2004 (4) TMI 257 - AT - Income Tax

Summary

Issues Involved:
1. Computation of deduction under Section 32AB.
2. Disallowance of depreciation on godowns.
3. Depreciation on trucks.
4. Deduction under Section 48(2).
5. Validity of proceedings under Section 147.
6. Exclusion of certain incomes for computing deduction under Section 32AB.
7. Levy of interest under Section 234B in reassessment proceedings.

Detailed Analysis:

1. Computation of Deduction under Section 32AB:
The primary issue was whether certain incomes (dividend, interest, and rental income) should be included in the computation of profits for the purposes of Section 32AB. The Assessing Officer (AO) and CIT(A) excluded these incomes, arguing they did not fall under "Profits and gains of business or profession." However, the Tribunal found this approach erroneous, clarifying that profits should be computed in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, which includes all incomes of the company. The Tribunal allowed the assessee's method, which included these incomes in the computation, aligning with precedents from Carborandum Universal Ltd. vs. CIT and Highway Cycle Industries Ltd. vs. Asstt. CIT.

2. Disallowance of Depreciation on Godowns:
The AO disallowed depreciation on godowns, treating the rental income as "Income from house property" rather than "Business income." The Tribunal upheld this view, citing the jurisdictional High Court's decision in Rani Paliwal vs. CIT, which mandated that rental income from property is taxable under "Income from house property," thus disallowing depreciation but allowing a 1/6th deduction for repairs.

3. Depreciation on Trucks:
The AO restricted depreciation on trucks to 33.33% instead of 50%, as the trucks were used for both own business and hire. The Tribunal found the necessary material facts were not adequately considered and remanded the issue back to the AO for a fresh decision after allowing the assessee a reasonable opportunity to present their case.

4. Deduction under Section 48(2):
The assessee claimed a deduction under Section 48(2) for long-term capital gain on the sale of a car, which was not addressed by the AO or CIT(A). The Tribunal restored the issue to the AO for fresh adjudication, ensuring the assessee is given a fair chance to present their claim.

5. Validity of Proceedings under Section 147:
The reassessment proceedings under Section 147 were initiated based on the audit party's opinion that certain incomes were wrongly treated as business income. The Tribunal upheld the validity of these proceedings, distinguishing between factual information provided by the audit party (which is valid for reassessment) and mere change of opinion (which is not). The Tribunal cited the Supreme Court's decisions in CIT vs. PVS Beedies (P) Ltd. and Lucas TVS Ltd., and confirmed that the reassessment was justified due to external information indicating excess deduction under Section 32AB.

6. Exclusion of Certain Incomes for Computing Deduction under Section 32AB:
For the assessment year 1989-90, the Tribunal followed its earlier decision for the assessment year 1990-91, directing the AO to include the incomes from sale of fixed assets, rent, interest, and dividend in the "Profits of the business" for computing deduction under Section 32AB.

7. Levy of Interest under Section 234B in Reassessment Proceedings:
The Tribunal rejected the assessee's contention against the levy of interest under Section 234B, citing Explanation 3 to Section 234B, which allows for interest to be charged in reassessment proceedings. The Tribunal directed that any consequential relief due to adjustments in the above grounds should be granted accordingly.

Conclusion:
The appeals were partly allowed, with the Tribunal providing a detailed interpretation of the relevant sections and remanding certain issues back to the AO for fresh consideration. The Tribunal clarified the computation of profits for Section 32AB, upheld the disallowance of depreciation on godowns, and validated the reassessment proceedings under Section 147 while ensuring the assessee's claims were thoroughly reconsidered.