Madras High Court
M/S.V.G.Panneerdas & Co vs The Assistant Commissioner Of Income ... on 6 August, 2024
Author: Anita Sumanth
Bench: Anita Sumanth
2024:MHC:3140
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 06.08.2024
CORAM :
THE HONOURABLE DR.JUSTICE ANITA SUMANTH
and
THE HONOURABLE MR.JUSTICE G. ARUL MURUGAN
T.C(Appeal).No.1985 of 2008
M/s.V.G.Panneerdas & Co.,
V.G.P. Square, Saidapet,
Chennai 600 015. .. Appellant
vs
The Assistant Commissioner of Income Tax,
Circle V,
121, Nungambakkam High Road,
Chennai – 600 034. .. Respondent
Appeal filed under Section 260A of the Income Tax Act, 1961
against the order of the Income Tax Appellate Tribunal, “C” Bench,
Chennai dated 25.7.2008 in I.T.A.No.1561/MDS/2002 for the
assessment year 1995-96.
For Petitioner : Mr.A.S.Sriraman
for Mr.S.Sridhar
For Respondent : Ms.V.Pushpa
Senior Panel Counsel
assisted by
Ms.Anu Ganesan,
Junior Panel Counsel
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JUDGMENT
(Delivered by DR.ANITA SUMANTH.,J)
This appeal has been admitted on the following two substantial
questions of law:
'1.Whether the Appellate Tribunal is correct in law
in sustaining the action of the CIT in passing the revision
order in terms of Section 263 of the Act even though
there was a failure on his part to establish and
demonstrate the fulfilment of the twin conditions of error
and prejudice causing to the revenue at the time of
issuing show cause notice as well as in the passing of the
revision order?
2.Whether on the facts and circumstances of the
case the Tribunal is right in dismissing the appeal
despite the fact that on an earlier occasion in
ITA.Nos.659 and 660 of 2003 for the assessment years
1993-94 and 1994-95, the Tribunal has granted the relief
of depreciation in favour of the assessee and tus
modified the assessment order which form the basis for
passing the present order?'
2.The appeal relates to Assessment Year (AY) 1995-96 and the
substantial questions of law as above, arise from an order of the Income
Tax Appellate Tribunal ('Tribunal'/'ITAT') dated 25.07.2008. Pursuant to
a return of income filed on 31.10.1995/03.03.2000, returning a loss of
Rs.4,90,13,596/- the petitioner received an order of re-assessment dated
28.03.2002, reducing the loss returned by it. A perusal of that order
reveals that though there are several dis-allowances effected, there is no
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discussion on the aspect of depreciation and the claim of the assessee in
that regard has not been disturbed.
3.A show cause notice came to be issued on 20.03.2002 by the
Commissioner of Income Tax, who was of the view that the order of
assessment was both erroneous and prejudicial to the interests of
Revenue. The appellant responded to the proposal objecting to the same,
despite which an order came to be passed u/s 263 of the Act. The
Appellant carried the order by way of appeal to the Tribunal which, by
way of the impugned order dated 25.07.2008 rejected the same.
4.The basis of the proposed suo moto intervention u/s 263 of the
Act is the claim of depreciation by the petitioner. Admittedly, the
business of the Appellant comprises two divisions, i.e. Land Division and
Retail Business Division. Depreciation was claimed in respect of both the
divisions. For AY 1993-94 and 1994-95 the profit of the Retail Business
was estimated as the petitioner had been unable to provide direct evidence
in support of the profit disclosed.
5.The profit was hence re-cast and in doing so, the Assessing
Authority appears to have rendered a finding that the business of the
Land Division was very nominal when compared to the scale of the Retail
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Business. He has also incidentally observed that the house and other
assets were not required for the business of the Land Division.
6.Based on the aforesaid incidental observations, a portion of the
depreciation was disallowed. According to the Appellant, the
disallowance travelled to the Tribunal by way of Income Tax Appeals in
ITA.Nos.659 & 650 of 2003 and the issue has been answered in its
favour. Unfortunately, neither party is in a position to produce a copy of
that order.
7.However, the petitioner has filed a copy of a common order of the
Tribunal for the years 1990-91 and 1991-92 where this very issue has
been decided on 21.07.2006, in its favour. The main argument of the
Appellant is thus that the twin conditions of Section 263 of the Income
Tax Act, 1961 (in short 'Act') have not been satisfied in this matter.
8.For this purpose, reliance is placed on the judgment of the
Hon'ble Supreme Court in the case of Commissioner of Income Tax v.
Max India Ltd. [(2007) 295 ITR 0282] and of this Court in the case of
M/s.Agasthiya Granite P Ltd. v. Assistant Commissioner of Income Tax
[T.C.(Appeal)No.450 of 2007 dated 16.04.2018]. Both cases touch upon
the requirement of concurrent satisfaction of the twin conditions under
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Section 263 of the Act.
9.Per contra, learned counsel for the respondents would argue on
the merits of the matter pointing out that there was, indeed, an error
arising in order of assessment dated 28.03.2002, since the aspect of
depreciation has not been looked into by the Assessing Authority. It is
only to correct that error that the impugned action under Section 263 has
been initiated.
10.We have heard learned counsel.
