The Dy. CIT., Anand Circle, Anand V. M/s. Emtici Engineering Ltd., Anand

ITA 2772/AHD/2017

AI Insights

The case involves the Deputy Commissioner of Income Tax (DCIT), Anand Circle, as the appellant, and M/s. EMTICI Engineering Ltd., as the respondent. The dispute centered on the claim of enhanced depreciation on commercial vehicles purchased by the assessee. The Assessing Officer (AO) had disallowed a portion of the depreciation claim, stating that the vehicles were not put to use before the cutoff date of September 30, 2009, which was required to qualify for the enhanced depreciation rate of 50%. The CIT(A) reversed the AO's decision, leading to the Revenue's appeal to the Tribunal. The Tribunal, after considering the arguments and relevant legal provisions, upheld the CIT(A)'s decision, allowing the enhanced depreciation claim.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133471 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-07-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 07-12-2017
• Other Referred Cases: CIT v. Geo Tech Construction Corpn., CIT v. Mirza Ataullaha Baig, The Commissioner Of Income Tax \\u2013V Vs Panacea Biotech Ltd, Income-tax Officer Vs. Zeon Life-sciences Ltd., JCIT Vs. Ashoka Merchantile Ltd., South Indian Bank Ltd. Vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Audit objection; Earning of tax free income; Tax effect; Set aside
• Section: 32; 143(3); 14A; 250

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘A’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R.SENTHIL KUMAR, JUDICIAL MEMBER ITA No.2772/Ahd/2017 Assessment Year :2010-11 The DCIT, Anand Circle Anand. Vs. M/s.EMTICI Engineering Ltd. Anand Sojitra Road Vallabh Vidyanagar Anand 388 120 PAN : AAACE 4642 F (Applicant) (Responent) Assessee by : Shri M.K. Patel,AR Revenue by : Shri Atul Pandey, Sr.DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 1 0 / 0 7 / 2 0 2 3 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 0 5 / 1 0 / 2 0 2 3 आदेश/O R D E R PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER This appeal has been filed by the assessee against order passed by the ld.Commissioner of Income Tax(A)-4, Vadodara dated 28.8.2017 passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short]for the Asst.Year 2010- 11. 2. This is second round of litigation before the Tribunal. In the first round, as evident from the case record,appeal of the Revenue was dismissed by the Tribunal vide order dated 14.8.2019 in ITA No.2772/Ahd/2017 due to low tax effect involved, being below Rs.50 lakhs, as stipulated by the CBDT vide circular no.17/2019 dated ITA No.2772/Ahd/2017 2 8.8.2019 for filing appeal before the Tribunal. Against this order, the Revenue filed MA No.46/Ahd/2020 seeking recall of the order and adjudicating the issue raised in the appeal on merits, since it was a case reopened on audit objection, and therefore, it fell within the exception clause provided in the instruction. However, the MA of the Revenue was dismissed by order dated 9.9.2020. The Revenue challenged this order before the Hon’ble jurisdictional High Court, in SCA No.9995 of 2021 and others, and the Hon’ble High Court by order dated 8.7.2022 quashed and set aside the order of the ITAT dated 9.9.2020 passed in the MA and directed the Tribunal to restore the appeal of the Revenue to be heard on merits. Accordingly, this matter came up before this Bench for adjudication afresh. 3. Ground No.1 raised by the Revenue reads as under: 1. That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in deleting the addition towards excessive claim of depreciation. 4. The issue raised in the above grounds relates to theclaim of depreciation made by the assessee, which the AO had found to be excessive, and accordingly, disallowed portion of the depreciation claim. 5. The facts relating to the issue being that on commercial vehicles purchased by it during the year amounting to Rs.36,47,972/- the assessee had applied deprecation rate of 50%, but since it was put to use after 182 days, the assessee accordingly claimed half-rate of 50% depreciation i.e. 25% depreciation on the same amounting to Rs.9,11,993/-. The AO, however, found that the assessee was not entitled to the rate of depreciation at 50% since ITA No.2772/Ahd/2017 3 this benefit of enhanced depreciation on commercial vehicle was allowable only on commercial vehicles whichwere put to use before 1.10.2009. He referred to Appendix-1 in Income Tax Rules, 1962 prescribing the enhanced rateof depreciation at the rate of 50% on commercial vehicles acquired after 1.1.2009, and put to use before 1.4.2009, and thereafter to the Notification issued extending the date of utilization of the commercial vehicles to 30.9.2009. From the same, he