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Income Tax Appellate Tribunal, [DELHI BENCH “C”: NEW DELHI]
Before: SHRI AMIT SHUKLASHRI PRASHANT MAHARISHI
PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee against the order of the ld CIT(A)-XV dated 07.03.2002 for assessment year 1994-95, wherein the appeal filed by the Assessee against the order passed u/s 143(3) read with section 148 of the Act dated 09.03.2001 was partly allowed. 2. The following grounds of appeal were raised:-
“ 1. That the Order passed by the learned Commissioner of Income Tax (Appeals)- XV [CIT(A)] dated March 7, 2002 is erroneous and bad in law on the followinggrounds. 2. (i) That on the facts and circumstances of the case the learned CIT(A) failedto appreciate that the notice issued u/s 148 of the Act was void ab-initio, illegal or otherwise bad-in-law. (ii) He erred in not appreciating that the Appellant had disclosed fully and truly all material facts that were necessary at the time of assessment u/s 143(3) of the Act and reassessment ITA. No. 2037 (Del) of 2002 based on new views/opinions on same facts is not permissible in law.
That on the facts and in the circumstance of the case the learned CIT(A) erred in confirming the action of the assessing officer in disallowing depreciation amounting to Rs.2,51,43,548/- on the lease transactions with twelve different parties listed at Annexure B, by treating the same as finance transactions. Annexure B S. Name of Supplier Lessee name Description Amount No. assets 1 Sri Balaji Textiles Jai Renga Mills Spindles Traders Coimbatore 25,00,848 2 Kumar Textiles Vijay Spinners Spindles 10,03,200 Coimbatore 15,00,000 3. a) Laxmi Textiles Co. Bright Spinners Spindles 15,03,380 3.b) Laxmi Textiles Co. Bright Spinners Spindles 10,00,000 3.c) Laxmi Textiles Co. Bright Spinners Spindles 20,50,272 3.d) Laxmi Textiles Co. Ganga Text Ltd Spindles 4 Sri Srinivas Text. Co. 25,00,000 Coimbatore L.S. Mills Ltd Spindles 5 Prashanth Textiles Pvt. Prashanth Textiles Pvt. Spindles & Ltd. Coimbatore Ltd. drafting 40,00,000 frames 6 Naga Agencies Nagalaxmi Flour Mills Sievers 25,00,000 Tiruchirapalli 7 Emerald Textiles (P) Ltd. Sriganpathy Mills Spindles 25,00,000 Aruppukottai 8 Ram Bhagat Hari Prasad Durgapur Oxygen (P) Oxygen 8,12,025 Bankura Ltd. cylindei 9 Steel form/ Diamond J.G. Engineers Pvt. Ltd Shattering 10,78,841 Engineering Works, Equipment i Calcutta 15,93,900 10 Everest Kanto Kohlapur Oxygen and Gas Cylinders Ltd. Tarapur Acetylene (P) Ltd. Cylinders Maharashtra Credit Capital Venture 28,000 ITA. No. 2037 (Del) of 2002
11 Credit Capital Venture Fund (P) Ltd Telephone Fund (P) Ltd Instruments S.N. Enterprises 5,73,082 12 S.N. Enterprises Sprayers 2,51,43,548 3. Brief facts of the case shows that for Assessment Year 1994-95 i. assessee filed its return of income on 30.11.1994 at Rs. Nil. ii. Assessment u/s 143(3) of the Act was passed on 26.03.1997 where the income of the Assessee was assessed at Rs. 2,24,32,550/-. iii. Subsequently, a notice u/s 148 of the Act was issued after recording reasons on 30.03.1991. iv. The reasons recorded noted that on going through the record it was observed by the ld AO that the Assessee company has been allowed 100% depreciation on certain plant and machinery on the ground that the cost of the machines is less than Rs. 5000 each instead of 15 %. v. The ld AO was of the view that items were purchased in bulk and therefore, they cannot be considered as small items. According to him, the entire bulk purchase should have been considered as single plant and machinery and rate of depreciation should not have been 100% but 15%. vi. He noted that when the plant and machinery are purchased in lot and given on lease they could not be depreciated @100%. vii. In the reasons, the AO noted that the proposal was sent to the CIT for exercising jurisdiction u/s 263 of the Act; however, the ld AO was directed by CIT to enquire u/s 133(6) of the Act from the suppliers. viii. List of suppliers were obtained by AO and query letters were sent. ix. CIT also got enquiry done by DCIT (Investigation), Coimbatore and found that some of the parties were not genuine and did not exist.
