Income Tax Appellate Tribunal - Hyderabad
Mold Tek Plastics Ltd. vs Deputy Commissioner Of Income Tax on 18 October, 2001
Equivalent citations: [2002]81ITD251(HYD)
ORDER
M.V.R. Prasad, A.M.
1. These are cross-appeals--one by the assesses and the other by the Department--for the asst. yr. 1994-95. They are directed against the order of the CIT(A)-I, Hyderabad, dt, 12th Nov., 1996, and arise from the older under Section 154, dt. 23rd July, 1996, passed by the AO on an application made by the assessee, seeking rectification of intimation under Section 143(1)(a) of the Act, dt. 25th Jan., 1996, in which certain adjustments were made by the AO.
2. The assessee-company filed a return of income for the asst. yr. 1994-95, disclosing an income of Rs. 24,36,889. In its return, the assessee claimed depreciation of Rs. 27,90.603 in respect of what it called 'old division' and of Rs. 41,99,618 in respect of what it called 'new division'. In the old division, the assessee claimed depreciation on, what it called, 'temporary structures' together with furniture and fixtures. Some of the temporary structures were shown as held for more than 180 days whereas others were shown as held for less than 180 days. Depreciation was claimed on the said temporary structures at 100 per cent, even though on other furniture and fixtures, along with which depreciation on temporary structures was claimed, depreciation claimed was only at 10 per cent, The AO allowed the claim for cent per cent depreciation on the temporary structures, but in terras of proviso to Section 32(1) restricted the said claim of the assessee to 50 per cent in relation to temporary structures held for less than 180 days. On this basis, he computed the allowable depreciation on temporary structures held for less than 180 days at Rs. 5,417 as against the claim of the assessee for Rs. 10,834 in relation to old division. There were other temporary structures shown in the new division, and their cost was shown at Rs. 1,94,017, and they were shown by the assessee itself to have been used for less than 180 days, but did not restrict the depreciation thereof, in terms of the proviso to Section 32(1). In terms of the said proviso, the AO allowed the claim for depreciation on these temporary structures also at 50 per cent, as they were used for less than 180 days, and thus made an addition of Rs. 97,009 in relation to temporary structures of new division.
3. The next item, which is under dispute, is service line charges, shown under electrical installations in the 'New Division' The assessee in the depreciation statement, showed this item at Sl. No. 4, under electrical installations. The amount of service line charges was shown, as held for less than 180 days, and at Rs. 1,75,000. Assessee, however, claimed cent per cent depreciation on this amount of Rs. 1,75,000. The AO restricted the claim for depreciation rate to 25 per cent as applicable to plant and machinery, and further restricted the eligible depreciation by 50 per cent in terms of proviso to Section 32(1), as the item in question was shown as held for less than 180 days. The addition that resulted on this count, was Rs. 1,53,125.
4. Another item of dispute is 'computer software' which is shown against SI. No. 11 of the depreciation statement. The cost of the software is shown at Rs 1,55,000, and is also reflected as held for less than 180 days. In relation to this item also, assessee claimed depreciation at 100 per cent. The AO allowed depreciation on this item also at 25 per cent along with computers, but further restricted the allowable quantum to 50 per cent in terms of proviso to Section 32(1). The resultant addition on this count was Rs. 1,35,625,
5. Pursuant to the intimation of the AO, dt, 25th Jan., 1996, under Section 143(1)(a), making inter alia, adjustments in relation to the above disallowances, assessee filed a letter dt. (sic) 1996, addressed to the AO, which can be seen at pp. 5 to 8 of the assessee's paper book filed before us, in which it is claimed that the adjustments made by the AO were not in the nature or prima facie inadmisibles, and so, were beyond the scope of Section 143(1)(a). It was also contended that the claims made by the assessee were allowable under Section 37 of the Act, as revenue expenditure, The relevant portion of the said letter reads as under :
(a) Service line charges The company paid Rs. 1,75,000 as charges to APSEB for providing electrical service lines. The service lines are the property of APSEB but it insists upon every industrial consumer to reimburse it, the cost thereof, prior to giving electrical connection. You have allowed 10 per cent depreciation as against 100 per cent deduction as revenue expenditure under Section 37(1) of the IT Act. For the sake of convenience the company included the service charges under depreciation schedule but the provisions of Section 32 are not applicable, since this is not a fixed asset. Numerous High Courts have held that this amount is revenue expenditure and it should be deducted from the profits of the business. The relevant case laws are mentioned below :
--CIT v. Birla Jute Manufacturing Company Ltd (1990) 182 ITR 497 (Cal)
--Mafatlal Fine Spg. & Wvg. Company Ltd. v. CIT (1994) 206 ITR 578 (Bom) The disallowance made by you is not 'prima facie' and kindly therefore delete the disallowance.
