Rural Communication and Marketing Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1338/DEL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8737 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 06-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL SENIOR
• Assessee Lawyers: SUSHIL SHARMA F
• Keywords: Business income; Depreciation; Question of law; Set aside
• Section: 271(1)(c); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH F FF F : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND AND AND AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT SHRI ANADEE NATH MISSHRA, ACCOUNTANT SHRI ANADEE NATH MISSHRA, ACCOUNTANT SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER MEMBER MEMBER MEMBER ITA NO. ITA NO. ITA NO. ITA NO. 1338/DEL/2017 1338/DEL/2017 1338/DEL/2017 1338/DEL/2017 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2013 2013 2013 2013 - -- - 14 1414 14 M/S RURAL COMMUNICATION M/S RURAL COMMUNICATION M/S RURAL COMMUNICATION M/S RURAL COMMUNICATION AND MARKETING PVT.LTD., AND MARKETING PVT.LTD., AND MARKETING PVT.LTD., AND MARKETING PVT.LTD., E EE E- -- -291, GREATER KAILASH 291, GREATER KAILASH 291, GREATER KAILASH 291, GREATER KAILASH- -- -II, II, II, II, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 048. 110 048. 110 048. 110 048. PAN : PAN : PAN : PAN : AAACR0134P. AAACR0134P. AAACR0134P. AAACR0134P. VS. VS. VS. VS. DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE INCOME TAX, CIRCLE INCOME TAX, CIRCLE INCOME TAX, CIRCLE- -- -21(2), 21(2), 21(2), 21(2), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUSHIL SHARMA, F CA. RESPONDENT BY : SHRI SURENDER PAL, SENIOR DR. DATE OF HEARING : 04.07.2019 04.07.2019 04.07.2019 04.07.2019 DATE OF PRONOUNCEMENT : 12.07.2019 12.07.2019 12.07.2019 12.07.2019 ORDER ORDER ORDER ORDER PER ANADEE NATH MISSHRA, AM PER ANADEE NATH MISSHRA, AM PER ANADEE NATH MISSHRA, AM PER ANADEE NATH MISSHRA, AM : :: : THIS APPEAL BY THE ASSESSEE IS FILED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-36, (LEARNED CIT (A), FOR SHORT), NEW DELHI, DATED 2 ND DECEMBER, 2016 FOR ASSESSMENT YEAR 2013-14, ON THE FOLLOWING GROUNDS :- 1. THAT THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWING HIGHER RATE OF DEPRECIATION @ 30% AMOUNT ING TO RS.19,57,837/- ON COMMERCIAL VEHICLES USED IN THE BUSINESS OF PROMOTIONAL ACTIVITY IN RURAL MARKETS OF IN DIA. THE ASSESSEE EARNS MORE THAN 75% OF ITS INCOME PRIMARILY FROM THIS ACTIVITY AND HIRE CHARGES OF VEHICLES ARE DU LY CHARGED FROM ITS CLIENTS. 2. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR D URING THE HEARING OF THIS APPEAL. ITA-1338/DEL/2017 2 2. THE ONLY ISSUE IN DISPUTE IN THE PRESENT APPEAL BEFO RE US IS WHETHER THE ASSESSEE IS ELIGIBLE FOR HIGHER RATE OF DEPR ECIATION AT THE RATE OF 30% OR THE NORMAL RATE OF DEPRECIATION AT T HE RATE OF 15% ON THE VEHICLES USED BY THE ASSESSEE IN THE BUSINESS OF PROMOTI ONAL ACTIVITIES IN RURAL MARKETS OF INDIA. 3. