Viswams v. Assistant Commissioner of Income-tax, Circle-I
[Citation -2008-LL-0314-15]

Citation 2008-LL-0314-15
Appellant Name Viswams
Respondent Name Assistant Commissioner of Income-tax, Circle-I
Court ITAT-Chennai
Relevant Act Income-tax
Date of Order 14/03/2008
Judgment View Judgment
Keyword Tags opportunity of being heard • capital expenditure • deeming provision • revisionary order • legal provision • capital nature • capital asset
Bot Summary: In all these appeals, the order passed under section 263 by the Commissioner of Income-tax has been challenged though in these cases various assessees are involved, since the facts are identical leading to identical issues, with the consent of the parties, we have taken up the facts pertaining to ITA No. 1458/Mds/2007 for adjudication. In the Madras Auto Services Ltd., case the Supreme Court was dealing with assessment year 1968-69 much before introduction of section 32(1A) and of its substitute by explanation 1, and the main point in the assessees argument as well as also in the reasoning of the Supreme Court in that case, i.e., ownership of the asset does not subsist after introduction of the deeming provision by virtue of explanation 1. The learned Counsel for the assessee submitted that basically, assessment was completed under section 143(3) of the Act on the basis of directions issued by JCIT under section 144A which is of binding nature. Departmental Representative, on the other hand, submitted that while conducting the proceedings under section 263, CIT has revisionary powers in respect of any order passed under the Act and which would include even orders passed under section 144A and if CIT has not agreed with the directions under section 144A, no fault can be found with this proposition. Section 144A reads as under: 144A. A Joint Commissioner may, on his own motion or on a reference being made to him by the Assessing Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer: Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. We further find that the CIT has debit with this issue in his order passed under section 263 of the Act, the relevant para of which reads as under: The construction put by the assessee on 144A read with section 263 is not borne out by the plain words of the relevant section. 2164 to 2167/Mds/2007: In these appeals, the assessee has raised the following common ground: The CIT erred in not following the jurisdictional Madras High Court decision in the case of Hari Vignesh Motors Ltd. and the decision of the Jurisdictional Bench of the ITAT in the assessees group case for the assessment year 1996 and thus erred in disallowing the expenditure of Rs. 29,96,947 claimed as revenue by the assessee.


These appeals by different assessees are/directed against different orders o f CIT for above assessment years. In all these appeals, order passed under section 263 by Commissioner of Income-tax has been challenged though in these cases various assessees are involved, since facts are identical leading to identical issues, with consent of parties, we have taken up facts pertaining to ITA No. 1458/Mds/2007 for adjudication. 2. brief facts of case are that assessee was firm carrying on business at Tribunal and had debited sum of Rs. 2,99,36,264 as maintenance allowance. This sum was actually spent on construction of five storied building for new shop at T. Nagar, Chennai in leased premises which consisted of R C structure upto three stories. Assessing Officer while passing Assessment Order did not make any enquiry regarding allowability of this expenditure and in fact allowed claim of assessee following directions issued by JCTT under section 144A of Act. 3. On perusal of Assessment Order, CIT noted that assessees case mainly rested on simple fact that asset constructed by it did not belong to assessee which was only using same during lease period and on expiry of lease period, asset will rest with lessor. This is based on judgment of Honble Supreme Court in case of CIT v. Madras Auto Services (P.) Ltd. [1998] . However, according to CIT later on, Explanation (1) was inserted to section 32(1) of Act by which this expenditure should have been held to be capital in nature and thus assessee was not entitled to claim same as revenue expenditure. 4. Before CIT it was mainly argued that issue was covered in favour of assessee by decision of Honble Apex Court in case of Madras Auto Services (P.) Ltd. (supra), decision of Honble Jurisdictional High Court in case of CIT v. Hari Vignesh Motors (P.) Ltd. [2006] (Delhi). He also observed that it is not correct to state that once directions have been given under section 144A, then Assessing Officer is bound by such directions because when section 144A is read with section 263, then correct interpretation would be that if Jt. CIT has committed some mistake same could also be rectified. Infact, he observed as under: "The construction put by assessee on 144A read with section 263 is not borne out by plain words of relevant section. act no where says that Joint Commission cannot commit any mistake of either facts or law and Commissioners power of revision does not extent to case which has been completed as per his direction. legal provision is just opposite of what has been argued by assessee. Explanation to section 263 clearly says that order by Assessing Officer shall include order of assessment made by Asst. Commissioner or Deputy Commissioner or Income-tax Officer on basis of directions issued by Joint Commissioner under section 144A. Since in instant case assessment completed under section 143(3) as per t h e direction of Joint Commissioner is found to be erroneous, reversionary power of Commissioner is rightly invoked under section 263." In respect of decision of Honble Jurisdictional High Court in Hari Vignesh Motors (P.) Ltd. (supra), CIT observed at page 17 that: "The next point of assessee is that issue being covered by decision of Jurisdictional High Court no departure can be made in terms of order under section 263. I am