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Revisionary order passed u/s 263 is sustainable where assessee’s claims for depreciation need to be properly examined: ITAT

2019-TIOL-1450-ITAT-MAD

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘B’ CHENNAI

ITA No.1746/Chny/2018
Assessment Year: 2013-14

M/s CLOVER ENERGY PVT LTD
484, KAMARAJ ROAD, UPPILIPALAYAM
COIMBATORE-641015
PAN NO: AAECC3271C

Vs

PRINCIPAL COMMISSIONER OF INCOME TAX-1
COIMBATORE

ITA No.2098/Chny/2018
Assessment Year: 2013-14

DEPUTY COMMISSIONER OF INCOME TAX
CORPORATE CIRCLE-1, COIMBATORE

Vs

M/s CLOVER ENERGY PVT LTD
484, KAMARAJ ROAD, UPPILIPALAYAM
COIMBATORE- 641015
PAN NO: AAECC3271C

Duvvuru R L Reddy, JM & S Jayaraman, AM

Date of Hearing: June 24, 2019
Date of Decision: June 27, 2019

Appellant Rep by: Shri T Raghunathan, FCA
Respondent Rep by: 
Shri Guru Bashyam, JCIT for CIT

Income Tax – Section 263

Keywords – CBDT notification No. 15/12 – Depreciation – Sale agreement

THE assessee is carrying on the business of acquiring used wind energy generators and generating and selling power from them. For the AY 2013-14, the AO found that the assessee company had entered into a slump sale agreement dated April 16.04.2012 and March 28, 2013 with M/s. Devi Seafoods Ltd. and M/s. VTX Industries Ltd. for the purchase of wind electric generators. For the windmills purchased from VTX Industries Ltd. though the date of acquisition was shown as on March 25, 2013 but the name transfer was not done till March 31, 2013. Therefore, the AO did not allow the depreciation claimed by the assessee for these three windmills stating that the two conditions ownership of the asset and the user of the asset for the purpose of the business was not fulfilled.

However, in the same order, the AO held that during the previous AY 2012-13, the depreciation was disallowed to the tune of Rs. 21.59 cr for pending name transfer of windmills. On going through the records, the PCIT held that the allowance of depreciation in the AY 2013-14 itself establishes that the assessee became the owner of assets only during the previous year relevant to the AY 2013-14. As per the CBDT notification No. 15/12 that the windmills purchased after March 31, 2012 are to be allowed a depreciation @ 15% only. Therefore, he held that assessment order is erroneous and prejudicial to the interests of Revenue and hence set aside the order of the assessment and directed the AO to re-do assessment afresh after verification of facts as per law and after affording opportunity of being heard to the assessee.

On appeal, the Tribunal held that,

Whether order u/s 263 in respect of re-do of assessment is justified, when assessee’s claim of depreciation for current AY needs to be examined properly – YES: ITAT

Whether matter needs to be remand to AO when the assessee fails to submit relevant documents i.e, sale agreement and letter of possession during assessment – YES: ITAT

++ it is clear from the order passed by the AO u/s. 143(3) that though the AO held that the assets were not owned by the assessee during the relevant AY and hence the assessee is not entitled for depreciation claim for three wind mills during the relevant AY. However, in the later part she has computed and allowed depreciation at full rate. Further from the order, it is clear that various aspects associated with the claim has not been properly examined and discussed. Therefore, this Tribunal confirmed the action of the PCIT u/s. 263, in directing the AO to re-do the assessment afresh after verification of facts as per law and after due affording opportunity of being heard to the assessee.

++ the Tribunal finds that the assessee has produced the copies of slump sale agreement, letter of handing of possession and the payment particulars etc. some of them, for the first time before the CIT(A), on which the CIT(A) has not sought the comments from the A O. In the facts and circumstances, Tribunal deem it fit to restore the issues back to the AO for a fresh examination. The assessee shall lay all material in support of its contention before the AO and shall comply with the requirements of AO in accordance with law. The AO is free to conduct appropriate enquiry, as deemed fit, however, he shall furnish adequate opportunity of being heard to the assessee against the material, if any, that is to be used against it and then shall pass a speaking order in accordance with law.

Case Remanded

ORDER

Per: S Jayaraman:

The Assessee filed the appeal against the order of the Principal Commissioner of Income Tax (Appeals)-4, Coimbatore (hereinafter called as ‘PCIT’) in ITA No.120(34)/263/PCIT-1/CBE/2017-18 dated 19.03.2018 in ITA No.1746/Chny/2018 for Assessment Year (AY) 2013- 14, while the Revenue filed appeal in ITA No.2098/Chny/2018 for AY 2013-14 against the order of Commissioner of Income Tax (Appeals)-1, Coimbatore (‘CIT(A)’) in Appeal No.12/16-17 dated 12.04.2018.

