Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BBENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal at the instance of the assessee is directed against the order of ld. CIT (A)/NFAC dated 10/01/2025 vide DIN and Order No. ITBA/NFAC/S/250/2024-25/1072089214(1) passed under section 250 of the Income Tax Act, 1961 (in short “the Act”) for the Assessment Year 2021-22.
The assessee has raised the following grounds of appeal- 1) TheCommissioner of Income Tax (Appeals) has erred on law and facts of the case in confirming the rectification order passed u/ s. 154 of the Income Tax Act, 1961 dated 16/02/2024 by the learned Assessing Officer without appreciating the facts that the appellant/ assessee is eligible for claiming Thirty percent deprecation on goods carriage vehicles used in transportation business. Thus, it is prayed •that the disallowance and addition of Rs.25,04,887/- may kindly be deleted.
Vikas Goyal, Bangalore Page 2 of 11 2) The Commissioner of Income Tax (Appeals) has erred on facts of the case and law that suo-moto rectification order passed u/s. 154 of the Act on 16/02/2024 is without affording opportunity of being heard to the appellant and therefore the rectification order passed on 16/02/2024 is illegal and against the principle of natural justice.
The brief fact of the case are that the assessee is engaged in the business of (i) Sale of cement, sanitary items and hardware items and (ii) Carriage and forward of goods (transportation business). The assessee filed his return of income for the AY 2021- 22 u/s. 139(1) of the Act on 14/02/2022 declaring total income of Rs.67,84,820/- and paid the total tax and interest amounting to Rs.21,57,843/-. The said return of income was thereafter processed by the CPC and accordingly intimation u/s. 143(1) of the Act was passed on 05/12/2022 by computing the total income at Rs.92,89,710/- as against the returned income of Rs.67,84,820/- and accordingly raised the tax demand of Rs.11,94,370/-. While passing the intimation u/s. 143(1) of the Act, the total depreciation as debited to profit and loss account amounting to Rs.73,62,335/- was restricted to Rs.48,57,448/-& thus the CPC only disallowed the deprecation amounting to Rs.25,04,887/-. Further, the prepaid taxes claimed by the assessee in the return of income amounting to Rs.21,57,843/- was restricted to Rs.21,13,083/- by not giving the TDS credit of Rs.44,760/- due to mismatch between tax credit claimed by the assessee and the tax credit as reflected in Form 26AS.
3.1 Aggrieved by the aforesaid intimation dated 05/12/2022 passed by the CPC u/s 143(1) of the Act, the assessee filed grievance application on 06/02/2024 stating that in the said intimation, the depreciation amounting to Rs.48,57,448/- had been allowed instead of Rs.73,62,335/- as claimed and the TDS credit amounting to Rs.44,760/- was not been considered and accordingly Vikas Goyal, Bangalore Page 3 of 11 charged interest u/s.234A, 234B and 234C resulting in the total tax demand of Rs.11,94,370/-. The ld. Deputy Commissioner of Income Tax, Circle-7(1)(1), Bangalore thereafter passed a rectification order u/s. 154 of the Act on 16/02/2024 by merely stating that the depreciation computed by CPC on plant and machinery of Rs.43,18,842/- which is @ of 15% of Rs.2,87,92,278/- is found to be correct. The excess depreciation claimed by the assessee is hereby rejected and the TDS credit claimed by the assessee found to be correct and accordingly determine the total tax payable amounting to Rs.13,10,551/- after allowing the TDS credit of Rs.44,760/- and levied interest u/s. 220(2) of the Act from 05/12/2022 to 16/02/2024 amounting to Rs.1,60,945/-.
Again, aggrieved by the order of the ld. Deputy Commissioner of Income Tax, Circle-7(1)(1),Bangalore dated 16/02/2024, the assessee preferred an appeal before the ld.CIT(A)/NFAC.
The ld.CIT (A)/NFAC observed that the sole issue involved is related to allowing the deprecation @ 15% on vehicles as against assessee’s claim of depreciation @ 30%. The assessee contended that he is eligible for 30% depreciation on goods carriage vehicles used in transportation business. Further, the assessee alleged that the AO while passing suo-moto rectification order u/s. 154 of the Act, did not afford opportunity to being heard to the assessee and therefore, the impound rectification order passed on 16/02/2024 is illegal and against the principals of natural justice.
5.1 The ld.CIT (A)/NFAC did not accept the contention of the assessee by holding that the order passed by the AO is not a suo- moto order but the same was in pursuance to the assessee’s claim through the grievance petition. The ld. CIT(A)/NFAC held that it was not the intention of the AO to make an amendment to intimation Vikas Goyal, Bangalore Page 4 of 11 u/s. 143(1) of the Act which had the effect of enhancing the assessment or reducing the refund or otherwise increasing the liability of the assessee and hence the provision of section 154(3) of the Act do not come in to play. Further, the ld.CIT (A)/NFAC was of the view that under the provisions of section 154 of the Act, only mistake which is apparent, patent and obvious from the case record can be rectified and where process of detail verification is required, the same cannot be considered u/s. 154 of the Act. In the present case the claim of depreciation on vehicle used in the business of carriage and forward need detail verification of facts and necessary documentary evidences, which is not permissible within the meaning of provisions u/s. 154 of the Act.
