THE KCP LTD.,,CHENNAI vs. THE DCIT,, VIJAYAWADA

आदेश / O R D E R

PER D.S. SUNDER SINGH, Accountant Member:

This appeal filed by the assessee is directed against order of the

Commissioner of Income Tax passed u/s 263 vide order dated 26.3.2015

for the assessment year 2010-11.

ITA No.165/Vizag/2015 The KCP Ltd., Chennai 2. This appeal against order passed u/s 263 of the Income Tax Act,

1961 (hereinafter called as 'the Act') by the Commissioner of Income

Tax (CIT). The assessee has raised number of grounds descriptive and

argumentative and all the grounds of appeal are related to the order of

the Ld. CIT passed u/s 263 of the Act. In this case, the assessment was

completed u/s 143(3) of the Act by an order dated 29.3.2013 and

determined the total income at ` 88,18,99,940/-. The said order was

taken up by the CIT for revision u/s 263 of the Act and observed that

the following issues were not examined by the Assessing officer(A.O).:

i. The assessee had admitted the rental receipts of ` 12,28,020/-

against the receipts as per TDS certificates amounting to `

25,71,820/- on which the TDS deducted was at ` 3,39,268/-.

ii. The assessee had claimed the depreciation on motor cars @ 50%

against the allowable depreciation of 15%.

iii. The assessee had admitted capital loss of ` 1,28,65,575/- and

claimed the indexed cost of acquisition of shares at `

2,48,65,574/-.

certificate shows ` 25,71,820/- towards the rental receipts, a sum of `

13,31,800/- was admitted as a rental income towards land in the profit 2

ITA No.165/Vizag/2015 The KCP Ltd., Chennai & loss account, hence there was no difference in the rental income

admitted by the assessee. The Ld. A.R. clarified that the entire receipts

of ` 25,71,820/- were admitted as rental income under house property

for ` 12,28,020/- and business income of ` 13,31,800/-, hence, there is

no under assessment which is prejudicial to the interest of the revenue,

hence requested to drop the proceedings u/s 263 of the Act on this

issue.

submitted before the CIT that the assessee had claimed the depreciation

@ 50% on commercial vehicles which were put to use for business

purpose. The assessee has included the assests in the block and once

the assets are included in the Block of assets there is no scope for

removing them from the block of assets. Since the assessee has taken

the commercial vehicles and put to use for business purpose, the Ld.

A.R. argued that the same are eligible for depreciation @ 50%. The Ld.

A.R. also submitted that the assessee was claiming depreciation @ 50%

on the same assets right from 2007-08 onwards and the same was

allowed by the AO. Therefore, there is no change of facts in the year

under consideration. Further, the Ld. A.R. submitted that once the asset

is included in the block of assets, the same cannot be deleted from the

ITA No.165/Vizag/2015 The KCP Ltd., Chennai block of assets, hence, there is no case for taking up the case for

revision u/s 263 of the Act which caused financial injury to the revenue.

assessee had purchased 1,20,000 shares of M/s. Sudalagunta Sugars

Limited during the financial year 2009-10 for a consideration of `

1,20,00,000/- by an agreement dated 10.6.2004. The said shares were

sold for same consideration, which resulted in indexed cost of

acquisition of ` 2,48,65,274/- and capital loss of Rs.1,28,65,274/- The

Ld. A.R. argued that the shares were purchased as per the agreement

and sold as per the agreement for the same consideration, which

resulted in capital gain loss.

The Ld. Commissioner not being convinced with the arguments of

the Ld. A.R., Passed the order u/s 263 and directed the A.O. to disallow

the capital indexation loss claimed by the assessee and with regard to

the other issues the Ld. CIT set aside the order of the A.O. u/s 263 of

the Act.

before us. During the appeal hearing, the Ld. A.R. reiterated the

submissions made before the Ld. CIT and argued that there is no error

which caused prejudice to the interest of the revenue, hence, there is no

case for revision u/s 263 of the Act. Ld. A.R. relied on the decision of 4

ITA No.165/Vizag/2015 The KCP Ltd., Chennai Hon’ble Delhi High Court in the case of CIT Vs. Oswal Agro Mills Ltd. 197

Taxman 0025 (2011) and the decision of ITAT Hyderabad ‘A’ Bench in

the case of DCIT Vs. Coromandal Bio Tech Industries (I) Ltd. (2012) 31

CCH 0142.

CIT.

on record and gone through the orders of the authorities below. The Ld.

