TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 420
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.... account of additional depreciation on new machinery purchased during the year. Hence, the disallowance so made by the AO and sustained by the ld. CIT(A) is being totally contrary to the provisions of law and facts on record and hence the same may kindly be deleted in full. 3. The AO has grossly erred in law as well as on the facts of the case in charging interest u/s 234A.B.C. the appellant totally denies it liability of charging of any such interest. The interest so charged, being contrary to the provisions of law and facts, may kindly be deleted in full.'' ITA No. 485/JP/2019 - A.Y. 2014-15 ''1.1 The impugned rectification assessment order u/s 154 r.w.s. 143(3) dated 26-12-2016 is bad in law and on facts of the case for want of jurisdiction, being debatable issue and various other reasons and hence the same may kindly be quashed. 2.1 Rs. 2,00,000/-: The ld. CIT(A) has grossly erred in law as well as on the facts of the case in invoking the provision of section145(3).The provision so invoked by the AO and confirmed by the ld. CIT(A) is totally contrary to the provisions of law and facts on record and hence the same may kindly be quashed. 3.1 Alternatively and without pr....
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....the notice u/s 154 of the Act dated 29.01.2018 on the ground that additional depreciation @20% of Rs. 46,14,664/- claimed as per provision of Sec. 32(1)(iia) of the Act on addition of Rs. 2,30,73,318/- in plant and machinery and as per decision of Supreme Court in the case of CIT v/s Lucky Minerals Pvt. Ltd 2001 the business of mining & trading of marble block does not cover under the business of manufacture and production of any article or things, therefore the add. Depreciation @20% of Rs. 46,14,664/- is not allowable and required to be added in the total income. In response thereto, the assessee has objected the same and filled the detailed reply dated 19-12-2018 (PB12-14) and also reproduced at page No. 1-3 of the impugned order. However the ld. AO did not feel satisfied with the reply and made disallowance of Rs. 46,14,664/-. 3.2 Against the order of the AO, the assessee has filed the appeal before the ld. CIT(A) and filed the detailed written submission (PB1-11) and legal position of law. The written submission is also reproduced at page 3-12 of CIT(A)'s order. The assessee has submitted that the issue is a debatable and no action u/s 154 can be taken on the debatable issue ....
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....he purchase of the machinery is not disputed. The matter was very well assessed u/s 143(3) of the Act. No addition was made in the assessment on that account it means that the said additional depreciation was not disputed at the time of assessment u/s 143(3) of the Act. But later on the Ld. AO discovered that additional depreciation is not allowed since the assessee is into mining industry and not manufacturing anything and applied the decision of the Hon'ble Supreme court in the matter of Lucky Minerals Pvt. Ltd. We had also submitted that the assessee is producing things and since the production is a bigger term and includes manufacture also. We had also referred some decisions of various High Courts and Supreme Courts also. Now we want to submit that the matter is debatable that whether the mining of marble block is manufacturing or not and therefore it cannot be rectified u/s 154 of the Act. The assessee intimated the Ld. AO, the following modusoperendi in support of his claim to be covered under mining and manufacturing activity: "With regard to the admissibility of additional depreciation on the purchase of loader we wish to submit as under: 1. That section 32(iia) ....
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....oss-cut" across the vein. Forming the Bench Mining marble blocks from the wall of the quarry starts with a "bench wall." The bench wall is a large section of marble along a vertical wall that is cut with diamond cables, drills, and torches. It loosens the bench wall from the side of the quarry, and the separated wall can then be processed and cut into individual, uniform blocks. A marble block usually weighs between 15,000 and 25,000 pounds. Processing the Stone After the blocks are extracted from the quarry, they'll go through further processing to match their intended purpose. For titles, the marble is cut into stone billets and polished to a smooth sheen. Marble slabs for construction or sculpture are cut using diamond wires or a gang saw, which uses multiple diamond-tipped blades to slice a marble block into more manageable slabs. Often, a resin applied to fill in cracks in the marble's surface. After polishing, only 1 percent of the surface will be coated in resin, maintaining the purity and beauty of the finished stone." It is further submitted that the issue was assessed u/s 143(3) of the Act and wherein the Ld. AO did not objected the same but the same was recti....
