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2012 (4) TMI 332 - HC - Income TaxHigher rate of depreciation on trucks rectification of error - AO noticed in the return filed that the rate of depreciation claimed by the assessee on trucks at 40% was wrongly allowed as the assessee was not plying trucks owned by it on hire but was utilizing the trucks for its own purposes and hence rate of depreciation applicable was 25% - the Tribunal decided in favor of assessee - Held that - the assessee was unable to demonstrate with reference to any material that the respondent-assessee was using the vehicles in a business of transportation of goods and the trucks owned by the assessee were being used for public carrier - the Tribunal was, thus, not justified in holding that the assessing officer had erroneously exercised jurisdiction under Section 154 of the Act substantial questions of law claimed above are, therefore, answered in favour of the revenue and against the assessee.
Issues Involved:
1. Justification of ITAT in setting aside the order under Section 154 of the Income Tax Act, 1961. 2. Whether rectifying the mistake in the application of the rate of depreciation on the assessee's trucks constitutes a review of the assessment order. Detailed Analysis: 1. Justification of ITAT in Setting Aside the Order Under Section 154 of the Income Tax Act, 1961: The revenue appealed under Section 260A of the Income Tax Act, 1961, challenging the ITAT's decision to set aside the order passed by the Assessing Officer (AO) under Section 154 of the Act. The AO had initially allowed a 40% depreciation rate on the trucks used by the assessee for its own business, which was later rectified to 25% under Section 154, as the trucks were not used for hire. The ITAT set aside this rectification, which the revenue contested, arguing that the AO had the jurisdiction to rectify any apparent mistake under Section 154. 2. Whether Rectifying the Mistake in the Application of the Rate of Depreciation on the Assessee's Trucks Constitutes a Review of the Assessment Order: The AO's original assessment under Section 143(3) allowed a 40% depreciation rate, considering the trucks as public carriers. However, upon realizing the trucks were used privately, the AO rectified the depreciation rate to 25% under Section 154. The ITAT held that this rectification was a change of opinion and not permissible under law. The revenue argued that the rectification did not constitute a review but a correction of an apparent error, as the higher depreciation rate was only applicable to trucks used for public hire. Judgment Analysis: Original Assessment and Rectification: The assessee filed a return declaring a net income, which was assessed by the AO at a higher amount. The AO later noticed that the trucks were not used for public hire and rectified the depreciation rate from 40% to 25% under Section 154, increasing the assessed income. The CIT(A) upheld this rectification, but the ITAT set it aside, leading to the revenue's appeal. Revenue's Argument: The revenue contended that the AO was within his jurisdiction to rectify the error under Section 154, as the mistake was apparent on the record. They referenced the Full Bench judgment in CIT v. Smt. Aruna Luthra, which outlined the scope of Section 154, emphasizing that mistakes apparent from the record should be corrected to avoid perpetuating errors. The revenue also cited relevant case laws and a circular clarifying the depreciation rates applicable to motor lorries used in business. Assessee's Argument: The assessee argued that the rectification under Section 154 was a review of the original assessment, which is not permissible. They relied on various judgments asserting that rectification is only valid for mistakes apparent on the record and not for debatable issues. The assessee also referenced a circular and a Bombay High Court judgment to support their claim for higher depreciation. Court's Analysis: The court examined the scope of Section 154, emphasizing that the provision allows correction of apparent mistakes that are patent and not debatable. The court referred to the relevant entries in Appendix I of the Income Tax Rules, which specify different depreciation rates for public and private carriers. The court found that the original assessment did not establish that the trucks were used for public hire, and thus, the 40% depreciation rate was incorrectly applied. The court concluded that the rectification by the AO was valid as it corrected an apparent mistake, not a debatable issue. Conclusion: The court ruled in favor of the revenue, holding that the ITAT was not justified in setting aside the AO's rectification under Section 154. The substantial questions of law were answered in favor of the revenue, and both appeals were allowed. The court emphasized that the rectification was a legitimate correction of an apparent error, not a review of the original assessment.
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