ITA. No. 2037 (Del) of 2002 x. Therefore, the ld AO recorded the reasons on 30/3/1999 that he has reason to believe that income is chargeable to tax has escaped assessment for Assessment Year 1994-95. xi. Subsequently, assessment order u/s 143(3) read with section 147 of the Act was passed by the ld AO on 09.03.2001 disallowing the depreciation of Rs. 4,19,78,276/-.
The Assessee aggrieved with the order of the ld AO preferred an appeal before the ld CIT (A). The Assessee challenged the reopening of the assessment. The ld CIT (A) held that the ld AO had sufficient evidence in the form of enquiry report from Investigation Wing, Coimbatore which cannot be ignored and therefore, he confirmed the action of the ld AO u/s 147 of the Act.
On the merits of the addition he analyzedfacts of 13 suppliers and out of that the transaction with APSEB which is Govt Corporation he held that Govt Corporation cannot be a party to a sham transaction and therefore, to that extent he decided the issue in favour of the Assessee and directed the ld AO to allow deprecation on asset leased to APSEB.
With respect to the other parties he confirmed the disallowances for the following reasons:- i. Mere filing of a suit is no evidence to prove that the transaction is genuine; Assessee has failed to establish the existence of the parties. ii. No evidence is produced to prove the existence of the suppliers at specified address. No alternate address was provided. Assessee failed to file valuation report, delivery challans, letter inviting quotation from the parties that could prove that the transactions are genuine.
Accordingly, except APSEB he confirmed the addition with respect to other 2 parties. Accordingly, action of the ld AO in disallowing depreciation on lease transaction of Rs. 2,51,43,548/- was confirmed holding that they are finance transaction.
Therefore, the Assessee is aggrieved with that has preferred this appeal.
The ld counsel for the Assessee submitted that the assumption of jurisdiction u/s 148 of the Act is bad in law. Page 4 of 11 ITA. No. 2037 (Del) of 2002 I. Though notice u/s 148 was issued on 30.03.1999, however, the reasons recorded given to the Assessee only on 29.07.2008 as per order of the coordinate bench and therefore, the orders should be quashed. II. ld AO has recorded in the reason that the ld AO is directed by CIT-I, New Delhi to take action u/s 147 of the Act. He therefore, submitted that reopening of the assessment is at the behest of the CIT which is bad in law. He relied upon the several judicial precedents. He referred to sequence of the events to show his arguments. III. reopening is made based on report dated 16.03.1999 from DIT, Coimbatore which was received by the Assessee only after recording of the reasons and therefore, the finding on each the reason to believe was formed was not existing. IV. He further submitted that the 147 initiated by the ld AO was based on phishing and rowing enquiries after the conclusion of the original assessment dated 26.03.1997. V. He submitted that original proposal u/s 263 was sent on the ground that depreciation should have allowed at normal rate and not @100%. The ld CIT Directed the ld AO to make enquiries. The ld CIT also wrote to DIT and to AO to make enquiries u/s 133(6) of the Act. Therefore, the ld CIT instead of taking action u/s 263 of the Act himself directed the ld AO to action u/s 147.
On the merits he submitted that the depreciation @100% is allowable on plant and machinery costing less than Rs. 5000/- each and in view of the decision Hon’ble Madras High Court in 244 ITR 238 and 226 ITR 864. He submitted that in Assessee’s own case for Assessment Year1992-93 the claim of the Assessee was allowed.He submitted that original proposal u/s 263 was sent on the ground that depreciation should have allowed at normal rate and not @100%.
