IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES `A' MUMBAI
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT, AND
SHRI SANJAY ARORA, ACCOUNTANT MEMBER
ITA No.4762/Mum/2011
Assessment Year: 2002-03
ACC Limited (Formerly known as Asst. CIT, 1(1),
The Associated Cement Companies Mumbai.
Vs.
Ltd.), Central House, 121,
M.K. Road, Mumbai- 400020
(Assessee) (Respondent)
PAN : AAACT1507C
Assessee by : Shri Soumen Addav & Alpesh
Dharod
Revenue by : Ms. S. Padmaja
Date of Hearing : 24/03/2015
Date of Pronouncement : 22/06/2015
ORDER
Per Sanjay Arora (AM):
This is an Appeal by the Assessee directed against the Order by the
Commissioner of Income Tax (Appeals)-1, Mumbai (`CIT(A)' for short), dated
29.03.2011 dismissing the assessee's appeal contesting its assessment u/s. 143(3) r/w
s. 147 of the Income Tax Act, 1961 (`the Act' hereinafter) for Assessment Year (AY)
2002-03 vide order dated 27.11.2007.
2. The assessee's challenge to the impugned order, which is on, both, the legal
ground/s, as well as the merits of the adjustment/s made to the returned income, is per
four grounds, as under:
ITA No.4762/M/2011
ACC Ltd. v. Asst. CIT
1. That on the facts and in the circumstances of the case, the Learned
Commissioner of Income Tax (Appeals) [here-in-after referred to as Ld.
CIT(Appeals)] has grossly erred in confirming the action of the AO in initiating
the reassessment proceedings u/s 147 without appreciating the fact that the
same had been done in utter disregard of the express provision of the Act on
fresh application of mind on the same set of facts, more so when there was no
failure on the part of the appellant to disclose truly and fully all the facts
necessary for completion of the original assessment u/s 143(3).
2. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals)
erred in not holding that the order u/s 143(3) r.w.s 147 dated 27-11-2007
passed by the AO is unjustified, erroneous and needs to be summarily
cancelled.
3. That on the facts and in the circumstances of the case, Ld. CIT(Appeals)
erred in confirming the addition of depreciation amounting to Rs. 4,20,24,089/-
in computing total income under normal provisions of the Act.
4. That on the facts and in the circumstances of the case, Ld. CIT(Appeals)
erred in confirming addition of depreciation amounting to Rs. 4,20,24,089/- in
computing Book Profit u/s 115JB.
3. The first two grounds agitate the reopening and, consequently, impugn the
assessment as not valid in law. The arguments assumed during hearing qua the said
grounds seek to supplement the same on the following counts:-
(a) all the materials were available on record;
(b) no failure to disclose fully and truly all material facts (to the computation of
income); and
(c) no new material/information came to the possession of the Assessing Officer,
placing reliance on a host of case law; the principal being the decision in the case of
CIT v. Kelvinator of India [2010] 320 ITR 561 (SC) and CIT v. Amitabh Bachchan
[2012] 349 ITR 76 (Bom). While the former judgment emphasizes that reassessment
is to be based on tangible material which has a live link therewith, the latter holds the
formation of belief as to the escapement of income chargeable to tax by the Assessing
Officer (AO) to be on `fresh tangible material'.
It shall at this stage be relevant to recount the background facts of the case,
which are undisputed; rather, admitted, leading to the reasons for the formation of
belief as to escapement of income by the AO. The assessee-company is in the business
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ACC Ltd. v. Asst. CIT
of manufacture and sale of cement. As a matter of accounting policy, it capitalizes
interest and commitment charges in respect of acquisition of fixed assets for its
different projects in its books of account as capital work-in-progress (CWIP). As and
when a project is completed, its entire acquisition cost, including interest and
commitment charges, is transferred from CWIP Account to the relevant block of
assets. The interest and commitment charges, included therein, having been however
claimed as revenue expenditure per the returns of income for the preceding years,
were, correspondingly, decapitalized so as to avoid a claim of depreciation on an
amount already claimed and allowed as revenue expenditure and, as such, a double
claim by way of depreciation on sums liable to be decapitalized. The de-capitalization
for the current year was at Rs. 2987.43 lacs. In the deprecation chart forming part of
the return, however, the said reduction was for/under the first half and the second half
of the year, i.e., under the columns `put to use for 180 days or less' and `other', at Rs.
52.96 lacs and Rs. 2934.46 lacs respectively, and not from the opening written down
value (WDV) of the relevant block of assets. The second reason for re-opening was
that the reduction per the depreciation schedule forming part of the Tax Audit Report
(TAR) was at Rs. 2975.07 lacs and Rs. 12.36 lacs for the first half and the second half
of the year respectively. This led to a difference between the exigible depreciation
allowance as per the two depreciation charts at Rs. 420.24 lacs. The figure as per the
TAR, being certified by the Auditors, was more authentic. This led to the belief as to
an excess claim and allowance of depreciation by that sum (Rs. 420.24 lacs) and,
consequently, escapement of income from assessment to that extent. These constitute
the two reasons for the reopening of assessment in the instant case, which stand
reproduced at paragraph 1 (pages 1-3) of the assessment order, as also enclosed as a
part of paper-book (PB pages 89-90).
