I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.² Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.³ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 quantity term) filed nor examined by learned Assessing Officer during the course of original assessment. Revision on this ground is mere change of opinion, and therefore, illegal, and therefore, requires to be quashed.

8. The learned C.I.T. has erred in passing revision order on the ground that valuation of closing stock of raw material does not include transportation cost, and finance cost. Your appellant submits that revision on this ground is illegal, and therefore, requires to be cancelled.

9. The learned C.I.T. has erred in passing revision order on the ground that all related party payments on account of job work payments were not verified by learned Assessing Officer 'at fair market value' as per provision of section 40A(2)(b) of the Income Tax Act, 1961. Your appellant submits that revision on this ground is mere change of opinion, which is illegal, and therefore, order passed u/s.263 on this ground is required to be cancelled. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing."

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.⁴ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 that he shall be only pressing ground numbers 3 and 9 of his appeal. Accordingly, we shall be discussing and adjudicating upon only the above grounds contested before us.

Ground No 3: Claim of depreciation on Windmill:

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.⁵ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 2012. The assessee has not submitted the supporting document for installation of windmill along with date of put to use to the AO. The AO has not verified the claim of depreciation of assessee while calculating the book profit u/s. 115JB of the IT Act and accordingly not charged the MAT liability payable by assessee."

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.⁶ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 account for the relevant assessment year, the assessee had debited depreciation at the rates prescribed by the Income-tax Rules, 1962. However, the Assessing Officer was of the view that for purposes of section 115J, depreciation should have been calculated in terms of the Companies Act, 1956 and Schedule XIV thereof. Accordingly, he disallowed the assessee's claim of depreciation charged at the rates prescribed by the Income-tax Rules. The Commissioner (Appeals) as well as the Tribunal allowed the assessee's claim and directed the Assessing Officer to allow the claim of depreciation as per the Income-tax Rules for the purposes of computing the book profit under section 115J. On reference, the High Court reworked the profits of the assessee under section 115J by substituting the rates of depreciation prescribed in Schedule XIV of the Companies act, 1956. In appeal, the Supreme Court held that where assessee was consistently charging depreciation in its books of account at rates prescribed in Income-tax Rules and accounts of assessee had been prepared and certified as per provisions of 1956 Act, Assessing Officer would not have any jurisdiction under section 115J to rework net profits of assessee by substituting rates of depreciation prescribed in Schedule XIV to 1956 Act. We further note that the jurisdictional Gujarat High Court in the case of

DCIT v. Vardhman Fabrics (P.) Ltd. [2002] 122 Taxman 375 (Gujarat)

has also adjudicated on this issue in favour of the assessee. The brief facts of the case were that assessee calculated depreciation on plant and machinery at

33.33 per cent as permissible under the Income-tax Rules, 1962 as against 30 per cent depreciation required to be calculated under Schedule XIV of the Companies Act. The Commissioner, acting under section 263, held that rate of depreciation claimed was in excess of the rate under the Companies Act

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.⁷ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 and that excess was to be disallowed. The Tribunal held that Circular of Company Law Board lays down minimum rate of depreciation for purpose of distribution of dividend and company may decide to claim higher depreciation on basis of a bona fide technological evaluation and proper disclosure is to be made by way of a note forming part of annual accounts. The Tribunal further held that, in instant case, proper disclosure was made by way of a note to annual statement of accounts and rates claimed on basis of income-tax records were based on bona fide information of Board of Directors as contained in aforesaid minutes of meeting of Board of Directors. In appeal, the High Court held that the Tribunal was right in holding that depreciation worked out by assessee on basis of income- tax records and debited to profit and loss account was not violative of provisions of Companies Act and ITAT has not erred in cancelling order passed by Commissioner under section 263 of the Act. Again, in the case of CIT Ludhiana v. Sona Woollen Mills (P.) Ltd. 2007] 160 Taxman 22 (Punjab & Haryana), assessee claimed depreciation as per provisions of income tax Act for computing quantum of income under section 115J. The Assessing Officer rejected claim of assessee on ground that depreciation for purposes of section 115J was permissible as per Schedule XIV of Companies Act. The Commissioner (Appeals) allowed claim of assessee holding that depreciation provided under Companies Act was minimum but there was no bar to higher depreciation being claimed by assessee and, thus, for purposes of section 115J, depreciation actually debited could be allowed. The High Court held that in view of Supreme Court decision in Apollo Tyres Ltd. v. Commissioner Of Income Tax, Kochi . [2002]

122 Taxman 562, Commissioner (Appeals) was justified in holding that the assessee is eligible to claim higher rate of depreciation and Income Tax Act.

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.⁸ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 The Delhi ITAT in the case of HAL Offshore Ltd [2019] 108 taxmann.com 390 (Delhi - Trib.) held that where depreciation provided in profit and loss account is at same rate as provided for purpose of profit and loss account being laid before Annual General Meeting (AGM), no addition could be made to assessee's income on ground that while calculating total income as per section 115JB, assessee had adopted rate of depreciation as per Income-tax Act instead of Companies Act in profit and loss account. The Andhra Pradesh High Court in the case of Deccan Tools Industries (P.) Ltd.[2014] 52 taxmann.com 55 (Andhra Pradesh) held that where for purpose of section 115J, assessee claimed depreciation at rates provided under Income-tax Rules, action of Assessing Officer in redrawing profit and loss account and adopting rates prescribed under Companies Act, was totally unauthorized.

6.1 In view of the various decisions cited above, we are of the considered view that in the instant facts, PCIT erred in facts and law in holding that the assessment order was erroneous and prejudicial to the interests of the revenue so far as ground number 3 of the assessee's appeal is concerned.

