TaxTMI 
TaxTMI 
2020 (2) TMI 420
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....ase in confirming the disallowance of Rs. 46,14,664/- claimed on 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 ....
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....ed the assessment after making the trading addition, disallowance u/s 40(a)(ia) and vat. However thereafter the AO has issued 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....
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.... the Act. In the present matter the Ld. AO disallowed the additional depreciation charged @ 20% on the machinery purchased during the year u/s 154 of the Act. The 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 co....
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....stablishing roads or tunnels for vehicle access is critical to the profitability and efficiency of the mine. A quarry manager needs to oversee each cut made from the quarry; marble mined along the "vein" of the deposit will have a very different look than marble that is "cross-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 ....
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.... 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." 2.1 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 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 depreci....
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.... 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 2.4 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, 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 certa....
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....t 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 not necessary to decide the question whether the petitioner's plant and machinery used for safety razor blades merit depreciation 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 (....
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.... to a Larger Bench-Fact that the Court itself is divided on the issue, whatever be the merits of the matter, the AO at least had no jurisdiction to exercise his jurisdiction under s. 154-As and when there is conflict of opinion amongst the Benches the same cannot amount to an error apparent on the face of the record-Exercise of jurisdiction by the AO under s. 154 was without jurisdiction 2.8 In the case of CIT vs. TTK 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 a....
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....ing s. 154 3. On perusal of all above Supreme Courts and High Court orders it is now very settled and legal position when there is any issue in hand is debatable then the same cannot rectified 4. Hence in view of the above facts, circumstances, submissions and legal position the action taken u/s 154 the impugned order may kindly be quashed. 5. Further the ld. AO without examination the facts, nature of the business of the assessee and without bring 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 ....
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....ers passed by the lower authorities. 4.4 We have heard the ld. counsel of both the parties, perused the materials placed on record, orders passed by the Revenue authorities and the judgement cited by the respective parties. As per present facts of the case the AO disallowed the additional depreciation charged @ 20% on the machinery purchased during the year u/s 154 of the Act. The purchase of the machinery and used in the business is not disputed. The matter was assessed u/s 143(3) of the Act and during the 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)....
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....e additional depreciation was granted on plant and machinery used for generation and distribution of power in original assessment, same could not be disallowed by invoking provisions of section 154. (ii) Hon'ble Chandigarh ITAT in the matter of S.R. Industries Ltd. Vs. ACIT Circle-3(1) Chandigarh in 156 ITD 125 wherein the reliance was placed on the decision of Calcutta High Court in 2006 284 ITR 42 in which it was stated that "It is settled law that rectification proceedings u/s 154 can be resorted to, only to correct 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....
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.... actually realized, account was to be treated as NPA as per guidelines issued by RBI- In that eventuality, amount was unrealized, unrealized interest so taken to income should be reversed by debiting to P & L Account and crediting to overdue interest reserve account-It was claim of assessee that during year unrealized interest taken to income had been reversed by debiting P & L Account and crediting to provision for overdue interest account following guidelines issued by RBI-Tribunal found that this issue was highly debatable and it could not be adjudicated 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....
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.... case are that the assessee is engaged in the business of Mining of sand stone and export the production of the mines in the name of M/s V.S. Stones and also manufacturing and trading of Marble Block. The assessee has filed his return of income declaring the total income Rs. 1,21,52,190/- on 19.09.2015. During the year under consideration, the assessee has declared gross profit of Rs. 3,55,23,467/- giving G.P. rate of 33.35% on the turnover of Rs. 10,65,32,579/- and net profit of Rs. 1,18,24,765/-giving the NP rate of 11.09% as against gross profit of Rs. 5,29,08,115/- giving 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....
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....same were regularly maintained by the assessee and there is no change in the method of accounting and even no defect was found by the AO. Thus, it was submitted that no disallowance should have been sustained by rejecting the books of account of the assessee. 8.5 On the other hand, the ld. DR relied on the orders of the lower authorities. 8.6 We have heard the rival contentions and perused the materials available on record. We noticed that the Coordinate Bench in ITA No. 420/JP/2017 (vide order dated 30-04-2019)for the Assessment Year 2012-13 in the case of ITO vs Shri Rameshwar 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 ....