He also submitted a paper book containing 19 pages to support his contentions. He therefore, submitted that the reopening is bad in law. Page 5 of 11 ITA. No. 2037 (Del) of 2002 With respect to the merits of the claim he submitted that the issue is squarely cover in favour of the Assessee by the decision of the coordinate bench in Assessee’s own case in 1993-94 and 1995-96.
The ld DR vehemently supported the order of the ld AO.
We have carefully considered the rival contentions and perused the orders of the lower authorities. We find that i. on 04.08.1997 there were an audit objection which shows that assessment on the Assessee was completed for Assessment Year 1994-95 on scrutiny by passing an order u/s 143 (3) dated 26.03.1997. The Assessee was allowed a deduction of Rs. 4,64,55,842/- as deprecation on various assets. The Assessee claimed 100% deprecation on some assets as cost of each plant and machinery was less than Rs. 5000/-. Audit scrutiny revealed that Assessee is in leasing business and items of plant and machinery were purchased in bulk and also leased out in bulk and therefore, it was not correct for Assessee to claim deprecation @100% on items of plant and machinery and even though individually cost is less than Rs. 5000/-. According to audit objection, the entire bulk purchase should have been treated as single plant and should have been subjected to normal rate of depreciation. Therefore, the audit note says that excess depreciation was allowed to the Assessee. Therefore, necessary rectification needs to be carried out. Based on these audit objections the ld AO sent a proposal for taking action u/s 263 of the Act on 07.11.1997 to the ld CIT, New Delhi. In the first two paragraphs, the ld AO explained the audit objection and thereafter in the 3rd paragraph the ld AO suggested that assessment order passes u/s 143(3) of the Act on 26.03.1997 is prejudicial to the interest of the revenue, as error has crept in the order due to excess allowance of the depreciation. He therefore, requested the ld CIT to exercise of jurisdiction u/s 263 of the Act.
ITA. No. 2037 (Del) of 2002 ii. The ld CIT on 02.03.1998 sought the report from the ld AO on whether the cost of acquisition claimed for assets @100% were on new asset or on enhanced market value on depreciated assets. He further enquired that section 43(3) was applied or not. iii. On 10.08.1998, the ld AO once again wrote to the CIT wherein, it is stated that depreciation on the assets, which was given on lease and in some, cases there were arrangement or sale and lease back. It further said that on some of the transaction the ld AO himself disallowed the deprecation holding that these are not genuine transaction and have been entered with the sole of motive of tax avoidance. The ld AO therefore, stated that the proposal is sent u/s 263 is confined only in respect of those assets where the parties from whom it is purchased and to whom it is leased are different. The ld AO further submitted the details required by the ld CITand once again requested to take proper action u/s 263 of the Act. iv. The ld CIT vide letter dated 10.09.1998 directed the ld AO to make enquiries u/s 133(6) of the Act with respect to claim of depreciation of the Assessee where the seller of the asset and lessee are different. v. On 14.09.1998, the ld AO stated that assessment proceedings for Assessment Year 1994-95 have already been completed and no proceedings are pending before him against the Assessee and therefore, he requested necessary permission from the CIT to make an enquiry u/s 133(6) of the Act. vi. Then on 23.09.1998, the ld CIT granted permission to the ld AO to make enquiries u/s 133(6) of the Act. vii. On 03.02.1999 the ld AO wrote to the Assessee that in some of the cases where the address are given by the Assessee of the parties are either incomplete or parties are not found therefore, to furnish the complete address of the suppliers.