4. We have heard the parties, and perused the material on record.
We are unable to see any validity; rather, basis, for the Revenue to claim that
the decapitalization of interest and commitment charges (hereinafter referred to as `the
interest component') ought to be from the opening WDV of the relevant block of
assets. When the addition to the same, which is for the completed projects, is only
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ACC Ltd. v. Asst. CIT
during the current year, separately for the first half and the second half thereof, how
and why the reduction on account of the interest component of the said addition be
from the opening WDV? The reason, though has a live link with the claim of
depreciation, is without basis in facts and, hence, not valid in law. The assessee's
objection to this reason recorded, communicated vide its letter dated 05.11.2007,
merits being upheld.
As regards the second reason, the validity of which is self-evident, the assessee
claims that the figures per the TAR are in fact per the `revised' TAR, filed on
20.11.2003, which were however omitted to be considered by the AO while framing
the assessment. That the same has a live nexus and rational link with the formation of
belief is obvious, as apparent from the very fact of the assessee filing it. Why, it is, in
character, the same document (as the relevant annexure of TAR), as filed originally,
seeking to correct the figure of depreciation as claimed. In-as-much as the revised
claim of deprecation is at a lower sum, there is an underassessment of income and,
thus, escapement of income chargeable to tax from assessment to the extent of the
difference. Further, the very fact that the assessee seeks to revise its claim, by
substituting the original figure, signifies the same, i.e., as returned, being not correct,
at least in its' own view, duly endorsed by its Auditors. How could then, we wonder,
the assessee claim the said document to be not a tangible material or of it not having a
live link with the formation of belief, placing reliance on Kelvinator of India Ltd.
(supra).
The reliance on the decision in the case of Amitabh Bachchan (supra) is, again,
misconceived. The whole premise of the said decisions is that a change of opinion is
not permissible. This is as the law does not authorize a review by the assessing
authority of its order, which is thus impermissible in law. It is, however, an admitted
fact in the present case that the AO had overlooked the assessee's revised claim of
depreciation while framing the original assessment on 28/2/2005. Reference for this
may be made to paragraph 4.1 of the assessee's letter dated 05.11.2007 (PB pages 91-
98), also reproduced at pages 4-6 of the assessment order, as well as paragraph B(1.1)
of the assessee's written submissions in the appellate proceedings, reproduced at
paragraph 4.4 of the appellate order. The assessee thereby seeks to correct its' earlier
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ACC Ltd. v. Asst. CIT
claim, and which forms the basis of its claim of having disclosed fully and truly all
material facts in relation to the computation of its income. The non-consideration of
the revised, correct claim being patent, rather, admitted; manifest from the record,
where, then, is the question of a change of opinion? The question of change of opinion
would arise only in the case of consideration and formation of a view or opinion.
Rather, where and to the extent the original claim, again, admittedly, is not a correct
claim, the reduction on account of decapitalization of the interest component of the
cost of acquisition having been made incorrectly, its' adoption constitutes, or can be
argued to constitute, a mistake apparent from record. The argument of all the material
being available on record, or of no fresh material coming to the possession of the AO,
become irrelevant, or more correctly, is rendered so, or of no consequence, in view of
our clear finding, borne out of the record and, rather, admitted, of there being no
consideration, much less expression of an opinion and, thus, it being not a case of
change of opinion or a review, so as to preclude reassessment even where initiated, as
in the instant case, within four years from the end of the relevant assessment year.
It is a clear case of omission by the AO. The law does not preclude correction,
which of course has to be subject to the process of law and which stands observed in
the present case, or envisages a correction only at the instance of, or of a mistake by,
the assessee, which could be of/by the assessing authority as well, so that what is of
relevance and consequence is that there is a `mistake' or `omission' resulting in an
under-assessment of income. The apex court in Kalyanji Mavji & Co. (supra), listed
oversight, inadvertence or mistake committed by the A.O. as among the tests and
principles that would make section 34(1)(b) (of the 1922 Act), i.e., where the
reopening of assessment is in the absence of any omission or failure on the part of the
assessee, corresponding to the main provision of section 147, applicable (refer pgs.
296 and 297 of the judgment). The strand continues to date; the law clearly providing
for two classes or categories (of situations), one where the escapement of income is on
account of an omission or failure on the part of the assessee to, inter alia, disclose
fully and truly all material facts necessary for assessment for the relevant year, for
which a higher time period of six years (as per the extant law) is provided and, two,
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for the rest, and for which the said time limit is set at four years (from the end of the
relevant assessment year).
