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Before: SHRI JOGINDER SAINGH & SHRI ASHWANI TANEJA
Date of hearing : 05-05-2016 Date of order : 18-05-2016
O R D E R Per ASHWANI TANEJA, AM
This appeal has been filed by the assessee against the order of the Commissioner of Income-tax (Appeals) (hereinafter called “CIT(A)”) dated 02- 04-2013 for the assessment year 2010-11 raising the following grounds of appeal:
“1. Ld. CIT(A) erred in confirming disallowance of car depreciation merely on the grounds that registration of the car was in the name of 2 ITA No.,6322/Mum/2014 one of the directors without appreciating facts of the case and law applicable thereto.
2. Ld. CIT(A) should have considered that car, although registered in the name of one of the directors is being purchased out of the funds of the appellant, is included in the block of assets and is being used for the purpose of the business of appellant and hence appellant is entitled for necessary deduction of depreciation.
3. Appellant pray that disallowance of depreciation as made be deleted.”
During the course of hearing it has been submitted by the ld. Counsel that actually assessee company is the owner of the car. It has made payment of the down amount and is also regularly paying EMIs of the loans taken for purchase of car. The car has been reflected in the balance-sheet of the company. In all the past years depreciation has been allowed in orders passed u/s 143(3). Only in this year contradictory action has been taken by the department.
Per contra, the ld.DR submitted that since car is not in the name of the assessee company, the assessee should not be eligible to claim depreciation.
We have gone through the facts of the case. The solitary issue to be decided by us is whether the assessee company would be eligible to claim depreciation on the car which is not registered in the name of the assessee company but registered in the name of one of the directors of the company. The admitted facts narrated before us are that the car was purchased by the company by making down payment from the bank amount of the assessee company. For the remaining amount, the assessee company had taken loan and EMIs towards repayment of the loan has also been paid by the company.
3 ITA No.,6322/Mum/2014 The car continues to be reflected in the balance-sheet of the assessee company. Under these circumstances, we have to decide whether depreciation can be claimed by the assessee company or not?
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 4 ITA No.,6322/Mum/2014 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 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. “
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.
In the result, appeal of the assessee is allowed.
Order pronounced in the court on 18th May, 2016.