TaxTMI 
TaxTMI 
2011 (3) TMI 1754
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....21.34 crores in the gross receipt without appreciating that these amounts represented gross value of assets which were withdrawn from the assets schedule and do not represent the actual realization of scrap value which was realized during the year was Rs. 5.6 crores only which included misc. receipt and taken into account to arrive at gross receipt; (2) the CIT erred in not considering the utilization of depreciation reserve at Rs. 21.43 crores adopted by the assessee without appreciating the fact that Rs. 34.92 crores represented loan repayment during the year and, hence, the amount withdrawn from depreciation reserve remains at Rs. 21.34 crores; & (3) the CIT erred in not allowing the deprecation claim on motor buses at 40%. II. ITA NO: 735/10 - AY 2006-07: 3. Likewise, for this AY too, the assessee had raised nine grounds, out of which, ground Nos.1, 8 and 9 being general, they do not survive for adjudication. The remaining grounds are reproduced, in a concise manner, as under: (1) the CIT erred in including Rs. 60.4 crores in the gross receipt without appreciating that these amounts represented gross value of assets which were withdrawn from the....
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.... dated: 26.3.2010, had arrived at a conclusion that the assessment orders passed u/s 143(3) of the Act were erroneous and prejudicial to the interest of revenue. 6.2. The reasons set-out by the CIT for the issuance of notice u/s 263 of the Act are summarized as under: A.Y 2005-06: (i) At para 19 of the Notes to the Balance Sheet and P & L a/c, it was stated that the actual utilization of depreciation reserve during the year 2004-05 towards capital loans as per the finalized accounts was Rs. 34.92 crores, whereas the AO had taken the same at Rs. 21.43 crores from Schedule VI of the said report. The addition to gross receipt on account of actual utilization of depreciation reserve was to be considered at Rs. 34.92 crores instead of Rs. 21.43 crores and, thus, gross receipts being understated by Rs. 13.57 crores; (ii) in the depreciation statement, it was noticed that the assessee had received Rs. 21.34 crores towards sale of scrap which was not included in the assessment order while working out the quantum of gross receipt; (iii) the assessee had claimed depreciation on motor buses at 40% which has been allowed by the AO. However, the assessee's natur....
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.... No doubt, at col.11 (pg.13 of the audit report) of the accounting policies, it is mentioned that income from sale of scrap is derived only when the material/scraped buses are lifted by the bidders, but this policy in my considered view, is clearly in contravention to the provisions of law u/s 145A of the Act w.e.f. 1.4.1999 which prohibits adoption of hybrid/mixed system of accounting. Be that as it may, the fact remains that the auditors in the depreciation schedule annexed as annexure-I (forming part of the report u/s 44AB) have clearly certified that scrap sold was to the tune of Rs. 21,58,61,170 and not Rs. 5.60 crores as now contended and, hence, admittedly since the assessee is following the mercantile system of accounting, the impugned amount of Rs. 21,58,61,170, in my considered opinion, on the basis of the facts available on record, was required to be considered for the purpose of quantifying the gross receipt and non-consideration of the same for the purpose of quantifying the same has thus resulted in the assessment order so passed being erroneous and prejudicial to the interest of revenue. (iii) Claim of higher rate of depreciation: "(on page 8).......
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....to the contrary. Though the said judgment was delivered in the context of double deduction claimed by the assessee both u/s 35 and s.32 of the Income-tax Act, 1961 which has been held to be untenable by the Hon'ble Court, yet the Court has clearly observed herein that there is a basic legislative scheme unspoken but clearly underlying the Act that two allowances cannot be and are not intended to be granted in respect of the same asset or expenditure. In the instant case, the assessee was allowed 100% deduction in respect of investment on vehicles as application of funds and, hence, the claim of depreciation allowance on the same in respect of the very same asset for being considered towards application of funds for working out the surplus, in my opinion, tantamount to a double deduction keeping in view the ratio of the judgment of the Hon'ble Apex Court in the case referred to earlier. The fact of the matter is that the cost of the assets were allowed to be deduced 100% as application against the surplus of the appellant in the earlier year and also in the relevant year. This being so, there is no cost available for allowance of depreciation and this is what the Hon'ble Apex Court ....
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....ra 6 of the Notes to the Balance Sheet and P & L account, the assessee had received grants from CRF and MLA to the tune of Rs. 1.64 crores out of which Rs. 1.03 crores was utilized and the balance of Rs. 61 lakhs was required to be added to the gross receipt; & (v) exemption u/s 11(1)(a) of the Act at 15% of the gross receipts instead of net figure was allowed. 6.5. Brushing aside the assessee's rebuttal and its explanation as recorded in his impugned order under dispute, the Ld. CIT had reasoned thus - (i) Actual utilization of depreciation reserve: "(On Page 5).............Hence, para No.23 of the 'Notes to Accounts' read with the relevant resolutions extracted above thus leads to the inevitable conclusion that the actual utilization of depreciation reserve during the relevant accounting year toward repayment of capital loan was to the tune of Rs. 38.49 crores and not Rs. 9.35 crores as adopted by the AO for the purpose of quantifying the gross receipt, thus resulting in the gross receipt being prima facie under-adopted to the tune of Rs. 13.57 crores approximately and, therefore, resulting in the assessment order so passed being erroneous and prejudicial.....
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.... the amount of Rs. 60.4 crores on the basis of the facts available on record, was required to be considered for the purpose of quantifying the gross receipt and nonconsideration of the same for the purpose of quantifying the same has thus resulted in the assessment order so passed being erroneous and prejudicial. The AO, however, in the assessment order had made addition of Rs. 60.4 crores to the gross receipt towards sale of assets which was accepted by the assessee and the same was not appealed to. If the amount added by the AO was akin to the amount of Rs. 60.4 crores as being towards sale of scraps as discussed earlier, the assessment order so passed in respect of this issue not being erroneous and prejudicial. However, the AO shall verify the same and act in accordance with law. (iii) Double deduction on account of allowance of claim of depreciation on vehicles: (On page 9)I have carefully considered the submissions put forth as above. With profound respect to the judgment of the Hon'ble jurisdictional High Court and the other decisions cited, in my considered opinion, the ratio of the decision of the Hon'ble Apex Court in the case referred to above is squ....
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.... corroborate that the amount had been included in the Misc. receipt, more so when the break up of misc. receipt annexed to written submission, the amount does not stand reflected and, thus, the non-utilization of Rs. 61 lakhs out of the said grant was required to be considered by the AO for quantifying the gross receipt; & (v) Exemption u/s 11(1)(a) @ 15% on gross receipt instead of net amount: The 'income' contemplated u/s 11 is the real income and not the income as assessed or assessable. If the accounts of the fund are properly maintained according to the principles of accountancy, the accumulation shall be up-to the specified percent (specified in the Statue) of the net income as per accounts. This was the ratio of the judgments in the cases of - (i) CIT v. Estate of Shri V.L.Ethiraj 136 ITR 12 (Mad) (ii) CIT v. Nizam's supplemental Religious Endowment Trust 127 ITR 378 (AP) (iii) CIT v. Rao Bahadur Calavale Cunman Chetty Charities 135 ITR 485 (Mad) (iv) CIT v. Ganga Charity Trust Fund 162 ITR 612 (Guj) The ratio of the judgments was to the effect that income for the purpose of s.11 does not refer to 'total income' as def....
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.... evident from the accounts. - that the assumption of the CIT was that the loans were repaid to the extent of Rs. 34.92 crores out of depreciation reserve; that Item No.19 of the Director's report at page 15 of the annual statements could have induced the CIT to presume that loans were repaid out of depreciation reserve. The director's report says - '19. The actual utilization of depreciation reserves during the year 2004-05 towards capital loans as per finalized accounts is to Rs. 34.92 crores.' - that the AO had rightly added Rs. 21.34 crores in the assessment, that the said amount was adjusted against the assets written off which had been more fully declared in schedule V and, thus, there was no error in the order of the AO; - without prejudice, reversal from depreciation reserve itself was not be considered for gross total income since it was not the income earned in the relevant year which was required to be applied. In the circumstances, even Rs. 21.34 crores added by the AO was not required to be assessed; - as regard repayment of loan, the same was shown in Schedule VII which was to the extent of Rs. 39.92 crores, out of which, Rs....
