2009 (12) TMI 54 - HC - Income Tax

Deduction u/s 10B Interest u/s 234D Held that - The exact mistake of the audit party was that after its stand that the book depreciation relating to all the units should be added back in the memo of total income, but it omitted to consider the fact that the assessee would be entitled to income tax depreciation in respect of all the units whereas the company had claimed only income tax depreciation of other units except 10B unit. This is the mistake committed by the audit party and even though the proper and correct reply was submitted by the assessee, the assessing officer, without due application of mind, revised the assessment order - the revenue is not able to establish that the view taken by the Commissioner of Income Tax (Appeals) and confirmed by the Tribunal is not in accordance with law. So is the issue with regard to section 234D penalty. The Commissioner of Income tax (Appeals) has observed that section 234D of the Act is applicable only where any refund is granted to the assessee under section 143(1) of the act and the same is payable back to the department on completion of the assessment under section 143(3) of the Act. The assessing officer has not granted refund under section 143(1) of the Act and in the circumstances section 234D is not applicable decided in favor of assessee

Summary

Issues:
Appeal against ITAT order on assessment year 2001-01 - Disallowance of excess depreciation and deduction under sections 10B and 80IB - Mistake in computation of deduction under section 10B - Validity of interest under section 234-D prior to 01.06.2003.

Analysis:
The appeal in question pertains to the assessment year 2001-01, where the assessee, a public limited company engaged in manufacturing, filed its return of income admitting a total income. The assessment was completed initially, but later reopened due to a revenue audit objection. The assessing officer revised the assessment, withdrawing excess depreciation and restricting deductions under sections 10B and 80IB. The matter was appealed to the CIT (Appeals) who deleted the disallowance of depreciation, stating the method followed by the assessee was correct. The ITAT upheld this decision. The substantial questions of law raised included the validity of deleting the addition of excess depreciation and the applicability of interest under section 234-D. The Commissioner found the assessing officer blindly followed the audit objection without proper consideration. The assessee's method was deemed correct, and the audit party's mistake was highlighted. The Tribunal upheld the Commissioner's decision, stating the revenue failed to establish any legal inconsistency. Regarding section 234-D penalty, it was noted that the provision applies only to refunds granted under section 143(1) of the Act, which was not the case here. Consequently, the Tribunal dismissed the appeal, finding no substantial question of law and ruling against the revenue on the issue of interest under section 234-D.

This judgment emphasizes the importance of proper assessment procedures and the need for assessing officers to apply their minds diligently rather than blindly following audit objections. It also clarifies the specific conditions under which penalties such as section 234-D can be imposed, ensuring adherence to legal provisions and preventing arbitrary application of penalties. The decision provides a clear interpretation of the law and sets a precedent for similar cases involving the computation of deductions and the applicability of interest penalties in income tax assessments.