Income tax Officer, Pune V. Shri Manjit Sudhist Kumar, Pune

ITA 1051/PUN/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 3039 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH PAMNANI
• Keywords: Depreciation; Bonafide belief
• Section: 32

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE . , , BEFORE SHRI D. KARUNAKARA RAO, AM . / ITA NO. 1051/PUN/2017 / ASSESSMENT YEAR : 2007-08 THE INCOME TAX OFFICER, WARD-6(1), PUNE ....... / APPELLANT / V/S. SHRI MANJIT SUDISHT KUMAR, 414, MANGALWAR PETH, PUNE-411 011. PAN : AFIPK4048R / RESPONDENT APPELLANT BY : SHRI PANKAJ GARG RESPONDENT BY : SHRI PRAKASH PAMNANI / DATE OF HEARING : 17.05.2018 / DATE OF PRONOUNCEMENT : 25.05.2018 / ORDER PER D. KARUNAKARA RAO, AM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF C IT(A)-4, PUNE, DATED 02.01.2017 FOR THE A.Y. 2007-08. 2. THE SOLITARY GROUND RAISED BY THE REVENUE READS AS UNDER : 1. WHETHER ON THE FACT AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) IS CORRECT IN ALLOWING DEPRECIATION CLAIMED BY ASSESSEE AMOUNTING TO RS.36,57,173/- BY RELYING ON THE DECIS ION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CAPITAL BUS SERVICES (P) LTD. VS. CIT, 1980 TMI 36904, WHEN THE ASSESSEE HAS NOT USE THE VEHICLES E VEN FOR ANY SINGLE DAY IN A YEAR. 2 ITA NO.1051/PUN/2017 SHRI MANJIT S. KUMAR 3. BRIEFLY STATED RELEVANT FACTS INCLUDES THAT THE ASSESS EE IS AN INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF RUNNING BUSES O N HIRE FOR TOUR OPERATORS ETC. ASSESSEE FILED RETURN OF INCOME ON 3 1.10.2007 DECLARING TOTAL INCOME OF RS. NIL. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. THE AO NOTED THAT ASSESSEE PURCHASED AS MANY AS 24 BUSES AND 2 CARS FOR HIS BUSINESS IN THE PAST OUT OF MON EY BORROWED FROM DIFFERENT BANKS. HOWEVER, WHEN THE ASSESSEE DEFAULTED IN REPAYMENT OF BORROWED MONEY, THE BANKS TOOK BACK THE BUSES IN THE YEAR UNDER CONSIDERATION AND THEREFORE, THE USE COND ITION OF SECTION 32 OF THE ACT WAS NOT MET BY THE ASSESSEE. THE AO FURT HER OBSERVED THAT THE ASSESSEE WAS NOT IN POSSESSION OF THE SAID BUS ES AND THE SAME WERE NOT PUT TO USE BY THE ASSESSEE EVEN IN A S INGLE DAY (EXCEPT FOR TWO BUSES WHICH WERE USED FOR 5 MONTHS). HOWEVER, TH E ASSESSEE CLAIMED DEPRECIATION ON THE BUSES FOR FULL YEAR. THEREFORE, FOLLO WING THE PROVISIONS U/S. 32 OF THE ACT, AO ISSUED A SHOW CAUSE NOTICE AS TO WHY DEPRECIATION CLAIMED ON THE BUSES WHICH WERE NOT PUT TO USE BY THE ASSESSEE. IN REPLY, THE ASSESSEE SUBMITTED THAT ALT HOUGH THE VEHICLES WERE ATTACHED, HE WAS STILL OWNER OF THOSE VEHICLE S AND SINCE THE SAID VEHICLES WERE MEANT FOR BUSINESS, AN