2004 (10) TMI 279 - AT - Income Tax

Rectification Of Mistakes - non-existent on issue of notice u/s 148 - Whether the application u/s 154 could be rejected during the pendency of re-assessment proceedings - Public sector undertaking - Can be claim depreciation u/s 32 during processing assessment u/s 147 ? - HELD THAT - The rectification application made by assessee was against original assessment proceedings and there was no request to allow any relief in re-assessment proceedings. Both the authorities had proceeded on the wrong footing that relief was sought in reassessment proceedings. We have already extracted the contents of the said application, which clearly shows that application was made against the original assessment dated12-10-1993. Accordingly, we vacate such findings of CIT(A) and hold that application u/s 154 against the original assessment order could be considered on merits by Assessing Officer. Whether assessee could claim depreciation u/s 32 by making application for rectification u/s 154 - We are of the view that assessee was legally entitled to claim depreciation in the rectification proceedings u/s 154. But the contention of the department is that such claim cannot be allowed in view of Supreme Court judgment in the case of Mahendra Mills 2000 (3) TMI 3 - SUPREME COURT . In that case, the assessee did not claim depreciation for assessment year 1974-75 in the return but the Income-tax Officer allowed the same. The contention of assessee that right to claim depreciation was optional was rejected by Assessing Officer. The CIT(A) allowed the appeal of assessee and the Tribunal affirmed the order of CIT(A). In the present case, the assessee had always been claiming the depreciation in the past as well as subsequent year. It is only by mistake that it forgot to claim the same. It's past and subsequent conduct shows that it had always intended to claim the depreciation. The computation of income appearing at page 17 shows that in the beginning, it took the profits before depreciation but in the end, it forgot to claim the same. Further, it has been claimed that in the subsequent year, the depreciation was allowed on the written down value which was determined after allowing the depreciation of the year under consideration. This also shows the bona fide mistake of the assessee. Thus, we are of the view that bona fide of assessee cannot be doubted in not claiming the depreciation and, consequently, it is held such omission constituted mistake apparent from record which can be rectified u/s 154 provided all factual materials are available on record. At this stage, it may be mentioned that section 32, as originally enacted, allowed the claim of depreciation subject to the condition prescribed by section 34 read with rule 5AA. Section 34(1) providing such condition has been omitted from the Statute Book with effect from1-4-1988. Similarly, rule 5AA was omitted with effect from 2-4-1987. Therefore, for the year under consideration, there was no condition for allowing the depreciation and the assessee was not required to furnish the particulars as earlier required. The only information required for claiming depreciation was the written down value of assets at the beginning of the year and additions made to the block of assets. This information was already available on record. Since, the assessee was assessed previously and depreciation was duly allowed, the written down value was already on record. Further, details of fixed assets was on record as per Schedule No. 2 enclosed with the audited balance sheet. This schedule provided nature of assets, opening balances, additions made and depreciation claimed in the books. No other information was required to be filed by the assessee. Hence, the assessee was entitled to deduction in the rectification proceedings in view of Supreme Court judgment in the case of Anchor Pressings (P.) Ltd. 1986 (7) TMI 1 - SUPREME COURT . Thus, the order of CIT(A) is set aside and the Assessing Officer is directed to allow the depreciation as per rules - In the result, appeal of the assessee is allowed.

Summary

Issues Involved:
1. Whether the assessee could claim depreciation u/s 32 by moving an application for rectification u/s 154 of the Income-tax Act, 1961.

Summary:

Issue 1: Application for Rectification u/s 154 During Re-assessment Proceedings
The Tribunal examined whether the application u/s 154 could be rejected during the pendency of re-assessment proceedings. The CIT(A) had held that the original assessment became non-existent upon the issue of notice u/s 148, thus preventing rectification u/s 154. The Tribunal found this reasoning erroneous, citing the Supreme Court's decision in CIT v. Sun Engg. Works (P.) Ltd., which clarified that only the under-assessment is set aside, not the entire assessment. Therefore, the original assessment order remained valid, and the application for rectification could be considered on its merits.

Issue 2: Entitlement to Claim Depreciation u/s 32 via Rectification u/s 154
The Tribunal considered whether the assessee could claim depreciation by making an application for rectification on the ground of forgetting to claim it initially. The Supreme Court in Anchor Pressings (P.) Ltd. v. CIT held that rectification u/s 154 is permissible if all factual materials necessary for the relief are on record, even if the assessee omitted to claim it. The Tribunal found that the assessee's omission to claim depreciation constituted a mistake apparent from the record, which could be rectified u/s 154.

Issue 3: Conflict Between Supreme Court Judgments
The Tribunal addressed the apparent conflict between the Supreme Court's decisions in Anchor Pressings (P.) Ltd. and CIT v. Mahendra Mills. The former allowed rectification if all factual materials were on record, while the latter held that depreciation could not be forced upon the assessee if not claimed. The Tribunal reconciled these by noting that the latter case did not concern rectification u/s 154 but rather the mandatory duty of the officer to allow depreciation. Thus, the Tribunal concluded that the present case was governed by the principles laid down in Anchor Pressings (P.) Ltd.

Conclusion
The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow the depreciation as per rules, holding that the omission to claim depreciation was a mistake apparent from the record that could be rectified u/s 154. The appeal of the assessee was allowed.