2024 (1) TMI 545 - AT - Income Tax

Depreciation on 180+ day assets upheld, service tax deduction allowed on payment, MAT computation dismissed

ITAT Ahmedabad dismissed assessee's appeal regarding depreciation on assets used for more than 180 days, upholding CIT-A's direction to provide ... Disallowance of Depreciation on assets purchased and put to use for more than 180 days - CIT-A set aside the issue to the AO with clear direction to the assessee to provide all necessary details regarding the commissioning of the assets on different dates before the AO to compute the correct depreciation - HELD THAT:- The controversy before us relates to whether the assessee has put to use the machinery before the end of the relevant financial year i.e. 31-3-2006, the year under consideration. To adjudicate the issue on hand, the assessee has to provide the details as directed by the ld. CIT-A discussed above. As such, we do not find any infirmity in the direction of the ld. CIT-A. Hence this ground of appeal of the assessee is dismissed. Income recognition on government grant & subsidy - @ 15% or @ 10 % - AO found that the Government Grants and recoveries from consumer were made towards capital assets and with respect to majority of capital assets, the assessee is claiming depreciation at the rate of 15% per annum - HELD THAT:- As decided in own case [2022 (7) TMI 1498 - ITAT AHMEDABAD] wherein the issue has been restored back to the A.O. to adjudicate afresh after verifying amount of grants to be apportioned relating to different assets and calculate the amount of depreciation allowances accordingly - Hence, this ground of appeal preferred by the assessee is allowed for statistical purposes. CIT(A) powers of enhancement under subsection (2) of section 251 - Enhancing the assessed income by making disallowances of deferred revenue expenses - HELD THAT:- As provision of subsection 2 to section 251 of the Act provides that the ld. commissioner appeal shall not enhance an assessment unless appellant has been provided with the reasonable opportunity of being heard against such enhancement. In the case on hand, the disallowance made by the learned CIT(A) was not part of the assessment order or appeal meaning thereby that the learned CIT(A) have made disallowances or assessed new income not forming part of assessment order or appeal. Thus, the learned CIT(A) before exercising the power under section 251(1)(a) to enhance the assessment was required to provide reasonable opportunity to show cause against such enhancement, but no such opportunity has been provided. The learned DR also did not bring any material on record suggesting that the assessee was awarded the opportunity of being heard before the enhancement of income by the learned CIT(A). As such, the appellate authority cannot enhance the assessment without issuing show cause notice. In holding so, we also draw support and guidance from the judgment of Hon’ble Gujarat High court in the case of Saheli Synthetics (P.) Ltd [2008 (2) TMI 182 - GUJARAT HIGH COURT] Thus we hereby set aside the finding of the learned CIT(A). Hence the ground of appeal of the assessee is hereby allowed. Disallowances of unpaid service tax u/s 43B - HELD THAT:- As per the provision of section 43B of the Act, any sum payable by assessee by way of tax, fee, or duty then such sum shall be allowed as deduction in the year in which same was actually paid. In the present case, the assessee had unpaid service tax liability which was suo-moto disallowed by the assessee in the computation of income. Subsequently, the assessee before the assessing officer as well as before the learned CIT(A) claimed that such unpaid liability of service tax should be allowed as deduction. However, the same was concurrently rejected by the lower authorities. The learned AR for the assessee at the time of hearing before us seek direction from us to be given to the AO that the deduction on account of service tax liability shall be allowed in the year in which such service tax liability shall be paid. In terms of unambiguous provision of second 43B of the Act that the certain sums payable by the assessee shall be allowed as deduction in the year in which actually paid, we hereby direct the AO to allow the claim of the assessee in the year in which service tax is actually paid - Appeal of the assessee is hereby allowed for statistical purposes. MAT computation - disallowance of deferred tax assets while computing book profit u/s 115JB - assessee conceded that the issue is covered against the assessee vide amended provision of explanation 1 to section 115JB - HELD THAT:- The provision of explanation 1 to section 115JB of the Act was amended vide Finance Act 2008 with retrospective effect from 1st April 2001. As per clause (h) of explanation 1 to section 115JB of the Act, the book profit shall be the net profit shown in profit and loss account which is to be increased by the amount of deferred tax assets or provision thereof. Therefore, considering the amended provision of clause (h) of explanation 1 to section 115JB of the Act, we do find any infirmity in order of the learned CIT(A). Hence, the ground of appeal of the assessee is hereby dismissed. Issues Involved:1. Disallowance of Depreciation on Assets.2. Recognition of Income on Government Grants and Subsidies.3. Disallowance of Deferred Revenue Expenditure.4. Disallowance of Unpaid Service Tax.5. Disallowance of Deferred Tax Assets while Computing Book Profits.6. Initiation of Penalty Proceedings under Section 271(1)(c).7. Charging of Interest under Sections 234B, 234C, and 234D.Summary:1. Disallowance of Depreciation on Assets:The first issue raised by the assessee concerned the disallowance of depreciation on fixed assets purchased and put to use for more than 180 days. The AO found the explanation of the assessee misleading and disallowed the claim, concluding that the assets were not put to use within the year under consideration. The CIT(A) directed the assessee to provide necessary details to the AO for correct computation of depreciation. The Tribunal upheld the CIT(A)'s direction, dismissing the assessee's appeal on this ground.2. Recognition of Income on Government Grants and Subsidies:The second issue involved the recognition of income on government grants and subsidies at 15% instead of 10%. The AO and CIT(A) found that the income should be recognized at 15% due to the depreciation rate on capital assets. The CIT(A) further enhanced the addition. The Tribunal, following its previous decisions, restored the issue to the AO for fresh adjudication, directing the AO to verify the proportionate amount of grants relating to different assets and calculate the depreciation allowances accordingly.3. Disallowance of Deferred Revenue Expenditure:The third issue was the disallowance of deferred revenue expenditure amounting to Rs. 41,16,442/-. The CIT(A) enhanced the income by this amount without providing the assessee a reasonable opportunity to be heard. The Tribunal set aside the CIT(A)'s enhancement, emphasizing the requirement of providing a reasonable opportunity before enhancing the assessment.4. Disallowance of Unpaid Service Tax:The fourth issue involved the disallowance of unpaid service tax under section 43B. The CIT(A) confirmed the AO's disallowance, stating that the unpaid service tax was rightly disallowed in the computation of income. The Tribunal directed the AO to allow the claim of the assessee in the year in which the service tax is actually paid, in accordance with section 43B.5. Disallowance of Deferred Tax Assets while Computing Book Profits:The fifth issue was the disallowance of deferred tax assets while computing book profits under section 115JB. The Tribunal noted that the issue was covered against the assessee by the amended provision of explanation 1 to section 115JB, which mandates increasing the book profit by the amount of deferred tax assets or provision thereof. Hence, the Tribunal dismissed this ground of appeal.6. Initiation of Penalty Proceedings under Section 271(1)(c):The sixth issue related to the initiation of penalty proceedings under section 271(1)(c) for alleged concealment and/or furnishing of inaccurate particulars of income. The Tribunal did not provide specific details on this issue, likely considering it premature or consequential.7. Charging of Interest under Sections 234B, 234C, and 234D:The seventh issue involved the charging of interest under sections 234B, 234C, and 234D on tax liability computed under section 115JB. The Tribunal dismissed this ground as either premature, consequential, or general.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, providing directions for fresh adjudication on specific issues while dismissing others.