Ita/150/2008 Of The Commissioner Of Income Tax,Tvm v. English Indian Clays Ltd.,Trivandrum

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM WEDNESDAY, THE 10TH JUNE 2009 / 20TH JYAISHTA 1931 ITA.No. 150 of 2008() --------------------- ITA.156/COCH/2000 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: -------------------- THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI. JOSE JOSEPH, SC FOR IT RESPONDENT(S): --------------- ENGLISH INDIAN CLAYS LTD.,THIRUVANANTHAPURAM. ADV. SRI.A.KUMAR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10/06/2009,THE COURT ON 10/06/2009 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &C.K.ABDUL REHIM, JJ.....................................................................I.T. Appeal No.150 of 2008.................................................................... Dated this the 10th day of June, 2009. C.R. JUDGMENT Ramachandran Nair, J. Appeal is filed by the Revenue against the order of the Tribunalcancelling a suo moto revisional order issued by the Commissioner ofIncome Tax under Section 263 of the Income Tax Act whereunderCommissioner set aside respondent's assessment for the year 1995-96with direction to the Assessing Officer to reconsider eligibility fordeduction of depreciation of Rs.4 crores claimed by the respondent andallowed in the original assessment without considering the eligibility.Even though several questions are raised in the appeal filed, we feel theonly issue which is the substantial question of law that requiresconsideration is whether on facts, the Tribunal was justified in settingaside the order of the Commissioner issued under Section 263 of theAct directing fresh assessment of the assessee for the year 1995-96. 2. Assessee which is engaged in mining of clay as it's main business in Trivandrum filed it's return for the assessment year 1995-96claiming full depreciation of Rs.5 crores under two heads. Out of this,Rs.1 crore represent the value of aluminium cops, each priced atRs.50/-, purchased and leased out by the assessee to a yarnmanufacturing company by name JCT Ltd. Balance Rs.4 croresrepresent value of bottles and crates (PVC made) purchased and leasedby the assessee to a soft drinks company by name Dhillon Kool Drinksand Beverages Ltd. The details available in the Tribunal's order showthat Rs.4 crores' claim represents value of 5161287 number of bottles,each bottle costing a price of around Rs.6 and 46507 numbers crates,the value of each crate being around Rs.150/-. While completingregular assessment under Section 143(3) of the Act, the AssessingOfficer considered the claim of depreciation of the assesee only forRs.1 crore pertaining to purchase and lease out of aluminium cops toJCT Ltd. The officer found that the purchase was under two invoicesdated 23.3.1995 and 30.3.1995 and lease during the previous year wasonly for purchases under two bills. He, therefore, granted depreciationof Rs.12.5 lakhs and disallowed the claim which was Rs.1 crore. Sofar as the claim of depreciation of Rs.4 crores pertaining to purchaseand supply of bottles and crates to the Soft Drinks Company abovereferred is concerned, the assessment is completely silent whichshows that assessee's claim of depreciation in terms of the return wasallowed by the officer without reference to it in the assessment order.The Commissioner of Income Tax in exercise of jurisdiction conferredunder Section 263 of the Act, considered the correctness of the claimwith reference to the records. He found that the very same assesseemade a bogus claim of depreciation in the immediately precedingassessment year pertaining to purchase and lease out of aluminium copsto a company and C.I.T.(Appeal)'s finding about the bogus nature oftransaction was accepted by the assessee and assessee settled the taxliability under the Karvivad Samadan Scheme for that year. Therefore,the Commissioner was of the view that the assessee's claim fordepreciation of a big amount of Rs.4 crores should have beenconsidered carefully by the Assessing Officer. The Commissionernoticed that without even a reference in the assessment order about theclaim, the Assessing Officer allowed depreciation on the entire amountof Rs.4 crores without examining the details of the claim or eligibilityof the assessee. Since the assessment order was passed in a cursory andindifferent manner granting deduction of Rs.4 crores withoutexamining in detail the nature of the claim, the Commissioner found that such an order is prejudicial to the interest of the Revenue and somuch so, it calls for re-examination. He, therefore, set aside theassessment under Section 263 and directed the Assessing Officer toreconsider the assessee's eligibility for claim of depreciation of Rs.4crores. The appeal filed by the assessee was allowed by the Tribunalby holding that Commissioner has not established disentitlement onmerits and, therefore, he was not entitled to set aside the assessment inexercise of powers under Section 263 of the Income Tax Act. It isagainst this order the department has filed this appeal and we haveheard Senior Counsel appearing for the department and AdvocateSri.A.Kumar, appearing for the respondent-assessee. 3. In the first place, Standing Counsel pointed out the backgroundof the assessee and the nature of the claim. During the precedingassessment year i.e. 1994-95, assessee made a similar claim ofdepreciation on the items purchased and leased out to one company byname JCT Ltd. which was found by the C.I.T.