M/S SUPERFINE KNITTERS LTD.,LUDHIANA vs. ACIT, LUDHIANA

PER ANNAPURNA GUPTA, AM

The present appeal has been filed by the assessee

against the order of CIT(A)-4 Ludhiana dated 28.10.2016

pertaining to 2009-10 assessment year.

business of manufacturing and export and trading in knitted

cloth and garments. The return of income for the impugned

assessment year was filed declaring income of Rs.

40,85,000/- and assessment u/s 143(3) was framed

accepting the returned income. Thereafter the AO noticed

that the assessee company ,during the year, had received

subsidy to the extent of Rs. 26,87,000/- which according to

him was required to be deducted from the WDV of plant and

machinery, but the same had not been done by the assessee.

The AO, therefore, was of the opinion that the assessee had

ITA No.56/Chd/2017 2 A.Y. 2009-10

claimed excess depreciation on account of the same to the

extent of Rs. 4,03,000/-. He, therefore, reopened the case of

the assessee u/s 147 of the Act, issuing notice u/s 148 of

the Act . During the course of re-assessment proceedings,

the AO also noticed that the assessee company had claimed

excess depreciation on plant and machinery (TUFS) and on

tubewell. After giving due opportunity of hearing to the

assessee, the AO made addition to the income of the

assessee of Rs. 4,03,000/- on account of excess depreciation

claimed with respect to the subsidy received which was not

reduced from the WDV of plant and machinery and an

addition of Rs. 1,65,000/- and Rs. 86,855/- on account of

disallowance of excess depreciation claimed on plant and

machinery (TUFS) and tubewell respectively.

Before the Ld.CIT(A) the assessee raised grounds

challenging the validity of the assessment framed u/s 147 of

the Act and also the addition/disallowance made on merits,

which were all dismissed by the CIT(A).

appeal before us raising the following grounds:

“1. That the learned CIT (Appeal) has wrongly confirmed the order of the AO Passed under sec 147/143 (3) which is against law & facts of the case . 2. That the Assessment framed under sec 143(3) & 147 has been wrongly re-opened it is a case of change of opinion only based on Audit Objection. 3. That the subsidy received from the Govt of Punjab was a General Subsidy for boosting the Hosiery Industry and can not be confined only to machinery. As per judgments relied upon by the assesses and submitted before the CIT (A) it is a capital receipt and not deductable from any asset.

ITA No.56/Chd/2017 3 A.Y. 2009-10

nature needs no adjudication. Further Ground no.4 & 5 were

not pressed before us, and are therefore treated as

dismissed.

challenging the validity of the assessment framed u/s 147 of

the Act.

the assessee raised the following contentions in respect of

his plea that the assessment framed in the present case u/s

147 was invalid.

(i) That the issue in relation to which re-assessment

proceedings were initiated had been examined during

assessment proceedings and there were no new facts or

material with the AO which could lead to the belief of

escapement of income on account of the same. That it

was a mere change of opinion which could not empower

the AO to initiate re-assessment proceedings.

(ii) That the re-assessment was resorted to on the basis

of audit objection which could not form a valid basis

for reopening the case u/s 147 of the Act.

ITA No.56/Chd/2017 4 A.Y. 2009-10

Vis-à-vis the first contention raised by the ld. counsel

for the assessee, regarding reopening being resorted to on

account of mere change of opinion on the same set of facts

by the AO, ld. counsel for the assessee first drew our

attention to the reasons recorded for re-opening the present

case which were placed at Paper Book page No. 13 and which

read as under :

Reasons for notice u/s 148 in the case of M/s Super Fine Knitters Ltd., Ludhiana, PAN: AADCS4217P For A.Y. 2009-10:

On the perusal of assessment record for the A.Y. 2009-10 revealed that the assessee has received subsidy of Rs.26,87,000/- from Directors of Industries & Commerce, Punjab which was sanctioned by the Punjab Government in May, 2008. However, the assessee instead of reducing the subsidy amount from the fixed assets, placed this amount as capital reserve. Non reduction of fixed assets has resulted in excess claim of depreciation in assets amounting to Rs.4,03,000/-. In the replies dated 30.10.2012 & 19.11.2012, in response to the remedial action being initiated by the AO, the assessee has mentioned that the block of machinery on which the subsidy was sanctioned in 2001 has become Nil in the relevant A.Y. even as the 15% block was still existing. That means the assessee was liable to reduce the subsidy amount from the block of assets as the subsidy was not given specially for machinery existing in the year 2001. Thus in view of the discussion above, I have reasons to believe that the amount of Rs.4,03,000/- has escaped assessment within the meaning of provisions of section 147 for the A.Y. 2009-10. Issue notice u/s 148. (Sd/-) (Dr. Rahul Sohu) Asstt.Commissionerof Income Tax Circle-VII, Ludhiana. 7. Drawing our attention to the same, ld. counsel for the

assessee stated that the reason with the AO leading to the

ITA No.56/Chd/2017 5 A.Y. 2009-10

belief of escapement of income was that, subsidy received by

the assessee of Rs.26,87,000/- during the year was not

reduced from the WDV of fixed assets and which had, thus,

resulted in excess claim of depreciation by the assessee of

Rs.4,03,000/-, resulting in escapement of income to this

extent. Thereafter, ld. counsel for the assessee stated that

this issue of subsidy received by the assessee had been

enquired into during assessment proceedings wherein due

reply had been filed by the assessee, after considering

which, no addition or disallowance had been made by the

AO. To substantiate the aforesaid, ld. counsel for the

assessee drew our attention to the questionnaire issued to

the assessee during regular assessment proceedings for the

impugned year, dated 30.06.2011 and placed at Paper Book

page No. 3 to 5. The ld. counsel for the assessee drew our

attention to the specific query raised at point No. 19

regarding capital reserve shown by the assessee in its books

of account at Rs. 26.87 lacs. The same reads as under :

“19. Capital reserve has been shown at Rs.26.87 lacs against the previous year figure of NIL. Give complete details.”

attention to reply filed by the assessee vide letter addressed

to the JCIT placed at Paper Book page No. 6 to 8 and pointed

out therefrom that the detail of the capital reserve of

Rs.26.87 lacs was filed. Drawing our attention to the details

filed, it was pointed out that the said detail was in the form

of copy of account of reserve and surplus in the books of the

ITA No.56/Chd/2017 6 A.Y. 2009-10

assessee for the impugned year showing the receipts of

subsidy from the Government of Punjab. Thereafter, ld.

counsel for the assessee pointed out that after considering

the above information, no addition vis-à-vis the impugned

issue was made by the AO while passing his assessment

order u/s 143(3) which was placed at Paper Book page No. 1

to 2. Thus, ld. counsel for the assessee contended that the

issue of capital subsidy received by the assessee during the

year had been raised during assessment proceedings and

due reply filed by the assessee clearly showing that the said

subsidy was received from the Government of Punjab and the

AO, on the basis of this enquiry, had formed an opinion that

no addition or disallowance was required to be made. The

ld. counsel for the assessee, thereafter, proceeded to point

out that on the basis of this very same information, the AO

had now formed different opinion that the said subsidy was

to be reduced from the WDV of fixed assets. Drawing our

attention to the reasons recorded as reproduced above, ld.

counsel for the assessee pointed out that no other

information was in the possession of the AO except that

which was already on record. The ld. counsel for the

assessee, therefore, stated that it was the clear case of

change of opinion of the AO on the same set of facts and in

view of the settled position of law in this regard by the

judgement of the Apex Court in the case of Kelvinator of

India, the AO could not have assumed jurisdiction to reopen

the case of the assessee.

ITA No.56/Chd/2017 7 A.Y. 2009-10

counsel for the assessee, it was stated that the re-

assessment was prompted on the audit objection note in this

regard by the Department. The ld. counsel for the assessee,

to substantiate its above contention, drew attention to the

audit objections relating to the assessee for the impugned

year placed at Paper Book page No. 12 and pointed out that

this issue of the assessee having not reduced the capital

subsidy received by it from the WDV of its fixed assets and

thus, having claimed excess depreciation to the extent of

Rs.4,03,000/- had been pointed out in the same. The audit

objection is reproduced hereunder :