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....ent and can only be discovered as a result of an argument, cannot qualify as an error apparent from the record-Assessee a registered non-resident firm and assessed on the slab rates applicable to registered firms in the respective Finance Acts- Rectification sought on the ground of non-application of the provision of s. 17(1) of the 1922 Act or corresponding provisions of s. 113 of the 1961 Act-Not permissible-Applicability or otherwise of s. 17(1) of 1922 Act or s. 133 of 1961 Act to non-resident registered firms was capable of decision only after elaborate arguments and hence was not an error apparent on record-Orders of rectification passed by the ITO are, therefore, without jurisdiction 2.2 In the case of D.S. SRINIVAS vs. ITO & ANR. 262 ITR 0209 : (2003) KarHC Rectification-Mistake apparent- Depreciation-Allowing of depreciation after verification of books of accounts cannot be equated to a 'mistake' in terms of s. 154-In the guise of a mistake the authorities are trying to set aside one view of the assessing authority-Sec. 154 was not available to the authorities-Impugned orders set aside-ITO vs. Volkart Bros. (1971) 82 ITR 50 (SC), CIT vs. South India Bank (2001) 1....
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.... issue-Rate of depreciation-Mistake that is proposed to be rectified is dependent on the question whether the machinery used for production of safety razor blades can be said to be part of "Iron & Steel Industry" and can come within category (b) mentioned hereinafter-This requires interpretation of the expression "other machinery and plant"-This is surely a question which requires, firstly, an interpretation of the expression "other machinery and plant" and, secondly, the nature of the machinery and plant used by the petitioner-company and whether they come within the expression "other machinery and plant" or as well as under the items mentioned within the brackets-This will require investigation, both of facts as well as interpretation of law-It is a mistake which has to be discovered after interpretation of a certain section and investigation of certain facts-In the premises there cannot be any jurisdiction for the ITO to take proceedings under s. 154 in view of the facts disclosed The short question is whether the mistake proposed to be rectified comes within the purview of s. 154 of the IT Act, 1961. Appendix I of the IT Rules, Part I, provides the statement at which deprec....
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.... under this head or come under the general head of plant and machinery. But in view of the language used it appears that it cannot be said that it is an obvious and apparent mistake which is self-evident and does not require either a process of argument or investigation. If that is the position in law then, proceedings under s. 154 cannot be initiated. The mistake, if any, in this case is one which cannot be called either obvious or glaring or selfevident. It is a mistake which appears from the record, but it is not apparent. It is a mistake which has to be discovered after interpretation of a certain section and investigation of certain facts. In the premises there cannot be any jurisdiction for the ITO to take proceedings under s. 154 in view of the facts disclosed.- Maharana Mills (P) Ltd. vs. ITO (1959) 36 ITR 350 (SC) : TC53R.275, National Rayon Corporation Ltd. vs. G.R. Bahmani, ITO (1965) 56 ITR 114 (Bom) : TC53R.145, Volkart Bros. vs. ITO (1967) 65 ITR 179 (Bom) : TC53R.168 and P.M. Bharucha & Co. vs. G.S. Venkatesan, ITO (1969) 74 ITR 513 (Guj) : TC33R.480 relied on. 2.5 In the case Coates Of India Ltd. vs. DCIT & ORS (1995) 214 ITR 0498 (Kol. HC) Assessment-Rectific....
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....TK PHARMA LTD. 2008) 300 ITR 0346 Chen HC held that Rectification-Debatable issue- Carry forward of loss vis-a-vis assessment under s. 115J- Assumption of jurisdiction under s. 154 is permissible only to correct an error which is apparent and not where a debatable issue is involved-Views of different High Courts were not uniform on the issue involved in the instant case at the time when the rectification proceedings were taken-Issue was settled by the Supreme Court long thereafter-Hence, the proceedings are unsustainable 2.9 In the case of Royal Cushion Vinyal vs. CIT (2009) 227 CTR 0663 (Mum. HC) held that Rectification-Debatable issue-Deduction under s. 80HHC-Issue regarding deduction of unabsorbed depreciation and unabsorbed losses from the profits and gains of business or profession while computing deduction under s. 80HHC was a debatable issue-Therefore, Dy. CIT had no jurisdiction to pass the impugned order under s. 154 holding that the assessee-company is entitled to deduction under s. 80HHC at nil as there is no positive income after setting off the unabsorbed depreciation and unabsorbed business losses of the earlier years 2.10 In the case of CIT vs. Nonmag Wires (P) L....
