Tax Tribunal overturns Principal Commissioner's decision on depreciation & interest disallowance

Dabwali Transport Co. Ltd. Versus Deputy Commissioner of Income-tax, Circle-II, Bathinda,

Dabwali Transport Co. Ltd. Versus Deputy Commissioner of Income-tax, Circle-II, Bathinda, - TMI Issues Involved:
1. Higher rate of depreciation allowed to the assessee.
2. Investment in shares not subjected to disallowance of proportionate interest under section 14A.

Issue-wise Detailed Analysis:

1. Higher Rate of Depreciation Allowed to the Assessee:

The assessee, a Limited Company engaged in the business of carrying passengers in buses, claimed depreciation on its buses at 30% under Para-III(3)(ii) of Appendix-1 of the Income Tax Rules, 1963. This claim was initially allowed by the Assessing Officer (AO) during scrutiny assessment proceedings. However, reassessment proceedings were initiated on the ground that the assessee was not entitled to a higher rate of depreciation. The AO, after considering the assessee’s reply and judicial decisions cited, dropped the reassessment proceedings.

The Principal Commissioner of Income Tax (Pri. CIT) issued a notice under section 263 of the Income Tax Act, observing that the AO's order dropping the proceedings under section 147 appeared erroneous and prejudicial to the interests of the Revenue. The Pri. CIT held that the assessee was not entitled to a higher rate of depreciation and directed the AO to reframe the assessment after giving the assessee a reasonable opportunity of being heard.

The Tribunal reviewed the case laws cited by the assessee, including:
- 'CIT v. Balakrishna Transports' [1998] 233 ITR 133 (Kerala)
- 'CIT v. Sham Motor Service' [1999] 235 ITR 89 (MP)
- 'Sarojini Transports (P.) Ltd.' [1986] 17 ITD 1014 (Mad.)
- 'Pepsu Road Transport Corporation v. ACIT' [IT Appeal No. 956/Chd/2007]
- 'CIT v. Madan Lal & Co.' [2002] 254 ITR 445
- 'Northern Western Karnataka Road Transport Corpn. Hubli v. Dy. CIT' [IT Appeal Nos.734 & 735/Bang/2010]
- 'CIT v. Bansal Credits Ltd.' [2003] 259 ITR 69
- 'Asstt. CIT v. Solapur Siddheshwar Sahakari Bank Ltd.' [2015] 57 taxmann.com 183 (Pune - Trib.)

The Tribunal found that the AO had duly examined these case laws and dropped the reopening proceedings after due application of mind. The Tribunal concluded that the Pri. CIT’s order was in stark oblivion of the judicial decisions relied upon by the assessee and taken into consideration by the AO. The Tribunal held that the Pri. CIT erred in invoking the provisions of section 263, as the AO's order was well-reasoned and based on judicial precedents.

2. Investment in Shares Not Subjected to Disallowance of Proportionate Interest under Section 14A:

The Pri. CIT observed that the assessee had invested in shares of companies closely connected with the Directors and that these investments were made to earn dividend income. The Pri. CIT held that the proportionate interest on these investments should have been disallowed under section 14A, which had not been done by the AO. Consequently, the Pri. CIT found the assessment order to be erroneous and prejudicial to the interests of the Revenue on this count as well.

The Tribunal, however, noted the settled proposition in 'CIT v. DLF Ltd.' [2013] 350 ITR 555, which held that powers under section 263 cannot be invoked for making disallowance under section 14A. The Tribunal observed that the assessee did not earn any exempt income during the relevant years, and therefore, no disallowance under section 14A was warranted. The Tribunal also referred to the following case laws supporting this view:
- 'CIT v. Lakhani Marketing Inc.' 226 Taxman 45 (Punj & Har.)
- 'CIT v. Holcim India (P.) Ltd.' [2015] 57 taxmann.com 28 (Delhi)
- 'CIT v. Corrtech Energy (P.) Ltd.' [2015] 372 ITR 97
- 'CIT v. Shivam Motors (P.) Ltd.' [2015] 55 taxmann.com 262 (All.)
- 'Cheminvest Ltd. v. CIT-IV' [2015] 378 ITR 33

The Tribunal also noted that the notices under section 263 for the assessment years 2008-09 to 2011-12 were issued much after the statutory period of two years from the end of the financial year in which the assessment was framed, making the Pri. CIT’s actions unsustainable in law.

Conclusion:

The Tribunal found the impugned orders of the Pri. CIT for all the years under appeal to be unsustainable in law concerning both issues raised by the assessee. Consequently, all the appeals were allowed, and the orders under section 263 were reversed.