Office of the Principal Director of Audit (General) Chandigarh No. DT-I/AP-5/2012-13/11 Dated : 23.7.12 Name of Assessee :M/sSuperfine Knitters Ltd., Ludhiana PAN : AADCS4217P : Status : Company A.Y. 2009-10 Return Income : Rs.40,85,500/- Annual Income : Rs. 40,85,500/- Return Tax: Rs.12,94,028/- Annual Tax : Rs. NIL Whether checked by IAP : Yes, checked Assessed u/s 143(3) on 26.12.2011 by Addl. CIT, Range-VII, Ludhiana • Audit scrutiny of the above assessment record revealed that the assessee received subsidy of Rs.26,87,000/- on Investment Incentive from Director of Industries & Commerce, Punjab, Chandigarh. This subsidy was sanctioned by Punjab Govt. in May 2001 and was disbursed to the assessee in May 2008. The assessee, instead of reducing his fixed assets by this subsidy, took this amount to Capital Reserve. Non-reduction of fixed assets has resulted into excess claim of depreciation on assets and hence under assessment of income by Rs. 4,03,050/- with tax effect of Rs.1,36,997/- plus interest u/s 234B of Rs. 45209/-, total T.E. Rs. 1,82,206/-. • Further scrutiny of depreciation chart of the assessee revealed that addition in plant and machinery was made (under TUFS) after 30.8.2008 and depreciation was claimed @ 50%. As the machinery was acquired and put to use which after 1.4.2004, depreciation was allowable at 15% only. This has resulted into excess depreciation of

ITA No.56/Chd/2017 8 A.Y. 2009-10

Rs. 1,65,000/- (5,50,000-3,85,000/-).Further, depreciation @ 15% has been charged at Tubewell which was allowable @ 10%. This has resulted into excess depreciation of Rs. 86,885/- (260656-173771). Thus, excess claim of depreciation has resulted into under assessment of income by Rs. 2,51,885/- with tax effect of Rs. 85,616/- plus interest u/s 234B of Rs. 28,253/-, total tax effect Rs. 1,13,869/-. ACIT may please comment. Sd/- ( DR. RISHI KUMAR) ACIT To The ACIT, Circle-VII, Ludhiana.”

law that reopening cannot be resorted to on the basis of

audit objection. Reliance in this regard was placed on the

decision of the Apex Court in the case of Indian & Eastern

Newspaper Society Vs CIT 119 ITR 996. The ld. counsel for

the assessee, therefore, stated that the jurisdiction assumed

in the present case to reopen the case of the assessee, was

invalid and the order passed by the AO, therefore, needed to

be set aside.

the CIT(A) and relied heavily on his findings in this regard

at para 5.2 of the order which is reproduced hereunder :

“5.2 I have considered the observations of the Assessing Officer as made by her in the assessment order while reopening the assessment in this case. I have also considered written submissions filed by the assessee company through its Ld. AR vide letter dated 19.09.2016 on the issue under reference. I have further considered various judicial pronouncements relied upon by the assessee as well as other material placed by it on record. On careful consideration of the rival contentions, it has been noticed that the assessment in the case of the assessee company has been reopened within four years

ITA No.56/Chd/2017 9 A.Y. 2009-10

from the end of relevant assessment year. Moreover, the Assessing Officer was having prima facie reason to believe that the assessee company has claimed excess depreciation. I am of the further opinion that the assessment has not been reopened on the basis of change of opinion as the Assessing Officer has not considered the claim of the assessee company with regard to treatment of subsidy while completing original assessment. I am again of the opinion that the assessment can also be reopened even on the basis of audit objection if the law provides for reopening of the case. I am again of the opinion that the judicial pronouncements relied upon by the assessee company have no application in the case of assessee company as the assessment in this case was reopened within four years from the end of the relevant assessment year. Under such circumstances, the action of the Assessing Officer in reopening the assessment in this case cannot be said to be unjustified.”

perused the orders of the authorities below and have also

gone through the documents referred to before us. The issue

before us pertains to the validity of the assessment framed

u/s 147 of the Act, which has been challenged by the

assessee on the ground that it was resorted to merely on the

basis of change of opinion on the same set of facts and

merely on the basis of audit objection.