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....ng any material in support to establish that the assessee is not manufacture has disallowed the claim of the assessee. Which is against the principle of law. 6. Contradictory approach of the ld. AO: Further when the ld. AO has disallowed the additional depreciation in this year, despite this he has not given any credit of this additional depreciation in next year years by rectifying the same for which the assessee is eligible as per law. It shows the contradictory approach of the ld. AO and the same resultant double disallowance and taxation of same income, which is not permissible in law. It also proves that as per the action of the ld. AO itself proved that the assessee has rightly claim the additional depreciation, otherwise he could have given the effect of this disallowance in the subsequent years. 7. Alternatively and without prejudice to the above the ld. AO may kindly be directed to allow this claim in subsequent years and grant the refund in next year by giving this effects. 8. Order of the ld. AO merged in the order of CIT(A): Further the assessee had filed the appeal against the original assessment order before the ld. CIT(A) who decided the appeal on dt. 01.08.201....
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....course assessee has filed the audited accounts and all the books of accounts vide page 1-2 of the assessment order (PB19-20) and duly examined by the AO and the AO made the trading additions. But no disallowance or addition was made in the assessment on that account of claim of additional depreciation which mean that the said additional depreciation was not disputed at the time of assessment u/s 143(3) of the Act. However, later on the AO discovered that additional depreciation is not allowed since the assessee is involved into mining industry and not manufacturing anything and applied the decision of the Hon'ble Supreme court in the matter of Lucky Minerals Pvt. Ltd. (supra). In our view the provisions of Section 154 of the Act allows the AO to rectify the mistakes which are apparent from record and thus only the glaring and obvious mistakes which are apparent which are self evident and does not require either a process of argument of investigation. The mistakes which are not apparent but has to be discovered after interpretation of a certain section and investigation of certain facts cannot be rectified u/s 154 of the Act. As per the assessee, he has not sold the article in the s....
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....ect glaring and obvious mistakes of fact and law. If all facts are on record and no further calculation or ascertainment is necessary and if on these facts it is clear that an error of law or facts has been made, that error can be rectified u/s 154. Conversely mistakes which can be discovered only by a complicated process of investigation, argument, elucidation or debate cannot be said to be "apparent mistakes" and in such cases 154 cannot be resorted to." (iii) In the case of Volkart Bros. & Ors . vs. ITO (1967) 65 ITR 0179(SC) the Honble Supreme Court has held that Rectification-Mistake apparent-An error which is not obvious and patent and can only be discovered as a result of an argument, cannot qualify as an error apparent from the record-Assessee a registered non-resident firm and assessed on the slab rates applicable to registered firms in the respective Finance Acts- Rectification sought on the ground of non-application of the provision of s. 17(1) of the 1922 Act or corresponding provisions of s. 113 of the 1961 Act- Not permissible-Applicability or otherwise of s. 17(1) of 1922 Act or s. 133 of 1961 Act to non-resident registered firms was capable of decision only after ....
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....cated while acting u/s 154-AO should have made disallowance only while framing regular assessment or reassessment, which was made prior to resorting to this rectification-This disallowance could not be made while acting u/s 154 reason being this was not prima facie mistake it was a highly debatable issue-Held, it was clear from above that deletion of Rs. 67,33,445 allowed as deduction u/s 36(1)(viia) could not be said to have been made in rectification of an error apparent in assessment order-Court had no reason to interfere with impugned order and, therefore, did not find that any substantial question of law was involved in this case-Application and appeal dismissed (vi) In the case of Harbans Lal Malhotra & Sons (P) Ltd. vs. ITO & ANR. (1972) 83 ITR 0848 KolHC held that Rectification-Debatable issue- Rate of depreciation-Mistake that is proposed to be rectified is dependent on the question whether the machinery used for production of safety razor blades can be said to be part of "Iron & Steel Industry" and can come within category (b) mentioned hereinafter-This requires interpretation of the expression "other machinery and plant"-This is surely a question which requires, firstl....
