negi, Judicial Member: The assessee has filed the present appeal against the order dated 29.10.2019 passed by Commissioner of Income Tax (Appeals)-3, Ludhiana [for short ‘the CIT(A)’], whereby the Ld. CIT(A) has dismissed the appeal filed by the assessee against the assessment order passed by the Assessing officer u/s 143(3) r.w.s. 250 of the Income Tax Act, 1961 [for short ’the Act’] for the assessment year 2009-10.
Brief facts of the case are that the assessee filed its return of income for the assessment year under consideration declaring loss of Rs.8,77,19,306/-. The case was selected for scrutiny and the AO -Chd-2020- Nahar Industrial Enterprises Limited, Ludhiana 2 completed the assessment u/s 143(3) of the Act and determined the income of the assessee at Rs. 52,38,91,800/-under the normal provisions of the Act and Rs. 3,53,40,438/- under section 115JB of the Act inter alia making addition of Rs. 60,86,81,068/- on account of repurchase of Foreign Currency Convertible Bonds (FCCB). The assessee challenged the assessment order before the Ld. CIT(A). The Ld. CIT(A) after hearing the assessee partly allowed the appeal and held that out of Rs. 60.83 crore an amount of 41.83 crore is not taxable and confirmed the addition of remaining amount. Accordingly, the AO passed order giving effect to the appellate order passed by the Ld. CIT(A), however, held that the amount of Rs. 41.83 crore is to be allocated to machinery which could go to reduce the cost of the assets. Out of the said amount the allocation of machinery under the head of depreciation @ 15% and 80% are to be allocated on pro data basis depending upon the WDV of the said block. The sum allocated to the block of asset on which depreciation is claimed @ 15% comes to Rs 39,64,84,410/- and the machinery under the block of 80% depreciation comes to Rs. 2,18,97,600/-. Further, the AO disallowed the depreciation to the extent of Rs. 7,69,90,741/-. The assessee challenged the said order before the Ld. CIT(A) in the second round. The Ld. CIT(A) confirmed the action of the AO. Against the said findings of the Ld. CIT(A), the assessee is in appeal before this Tribunal. -Chd-2020- Nahar Industrial Enterprises Limited, Ludhiana 3 3. The assessee has challenged in the impugned order dated 29.10.2019 passed by the Ld. CIT(A) on the following grounds: -
I. That Worthy CIT(A)-3, erred in law & on facts in not directing the assessing officer, not to allocate the amount of difference of discount on buying back of FCCB and reducing a sum of Rs. 41.83 crore from the cost of assets, while computing depreciation in the absence of any such findings in the appellate order.
Direction be given not to allocate sum of Rs. 41.83 crore being relief given by appellate authority, in the absence of any specific finding given by appellate authority to reduce said relief from cost of assets
II. That Worthy CIT(A)-3, erred in law & on facts in not directing the assessing officer, not to reduce the claim of depreciation of the appellant by Rs. 7,69,90,741/- while giving the appeal effect to the appellate order, in the absence of any specific directions given by worthy CIT(A) Ludhiana in its order.
Directions be given not to reduce the claim of depreciation of the appellant by Rs. 7,69,90,741/-.
III. That Worthy CIT(A)-3, further erred in law & on facts by upholding the wrong computation of disallowance of depreciation which was computed by Adjusting incorrect figures of WDV of plant & machinery, after allocation of sum of Rs. 41.83 Crore.
Directions be given to consider the figure of Block of Assets as mentioned in Statement of Facts at Para No. II. Of appeal filed before CIT(A), Ludhiana.
IV. That the appellant craves, leave to add, amend, alter, modify or substitute all or any of the above-mentioned Ground of appeal before the appeal is finally heard and disposed off.
4. Before us, the Ld. counsel for the assessee submitted that the Ld. CIT(A) has erred in not directing the AO not to allocate the amount of difference on buying back of FCCD and reducing a sum of Rs. 41.83 crores from the cost of assets while computing depreciation in the absence of any such findings in the appellate order. The Ld. counsel -Chd-2020- Nahar Industrial Enterprises Limited, Ludhiana 4 further submitted that the appellant company issued foreign currency convertible bonds of US$ 44 million during the financial year 2005-06.
The FCCD was issued for the purpose of implementing the CAPAX Plant undertaken by the company. However, in the financial year relevant to the assessment year under consideration the appellant company bought back FCCD at the prevailing market price because of worst situation of secondary market. The AO considering the difference amount of Rs. 60.87 crores as revenue in nature, made addition to the income of the assessee. In the first round of appeal, the Ld. CIT(A) granted relief of Rs. 41.89 crores by considering it as capital in nature and directed to treat the remaining amount of Rs. 19.03 crores as revenue receipt. However, the AO while giving effect to the order passed by the Ld. CIT(A) computed the income / loss of the company by reducing the amount of Rs. 41.83 crores exceeding the jurisdiction and further reducing the amount of depreciation of Rs. 7.69 crores in spite of the fact that the Ld. CIT(A) had not issued any such direction.
Against the said findings, the assessee filed an appeal before the Ld. CIT(A) who has upheld the action of the AO. The Ld. counsel further contended that as per the settled law while giving effect to the appellate order, the AO has to strictly follow the direction of the order passed by the concerned authority, therefore the AO has no jurisdiction to travel beyond direction given by the Appellate Authority. The Ld. counsel relied on the following cases to substantiate his contention: - ITA No.1554-Chd-2020- Nahar Industrial Enterprises Limited, Ludhiana 5 1. Haryana State Cooperative Supply & Marketing Federation Ltd. vs DCIT, (ITAT, Chandigarh) 2. State Bank of Hyderabad vs DCIT, ITA No. 449/Hyd/2015 (ITAT, Hyd).
