M/S SHIVHARE ROADLINES,GWALIOR vs. JT. C.I.T., RANGE-2, GWALIOR

Per Dr. M.L. Meena, A.M.:

This appeal by the assessee is directed against the order of the Commissioner of Income Tax, appeals [Hereafter referred to as “the ld. CIT(A)”], dated 21.08.2014 in respect of the Assessment Year 2010-11.

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the AO has further added an amount of Rs.7,05,147/- being the amount debited by the assessee on account of insurance keymen persons in the profit and loss account by observing that it is not being used for business purpose and disallowed by the A.O. u/s 37(1) of the Act. Further, the assessee has debited an amount of Rs.8,44,871/- under repair and maintenance which the A.O. has treated as capital expenditure and thus the amount is disallowed u/s 37(1) of the Act.

“1. That on the facts and circumstances of the case and in law and in any view of the matter, the Ld. Authorities below have erred in making and upholding the disallowance of Rs. 46,80,814/- on account of alleged excess depreciation claimed at higher rate of 30% instead of allowable depreciation of 15% on Trucks and Trailers.

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4.1 It is seen that during the course of the assessment proceedings, the A.O. has disallowed Rs.46,80,814/- as excess depreciation claimed on trucks, trailers etc. stating in the assessment order that the assessee has received contractual receipts of Rs.13,53,20,684/- which are credited in the profit and loss account and are mostly in the nature of dumpsite management, material handling services, container handling services, hauling and stringing of pipelines, transportation of goods and material, and are not exclusively on account of running of motor lorries / taxis on hire and that the assessee has claimed depreciation of Rs.93,61,628/- on block of asset being trucks and trailers by calculating depreciation @ 30%, however the AO in his assessment order has curtailed the depreciation rate to 15% and thus the addition has been made. In the assessment order, the Ld.A.O has given the details of contract wise billing for the entire contractual receipts, giving the name of the contractor, the nature of work executed, and the contractual receipts received by them from the said contract. The A.O. was of the opinion that these services of dumpsite management, material handling services, container handling services, hauling and stringing of pipelines, transportation of goods

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and materials, operation and maintenance of equipment’s, are not transport receipt and hence are not eligible for higher rate of depreciation on the trucks and trailers being used for this purpose and therefore, he curtailed the depreciation from 30% as claimed by the assessee in his return of income and also worked out in the Tax Audit Report by the Chartered Accountant to normal depreciation of 15%.

4.2 While confirming the finding of the AO, in the appellate order, the Ld. CIT(A) has held that the appellant did not carried on the business of running the trucks, trailers and cranes on hire and hence as per the CBDT circular no. 652 higher rate of depreciation would not be admissible on them, as it is admissible on motor lorries used in assessee’s business of transportation of goods on hire and hence he has sustained the addition on the disallowance made by the A.O. for the claim of higher rate of depreciation.

4.3. During the course of hearing before us, the Ld. counsel Shri Deependra Mohan has submitted a synopsis and has further stated that the appellant carried on the business of contractual work like dump site management, material handling services, container handling services, hauling and stringing of pipe lines, operation and maintenance of equipment etc. which includes transportation of goods, materials and pipes. The appellant firm took the composite contract of transportation of goods, materials and pipes, which requires the trucks, trailers and cranes along with dump site management, material handling services, container handling services, hauling and stringing of pipe lines, operation and maintenance of equipment etc. The appellant had received the consideration in lieu of the contract, which includes transportation of goods, materials and pipes on hire.

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4.3.1 He has also submitted that the Ld. A.O. has stated a list of contract wise billing in para 2.3 at page 3 and 4 of the assessment order in which the nature of work has been mentioned, which is incomplete. The Ld. A.O. has mentioned a part of the work and not the composite work. The detail of complete composite work as is also mentioned at page 9 of the Ld. CIT(A)’s order is as under: Sr. Contract Name Nature of work as Correct nature of ANNEX. No. per AO work as per agreement Hiring of equipment’s 1 Cont. of Container Container Handling P- 1-3 Handeling Bhusawal Works handling of containers. 2 Cont. of CBPL Dump Dumpsite Agreement is missing Project(Chittur) Management 3 Cont. of CIPL Dump Dumpsite Dumpsite P-4-6 Dharuhera Site Management Management 4 Cont. of CIPL Dump Dumpsite Hiring of rotatary crane w P-7-10 Jaisalmer Site Management dumpsite management 5 Cont. of VDBPL Dump Dumsite - Do - P-11-13 Project (Bharatpur) Management 6 Cont. of VDBPL Dump Dumsite - Do - P-14-16 Project (Joura) Management 7 Cont. of VDBPL Dump Dumsite - Do - P-17-19 Project (Miyana) Management Cont. of VDBPL Dump Dumsite 8 - Do - P-20-22 Project (Shivpuri) Management 9 Cont. of VDBPL Dump Dumsite Management- Do - P-23-25 Project (Chhata) 10 Cont. of VDBPL Dump Dumsite Management- Do - P-26-28 Project (Shikandrabad) 11 Cont. Dadri-Panipat Hiring of Vehicles Hiring of Vehicles P-29-30 Project (Kptl) i.e. Trailer Cont. Mundra – Bhatinda P 12 Hiring of Vehicles Hiring of Vehicles P-31-36 Line Project (Kptl) i.e. trucks 13 Crane Hire Charges Hiring of Vehicles oth Hiring of crane P-37-44 party 14 Cont. Bhatinda Material Handli Hiring of crane and P-45-60 Material Handling Services Services truck with material handling services 15 Cont. of Bina Terminal Material Handli Hiring of cranes wi P-61-66 Services material handling services

