INCOME TAX OFFICER, PUNE vs. SHRI MANJIT SUDHIST KUMAR, PUNE

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM

This appeal is filed by the Revenue against the order of CIT(A)-4, Pune, dated 02.01.2017 for the A.Y. 2007-08.

“1. Whether on the fact and in circumstances of the case and in law the CIT(A) is correct in allowing depreciation claimed by assessee amounting to Rs.36,57,173/- by relying on the decision of Hon'ble Delhi High Court in the case of Capital Bus Services (P) Ltd. Vs. CIT, 1980 TMI 36904, when the assessee has not use the vehicles even for any single day in a year.

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individual and is engaged in the business of running buses on hire for

tour operators etc. Assessee filed return of income on 31.10.2007

declaring total income of Rs. Nil. The case was selected for scrutiny

under CASS. The AO noted that assessee purchased as many as 24

buses and 2 cars for his business in the past out of money borrowed

from different banks. However, when the assessee defaulted in

repayment of borrowed money, the banks took back the buses in the

year under consideration and therefore, the ‘use’ condition of section

32 of the Act was not met by the assessee. The AO further observed

that the assessee was not in possession of the said buses and the

same were not put to use by the assessee even in a single day (except

for two buses which were used for 5 months). However, the assessee

claimed depreciation on the buses for full year. Therefore, following

the provisions u/s. 32 of the Act, AO issued a show cause notice as to

why depreciation claimed on the buses which were not put to use by

the assessee. In reply, the assessee submitted that although the

vehicles were attached, he was still owner of those vehicles and since

the said vehicles were meant for business, an amount of

Rs.38,14,088/- was claimed as depreciation in the return filed for the

A.Y. 2007-08 and the assessee has placed reliance on various case

laws. However, the AO rejected the contention of assessee and came to

the conclusion that there is no case for allowance of the depreciation

and made addition of Rs.36,57,173/-. Eventually, the AO determined

the income of the assessee at Rs.42,523/-. Contents of Para No. 10 of

the assessment order are relevant in this regard. Aggrieved with the

order of AO, assessee filed an appeal before the CIT(A).

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Rs.36,57,173/- made by the AO. While doing so, CIT(A) considered the

letter of RTO, Pune dated 21-11-2016 and noted that the assessee is

still the owner of the vehicles during the period relevant to the

assessment year under consideration. CIT(A) placed reliance on the

judgment of Hon'ble Delhi Court in the case of Capital Bus Services

Vs. CIT, 1980-TMI-36904. CIT(A) also highlighted the relevant

provisions of section 32(1) of the Act to adjudicate the issue of

depreciation in the instant case in favour of the assessee. Eventually,

the CIT(A) deleted the addition made by the AO.

before the Tribunal raising the grounds extracted above.

submitted that CIT(A) erred in allowing depreciation claimed by

assessee amounting to Rs.36,57,173/- when the assessee was not in

position of the vehicles and the same were not put to use by the

assessee even for a single day in a year.

raised in the present appeal relates to the correct of denying of

depreciation u/s.32 of the Act in respect of the individual items of

buses/cars, purchased in the past and already entered the block of

assets. The claim of depreciation u/s.32 on the said buses/vehicles

was allowed in the past. In the year under consideration, the said

items of depreciable assets were confiscated by the financier due to

reasons of default of payment of installments of EMI. Stating that the

4 ITA No.1051/PUN/2017 Shri Manjit S. Kumar

issue stand covered in favour of the assessee, Ld. Counsel relied on

the written submissions as well as the binding decisions of the courts.

relevant to extract relevant paragraphs from the written submissions

and also the ratio of the Bombay High Court judgment in the case of

CIT Vs. Sonic Hiochem Extractions Pvt. Ltd. 94 CCH 0099 (Mumbai

High Court).

8.1 To start with, the written submissions filed by the assessee are

extracted as follows :

“The Legislature amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual assets. The Block of Assets has also been defined to include the group of assets falling with the same class of assets. Hence after the amendment with effect from 1-4-1988, the individual assets has lost its identity and for the purpose of allowing of depreciation, only the block of assets has to be considered if a block of assets is owned by the assessee and used for the purpose of business, depreciation will be allowed. Therefore the test of user has to be applied upon the block as whole instead of upon an individual asset.

In this regard the detailed submission have been made before your Honour’s Bench today morning.

Your Honour has sought judicial pronouncements in support of our contentions.

The following judicial pronouncements are enclosed herewith in support of our above contentions :

We pray before your honour to consider the given facts and order of CIT(A) rightly allowing fully the depreciation claimed by the assessee be considered and our above contentions alongwith judicial pronouncements be considered.”

8.2 The ratio laid down by the Hon’ble Bombay High Court in the

case of CIT Vs. Sonic Hiochem Extractions Pvt. Ltd. (supra) is

extracted here as under :

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“Conclusion : Individual asset looses its identity for purposes of depreciation and user test is to be satisfied at time when purchased Machinery becomes part of the block of assets for first time.”

8.3 Similar view has been taken by the Hon’ble Delhi Court in the

case of CIT Vs. Oswal Agro Mills Ltd. (supra) and the conclusion

drawn by the High Court is extracted here as under :

“Though user of asset for the purpose of business is an essential condition for claiming depreciation, depreciation under s.32, as amended by Taxation Laws (Amendment) Act, 1986, is allowable on the entire block of assets irrespective of the fact that a particular asset or assets of a closed unit in this case, were not put to use during the year.”

8.4 Further, I perused the order of CIT(A) in general and para

Nos.5.3.1 to 5.3.4 in particular and find the CIT(A) granted relief to the

assessee on different reasoning, which is also proper. For the sake of

completeness of this order, I proceed to extract the said paragraphs as

follows :

“5.3.1 I have carefully perused the submissions made by the appellant. On careful examination of the letter of RTO, Pune, it is evident that the appellant was the owner of the vehicles during the period relevant to the assessment year under consideration. Hence, to adjudicate the matter, let us see the provisions of section 32(1) of the Act, which is extracted below :

. . . . . . .

. . .. . . . .

5.3.2 In the instant case, the Ld.A.O. was under the bonafide belief that the appellant was not in possession of the buses and the same were not put to use even for a single day and has claimed depreciation on the buses for the full year. However, it is evident from the letter of the RTO that the appellant was the owner of these vehicles.

5.3.3. With regard to the assets put to use, reliance is placed on decision of Delhi High Court in the case of Capital Bus Services Vs. CIT, 1980 TMI-36904 – wherein it was held that the expression used for the purpose of the business and depreciation would be allowed where the buses were kept ready by the owner for its use. Merely because the buses did not ply cannot mean that the depreciation was not allowable.

5.3.4 In view of the above background and judicial precedents, Ground No.1 of the appeal is allowed.”

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From the above, it is undisputed fact that the assessee’s

business is running of buses and cars on hire. Assessee used the said

vehicles for his business purposes and therefore, the depreciation was rightly allowed under the provisions of section 32(1) of the Act. CIT(A)

rightly allowed the claim of depreciation on cars/vehicles during the

year under consideration also considering the judgmental laws on this

issue. Considering the settled legal position on the issue under consideration, I am of the opinion that the issue raised in the grounds

by the Revenue is not sustainable in view of the bindings judgments of

the Hon’ble High Courts. Accordingly, the only ground raised by the

Revenue is dismissed.

Order pronounced on 25th day of May, 2018.

Sd/- (डी डी डी.क�णाकरा राव डी क�णाकरा राव क�णाकरा राव/D. KARUNAKARA RAO) क�णाकरा राव लेखा सद�य लेखा सद�य लेखा सद�य / ACCOUNTANT MEMBER लेखा सद�य

पुणे / Pune; �दनांक / Dated : 25th May, 2018. Satish

आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeal)-4, Pune. 4. The Pr.CIT-3, Pune. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “एक एक एक-सद�य एक सद�य सद�य” ब�च, सद�य पुणे / DR, ITAT, “SMC” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

आदेशानुसार / BY ORDER, //True Copy // िनजी सिचव /Sr. Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.