2011 (8) TMI 1348 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of CIT u/s 263 of the Income Tax Act.
2. Allowability of depreciation on toll road.
3. Under-assessment of interest income from fixed deposits.
4. Deduction of interest paid on late deposit of TDS.
5. Discrepancy in addition to fixed assets.

Summary:

1. Jurisdiction of CIT u/s 263 of the Income Tax Act:
The appeal challenges the jurisdiction of the CIT to pass an order u/s 263, holding the assessment made by the AO as erroneous and prejudicial to the interest of the revenue. The CIT noted that the AO allowed depreciation on a toll road owned by the government without examination, leading to the issuance of a show cause notice.

2. Allowability of Depreciation on Toll Road:
The assessee argued that depreciation was claimed on the road constructed on a Build, Operate, and Transfer (BOT) basis and referred to various Tribunal decisions supporting the claim. However, the CIT observed that the AO did not discuss the issue in the assessment order nor raised any queries, indicating a lack of examination. The Tribunal upheld the CIT's view, stating that the AO's order was passed mechanically without necessary examination, making it erroneous and prejudicial to the revenue.

3. Under-assessment of Interest Income from Fixed Deposits:
The CIT identified an under-assessment of income due to a discrepancy between the interest credited in the P&L account and the TDS certificate issued by Punjab National Bank. The assessee contended that the interest was offered to tax in the subsequent year. However, the Tribunal agreed with the CIT, noting that the interest income should be taxed in the year it accrued as per the mercantile system, and the AO's failure to do so was prejudicial to the revenue.

4. Deduction of Interest Paid on Late Deposit of TDS:
The assessee claimed a deduction for interest paid on the late deposit of TDS, which the AO allowed without examination. The CIT held that such interest is penal in nature and not allowable as a deduction. The Tribunal upheld this view, stating that the interest on TDS is akin to tax, which is not deductible, making the AO's allowance erroneous and prejudicial to the revenue.

5. Discrepancy in Addition to Fixed Assets:
The CIT noted a discrepancy in the addition to vehicles between the schedule of fixed assets and the details filed by the assessee. The AO did not examine this discrepancy, leading to the CIT's conclusion that the assessment was erroneous and prejudicial to the revenue. The Tribunal agreed, emphasizing the need for necessary examination by the AO.

Conclusion:
The Tribunal upheld the CIT's exercise of jurisdiction u/s 263, affirming that the AO's order was erroneous and prejudicial to the interest of the revenue. The appeal of the assessee was dismissed.