2016 (5) TMI 1181 - AT - Income Tax

Tribunal orders reassessment of wind turbine depreciation, sales, profits, and interest under Section 220(2).

The Tribunal allowed the appeal of the assessee, directing the AO to recompute depreciation on six WTGs, adjust sales and profit figures for 53 WTGs, and ... Sales turnover computation - Held that:- the decision of the Tribunal is binding on the Assessing Officer and he cannot pick up a word or sentence from the order of the Tribunal de hors the context of the question under consideration and construe it to be complete law declared by the Tribunal. A judgment must be read as a whole. Being so, the Assessing Officer cannot sit in judgment over the order of the Tribunal, and he is required to give just effect to the order of the Tribunal. If he has any grievance, he is at liberty to appeal against that order of the Tribunal before higher forum. We direct the AO to strictly consider that the assessee has only manufactured 156 WTGs and inter divisional transfer cannot be treated as sales and the same has to be reduced from the total sales and he has to arrive the cost of 1 WTG by dividing the total cost of manufacture by 156 WTGs and correspondingly recompute the sale turnover and grant depreciation on 6 WTGs at applicable rate which were inter-divisional transfers Levy of interest u/s.220(2) - Held that:- The period specified under section 220(1) has to be taken into consideration from the date of passing of the fresh assessment order and not the earlier assessment order, which has been set aside. Accordingly, this issue is decided in favour of the assessee. Issues Involved:1. Determination and quantification of depreciation on six wind turbine generators (WTGs).2. Determination of profit assessable to tax relating to the transfer/sale of 53 WTGs.3. Levy of interest under Section 220(2) of the Income Tax Act.4. Adherence to the directions contained in appellate orders and procedural fairness.Detailed Analysis:1. Determination and Quantification of Depreciation on Six WTGs:The assessee originally claimed to have manufactured 209 WTGs, out of which 159 were sold to outsiders and 50 were transferred to the assessee’s own division. However, the AO found that only 156 WTGs were produced, with 150 sold to outsiders and 6 installed internally. The AO computed the cost of each WTG at Rs. 52.39 lakhs by dividing the total manufacturing cost of Rs. 109,46,41,000 by 209 WTGs, which was disputed by the assessee. The Tribunal had previously directed that inter-divisional transfers do not result in sales and the corresponding cost should be reduced. The Tribunal reiterated that the manufacturing cost should be apportioned among 156 WTGs only, and the sales value of 53 WTGs should be reduced from total sales. The AO was directed to recompute the depreciation on the 6 WTGs based on the correct cost allocation.2. Determination of Profit Assessable to Tax Relating to the Transfer/Sale of 53 WTGs:The AO had reduced the profit element of 53 WTGs from the taxable income, which was contested by the assessee. The Tribunal noted that the AO should have reduced the sales value of 53 WTGs from total sales, not just the profit element. The Tribunal emphasized that the inter-divisional transfers should not be treated as sales, and the corresponding manufacturing expenses should be adjusted accordingly. The AO was instructed to recompute the profit by excluding the inter-divisional sales and correctly apportioning the manufacturing cost.3. Levy of Interest Under Section 220(2) of the Income Tax Act:The assessee argued that the interest should be reckoned from the date of the fresh assessment order (28.12.2010) rather than the original assessment order (27.3.1997). The Tribunal referred to CBDT Circular No.334 dated 3rd April 1982, which states that interest under Section 220(2) can only be charged after the expiry of 35 days from the date of service of the demand notice pursuant to the fresh assessment order. The Tribunal also cited various judgments supporting this view, including CIT v. Samurai Software (P) Ltd. and CIT v. Rajesh Kumar Dinesh Kumar. The Tribunal concluded that interest should be charged from the date of the fresh assessment order, and the AO was directed to recompute the interest accordingly.4. Adherence to Directions Contained in Appellate Orders and Procedural Fairness:The Tribunal emphasized that the AO and CIT(A) are bound to follow the directions of the Tribunal and cannot interpret the orders in a manner that deviates from the Tribunal’s findings. The Tribunal noted that the lower authorities had not properly understood or implemented the Tribunal’s directions regarding the computation of depreciation and profit. The Tribunal reiterated the importance of judicial discipline and adherence to the hierarchy of courts, stressing that lower authorities must comply with the orders of higher judicial forums.Conclusion:The Tribunal allowed the appeal of the assessee, directing the AO to recompute the depreciation on the six WTGs, adjust the sales and profit figures for the 53 WTGs, and levy interest under Section 220(2) from the date of the fresh assessment order. The Tribunal underscored the necessity for lower authorities to follow the directions of higher judicial bodies and ensure procedural fairness.