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2019 (5) TMI 1673 - AT - Income TaxHigher rate of depreciation on Trucks and Trailers - Disallowance on account of alleged excess depreciation claimed at the rate of 30% instead of allowable depreciation of 15% on Trucks and Trailers - HELD THAT - Appellant has been consistently claiming higher rate of depreciation of 30% in the preceding assessment years as well as in the succeeding assessment years wherein the results have not been disturbed and the higher rate of depreciation in scrutiny assessments in these year s has been duly allowed by the department. Once the appellant is consistently claiming higher depreciation which has also been allowed by the department hence in opinion to disturb it in a particular year the claim of the appellant for higher depreciation would not be lawful and thus the higher claim of depreciation @ 30% claimed by the appellant during the assessment year under consideration is held to be a genuine claim. The Central Board of Direct Taxes in a circular number 652 dated 14-6-1993 wherein it has clarified that even if the assessee is using the motor lorries in its own business of transportation of goods then also higher rate of depreciation would be allowed to them. In view the CBDT circular as well as the consistent claim of the appellant for higher rate of depreciation in all the years throughout we delete the disallowance so done by the Ld. A.O. and sustained by the Ld. CIT(A). Thus the higher rate of depreciation at 30% is allowed to the appellant and accordingly this ground of appeal is allowed. Disallowance of Service Tax liability u/s 43B - tax liability unpaid before the due date of filling of return u/s 139(1) - HELD THAT - Since the provisions of Service Tax rules prior to its amendment which was applicable from 1-4-2011 stated that the service tax would be payable only on receipt of the same from the service receiver hence how could the appellant pay the same when the service tax was not received from the service recipient and therefore the same cannot be added u/s 43B as it never became due to be paid to the service tax department as the same was not even realised from the appellants service recipients. The intention of the revenue in inserting the provisions of the section 43B was that the assessee should not take benefit from the indirect taxes which it receives and never pays to the government and also claim a deduction of the same in arriving at the taxable income hence a deduction of the same was to be allowed only on actual payment of those taxes duties to the Government. Disallowance done u/s 43B for service tax payable which never became due to be paid as per Service Tax Rules cannot be disallowed u/s 43B as was done by the Ld. A.O. and hence the disallowance is deleted. Accordingly the 2nd ground of appeal is allowed. Nature of expenses - office repair and maintenance - revenue or capital expenditure - HELD THAT - . Since by incurring these expenditures on wooden panelling electric wiring fall ceiling etc. no new asset which belong to the assessee came into existence whereby it could claim depreciation u/s 32 of the Income Tax Act of which it was an owner hence we feel that the assessee has rightly claimed these expenditures as revenue expenditure and not capitalised in its fixed assets chart. If the assessee would have capitalised these expenditures then the question would have arisen since it was not an owner of these assets then how depreciation would have been allowed to the assessee firm. Further the CIT(A) based on the findings of the Ld. A.O. confirmed the additions without point out any adverse opinion of his in doing so and without averting to the facts and case laws relied by the assessee. The amount claimed as revenue expenditure under the head office repairs and maintenance allowed.
Issues Involved:
1. Disallowance of ?46,80,814/- on account of excess depreciation claimed at a higher rate. 2. Disallowance of ?37,19,883/- under section 43B for unpaid service tax liability. 3. Disallowance of ?7,05,147/- for insurance premium paid on the life of key persons. 4. Disallowance of ?8,44,871/- for office repair and maintenance expenses treated as capital expenditure. Detailed Analysis: 1. Disallowance of ?46,80,814/- on Account of Excess Depreciation Claimed at a Higher Rate: The assessee, a transport contractor firm, claimed depreciation at 30% on trucks and trailers, which the AO curtailed to 15%, arguing that the vehicles were not used exclusively for transportation of goods on hire but for composite contracts including dumpsite management and material handling services. The CIT(A) upheld this disallowance, referencing CBDT Circular No. 652 which allows higher depreciation only for motor lorries used in the business of transportation of goods on hire. The assessee contended that the trucks and trailers were indeed used for transportation as part of composite contracts and cited consistent acceptance of higher depreciation in subsequent assessment years. The Tribunal found merit in the assessee's argument, noting that the vehicles were hired for transportation purposes as part of composite work and that higher depreciation had been consistently allowed in other years. The Tribunal allowed the higher depreciation rate of 30%, citing CBDT Circular No. 652 and relevant case laws. 2. Disallowance of ?37,19,883/- under Section 43B for Unpaid Service Tax Liability: The AO disallowed ?37,19,883/- under section 43B for service tax liability unpaid before the due date of filing the return. The CIT(A) confirmed this disallowance. The assessee argued that the service tax was not claimed as a deduction in the profit and loss account but maintained in a separate account, payable only upon realization from clients. The Tribunal agreed with the assessee, referencing the Bombay High Court's decision in CIT vs. Knight Frank (India) Pvt. Ltd. and other cases, which held that service tax liability arises only upon receipt of payment from clients. Since the service tax was not debited in the profit and loss account nor claimed as an expense, the Tribunal deleted the disallowance of ?37,19,883/-. 3. Disallowance of ?7,05,147/- for Insurance Premium Paid on the Life of Key Persons: The AO disallowed ?7,05,147/- for insurance premium paid on the life of key persons, and the CIT(A) confirmed this disallowance. During the hearing, the assessee did not press this ground of appeal, leading the Tribunal to dismiss it as unpressed. 4. Disallowance of ?8,44,871/- for Office Repair and Maintenance Expenses Treated as Capital Expenditure: The AO disallowed ?8,44,871/- claimed as revenue expenditure for office repair and maintenance, treating it as capital expenditure. The CIT(A) upheld this disallowance. The assessee argued that the expenses were incurred for wooden fixtures, electric wiring, and other interior work in a leased premise, which did not create any new asset of enduring nature. The Tribunal found that the expenses were for making the leased office premises operational and did not result in the creation of any new asset belonging to the assessee. It noted that the assessee had capitalized other expenditures that were indeed of capital nature. The Tribunal allowed the ?8,44,871/- as revenue expenditure, citing relevant case laws supporting this treatment. Conclusion: The appeal was partly allowed. The Tribunal allowed the higher depreciation rate of 30% and the revenue expenditure claim for office repairs, while disallowing the service tax liability under section 43B and dismissing the insurance premium issue as unpressed.
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