THE ASSTT. COMMR. OF INCOME TAX, GANDHIDHAM CIRCLE,, GANDHIDHAM vs. M/S BHIMJI VELJI SORATHIA,, ADIPUR-KUTCH

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [Conducted through E-Court at Ahmedabad] BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER

ITA No. 346/Rjt/2016 (Assessment Year: 2012-13) Assistant Commissioner of Income-tax, Gandhidham Circle, Gandhidham-Kutch Appellant Vs. M/s. Bhimji Velji Sorathia Construction, Plot No.112/113, Arbuda Nagar, Nr. Kapil Muni Ashram, Adipur-Kutch Respondent

राज�व क� ओर से/By Revenue : Shri C. S. Anjaria, Sr. D.R आवेदक क� ओर से/By Assessee : Shri M. J. Ranpura, A.R. सुनवाई क� तार�ख/Date of Hearing : 13.02.2018 घोषणा क� तार�ख/Date of : 20.02.2018 Pronouncement

ORDER PER S. S. GODARA, JUDICIAL MEMBER

This Revenue’s appeal for assessment year 2012-13 arises against the CIT(A)-3, Rajkot’s order dated 06.06.2016 in case no. CIT(A)-3/A3/0958/14-15, in proceedings u/s.143(3) of the Income Tax Act, 1961; in short “the Act”.

ITA No. 346/Rjt/16 [ACIT vs. M/s. Bhimji Velji Sorathia] A.Y. 2012-13 - 2 - disallowance of Rs.77,61,266/- in question. The lower appellate findings discussed at length all the relevant facts, Assessing Officer’s reasoning for invoking the impugned disallowance as well as assessee’s submissions as under:

“5.1.0 I have carefully considered the submission of the appellant and perused facts of the case in A.O's order. Ground No.1, 2 & 3 are basically arising out of the grievance from the A.O's action of denying higher depreciation on vehicles on the proposition that appellant is not in the business of running vehicles on hire. The undisputed fact is that appellant is civil contractor and has undertaken contract/sub-contract of road-making. It utilised certain vehicles, i.e. tractors/JCB machines/concrete mixtures/hydraulic jacks etc. while discharging its own contractual obligations and claimed depreciation @ 15% and simultaneously also carried out transportation work for others utilising separate vehicles, i.e. tractors/JCB machines/concrete mixtures/hydraulic jacks etc. and claimed depreciation @ 30% with the understanding that these vehicles have been put to use for transport business. The said argument was not accepted by the A.O. basically because of following reasons :-

5.1.1 Thus, the issue revolves around the question of actual activity of the appellant (can it be said to be indulged also in (i.e., at least partly) the business of running its earth-moving assets on hire and whether these earth-moving assets can be termed as vehicle for the purpose of depreciation in the Income Tax Act.

5.1.2 The A.O. has not emphasized on his proposition that the earth-moving assets used by appellant are not motor vehicle. It appears that he has not proceeded on this argument to deny depreciation under the category 'vehicle' on the impugned assets of the appellant. As such no adjudication is needed on this proposition, especially when the Ld. AR has pointed out towards decision of Hon'ble ITAT, Rajkot Bench in the case of M/s. R. R. Construction, vide ITA No.287 & 288/Rjt/2008 for A.Y. 2002-03 & 2004-05 wherein it has been explicitly held that dumpers used for loading-unloading and transportation of excavated material are road transport vehicles.

ITA No. 346/Rjt/16 [ACIT vs. M/s. Bhimji Velji Sorathia] A.Y. 2012-13 - 3 - 5.1.3 The Ld. AR has argued that the appellant had used more than 50 such vehicles to carry out the business of transport and removal of over- burdened/waste rock of third parties. He argued that the contracts allotted to him were partly or fully for this purpose. He submitted copy of the letter of intent of such contracts. A copy of Purchase Order from M/s. Jindal Saw Limited No.4720000245, dt.30/6/2011 was made available which were detailing the 'Terms of Delivery' as under :- (Quote) "TRANSPORTATION: Transportation of crushed material from crusher site up to Buyer's site at Nanakapaya, Distt.: Kutchh, Gujarat shall be arranged by the Contractor FREIGHT: Extra @ Rs. 145/- PMT shall be to Buyer's account WORK DESCRIPTION: Contractor (M/s. Bhimji Vekli Sorathia)shall carry out the job work as per the following.