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER RAISE D A QUERY ABOUT THIS ISSUE, IN RESPONSE TO WHICH, THE ASSESSEE SUBMITTED JUSTIFICATION. HOWEVER, THE ASSESSING OFFICER DID NOT A CCEPT THE ASSESSEES JUSTIFICATION FOR HIGHER RATE OF DEPRECIATION AT THE RATE OF 30% AND RESTRICTED THE DEPRECIATION TO 15%. THE REL EVANT PORTION OF THE ASSESSMENT ORDER IS REPRODUCED AS UNDER :- 2. DURING THE ASSESSMENT PROCEEDINGS THE DETAILED SUBMISSIONS FILED BY THE ASSESSEE HAVE BEEN DULY PERUSED AND IT WAS NOTICED THAT ASSESSEE HAS CHARGED DEPRECIATION @ 30% P.A. AMOUNTING TO RS.34,19,477/- AND RS.4,95,79 6/- RESPECTIVELY ON COMMERCIAL VIDEO VANS AND COMMERCIAL VANS BODY INSTEAD OF 15% AS PRESCRIBED BY THE INCOME T AX RULES, 1962. THE AR OF THE ASSESSEE WAS SPECIFICALLY ASKED ABOUT THE SAME VIDE NOTE SHEET ENTRY DATED 06/11/2015 . IN COMPLIANCE THERETO THE ASSESSEE HAS FILED A REPLY, W HICH IS BEING REPRODUCED AS UNDER : SUB : INCOME TAX SCRUTINY PROCEEDINGS IN THE CASE OF M/S RURAL COMMUNICATION & MARKETING P.LTD. FOR THE A.Y. 2013- 14. .. 10. JUSTIFICATION OF DEPRECIATION ON COMMERCIAL VEHI CLES : THE COMPANY USES ITS COMMERCIAL VEHICLES ON HIRE FOR PROMOTIONAL ACTIVITY FOR ITS VARIOUS CLIENTS. THE COM PANY BOOKS ALL ITS INCOME FROM RUNNING OF PROMO-VANS UNDER THE HEAD OF VAN HIRE CHARGES AND HAS DULY SEGREGATED TH E SAME AS SEPARATE HEAD OF INCOME. DUE TO A DIFFERENT M ODE OF PROMOTIONAL ACTIVITY, THE METHOD OF CHARGING OR BILLING HAS BEEN DESIGNED IN A MANNER THAT IT INCLUDES NOT JUST THE ITA-1338/DEL/2017 3 HIRE FOR VAN BUT FOR VARIOUS OTHER COMBINED SET OF ACTIVITIES. THEREFORE, SINCE THE VEHICLES ARE BEING USED FOR HIRE TO ITS CLIENTS, THE COMPANY IS WELL JUSTIFIED IN CLAIMING DEPRECIATION @ 30 ON SUCH COMMERCIAL VEHICLES. THESE VEHICLES ARE THE MAIN SOURCE OF INCOME FOR THE ASSESSEE AND UNDERGO LOT OF WEAR AND TEAR WHILE ON ROADS IN RURAL AREAS. IN FACT, DUE TO HARD RURAL CONDITIONS, THESE V EHICLES UNDERGO MORE THAN USUAL DEPRECIATION. 2.1 THE REPLY OF THE ASSESSEE WAS DULY CONSIDERED BUT NOT FOUND TENABLE, AS THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RURAL MARKETING, PROMOTIONS, ROAD SHOWS, DISPLAY ADVERTISING ETC. AND NOT IN THE BUSINESS OF HIRI NG OF VEHICLES. THE ASSESSEE CARRIES OUT ITS BUSINESS ACTIVITIES FOR PROMOTIONS OF BRANDS THROUGH ITS VANS DULY FITTED W ITH DISPLAY DEVICES. IT IS GERMANE TO MENTION HERE THAT T HE ASSESSEE IS NOT CARRYING ON BUSINESS OF TRANSPORTATION. BY DELVING INTO THE RECORDS OF USAGE BY THE ASSESSEE IT IS PERCEIVED THAT THESE VANS WERE USED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR ITS OWN BUSINESS. IN THIS CON TEXT THE DECISION BY THE APEX COURT IN THE SLP(C) NO.1284 6 OF 2007 PUBLISHED VIDE 305 ITR 132 (SC) (2008) IN THE C ASE OF CIT V. GUPTA GLOBAL EXIM P.LTD. IS REPRODUCED BELOW : GENERALLY, THIS COURT DOES NOT INTERFERE WITH THE CONCURRENT FINDING OF FACTS RECORDED BY THE AUTHORIT IES BELOW. HOWEVER, WE ARE AWARE OF THE VIEW THAT IN T HIS CASE, A NEAT SUBSTANTIAL QUESTION OF LAW AROSE FOR DETERMINATION WHICH NEEDED INTERPRETATION OF THE DEPRECIATION TABLE GIVEN IN APPENDIX-I, TO THE INCO ME TAX RULES, 1962. THE SAID TABLE GIVES RATES AT WHICH DEPRECIATION IS ADMISSIBLE. UNDER SUB-ITEM 2(II) OF IT EM III, HIGHER RATE OF DEPRECIATION IS ADMISSIBLE ON MOTOR TRU CKS USED IN A BUSINESS OF RUNNING THEM ON HIRE. THEREFORE, THE USER OF THE SAME IN THE BUSINESS OF THE ASSESSEE OF TRANSPORTATION IS THE TEST . IN THE PRESENT CASE, NONE OF THE AUTHORITIES BELOW (EX CEPT THE AO) HAS EXAMINED THE MATTER BY APPLYING THE ABOV