derived that commercial vehicle needed to be put to use upto 30.09.2009 to avail benefit of enhanced rate of depreciation of 50%, but since the assessee had put to use asset only after 30.9.2009, therefore, the assessee was not entitled to enhance rate of depreciation. His findings in this regard at para-6 of the assessment order are as under: “6. Disallowance of excess depreciation claim : As per section 32 of the Act, depreciation is allowed at the rate prescribed. The rate of depreciation is prescribed in appendix-I to the rules. The rate of depreciation on vehicle is 15 percent. The government enhanced depreciation on commercial vehicles @ 50 percent for commercial vehicles acquired on or after 1st January 2009 and put to use before the 1st April 2009. The benefit of enhanced depreciation on commercial vehicles has been extended up to 30th September 2009 vide notification No.37/2009/f. No..l42/01/2009-tpl. Now, commercial vehicles acquired on or after 1st January 2009 and put to use before the 1st October 2009 are eligible for depreciation at the rate of 50 percent. Scrutiny of computation of income, 3CD, P&L. Balance Sheet along with submission in respect of addition of assets in the form of vehicles (cars) of Madhuban Resort & Spa Project of assessee revealed that assessee has claimed addition of Rs.36,47,972 of vehicles in its vehicle account and claimed depreciation of Rs, 9,11,993 @ 25 percent ( half rate of 50 % as vehicles were put to use on 1st November, 2009). The same was allowed by the assessing officer. ITA No.2772/Ahd/2017 4 In this connection, it is brought to notice that vehicles were bought for its Madhuban Resort & Spa project and were put to use only on lstNovember,2009 as the Madhuban Resort & Spa became operational from that date only. In fact, claim of assessee at the half of depreciation rate also clearly indicated that vehicles were put to use after 30 September 2009. As vehicles were not put to use before 1st October, 2009, assessee was not eligible for enhanced depreciation. In view of the same the assessee is entitled for claiming the depreciation @7.5% (half of 15%) only and thus the allowable depreciation comes to Rs.2,90,766/- only. Thus, during the assessment u/s. 143(3) of the Act the assessee was allowed the excess depreciation of Rs.6,38,396/- (Rs.9,11,993/-Less Rs.2,73,597/-). In view of the above discussion the excess depreciation allowed to the assessee of Rs.6,38,396/- is hereby withdrawn and added to the total income of the assessee. (Addition of Rs.6,38,396/-) 6. The ld.CIT(A), however, allowed the assessee’s claim. 7. Solitary contention of the ld.counsel for the assessee was that these motor vehicles were purchased in the month of April, 2004 itself, but were shown as eligible for depreciation after 1.10.2009, since the operations in Madhuban Resort & Spa Project where it was put to use had commenced only thereafter. His contention was that the rest of the business of the assessee were in operation; that commercial vehicles were purchased before 1.10.2009 and were therefore, ready to use and thus included in the block of assets entitled to depreciation @ 50%.That since the assets were ready to they are qualified for depreciation at the rate of 50%; that there was no requirement of actual user of vehicles for claiming depreciation which is a settled law. Also once included in block of assets , it was contended, the assets were merged in the block and could not be separately considered for depreciation ITA No.2772/Ahd/2017 5 The ld.DR however supported the order of the AO. 8. We have heard contentions of both the parties. The issue for determination is the rate of depreciation to which the assessee is entitled on commercial vehicles purchased - the assessee having claimed depreciation at the rate of 50%, and Revenue denying the same for the reason that it was not put to use upto 30.9.2009, which is essential for claiming depreciation at the rate of 50%. Both the parties did not dispute this requirement of law for claiming depreciation at therate of 50% of commercial vehicles purchased that it has to be put to use by 30.9.2009. The only dispute is, whether the assessee had put to use commercial vehicles upto the said date. The fact that the asset was purchased in April 2009 is not disputed. We find the assessee’s claim to be in accordance with law that having purchased the asset inApril, 2009, it was ready for use, and therefore wasto be treated as “put to use”. Courts have repeatedly laid down that even passive user of asset is sufficient compliance with the tests of ‘put to use’ as required under section 32 for claiming depreciation. The authoritative judgments on this issue are as under: i) CIT v. Geo Tech Construction Corpn. [2000] 