SEC Industries Pvt.Ltd., Hyd, Hyderabad V. DCIT, Circle-3(1), Hyd, Hyderabad

ITA 814/HYD/2015

• Counselvise Citation: 81422514 RSA 2015
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KONDA RAMESH
• Assessee Lawyers: A V RAGHURAM
• Keywords: Depreciation; Audit objection
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.814/HYD/2015 ASSESSMENT YEAR 2010-2011 SEC INDUSTRIES P. LTD., HYDERABAD. PAN AADCS4199N VS. DCIT, CIRCLE 3(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. A.V. RAGHURAM FOR REVENUE : MR. KONDA RAMESH , CIT - DR DATE OF HEARING : 23 .09.2015 DATE OF PRONOUNCEMENT : 09 .10 .2015 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF PRINCIPAL CIT-III, HYDERABAD DATED 18.03.2015. THE ONLY ISSUE AGITATED IN APPEAL IS WHETHER THE ACTION OF T HE PRINCIPAL CIT IN ASSUMING JURISDICTION UNDER SECTIO N 263 TO DENY DEPRECIATION AT 50% CLAIMED AND ALLOWED BY THE A.O. ON NEW COMMERCIAL VEHICLES IS JUSTIFIABLE OR NOT. 2. WE HAVE HEARD THE LD. COUNSEL AND LD. D.R. AND PERUSED THE PAPER BOOK PLACED ON RECORD. 3. BRIEFLY STATED, ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF ENGINEERING AND FABRICATION, FIL ED RETURN OF INCOME ADMITTING TOTAL INCOME OF RS.4,01,94,019. A.O. 2 ITA.NO.814/HYD/2015 M/S. SEC INDUSTRIES P. LTD., HYDERABAD COMPLETED THE ASSESSMENT UNDER SECTION 143(3) ON 23.01.2013 INTER ALIA, DISALLOWING DEPRECIATION ON BUILDING WHICH WAS CLAIMED IN EXCESS AND ANOTHER DISALLOWANC E UNDER SECTION 40(A)(IA). THE PRINCIPAL CIT EXAMINED THE RECORD AND HAS COME TO A CONCLUSION THAT A.O. HAS N OT VERIFIED THE CLAIM OF DEPRECIATION ON COMMERCIAL VE HICLES AT 50% WHICH WAS ALLOWED AT RS.6,48,560. ACCORDINGL Y, HE ISSUED A NOTICE UNDER SECTION 263 OF THE IT ACT ON 05.03.2015 CALLING FOR OBJECTIONS OF THE ASSESSEE. 3.1. ASSESSEE OBJECTED STATING THAT IT HAS CLAIMED DEPRECIATION ON NEW COMMERCIAL VEHICLES AS PER THE PROVISIONS OF THE ACT, PARTICULARLY APPENDIX-I OF I .T. RULES PERTAINING TO MACHINERY AND PLANT. IT WAS SUBMITTED THAT VEHICLE ACQUIRED BY THE ASSESSEE WAS A NEW COMMERCI AL VEHICLE AS DEFINED UNDER THE RULES AND THEREFORE, DEPRECIATION WAS CORRECTLY CLAIMED. IT WAS FURTHER STATED THAT IT WAS NOWHERE MENTIONED THAT THE VEHICLE SHOU LD BE USED IN BUSINESS OF RUNNING THEM ON HIRE. ASSESSEE ALSO RELIED ON THE DECISION OF THE ITAT IN THE CASE OF A VANTI FEEDS LTD., VS. DCIT, CIRCLE 1(1), HYDERABAD (2010) 35 SOT 50 (HYD.), FOR THE PROPOSITION THAT UNDER THE P ROVISO TO CLAUSE 3(B) TO SECTION 32(1), HIGHER RATE OF 50% DEPRECIATION IS AVAILABLE FOR NEW COMMERCIAL VEHICL ES ACQUIRED IN VIEW OF EXPLANATION GIVEN TO THE WORDS COMMERCIAL VEHICLE. IT WAS SUBMITTED THAT THE ORD ER OF THE A.O. WAS NOT ERRONEOUS OR PREJUDICIAL TO THE IN TERESTS OF THE REVENUE. ACCORDINGLY, ASSESSEE OBJECTED THE PROCEEDINGS. 