evident from the facts pointed out to us, no enquiry on the

issue of subsidy received by the assessee had been made

during assessment proceedings, so as to enable forming of

an opinion by the AO on the treatment of subsidy received in

the accounts of the assessee. The assessee had only been

asked about the detail of Reserves and Surplus ,which had

ITA No.56/Chd/2017 10 A.Y. 2009-10

been furnished by the assessee disclosing subsidy received

from the Government of Punjab in the same. No further

questions relating to the subsidy received was asked. This

bare information that the assessee had received subsidy

from the Government , and without any detail or information

regarding the nature of the same, clearly was not sufficient

for forming an opinion about the treatment of the subsidy in

the accounts of the assessee. Therefore ,in the present case,

it cannot be said that the AO had applied his mind on the

issue of subsidy received and formed an opinion regarding

its treatment in the accounts ,on it. The Hon’ble Delhi High

Court , in the case of CIT-VI vs Usha International Ltd.

reported in 348 ITR 485 (Del) has held that whether or not

the AO had applied his mind and examined the subject

matter, claim etc. depends upon the factual matrix of each

case, and only if he has done so, could it be said that he had

formed an opinion on it. The Hon’ble High Court held that

the level of enquiry required for forming an opinion on a

issue varied from case to case with there being cases in

which the aspect or question may be too obvious and

apparent requiring no inquiry/examination for forming an

opinion, while others may require different degrees of

enquiry. In view of the same, we hold that the Reopening

therefore on the issue of subsidy received cannot be said to

be change of opinion on the same set of facts by the AO. The

reliance placed by the Ld.Counsel for the assessee on the

decision of the apex court in the case of Kelvinator India

ITA No.56/Chd/2017 11 A.Y. 2009-10

(supra) in support of its aforesaid contention is therefore

also of no assistance to the assessee.

based on audit objection ,we find no merit in the same also.

An audit objection pointing out a fact escaping the AO’s

notice and which leads to escapement of income, can very

well be the basis for reopening u/s 147 of the Act. It is only

information pertaining to position or interpretation of law

that does not constitute” information” of escapment of

income. This has been held so by the apex court in the case

of Indian & Eastern Newspaper Society Vs CIT 119 ITR

996(SC) stating as under :

“In cases falling under s. 147(b), the expression "information" prescribed one of the conditions upon which a concluded assessment may be reopened under that provision. It is an indispensable ingredient which must exist before the section can be availed of. What does "information" in s. 147(b) cannote ? In Maharaj Kumar Kamal Singh vs. CIT (1959) 35 ITR 1 (SC) : TC51R.1317, this Court, construing the corresponding s. 34(1) (b) of the Indian IT Act, 1922, held the word "information" to mean not only facts or factual material but to include also information as to the true and correct state of the law and, therefore, information as to relevant judicial decisions. Thereafter, in CIT vs. A. Raman & Co. (1968) 67 ITR 11 (SC) : TC51R.423 the Court defined the expression "information" in s. 147(b) of the IT Act, 1961, as "instruction or knowledge derived from an external source concerning facts or particulars, or as to law, relating to a matter bearing on the assessment". That definition has been reaffirmed in subsequent cases, and with it as the point of departure we shall now proceed. 3. In so far as the word "information" means instruction or knowledge concerning facts or particulars, there is little difficulty. By its inherent nature, a fact has concrete existence. It influences the determination of an issue by the mere circumstance of its relevance. It requires no further

