2016 (5) TMI 340 - AT - Income Tax

Revision u/s 263 - Disallowance u/s u/s. 40A(7) - Held that - While computing the total income for the year under consideration, the assessee has already disallowed u/s. 43B of the Act. Therefore, it can be safely concluded that there is no allowance of any deduction during the year under consideration.Surprisingly, we find that the Commissioner wanted the A.O to disallow the same u/s. 40A(7) of the Act. We fail to understand when the assessee has not claimed any deduction during the year under consideration how could the Commissioner direct the A.O to disallow the same, when no deduction has been claimed. - Decided in favour of assessee Disallowance u/s. 43B - Held that - Commissioner is apprehensive that since the assessee has made disallowance u/s. 43B of the Act, the assessee will claim the deduction in the year in which the payment will be made. We are of the view that such apprehension of the Commissioner can be considered, if at all possible, in the year of the claim of deduction. However, in so far as the year under consideration is concerned, we do not find any reason in making the assessment order erroneous and prejudicial to the interest of the revenue. We accordingly set aside the order of the Commissioner made u/s. 263 of the Act and restore that of the A.O made u/s. 143(3) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the Income Tax Act.
2. Allowability of additional depreciation on windmills.
3. Allowability of write-off of obsolete stores and spares.
4. Disallowance of provision for payment of gratuity under Section 40A(7) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263:
The assessee challenged the jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, asserting that the CIT erred in invoking these powers. The Tribunal examined whether the CIT had rightly assumed power under Section 263, referencing the Supreme Court's decision in Malabar Industrial Co. Ltd. 243 ITR 83, which states that the CIT must be satisfied that the order of the Assessing Officer (AO) is both erroneous and prejudicial to the interests of the revenue.

2. Allowability of Additional Depreciation on Windmills:
The CIT contended that the AO's allowance of additional depreciation on windmills was erroneous and prejudicial to the revenue. However, the Tribunal noted that this issue was covered in favor of the assessee by the Gujarat High Court's decision in Diamines and Chemicals Ltd., which allowed additional depreciation on wind electric generators for an assessee engaged in manufacturing chemicals. The Tribunal concluded that the AO's decision was supported by judicial precedent and thus not erroneous or prejudicial to the revenue.

3. Allowability of Write-off of Obsolete Stores and Spares:
The CIT argued that the AO had not adequately examined the write-off of obsolete stores and spares, making the assessment order erroneous and prejudicial. The Tribunal found that the AO had made specific inquiries and verified the details provided by the assessee, including the company's policy and accounting treatment for obsolete stores. The Tribunal held that the AO had taken a possible view, and the CIT's invocation of Section 263 was not justified. The Tribunal cited the Delhi High Court's decisions in Ashish Rajpal and Contimeters Electricals Pvt. Ltd., emphasizing the need for the CIT to provide the assessee an opportunity to respond to all issues considered erroneous.

4. Disallowance of Provision for Payment of Gratuity under Section 40A(7):
For the assessment year 2010-11, the CIT noted that the provision for payment of gratuity was not allowable under Section 40A(7) as per the auditor's report. However, the Tribunal observed that the assessee had already disallowed the provision under Section 43B in the statement of total income. The Tribunal found that the CIT's direction to disallow the provision under Section 40A(7) was unnecessary since no deduction had been claimed. The Tribunal concluded that the CIT's apprehension about future claims could be addressed in the relevant year, not the current one.

Conclusion:
The Tribunal set aside the CIT's orders under Section 263 for both assessment years and restored the AO's original orders. The appeals filed by the assessee were allowed, and the Tribunal pronounced the order in open court on 31-03-2016.