2007 (5) TMI 140 - HC - Income Tax

Assessment Assessee appeal to tribunal against the order of AO and Commissioner in which disallowing the depreciation and tribunal remands the matter back to the AO u/s 254 and directed to consider all the issue and decided afresh

Issues Involved:
1. Disallowance of depreciation on electric meters.
2. Foreign travel allowance claimed by a director.
3. Issuance of notice for further details after a concluded assessment order.
4. Jurisdiction and authority of the Assessing Officer (AO) to issue subsequent notices.
5. Compliance with Tribunal's directions and hierarchical discipline in quasi-judicial proceedings.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on Electric Meters:
The controversy began with the appellant/assessee purchasing electric meters and leasing them to the State Electricity Board, claiming depreciation on these meters valued at approximately Rs. 35.10 crores. The AO disallowed this depreciation, considering the transaction a financial agreement rather than a lease. The Commissioner of Income-tax (Appeals) partially allowed the depreciation based on market value, reducing it to Rs. 11.38 crores. The Tribunal remanded the matter back to the AO for fresh consideration, including the issue of foreign travel allowance.

2. Foreign Travel Allowance Claimed by a Director:
The Tribunal's remand also included the reconsideration of the foreign travel allowance claimed by Mrs. J. Thapper, a director of the assessee-company. The AO was instructed to reassess this claim along with the depreciation issue.

3. Issuance of Notice for Further Details After a Concluded Assessment Order:
Following the Tribunal's remand, the AO issued a notice on May 15, 2002, seeking further details on depreciation and foreign travel allowance. The assessee challenged this notice, arguing that the issue had already been resolved by the AO's order dated February 12, 2002, which allowed the depreciation claim and issued a refund.

4. Jurisdiction and Authority of the AO to Issue Subsequent Notices:
The learned single judge upheld the AO's authority to issue the May 15, 2002 notice, stating that the February 12, 2002 order did not conclusively address the issues of depreciation and foreign travel allowance. The judge emphasized that the AO was required to comply with the Tribunal's directions to reassess these issues comprehensively.

5. Compliance with Tribunal's Directions and Hierarchical Discipline in Quasi-Judicial Proceedings:
The court highlighted the importance of hierarchical discipline in quasi-judicial proceedings, stating that the AO must follow the Tribunal's directions strictly. The single judge found that the AO's February 12, 2002 order primarily addressed the sales tax issue and did not resolve the remanded issues, justifying the subsequent notice for further details.

Conclusion:
The Division Bench, upon hearing the appeal, agreed with the single judge's conclusion but quashed the AO's order dated August 3, 2005, for lack of a hearing given to the assessee. The court directed the AO to provide a hearing and pass an appropriate order on remand under section 254, allowing the assessee to respond to the May 15, 2002 notice. The appeal was disposed of accordingly, with no order as to costs.

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