Elecon Engineering Company Ltd. Vs. Asst. CIT (Gujarat High Court)
In this case in the queries itself raised during Original Assessment, the assessing officer pointed out that the assessee had purchased immovable property of Rs. 50.72 lacs and sold such property for Rs. 66.34 lacs. It was in response to such a query that the assessee replied pointing out that two different agreements of mutual exchange of land were executed on 17-11-2008. Subsequently, both these agreements were cancelled by a deed dated 12-3-2009 which was also registered. Thus there was no legal or valid transfer of the land during the year under consideration and therefore, the assessee had not made any transaction of sale of land. It was after such scrutiny that the assessing officer framed assessment wherein no demand of capital gain tax was raised. If the view of the assessing officer was that once the land was sold through a exchange deed, the assessee was liable to pay capital gain, irrespective of the subsequent cancellation of the deed, he ought to have taxed such income in the order of assessment. The fact that the assessee had executed such documents and not offered any income of capital gain to tax was thus within the knowledge of the assessing officer. Without there being anything additional, such issue cannot be reexamined in exercise of powers of reassessment. As noted, the letter dated 24-10-2003 of the assessing officer of Shri Ashwin B. Patel may prima facie, give an impression that such facts were being brought to the notice of the present assessing officer for the first time, but as noted, the queries raised by the assessing officer during the original assessment and the replies of the petitioner would show that all these details were very much part of the record.
JUDGMENT
Akil Kureshi, J.
The petitioner has challenged a notice dated 29-3-2014 by which the respondent no. 1 assessing officer sought to reopen the assessment of the petitioner for the assessment year 2009-10.
2. Brief facts are as under. The petitioner is a company registered under the Companies Act and is engaged in manufacturing and other related businesses. For the assessment year 2009-10, the petitioner had filed the return of income declaring book profit of Rs. 8.73 crores (rounded off) for the purpose of section 115JB of the Income Tax Act, 1961 (“the Act” for short) and offered tax at the prescribed rate on such book profit. The assessing officer took the return under scrutiny. After detailed examination of various documents, he framed assessment under section 143(3) of the Act on 29-12-2011 assessing the petitioner’s gross income at Rs. 61.28 crores (rounded off).
3. To reopen such assessment, the assessing officer issued impugned notice which, as can be seen, was done within a period of four years from the end of relevant assessment year. In order to do so, he had recorded the following reasons :–
“Reasons for issue of notice under section 148 of the Income Tax Act, 1961
In this case, the assessment was finalized under section 143(3) on 29-12-2011 assessing the total income at Rs. 61,10,65,280.
1. There were information with the department that Shri Ashwin Kumar B Patel, has sold immovable property exceeding Rs. 30 Lakhs & more. As a consequence to the inquiry conducted by ITO Ward-2 Anand, certain information regarding the assessee Elecon Engineering Ltd. has come to his knowledge, The Income Tax Officer, Ward-2. Anand forwarded the said information alongwith documents that during the year under consideration, the assessee had executed “exchange sale agreement” dated 17-11-2008, which shows that the assessee has transferred the land at survey No. 159 and 155 having 0.63.93 hector amounting to Rs. 65,82,000 to Shri Ashwinbhai B. Patel. The land being transferred falls under the provision of section 2(47) of the Income Tax Act and therefore the assessee is liable for capital gain tax. As the assessee has not disclosed any capital gain on such transfer of land, the capital gain arisen on account of such transfer of land requires to be taxed in the hands of the assessee.
2. From the records, it is noticed that the assessee revised its income to Rs. 58,03,61,730 on 29-3-2011 against original income of Rs. 58,97,12,507. The reduction of Rs. 71,60,540 was on account of withdrawal of interest on income tax refund and Rs. 21,90,237 was on account of depreciation claimed over and above the depreciation claimed in the original return, It is noticed that the interest was received by the assessee in assessment year 2009-10 whereas withdrawal of interest was made in assessment year 2010-11. As such, the assessee has wrongly reduced its interest income by Rs. 71,60,540 and is requires to be added to the income of the assessee.
It is also noticed that in the revised return, the assessee has claimed excess depreciation of Rs. 21,90,237 out of which an amount of Rs. 10,02,618 (Rs. 9,23,898 + 78,720) was on account of capitalization of building renovation expenditure as per assessment for assessment year 2007-08 and capitalization of building repair expenditure as per assessment order assessment year 2006-07 respectively. The remaining amount of Rs. 11,87,619 (Rs. 21,90,237 – 10,02,618) was on account of increase in opening WDV of various assets which was at variance from the same being reported by the CA in the 3CD report. Therefore the said excess depreciation of Rs. 11,87,619 was incorrectly claimed by the assessee and requires to be disallowed.
3. From the records for assessment year 2009-10 it was noticed that the assessee has received total interest of Rs. 2,00,59,230 being interest on income tax refund and assessee has deducted interest under section 234B of Rs. 31,39,972 from this interest income. It was stated by the assessee that interest paid under section 234B in earlier assessment years is being adjusted. As income tax payment is not an allowable expenditure, adjustment of interest paid under section 234B against interest income would tantamount to allowance of deduction for payment of income tax. As Such, its adjustment was required to be disallowed.
