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Income Tax Appellate Tribunal, HYDERABAD BENCH ‘A, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, AM:
This appeal is filed by the assessee against the order of CIT - III, Hyderabad, dated 25/03/2013 passed u/s 263 of the Income-tax Act, 1961 (in short ‘the Act’) relates to the AY 2008-09.
On perusal of record, we find that there was a delay of 225 days in filing the appeal before us. In this connection, assessee filed a petition requesting for condonation of the said delay explaining the reasons that since the 263 order was misplaced by office staff and when the AO issued notice to the assessee for giving effect to the directions of the CIT dated 02/12/2013, the assessee filed the appeal belatedly against the order of CIT u/s 263. Considering the submissions of the assessee and the objection of the ld. DR, we hereby condone the delay as the assessee was prevented by reasonable cause in not filing the appeal within the stipulated time.
2 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd.
Briefly the facts of the case are, the assessee is a Company engaged in the manufacture of Iron and steel products, Telecom Products and Power Transmission Towers. It filed its return of income for AY 2008-09 on 5.1.2010 declaring total income of Rs.1,60,09,484/-. The Assessing Officer completed the assessment u/s 143(3) on 28.12.2010 determining the assessed income at Rs.1,67,58,560/-.
The CIT noted that by virtue of powers vested vide section 263 of the I.T. Act, his predecessor called for the assessment records of the assessee Company and examined them. On examination of the assessment records, the following discrepancies were noted:
(i) The assessee has claimed depreciation on plant & machinery to the extent of Rs.47,11,30,766 @ 80%. This higher rate of depredation i.e, 80% is allowable to an undertaking engaged in generating power or to plant & machinery which is an energy saving devise, The assessee company is engaged in manufacture of iron and steel products, transmission towers and power transmission towers and hence is not entitled to depreciation on plant & machinery @ 80%.
(ii) It was also seen that the unavailed CENVAT credit amounted to Rs.4,97,61,782 while the opening balance was Rs.1,15,98,067. The difference amounting to Rs. 3,81,68,715/- was unavailed CENVAT purchased and in the nature of future entitlement and should have been added back to the total income.
The CIT observed that the Assessing Officer having failed to take the above two issues into account had erred. In view of the same, a show cause notice dt. 20.12.2012 was issued by his predecessor. Subsequently, the CIT issued a fresh notice on 28.2.2013 fixing the hearing on 6.3.2013. In response to the notices issued, the assessee has made a
3 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd. written submission on 23.1.2013. As regards the first issue, the assessee has stated as under:
"The company is engaged in the manufacture of iron and steel products mainly useful for towers and tower parts for telecom and power Industries. The basic components of these towers are made up of iron and steel which is manufactured in-house in a steel rerolling mill in plot No. 159 B&C, IDA Bollarum Village, Jinnaram Mandal, Mutrajpalli PO, in Medak District of AP. The mill is duly registered with the office of the Asst. Commissioner of Central Excise, B Division, Hyderabad with registration No. AAKCS7820FXM004. The mill is also been favoured with a factory licence No. 31560 by the department of Industries, Govt. of AP. The mills use chilled rolls for rolling the billets which are the raw material for the tower parts after their preheating in furnace. Chilled rolls are rolling mill rolls and are an integral part of the rolling process of iron and steel and are used to trim and resize the heated large billets and blooms to commercial sizes. As a part of the process, the heated billets and blooms are passed through the rolling mill rolls which are fixed into mill stands and rotate at high speeds and therefore are classified as plant & machinery. As the company is engaged in the rerolling of iron and steel products, the company is eligible to claim 80% depreciation on these rolling mill rolls as per the item 8(vii) of the depreciation table of the IT Act.
It is pointed out in the notice that the company was not engaged in the generation of power and the machinery was not an energy saving devise thereby disallowing the depreciation. However, we wish to clarify that iron and steel mills are also eligible for claiming depreciation on rolling mill rolls at 80%. A copy of the depreciation chart highlighting the rate of depreciation is enclosed for your immediate reference. Therefore, the claim of the company is justified.
It is further submitted that when a similar issue arose in respect of group concern M/s Sujana Metal Products, the AO examined the eligibility of the depreciation claim at your instructions vide proceedings No. F.No. CIT- III/Revision/263(33)/2011-12 dt. 29/03/2012 and the officer has confirmed the eligibility of deprecation in para 10 of his assessment order. A copy of the order dated 17/01/2013 issued in their respect is enclosed herewith for your kind perusal.
4 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd.
The revised guidance note on accounting treatment on excise duty issued by the Institute of Chartered Accountants of India (ICAI) effective from 01/04/1999. The relevant portion is reproduced as under: “Accounting treatment of inputs received – when inputs are purchased, purchase price (net of excise) should be debited to purchase account and excise on inputs should be debited to Central Credit receivable (input) account. Total invoice account (i.e. net purchase price plus excise) will be credited to suppliers account (as the supplier has paid excise and his invoice is inclusive of excise paid by him on materials supplied). When duty is debited in Input Cenvat Credit Account towards payment of duty on final product, Excise duty paid on final products account should be debited and Cenvat Credit Receivable (input) account should be credited.