E TEST. THE AO HAS GIVEN HIS FINDINGS THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF TRADING IN TIMBER LOGS. THAT, T HE BURDEN WAS ON THE ASSESSEE TO ESTABLISH THAT IT IS THE OWNER OF MOTOR LORRIES AND THAT IT USED THE SAID MOTO R LORRIES/TRUCKS IN THE BUSINESS OF RUNNING THEM ON HIRE. ITA-1338/DEL/2017 4 IN OUR VIEW THE ENTIRE APPROACH OF CIT(A) WAS ERRONE OUS WHEN HE HAS STATED THAT THE TRANSPORTATION INCOME OF RS.12,50,639/- BY WAY OF RUNNING THE SUBJECT VEHICLES ON HIRE IS AN INTEGRAL PART OF THE APPELLANTS BUSINESS AND ITS INCLUSION IN THE HEAD BUSINESS INCOME IS NOT DISPUTED EVEN BY THE AO. IN OUR VIEW, MERE INCLUSION OF RS.12,50,639/- IN THE TOTAL BUSINESS INCOME IS NOT THE DETERMINATIVE FACTORY FOR DECIDING WHETHER TRUCKS WE RE USED Y THE ASSESSEE DURING THE RELEVANT YEAR IN A BUSINES S OF RUNNING THEM ON HIRE. IN OUR VIEW, THE CIT(A) H AD ERRED IN RELYING UPON THE ACCRUAL OF INCOME AS A DETERMINA TIVE FACTOR FOR COMING TO THE CONCLUSION THAT TRUCKS WERE USED IN A BUSINESS OF RUNNING THEM ON HIRE. WHAT IS RELEVANT FOR CONSIDERATION UNDER SUB-ITEM 2(II ) OF ITEM III OF APPENDIX I TO THE INCOME-TAX RULES, 1962 , IS WHETHER THE ASSESSEE WAS IN THE BUSINESS OF HIRING OUT HIS TRUCKS IN ADDITION TO HIS BUSINESS OF TRADING IN TIMBER. THE ORDER OF ASSESSMENT CLEARLY INDICATES THAT THE ASSESSEE WAS ONLY IN THE BUSINESS OF TRADING IN TIMBER. WE DO NOT HAVE THE RETURNS FILED BY THE ASSESSEE COMPANY BEFORE US. THERE IS NO EVIDENCE TO INDICATE THAT THE ASSESSEE WAS IN THE BUSINESS OF HIRING OUT MOTOR LORRIES FOR RUNNING TH EM ON EARN BUSINESS INCOME. THE ENTIRE INFERENCE IS DRAWN B Y CIT(A) ONLY ON THE FOOTING THAT THE AO HAD TREATED RS.12,59,639/- AS PART OF TOTAL BUSINESS INCOME, WHICH I S NOT DETERMINATIVE FACTOR OF THE ABOVE TEST, VIZ., WH ETHER THE TRUCKS WERE USED IN TRANSPORTATION BUSINESS AS CLAIME D BY THE ASSESSEE. FOR THE AFORESAID REASONS, WE SET ASIDE THE IMPUGNED JUDGMENT OF THE HIGH COURT AND WE REMIT THE MATTER TO CIT(A) FOR DE NOVO EXAMINATION OF THE CASE IN ACCORD ANCE WITH THE LAW. THIS FACT IS FURTHER SUBSTANTIATED BY THE RATIO OF DEC ISION BY GUJARAT HIGH COURT IN THE CASE OF CIT V. PRADIP N. D ESAI (HUF) (2012) 341 ITR 277 (GUJ.) WHEREIN IT HAS BEE N HELD THAT AS THE ASSESSEE WAS NOT CARRYING ON THE BUSINESS HIRING OF VEHICLE, NOT ENTITLED TO HIGHER RATE OF DEPRECIATION. 2.2 IN VIEW OF THE FOREGOING FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THESE VANS @ 15% P.A. AND THE EXCESS ITA-1338/DEL/2017 5 DEPRECIATION CLAIMED AT RS.17,09,939/- ON COMMERCIAL VIDEO VANS AND RS.2,47,898/- ON COMMERCIAL VAN BODY AGGREGATING TO RS.19,57,837/- IS BEING DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. I AM SATISFIED THAT ASSESSEE HAS CONCEALED TRUE PARTICULARS OF INCOME WITHIN THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961, SO PENALTY PROCEEDINGS U/S 271(1)(C) ARE BEING INITIATED SEPARATELY. 