(a) shall unload the iron ore from lorries being received at their site for crushing. (b) shall crush the iron ore lumps supplied by Buyer for making of iron ore fines at his own crusher at Adipur to desired size given in the specification and load the material to dumpers. (c) shall ensure crushing of a minimum 150-200 MT on daily basis. However, Buyer shall make allout efforts to make available maximum quantity possible for crushing. (d) shall ensure not receiving of any other material inside the crushing yard during contract period of Jindal Saw Limited. Buyer may nominate two persons to supervise the crushing operation at the crusher site. (e) shall submit all the chalans, permits, seeler's weighment slip and receiver's weighment slip and any other documents received during receiving of iron ore lumps from the suppliers to Buyer's representative on daily basis for their necessary record and accounting purpose. " (Unquote)

5.1.4 Another Work Order from M/s, PSL Infrastructure and- Port Pvt. Ltd., Ref.No.PSLIPPL/WO/BVS/12/02, dt.3 1/1/2012 was made available showing 'Scope of Work' as under.- * Development of Land (filling) at Berth No-16th Backup Area (723.33m x 300m = 2,17,000 Sqm.Area) at Kandla Port as per Specification, Standards & Codes mentioned in Tender Document (Enclosed as Annx.1) for Development of Multipurpose Cargo Berth No. 16 at Kandla Port and required levels as per direction of Independent Engineer appointed by M/s. PSL Infrastructure and Ports Pvt. Ltd. and M/s. Kandla Port. * Procurement of filling material, transportation of filling material, leveling and spreading with brought out material within area as shown in general lay out drawing of 15th No. Berth at Kandla Port. * Mobilization of necessary Machineries and equipments required for the above work. * Arrangement of temporary office at site

5.1.5 Ld. AR also submitted audit report to emphasize that Form No.3CD clearly declared the nature of business of the appellant as "civil contractor and

ITA No. 346/Rjt/16 [ACIT vs. M/s. Bhimji Velji Sorathia] A.Y. 2012-13 - 4 - transportation". Copies of separate ledger accounts for freight charges and transportation charges received were also submitted before the A.O. as well as before me.

5.1.6 I agree with Ld. AR that appellant had plied its vehicle on hire for third parties and was engaged in the business of transporting materials as per orders of the third parties.

5.1.7 Similar issue had arisen in the case of M/s. H. D. Enterprises in ITA No.CIT(A)-3/A3/1035/14-15, dt.3/3/2016 wherein the undersigned has followed the decision of the Ld. CIT(A), Jamnagar on identical set of facts in the case of M/s. P.C Patcl & Co, for AY 2012-13. It was held by the Ld. CIT(A) as under: “The issue involved in this matter needs to be looked at from the following angles; 1. Whether the assets were eligible for higher rate 2. Whether the assets were given on hire 3. Whether the assets were used in transportation of something 4. Whether the assets were used in asses see's own business.

As regards the first point regarding the assets being eligible for higher rate of depreciation, I understand that there is no dispute even from the side of the AO. Hence, we have to conclude that assets are eligible for higher rate of depreciation.

The next question is that whether the assets were actually, given on hire or were used in the business of hiring. I have attended to this point in detail in the forgoing paragraphs and elaborated earlier, after duly considering all the facts and evidences. The above referred discussion has convinced me that the assets were actually given on hire or were used in the business of running them on hire.

