DCIT, New Delhi V. M/s. Aradhana Bengal Roadways, New Delhi

ITA 880/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3518 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-07-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 03-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS PRATIMA KAUSHIK
• Keywords: Business income; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO.4825(DEL)/2009 ASSESSMENT YEAR: 2002-03 M/S AHMEDABAD BENGAL ROADWAYS, ASSIST ANT COMMISSIONER OF 1295/1-B, KAPASHERA VILLAGE, VS. INCOME-TAX, CIRCLE 35(1), NEAR FUN-N-FOOD VILLAGE, NEW DELHI. NEW DELHI-110037. PAN-AABFA1537B ITA NO.880(DEL)/2010 ASSESSMENT YEAR: 2002-03 ASSTT. COMMISSIONER OF INCOME M/S AHMEDABAD BENGAL TAX, CIRCLE 35(1), NEW DELHI. VS. ROA DWAYS, KAPASHERA VILLAGE, NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY : MRS. PRATIMA KAUSHIK, SR. D R ASSESSEE BY : SHRI ANIL KUMAR GARG, C.A. ORDER PER K.G. BANSAL : AM THESE CROSS APPEALS OF THE ASSESSEE AND THE RE VENUE INVOLVE ONE GROUND EACH TO THE EFFECT THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN (I) DISALL OWING 5% OF THE EXPENSES INCURRED BY THE ASSESSEE UNDER FIVE HEADS; AND (II) ALLOWING FULL ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 2 DEDUCTION OF DEPRECIATION ON LORRIES WHICH WER E USED IN BUSINESS FOR LESS THAN 180 DAYS. 2. SINCE THIS MATTER HAS TRAVELED TO THE TRIBUNA L FOR THE SECOND TIME, A BRIEF HISTORY OF THE CASE IS REQUIRED TO BE S TATED AT THE OUTSET. THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 3 1.10.2002, DECLARING TOTAL INCOME OF RS. 1,81,750/-. ASSESSMENT WAS COMPLET ED U/S 143(3) READ WITH SECTION 145(3) DETERMINING THE TOTAL INCOM E AT RS. 33,87,300/-. THE TOTAL INCOME WAS DETERMINED AT 2% OF THE FREIG HT CHARGES RECEIVED DURING THE YEAR. NO DEDUCTION OF DEPRECIATION WAS ALLOWED. IN ORDER DATED 9.7.2007, THE ASSESSMENT WAS RESTORED TO T HE FILE OF THE AO WITH THE DIRECTION THAT IT WILL BE APPROPRIATE IF THE INCO ME IS ESTIMATED BEFORE DEPRECIATION AND THEREAFTER DEDUCTION IS ALLOWED AS PER LAW. THE DIRECTION OF THE TRIBUNAL, CONTAINED IN PARAGRAPH 2.2 IS REPRODUCED BELOW:- 2.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT IN THE L IGHT OF PROVISION CONTAINED IN AFORESAID EXPLANATION 5 , IT WILL BE APPROPRIATE IF THE INCOME IS ESTIMATED BEFORE DEPRECIATION AND THEREAFTER DEPRECIATION IS DEDUCTED AS P ER LAW. THEREFORE, WE THINK IT FIT TO RESTORE THE MAT TER TO THE FILE OF THE A.O. TO DETERMINE INCOME BY FOLLOWING AFOR ESAID PROCEDURE AND AFTER HEARING THE ASSESSEE. THUS , THESE GROUNDS ARE TREATED AS ALLOWED FOR STATISTIC AL PURPOSES. ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 3 2.1 AS A CONSEQUENCE OF THE AFORESAID ORDER, FRE SH ASSESSMENT WAS FRAMED ON 26.12.2008, DETERMINING THE TOTAL IN COME AT RS. 49,46,220/-. THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 7, 36,91,712/- UNDER 18 HEADS. THE AO ALLOWED ONLY 95% OF THE AFORESA ID EXPENDITURE. THUS, THE ALLOWANCE WAS RESTRICTED TO RS. 6,27,81,734/ -. THE AO ALSO DID NOT ALLOW FULL DEPRECIATION ON 10 LORRIES ON THE GR OUND THAT THOSE WERE USED FOR LESS THAN 180 DAYS IN THE BUSINESS. AGG RIEVED BY THIS ORDER, THE ASSESSEE MOVED APPEAL BEFORE THE LD. CIT(APPEA LS)-XXVII, NEW DELHI, WHO DISPOSED IT OFF ON 19.11.2009 IN APPEAL NO. 186/08-09. HE UPHELD PART-DISALLOWANCE OF THE EXPENDITURE, BUT ALLOWE D FULL DEPRECIATION IN RESPECT OF THE LORRIES PURCHASED DURING THE YEA R BY RETURNING A FINDING THAT THOSE WERE USED FOR MORE THAN 180 DAYS IN THE RELEVANT PREVIOUS YEAR. 3. THE LD. COUNSEL FOR THE ASSESSEE REFERRED T O GROUND NO. 1, IN WHICH DISALLOWANCE FROM EXPENDITURE INCURRED UNDER FI VE HEADS HAS BEEN CHALLENGED. THE DETAILS OF THESE EXPENSES ARE AS UNDER:- S.NO. DETAIL AMOUNT (RS.) (I) LORRY REPAIR & MAINTENANCE 31,08,304/- (II) TYRES & TUBES 63,97,604/- (III) CONSUMABLE STORE 15,46,788/- ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 4 (IV) FIXED RUNNING EXPENSES 5,28,26,440/- (V) RENT (CONTAINER) EXPENSES 22,06,900 TOTAL: 6,60,86,036/- 3.1 IT WAS ARGUED THAT THERE IS NO JUSTIFIC ATION WHATSOEVER FOR MAKING DISALLOWANCE OUT OF FIXED RUNNING EXPEN SES OF RS. 5,28,26,440/- AND CONTAINER RENT EXPENSES AMOUNTING TO RS. 22, 06,900/- AS THESE EXPENSES WERE FULLY VOUCHED AND VERIFIABLE. IN THIS CONNECTION, OUR ATTENTION WAS DRAWN TOWARDS PARAGRAPH NOS. 5 AND 6 OF THE IMPUGNED ORDER. IT IS MENTIONED THAT FIXED RUNNING EXPE NSES ARE IN RESPECT OF PAYMENTS MADE TO DRIVERS AT A FIXED RATE FOR EACH TRIP TOWARDS LABOUR COST OF TWO DRIVERS AND CLEANER, FOOD CHARGES, M ISCELLANEOUS EXPENSES IN TRANSIT. EACH TRIP INVOLVES FOUR TO SIX DAYS DEPENDING UPON THE DISTANCE, WEATHER CONDITION AND ROAD CONDITION. THESE CH ARGES ARE PAID AT PRE- DETERMINED RATE NEGOTIATED WITH THE DRIVERS. T HE ASSESSEE MAINTAINS A REGISTER FOR EACH AND EVERY PAYMENT FURNISHING DETAILS SUCH AS DATE OF DEPARTURE, PAYMENT, LORRY NUMBER, STATION CODE, S TATION CHALLANS NUMBER, AMOUNT OF FIXED RUNNING EXPENSES. THE REGISTER CONTAINS THE SIGNATURES OF THE PAYEES. THIS REGISTER HAS BEEN PRODUCED B EFORE THE AO AND COPY OF A SAMPLE PAGE HAS ALSO BEEN PRODUCED BEFORE HI M. IT WAS ARGUED THAT AFTER GIVING THE AFORESAID FINDING, THE LD. CIT(AP PEALS) ERRED IN HOLDING THAT THERE IS AN ELEMENT OF UN-VERIFIABILITY ABOUT THE NATURE OF THE EXPENSES ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 5 BECAUSE OF NON-PROPER MAINTENANCE OF BOOKS OF AC COUNT AND SUPPORTING VOUCHERS. 