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2016 (11) TMI 1057
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....January 2011 passed by the DCIT-8(1), Mumbai ("The AO") was erroneous and prejudicial to the interest of the Revenue. ii) The computation by the AO of the Capital Gains computed under Section 50B of the Act was erroneous. iii) The net worth had to be reduced by depreciation of Rs. 19,968,604 while computing capital gains under Section 50B of t he Act. iv) The Appellant's case was identical to the case of Warner Lambert India Pvt. Ltd. ("The said decision"). v) The AO had erred in not applying the said decision to the Appellant's case. 3. The CIT failed to appreciate that the said decision was, with respect, erroneous and, in any event, was distinguishable from the Appellant's case. 4. The CIT erred in his interpretation inter alia of Section 50B and Section 436) of the Act. 5. The CIT erred in directing the AO to compute the total income of the Software Technology Park Unit by reducing depreciation of Rs. 19,968,604 both for the purpose of deduction under Section 10A of the Act as well as for t he purpose of computing Capital Gains in terms of Section 50B of the Act. 6. The CIT's direction regarding reduction under Section 10A of the ....
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.... "On perusal of assessment records it is seen that return of income for A.Y. 2007-08 was filed by you on 30.10.2007 declaring total income of Rs. 14,09,29,030/- after claiming deduction u/s 10A of the Act of Rs. 4,09,14,952/-. It is further seen from the record that you have sold your STPI unit on slump sale basis to M/s Dun 7 Bradstreet Predictive Sciences & Analytics Pvt. Ltd. for a consideration of Rs. 14,15,00,000/- and Short term capital gain u/s 50b amounting to Rs. 1,70,56,696/- on the same has been offered in the return of income. However, while computing Short Term Capital Gains an amount of Rs. 12,36,81,923/- has been reduced from the sale consideration in view of provision of section 50B r.w.s. 43(6)(c)(C)(i) and section 32 of the Act. The AO while computing the assessment has accepted the computation of Short term capital gain u/s 50B without reducing the net worth by the current year's depreciation. As per Explanation 1 to section 50B, the net worth of the assessee is the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in the books of accounts. further in Explanation 2....
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....nd before the undersigned on 28th February, 2012 at 11.30 AM either in person or by a representative duly authorized in writing in this behalf. If you do not wish to avail of this opportunity off being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order u/s 263 of the Act is passed." 4. After receiving show cause notice assessee filed detail reply which is reproduced below. "(1) (a) The powers conferred on the CIT under Section 263 of the Act can be exercised in a case here the following two circumstances are jointly fulfilled: 1) Order is erroneous; And 2) Order is prejudicial to revenue The Apex Court in the case of Malabar Industrial co. Ltd. vs. Commissioner Of Income Tax (2000) 243 ITR 83 (SC) has opined as under; The phrase prejudicial to the interests of the Revenue has to be read in conjuction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the revenue. A similar view was also taken in case of Vijay Kumar Megotia Vs. commissioner of Income Tax (201....
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....DV of the block on which deprecation for the previous year should be calculated. (i) Increase the block by actual cost of assets falling within that block, acquired during the relevant current previous year; (item A) (ii) Reduce the block by monies receivable towards sale of any assets falling within that block during the relevant current previous year: (item B) and (iii) In the case of slump sale reduce the figure arrived at by decreasing from the actual cost of that asset, depreciation that would have been allowable assuming that the asset was the only asset in the relevant block of assets. (item C) (iv) It is further provided that reduction cannot exceed the WDV of the block as at the beginning of the previous year. (f) The above adjustments are required to be made to the opening WDV of the block and hence the WDV as referred for the purpose of reduction is the opening WDV of the relevant block and not the WDV of the block after considering the depreciation for the relevant year. All the above adjustments are prior to determination of WDV on which depreciation has to be allowed. This point is not specifically considered in case of DIT vs. W....
