At, Income Tax Appellate Tribunal Chennai
By, THE HONOURABLE MR. B.R. BASKARAN
By, ACCOUNTANT MEMBER & THE HONOURABLE MR. VIKAS AWASTHY
By, JUDICIAL MEMBER
For the Appellant: S. Sridhar, Advocate. For the Respondent: P. Radhakrishnan, Advocate.
R. Baskaran, Accountant Member
1. The assessee has filed this appeal challenging the order of the learned Commissioner of Income-tax (Appeals)-III, Chennai, passed for the assessment year 2006-07, wherein the learned Commissioner of Income-tax (Appeals) has confirmed disallowance of a part of depreciation claimed by the assessee on vehicles.
2. We heard the parties and perused the record. The assessee-company is engaged in the business of undertaking contract work for road construction and also trading in Ingersoll Rand products, etc. The Assessing Officer noticed that the assessee has claimed depreciation on vehicles at the rate of 30 per cent. The higher rate of depreciation of 30 per cent. is applicable for vehicles running on hire. The Assessing Officer 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. Accordingly, she reopened the assessment by issuing notice under section 148 and disallowed the excess claim of depreciation. The learned Commissioner of Income-tax (Appeals) also confirmed the said addition.
3. At the time of hearing, learned counsel appearing for the assessee invited our attention to the profit and loss account and submitted that the assessee has actually hired out the vehicles and has earned an income of Rs. 7.47 crores as hire/rental receipts. Learned counsel submitted that the fact that the assessee has received hiring income clearly shows that the vehicles were used on hire. Accordingly, he contended that the tax authorities are not justified in allowing the depreciation at the rate of 15 per cent. as against 30 per cent. claimed by the assessee.
4. On the contrary, the learned Departmental representative strongly defended the order passed by the learned Commissioner of Income-tax (Appeals).
5. 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 and loss account would show that the sales and other income disclosed by the assessee for the year under consideration was Rs. 8.81 crores, of which the rental receipts alone constitute Rs. 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 learned Commissioner of Income-tax (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, learned 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 learned counsel. Since the financial statements clearly prove that the assessee has received rental receipts on hiring of vehicles, we are of the view that the assessee is entitled to higher rate of depreciation
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at the rate of 30 per cent. Accordingly, we set aside the order of the learned Commissioner of Income-tax (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 per cent. 6. In the result, the appeal filed by the assessee is allowed for statistical purposes.