3 ITA.NO.814/HYD/2015 M/S. SEC INDUSTRIES P. LTD., HYDERABAD 3.2 HOWEVER, THE LD. PRINCIPAL CIT OPINED THAT THE A.O. FAILED IN HIS BASIC DUTY TO EXAMINE THESE ASPE CTS WHILE COMPLETING THE ASSESSMENT. HE RELIED ON VARIO US CASE LAW ON ASSUMING JURISDICTION AND CAME TO CONCL USION THAT AN ERROR HAS CREPT IN THE ASSESSMENT ORDER FRA MED BY THE A.O. AND ACCORDINGLY SET ASIDE THE ASSESSMENT W ITH A DIRECTION TO RE-DO THE ASSESSMENT DENOVO AS PER LAW. ASSESSEE IS QUESTIONING THE ORDER OF THE PRINCIPAL CIT UNDER SECTION 263 AND RAISED THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED PRINCIPAL COMMISSIONER IS CONTRARY TO THE FACTS AND LAW ON THE POINTS IN DISPUTE. 2. THE LEARNED COMMISSIONER ERRED IN ASSUMING HIS JURISDICTION U/S. 263 BASED ON THE AUDIT OBJECTION AND TO THAT EXTENT THE ORDER IS NOT IN ACCORDANCE WITH LAW. 3. THE LEARNED PRINCIPAL COMMISSIONER HAS ERRED IN NOT ACCEPTING THE CONTENTION OF THE APPELLANT THAT THE COMMERCIAL VEHICLES NEED NOT BE USED FOR THE PURPOSE OR LETTING THEN ON HIRE TO CLAIM DEPRECIATION @ 50%. 4. THE LEARNED PRINCIPAL COMMISSIONER ERRED IN DENYING DEPRECIATION @ 50% IN RESPECT OF COMMERCIAL VEHICLES ACQUIRED DURING THE PERIOD 01.01.2009 TO 01.10.2009. 5. THE LEARNED PRINCIPAL COMMISSIONER ERRED IN RESTRICTING THE DEPRECIATION TO 15% ON COMMERCIAL VEHICLES WHILE THE ALLOWABLE DEPRECIATION IS 50% AND THESE VEHICLES HAVE SATISFIED ALL THE CONDITION S TO CLAIM DEPRECIATION @ 50% AS PER INCOME TAX ACT USED FOR THE PURPOSE OF THE BUSINESS FOR CARRYING GOODS FOR THEIR FACTORY. 4 ITA.NO.814/HYD/2015 M/S. SEC INDUSTRIES P. LTD., HYDERABAD 6. THE HONOURABLE PRINCIPAL COMMISSIONER ERRED IN NOT FOLLOWING THE DECISION OF ITAT IN THE CASE OF AVANTI FEEDS LTD VS. DCIT [2010] 35 SOT 50 (HYD) WHEREIN IT WAS HELD THAT THE NEW COMMERCIAL VEHICLES SHOULD BE USED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO REQUIREMENT OF LETTING THEM ON HIRE TO CLAIM HIGHER RATE OF DEPRECIATION. 4. LD. COUNSEL SUBMITTED THAT ASSESSEE HAS SUBMITTED THE DETAILED DEPRECIATION SCHEDULES TO TH E A.O. INCLUDING THE VOUCHERS FOR PURCHASE OF ASSETS AND A .O. HAVING EXAMINED THE CLAIM, DISALLOWED PART OF EXCES S DEPRECIATION ON BUILDING, AS CAN BE SEEN FROM THE ASSESSMENT ORDER. IT WAS FURTHER SUBMITTED THAT PR INCIPAL CIT WAS NOT CORRECT IN DENYING THE DEPRECIATION WHE N THE RULES PERMIT AND REFERRED TO THE RULES THEREON. 5. THE LD. D.R. ON THE OTHER HAND, HAS RELIED ON THE ORDER OF THE PRINCIPAL CIT. 6. WE HAVE EXAMINED THE RIVAL CONTENTIONS AND PAPER BOOK PLACED ON RECORD. AS CAN BE SEEN FROM TH E PAPER BOOK, THE ASSESSEE IN FACT HAS ADDRESSED A LE TTER TO THE DCIT, CIRCLE-3(1) IN THE COURSE OF ASSESSMENT PROCEEDINGS WHEREIN IT WAS CLEARLY INDICATED THAT O PENING WDV AS PER THE DEPRECIATION SCHEDULE WAS RS.10,03,6 76 HAVING BEEN ALLOWED 25% DEPRECIATION (50% RATE OF DEPRECIATION) ON THE ACTUAL COST OF THE ASSETS THER EIN AT RS.13,38,235. IT WAS ALSO INFORMED THAT THERE WAS O NLY ONE ADDITION OF VEHICLE VALUED AT RS.2,93,444 WHICH WAS ALSO INCLUDED IN THE DEPRECIATION SCHEDULE DURING T HE 