2015 (12) TMI 554 - AT - Income Tax

Revision u/s 263 - denial of depreciation at 50% claimed and allowed by the A.O. on new commercial vehicles - Held that - As seen from the invoices, assessee has purchased EISHER Vehicle with 90PS Max. Eng. Power which was registered as Campers Vans on 27.02.2009. The total value of this asset was at ₹ 13,38,235. Since this vehicle was purchased in the previous year relevant for A.Y. 2009-2010, assessee has claimed depreciation in that year at 50% as per the Rules. Since the vehicle was put to use for less than 180 days in that year, having been registered on February, 2009, assessee claimed only 25% (half of 50%) of the depreciation and opening WDV of this year stood at ₹ 10,03,676. Since assessee claim of 50% depreciation on that vehicle was made in earlier year and as no action was undertaken by the Principal CIT to modify that, we are of the opinion that Principal CIT erred in directing the A.O. to restrict the depreciation to 15% in this year. This action of the Principal CIT, without considering the facts on record cannot be upheld, leave alone on legal principles. Coming to the other asset which was acquired during the year, it was TATA ACE purchased at cost of ₹ 2,93,444 and registered as goods carriage LMV on 27.04.2009. This vehicle was put to use as per the provisions before 1st October, 2009 during the year. Thus, it is entitled for depreciation at 50%. If at all, the Principal CIT would have to consider that there is an error, he should have restricted himself to the new vehicle acquired during the year. But he has considered restricting the amount even on the vehicle which was purchased in earlier year and on which depreciation was allowed at 50% in that year. In that regard, the action of the Principal CIT is not based on facts on record and no application of mind while considering the proceedings under section 263. Coming to the eligibility of depreciation at 50%, there is no dispute that under the Rules new commercial vehicles acquired between 01.01.2009 to 01.10.2009 are eligible for depreciation at 50%. Nowhere in the Rules it was prescribed that they are to put to use in the business of running them on hire . The Coordinate Bench in the case of Avanti Feeds Ltd., vs. DCIT, Circle 1(1), Hyderabad (2009 (1) TMI 543 - ITAT HYDERABAD) analysed the Rules as applicable between the period 01.10.1998 and 31.03.1999 and came to the conclusion that new commercial asset acquired during the above period was eligible for higher depreciation at 40% as applicable in that year. Since the Rule provides that new commercial vehicles put to use are eligible for depreciation at 50% which is an incentive provision, Principal CIT cannot restrict the same by bringing a new condition that they have put to use in the business of running them on hire, when the Rules does not prescribe so. In view of the above, we cannot approve the action of the Principal CIT in exercising the jurisdiction under section 263 to set aside the validly completed assessment under section 143(3). In view of that, the order of Principal CIT u/s 263 is set aside and that of the A.O. is restored. - Decided in favour of assessee.

Summary

Issues:
Jurisdiction under section 263 to deny depreciation on new commercial vehicles at 50%.

Analysis:
The appeal questioned the jurisdiction of the Principal CIT under section 263 to deny depreciation at 50% claimed and allowed by the A.O. on 'new commercial vehicles'. The assessee contended that the vehicles acquired met the criteria for claiming depreciation as per the Income Tax Rules, specifically Appendix-I of I.T. Rules. The Principal CIT, however, concluded that the A.O. failed to verify the claim of depreciation on commercial vehicles at 50%, leading to the issuance of a notice under section 263. The assessee objected, citing relevant provisions and a previous ITAT decision supporting the claim for higher depreciation on new commercial vehicles.

The Principal CIT set aside the assessment with a direction for reassessment, prompting the assessee to challenge the order under section 263. The arguments raised included contentions that the order was contrary to facts and law, erred in assuming jurisdiction based on audit objections, and incorrectly denied depreciation at 50% for commercial vehicles acquired within a specific period. The Ld. Counsel for the assessee emphasized submitting detailed depreciation schedules and vouchers to the A.O., highlighting that the A.O. had indeed examined the claim, albeit disallowing part of the excess depreciation on a building.

Upon thorough examination of the contentions and records, the Tribunal found that the Principal CIT erred in invoking section 263 to deny a valid claim. The Rules clearly provided for depreciation at 50% for new commercial vehicles acquired within a specified period, without the requirement of being used in the business of running them on hire. The Tribunal pointed out that the Principal CIT's decision failed to consider the facts on record, especially regarding the vehicles' registration dates and compliance with the Rules for claiming depreciation.

The Tribunal further emphasized that the Principal CIT's restriction of depreciation to 15% for certain vehicles was not justified, as the Rules explicitly allowed for 50% depreciation on new commercial vehicles acquired within the relevant period. The Tribunal also noted that the Principal CIT's decision lacked proper application of mind and factual basis, especially concerning vehicles purchased in earlier years where depreciation at 50% had been allowed. Ultimately, the Tribunal set aside the Principal CIT's order under section 263 and restored that of the A.O., allowing the assessee's appeal and affirming the eligibility for depreciation at 50% on new commercial vehicles as per the Rules.

In conclusion, the Tribunal's detailed analysis highlighted the correct interpretation of the Rules governing depreciation on new commercial vehicles and emphasized the importance of factual accuracy and legal adherence in decisions under section 263 to ensure the rightful allowance of legitimate claims.