2020 (2) TMI 420 - AT - Income Tax

Tribunal allows additional depreciation, deletes disallowances, remits trading addition, renders interest charges irrelevant.

Shri Vikram Singh Shekhawat, M/s. V.S. Stone Versus The DCIT Circle – Sikar Sikar

The Tribunal ruled in favor of the assessee, quashing the rectification order under Section 154 and allowing additional depreciation on new machinery. ... Rectification u/s 154 - additional depreciation @20% claimed as per provision of Sec. 32(1)(iia) - HELD THAT:- The matter raised before us is debatable as to whether the mining of marble block is manufacturing or not and assessee had also intimated the AO. Therefore, the modus operandi in support of the claim is to be covered under the mining and manufacturing activity. Therefore, the matter being debatable cannot be rectified u/s 154 of the Act. We further noticed that since the issue is debatable as to whether the assessee is manufacturing or not and for purpose firstly it should be decided that whether mining of marble block is manufacturing or not and when the interpretation of manufacturing has not been decided in the case of the assessee, then as to how it can be said that the assessee is not a manufacturer. From the various facts, it is on record of the AO that the issue is debatable and the issue which has been rectified by the AO u/s 154 is highly debatable and it is the settled legal preposition of law that a debatable issue cannot be rectified u/s 154 and cannot be said mistake apparent on record. The issue in hand is debatable, thus the same cannot be rectified by invoking the provisions of Section154 of the Act by the AO and the AO without examining the facts, nature of the business of the assessee and without bringing any material in his support to establish that the assessee was not manufacturer, had disallowed the claim of the assessee which is against the principles of law. We therefore, allow these grounds raised by the assessee and quash the decisions of the lower authorities on this issue. Rejection of books - invoking the provisions of section 145(3) and confirming the trading addition - HELD THAT:- In this case the books of account of the assessee are rejected in spite of declaring better n.p. rate of last 05 years as compared to average of last years. We are of the view that no trading addition is sustainable. Findings by the decision of SHRI KISHAN KUMAR SARAIWALA [2017 (8) TMI 1584 - RAJASTHAN HIGH COURT] we restore the matter back to the file of the AO to verify the results declared and attained finality by the assessee by comparing the average results of last 05 years and in case it is found by the AO that the assessee has declared better n.p. rate as compared to earlier years then in that eventuality no trading additionis called for. It is needless to mention that before passing the afresh order on this issue by the AO, the assessee will be provided adequate opportunity of hearing by the AO and the assessee will submit the necessary details before him. Thus this Ground No. 2 of the assessee is allowed for Statistical purposes. Disallowance towards interest on TDS - HELD THAT:- We are of the view that the interest payment for delayed deposit of TDS is in fact in the nature of penalty and the same is not found allowable. The Legislature expects from the assessee to adhere the various laws of land and in case of any violation of same and financial consequences thereof cannot be allowed in the ambit of Section 37 of the Act. The case laws cited by the ld.AR of the assessee are not applicable in the present facts and circumstances of the case of the assessee. It is an admitted fact that disallowance/ addition made by the AO on account of payment of interest on delayed deposit of TDS is penal in nature. The ld.AR of the assessee relied on the decision of Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. vs CIT [1998 (3) TMI 2 - SUPREME COURT] which does not find force in this ground of the assessee. Hence, the Ground No. 3 of the assessee is dismissed. Disallowance u/s 40(a)(ia) - assessee paid interest on which no TDS was deducted - HELD THAT:- Keeping in view the facts that the assessee had submitted the certificate from the payees and the AO has not disputed the same. Even otherwise the underlying idea and basic concept of TDS was to ensure an early and fast recovery of the taxes. It is designed so that the payer itself should make a deduction of tax at source on the income of the payee. Thus, it was an advance collection and recovery of the tax for on and behalf of the payee, in whose hand, after including the subjected amount of income, there is going to be a liability of tax thereupon. If either