2019 (11) TMI 262 - AT - Income Tax

Validity of issue of notice u/s 148 - depreciation on plant and machinery @30% which is to be allowed in the case of the business of running vehicles on hire. Normal depreciation allowable in the case of usage of vehicles in the business is 15% - HELD THAT - In the instant case as per the information available on record the assessee is engaged in the business of civil contracts and claimed the depreciation on earth moving machinery @30% instead of 15%. Therefore as observed by the Ld.CIT(A) the AO has fulfilled the crucial link between the information available and the inference drawn to have belief that the income chargeable to tax had escaped the assessment. There is no dispute that the AO had recorded the reasons and obtained the approval from the competent authority as provided in the Act. The AO satisfied all the requirements for issue of notice u/s 148. CIT(A) has rightly relied on the decision of Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Broker Pvt. Ltd. 2007 (5) TMI 197 - SUPREME COURT observed that the intimation u/s 143(1) is not an assessment. Since the intimation u/s 143(1) is not an assessment within the meaning of statute there is no question of treating the reassessment was based on change of opinion. Therefore we hold that in the instant case having processed the returns u/s 143(1) there is no case for change of opinion and the AO has rightly reopened the assessment after being satisfied with the reason that the income chargeable to tax had escaped the assessment. AO ought to have resorted for action u/s 154 or 263 instead of reopening the assessment u/s 147 - It is for the AO to take appropriate remedial action and to bring the escaped income to assessment but not for the assessee to dictate the terms. In the instant case the AO viewed that correct remedial action is reopening of assessment and rightly invoked jurisdiction u/s 147 hence we reject the argument of the Ld.AR. Accordingly we uphold the order of the CIT(A) and dismiss the appeal of the assessee on this ground for the A.Y. 2011-12 2012-13 2014-15 and 2015-16. Reopening on audit objection - A.Y.2013-14 - HELD THAT - Assessee could not submit complete information before the AO. Further since the assessment was reopened within 4 years from the end of the relevant A.Y. As per the provision of the income tax failure attributable to the assessee is not applicable in case of assessments reopened within four years. It is evident from the assessment order that the assessee has claimed higher rate of depreciation for which the assessee did not furnish the details and the AO also did not examine the issue at the time of original assessment. Hence we agree with the order of the Ld.CIT(A) that the AO has rightly invoked jurisdiction u/s 147 and reopened the assessment within 4 years. Accordingly we uphold the issue of notice u/s 148 for all the impugned assessment years. In the instant case there is no dispute that the Audit party has raised the objection with regard to the excess claim of depreciation and there is no evidence available on record to show that the assessee is using the vehicles for running them on hire. Therefore we find no merit in the argument of the Ld.AR and reject the same. Delay in remittances of EPF and ESI contributions of employees u/s 43B - HELD THAT - For all the impugned assessment years it is found from the assessment order that the assessee remitted the employees contribution relating to EPF and ESI beyond due date provided under the relevant Acts but before the due date for filing the return of income. This Tribunal has consistently taken view that PF ESI remitted before the due date for filing the return of income is required to be allowed as deduction. The Coordinate Bench has followed the decision of Hon ble High Court of Karnataka in the case of ESSAE TERAOKA PVT Ltd. Vs. DCIT 2014 (3) TMI 386 - KARNATAKA HIGH COURT and allowed the deduction. On identical facts this Tribunal in the case of ACIT Vs. Brandix India Apparel City Private Ltd. vide I.T.A. 2019 (1) TMI 1547 - ITAT VISAKHAPATNAM held that employees contribution to PF required to be allowed even if the same is paid before the due date of filing the return u/s 139(1) - assessee is entitled for deduction on account of PF and ESI if the same is remitted before the due date of filing the return of income Higher rate of depreciation - Depreciation on business of civil contract @30% or 15% - AO disallowed the excess depreciation claimed by the assessee holding that the assessee is not in the business of running them on hire - HELD THAT - In the instant case the assessee failed to establish that the dominant purpose was to use the vehicles for running them on hire. The dominant purpose is to use the vehicles for its own business. The purpose of allowing deduction at higher rate of depreciation in vehicles running them on hire is that the vehicles are used extensively without taking much care and suffer heavy wear and tear. Whereas in the case of assessee s own business the wear and tear is lesser than the vehicles used in running on hire. In the instant case the assessee also failed to establish that the vehicles were used in the business of running them on hire. Following the decision of Hon ble Kerala High Court in the case of N.D.Joseph Vs.CIT 2010 (1) TMI 382 - KERALA HIGH COURT and CIT Vs. Gupta Global Exim 2008 (5) TMI 7 - SUPREME COURT we hold that the assessee is disentitled for higher rate of depreciation. - Decided against Assessee