4. THE ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT(A). HOWEVER, VIDE ORDER DATED 2 ND DECEMBER, 2016, LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THE RELEVANT PORTION OF THE ORDER OF LEARNED CIT(A) IS AS UNDER :- 8.1 THE AO HAS DISALLOWED DEPRECIATION @ 30% ON COMMERCIAL VEHICLES VANS AND COMMERCIAL VANS THOUGH TH E DEPRECIATION HAS BEEN ALLOWED @ 15% AS PRESCRIBED BY T HE I.T. RULES. THE ASSESSEE IS IN THE BUSINESS OF RURAL MARKETING PROMOTION, ROAD SHOWS, DISPLAY ADVERTISING E TC. THE KEY INGREDIENT OF THE BILLING TO CLIENTS INCLUDE S THE VEHICLE HIRE CHARGES FOR WHICH A SEPARATE LEDGER ACCO UNT IS ALSO BEING MAINTAINED BY THE ASSESSEE. IT WAS CONTENDED THAT THE VEHICLES ARE USED BY THE ASSESSEE FOR ITS CLIENTS AND PROPER HIRE CHARGES ARE COLLECTED. RELIANCE HAS BEEN MADE ON TWO CASES OF APEX COURT. HOWEVER, IT IS SEEN T HAT THE CASE OF SREI INFRASTRUCTURE IS ABOUT CLAIM OF DEPRECIATION OF MOTOR VEHICLES GIVEN ON LEASE AND THE DEBATE MAINLY WAS ABOUT THE OWNERSHIP OF THE ASSETS AND THEREFORE THE FACTS OF THE CASE ARE NOT SAME AT ALL. IN THE CASE OF ICDS LTD., THE DEBATE IS ON WHETHER THE ASSET A RE USED FOR THE PURPOSE OF BUSINESS AND AGAIN ABOUT THE LEASING COMPANY WHICH LEASE OUT THE TRUCKS. THERE IS N O DISPUTE ABOUT THE CLAIM OF DEPRECIATION ON THE VEHIC LES OWNED BY THE ASSESSEE WHICH HAS ALSO BEEN ALLOWED BY THE AO. THE ONLY ISSUE IS WHETHER DEPRECIATION IS ALLOWED AT 15% OR AT HIGHER RATE OF 30%. I AM INCLINED TO AGR EE WITH THE AO THAT THE ASSESSEE DOES NOT CARRY ON THE BUSINESS O F EITHER TRANSPORTATION OR HIRING OUT MOTOR VEHICLES. THE MAIN BUSINESS OF THE ASSESSEE IS OUTSOURCING OF BRAND PROMOTION BY ITS CLIENTS AND THE VEHICLES ARE ONLY ONE PART OF THE WHOLE PROCESS. OBVIOUSLY HIRE CHARGES ARE A PAR T OF THE COST BUT IT DOES NOT CHANGE THE NATURE OF THE BU SINESS. THE TWIN REQUIREMENT OF OWNERSHIP AND USAGE FOR ITA-1338/DEL/2017 6 BUSINESS IS PRESCRIBED FOR A SUCCESSFUL CLAIM OF DEPRECIATION U/S 32 WHICH IS FULFILLED IN THIS CASE AND THEREFORE THE DEPRECIATION IS VALID AND THERE IS NO T WO VIEWS ABOUT IT. HOWEVER, THE SAME TESTS ARE NOT ENOUGH FOR CLAIMING OF HIGHER RATE OF DEPRECIATION. I ALSO FIND THAT THE JUDGMENT OF APEX COURT IN THE CASE OF GUPTA GLOB AL RELIED UPON BY THE AO IS MOST APPROPRIATE WHERE IT WA S HELD THAT HIGHER RATE OF DEPRECIATION IS ADMISSIBLE ON MOTOR TRUCKS USED IN A BUSINESS OF RUNNING THEM ON HIRE, THEREFORE THE USER OF THE SAME IN THE TRANSPORTATION BUSINESS OF THE ASSESSEE IS A TEST. THE APEX COURT HAD FOUND THAT RELIANCE CANNOT BE MADE UPON THE ACCRUAL OF INCOME AS A DETERMINATIVE FACTORY FOR COMING TO CONC LUSION THAT TRUCKS WERE USED IN THE BUSINESS OF RUNNING THEM O N HIRE. WHAT IS RELEVANT IS WHETHER THE ASSESSEE WAS IN TH E BUSINESS OF HIRING OUT HIS TRUCKS IN ADDITION TO HIS BUSI NESS OF TRADING IN TIMBER (IN THAT CASE). THE ASSESSEE BY SEL F ADMISSION IS ENGAGED IN BUSINESS OF MARKETING & BRAND ACTIVATION SERVING AND ADVERTISING THROUGH AV METHODS, MOBILE VANS, T.V., RADIOS, ETC. THE USE OF VEHICLES I S THUS ONLY THE MEANS TO DO SO. IT IS CLEAR THAT IN THE CASE OF THE ASSESSEE, WITHOUT THE WORK OF BRAND PROMOTION/ROAD SHOWS/RURAL MARKETING ETC., THE ASSESSEE WOULD NOT HIRE OUT TRUCKS MERELY FOR TRANSPORTATION. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE WAS IN THE BUSINESS OF HIRING OF VEHICLES OF TRANSPORTATION. IN THE ABOVE CIRCUMSTANCE S THE DISALLOWANCE OF HIGHER RATE OF DEPRECIATION AT 30% I S CONFIRMED. 5. THE PRESENT APPEAL BEFORE US IS FILED BY THE ASSESSEE A GAINST THE AFORESAID IMPUGNED APPELLATE ORDER DATED 2 ND DECEMBER, 2016 OF THE LEARNED CIT(A). 