AMOUNT OF RS.38,14,088/- WAS CLAIMED AS DEPRECIATION IN THE RETURN FILED FOR THE A.Y. 2007-08 AND THE ASSESSEE HAS PLACED RELIANCE ON V ARIOUS CASE LAWS. HOWEVER, THE AO REJECTED THE CONTENTION OF ASSESSE E AND CAME TO THE CONCLUSION THAT THERE IS NO CASE FOR ALLOWANCE OF THE DEPRECIATION AND MADE ADDITION OF RS.36,57,173/-. EVENTUALLY, THE AO DET ERMINED THE INCOME OF THE ASSESSEE AT RS.42,523/-. CONTENTS OF PA RA NO. 10 OF THE ASSESSMENT ORDER ARE RELEVANT IN THIS REGARD. AGG RIEVED WITH THE ORDER OF AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). 3 ITA NO.1051/PUN/2017 SHRI MANJIT S. KUMAR 4. IN THE FIRST APPELLATE PROCEEDINGS, CIT(A) DELETED THE A DDITION OF RS.36,57,173/- MADE BY THE AO. WHILE DOING SO, CIT(A) CONSIDE RED THE LETTER OF RTO, PUNE DATED 21-11-2016 AND NOTED THAT TH E ASSESSEE IS STILL THE OWNER OF THE VEHICLES DURING THE PERIOD RELEVANT T O THE ASSESSMENT YEAR UNDER CONSIDERATION. CIT(A) PLACED RELIANCE ON THE JUDGMENT OF HON'BLE DELHI COURT IN THE CASE OF CAPITAL BUS SERVICES VS. CIT, 1980-TMI-36904. CIT(A) ALSO HIGHLIGHTED THE RELEVAN T PROVISIONS OF SECTION 32(1) OF THE ACT TO ADJUDICATE THE ISS UE OF DEPRECIATION IN THE INSTANT CASE IN FAVOUR OF THE ASSESSE E. EVENTUALLY, THE CIT(A) DELETED THE ADDITION MADE BY THE AO. 5. AGGRIEVED WITH THE ORDER OF CIT(A), THE REVENUE IS IN AP PEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS EXTRACTED ABOVE. 6. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDER OF AO AND SUBMITTED THAT CIT(A) ERRED IN ALLOWING DEPRECIATION CLAIMED BY ASSESSEE AMOUNTING TO RS.36,57,173/- WHEN THE ASSESSEE WAS NOT IN POSITION OF THE VEHICLES AND THE SAME WERE NOT PUT TO U SE BY THE ASSESSEE EVEN FOR A SINGLE DAY IN A YEAR. 7. BEFORE ME, LD. COUNSEL FOR THE ASSESSEE INFORMED THAT T HE ISSUE RAISED IN THE PRESENT APPEAL RELATES TO THE CORRECT OF D ENYING OF DEPRECIATION U/S.32 OF THE ACT IN RESPECT OF THE INDIVIDUAL IT EMS OF BUSES/CARS, PURCHASED IN THE PAST AND ALREADY ENTERED THE BLOCK OF ASSETS. THE CLAIM OF DEPRECIATION U/S.32 ON THE SAID BUSES /VEHICLES WAS ALLOWED IN THE PAST. IN THE YEAR UNDER CONSIDERATIO N, THE SAID ITEMS OF DEPRECIABLE ASSETS WERE CONFISCATED BY THE FINANCIE R DUE TO REASONS OF DEFAULT OF PAYMENT OF INSTALLMENTS OF EMI. STA TING THAT THE 4 ITA NO.1051/PUN/2017 SHRI MANJIT S. KUMAR ISSUE STAND COVERED IN FAVOUR OF THE ASSESSEE, LD. COUNS EL RELIED ON THE WRITTEN SUBMISSIONS AS WELL AS THE BINDING DECISIONS OF THE COURTS . 8. ON HEARING BOTH THE PARTIES OF REVENUE AND THE ASSE SSEE, I FIND RELEVANT TO EXTRACT RELEVANT PARAGRAPHS FROM THE WRITTE N SUBMISSIONS AND ALSO THE RATIO OF THE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF CIT VS. SONIC HIOCHEM EXTRACTIONS PVT. LTD. 94 CCH 0099 (MUMBAI HIGH COURT). 