I.T.O. vs. VADILAL CHEMICALS LTD.

O/TAXAP/173/2000 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 173 of 2000

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ I.T.O.....Appellant(s) Versus VADILAL CHEMICALS LTD.....Opponent(s) ================================================================ Appearance: MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1 MR BD KARIA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER Date : 13/08/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. Feeling aggrieved and dissatisfied with Page 1 of 8

O/TAXAP/173/2000 JUDGMENT the impugned judgment and order passed by the learned ITAT in ITA No.3036/Ahd/1994 for the A.Y. 1992-93, the appellant-Revenue has preferred the present Tax Appeal to consider the following substantial question of law; “Whether, the Appellate Tribunal is right in law and on facts in deleting the prima facie adjustment made under section 143(1)(a) in respect of sale of cylinders of Rs.16,40,000 despite the clear provisions of section 43(6)(c)(B) of the Act?” 2. The facts leading the present Tax Appeal in nutshell are as under; 3. The assessee-Company filed its return of income on an income of Rs.18,374/-, for which an intimation u/s. 143(1)(a) of the Income Tax Act (hereinafter referred to as ‘the Act’) dated 04.01.1994 was issued by the Assessing Officer. However, along with the aforesaid intimation, the Assessing Officer also forwarded an Adjustment Explanatory Sheet of the same date in which the appellant’s income was increased by an amount of Rs.12,38,611/- in respect of the 3 different items. The first two items were disallowable under Rule 6-D amounting to Rs.3,639/-. However, the third item was of a huge amount of RS.12,30,000/- in respect of excess claim of depreciation on cylinders as the sale of Page 2 of 8

O/TAXAP/173/2000 JUDGMENT cylinders is reduced from P&M whereas, it should be reduced from cylinders. The AO processed the return and made adjustment and the income of the assessee was increased by Rs.12,38,611/- with respect to the three different items. The dispute is with regard to the excess claim of depreciation. 4. The assessed submitted rectification application under Section 154 of the Act, Dated : 21.09.1993, which came to be rejected by the AO. The assessee, therefore, carried the matter in appeal before the learned CIT(A) and the learned CIT(A) allowed the said appeal vide order dated 31.03.1994., allowing the addition of aforesaid amount of Rs.12,38,611/-. 5. Feeling aggrieved and dissatisfied with the order passed by the learned CIT(A), the Revenue preferred appeal before the learned Tribunal and the learned Tribunal vide impugned judgment and order dismissed the appeal preferred by the appellant-Revenue and confirmed the order passed by the learned CIT(A), mainly on the ground that the issue involved was beyound the scope / ambit of the provisions of Section 143(1) (a) of the Act, and therefore, AO was not justified in making the disallownce, while processing the return. Page 3 of 8

O/TAXAP/173/2000 JUDGMENT 6. Feeling aggrieved and dissatisfied with the judgment and order passed by the learned Tribunal, the appellant-Revenue has preferred the present Tax Appeal to consider the aforesaid question of law. 7. Shri. Nitin Mehta, learned Advocate appearing on behalf of the appellant-revenue has vehemently submitted that the learned Tribunal has materially erred in, prima facie, holding that the adjustment made under Section 143(1)(a) of the Act in respect of sale of cylinders of Rs.16,40,000/-, despite the clear provisions of Section 43(6)(c)(B)(ii) of the Act. It is submitted that, as such, when initially Respondent-assessee claimed 100 per cent depreciation on the value of each cylinder, there after, it was not open to the Respondent-assessee to claim depreciation at 25% on all the cylinders, considering the same as block of assets. It is submitted that, therefore, considering the provisions of Section 143(1)(a) of the Act, the AO was justified in disallowing the deduction, which was, prima facie, found to be inadmissible in view of the provisions of Sub- section (ii) of Section 43(6)(c)(B) of the Act. It is, further, submitted that, as such, as per Sub-section 43(6)(c)(B) of the Act, the sale Page 4 of 8

