2020 (1) TMI 15 - AT - Income Tax

Revision u/s 263 - assessee s claim of depreciation at enhanced rate - HELD THAT - Although the assessee has filed revised return of income, the assessee has not filed any revised tax audit report wherein the depreciation at enhanced rate was stated to be eligible. Thus, apparently in our considered opinion, it is a case of clear non-application of mind by the AO. We also do not agree with the contention of the Ld. Authorised Representative that the AO took one out of the two plausible views because if the GPU and PCA equipment do not fall under the category of air pollution control equipment at all, the only view possible is that depreciation is to be allowed @ 15% only. The assessee has also contended that this being a beneficial provision should be construed liberally but for that purpose the assessee should first fulfil the eligibility condition at the threshold as even a beneficial provision cannot be applied without due and proper examination of the facts. Therefore, it is very much apparent that in the present case the AO has allowed depreciation at the enhanced rate without examining the eligibility of the same. The Hon ble Delhi High Court in the case of BSES Rajdhani Power Ltd. vs. PCIT 2017 (11) TMI 588 - DELHI HIGH COURT had held that the non consideration of larger claim of depreciation and consideration of only part of it by the AO who did not go into the issue with respect to the whole amount was an error that could be corrected u/s 263. In this case it is our considered view that the AO has not examined the complete aspect of the case and has allowed the assessee s claim without any inquiry. The action of the Ld. Pr. CIT is bound to be upheld. The Hon ble Apex Court in the case of Deneal Merchants Pvt. Ltd. vs. ITO and another 2017 (12) TMI 476 - SUPREME COURT has categorically held that where the Commissioner of Income Tax had passed an order u/s 263 of the Act with observation that the AO did not make any proper inquiry while making the assessment and had accepted the explanation of the assessee, such order was to be upheld. Thus, we uphold the validity of section 263 proceedings on the issue of enhanced depreciation claimed by the assessee at 100% on alleged air pollution control equipment. Claim of interest - it is the assessee s contention that the assessee has duly bifurcated the interest expense between pre and post business commencement period and has made disallowance accordingly - HELD THAT - Again, no specific query has been raised by the AO in this regard and the AO has simply relied on the details provided in the audited financial statements. Although the assessee submits that the AO has raised a specific query at serial No. 23 of the questionnaire dated 9.9.2013 with regard to interest expenses, we find that such assertion is incorrect in as much as the said question requires the assessee to file complete details of expenses exceeding ₹ 10 lacs and ₹ 1 lacs for similar transactions along with reasons for increase over the last year. In query No. 24, the assessee was asked for a complete chart of loans and advances given showing opening balance along with details of interest, TDS expenses and closing balances. Thus, this question also does not specifically asked for break-up of interest into post and pre business commencement period. Similarly, it has been submitted that the assessee had submitted the confirmation of loans as well as details of interest expenses which are placed on page 69 of the paper book. A perusal of the same shows that the reply contains the total interest paid to IDBI. However the break up between pre and post business commencement has again not been disclosed. Therefore, in this regard also we agree with the contention of the Ld. Pr. CIT that the AO did not examine the issue in the manner in which it was expected from him in this regard and, therefore, the impugned action u/s 263 of the Act is entirely justified. Pr. CIT was perfectly justified in invoking the provisions of section 263 in the assessee s case and we uphold his action accordingly.

Summary

Issues Involved:
1. Assessee's claim of 100% depreciation on Ground Power Unit (GPU) and Pre-Conditioned Air Unit (PCA).
2. Assessee's claim of finance costs attributable to the period prior to the commencement of business.

Issue-wise Detailed Analysis:

1. Assessee's Claim of 100% Depreciation on GPU and PCA:

The assessee originally claimed depreciation at 15% for GPU and PCA, but in the revised return, claimed 100% depreciation, asserting these were air pollution control equipment. The Principal Commissioner of Income Tax (Pr. CIT) disagreed, stating the Assessing Officer (AO) allowed this claim without proper inquiry. The Pr. CIT noted that the GPU and PCA did not fall under the specified categories of air pollution control equipment eligible for 100% depreciation as per Rule 5 of the Income Tax Rules, 1962. The Pr. CIT concluded that the AO's order was erroneous and prejudicial to the interest of the revenue, setting aside the assessment order and directing the AO to reframe it after required verification.

The assessee argued that the AO had made due inquiries and verified the claim before allowing it, referencing a certificate from Chartered Engineers and submissions made during the assessment proceedings. However, the Tribunal found that no specific query was raised by the AO regarding the 100% depreciation claim, and the certificate's relevance was unclear as it was not solicited by any specific inquiry from the AO. The Tribunal noted that the GPU and PCA did not fall under the defined categories of air pollution control equipment eligible for 100% depreciation, thus agreeing with the Pr. CIT that the AO's order lacked proper examination and was erroneous. The Tribunal upheld the Pr. CIT's action under section 263 of the Act.

2. Assessee's Claim of Finance Costs Attributable to the Period Prior to the Commencement of Business:

The Pr. CIT observed that the AO failed to disallow a portion of the finance costs attributable to the period before the commencement of business. The assessee contended that it had capitalized interest for the pre-commencement period and provided detailed responses during the assessment proceedings. However, the Tribunal found that the AO did not raise specific queries regarding the bifurcation of interest expenses between pre and post business commencement periods. The AO relied on the audited financial statements without proper verification. The Tribunal agreed with the Pr. CIT that the AO did not examine the issue adequately, making the order erroneous and prejudicial to the revenue's interest. The Tribunal upheld the Pr. CIT's action under section 263 of the Act.

Conclusion:

The Tribunal concluded that the Pr. CIT was justified in invoking section 263 of the Act for both issues. The AO's lack of specific inquiries and proper examination rendered the original assessment order erroneous and prejudicial to the interest of the revenue. Consequently, the appeal of the assessee was dismissed.

Order pronounced in the open court on 30th December, 2019.