11.Section 263 of the Act requires concurrent satisfaction of the
twin conditions of error and prejudice to the revenue. The locus classicus
on this issue is the judgment of the Hon'ble Supreme Court in the case of
Malabar Industries Company Ltd. v. Commissioner of Income Tax (243
ITR 83), wherein the Court settles the proposition thus:
'A bare reading of Section 263 of the Income-tax Act, 1961,
makes it clear that the prerequisite to the exercise of
jurisdiction by the Commissioner suo motu under it, 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,
namely, (i) the order of the Assessing Officer sought to be
revised is erroneous; and (ii) it is prejudicial to the
interests of the Revenue. If one of them is absent - if the
order of the Income-tax Officer is erroneous but is not
prejudicial to the Revenue or if it is not erroneous but is
prejudicial to the Revenue - recourse cannot be had to
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Section 263(1) of the Act.'
12.We are thus to test the impugned order on the angle of whether
an error has been committed by the Assessing Authority in framing of
assessment order dated 28.03.2002. It is true that that the order makes no
reference to the issue of depreciation. However, this does not lead to the
automatic conclusion that an error has been committed, particularly in
light of the order of the Tribunal dated 21.07.2006. All the more for the
reason that the aforesaid order has attained finality and has not been
challenged by the Revenue.
13.The order of the Income Tax Appellate Tribunal dated
21.07.2006 for AY 1990-91 and 1992-93, is concerned with the very
issue on which suo moto intervention has been taken by the respondent.
In deciding the matter in favour of the petitioner, the Tribunal holds thus:
'. . . .
2. I.T.A.Nos.273 & 274/Mds/02: A.Y. 1990-91, 1992-93
The first issue raised is that the Commissioner of
Income Tax (Appeals) erred in deleting the disallowance of
depreciation on 'Victory House'.
3. The disallowance was made by the Assessing Officer
because similar disallowance was done by the Assessing
Officer in earlier assessment year on the premise that there
was no justification in assessee's method of debiting entire
depreciation on 'Victory House' to the Land Division in view
of the fact that the Retail Division occupied comparative
much larger space than the Land Division. Before the
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learned Commissioner of Income Tax (Appeals) it was
submitted that, while assessing the business income both the
Divisions are clubbed and assessed.
4. The learned Commissioner of Income Tax (Appeals)
held that if the Assessing Officer has accepted the business
and its income then he should have allowed the same even
though he had estimated the income rejecting the book
results. The learned Commissioner of Income Tax (Appeals)
further referred to Central Board of Direct Taxes Circular
No.29-D(XIX.14) F.No.45/239/65-IT dated 31.08.65 for the
proposition that,
“Where it is proposed to estimate the profits and
the prescribed particulars have been furnished by the
assessee, the depreciation allowance should be
separately worked out. In all such cases, the gross
profit should be estimated and the deductions and
allowances including the depreciation allowance
should be separately deducted from the gross profit.”
In view of the aforesaid, the learned Commissioner of
Income Tax (Appeals) directed the Assessing Officer to allow
the depreciation as claimed by the assessee.
5. We have heard the rival contentions and perused
the relevant records. We find that if the business of the
Divisions is clubbed and the assessment of income is
accordingly made, then there is no practical purpose in
making any distinction in the claim of depreciation from one
Division to another. This is more so when the same is being
done on the mere opinion of the Assessing Officer that a
particular business of the assessee does not require “that
much” business premises. Hence, we uphold the orders of
the learned Commissioner of Income Tax (Appeals) on this
issue and decide the issue in favour of the assessee.'
14.The very question considered to be an error by the respondent
has been answered at paragraph 5 to state that the Appellant’s claim of
depreciation is correct, for more than one reason. Firstly, the Tribunal
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finds that the re-allocation of depreciation qua the land and retail
divisions is merely on the opinion expressed by the Assessing Authority
that a particular business of the assessee does not require 'that much
business premises' .
15.This is only an incidental finding which has not impressed the
Tribunal, and quite rightly so. That apart, they have also opined that there
is no practical purpose to be served in making a distinction between the
claim of depreciation qua retail business and land division business. The
findings and conclusions of the Tribunal on identical facts and
circumstances as for the present AY have been accepted by the
respondent and as such, no question of law much less a substantial
question of law arises in these circumstances.
16.It is true that the respondent did not have the benefit of the
order of the Tribunal dated 21.07.2006 at the time when the suo moto
action u/s 263 was proposed. However, the Tribunal did, in 2007, while
passing the impugned order. A perusal of the order of the Tribunal
reveals that the 2006 order was not brought to its notice and thus the
Tribunal did not have the benefit of the reasoning under that order.
17.However, while deciding the matter today, we cannot close our
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eyes to subsequent developments and the order of the Tribunal dated
21.07.2006 and the finality attached to it, thus assume great relevance.
The substantial questions of law, are, in light of the discussion above,
answered in favour of the assessee/Appellant and adverse to the
respondents.
18.Incidentally, we may also point out that the impugned order in
this case is dated 25.07.2008. The provisions of Section 153(3) of the Act
require a consequential order of assessment to be passed within a period
of twelve (12) months from the end of the financial year when the order
under Section 263 was received by the Chief Commissioner.
19.We specifically requested the learned Standing Counsel to
ascertain whether any consequential order of assessment has been passed
and she would confirm on instructions that there is no such order that is
available on record. In such an event, the entire exercise undertaken by us
in deciding the Tax Appeal becomes academic since, at this distance of
time, no consequence can be given to the impugned order under Section
263 of the Act.
20. This appeal is allowed. No costs.
[A.S.M., J] [G.A.M., J]
06.08.2024
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Index:Yes
Neutral Citation:Yes
vs
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DR. ANITA SUMANTH,J.
and
G. ARUL MURUGAN.,J
vs
To
The Assistant Commissioner of Income Tax,
Circle V,
121, Nungambakkam High Road,
Chennai – 600 034.
06.08.2024
https://www.mhc.tn.gov.in/judis
