1990 (10) TMI 106 - AT - Income Tax

Higher Rate, Manufacturing Concern, Mistake Apparent From Record, Original Assessment, Plant And Machinery, Rate Of Depreciation, Special Rate

Issues Involved:
1. Rectification of Depreciation Rates under Section 154 of the Income-tax Act.
2. Computation of Relief under Section 80J.
3. Computation of Interest under Section 215.

Issue-wise Detailed Analysis:

1. Rectification of Depreciation Rates under Section 154 of the Income-tax Act:

The primary issue was whether the rectification of depreciation rates claimed by the assessee company on its plant and machinery was justified under Section 154 of the Income-tax Act. The company had claimed depreciation at higher rates (20%) for its entire plant and machinery based on a certificate from its directors, which was implicitly relied upon during the original assessments from 1977-78 onwards. However, upon scrutiny during the assessment year 1983-84, it was found that only specific items, namely Recuperative and Regenerative Glass Melting Furnaces, were eligible for the 20% depreciation rate under Item C(5) of Part I of Appendix I of the Income-tax Rules. Other machinery was entitled to the general rate of 10%.

The IAC (Asst.) initiated proceedings under Section 154 for the assessment years 1979-80 to 1982-83, and the assessee company consented to the proposed rectification. The CIT(A) later canceled the rectification orders, stating that the mistake was not apparent from the record and relied on the decision of the Supreme Court in T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50.

Upon appeal, it was determined that the scheme of the depreciation table was clear and unambiguous. The special rates of depreciation were applicable only to specific items of machinery used in glass manufacturing concerns, and the general rate of 10% applied to other machinery. The tribunal concluded that the mistake in the original assessment orders was apparent from the record and did not require prolonged arguments. Therefore, the IAC was justified in rectifying the mistake under Section 154, and the CIT(A) erred in canceling the rectification orders.

2. Computation of Relief under Section 80J:

The assessee raised a ground in its cross objections that the CIT(A) should have directed the recomputation of relief under Section 80J due to the rectification of depreciation rates. The tribunal acknowledged that the written down value of the plant and machinery would increase as a result of the reduced depreciation allowed by the rectification order. Consequently, the computation of relief under Section 80J needed to be done afresh. The tribunal restored the matter to the CIT(A) to consider this ground and recompute the relief under Section 80J in accordance with the law after giving a reasonable opportunity of being heard to both the assessee and the IAC(Asst.).

3. Computation of Interest under Section 215:

Similarly, the assessee contended that the CIT(A) did not address the ground relating to the recomputation of interest under Section 215 of the Act as a result of the rectification order. The tribunal restored this matter to the CIT(A) as well, directing that the interest under Section 215 be recomputed in light of the rectified depreciation rates. The CIT(A) was instructed to decide on this ground after providing a reasonable opportunity of being heard to both parties involved.

Conclusion:

The tribunal allowed the departmental appeals, setting aside the order of the CIT(A) and restoring the rectification orders of the IAC(Asst.). The cross objections filed by the assessee were treated as allowed for statistical purposes, with specific directions to the CIT(A) to reconsider the grounds relating to the recomputation of relief under Section 80J and interest under Section 215.

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