1990 (7) TMI 183 - AT - Income Tax

Orders Prejudicial To Interests, Original Assessment, Set On, Tax Deducted At Source, Tax Liability

Summary

Issues Involved:
1. Depreciation rates for compressor and boring machines.
2. Validity of assessment under section 148 resulting in a refund.

Issue 1: Depreciation Rates for Compressor and Boring Machines

The primary issue in the appeals for the assessment years 1981-82, 1982-83, and 1983-84 was the depreciation rates applied to the compressor and boring machines. The Commissioner of Income-tax (CIT) held that the Income Tax Officer (ITO) had erroneously allowed depreciation at 30% for the compressor machine and 15% for the boring machine, whereas the correct rate should have been 10%. Consequently, the CIT passed an order under section 263 of the Income-tax Act to rectify these errors, asserting that the ITO's orders were "erroneous and prejudicial to the interests of the revenue."

The assessee's counsel, Shri Dewani, conceded that the observations made by the Commissioner in para 3 of the order were correct and could not be contested. However, he argued that the compressor and boring machines used in the assessee's business qualified for depreciation at 30% as they could be classified as earth-moving machinery. He referred to Item (4) of Clause 'D' in Part I of Appendix I, which prescribes a 30% depreciation rate for "Earth moving machinery employed in heavy construction works, such as dams, tunnels, canals, etc. (N.E.S.A.)."

Shri Dewani also cited the Andhra Pradesh High Court's decision in CIT v. Super Drillers [1988] 174 ITR 640/38 Taxman 5, which held that the description in the Depreciation Schedule is illustrative, not exhaustive.

The Departmental Representative supported the CIT's order, emphasizing that the term "earth moving machinery" focuses on the purpose of moving earth, which includes both trucks and excavating machinery but does not extend to any activity involving excavation.

Upon hearing both sides, the Tribunal found the assessee's argument persuasive. It was undisputed that the assessee was engaged in boring tube-wells and that the machinery in question was involved in earth-moving activities. The Tribunal concluded that such machinery falls within the description of earth-moving machinery in Item D(4). The rationale of the Andhra Pradesh High Court's decision in Super Drillers' case was deemed applicable. Therefore, the Tribunal reversed the CIT's order and allowed the appeals for the assessment years 1981-82 to 1983-84.

Issue 2: Validity of Assessment Under Section 148 Resulting in a Refund

For the assessment year 1979-80, the issue was whether the ITO's use of section 148 to grant a refund was valid. The CIT initiated proceedings under section 263, arguing that the ITO's assessment order, which resulted in a refund, was prejudicial to the interests of the revenue. The CIT contended that section 148 should not be used to grant refunds for returns filed beyond the prescribed time limit.

The assessee's counsel, Shri Dewani, argued that the notice under section 148 was issued to regularize a late-filed return, making it the first assessment. He distinguished this case from the Bombay High Court's decision in Kevaldas Ranchhodas v. CIT [1968] 68 ITR 842, where the reassessment proceedings were not meant to benefit the assessee. Dewani cited subsequent decisions, including CIT v. Indian Rare Earth Ltd. [1989] 181 ITR 22 (Bom.) FB, which held that once valid proceedings under section 147 are initiated, the ITO must complete the entire assessment de novo. He also referenced the Supreme Court's decision in V. Jaganmohan Rao v. CIT [1970] 75 ITR 373, which supported the ITO's duty to levy tax on the entire income that escaped assessment.

The Tribunal found that the ITO's action in issuing the notice under section 148 and completing the assessment under section 143(3) was valid. The refund resulted from excess tax deducted at source. The Tribunal noted that the Board's Circular No. 503 dated 6-2-1988, which authorized ITOs to admit belated refund claims up to Rs. 10,000, was applicable. All conditions prescribed in the circular were satisfied in the assessee's case.

The Tribunal concluded that the CIT's reliance on the observations in Palkhivala's Income-tax was misplaced, as the facts of the present case were distinguishable. The Tribunal held that the assessment under section 148, which resulted in a refund, was neither erroneous nor prejudicial to the interests of the revenue. Therefore, the Tribunal set aside the CIT's order and allowed the appeal for the assessment year 1979-80.