3.2 IT IS FURTHER SUBMITTED THAT THE EXPENDI TURE ON CONTAINER RENT IS ALSO FULLY VERIFIABLE AS THE WHOLE OF THE AMOUN T HAS BEEN PAID TO BALMER LAWRIE & CO. LTD., A GOVERNMENT OF INDIA ENTERP RISE, ON THE BASIS OF BILLS RAISED BY THEM. 3.3 IN REPLY, THE LD. DR SUBMITTED THAT THE T OTAL INCOME ASSESSED AS PER IMPUGNED ORDER IS NOT MORE THAN THE TOTAL INC OME ASSESSED AS PER FIRST ORDER OF THE LD. CIT(APPEALS). THEREFORE, THERE CANNOT BE ANY GRIEVANCE TO THE ASSESSEE IN THIS BEHALF. IT IS ANOTHER MATTER THAT INCOME HAS NOW BEEN ESTIMATED IN A MANNER DIFFERENT FROM THE MANNER IN WHICH IT WAS ESTIMATED IN THE ORIGINAL ASSESSMENT ORDER. IT W AS ARGUED THAT IN ABSENCE OF PROPER MAINTENANCE OF BOOKS OF ACCOUNT, THE L OWER AUTHORITIES WERE JUSTIFIED IN MAKING DISALLOWANCES TO THE EXTENT OF 5% OUT OF EXPENDITURE INCURRED UNDER FIVE HEADS, MENTIONED IN GROUND NO. 1 OF THE ASSESSEES APPEAL. ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 6 3.4 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND RIVAL SUBMISSIONS. THE TRIBUNAL HAD GIVEN A DIRECTION TO THE AO TO FRAME DE-NOVO ASSESSMENT BY ESTIMATING PROFITS OF THE BUSINE SS BEFORE DEPRECIATION AND THEREAFTER ALLOWING DEPRECIATION AS PER LAW. THE SAME HAS BEEN DONE IN FRESH ASSESSMENT, UNDER SCRUTINY BEFORE US. THE ASSESSEE HAS NOT TAKEN ANY GROUND IN REGARD TO THE METHOD OF ESTIMATION OF BUSINESS INCOME. THE ONLY QUESTION IS WHETHER, 5% DISALLOWANCE OUT OF TOTAL EXPENDITURE OF RS. 6,60,86,036/-, SUSTAINED BY THE LD. CIT(APPEALS) IS JUSTIFIED? THE ASSESSEE HAS DEMONSTRATED BEFORE US THAT PROPER RECORDS, DULY SIGNED BY THE PAYEES, HAD BEEN MAINTAINED IN RESPECT OF FIXED RUNNING EXPENSES. NEITHER THE AO, NOR THE LD. CIT(APPEALS) HAS GIVEN ANY ADVERSE FINDING IN RESPECT OF THIS EXPENDITURE. THEREFORE, WE ARE OF THE VIEW THAT ANY DISALLOWANCE FROM THIS EXPENDITURE IS NOT SUSTA INABLE IN LAW. IN REGARD TO CONTAINER RENT, IT HAS BEEN SUBMITTED THAT THE EXPENDITURE IS ACCOUNTED FOR AND CLAIMED ON THE BASIS OF BILLS RAISED BY BALMER LAWRIE & CO. LTD.. THIS SUBMISSION HAS ALSO NOT BEEN CONTROVERTED IN ANY MANNER BY THE LD. DR. FURTHER, THERE IS NOTHING ON RECORD THAT TH ERE WAS ANY ERROR IN ACCOUNTING FOR THIS LIABILITY, LEADING TO A HIG HER CLAIM OF EXPENDITURE. THEREFORE, WE ARE OF THE VIEW THAT NOTHING COULD BE DISALLOWED OUT OF FIXED RUNNING EXPENSES AND CONTAINER RENT EXPEN SES. ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 7 3.5 IN REGARD TO EXPENSES UNDER THREE HEADS, I. E., LORRY REPAIR AND MAINTENANCE; TYRES AND TUBES; AND CONSUMABLE S TORES, THE LD. COUNSEL FAIRLY CONCEDED THAT THERE COULD BE SOME GAP I N PROPER MAINTENANCE OF VOUCHERS. THEREFORE, HE DID NOT PRESS THE MATTE R REGARDING DISALLOWANCE OUT OF THESE EXPENSES. 