5 ITA.NO.814/HYD/2015 M/S. SEC INDUSTRIES P. LTD., HYDERABAD YEAR. THE RELEVANT INVOICES WERE PLACED AT PAGES 53 , 54, 55 OF THE PAPER BOOK WHICH ARE IN FACT FILED BEFORE A.O. IN THE COURSE OF ASSESSMENT PROCEEDINGS. AS SEEN FROM THE DEPRECIATION SCHEDULE ALSO, THE ASSESSEES OPENING WDV WAS AT RS.10,03,676 WITH ADDITIONS OF MORE THAN 18 0 DAYS AT RS.2,93,444, ON WHICH DEPRECIATION WAS CLA IMED AT RS.6,48,560 WHICH WAS ALLOWED BY THE A.O. THESE INDICATE THAT A.O. DID EXAMINE THE CLAIM OF DEPRECI ATION AND THE OPINION OF THE PRINCIPAL CIT THAT A.O. DID NOT VERIFY IS NOT BORNE OUT OF FACTS. 6.1. BE THAT AS IT MAY, WE ARE OF THE OPINION THAT THE LEARNED PRINCIPAL CIT ERRED IN INVOKING THE PRO VISIONS OF SECTION 263 TO DENY A VALID CLAIM. AS SEEN FROM THE DEPRECIATION SCHEDULE APPENDIX-I UNDER RULE -5, UND ER THE HEAD MACHINERY AND PLANT IN PART-A, THERE ARE MOTOR-CARS OTHER THAN THOSE USED IN A BUSINESS OF RUNNING THEM ON HIRE, ACQUIRED OR PUT TO USE ON OR AFTER 1 ST DAY OF APRIL, 1990 ALLOWING DEPRECIATION AT 15%. HOWEVER, IN ITEM NO.3(VIA), IT WAS PRESCRIBED AS UN DER : BLOCK OF ASSETS DEPRECIATION ALLOWANCE AS % OF WRITTEN DOWN VALUE (VIA) NEW COMMERCIAL VEHICLE WHICH IS ACQUIRED ON OR AFTER 1 ST DAY OF JANUARY, 2009 BUT BEFORE FIRST DAY OF APRIL, 2009 AND IS PUT TO USE BEFORE 1 ST DAY OF APRIL, 2009 FOR THE PURPOSE OF BUSINESS OR PROFESSION. 50% 6 ITA.NO.814/HYD/2015 M/S. SEC INDUSTRIES P. LTD., HYDERABAD 6.2. THE PERIOD OF 1 ST APRIL, 2009 STANDS EXTENDED TO 1 ST DAY OF OCTOBER, 2009 BY VIRTUE OF 11 TH AMENDMENT RULES 312 ITR (ST) 330. THUS, THE RULE ITSELF PROVI DES THAT NEW COMMERCIAL VEHICLES ARE ELIGIBLE FOR DEPRECIA TION AT 50%. NOWHERE IT IS PRESCRIBED THAT THEY SHOULD BE U SED IN A BUSINESS OF RUNNING THEM ON HIRE. AS PER NOTES T O THE ANNEXURE-1, ITEM-6, COMMERCIAL VEHICLE MEANS HEAVY GOODS VEHICLE, HEAVY PASSENGER VEHICLE LIKE MOTOR VEHICLE, MINIMUM GOODS VEHICLE AND MINIMUM PASSENGER MOTOR VEHICLE, BUT DOES NOT INCLUDE MAX I CAB, MOTOR CAB, TRACTOR AND ROAD ROLLER. THE EXPRESSIONS USED ABOVE OF VARIOUS VEHICLES SHALL HA VE THE SAME MEANING RESPECTIVELY AS ASSIGNED TO THEM IN SECTION-2 OF THE MOTOR VEHICLES ACT, 1988. AS SEEN FROM THE INVOICES, ASSESSEE HAS PURCHASED EISHER VEHICLE WITH 90PS MAX. ENG. POWER WHICH WAS REGISTERED AS CAMPERS VANS ON 27.02.2009. THE TOTAL VALUE OF TH IS ASSET WAS AT RS.13,38,235. SINCE THIS VEHICLE WAS PURCHASED IN THE PREVIOUS YEAR RELEVANT FOR A.Y. 20 09- 2010, ASSESSEE HAS CLAIMED DEPRECIATION IN THAT YEA R AT 50% AS PER THE RULES. SINCE THE VEHICLE WAS PUT TO USE FOR LESS THAN 180 DAYS IN THAT YEAR, HAVING BEEN REGIST ERED ON FEBRUARY, 2009, ASSESSEE CLAIMED ONLY 25% ( HALF OF 50%) OF THE DEPRECIATION AND OPENING WDV OF THIS YEAR ST OOD AT RS.10,03,676. SINCE ASSESSEE CLAIM OF 50% DEPRECIA TION ON THAT VEHICLE WAS MADE IN EARLIER YEAR AND AS NO ACTION WAS UNDERTAKEN BY THE PRINCIPAL CIT TO MODIFY THAT, WE ARE OF THE OPINION THAT PRINCIPAL CIT ERRED IN DIRE CTING THE A.O. TO RESTRICT THE DEPRECIATION TO 15% IN THIS YE AR. THIS 7 ITA.NO.814/HYD/2015 M/S. SEC INDUSTRIES P. LTD., HYDERABAD ACTION OF THE PRINCIPAL CIT, WITHOUT CONSIDERING TH E FACTS ON RECORD CANNOT BE UPHELD, LEAVE ALONE ON LEGAL PRINCIPLES. 