(Appeals) as a bogustransaction. The assessee without pursuing the matter for that year,settled the tax liability under the Karvivad Samadhan Scheme. Duringthis year also, the assessee claimed full depreciation on the value ofRs.2 lakhs aluminium cops purchased from JCT Ltd. and leased out to 3. In the first place, Standing Counsel pointed out the backgroundof the assessee and the nature of the claim. During the precedingassessment year i.e. 1994-95, assessee made a similar claim ofdepreciation on the items purchased and leased out to one company byname JCT Ltd. which was found by the C.I.T.(Appeals) as a bogustransaction. The assessee without pursuing the matter for that year,settled the tax liability under the Karvivad Samadhan Scheme. Duringthis year also, the assessee claimed full depreciation on the value ofRs.2 lakhs aluminium cops purchased from JCT Ltd. and leased out to the same company with whom a bogus transaction was established bythe department for the previous year. Therefore, the Assessing Officerscrutinised the genuineness of the claim of depreciation in respect ofthe transaction with JCT Ltd. and limited the depreciation toRs.12,50,000/- as against Rs.1 crore claimed by the assessee. In otherwords, 87.5% of the depreciation claimed for the transaction with JCTLtd. was rejected by the Assessing Officer. However, so far as theassessee's claim for depreciation on the purchase and sale of bottles andcrates to M/s.Dhillon Kool Drinks and Beverages Ltd. is concerned,though the claim was Rs.4 crores, the Assessing Officer does not evenwhisper about the claim in the assessment order, but granted the claimwithout examining the assessee's eligibility for the claim. In fact, theclaim is that the assessee purchased 51,61,287 number of bottles and46,507 numbers of crates and gave the same on lease to the abovecompany. According to the assessee, value of each item is below thelimit that entitles the assessee for full depreciation and based on thesame claim was made. In the normal course a prudent officer shouldexamine whether there was genuine purchase and lease as claimed bythe assessee. Even though assessee's counsel contended that all thedetails were furnished by the assessee along with return and statement of accounts and the Assessing Officer should be deemed to haveconsidered the same before allowing the claim, the finding of theCommissioner in this regard is as follows: "I find from the records that the assessee furnishedcertain details like the names of the parties from whom theseassets were purchased and the cost of the items. Howeverthe addresses of these parties were not mentioned and theassessing officer did not make any attempt to verify thegenuineness of the lease transaction or even the purchase ofthe assets from various parties at a cost of nearly 4 crores." It is obvious from the above finding of the Commissioner that based onthe records produced by the assessee, that too, without addresses of theparties from whom the assessee purchased the articles, the AssessingOfficer would not have allowed the claim had he scrutinised the returnand the records filed in support thereof. During hearing, even thoughassessee's counsel filed detailed argument note and offered to produceentire records pertaining to the purchases to prove genuineness of theclaim, we do not think it is for this court to consider the matter for thefirst time. The only question to be considered is whether the orderissued by the Assessing Officer granting the claim without examiningthe eligibility of the assessee for the claim is an order prejudicial to theinterest of the Revenue entitling the Commissioner to interfere underSection 263. In this regard, we are unable to uphold the finding of the Tribunal that the Commissioner has not established that the assessmentis prejudicial to the interest of the Revenue before setting aside thesame. The finding of the Commissioner in his order is that theassessment was passed granting depreciation of about Rs.4 croreswithout even verifying whether the purchases are genuine, particularlywhen assessee has not even furnished the addresses of the parties fromwhom the goods are purchased. If the procedure adopted by theAssessing Officer is not fair and reasonable, then there is nothingwrong in the Commissioner directing to examine the assessment afreshin exercise of powers under Section 263, no matter such assessmentwould lead to increased demand of tax or not. The assessee has made abogus claim of depreciation in the assessment year 1994-95 and thesame was detected by the C.I.T.(Appeals). The assessee in fact,conceded guilty by settling liability under Karvivad Samadhan Scheme.In this year also, assessee had an arrangement with the very same partyand the Assessing Officer made substantial disallowance of claim inrespect of the transaction with the very same party. Therefore, it wasthe duty of the Assessing Officer to examine critically similar claim putforward by the very same assessee that is, the claim of depreciation ofRs.4 crores. We are, therefore, of the view that in this case the assessment passed without reference to the claim and withoutconsidering the eligibility of the assessee for depreciation for the lakhsof items said to have been purchased and leased out in the previousyear, was rightly found to be an order prejudicial to the interest of theRevenue by the Commissioner. So much so, the Commissioner rightlyexercised jurisdiction under Section 263 and set aside the assessment.We, therefore, allow the appeal by reversing the order of the Tribunaland by restoring the order of the Commissioner. It will be open to theassessee to produce evidence and establish the case before the officer inthe fresh assessment proceedings based on order of the Commissioner. C.N.RAMACHANDRAN NAIRJudge pms C.K.ABDUL REHIM Judge