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TMI Blog2021 (7) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... reply to the notice and appeared before the authorities. The assessing officer visited the office of the assessee on 19.7.2011 and recorded the statement on oath of one Sri.Eswar Hariharan, Lease Accounts Manager, who had been authorized to give statement on behalf of the company. The statement of Sri Eswar Hariharan has been approved by Sri.Shrihari Varnasi, Manager Taxation. The assessment was completed under Section 143(3) read with Section 144(C) of the Act of 1961 on 12.10.2012, wherein the assessing officer has disallowed the excess depreciation claimed on networking equipments. 3. The Principal Commissioner of Income Tax, Bengaluru, thereafter issued a notice under Section 263 of the Act of 1961 on 5.3.2015 and called upon the assessee to explain as to why the assessment order passed by the assessing officer under Section 143(3) of the Act of 1961 should not be revised. The Principal Commissioner of Income Tax proposed to revise the assessment order under Section 263 of the Act of 1961 on the ground that the assessment order passed by the assessing officer is erroneous, prejudicial to the interests of the revenue on account of the wrong claim of depreciation on leased asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd., v. CIT even when the said authority passed the order under Section 263 of the Act of 1961 in terms of parameters of said section and as the order of assessment passed by assessing authority was erroneous and prejudicial to the interests of the revenue and as the assessing authority ignored the issue of ownership of assets to ascertain that whether assessee is eligible to claim depreciation or not; and (b) That the Income Tax Appellate Tribunal ought to have seen that the order passed by the Principal Commissioner of Income Tax under Section 263 of the Act of 1961 was in accordance with the principles laid down by the Apex Court and the High Courts and the Income Tax Appellate Tribunal failed to consider the decisions relied upon by the revenue. 6. This Court has admitted the appeal on the following substantial question of law; "Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the order passed by the Pr.Commissioner of Income Tax under Section 263 of the Act by Tribunal relying on the decision of the Hon'ble Supreme Court in the case of Malab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co.Ltd., v. Commissioner of Income Tax, reported in (2000) 109 Taxman 66 (SC) as well as upon a judgment delivered in the case of Commissioner of Income Tax, Mumbai v. Amitabh Bachchan, reported in (2016) 69 taxmann.com 170(SC). 9. On the other hand, learned counsel for the respondent/assessee has vehemently argued before this Court that the Principal Commissioner of Income Tax has erred in law and in facts in initiating the proceedings under Section 263 of the Act of 1961 without appreciating the fact that the proceedings under Section 263 of the Act of 1961 can be initiated only if the order passed by the assessing officer is erroneous and prejudicial to the interests of the revenue. He has also argued that a detailed and an exhaustive enquiry was held in the matter. The assessing officer has applied his mind on the issue of allowability of the depreciation on the leased assets on finance lease arrangement and has adopted a particular view which is evident from the order passed by the assessing officer and therefore, a mere change of view, on the part of the Principal Commissioner of Income Tax, will not entitle him to initiate proceedings under Section 263 of the Act of 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed10; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed11: Provided that no deduction shall be allowed under this clause in respect of- (a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975 but before the 1st day of April, 2001, unless it is used- (i) in a business of running it on hire for tourists ; or (ii) outside India in his business or profession in another country ; and (b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42 : Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991: Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii), clause (xiiib) and clause (xiv) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous year the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, the provisions of clause (iia) shall have effect, as if for the words "twenty per cent", the words "thirty-five per cent" had been substituted : Provided 13[further] that no deduction shall be allowed in respect of- (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or (D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and subsection (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years." 