O/TAXAP/173/2000 JUDGMENT value of any asset sold was required to be reduced from the block of assets to which it belongs. It is, therefore, submitted that the Respondent-assessee ought to have redueced the sale value of cylinders from the block of assets eligible for depreciation @ 100% and not from the block of assets eligible for depreciation @ 25%. It is submitted that, therefore, the learned Tribunal materially erred in quashing and setting aside the prima facie adjustment made by the AO under Section 143(1)(a) of the Act on the ground that the same was not permissible under Section 143(1)(a) of the Act. It is, further, submitted that the learned Tribunal has materially erred in observing that, as such, the issue is debatable and it was not permissible for the AO to make prima facie adjustments in exercise of power under Section 143(1)(a) of the Act. 8. Making the above submissions, it was requested to allow the present appeal. 9. Present appeal is opposed by the Shri. B.D. Karia, learned Advocate, appearing on behalf of the Respondent-assessee. It is submitted in the facts and circumstances of the case that both the learned CIT(A) as well as the learned Tribunal have concurrently held the issue, whether the Respondent-assessee can claim 100 per Page 5 of 8

O/TAXAP/173/2000 JUDGMENT cent depreciation on the purchase of the cylinders

for an

aggregate amount

of Rs.23,50,800/-, as provided under Section 143(1) (a) or whether the cylinders to be treated as forming part of block of assets, entitled to depreciation at the rate of 100 per cent or whether the deduction claimed in respect of entire costs of cylinders in view of the proviso to Sub-section (ii) of Section 43(6)(c)(B) of the Act were debatable and contentious and there can conceivably two opinions, both the learned CIT(A) as well as the learned Tribunal have rightly held that the adjustments made by the AO under the provisions of Section 32(6)(c)(B) of the Act were beyound the scope of limited jurisdiction under Section 143(1)(a) of the Act. 10. Making the above submissions, it was requested that the present appeal be dismissed. 11. Heard learned Advocates appearing on behalf of the respective parties, at length and perused the impugned judgment and order passed by the learned Tribunal as well as by the learned CIT(A) and also the original assessment order passed by the learned AO. 12. At the outset, it is required to be noted that the AO made the adjustments while Page 6 of 8

O/TAXAP/173/2000 JUDGMENT processing the return under Section 143(1)(a) in respect of sale of cylinders at an amount of Rs.16,66,800/-. It is required to be noted that the assessee claimed 100 per cent depreciation on the said cylinders, on sale of cylinders by reducing the same from plant and machinery. However, it was the case on behalf of the AO that it should have been reduced from value of each cylinder. The assessee submitted application under Section 154 of the Act, which came to be rejected. On an appeal, learned the CIT(A) as well as the learned Tribunal has held that at the issues with respect to the depreciation claimed by the Respondent-assessee on the value of entire plant and machinery or on the value of each cylinders etc., are debatable issues and, as such, there are two views possible. By observing as above, both the learned CIT(A) as well as the learned Tribunal held that in such a situation, while processing return under Section 143(1)(a) of the Act, it was not open to the AO and or it was beyound the jurisdiction of the AO to make adjustment and consequently the adjustment made by the AO under Section 143(1)(a) of the Act has been set aside. 13. Considering the provisions of Section 143(1)(a) of the Act, we see no reason to interfere with the impugned judgment and order Page 7 of 8

O/TAXAP/173/2000 JUDGMENT passed by the learned Tribunal, as no error appears to have been committed by the learned Tribunal in holding the aforesaid prima facie adjustment made by the AO in exercise of powers under Section 143(1)(a) of the Act as beyound the scope / ambit of the provisions of Section 143(1) (a) of the Act. 14. Under the circumstances, present appeal deserves to be dismissed and is accordingly, DISMISSED. The question of law is decided in favour of the Respondent-assessee and against the appellant-Revenue. In the facts and circumstances of the case, there shall be no order as to costs. (M.R.SHAH, J.) (K.J.THAKER, J) UMESH Page 8 of 8