7. COMING TO THE OTHER ASSET WHICH WAS ACQUIRED DURING THE YEAR, IT WAS TATA ACE PURCHASED AT COST OF RS.2,93,444 AND REGISTERED AS GOODS CARRIAGE LMV ON 27.04.2009. THIS VEHICLE WAS PUT TO USE AS PER THE PROVISIONS BEFORE 1 ST OCTOBER, 2009 DURING THE YEAR. THUS, IT IS ENTITLED FOR DEPRECIATION AT 50%. IF AT ALL, THE PRINCIPAL CIT WOULD HAVE TO CONSIDER THAT THERE IS AN ERROR, HE SHOULD HAVE RESTRICTED HIMSELF TO THE NEW VEHICLE A CQUIRED DURING THE YEAR. BUT HE HAS CONSIDERED RESTRICTING THE AMOUNT EVEN ON THE VEHICLE WHICH WAS PURCHASED IN EARLIER YEAR AND ON WHICH DEPRECIATION WAS ALLOWED AT 50% IN THAT YEAR. IN THAT REGARD, THE ACTION OF THE PRINCIPAL CIT IS NOT BASED ON FACTS ON RECORD AND N O APPLICATION OF MIND WHILE CONSIDERING THE PROCEEDIN GS UNDER SECTION 263. 8. NOW COMING TO THE ELIGIBILITY OF DEPRECIATION A T 50%, THERE IS NO DISPUTE THAT UNDER THE RULES NEW COMMERCIAL VEHICLES ACQUIRED BETWEEN 01.01.2009 TO 01.10.2009 ARE ELIGIBLE FOR DEPRECIATION AT 50%. NO WHERE IN THE RULES IT WAS PRESCRIBED THAT THEY ARE TO PU T TO USE IN THE BUSINESS OF RUNNING THEM ON HIRE. THE COORD INATE BENCH IN THE CASE OF AVANTI FEEDS LTD., VS. DCIT, C IRCLE 1(1), HYDERABAD (2010) 35 SOT 50 (HYD.) ANALYSED TH E RULES AS APPLICABLE BETWEEN THE PERIOD 01.10.1998 A ND 8 ITA.NO.814/HYD/2015 M/S. SEC INDUSTRIES P. LTD., HYDERABAD 31.03.1999 AND CAME TO THE CONCLUSION THAT NEW COMMERCIAL ASSET ACQUIRED DURING THE ABOVE PERIOD W AS ELIGIBLE FOR HIGHER DEPRECIATION AT 40% AS APPLICAB LE IN THAT YEAR. SINCE THE RULE PROVIDES THAT NEW COMMERC IAL VEHICLES PUT TO USE ARE ELIGIBLE FOR DEPRECIATION A T 50% WHICH IS AN INCENTIVE PROVISION, PRINCIPAL CIT CANN OT RESTRICT THE SAME BY BRINGING A NEW CONDITION THAT THEY HAVE PUT TO USE IN THE BUSINESS OF RUNNING THEM ON HIRE, WHEN THE RULES DOES NOT PRESCRIBE SO. IN VIEW OF TH E ABOVE, WE CANNOT APPROVE THE ACTION OF THE PRINCIPA L CIT IN EXERCISING THE JURISDICTION UNDER SECTION 263 TO SET ASIDE THE VALIDLY COMPLETED ASSESSMENT UNDER SECTIO N 143(3). IN VIEW OF THAT, THE ORDER OF PRINCIPAL CIT U/S 263 IS SET ASIDE AND THAT OF THE A.O. IS RESTORED. ASSE SSEES GROUNDS ARE ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 09.10.2015 SD/- SD/- (SMT. P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 09 TH OCTOBER, 2015 VBP/- COPY TO 1. M/S. SEC INDUSTRIES P. LTD., HYDERABAD 500 082. C/O RAJU & PRASAD, CHARTERED ACCOUNTANTS, 401, DIAMOND HOUSE, ADJ. AMRUTHA HILLS, PUNJAGUTTA, HYDERABAD 500 082. 2. DCIT, CIRCLE 3(1), HYDERABAD. 3. PR. CIT - III, HYDERABAD. 4. ADDL. CIT, RANGE - 3, HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD 6. GUARD FILE