2020 (12) TMI 174 - AT - Income Tax

Rectification u/s 154 - assessee said to be claimed depreciation on plat and machinery @ 60% against the applicable rate of 10% - Assessee disclosed the office equipment under separate head entitled for 60% depreciation - whether these office equipment computers or computer parts are entitled for depreciation at 60%? - HELD THAT - If the AO applied the wrong provision of law in the original Assessment or applied wrong rate of depreciation, it could be rectified in proceeding under section 154 of the Act. In our opinion, this view of the DR is justified. We find that as per entry No.5 in the new Appendix I attached to Income Tax Rules, 1962, w.e.f. Assessment Year 2006-07 onwards, applicable rate of depreciation for computer or computer parts is at 60%. Accordingly, we direct the AO to grant depreciation on these items at 60%, and we uphold the order of CIT(A) on this issue. Disallowance u/s 14A r.w.r. 8D - Suo moto disallowance by assessee - AO has to go through various components like interest bearing funds, average value of investment, average value of total assets as appeared in the Balance Sheet of the assessee on the day and last day of the previous year, amount of expenditure directly relating to income which does not form a part of the total income. Being so, the issue is very debatable, the disallowance cannot be proceeded under section 154 of the Act. As rightly pointed out by CIT(A) that rectification under section 154 of the Act can only be made with regard to mistake of fact or law committed by the officer passing the order becomes apparent from the record, rectification is not possible if the question is debatable. A point which was not examined on facts or in law cannot be dealt with as a mistake apparent from the record. Interest on delayed payment of TDS - Allowable expenditure - HELD THAT - In our opinion, it is compensatory in nature and not penal in nature as held by Co-ordinate Bench in the case of M/s. IDS Next Business Solutions Pvt. Ltd 2018 (6) TMI 1730 - ITAT BANGALORE . Accordingly, it is an allowable expenditure. In this issue, CIT(A) has taken correct view and no interference is called for.

Summary

Issues:
- Disallowance of depreciation on plant and machinery
- Disallowance under section 14A of the Income Tax Act
- Disallowance of interest on belated TDS

Disallowance of Depreciation on Plant and Machinery:
The Revenue challenged the order of the CIT(A) regarding the disallowance of depreciation on plant and machinery claimed at 60% instead of the applicable rate of 10%. The assessee argued that the assets entitled for 60% depreciation were office equipment like computers and computer parts. The Revenue cited judgments from the Madras High Court and other cases to support the rectification of the depreciation rate under section 154 of the Act. The Tribunal referred to the Income Tax Rules and a previous case involving computer accessories to rule in favor of the assessee, directing the AO to grant depreciation at 60% for the office equipment, upholding the CIT(A)'s decision on this issue.

Disallowance under Section 14A of the Income Tax Act:
The assessee voluntarily disallowed a certain amount under section 14A r.w.r. 8D, but the AO needed to consider various components for a comprehensive disallowance calculation. The issue was deemed highly debatable, making it unsuitable for rectification under section 154 of the Act. The Tribunal agreed with the CIT(A) that rectification could only address clear mistakes of fact or law, not debatable issues left unexamined previously. Consequently, the Tribunal dismissed the Revenue's appeal on this matter.

Disallowance of Interest on Belated TDS:
Regarding the disallowance of interest on belated TDS payments, the Tribunal viewed it as compensatory rather than penal, aligning with a previous decision by a Co-ordinate Bench. This nature of interest made it an allowable expenditure, and the Tribunal found no reason to interfere with the CIT(A)'s decision on this issue. As a result, both the Revenue's appeal and the assessee's C.O. were dismissed, affirming the decisions made by the lower authorities.

This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal ITAT BANGALORE, providing a comprehensive overview of the legal reasoning and decisions made in the case.