(b) Temporary structures :
The company incurred Rs. 1,94,017 and Rs. 1,11,435 towards temporary structures in its office premises. The details of these are given under additions to fixed assets. These comprise of false ceilings and partitions and installed in office premises leased by the assessee-company. Consequently the entire expenditure is revenue and 100 per cent thereof is allowable under Section 37(1) of IT Act as held in Modi Spg. & Wvg. Mills Co. Ltd. v. CIT (1993) 200 ITR 544 (Del).
For the sake of convenience the company included these items under depreciation schedule, but since no enduring benefit arises the same should be allowed as revenue expenditure under Section 37(1) without reference to provisions of Section 32.
In the light of the above it is clear that the above disallowance is not a 'prima facie' adjustment and hence request you to delete the same.
.....
(d) Computer software :
The company incurred an amount of Rs. 1,55,000 [vide invoice No. ZCL (Bom)/05/8058, dt. 26th March, 1994, of Zenith Computers Ltd. Bombay (copy enclosed)] towards purchase of computer software, The said computer software is subject to accelerated obsolescence in the present times and, therefore, the company claimed the entire expenditure as revenue under Section 37(1). Claim was made under depreciation schedule instead of revenue expenditure by oversight. Accordingly this disallowance is not a 'prima facie' adjustment and therefore, you are requested to delete the same.
.....
It may be observed that in the said letter, seeking rectification of the intimation under Section 154, the assessee has made an volte face and claimed deduction for (a) service line charges; (b) temporary structures: and (c) computer software, not under Section 32, as it originally did in the statement accompanying the return, but under Section 37 of the IT Act, which is altogether a different claim.
6. The AO rejected the plea of the assessee for rectification of the intimation, by his order under Section 154 of the Act, with the following observations in relation to the above three items :
"8.3. To sum up, the allow/ability of otherwise of the expenditure incurred by the assessee of Rs. 1,75,000 on APSEB Service Lines; temporary structures of Rs. 1,94,017 and Rs. 1,11,435, which are in the nature of furniture and fittings; and expenditure on computer software of Rs. 1,55,000, as revenue expenditure under Section 37 can be inquired into only under Section 143(3) and not under Section 143(1)(a). Since the assessee has itself claimed depreciation under Section 32 in respect of APSEB service lines, temporary structures and computer software, for which assets no depreciation rate has been prescribed, depreciation has correctly been worked out as per the Depreciation Table under Appendix-I of IT Rules, 1962. Therefore, there is no mistake apparent from record to be rectified under Section 154, inasmuch as the excess depreciation was worked out and prima facie adjustment thereof was made, based on the material available at the time of processing of the return. Therefore, the assessee's contention in this regard is rejected."
7. When the matter was carried in appeal, the CIT(A) upheld the order of the AO passed under Section 154, on the above aspect, with the following remarks :
"7........ In the present case the appellant in its Depreciation Statement enclosed with the return of income included temporary structures under the group 'Furniture & Fixtures'. Similarly, service line charges have also been incorporated in the Depreciation Statement as an asset under the head 'Electrical Installations' and depreciation charged thereon (Item No. 4), Likewise, computer software has also been capitalised and included as an asset in the depreciation statement by the appellant itself. The AO, therefore, proceeded on the information available in the depreciation statement and allowed depreciation on the aforesaid items at appropriate rates. If the appellant was of the view that such expenses should not have been capitalised and should be debited to the P&L a/c as revenue expenditure nothing prevented the appellant from rectifying its own mistakes, real or perceived, though a revised return at the appropriate stage. Since the AO only acted on the information furnished by the appellant in the statements accompanying the return, there was no mistake, apparent or obvious, committed by the AO which could be rectified under Section 154 of the Act............"