8.1 TO START WITH, THE WRITTEN SUBMISSIONS FILED BY THE ASSE SSEE ARE EXTRACTED AS FOLLOWS : THE LEGISLATURE AMENDED THE LAW TO PROVIDE FOR ALL OWING OF THE DEPRECIATION ON THE ENTIRE BLOCK OF ASSETS INSTEAD OF EACH INDIVIDUAL ASSETS. THE BLOCK OF ASSETS HAS ALSO BEEN DEFINED TO INCLUDE THE GROUP OF ASSETS FALLING WITH THE SAME CLASS OF ASSETS. H ENCE AFTER THE AMENDMENT WITH EFFECT FROM 1-4-1988, THE INDIVIDUAL ASSETS HAS LOST ITS IDENTITY AND FOR THE PURPOSE OF ALLOWING OF DEPRECI ATION, ONLY THE BLOCK OF ASSETS HAS TO BE CONSIDERED IF A BLOCK OF ASSETS IS OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS, DEPR ECIATION WILL BE ALLOWED. THEREFORE THE TEST OF USER HAS TO BE APPL IED UPON THE BLOCK AS WHOLE INSTEAD OF UPON AN INDIVIDUAL ASSET. IN THIS REGARD THE DETAILED SUBMISSION HAVE BEEN MA DE BEFORE YOUR HONOURS BENCH TODAY MORNING. YOUR HONOUR HAS SOUGHT JUDICIAL PRONOUNCEMENTS IN S UPPORT OF OUR CONTENTIONS. THE FOLLOWING JUDICIAL PRONOUNCEMENTS ARE ENCLOSED HEREWITH IN SUPPORT OF OUR ABOVE CONTENTIONS : 1. CIT VS. SONIC HIOCHEM EXTRACTIONS PVT. LTD. 94 C CH 0099 (MUMBAI HIGH COURT) 2. CIT VS. OSWAL AGRO MILLS LTD. 78 CCH 1010 (DELH I HIGH COURT) 3. SONY INDIA (P) LTD. VS. CIT 98 CCH 0183 (DELHI H IGH COURT) WE PRAY BEFORE YOUR HONOUR TO CONSIDER THE GIVEN FA CTS AND ORDER OF CIT(A) RIGHTLY ALLOWING FULLY THE DEPRECIATION CLAI MED BY THE ASSESSEE BE CONSIDERED AND OUR ABOVE CONTENTIONS ALONGWITH JUDI CIAL PRONOUNCEMENTS BE CONSIDERED. 8.2 THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SONIC HIOCHEM EXTRACTIONS PVT. LTD. (SUPRA) IS EXTRACTED HERE AS UNDER : 5 ITA NO.1051/PUN/2017 SHRI MANJIT S. KUMAR CONCLUSION : INDIVIDUAL ASSET LOOSES ITS IDENTITY FOR PURPOSES OF DEPRECIATION AND USER TEST IS TO BE SATISFIED AT TI ME WHEN PURCHASED MACHINERY BECOMES PART OF THE BLOCK OF ASSETS FOR F IRST TIME. 8.3 SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DELHI COURT IN THE CASE OF CIT VS. OSWAL AGRO MILLS LTD. (SUPRA) AND THE CONCLU SION DRAWN BY THE HIGH COURT IS EXTRACTED HERE AS UNDER : THOUGH USER OF ASSET FOR THE PURPOSE OF BUSINESS I S AN ESSENTIAL CONDITION FOR CLAIMING DEPRECIATION, DEPRECIATION U NDER S.32, AS AMENDED BY TAXATION LAWS (AMENDMENT) ACT, 1986, IS ALLOWABLE ON THE ENTIRE BLOCK OF ASSETS IRRESPECTIVE OF THE FACT THAT A PARTICULAR ASSET OR ASSETS OF A CLOSED UNIT IN THIS CASE, WERE NOT P UT TO USE DURING THE YEAR. 8.4 FURTHER, I PERUSED THE ORDER OF CIT(A) IN GENERAL AND PARA NOS.5.3.1 TO 5.3.4 IN PARTICULAR AND FIND THE CIT(A) GRANTED RELIEF TO THE ASSESSEE ON DIFFERENT REASONING, WHICH IS ALSO PROPER. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, I PROCEED TO EXTRACT THE SA ID PARAGRAPHS AS FOLLOWS : 5.3.1 I HAVE CAREFULLY PERUSED THE SUBMISSIONS MA DE BY THE APPELLANT. ON CAREFUL EXAMINATION OF THE LETTER OF RTO, PUNE, IT IS EVIDENT THAT THE APPELLANT WAS THE OWNER OF THE VEH ICLES DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER CONSID ERATION. HENCE, TO ADJUDICATE THE MATTER, LET US SEE THE PROVISIONS OF SECTION 32(1) OF THE ACT, WHICH IS EXTRACTED BELOW : . . . . . . . . . .. . . . . 5.3.2 IN THE INSTANT CASE, THE LD.A.O. WAS UNDER T HE BONAFIDE BELIEF THAT THE APPELLANT WAS NOT IN POSSESSION OF THE BUSES AND THE SAME WERE NOT PUT TO USE EVEN FOR A SINGLE DAY AND HAS CLAIMED DEPRECIATION ON THE BUSES FOR THE FULL YEAR. HOWEV ER, IT IS EVIDENT FROM THE LETTER OF THE RTO THAT THE APPELLANT WAS THE OW NER OF THESE VEHICLES. 5.3.3. WITH REGARD TO THE ASSETS PUT TO USE, RELIAN CE IS PLACED ON DECISION OF DELHI HIGH COURT IN THE CASE OF CAPITAL BUS SERVICES VS. CIT, 1980 TMI-36904 WHEREIN IT WAS HELD THAT THE EXPRE SSION USED FOR THE PURPOSE OF THE BUSINESS AND DEPRECIATION WOULD BE A LLOWED WHERE THE BUSES WERE KEPT READY BY THE OWNER FOR ITS USE. ME RELY BECAUSE THE BUSES DID NOT PLY CANNOT MEAN THAT THE DEPRECIATION WAS NOT ALLOWABLE. 5.3.4 IN VIEW OF THE ABOVE BACKGROUND AND JUDICIAL PRECEDENTS, GROUND NO.1 OF THE APPEAL IS ALLOWED. 6 ITA NO.1051/PUN/2017 SHRI MANJIT S. KUMAR FROM THE ABOVE, IT IS UNDISPUTED FACT THAT THE ASSESSEE S BUSINESS IS RUNNING OF BUSES AND CARS ON HIRE. ASSESSEE U SED THE SAID VEHICLES FOR HIS BUSINESS PURPOSES AND THEREFORE, THE DEPR ECIATION WAS RIGHTLY ALLOWED UNDER THE PROVISIONS OF SECTION 32(1) OF THE ACT. CIT(A) RIGHTLY ALLOWED THE CLAIM OF DEPRECIATION ON CARS/VEHICLES DU RING THE YEAR UNDER CONSIDERATION ALSO CONSIDERING THE JUDGMENTAL LAWS ON THIS ISSUE. CONSIDERING THE SETTLED LEGAL POSITION ON THE ISSUE U NDER CONSIDERATION, I AM OF THE OPINION THAT THE ISSUE RAISED IN THE GROUNDS BY THE REVENUE IS NOT SUSTAINABLE IN VIEW OF THE BINDINGS J UDGMENTS OF THE HONBLE HIGH COURTS. ACCORDINGLY, THE ONLY GROUND R AISED BY THE REVENUE IS DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 25 TH DAY OF MAY, 2018. SD/- ( . /D. KARUNAKARA RAO) / ACCOUNTANT MEMBER / PUNE; / DATED : 25 TH MAY, 2018. SATISH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEAL)-4, PUNE. 4. THE PR.CIT-3, PUNE. 5. , , - , / DR, ITAT, SMC BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, //TRUE COPY // /SR. PRIVATE SECRETARY , / ITAT, PUNE.