2020 (2) TMI 96 - HC - Income Tax

Court affirms Tribunal's decision on Income Tax, dismisses appeal against Revenue, grants Assessee additional depreciation.

The Commissioner of Income Tax-II Coimbatore. Versus M/s. Lakshmi Machine Works Ltd.

The Commissioner of Income Tax-II Coimbatore. Versus M/s. Lakshmi Machine Works Ltd. - [2020] 422 ITR 540 (Mad) Issues Involved:1. Validity of the Income Tax Appellate Tribunal's decision to quash the order under Section 263 of the Income Tax Act, 1961.2. Jurisdiction of the Commissioner of Income-tax regarding additional depreciation on Wind Mills.3. Entitlement of the assessee to additional depreciation on the purchase of Wind Mills under Section 32(1)(iia) of the Income-tax Act, 1961.Detailed Analysis:1. Validity of the Income Tax Appellate Tribunal's Decision to Quash the Order Under Section 263 of the Income Tax Act, 1961:The Revenue challenged the ITAT's decision to quash the order passed under Section 263 of the Income Tax Act, 1961. The court referred to the case of The Commissioner of Income Tax-II Vs. Lakshmi Machine Works Ltd., Coimbatore, where it was established that the provisions of Section 32(2) of the SICA and Section 72A of the Act were considered by the Supreme Court in Indian Shaving Products Ltd. The Supreme Court noted that the BIFR's sanction of a scheme of amalgamation implies that the requirements of Section 72A of the Income Tax Act have been met. The court concluded that the Assessing Officer's action, though prejudicial, was not erroneous since it followed the Supreme Court's dictum in Indian Shaving Products. Therefore, the jurisdiction exercised by the CIT under Section 263 was not justified. Consequently, Question No.1 was answered against the Revenue and in favor of the Assessee.2. Jurisdiction of the Commissioner of Income-tax Regarding Additional Depreciation on Wind Mills:The court examined whether the Commissioner of Income-tax had the jurisdiction to issue directions regarding additional depreciation on Wind Mills without a specific show cause notice. It was noted that the ITAT held the Commissioner lacked jurisdiction as the issue was not included in the show cause notice. The court affirmed this view, indicating that the direction given by the Commissioner was void due to lack of jurisdiction. This was consistent with the principle that jurisdictional defects cannot be cured by subsequent actions or replies from the assessee.3. Entitlement of the Assessee to Additional Depreciation on the Purchase of Wind Mills Under Section 32(1)(iia) of the Income-tax Act, 1961:The court addressed whether the assessee was entitled to additional depreciation on Wind Mills under Section 32(1)(iia) despite not being primarily engaged in producing or generating electricity. Referring to previous judgments, including Commissioner of Income Tax V. VTM Limited, the court clarified that the additional depreciation provision does not require the new machinery or plant to have operational connectivity to the existing business. The court emphasized that the requirement is merely the acquisition and installation of new machinery or plant after 31st March 2002 by an assessee engaged in manufacturing or production. Therefore, the assessee's entitlement to additional depreciation was upheld, and Questions No.2 and 3 were answered against the Revenue and in favor of the Assessee.Conclusion:The appeal filed by the Revenue was disposed of, with all questions answered against the Revenue and in favor of the Assessee. The court upheld the ITAT's decision to quash the order under Section 263, affirmed the lack of jurisdiction of the Commissioner regarding additional depreciation on Wind Mills, and confirmed the assessee's entitlement to additional depreciation under Section 32(1)(iia). The appeal was dismissed with no order as to costs.