Aggrieved by the action of the Revenue authorities on the above issue, assessee preferred the present appeal.
8. Before us, the learned counsel for the assessee invited our attention to the provisions of Section 143(1)(a) as they stood during the relevant period and mentioned that in terms of Clause (ii) of proviso to Section 143(1)(a), it was incumbent on the AO to allow any loss, deduction, allowance or relief, which is prima facie admissible to the assessee and not claimed in the return. So, it is claimed that the AO should have allowed the claim for cent per cent write off of expenditure on temporary structures, services line charges and computer software under Section 37, if he was of the view that the assessee was not entitled for cent per cent write off under Section 32. It is also claimed that what can be added as prima facie inadmissible in terms of Section 143(1)(a) is only items on which there can be no debate. For this proposition, he relied on the decision of the Bombay High Court in the case of Khatau Junkar Ltd. v. K.S. Pathania, Dy. CIT and Anr. (1992) 196 ITR 55 (Bom) wherein it was held that no adjustment on a debatable issue can be made in terras of Section 143(1)(a) to the prejudice of the assesses. For the same proposition, he also relied on the decision of the Hon'ble Calcutta High Court in Modem Fibotex Ltd. v. Dy. CIT (1995) 212 ITR 496 (Cal), wherein it was held that scope for adjustments under Section 143(1)(a) of the Act is limited not only to the obvious but also to that which is deductible from the return as filed without doubt or debate. He also referred to the decision of the Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd v. CIT (1989) 177 ITR 377 (SC) and in Empire Jute Company Ltd v. CIT (1980) 124 ITR 1 (SC), which laid down the guidelines for the distinction between capital expenditure and revenue expenditure. In the light of these decisions, it is claimed that the issue whether the assessee is entitled for the deduction of the claims made by it in respect of the three items, viz., temporary structures, service line charges and computer software, in terms of Section 37 of the Act is at least debatable, and so, the AO was not justified in making the impugned adjustments, while processing the return under Section 143(1)(a).
9. The learned Departmental Representative, on the other hand, relied on the orders of the Revenue authorities, and submitted that the impugned adjustments made by the AO were just and proper.
10. We are of the view that the impugned orders of the Revenue authorities on the point at issue deserve to be upheld, The assessee clearly capitalised the three items, i.e., temporary structures, service line charges and computer software, and showed them as depreciable assets in the depreciation chart filed by it and claimed cent per cent depreciation thereon. So, the only question open for consideration before the AO while processing the return under Section 143(1)(a) was whether the assessee correctly claimed the depreciation on the three items in question. The assessee did not make any alternate claim to write off the three items in question, as revenue expenditure. It hardly needs to be mentioned that while processing the return under Section 143(1)(a), the AO was not empowered to go beyond the return and the statements accompanying the return. In the statement accompanying the return, the assessee claimed depreciation on the three items in question at specified rates. So. while processing the return, the AO could go into the question relating to the claim for depreciation, considering (a) whether the asset in question is depreciable; (b) if so, the block in which the particular asset falls; and (c) the rate of depreciation applicable and if the said rate has to be restricted in terms of proviso to Section 32(1) for use for less than 180 days. It is only these questions that could be gone into for making any adjustments, while processing the return under Section 143(1)(a), provided it is not of a debatable nature. It is too much to expect the AO to consider whether the claim of the assessee can be allowed under Section 37 as revenue expenditure, if he comes to the conclusion that the depreciation as claimed is not allowable. We do not think that the provisions of Clause (ii) of proviso of Section 143(1)(a), on which the learned counsel for the assessee relied, cast any such obligation or duty on the AO. We are of the view that even in the name of equity and justice to the assesses, the AO cannot be expected to take on the role of a tax consultant for the assessee, and to see the other provisions under which better relief or the relief claimed, can be granted.
