PREMESHWAR CREATIONS P. LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 6852/MUM/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8173 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 07-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 11-11-2014
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTALDR
• Keywords: Capital asset; Depreciation
• Section: 32

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.6852/MUM/2014 ASSESSMENT YEAR: 2011-12 M/S PERMESHWAR CREATIONS PVT. LTD. PLOT NO.52, 7 TH FLOOR, MIDC MAROL, ANDHERI(E), MUMBAI-400093 / VS. DCIT-8(2), ROOM NO.209, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI-400020 ( ! ' /ASSESSEE) ( # / REVENUE) PAN. NO.AADCP3517F #$ % ' & / DATE OF HEARING : 07/12/2016 % ' & / DATE OF ORDER: 21/12/2016 ! ' ! / ASSESSEE BY SHRI ANIL THAKRAR # ! / REVENUE BY SHRI RAJAT MITTAL-DR ITA NO.6852 /MUM/2014 M/S PERMESHWAR CREATIONS PVT. LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 14/08/2014 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE FIRST GROUND RAISED BY THE ASSESSEE PER TAINS TO CONFIRMING THE DISALLOWANCE ON MOTOR CAR DEPRECI ATION ON THE GROUND THAT THE VEHICLE WAS NOT REGISTERED I N THE NAME OF THE ASSESSEE COMPANY. 2. THE CRUX OF ARGUMENT ADVANCED BY SHRI ANIL THAKRAR, LD. COUNSEL FOR THE ASSESSEE, IS THAT THE ASSESSEE COMPANY PURCHASED THE CAR IN THE NAME OF THE DIRECT OR AND THE SAME WAS SHOWED AS PROPERTY OF THE COMPANY IN THE BALANCE SHEET OF THE ASSESSEE COMPANY FOR WHICH OUR ATTENTION WAS INVITED TO PAGE-21 & 30 OF THE PAPER BOOK. THE PAYMENT WAS ALSO EXPLAINED TO BE MADE BY THE COMPANY, THEREFORE, IT WAS CONTENDED THAT DEPRECIAT ION HAS TO BE ALLOWED. ON THE OTHER HAND, THE LD. DR, SHRI RAJAT MITTAL, DEFENDED THE CONCLUSION, ARRIVED AT IN THE IMPUGNED ORDER BY CONTENDING THAT THE MOTOR CAR WAS REGISTER ED IN THE NAME OF THE DIRECTOR OF THE ASSESSEE COMPANY, THEREFORE, DEPRECIATION IS NOT ALLOWABLE. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUS INESS OF MANUFACTURING AND EXPORT OF GARMENTS, ORIGINALLY , FILED THE RETURN OF INCOME, DECLARING INCOME OF RS.48,76, 203/- ITA NO.6852 /MUM/2014 M/S PERMESHWAR CREATIONS PVT. LTD. 3 ON 23/09/2011. THE ASSESSEE REVISED THE RETURN ON 31/03/2013 DECLARING TOTAL INCOME AT RS.48,76,203/- AFTER TAKING IN TO ACCOUNT THE MAT PROVISIONS. WHILE FRA MING THE ASSESSMENT, THE LD. ASSESSING OFFICER DISALLOWED TH E CLAIMED DEPRECIATION ON THE MOTOR CARS. 2.2. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL), THE CONCLUSION DRAWN IN THE ASSESSMENT ORDER WAS CHALLENGED, WHEREIN, ALSO, THE STAND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED. THE ASS ESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE THIS TRIBUNAL. 