The Tax Publishers2012 TaxPub(DT) 1148 (Mum-Trib) : (2012) 049 SOT 0525

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial orderPossible view taken by AO--The assessee was in the business of manufacturing and trading of TV, AC, Washing Machine, etc. During the year under consideration, the assessee filed its return of income on 31-3-2006 claiming depreciation on plastic moulds manufactured by him in his factory @ 40% and the same was allowed by the assessing officer. The CIT found that the assessee is in the business of manufacturing TV, AC, Washing Machine, etc., and, therefore, he was of the view that the depreciation claim of the assessee @ 40% cannot be considered on the ground that the assessee is not in the business of rubber and plastics goods manufactured. The rate of 40% can be allowed only for moulds used in the plastic/rubber industry, the assessing officer ought to have been allowed depreciation @ 25% on the moulds, which were used in its business of manufacturing TV, AC, Washing Machine, etc., and the excess depreciation claimed by the assessee should have been disallowed. After considering the submissions of the assessee, the CIT was of the view that the assessee is in the business of manufacturing television, washing machine etc. and therefore, the same cannot be considered to be in the business of rubber and plastic goods manufacturing. The CIT had held that the assessee is not eligible for depreciation at the rate of 40% which is eligible only for moulds used in the plastic/rubber industry and the eligibility will only be at the rate of 25%. The CIT, therefore, held that the order of the assessing officer is erroneous and prejudicial to the interests of the revenue for the reason that the assessing officer had allowed depreciation @ 40% on plastic moulds in stead of 25%. With the above findings, the CIT set aside the order of the assessing officer and restored the matter to the file of the assessing officer with a direction to examine the issue in detail and decide the same afresh after due verification and after providing reasonable opportunity of hearing to the assessee. Held: Even though the assessee has not selling rubber and plastic goods to others, but, same were used by moulds in its factory, therefore, view taken by assessing officer was a possible view. Order passed by the CIT is, therefore, set aside.

From plain reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the ITO is 'erroneous in so far as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the CIT as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the CIT acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the CIT to exercise power of revision under this subsection, viz. (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. Court find that the expressions 'erroneous', 'erroneous assessment' and 'erroneous judgment' have been defined in Black's Law Dictionary. According to the definition, 'erroneous' means 'involving error; deviating from the law'. 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is defect (sic-defective) that is jurisdictional in its nature. Similarly, 'erroneous judgment' means 'one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles. [Para 7.1] An order cannot be termed as erroneous unless it is not in accordance with law. If an Income Tax Officer acting in accordance with law makes an assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the assessing officer should make thorough enquiry and order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. [Para 7.2] In the case under consideration, the assessee is in the business of manufacturing television, washing machine etc. and claimed depreciation on the moulds used for the purpose of manufacturing rubber and plastic goods. It is an admitted fact that the assessee is manufacturing rubber and plastic goods in its factory for the purpose of its business in manufacturing television, washing machine, etc. It is also an admitted fact that the assessee is not in the business of rubber and plastic goods, but, the assessee used the moulds for the purpose of manufacturing rubber and plastic goods in its factory. [Para 7.3 Though the assessee was in the business of manufacturing TV, Washing Machine, etc. he manufactured plastic and rubber goods in connection with its business for the purpose of using the same in manufacturing TV, Washing machine, etc. Even though the assessee was not selling the rubber and plastic goods to others, but, the same were used by moulds in its factory, therefore, the view taken by the assessing officer is a possible view. [Para 7.5]

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT

TaxPublishers.in

'Kedarnath', 7, Avadh Vihar, Near Nirali Dhani,

Chopasni Road

Jodhpur - 342 008 (Rajasthan) INDIA

Phones : 9785602619 (11 am - 5 pm)

E-Mail : mail@taxpublishers.in / mail.taxpublishers@gmail.com