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....ce, the claim of depreciation for more or less than 180 days shall apply only to the assets acquired during the year and not to those assets which are sold during the year. In other words, the claim of depreciation is an annual exercise and as on 31 March if it is found that the person is not the owner and user of the assessee then depreciation cannot be granted to him. This aspect is not discussed in case of DIT vs. Warner Lambert India Private Limited 58 DTR 121 (Mum). With the above arguments, the assessee objected to the recomputation of capital gains u/s 50B as proposed in the notice u/s 263 of the Act." 5. The learned CIT however, rejected the submission of the assessee by holding the assessment order in question to be erroneous and prejudicial to the interests of the Revenue and directed the AO to compute the total income of the STP Unit by reducing depreciation both for the purpose of deduction u/s 10A as wells for the purpose of computing capital gains u/s 50B of the Act. Being aggrieved, the assessee is now in appeal before us on the aforementioned grounds. 6. Before us, the learned AR submitted that in the present case, the AO made reasonable enquiries on the is....
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....mply because Commissioner does not agree with his conclusion - Held, no - Whether ITO's order could be held to be 'erroneous' simply because in his order he did not make an elaborate discussion - Held, no - Whether provisions of section 263 were applicable to instant case and Commissioner was justified in setting aside assessment order - Held, no." From perusal of the aforesaid judgment it becomes clear that it is well settled position of law that when an assessee has already submitted a detailed explanation and the claim of the assessee has been allowed by the AO on being satisfied with the explanation of the assessee, then, such a decision of the AO cannot be held to be erroneous and prejudicial to the interests of the Revenue unless it is found to be legally and factually unsustainable. 9. We have also noticed that the AO while passing the assessment order has made specific queries on account of adjustment of computing arm's length price which is mentioned in para no. 4 of the assessment order which is reproduced below: "4. Adjustment on account of computation of Arm's length Price 4.1 As the assessee company had transactions with the Associated Enterprises exceeding....
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....it fees of Rs. 13,00,000/- was not apportioned to STP unit. This is due to the fact that the STP unit is not a separate entity and it is part of DBIS only and therefore these expenses were not apportioned to STP unit. Further in case of Director's remuneration, the expenses were allocated to non-STP unit and STP unit on actual basis. There were two directors out of which expense relating to one director was allocated to non-STP unit and expenses related to other director was allocated to STP unit on actual basis." The explanation offered by the assessee is considered. The contention of the assessee is not acceptable. The expenses like Auditors remuneration are common overhead expenses, which cannot be apportioned only against one unit. The remuneration to auditors are not paid for a particular unit. The Auditor is required to audit the entire accounts of the company as a whole and as such these expenses are also required to be apportioned against each unit. Accordingly, the following expense are apportioned against the 10A Unit. The expenses apportioned are worked out as under: Expenses Total amount 10A Unit (24.90%) Non 10A Unit (75.10%) Audit fees 13,00,00....
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.... computation of capital gains and depreciation, the AO has conducted enquiries and the assessee had also submitted the detailed explanations and evidently the claim was allowed by the AO on being satisfied with the explanations of the assessee. Therefore, the learned CIT in the present case has wrongly assumed jurisdiction u/s 263 of the Act on all the issues raised by the assessee. It is also a settled law that when two views are possible and Assessing Officer takes one view then order cannot be regarded as erroneous? In this respect we draw support from the case titled "Commissioner of Income Tax vs. Design & Automation Engineers" (Bombay)(P) Ltd (2010) 323 ITR 632 (Bom)wherein Bombay High Court concluded the following: "We have considered the arguments advanced by the Advocates appearing for the Revenue as well as Assessee. In the instant case as recorded earlier, the ITO had by his order dated 30th October, 1996 sought details/explanation from the assessee which the assessee had given by his letter dated 5th November, 1996. It is evident from the order of the Assessing Officer that he has considered aIl detailed particulars filed before him and after discussion allowed the d....