ITA No.56/Chd/2017 12 A.Y. 2009-10

authority to make it significant. Its quintessential value lies in its definitive vitality. But when "information" is regarded as meaning instruction or knowledge as to law the position is more complex. When we speak of "law", we ordinarily speak of norms or guiding principles having legal effect and legal consequences. To possess legal significance for that purpose, it must be enacted or declared by competent authority. The legal sanction vivifying it imparts to it its force and validity and binding nature. Law may be statutory law or, what is popularly described as, judge-made law. In the former case, it proceeds from enactment having its source in competent legislative authority. Judge-made law emanates from a declaration or exposition of the content of a legal principle or the interpretation of a statute, and may in particular cases extend to a definition of the status of a party or the legal relationship between parties, the declaration being rendered by a competent judicial or quasi-judicial authority empowered to decide questions of law between contending parties. The declaration or exposition is ordinarily set forth in the judgment of a Court or the order of a tribunal. Such declaration or exposition in itself bears the character of law. In every case, therefore, to be law it must be a creation by a formal source, either legislative or judicial authority. A statement by a person or body not competent to create or define the law cannot be regarded as law. The suggested interpretation of enacted legislation and the elaboration of legal principles in text books and journals do not enjoy the status of law. They are merely opinions and, at best, evidence in regard to the state of the law and in themselves possess no binding effect as law. The forensic submissions of professional lawyers and the seminal activities of legal academics enjoy no higher status. Perhaps the only exception is provided by the writings of publicists in international law, for in the law of nations the distinction between formal and material sources is difficult to maintain. 4. In that view, therefore, when s. 147(b) of the IT Act is read as referring to "information" as to law, what is contemplated is information as to the law created by a formal source. It is law, we must remember, which, because it issues from a competent legislature or a competent judicial or quasi- judicial authority, influences the course of the assessment and decides any one or more of those matters which determine the assessee's tax liability.

ITA No.56/Chd/2017 13 A.Y. 2009-10

ITA No.56/Chd/2017 14 A.Y. 2009-10

the consideration whether the internal procedures are adequate and sufficient. It is not intended that the purpose of audit should go any further. Our attention has been invited to certain provisions of the Internal Audit Manual more specifically defining the functions of internal audit in the IT Department. While they speak of the need to check all assessments and refunds in the light of the relevant tax laws, the orders of the CIT and the instructions of the CBDT, nothing contained therein can be construed as conferring on the contents of an internal audit report the status of a declaration of law binding on the ITO. Whether it is the internal audit party of the IT Department or an audit party of the Comptroller and Auditor- General, they perform essentially administrative or executive functions and cannot be attributed the powers of judicial supervision over the quasi- judicial acts of IT authorities. The IT Act does not contemplate such power in any internal audit organisation of the IT Department; it recognises it in those authorities only which are specifically authorised to exercise adjudicatory functions. Nor does s. 16 of the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971, envisage such a power for the attainment of the objectives incorporated therein. Neither statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to "information" within the meaning of s. 147(b) of the IT Act, 1961. But although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the ITO to it. Law is one thing, and its communication another. If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying s. 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose. 7. In the present case, an internal audit party of the IT Department expressed the view that the receipts from the occupation of the conference hall and rooms did not attract s. 10 of the Act and that the assessment should have been made under s. 9. While ss. 9 and 10 can be described as law, the opinion of the audit party in regard to their application is not law. It is not a declaration by a body authorised to declare the law. That part alone of the note of an audit party which mentions the law which escaped the notice of the ITO constitutes

ITA No.56/Chd/2017 15 A.Y. 2009-10

"information" within the meaning of s. 147(b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the ITO. In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO.” 15. In the present case the error pointed out by the Audit

Wing pertained to the treatment of subsidy received by the

assessee whether to be reduced from the WDV of the asset or

to be carried to Reserve and Surplus. It was clearly an

error relating to facts which was pointed out by the Audit

Wing. This clearly is relevant enough to empower the AO to

form the belief of escapement of income so as to reopen the

case of the assessee u/s 147 of the Act as held by the apex

court in the case of Indian Newspaper Limited (supra). In

view of the same, the assumption of jurisdiction u/s 147 to

reopen the assessment in the present case on the basis of

audit objection is held to be in consonance with law.

Considering the above, we are in agreement with the

Ld.CIT(A) upholding the validity of the assessment framed

u/s 147 of the Act. Ground No. 2, raised by the assessee therefore, stands dismissed.

