In the case of Pr.CIT, New Delhi v. Delhi Airport Metro Express Pvt.Ltd. [ITA No. 705/2017, decided on 5-9-2017] the Commissioner opined that assessing officer allowed depreciation in excess of what was assessing officer to make fresh assessment. The Delhi High Court held that for the purpose of exercising jurisdiction under section 263 of the Act, the conclusioin that the order of the assessing officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. That basic exercise of determining as to what extent the depreciation was claimed in excess has not been undertaken by the Pr. CIT. He had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the assessing officer for a fresh assessment. That option, in the considered view of the Court, can be exercised only after the Pr. CIT undertakes an inquiry himself. The High Court held that revision was not justified.The learned author discusses the case in detail.
- Introduction
Subject to it’s Explanations, section 263(1) of the Income Tax Act,1961 (‘Act’) states that the principal Commissioner may call for and examine the record of any proceeding under the Act, ad if he considers that any order passed therein by the assessing officer is erroneous on so far as it is prejudicial to the interests of the revenue, he may after giving the assessee an opportunity of being heard and after such order thereon as the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.
More recently, in Pr. CIT, New Delhi v. Delhi Airport Metro Express pvt.Ltd. [ITA No. 705/2017, decided on 5-9-2017], the short question raised by the Revenue was whether the ITAT was justified in setting aside the order of the Principle Commissioner of Income Tax (‘Pr. CIT’) passed under section 263 of the Act in respect of assessment year 2011-12 setting aside the original assessment order dated 31-12-2013 passed by the Assessing Officer (‘AO’) under section 143(3) of the Act.
2. Facts of the case
The brief facts in the above –mentioned case were that the assessee being a concessionaire of the Airport Metro Express Project of the Delhi Metro Rail Corporation Ltd. (‘DMRC’) under a Build-Operate-Transfer (‘BOT’) Scheme, had accepted the concession for a period of 30 years During the assessment year in question, the assessee claimed depreciation of Rs.112,29,74,447, on fixed assets of Rs.15,60,48,17,189 50% of the eligible depreciation rates since, during the assessment year in question, the assets were used for less than 180 days. The assessing officer framed the assessment under section 143(3) of the Act allowing depreciation as claimed by the assessee.
The case of the revenue was that the assets were developed under the BOT scheme and the assessee was not eligible to claim depreciation as it was not the owner of the assets. The Revenue contended that the land for the project was handed over by the DMRC to the assessee as Concessionaire of the basic structure was also done by the DMRC.
The case of the assessee was that during the assessment year in question it had purchased and installed plant and machinery and such plant and machinery was legally owned by it. It was further contended that since such assets were used for the purpose assessee’s business,it was entitled to claim depreciation under section 32 of the Act.
The Pr. CIT, in exercise of powers under section 263 of the Act issued a show cause notice (SCN) dated 16-3-2015 to the assessee pointing out that if the value of these fixed assets were to be amortized evenly over a period of 30 years, the amount of to be amortized would only be Rs.52,01,60,572 for each year. Therefore, the depreciation allowed to the assessee was in excess by Rs. 60,28,13,875 and, to that extent, the order passed by the assessing officer was prejudicial to the interest of the Revenue. In reply to the SCN, the assessee took the stand that, interest of the Revenue. In reply to the SCN, the assessee took the stand that, during the assessment year in question, it “had purchased the assets from independent vendors, out of its own funds for settings up the project.
Thereafter, order dated 30-3-2016 was passed by the Pr. CIT.
3. Thus held the court
The learned Judges of the Delhi High Court observed that for the purpose of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the assessing officer is erroneous and prejudicial to the interests of the assessing officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimum inquiry. In fact, if the Pr. CIT was of the view that the AO did no undertake any inquiry, it became incumbent on the Pr. CIT to conduct such inquiry. All that Pr. CIT had done in the order was to refer to the Circular of the CBDT and conclude that “in the case of the assessee company, the assessing officer was duty-bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular No. 9/2014 but the assessing officer is erroneous insofar as prejudicial to the interest of revenue”. In the considered view of the Court,this can hardly constitute jurisdiction under section 263 of the Act. In the context of the present case depreciation on assets like land and building, it was incumbent upon the purchased and installed by the assessee out of its own funds during the assessment year in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of the determining as to what extent the depreciation was claimed in excess has not been undertaken by the Pr. CIT. He had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the assessing officer for a fresh assessment. That option, in the considered view of the Court, can be exercised only ofter the Pr. CIT undertakes an inquiry himself in the manner indicated hereinbefore. That was missing in the present case.
Finally, the Delhi High Court held, in respect of the appeal, that the ITAT was not in error in setting aside the order of the Pr. CIT under section 263 of the Act, no substantial question of law arose herein.
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