METRO DIARY LIMITED vs. C.I.T KOLKATA - III,

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

729/Kol/2014 A.Ys. 08-09 & 09-10 Metro Dairy Ltd. vs. CIT-III, Kol. Page 2 2. These appeals are heard together and deem it appropriate to dispose them by way of this common order. Smt.Sushmita Bose and Shri Bikash Chandra Ld. Advocates appeared on behalf of assessee and Shri Vijay Shankar, Ld. DR represented on behalf of Revenue. First we take up for A.Y 08-09.

3. In this appeal various grounds have been raised out of which ground No.8 is of general in nature and does not require separate adjudication. The other grounds raised

by the assessee are as under:-

1. For that the order made by the Learned Commissioner of Income Tax - Ill, Kolkata, under section 263 of the Income tax Act, 1961 (the "Act") is illegal, invalid, not sustainable in law and liable to struck down.

3. For that the learned Commissioner of Income Tax was not justified in setting aside the order of the Assessing officer passed u/s 143(3) of the Act since the claim of depreciation had been computed in accordance with section 32 of the Act.

4· For that the learned Commissioner of Income Tax was not justified in setting aside the impugned assessment order on a mere presumption that the written down value of assets of the appellant (which has been duly accepted by the Revenue over the years) was arrived after non-adjustment of grants.

5. Without prejudice to the above, the learned Commissioner of Income Tax was not justified in assuming jurisdiction u/s 263 of the Act on the assessment order for the AY 2008-09, in respect of an adjustment relating to AY 2002-03.

6. For that the learned Commissioner of Income Tax was not justified in directing the assessing officer to re-examine the issue of credit of Rs. 29,83,023/-.

7. For that the order passed by the learned Commissioner of Income Tax u/s 263 of the Act is against the settled principle of law that an order of Assessing officer should be both erroneous and prejudicial to the interest of the revenue, and such tests being not satisfied in the instant case, the order u/s 263 is liable to be quashed.”

729/Kol/2014 A.Ys. 08-09 & 09-10 Metro Dairy Ltd. vs. CIT-III, Kol. Page 3 4. The facts in brief are that the assessee in the present case is a Limited Company and engaged in the manufacturing business of dairy products and supply of fresh milk. The assessee for the year under consideration has filed its income tax return on 27-09- 2008 declaring total income of Rs.1,93,61,560/-. Thereafter the case was selected for scrutiny through the CASS module and accordingly notices u/s 143(2) r.w.s 142(1) of the Act was issued. The assessment was framed u/s 143(3) of the Act after making certain additions / disallowances on dated 29-11-2010 at an income of Rs. 2,03,87,900/-. Subsequently the learned CIT under section 263 of the Act issued notice vide letter dated 11-03-2013 by considering the order of the AO as erroneous in so far prejudicial to the interest of Revenue on the following counts. i. It was observed from the assessment records that the assessee has shown deferred income for Rs.73,34,650/- in the financial statement in relation to the grant received from NDDB on the capital assets. The assessee has adjusted the amount of grant shown as deferred income in the financial statements without making any corresponding effect in computation of income with regard to the amount of depreciation claimed in the return of Income under the provisions of Income tax Act. ii. It was observed from the assessment records that the assessee has credited the depreciation account by an amount of Rs. 29,83,023/- which was shown in the balance sheet. However the same amount was not adjusted in the depreciation account debited in the profit & loss account.

