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2016 (5) TMI 340 - ITAT AHMEDABAD

2016 (5) TMI 340 - ITAT AHMEDABAD - TMI - Revision u/s 263 - Disallowance u/s u/s. 40A(7) - Held that:- While computing the total income for the year under consideration, the assessee has already disallowed u/s. 43B of the Act. Therefore, it can be safely concluded that there is no allowance of any deduction during the year under consideration.Surprisingly, we find that the Commissioner wanted the A.O to disallow the same u/s. 40A(7) of the Act. We fail to understand when the assessee has not cl .....

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at all possible, in the year of the claim of deduction. However, in so far as the year under consideration is concerned, we do not find any reason in making the assessment order erroneous and prejudicial to the interest of the revenue. We accordingly set aside the order of the Commissioner made u/s. 263 of the Act and restore that of the A.O made u/s. 143(3) of the Act. - Decided in favour of assessee - ITA. No: 1402/AHD/2014, ITA. No: 1419/AHD/2015 - Dated:- 31-3-2016 - SHRI RAJPAL YADAV, JUDIC .....

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missioner grossly erred in invoking the powers conferred upon him by the provisions of Section 263 of the Act. 3. Both these appeals were heard together and are disposed of by this common order for the sake of convenience as common issues are involved. We first take up ITA No. 1402/Ahd/2014 for A.Y. 2009-10 4. The assessment order u/s. 143(3) of the Act was made by the DCIT Circle 1(1), Baroda vide order dated 30.12.2011. 5. Invoking the powers conferred upon him by virtue of Section 263 of the .....

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dmissible only to assessee engaged in production or manufacture of articles or things. Generation and distribution of power dies not result into "production or manufacture of article or thing". Thus as per provisions of sec. 32(1)(iia) r.w.s. 2(29BA) of the Act, you were not entitled for additional depreciation of ₹ 7,22,82,760/-. This resulted in under assessment." It was also noticed from the P & L A/c relevant to A.Y. 2009-10, that the assessee had debited ₹ 92, .....

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spares are treated as revenue expenditure the purchase cost would have already been debited to P & L A/c. The spares now becoming obsolete and being written off cannot again be allowed as a deduction as the amount would have already been debited to P & L A/c as purchases. So the amount of obsolete spares and other items written off should have been disallowed and added to the income of the assessee. This being not done resulted in under assessment of income of ₹ 92,66,211/-. 6. Ass .....

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of Madras in the case of VTM Ltd. 319 ITR 336 in support of the claim of additional depreciation. 7. On the issue of allowability of obsolete stores written off, it was explained that the A.O has specifically called for details and after verifying the details and also the company policy and accounting treatment of obsolete stores, the A.O allowed the claim. 8. The detailed submissions/explanations of the assessee did not find favour with the Commissioner who was of the firm belief that the asses .....

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ch was not done by the A.O at the time of assessment proceedings, therefore, the order passed is erroneous as well as prejudicial to the interest of revenue. 9. Accordingly, the order dated 30.12.2011 was set aside. 10. Aggrieved by this, the assessee is before us. The ld. counsel argued at length reiterating that the assessment order is neither erroneous nor prejudicial to the interest of the revenue. Drawing our attention to the various submissions made during the course of the assessment proc .....

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e on this count only, the ld. Commissioner cannot invoke the powers conferred upon him u/s. 263 of the Act. 11. In so far as, the claim of write off of obsolete stores and spares are concerned, the ld. counsel pointed out that the assessee debits consumption of stores and spares and not purchase cost to the Profit and Loss account. It is the say of the ld. counsel that the unconsumed stores are shown as inventory under the head current assets loans and advances in the Balance sheet. It was stron .....

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ssumed the power u/s. 263 of the Act. The Hon ble Supreme Court in Malabar Industrial Co. Ltd. 243 ITR 83 has laid down the following ratio:- "A bare reading of section. 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under ii, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namel .....

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an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous" 14. Now, let us see in the light of the above ratio, whether the assessment has been made on an incorrect assumption of facts or an incorrect application of law. 15. The first observation of the Commissioner relates to the claim of additional depreciation. This issue is squarely covered in favour of the asse .....

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in the case of VTM Ltd. 319 ITR 336 which was referred to an relied upon by the assessee before the Commissioner. 16. The relevant Head note of the decision of the Hon ble High Court of Gujarat reads as under:- Section 32 of the Income-tax Act, 1961 - Depreciation - Additional depreciation [Wind Electric Generator] - Assessment year 2007-08 - Assessee-company engaged in business of manufacture and sale of various types of chemical, claimed additional depreciation under section 32(1)(iia) with r .....