2.3. IT IS NOTED THAT BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL) AS WELL AS BEFORE THE LD. ASSES SING OFFICER, THE ASSESSEE FURNISHED THE COPIES OF INVOI CES DATED 22/10/2010, ISSUED BY INFINITY CARS PVT. LTD. TOWAR DS PURCHASE OF BMW CAR. THE NAME OF THE BUYER WAS MENTIONED TO BE GYANDEV P. SADH, WHO IS ONE OF THE DIRECTORS OF THE ASSESSEE COMPANY. EVEN THE ASSESS ING OFFICER ASKED THE ASSESSEE TO FURNISH THE DETAILED EXPLANATION WITH RESPECT TO PURCHASE OF CAR IN THE NAME OF DIRECTOR. SHRI GYANDEV SADH SUBMITTED THE DETAILS OF EXPENSE LIKE INTEREST ON LOAN, FUEL, DRIVER SALARY, INSURANCE, ETC. BY EXPLAINING THAT THESE ARE ALLOWABLE EXPENSE S. THE ASSESSEE ALSO SUBMITTED THE COPIES OF BILLS FOR PUR CHASE OF CARS FROM CONCORD MOTORS. THE CLAIMED DEPRECIATION WAS DISALLOWED ON THE PLEA THAT THE ASSESSEE IS NOT THE OWNER OF THE ASSET. THE STAND OF THE ASSESSEE IS THAT FOR CO NVENIENCE, THE REGISTRATION WAS GOT DONE IN THE NAME OF THE DI RECTOR ITA NO.6852 /MUM/2014 M/S PERMESHWAR CREATIONS PVT. LTD. 4 AND THE MOTOR CARS WERE BEING USED FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THE PAYMENTS WERE ALSO MA DE BY THE ASSESSEE AND THE MOTOR CARS WERE ALSO SHOWN AS ASSET OF THE COMPANY IN THE BLOCK OF ASSET AND NOT IN THE BOOKS OF THE DIRECTOR. THE EMI OF THE CAR LOAN WERE ALSO DIRECTLY PAID BY THE COMPANY. THE ASSESSEE ALSO FURNISHED TH E LEDGER ACCOUNT OF THE ASSESSEE COMPANY AND ALSO OF THE DIRECTOR. THE ASSERTIONS MADE BY THE ASSESSEE WERE NOT EVEN DISPUTED BY THE REVENUE. UNDER THE AFOREMENTIO NED, FACTS NOW, QUESTION ARISES, WHETHER THE BENEFIT OF SECTION 32 SHOULD BE EXTENDED TO THE ASSESSEE COMPANY, WHEN THE MOTOR CARS/CAR ARE USED FOR THE BUSINESS PURPOSES O F THE ASSESSEE COMPANY. WE ARE OF THE VIEW THAT THE DEPRECIATION AS A GENERAL PRINCIPLE REPRESENTS THE DIMINUTION IN THE VALUE OF A CAPITAL ASSET, WHEN AP PLIED TO THE PURPOSE OF MAKING PROFIT OR GAIN. THE OBJECT IS TO GET THE TRUE PICTURE OF THE REAL INCOME OF THE BUSINESS . THE TERM DEPRECIATION AS UNDERSTOOD IN COMMERCIAL CIR CLES AS WELL AS WITHIN THE MEANING OF ACCOUNTING PRACTICE M EANS WEAR AND TEAR OF THE ASSET USED FOR THE PURPOSE OF EARNING REVENUE ON USER OF THE ASSET. THE CONCEPT OF DEPREC IATION IS THAT ANY ASSET, ON ACCOUNT OF NORMAL WEAR AND TEAR, IS REQUIRED TO BE REPLACED AT A POINT OF TIME IN FUTUR E THE POSITION IN LAW IS WELL SETTLED THAT DEPRECIATION A LLOWANCE IS A PROVISION FOR NORMAL WEAR AND TEAR OF ASSET WHICH HAVE BEEN USED DURING THE PREVIOUS YEAR IN EARLY INCOME, WHICH IS BROUGHT TO TAX. DEPRECIATION IS NOTHING BUT DECR EASE IN THE VALUE OF THE PROPERTY THROUGH WEAR AND TEAR, ITA NO.6852 /MUM/2014 M/S PERMESHWAR CREATIONS PVT. LTD. 5 DETERIORATION OR OBSOLESCENCE AND ALLOWANCE IS MADE FOR THE PURPOSE OF BOOK KEEPING, ACCOUNTANCY, ETC. IT IS TH E EXHAUSTION OF THE EFFECTIVE LIVE OF THE FIXED ASSET OWING TO USE OR WEAR AND TEAR. IT MAY BE COMPUTED AS THAT PART OF COST OF ASSET, WHICH WILL NOT BE RECOVERED WHEN THE ASSET IS FINALLY PUT OUT OF USE. THE OBJECT OF PROVIDING FOR DEPRECIATION IS TO SPREAD THE EXPENDITURE, INCURRED IN ACQUIRING THE ASSET, OVER ITS EFFECTIVE