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16 Cont. of C.W.C. Bharatpur Site Material Handli Hiring of crane and P-67-81 Services truck with material handling services 17 Cont. of C.W.C Ghaziabad Material Handli - Do - P-67-81 Site Services Supra 18 Cont. of C.W.C. Jhabua Material Handli - Do - P-67-81 Site Services Supra 19 Cont. of C.W.C. Shivpuri Material Handli - Do - P-67-81 Site Services Supra 20 Cont. of C.W.C. Vijaypur Material Handli - Do - P-67-81 Site Services Supra 21 Cont. Gujrat Material Material Handli Hiring of crane with P-82-100 Handing Services Services material handling services 22 Cont. of Material Material Handli - Do - P-101-111 Handling Services BORL Services 23 Cont. of Material Material Handli Hiring of crane and P-112-127 Handling Mangalore Services truck with material Refinery handling services 24 Cont. of Material Material Handli Hiring of crane with P-128-139 Handling Services Services material handling (Chennai) services 25 Cont. of Mathura Material Handli - Do - P-140 -154 Handling Services Services

26 Cont. of Panipat Handling Material Handli Hiring of crane and P-155-169 A/c Services trailer with material handling services Cont. of O/M Heavy Operation 27 Hiring of crane P-170-177 Equipment A/c Maintenance with operation and Equipment maintenance of equipment Cont. Bina – Kota Pipe L 28 Transportation Transportation P-178-182 Project Cont. Essar Vijaypur – 29 Transportation Transportation P-183-186 Dadari Pipeline Project Cont. of Dahej – 1. Transportation 30 Transportation, P-187-207 Vijaypur Pipeline Project Pipe Line Hiring of vehicles a (Dvpl) 2. Hiring of Vehicles Hauling and 3. Hauling & Stringing stringing of pipe lines. linepipes Cont. of Vijaypur – Dadri P 31 1. Transportation -do - P-208-298 Line Project, No 25 Pipe Line 2. Hiring of Vehicles 3. Hauling & Stringing

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linepipes 32 Income from Shifting Misc. Work - Material 33 Gross Vehicle Received Hiring of vehicles P-299-308 (Vehicle Hire Charges Detail Sheet is Separate Detail Attached). enclosed 4.3.2 The Ld. A.R. further has stated that the appellant has deployed the trucks and trailers etc. for the purpose of transportation along with other composite work in lieu of hire charges, which is verifiable with the contract duly furnished before the authorities below. The higher rate of depreciation is applicable where the vehicles etc. are used in a business running them on hire. The appellant has deployed its trucks, trailers and cranes etc. in performing the work in lieu of hire charges. He has relied on the CBDT circular no. 652, dated 14-6-1993, in which it is stated that higher rate of depreciation on motor lorries is available when these are used by the assessee in its business of transportation of goods on hire and not if the motor buses, motor lorries etc are used in some other non-hiring business of the assessee. The Circular No. 652, dated 14-6-1993 of the CBDT is reproduced as under:

Circular: No. 652, dated 14-6-1993.

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4.3.3 The Ld. A.R. has also submitted that for the succeeding assessment years i.e for A.Y. 2014-15, 2015-16 and 2016-17, the Ld.A.O. has not disallowed any higher depreciation, wherein the assessee was engaged in similar line of business and this higher rate of depreciation @ 30% claimed by them in the return of income has been duly accepted in the scrutiny proceedings u/s 143(3) for all these three succeeding years. The Ld. A.R. has placed before us, the assessment order u/s 143(3), the computation of income and tax audit report for these three years, wherein it is clearly distinctively seen that higher rate of depreciation @ 30% was claimed by the assessee in his return of income as well as the tax audit report which has not been disturbed by the Ld.A.O. in his assessment order passed u/s 143(3) for these respective years. He also argued that the assessee has been consistently claiming this higher rate of depreciation of 30% in the succeeding assessment years as well as in the preceding assessment years which has not been disturbed, hence has requested for deletion of the disallowance done.