aware of decision of Apex Court in case of Berger Paints v. CIT (266 ITR P.99) wherein it has been held that if revenue has not challenged correctness of law laid down by High Court and has accepted it in case of one assessee, then, it is not open to revenue to challenge its correctness in case of other assessees without just cause. In first place Madras High Court did not lay down any law in case of CIT v. Hari Vignesh Motors (P.) Ltd. (supra), it only followed decision of Supreme Court in case of CIT v. Madras Auto Services (P.) Ltd. (supra) in facts of that case. High Court did not consider implication of expenditure in leased premises after insertion of explanation 1 to section 32 while holding that assessee would not get any capital asset structure not being owned by him. In Madras Auto Services (P.) Ltd., case Supreme Court was dealing with assessment year 1968-69 much before introduction of section 32(1A) and of its substitute by explanation 1, and main point in assessees argument as well as also in reasoning of Supreme Court in that case, i.e., ownership of asset does not subsist after introduction of deeming provision by virtue of explanation 1. High Court dealing with assessment year 1997-98 did not deal with implication of explanation 1 as no such point was urged before it by appellant i.e., revenue which conceded that issue was covered by decision of Apex Court in Madras Auto Service (P.) Ltd. case. Besides in my order, I have given reasons that why facts of present case cannot be equated with that of Jurisdictional High Court and order is also not binding as facts of this case can be distinguished from that of Hari Vignesh Motors (P.) Ltd. As matter of fact in its lengthy submissions assessee has not pointed out any Tribunal or High Court decision which says capital expenditure either under section 30 or 37(1) regardless of stipulation in explanation 1. Rather in my order I have referred to two Delhi Tribunal decisions and two High Court decisions. Accordingly, all three contentions of assessee are not accepted." In view of above discussion CIT ultimately held that expenditure incurred by assessee on construction and renovation of leased premises was of capital nature and accordingly directed Assessing Officer to treat same as capital expenditure. However, he further directed Assessing Officer to allow depreciation accordingly. 5. Before us, learned Counsel for assessee submitted that basically, assessment was completed under section 143(3) of Act on basis of directions issued by JCIT under section 144A which is of binding nature. In this connection, he referred to provisions of section 144A. Then he submitted that issue was squarely covered in favour of assessee by decision of Honble Jurisdictional High Court in case of Hari Vignesh Motors (P.) Ltd. (supra). In this connection, he particularly referred to para 4 & 5 of Judgment. He also submitted that order of High Court has not been challenged by Department and, therefore, it has become final in view of judgment of Honble Supreme Court in case of Berger Paints v. CIT[2004] . He also argued that expenditure was allowable under section 37 and Explanation (1) to section 32(1) could not over-ride provisions of section 37 of Act. learned Counsel for assessee further submitted that this issue is also covered in case of some of assessees by orders of Tribunal in ITA No. 3l3, 341/Mds/97 dated 21-5-2004, copy of order filed on Tribunal in ITA No. 3l3, 341/Mds/97 dated 21-5-2004, copy of order filed on record. 6. ld. Departmental Representative, on other hand, submitted that while conducting proceedings under section 263, CIT has revisionary powers in respect of any order passed under Act and which would include even orders passed under section 144A and if CIT has not agreed with directions under section 144A, no fault can be found with this proposition. He further submitted that decision in case of Hari Vignesh Motrs (P.) Ltd. (supra) as well as decision of Tribunal in case of Dy. CIT v. RM Viswanatha Pillai & Sons (supra) were rendered on basis of decision of Honble Supreme Court in case of Madras Auto Services (P.) Ltd. (supra). But that decision was rendered in respect of assessment year 1968-69 and law has been amended later on by insertion of Explanation (1) to section 32. of Act whereby deeming fiction has been introduced and if assessee any expenditure by way of construction or renovation etc., on any leased property, then such expenditure has to be treated as capital expenditure and in that case, it is eligible for depreciation. Since CIT has already allowed depreciation to assessee by treating expenditure as capital expenditure, assessee should have no grievance. 7. As far as issue that Department has not filed any appeal against decision in case of Hari Vignesh Motors (P.) Ltd. (supra) is concerned, CIT has very clearly noted that Honble Jurisdictional High Court has not laid down any law but has only followed decision of Honble Supreme Court in case of Madras Auto Services (P.) Ltd. (supra). Honble High Court has not considered amended law which was inserted by Explanation (1) to section 32(1) of Act. Though High Court was dealing with assessment year 1997-98, it did not deal with implication of Explanation (1) and, therefore, it cannot be said that decision is binding on Department. He further submitted that Honble Delhi High Court 1n case of Rajeev Singh & Co. v. CIT [1990] had noticed that this is new law and, therefore, new law which was inserted way of Explanation had been followed in decision in case of Rajeev Singh & Co. (supra). Similar view was taken by Delhi Bench of Tribunal in case of E.I. Dupont India Ltd. (supra). He further submitted that once expenditure was to be treated as capital expenditure, it should not be claimed under section 37 of Act. 8. In rejoinder, learned Counsel for assessee submitted that once High Court has decided issue in case of Hari Vignesh Motors (P.) Ltd. (supra) for assessment year 1997-98, then it should be presumed that