7. In the result, ground number 3 of the assessee's appeal is allowed.

Ground number 9: payments for job work not verified by AO at "fair market value" under section 40A(2)(b):

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.⁹ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 48,49,883/-, on account sales of

1,86,14,467/- and job work receipt of

9,22,254/- in respect of which the AO did not carry out the necessary verification of market value as per the provisions of section 40A(2)(b) of the Income Tax Act. In the 263 proceedings, the assessee submitted that the AO raised query vide letter dated 04-01-2013 (at serial number 14) and the said the said details were furnished by the assessee vide letter dated 12-12- 2012. Accordingly, the order passed by the AO is not erroneous and prejudicial to the interests of the revenue. The PCIT, however, dismissed the submissions of the assessee with the following observations:

"On verification of records, it is gathered that the AO, vide his letter dated 19-02-2012 at sr. no.14 and vide his letter dated 04.01 2013 at sr. no.(ii) has asked assessee to furnish complete name and address of the business concerns specified in sec. 40A(2)(b) of the IT Act with nature of payment along with copy of account and comparable evidence of outside parties. The assessee had submitted only the details of parties along with amount of payment and the ledger account of the respective parties as per sr. No. 13 of its reply by letter dated l2-2012. The assessee has not submitted any supporting document as comparable evidence of outside party to justify its payment to the by Sec. 40A(2)(b) of the IT Act. The assessee has not submitted any other details though asked for by the AO during the assessment proceeding. Accordingly the issue of payment made to related party verification of fair market value as per the provisions of Sec. 40A(2)(b) of the IT Act- was not examined by the AO at the time of assessment."

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.¹⁰ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 it's payment to the parties are covered within the provisions of section 40A(2)(b) of the Act. According to the assessee, the assessee cannot be required to prove that the payment is on arms-length basis and assessee cannot be asked to provide comparable cases to prove that the provisions of section 40A(2)(b) of the Act have been satisfied in the instant set of facts. Hence, the order passed by the AO after carrying out during verification cannot be held to be erroneous and prejudicial to the interests of the revenue. In response, ld. DR relied upon the observations made by the PCIT in 263 order.

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.¹¹ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 There is, however, one more reason for doing so. As evident from a plain reading of the assessment order, the Assessing Officer, had called upon the assessee to demonstrate that the payment made by the assessee to the specified persons is not unreasonable or excessive, and it is thus failure of the assessee which has resulted in disallowance under section 40A(2). However, proving a negative, as the assessee has been called upon to do in this case, is an impossible onus to perform. In any event, this onus is on the Assessing Officer and the Assessing Officer has failed to discharge the said onus. For this reason also, the disallowance is unsustainable in law. As regards the discrepancy in the figures of the tax audit report and the assessee, neither such a situation can be a reason enough to make a disallowance under section 40A(2) nor the onus of explaining such a variation is on the assessee. A tax auditor is an independent professional and any errors in his report cannot be put to assessee's disadvantage.

10.1 The Gujarat High Court in the case of Gujarat Gas Financial Services Ltd [2015] 60 taxmann.com 483 (Gujarat) held that where assessee company as well as assessee's parent company, both were assessed to tax at maximum marginal rate, it could not be said that service charge was paid by assessee-company to parent company at unreasonable rate with the object to evade tax. The Gujarat High Court held that since revenue could not point out that assessee evaded payment of tax, invocation of section 40A(2) was not valid. In the case of IKEA Trading (India) (P.) Ltd. [2021] 123 taxmann.com 129 (Delhi - Trib.), the Delhi ITAT held that as

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.¹² Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2 per section 40A(2)(b), onus had been cast upon Assessing Officer to bring on record comparable cases to demonstrate that transactions made by assessee with related parties were unreasonable and excessive. The Tribunal held that since Assessing Officer had not brought any comparable case to demonstrate that payments made by assessee were excessive/unreasonable and the fact that payees were also assessed to tax at same rate of tax, Commissioner (Appeals) had rightly deleted addition. In the case of COMMISSIONER OF INCOME-TAX v. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. 310 ITR 306 (Bombay)[2008], the Bombay High Court held that where revenue was not in a position to point out how assessee evaded payment of tax by alleged payment of higher commission to its sister concern, since sister concern was also paying tax at higher rate, disallowance of alleged excess commission paid to sister concern was not justified. In view of the above decisions, as applied to the assessee set of facts, Ld. PCIT in the 263 proceedings has held that the assessment order is erroneous and prejudicial for the reason that the assessee has not been able to bring on record comparable cases in order be able to substantiate that the payment is not unreasonable or excessive as per provisions of section 40A(2) (b) of the Act. In our considered view, such onus cannot be cast upon the assessee to prove that payment made is not excessive/unreasonable by bringing on record instances of comparable cases. As held by various Courts/Tribunals, the onus is on the revenue to record reasons why payment by the assessee is excessive/unreasonable so as to invoke provisions of section 40A(2)(b) of the Act. For the foregoing reasons,

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I.T.A No. 1057/Ahd/2015 A.Y. 2010-11 Page No.¹³ Kansara Popatlal Tribubhuvan Metal Pvt. Ltd. vs. Pr. CIT-2

11 . In the result, ground number 9 of the assessee's appeal is allowed.

12 Since the assessee has not pressed the other grounds of appeal, the matter is being restored to the file of AO to examine the other issues on which the order under section 263 of the Act was set aside for fresh/de-novo adjudication, after giving due opportunity of hearing to the assessee to present his case.

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