Case Law Details
Carborundum Universal Limited Vs Deputy Commissioner (ITAT Chennai)
Introduction: The legal landscape is rife with intricate cases that present unique challenges. One such case that has attracted significant attention recently is that of Carborundum Universal Limited Vs Deputy Commissioner, adjudicated at the ITAT Chennai.
1. Background of the Case: The appeal by Carborundum Universal Limited is against the Commissioner of Income Tax’s order dated 27.04.2023, concerning the assessment year 2011-12. The return of income, discrepancies in deductions, and other issues became the crux of the contention.
2. Discrepancies Pointed Out: The Assessing Officer highlighted several discrepancies in the assessee’s filings:
- Excess deduction claims based on the approval from DSIR.
- Overlooking a foreign exchange gain that was not accounted for properly, leading to a double advantage.
- Incorrect deduction claims pertaining to “lease payments.”
- Misclassification of “intangible asset” concerning software depreciation, resulting in an excess depreciation claim.
3. Notices and Proceedings: Post identification of these discrepancies, the Assessing Officer believed there was an evasion of taxable income. Following this belief, various notices were issued to the assessee, ultimately culminating in an assessment that saw a significant rise in the total taxable income of the assessee.
4. Lack of Adjudication on Merit: The matter got complicated when, upon appeal, the CIT(A) dismissed the assessee’s appeal citing a lack of response. However, the assessee’s counsel argued that due to genuine reasons related to the pandemic, they couldn’t represent the case adequately. This oversight was significant as it meant that the CIT(A) had not deliberated on the main issues raised, including the legalities surrounding the reopening of the assessment.
5. ITAT Chennai’s Observations and Order: Upon hearing both sides, ITAT Chennai recognized the merit in the assessee’s arguments. Observing that the CIT(A) did not judge the issues based on their merits, they decided to set aside the previous order. The case was thus remitted back, directing the CIT(A) to reconsider all issues afresh, ensuring that the assessee is given a fair opportunity to be heard.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi dated 27.04.2023 for the assessment year 2011-12.
2. Brief facts of the case are that the assessee filed its return of income for the assessment year 2011-12 on 30.11.2011 admitting a total income of ₹.117,65,52,629/-. The case was selected for scrutiny and assessment under section 143(3) r.w.s. 923CA of the Income Tax Act, 1961 [“Act” in short] was completed on 31 .03.2015 by determining the income of the assessee at ₹.120,92,74,451/-. On further perusal of the records, the Assessing Officer has noted that assessee company has claimed 200% deduction under section 35(2AB) of the Act, for capital expenditure amounting to ₹.6.08 lakhs and revenue expenses of ₹.70.47 lakhs. Form 3CL dated 15.04.2014 available on record shows that out of the same capital expenditure approved by DSIR is ₹.6.08 lakhs and revenue expenditure is ₹.58.36 lakhs. However, the assessee claimed 200% deduction of revenue expenditure amounting to ₹. 70.47 lakhs overlooking the approval granted by DSIR. On this issue excess deduction of Rs.24.18 lakhs was claimed by the assessee. Further in Column 14(d)(ii) of Form 3CD audit report it is reported that the assessee earned foreign exchange gain of ₹.16,29,235/- during the year. It is stated therein that such sum is credited to P & L account and not adjusted to cost of asset. However, in the income computation statement, it is deducted from profits. In short, ultimately such gain is neither included in profit nor in cost of assets under section 43A of the Act. On this issue excess deduction of ₹.16,29,235/- was claimed. Thus the assessee has taken double advantage of such gain. Further, In the computation statement, the assessee has deducted a sum of ₹.74,86,082/- being “lease payments”. Since this is capital expenditure the same is not eligible for deduction. Schedule 17(iii) to Printed Annual Accounts show that such transactions were finance lease. On this issue, excess deduction of ₹. 74,86,082/- was claimed by the assessee. Moreover, as per Schedule 5 forming part of the printed Annual Accounts as on 31.03.2011, opening WDV of software being “intangible asset” is ₹.21.30 lakhs. Though it was disclosed as software license being “intangible asset” in the Annual accounts of the company, it was termed as “software” eligible for depreciation at the rate of 60% in the depreciation schedule prepared for income tax purposes as against the eligible rate of depreciation at the rate of 25%. Since, the assessee have purchased only license to use software and not software as such, as evident was placed before the shareholders, the assessee cannot shift its stand for income tax purposes alone. On this issue excess depreciation of ₹.7,45,500/- was claimed by the assessee.
3. In view of the above, the Assessing Officer believed that the income chargeable to tax has escaped he assessment and accordingly, issued notice under section 148 of the Act and served to the assessee on 31.03.2016. Notices under section 143(2) and 142(1) of the Act were also issued on 16.09.2016. After considering the submissions of the assessee, the Assessing Officer has completed the assessment under section 143(3) r.w.s. 147 of the Act dated 30.11.2016 assessing total income of the assessee at ₹.122,15,53,268/- after making various additions. On appeal, the ld. CIT(A) dismissed the appeal filed by the assessee since there was no response to the hearing notices or filed any submission.
4. On being aggrieved, the assessee is in appeal before the Tribunal.
4. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. During the course of hearing, the ld. Counsel for the assessee has submitted that before the ld. CIT(A), the assessee has raised various grounds including legal issue of reopening assessment under section 147 of the Act. It was further submission that reopening of assessment within four years on the same set of facts and without any tangible material would amount to mere change of opinion and without adjudicating the issues on merits, the ld. CIT(A) concluded the exparte appellate order is legally unsustainable. Thus, it was prayed for suitable direction to the ld. CIT(A) adjudicate all the issues afresh on merits and also prayed that the assessee may be afforded an opportunity of being heard since the assessee was prevented by reasonable cause as the assessee was unable to contact its counsel to represent the case during pre and post covid-19 pandemic period. We find force in the arguments of the ld. Counsel. On perusal of the appellate order, we find that the assessee has raised various grounds including legal issue of reopening of assessment under section 147 of the Act and the ld. CIT(A) has not adjudicated the issues on merits. Accordingly, we set aside the appellate order and remit the matter back to the file of the ld. CIT(A) to decide all the issues afresh in accordance with law by affording an opportunity of being heard to the assessee. The assessee is also directed to furnish complete details with material evidences and convincing explanations before the ld. CIT(A) for consideration.
5. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 25th July, 2023 at Chennai.