11. The provisions of Section 154 are meant to rectify an apparent error committed by the AO. They cannot be sought to be invoked to rectify an error committed by the assessee while filing the return of income. If the assessee has committed a bona fide error in the return, and thereby, has incurred unintended hardship, there are other provisions like Section 264 of the Act, under which remedy can be sought. This is the ratio of the decision of the Bombay Bench of the Tribunal in Mrs. Freny S. Contractor v. Dy. CIT (1999) 63 TTJ (Mumbai)(TM) 758 : (2000) 245 ITR 83 (AT). Before us, the learned counsel for the assessee tried to argue that this decision is distinguishable inasmuch as in that case the assessee did not make any claim at all, but in the present case the assessee did make a claim though under a wrong section, i.e., under Section 32. We are of the view that in the present case it is not simply a question of citing wrong section. Since the assessee has clearly capitalised the expenditure relating to the three items in question in support of a claim. The result of a claim for cent per cent depreciation and cent per cent write off as revenue expenditure may have the same tax consequence. But, they are two different claims, arising out of two different situations. It is not as if the AO, while processing the return under Section 143(1)(a), confused between the two situations and made any adjustments either in favour or to the prejudice of the assessee. We are of the view that the cases cited by the learned counsel for the assessee are not of any assistance. We have no quarrel with the proposition that no adjustment on a debatable issue can be made while processing the return under Section 143(1)(a), which is the principle laid down by a number of High Courts, including Hon'ble Bombay High Court in the case of Khatau Junkar (supra), cited by the learned counsel for the assessee. In the present case, the adjustments made to our mind, are not of a debatable nature. So far as the temporary structures are concerned, the assessee included them under furniture and fittings and claimed cent per cent depreciation. The AO could have restricted the depreciation on the temporary structures to 10 per cent or 15 per cent, which are the rates applicable to furniture and fittings, as per Appendix-I of the IT Rules. The AO, however, went along with the assessee and allowed 100 per cent depreciation, presumably taking them as temporary structures falling under certain block of buildings, but restricted the claim to only 50 per cent thereof for user for less than 180 days in terms of proviso to Section 32(1). We do not see anything debatable about the restriction of claim to 50 per cent in terms of proviso to Section 32(1), as admittedly the temporary structures were held for less than 180 days. Grant of depreciation at 100 per cent, which is the rate applicable to the temporary structures falling under the block 'Buildings', when the said temporary structures were reflected under furniture and fittings, is not to the prejudice of the assessee, and so the assessee cannot have any grievance in relation thereto. Actually, this seems to be a case where the AO has sought to protect the interests of assessee by putting the claim of the assessee in relation to temporary structures under correct block of assets. Similar are the adjustments made for service line charges and computer software. The AO considered both of them as plant and granted depreciation, at the rate applicable to plant, and restricted wherever required in terms of proviso to Section 32(1) for user for less than 180 days. We do not see anything debatable about these items of adjustment as well.
12. The contention made out by the learned counsel for the assessee that whether a particular item of expenditure is of revenue or capital nature is debatable, does not arise from the intimation sent by the AO under Section 143(1)(a), as the claim of the assessee is under Section 32 for cent per cent depreciation and not under Section 37 for write off. The AO proceeded on the basis that the assets in question are depreciable assets, as claimed by the assessee. He only disturbed the rates of depreciation applicable to the said assets, about which there is not much scope for any debate. At any rate, no possible debate on the applicable rates has been brought to our notice, in the course of hearing.