ITA. No. 2037 (Del) of 2002 viii. On 11.02.1999, the ld CIT wrote a letter to the ld AO referring to the proposal u/s 263 of the Act stating that the order has to be passed by the ld CIT by 31.03.1999 after giving Assessee an opportunity of hearing. Therefore, it was stated that report called from the office of the ld AO of CITon 23.09.1998 has not been received by CIT so far and therefore, it was directed to AO to expedite the same. ix. On 23.02.1999, the ld AO submitted a report to the CIT. It was stated that on enquiry by him with respect to all the parties, letters came back unserved in cases of four parties and in case of another four parties did not furnish reply of query letter u/s 133(6) of the Act. The ld AO further noted that Assessee was requested to give the correct address of the parties and itwas not responded. Therefore, the ld AO requested the CIT as per para 4 of that letter to set aside the issue on 100% depreciation on leased asset each costing less than Rs. 5000/- because it is a time consuming process to examine all the transaction stated therein. He further suggested that audit objection raised is purely legal in nature and position was accepted by the Ministry in some other cases. x. Further on 16.03.199 Joint Director Investigation, Coimbatore submitted a report stating that as requested by the ld CIT, New Delhi enquiry were conducted by DDIT, Coimbatore in respect to letter of the CIT dated 03.03.1999. Enquiry report says that four parties were not genuine. xi. Based on all these on 30.03.1999 the ld AO recorded the reasons of reopening u/s 148 of the Act. The ld AO in the reasons recorded noted that a proposal was sent to the ld CIT, Delhi, New Delhi for exercising jurisdiction u/s 263 and ld CIT, Delhi, got enquiries conducted through DDIT, Investigation, Coimbatore. The ld AO therefore, wrote that he has reason to believe that income chargeable to tax has Page 8 of 11 ITA. No. 2037 (Del) of 2002 escaped assessment for Assessment Year 1994-95 u/s 147 of the Act. He further noted that ld CIT, New Delhi has also directed action u/s 147 of the Act. Therefore, he issued notice u/s 147 of the Act on 30.03.1999 reopening the assessment.
Here it is evident that first there was a proposal based on audit objection to invoke provision of section 263 of the Act. The action u/s 263 was getting time barred on 31.03.1999. The ld CITthrough the ld AO as well as through the Joint Director of Investigation, Coimbatore made certain enquiries which got culminated into report on 16.03.1999 and as there were no time left for invoking the provision of section 263 of the Act and therefore, the ld CIT directed the ld AO to take action u/s 147 of the Act. Therefore, the reasons were recorded on 30.03.1999 and notice was issued on 30.03.1999. Based on the above chronology of events it is evident that CIT as well as the ld AO both were proceedings to proceed against the Assessee by invoking the provision of section 263 of the Act on the basis of audit objections. They also got certain enquiries conducted but when the enquiry is concluded, no time was left with them for carrying out proceedings u/s 263 of the Act. It required issuance of show cause notice, opportunity of hearing to the assesse and then passing of the orders. Thus,time for passing order u/s 263 of the Act i.e. 31.03.1999 was not available. This fact is also mentioned in one of the correspondence of CIT with ld AO when he requested ld AO to expedite the inquiries. Therefore, the ld CIT directed the ld AO to initiate action u/s 147 of the Act. The ld AO recorded the reasons on 30.03.1999 stating that specifically that the ld CIT has directed him to invoke provisions of section 147 of the Act and therefore, the reopening was made. From the above fact it is clear that it is not the ‘reason to believe’ of the AO about escapement of income which is basic mandatory requirement of law for reopening u/s 147 of the Act. Opinion of ld AO is clearly manifest that he thought it is case of erroneous order, which is prejudicial to interest of revenue. Hence, Reopening is made at the direction of the ld CIT.The ld CIT when he did not find time to invoke provision of section 263 of the act, he directed ld AO to initiate action u/s 147 of the Act. Therefore, we do not find any Page 9 of 11 ITA. No. 2037 (Del) of 2002
reason to uphold the reopening of the assessment. Accordingly, we quash the reassessment proceedings initiated by the ld AO. Accordingly, ground No. 1 and 2 of the appeal of the Assessee is allowed. 15. In view of our order on ground No. 1 and 2, we do not find any reason to adjudicate ground No. 3 of the appeal. 16. Appeal of the Assessee is allowed. Order pronounced in the open court on 29.07.2021.