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Adani Wilmar Ltd. Versus DCIT, Circle-1, Ahmedabad

Revision under section 263 - the assessee has claimed depreciation at 60% on computer equipments, UPS and SAP instead of depreciation at the rate of 15% on computer peripheral and at the rate of 25% on SAP licence, and and that the assessee has claimed additional depreciation of ₹ 23.35 lakhs on fire safety equipments, weigh scale, printer, storage tank etc - Held that:- The Hon'ble Delhi High Court in the case of BSES Yamuna Power ltd. (2012 (12) TMI 118 - ITAT DELHI) has held that deprec .....

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e are of the view that the AO has investigated the issue and took an opinion that it might have not been reflected specifically in the assessment order. If the ld.Commissioner has a different opinion on this issue, then it would become a debatable one. According to the assessee, in various judgements, it has been held that the software expense is to be allowed as revenue expenditure. Considering the nature of its debatable-ness, we are of the view that the assessment order cannot be branded as a .....

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through the details submitted by it, and thereafter, allowed the depreciation including additional depreciation as per law. His view may not get approval from the point of view of the ld.Commissioner, but, the opinion of the AO is also a possible view, and therefore, no action under section 263 can be justified. On due consideration of these facts and circumstances, we allow the appeal of the assessee, and quash the order passed by the ld.Commissioner under section 263 of the Act. - Decided in .....

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sessee is that the ld.CIT has erred in taking cognizance under section 263 of the Income Tax Act and setting aside the assessment order for fresh adjudication. 3. The brief facts of the case are that the assessee has filed its return of income on 9.9.2009 declaring total income of ₹ 72,29,65,644/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Income Tax Act was issued on 23.6.8.2010 which was duly served upon the assessee by speed pos .....

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ne House Nr.Adani House Nr.Mithakali Six Roads Ahmedabad. (PAN - AABCA8056D) Sub: Initiation of proceedings u/s.263 of the I.T.At I.T.Act - Adani Wilmar Ltd. A.Y.2009-10 - Regarding. ******* The undersigned called for and examined the assessment order for A.Y.2009-10. The assessment in this case was completed under section 143(3) of the I.T.At, 1961 on 30.3.2013 determining total income at ₹ 72,83,77,916/-. 1. It is seen that the assessee has claimed depreciation @60% on computer equipment .....

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2. In view of the above, it appears to the undersigned that the order dated 30.3.2013 passed under section 143(3) of the I.T. Act, 1961 by the DCIT, Circle-1, Ahmedabad is erroneous and prejudicial to the interest of Revenue within the meaning of section 263(1) of the I.T.Act, 1961. 3. You are, therefore, requested to show cause as to why appropriate order under section 263(1)of the I.T.Act, 1961 be not passed in your case to eliminate the above errors. For this purpose, the hearing in your cas .....

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31.3.2015. He set aside the assessment order and directed the AO to make a fresh assessment order of the total income of the assessee for the Asstt.Year 2009-10. 5. The ld.counsel for the assessee, while impugning the order of the ld.Commissioner has contended in his first fold of submission that the ld.Commissioner has intended to take cognizance of section 263 qua two issues, viz. (i) that the assessee has claimed depreciation at 60% on computer equipments, UPS and SAP instead of depreciation .....

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oner could set aside the assessment order qua these two issues, because there are large number of other issues in the assessment order. In next fold of contention, he appraised us the scope of section 263 and when the ld.Commissioner can take action against the assessee. The AO has issued a show cause notice under section 142(1) and specifically inquired on this issue. The ld.counsel for the assessee drew our attention towards page no.21 of the paper book, wherein copy of the notice dated 9.12.2 .....

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he following decisions, he contended that the deprecation on computer and computer peripherals is admissible at the rate of 60%. "2. In present case, the assessee has capitalized software expenses, UPS and claimed depreciation @ 60% as same are integral part of computer and cannot run independently and/or installed to work efficiently and smoothly. Reliance placed on: Sr.NO. Name of case law Citation Ratio 1. BSES Yamuna Power Ltd. 358 ITR 47 (Del.) Depreciation @ 60% on computer peripheral .....

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s incurred on SAP licence ought to have been allowed as revenue expenditure. In support of his contentions, he placed on record copies the following decisions: Varinder Agro Chemicals Ltd. : 309 ITR 272 (P&H) Rober Bosch India Ltd. : 50 taxmann.com 275 (Kar.) Karuru Vysya Bank Ltd. : 54 taxmann.com 324 (Mad.) Lubrizol India Ltd. : 37 taxmann.com 294 (Bom.) 7. The ld.counsel of the assessee further contended that if there is no inquiry, then the assessment can be branded as erroneous. But ina .....

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ters, UPS cannot be equated with the computer and depreciation cannot be granted at the rate of 60%. The approach of the AO by not making discussion on this issue is an erroneous approach. The ld.Commissioner has rightly taken action under section 263 of the Income Tax Act. She further contended that additional depreciation on the asset, which is not part of the plant & machinery involved in manufacturing activity cannot be granted. For this purpose, she took us through section 32(1)(iia) of .....

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nd it should acquire the asset within the time frame provided in section 32(1). The assessee fulfilled those conditions. It is engaged in the manufacturing. It was not necessary for the assessee to use those particular assets actively in the manufacturing activity. 9. We have duly considered the rival contentions and gone through the record carefully. Section 263 has a direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:- "263(1) The .....

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cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the J .....

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; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the orde .....

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portunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 10. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the .....

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l to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After heari .....

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f the assessment made by the Income Tax Officer on the basis of a direction issued by the Jt. Commissioner u/s 144A would be an order of the Income Tax Officer. In other words, if directions of binding nature were issued by a higher authority translated into the order of the Income Tax Officer, then that order would be considered of the Assessing Officer and not of the higher authorities. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinen .....

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tion that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, su .....

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applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion. (viii) The .....

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egard. 11. Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 referred by ld. Counsel for the assessee, and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375) . In the case of Sun Beam Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the asses .....

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t order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Off .....

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would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open". 12. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375 , the Hon'ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon'ble co .....

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ery diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty .....

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ith the order if all the facts stated therein are assumed to be correct." 13. The light of the above, let us examine the facts of the present case. As far as the first proposition of the ld.counsel for the assessee is concerned, we find merit. The whole assessment order cannot be cancelled, because it contained large number of issues. The ld.CIT sought to take action under section 263 qua two issues only, and to that extent the assessment would only be set aside. Therefore, subject to over .....

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ereby, he has applied his mind on the claim of depreciation made by the assessee. The Hon'ble Delhi High Court in the case of BSES Yamuna Power ltd. (supra) has held that depreciation at the rate of 60% will be admissible on computer peripherals. Prior to this decision, there are large number of orders at the end of the ITAT, and the ITAT is unanimous in its approach on this issue. Thus, a possible view can be taken by the AO with regard to the admissibility of depreciation on UPS, scanner e .....

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that the software expense is to be allowed as revenue expenditure. Considering the nature of its debatable-ness, we are of the view that the assessment order cannot be branded as an erroneous order on this issue. As far as third part is concerned, we find this aspect is squarely covered by the decision of the Hon'ble Gujarat High Court. The observation of the Hon'ble Court I para-3 and 4 read as under: "3. Heard Shri K.M. Parikh, learned Counsel appearing on behalf of the revenue a .....

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ed to deduction under Section 32(1)(iia) of the Income-tax Act of ₹ 1,17,98,030/-. The said addition has been deleted by the CIT(A) relying upon the decisions of the Madras High Court in the case of VTM Ltd (Supra) and in the case of Hi Tech Arai Ltd. (Supra). In both the aforesaid decisions, the Madras High Court had an occasion to consider the similar issue and it is held that while claiming the deduction under Section 32(1)(iia) of the Income-tax Act setting up wind-mill has nothing to .....

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