Aventis Pharma Ltd vs DCIT, ITA No. 4179/Mum/2003 (ITAT, Mumbai) 4. Engineering Professional Co. Pvt Ltd vs DCIT, CA No. 1997/2019 (Gujarat High Court) 5. ITO Vs Ryam Sugar Company Ltd – 105 ITR 819 (Cal. High Court) 5. The Ld. counsel further placing reliance on the judgement of the Hon'ble Supreme Court in the case of Tata Iron & Steel Company Ltd 231 ITR 285 - 287 (SC) submitted that the assessee’s case is covered by the ratio laid down by the Hon'ble Supreme Court in the said case.
Accordingly, the Ld. counsel submitted that since the impugned order is contrary to the law laid down by the Hon'ble Supreme Court, the same is liable to be set aside.
On the other hand, the Ld. Departmental Representative (DR) supporting the impugned order passed by the Ld. CIT(A) submitted that the Ld. CIT(A) has rightly upheld the action of the AO. However, not pointed out any case law to rebut the contention of the Ld. counsel.
We have heard the rival contentions of the parties and perused the material on record including the cases relied upon by the Ld. counsel.
As pointed out by the Ld. counsel the Ld. CIT(A) in the first round of appeal granted relief to the appellant assessee in respect of the addition -Chd-2020- Nahar Industrial Enterprises Limited, Ludhiana 6 made by the AO amounting to Rs. 60.87 crores to the extent of Rs. 41.83 crores holding as under: -
“Since I have already highlighted as to how the funds to the tune of Rs. 102.71 crore had been used for the purpose of capital expenditure and funds to the tune of Rs. 41.84 crores had been used for the working capital requirements, the taxability of the gain of Rs. 60.87 crores would also be done proportionately in the same ratio. In the circumstances out of total gain of 60.87 crores an amount of Rs. 19.03 crores is held to be taxable and rest of the amount i.e. 41.83 crores is not taxable. The addition made by the Assessing Officer is therefore confirmed to the tune of Rs. 19.03 crores.”
As contended by the Ld. counsel, the Ld. CIT(A) has not given any direction to reduce the amount of Rs. 41.83 crores from the costs of assets. The Ld. CIT(A) in his order passed in second round of appeal has not given any cogent and convincing reason for upholding the action of the AO. The Ld. CIT(A) has upheld the action of the AO holding that the assessee while agitating the appeal effect order has not filed any detailed submissions or any documentary evidence to demonstrate that the action of the AO is contrary to the settled position of law.
Further, the assessee has also failed to submit any details of block of fixed assets for which the assessee had invested a sum of Rs. 41.83 crores to contradict the action of the AO. The concluding paras of the impugned order read as under: -
“4.4 I have also gone through the appeal effect order of learned assessing officer. The assessing officer has observed while giving appeal effect that the payments by appellant were claimed to have been made to the parties which were supplier of machinery, accordingly apparently in furtherance of observation of CIT appeal -Chd-2020- Nahar Industrial Enterprises Limited, Ludhiana 7 land the claim of the appellant of utilization of a sum of Rs. 41.83 crore by the appellant the assessing officer has rightly given effect while treating the utilization of Rs. 41.83 crore to be allocated to; the machinery which would reduce the cost of the asset. The assessing officer has allocated the above-mentioned amount to Machinery under the head depreciation at the rate of 15% and 80% on pro rata basis depending on the WDV of the said Block. 4.5 While agitating the general effect order, the assessee has not any detail submission or any documentary evidence, which contradicts the action of the assessing officer in disallowing the depreciation claimed by the appellant. Further the appellant has also failed to submit any details of Block of fixed assets for which the appellant has invested a sum of Rs. 41.83 cr. contradicting the view of the AO. Looking to the facts of the case, no interference in called for in the action of the Assessing Officer in disallowing the depreciation to the extent of Rs.7.69,90,741/. Accordingly, grounds of appeal no 1,2 and 3 stands dismissed.”
9. As pointed out by the Ld. counsel, the AO has no jurisdiction to travel beyond the directions given by the concerned authority while giving effect to the orders passed by the higher authorities. In the case of State Bank of Hyderabad Vs DCIT and in the case of Aventis Pharma Vs DCIT (supra) the Hyderabad and the Mumbai Bench of the Tribunal respectively have held that the AO cannot travel beyond the direction issued by the higher authority. Similarly, in ITO Vs. Ryam Sugar Company Ltd and Engineering Professional Company Pvt Ltd Vs DCIT, the Hon'ble Calcutta High Court and Hon'ble Gujarat High Court respectively have also laid down that the AO has no power to go beyond the direction of the competent authority while passing order giving effect. So far as the merit of the case is concerned the Ld. counsel has -Chd-2020- Nahar Industrial Enterprises Limited, Ludhiana 8 pointed out that the issue involved is covered in favour of the assessee by the order of the Hon'ble Supreme Court in the case of Tata Iron & Steel Ltd (supra). However, we notice that the Ld. CIT(A) has passed the impugned order without taking into consideration the cases relied upon by the Ld. counsel. As alleged by the Ld. counsel the issue involved is also covered in favour of the assessee which has not been looked into by the authorities below. Under these circumstances, we deem it appropriate to restore the issue to the AO for passing order giving effect afresh to the appellate order passed by the Ld. CIT(A) in the first round of appeal. The Ld. DR has no objection in case the appeal is send back to the AO for fresh consideration. We accordingly set aside the findings of the Ld. CIT(A) and send the file back to the AO for passing the order afresh in accordance with the cases relied upon by the Ld. counsel. The AO is directed to pass the order afresh after giving opportunity of being heard to the appellant-assessee.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced on 22nd Oct. 2021.