LIFE TIME. THE PROVISION AS TO DEPRECIATION IN A TAXING LAW LIKE INCOME TAX ACT CONTAIN ELEMENTS OF INCENTIVES AND ARE ALSO INFORME D BY CONSIDERATION OF POLICY OF THE TAX AND DO NOT REFLE CT PURELY ECONOMY CRITERIA RELEVANT TO THE DETERMINATION OF T HE DEPRECIATION. IT IS NOTED THAT FOR AND FROM ASSESS MENT YEAR 2002-03, BY VIRTUE OF PROVISION W.E.F. 01/04/2002, EXPLANATION-5 TO SECTION 32(1)(II) WAS INSERTED BY THE FINANCE ACT, 2001(14 OF 2001) DECLARING THAT THE P ROVISION OF SECTION 32(1) SHALL APPLY WHETHER OR NOT THE AS SESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATIO N IN COMPUTING THE TOTAL INCOME. THUS, FOR AND FROM TH E ASSESSMENT YEAR 2002-03, IT HAS BEEN MADE MANDATORY TO ALLOW DEPRECIATION TO AN ASSESSEE EVEN THOUGH HE HA S NOT CLAIMED DEDUCTION IN RESPECT OF DEPRECIATION. THE S CHEME OF SECTION 32 HAS PROVIDED DIFFERENT RATES OF DEPRECIA TION FOR BUILDING, MACHINERY, PLANT OR FURNITURE, SHIPS BUIL DING USED FOR HOTELS, AIRPLANES AND OTHER ITEMS MENTIONE D THEREIN. THE SUPREME COURT DECISION IN CIT VS PODDA R CEMENT PVT. LTD. (1997)_ 226 ITR 625 (SC) IS UNDER THE INCOME TAX ACT IS TO BE CONSIDERED AS TREND SETTER IN THE ITA NO.6852 /MUM/2014 M/S PERMESHWAR CREATIONS PVT. LTD. 6 CONCEPT OF OWNERSHIP. ASSISTANCE FROM THE LAW LAID DOWN THEREIN CAN BE TAKEN FOR FINDING OUT THE MEANING OF THE TERM OWNED AS ACCRUING IN SECTION 32(1) OF THE ACT , MAYSORE MINERALS VS CIT (1999) 239 ITR 775, 778, 78 0 (SC), CIT VS WEP PERIPHERALS LTD. (2014) 362 ITR 50 8 (KARN.) AND CIT VS JAWAHAR KALA KENDRA (2014) 362 I TR 515 (RAJ.). ANOTHER DECISION FROM HON'BLE MADRAS H IGH COURT IN A.M.P. MUDALIYAR VS CIT 228 ITR 454, 459 ( MAD.) THROWS LIGHT ON THE EXPLANATION OWNED BY THE ASSES SEE. FOLLOWING THE MADRAS DECISION (228 ITR 454), IT WAS HELD BY HON'BLE BOMBAY HIGH COURT IN CIT VS TAXSPIN ENGINEE RING AND MAUFACTURING WORKS (2003) 263 ITR 345, 356 (BOM .) HELD THAT THERE IS NO REQUIREMENT THAT THE ASSESSEE SHOULD CONTINUE TO HOLD THE DEPRECIABLE ASSET TILL THE END OF RELEVANT PREVIOUS YEAR OR IN OTHER WORDS, REMAINS O WNER OF THE DEPRECIABLE ASSET FOR ENTIRE PREVIOUS YEAR. IN CIT VS SALKIA TRANSPORT ASSOCIATES (1983) 143 ITR 39 (KAL. ), WHEREIN, BUSES WERE TAKEN ON HIRE AND HAD TO BE REP LACED BY THE ASSESSEE AT ITS OWN COST BY NEW BUSES, WHICH WERE REGISTERED IN THE NAME OF THE ORIGINAL OWNER. THE A SSESSEE WAS HELD TO BE THE OWNER OF THE ASSET CONCERN. IN ANOTHER DECISION FOLLOWING THE DECISION FROM DELHI HIGH COU RT IN ADDL. CIT VS GENERAL INDUSTRIES CORPORATION (1985) 155 ITR 430 (DEL.) IN CIT VS NAGPUR GOLDEN TRANSPORT COMPAN Y 233 ITR 389, 390 (DEL.), IT WAS HELD THAT THE ASSES SEE WAS ENTITLED TO GET DEPRECIATION ON TRUCKS PURCHASED BY IT ON HIGHER PURCHASE BASIS. ITA NO.6852 /MUM/2014 M/S PERMESHWAR CREATIONS PVT. LTD. 7 2.4. IN THE PRESENT APPEAL, THERE IS NO DISPUTE TO THE FACT THAT THE MOTOR CAR WAS USED BY THE DIRECTORS F OR BUSINESS PURPOSES OF THE