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....t giving any show cause notice. 2. No Show cause given: At the very out set we may submit that the AO made the disallowance without providing any opportunity of being heard to the assessee nor he issued any show cause notice before making the disallowance. During the course of assessment proceeding the ld. AO only required the assessee to file the details and reasons of shortage. In response thereto the assessee filed details and reasons of the same. After receiving details and reasons of shortage he did not ask the assessee that the shortage claimed by you is excessive and why not the same should be restricted 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 ....
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....age as specified under the Act as TDS and pays to the Government Exchequer. The amount of TDS represents the amount of income tax of the party on whose behalf the payment was deducted & paid to the Government Exchequer. Thus the TDS amount does not represent the tax of the assessee but it is the tax of the party which has been paid by the assessee. Thus any delay in the payment of TDS by the assessee cannot be linked to the income tax of the assessee. It was held in the matter of DCIT Vs Narayani Ispat Pvt Ltd. By ITAT Kolkata in ITA No. 2127/Kol/2014 that "we hold that the Assessing Officer in the instant case has wrongly applied the principle laid 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 i....
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....ed from them attached herewith. Once the entire tax payable on such income (subjected to TDS), has already been admittedly paid, even if there is no TDS made by the appellant payer, there cannot be any disallowance u/s 40(a)(ia). And in the Act also there is an amendment of Sec. 40(a)(ia) and u/s 201(1) in the finance Act 2012 which provides 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". 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 a....
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....en 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 justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an Assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal 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 la....
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....an amendment has also been made by the Finance Act. 2012 on the basis of decision of Hindustan Coca Cola Beverage Pvt. Ltd. v/s CIT(Supra), wherein it has been provided that the assessee shall not be deemed to be default in respect of such tax if such person (i)has furnished his return of income u/s 139, (ii) has taken into account such sum for computing income in such return of income and, (iii) has paid tax due on the income declared by him in such return of income. The above matter is also directly covered by the decision of this Honble Tribunal in the case of Sh. Rahul Sethi v/s ITO in ITA No. 175/Jodh/2012 dt. 07.06.2013 and followed in the case of ACIT v/s Sh. Ravindra Kumar Yadav ITA No. 341/Jodh/12 dt. 10.01.2014, wherein the facts and circumstances 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....
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..... In ITO v/s Nardev Kumar Gupta 35 CCH 203(Jp)(2013) it has been held that When income of the assessee was computed by applying the gross profit rate, there was no need to look into the provision of Section 40A(3) of the Act. The CIT(A) had rightly deleted separate addition made by the AO u/s 40A(3) of the Act. CIT vs. G.K. Contractor,19 DTR 305; CIT vs. PravinAnd Co. 274 ITR 534; Choudhary Bros in ITA No. 1177/JP/2010 vide order dated 31-05-2010; CIT vs. BanwariLal Banshidhar, 229 ITR 229(Raj.), relied on. In the case of ITO v/s Sadhwani Brothers held that AO having rejected the books of account and applied the net profit rate for the purpose computing the income, no disallowance can be made u/s 40A(3). In the case of ITO v/s Mr. Naresh H. Shah ITA No. 3187/M/2010 dt. 15.07.2011 in this 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....
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....nt. After rejection of books of accounts under section 145(3) of the Act, the only option left with the AO was to frame best judgment under section 144 of the Act. It is further held that where income of appellant was computed while applying the gross profit rate there was no need to look into the other provisions related to allowability of expenses. Hence, considering the implication of rejection of books, we request your good self to please delete the same in the interest of equity and justice. Hence in view of the above facts submissions and legal position the disallowance so made may kindly be deleted in full.'' 10.4 On the other hand, the ld. DR supported the orders of the lower authorities. 10.5 We have heard the rival contentions and perused the materials available on record. From the records, we noticed that the addition 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....
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.... 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 Act 2012and effective1st July 2012, and which provides that "any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an Assessee in default in respect of such tax if such resident-(i)has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and(iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to 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 big....
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....per 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 having been taken into account by the recipients.'' 10.5.1 Keeping in view our above discussions and also 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. It is under this background, the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage Pvt. ....