2. M/s. Clover Energy Pvt. Ltd., the assessee, is carrying on the business of acquiring used wind energy generators and generating and selling power from them. For the AY 2013-14, the Assessing Officer (AO) found, inter alia, that the assessee-company entered into a slump sale agreement dated 16.04.2012 and 28.03.2013 with M/s. Devi Seafoods Ltd. and M/s. VTX Industries Ltd., respectively, for the purchase of wind electric generators. For the windmills purchased from VTX Industries Ltd., though the date of acquisition was shown as on 25.03.2013 but the name transfer was not done till 31.03.2013. Therefore, the AO did not allow the depreciation claimed by the assessee for these three windmills stating that the two conditions viz. ownership of the asset and the user of the asset for the purpose of the business was not fulfilled. However, in the same order, the AO held that during the previous AY 2012-13, the depreciation was disallowed to the tune of Rs. 21,59,61,289/- (assessee claimed – 1,73,17,95,603/- – allowed 1,51,58,31,314/-) for pending name transfer of windmills. The name transfer is effected during the AY 2013-14 and accordingly depreciation is allowed in the current assessment year etc. On going through the records, the ld. PCIT found , inter alia, that in the return of income for AY 2013-14, the assessee had claimed deprecation @ 80% on windmills that were purchased during the previous year relevant to the AY 2013-14. However, in the assessment order passed u/s. 143(3) dated 4.3.2016, the AO had allowed increased depreciation, due to the reason that the depreciation was not allowed for AY 2012-13 as the windmills were not transferred in the assessee’s name as on 31.03.2012. The PCIT held that the allowance of depreciation in the AY 2013-14 itself establishes that the assessee became the owner of assets only during the previous year relevant to the AY 2013-14. As per the CBDT notification No. 15/12 that the windmills purchased after 31.03.2012 are to be allowed a depreciation @ 15% only. Therefore, the PCIT held that the assessment order passed by the AO u/s. 143(3) dated 4.3.2016 was made without verification of facts, allowing reliefs without proper inquiry of the claim. Hence, he held that assessment order is erroneous and prejudicial to the interests of Revenue and hence set aside the order of the assessment and directed the AO to re-do assessment afresh after verification of facts as per law and after affording opportunity of being heard to the assessee. Aggrieved against that order, the assessee filed an appeal in ITA No.1746/Chny/2018 before this tribunal.

3. Against assessment order passed u/s. 143(3) dated 4.3.2016 for AY 2013-14, wherein the AO refused to allow depreciation claimed on the three windmills for the reason that the name transfer was not made till 31.3.2013 etc, the assessee filed an appeal before the CIT(A) and the Ld CIT(A) allowed the appeal. Aggrieved against that order, the Revenue filed an appeal in ITA No.2098/Chny/2018 before this tribunal.

4. On ITA No.1746/Chny/2018, the ld. Authorized Representative of assessee submitted that the PCIT erred in directing the AO u/s. 263 to re-do the assessment on the ground that the depreciation on windmill has been allowed @ 80% without verification of facts and also for the reason that the allowed reliefs without proper inquiry. The AO after due verification has correctly allowed the depreciation and therefore, the ld. PCIT erred in revising the order u/s. 263 of the Act and hence, he pleaded to allow the appeal.

5. Per contra, the ld. Departmental Representative invited our attention to the assessment order dated 4.3.2016, wherein, inter alia, the A O clearly recorded a finding that though the date of acquisition is 28.03.2013, the name transfer was not done till 31.03.2013, the name transfer order dated is 03.5.2013, therefore, the assets was not owned by the assessee during the year under consideration and hence the assessee is not entitled for depreciation claim for these three wind mills . Thereafter, the AO recorded the finding as under and allowed depreciation:

“4.1 During the previous Assessment Year 2012-13 the depreciation was disallowed to tune of Rs.21,59,61,289/- (Assessee claimed – 1,73,17,95,603 – Allowed 1,51,58,31,314) for pending name transfer of wind mills. The name transfer is effected during the Assessment Year i.e. 2013-14 and accordingly depreciation is allowed in the current assessment year.

42. As per the computation statement assessee has claimed IT depreciation of Rs.59,36,00,695/-. After considering the above, the assessee is eligible for depreciation to the tune of Rs.76,66,91,961/-.”

5.1 Therefore, the ld. DR submitted that the findings recorded by the ld. PCIT that the order passed by the AO u/s. 143(3) dated 4.3.2016 is made without verification of facts and he allowed reliefs without proper inquiry of the claim of the said relief is correct and hence, the order of the ld. PCIT may be confirmed.

6. We heard the rival submissions and gone through the relevant material. As pointed out by the ld. DR, it is clear from the order passed by the AO u/s. 143(3) dated 4.3.2016 that though the AO held that the assets were not owned by the assessee during the year under consideration and hence the assessee is not entitled for depreciation claim for these three wind mills during the year under consideration, however, in the later part she has computed and allowed depreciation at full rate. Further from the order, it is clear that various aspects associated with the claim has not been properly examined and discussed. In the facts and circumstances, the findings recorded by the ld PCIT in the impugned order is correct . Therefore, we do not find any merit in the assessee’s appeal and hence, the appeal in ITA No.1746/Chny/2018 is dismissed.

