2020 (4) TMI 740 - AT - Income Tax

Tribunal rules in favor of assessee, dismissing Revenue's appeal on repair expenses & depreciation.

M/s. Gujarat Chemical Port Terminal Company Ltd. Versus The Commissioner of Income Tax, Vadodara. And The Deputy Commissioner of Income Tax, Circle-1 (1), Baroda Versus M/s. Gujarat Chemical Port Terminal Company Ltd. And (Vice-Versa) And M/s. Gujarat Chemical Port Terminal Company Ltd. Versus The Deputy Commissioner of Income Tax, Circle-1 (1) (1), Baroda.

The Tribunal allowed the assessee's appeal and cross objections, quashing the CIT's order under Section 263 and upholding the CIT(A)'s decisions on ... Revision u/s 263 - depreciation on being Foreign Exchange Fluctuation u/s 43A - HELD THAT:- As inferred from the revisional order u/s.263 is different from the reasons set-out in the show-cause notice and therefore, we are of the considered view that when a ground of revision is not mentioned in the show-cause, then it cannot be made the basis of the order for the reason that assessee would have had no opportunity to meet the point. Considering the judgements relied upon by the ld.AR, we find that the ground mentioned by the CIT, while passing the order u/s.263 with regard to claiming of depreciation on account of Foreign Exchange Fluctuation was not mentioned in the show-cause notice u/s.263(1) of the Income Tax Act. Therefore, the assessee could not get opportunity to explain the point recorded at the time of passing final order. We hold that the order of ld.CIT u/s.263 qua directing the ld.AO to pass a fresh order denovo on account of claim of depreciation on account of Foreign Exchange Fluctuation is bad in law and is thus not sustainable in Law. Therefore, that portion of the order is quashed, and this ground raised by the assessee is allowed. Disallowance on account of repairs to Plant & Machinery - HELD THAT:- It is not a proviso to proviso in other words. Learned Departmental Representative further fails to dispute that the question whether or not a port terminals Jetty / Trestle is to be treated as plant and machinery is no more res integra since this tribunal’s co-ordinate bench decision in Kandla Port Trust case [2006 (4) TMI 243 - ITAT RAJKOT] has held such assets to be plant and machinery entitled for 25% rate of depreciation. Hon'ble jurisdictional high court has upheld the said view in Revenue’s tax [2016 (8) TMI 111 - GUJARAT HIGH COURT]. We therefore find no reason to accept in Revenue’s arguments seeking to treat assessee’s Jetty & Trestle as building block of assets instead of plant and machinery in all cases on merits as well. Depreciation on electric installation - HELD THAT:- We find that the issue is squarely covered in M/s.Gujarat Chemical Port Terminal Co.Ltd., Vs. DCIT, Circle-1(1)(1) [2019 (12) TMI 1294 - ITAT SURAT] opinion that assessee is eligible for depreciation @ 15% instead of 10% allowed by the ld.AO. Issues Involved:1. Invocation of powers under Section 263 of the Income Tax Act.2. Direction to verify the claim of depreciation on Foreign Exchange Fluctuation.3. Treatment of repair and maintenance expenditure.4. Rate of depreciation on Jetty & Trestle.5. Disallowance of diminution in value of spares.6. Charging of interest under Section 234D.7. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Invocation of Powers under Section 263:The assessee contested the CIT's invocation of Section 263, arguing that the conditions for such jurisdiction were not met. The CIT had set aside the assessment under Section 143(3), directing the AO to frame a fresh assessment on issues already considered during the original proceedings. The Tribunal found that the CIT's directions on depreciation related to Foreign Exchange Fluctuation were beyond the scope of the show-cause notice issued under Section 263(1). Citing precedents, the Tribunal held that a revision order can only be passed on grounds mentioned in the show-cause notice, ensuring the assessee's right to a fair hearing. Consequently, the Tribunal quashed the CIT's order under Section 263 as it was deemed not sustainable in law.2. Verification of Depreciation on Foreign Exchange Fluctuation:The Tribunal examined whether the CIT's direction to the AO to verify the claim of depreciation on an amount of Rs. 3,85,00,000 due to Foreign Exchange Fluctuation was valid. The Tribunal noted that this issue was not part of the original show-cause notice, making the CIT's direction beyond the purview of Section 263. Thus, the Tribunal quashed this part of the CIT's order.3. Treatment of Repair and Maintenance Expenditure:The Revenue's appeal challenged the deletion of disallowance of Rs. 56,74,523 out of a total disallowance of Rs. 7,59,65,871 made by the AO, treating the expenditure as capital in nature. The Tribunal referred to its earlier decisions in the assessee's own case, where similar repair expenditures were allowed as revenue expenses. The Tribunal reiterated that such expenses were routine maintenance costs and did not result in any new asset or capacity expansion. Hence, the Tribunal upheld the CIT(A)'s decision to allow the expenditure as revenue in nature.4. Rate of Depreciation on Jetty & Trestle:The Revenue contended that the CIT(A) erred in allowing depreciation on Jetty & Trestle at 15% instead of 10%. The Tribunal referred to its earlier rulings and the jurisdictional High Court's decision, which classified Jetty & Trestle as plant and machinery, eligible for a higher depreciation rate. Therefore, the Tribunal upheld the CIT(A)'s decision to allow a 15% depreciation rate.5. Disallowance of Diminution in Value of Spares:The Revenue's appeal also contested the deletion of disallowance of diminution in value of spares amounting to Rs. 19,10,788. The Tribunal noted that the CIT(A) had followed the consistent accounting method adopted by the assessee and accepted by the department in earlier years. The Tribunal found no reason to deviate from this established practice and upheld the CIT(A)'s decision.6. Charging of Interest under Section 234D:The assessee's cross objection included a ground against the charging of interest under Section 234D. The Tribunal, however, did not provide a separate detailed analysis on this issue, indicating that it was not a primary point of contention in the appeal.7. Initiation of Penalty Proceedings under Section 271(1)(c):The assessee also contested the initiation of penalty proceedings under Section 271(1)(c). The Tribunal did not specifically address this issue in detail, implying that it was not a decisive factor in the overall judgment.Conclusion:The Tribunal allowed the assessee's appeal and cross objections, quashing the CIT's order under Section 263 and upholding the CIT(A)'s decisions on various grounds. The Revenue's appeal was dismissed, affirming the treatment of repair expenses as revenue in nature, the higher depreciation rate for Jetty & Trestle, and the allowance of diminution in value of spares. The Tribunal's judgment emphasized adherence to procedural fairness and consistency in tax assessments.