M/s. Shri Bharat Cement Pipe Co., V. Deputy Commissioner of Income-tax,

ITA 643/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1765 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NISHTHA TIWARI
• Keywords: Business income; Depreciation; Rectification of order
• Section: 32

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.643/PN/2014 #& & / ASSESSMENT YEAR : 2008-09 M/S. SHRI BHARAT CEMENT PIPE COMPANY, D-2, MIDC, SHIROLI, KOLHAPUR PAN NO.AKFS4390K . / APPELLANT V/S DCIT, CIRCLE - 2, KOLHAPUR . / RESPONDENT / ASSESSEE BY : SHRI NIKHIL PATHAK / RESPONDENT BY : MRS. NISHTHA TIWARI / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 13-01-2014 OF THE CIT(A), KOLHAPUR RELATING TO ASSE SSMENT YEAR 2008-09. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING O F CEMENT AND CONCRETE PIPES AND TRADING OF CEMENT AND HIR ING OF EARTH MOVING EQUIPMENTS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 29-09-2008 DECLARING TOTAL INCOME OF RS.80,47,920/-. TH E AO COMPLETED THE ASSESSMENT U/S.143(3) ON 28-12-2010 DETER MINING THE TOTAL INCOME AT RS.1,48,03,630/-. SUBSEQUENTLY, THE AO / DATE OF HEARING :02.06.2016 / DATE OF PRONOUNCEMENT:03.06.2016 2 ITA NO.643/PN/2014 NOTICED THAT THE ASSESSEE FIRM HAS BEEN ALLOWED DEPRECIAT ION ON VEHICLES U/S.32 OF THE I.T. ACT @30% INSTEAD OF 15%. HE TH EREFORE ISSUED A NOTICE U/S.154 ASKING THE ASSESSEE TO SUBMIT ITS OBJECTIONS, IF ANY FOR THE PROPOSED ADDITION BY WAY OF REC TIFICATION. THE AO NOTED THAT IN THE AUDIT REPORT THE NATURE OF B USINESS DOES NOT INCLUDE HIRING OF MOTOR VEHICLES BUSINESS. IT WAS SU BMITTED BY THE ASSESSEE THAT IT HAS OBJECTION FOR THE PROPOSED RECTIFICATION SINCE IT HAS RIGHTLY CLAIMED DEPRECIATION @30% ON VEHICLES S INCE THE FIRM HAS EARNED INCOME BY GIVING VEHICLES ON HIRE. IT WAS SUBMITTED THAT AS PER THE PROFIT AND LOSS ACCOUNT THE A SSESSEE HAS RECEIVED CONTRACT RECEIPT OF RS.10,51,87,040/- AND MOTOR C AR HIRE CHARGES AT RS.13,32,500/-. 3. HOWEVER, THE AO REJECTED THE SUBMISSION OF THE ASSES SEE ON THE GROUND THAT THE RATE OF DEPRECIATION @30% APPLIES ONLY FOR MOTOR TAXIES AS PER I.T. RULES, 1962. HE ACCORDINGLY MAD E ADDITION OF RS.5,71,165/- BEING EXCESS DEPRECIATION WHICH WAS ALLOWED EARLIER. 4. BEFORE CIT(A) THE ASSESSEE REITERATED THE SAME ARGUM ENTS AS MADE BEFORE THE AO. IT WAS SUBMITTED THAT THE ASSESS EE HAD GIVEN VEHICLES ON HIRE TO BHARAT CEMCO PVT. LTD. AND IT HAS REC EIVED HIRE CHARGES OF RS.13,25,500/-. THESE RECEIPTS WERE ALSO REFLECT ED IN THE PROFIT AND LOSS ACCOUNT. THEREFORE, SINCE THE ASSESSEE WA S IN THE BUSINESS OF HIRING OF VEHICLES, DEPRECIATION WAS ADMISSIBLE TO IT @30% AS ALLOWED IN THE ORIGINAL ASSESSMENT ORDER. 5. HOWEVER, THE CIT(A) ALSO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND DISMISSED THE GROU ND RAISED BY THE ASSESSEE BY OBSERVING AS UNDER : 3 ITA NO.643/PN/2014 6. ON GOING THROUGH THE NOTE 6 OF THE DEPRECIATION SCHEDULE, I FIND THAT THE COMMERCIAL VEHICLE HAS BEEN DEFINED TO INCL UDE HEAVY GOODS VEHICLE, LIGHT MOTOR VEHICLE ETC. WHICH SHALL HAVE T HE MEANING RESPECTIVELY ASSIGNED TO THEM IN SECTION 2 OF THE MOTOR VEHICLES ACT, 1988. HOWEVER, THE COMMERCIAL VEHICLES ARE THE VEHI CLES WHICH ARE USED FOR COMMERCIAL PURPOSES, I.E. IN THE BUSINESS OF RUN NING