2015 (5) TMI 987 - AT - Income Tax

Disallowance under Section 14A in a proceeding under Section 154 - Held that - Assessing Officer has amended the order passed under the provisions of Income-tax Act. According to the Ld. D.R. in this case what was rectified is only an arithmetical error which crept in the order. The Ld. D.R. submitted that on the basis of material already available on record the Assessing Officer rectified the arithmetical error which crept. Therefore it is not a debatable issue. Hence the Assessing Officer has rightly disallowed the claim of the assessee. Disallowance paid as machine hire charges under Section 40(a)(ia) - Held that - The assessee claims that it is a business expenditure. For the purpose of business business expenditure would fall under Section 37(1) of the Act. Therefore this Tribunal is of the considered opinion that the provisions of Section 40 of the Act is equally applicable. Hire charges paid by the assessee on machine is liable for deduction of tax under Section 194-I of the Act. Therefore the assessee is expected to deduct tax at the time of making the payment. Therefore the alternative contention of the assessee is also does not hold any merit at all. Accordingly the order of the CIT(Appeals) is confirmed. Depreciation on Maruthi car - Held that - The assessee has claimed depreciation on Innova car at 50% of normal rate. Therefore this Tribunal is of the considered opinion that there is no question of making any further disallowance on Maruthi car. It is not in dispute that Maruthi car was used for business purpose. Therefore the assessee is entitled to claim depreciation on the Maruthi car. Accordingly the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the depreciation on Maruthi car maintenance expenses as claimed by the assessee

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961.
2. Disallowance of machine hire charges under Section 40(a)(ia) of the Act.
3. Depreciation on Maruthi car.

Detailed Analysis:

1. Disallowance under Section 14A of the Income-tax Act, 1961:
The primary issue in I.T.A. No.336/Mds/15 pertains to the disallowance made by the Assessing Officer (AO) under Section 14A of the Income-tax Act, 1961, amounting to Rs. 2,38,765 in a proceeding under Section 154 of the Act. The assessee argued that the AO's action was unjustified as Section 154 is intended for rectifying errors apparent on the face of the record, and the issue at hand was debatable, requiring detailed examination in the regular assessment process. Conversely, the Departmental Representative (DR) contended that the AO had corrected an arithmetical error based on existing records, making it a non-debatable issue. The Tribunal found that the AO had appropriately rectified the arithmetical error, disallowing proportionate expenses on tax-free income investments after providing the assessee a reasonable opportunity. Hence, the Tribunal upheld the CIT(A)'s order, confirming no infirmity in the AO's action.

2. Disallowance of Machine Hire Charges under Section 40(a)(ia) of the Act:
In I.T.A. No.337/Mds/15, the first issue was the disallowance of Rs. 1,55,100 paid as machine hire charges due to non-deduction of tax. The assessee argued that the entire hire charges were paid before 31.03.2010, with no outstanding payable amount, citing the Tribunal's decision in ITO v. Theekathir Press and the Allahabad High Court's judgment in CIT v. Vector Shipping Services (P) Ltd. The DR countered that the Gujarat and Calcutta High Courts had rejected the Special Bench's decision in Merilyn Shipping and Transport, and the Allahabad High Court's judgment was per incuriam. The Tribunal, referencing the detailed judgments of the Calcutta and Gujarat High Courts, found the Special Bench's decision unsustainable. It concluded that Section 40(a)(ia) applies to amounts payable at any time during the year, not just those outstanding at year-end. Therefore, the Tribunal upheld the CIT(A)'s disallowance of machine hire charges.

3. Depreciation on Maruthi Car:
The final issue was the depreciation claim on a Maruthi car. The assessee had restricted depreciation on an Innova car to 50% of the normal rate and argued that no further disallowance was warranted for the Maruthi car, which was used solely for business purposes. The DR suggested the possibility of personal use. The Tribunal, noting the depreciation restriction on the Innova car and the business use of the Maruthi car, directed the AO to allow the claimed depreciation on the Maruthi car, setting aside the lower authorities' orders.

Conclusion:
The Tribunal dismissed the assessee's appeal in I.T.A. No.336/Mds/15 and partly allowed the appeal in I.T.A. No.337/Mds/15, confirming the disallowances under Sections 14A and 40(a)(ia) while directing the AO to allow depreciation on the Maruthi car. The order was pronounced on 29th May 2015 at Chennai.