2000 (10) TMI 180 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the 100% depreciation claim on assets purchased and leased back.
2. Applicability of Explanation 3 to Section 43(1) of the Income Tax Act.
3. Whether the Assessing Officer (AO) applied his mind before allowing the depreciation claim.
4. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act.

Detailed Analysis:

1. Validity of the 100% Depreciation Claim on Assets Purchased and Leased Back:

The assessee claimed 100% depreciation on assets purchased from M/s Jai Prakash Industries Ltd. and Andhra Pradesh State Electricity Board (APSEB), each item costing less than Rs. 5,000, and leased back to these parties. The AO allowed this claim. The CIT, however, viewed this as a device to avoid tax, asserting that the depreciation claim was erroneous and prejudicial to the interests of the Revenue.

2. Applicability of Explanation 3 to Section 43(1) of the Income Tax Act:

The CIT argued that as per Explanation 3 to Section 43(1), the written down value of the assets was nil in the hands of the seller at the time of sale to the assessee, indicating a collusive action to avoid tax. However, the Tribunal found that the transactions were genuine and duly invoiced, and the assets were accounted for in the books of account. Explanation 4A to Section 43(1), effective from 1st October 1996, was not applicable for the assessment year 1994-95.

3. Whether the Assessing Officer (AO) Applied His Mind Before Allowing the Depreciation Claim:

The Tribunal noted that the AO had required the assessee to file detailed information regarding the depreciation claim, which the assessee complied with. The AO examined the details, including purchase agreements and invoices, before allowing the claim. Therefore, it was concluded that the AO had indeed applied his mind before making the assessment.

4. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act:

The Tribunal examined whether the CIT had the jurisdiction to revise the AO's order under Section 263. It was established that the CIT must be satisfied that the AO's order is both erroneous and prejudicial to the interests of the Revenue. The Tribunal found that the AO had followed a permissible course of law by verifying the claim and allowing it. The CIT's action was deemed a mere difference of opinion rather than a correction of an erroneous order. The Tribunal referenced several cases, including CIT vs. T. Narayana Pai and CIT vs. Gabriel India Ltd., to support its conclusion that the CIT had no material basis for initiating proceedings under Section 263.

Conclusion:

The Tribunal concluded that the AO had properly examined and allowed the depreciation claim, and there was no collusiveness in the transactions with APSEB and Jai Prakash Industries. The CIT's invocation of Section 263 was not justified, as there was no error in the AO's order. Consequently, the Tribunal set aside the CIT's order and restored the original order passed by the AO, allowing the appeal of the assessee.