6. DURING APPELLATE PROCEEDINGS IN ITAT, A PAPER BOO K CONSISTING OF 108 PAGES WAS FILED FROM ASSESSEES SIDE CONTAINING THE FOL LOWING PARTICULARS :- S.NO. PARTICULARS 1 FORM - 36 2 STATEMENT OF FACTS ITA-1338/DEL/2017 7 3 GROUNDS OF APPEAL 4 POWER OF ATTORNEY 5 COPY OF THE ORDER BY COMMISSIONER OF INCOME TAX-(APPEALS)-36 DATED 02-12-2016 6 COPY OF ORDER BY DCIT, 21(2) U/S 143( 3) DATED 29-01-2016 7 RELIED UPON CASES 8 RELIED UPON DOCUMENTS 7. AT THE TIME OF HEARING BEFORE US, THE LEARNED AUT HORIZED REPRESENTATIVE OF THE ASSESSEE FAIRLY CONCEDED THAT THE BUSINESS OF THE ASSESSEE WAS RURAL MARKETING, PROMOTIONS, ROAD SHOWS, DISPLA Y ADVERTISING ETC., AND FURTHER THAT THE ASSESSEE WAS NOT I N THE BUSINESS OF RUNNING VEHICLES ON HIRE. HOWEVER, HE DREW OUR A TTENTION TO THE PAPER BOOK WHICH CONTAINED COPY OF INVOICES RAISED BY THE ASSESSEE. HE HIGHLIGHTED THAT INVOICES RAISED BY THE ASSESSEE INCLU DED, INTER ALIA , CHARGES FOR VEHICLES USED BY THE ASSESSEE, AND TERMED IT AS HIRE CHARGES FOR THE VEHICLES. FURTHER, THE LEARNED AR SUB MITTED THAT IN ADDITION TO VEHICLES OWNED BY THE ASSESSEE, THE ASSESSEE WA S ALSO TAKING VEHICLES ON HIRE FROM OUTSIDE PARTIES FOR USE IN ASSESSEES BUSINESS OF RURAL MARKETING, PROMOTIONS, ROAD SHOWS, DISPL AY ADVERTISING ETC. THE LEARNED AR ALSO SUBMITTED THAT THE VEHICLES USED BY THE ASSESSEE IN THE ASSESSEES BUSINESS OF RURAL MARKETING, PROMOTIONS, ROAD SHOWS, DISPLAY ADVERTISING ETC. WERE AL TERED/MODIFIED TO SUIT THE PURPOSE OF THE ASSESSEES BUSINESS OF RURAL MARK ETING, PROMOTIONS, ROAD SHOWS, DISPLAY ADVERTISING ETC. SUCH ALTERATION/MODIFICATION OF THE VEHICLES WAS BASED ON T HE REQUIREMENTS OF DIFFERENT CLIENTS OF THE ASSESSEE, THE LEARNED AR SUBM ITTED. THE LEARNED AR OF THE ASSESSEE ALSO DREW OUR ATTENTION TO TH E STATEMENT OF FACTS ACCOMPANYING FORM NO.36, RELEVANT PORTION OF W HICH FOLLOWS :- ITA-1338/DEL/2017 8 1. THAT THE ASSESSEE COMPANY IS MAINLY ENGAGED IN THE BUSINESS OF OPERATING VIDEO VANS IN RURAL AREAS FOR HAN DLING MARKETING AND PROMOTIONAL ACTIVITIES. OVER 75% OF REVENUE OF THE COMPANY IS FROM THIS SOURCE ONLY AND I T CANNOT PROVIDE THESE SERVICES WITHOUT USING COMMERCIAL VEHICLES. THE COMPANY HAS ITS OWN FLEET OF 85 (EIGHTY FIVE) COMMERCIAL VEHICLES DULY REGISTERED IN ITS NAME AND AL SO USED OVER 200 (TWO HUNDRED) VEHICLES HIRED FROM PRIVA TE OPERATORS. THESE VEHICLES ARE DULY REGISTERED AS COMMERCIAL VEHICLES AND NATIONAL/STATE PERMITS ARE TA KEN FOR OPERATING THEM ON ROADS. THESE COMMERCIAL VEHICL ES ARE FABRICATED, BRANDED, PAINTED AND MODIFIED ACCOR DING TO THE NEEDS OF CLIENTS AND PROMOTIONAL ACTIVITY IS CARRI ED-OUT IN RURAL MARKETS OF INDIA WHICH ARE BASED MOSTLY IN IN TERIOR PARTS OF INDIA. DUE ITS REACH IN REMOTE AREAS, LARGE NUMBER OF CLIENTS FROM SECTORS LIKE FMCG, AUTOMOBILE, BEVERAG ES ETC., TAKE SERVICES FROM THE ASSESSEE. IT IS ALSO PERTINENT AND EMPHASIZED THAT THE HIRE CHAR GES FOR VEHICLES ARE DULY CHARGED IN THE OVERALL BILLING TO ITS CLIENTS BY THE ASSESSEE. 