ITA No.56/Chd/2017 16 A.Y. 2009-10

“3. That the subsidy received from the Govt of Punjab was a General Subsidy for boosting the Hosiery Industry and can not be confined only to machinery. As per judgments relied upon by the assessee and submitted before the CIT (A) it is a capital receipt and not deductable from any asset.”

action of the Ld.CIT(Appeals) in upholding the order of the

Assessing Officer reducing the value of subsidy received from

the plant and machinery and thereby reducing the quantum

of depreciation claimed on the same by the assessee.

the subsidy received from the Punjab Government was not

only received on plant and machinery but for the overall

development of the industry in which the assessee deals and,

therefore, it would not go to reduce the figures of the plant

and machinery as shown by the Assessing Officer. Our

attention was drawn to the subsidy scheme of the Punjab

Government by virtue of which the subsidy was received

copy of which was placed before us. The Ld. counsel for

assessee, therefore, contended that the subsidy being for the

purpose of overall development of the industry it was capital

in nature and was not liable to be taxed in the hands of the

assessee at all. Our attention was drawn to various orders

passed by the Tribunal in this regard:

1) M/s Lotus Integrated Taxpark Ltd. Vs. DCIT in ITA No.1138 & 1139/Chd/2014, dated 1.10.2015. 2) ACIT Vs. Harinagar Sugar Mills Ltd. in ITA No.772/Mum/2012 dated 30.1.2014.

ITA No.56/Chd/2017 17 A.Y. 2009-10

the assessee from the Directors of Industries & Commerce,

Punjab, Chandigarh relating to the incentive received by the

assessee and the Note of capital subsidy filed to the

Assessing Officer stating that it was a capital receipt in the

hands of the assessee.

the CIT(Appeals) pointing out therefrom that the

CIT(Appeals) had found that the assessee company itself had

admitted that the subsidy had been received against

investment in plant and machinery as well as other assets

and, therefore, the same had been rightly reduced from the

value of such asset and accordingly, depreciation allowed on

the reduced balance value of the assets.

find merit in the contention of the Ld. counsel for assessee

that the value of subsidy can be reduced from the fixed

assets only if it has been received specifically for the said

purpose and if the same has been received to achieve

purpose of overall purpose of industry or otherwise the

treatment of subsidy is different i.e. it may be treated as

revenue receipt in the hands of the assessee or capital

receipts depending on the purpose for which the subsidy had

been received. This proposition has been settled by the

Hon'ble Apex Court in a number of decisions:

1) Sahney Steels & Press Works Ltd & Ors vs CIT (1997) 228 ITR 253(SC)

ITA No.56/Chd/2017 18 A.Y. 2009-10

2) CIT vs Ponni Sugars & Chemicals Ltd.& Ors(2008) 306 ITR 392(SC) 3) CIT-1,Kolhapur vs M/s Chaphalkar Brothers,Pune, Civil Appeal No.6513-6514 of 2012 Dt.07-12- 17(Supreme Cour 22. In the facts of the present case we find that though the

assessee had placed the copy of the scheme of the

Government by virtue of which it had received subsidy, the

CIT(Appeals) has not discussed the nature of the subsidy

vis-à-vis the nature of the scheme under which it had been

received. Without so determining, the Ld.CIT(Appeals) could

not have arrived at any finding regarding the nature of the

subsidy, since as pointed out above it all depends upon the

purpose for which the subsidy had been received. The

Ld.CIT(Appeals), we find, has merely stated that the assessee

had himself admitted the subsidy to have been received on

account of plant and machinery. The nature of the subsidy

cannot depend upon what the assessee states but would

have to be determined on the basis of documents and other

evidences regarding the same. In the absence of any

examination of this fact by the lower authorities, we

consider it fit to restore the issue back to the CIT(Appeals)

to determine the nature of the subsidy received in the light

of the scheme under which it was granted by the Government

of Punjab and thereafter decide the issue in accordance with

law. This ground of appeal No.3 raised by the assessee is,

therefore, allowed for statistical purposes.

read as under:

ITA No.56/Chd/2017 19 A.Y. 2009-10

“4. That on the Tuff Machinery 40% Depreciation was not allowable but additional Depreciation claimed has not been allowed. 5. That Generator is also covered in Plant and Machinery on which Depreciation @ 15% is to be allowed and not 10% as Furniture and Fixture.” 24. Briefly stated, the Assessing Officer had noticed during

assessment proceedings that the assessee company had

claimed depreciation @ 15% on plant and machinery (TUFS)

valuing Rs.22 lacs which had been purchased or installed by

it after 30.9.2008 as against allowable rate of 7.5%. It had

also been noticed that the assessee company itself asked the

Assessing Officer to disallow excess depreciation claim on

this plant and machinery. Accordingly, the Assessing Officer

disallowed the excess depreciation claimed on the plant and

machinery (TUFS) amounting to Rs.1,65,000/-. Further, the

Assessing Officer also noticed that the assessee company

had claimed depreciation @ 15% on tubewell as against the

allowable rate of 10%. Therefore, another addition of

Rs.86,855/- was made by the Assessing Officer on account

of excess depreciation claimed on tubewell.

