2015 (7) TMI 117 - AT - Income Tax

Disallowance made u/s.40(a)(ia) - TDS remittance made before the due date of filing of return of income was not in conformity with the provisions of section 40(a)(ia) - Held that - The department has not disputed the fact that the expenditure claimed by the assessee which is the subject matter of disallowance under section 40(a)(ia) was entirely paid during the relevant previous year and nothing remained payable on the last day of the previous year. Therefore, in view of the principles laid down by the ITAT, Vizag Special Bench in the case of Merlyn Shipping and Transport (2012 (4) TMI 290 - ITAT VISAKHAPATNAM), the disallowance under section 40(a)(ia) is not sustainable. The Ld. CIT(A) having deleted the addition by following the decision of the ITAT, Vizag Special Bench as aforesaid, we do not find any infirmity in the order of the Ld. CIT(A), which is accordingly upheld - Decided against revenue. Disallowance of depreciation claimed by the assessee - reasons recorded that the newspaper publication was inaugurated by the Governor and Chief Minister of A.P. on 22.10.2007, the A.O. has formed an opinion that the business of the assessee has commenced from that date. Hence, depreciation @ 15% will not be allowed as the assets on which depreciation has been claimed is put to use for less than 180 days - Held that - The term used as employed in section 32(1) has to be given a wider meaning and will also include passive user of the asset. It has been held that if the machinery or plant is ready for use but it is not actually used, still then assessee will be eligible for depreciation. If we apply the aforecited principle to the facts of the present case, it is to be seen that the plant and machinery and electrical installation on which assessee has claimed full depreciation were acquired in the preceding assessment year. Therefore, it can be safely concluded that the plant and machinery as well as electrical installation were ready for use in the impugned assessment year. Only because the inauguration took place in October, 2007 that cannot be a sole criteria to deny assessee s claim of depreciation at the full value when there is no material brought on record by the department to show that the plant and machinery and electrical installations were not ready for use prior to 22.10.2007. Therefore, considering the totality of the facts and circumstances of the case, we hold that disallowance of 50% out of the total depreciation claimed by the assessee on the opening WDV is without any reasonable basis. Hence, we delete the addition made on that account. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) for non-deduction of TDS.
2. Validity of proceedings initiated under Section 147.
3. Disallowance of depreciation claimed by the assessee.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) for non-deduction of TDS:

The Revenue appealed against the Ld. CIT(A)'s decision to delete the disallowance of Rs. 1,07,14,603 under Section 40(a)(ia) on the grounds that the TDS remittance was made before the due date of filing the return of income. The assessee, a company engaged in newspaper publishing, had not deducted tax at source on payments for rent, transport charges, and rent on education centers and district offices. The A.O. disallowed these expenses under Section 40(a)(ia). The Ld. CIT(A) deleted the disallowance, relying on the ITAT Vizag Special Bench decision in the case of Merlyn Shipping and Transport and the Hon'ble A.P. High Court decision in CIT vs. Janapriya Engineers Syndicate. The ITAT upheld the Ld. CIT(A)'s order, noting that the expenditure was paid during the relevant previous year and nothing remained payable at the year-end, thus dismissing the Revenue's appeal.

2. Validity of proceedings initiated under Section 147:

The assessee challenged the legality of the reassessment proceedings initiated under Section 147. The A.O. reopened the assessment based on audit scrutiny, which revealed that the assessee claimed depreciation on plant and machinery and electrical equipment at 15%, despite commencing business on 22.10.2007. The A.O. issued a notice under Section 148, but the assessee did not respond, leading to an ex-parte assessment under Section 144. The ITAT did not adjudicate on this issue as it became academic due to the decision on the merits of the depreciation claim.

3. Disallowance of depreciation claimed by the assessee:

The A.O. disallowed Rs. 38,43,674 of depreciation, arguing that the assets were not used for more than 180 days as the business commenced on 22.10.2007. The Ld. CIT(A) upheld this view, but the ITAT disagreed. The ITAT noted that the assets were acquired in the previous year and were part of the opening WDV. The term "used for the purpose of business" includes passive use, and the assets were ready for use before 22.10.2007. The ITAT cited various High Court decisions supporting this broader interpretation. Thus, the ITAT allowed the full depreciation claim, deleting the disallowance and reducing the loss determined by the amount of the disallowed depreciation.

Conclusion:

The ITAT dismissed the Revenue's appeal and partly allowed the assessee's appeal, deleting the disallowance of depreciation and upholding the Ld. CIT(A)'s order regarding the TDS issue. The legal challenge to the reassessment proceedings was not adjudicated due to its academic nature following the decision on the merits.

Order Pronounced:

Order pronounced in the open Court on 24.06.2015.