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in business of manufacture or production of any article or thing - Held, yes - Whether, in facts of case, additional depreciation was to be allowed o Wind Electric Generator - Held, yes [Paras 3 & 4] [In favour of assessee] 17. Thus, it can be safely concluded that the allowability of the claim of additional depreciation by the Assessing Officer is backed by the decision of the Hon ble Jurisdictional High Court of Gujarat and, therefore, cannot make the assessment order erroneous and prejud .....

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h was supported by a complete detail which are exhibited at pages 60 to 82 of the paper book. At point no. 7, the assessee has explained the company policy and accounting treatment for obsolete stores written off. The relevant portion read as under:- Note: MCU/Audit/07-08 April 19, 2007 Subject: Amendment in Write Off/Disposal Policy 1. At present we have management approved policy for write-off/ disposal of nonmoving Spares, N-(Non-regular) & A-B-C Class of items as approved vide our Note R .....

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3. Note of Shri VD Nanavati, Company Secretary, dated 17-04-2007 (FLAG-B) has been received, requesting to submit the report of compliance against the Resolution No.254 of the minutes of the Finance-cum-Audit Committee report. As per the Resolution No.254, the slow-moving/non-moving items policy is required to be reviewed as duration of 5 years (cut-off period) is too long, looking to the highly competitive market and the extent of automation achieved in the industry. 4. Hence, the period need .....

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en circulated to various plants/departments. Most of the replies have been received and the exercise is under final stage of putting up note. 6. After receiving the above approval for the reduction of cut-off period, this amended policy will be implemented in the subsequent exercise for the write-off in the next calendar year, i.e., 01.01.2008. 19. With these factual matrix on record, in our considered opinion after due verification, the A.O has taken a possible view, therefore, the commissioner .....

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t and Loss account. Therefore, the spares now becoming obsolete and being written off cannot again be allowed as a deduction as the amount would have already been debited to Profit and Loss account as purchases. However, while concluding his order u/s. 263 of the Act, on this issue, the observation of the Commissioner read as under:- 4. The next issue involved is claim of writing off of stores and spares worked at ₹ 92,66,211/-. It has been stated by the assessee that it has not debited th .....

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e quantitative detail and examine the accounting policy in respect of these stores and spares of particular denomination. The order passed, therefore, was erroneous as well as prejudicial to the interest of Revenue. 21. In the case of Ashish Rajpal 320 ITR 674 Hon ble Delhi High Court has the occasion to consider the issue where the notice issued by the ld. Commissioner referred to four issues whereas the order of revision referred to nine issues, the Hon ble High Court held as under:- Held, dis .....

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edings being vitiated as a result of the breach of the principles of natural justice. 22. A similar view was taken by the Hon ble High Court of Delhi in the case of Contimeters Electricals Pvt. Ltd. 317 ITR 249 wherein the Hon ble High Court has held as under:- the Tribunal was also right in holding that the Commissioner did not even called for any explanation of the assessee and the issue of fulfillment of the conditions of Section 80IA had not been part of the show cause notice. Therefore, it .....

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d not have treated any further item of party of the assessment order as being erroneous and prejudicial to the interests of the Revenue without giving the assessee an opportunity of being heard. Therefore, what the Commissioner himself could not have done, could not be permitted to be done by the Assessing Officer while giving effect to the order u/s. 263. The Tribunal was right in law in holding that, in the fresh assessment orders passed in pursuance of the consolidated order u/s. 263 of the A .....

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y allowed. ITA No. 1419/Ahd/2015 for A.Y. 2010-11 25. In this year, the assessment order dated 08.02.2013 made u/s. 143(3) of the Act was considered by the Commissioner u/s. 263 of the Act and after considering the records, the Commissioner was of the view that the assessment order u/s. 143(3) of the Act passed by the A.O on 08.02.2013 is to be considered as erroneous and prejudicial to the interest of the revenue for the following reasons. 2.1 It is noticed that as per P&L account, Schedule .....

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mputation of total income. 2.2 It was further noticed from P&L Account that assessee had debited 248.10 lakh as 'obsolete spares and other items written off. If assessee had capitalized the spares, the amount of spares now treated as obsolete and written off shall be deducted from the W.D.V. of the plant and machinery for depreciation purpose and section 50 of the IT Act would apply. No disclosure has been made in the Audit Report. In case of depreciable assets, no loss can be claimed wh .....

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herein, in our considered opinion, the observations of the Commissioner do not hold any water and cannot make the assessment order made u/s. 143(3) of the Act erroneous and prejudicial to the interest of the revenue. 27. Coming to the first issue relating to the debit of ₹ 4058.56 lacs towards Contribution to Provident, Gratuity and Superannuation (Pension) Funds. The Commissioner drew support from the Auditor s report wherein it has been stated that provision for payment of gratuity was n .....

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