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2018 (4) TMI 88

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.... Commissioner under Section 263 and as a result rejected the second appeal of the assessee against the consequential order, which is dependent on the order passed under Section 263. The following substantial questions of law, as mentioned in the appeal memorandum of the Revenue and modified by us, arise for consideration: "1) Is the Tribunal justified in excluding the addition of a sum of Rs. 88,007/- towards interest granted under section 244(1A) to the assessee ? 2) Did the Tribunal go wrong in holding that Rs. 8,21,916/ incurred towards the construction of the houses to the weaker sections of the society come under business expenditure under section 37 of the Act as it created tremendous goodwill by reason of which there was a consequential many fold increase in circulation of the assessee's daily newspaper and receipt by way of advertisement ? 3) Was the Tribunal correct in holding that the assessee is entitled to depreciation under section 32 for the expenses incurred towards installation of plant and machinery at their Palghat Unit despite the fact that the commercial production of that Unit commenced only in April ,1992 ? 4) Whether on the facts and in the circumstan....

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....2) Since the expenditure on account of housing scheme for the poor had substantially helped the assessee in increasing the circulation and in creating tremendous goodwill and since the details of such expenses were already available before the Assessing Officer while completing the assessment, the assessment cannot be taken as erroneous under Section 263; and 3) As the plant & machinery of the Palghat Unit were installed prior to 31-03-1992 and were kept ready for use and since evidence were already available before the assessing officer while completing the assessment, the order under Section 263 amounts to only a change of opinion and hence beyond the scope of Section 263. 6. We heard the learned Senior Counsel Shri P.K. Ravindranath Menon appearing for the Revenue and Advocate Shri P.Gopinath appearing for the assessee. 7. The order of the Tribunal is assailed by the Revenue mainly on the following grounds: (i) The Tribunal should have found that the order dated 19-02-1992, which was admittedly received by the assessee, included an interest of Rs. 98,244/- under Section 244(1A), which was later reduced to Rs. 88,007/- vide order dated 09-10-2002 and should have included it a....

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.... only on the ground that the actual functioning of the plant started only in April, 1992. It was hence the expenditure was taken into consideration for the relevant assessment year. He relies on the decision reported in Khimji Visram and Sons (Gujarat) Private Limited v. CIT, [1994] 209 ITR 993 (Guj.) in support of his argument, wherein it is held as follows:- "The assessee was running its business at Ahmedabad. The assessee was having his office at Ahmedabad. For expansion of its business activities, it purchased the premises at Mittal Towers in Bombay in July, 1975, and for furnishing it, it handed over its possession to its agent and after furnishing and repairs were over, it commenced its business from January, 1977, from the said premises. Hence, it would be apparent that in the present case, as the assessee had taken on lease (sic) the premises at Mittal Chambers at Bombay for the purpose of its business or setting up of the business and that it took over the possession in July, 1975, and handed over the same to its agent for furnishing and repairs, it can be said that, after taking over the possession, the said premises were used for the purpose of business. May be the a....

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....This is the reason cited for claiming the amounts expended under the scheme, to be business expenditure; for reason of the benefit derived by the business. (ii)(b) The facts in the decision relied on by the learned Counsel for the assessee in Sri Venkata Satyanarayana Rice Mill Contractors Co. (supra) can be clearly distinguished. Therein, a rice miller, had contributed amounts to a welfare scheme implemented by the District Collector and claimed it as business expenditure. The scheme was evolved by the District Collector in consultation with the Rice Millers Association and the contribution was insisted upon for issuance of a permit, without which no export could be made. Under the scheme, each member of the Association was to deposit in the Andhra Bank an amount of 50 paise per quintal of rice, for export from Andhra Pradesh and the application for the export permit was to be in a form wherein the applicant had to state the amount of contribution deposited by him. The contribution to the welfare fund was a precondition for the grant of the export permits, and therefore, the assessee contended that the contribution was a compulsory payment extracted from it as a price for granti....

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....usiness promotion by reason of the wide publicity received, enhancing the prestige of the publication and increase of its readership. The Division Bench of this Court rejected the claim for deduction under Section 37, on the ground that the expenditure was not one wholly and exclusively for the purpose of business. The purpose was found to be charitable and philanthropic and not for promotion of business. The object of the trust established was not business promotion. The indirect benefit by way of goodwill earned of the earthquake victims and the general public cannot be deemed to be expenses "wholly and exclusively" for business was the categoric finding. (ii)(d) We cannot agree with the argument advanced by the learned Counsel for the assessee in the teeth of the declaration made by the Division Bench of this Court in the assessee's case itself, on more or less similar facts. The justification given by the Tribunal that the charity resulted in escalation of revenue by way of advertisement also cannot be accepted. It was the assessee's own initiative to provide houses for poor, an act of charity, done in connection with their centenary celebrations. Although the assessee....

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....rds, the machinery or plant must be used for the purpose of that business which is actually carried on and the profits of which are assessable under Section 10(1). The word 'used' has been read in some of the pool cases in a wide sense so as to include a passive as well as active user. It is not necessary, for the purposes of the present appeal, to express any opinion on that point on which the High Courts have expressed different views. It is, however, clear that in order to attract the operation of clauses (v), (vi) and (vii) the machinery and plant must be such as were used, in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year, no allowance can be claimed under clause (vii) in respect of them and the second proviso also does not come into operation." Following the above decision, the Madhya Pradesh High Court in CIT v. Jiwaji Rao Sugar Co.Ltd., [1969] 71 ITR 319, has held as follows: "In our opinion, the basic concept underlying this allowance is that depreciation should result as a consequence of the machinery being actually used or employed in the....

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...., being one on facts, in favour of the assessee and against the department. The assessee was perfectly right in having included the interest received in 1992-93 in the A.Y. 1993-94, as income. The deletion made by the Tribunal of the addition of a sum of Rs. 88,007/- towards interest granted under Section 244(1A), was perfectly justified. 11. We accept the argument of the learned Senior Counsel for the Revenue, on the other two counts that the Commissioner was exercising powers under Section 263 to undo the erroneous assessment carried out by the A.O; which were prejudicial to the interest of the Revenue. The Tribunal egregiously erred in qualifying the amounts expended by the assessee in charity, as one "wholly and exclusively" laid out or expended for the purpose of business; for reason of the incidental goodwill and popularity garnered by such charitable act. The question has to be answered against the assessee and in favour of the Revenue. The third question too has to be answered in favour of the Revenue and against the assessee since the assessee had not commenced production in the relevant assessment year and the depreciation claim on the basis of the installation of plant ....