2019 (2) TMI 1077 - HC - Income Tax

Deduction u/s 35(1)(iv) as well as the deduction in machinery and Food Division - Held that - The appellant in support of its claim has not only produced relevant purchase and sale vouchers/bills but has also submitted a survey report and certificate issued by the Commercial Tax Department. On 14.1.2008, the survey was conducted at the business premises of the appellant and it was noticed that the plant and machinery were established. In the said survey a statement was made that the production was likely to be started in the month of March or April, 2008. The appellant has also filed its annual return as prescribed under the U.P. VAT Act, 1998 and in pursuance of the said return so submitted, an assessment order under Section 28(2) of the U.P. VAT Act was also framed. While passing the assessment order under the U.P. VAT Act the Assessing Authority has observed that on the sale of cooking food the rate of tax is 12% but appellant has accepted tax and deposit the same only at the rate of 4%. A bare perusal for the record, more precisely the assessment order and survey report dated 14.1.2008 filed by the assessee shows that the production was started in March, 2008 and the sale was also made. Tribunal, being a last court of fact, was not justified in brushing aside the certificate, survey report and the assessment order passed by one Government Department, i.e., Commercial Tax Department of U.P. The view taken by the Tribunal in brushing aside the assessment order relevant for the year under consideration is not correct. The impugned order of the Tribunal dated 14.12.2011, is set aside and matter is remanded back to the Tribunal for reconsideration in accordance with law.

Summary

Issues:
1. Entitlement to claim deduction under Section 35(1)(iv) of the Income Tax Act.
2. Validity of VAT Return and certificates as public documents for deduction under Section 35(1)(iv) of the IT Act.
3. Denial of deduction under Section 35(1)(iv) based on assessment orders and rectification orders.
4. Allowing Commissioner's Appeal on a non-subject matter.
5. Setting aside depreciation on machinery and building of Food Division.

Entitlement to Claim Deduction under Section 35(1)(iv):
The appellant claimed deductions under Section 35(1)(iv) of the Income Tax Act for the assessment year 2008-09. The Assessing Officer initially disallowed the deductions as the business of the Food Division was deemed not to have commenced during the relevant year. However, the CIT (Appeals) allowed the deductions, which was then challenged by the Revenue before the Tribunal. The Tribunal upheld the Assessing Officer's decision. The High Court found that the appellant had submitted relevant purchase and sale vouchers, a survey report, and a certificate from the Commercial Tax Department, indicating the production commencement in March 2008. The Court held that the Tribunal erred in disregarding the evidence and assessment order from the Commercial Tax Department, remanding the matter back to the Tribunal for reconsideration.

Validity of VAT Return and Certificates as Public Documents:
The issue revolved around whether the VAT Return for March 2008 and certificates from statutory VAT authorities could be considered public documents under the Evidence Act. The Tribunal had rejected these documents as valid evidence for claiming deductions under Section 35(1)(iv) of the IT Act. However, the High Court found that the assessment order under the U.P. VAT Act, based on the appellant's annual return, supported the claim of production commencement in March 2008. The Court emphasized the significance of these documents and criticized the Tribunal for disregarding them, leading to a remand for reconsideration.

Denial of Deduction Based on Assessment and Rectification Orders:
The denial of deductions under Section 35(1)(iv) was also based on assessment orders and rectification orders from the Deputy Commissioner of Commercial Tax Sector. The Tribunal had upheld the denial, but the High Court, after reviewing the evidence presented by the appellant, found that the production had indeed commenced in March 2008. The Court disagreed with the Tribunal's decision and remanded the matter for further consideration.

Allowing Commissioner's Appeal on a Non-Subject Matter:
The Tribunal's decision to allow the Commissioner's Appeal on an issue not originally part of the appeal was questioned. The High Court did not delve into this issue in detail but highlighted it as one of the substantial questions of law raised in the appeal.

Setting Aside Depreciation on Machinery and Building:
The Tribunal had set aside the depreciation claimed on machinery and building of the Food Division. The High Court, after considering the evidence of production commencement and the assessment order under the U.P. VAT Act, found the Tribunal's decision unjustified. The Court remanded the matter back to the Tribunal for reconsideration in accordance with the law, ruling in favor of the appellant against the Revenue.