2017 (9) TMI 529 - HC - Income Tax

Revision u/s 263 - entitlement to claim depreciation u/s 32 - whether order of the AO is erroneous and prejudicial to the interests of the Revenue? - The case of the Revenue is that the assets were developed under the BOT scheme and the Assessee was not eligible to claim depreciation as it was not the owner of the assets. - Held that - In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the PCIT. Mr. Asheesh Jain then volunteered that the PCIT had exercised the second option available to him under Section 263 (1) of the Act by sending the entire matter back to the AO for a fresh assessment. That option, in the considered view of the Court, can be exercised only after the PCIT undertakes an inquiry himself in the manner indicated hereinbefore. That is missing in the present case. Therefore, the Court is of the view that the ITAT was not in error in setting aside the impugned order of the PCIT under Section 263 of the Act. - Decided against revenue

Summary

Issues:
1. Justification of ITAT setting aside PCIT's order under Section 263 of the Income Tax Act, 1961.
2. Eligibility of the Assessee to claim depreciation on fixed assets under Section 32 of the Act.

Analysis:
1. The Revenue appealed against the ITAT's order in relation to the PCIT's order under Section 263 of the Income Tax Act for the Assessment Year 2011-12. The main issue was whether the ITAT was correct in setting aside the PCIT's order. The Assessee, a Concessionaire of a project, claimed depreciation on fixed assets. The Revenue argued that the Assessee was not eligible for depreciation as it did not own the assets developed under the BOT scheme. The PCIT's order was based on Circular No. 9 of 2014, stating that no depreciation would be allowed on infrastructure under such schemes.

2. The Assessee contended that it legally owned the plant and machinery used for its business during the relevant assessment year, justifying its claim for depreciation under Section 32 of the Act. The PCIT's order highlighted the excess depreciation allowed to the Assessee and the failure of the AO to follow the Circular. However, the Court found that the PCIT did not conduct a proper inquiry to determine the extent of excess depreciation claimed by the Assessee. The Court emphasized that for the PCIT to exercise jurisdiction under Section 263, a minimal inquiry was necessary, which was lacking in this case.

3. The PCIT's order was set aside by the ITAT, as it did not provide sufficient justification for its decision. The Court noted that the PCIT should have undertaken an inquiry to ascertain the assets purchased and installed by the Assessee, rather than solely relying on the Circular. The Court also highlighted that the PCIT's decision to send the matter back to the AO for a fresh assessment was premature without conducting a proper inquiry. Therefore, the ITAT's decision to set aside the PCIT's order was upheld, and the appeal was dismissed as no substantial question of law arose from the case.