1990 (5) TMI 72 - AT - Income Tax

Summary

Issues Involved:
1. Charging of interest under Section 216 of the Income Tax Act.
2. Charging of interest under Section 220(2) of the Income Tax Act.
3. Depreciation rate on machinery in the cement unit.
4. Penalty under Section 273(a) of the Income Tax Act.

Detailed Analysis:

1. Charging of Interest under Section 216 of the Income Tax Act:

Facts and Proceedings:
The Income Tax Officer (ITO) issued a notice demanding advance tax based on the income of the assessment year 1972-73. The assessee filed its own estimates, which were lower than the ITO's demand. The ITO initially charged interest under Section 216 for underestimating advance tax. The matter was remanded by the Tribunal to the ITO to provide the assessee an opportunity to explain, following the Allahabad High Court's decision in CIT vs. Elgin Mills Co. Ltd., which stated that the levy of interest under Section 216 is discretionary and not automatic.

Tribunal's Findings:
The Tribunal noted that the assessee's estimates were based on reasonable projections at the time they were made. The difference in the actual and estimated figures was due to unforeseen lower expenditures and a clerical error in the deduction rate under Section 80MM. The Tribunal emphasized that the charging of interest under Section 216 requires establishing contumacious conduct, which was not proven in this case. Therefore, the interest charged under Section 216 was deleted.

Conclusion:
The Tribunal concluded that the assessee's estimates were justified and not deliberately underestimated. The interest under Section 216 was deleted.

2. Charging of Interest under Section 220(2) of the Income Tax Act:

Facts and Proceedings:
The ITO charged interest under Section 220(2) for non-payment of the demanded tax within the stipulated period. The assessee contested this charge but failed to provide convincing reasons or legal backing to refute the charge.

Tribunal's Findings:
The Tribunal upheld the CIT(A)'s order, which confirmed the ITO's action of charging interest under Section 220(2). The Tribunal found no error in the application of the law by the ITO.

Conclusion:
The interest charged under Section 220(2) was upheld as the assessee could not demonstrate any legal or factual inaccuracies in the ITO's computation.

3. Depreciation Rate on Machinery in the Cement Unit:

Facts and Proceedings:
The ITO allowed depreciation on machinery at a lower rate than claimed by the assessee. The CIT(A) directed the ITO to allow depreciation at a higher rate, consistent with the Tribunal's decision in the assessee's case for the previous assessment year.

Tribunal's Findings:
The Tribunal upheld the CIT(A)'s decision, noting that the machinery in question came into contact with corrosive chemicals, justifying a higher depreciation rate. This decision was consistent with the Tribunal's earlier ruling and the rejection of the Revenue's reference application.

Conclusion:
The Tribunal confirmed the higher depreciation rate of 15% for machinery in the cement unit, in line with its previous decision.

4. Penalty under Section 273(a) of the Income Tax Act:

Facts and Proceedings:
The ITO imposed a penalty under Section 273(a) for underestimating advance tax liability. The CIT(A) reduced the penalty, noting that the assessee's negligence was not deliberate.

Tribunal's Findings:
The Tribunal found that the assessee's estimate was based on the legal position at the time and the subsequent Supreme Court decision in Lohia Machines Ltd. altered the applicable law. The Tribunal emphasized that the Revenue failed to prove that the assessee's estimate was knowingly false or untrue. The Tribunal referred to the Calcutta High Court's decision in Birla Cotton Spg. & Wvg. Mills Ltd., which placed the burden of proof on the Revenue to show that the estimate was knowingly inaccurate.

Conclusion:
The Tribunal canceled the penalty, concluding that the assessee's estimate was not deliberately false or untrue, and any variations were due to changes in legal interpretations and inherent approximations in estimates.

Summary:

In conclusion, the Tribunal allowed the assessee's appeal regarding the interest under Section 216 and the penalty under Section 273(a), while upholding the CIT(A)'s decisions on the interest under Section 220(2) and the depreciation rate for the cement unit. The Revenue's appeals were dismissed.