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Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE
Before: SHRI N.V. VASUDEVANAND SHRI B.R. BASKARAN, ACCOUTANT MEMBER
Page 2 of 8 O R D E R PERB.R. BASKARAN, ACCOUNTANT MEMBER:
The appeal filed by the revenue and the cross objection filed by the assessee are directed against the order dated 20-02-2019 passed by Ld CIT(A)-4, Bengaluru and they relate to the assessment year 2013-14.
The revenue is aggrieved by the decision of Ld CIT(A) in holding that the additions made by the AO in the rectification order passed u/s 154 of the Act is debatable in nature and accordingly deleting the additions.
In the cross objection, the assessee is contending the decision of Ld CIT(A) in holding that there was no violation of principles of natural justice committed by AO while passing the rectification order.
The facts relating to the case are stated in brief. The assessment of the year under consideration was completed by the AO u/s 143(3) of the Act on 29.11.2016. Subsequently, the AO noticed that there are certain mistakes apparent from record in the assessment order passed by him. Accordingly he initiated rectification proceedings u/s 154 of the Act on the following issues:-
C.O. No.52/Bang/2019 Msource (India) Pvt. Ltd., Bangalore
Page 3 of 8 (a) The assessee had claimed depreciation at the higher rate of 60%, as applicable to computers, on certain items of plant and machinery. The same was allowed in the original assessment order. The assessee had classified those machineries as “Plant and Machinery –General” and “Plant and Machinery – Office equipments”. The AO took the view that the depreciation is allowable at normal rates and not @ 60% as claimed by the assessee. (b) The assessee had disallowed a sum of Rs.11,33,846/- u/s 14A of the Act and the same was accepted in the original assessment order. The AO noticed that the provisions of Rule 8D were omitted to be applied for computing disallowance u/s 14A of the Act. If the provisions of Rule 8D(2)(iii) is applied, the disallowance worked out to Rs.1,40,22,353/-.
When the notice dated 04-12-2017 issued by the AO u/s 154 of the Act was received by the assessee, it sought adjournment requesting the AO to give next date of hearing after 5 – 6 weeks. It appears that the AO also waited for the reply from the assessee during the above said period. Since no reply was received, the AO passed the rectification order u/s 154 of the Act disallowing depreciation claim to the tune of Rs.38,27,587/- and enhancing the disallowance u/s 14A of the Act by Rs.1,28,88,507/-.
The assessee challenged the rectification order by filing appeal before Ld. CIT(A). The assessee contended before him that the A.O. did not provide sufficient opportunity and hence, there was C.O. No.52/Bang/2019 Msource (India) Pvt. Ltd., Bangalore
Page 4 of 8 violation of principles of natural justice. The said claim of the assessee was rejected by the Ld. CIT(A). With regard to additions made by the A.O., the Ld. CIT(A) deleted them by holding that both the issues are debatable in nature and hence the A.O. could not have passed the rectification order u/s 154 of the Act. Both the parties are aggrieved by the order so passed by the Ld. CIT(A).
We heard the parties and perused the record. The Ld. A.R. submitted that the depreciation claimed @ 60% by the assessee relate to computers and peripherals attached to the computer. He submitted that the nomenclature of the heading was mentioned as “Plant and Machinery-General” and “Plant and Machinery- Office”, but the items included in these two categories are in the nature of network switch, routers, flash disk, ports, printer, projector, scanner, head set, etc. The Ld. A.R. submitted that all these items also are required to be classified as computers and hence the assessee has treated them as Computers and accordingly claimed depreciation @ 60%. Accordingly, the Ld. A.R. submitted that the A.O. was not justified in restricting the rate of depreciation to 10%/15%, without making any further examination, presuming that they are not computers.
C.O. No.52/Bang/2019 Msource (India) Pvt. Ltd., Bangalore
Page 5 of 8 8. On the contrary, Ld. D.R. submitted that the assessee did not give any breakup details of items that were included under the heading “Plant and Machinery - General” and “Plant and Machinery - Office”. Hence, on the face of it, it appeared that the assessee has claimed higher rate of depreciation as applicable to computers on the items, which are otherwise eligible for depreciation @ 15%/10%.
The Ld. D.R. further submitted that the issue is not debatable one as held by Ld CIT(A), as the rate of depreciation applicable to various assets is specific one.
The Ld. A.R., on the contrary, submitted that the assessee would be in a position to furnish the breakup details of various items included under the head “Plant and Machinery - General” and “Plant and Machinery - Office” if an opportunity is provided. The Ld. A.R. also submitted that the A.O. has passed the rectification order without providing adequate opportunity to the assessee.
Having heard the rival submissions on this issue, we are of the view that this issue requires fresh examination at the end of the A.O. for the reason that:-
a) The assessee was not provided with adequate opportunity to present its case before the A.O.
C.O. No.52/Bang/2019 Msource (India) Pvt. Ltd., Bangalore
Page 6 of 8 b) The assessee also pleads for one opportunity to furnish breakup details of items included under the heads “Plant and Machinery - General” and “Plant and Machinery - Office”.
Accordingly, we set aside the order passed by Ld. CIT(A) on this issue and restore the same to the file of the A.O. for examining it afresh.
The next issue relates to addition made u/s 14A of the Act.
The assessee had disallowed a sum of Rs.11.33 lakhs u/s 14A of the Act. The A.O. by applying the provisions of section 14A of the Act under rule 8D(2)(iii) has enhanced the disallowance to Rs.1,40,22,353/-. The Ld. A.R. submitted that the assessee has made investments only in mutual funds, which actually does not require any expenditure required to be incurred. He submitted that the assessee has, however, disallowed a sum of Rs.11.33 lakhs in order to comply with the provisions of section 14A of the Act.
Hence, there is no requirement to apply provisions of rule 8D(2)(iii).
The Ld. A.R. submitted that the A.O. has applied provisions of rule 8D(2)(iii) without affording adequate opportunity to the assessee.
He submitted that assessee should be in a position to explain its case before the A.O., if an opportunity is given to the assessee.
C.O. No.52/Bang/2019 Msource (India) Pvt. Ltd., Bangalore
Page 7 of 8 12. The Ld. D.R. also agreed to the same. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue also and restore the same to the file of the A.O. for examining it afresh.
Since we have restored both the issues to the file of the A.O., the cross objection filed by the assessee shall become infructuous.
Needless to mention, the assessee should be given proper opportunity of being heard by the A.O.
In the result, the appeal filed by the revenue and the cross objection filed by the assessee are treated as allowed for statistical purposes.
Order pronounced in the open court on 29.06.2020