SLC PROJECTS PVT.LTD.,VISAKHAPATNAM vs. ACIT, CENTRAL CIRCLE-2, VISAKHAPATNAM

आदेश / O R D E R

PER D.S. SUNDER SINGH, Accountant Member:

This appeal filed by the assessee is directed against order of the

Commissioner of Income Tax (Appeals)-3, {CIT(A)}, Visakhapatnam vide

ITA No.483/2015-16/CIT(A)-3/VSP/2017-18 dated 31.8.2017 for the

assessment year 2013-14.

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP 2. Ground No.1 is related to the depreciation on vehicles. The

assessee is a civil and electrical contractor and for the assessment year

2013-14, the assessee has claimed the depreciation on vehicles @ 30%

as against allowable rate of 15%. Therefore, the A.O. has called for the

explanation as to why the depreciation should not be restricted to 15%

on vehicles. The A.O. has given more than five opportunities to the

assessee to explain as to why the depreciation should not be restricted

to 15% and the assessee did not furnish any explanation. The

depreciation on vehicles is allowed at higher rate @ 30% on commercial

vehicles which are running on hire. If the vehicles are used in the

business of the assessee, eligible depreciation is @ 15% on vehicles. In

the instant case, though assessee had claimed the depreciation @ 30%,

no evidence was produced before the A.O. to prove that the assessee

had used the vehicles for running them on hire. Therefore, the A.O.

restricted the depreciation @ 15% and disallowed the balance amount

of ` 13,07,021/-

before the CIT(A). Before the Ld. CIT(A) also, the assessee has not

produced any material evidence to show that the vehicles are used in

running them on hire. The assessee has neither produced the

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP agreement nor any document at the time of appeal also. Therefore, the

Ld. CIT(A) confirmed the addition made by the A.O.

up the matter to the Tribunal.

years, the assessee has used the vehicles for running on hire and the

vehicles were included in the block of assets for the purpose of

depreciation @ 30%, hence argued that once the assets are included in

the block, the same cannot be altered and the depreciation required to

be allowed continuously at higher rate, irrespective of it’s usage. The

Ld. A.R. further argued that after introduction of concept of block of

assets, individual asset is no more in vogue and the assets are grouped

into the block of assets and depreciation is allowed on such block.

Therefore, argued that since the vehicles are included in 30%

depreciation block, the assessee would be continuously entitled for the

higher rate of depreciation irrespective of its usage in the subsequent

years. The assessee also relied on the decisions of Hon’ble Delhi High

court in the case of CIT(A) Vs. Oswal Agro Mills (341 ITR 0647), and the

CIT(A) Vs. Yamaha Motor India Limited 328 ITR 0297 and argued that

since the assessee has used the vehicles for commercial purpose in the

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP earlier years and the assets were grouped in the block of assets as per

section 43(6)(c) of the Income Tax Act, 1961 (hereinafter called as 'the

Act'), the asset cannot be shifted from higher depreciation block to

lesser rate of depreciation block.

has included the vehicles in the block of assets of commercial vehicles,

the assessee has not used the vehicles for running them on hire. The

assessee’s business is civil and electrical contracts. The assessee is not

engaged in the business of running the vehicles on hire and it was used

only for the purpose of assessee’s business. Therefore, there is a

change in usage of vehicles from running them on hire to using them for

own business purpose. Therefore, argued that the assessee is entitled

for normal rate of depreciation. It is not correct to argue that

irrespective of usage, the assessee would be entitled to higher rate of

depreciation perpetually. The Ld. D.R. relied on the decision of High

Court of Kerala in the case of N.D. Joseph Vs. CIT 325 ITR 200.

on record and gone through the orders of the authorities below. In the

year under consideration, the assessee has used the vehicles for the

purpose of his own business. As per Rule 5 schedule of depreciation,

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP the motor buses or lorries or taxies used in the business of running them

on hire are eligible for the depreciation @ 30%. Though in the earlier

years, the assessee claimed the depreciation @ 30% which was allowed

by the department, merely because of the vehicles were included in the

block of assets, the higher rate of depreciation cannot be allowed unless

the same are put to use for running them on hire. This fact of

commercial usage of vehicles was not established by the assessee with

any documentary evidence. For a query from the bench, the Ld. A.R. of

the assessee has accepted that during the impugned assessment year,

the assessee has not used the vehicles for running them on hire. The

assessee has relied on the decisions of Delhi High Court in the case of

CIT(A) Vs. Yamaha Motor India Pvt. Ltd., 328 ITR 0297. In cited case,

the question raised was allowability of depreciation in the case of

discarded and written off assets in the books of accounts and passive

usage of the vehicles but not the rate of depreciation of vehicles running

them on hire. In the case of CIT(A) Vs. Oswal Agro Mills Limited (341

ITR 0647), the issue was allowability of depreciation on block of assets.