In our clear view, there has been thus no consideration of the material being
now relied upon by the A.O., i.e., in recording the reasons for the reopening and in
issuing the notice u/s.148. We are unable to read any further limitation in law in the
A.O. proceeding to initiate the reassessment under such a situation, except of course
of `reason to believe', on which aspect there is again no doubt, as discussed earlier
(refer: Asst.CIT v.Rajesh Jhaveri Stock Brokers [2007] 291 ITR 500 (SC). Though the
ld. CIT(A) has made out a case of there being no provision in law in filing a revised
TAR and, therefore, the assessee's claim of having furnished fully and truly all
material facts, as not correct, we are not inclined to dwell on that aspect of the matter
inasmuch as, without doubt, the revised claim represents, by the assessee's own
admission, the correct claim of depreciation. Whether legally permissible or not, the
AO is not constrained to take cognizance thereof or form an opinion on its basis; the
sole criteria being its relevancy and credibility (refer: Pooran Mal v. DI (Inv.) [1974]
93 ITR 505 (SC)).
The Revenue has also relied on case law, which has not been met by the
assessee, viz. IPCA Laboratories Ltd. v. Dy. CIT [2001] 251 ITR 420 (Bom); Praful
Chunilal Patel v. Asst. CIT [1999] 236 ITR 832 (Guj). The same view stands
expressed by some recent decisions by the hon'ble courts, including the hon'ble
jurisdictional high court, as in the case of Export Credit Guarantee Corporation of
India Ltd. vs. Addl. CIT [2013] 350 ITR 651 (Bom); Indian Hume Pipe Co. Ltd. vs.
Asst. CIT [2012] 348 ITR 439 (Bom); CIT vs. Usha International Ltd. [2012] 348 ITR
485 (Del)(FB); and Dalmia (P.) Ltd. vs. CIT [2012] 348 ITR 469 (Del), with in fact
the apex court refusing to admit the appeal against the decision by the jurisdictional
high court in Eleganza Jewellery Ltd. vs. CIT (in WP No. 2763 of 2013 dated
18.02.2014). In fact, the courts have gone to the extent of saying that where the AO
has taken an erroneous view, i.e., one which could not be taken by one properly
instructed in law, the same cannot be said, or would not qualify, to be a view, while
the present case is a clear and admitted case of omission by the AO in considering the
correct claim of depreciation by the assessee, which, in our view, the assessee was
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obliged to bring to the notice of the assessing authority, even if after passing of the
assessment order; the same qualifying to be a `mistake' apparent from record.
We, accordingly, find no merit in the assessee's claim qua the second reason of
the reasons recorded. In fact the two reasons coalesce into one inasmuch as the AO
has not proposed any adjustment qua the first reason recorded, independently, as by
working out the deprecation allowance exigible by reducing interest component from
the opening WDV. There is thus a valid assumption of jurisdiction for assessment u/s.
147 of the Act. We decide accordingly, upholding the assessee's first two grounds.
5. The third ground agitates the disallowance of depreciation on merits. Even as
conceded during the hearing, and in any case of the matter, the assessee has no case;
the depreciation allowed on assessment being only in terms of its revised TAR,
representing the correct statement of depreciation. Where, then, is there any scope for
dispute, with we having rather observed that inasmuch as omission to consider the
revised deprecation claim, being in a sum lower than its original claim by Rs. 420.24
lacs, the assessee ought to have itself pointed out the same to the AO, even if post
assessment, being clearly in the nature of a `mistake' in not taking cognizance or
account of the corrected claim. The same would have also enabled the assessee to
bring any other aspect of the matter, where apparent from the record, beneficial to it,
to the fore. This is as the scope of the reassessment proceedings is restricted only to
bringing the under-assessed income to tax (refer: CIT v. Sun Engineering Works (P.)
Ltd. [1992] 198 ITR 297 (SC)). The asessee accordingly fails on this ground.
6. The fourth and final ground relates to a like adjustment made in determining
the books profit u/s. 115JB of the Act. A company can provide for depreciation at
different rates, adopting a different method of computing depreciation in books, which
is to be consistent with the mandate of the Companies Act. If, as it appears, no part of
the interest component stands charged to the operating statement (P & L a/c), there is
no occasion to or question of decapitalizing the same in the assessee's books of
account, necessitating an adjustment to the book profit on account of revision in the
book depreciation. We, accordingly, restore the matter back to the file of the assessing
authority to allow the assessee an opportunity to satisfy the AO that the adjustment to
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ACC Ltd. v. Asst. CIT
book profit on account of the revised depreciation, as made, is either in excess or that
no adjustment, in terms of its claim of book depreciation, to the book profit, was
called for. The AO shall decide the matter by issuing definite findings of fact in
accordance with law. We decide accordingly.
7. In the result, the assessee appeal is partly allowed for statistical purposes.
Order pronounced in the open court on 22/06/2015
Sd/- Sd/-
(D. MANMOHAN) (SANJAY ARORA)
VICE PRESIDENT ACCOUNTANT MEMBER
MUMBAI, DATED 22/06/2015
SK. PS
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT(A)-1, Mumbai
4. CIT concerned
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
ITAT, Mumbai
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