Income Tax Appellate Tribunal - Delhi
Ahmedabad Bengal Roadways , New Delhi vs Assessee on 9 July, 2007
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, Assistant 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. Roadways, Kapashera
Village, New Delhi.
(Appellant) (Respondent)
Department by : Mrs. Pratima Kaushik, Sr. DR
Assessee by : Shri Anil Kumar Garg, C.A.
ORDER
PER K.G. BANSAL : AM These cross appeals of the assessee and the revenue 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) disallowing 5% of the expenses incurred by the assessee under five heads; and (ii) allowing full 2 ITA Nos. 4825(Del)/2009 & 880(Del)/2010 deduction of depreciation on lorries which were used in business for less than 180 days.
2. Since this matter has traveled to the Tribunal for the second time, a brief history of the case is required to be stated at the outset. The assessee has filed the return of income on 31.10.2002, declaring total income of Rs. 1,81,750/-. Assessment was completed u/s 143(3) read with section 145(3) determining the total income at Rs. 33,87,300/-. The total income was determined at 2% of the freight charges received during the year. No deduction of depreciation was allowed. In order dated 9.7.2007, the assessment was restored to the file of the AO with the direction that it will be appropriate if the income 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 light of provision contained in aforesaid Explanation 5, it will be appropriate if the income is estimated before depreciation and thereafter depreciation is deducted as per law. Therefore, we think it fit to restore the matter to the file of the A.O. to determine income by following aforesaid procedure and after hearing the assessee. Thus, these grounds are treated as allowed for statistical purposes."3 ITA Nos. 4825(Del)/2009 &
880(Del)/2010 2.1 As a consequence of the aforesaid order, fresh assessment was framed on 26.12.2008, determining the total income 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 aforesaid 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 ground that those were used for less than 180 days in the business. Aggrieved by this order, the assessee moved appeal before the ld. CIT(Appeals)-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 allowed full depreciation in respect of the lorries purchased during the year 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 to ground no. 1, in which disallowance from expenditure incurred under five 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/-
4 ITA Nos. 4825(Del)/2009 &
880(Del)/2010
(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 justification whatsoever for
making disallowance out of fixed running expenses 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 expenses 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, miscellaneous expenses in transit. Each trip involves four to six days depending upon the distance, weather condition and road condition. These charges are paid at pre- determined rate negotiated with the drivers. The assessee maintains a register for each and every payment furnishing details such as date of departure, payment, lorry number, station code, station challans number, amount of fixed running expenses. The register contains the signatures of the payees. This register has been produced before the AO and copy of a sample page has also been produced before him. It was argued that after giving the aforesaid finding, the ld. CIT(Appeals) erred in holding that there is an element of un-verifiability about the nature of the expenses 5 ITA Nos. 4825(Del)/2009 & 880(Del)/2010 because of non-proper maintenance of books of account and supporting vouchers.
3.2 It is further submitted that the expenditure on container rent is also fully verifiable as the whole of the amount has been paid to Balmer Lawrie & Co. Ltd., a Government of India enterprise, on the basis of bills raised by them.
3.3 In reply, the ld. DR submitted that the total income assessed as per impugned order is not more than the total income 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 was argued that in absence of proper maintenance of books of account, the lower 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 assessee's appeal.
6 ITA Nos. 4825(Del)/2009 &
880(Del)/2010 3.4 We have considered the facts of the case and rival submissions. The Tribunal had given a direction to the AO to frame de-novo assessment by estimating profits of the business 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 sustainable 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 there was any error in accounting for this liability, leading to a higher claim of expenditure. Therefore, we are of the view that nothing could be disallowed out of fixed running expenses and container rent expenses. 7 ITA Nos. 4825(Del)/2009 &
880(Del)/2010 3.5 In regard to expenses under three heads, i.e., lorry repair and maintenance; tyres and tubes; and consumable stores, the ld. counsel fairly conceded that there could be some gap in proper maintenance of vouchers. Therefore, he did not press the matter regarding disallowance out of these expenses.
4. Coming to the appeal of the revenue, our attention was drawn towards the details of purchase of lorries effected 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 assessee did not show receipt of any hire charges from these charges for first 180/- days of the previous 8 ITA Nos. 4825(Del)/2009 & 880(Del)/2010 year. There is also no evidence on record that these lorries were ready for user. Therefore, it was argued that full depreciation could not be allowed to the assessee in respect of these lorries on the basis of rate mentioned in Appendix-I of Income-tax Rules, 1962. 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 purchase 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 ready 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 Hon'ble Delhi High Court in the case of CIT Vs. Panacea Biotech Ltd. in ITA No. 422/2007 dated 27.07.2009, a copy of which was placed before us. The Hon'ble jurisdictional High Court differed from the view held by Hon'ble Bombay High Court in the case of Dinesh Kumar Gulab Chand Aggarwal Vs CIT, 267 ITR 768, and held that deduction of depreciation is to be allowed even when the asset is ready for use, though not actually used in the business.
9 ITA Nos. 4825(Del)/2009 &
880(Del)/2010 4.4 We have considered the facts of the case and 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 5.11.2001. The assessee has also furnished evidence regarding purchase of fuel to make the vehicles ready for use. The decision of Hon'ble Delhi High Court is contained in paragraph 2, which is reproduced below for ready reference:-
"2. Qua the first issue, the facts which have emerged from the record are that the possession of the flat was obtained on 21.3.2000, the deed in respect of the same was 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 Roadways, and the flat had been fitted with the requisite amenities for using it as an office. Thus, the office was ready 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 passive user does not entitle the assessee to claim depreciation. In the facts of the case, there is an actual user and not 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 urged by the revenue. Obviously, the assessee must have purchased this flat within the relevant financial year to take benefit of depreciation as tax planning. We do not see any illegality in the action of the assessee in the facts and circumstances of the case. The counsel for the Revenue has relied upon the 10 ITA Nos. 4825(Del)/2009 & 880(Del)/2010 judgment of the Bombay High Court in the case of Dinesh Kumar Gulab Chand Aggarwal Vs. Commissioner of Income 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., 247 ITR 12 and Capital Bus Services vs. CIT, 123 ITR 404, we would be bound by the same. In the case of Refrigeration & Allied Industries Ltd., it had been held by this Court that the expression "used for the purpose of business" includes 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 said 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 that 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 because the buses did not ply cannot mean that the depreciation was not allowable. We accordingly hold that the contentions of the Revenue on this issue have no force."
4.5 The decision of jurisdictional High Court, contrarian in content to the decision of Hon'ble Bombay High Court is that 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 of 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 depreciation in respect of 11 ITA Nos. 4825(Del)/2009 & 880(Del)/2010 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 23 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.