The assets which are otherwise eligible for higher rate of depreciation can claim that higher rate only if they are actually used in an activity which involves transportation of "something." Thus, the next duty on me is to ascertain as to whether the assets which were decided to have been hired by the appellant (as concluded herein above) were actually put to use for activity which had in itself the attributes of transportation of something. I am of the opinion that the issue is that of fact and fact only when I am entrusted with the task of deciding the actual use to which the asset is put to. The assets were "given on hire " by the appellant and were "taken on hire" or "hired" to some of the entities and hence it were those entities that actually put the assets to use. So, it is the words of those users that are to be considered as final as far as the decision as to the use to which the assets were put to, is sought to be decided. I was made available with certificates issued by these entities to which the assets were given on hire by the appellant. In those certificates the entities have elaborated the purpose for which they had hired the assets in question. The intended uses include removal of minerals from pit head to stock yard, removal of overburden from area to be excavated to some other filling point etc. It was contended by the appellant that these activities did involve "taking something from one place and relocating it to some other place. The appellant claimed that this is nothing else but transportation. I have considered this contention of the appellant from the stand point of fact and logic and I think that I tend to agree with the logic put forward

ITA No. 346/Rjt/16 [ACIT vs. M/s. Bhimji Velji Sorathia] A.Y. 2012-13 - 5 - by the appellant on the basis of the fact on which that logic is constructed. Hence, I am of the opinion that the assets given on hire by the appellant were used by those who took them on hire, for some activity which were of the nature of transportation of something. This leaves the last point to be discussed. The established law states that even if the assets are used for any activity which has the characteristics of transportation, if the same are used in assessee's own business, and that own business is something other than the business of transportation, then, higher rate of depreciation is not allowed. The learned AO has referred to the decision of the Hon'ble Supreme Court in the case of Gupta Global Exim P.Ltd. and also referred to the "test of user" elaborated in the said judgment. However, in my considered opinion, the test of user will come into play only when facts point out that the assets were used in assessee's own business. If the assets are used in assessee's own business, than it will have to be decided as to whether that business of the assessee is that of transportation or not. In the case under consideration, I am of the opinion that it is clearly established that the appellant had given assets on hire in terms of tender. Once it is established that the vehicles were given on hire in response to an open tender, the existence of two parties are confirmed and there is no scope whatsoever to speculate whether the same were used in the business of the appellant. It is absurd to think that one will hire one's assets to a "third party" in order to carry out "one's own business operation." Thus, I am quite clear in my mind that facts of the case clearly point to a situation that the assets were not used in appellant's own business. Business transaction involved here is that the appellant has given certain of his assets on hire to certain third parties and those third parties have put those assets to use in such activities which did have the characteristics of transportation attached to them. Finally, on the basis of the perusal of the assessment order passed by the learned AO, the submission of the Appellant and the evidences produced before me by the appellant, I have come to the conclusion that;

And, in light of the above conclusion, I do not see any reason why the appellant should be denied the benefit conferred on it by the provision of the law. I am of the considered opinion that the appellant's claim for higher rate of depreciation on assets in question is completely supported by the provisions of the law and existence of the facts. Hence, in my opinion, the learned Assessing Officer was not justified in concluding that the appellant was not entitled to depreciation at a higher rate of 30%, and that the AO erred on law in disallowing the depreciation amounting to Rs. 6,08,20,585. Accordingly this disallowance/addition made by the AO is deleted and the ground of appeal is allowed." (Unquote)

ITA No. 346/Rjt/16 [ACIT vs. M/s. Bhimji Velji Sorathia] A.Y. 2012-13 - 6 - 5.1.8 Facts and circumstances being same, I propose to follow the above referred order. Further, I agree with Ld. AR that decision of Hon'ble ITAT Rajkot in the case of M/s. R. R. Construction in ITA No.385/Rjt/2009 is fully applicable in this case. In my opinion, Ld. AR is correct in his proposition that appellant's work include providing its vehicles for transportation to the third parties and the amount received on this count constitute part of business receipts of the appellant and therefore such vehicles are eligible for depreciation at the higher rate of 30% to the tune of Rs.1,55,22,532/-. This ground of appeal is allowed.”

[Pronounced in the open Court on this the 20th day of February, 2018.]

Sd/- Sd/- (PRADIP KUMAR KEDIA) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 20/02/2018