244 ITR 452/112 Taxman 373 (Ker.); ii) CIT v. Mirza Ataullaha Baig [1993] 202 ITR 291/[1994] 76 Taxman 495 (Bom.); iii) The Commissioner Of Income Tax –V Vs Panacea Biotech Ltd, 2009- TIOL-393-HC-DEL-IT; iv) Income-tax Officer Vs. Zeon Life-sciences Ltd.. [2015] 59 taxmann.com 299 (Delhi - Trib.); v) iv) JCIT Vs. Ashoka Merchantile Ltd., (ITAT Delhi Bench), (2005) 147 TAXMAN 96 ITA No.2772/Ahd/2017 6 9. Therefore, we agree with the ld.CIT(A) that the assessee’s claim of enhanced depreciation on commercial vehicles at the rate of 50% was in accordance with law. The basis with the Revenue for holding otherwise, we find, rests on the fact that the assets were actually put touse after 30.9.2009. This proposition has been dismissed by the various Courts consistently in the decisions cited by us above. In view of the above, we uphold the order of the ld.CIT(A) allowing the assessee’s claim of enhanced depreciation on commercial vehicles to the tune of Rs.6,38,396/-. The ground no.1 raised by the Revenue is rejected. 10. Ground No.2.1 and 2.2 relates to the issue of disallowance of expenses relating to earning of exempt income in terms of provisions of section 14A of the Act, and the same reds as under: “2.1 That in the facts and circumstances of the case, and in law, the Ld, CIT(A) erred in deleting the disallowance u/s 14A of the Act merely on the erroneous presumption of overall sufficient interest free funds, without considering that this was only a presumption and thedisallowance deserved to be upheld, as in the case of Avon Cycles Ltd. (2015) 53 taxmann.com 297 (P&H), particularly as the assessee had failed to controvert the findings of the Assessing Officer, and failed to demonstrate that investments were actually made out of interest free funds. 2.2 That in the facts and circumstances of the case, and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 14A of the Act merely on the erroneous presumption of overall sufficient interest free funds, without examining the facts and whether the investments were actually made out of interest free funds. 11. A bare perusal of the above reveals that the Revenue is aggrieved by order of the ld.CIT(A) for having deleted the disallowance applying the proposition of law that there were sufficient owned funds available with the assessee, and therefore, presumption was that the owned funds were used for the purpose of ITA No.2772/Ahd/2017 7 making investment, no disallowance of interest on account of the same be made. This is evident from ground no.2.1 raised before. 12. At the outset itself, the ld.counsel for the assessee pointed out that Hon’ble Supreme Court in the case of South Indian Bank Ltd. Vs. CIT, (2021) 130 taxmann.com 178 (SC) categorically laid down that where interest free funds exceeds investments in tax free securities, the investment would be presumed to be made out assessee’s owned fund, and proportionate disallowance was not warranted under section 14A on the ground that separate accounts were not maintained by the assessee for investment and other expenditure incurred for earning tax free income. Copy of the order was placed before us. The ld.DR fairly agreed with the above proposition canvassed by the ld.counsel for the assessee. 13. In view of the above, we do not find any merit in round no.1 raisedbefore us, challenging the proposition of law applied by the ld.CIT(A) for deleting disallowance under section 14A of the Act. 14. In ground no.2.2, the Revenue has challenged the application this proposition of law on facts stating that the ld.CIT(A) has not examined, whether sufficient owned funds were available with the assessee. In this regard, the ld.counsel for the assessee pointed out that entire balance-sheet and copy of the accounts were before the ld.CIT(A) who had examined the same, and verified the said facts from the same. He drew our attention to audited Annual Accounts of the assessee-company, copy of which was placed before us, and pointed out therefrom that the balance-sheet of the impugned year ITA No.2772/Ahd/2017 8 ending on 31.3.2010 that the assessee had reserves & surplus of Rs.76,40,25,960/- while its investments were to thetune of Rs.16,24,52,507/-. 15. In view of the above, since the fact of sufficient owned funds of the assessee stands suitably demonstrated before us, we do not find any infirmity in the finding of the ld.CIT(A) that there were sufficient owned funds available with the assessee, which have been challenged in ground no.2.2 before us. In view of the same, ground no.2.2 of the Revenue also fails. 16. In the result, the appeal of the Revenue is dismissed. Order pronounced in the Court on 5 th October, 2023 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad, dated 05/10/2023