GURU MAHARAJ CONSTRUCTION,CUTTACK vs. PR CIT(CENTRAL) VISAKHAPATNAM, BHUBANESWAR

For that the order of the forum below is arbitrary, illegal and unjust both is fact and law, hence liable to be quashed.

For that Pr. CIT(Central) erred in exercising juri iction u/s 263 of the IT Act by substituting his subjective opinion in place of the opinion formed by the assessing office. Since no juri iction u] s 263 can be exercised on change of opinion the present order is without juri iction, hence liable to be quashed and set aside.

For that Ld. Pr. CIT erred in passing order u/s. 263 of the IT act by going against the law settled by the juri iction High court and without making a minimal enquiry. Therefore the order passed u/s 263 of the IT Act is illegal and deserves to be quashed and set aside.

For that Ld. Pr. CIT erred in exercising juri iction u/s 263 of the IT Act without satisfying the juri ictional requirements.

For that Ld. Pr. CIT erred in exercising juri iction u/s 263 of the IT act without examining the assessment record, making or causing to be made any enquiry. Therefore the order passed u/s 263 of the IT Act is non application of mind, hence liable to be quashed.

For that Ld. Pr. CIT erred in passing order u/s 263 without proper appreciation of facts available in assessment record.

For that the assesse craves the leave for any addition, alteration or modification of the grounds either before or at the time of hearing of the appeal.

Before us, ld.AR of the assessee contended that the assessee is engaged in the business of civil construction as well as having income from vehicle hiring and the assessment was completed by the AO allowing depreciation on the block of assets and plant and machinery @30% as claimed since the assets were used for vehicle hiring purpose, however, the ld. Pr.CIT (Central) vide show cause notice dated 01.05.2023 has alleged that the order passed by the AO u/s.143(3) of the Act dated 27.09.2021 is erroneous and prejudicial to the interest of revenue for following reasons :-

On perusal of the record, it is noticed that the assessment order passed is prima facie erroneous and prejudicial to the interests of revenue for the following reasons :- The assessee company has claimed depreciation of Rs.2,68,25,107/- which includes depreciation on plant and machinery of Rs.2,49,98,060/- as per IT Act 1961. On examination of records it is noticed that the assessee has claimed depreciation @30% on certain plant and machinery though the assessee is engaged in the business of construction. The assessee has shown hiring income of Rs.22,44,997/- which constitutes 0.20% of total revenue from its 3 business operation. However, the assessee has claimed depreciation @30% on plant and machinery where as its involvement in the business of relevant hiring busses and lorries was significantly low during the relevant period. Therefore, depreciation allowable on net assets is @15% as on 31/03/2018 which comes to Rs.1,24,99,030/- instead of 2,49,98,060/-. Therefore, an amount of Rs.1,24,99,030/- has been allowed in excess and is to be disallowed and added to the total income of the assessee.

Ld. AR argued that the ld.CIT(A) alleged that the assessee’s normal income is of contract activity and the hiring income is of only 0.20% of total revenue, therefore, the depreciation allowed @30% is incorrect and excess and the same is to be allowed @15%. Thereafter the ld. Pr.CIT vide impugned order passed u/s.263 of the Act, has directed the AO to allow the depreciation based on dominant use of these assets. The relevant direction given in para 9 of the ld. Pr.CIT are as under :-

The main business of the assessee firm is contract and construction works and not hiring of vehicles. The assessee has not given the details of assets exclusively used for business purpose or/and hiring purpose. The assessment has been completed without making due enquiry of facts. Therefore, the AO is directed to obtain the details of lease income earned in respect of each asset and also examine the dominant usage of each asset i.e. whether it is used for purpose of its own business or hiring.

Ld.AR submitted that though the assessee’s main business is of civil construction, however, he is having income from hiring also and, therefore, had claimed depreciation on the assets @30%. He further submitted that while looking to the uses of the assets, what is to be seen is the purpose for which assets are put to use and nor the dominant income, for which he relied upon on the decision of the Hon’ble Supreme allegation of the ld. Pr.CIT for invoking the provisions of Section 263 of the Act is not correct and, prayed for quashing of the order passed u/s.263 of the Act by the ld. Pr.CIT.

Per Contra, the ld. CIT-DR supported the order of the ld. Pr.CIT and submitted that the assessee has claimed depreciation @30% on the block of plant and machinery which includes machinery used for construction business also and it is not a case that the entire plant and machinery were given on hire. He therefore, submitted that the higher rate of depreciation @30% is applicable for the assets used for hiring income and since all the assets were not used for the hiring, therefore, the order of the AO allowing depreciation @30% on entire block is erroneous as well as prejudicial to the interest of revenue. Therefore, ld. CIT-DR submitted that the order of the ld. Pr.CIT directing the AO to allow the depreciation @15% is correct and the appeal of the assessee deserves to be dismissed.

We have heard rival submissions and perused the material available on record. It is seen that the AO has allowed depreciation to the assessee as claimed by it on the block of plant and machinery @30%. During the course of hearing the ld.AR has submitted a chart of such assets containing 36 items on which total depreciation of Rs.2,49,98,060/- is claimed on the gross block of Rs.9,11,88,814/- where the depreciation has been claimed @30%. A perusal of the list of assets, it is seen that certain items are used in the construction business of the assessee such as Conveyer Plant, Vibrator Roller & Compactor, Soil Compactor, Mobile Concrete etc. Simultaneously some vehicles are also therein in the list of 5 items on which hiring income has been received by the assessee. Therefore, the entire block of plant and machinery contained the mixed assets i.e. certain assets which are used fully and exclusively for the construction business and certain items which are hiring income. From the direction given by the ld. Pr.CIT, it is seen that the Pr.CIT has emphasized upon the dominant use of the assets to determine the character for claiming higher rate of depreciation. In this regard, in the case of Gupta Global Exim (P) Ltd. (supra), the Hon’ble Supreme Court has held that accrual of income as a determinative factor for coming to the conclusion that trucks were used in the business of running them on hire is not correct. Therefore, by respectfully following the judgment of the Hon’ble Supreme Court, we are of the view that the assessee is eligible for higher rate of depreciation on the assets which were used for business of hiring, no matter how much is the quantum of income from such hire business. Therefore, we direct the AO to allow higher rate of depreciation on the assets which are used in hiring business and the order of the ld. Pr.CIT is modified to this extent only.

In the result, appeal of the assessee is partly allowed. Order dictated and pronounced in the open court on 08/07/2024. (GEORGE MATHAN) (MANISH AGARWAL) ऱेखा सदस्य/ ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनाांक Dated 08/07/2024 Prakash Kumar Mishra, Sr.P.S.

ITAT, Cuttack 6. गार्ड पाईऱ / Guard file. सत्यावऩत प्रतत ////