SMT. SUDESH YADAV,MAHENDERGARH vs. ITO, NARNAUL

Besides, an application has been moved by the assessee under Rule 11 of the Appellate Tribunal Rules, 1963 for allowing the following additional 2 ground for the adjudication of the ITAT:( The A.O. has erred in law and on facts in disallowing an amount of Rs.74,390 on account of shortage in diesel alleging that assessee has claimed the shortage on higher side to reduce the profit element). 2.1 In support of the above application, the Learned AR submitted that the issue raised in the additional ground is very much emerging from the assessment order and no fresh material outside the record is required to be considered for adjudication of the same. He also placed reliance on the following decision: i) NTPC – 229 ITR 383 (S.C); ii) DHPL Operators – 108 TTJ 152 (Bom.); & iii) Hukum Chand Mills – 63 ITR 232 (S.C).

The Learned Senior DR on the other hand opposed the application. She submitted that no such ground was raised by the assessee in her appeal before the first appellate authority and since the present appeal has been preferred against the first appellate order, the above additional ground cannot be allowed for the adjudication of the ITAT.

3 4. In rejoinder, the Learned AR submitted that the ITAT is the last facts finding authority and as per the decisions of Hon'ble Supreme Court, cited above, it has got wide power to allow such additional ground which is emerging from the assessment order and all the necessary facts are already available on record to adjudicate the issue.

Having gone through the above cited decisions, we find that for allowing application for raising the additional ground, two ingredients are required to be fulfilled. Firstly, the issue is arising out of the assessment order and adjudication of the same does not require consideration of fresh material outside the record. Undisputedly, these two requirements are fulfilled in the present case, we thus respectfully following the ratios laid down in the above cited decisions allow the application of the assessee for adjudication of the above additional ground. It will be dealt with after disposal of the above two main grounds.

Ground No.1: The relevant facts are that the assessee is running a petrol pump in the name and style of M/s. Mahalaxmi Petroleum. The Assessing Officer disallowed the claimed depreciation of Rs. 4,56,960 on a new tank lorry purchased for Rs.15,23,110 on the ground that when the tank lorry was stated to have been used for own business, no expenditure on 4 account of fuel/repairs, salary of drivers have been incurred and the claim of the assessee firm transportation of mobile oil was not accepted on the basis that it is sold in packs and not as loose liquid. Learned CIT(Appeals) has upheld the same.

In support of the ground, the Learned AR submitted that while making and upholding the disallowance of the claimed depreciation, the authorities below have failed to appreciate that once an asset formed part of a “block of assets” then depreciation is allowable on the entire block irrespective of the individual performance of the assets in the entire block. In this regard, he referred section 2(11) of the Income-tax Act, 1961 where “block of assets” has been defined and also referred section 32(1)(iii) of the Act wherein depreciation on block is provided. The Learned AR also submitted that there are sufficient material on record which would prove beyond doubt that the impugned lorry was very much used and the same was part of the block of assets in the books of the assessee. He submitted that assessee had purchased the lorry on 16.4.2008. Thereafter, the lorry was sent to Pathankot to get it converted into a tanker. The assessee had also paid local area taxes as applicable on commercial vehicle on 22.5.2008 and goods tax was paid on 05.06.2008. He submitted that the moment the lorry was modified to oil 5 tanker, it was ready to use. He submitted further that during the year under consideration, the block of assets shown by the assessee was having value of Rs.16,06,942. The Learned AR referred page No. 41 to 44 of the paper book wherein the auditors have certified the value of the gross block in the audit report. The Learned AR also referred page Nos. 11 and 12 of the paper book wherein the salary paid to driver has been mentioned. He placed reliance on the following decisions: i) CIT vs. Oswal Agro- 238 CTR 113 (Del.); ii) CIT vs. Sonal Gum Industries – 322 ITR 542 (Guj.); iii) Swati Synthetic Ltd. vs. ITO – 38 SOT 208 (Mum.).

The Learned Senior DR on the contrary placed reliance on the orders of the authorities below. She submitted that the authorities below have dealt with the issue in detail.

Considering the above submissions supported with the above cited decisions, we concur with the contention of the assessee that when an asset is mingled in a block it completely loses its individual identity. In its audit report, the assessee had included the lorry in question in block of assets, thus, it should not have been isolated for making the disallowance of the depreciation claimed on it. Besides, it is an undisputed fact that the tank lorry in question was ready to use. Considering these material facts, we are 6 of the view that the authorities below were not justified in making and upholding the depreciation in question disallowed. The Assessing Officer is thus directed to allow the claimed deprecation on the oil lorry. The ground No.1 is accordingly allowed.

Ground No. 2: The Assessing Officer disallowed interest of Rs.40,500 on the basis that the assessee had not charged interest on the advance made to one Dr. Rajbir Singh whereas the assessee was paying interest @ 12% on the loan raised by her. The Learned CIT(Appeals) has upheld the same. In support of the ground, the Learned AR submitted that the advance to Dr. Rajbir Singh was given in earlier years, thus, the Assessing Officer had exceeded his jurisdiction by making disallowance of proportionate interest. He submitted that no such disallowance was made in the earlier assessment year. In the assessment year under consideration, the assessee had received back the amount in parts. While making disallowance, the Assessing Officer has also conveniently ignored the availability of her own funds with the assessee. In support, he referred page No. 37 of the paper book showing that there was unsecured loan to the tune of Rs.35,93,184 and paid up capital of the proprietor at Rs. 10,40,961. He placed reliance on the following decisions:

Considering the above submissions, we find that while making the disallowance the Assessing Officer has ignored some important aspects of the matter. Firstly, the interest free advance in question was not made during the year under consideration and secondly assessee was having sufficient interest free funds to make the advance. The disallowance made by the Assessing Officer was not justified. We thus while setting aside orders of the authorities below in this regard direct the Assessing Officer to delete the disallowance of Rs.40,500 in question made on account of advance given to Dr. Rajbir Singh. The ground No.2 is accordingly allowed.

Additional ground: In this ground, the assessee has questioned disallowance of Rs.74,390 on account of shortage in diesel.