5.2 Further, with regard to claim of depreciation, the ld.CIT (A)/NFAC held that as per I. T. Act, the depreciation allowable on plant and machinery @ 15% which had been correctly computed by the AO (CPC) in the intimation u/s. 143 of the Act. Therefore, there do not appear any mistake apparent from intimation u/s. 143(1) of the Act and hence the impound rectification order passed by the AO is in accordance of provision of law and the same is upheld.
Again, aggrieved by the order of ld.CIT (A)/NFAC dated 10/01/2025, the assessee has filed the present appeal before this Tribunal. The assessee has also filed a paper book comprising 95 pages along with the written submission, copy of clearing and forwarding agency agreement with ACC limited and copy of Form- 26AS in support of his case.
Before us, the ld. A.R. of the assessee Sri. Venkat Raj, CA vehemently submitted that the observations of the ld.CIT (A)/NFAC that the assessee had claimed depreciation of Rs.68,23,729/- on the amount on which full depreciation is to be allowed of Vikas Goyal, Bangalore Page 5 of 11 Rs.2,87,92,278/- which works out @ 23.699% are factually incorrect. In fact the assessee had claimed depreciation @ 30% (Rs.50,09,776/-) on goods carriage commercial vehicles (trucks and lorries) and the remaining depreciation @ 15% (Rs.18,13,953) on other vehicles and plant and machinery. Further, the ld. A.R. of the assessee submitted that the intimation passed u/s. 143(1) of the Act by disallowing Rs.25,04,890/- is illegal & bad in law since the aspect which requires deeper examination of records and any matter which is debatable in nature cannot be subjected to prima facie adjustment u/s. 143(1) of the Act. Further, the ld. A.R of the assessee vehemently submitted that the ld. Deputy Commissioner, Circle-7(1)(1),Bangalore had increased the tax liability of the assessee from Rs.11,94,370/- to Rs.13,10,551/- without providing opportunity of being heard which is a gross violation of principal of natural justice.
The ld. D.R. on other hand supported the order of the authorities below and submitted that the assessee failed to establish that the vehicle were in fact used in a business of running them on a hire and accordingly the CPC had rightly worked out the depreciation on plant and machinery @ 15% instead of 30% as claimed by the assessee.
We have heard the rival submission and perused the material available on record. The assessee in the present case claimed to be engaged in the business activities of (i) Sale of cement, sanitary items and hardware items and (ii) Carriage and forward of goods (transportation business). Ongoing through the profit and loss account, we take note of the fact that assessee had declared sales/ turnover from sale of cement, sanitary, hardware and lighting and CPVC, GGBS amounting to Rs.31,14,20,620/- and from transportation charges amounting to Rs.10,37,36,440/-. It is Vikas Goyal, Bangalore Page 6 of 11 submitted that the assessee is also engaged in the business of carriage and forward (transportation of goods business and therefore claimed the higher rate of depreciation @ 30% on goods carriage vehicles aggregating to Rs.50,09,776/-. The CPC while passing the intimation u/s. 143(1) of the Act disallowed the claim of depreciation @ 30% on such goods carriage vehicles and restricted the claim to the tune of 15% as allowable on other plant and machinery. Thus, the only dispute in the present case is with regard to allowing of depreciation @ 15% on goods carriage vehicles as against assessee’s claim of depreciation @30%. We are of the considered opinion that the CPC while passing the intimation u/s. 143(1) of the Act, ought not to have disallowed the claim of depreciation outrightly as the aspect which requires deeper examination of records and any matter which is debatable in nature cannot be subjected to prima facie adjustment u/s. 143(1) of the Act. While passing the intimation u/s. 143(1) of the Act, the total income or loss shall be computed after making the adjustment towards the following:- i. Any arithmetical error in the return; ii. An incorrect claim, if such incorrect claim is apparent from any information in the return; iii. Disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified u/s. sub-section (1) of section 139; iv. Disallowance of expenditure (or increase in income) indicated in the audit report but not taken into account in computing the total income in the return; v. Disallowance of deduction claimed under (section 10AA or under any provisions of Chapter VI-A under the heading “C- Deductions is respect of certain incomes”, if) the return is furnished beyond the due date specified under sub section (1) of section 139; or -------- 9.1 Thus, from the plain reading of the above, we can state that only arithmetical error in the return as well as an incorrect claim, if such incorrect claim is apparent from any information in the return can only be adjusted while computing the total income u/s. 143(1) of the Act. The term “an incorrect claim apparent from any information in the return” has been defined and means a claim, on the basis of an entry, in the return- i. of an item, which is inconsistent with another entry of the same or some other item in such return; ii. in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or iii. in respect of deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction.
Thus, where there is no information available on the basis of an entry in the return that prima facie a claim or allowance is inadmissible; adjustment u/s. 143(1) cannot be made. We are of the considered opinion that where the claim as made by the assessee requires further verification or examination, the same cannot be disallowed outrightly while processing the return of income u/s. 143(1) of the Act. Further, we are also of the considered opinion that where the issue is arguable or two views are possible, it is “debatable” and therefore cannot be adjusted with the total income declared by the assessee in his return of income while processing intimation u/s. 143(1) of the Act. As the ld.CIT (A)/NFAC observed that only mistake which is apparent, patent and obvious from the case record can be rectified and where process of the detail verification is required, the same cannot be considered u/s. 154 of the Act, the same principles also applied while Vikas Goyal, Bangalore Page 8 of 11 processing the return u/s. 143(1) of the Act. The CBDT vide its circular No.581 dated 28/09/1990 had reiterate that the scope of the powers to make prima facie adjustments under section 143(1) of the Act is somewhat co-terminus with the power to rectify a mistake apparent from the record under section 154 of the Act.
9.2 The Hon’ble Bombay High Court in the case of Khatau Junkar Ltd. v. K.S. Pathania, Dy. CIT [1992] 196 ITR 55 (Bom.) has held as follows- “This is because the scope of the powers to make prima facie adjustments under s. 143(1)(a) is somewhat co-terminous with the power to rectify a mistake apparent from the record under s. 154 In its literal sense, 'prima facie' means on the fact of it. Hence, on the face of the return and the documents and accounts accompanying it, the deduction claimed must be inadmissible. Only then can it be disallowed under the proviso to s. 143(1)(a). If any further enquiry is necessary, or if the ITO feels that further proof is required in connection with the claim for deduction, he will have to issue a notice under sub-s. (2) of s. 143.”
Thus it is a well settled law that the adjustment u/s. 143(1)(a) of the Act are confined to the issues that are apparent from the return and fall within the specific clauses of that provision (arithmetical errors, incorrect claims apparent from the return, specified disallowance etc.) Thus, only clear and prima facie adjustments apparent from the return are permissible while passing an intimation u/s. 143(1) of the Act. Where the matters requires examination of law or facts on which two views are reasonably possible, it goes beyond the limited, mechanical scope of processing return u/s. 143(1) of the Act and must be taken up, if at all, in scrutiny or re-assessment proceedings.
9.3 The claim may be treated as debatable where the claim cannot be accepted or rejected merely by looking at the ITR, accompanying schedules and obvious statutory limits, but needs further enquiry, verification, or appreciation of facts for example in the present case factual use of the assets, nature of business carried on by the assessee and rate of depreciation to be applied etc. As rightly observed by the ld.CIT (A)/NFAC, in the instant case the claim of depreciation on Goods carriage vehicles used in the business of carriage and forward (transportation of goods) needs detailed verification of facts and necessary documentary evidence and therefore we are also of the consider opinion that the same cannot be disallowed while processing the return of income u/s. 143(1) of the Act. The “prima facie” in our opinion u/s. 143(1) of the Act is an obvious, self-evident error that can be detected and corrected merely from the return and accompanying schedules, without investigation or debate on facts or law. Thus, the “prima facie” can be explained as “on the face of it” meaning that the error must be clear by simply reading the return, accounts and annexures, such as totaling error or a claim plainly contrary to a statutory cap visible from the same return. The power is therefore confined to the arithmetical errors and claims that are prima facie inadmissible or incorrect on the basis of the information already on record and not to the matters requiring enquiry, verification or interpretation.
9.4 In the present case, the assessee had claimed higher depreciation of 30% on goods carriage vehicles used for his transportation business. In our opinion, the assessee is eligible for the higher rate of depreciation i.e 30% on the vehicles that are running on hire which includes use in assessee’s own business of transportation of goods on hire. The inference is that the vehicle Vikas Goyal, Bangalore Page 10 of 11 that runs on hire would deprecate faster. Such view has become final is no longer res-integra after the decision of Hon’ble Supreme Court in the case of Gupta Global Exim Pvt. Ltd. (2008) 305 ITR 132(SC) wherein it is held as under:
Under sub-item 2(ii) of Item III of Appendix I of the Income Tax Rules, 1962, higher rate of depreciation is admissible on motor trucks used in a business of running them on hire. Therefore, the user of the same in the business of transportation of the assessee is the test.
6.5 Further, in circular No.652 dated 14.06.1993, it has been stated as under: “In Board Circular No.609, dated 29.07.1991 (SI. No.224) it was clarified that where a tour operator or travel agent uses motor buses or motor taxi Owned by him in providing transportation services to tourists, higher rate of depreciation would be allowed on such vehicles. It is further clarified that higher deprecation will also be admissible on motor lorries used in the assessee’s business of transportation of goods on hire. The higher rate of deprecation, however, will not apply if the motor buses, motor lorries, etc. are used in some other non-hiring business of the assessee.
9.5 In view of the discussions above, the disallowance of depreciation as made by the CPC while processing the return of income u/s. 143(1) of the Act is unjustifiable and accordingly, we direct the AO to delete the addition as made u/s. 143(1) of the Act amounting to Rs. 25,04,890/-.
In the result appeal filed by the assessee is allowed.