2012 (10) TMI 281 - AT - Income Tax

Tribunal rules in favor of assessee, quashing erroneous Commissioner's order under Section 263

The Tribunal found that the Assessing Officer's order was not erroneous or prejudicial to the Revenue's interest. It concluded that the Commissioner of ... Validity of reassessment proceedings u/s 263 - reassessed on ground that assessee had not included the unutilized CENVAT credit while valuing the closing stock of raw materials and WIP - refund of excise duty not included while computing the total income - wrong claim of “additional depreciation on windmills - AY 2007-08 - Held that:- A bare reading of S263 makes it clear that to justify exercise of jurisdiction by CIT, the order of the A.O. is to be erroneous in so far as it is prejudicial to the interest of the Revenue. In present case, assessee submitted the method of accounting employed consistently followed by it for accounting of Excise duty and CENVAT, and exclusive method of accounting for sales, purchase and closing stock and by following either of the method there is no impact on P/L A/c. The assessee also submitted that the depreciation has been allowed to the assessee before examining the relevant details. The A.O. in the instant case had examined the issue of stock valuation and depreciation on windmills and we are satisfied that the A.O. had made necessary inquiries and the assessee had provided an explanation in that regard. Thus, it can be said the A.O. on being satisfied did not make any addition and dis-allowance. Therefore, we are of the view that the stand taken by the A.O. was not an unsustainable in law so as to render the order as prejudicial to the interest of Revenue. Therefore the order of the A.O. cannot be considered either to be erroneous or prejudicial to the interest of the Revenue. Order of CIT quashed - Decided in favor of assessee Issues Involved:1. Non-inclusion of unutilized CENVAT credit while valuing the closing stock.2. Non-inclusion of refund of excise duty in the computation of income.3. Wrongful claim of additional depreciation on windmills.Detailed Analysis:Issue 1: Non-inclusion of Unutilized CENVAT CreditThe Commissioner of Income Tax (CIT) issued a show cause notice to the assessee for not including the unutilized CENVAT credit of Rs. 2,72,67,432/- in the valuation of closing stock. The assessee argued that it consistently follows the exclusive method of accounting for purchases, sales, and inventory valuation, which is tax neutral. The assessee provided annexures from the tax audit report certified by a Chartered Accountant to support this claim. The CIT, however, found this explanation unconvincing, stating that the Assessing Officer (A.O.) failed to examine this issue, making the order erroneous and prejudicial to the interest of the Revenue.Issue 2: Non-inclusion of Refund of Excise DutyThe CIT also noted that the refund of excise duty amounting to Rs. 23,68,72,826/- was not included in the computation of total income. The assessee contended that it follows an exclusive method of accounting for sales and material costs, showing sales net of excise duty and material purchases net of duty paid. This method was consistently followed and accepted by the Revenue in the past. The assessee argued that the A.O. had verified the tax audit report, including the annexure, and made no addition based on the explanations provided. The CIT disagreed, stating the A.O. did not examine this issue, rendering the order erroneous and prejudicial.Issue 3: Wrongful Claim of Additional Depreciation on WindmillsThe CIT pointed out that the assessee had claimed additional depreciation of Rs. 1,34,73,161/- on windmills, which was allegedly not entitled. The assessee submitted details of the commencement of windmill operations and power generation to the A.O., who made no addition on this account after being satisfied with the submissions. The CIT, however, found that the A.O. did not properly examine this issue, making the order erroneous and prejudicial to the interest of the Revenue.Tribunal's Findings:The Tribunal examined whether the CIT was justified in invoking Section 263 of the I.T. Act, 1961. It noted that for Section 263 to apply, the order must be erroneous and prejudicial to the interest of the Revenue. The Tribunal observed that the A.O. had made necessary inquiries and the assessee had provided detailed explanations and supporting documents. The Tribunal cited various judicial precedents, including Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Gabriel India Ltd., which state that an order cannot be considered erroneous if the A.O. has adopted one of the permissible courses in law or if two views are possible and the A.O. has taken one view.The Tribunal found that the A.O. had examined the issues of stock valuation and depreciation on windmills, and the assessee had demonstrated that the accounting methods used did not impact the profit. The Tribunal also referred to decisions by coordinate benches supporting the assessee's method of accounting and depreciation claims.Conclusion:The Tribunal concluded that the A.O.'s order was not erroneous or prejudicial to the interest of the Revenue. It held that the CIT's invocation of Section 263 was not justified and quashed the CIT's order. The assessee's appeal was allowed, and the Tribunal reversed the CIT's directions, stating that the proposed revision would be a futile exercise.Result:The assessee's appeal is allowed, and the CIT's order is quashed.