High Court has considered all aspects of case. He also argued that since Department has not filed appeal against this order, it means that Department was also satisfied. He also submitted that if CIT found that directions under section 144A were erroneous then he should have passed separate order against such directions and binding nature of such directions cannot be refuted by examining assessment under section 263 of Act. 9. We have considered rival submissions carefully in light of material on record. Section 144A reads as under: "144A. [Joint Commissioner] may, on his own motion or on reference being made to him by [Assessing] Officer or on application of assessee, call for and examine record of any proceeding in which assessment is pending and, if he considers that, having regard to nature of case or amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for guidance of [Assessing] Officer to enable him to complete assessment and such directions shall be binding on [Assessing] Officer: Provided that no directions which are prejudicial to assessee shall be issued before opportunity is given to assessee to be heard. Explanation.For purposes of this [section] no direction as to lines on which investigation connected with assessment should be made shall be deemed to be direction prejudicial to assessee." Reading of above provision very clearly shows that direction issued by Jt. CIT are binding on Assessing Officer. only two riders provided in powers of Jt. CIT., are (i) to issue any directions, and if directions are prejudicial to assessee, then opportunity be allowed to assessee and (ii) that no direction can be issued on lines in which investigation should be conducted. Admittedly, Jt. CIT had very clearly issued direction that expenditure incurred by assessee should be allowed as revenue expenditure. Therefore, Assessing Officer was bound to follow such direction. However, we further find that CIT has debit with this issue in his order passed under section 263 of Act, relevant para of which reads as under: "The construction put by assessee on 144A read with section 263 is not borne out by plain words of relevant section. act no where says that Joint Commission cannot commit any mistake of either facts or law and Commissioners power of revision does not extent to case which has been completed as per his direction. legal provision is just opposite of what has been argued by assessee. Explanation to section 263 clearly says that order by Assessing Officer shall include order of assessment made by Asst. Commissioner or Deputy Commissioner or Income-tax Officer on basis of directions issued, by Joint Commissioner under section 144A. Since in instant case assessment completed under section 143(3) as per direction of Joint Commissioner is found to be erroneous, reversionary power of Commissioner is rightly invoked under section 263." We agree with above observations of CIT because Explanationto section 263(1) reads as under: "263. (1) Commissioner may call for and examine record94of any proceeding under this Act, and if he considers that any order passed therein by 95[Assessing] Officer is erroneous in so far94 as it is prejudicial to interests of revenue94, he may, after giving assessee opportunity of being heard and after making or causing to be made such inquiry as he teems necessary, pass such order thereon as circumstances of case justify, including order enhancing or modifying assessment, or cancelling assessment and directing fresh assessment. Explanation.For removal of doubts, it is hereby declared that, for purposes of this sub-section, (a)an order passed [on or before or after 1st day of June, 1988] by Assessing Officer shall include (i)an order of assessment made by Assistant Commissioner [or Deputy Commissioner] or Income-tax Officer on basis of directions issued by [Joint] Commissioner under section 144A; (ii) ** ** **" above Explanation makes it clear that power of revision extends even to Assessment Orders which had been passed on basis of directions issued by JCIT under section l44A. Therefore, CIT had power to revise even Assessment Orders before us. However, still issue is covered by decision of Honble High Court in case of Hari Vignesh Motors (P.) Ltd. (supra), and in that case assessment year involved was 1997-98, whereas Explanation (1) to section 32(1) was introduced by Taxation Law (amendment and miscellaneous provisions) Act, 1986 with effect from 1-4- 1988. We would not like to comment as to why new law was not brought to notice of Honble High Court. But fact which has come to our notice as admitted by ld. Departmental Representative is that no appeal has been filed against this decision before Honble Supreme Court. We, at Tribunal, are bound by decision rendered by Honble Jurisdictional High Court and, therefore following this decision, we decide this issue in favour of assessee. I n these circumstances, we quash revisionary order passed by CIT. Since facts in all these appeals are identical, all revisionary orders passed by CIT against which assessees have come in appeal before us are quashed. 10. These appeals are allowed. 11. ITA Nos. 2164 to 2167/Mds/2007: In these appeals, assessee has raised following common ground: "The CIT (Appeals) erred in not following jurisdictional Madras High Court decision in case of Hari Vignesh Motors (P.) Ltd. () and decision of Jurisdictional Bench of ITAT in assessees group case for assessment year 1996 and thus erred in disallowing expenditure of Rs. 29,96,947 (total expenditure disallowed Rs. 31,54,681 less depreciation Rs. 1,57,734) claimed as revenue by assessee." 12. After hearing both parties we hold that since we have already quashed revisionary orders and assessments made in pursuance of such revisionary orders have to be cancelled, we set aside order of CIT (Appeals) and allow these appeals. 13. In result, all appeals, filed by assessee are allowed. *** Viswams v. Assistant Commissioner of Income-tax, Circle-I
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