there is no liability to pay tax or because of the tax already stood paid by the payee, there is no further liability of the payer. The very purpose of making deduction of tax at source and depositing with the Govt., stands fulfilled. Hon’ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. Ltd. v/s CIT [2007 (8) TMI 12 - SUPREME COURT] has held that no penalty u/s 271C or interest u/s 201 can be charged in such cases. The principle so propounded equally and squarely applies on the facts of the present case also. Hence the entire disallowance be deleted in full. - Decided in favour of assessee. Issues Involved:1. Validity of rectification assessment order under Section 154.2. Disallowance of additional depreciation on new machinery.3. Charging of interest under Sections 234A, 234B, and 234C.4. Invoking of Section 145(3) and trading addition.5. Disallowance of interest payment on delayed deposit of TDS.6. Disallowance under Section 40(a)(ia) for non-deduction of TDS on interest payments.Detailed Analysis:1. Validity of Rectification Assessment Order under Section 154:The assessee challenged the rectification order under Section 154, arguing it was invalid as it dealt with a debatable issue. The AO disallowed additional depreciation on machinery, claiming the assessee was in mining, not manufacturing. The CIT(A) upheld the AO's decision. However, the Tribunal found that the issue was debatable and thus not suitable for rectification under Section 154, citing various case laws that support the principle that debatable issues cannot be rectified under this section. The Tribunal quashed the rectification order, ruling in favor of the assessee.2. Disallowance of Additional Depreciation on New Machinery:The AO disallowed additional depreciation claimed by the assessee on new machinery, arguing that mining does not qualify as manufacturing. The assessee contended that mining involves substantial processes and should be considered manufacturing. The Tribunal noted that the issue was debatable and could not be rectified under Section 154. The Tribunal quashed the disallowance, supporting the assessee's claim that the matter required detailed examination and was not an apparent mistake.3. Charging of Interest under Sections 234A, 234B, and 234C:The assessee contested the interest charged under Sections 234A, 234B, and 234C. The Tribunal ruled that since the primary ground regarding the validity of the rectification order was decided in favor of the assessee, the issue of interest became infructuous and did not require separate adjudication.4. Invoking of Section 145(3) and Trading Addition:The AO invoked Section 145(3) due to the assessee's failure to maintain a day-to-day stock register and made a lump sum trading addition. The CIT(A) upheld the rejection of books but reduced the addition. The Tribunal referred to the jurisdictional High Court's principle that if the assessee's declared profit rate is better than the average of the past five years, no trading addition is warranted. The Tribunal remitted the matter back to the AO to verify the declared results against the past five years' average and decide accordingly.5. Disallowance of Interest Payment on Delayed Deposit of TDS:The AO disallowed interest on delayed TDS deposit, treating it as a penalty. The CIT(A) upheld this view. The Tribunal, however, found that the interest for delayed TDS payment is compensatory, not penal, and should be allowed as a deduction. The Tribunal cited the Supreme Court's decision in Lachmandas Mathura, which held that interest on delayed tax payments is compensatory. The Tribunal allowed the deduction, ruling in favor of the assessee.6. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS on Interest Payments:The AO disallowed interest payments for non-deduction of TDS. The assessee argued that the payees had included the interest in their income and paid tax, thus no disallowance should be made. The Tribunal noted that the second proviso to Section 40(a)(ia), introduced retrospectively, deems TDS to have been deducted if the payee has included the income in their return and paid tax. The Tribunal found that the payees had indeed paid tax on the interest and deleted the disallowance, ruling in favor of the assessee.Conclusion:The Tribunal ruled in favor of the assessee on most grounds, quashing the rectification order, allowing additional depreciation, and deleting disallowances related to interest on delayed TDS and non-deduction of TDS on interest payments. The issue of trading addition was remitted back to the AO for verification against past profit rates. The appeal regarding interest under Sections 234A, 234B, and 234C was rendered infructuous.