Case Law Details
CIT (LTU) Vs Century Ply Board India Ltd. (Calcutta High Court)
The Calcutta High Court addressed an appeal concerning two key questions arising from an order passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961, and the subsequent decision of the Income Tax Appellate Tribunal (ITAT). The first question examined the appropriateness of the ITAT interfering with a Commissioner’s order directing a fresh assessment. This order was initially triggered by a complaint from the Director General of Income Tax, Mumbai, alleging bogus transactions between the assessee, Century Ply Board India Ltd., and Duralloy Cutters Limited, amounting to a significant sum. The jurisdictional Commissioner, without providing the assessee with the Mumbai investigation report or any statements from Duralloy officials, issued a show-cause notice. The assessee responded with substantial documentation to prove the genuineness of these transactions. Despite this, the Commissioner, without referencing the submitted documents, directed a fresh assessment based solely on the allegation of fraudulent transactions. On appeal, the ITAT reviewed the assessee’s evidence, including invoices, payment proofs, bank statements, and transportation documents, and concluded that the transactions were indeed genuine. The High Court acknowledged the general principle that the ITAT should be cautious in entertaining appeals against Section 263 orders that merely mandate a fresh assessment, distinguishing this from orders that enhance or modify the assessment, which carry a greater element of finality. However, the court upheld the ITAT’s decision in this specific case, reasoning that since the Tribunal had factually determined the transactions to be legitimate based on the evidence provided in response to the Section 263 notice, no interference was warranted.
The second question concerned the assessee’s claim for enhanced depreciation at 30% on a vehicle, despite not being in the business of hiring out vehicles. The ITAT had considered that enhanced depreciation was allowed in a subsequent assessment year and accepted the assessee’s argument that using the vehicles for transporting their own business goods qualified for the higher rate. The High Court concurred with the ITAT’s factual assessment on this point as well, finding no substantial question of law arising from this determination. Consequently, the Calcutta High Court dismissed the appeal, effectively upholding the ITAT’s order that had overturned the Commissioner’s direction for a fresh assessment and allowed the enhanced depreciation claim. The court found that in this particular instance, the ITAT had appropriately examined the factual basis of the Commissioner’s order under Section 263 and the justification for the depreciation claim, and no compelling legal grounds existed to overturn their findings. The appeal and the associated application were therefore dismissed without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
The marginal delay of about 56 days in preferring the appeal is condoned. GA No.3335 of 2016 is allowed accordingly.
The appeal is taken up for consideration of two questions:
i. Whether an Appellate Tribunal ought ordinarily to interfere with an order passed under Section 263 of the Income Tax Act, 1961 for a fresh assessment to be conducted by the Assessing Officer?
ii. Whether depreciation at the enhanced rate of 30% for a vehicle can be claimed by an assessee who does not run a business of hiring out the vehicle for consideration?
Upon the assessment being completed, a complaint was received from the Director General of Income Tax, Mumbai as to certain bogus transactions apparently entered into by the assessee herein with one Duralloy Cutters Limited. The value of the fraudulent transactions was said to be to the tune of Rs.3,94,90,558/-. On the basis of such communication, the jurisdictional Commissioner called upon the assessee to explain the position; or else the Commissioner would deal with the matter under Section 263 of the Income Tax Act, 1961. It is the admitted position that no report of the complaining income tax official from Mumbai was forwarded to the assessee nor was any statement that may have been obtained in course of the Mumbai investigation from any official of Duralloy furnished to the assessee.
In response to the show-cause notice dated March 24, 2014, the assessee issued a prompt reply on March 28, 2014 disclosing voluminous documents and claiming such documents to be the evidence of the genuineness of the transactions between the assessee and Duralloy.
The Commissioner did not refer to the documents that had been furnished by the assessee but he was swayed by the allegation that the assessee had indulged in bogus transactions of value of nearly Rs.4 crore and directed the Assessing Officer to make a fresh assessment. In the assessee’s appeal against the order passed under Section 263 of the Act, the Appellate Tribunal noticed the copies of invoices and challans, proof of payments, bank statements, transportation payments, vouchers for movement of the goods and like documents to be satisfied on facts that the transactions between the assessee and Duralloy for the relevant assessment year were not bogus or fraudulent.
Ordinarily, an Appellate Tribunal has to be slow in receiving an appeal from an order passed under Section 263 of the Act if the order of the Commissioner is confined to requiring the Assessing Officer to make a fresh assessment. In other words, a distinction ought to be made between the two parts to Section 263 of the Act: the first part which permits the Commissioner to enhance or modify the assessment and the second part which permits the Commissioner to cancel the assessment and direct a fresh assessment. There is an element of finality which is involved when the Commissioner exercises authority under the first part as indicated above. There is also an element of finality when the commissioner cancels the assessment, but there is no real prejudice to the assessee – other than the assessee suffering the process once again – in a fresh assessment being required to be undertaken.
However, since in this case the Appellate Tribunal looked into the documents that were furnished by the assessee in response to the show-cause notice issued under Section 263 of the Act and found, on facts, that the perceived bogus transactions were genuine, the order impugned does not call for any interference on such ground.
The other ground pertains to the rate of depreciation that the assessee had claimed and the permissibility thereof. The Appellate Tribunal took into consideration the fact that depreciation at the enhanced rate had been permitted in at least one subsequent assessment year. Further, it was the case of the assessee that the assessee may not have let out its vehicles to third parties, but the assessee used the vehicles for transporting the goods pertaining to the business of the assessee and such activity permitted the claim of enhanced depreciation.
Again, the Appellate Tribunal assessed the facts and found the justification to be worthy. No real question of law arises in such regard either.
Accordingly, ITAT No. 408 of 2016 and GA No. 3336 of 2016 are dismissed.
There will be no order as to costs.
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