URMILA ENTERPRISES PVT LTD.,CHENNAI vs. ACIT, CHENNAI

The assessee has filed this appeal challenging the order of the Ld. Commissioner of Income Tax (Appeals)-III, Chennai, passed for assessment year 2006-07, wherein the Ld. CIT(Appeals) has confirmed disallowance of a part of depreciation claimed by the assessee on vehicles. assessee-company is engaged in the business of undertaking contract work for road construction and also trading in Ingergoll Rand products, etc. The A.O. noticed that the assessee has claimed depreciation on vehicles at the rate of 30%. The higher rate of depreciation of 30% is applicable for vehicles running on hire. The A.O. took the view that the assessee has used the vehicles in the business of road construction and trading which activities are the main business activities of the assessee and hence, the assessee is not entitled for higher rate of depreciation.

At the time of hearing, the Ld. counsel appearing for the assessee invited our attention to the Profit & Loss account and submitted that the assessee has actually hired out the vehicles and has earned an income of `7.47 Crores as hire/rental receipts. The Ld. counsel submitted that the fact that the assessee has received hiring income clearly shows that the vehicles were used on hire.

On the contrary, Ld. D.R. strongly defended the order passed by the Ld. CIT(Appeals).

Having regard to the rival contentions, we are of the view that there is a merit in the contention of the assessee. A perusal of the Profit & Loss account would show that the sales and other income disclosed by the assessee for the year under consideration was `8.81 Crores, of which the rental receipts alone constitute `7.47 Crores, meaning thereby the assessee has earned income mainly from hiring of vehicle. We notice that the Assessing Officer has gone by the declaration made in the return of income with regard to nature of business activities. Accordingly, the Assessing Officer has failed to examine the actual activities carried on by the assessee during the year under consideration. We notice that the Ld. CIT(Appeals) has confirmed the addition on the reasoning that the assessee has failed to furnish evidence in the form of hiring contracts. At the time of hearing, the Ld. counsel submitted that the fact of hiring of vehicles is evidenced by the fact of receipt of hiring income and the tax authorities have failed to take notice of the same. We agree with the said contention of the Ld. counsel. Since the financial statements clearly prove that the assessee has received rental receipts on hiring of vehicles, we are of the view that 4 the assessee is entitled to higher rate of depreciation at the rate of 30%. Accordingly, we set aside the order of the Ld. CIT(Appeals) on this issue and restore the issue to the file of the Assessing Officer with a direction to allow depreciation on vehicles at the rate of 30%.

In the result, the appeal filed by the assessee is allowed for statistical purposes.