2015 (9) TMI 1632 - AT - Income Tax

Rectification of mistake u/s 154 - additional depreciation u/s. 32(1)(iia) - whether mistake of incorrect claim is clearly apparent on plain reading of section 32(1)(iia) - Held that - Additional depreciation is allowable to the assessee to the extent of 20% on the cost of plant & machinery and where the assessee has purchased an asset in the preceding year and has been allowed only 10% of the cost of asset as additional depreciation, the correct position of law is that balance 10% of additional depreciation is to be allowed to the assessee. Where the AO failed to apply the correct provisions of law, the assessment order passed by the Assessing Officer is amenable to rectification under section 154. We uphold the invoking of provisions of section 154 against the assessee. Further, in view of the concession made by the AR for the assessee, where the assessee was only entitled to 10% of the cost of machinery to be allowed as additional depreciation in the instant assessment year, since the balance 10% of cost of machinery has been allowed as additional depreciation in the preceding year, we reverse the order of CIT(A) and direct the Assessing Officer to allow depreciation @ 10% of the cost of machinery as additional depreciation on plant & machinery purchased by the assessee in the preceding year. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 24,54,934/- on account of additional depreciation claim under section 32(1)(iia) of the Income-tax Act, 1961.
2. Whether the issue of additional depreciation claim is debatable and can be rectified under section 154 of the Income-tax Act, 1961.
3. Interpretation of provisions of section 32(1)(iia) regarding the allowance of additional depreciation only in the first year.
4. Reliance on judicial precedents to determine whether the issue is debatable.

Issue-Wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 24,54,934/- on Account of Additional Depreciation Claim:
The Revenue contested the deletion of the disallowance made by the Assessing Officer under section 154 of the Act. The original assessment allowed additional depreciation under section 32(1)(iia), but audit objections indicated that the additional depreciation was only available in the year of installation. The Assessing Officer issued a notice under section 154, leading to the disallowance of Rs. 24,54,934/- claimed by the assessee as additional depreciation on the WDV of the plant and machinery.

2. Whether the Issue of Additional Depreciation Claim is Debatable and Can Be Rectified Under Section 154:
The CIT(A) observed that the issue of additional depreciation being available beyond the first year was debatable and could not be rectified under section 154, which is meant for rectifying mistakes apparent from the record. The CIT(A) relied on the case of Sidhramappa Andannappa Manvi Vs. CIT, which stated that a decision on a debatable point of law is not a mistake apparent from the record.

3. Interpretation of Provisions of Section 32(1)(iia):
The Revenue argued that the term "actual cost" in section 32(1)(iia) indicates that additional depreciation is only allowable in the first year of installation. The Departmental Representative cited various judicial precedents to support that failure to apply mandatory provisions of the Act constitutes a mistake apparent from the record, which can be rectified under section 154. The assessee, however, contended that additional depreciation was available in subsequent years until the WDV of the machinery became nil, making the issue debatable.

4. Reliance on Judicial Precedents:
The Revenue relied on decisions like ITO Vs. Ashok Textiles Ltd. and CIT Vs. Peirce Leslie & Co. Ltd., which supported rectification under section 154 for failure to appreciate mandatory provisions. The assessee cited cases like Dy. CIT v. Cosmo Films Ltd. and Asst. Commissioner of Income Tax V. SIL Investment Ltd., arguing that additional depreciation is a debatable issue, thus not subject to rectification under section 154.

Judgment:
The Tribunal held that the issue of additional depreciation under section 32(1)(iia) was indeed debatable. However, the assessee conceded that additional depreciation should be restricted to 10% in the subsequent year if the machinery was used for less than 180 days in the first year. The Tribunal concluded that the Assessing Officer was correct in invoking section 154 to rectify the mistake. The order of the CIT(A) was reversed, and the Assessing Officer was directed to allow additional depreciation at 10% of the cost of machinery, amounting to Rs. 1,22,74,673/-. The appeal of the Revenue was allowed.

Conclusion:
The Tribunal allowed the Revenue's appeal, reversing the CIT(A)'s order, and directed the Assessing Officer to rectify the depreciation claim as per the provisions of section 32(1)(iia), confirming that the rectification under section 154 was appropriate for this case.