In response to the notice the assessee submitted that the depreciation of Rs.2,68,76,124/- was claimed in the profit & loss account books as per the companies Act which was duly added back in the computation of income and depreciation of Rs.1,84,61,661/- as per the income tax act was claimed as deduction in the computation of income. The depreciation under the income tax act was calculated on the written down value of assets as appearing in the immediate preceding previous year. The assessee also explained that such a written down value was arrived at after reducing the amount of grant received from the value of the assets. The assessee 729/Kol/2014 A.Ys. 08-09 & 09-10 Metro Dairy Ltd. vs. CIT-III, Kol. Page 4 received the last grant in relation to the capital assets in the AY 2002-03 and the same was adjusted with the value of the capital assets so as to arrive at the WDV of the block of assets for the purpose of charging the depreciation. For the amount of Rs. 29,83,023/- credited in the depreciation account, the assessee submitted that this relates to the accumulated depreciation on the assets disposed during the year. This amount was adjusted in the financial account and it has no impact on the amount of depreciation as per income tax Act. The sale proceeds of disposed assets were duly adjusted with the balance of written down value of the relevant block of assets. However, the ld. CIT disregarded the plea of the assessee with regard to the first dispute of adjustment of grant by holding that the AO has not examined the issue in depth so as to verify whether the written down value of the block of assets is net of grant amount. Similarly the ld. CIT disregarded the plea of the assessee with regard to the second dispute for the adjustment of the accumulated depreciation by directing the AO to examine and verify the issue.

Being aggrieved by the impugned order of the ld. CIT u/s 263 of the Act the assessee is in appeal before us.

5. The ld. AR before us submitted a paper book running in pages from 1 to 179 and drew our attention on 21 of the paper book where the reconciliation statement for earlier years beginning from AY 2002-03 to AY 2009-10 was placed. As per the statement the assessee received the grant last in the AY 2002-03 which was duly adjusted with the relevant block of assets. The grant amount from NDDB was duly adjusted with the amount of proportionate depreciation as evident from the Schedule 2 and 19 of the audited balance sheet of the assessee which is placed on pages 82 & 92 of the paper book respectively. Only the net amount of depreciation was charged in the profit & loss account as depicted from the profit & loss account and computation of income of the assessee placed on page 84 & 23 of the paper book. Our attention was also drawn on page 46 of the paper book where the depreciation schedule as per 729/Kol/2014 A.Ys. 08-09 & 09-10 Metro Dairy Ltd. vs. CIT-III, Kol. Page 5 Income Tax Act was placed showing depreciation of Rs.1,84,61,661/-. The details of the grants received by the assessee up to the AY 2000-01 were placed on page 19 of the paper book. Ld. AR further drew our attention on page 129 of the paper book where it was mentioned in the audited accounts that the opening written down value appearing as on 01.04.2001 represents the Gross Value of the assets capitalized for the purpose of the Income Tax Act and no depreciation under the income tax act was claimed earlier. Similarly the ld. AR submitted that the amount of accumulated depreciation of Rs.29,83,023/- relates to the capital assets disposed during the year. The amount credited in the profit and loss account is merely an adjustment for depreciation charged in earlier years so that the return on value of the assets correctly computed in the books of the assessee. The adjustment made in the financial statement of the assessee does not have any impact on the amount of depreciation claimed under the provisions of the Income Tax Act as the written down value of the block of assets has been reduced by the amount of the sale proceeds. Accordingly the depreciation charged under the Companies Act and Income Tax Act is depicting the correct figure and he prayed before the Bench to confirm the order of AO.

6. On the other hand the ld. DR submitted that no paper book was submitted at the time proceedings under section 263 of the Act. The ld. DR vehemently supported the order of the CIT.

729/Kol/2014 A.Ys. 08-09 & 09-10 Metro Dairy Ltd. vs. CIT-III, Kol. Page 6 Now, from the aforesaid discussion we find that the ld. CIT treated the order of the AO erroneous in so far as it is prejudicial to the interest of revenue. It is because that the AO has not verified the adjustment of the Grant with respect to WDV and amount credited in the depreciation account for the assets disposed during the year. Therefore the ld. CIT held the order erroneous in so far prejudicial to the interest of Revenue. Now to arrive at the correct conclusion of the case, we deem it necessary to reproduce the relevant provisions of section 263 of the Act. (1) The principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, my, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment….”