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....ing G.P. rate of 33.06% on the turnover of Rs. 16,00,18,539/- and Net profit at Rs. 1,69,16,388/- Giving NP rate of 10.57% in last year. The AO alleged that the auditor in Audit report has mentioned that the assessee has not maintained the day to day stock register. The AO has further noted that assessee did not maintain quantitative and qualitative details of stock. Hence the AO has asked to the assessee as to why the books of accountant may not be rejected by invoking the provisions of Sec. 145(3). In response thereto, the assessee submitted that its purchases and sales are fully vouched and its total production is exported out of India. The production is done on the basis of export order. However the AO did not feel satisfied with the reply and invoked the provisions of Sec. 145(3) of the Act and made the lump sum trading addition of Rs. 5,00,000/- 8.3 In first appeal the ld. CIT(A) has confirmed the rejection of books of accounts made by the AO u/s 145(3). The ld. CIT(A) has held that even in past rejection books was made by the AO u/s 145(3) and was upheld by CIT(A), though the quantum of estimation was reduced. Facts being same, rejection of books of account u/s 145(3) of th....
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....hwar Meena has already dealt with the identical issue in para 8 of its order which is reproduced as under:- ''8. We have heard the rival contentions and perused the material available on record. We are of the view that the books of account have been rightly rejected by the Assessing Officer as the assessee failed to produce the books of account for verification and in absence thereof, it is difficult for the Assessing Officer to determine whether the trading results so declared by the assessee are true and correct. Regarding estimation of profits, we find that the assessee has declared better net profit rate as compared to earlier years and therefore, even where the books of account are rejected, given better results declared by the assessee as compared to average of last five years, the trading addition so made is directed to be deleted. In the result, the Ground No. 1 of the Revenue's appeal is allowed and the Ground No. 2 is dismissed. '' 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. Therefore, keeping in v....
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....estricted to .25%. The AO must have issued show cause notice in the interest of natural justice but he did not do so and made a huge disallowance. It is very settled legal position that a person(assessee) is entitled to opportunity to show cause as to why not the income of the assessee is determined in the manner as proposed by the assesseeing officer but in the instant case no such type of opportunity had been provided hence the addition so made may kindly be deleted in full kindly refer Sanghi Brothers (Indore)Limited v/s Inspecting ACIT 122 CTR 19(MP), Malik Packaging v/s CIT 284 ITR (All), T.C.N. Menon v/s ITO 96 ITR 148(Ker). Sir, the appellant had complied with all of the provisions related to deduction and deposit of TDS and filing of returns etc. except in some cases, where there was delay in deposit of TDS and he duly deposited the interest on such delays. The Ld AO did not accepted the interest on account of delayed deposit of TDS and made addition of Rs. 148229. Here we wish to state that the interest for the delay in making the payment of TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on han....
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....down by the Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd.(supra). We also find that the Hon'ble Supreme Court in the case of Lachmandas Mathura (Supra) has allowed the deduction on account of interest on late deposit of sales tax u/s 37(1) of the Act. In view of the above, we conclude that the interest expenses claimed by the assessee on account of delayed deposit of service tax as well as TDS liability are allowable expenses u/s 37(1) of the Act. In this view of the matter, we find no reason to interfere in the order of Ld. CIT(A) and we uphold the same. Hence, this ground of Revenue is dismissed." In view of the above, we request your honour to allow the payment of interest on delayed deposit of TDS to the tune of Rs. 148229/-.'' 9.4 On the other hand, the ld. DR relied on the orders of the lower authorities. 9.5 We have heard the rival contentions and perused the materials available on record. 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 s....
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.... purpose of this sub-clause, it shall be deemed that the Assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the sa id proviso". And after this amendment the Honble IATA Agra Bench in the case of Rajeev Kumar Agrawal V/s Add. CIT 165 TTJ 228(Agra) held that Second proviso to Section 40(a)(ia), introduced with effect from 1st April 2013, provides, that " where an Assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an Assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the Assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the sa id proviso". In other words, as long as the Assessee cannot be treated as an Assessee in default, the disallowance under section 40(a)(ia) cannot come into play either. To understand the effect of this proviso, it is useful to refer to first proviso to section 201(1), which is also introduced by the Finance....
