2019 (3) TMI 1878 - AT - Income Tax

Revision u/s 263 by CIT - Depreciation on moulds - higher rate of 30% OR at rate of 15% - Allowance of a deduction claimed by the assessee company towards excise duty not recovered from the sales being debited directly to the profit and loss account - HELD THAT - A perusal of the draft assessment order demonstrates that the Assessing Officer has passed the order without examination of the facts, without making the requisite enquiries and without application of mind, on the issues of excise duty recovered from sales and also on the issue of excess depreciation claimed on moulds . It is also not the case of the assessee that these two issues were considered by the Assessing Officer and, that an opinion was formed on these issues by the Assessing Officer. The assessee submitted that the claims were made in accordance with law and that annual accounts etc. were filed before the Assessing Officer and that the Assessing Officer had not disturbed its claim. This claim of the assessee should have been examined by the Assessing Officer. This was not done. Filing of details such as annual accounts etc. does not lead us to a conclusion that the Assessing Officer has taken a possible view. The undisputed fact is that the Assessing Officer has not raised any queries nor enquired and consequently has not applied his mind to these two issues. The claim made by the assessee may be legally and factually correct but the same has to be examined by the Assessing Officer. In our considered opinion, as the Assessing Officer has passed this assessment order, without enquiry and application of mind on these two issues, the order is erroneous and prejudicial to the interest of the revenue. CIT has applied his mind to both these issues by considering, the facts and the law as well as the explanation of the assessee. He has indicated as to how the assessment order in his opinion was erroneous and prejudicial to the interest of the revenue, to the extent of these two issues. Hence this argument of the ld. Counsel for the assessee by relying on the judgement of the Hon ble Delhi High Court in the case of D.G. Housing Projects (supra), is not applicable to the facts of this case. Hence we find no infirmity in the order of the ld. Pr. CIT, giving direction to the Assessing Officer to examine both these issues properly and adjudicate the issues afresh, after giving the assessee proper opportunity of being heard. Assessee has placed evidences and made detailed submissions on merits on the two issue that where the subject matter of revision. In our view, to express a view on the merits of the claim of the assessee at this stage, is not proper. The facts have to be examined by the Assessing Officer. The ld. Pr. CIT has examined the explanation and facts submitted by the assessee and has come to a conclusion that the Assessing Officer has to examine the same. The Assessing Officer is directed to examine both these issues independently, without getting influenced by any of the observations of the ld. CIT on these issues afresh in his order u/s 263 of the Act and adjudicate both these issues in accordance with law. - Decided against assessee.

Summary

Issues Involved:
1. Validity of the order under Section 263 of the Income Tax Act, 1961.
2. Whether the assessment order was erroneous and prejudicial to the interest of the revenue.
3. Examination of the issues of depreciation on moulds and excise duty not recovered from sales.

Detailed Analysis:

1. Validity of the Order under Section 263:
The appeal contested the validity of the Principal Commissioner of Income Tax (Pr. CIT) revising the assessment order under Section 263 of the Income Tax Act, 1961. The assessee argued that the assessment order passed under Section 143(3) read with Section 144C was neither erroneous nor prejudicial to the interest of the revenue. The assessee contended that the Pr. CIT does not have the power to revise an order passed by the Assessing Officer (AO) in conformity with the directions of the Dispute Resolution Panel (DRP) under Section 144C using revisionary powers under Section 263. The Tribunal examined the doctrine of merger and concluded that the directions of the DRP, which is a higher authority, cannot be said to have merged with the order of the AO, which is a lower authority. The Tribunal held that the Pr. CIT has the power to revise the assessment order on issues not considered by the DRP, and the doctrine of partial merger may apply.

2. Whether the Assessment Order was Erroneous and Prejudicial to the Interest of the Revenue:
The Tribunal held that the assessment order was erroneous and prejudicial to the interest of the revenue because the AO had passed the order without examination of the facts, without making the requisite enquiries, and without application of mind on the issues of "excise duty recovered from sales" and "excess depreciation claimed on moulds." The Tribunal cited various case laws, including the Hon'ble Calcutta High Court's decision in Commissioner of Income-tax, Central-I, Kolkata v. Maithan International, which held that an order passed without enquiry/investigation is erroneous and prejudicial to the interest of the revenue. The Tribunal concluded that the AO's failure to make necessary enquiries and apply his mind to the issues in question rendered the assessment order erroneous and prejudicial to the interest of the revenue.

3. Examination of the Issues of Depreciation on Moulds and Excise Duty Not Recovered from Sales:
The Tribunal noted that the AO had allowed the claim of the assessee without examination of the facts. On the issue of excess depreciation, the Tribunal observed that the assessee had claimed higher depreciation on moulds used in the rubber/plastic factory by job workers/co-makers of the company. The Tribunal held that the AO had not examined whether the moulds were exclusively used in the rubber/plastic factory, a condition necessary for claiming higher depreciation. On the issue of excise duty not recovered from sales, the Tribunal noted that the AO had not examined the facts and simply accepted the claim of the assessee. The Tribunal directed the AO to examine both these issues independently and adjudicate them afresh in accordance with the law.

Conclusion:
The Tribunal dismissed the appeal of the assessee, upholding the order of the Pr. CIT passed under Section 263 of the Income Tax Act, 1961. The Tribunal directed the AO to examine the issues of depreciation on moulds and excise duty not recovered from sales afresh and adjudicate them in accordance with the law.