If there is debit balance at the end of year in Cenvat account, it means that credit is not fully utilized and should be shown under current assets under ‘loans and advances’. Closing stock of inputs should be valued ‘Net of Excise Duty’. However, since Cenvat on stock, which has not been used, is also utilized for payment of duty, purchases are understated to that extent. If balance in credit of Cenvat cannot be utilized for any reason, the same must be written off.
Accordingly, we have followed the above guidance note issued by ICAI and the closing value of unveiled Cenvat credit is shown on the asset side of the balance sheet.
The assessee had relied on the following decisions: 1. CIT Vs. Indo Nippon Chemicals Co. Ltd., [2003] 261 ITR 275. 2. Indian Petrochemicals Corp Otd. Vs. Department of Income Tax vide ITA No. 664 & 665/Ahd/2008, order dated 29/06/2012.
After considering the submissions of the assessee, the CIT observed as under: “6. As regards the claim for depreciation, the assessee is relying on item 8(vii) of Appendix – I, Part – A, which gives schedule 80% depreciation in the iron and steel industry. As per the bills/invoices submitted by the
5 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd. assessee as well as other submissions made, the assessee has purchased MS chilled bars. The assessee is claiming that these MS chilled bars and rolling mill rolls mentioned in Appendix – I are one and the same item and entitled to 80% depreciation. Secondly, out of plant & machinery purchased during the year on which depreciation of 80% has been claimed, these MS chilled bars/rolls account for Rs. 24,25,84,899 only, while plant and machinery amounting to Rs. 28,25,35,757 purchased during the year is stated to be air pollution control equipment and water pollution treatment equipment purchased from M/s Omicron Bio Genesis Ltd. and M/s Futuretech Industries Ltd. As per the schedule for depreciation, air pollution control equipment are entitled to 100% depreciation whereas the assessee has claimed only 80% depreciation. The AO has not carried out any enquiry so as to confirm whether the equipment mentioned in the statement of account is the same equipment which is entitled to 100% depreciation. Moreover, it is not clear why the assessee has claimed only 80% depreciation, if it is entitled to 100% depreciation. Moreover, the AO has not verified whether MS chilled bars and rolling mill rolls are one and the same and are entitled for 80% depreciation. In the absence of any enquiry, the assessment order passed on 28/12/2000 is erroneous and prejudicial to the interests of revenue. The assessment order is set aside with direction to the AO to verify whether MS chilled bars and rolling mill rolls are the same thing and also whether the air pollution control equipment and water pollution treatment equipment purchased by the assessee is one which is entitled to higher rate of depreciation and that such air pollution and water pollution equipment was installed within time at the factory premises of the assessee.
6.1 As regards the issue of CENVAT credit, the CIT observed that the assessee’s AR has stated that the company has followed guidance note issued by ICAI and inputs have been debited at purchase price net of excise and the unutilized CENVAT credit has also not been taken as expenditure, hence, this appears to be in line with the judicial pronouncements as well as the circular mentioned above. However, he directed the AO to verify whether purchase are net of excise and also whether unutilized CENVAT credit has
6 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd. been debited before allowing the same. Accordingly, he set aside the order of the AO.
Aggrieved, the assessee is in appeal before us raising the following grounds of appeal: “1. The order of the Ld. CIT is erroneous both on facts and in law.
The Ld. CIT erred in passing the order u/s 263 because the Assessment order passed by the AO was after application of mind with respect to the provisions stated in the act, thus the order passed cannot be treated as erroneous.
For that in the facts and circumstances of the case, the order u/s 263 is merely 'change in opinion'. The order u/s 143(3) passed by the Ld. AO does not in any way represent erroneous order. The action of the Ld. CIT was wholly unreasonable, uncalled for and bad in law.
The Ld. CIT initiated the proceedings u/s 263 with a view to starting fishing and roving enquiries in the orders which are already concluded without appreciating the fact that the order passed was not erroneous.
The Ld. CIT has invoked jurisdiction u/s 263 without the basic conditions being satisfied i.e. order passed is erroneous and prejudicial to the interests of revenue.
The Ld. CIT erred in passing the order u/s.263 with a direction to set aside the assessment order passed dated 28.12.2010 for enquiries regarding depreciation on plant and machinery and unutilized CENVAT credit.
The Ld. CIT erred in disallowing the claim of additional depreciation by stating that higher allowable to the assessee company.
The Ld. CIT erred in passing the order u/s.263 with a direction to set aside the assessment order passed dated 28.12.2010 for enquiries regarding depreciation on plant and machinery and unutilized CENVAT credit.
The Ld. CIT erred in disallowing the claim of additional depreciation by stating that higher rate of depreciation is not allowable to the assessee company.
7 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd.
The Ld. CIT erred in upholding the claim of depreciation without considering the fact that higher rate of depreciation is allowable to the assets under consideration as per the item 8(vii) of the depreciation table of the Income Tax Act, 1961.
11.The Ld. CIT ought to have appreciated the fact that the assessee is into the business of manufacturing of transmission towers and the additional depreciation claim on Plant and machinery is as per the provisions of the Income Tax Act,1961..
The Ld. CIT erred in not considering the fact that when a similar issue arose in respect of assessee's group concern, the AO examined the eligibility of the depreciation claim and passed an order allowing the same.
13.The Ld. CIT has erred in observing that unavailed CENVAT credit of RsA,97,61,782/- should form part of cost of purchases.
The Ld. CIT ought to have appreciated the fact that the treatment given by the assessee was as per the guidance note issue by ICAl and was correct as per law,
The Ld. CIT erred in passing order u/s 263 without considering the fact that the AO has exercised quasi- judicial power vested in him in accordance with law and arrived at conclusion that the treatment adopted by the assessee in respect of unavailed CENVAT credit was correct and as per law.
The Ld. CIT has erred in exercising powers beyond the notice issued with a view to starting fishing and roving enquiries in the order passed.
The assessee may add, alter or modify any other point to the Grounds of appeal at any time before or at the time of hearing of the appeal.”
Ld. AR submitted that ld. CIT erred in passing the order u/s 263 because the AO has passed assessment order after duly application of his mind. He further submitted that CIT has not brought on record any finding to substantiate that the assessment order passed is erroneous or prejudicial to the
8 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd. interests of revenue. It is merely direction to AO to verify the claim of the assessee. He relied on the following case laws:
Bhavani Jewellers Vs. ITO, ITA No. 1004/Hyd/2013. 2. Spectra Shares & Scrips Pvt. Ltd. Vs. CIT, 36 taxmann 348 (AP) 3. ITO Vs. DG Housing Projects, 20 taxman 587 (Delhi) 4. New Cyberabad City Projects Vs. ITO, 33 Taxman 280 (ITAT Hyd.) 9. Ld. DR, on the other hand, relied on the order of CIT.
Considered the rival submissions and perused the material facts on record. It is observed that the assessee brought to the notice of the CIT that in respect of group concern M/s Sujana Metal Products, similar depreciation claim was allowed by the AO when the CIT set aside the issue to him for examination, but, in the given case, the CIT ignored the submissions of the assessee. We find that similar issue came up for consideration before the coordinate bench of this Tribunal in the case of New Cyberabad City Projects Vs. ITO (supra) wherein the bench has quashed the order passed by the CIT u/s 263 by observing as under:
“13. From reading of sub-section (1) of section 263, it is clear that the power of suo moto revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous in so far as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power; it can be exercised only on fulfilment of the requirements laid down by sub-sect ion (1). The consideration of the Commissioner, as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the
9 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd. well accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi- judicial controversies as it must in other spheres of human activity. (Parashuram Pottery Works Co. Ltd. v. ITO [1977) 106 ITR 1 (SC) at page 10). 14. From the provisions of section 263(1) it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax officer acting in accordance with law makes a certain assessment, the same cannot be branded as 'erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the assessment made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. In our opinion, in the present case, the learned Assessing Officer after duly considering the explanation and information filed in response to the notice issued u/s. 143(2) of the Act, on being satisfied with such explanation chose not to make any further enquiry. Endless enquiry is not possible and it is for the learned Assessing Officer to decide when to end the enquiry. The learned CIT cannot transgress the
10 I.T.A. No. 79/Hyd/2014 M/s Sujana Towers Ltd. jurisdiction under Section 263 of I.T. Act, 1961 by mentioning that no proper enquiry was made. Reliance in this regard is placed on the decision of Hon'ble Agra Bench of ITAT in the case of Rishi Kumar Gupta v. CIT, 90 TTJ 645 wherein held that the Assessing Officer having made the assessment after enquiry, as admitted by the CIT in his notice as well as in his order u/s. 263, he was not justified in setting aside the assessment on the ground that the Assessing Officer had failed to make "proper enquiry".
Following the above decision, we quash the order passed by the CIT u/s 263 of the Act, considering the fact that CIT has not brought on record the findings to substantiate that the order passed by AO is erroneous and also it is prejudicial to the interests of revenue. Mere set-aside without proper findings by him will be illegal and without proper jurisdiction. Therefore, we restore the order of AO passed u/s 143(3) of the Act.
In the result, appeal of the assessee is allowed.
Pronounced in the open court on 10th January, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 10th January, 2018 kv