ASSESSEE COMPANY, THE CAPI TAL ASSETS/MOTOR CARS WERE SHOWN IN THE BOOKS AS ASSET OF THE COMPANY, PURCHASED BY THE COMPANY, EMI ALSO PAID BY THE ASSESSEE COMPANY, COMPANY IS THE BENEFICIAL OWNER O F THE MOTOR CAR AND SUCH CARS ARE EXCLUSIVELY ONLY FOR TH E PURPOSES OF BUSINESS CARRIED OUT BY THE COMPANY, ACCORDINGLY, IN OUR VIEW, ASSESSEE IS THE OWNER OF THE ASSET, THEREFORE, FOLLOWING THE RATIO LAID DOWN IN FOLLOWI NG CASES:- I. CIT VS PODDAR CEMENTS PVT. LTD. (SUPRA), II. CIT VS DAUDAYAL HOTELS PVT. LTD.) (2006) 282 ITR 13 2 (GUJ.). III. CIT VS CROWN PRODUCTS (2008) 304 ITR 106 (GUJ.) IV. CIT VS GUJARATI SAMAJ (2012) 349 ITR 559 (MP). WE ARE OF THE VIEW THAT DEPRECIATION ON THE APP LICABLE RATES, DURING THE RELEVANT TIME, HAS TO BE ALLOWED TO THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT TH ESE MOTOR CARS WERE NOT USED FOR BUSINESS PURPOSES OF THE ASS ESSEE COMPANY OR USED BY THE DIRECTORS FOR THEIR PERSONAL PURPOSES. MERELY BECAUSE, THE REGISTRATION WAS DON E IN THE NAME OF THE DIRECTORS, THE DEPRECIATION U/S 32 CANN OT BE DISALLOWED. REGISTRATION IS NOT THE SOLE CRITERIA F OR DENYING THE DEPRECIATION U/S 32 OF THE ACT. THE RATIO LAI D DOWN IN CIT VS DILIP SINGH SARDAR SINGH BAGGA 201 ITR 995 ( BOM.) ITA NO.6852 /MUM/2014 M/S PERMESHWAR CREATIONS PVT. LTD. 8 SUPPORTS OUR VIEW. IT IS ALSO NOT THE CASE OF THE R EVENUE THAT THE DIRECTORS ALSO CLAIMED DEPRECIATION RESULT ING INTO DOUBLE DEPRECIATION. THE DEPRECIATION WAS CLAIMED BY THE ASSESSEE COMPANY ONLY. CONSIDERING THE FOREGOING DISCUSSION, WE DIRECT THE LD. ASSESSING OFFICER TO GRANT DEPRECIATION ON SUCH MOTOR CARS TO THE ASSESSEE ON APPLICABLE RATES AT THE RELEVANT TIME, THUS, THIS G ROUND OF THE ASSESSEE IS ALLOWED. 3. SO FAR AS, GROUNDS NO. 2 TO 4 WITH RESPECT TO DISALLOWANCE OF INTEREST ON CAR LOAN, CAR EXPENSES AND DIESEL EXPENSES ARE CONCERNED, THESE ARE CONSEQUENT IAL IN NATURE TO THE MAIN GROUND I.E. GROUND NO.1, WHICH H AS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IT IS MADE CLEAR THAT SO FAR AS CAR EXPENSES AND DIESEL EXPENSES ARE CONC ERNED, THEIR GENUINENESS MAY BE EXAMINED, IF FOUND TO BE UNREASONABLE, BY THE ASSESSING OFFICER. FINALLY, THE APPEAL OF THE ASSESSEE IS DISPOSED OF IN TERMS INDICATED HEREINABOVE. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF THE LD. REPRESENTATIVE FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 07/12/2016. SD/- SD/- ( RAJESH KU MAR ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER $!# /JUDICIAL MEMBER $ MUMBAI; ( DATED : 21/12/2016 F{X~{T? P.S / /. .. ITA NO.6852 /MUM/2014 M/S PERMESHWAR CREATIONS PVT. LTD. 9 %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT (RESPECTIVE ASSESSEE) 2. ./,- / THE RESPONDENT. 3. 0 0 1' ( *+ ) / THE CIT, MUMBAI. 4. 0 0 1' / CIT(A)- , MUMBAI, 5. 3#4 .' , 0 *+& * 5 , $ / DR, ITAT, MUMBAI 6. 6 7$ / GUARD FILE. ! / BY ORDER, /3+' .' //TRUE COPY// /! (DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI