V.sabitamani v. The Assistant Commissioner Of Income Tax Circle - Ii

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 24.08.2020 Pronounced on : 04.09.2020 Coram THE HONOURABLE Mr. JUSTICE T.S.SIVAGNANAMANDTHE HONOURABLE Mrs. JUSTICE V.BHAVANI SUBBAROYAN T.C.A.Nos.368 and 369 of 2018 and C.M.P.Nos.7404 and 7406 of 2018 V.SabitamaniC/o Pioneer Corporation,358, Metupalayam Road,Coimbatore – 641 043 .. Appellant in both the appeals/RespondentVs. The Assistant Commissioner of Income TaxCircle - IINo.63, Race Course Road,Coimbatore – 641 018..Respondent in both the appeals/Appellant Tax Case Appeals filed under Section 260-A of the Income TaxAct, 1961, are directed against the Common Order passed by theIncome Tax Appellate Tribunal “A” Bench in I.T.ANos.2038/Mds/2016 and 1719/mds/2016 dated 03.02.2017 for theassessment year 2009-2010. TCA 368/18 Against the order of Income Tax officer ward II(4)Coimbatore, in PAN. dated 16/6/2014 against the orderof Assistant Commissioner of Income Tax-Circle II-Coimbatore, inPAN No. AJXPS7331Q dated 9/11/2011 TCA 369/18 Against the order of Income Tax officer ward II(4)Coimbatore, in PAN. dated 16/6/2014 against the orderof Assistant Commissioner of Income Tax-Circle II-Coimbatore, inPAN No. AJXPS7331Q dated 9/11/2011 https://hcservices.ecourts.gov.in/hcservices/ For Appellant : Mr.J.Balachandar T.S.SIVAGNANAM, J. These appeals filed by the assessee under Section 260-A ofthe Income Tax Act, 1961 [hereinafter referred to as 'Act'] aredirected against the common order dated 03.02.2017 inI.T.A.Nos.1719/Mds/2016 and I.T.A.Nos.2038/Mds/2016 for theassessment year 2009-2010. 2. These appeals were admitted on 10.07.2018 to considerthe following substantial question of law. :- “Whether the actual purchase price of a second-hand assetcan be ignored by purported recourse to Explanation 3 to Section43(1) of the Income Tax Act, 1961 ?” 3. The assessee, an individual filed for return of incomefor the assessment year under consideration, AY-2009-2010admitting the total income of Rs.12,92,820/-. The assessmentwas selected for scrutiny and notice under Section 143(2) of theAct was issued, after which, the assessment was completed by anorder dated 09.11.2011. The assessment was reopened underSection 147 of the Act on the ground that there was an excessclaim of depreciation in respect of purchase of a windmill.After affording an opportunity to the assessee, the assessmentwas completed under Section 143(3) read with Section 147 of theAct by an order dated 16.06.2014 disallowing the depreciation tothe tune of Rs.77,12,645/-. 4. Aggrieved by such order, the assessee filed appealbefore the Commissioner of Income Tax [Appeals] – 1, Coimbatore[CIT(A)] raising several contentions and laying stress upon thevaluation report submitted by the Chartered Engineer cumApproved and Registered Valuer at the time of sanction of a termloan by the Canara Bank, Gandhipuram Branch, Coimbatore for thepurchase of the windmill. It was contended that there is a hugemarket for second-hand wind mills and the assessing officerfailed to note the location of the windmill, the make andcapacity, it had more than 15 years of balance use life and pastperformance of the mill in generating electricity. Thus, it wascontended that owing to all these features, the assessee hadpurchased the windmill for a sum of Rs.2,36,00,000/-. 5. The Commissioner of Income-Tax [Appeals] – II by anorder dated 30.03.2016 partly allowed the appeal filed by theassessee, faulted the valuation method adopted by the assessingofficer to be unscientific and ultimately, determined the costof the windmill at Rs.1,50,00,000/- and directed the assessingofficer to grant depreciation on the said amount. Aggrieved bysuch order, the assessee as well as the Revenue filed appealsbefore the Tribunal. By the impugned order, the appeal filed bythe Assessee has been dismissed and the appeal filed by theRevenue has been allowed. This is how the assessee is before usby way of these two Tax Case Appeals challenging the commonorder passed by the Tribunal dated 03.02.2017. 6. We have elaborately heard Mr.J.Balachandar, learnedcounsel for the appellant / assessee and Mr.T.R.Senthilkumar,Senior Standing Counsel and Mrs.K.G.Usharani, Junior StandingCounsel for the respondent / revenue. We have narrated thefactual background, those facts, which are relevant for thepurpose of deciding these appeals. 7. The sheet anchor of the submissions of the learnedcounsel for the appellant is by contending that the Tribunalfailed to take into consideration the material facts, namely,the valuation report given by an approved government valuer ofthe Canara Bank, who had valued the windmill at Rs.2,95,00,000/-and Rs.2,55,34,000/- respectively, which has not been consideredby the Tribunal. 8. The Tribunal ought to have considered that the assessingofficer has invoked Explanation 3 to Section 43(1) of the Act onmere surmises and conjunctures by treating the transaction as adevice to reduce tax liability. Further, the Tribunal failed tonote the lifespan of the windmill, i.e., more than 15 years,which is a relevant material to determine the market value. 