4. COMING TO THE APPEAL OF THE REVENUE, OUR ATTE NTION WAS DRAWN TOWARDS THE DETAILS OF PURCHASE OF LORRIES EF FECTED BY THE ASSESSEE IN THIS YEAR. THESE ARE AS UNDER:- SL. NO. LORRY NO. DATE OF REGISTRATION (I) HR-38-G-3177 21.9.2001 (II) HR-38-G-3077 28.9.2001 (III) HR-38-G-3377 28.9.2001 (IV) HR-38-G-3977 28.9.2001 (V) HR-38-G-1977 28.9.2001 (VI) HR-38-G-2077 26.9.2001 (VII) HR-38-G-9177 5.11.2001 (VIII) HR-38-G-3677 26.9.2001 (IX) HR-38-G-3277 28.9.2001 (X) HR-38-G-3477 28.9.2001 (XI) HR-38-G-3877 26.9.2001 4.1 THE CASE OF THE LD. DR IS THAT THE ASSESSE E DID NOT SHOW RECEIPT OF ANY HIRE CHARGES FROM THESE CHARGES FOR FIRST 180/- DAYS OF THE PREVIOUS ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 8 YEAR. THERE IS ALSO NO EVIDENCE ON RECORD T HAT THESE LORRIES WERE READY FOR USER. THEREFORE, IT WAS ARGUED THAT FULL DEPRECIATION COULD NOT BE ALLOWED TO THE ASSESSEE IN RESPECT OF THESE L ORRIES ON THE BASIS OF RATE MENTIONED IN APPENDIX-I OF INCOME-TAX RULES, 19 62. 4.2 IN REPLY, THE LD. COUNSEL SUBMITTED THAT PHOTOCOPIES OF REGISTRATION CERTIFICATES HAD BEEN PRODUCED SHOWING THAT THE LORRIES WERE REGISTERED BEFORE 30.09.2001. EVIDENCE IN THE FORM OF PURCHA SE OF FUEL TO MAKE THEM READY FOR USER WAS ALSO PRODUCED. THEREFORE, HE RELIED ON THE FINDINGS OF THE LD. CIT(APPEALS) THAT THE VEHICLES WERE RE ADY FOR USE AND THE CLAIM OF DEPRECIATION DESERVES TO BE ALLOWED. 4.3 IN ORDER TO SUPPORT THIS CONTENTION, RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. PANACEA BIOTECH LTD. IN ITA NO. 422/2007 DATED 27.07.200 9, A COPY OF WHICH WAS PLACED BEFORE US. THE HONBLE JURISDICTIONAL H IGH COURT DIFFERED FROM THE VIEW HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF DINESH KUMAR GULAB CHAND AGGARWAL VS CIT, 267 ITR 768, AN D HELD THAT DEDUCTION OF DEPRECIATION IS TO BE ALLOWED EVEN WHEN THE ASSET IS READY FOR USE, THOUGH NOT ACTUALLY USED IN THE BUSIN ESS. ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 9 4.4 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND RIVAL SUBMISSIONS. ON PERUSAL OF THE DETAILS OF PURCHASE OF LORRIES, IT IS SEEN THAT 10 LORRIES HAVE BEEN REGISTERED WITHIN 180 DAYS FROM THE START OF THE PREVIOUS YEAR, WHILE ONE HAS BEEN REGISTERED ON 5.11.200 1. THE ASSESSEE HAS ALSO FURNISHED EVIDENCE REGARDING PURCHASE OF FU EL TO MAKE THE VEHICLES READY FOR USE. THE DECISION OF HONBLE DELHI HI GH COURT IS CONTAINED IN PARAGRAPH 2, WHICH IS REPRODUCED BELOW FOR READY REFERENCE:- 2. QUA THE FIRST ISSUE, THE FACTS WHICH HAV E EMERGED FROM THE RECORD ARE THAT THE POSSESSION OF THE FLAT WAS OBTAINED ON 21.3.2000, THE DEED IN RESPECT OF THE SAME WA S REGISTERED ON 29.3.2000 (THOUGH THE SUB-REGISTRAR RETURNED IT TO THE ASSESSEE ON 7.4.2000), THE CHARGES TO THE SOCIETY WHERE THE FLAT IS SITUATED WERE PAID ON 29.3.2000, ONE CONSIGNMENT WAS SENT TO THIS OFFICE/FLAT THROUGH M/S MAYUR R OADWAYS, AND THE FLAT HAD BEEN FITTED WITH THE REQUISITE A MENITIES FOR USING IT AS AN OFFICE. THUS, THE OFFICE WAS RE ADY FOR USE AND FUNCTIONAL AND WAS ACTUALLY USED FOR THE PURPOSE OF BUSINESS. USER OF THE FLAT IS, THEREFORE, A FINDING OF FACT BY THE TWO CONCURRENT AUTHORITIES BELOW IN WHICH WE NEED NOT INTERFERE. THE COUNSEL FOR THE REVENUE HAS URGED THAT PASS IVE USER DOES NOT ENTITLE THE ASSESSEE TO CLAIM DEPRECI