Hon’ble High court held in that case that it is not possible to exclude a

particular asset from the block. For ready reference, we extract para

Nos.29 to 32 which reads as under:

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP 29. As per amended section 32, deduction is to be allowed - "In the case of any block of assets, such percentage on the written down value thereof as may be prescribed". Thus, the depreciation is allowed on block of assets, and the revenue cannot segregate a particular asset therefrom on the ground that it was not put to use. 30. With the aforesaid amendment, the depreciation is now to be allowed on the written down value of the 'block of assets' at such percentage as may be prescribed. With this amendment, individual assets have lost their identity and concept of 'block of assets' has been introduced, which is relevant for calculating the depreciation. It would be of benefit to take note of the Circular issued by the revenue itself explaining the purpose behind the amended provision. The same is contained in CBDT Circular No. 469, dated 23-9-1986, wherein the rationale behind the aforesaid amendment is described as under : "6. 3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20) , the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc. , the more disaggregated has to be the record- keeping. Moreover, the practice of granting the terminal allowance as per section 32(1) (iii) or taxing the balancing charge as per section 41(2) of the Income-tax Act necessitate the keeping of records of depreciation already availed of by each asset eligible for depreciation. In order to simplify the existing cumbersome provisions, the Amending Act has introduced a system of allowing depreciation on block of assets. This will mean the calculation lump sum amount of depreciation for the entire block of depreciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture." 31. It becomes manifest from the reading of the aforesaid Circular that the Legislature felt that keeping the details with regard to each and every depreciable assets was time consuming both for the assessee and the Assessing Officer. Therefore, they amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of assets has also been defined to include the group of assets falling within the same class of assets. 32. Another significant and contemporaneous development, which needs to be noticed is that the Legislature has also deleted the provision for allowing terminal depreciation in respect of each asset, which was previ- ously allowable under section 32(1) (iii) and also taxing of balancing charge under section 41(2) in the year of sale. Instead of these two provisions, now whatever is the sale-proceed of sale of any depreciable asset, it has to be reduced from the block of assets. This amendment was made because now the assessees are not required to maintain particulars of each asset separately and in the absence of such particular, it cannot be ascertained whether on sale of any asset, there was any profit liable to be taxed under section 41(2) or terminal loss allowable under section 32(1) (iii) . This amendment also strengthen the claim that now only detail for "block of assets" has to be maintained and not separately for each asset. 7.1 The above case law relied up on by the assessee does not help the

assessee. The question in the instant case is whether the block of assets

consisting of vehicles which were claimed to be running them on hire is 6

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP eligible for 30% Depreciation or 15% Depreciation depending on usage

of vehicles. There was no segregation of the assets in a block in this

case. The assessee failed to prove that the vehicles were put to use for

commercial purpose. No explanation was offered by the assessee either

before the AO or before the Ld. CIT(A), hence it was considered that the

entire block of vehicles in the higher rate of depreciation was shifted for

normal depreciation according to the usage of vehicles, hence there is

no deviation from the decision of Hon’ble High court and the same is

helpful to the revenue on the facts of the case.

7.2 In the instant case, the assessee failed to produce the evidence

before the A.O. or before the CIT(A) to show that the vehicles were

running on hire. The vehicles were put to use for the assessee’s

business purposes. As per Rule 5 and the schedule of depreciation, the

allowable depreciation in the case of vehicles used for the business

purpose was 15% but not 30%. The Ld. D.R. relied on the decision of

N.D. Joseph Vs. CIT 325 ITR 200 (Kerala), wherein Hon’ble High court

held that where the trucks and JCBs were mainly used for assessee’s

own business and partly let out to other purpose, since items are

predominantly used in the assessee’s own business, assessee was

entitled for depreciation only at normal rates. In the instant case, there

was no evidence to show that the vehicles were used for running them 7

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP on hire, therefore, we hold that the assessee is not entitled for higher

rate of depreciation and entitled for only at normal rate of depreciation.

Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the

appeal of the assessee on this ground.

income tax Rules. The assessing officer found that the assessee had

made investments of ` 15.45 crores in various companies and no

expenditure was disallowed as per section 14A read with rule 8D of the

Act. Since the assessee has not made any disallowance, the A.O. made

the disallowance of ` 23,61,223/- u/s 14A read with rule 8D of the Act.

on record and gone through the orders of the authorities below. The

Ld. A.R. argued that no expenditure required to be disallowed in case

the assessee did not earn any exempt income. In the instant case, the

assessee has not earned any dividend income which is exempt u/s 14A

of the Act. On identical facts, this Tribunal in the case of D.

Veerabhadra Reddy (HUF) Vs. JCIT, Kakinada in ITA No.263/Vizag/2014

dated 23.6.2017 for the assessment year 2009-10 placing reliance on

Hon’ble Madras High Court judgement in the case of Redington India

Limited Vs. Additional CIT 77 Taxmann. Com 257 held that no

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP

disallowance is called for when there is no exempt income. For ready

reference, we extract relevant paragraph No.6 of this Tribunal order

which reads as under:

“6. We have heard the rival submissions and perused the material on record. The assessee has rental income from godowns and the business loss. The assessing officer has completed the assessment u/s 143(3) by order dated 04.11.2011. The Ld.CIT has called for the record u/s 263 and issued the notice for revision for incorrect set off of business loss against the rental income. After verification of the material on record, the Ld.CIT has dropped the issue with regard to incorrect set off of business loss against the income from property which was examined by the assessing officer. During the course of revision proceedings, it has come to the notice of Ld.CIT that the assessee has made investments in shares and bonds and did not make disallowance which was required to be made u/s14A of IT Act. The assessee explained that there were no expenses incurred in relation to the exempt income which was claimed as deduction for the assessment year 2009-10. Hence, the assessee argued before the Ld.CIT that Section 14A is not applicable in assessee’s case. As per the observation of the Ld.CIT, the assessee made the investments to the tune of Rs.19,90,625/- in shares and bonds from the borrowed funds and the interest expenditure relating to the earning of dividend income is required to be disallowed u/s 14A. Though CIT opined that the expenditure relating to the earning of dividend income required to be disallowed, there was no finding given by the CIT in his order with regard to earning of dividend income. The CIT also did not rebut the explanation offered by the assessee stating that no expenditure was incurred for making the investments. The Ld.DR did not make any clarification with regard to the quantum of dividend income earned by the assessee. The Ld.AR submitted paper book enclosing the copy of statement of computation, return of income, balance sheet and profit and loss account. It is seen from the profit and loss account and the statement of computation of income that the assessee has not derived any dividend income. When the assessee has no exempt income, the question of disallowance u/s14A r.w.Rule 8D is not called for. The same view is expressed by the decision of Hon’ble Madras High Court in Redington (India) Ltd. Vs. Addl.CIT, 77 taxman.com 257, Hon’ble Delhi High Court in Chem Investments Vs. CIT, 61 taxman.com 118 and the Hon’ble Gujarat High Court in Principal CIT Vs. Sintex Industries Ltd., 82 taxman.com 171 held that no disallowance is called for when assessee makes small investment from the surplus funds. There was no dividend income earned by the assessee and the case was taken for revision to disallow the business loss claimed against the property income which was examined by the AO and dropped the assessment proceedings and the Ld.CIT also satisfied that there is no case for revision on account of incorrect set off of business loss. With regard 9

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP to the issue of disallowance u/s 14A as per the judicial pronouncements no disallowance is called for when there is no exempt income. Therefore, we are of the considered opinion that there is no case for revision of order u/s 263 and accordingly we set aside the orders of the CIT and allow the appeal of the assessee.”

for u/s 14A of the Act in the absence of exempt income. Accordingly,

the order of the Ld. CIT(A) on this issue is set aside and this ground of

appeal of the assessee is allowed.

the assessee had received advances of ` 30.76 crores and the tax was

deducted by the payer on the entire amount which was paid to the

assessee. The assessee claimed TDS of ` 70,61,000/- in the return of

income. However, the A.O. allowed the TDS to the extent of income

admitted in form No.26AS as per section 199 read with rule 37BA of the

Act and disallowed the balance amount of TDS. The assessee filed

appeal requesting to allow the entire credit for TDS. As per section 199

read with rule 37B of the Act, the credit for tax is allowed only on the

income admitted relatable to the TDS. Therefore, in the absence of the

receipt not being admitted for the assessment year under consideration,

we do not find any error in the order of the Ld. CIT(A) and the same is

upheld.

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP 12. Ground No.3.1 is related to the alternate ground with regard to

TDS claim restricted by the A.O. The A.O. allowed TDS of `

12,12,924/- in the assessment year under consideration out of the TDS

amount of ` 70,61,000/- made by the DGNP Visakhapatnam. The

assessee has requested as an alternate ground to allow the credit for

TDS of the balance amount in the subsequent year as and when the

income is admitted. The A.O. is directed to allow the credit for TDS in

the subsequent years as and when the income is admitted as per law.

This ground is allowed for statistical purposes.

specific adjudication.

statistical purposes.

The above order was pronounced in the open court on 4th May’18.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. . . . सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 04.05.2018 VG/SPS

ITA No.513 /Vizag/2017 SLC Projects Pvt. Ltd., VSKP आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:-