2. THAT THE ASSESSEE CLAIMED DEPRECIATION @ 30% ON COMMERCIAL VEHICLES USED IN THE BUSINESS OF HANDLING PROMOTIONAL ACTIVITY IN RURAL AREAS. THESE VEHICLES A RE THE MAIN SOURCE OF INCOME FOR THE ASSESSEE WITHOUT WHICH THE COMPANY CANNOT PROVIDE SUCH PROMOTIONAL SERVICES IN RURAL MARKET FOR WHICH IT IS KNOWN IN THE MARKET. D UE TO HARD RURAL CONDITIONS THESE VEHICLES UNDERGO LOT OF WE AR AND TEAR WHILE ON ROADS. SINCE LARGE AREA OF RURAL INDIA IS NOT CONNECTED BY METALLED ROADS, THESE VEHICLES UNDER GO MORE THAN USUAL DEPRECIATION. THAT THE ASSESSEE BUYS CHASSIS OF COMMERCIAL VEHICLES AND THEREAFTER GETS THE BODY FABRICATED TO REST OVER IT. THESE BODIES BECOME PART AND PARCEL OF THE VEHICLES WHEN OPERATED AND ARE INTERCHANGEABLE. THEREFORE, THESE ARE CAPITALIZED UNDER SEPARATE HEAD OF COMMERCIAL VANS BODY. HOWEVER, DEPRECIATION IS CHARGED AT THE SAME RATE AS FOR COMMERCIAL VEHICLES AS THESE ESSENTIALLY FORM PART OF THE COMMERCIAL VIDEO VANS. A VEHICLE IS ACTUALL Y INCOMPLETE WITHOUT BODY PART OF IT. 3. THAT THE A.O. DISALLOWED HIGHER RATE OF DEPRECIAT ION ON COMMERCIAL VEHICLES AND COMMERCIAL VANS BODY @ 30% ON THE PREMISE THAT THESE VEHICLES ARE NOT USED IN THE ITA-1338/DEL/2017 9 BUSINESS OF HIRING AND THAT THE MAIN ACTIVITY OF THE ASSESSEE COMPANY IS THAT OF RURAL MARKETING, PROMOTIONS, ROAD SHOWS, DISPLAY ADVERTISING ETC. FURTHER, THERE IS NO EVIDENCE THAT THE VEHICLES ARE USED FOR EARNING BUSINE SS INCOME. HE ALSO QUOTED THAT THE ASSESSEE IS NOT CARRYING ON THE BUSINESS OF TRANSPORTATION. IN ORDER TO SUBSTANT IATE HIS ARGUMENT, HE ALSO QUOTED THE CASE OF CIT V GUPTA GLOBAL EXIM PVT.LTD. 305 ITR 132 (SC) 2008 AND ANOT HER CASE OF CIT V PRADIP N. DESAI (HUF) (2012) 341 ITR 27 7 (GUJ). THE AO CALCULATED THE ALLOWABLE DEPRECIATION @ 15% INSTEAD OF 30% AND DISALLOWED AN AMOUNT OF RS.19,57,83 7/- ON THIS ACCOUNT. HE ALSO INITIATED A PENALTY U/S 271( 1)(C) FOR CONCEALMENT OF TRUE PARTICULARS OF INCOME. 4. THE ASSESSEE FILED APPEAL BEFORE CIT(APPEALS)-36 WITH ALL THE FACTS AND ALSO FILED SAMPLE COPIES OF INVO ICES SHOWING SPECIFIC CHARGE OF RENTAL/HIRE FOR COMMERCI AL VEHICLES USED IN THE BUSINESS OF PROMOTIONAL ACTIVITY. THE ASSESSEE ALSO RELIED UPON FOLLOWING TWO LAND MARK JUDGEMENTS IN SUPPORT OF ITS ARGUMENT FOR ALLOWABILITY OF HIGHER RATE OF DEPRECIATION: I) SREI INFRASTRUCTURE FINANCE LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX DELHI HIGH COURT (2015) 281 CTR 0532 (DEL) : (2015) 116 DTR 0359 (DEL) II) I.C.D.S. LTD. VS. COMMISSIONER OF INCOME TAX SUPREME COURT OF INDIA, 14 TH JANUARY, 2013 (2013) 350 ITR 0527. 5. THE CIT(APPEAL), CONFIRMED THE DISALLOWANCE OF HIGHER RATE OF DEPRECIATION @ 30% EVEN UPON SATISFACT ION OF TWIN REQUIREMENTS OF OWNERSHIP AND USAGE OF BUSINESS BY GROSSLY RELYING OF JUDGEMENT IN THE CASE OF GUPTA GLOBAL EXIM (P) LIMITED (2008) 305 ITR 132 (S C). HE ALSO RELIED ON THE SUBMISSIONS MADE BY/ON BEHALF OF T HE ASSESSEE BEFORE THE ASSESSING OFFICER AND THE LEARNED CIT(A). ITA-1338/DEL/2017 10 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUBMITTED THAT THE ASSESSEE IS NOT IN THE BUSINESS OF RUNNI NG THE VEHICLES ON HIRE. SINCE THE ASSESSEE IS NOT IN THE BUSINE SS OF RUNNING THE VEHICLES ON HIRE, LEARNED DR CONTENDED, AND INSTE AD, THE ASSESSEE IS IN THE BUSINESS OF RURAL MARKETING, PROMOTIONS, ROAD SHOWS, DISPLAY ADVERTISING ETC.; THE ASSESSEE IS ELIGIBLE FOR THE DEPREC IATION ON VEHICLES AT THE NORMAL RATE OF 15% AND NOT AT THE HI GHER RATE OF 30%. 