VEHICLE ON HIRE. APPELLANTS BUSINESS IS NOT THE RUNNING OF COMMER CIAL VEHICLES ON HIRE BUT IT USED THE VEHICLE FOR NEEDS OF ITS SISTER CO NCERN/PARTNER SHRI BHARAT CEMCO PVT. LTD. SUCH USE OF THE VEHICLES CANN OT BE SAID AS COMMERCIAL PURPOSES. OBJECT OF ALLOWING HIGHER RATE OF DEPRECIATION FOR THE COMMERCIAL VEHICLES IS THAT IN THE BUSINESS OF H IRING OF VEHICLE. THERE IS CONTINUOUS AND PROLONGED USE OF ASSETS RESULTING INTO HEAVY WEAR AND TEAR AND REDUCED LIFE. THEREFORE, HIGHER RATE OF DEPRECIATION IS NECESSARY. THE APPELLANTS CASE DOES NOT FALL INTO TH IS CATEGORY. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN ALLOWIN G DEPRECIATION @15%. THE DISALLOWANCE IS SUSTAINED AND THE GROUND IS R EJECTED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : THE FOLLOWING GROUNDS ARE TAKEN WITHOUT PREJUDICE T O EACH OTHER- ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISAL LOWANCE OF DEPRECIATION IN RESPECT OF THE VEHICLES ON THE GROUN D THAT THE APPELLANT COMPANY WAS ENTITLED TO DEPRECIATION @ 15%0 AND NOT 30% AS CLAIMED BY THE APPELLANT COMPANY. 2] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AP PELLANT HAD NOT GIVEN THE V EHICLES ON HIRE AND HENCE , IT WAS NOT ENTITLED TO CLAIM HIGHER DEPRECIATION @ 30%. 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E APPELLANT COMPANY HAD GIVEN THE VEHICLES ON RENT AND HENCE, IT WAS JUSTIFIED IN CLAIMING HIGHER DEPRECIATION @ 30% ON THE SAID VEHICLES. 4] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E RECTIFICATION ORDER PASSED BY THE LEARNED A.O. WAS NOT VALID SINCE TH ERE WAS NO MISTAKE APPARENT FROM RECORD AND ACCORDINGLY, THE AD DITION MADE SHOULD HAVE BEEN DELETED. 5] THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH AT THE ISSUE INVOLVED REGARDING ALLOWABILITY OF DEPRECIATION WAS A DEBATABLE ISSUE AND SINCE TWO OPINIONS WERE POSSIBLE, THE RECTIFICATION ORDER WAS INVALID IN LAW. 6] THE APPELLANT CRAVES LEAVE TO ADD, ALTER , AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 4 ITA NO.643/PN/2014 7. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUB MITTED THAT THE ISSUE AS TO WHETHER DEPRECIATION IS TO BE ALLOWED @3 0% OR @15% ON A VEHICLE WHEN THE ASSESSEE RECEIVES RENTAL INCO ME FROM HIRING OF SUCH VEHICLES IS A DEBATABLE ISSUE. REFERRING TO T HE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF URMILA ENTERPRISES PVT. LTD. VS. ACIT REPORTED IN 38 ITR (TRIBU NAL) 533 HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD TH AT WHEN ASSESSEE RECEIVES RENTAL RECEIPTS ON HIRING OF VEHICLES AS SESSEE IS ENTITLED TO HIGHER RATE OF DEPRECIATION @30%. HE SUBMITTED THAT IN THAT CASE ALSO THE ASSESSEE COMPANY WAS ENGAGED IN TH E BUSINESS OF UNDERTAKING CONTRACT WORK FOR ROAD CONSTRUCTION AND TRADING IN INGERGOLL RAND PRODUCTS ETC. IN THAT CASE, THE ASSESSE E HAD RECEIVED RENTAL RECEIPTS ON ACCOUNT OF HIRING OF THE VEHIC LES. THE AO AND THE CIT(A) REJECTED THE CLAIM OF HIGHER DEPRECIATION. HOWEVER, THE TRIBUNAL ALLOWED THE CLAIM OF HIGHER DEPRECIATION @30%. 