2006 (3) TMI 677 - AT - Income Tax

Summary

Issues Involved:
1. Optionality of Claim of Depreciation.
2. Disallowance of Payment to Town Planning Authority.
3. Disallowance of PF and ESIC Dues.
4. Disallowance Related to Modvat.

Issue-wise Detailed Analysis:

1. Optionality of Claim of Depreciation:
The first issue concerns the optionality of claiming depreciation. The appellant contended that the Commissioner of Income-tax (Appeals) erred in confirming the action of the Assessing Officer in allowing depreciation of Rs. 3,19,79,068. The Tribunal noted that this issue was covered against the assessee by the decision of the Special Bench of the ITAT, Ahmedabad Bench in the case of *Vahid Paper Converters v. ITO [2006] 98 ITD 165*, which held that after the amendment of section 32 and deletion of section 34 effective from 1-4-1988, the assessee has no option regarding claiming of depreciation. Depreciation is to be compulsorily allowed if not claimed by the assessee. Respectfully following this decision, the Tribunal rejected this ground of the assessee.

2. Disallowance of Payment to Town Planning Authority:
The second issue pertains to the disallowance of Rs. 3,84,080 paid to the Town Planning Authority, Silvasa, treating it as a penalty. The Assessing Officer disallowed this amount, comprising Rs. 3,74,080 towards penalty and Rs. 10,000 of penal interest. The CIT(A) confirmed this disallowance, rejecting the alternate contention that the amount was of capital nature. The Tribunal upheld the CIT(A)'s decision, stating that the payment was indeed a penalty for infraction of law and did not bring any new asset into existence, thus it was not of capital nature. Consequently, the Tribunal rejected both contentions of the assessee and upheld the disallowance.

3. Disallowance of PF and ESIC Dues:
The third issue involves the disallowance of Rs. 2,03,309 on account of delay in deposit of PF and ESIC dues. The assessee deposited the employer's contribution towards PF and ESIC after the due dates and disallowed the same suo motu. Similarly, the employees' contribution was also deposited after the due dates, leading to an addition of Rs. 2,03,309 to the total income by the Assessing Officer. The CIT(A) confirmed this action. The Tribunal noted that as per section 2(24)(x) of the Act, employees' contribution is deemed to be the income of the assessee, and the corresponding deduction is allowable under section 36(1)(va) if deposited within the prescribed time. The Tribunal held that the provisions of section 43B are not attracted in the case of employees' contribution towards PF and ESIC, and thus, the deduction for employees' contribution deposited belatedly but before the due date of filing of return cannot be allowed. The Tribunal upheld the orders of the revenue authorities and dismissed the alternative ground as infructuous.

4. Disallowance Related to Modvat:
The fourth issue concerns the disallowance made by the Assessing Officer in respect of Modvat. The Assessing Officer added Rs. 34,33,530 to the value of opening stock, not in accordance with the provisions of section 145A, and made a total disallowance of Rs. 42,08,241. The CIT(A) provided relief to the assessee, directing the Assessing Officer to verify the position from the assessment order of the preceding year and make suitable adjustments. The Tribunal noted that section 145A requires adjustments in respect of purchases, sales, and inventory. Since this was the first year of applicability of section 145A, the Tribunal held that the opening stock as on 1-4-1998 should also be adjusted. The Tribunal set aside the order of the CIT(A) and remanded the matter back to the CIT(A) for fresh adjudication, ensuring that no double deduction is granted to the assessee on account of Modvat.

Conclusion:
The appeal filed by the assessee is partly allowed for statistical purposes, with specific directions issued for each issue, ensuring compliance with the relevant provisions of the Income-tax Act.