A.R. reiterated the submissions made before the Ld. CIT as discussed

above. The Ld. A.R. relied on the decision of Hon’ble Delhi High Court in

the case of CIT Vs. Oswal Agro Mills Ltd. (supra). The limited issue for

adjudication in this case is whether the A.O. has erred in framing the

assessment, which is prejudicial to the interest of the revenue or not. In

this case, the CIT taken up the revision of the assessment u/s 263 of the

Act for not examining the rental receipts understated by the assessee

compared to the TDS receipts as per Form No.26AS and the excess

depreciation claimed by the assessee in respect of motor cars and long

term capital gain loss claimed by the assessee. Though the Ld. A.R.

submitted during the course of hearing that the assessee had admitted

the rental receipts under two heads i.e. house property income and the

land. The same was not examined by the A.O. The A.O. did not call for 5

ITA No.165/Vizag/2015 The KCP Ltd., Chennai the details and the assessee also failed to furnish the details before the

A.O. There was no whisper with regard to the difference of rents

admitted by the assessee in the return of income compared to form

No.26AS. During the assessment proceedings, no such details were

called for by the A.O. nor the assessee did supply the details. Similarly,

with respect to the depreciation, the assessee had claimed the

depreciation @ 50%, whereas as per the rules, depreciation is allowable

on motor cars was only @ 15%. There was no hire income admitted by

the assessee in the return of income. Similarly, neither the A.O. called

for the details nor the assessee had furnished the details. The assessee

required to demonstrate that the assessee has used the vehicles in the

business of hiring. Merely registering the vehicles for commercial

purpose does not make entitle the assessee for higher rate of

depreciation. In respect of indexed capital gain loss, the assessee had

purchased the shares at ` 10/- per share and sold the shares at the

same rate of ` 10/-. The assessee has claimed the indexed cost of

acquisition at ` 2,48,65,574/-. The Ld. A.R. submitted during the course

of hearing that the A.O. neither called for the details nor the details

were furnished before the A.O. The only argument of the Ld. A.R. was

that since the books of accounts were produced, it is deemed that the

A.O. has considered all the issues, hence, there is no error in the 6

ITA No.165/Vizag/2015 The KCP Ltd., Chennai assessment order. Ld. A.R.’s submission is that the mere production of

books of accounts ensures the complete verification of all the issues.

There is no dispute with regard to the fact that the A.O. has not verified

the rental receipts’ depreciation and the sale of shares during the

assessment proceedings. Mere production of books of accounts cannot

be construed that the AO had verified the complete information. It is

obligation on the part of the assessee to demonstrate that the AO hade

in fact considered and decided the issues raised by the CIT in the

assessment. Though the assessee has purchased the shares at ` 10/-

and sold at ` 10/-, there is a method of valuation of the unlisted

company’s shares to determine the market value and it is required to be

certified by the qualified accountant. In this case, the Ld. A.R.

submitted that no report of the accountant is available with him with

regard to the valuation of shares as on the date of sale or as on the

date of purchase of shares to determine the cost of acquisition or to

determine the market value to compute the capital gaains. The Ld. A.R.

relied on the case law of Hon’ble Delhi High Court in the case of CIT Vs.

Oswal Agro Mills Ltd. (supra), which is related to the allowability of

depreciation in case of business comes to stand still but not the issue

with regard to the order passed u/s 263 of the Act. Hon’ble Delhi High

Court held that passive use of the asset is also recognised as usage for 7

ITA No.165/Vizag/2015 The KCP Ltd., Chennai the purpose of depreciation. The case law relied upon by the Ld. A.R. is

distinguishable on facts with that of the assessee’s case. Similarly, in

the case of DCIT Vs. Coromandal Bio Tech Industries (I) Ltd., the issue

is with regard to the allowability of depreciation on block of assets but

not with regard to the issue of order passed u/s 263 of the Act. As

discussed earlier, in the present case, the issue is limited whether the

CIT has rightly invoked the provisions u/s 263 of the Act or not. The

assessee has received the rents as per Form No.26AS a sum of ` 25

lakhs, whereas the assessee had admitted a sum of ` 12,28,020/- in the

return of income and the A.O. has not examined the issue with regard to

the remaining amount of ` 13,31,800/- which should have been brought

to tax by the A.O., similarly, the assessee had claimed the depreciation

@ 50%. The A.O. has neither called for the details nor the assessee

had demonstrated that the motor cars were used for the purpose of

running them on hire. With regard to the capital gains, the assessee

had purchased shares at ` 10/- per share and sold the same at ` 10/-

per share and claimed the long term capital loss of ` 1,28,65,574/- with

indexed cost of acquisition at ` 2,48,65,574/-. But there was no

valuation report submitted by the assessee to arrive at the market value

as required by the Income tax rules. Therefore, the A.O. clearly

committed an error which is prejudicial to the interest of the 8

ITA No.165/Vizag/2015 The KCP Ltd., Chennai revenue and the Ld.CIT has rightly taken up the case for revision u/s

the A.O., had directed the A.O. to disallow the capital loss based on cost

of inflation index and remitted the remaining two issues for re-

adjudication. However, we are of the considered opinion that all the

three issues required to be remitted back to the file of the A.O. to re-do

the assessment afresh on merits. Accordingly, while upholding the order

of the CIT passed u/s 263 of the Act, we remit the matter back to the

file of the A.O. all the three issues with a direction to re-do the same

afresh on merits.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. . . . सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 09.03.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:-

ITA No.165/Vizag/2015 The KCP Ltd., Chennai

Sr. Private Secretary ITAT, VISAKHAPATNAM