Income Tax Appellate Tribunal - Jaipur
Deputy Commissioner Of Income Tax vs Metalizing Equipment Co. (P) Ltd. on 16 March, 1995
Equivalent citations: (1996)54TTJ(JP)620
ORDER
PRADEEP PARIKH, A. M. This Departmental appeal arises out of the order of the learned CIT(A) in Appeal No. 39/87-88 dt. 9th Jan., 1991 for asst. yr. 1984-85. As many as four grounds have been raised in this appeal.
2. The first ground of grievance is that the learned CIT(A) erred in allowing additional depreciation and investment allowance on computers. The contention of the Department was that computer was not usable as plant and machinery but was an office equipment. The learned CIT(A), however, gave a finding that the assessee was engaged in the manufacture of pressure blasting machines and their designs were made with the help of computers. For this and such other reasons the learned CIT(A) upheld the claim of the assessee.
3. Before us also the assessee produced evidence of having taken the aid of computers in preparing the designs of the manufactured products. Besides this, inventory control is also an essential part, not only of financial accounting but also of the manufacturing activity as a whole. We are of the opinion that to relegate down the computer merely to the position of an office equipment, is too narrow an outlook as regards the wonders a computer is capable of working. There is hardly any activity where computer cannot be useful and hence there is no reason to disbelieve the assessees version, more so, when positive evidence as regards its use in manufacturing activity is produced. We also derive strength from the decision of the Bombay Bench of the Tribunal in the case of Hindustan Petroleum Corpn. Ltd. vs. IAC (1989) 35 TTJ (Bom) 400 and accordingly confirm the order of the learned CIT(A) on this ground and reject the ground of the Department.
4. The next grievance of the Revenue is to allow depreciation on the assets acquired from a dissolved firm on the book value of the assets and not on the written down value of the assets.
5. The facts, briefly stated, are that earlier the assessee was a partner in the firm of M/s. Metalising Equipment Company. Subsequently, the said firm was dissolved and the assessee-company took over all the assets and liabilities of the dissolved firm at its book value and paid consideration accordingly. The assessee-company claimed depreciation on these assets at the book value at which they were taken over. The Assessing Officer (AO), however, allowed depreciation on the written down value of the erstwhile firm. For this he relied on the decision of the Jaipur Bench of the Tribunal in the case Lalit Exhibitors in ITA No. 73/Jp/86 dt. 13th Oct., 1986. The learned CIT(A) upheld the claim of the assessee on the ground that under the facts and circumstances of the case, Expln. 3 to s. 43(1) was not applicable.
6. The learned counsel for the assessee repeated his arguments before us as were made before the learned CIT(A).
7. We are inclined to agree with the learned CIT(A). Any device which has the effect of reducing the incidence of tax, is not necessarily a colourful device liable to be demolished by the ratio of the Supreme Courts decision in the McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 case. In order to invoke the provisions of Expln. 3 to s. 43(1), it is incumbent upon the AO first to establish that the device adopted by the assessee was either contrary to any law, or against accounting principles or against accepted practices and by using such device singly or in combination with others, it has resulted in depriving the exchequer of its legitimate revenue. Unless these two conditions are fulfilled, the AO is not empowered to charge the assessee with the allegation of dodging the Revenue.
8. In the instant case, there is no finding by the Assessing Officer that entering in the firm as a partner, dissolution of the firm, taking over of the business by the assessee-company and its assets and liabilities, and so on, were a set of transactions, though lawful, yet aimed at deceiving the Department. We are fortified in our views by the decision of the Cochin Bench of the Tribunal in the case of Poulose & Matthen (P) Ltd. vs. Dy. CIT (1992) 44 TTJ (Coch) 600 : (1992) 43 ITD 141 (Coch). Accordingly, we uphold the decision of the learned CIT(A) on this point also and reject the ground raised by the Department.
9. The third ground relates to cancelling interest charged under s. 216. The learned CIT(A) cancelled the interest so levied, both on legal grounds as well as on the merits of the case.
10. We have considered the submissions and the material on record. On a careful reading of s. 216, it would be seen that the section does not pertain to simple overall under-estimation or absence of estimation of income. It pertains to such an under-estimation which has the effect of deferring the payment of advance tax from the statutory dates relating to first two instalments, to the date of third instalment or thereafter. In other words, it envisages a situation, where certain income has already accrued or is already received by the assessee before making estimates for the first or second instalment. Such income may have been credited in the books on appropriate dates, but while making estimate, may wrongfully conceal it, or say even make a wrongful entry in the books at a date later than the dates on which the instalments are falling due. In either case, the effect is that the advance tax which the assessee was liable to pay either on first instalment or the second instalment becoming due, gets wrongfully deferred to the third instalment. These situations are only illustrative, but these and such other situations or conduct of the assessee may lead to the postponement of payment of advance tax, and the law, therefore, seeks to levy interest on such wrongful postponements. Hence, before levying interest under s. 216, it becomes imperative for the AO to give an opportunity to the assessee to explain the situation, and if not satisfied, may levy such interest. What has to be proved is, the wrongful postponement. In every case, postponement effect on account of under-estimation cannot be taken as a jurisdictional fact which entitles the AO to proceed mechanically. It is for this reason, orders under s. 216 are made specifically appealable and hence imposes a duty on the AO to pass speaking orders while levying interest under s. 216. The Board has also expressed similar view and imposed a duty on the AO to pass speaking orders under s. 216.
11. In the instant case, it is not disputed that the AO has not passed a speaking order, but has proceeded mechanically. On this ground itself the levy was rightfully struck down by the learned CIT(A) and we confirm the same. Since the interest levied is cancelled on legal grounds, going into the merits would not serve any purpose and hence we do not venture into it at all. The ground of the Department is accordingly rejected.
12. The last ground pertains to the allowance of depreciation on such costs of the assets as are reduced by the amount of subsidy received by the assessee. This ground is also dismissed in view of the decision of the Supreme Court in the case of CIT vs. P. J. Chemicals Ltd. (1994) 210 ITR 830 (SC) which was decided in favour of the assessee.
13. In the result, the appeal is dismissed.