The sum and substance of the above reproduced section 263(1) can be summarized in the following points:-: 1) The commissioner may call for an examine the record of any proceeding under the Act; 2) If he considers that the order passed by the AO is (i) Erroneous; and (ii) Is prejudicial to the interest of Revenue; 3) He has to give an opportunity of hearing in this respect to the assessee; and 4) He has to make or cause to make such enquiry as he deems necessary; 5) He may pass such order thereon as the circumstances of the case justify including, (i) An order enhancing or, (ii) Modifying the assessment or (iii) Cancelling the assessment and directing a fresh assessment. Now, in the light of above words, we have to examine as to whether the impugned order of the ld. CIT is a valid order in the light of the above stated points/ provisions of section 263 of the Act.

729/Kol/2014 A.Ys. 08-09 & 09-10 Metro Dairy Ltd. vs. CIT-III, Kol. Page 7 7.1 The assessee received the grant from NDDB in the earlier years in relation to capital assets which was shown on the liability side of the balance sheet under the head reserve and surplus in the books of accounts. On the other hand, assessee recognized the capital assets at gross purchase value. As per the policy of the assessee the depreciation pertaining to the grant was written off against the grant value shown in the balance sheet and the balance depreciation pertaining to the net value of the fixed assets was charged in the profit & loss account. The assessee for the year under consideration has calculated the depreciation in the books of accounts for Rs.3,42,10,774/- out of which proportionate depreciation of Rs.73,34,650/- was adjusted against the grant value shown in the balance sheet and the balance depreciation of Rs.2,68,76,124/- proportionate to the net value of fixed assets was debited in the profit & loss account. The assessee accordingly has added the depreciation of Rs.2,68,76,124/- in the statement of income and reduced the depreciation by the amount as worked out as per written down value of the assets under the income tax Act for an amount of Rs.1,84,61,661/-. We also find that the depreciation under the income tax act was calculated at the WDV which was brought forward from the earlier years. The WDV was duly accepted by the lower authorities. In the year under consideration no grant was received by the assessee in relation to any capital assets. The ld. DR failed to bring anything contrary to the arguments made by the ld. AR at the time of hearing. In view of above, we opined that the depreciation claimed by the assessee under the Companies Act and Income Tax Act is representing the correct figure.

7.2 Similarly for the amount of Rs.29,83,023/- credited to the depreciation account during the year for the assets disposed, the ld CIT in his impugned order u/s 263 of the Act at the outset failed to bring any error from the financial statement of the assessee and has just directed the AO for examination and verification of the aforesaid amount. From the submission of the ld. AR, we find that this amount was adjusted with the figures of the depreciation account in the books of accounts. The aforesaid amount has not impacted the depreciation amount charged by the assessee in the computation of income. The aforesaid amount was the accumulated depreciation which was adjusted 729/Kol/2014 A.Ys. 08-09 & 09-10 Metro Dairy Ltd. vs. CIT-III, Kol. Page 8 with the original cost of assets as a consequence of sale of the said assets during the year. The ld. DR failed to bring anything contrary to the arguments made by the ld. AR at the time of hearing. Accordingly we find no error in the order of AO having prejudice to the interest of Revenue.

are as under:-

1. For that the order made by the Learned Commissioner of Income Tax - III, Kolkata,(Ld.CIT), under section 263 of the Income tax Act, 1961 (the "Act") is illegal, invalid, not sustainable in law and liable to struck down.

2. For that the Ld. CIT erred in law in holding that the assessment order under section 143(3) is erroneous and prejudicial to the interest of the revenue in respect of depreciation allowable under the provisions of the Act, without appreciating that there was no error in such calculation.

4· For that the Ld CIT was not justified in setting aside the impugned assessment order on a mere presumption that the written down value of assets of the appellant (which has been duly accepted by the Revenue over the years) was arrived after non-adjustment of grants.

729/Kol/2014 A.Ys. 08-09 & 09-10 Metro Dairy Ltd. vs. CIT-III, Kol. Page 9 10. At the outset we find that issue involved in this appeal is the same as elaborated in and both the parties agreed that whatever view will be taken in the above stated appeal shall also be applicable for this appeal . Hence this appeal of assessee is also allowed.