In light of the facts of the case and the CBDT circular it has been argued that higher rate of depreciation should be allowed to the appellant. For this purpose, the Ld. A.R. further relied on the following case laws:

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- Urmila And Company vs. Dy. CIT (2011) 10 ITR (Trib.) 217 (Mum.) - A. B. C. India Ltd. vs. CIT (1997) 226 ITR 914 (Gau.)

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admissible as the appellant has not done the business of hiring of trucks and trailers, but has used it in its own business for hiring the equipments.

6.1 From the facts as emerging out of the records, it is evidently clear that the assessee has received contractual receipts from his principal contractor for the hiring of trucks, trailers, cranes and other equipment’s which the assessee held and has shown in his balance sheet in the fixed assets chart. The A.O. curtailed the higher rate of depreciation claimed by the assessee at 30% to 15% which was upheld by the Ld.CIT(A). In the detailed analysis of the contract wise contracts given by the appellant before the authorities below, as well as in the voluminous paper book submitted before us, the contracts are primary for hiring of the trucks and trailers for the work which was assigned to the appellant to be carried out at the site of the principal which included at times shifting of material, dumpsite management, stringing of pipelines, etc. by using the trucks, trailers, cranes etc.. Thus, the appellant hired these equipments for the purpose of doing the work as was assigned to them from the principal contractor as per the contracts.

6.1.1 The Ld. DR had contended that the agreement has to be read in totality and not in parts. When we peruse the agreements, we find that they are primary agreements for hiring of the equipments, as the main work is subdivided and only a portion of the work is executed by the appellant firm, which primary was for hiring of its trucks and trailers and cranes for carrying out the principal’s work which were detailed in the contract agreements submitted.

6.2 It is seen that the appellant has been consistently claiming higher rate of depreciation of 30% in the preceding assessment years as well as in the

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succeeding assessment years, wherein the results have not been disturbed and the higher rate of depreciation in scrutiny assessments in these year's has been duly allowed by the department. Once the appellant is consistently claiming higher depreciation which has also been allowed by the department, hence in opinion to disturb it in a particular year, the claim of the appellant for higher depreciation would not be lawful and thus the higher claim of depreciation @ 30% claimed by the appellant during the assessment year under consideration is held to be a genuine claim. The Central Board of Direct Taxes in a circular number 652 dated 14-6-1993 wherein it has clarified that even if the assessee is using the motor lorries in its own business of transportation of goods, then also higher rate of depreciation would be allowed to them.

6.3 In view the CBDT circular as well as the consistent claim of the appellant for higher rate of depreciation in all the years throughout, we delete the disallowance so done by the Ld. A.O. and sustained by the Ld. CIT(A). Thus, the higher rate of depreciation at 30% is allowed to the appellant and accordingly, this ground of appeal is allowed.

7.1. The Ld. A.R. has stated that the appellant in its balance sheet as on 31.03.2010 has shown service tax payable of Rs.75,90,253/- and that out of

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this so payable amount, an amount of Rs.37,19,883/- was not deposited before the due date of filing of return which was disallowed by the Ld. AO u/s 43B of the act. The Ld. A.R. has submitted provision of section 43B of the Act can be invoked only, where, a deduction was claimed by the appellant. But, in this case, the appellant has not claimed the deduction of Rs. 37,19,883/- of service tax liability by debiting to the profit and loss account. The appellant has accounted for the service tax liability by maintaining a separate account, in which the amount was credited at the time of charging in the bill and the amount was debited at the time of payment, when it becomes due for payment and for that purpose the appellant has maintained a separate service tax account and it has never claimed it in the profit and loss account. The counsel further contended that the Service Tax is charged when bill is raised to the party and amount of Service Tax charged is credited in Service Tax payable Account. It becomes due for deposit to Govt. account on realization of the amount from the Party.

7.1.1 The Ld. A. R. also contended that the service tax liability under the provision of service tax is governed by section 66 of the Finance Act, 1994. Whereas the liability to make payment of service tax is governed by the provision of section 68 read with Rule 6 of Service Tax Rules, 1994. He stated that as per Rule 6 of the Service tax Rules, 1994, liability to make payment of service tax arises at the time of realization of consideration from the service recipient or at the time of receipt of payment, which was applicable for the year under consideration being A Y 2010-11, and hence for the year under consideration the liability to pay service tax arose on the assessee only when it has realised the consideration from the service recipient to make it liable to pay the service tax to the service tax department.

