Depreciation on partly used motor lorry under section 32 of Income Tax

Case Law Citation

GVV Construction Pvt. Ltd. Vs. Deputy Commissioner of Income Tax; ITA No. 280/ CTK/2017; Asst. Year 2013-2014; Aug 18, 2020

Case Summary

Facts of the case:

• The assessee filed return of income on 24.09.2013 declaring total income of Rs.3,29,07,929/-. The assessee is deriving income from civil contract business. The case of the assessee was selected for scrutiny and statutory notices were issued to the assessee.
• During the course of assessment proceedings, the AO noticed that the assessee has claimed depreciation at the rate of 30% on various items (14 nos.) under the head plant and machinery referring them as motor lorries used in a business of running them on hire. But on perusal of the profit and loss account, the assessee has not shown any income from hiring in respect of 14 items of plant and machinery in which the assessee claimed depreciation @30%.
• The AO also noted that the above items are not under the category of motor lorries as defined in the Income Tax Act regarding charging of depreciation as per Section 32 of the Act. In this regard the AO issued show cause notice dated 04.01.2016 requesting the assessee to show cause as to why the following 14 items should not be treated as plant and machinery, on which admissible rate of depreciation as per I.T.Act, 1961 is 15%.
• Only, motor buses, motor lorries and motor taxies used in a business of running of them hire is eligible for depreciation @30%. It was also mentioned by the AO that none of the following 14 items are coming under motor buses, motor lorries and motor taxies. It was further mentioned by the AO that no income from hiring the 14 items are shown in the profit and loss account for the F.Y.2012-2013.
• Against the show cause notice issued by the AO the assessee filed written submissions along with picture of the said impugned assets/machineries, which has been incorporated by the AO in the assessment order.
• On going through the above submissions of the assessee, the AO noticed that there was no any grievance made by the assessee for giving the vehicles on hire and no any bills and details of the hire charges payments were produced before the AO to substantiate the claim of the assessee.
• The AO also observed that the assessee claimed that instead of showing hire charges as income it had been credited to the accounting head ‘hire charges’ and furnished ledger copy of the same, but nowhere in the details it was mentioned that, only ‘motor lorries’ were given on hire. There is possibility that item forming part of the plant and machinery other than ‘motor vehicles/buses/lorries would have been given on hire.
• The AO further noticed that for claiming higher rate of depreciation the assets must be fallen under the category of motor vehicles/buses/lorries as prescribed in the Income Tax Act. But here there is no such case.
• Accordingly, the AO recalculated the depreciation @15% as prescribed by the Income Tax Act under the plant and machinery on the 14 items totaling excess depreciation calculated Rs.33,42,185/- and added back to the total income of the assessee.
• Feeling aggrieved from the order of the Assessing Officer, the assessee filed appeal before the CIT(A) and the CIT(A) after considering the submissions of the assessee and findings recorded by the AO, dismissed the appeal of the assessee.
• Aggrieved from the order of CIT(A), the assessee is in appeal before the Income Tax Appellate Tribunal.

Issue

• Vehicles against which depreciation claimed @30% are not motor lorries and further the vehicles were not actually given on hire, particularly when, both findings are contrary to the statutory provisions of law and the Appellant is lawfully entitled for depreciation @30% on those vehicles. Impugned addition thus, being not sustainable in the eye of law is liable to be deleted in the interest of justice.

Departmental Representative

• The assessee should have been separately disclosed in his financial statement and details on which type of impugned machineries had been given on hire. The assessee furnished only a ledger copy of the hire charges before the AO and it is also not clear that as to whether the hire charges were received from the impugned machineries or from any other machineries owned by the assessee.
• He further submitted that the additional depreciation can be claimed by the assessee as prescribed in the Income Tax Act read with Rule but the assessee is unable to demonstrate himself that how and why he is entitled for claim of additional depreciation and he also distinguished the case laws relied on by the assessee and Circular No.609, dated 29.07.1991.

Assessee Representative

• Further he has submitted that the trucks, tippers, schwing stetter, mobile concrete mixture, ashok Leyland Taurus, conmat concrete paver are in the nature of motor buses, motor lorries and motor taxies and registered as per the Motor Vehicles Act, 1988. The assets were given on hire and the income from which have been credited under the head hire charges.

Ruling

• After hearing both the sides and perusing the entire material available on record and case laws cited by both the sides, we noticed that the assessee is engaged in the civil construction business and has claimed depreciation at a higher rate on 14 impugned machineries which is not prescribed as per the New Appendix I Part-A III(ii) appended to the Income Tax Rules, 1962, as amended from time to time.
• After going through the assessment order, we found that the assessee has himself accepted that there was a mistake in calculating the depreciation and he submitted correct depreciation chart as per Income Tax Act as Annexure-1 but it was not produced before us for our ready reference.
• The AO has also observed that the assessee has received hire charges which should have been separately shown in the financial statement but credited to the hire charges account, therefore, it is not clear that how the assessee has received hire charges from which machineries/motor cars.
• The assessee has also submitted that reply of the assessee dated 15.01.2016 to the show cause notice issued by the AO has not been considered. However, on perusal of the assessment order at page 12, the AO has already gone through the submissions made by the assessee and after considering the same has observed that the assessee failed to establish that the vehicles were used on hire basis.
• From the above discussion, it is clear that the AO has disallowed depreciation only on 14 items/machines/assets out of 20 items/assets and calculated the excess depreciation claimed by the assessee on 14 items only.
• From the provisions of the Motor Vehicles Act, the assessee was required to obtain registration from some assets as is clear from the picture of the assets showing in the assessment order but the assessee also did not produce any registration certificate before us as to whether the assets are registered as a commercial vehicle or private vehicles/assets.
• It is also clear from the Appendix Part-A(III) regarding depreciation the assessee is eligible for additional depreciation on the motor cars, motor lorries but the AO has disallowed higher depreciation claimed by the assessee on other assets which are not covered under the motor car, motor vehicles as defined above as per the Motor Vehicles Act as amended.
• The assessee is engaged in the civil construction business and he has achieved huge turnover but without using of these heavy/light machineries/vehicles huge turnover cannot be achieved. If the assessee uses partly for own use and for hire charges he is not entitled to claim excess depreciation as per the provisions of the Income Tax Act. The rule for charging higher depreciation has been prescribed only for the vehicles which are running on hire.
• Our above view is supported by the judgment of Hon’ble Madhya Pradesh High Court in the case of CIT Vs. Anupchand and Co., [1999] 239 ITR 466 (Madhya Pradesh).
• Respectfully following the above judgment of the Hon’ble High Court, the assessee is not eligible/entitled for the claim of excess depreciation on impugned 14 items as mentioned by the AO in his order.
• In the peculiar facts and circumstances of the case, the case laws and circular relied on by the ld. AR of the assessee are not applicable in the present case in hand but the case laws cited by the ld. DR support the case to the extent of their applicability in the present case.
• Accordingly, we dismiss the grounds raised by the assessee and consequently, the appeal of the assessee is dismissed.