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....onsist of, inter alia, copies of followings: (i) correspondence with the first appellate authority; (ii) revised statements of computation for the AYs under dispute etc., 7.2. On the other hand, the Ld. D R had justified the stand taken by the Ld. CIT in invoking the provisions of s. 263 of the Act as the assessments concluded by the AO for the AYs under challenge were erroneous and prejudicial to the interest of the Revenue and, thus, he was within his realm for the detailed reasons set-out in his proceedings u/s 263 of the Act. The Ld. D R was vehement in his urge that the assessee should have no grievance to agitate the reasonableness of the CIT and, therefore, fervently pleaded that the orders of the Ld. CIT require to be sustained. 8. We have duly taken note of the submissions of the either side and also diligent in perusing the relevant records and the documentary evidence adduced by the Ld. AR during the hearing proceedings. 9. We venture to adjudicate the issues raised by the assessee in a chronological order as under: A.Y. 2005-06: Grounds (1) & (2) - Addition of Rs. 2.34 crores 10. It appears that both the ld. AO and ld. CIT have not un....
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....p; xxx To Depreciation Reserve A/C Cr. xxx (being the entry passed for providing depreciation as per the rates formulated by the assessee. The depreciation is charged to P&L A/C as per Schedule V (page 26 & 30) while as depreciation reserve a....
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....nbsp; xx To P&L A/C &....
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....very clear that the above findings have been arrived at on the basis of an over all review of the annual reports as well as audit reports placed before us and not by verification of the entries made in the books of the accounts of the assessee. Therefore, the Ld. AO should not be influenced by our above observations without proper examination of the books of account. 15. No doubt the appeal of the assessee before us is arising out of the order of ld. CIT passed u/s. 263 of the Act, thus technically it may appear that striking down the order of ld. CIT may suffice in the present circumstances, however, since the Tribunal being the highest fact finding authority cannot close its eyes on an erroneous order of the LD.AO before it for consideration and commit the grave blunder of perpetuating the mistake apparent on record on technical reasons. The intention of the Act is to collect the correct amount of tax from the assessee as per law and not to enrich the exchequer due to the ignorance of the assessee or mistake of the Revenue. Ground No.3 - Allowability of depreciation on motor buses: 16. (i) The assessee has been trying to take sanctuary in Board's Circular No.609 dated 29....
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....he vehicles owned by someone else for plying. The mode of payment and as to whether a person makes payment or otherwise would not be a situation of relevance in the context of consideration of the position of the assessee. The question would be the manner in which vehicles are plied. The situation of relevance would be as to whether the vehicles are running on hire or not. If there is no dispute that the vehicles are run for hire in any capacity, whether as a passenger service or as a tourist service or as a taxi service, the relevant situation is the manner in which the vehicles are run which belonged to the assessee in regard to which there is a claim for depreciation. Undisputedly, the assessee is a partnership firm engaged in transport activity. The transport activity is as regards plying of transport buses carrying passengers on different routes determined by the transport authorities. The passengers who travel in such buses travel on hire. This would obviously mean that the buses in regard to which depreciation is claimed would have to be understood in the necessary context of the situation with regard to the claim for depreciation that the buses are running on hire.....
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....ntifying the gross receipt and non-consideration of the same has resulted in the assessment order so passed being erroneous and prejudicial to the interest of revenue." 20. It was submitted before us that the grants received from CRF and MLA amounting to Rs. 1.64 crores has been taken into account as miscellaneous receipts of the corporation and was included for arriving at the gross receipts. At the time of hearing, no material evidence was brought before us to substantiate the claim of the appellant. However, in the interest of justice, we remit this issue to file of the AO to ascertain the facts from the books of accounts maintained by the assessee and decide the issue afresh on merits. Ground 5 - Allowance of exemption at 15% u/s 11(1)(a) of the Act: 21. (i) At the outset, we would like to point out that in an identical issue, the Hon'ble Bench in its finding in ITA No: 589/Bang/2009 dated: 12.4.2010 in the case of ITO v. The Secretary, A.P.M.C., Haveri had observed that - "11. We have heard the rival submissions and perused the materials on record. The assessing officer's computation of income available for accumulation u/s 11(1)(a) is correct and is in accor....