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....framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. The scheme of Section 40(a)(ia), as ITAT see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an Assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the Assessee. It is not, in ITAT's considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. Accordingly, ITAT hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. Fit and proper to remit the matter to the file of the AO for fresh adjudication in the light of ITAT's above observations and after carrying out necessary verifications regarding related payments ....
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....s are identical and same 2. It may also be pointed out that second proviso to section 40(a)(ia) inserted by FA, 2012 w.e.f.01.04.2013 has provided that where an assessee fails to deduct tax on the sum paid to the resident but such resident payee has furnished the return, taken into account such sum for computing income and has paid the tax due on the income declared by him then it will be deemed that assessee has deducted and paid the tax on such sum on the date of furnishing of return by the resident payee. All the finance companies to which assessee have paid interest are large company and assessed to tax. Therefore, the presumption is that these companies have included the interest paid by the assessee to them in their income and paid tax thereon. The Delhi High Court in case of CIT Vs. Trans Bharat Aviation Pvt. Ltd. 320 ITR 671 has held that since deductee is a Government undertaking, the taxes may be presumed to have been paid lastly by the due date of filing of the return of income and, therefore, the liability of the assessee to pay interest on the amount which was to be deducted as TDS ends with the due date of filing of the return by the deductee. Therefore, considering....
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....s case the AO after rejecting the books of accounts he estimated the profit by applying the N.P. rate, there apart he has also made addition inter alia on account of unsecured loans u/s 68, on account of non-deduction of TDS u/s 40(a)(ia) and on account of disallowance of depreciation and stamp duty also reduced the closing work-in-progress, while deciding the appeal the ld. CIT(A) and the Honble ITAT held that when the books of accounts are rejected the by the AO and the income of the assessee is determined on estimated basis no further addition can be made to the income so estimated by relying on the same rejected books of accounts. Also refer CIT v/s Purshottamlal Tamrakar Uchehra 270 ITR 314/84(MP). Thus when the books of accounts has been rejected and provisions of S. 145(3) of the Act are invoked, no such separate additions can be made in respects of deposits in banks u/s 68/69, disallowance of interest expenses, unsecured loans or creditors, trade creditors on account of exp. etc. and the best course of is to estimate the fair profit by taking into consideration various factors. Alternatively, without prejudice to the above submission we have to further submit in this re....
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....u/s 40(a)(ia) of the Act was upheld by the ld. CIT(A) by holding that although the assessee had submitted the certificate form auditor which indicated a payment of Rs. 16,05,842/- on which TDS was to be deducted yet no deducted. However, it was found by the ld. CIT(A) that there is a mismatch as according to the ld.AR the payment of Rs. 15,75,572/- was made by the assessee while the auditor's certificate indicates that a payment of Rs. 16,05,842/- was made. However, after scrutinizing the records, we found that because of meager difference the entire claim of the assessee could not have been denied. We noticed that the recipient has shown more income than paid by the assessee. Thus in this way, there was no loss to the Revenue and simultaneously it is also not in dispute that payee has paid the tax on the entire income. As per the ld.AR, the payee has duly included the interest income in its income and also paid tax thereon. In this respect, the ld.AR of the assessee has drawn our attention to the certificate in order to demonstrate that once entire tax payable on such income (subject to TDS) has already been paid, even if there is no TDS made by the assessee and thus there cannot ....
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.... this effect from an accountant in such form as may be prescribed." The unambiguous underlying principle seems to be that in the situations in which the Assessee's tax withholding lapse have not resulted in any loss to the exchequer, and this fact can be reasonably demonstrated, the Assessee cannot be treated as an Assessee in default.The bigger picture as it emerges after insertion of second proviso to section 40(a)(ia), it is beyond doubt that the underlying objective of section 40(a)(ia) was to disallowdeduction in respect of expenditure in a situation in which the income embedded in related payments remains untaxed due to non-deduction of tax at source by the Assessee. In other words, deductibility of expenditure is made contingent upon the income, if any, embedded in such expenditure being brought to tax, if applicable.Section 40(a)(ia) cannot be seen as intended to be a penal provision to punish the lapses of non-deduction of tax at source from payments for expenditure- particularly when the recipients have taken into account income embedded in these payments, paid due taxes thereon and filed income tax returns in accordance with the law.On a conceptual note, primary justific....