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7.1.2 The Ld. A.R. has stated that the provisions of section 43B of the Income Tax Act, 1961 is not applicable on Service Tax payable, as heading of section 43B reads as ‘Certain deductions to be only on actual payment’. He stated that since the appellant has not claimed deduction of Service Tax as expense, As the Service Tax is charged in bills and credited in Service Tax Payable Account and when becomes due for deposit to the Govt. Account the same is deposited and debited to Service tax payable account. The appellant is service provider and hence section 145A is not applicable to it, as has been held in the Hon’ble Bombay High Court in the appeal of CIT vs Knight Frank (India) Pvt Ltd. (2016) 72 taxmann.com 300(Bom). The appellant has not routed the service tax received and paid through its profit and loss account; it has directly credited this amount in a separate account. Service tax amount in the bill is credited to this account and the payment done to the service tax department when the amount is realised from his client the service tax component is paid to the service tax department and the same is then debited to this account. Thus, the appellant has never claimed the service tax amount as an expense in its profit and loss account nor claimed any deduction of the same in arriving at the taxable income. The Ld. A.R. again placed reliance on the case of CIT vs Ovira Logistics Pvt Ltd. rendered by Hon’ble High Court of Bombay in 58 taxmann.com 2006 wherein it has been held that where it was found that before end of year, amount on which service tax was payable had not been received from the parties to whom services were rendered, claim of service tax paid could not be disallowed. Following this judgement in another case it has been held by the Hon’ble Bombay High Court in “PCIT vs Tops Security Ltd.”, 97 taxmann.com 525 that-

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“10. With the assistance of both sides, we have perused this Judgment and we find that it dealt with an identical issue. This Court held that Section 43B does not contemplate liability to pay service tax before actual receipt of the funds in the account of the assessee. Hence the liability to pay service tax into the Treasury will arise only upon the assessee receiving the funds and not otherwise. Thus, the consideration has to be actually received and thereupon the liability will arise. 11. No conclusion contravening the above has been brought to our notice by the Revenue. 12. In fact, Mr. Pinto was fair enough to bring to our notice this Judgment. 13. In the circumstances, each of these appeals raise no substantial question of law. They are dismissed accordingly.” This case has then been approved by the Hon’ble Supreme Court wherein the Hon’ble Supreme Court has dismissed the SLP filed by the department, in SLP No. 7643 of 2019 vide their order dated 15-3-2019.

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the service tax payable is outstanding as a current liability in the balance sheet as on 31st March 2010. Since, the appellant is a service provider, hence as per the provisions of section 145A of the Act and as held in the case of CIT vs Knight Frank Pvt. Ltd. (supra), the firm is not liable to book the service tax for arriving at the figures of sales and purchases. It seems that is why the appellant has maintained a separate service tax payable account through which it has routed the service tax receivable and the service tax paid to the government. The said amount is nowhere been debited in the profit and loss account, nor any deduction of the same is taken in arriving at the gross taxable income. We have also pursed the tax audit report in this regard which is submitted at paper book book page 1-7, wherein the tax auditor has also not disallowed the service tax payable u/s 43B in clause 21 of the said report. Since, the service tax has not been routed through the profit loss account and no deduction of the same has been claimed by the appellant in its profit and loss account which is duly submitted before as well as the authorities below, we find no reason that the service tax payable of Rs.37,19,883/- which was not paid before the due date of filing of return be disallowed.

Further, as it has been held in the case of ‘CIT vs Ovira Logistics 10.1 Private Limited’, (supra) by the Honourable Bombay High Court which has

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been followed in the case of ‘CIT vs Tops Security Private Limited’, again by the Honorable Bombay High Court that where the service tax was payable but as per the provisions of the Service Tax Rules, the same was to be deposited to the government exchequer only when the service tax has been received from the parties to whom service was rendered, then the claim of service tax payable could not be disallowed u/s 43B till the amount was not realised from the parties to whom service was rendered. In the instant case, the facts are similar to these cases. Further, the departments special leave petition against the judgement of Honorable Bombay High Court in the case of CIT vs Tops Security Private Limited has also been dismissed by the Honorable Supreme Court (supra), hence we find no reason to interfere, that when the service tax amount has not been received from the service recipient of the appellant, then the same cannot be disallowed u/s 43B of the Act. The two revenue laws can never be at loggerhead with one another, as since the provisions of Service Tax rules, prior to its amendment which was applicable from 1-4-2011, stated that the service tax would be payable only on receipt of the same from the service receiver, hence how could the appellant pay the same when the service tax was not received from the service recipient, and therefore the same cannot be added u/s 43B of the Income Tax Act, as it never became due to be paid to the service tax department as the same was not even realised from the appellants service recipients. The intention of the revenue in inserting the provisions of the section 43B was that the assessee should not take benefit from the indirect taxes which it receives and never pays to the government, and also claim a deduction of the same in arriving at the taxable income, hence a deduction of the same was to be allowed only on actual payment of those taxes, duties to the Government.