ATION. IN THE FACTS OF THE CASE, THERE IS AN ACTUAL USER AND N OT PASSIVE USER. BESIDES, SO FAR USE AS AN OFFICE IS CONCERNED, USER OF THE SAME NEED NOT BE FULL-FLEDGED AND NOR IS IT SO UR GED BY THE REVENUE. OBVIOUSLY, THE ASSESSEE MUST HAVE PURC HASED THIS FLAT WITHIN THE RELEVANT FINANCIAL YEAR TO TAKE BENEFIT OF DEPRECIATION AS TAX PLANNING. WE DO NOT SEE A NY ILLEGALITY IN THE ACTION OF THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE COUNSEL FOR THE REVENUE HAS RELI ED UPON THE ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 10 JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF DINESH KUMAR GULAB CHAND AGGARWAL VS. COMMISSIONER OF INC OME TAX, 267 ITR 768. HOWEVER, SINCE THERE ARE JUDGMENTS OF TWO DIVISION BENCHES OF THIS COURT IN THE CASE REPORTED AS CIT VS. REFRIGERATION & ALLIED INDUSTRIES LTD., 2 47 ITR 12 AND CAPITAL BUS SERVICES VS. CIT, 123 ITR 404, W E WOULD BE BOUND BY THE SAME. IN THE CASE OF REFRIGERATI ON & ALLIED INDUSTRIES LTD., IT HAD BEEN HELD BY THIS COURT THAT THE EXPRESSION USED FOR THE PURPOSE OF BUSINESS INC LUDES PASSIVE USER OF THE ASSETS IN THE BUSINESS. IT WAS HELD THAT THE ASSET CANNOT BE SAID TO BE NOT USED WHEN THE SAME IS KEPT FOR USE. THE COURT, THEREFORE, IN THE SA ID CASE ALLOWED DEPRECIATION ALLOWANCE TO THE ASSESSEE AND SAID THAT THERE WAS NO JUSTIFICATION TO DISALLOW THE CLAIM OF THE DEPRECIATION. IN FACT, THE DIVISION BENCH OF THIS COURT HAD EVEN MUCH EARLIER IN CAPITAL BUS SERVICES PVT. LTD., HELD TH AT THE EXPRESSION USED FOR THE PURPOSE OF THE BUSINESS AND DEPRECIATION WOULD BE ALLOWED WHERE THE BUSES WERE KEPT READY BY THE OWNER FOR ITS USE. MERELY BECAUS E THE BUSES DID NOT PLY CANNOT MEAN THAT THE DEPRECIATION WAS NOT ALLOWABLE. WE ACCORDINGLY HOLD THAT THE CONTENT IONS OF THE REVENUE ON THIS ISSUE HAVE NO FORCE. 4.5 THE DECISION OF JURISDICTIONAL HIGH COURT, C ONTRARIAN IN CONTENT TO THE DECISION OF HONBLE BOMBAY HIGH COURT IS THA T AN ASSESSEE IS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF A BUSINESS ASSET IF IT IS READY FOR USE. THE EVIDENCE ON RECORD SUPPORTS THE FINDING OF THE LD. CIT(A) THAT 10 LORRIES WERE READY FOR USE WITHIN 180 DAYS O F THE START OF THE PREVIOUS YEAR. THEREFORE, IT IS HELD THAT THE ASSESSEE IS ENTITLED TO FULL DEPRECIATION ON THESE 10 LORRIES. IT WAS ALSO MENTIONED BY THE LD. COUNSEL THAT THE LD. CIT(APPEALS) HAS ALLOWED ONLY HALF OF NORMAL DEP RECIATION IN RESPECT OF ITA NOS. 4825(DEL)/2009 & 880(DEL)/2010 11 LORRY PURCHASED ON 05.11.2001. IN VIEW OF THESE FACTS, WE UPHOLD THE FINDING OF THE LD. CIT(APPEALS). 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 2 3 JULY, 2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 23RD JULY,2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- AHEMDABAD BENGAL ROADWAYS, NEW DELHI. ASSTT. CIT, CIRCLE 35(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.