13. We may also mention that it has been brought to our notice by both the parties that subsequent to the intimation in question under Section 143(1)(a), the AO has also made a regular assessment under Section 143(3). In the course of the regular assessment, the assessee is free to take the alternative plea that in case the assessee is held to be not entitled for cent per cent depreciation on the three items, viz., temporary structures, service line charges and computer software, they are entitled to be treated as revenue expenditure. If the final result on such a plea goes in favour of the assessee, assessee would be entitled for consequential reliefs in terms of Clause (b) of Section 143(1). We can only mention that this question does not arise in the present appeal. So far as this appeal is concerned, the only issue is whether the AO was justified in making the adjustments in question on the basis of the applicable depreciation rates to the above mentioned three assets, and restricting the quantum of eligible depreciation to 50 per cent in terms of proviso to Section 32(1) for user for less than 180 days. We have already held that such adjustment, as they relate only to the applicable depreciation rates, are of prima facie nature falling within the scope of Section 143(1)(a).
14. For the foregoing reasons, we uphold the order of the CIT(A), and reject the contention of the assessee in its appeal.
15. Now turning to the appeal of the Revenue, viz., ITA No. 178/Hyd/97, effective grounds of the Revenue read as under:
"1.. ..
2. The CIT(A) erred in directing the AO to look into the matter in respect of deductions under Sections 80HH, 80-I and 80-IA.
3. The CIT(A) ought to have upheld the action of the AO in denying deduction under Sections 80HH, 80-I and 80-IA as the assessee has neither enclosed the unitwise P&L a/c nor the method of working of deductions.
4. ........."
16. In its application under Section 154 made by the assessee, vide letter dt. 9th April, 1996, relevant portions of which we have reproduced above in the context of the appeal of the assessee, the assessee made the following request:
"Without prejudice to the above, we wise to submit that consequent to adjustments made by you, the quantum of profits entitled to relief under Sections 80HH, 80-I and 80-IA increase. We, therefore, request you to grant the same in the manner outlined in Annexure-I to this application. Consequent to this, claims under Sections 80HH, 80-I and 80-IA would stand increased to Rs. 4,98,018, Rs. 6,22,522 and to Rs. 6,80,060. Since these are prima facie deductions, it is requested that the same be allowed."
The request of the assessee is that because of the adjustments made while processing the return under Section 143(1)(a), profits of the relevant units have gone up, and so, the assessee became entitled for consequential reliefs by way of enhanced deductions under Sections 80HH, 80-I and 80-IA. The AO did not deal with this request at all, while disposing of the application of the assessee, in his order under Section 154 dt. 23rd July, 1996. The CIT(A), on appeal, considered the above request of the assesses, consequent to a ground taken before him in this behalf and gave the following direction :
"8. However, with regard to the ground taken by the appellant (Ground No. 5) that the AO ought to have revised the relief under Sections 80HH, 80-I and 80-IA of the Act, consequent to the enhancement of the total income by denying deductions for certain expenses claimed, I direct the AO to look into the matter and pass an appropriate order as per the provisions of law."
Aggrieved by the above directions of the CIT(A), Revenue preferred the present appeal.
17. Before us, the learned Departmental Representative pleaded that the assessee did not file separate P&L a/cs for the old division and the new division, through separate depreciation statements have been filed, and so, it is not possible to work out the relief under Sections 80HH, 80-I and 80-IA, consequent to enhancement of income as a result of adjustments made. The learned counsel for the assessee, on the other hand, pleaded that the relief sought for in this regard is only consequential to the adjustments made in the intimation under Section 143(1)(a), and so, the direction given by the CIT(A) in this regard deserves to be upheld.
18. We are in agreement with the learned counsel for the assessee. Admittedly, the assessee claimed deductions under Sections 80HH, 80-I and 80-IA in the return filed by it. The claims were also allowed in the intimation sent under Section 143(1)(a). When the AO increased the profits of the assessee by the adjustments made in the intimation under Section 143(1)(a). We see no reason for not giving consequential relief by way of increasing the quantum of deduction under Sections 80HH, 80-I and 80-IA. If any particulars are required, the AO was free to have called for the same, while disposing of the application under Section 154 made by the assessee. Instead of calling for any particulars required by him, the AO simply sought to ignore the request of the assessee. This defect in the order passed under Section 154 is rectified by the CIT(A) by the aforesaid directions in the impugned order. We see no reason to interfere with the said directions. Consequently, there is no merit in the grounds of the Revenue in its appeal, which are accordingly rejected.
19. In the result, both these appeals are dismissed.