2024 (6) TMI 524 - AT - Income Tax

Revision u/s 263 - Deduction u/s.32AC - Investment in new plant or machinery - As alleged there has been no inquiry by the AO in the matter - Pr. CIT restored the matter for de novo readjudication - HELD THAT - There was no follow-up inquiry in the matter inasmuch as the reply is admittedly the only reply explaining the said difference by the assessee. There is accordingly no finding by the AO on either aspect of the matter, only which would exhibit due application of mind in the matter; the non-inquiry, rather, exhibiting just the opposite. Appellant would during hearing argue that only where the plant and machinery stands installed could it be regarded as acquired , and which explains the assessee s exclusion of the addition of plant and machinery during the financial year 2012-13, i.e., under the installation as on 31.03.2013, as an addition for that year and, per contra, regarding it as acquired during the current year, i.e., on its installation. Whatever be the merits of the argument, which has both factual and legal aspects to it, the same ought to have been, on inquiry, made before the AO, and not before either the revisionary authority or before us in further appeal. It s furnishing before us, inasmuch as it addresses the fundamental issue arising in the instant case, itself defeats the assessee s case, proving non-application of mind, i.e., that of the Revenue. There has been thus no enquiry on the pertinent issues by the AO during the assessment proceedings, much less responded to, on which the AO is therefore required to apply his mind, either accepting or rejecting the assessee s claim upon due verification and enquiry, i.e., as deemed proper under the given facts and circumstances, including the law in the matter, passing a speaking order. CIT, accordingly, set aside the matter for a de novo consideration. He has, further, in our view, rightly not expressed any view in the matter - His stating that there has been an incorrect application of law by the AO is in our view consequential to his finding of an incorrect presumption of facts by the AO as well as non-application of mind, inasmuch as the law could only be applied on proper determination of facts. Further, the same therefore could have been avoided. Subject to these observations, we do not find much merit in the assessee s case challenging revision, even as we emphasize it to be an open set aside. A preliminary rule of interpretation is that due weight and meaning is to given to each word, while, going by the assessee s reading, acquisition encompasses installation, rendering the word installation superfluous. That apart, the provision, as per s. 32AC(2), specifying time limitation w.r.t. the date of installation, treats the two as different incidents, only on the completion of both of which are the qualifying conditions for the claim satisfied. The assessee admits to the two being separate incidents; it s argument yet is of the former subsuming the latter. The question that therefore arises, is, firstly, if the argument is legally maintainable and, two, even so, whether it is so, or the other way round, i.e., the latter subsuming the former. Needless to add, the assessee is, in the set aside proceedings, at liberty to assume any other argument on the merits as well, and not confined to that before us. Assessee s appeal is dismissed.

Issues Involved:
1. Eligibility for deduction under Section 32AC of the Income-tax Act, 1961.
2. Non-application of mind by the Assessing Officer (AO).
3. Incorrect application of law by the AO.
4. Requirement for a de novo examination by the AO.

Issue-Wise Detailed Analysis:

1. Eligibility for Deduction under Section 32AC:

The Principal Commissioner of Income-tax (Pr.CIT) observed that the tax audit report (TAR) in Form 3CD indicated the value of plant and machinery acquired and installed during the prescribed period at Rs. 47.18 crore, which is below the qualifying amount of Rs. 100 crore as required under Section 32AC. Additionally, purchase invoices for assets exceeding Rs. 3 crore, on which the deduction was claimed, pertained to the period before 01.04.2013, amounting to Rs. 226.51 crore. Deducting this from Rs. 314.57 crore resulted in new assets acquired and installed during the relevant year being Rs. 88.06 crore, again below Rs. 100 crore.

2. Non-application of Mind by the Assessing Officer (AO):

The Pr.CIT noted that the AO failed to notice these discrepancies during the assessment, leading to an erroneous assumption of facts and incorrect application of law. The AO did not inquire about the eligibility of the assessee for the deduction under Section 32AC, nor did he verify the details provided by the assessee adequately. The AO's order was thus deemed to be erroneous and prejudicial to the interest of the Revenue.

3. Incorrect Application of Law by the AO:

The Pr.CIT concluded that the AO applied the law incorrectly by assuming that the assets acquired and installed during the year met the qualifying criteria for deduction under Section 32AC without proper verification. The assessee argued that the assets should be considered acquired only upon installation and successful test checks, which was not examined by the AO. This incorrect application of law was consequential to the AO's incorrect presumption of facts and non-application of mind.

4. Requirement for a De Novo Examination by the AO:

Given the AO's failure to conduct a proper inquiry, the Pr.CIT set aside the assessment for a de novo examination. The AO is required to verify the facts and circumstances of the case, ensuring that the assessee's eligibility for the deduction under Section 32AC is correctly determined. The de novo examination should include a thorough verification of the purchase invoices and the actual cost of new assets acquired and installed during the relevant period.

Conclusion:

The Tribunal upheld the Pr.CIT's order, emphasizing the need for a de novo examination by the AO. The Tribunal noted that the AO must apply his mind to the facts and circumstances of the case, ensuring that the assessee's eligibility for the deduction is correctly determined and verified. The Tribunal dismissed the assessee's appeal, reiterating the importance of a speaking order by the AO in accordance with the law.

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