2015 (9) TMI 1676 - AT - Income Tax

Tribunal rules in favor of assessee, disallows excess depreciation under section 154

The tribunal ruled in favor of the assessee, holding that rectification proceedings under section 154 were inappropriate due to the debatable nature of ... Rectification u/s 154 - whether the excess depreciation was correctly disallowed - HELD THAT:- In the present case the alleged “mistake” sought to be rectified is the depreciation granted to the assessee u/s 32, on applicable rates for the entire year, which as per the AO should actually have been restricted to 50% only since on the basis of information on record with the AO, the assets were put to use only in February 2007 and thus for less than 180 days. Thus AO wanted to reappreciate facts on record which have already been considered. The fact that the assets were put in use in February 2007 is a matter of debate. In the proceedings u/s 147, the assessee had stated that his assets were put to use on 28/08/2006. The assessee had also produced evidence of the same in the form of copy of WIP Plant & Machinery and WIP Electric Installation for the F.Y 2005-06 and 2006-07 showing the date of purchase of these assets, Fixed assets Register for the F.Y 2005-06 and 2006-07 showing the date of purchase,installation and date of put to use of these assets, Certificate of M/s Power Tracks approved Chartered Engineers to prove the date of installation of the new plant and machinery, Certificate of Central Excise Department regarding installation of new plant and machinery all of which showed that the assets were installed by August 2006. It supports case of assessee on merits. On the other hand the AO has relied upon detail of WIP provided by the assessee during reassessment proceedings which showed that the Capital WIP was capitalized in the month of February 2007 to believe that the assets were put to use for less than 180 days. Clearly this appears to be a matter which requires long drawn process of reasoning. The mere fact that capital WIP was capitalized in the month of February does not settle the issue of claim of depreciation. The assets may have been installed and ready for use earlier as claimed by the assessee. The point therefore is clearly debatable and requires further investigation which is not permissible u/s 154 of the Income Tax Act. In case of T.S. Balram, ITO, Vs. Volkart Brothers and Others, 1971 (8) TMI 3 - SUPREME COURT held “ A decision on a debatable point of law is not a mistake apparent from record.” Hon’ble Punjab & Haryana High Court in case of CIT Vs. Investment Trust of India Ltd. [2009 (8) TMI 9 - PUNJAB AND HARYANA HIGH COURT] held “ the issue relating to disallowance of depreciation on the ground that the asset did not exist in the assessee’s business of hiring out assets, is a debatable one and hence cannot be the subject matter in rectification proceeding.” Therefore the provision of section 154 of the Income Tax Act, 1961 is not attracted to the instant case. - Decided in favour of assessee. Issues:Rectification proceedings under section 154 for disallowance of excess depreciation claimed by the assessee.Analysis:1. The appeal was filed against the order of the Ld. CIT(A) regarding the disallowance of depreciation on assets under section 154 of the Income Tax Act. The assessee, a manufacturer and exporter of terry towels, claimed a loss of &8377; 86,40,279 for the assessment year. The AO made disallowances under section 36(1)(iii) due to interest paid on capital work in progress, leading to reassessment proceedings under section 147.2. During reassessment, the assessee contended that all interest on loans for business expansion was capitalized, and assets were put to use on 21/08/2006. The AO recalculated interest on work in progress, resulting in a net disallowance. Subsequently, a notice under section 154 was issued for excess depreciation claimed, which the assessee contested.3. The Ld. CIT(A) upheld the AO's order, stating that the excess depreciation was rightly disallowed under section 154. The assessee then appealed, challenging the initiation of rectification proceedings and the disallowance of depreciation on plant & machinery and electrical installations.4. The main argument before the tribunal was whether rectification proceedings under section 154 were appropriate in this case. The AR argued that the issue of depreciation was debatable due to the date of asset utilization. The AR presented evidence supporting the assets' installation in 2006, justifying the full-year depreciation claim.5. The tribunal analyzed the facts and arguments presented. It emphasized that rectification under section 154 should correct glaring mistakes, not involve complex investigations. The tribunal found the asset utilization date to be a matter of debate, as evidenced by conflicting information provided by the assessee and the AO. Therefore, the tribunal held that the issue was not suitable for rectification under section 154.6. Citing legal precedents, the tribunal concluded that the debatable nature of the asset utilization date precluded rectification proceedings. As a result, the proceedings initiated under section 154 were deemed invalid, and the orders of the authorities below were set aside. The excess depreciation disallowance was deleted, and the appeal of the assessee was allowed.7. In summary, the tribunal ruled in favor of the assessee, highlighting the debatable nature of the asset utilization date and the inappropriateness of rectification proceedings under section 154 in such circumstances.