4. On verification, it is noticed that the assessee has claimed depreciation of Rs. 15,47,30,488 (Rs. 13,79,30,488 being 80% normal depreciation on wind mill + Rs. 3,09,46,098 being 20% additional depreciation) on the addition of assets in the form or wind turbine generators (WTG) of Rs. 15,47,30.488 prior to 1 Oct 2008. It was also noticed that the investment in assets contained three items viz (i) windmill of Rs. 13,79,30,488 (added on 30-9-2008). (ii) Rs 84,00,000 of power evacuation facility for 4 nos windmills & Rs. 84,00,000 of power evacuation facility for 4 nos windmills (added on 30-9-2008). It was further noticed that, there was no opening balance of WTC as on 1st Apr 2008. The assessee also did not purchase any WTG during the year and it manufactured only 2 WTG during the year which too were sold during the year. This indicates that 4 WTG which were claimed to be commissioned in earlier years were not commissioned in those years and assessee commissioned those in this assessment year 2009-10 on 30-9-2008. This is also substantiated from the fact that assessee has claimed expenditure of Rs. 84,00,000 on power evacuation facility for 4 windmills added on 1-4-2008 and again claimed expenditure of Rs. 84,00,000 on power evacuation facility for 4 windmills added on 30-9-2008. In view of this no deprecation/ additional deprecation was allowable on claimed expenditure of windmill of Rs. 13,79,30,488 and Rs. 84,00,000 on power evacuation facility for 4 windmills added on 30-9-2008. Accordingly, the excess claim of deprecation of Rs. 14,63,30,488 requires to be disallowed.
5. It is noticed that the assessee has claimed addition of Rs. 4,68,000 being Turbo Ventilators on 11-3-2009, Rs. 59,70,769 being Turbo Ventilators with FRP base sheet on 11-3-2011 and Rs. 2,34,000 on 16-7-2008 being wind operating device. The assessee claimed deprecation of Rs. 27,62,707 @ 80% (Rs. 2575507 + 1,87,200) and additional deprecation @ 20% of Rs. 6,90,677. Since, these machinery have not been included in the list of Appendix I of the Rules in the category of energy saving devices eligible for depreciation @ 80 percent, the claim of depreciation at the rate applicable to energy saving devices is not allowable. Instead, depreciation is allowable at the rate of 15 % as it is plant and machinery. Accordingly the excess claim of depreciation/additional depreciation amounting to Rs. 22,44,700 requires to be disallowed.
6. It is noticed that the assessee has claimed expenditure of Rs. 10,32,241 being payment of notified area tax & the said receipt was issued in the name of M/s. Emtici Hotel Resort. Since the receipt of payment was not issued in the name of assessee, it indicates that it is not owned by assessee but apparently by Emtici Engineering Ltd. (sole distributor of products of the assessee). The claim of said expenditure of Rs. 10,32,241 is not an allowable expenditure as it pertains to the other person. Accordingly, said expenditure of Rs. 10,32,241 requires to be disallowed.
7. The assessee has claimed payment of freight Charges amounting to Rs. 20,34,642 and made deduction of TDS amounting to Rs. 1153. It was noticed that TDS was required to be made at the lower rate of 0.05% on the basis of lower deduction certificate issued by ITO (TDS) Ward 57(1) Kolkata. It was also noticed from the certificate that this lower deduction was applicable only for Rs. 1 lakh in respect of payment to be made by assessee. Therefore on payment of Rs. 19,34,642 (Rs. 20,34,642 – Rs. 1,00,000) the TDS was required to be made at normal rate. Thus, after giving credit of TDS made by the assessee, it is noticed that assessee had not made TDS in respect of payment of Rs. 18,86,230. Accordingly claim of expenditure of Rs. 18,86,230 is not an allowable expenditure in view of provisions of section 40(a)(ia) of the Income Tax Act and requires to be disallowed.
8. On examination, it was found that while computing dis allowance under section 14A, the assessee excluded interest payment on term loan, vehicle loan etc. from the total interest payment amount and calculated dis allowance of Rs. 34,36,054. As per provisions of section 14A of the Income Tax Act read with rule 8D(ii) proportionate interest expenditure is to be disallowed in the ratio of average investment to the average total assets. However, there is nothing in rules to exclude interest pertaining to the term loans for computation of dis allowance under section 14A of the Income Tax Act. As per rule 8D of the Income Tax Act, the dis allowance under section 14A worked out to Rs. 67,96,000 as against dis allowance of Rs. 34,36,054 computed by the assessee which resulted in short dis allowance of Rs. 33,59,946 which requires to be disallowed.
9. On verification, it is noticed that the assessee has made payment of export commission totaling to Rs. 1,91,15,182 to Non residents (as given below) without making TDS as per the provision of section 195(1) of the Act in view of Circular No. 786, date 7-2-2000.