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10.2 Looking to the facts of the case and binding judicial decisions including that of the Honourable Supreme Court where the SLP of the department has been dismissed, we hold that the disallowance done u/s 43B of Rs.37,19,883/- for service tax payable which never became due to be paid as per Service Tax Rules cannot be disallowed u/s 43B as was done by the Ld. A.O. and hence the disallowance of Rs.37,19,883/- is deleted. Accordingly, the 2nd ground of appeal is allowed.

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Assets chart in the balance sheet which it considered to be of capital in nature by which an asset came into existence of enduring nature. The amount of Rs. 8,44,871/- was charged of to revenue as no new asset came into existence, since the premises was a leased premises, and the appellant had spent this amount for making the new office look worthwhile and since no new asset came in existence which belongs to the appellant, hence they had debited this amount in the profit and loss account. The Ld. CIT(A) also upheld the addition made, stating that these expenditures were not current repairs but amount spent on shifting of the new office to the new lease premises and hence the same were capital expenditure.

15.1 He also emphasized that the appellant has incurred such expenditure on repair and maintenance in the rented premises, which does not create any new asset for the appellant. By incurring such expenditure to provide extra amenities in lease hold premises did not bring any new asset of enduring

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nature into existence. Therefore, these expenditure were revenue in nature, since by incurring these expenditure no new asset which belong to the assessee came into existence, so that it could be capitalised, whereby it became the owner of those assets and the appellant could claim depreciation u/s 32 of the Income Tax Act, hence these expenditures were claimed as revenue expenditure by the appellant. In support, he also placed reliance on the following case laws:

- CIT vs Karanpura Development Co. Ltd. (1983) 144 ITR 538 (Cal.) - CIT vs L. M. VAN Mopes Diamond Tools India Ltd. (1999) 151 CTR (Mad) 435 - CIT vs Haridas Bhagath and Co. (P). Ltd. (1999) 240 ITR 169 (Mad) - DCIT vs Gujarat Small Industries Corporation (2004) 84 TTJ (Ahd) 22 - Herbalife International India (P) Ltd. vs. ACIT (2006) 103 TTJ (Del.) 78 - Amway India Enterprises vs DCIT, New Delhi (2009) 27 SOT 344 (Del.) 16 The Ld. D.R. has placed Reliance on the order of Ld. CIT(A) which upheld the addition done by the Ld. A.O. He reiterated the findings of the Ld. A.O. which were duly confirmed by the Ld. CIT(A), stating that the expenditure incurred should have been capitalised and cannot be debited as office repair and maintenance as claimed in the profit and loss account.

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assessee had shifted its office to a new leased premise. In the said leased premise to make it worthwhile for operation of its new office, the appellant had to incur certain basic expenditure of wooden panelling, false ceiling, wiring, etc. which never belonged to the assessee, as it could not take them away while vacating the said premise, hence this expenditure were charged off to revenue under the head office repair and maintenance by the appellant. We also find that during the year under consideration the assessee has capitalised Rs. of Rs. 5,15,114/- under furniture and fixture head and Rs.2,26,642/- under office equipments head. These expenditures have been treated as capital expenditure by the assessee himself. Even in the tax audit report, the tax auditor has not mentioned any expenditure which they felt was capital in nature but was charged to revenue and debited in the profit and loss account as per clause 17(a) of the tax audit report (APB, Pg. 4). Since by incurring these expenditures on wooden panelling, electric wiring, fall ceiling, etc. no new asset which belong to the assessee came into existence, whereby it could claim depreciation u/s 32 of the Income Tax Act, of which it was an owner, hence we feel that the assessee has rightly claimed these expenditures as revenue expenditure and not capitalised in its fixed assets chart. If the assessee would have capitalised these expenditures, then the question would have arisen, since it was not an owner of these assets, then how depreciation would have been allowed to the assessee firm. Further the Ld. CIT(A) based on the findings of the Ld. A.O. confirmed the additions without point out any adverse opinion of his in doing so and without averting to the facts and case laws relied by the assessee.

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justified and accordingly allowed to the assessee and thus, this ground of appeal is allowed.