13.2 Section 143(3) of the Act of 1961 reads as under; "(3) [On the day specified in the notice issued under] subsection (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and the Assessing Officer: Provided also that notwithstanding anything contained in the first and the second provisos, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded. (3A) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of making assessment of total income or loss of the assessee under subsection (3) so as to impart greater efficiency, transparency and accountability by- (a) eliminating the interface betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order passed by the assessing officer was erroneous within the meaning of Section 263 of the Act of 1961. 15. The learned counsel for the Income Tax Department has vehemently relied upon the judgments delivered in the case of Malabar Industrial Co.Ltd., (supra) as well as in the case of Amitabh Bachchan (supra) on the issue that the order passed by the assessing officer is prejudicial to the interests of the revenue. In the considered opinion of this Court as rightly held by the Income Tax Appellate Tribunal every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue and in case two views are possible and the assessing officer has taken one view with which the Commissioner of Income Tax did not agree cannot be treated as an erroneous order and prejudicial to the interests of the revenue. 16. The Division Bench of this Court in similar circumstances while dealing with similar type of lease in the case of Hewlett Packard India Sales Pvt.Ltd., (supra) in paragraphs 6, 7 and 8 has held as under; "6. We have considered the submissions made by learned counsel for the parties and have perused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal is allowed." 17. The Division Bench of this Court has placed reliance upon a judgment delivered in the case of M/s ICDS Ltd (supra), wherein again the same issue was involved. Paragraphs 26 to 32 of the judgment delivered by the Hon'ble Supreme Court in M/s ICDS Ltd's case are reproduced as under; "26. We do not find merit in the Revenue's argument for more than one reason: (i) Section 2(30) is a deeming provision that creates a legal fiction of ownership in favour of lessee only for the purpose of the MV Act. It defines ownership for the subsequent provisions of the MV Act, not for the purpose of law in general. It serves more as a guide to what terms in the MV Act mean. Therefore, if the MV Act at any point uses the term owner in any Section, it means the one in whose name the vehicle is registered and in the case of a lease agreement, the lessee. That is all. It is not a statement of law on ownership in general. Perhaps, the repository of a general statement of law on ownership may be the Sale of Goods Act; (ii) Section 2(30) of the MV Act must be read in consonance with sub-sections (4) and (5) of Section 51 of the MV Act, which were referred to by Mr. S. Ganesh, learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order of the Appellate Tribunal, was not done. It would be a strange situation to have no claim of depreciation in case of a particular depreciable asset due to a vacuum of ownership. As afore- noted, the entire lease rent received by the assessee is assessed as business income in its hands and the entire lease rent paid by the lessee has been treated as deductible revenue expenditure in the hands of the lessee. This reaffirms the position that the assessee is in fact the owner of the vehicle, in so far as Section 32 of the Act is concerned. 27. Finally, learned senior counsel appearing on behalf of the assessee also pointed out a large number of cases, accepted and unchallenged by the Revenue, wherein the lessor has been held as the owner of an asset in a lease agreement. [Commissioner of Income-Tax Vs. A.M. Constructions, reported in (1999) 238 ITR 775 (AP); Commissioner of Income- Tax Vs. Bansal Credits Ltd., reported in (2003) 259 ITR 69 (Del); COMMISSIONER of Income-Tax Vs. M.G.F. (India) Ltd. reported in (2006) 285 ITR 142 (Del); Commissioner of Income-Tax Vs. Annamalai Finance Ltd., reported in (2005) 275 ITR 451 (Mad)]. In each of these cases, the leasing company w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from the hiring of such machinery is business income, the assessee must be considered as having used the machinery for the purpose of business. 40. In the present case, the business of the assessee consists of hiring out machinery and trucks where the income derived by the assessee from hiring of such machinery is business income. Therefore, the assessee-appellant viz. ICDS should be considered as having used the trucks for the purpose of business. 41. It was further brought to our notice that the Hon'ble Karnataka High Court in its judgment in ITRC No. 789 of 1998 for the asst. year 1986- 87 in the case of the assessee- appellant itself (viz. ICDS) has already decided the issue in question in favour of the assessee, confirming the decision of the CIT (A) and the ITAT holding that the assessee company is entitled to the investment allowance and additional depreciation. In this judgment of the Karnataka High Court the decision of the Supreme Court reported in 231 ITR 308 was relied upon. Therefore we have no hesitation to hold that the appellant- company is entitled to a higher rate of depreciation at 50% on the trucks leased out by it. We therefore, reverse the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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