Mobile phone cannot be fixed to a particular place hence Depreciation allowable
Fact and Issue of the case
Briefly stated, the assessee, M/s. Rangbahar is a firm comprising three partners, namely Mr. S.D. Upadhye, Mr. Y.S. Upadhye and Mrs. S.S. Upadhye, all family members. Mr. S.D. Updahye is an Astrologer and a literary figure in Marathi and his wife Mrs. Sandhya Upadhye and son, who is a computer engineer and has expert knowledge of computer operations, are the partners of the firm. The firm came into existence from 01.04.1979 to undertake presentation of stage plays and cultural programmes in Marathi. In view of the expertise in astrology and its scientific study of Zodiac Signs, Shri Upadhye being a professional writer in astrology wrote a play and was performing all over Maharashtra and in the last 12 years more than 2000 stages shows were performed. During the year under consideration 178 stage shows were performed which involved a gross revenue of Rs.40.94 lakhs. The assessee filed return of income and the same was accompanied by audit report in Form 3CB and 3CD declaring a total income of Rs.8,34,100/-. The case was selected for scrutiny and after obtaining various information and clarifications the A.O. determined the taxable income at Rs.9,15,170/- inter alia disallowing various expenses. The CIT, on examination of the record, had issued show cause notice invoking provisions of section 263 with reference to claim of depreciation on 2 flats being used by the assessee firm for business purposes, one at Andheri, Mumbai and other at Pune. In the show cause notice the reasons given were that the assessee neither disclosed nor assessed the house property income from the above 2 properties and the assessee has not furnished any documentary evidence for use of the flats for business purpose and there was wrong allowance of depreciation on the above 2 flats located in the residential areas.
The assessee made elaborate arguments including the proof about the background of partners, firm and activities, highlights of ‘Rashichakra’ programmes, stage shows and submissions for requirement of office premises and replies on various issues raised. During the course of proceedings, in addition to the issue of the above 2 flats, the CIT also asked for various evidences on expenditure details and ultimately he concluded that the order of the A.O. was erroneous and prejudicial to the interest of Revenue. Vide paras 10 & 11 of the order he came to the conclusion that the main activity of the firm was conducting stage shows for which the above 2 flats were never used and thus the flats are not used for the purpose of business, hence claim of depreciation was wrong. In addition to the above issue the CIT also examined the remunerations paid and the expenditure claimed and was of the opinion that the expenditure was not fully allowable, accordingly the order was erroneous. The CIT also examined the advertisement expenses and vide para 16 he had come to the conclusion that the assessee could not substantiate the expenses wholly and exclusively for business and personal element cannot be ruled out and therefore the expenditure of Rs.4,18,335/- on account of hotel, diesel & petrol, toll charges and other miscellaneous charges are not allowable. Vide para 18 of the order the CIT was also of the opinion that the assessee has not provided the place of installation of assets as per the claim of depreciation chart and accordingly depreciation on account of furniture, air conditioners, mobile phone, telephone, slide projector and computer was not allowable. Considering the above issues he has come to the conclusion that the assessment order is thus erroneous in so far as it is prejudicial to the interest of Revenue.
Observation of the Tribunal
The Tribunal has considered the issue and perused the record and various case laws on this issue. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy v. ITO (2006) 101 TTJ (Mum.) 1095, analysed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. V. CIT (2000) 243 ITR 83 as well as Hon’ble Bombay High Court rendered in the case of CIT v. Gabriel India Ltd. (1993) 203 ITR 108 and has pronounced the following broader principles to judge the action of CIT taken under section 263: –
“The fundamental principle which emerge from the above case may be summarised below.”
i. The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. Both the conditions must be fulfilled.
ii. Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted.
iii. An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
iv. If the order is passed without application of mind, such order will fall under the category of erroneous order.
v. Every loss of revenue cannot be treated as prejudicial to the interests of the revenue and if the Assessing Officer has adopted one of the course permissible under law or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law.
vi. If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under section 263 is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.
vii. The Assessing Officer exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion.
viii. The CIT, before exercising his jurisdiction under section 263 must have material on record to arrive at a satisfaction.
ix. If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.”
In the light of the above we examined the facts of the present case. As seen from the show cause notice issued by the A.O. the A.O. indeed asked for details of the claim of expenditure including the usage of property and the rent paid for godown hired by the assessee. The assessee has given detailed explanations how flat No. 206 was purchased by the assessee firm, source of funds and the enquiry made by the A.O. in A.Y. 2001-02 while allowing depreciation and also the necessary evidences that the premises in Pune and Andheri are being used for business purposes including for storage of material, screens and stage requisites. It is also explained that in view of the heavy machinery and furniture which were required for stage show a premises was hired which is in the ground floor for which rental amount was paid. The assessee also furnished the details of stage shows, dates of advertisement, expenditures which were incurred for stage shows, telephone and other expenditures, details of which were seems to have been thoroughly examined. The assessment order do indicate that the A.O. has not only examined the details but also disallowed expenditures after verification as can be seen from para 2 of the assessment order and para 13, 14 & 15 which are disallowances on adhoc basis amounts out of telephone expenses and car expenses and further roundsum disallowance of miscellaneous expenses towards non-business expenses. He also disallowed expenses on which TDS was not deducted which included advertisement expenses, interest to ex-partners, etc. The assessment order do indicate that the A.O. called for detailed explanations and then only he has allowed the expenditure by making certain disallowances.
The tribunal is of the opinion that since the A.O. has examined all the issues at the time of assessment and since the A.O. has come to a conclusion in allowing the expenditure on depreciation claimed and also disallowing amounts of expenditure after due verification, the CIT cannot come to a different conclusion on presumptions in the order under section 263. It is the prerogative of the A.O. to pass the assessment and as seen from the assessment record he has examined all the issues which are considered by the CIT for invoking the powers u/s 263. The assessee has furnished the detailed material and explained the issues and has also pointed out that the depreciation on the two properties was examined as early as A.Y. 2001-02 and depreciation was allowed in all the years.
Since the A.O. made enquiries in the course of assessment proceedings on the relevant issues and the A.O. allowed the claim on being satisfied by the explanation of the assessee on the issue of depreciation and made certain disallowances with reference to various other expenses, we are of the opinion that the CIT has exercised the powers under section 263 without there being any evidence to the contrary. The principles established by the Hon’ble Bombay High Court in the case of CIT vs. Gabrial India Ltd. 203 ITR 108 will equally apply to the present order. Since the CIT has no material to come to the conclusion that the order of the A.O. is erroneous and prejudicial to the interest of Revenue, the order cannot be sustained. Even after examining the issues in his own perspective, the CIT has not given any conclusions about his findings except that his so called findings are used only to arrive at a conclusion that the order is erroneous and is prejudicial to the interest of Revenue. He set aside the issues to the A.O. for examination without giving any specific direction. For all these reasons, we are of the opinion that the CITA has no jurisdiction in revising the order under section 263. Accordingly the assessee’s grounds are allowed. Order under section 263 is set aside.
Accordingly the court has allowed the petition and ruled in favour of the petitioner
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