7.1 REFERRING TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BANSAL CREDITS LTD. REPORTED IN 259 I TR 69 HE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING (SHORT NOTES) : ON A PLAIN READING OF SECTION 32 OF THE INCOME-TAX ACT, 1961, AND ENTRY III(2)(II) IN APPENDIX I TO THE RULES, IT IS CLEAR TH AT IT IS THE END USER OF THE SPECIFIED ASSET WHICH IS RELEVANT FOR DETERMINING T HE PERCENTAGE OF DEPRECIATION. SECTION 32 REQUIRES THAT THE ASSET SHOUL D BE USED FOR THE PURPOSE OF THE ASSESSEES BUSINESS AND THE ENTRY IN THE APP ENDIX REFERS TO THE USER IT SHOULD BE PUT TO. ONCE IT IS ACCEPTED THAT THE LEASING OUT OF THE VEHICLES IS ONE OF THE MODES OF DOING BUSINESS BY THE ASSESSEE AND IN FACT THE INCOME FROM SUCH LEASING IS TREATED AS BUSINESS INCOME OF THE ASSESSEE, IT WOULD BE CLEARLY CONTRADICTORY IN T ERMS TO HOLD THAT THE VEHICLES IN QUESTION WERE NOT USED WHOLLY FOR THE PURPOSE OF THE ASSESSEES BUSINESS. 8. HE SUBMITTED THAT IN THE SUBSEQUENT YEAR ALSO THE ASSESSEE HAS CLAIMED SUCH HIGHER RATE OF DEPRECIATION. HOWEVER, NO S UCH DISALLOWANCE HAS BEEN MADE BY INVOKING THE PROVISIONS OF S ECTION 5 ITA NO.643/PN/2014 147, 263 OR 154 OF THE I.T. ACT. HE SUBMITTED THAT THE IS SUE OF DEPRECIATION @30% OR 15% IN THE INSTANT CASE IS A DEBATA BLE ISSUE, THEREFORE, THE SAME IS OUTSIDE THE PURVIEW OF SECTION 154 OF THE I.T. ACT. 9. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.S. BALARAM, ITO VS. VOLKART BROTHERS AND OTHERS REPORTED IN 82 ITR 50 HE SUBMITTED THAT THE HONBLE SUPREME COU RT IN THE SAID DECISION HAS HELD THAT A MISTAKE APPARENT ON THE RE CORD MUST BE AN OBVIOUS AND PATENT MISTAKE AND NOT SOMETHING WH ICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON POIN TS ON WHICH THERE MAY BE CONCEIVABLY TWO OPINIONS. A DECISION ON A DEBATABLE POINT OF LAW IS NOT A MISTAKE APPARENT FROM THE RECORD. HE ACCORDINGLY SUBMITTED THAT THE 154 PROCEEDINGS INITIAT ED BY THE AO IS ILLEGAL AND NO ADDITION CAN BE MADE ON THE BASIS OF 15 4 PROCEEDINGS. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THE AUDIT REPORT OF THE ASSESSEE DOES NOT SHOW THAT THE A SSESSEE IS RUNNING THE BUSINESS OF HIRING OF VEHICLES. THE HIGHER RATE OF DEPRECIATION OF 30% ON MOTOR CARS IS APPLICABLE ONLY WHEN THESE AR E USED IN A BUSINESS OF RUNNING THEM ON HIRE. HOWEVER, IN T HE INSTANT CASE AS OBSERVED BY THE AO AND THE CIT(A) THE ASSESSEES MAIN BUSINESS IS THAT OF MANUFACTURING OF CEMENT AND CONC RETE PIPES AND TRADING OF CEMENT AND HIRING OF EARTH MOVING EQUIPMENTS. IT IS NOT THE BUSINESS OF THE ASSESSEE TO HIRE MOTOR CA RS. THEREFORE, THE AO WAS FULLY JUSTIFIED IN RECTIFYING THE ASSESSMENT BY REDUCING HIGHER DEPRECIATION CLAIMED BY THE ASSESSEE. HE ACCORDING LY 6 ITA NO.643/PN/2014 SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD AND THE GROUNDS RAISED BY THE ASSESSEE BE DISMISSED. 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED T HE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSEE IN T HE INSTANT CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF C EMENT AND CONCRETE PIPES AND TRADING OF CEMENT AND HIRING OF EARTH MOVING EQUIPMENTS. IT HAS RECEIVED HIRE CHARGES OF RS.13,2 5,500/- ON ACCOUNT OF HIRE CHARGES OF MOTOR CARS GIVEN ON HIRE T O BHARAT CEMCO PVT. LTD. THE ASSESSEE HAD CLAIMED DEPRECIATION @ 30% ON THE MOTOR CARS WHICH WAS ALLOWED BY THE AO IN THE ORDER PASSED U/S.143(3). SUBSEQUENTLY, THE AO PASSED AN ORDER U/S.154 ON 19- 03-2012 REVISING THE DEPRECIATION OF MOTOR CARS AT 15% O N THE GROUND THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION @30%. IN APPEAL THE LD.CIT(A) UPHELD THE DISALLOWANCE MADE BY THE AO IN THE ORDER PASSED U/S.154 OF THE I.T. ACT. IT IS THE SUBMISSION O F THE LD. COUNSEL FOR THE ASSESSEE THAT WHETHER THE ASSE SSEE IS ENTITLED TO HIGHER RATE OF DEPRECIATION ON MOTOR CARS WHIC H WERE GIVEN ON HIRE AND THE RECEIPT OF WHICH HAS BEEN SHOWN IN THE ACCOUNTS UNDER THE HEAD VEHICLE HIRING RECEIPTS IS A DE BATABLE ISSUE AND THEREFORE RECTIFICATION PROCEEDINGS U/S.154 IS NOT POSSIBLE ON A DEBATABLE ISSUE. 12. WE FIND SOME FORCE IN THE ARGUMENT OF THE LD. COUNSEL FO R THE ASSESSEE. THE CHENNAI BENCH OF THE TRIBUNAL IN THE C ASE OF URMILA ENTERPRISES PVT. LTD. (SUPRA) HAS HELD THAT WHEN ASS ESSEE RECEIVES RENTAL RECEIPTS ON HIRING OF VEHICLES THE ASSESSE E IS ENTITLED 7 ITA NO.643/PN/2014 TO HIGHER RATE OF DEPRECIATION @30%. IN THAT CASE, THE A SSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF UNDERTAKING CONT RACT WORK FOR ROAD CONSTRUCTION AND ALSO TRADING IN INGERGOLL RAND PRODUCTS ETC. IT HAD RECEIVED CONTRACT RECEIPTS AS WE LL AS RECEIPT ON ACCOUNT OF HIRING OF THE VEHICLES. THE AO REJECTED THE HIG HER CLAIM OF DEPRECIATION OF 30% AND ALLOWED DEPRECIATION OF 15% WHI CH WAS UPHELD BY THE CIT(A). ON FURTHER APPEAL THE TRIBUNAL SET A SIDE THE ORDER OF THE CIT(A) AND DIRECTED THE AO TO ALLOW DEPRECIAT ION @30% ON THE VEHICLES. FROM THE ABOVE, IT IS CLEAR THAT WHEN A N ASSESSEE RECEIVES HIRE CHARGES/RENTAL RECEIPT ON ACCOUNT OF HIRING OF VEHICLES THE ISSUE RELATING TO RATE OF DEPRECIATION IS A DEBATABLE O NE. THE HONBLE SUPREME COURT IN THE CASE OF VOLKART BROTHERS AND OTHERS (SUPRA) HAS HELD THAT A MISTAKE APPARENT ON THE RECORD MUST BE AN OBVIOUS AND PATENT MISTAKE AND NOT SOMETHING WHICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASONING ON POIN TS ON WHICH THERE MAY BE CONCEIVABLY TWO OPINIONS. A DECISION ON A DEBATABLE POINT OF LAW IS NOT A MISTAKE APPARENT FROM THE RECORD. IT HAS ALSO BEEN HELD BY VARIOUS DECISIONS THAT RECTIFICATIO N PROCEEDINGS U/S.154 CANNOT BE INITIATED ON DEBATABLE ISS UES. SINCE THE ISSUE IN THE INSTANT CASE IS A HIGHLY DEBATABLE ISSUE, I.E. WHETHER THE ASSESSEE IS ENTITLED TO HIGHER RATE OF DEPRE CIATION ON ACCOUNT OF HIRING OF VEHICLES, THEREFORE, WE ARE OF THE CO NSIDERED OPINION THAT IT IS NOT A CASE FOR RECTIFICATION U/S.154 OF TH E I.T. ACT. WE, THEREFORE, ARE OF THE CONSIDERED OPINION THAT THE AO C OULD NOT HAVE REDUCED THE DEPRECIATION FROM 30% TO 15% BY RESOR TING TO PROVISIONS OF SECTION 154 OF THE I.T. ACT. THE LD. COUNS EL FOR THE ASSESSEE ALSO MADE A STATEMENT AT THE BAR THAT IN THE SUBSEQUENT YEAR ALTHOUGH THE ASSESSEE HAS CLAIMED SUCH HIGHER RAT E OF DEPRECIATION AT 30%, HOWEVER, NO PROCEEDINGS U/S.154,163/1 48 8 ITA NO.643/PN/2014 HAS BEEN INITIATED. IN THIS VIEW OF THE MATTER, WE SET ASID E THE ORDER OF THE CIT(A) AND DIRECT THE AO TO DELETE THE ADDITIO N MADE BY HIM. GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03-06-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED : 03 RD JUNE, 2016. ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A ) - KOLHAPUR 4. 5. 6. THE CIT, KOLHAPUR $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // $ ' //TRUE /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE