MOHMEDAMIN MOHMEDUMAR GENERAL,SURAT vs. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE), SURAT

The facts of the case in brief are that assessee filed his return of income for the AY 2018-19 on 06.08.2018, declaring total income of Rs.NIL. The case was selected for completed scrutiny on the issues of (i) investments / advances / loans, (ii) refund claim and (iii) unsecured loans. The Assessing Officer (in short, ‘AO’) issued noticed u/s 143(2) and 142(1) of the Act, calling for the details in support of the return of income and details regarding reasons for selection of the case for scrutiny. The assessee was engaged in the business of manufacture of textile and also carried out job work for other parties. The assessee filed requisite documents through ITBA portal. After considering the details, the return of income was accepted without any modification. Subsequently, the ld. PCIT called for the records and examined the same. He found that the assessee had claimed additional depreciation under Clause (iia) of section 32(1) of the Act. Such additional depreciation is allowable in case of new machinery and plant acquired and installed in the business of manufacture or production of any article or thing or in the business of generation, transmission, distribution of power. However, the business of textile declared 2018-19 Mohmedamin Mohmedmar General . by the assessee in the return of income was stated under “Other services: with code 21008”. Further, no quantitative details had been furnished in the return of income and audit report. Therefore, the ld. PCIT observed that assessee was not engaged in any business of manufacture of any article or thing. On verification of the record, he observed that AO accepted the returned income without inquiring properly the issue of claim of additional depreciation of Rs.66,48,178/- and passed the order without application of mind and law. Therefore, he issued show cause notice, which is reproduced in pages 2 to 4 of the revision order u/s 263 of the Act. Since no inquiry about the additional depreciation was made, the order was proposed to be held as erroneous in so far as prejudicial to the interests of revenue u/s 263 of the Act. 3.1 In reply to the show cause notice, the assessee submitted that it was engaged in the manufacturing of grey cloth on job work basis, for which new plant machinery in the form of shuttle less waterjet looms were purchased by it. He referred to the notice u/s 142(1) of the Act, dated 21.01.2021 issued by the AO, wherein specific details in respect of additional depreciation were called for by the AO. In reply, assessee had submitted details including copy of ledger account of plant and machinery along with all bills/invoices including the direct expenses thereon. The assessee also submitted that he had availed term loan under the Textile Upgradation Fund (TUF) Scheme by the Ministry of Textiles. Thus, the AO was supplied with relevant details, which was accepted by him after due verification. The assessee also submitted that it was carrying 2018-19 Mohmedamin Mohmedmar General . on manufacturing activity, i.e., weaving of grey cloth on job work basis and not on his own account. Therefore, he has used the code “Other services”. The assessee also relied on the decisions of Hon’ble Supreme Court in case of Malabar Industrial Company Limited vs. CIT, 243 ITR 83 (SC) and CIT vs. Green World Corporation, 181 Taxmann 11 (SC) and decisions of Hon’ble jurisdictional High Court in cases of CIT vs. Arvind Jewellers, 259 ITR 502 (Guj.), Aryan Arcades Ltd. vs. PCIT, 412 ITR 277 (Guj.) and other decisions and submitted that when the AO had taken a plausible view of the issue, it could not be subjected to the action u/s 263 of the Act. 3.2 The ld. PCIT did not accept the reply of the assessee. He has referred to the notice u/s 142(1) of the Act and reply of the assessee at para 6.1 and 6.2 respectively. He observed that the assessee had not submitted details and evidences of the assets being put to use, which is a necessary condition for claiming depreciation and additional depreciation u/s 32(1)(iia) of the Act. The AO allowed additional depreciation without verification as to whether the machines were put to use in the business of manufacture or production of any article or thing. The AO should not have allowed the claim, more so when the audit report and return of income did not provide quantitative details of materials consumed, finished product and bye-products, which all were shown as Nil. The ld. PCIT relied on the decisions in case of Malabar Industries Ltd. (supra), CIT vs. Paville Project Pvt. Ltd. (2023) 149 taxmann.com 115 (SC), CIT vs. Nagesh Knitwares Pvt. Ltd. and Ors. 345 ITR 135 (Del) and Gee Vee Enterprises 2018-19 Mohmedamin Mohmedmar General . vs. Addl.CIT (1975) 99 ITR 375 (Del). Accordingly, assessment order passed u/s 147 r.ws. 144B was set aside with a direction to AO to pass fresh assessment order after considering the issue as might have been already considered together with the issue discussed in the order u/s 263 of the Act.

Aggrieved by the order of ld. PCIT, the assessee has filed present appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee has submitted paper book containing all the details submitted during the assessment proceedings as well as the proceedings u/s 263 of the Act. He also submitted copies of the notices issued u/s 143(2) and 142(1), letter filed before the AO on 07.01.2021 and 29.01.2021, ledger account of “shuttle less waterjet looms” and bank statements etc. The ld. AR also filed a paper book of the case laws. He submitted that the Hon’ble Gujarat High Court in case of CIT vs. J. B. Kharwar & Sons, 163 ITR 394 (Guj.) held that the process of dying and printing grey cloth would amount to manufacturing of goods for purpose of section 80J of the Act irrespective of fact that grey cloth which is subjected to process of dyeing and printing belongs to assessee or someone else. He submitted that it is not a case of lack of inquiry but may be a case of insufficient inquiry. Hence, revision u/s 263 of the Act is not permissible. For this, he relied on decision of Hon’ble Delhi High Court in case of CIT vs. Sunbeam Auto Ltd., 189 Taxman 436 (Del.). He also relied on the decisions in cases of Malabar Industrial Co. Ltd. (supra), CIT vs. Kwality Steel Supplies Complex, 84

On the other hand, Ld. CIT–DR has strongly relied on the order passed by ld. PCIT. He has stated that ld. PCIT has called for the records and duly examined it including the assessment order passed u/s 143 r.w.s. 144B of the Act. He has also referred to provisions of section 263 of the Act and stated that the present case is covered by the scope and ambit of section 263 of the Act because the AO has not made any further inquiry, which should have been made to come to a proper conclusion.

We have heard rival submissions and perused materials on record. We have also deliberated on the decisions relied upon by both parties. We have also gone through the provisions of Section 263 of the Act. We find that impugned order was passed by the AO u/s 147 r.w.s. 144B of the Act. The case was selected for complete scrutiny on three issues including investments and refund claim. The AO issued notice u/s 142(1) of the Act on 24.12.2020, 21.01.2021 and 25.01.2021. The same are at pages 42-47, 54-56 and 57-58 of the paper book. He requested assessee about the business activities of the assessee and justification of large refund. In reply, assessee submitted that it was engaged in textile manufacturing business and carried out job work for other parties. Regarding justification for large refund, the assessee submitted 2018-19 Mohmedamin Mohmedmar General . that during the year under consideration, it had purchased new plant and machinery on which normal depreciation at 15% and additional depreciation of 20% was claimed, which led to unabsorbed depreciation loss during the year, due to which there was refund to the assessee. The appellant has also filed details of addition to the fixed assets and claim of depreciation. It enclosed ledger account copy of plant and machinery (Shuttle less waterjet looms). Further, the assessee purchased 16 imported Shuttle less waterjet looms from Yinn Chuen Logistics Warehousing Co. Ltd. It also submitted the purchase invoices of the looms along with other documents related to direct expenses for purchase of the machinery.