9. WE HAVE HEARD BOTH SIDES CAREFULLY. WE HAVE PERUSE D THE MATERIAL ON RECORD CAREFULLY. WE HAVE CONSIDERED TH E JUDICIAL PRONOUNCEMENTS BROUGHT TO OUR NOTICE OR REFERRED TO IN THE RECORDS. THE RATE AT WHICH DEPRECIATION IS ADMISSIBLE TO THE ASSE SSEE IS CONTAINED IN PART A OF NEW APPENDIX I READ WITH RUL E 5 OF INCOME-TAX RULES, 1962 READ WITH SECTION 32 OF INCOME-TAX ACT, 1961. THE RELEVANT PORTION OF THE NEW APPENDIX I IS REPRODUCED AS UNDER :- BLOCK OF ASSETS DEPRECIATION ALLOWANCE AS PERCENTAGE OF WRITTEN DOWN VALUE PART A TANGIBLE ASSETS I. BUILDING (1) .. (2) .. (3) .. (4) .. II. FURNITURE AND FITTINGS III. MACHINERY AND PLANT (1) (2) MOTOR CARS, OTHER THAN THOSE USED IN A BUSINESS OF RUNNING THEM ON HIRE, ACQUIRED OR PUT TO USE ON OR AFTER THE 1 ST DAY OF APRIL, 1990 15 (3) (I) . (II) MOTOR BUSES, MOTOR LORRIES AND MOTOR 30 ITA-1338/DEL/2017 11 TAXIS USED IN A BUSINESS OF RUNNING THEM ON HIRE 10. THEREFORE, IT IS OBVIOUS FROM A PERUSAL OF THE BAR E PROVISIONS IN LAW THAT THE NORMAL RATE OF DEPRECIATION ON VEHICLE S IS 15% AS PER PART A OF S.NO.III(2) OF NEW APPENDIX I. THE HIGHER RAT E OF 30% IS ADMISSIBLE TO AN ASSESSEE, UNDER S.NO.III(3)(II) OF PART A OF NEW APPENDIX I ONLY IF THE VEHICLES ARE USED IN THE BUSINESS OF RUNNING THEM ON HIRE. BEFORE US, IT WAS ADMITTED BY THE LEARNED AR OF THE ASSESSEE THA T THE BUSINESS OF THE ASSESSEE IS RURAL MARKETING, PROMOTIONS, ROAD SHOWS, DISPLAY ADVERTISING ETC. AND THAT THE ASSESSEE IS NOT IN THE BUSIN ESS OF RUNNING THE VEHICLES ON HIRE. IN VIEW OF THIS UNDISPUTED FAC T, WE ARE NOT PERSUADED BY THE CONTENTION RAISED ON BEHALF OF THE A SSESSEE THAT THE ASSESSEE IS ELIGIBLE FOR HIGHER RATE OF DEPRECIATION AT THE RATE OF 30%. MERELY BECAUSE THE INVOICES RAISED BY THE ASSESSEE INCLUDE , INTER ALIA , CHARGES FOR RUNNING OF VEHICLES, DOES NOT MEAN THAT TH E ASSESSEE IS IN THE BUSINESS OF RUNNING THE VEHICLES ON HIRE. THE FACT REMAINS THAT THE VEHICLES ARE USED BY THE ASSESSEE IN THE ASSESSEES BUSINESS OF R URAL MARKETING, PROMOTIONS, ROAD SHOWS, DISPLAY ADVERTISING E TC. AND THAT THE ASSESSEE IS NOT IN THE BUSINESS OF RUNNING THE VEHICLE S ON HIRE. FOR COMING TO THIS CONCLUSION, WE TAKE GUIDANCE FROM THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. GUPTA GLOBAL EXIM P.LTD. CIT VS. GUPTA GLOBAL EXIM P.LTD. CIT VS. GUPTA GLOBAL EXIM P.LTD. CIT VS. GUPTA GLOBAL EXIM P.LTD. [2008] 305 ITR 132 (SC), WHEREIN HONBLE APEX COURT HELD A S UNDER :- GENERALLY, THIS COURT DOES NOT INTERFERE WITH THE CONCURRENT FINDING OF FACTS RECORDED BY THE AUTHORIT IES BELOW. HOWEVER, WE ARE AWARE OF THE VIEW THAT IN T HIS CASE, A NEAT SUBSTANTIAL QUESTION OF LAW AROSE FOR DETERMINATION WHICH NEEDED INTERPRETATION OF THE DEPRECIATION TABLE GIVEN IN APPENDIX-I, TO THE INCO ME TAX RULES, 1962. THE SAID TABLE GIVES RATES AT WHICH DEPRECIATION IS ADMISSIBLE. UNDER SUB-ITEM 2(II) OF IT EM III, HIGHER RATE OF DEPRECIATION IS ADMISSIBLE ON MOTOR TRU CKS USED IN A BUSINESS OF RUNNING THEM ON HIRE. THEREFORE, THE ITA-1338/DEL/2017 12 USER OF THE SAME IN THE BUSINESS OF THE ASSESSEE OF TRANSPORTATION IS THE TEST . IN THE PRESENT CASE, NONE OF THE AUTHORITIES BELOW (EX CEPT THE AO) HAS EXAMINED THE MATTER BY APPLYING THE ABOV E TEST. THE AO HAS GIVEN HIS FINDINGS THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF TRADING IN TIMBER LOGS. THAT, T HE BURDEN WAS ON THE ASSESSEE TO ESTABLISH THAT IT IS THE OWNER OF MOTOR LORRIES AND THAT IT USED THE SAID MOTO R LORRIES/TRUCKS IN THE BUSINESS OF RUNNING THEM ON HIRE. IN OUR VIEW THE ENTIRE APPROACH OF CIT(A) WAS ERRONE OUS WHEN HE HAS STATED THAT THE TRANSPORTATION INCOME OF RS.12,50,639/- BY WAY OF RUNNING THE SUBJECT VEHICLES ON HIRE IS AN INTEGRAL PART OF THE APPELLANTS BUSINESS AND ITS INCLUSION IN THE HEAD BUSINESS INCOME IS NOT DISPUTED EVEN BY THE AO. IN OUR VIEW, MERE INCLUSION OF RS.12,50,639/- IN THE TOTAL BUSINESS INCOME IS NOT THE DETERMINATIVE FACTORY FOR DECIDING WHETHER TRUCKS WE RE USED Y THE ASSESSEE DURING THE RELEVANT YEAR IN A BUSINES S OF RUNNING THEM ON HIRE. IN OUR VIEW, THE CIT(A) H AD ERRED IN RELYING UPON THE ACCRUAL OF INCOME AS A DETERMINA TIVE FACTOR FOR COMING TO THE CONCLUSION THAT TRUCKS WERE USED IN A BUSINESS OF RUNNING THEM ON HIRE. WHAT IS RELEVANT FOR CONSIDERATION UNDER SUB-ITEM 2(II ) OF ITEM III OF APPENDIX I TO THE INCOME-TAX RULES, 1962 , IS WHETHER THE ASSESSEE WAS IN THE BUSINESS OF HIRING OUT HIS TRUCKS IN ADDITION TO HIS BUSINESS OF TRADING IN TIMBER. THE ORDER OF ASSESSMENT CLEARLY INDICATES THAT THE ASSESSEE WAS ONLY IN THE BUSINESS OF TRADING IN TIMBER. WE DO NOT HAVE THE RETURNS FILED BY THE ASSESSEE COMPANY BEFORE US. THERE IS NO EVIDENCE TO INDICATE THAT THE ASSESSEE WAS IN THE BUSINESS OF HIRING OUT MOTOR LORRIES FOR RUNNING TH EM ON EARN BUSINESS INCOME. THE ENTIRE INFERENCE IS DRAWN B Y CIT(A) ONLY ON THE FOOTING THAT THE AO HAD TREATED RS.12,59,639/- AS PART OF TOTAL BUSINESS INCOME, WHICH I S NOT DETERMINATIVE FACTOR OF THE ABOVE TEST, VIZ., WH ETHER THE TRUCKS WERE USED IN TRANSPORTATION BUSINESS AS CLAIME D BY THE ASSESSEE. 11. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF H ONBLE APEX COURT IN THE CASE OF GUPTA GLOBAL EXIM P.LTD. GUPTA GLOBAL EXIM P.LTD. GUPTA GLOBAL EXIM P.LTD. GUPTA GLOBAL EXIM P.LTD. (SUPRA), AND IN VIEW OF THE UNDISPUTED FACT THAT THE ASSESSEE IS NOT IN THE BUSINESS OF RUNNING THE ITA-1338/DEL/2017 13 VEHICLES ON HIRE, AND ALSO IN VIEW OF THE CLEAR-CUT ST ATUTORY PROVISIONS AS DISCUSSED IN THE FOREGOING PARAGRAPHS 9 AND 10, WE U PHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS THE ASSESSEES APPEAL. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSE D. DECISION PRONOUNCED IN THE OPEN COURT ON 12 TH JULY, 2019. SD/- SD/- ( (( ( KULDIP SINGH KULDIP SINGH KULDIP SINGH KULDIP SINGH ) )) ) (ANADEE NATH MISSHRA (ANADEE NATH MISSHRA (ANADEE NATH MISSHRA (ANADEE NATH MISSHRA ) )) ) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER VK. COPY FORWARDED TO: - 1. APPELLANT : M/S RURAL CO M/S RURAL CO M/S RURAL CO M/S RURAL COMMUNICATION AND MARKETING PVT.LTD., MMUNICATION AND MARKETING PVT.LTD., MMUNICATION AND MARKETING PVT.LTD., MMUNICATION AND MARKETING PVT.LTD., E EE E- -- -291, GREATER KAILASH 291, GREATER KAILASH 291, GREATER KAILASH 291, GREATER KAILASH- -- -II, NEW DELHI II, NEW DELHI II, NEW DELHI II, NEW DELHI 110 048. 110 048. 110 048. 110 048. 2. RESPONDENT : DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -21(2), NEW DELHI. 21(2), NEW DELHI. 21(2), NEW DELHI. 21(2), NEW DELHI. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR