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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Date of Hearing – 03.11.2016 Date of Order – 11.11.2016
O R D E R PER SAKTIJIT DEY, J.M.
This is an appeal by the assessee against order dated 28th September 2015, passed by the learned Commissioner (Appeals)–14, Mumbai for the assessment year 2011–12.
The solitary issue in dispute in the present appeal is in relation to disallowance of depreciation on motor cars amounting to ` 3,06,166.
2 Vimal Dyes & Gas Industries Pvt. Ltd.
Briefly the facts are, the assessee a company is engaged in the business of manufacturing and trading of industrial gases and chemicals. During the assessment proceedings the assessing officer while examining depreciation claimed by the assessee on different assets noticed that in the relevant previous year assessee had made addition of Rs. 18,06,010 in its fixed assets on account of motor car purchased during the year and on which the assessee had claimed depreciation of ` 3,06,166. After calling upon the assessee to furnish necessary details regarding claim of depreciation and on verifying the same the assessing officer noticed that as per the registration certificate issued by the RTO, the new motor cars on which assessee has claimed depreciation were purchased in the name of two directors of the company and not in the name of the company. He also observed that the insurance policy of the vehicles were also in the name of the concerned persons and not in the name of the company. Therefore, the assessing officer being of the opinion that assessee is not the owner of the vehicles disallowed the depreciation claimed of ` 3,06,166. Though, assessee challenged the disallowance of depreciation before the first appellate authority, however, the first appellate authority also sustained the disallowance holding that assessee is not the owner of the vehicles. Further, the first appellate authority observed, there is no evidence that the assessee has used
3 Vimal Dyes & Gas Industries Pvt. Ltd. the vehicles for the purpose of his business during the assessment year.
The learned Authorised Representative submitted, both the persons in whose name the cars were purchased are the directors of the company. He submitted, not only cars were purchased with companies own funds but they have been shown as assets of the company in the books of accounts as well as the balance sheet. He submitted, there is no dispute about the company’s ownership over the cars as the directors have never claimed ownership over the said vehicles. He submitted, enough evidences were produced before the assessing officer to show that the vehicles were used for the business purpose of the company. He therefore submitted, disallowance of depreciation is not justified. In support of his contention. Learned Authorised Representative relied upon a decision of the Tribunal, Mumbai Bench, in case of M/s Pioneer Dying Pvt. Ltd. v/s ACIT, ITA No.6322/Mum./2014 dated 18th May 2016.
The learned departmental representative relied upon the order of the learned Commissioner (Appeals) and Assessing Officer.
We have considered the submissions of the parties and perused the materials on record. It is evident from the respective orders of the departmental authorities, the fundamental reason on which assessee’s
4 Vimal Dyes & Gas Industries Pvt. Ltd. claim of depreciation on the two cars was disallowed is, the vehicles have been registered in the individual names of the directors and not in the name of the company. Therefore, the company not being the owner of the vehicles cannot claim depreciation. However, the fact that the vehicles were purchased by the funds of the company and they are appearing as assets in the books of the company as well as the balance sheet have not been controverted by the departmental authorities. Therefore, only because the vehicles were registered in the name of the directors of the company, it will not disentitle the assessee from claiming depreciation, since, for all practical purposes the company is the owner of the vehicles. Further, the assessee has demonstrated with documentary evidences that the vehicles were used for the business purpose of the company and not utilised for personal use of the directors. The learned Authorised Representative has also brought to our notice that in respect of other vehicles of the company registered in the name of directors purchased in earlier years, department has allowed depreciation without raising the issue of ownership. This fact has not been controverted by the learned Departmental Representative. We have also noted, in case of M/s Pioneer dying P. Ltd. (supra) the Tribunal, while dealing with the issue of disallowance of depreciation under identical facts and circumstances allowed assessee’s claim holding as under:-
5 Vimal Dyes & Gas Industries Pvt. Ltd.
“5. We have gone through the facts of this case as well as copy of judgement relied upon by the ld.counsel in the case of Edwise Consultants Pvt Ltd in & ITA No.594/ Mum/2013 for A.Y 2008-09 to 2010-11 order dated 14-10-2015 passed by ITAT “E”Bench, Mumbai. For claiming depreciation u/s 32 following two conditions are required to be fulfilled: “1. The assessee should be the owner of the asset; and 2. The asset should be used by the assessee in the course of its business. The user of the car by the assessee company in the course of its business has not been doubted by the department. What has been doubted is the ownership of the car by the assessee company. In our considered view, under the income-tax law, the concept of ownership is on recognised de facto basis, especially in the context of section 32. The assessee need not necessarily be an owner of an asset on dejure basis. It is not necessary that the asset should be registered in the name of an assessee to declare it as owner under the income-tax law especially for the purposes of allowing depreciation. It is not in doubt that car has been purchased by the company from its own funds and continues to be shown in its balance-sheet. The concerned director has nowhere claimed himself to be the owner of the said asset. Under these circumstances, when both the parties have acknowledged that assessee company as owner of the car, then the assessee could certainly be held to be de facto owner of the said car. It is further noted that in the case of M/s Edwise Consultants PvtT Ltd, (supra) the Mumbai Bench of the Tribunal has allowed depreciation with the following observations under similar circumstances :- “25. We have heard the parties on this issue and perused the record. We notice that the Hon'ble Gujarat High Court has considered identical issue in the case of Aravali Finlease Ltd (supra) and has taken the decision that the depreciation is allowable in the hands of the company, even if it is registered in the name of its director provided that the vehicle is used for the purpose of business of company and income derived there from was shown as income of the company. In the instant case there is no dispute with regard to the fact that the vehicles are used for the purpose of business of the assessee company. In the case of Basti Sugar Mills Co. Ltd (supra), the Hon'ble Delhi High Court approved the decision of the Tribunal in holding that, since vehicle is a movable asset, the registration as required in the case of transfer of immovable property is not a condition precedent for legal ownership. In the instant case, the funds for purchase the funds for purchase of vehicles have been 6 Vimal Dyes & Gas Industries Pvt. Ltd. provided by the assessee' company and they have been shown as assets of the assessee company. Hence, in our view, the assessee company should be considered as owner for all practical purposes and hence it is entitled for depreciation. In view of the direct decision of Hon'ble Gujarat High Court is available on this issue, we prefer to follow the same to that rendered by the Tribunal in the assessee's own case for AY 2007-08. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to allow depreciation on vehicles.“ 6. It has been further brought to our notice that depreciation on this car has been allowed in the earlier years u/s 143(3). The disallowance has been made only in this year. Thus, taking into account all the facts and circumstances of the case and in view of the discussion made by us in earlier part of the order, we find that depreciation has been wrongly disallowed by the Assessing Officer and therefore disallowance made by the Assessing Officer is directed to be deleted with the direction to grant the depreciation.”
Therefore, considering the overall facts and circumstances of the case in the light of the decision of the coordinate bench referred to above, we are of the view, assessee’s claim of depreciation cannot be denied by raising the issue of ownership. As far as the allegation of the learned Commissioner (Appeals) that the vehicles were not used for the purpose of business during the relevant assessment year, we do not find any basis for such a conclusion. From the documentary evidences submitted before us we have noted that the vehicles were purchased in the month of August 2010. Therefore, there is no reason to suspect that the vehicles were not put to use for the purpose of business and were kept idle for such a long period. In view of the aforesaid, we allow assessee’s claim of depreciation.
7 Vimal Dyes & Gas Industries Pvt. Ltd.
In the result, assessee’s appeal is allowed. Order pronounced in the open Court on 11.11.2016