Summary

Issues Involved:
1. Validity of the issue of notice under Section 148 of the Income Tax Act, 1961.
2. Delay in remittance of Employees' Provident Fund (EPF) and Employees' State Insurance (ESI) contributions.
3. Disallowance of depreciation claimed by the assessee.

Detailed Analysis:

1. Validity of the Issue of Notice under Section 148:
The primary issue in these appeals is the validity of the notice issued under Section 148 for reopening assessments under Section 147 of the Income Tax Act, 1961. The assessee argued that the reopening was due to a change of opinion and lacked fresh information, thus making it invalid. The CIT(A) rejected this contention, noting that the assessments were completed under Section 143(1), which is merely an intimation and not an assessment. Therefore, there was no question of change of opinion. The CIT(A) upheld the reopening, citing sufficient material indicating income escapement due to an incorrect claim of higher depreciation rates. The CIT(A) relied on multiple case laws, including Skylight Hospitality LLP Vs. ACIT (2018) and the Supreme Court decision in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt Ltd. [2007] 291 ITR 500 (SC), to support the validity of the notice under Section 148.

The Tribunal concurred with the CIT(A), stating that since the assessments were completed under Section 143(1), there was no case for change of opinion. The AO had a valid reason to believe that income had escaped assessment due to the incorrect depreciation claim, fulfilling the requirements for issuing a notice under Section 148. The Tribunal dismissed the assessee's argument that the AO should have taken action under Section 154 or 263 instead of reopening the assessment.

For the assessment year 2013-14, where the original assessment was completed under Section 143(3), the Tribunal noted that the reopening was within four years, making the failure to disclose full information irrelevant. The Tribunal upheld the reopening, rejecting the argument that it was based on audit objections, citing the Supreme Court's decision in Commissioner of Income-tax v. P.V.S. Beedies (P.) Ltd., which allows reopening based on factual errors pointed out by the audit party.

2. Delay in Remittance of EPF and ESI Contributions:
The second issue involved the disallowance of deductions for EPF and ESI contributions made beyond the due date under the relevant Acts but before the due date for filing the return of income. The AO disallowed these deductions, which was upheld by the CIT(A). However, the Tribunal noted that it has consistently held that contributions made before the due date for filing the return should be allowed as deductions. The Tribunal cited its own decision in ACIT Vs. Brandix India Apparel City Private Ltd. and the Karnataka High Court's decision in ESSAE TERAOKA PVT Ltd. Vs. DCIT [366 ITR 408], allowing the deduction for contributions made before the return filing due date. Consequently, the Tribunal set aside the CIT(A)'s order and deleted the additions made by the AO, allowing the assessee's appeals on this issue for the assessment years 2011-12 to 2015-16.

3. Disallowance of Depreciation Claimed by the Assessee:
The third issue was the disallowance of depreciation claimed at 30% instead of 15% for certain machinery and vehicles. The AO found that the assessee, engaged in civil contracts, was not using the vehicles for running them on hire, thus not eligible for the higher depreciation rate. The CIT(A) upheld this disallowance, noting that the service tax returns also indicated that the assessee was not in the business of running vehicles on hire.

The Tribunal agreed with the lower authorities, stating that the dominant purpose of the assessee was to use the vehicles for its own business, not for running them on hire. The Tribunal cited the Kerala High Court's decision in N.D.Joseph Vs.CIT (2010) 325 ITR 200 and the Supreme Court's decision in CIT Vs. Gupta Global Exim (P.)Ltd, 171 taxman 474 (SC), to support its conclusion. The Tribunal dismissed the assessee's appeal on this ground, affirming the lower rate of depreciation.

Conclusion:
The Tribunal upheld the validity of the notice under Section 148 for reopening assessments, allowed deductions for EPF and ESI contributions made before the return filing due date, and confirmed the disallowance of the higher depreciation rate claimed by the assessee. The appeals were partly allowed, providing relief on the EPF and ESI contributions issue while dismissing the other grounds.