2019 (3) TMI 1702 - AT - Income Tax

Depreciation on tippers - @30% OR @ 15% on the vehicles - assessee being a civil contractor had to deploy various kinds of plant and machinery which includes several machines like JCB Excavator etc. and goods transport vehicles like tippers for carrying raw materials etc. to different sites across the country - HELD THAT - Tippers are vehicles and are registered under the Motor Vehicle Act, 1988. A.O. could not bring any material on record to dispute the assessee s claim that the vehicles and other equipments were deployed in difficult areas and therefore entitle to higher rate of depreciation. The A.O s contention that the explanation given by the assessee is an afterthought and that no hiring charges have been received is not supported by facts. The tippers used by the assessee in its business are registered under the Motor Vehicles Act 1988. They met the functional test as the basis for grant of 30% depreciation and also on the ground that the higher depreciation is on account of rigorous and hard use of commercial vehicles in comparison to the stationery and permanently installed machinery. These views find support in the decision in the case of CIT vs. Rakesh Jain 2012 (5) TMI 7 - PUNJAB HARYANA HIGH COURT . Therefore addition made by AO on account of additional depreciation claim on higher rate, should be deleted.That being so we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid addition. Addition being deduction from the secured loan and deletion of hire purchase suspense account - A.O. has added back hire purchase interest suspense - HELD THAT - In the balance sheet as on 31.03.2011 hire purchase interest suspense account has been deducted from amount of term loan for disclosure compliance of schedule V1 of the Companies Act 1956 and the same is supported by the audit report and certification of the Auditor. Therefore we are of the view that the said amount of 36.00, 000/- does not represent income. It is just re-grouped reworked re-arranged reclassification of the figures in the balance sheet of the assessee for the purpose of presentation in the balance sheet and no any unaccounted money was introduced by the assessee company. Hence after a careful consideration of the submission of the ld Counsel and relevant assessment records the addition of 36, 00, 000- made by AO on account of hire purchase interest suspense account is not justified. The asset side of the balance sheet and liability side of the balance sheet both are diagnosed and we note that this is just an accounting entry and presentation in the balance sheet therefore addition made by the Assessing Officer needs to be deleted. That being so we decline to interfere in the order of the ld. CIT(A) on this issue his order is hereby upheld and grounds of appeal raised by the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance of depreciation of ?85,17,966.
2. Deletion of addition of ?36,00,000 being the reduction from the secured loan and deletion of hire purchase suspense account from 'other current assets'.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Depreciation of ?85,17,966:

The Revenue's primary grievance was the deletion of disallowance of depreciation amounting to ?85,17,966, which was the difference between the depreciation claimed by the assessee at 30% and the allowable depreciation at 15% on vehicles. The Assessing Officer (AO) disallowed the additional depreciation claimed by the assessee, who is a civil contractor, on the grounds that the vehicles were used for the assessee's business and did not qualify for the higher depreciation rate. The AO argued that the assessee's claim of partial usage for hiring purposes was an afterthought and unsupported by any specific income declaration from hiring.

In response, the assessee contended that the heavy vehicles, such as tippers, were used in difficult areas and were also hired out to other contractors, justifying the higher depreciation rate. The assessee provided details of the vehicles' usage and argued that the method of accounting, including the adjustment of hiring charges against payments, had been consistently followed and accepted in previous years.

The CIT(A) deleted the addition, and the Revenue appealed. Upon review, the Tribunal noted that the assessee had consistently claimed higher depreciation in past assessments, which had been accepted by the Revenue. The Tribunal emphasized the principle of consistency, citing the Supreme Court's decision in Radhasoami Satsang vs. CIT, which states that a position accepted in past assessments should not be changed without a cogent reason. The Tribunal found that the AO did not provide any new material to dispute the assessee's claim and upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

2. Deletion of Addition of ?36,00,000:

The second issue pertained to the addition of ?36,00,000, which was a reduction from the secured loan and deletion of the hire purchase suspense account from 'other current assets'. During the assessment proceedings, the AO noticed a change in the balance sheet where the hire purchase interest suspense account was reduced to nil and the corresponding amount was deducted from the secured loan. The AO added this amount to the total income, arguing that the change was not clarified or supported by the audit report.

The assessee explained that the ?36,00,000 represented un-matured interest on term loans, which was reclassified for disclosure compliance with Schedule VI of the Companies Act, 1956. The reclassification was done to make the figures comparable with the current year's balance sheet. The assessee argued that this was a presentation adjustment and did not represent unaccounted income.

The CIT(A) accepted the assessee's explanation and deleted the addition. On appeal, the Tribunal reviewed the audit report, which confirmed the reclassification. The Tribunal agreed with the assessee's submission that the amount was an accounting entry for presentation purposes and did not constitute income. Consequently, the Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's appeal on this ground as well.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The disallowance of depreciation of ?85,17,966 was deleted based on the principle of consistency and the lack of new material evidence from the AO. The addition of ?36,00,000 was deleted as it was an accounting reclassification and did not represent unaccounted income.