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2019 (4) TMI 1972 - AT - Income TaxRevision u/s 263 - The claim of depreciation being allowed on plant and machinery though the manufacturing activity had been stopped, under valuation of a closing stock and non verification of the cost of improvement of the assessee - HELD THAT - CIT has not only to establish that the assessment order is erroneous but also to establish that the assessment order is prejudicial to the interest of the revenue. Further, we find that on two of the issues i.e. the cost improvement and under valuation of closing stock, the A.O. had verified the facts during the assessment proceedings itself. As far as the allowability of depreciation on plant and machinery is concerned, we find that the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Oswal Agro Mills and Oswal Chemicals and Fertilizers Ltd. 2010 (12) TMI 947 - DELHI HIGH COURT is very much applicable and the depreciation is allowable on idle plant and machinery, and therefore allowing of such depreciation cannot be treated as erroneous order. The case laws relied upon by the Ld. DR are all distinguishable on facts, therefore, they are not applicable to the facts of the case before us. In the result, we set aside the order of the CIT u/s. 263 of the Act was not sustainable. Appeal filed by the assessee is allowed.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Validity of the CIT's order under Section 263 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Condonation of Delay in Filing the Appeal: The assessee filed the appeal with a delay of 123 days. The delay was attributed to the misunderstanding that the Assessing Officer (A.O.) would redo the assessment afresh, considering the facts and circumstances of the case. The assessee later realized that the CIT's observations were binding on the A.O., leaving no discretion. Upon obtaining legal advice, the appeal was filed with a delay, and condonation was sought. The Tribunal referred to a similar case (M/s. Even's Classes) where a delay of 296 days was condoned due to a similar misunderstanding. The Tribunal found the reasons advanced by the assessee to be bona fide and reasonable, and in the interest of justice, condoned the delay of 123 days, allowing the appeal to be admitted for adjudication. 2. Validity of the CIT's Order under Section 263: The assessee filed its return of income admitting 'Nil' income. The A.O. computed long-term capital gain and completed the assessment under Section 143(3). The CIT assumed jurisdiction under Section 263, finding the assessment erroneous and prejudicial to the interest of the revenue on three grounds: (1) Depreciation claimed on discontinued manufacturing activity, (2) Short admission of closing stock, and (3) Lack of details for claiming the cost of improvement of the asset. The assessee contended that the depreciation was allowable as some machinery was used for storage, the closing stock was valued at net realizable value, and details for the cost of improvement were provided during scrutiny. The CIT, however, was not satisfied and directed the A.O. to verify the claims, setting aside the assessment order. The Tribunal noted that for an order to be considered erroneous and prejudicial to the interest of the revenue, the CIT must establish both conditions. The CIT pointed out deficiencies but failed to demonstrate how these prejudiced the revenue. The Tribunal cited the Bombay High Court's decision in CIT Vs. Gabriel India Ltd., emphasizing that the CIT must provide a detailed examination and cannot merely direct a re-examination without establishing errors and prejudice. The Tribunal found that the A.O. had verified the facts during the assessment proceedings for the cost improvement and closing stock valuation. Additionally, the Delhi High Court's decision in CIT Vs. Oswal Agro Mills Ltd. supported the allowance of depreciation on idle machinery, making the CIT's order unsustainable. Conclusion: The Tribunal concluded that the CIT's order under Section 263 was not sustainable as it failed to establish how the assessment was prejudicial to the revenue. Consequently, the appeal filed by the assessee was allowed, setting aside the CIT's order.
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