Officer stating that the assessee company itself had

requested the Assessing Officer to disallow the excess

depreciation claimed on TUFS machinery and that the

depreciation on tubewell, not being a machinery, was

allowable @ 10% only. The assessee had also raised a ground

before the CIT(Appeals) that the additional depreciation on

account of investment in plant and machinery (TUFS) be

ITA No.56/Chd/2017 20 A.Y. 2009-10

granted to it which was also disallowed by the CIT(Appeals)

stating that no such claim had been made during re-

assessment proceedings.

the additional depreciation claimed on TUFS machinery be

allowed to it and also that the tubewell being a machinery

depreciation @ 15% be allowed to it as against 10% granted

by the lower authorities.

the CIT(Appeals).

à-vis the claim of assessee of depreciation on the tubewell @

15% as prescribed for plant and machinery we find merit in

the same. The Privy Council in the case of Corporation of

Calcutta vs. Chairman, Cossipore and Chitpore Municipality

(1922) ILR 49 Cal 190 (PC) provided the following definition

of "machinery":

"The word ‘machinery' when used in ordinary language prima facie means some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivances, by the combined movement and inter- dependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces, with the object in each case of effecting so definite and specific a result." 29. The same found approval with the Supreme Court in

CIT vs. Mir Mohd. Ali (1964) 53 ITR 165 (SC). The tubewell

clearly qualifies as a machinery as per the above definition,

being a mechanical contrivance capable of generating force

ITA No.56/Chd/2017 21 A.Y. 2009-10

effecting a definite result on the object so effected and,

therefore, the depreciation rate applicable for plant and

machinery is to be given. The rate of 10% held applicable by

the Revenue, we find, is applicable on furniture and fittings

including electrical fittings, which clearly the tubewell is

not. No basis otherwise was given for applying depreciation

rate of 10% by the Revenue. Therefore we hold that the

assessee is entitled to depreciation @ 15% on tubewell and

the disallowance made on account of excess depreciation

claimed by applying rate of 10% amounting to Rs. 85,855/-

is therefore deleted.

the denial of the same by the CIT(Appeals) for the reason

that it was made during re-assessment proceedings, does not

prevent us from entertaining the same. The Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs CIT

229 ITR 383 held that the powers of the Tribunal are very

wide and can therefore entertain grounds not raised earlier

so as to achieve the purpose of assessment being to assess

the correct tax liability in accordance with law.

The relevant observations in National Thermal Power

Co. Ltd.’s case (supra) are extracted below :

"Under s. 254 of the IT Act, the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial

ITA No.56/Chd/2017 22 A.Y. 2009-10

decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.” 31. Before us it was pointed out that as per the provisions

of section 32(1)(iia),the assessee was entitled to claim

additional depreciation on plant and machinery and having

failed to claim the same ,it was requested that the AO be

directed to grant the same in accordance with law.

for the assessee. We find the plea for admitting the

additional ground to be reasonable since the assessee has

demonstrated that it was entitled to claim additional

depreciation on plant and machinery during the impugned

year as per law and the Revenue we find has not

controverted this assertion of the assessee. Therefore, we

admit this ground raised before us and restore the issue of

claim of additional depreciation on plant and machinery,

also to the CIT(Appeals) to decide the same afresh in

accordance with law. Ground of appeal No.4 is allowed for

statistical purposes, while ground of appeal No.5 stands

allowed.

ITA No.56/Chd/2017 23 A.Y. 2009-10

for statistical purposes.

Order pronounced in the Open Court.

Sd/- Sd/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 17th July, 2018 ‘Poonam’ Copy to: • The Appellant • The Respondent • The CIT 4. The CIT(A) 5. The DR

Asstt. Registrar ITAT,Chandigarh.