9. Further, it is submitted that the Revenue did notdispute the fact that the assessee and the vendor wereunconnected persons. Consequently, the genuinity of thetransaction was not questioned. Therefore, there was no reasonsto disbelieve the amount paid by the assessee for the purchaseof the second-hand windmill. It is also submitted that thevendor not only sold one windmill to the appellant, but to twoother persons and the appellant alone has been targeted. 10. Per contra, the leaned senior counsel for the Revenuehad referred to the factual position which was recorded by theassessing officer as well as by the Tribunal and submitted thatthe Tribunal rightly dismissed the appeal filed by the assessee,as the cost of the windmill has been unduly inflated for the https://hcservices.ecourts.gov.in/hcservices/ purpose of reducing the assessee's tax liability and theassessee has not made any ground to interfere with the orderpassed by the Tribunal. 11. When the assessment was re-opened under Section 147 ofthe Act, the assessee was given a questionnaire calling fordetails with regard to the claim for depreciation on theacquisition of the second-hand windmill on 29.03.2017. 12. After considering the submissions made by the assessee,which were identical to that of the arguments advanced beforeus, which were recorded above, the assessing officer discussedthe aspect as to how the real worth of the asset has to becomputed and in doing so, how the diminution of the economicvalue of the asset over its period of views has to be determinedand applied. 13. After noting the technical details, the assessingofficer observed that as far as taxation is considered under theIncome Tax Act, the accelerated depreciation is the incentive toincrease the installed capacity of windmill in the country and aperson, who installs the windmill gets the benefit of suchaccelerated depreciation. 12. After considering the submissions made by the assessee,which were identical to that of the arguments advanced beforeus, which were recorded above, the assessing officer discussedthe aspect as to how the real worth of the asset has to becomputed and in doing so, how the diminution of the economicvalue of the asset over its period of views has to be determinedand applied. 13. After noting the technical details, the assessingofficer observed that as far as taxation is considered under theIncome Tax Act, the accelerated depreciation is the incentive toincrease the installed capacity of windmill in the country and aperson, who installs the windmill gets the benefit of suchaccelerated depreciation. 14. It was pointed out that the original owner, theassessee's vendor had claimed depreciation to the extent of Rs.3Crores within six years and when the owner sells the windmill tothe new purchaser, the new purchaser cannot get the same benefitfor the enhanced value, as there is no additional wind energycapacity installed. Ultimately, the assessing officer disagreedwith the assessee and disallowed the claim of depreciation tothe tune of Rs.77,12,640/-. 15. The CIT[A], in our considered view, while partlyallowing the assessee's appeal, proceeded to make a adoptestimations of the value and fixed the sum at Rs.1,50,00,000/-.We find that there is no scientific basis for such fixation ofthe value of the second-hand windmill and such fixation has beendone based on the personal opinion of the CIT[A]. Therefore,the Tribunal was fully justified in allowing the Revenue'sappeal. With regard to the assessee's appeal, the Tribunal re-appreciated the factual position and in particular, noted thatthe manufacture of the windmill has certified that the windmill,which was sold to the assessee is no more in the market valueand the technology has become obsolete. The Tribunal alsoconsidered as to what would be the effect of a report of thegovernment valuer and noted Explanation III to Section 43(1),which requires the assessing officer to arrive at an objectivesatisfaction. Further, the Tribunal observed that valuationsmay be relevant in ordinary circumstances, but when cumulative depreciation claimed was far in excess of the cost, thevaluation report of the approved valuer becomes insignificant. 16. Thus, in our considered view, the Tribunal hasreappreciated the factual position and come to a conclusion thatthe order passed by the assessing officer requires nointerference. Thus, we conclude by observing that there is noquestion of law much less substantial question of law arisingfor consideration in these appeals. Accordingly, the appeals fail and they are dismissed.Consequently, connected miscellaneous petitions are closed. Nocosts. Sd/-Assistant Registrar // True Copy// Sub Assistant Registrar ssd To 1.The Income Tax Appellate Tribunal “A” Bench Chennai 2.The Income Tax officer,ward II(4),Coimbatore. 3.The Assistant Commissioner of Income TaxCircle II-Coimbatore. +1cc to Mr.T.R.Senthilkumar, Sr.No.28874 Pre-delivery Common Judgment in T.C.A.Nos.368 and 369 of 2018 PVS(CO)GS(23/10/2020) https://hcservices.ecourts.gov.in/hcservices/