7. With regard to ITA No.2098/Chny/2018, the ld. DR submitted that in this case the issue involved is regarding allowance of depreciation on Wind Mills which are claimed to be acquired as slump sale on 28.03.2013. The depreciation claimed on these wind mills was disallowed while finalizing the assessment mainly for the reason that as per document available on record the transfer of ownership of all the Wind Mills took place on 13/5/13, i.e. date on which TNEB approved the transfer. The CIT(A) has allowed appeal of assessee stating that assessee had taken possession of the Wind Mills and part of the payments were also made by 31/3/13. The CIT(A) has relied on various case laws wherein it is held that assessee is eligible for depreciation on an asset if he has taken possession of the asset as part performance of the transaction. Order of the CIT(A) is erroneous inasmuch as the CIT(A) has accepted the submission of the assessee that possession of the asset has been taken-over on the date of the sale agreement itself without appreciating the fact that as per the slump sale agreement, possession of the asset would be given subject to full payment of the consideration (as per Para No. 3 of the agreement dated 28.03.2013). Pointing out various material on record including the paper books , the ld DR submitted that the CIT(A) has in the appellate order itself mentioned that part payment has only been made by 31/3/13. Thus, as per documents on record, the assessee has not been given possession of the asset as on 31/3/13 as payments were outstanding. Further, as per documents available on record, the name transfer by TNEB has taken place only on 13/5/2013 on the basis of assessee’s letter dated 27/4/213. Thus, this document also goes to support the fact that possession of the windmills must have been handed over only in the subsequent financial year as the application itself is filed on 27.04.2013. Without prejudice to above, assessee cannot generate and use or sell power) without the approval of TNEB. For selling power to third parties, as per the Group Captive Scheme, the purchaser of power has to be shareholder of assessee-/ with not less than 26% of Shares. This condition is mentioned in the approval letter dated 13/05/2013 which is annexed to this statement of facts (Page no. 5 to 9). Assessee do not fulfill this condition, therefore, assesse if do not have right to sell power to those entities from whom assessee claims to have received sums for sale of power during the year under consideration, after taking possession of the Wind Mill. As assessee do not have right to receive income from the assets, which is claimed to have been taken possession of, assessee cannot be held to be owner of the asset in the year under consideration keeping in view the decision quoted by the learned CIT(A) while giving relief to assessee. There is no valid document on record to prove that possession of the Wind Mills were taken on the date of the slump-sale agreement. The case laws quoted by the CIT(A) will be applicable only if there is any evidence of taking possession of the assets by assessee. All the documents on record and the facts of the case only indicate that possession of the windmill is given in the subsequent financial year. In the absence of any such evidence the case laws quoted by the CIT(A) will not be applicable in the assessee’s case. In view of the facts mentioned above the CIT(A) has erred by giving relief to assessee. Therefore, the Ld.DR requested to quash the order of the learned CIT(A) and restore that of the Assessing Officer.

8. Per contra, the ld. AR submitted the assessee contended before the ld CIT(A) that they have taken possession of the windmills based on the slump sale agreement dated 28.03.2013, filed bank account copies, wherein the assessee’s account has been debited substantial part of the consideration before 31.03.2013 , filed statement from the Auditor of the sellers stating that the sales recorded in the books of account and the sellers have not claimed depreciation on the assets sold etc. After considering all of them, the ld. CIT(A) allowed the assessee’s deprecation claim. Therefore, the ld AR supported the order of the ld. CIT(A) and pleaded to sustain it.

9. We heard the rival submissions and gone through the relevant material. It is clear from the assessment order that the AO has not examined the slump sale agreement and its associated issues properly. We confirmed the action of the ld. PCIT u/s. 263, in directing the AO to re-do the assessment afresh after verification of facts as per law and after due affording opportunity of being heard to the assessee, supra. We find that the assessee has produced the copies of slump sale agreement, letter of handing of possession and the payment particulars etc., some of them, for the first time before the ld. CIT(A), on which, the ld. CIT(A) has not sought the comments from the A O. In the facts and circumstances, we deem it fit to remit the impugned issues back to the AO for a fresh examination. The assessee shall lay all material in support of its contention before the AO and shall comply with the requirements of AO in accordance with law. The AO is free to conduct appropriate enquiry, as deemed fit, however, he shall furnish adequate opportunity of being heard to the assessee against the material, if any, that is to be used against it and then shall pass a speaking order in accordance with law. Thus, the appeal filed by the Revenue is treated as allowed for statistical purposes.

10. In the result, the appeal filed by the assessee in ITA No.1746/Chny/2018 is dismissed and the appeal filed by the Revenue in ITA No.2098/Chny/2018 is treated as allowed for statistical purposes.

(Order pronounced in the open Court on 27.6.2019)

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