2016 (11) TMI 443 - AT - Income Tax

Depreciation admissible on new induction of motor car in the block of assets - commercial v/s personal use - assessee claimed depreciation at the rate of 50%/2 i.e. 25% as vehicles were not used for 365 days in the previous year - The AO granted depreciation at the rate of 15% - Held that - AO has granted depreciation at the rate of 15% without examining relevant provisions. It appears that his finding is based upon his experience and past impression. He was of the opinion that once Board has not granted higher rate of depreciation to cars, which are put in the business of hiring, then how a partner, who used motor car for the purpose of business can be granted at a such rate. In the case he had an impression, higher rate of depreciation at the most could be granted to the car used for the public transportation for the people. On appeal, the ld.CIT(A) observed that CBDT has amended I.T. Rules by Income Tax (Third Amendment) Rules, 2009 and new Appendix has been introduced. The ld.CIT(A) made reference to Notification no.10/2009 dated 19.1.2009 and also para-6 of the said notification which gives definition of commercial vehicle. I have examined this notification available on page no.1.426 of Income Tax Rules (3rd Edition) of Taxmann i.e. 2016 edition. Paragraph-6 contemplates definition of commercial vehicle . This paragraph is available at page no.1.433 of the Taxmann s Income Tax Rules and find it is verbatim same as considered by the ITAT, Mumbai in Daleep S. Chandnani Versus Assistant Commissioner of Income-tax, Circle 4, Kalyan 2006 (10) TMI 262 - ITAT MUMBAI . There is no such condition that vehicle would qualify as commercial vehicles when licensed to be used as public transport - Decided in favour of assessee

Summary

Issues:
Rate of depreciation on new induction of motor car in the block of assets.

Analysis:
The sole issue in this appeal pertains to the rate of depreciation applicable to the assessee on the new induction of a motor car in the block of assets. The assessee had purchased a Mercedes car and a Maruti Shift Car in the previous year and claimed depreciation at the rate of 25% due to the vehicles not being used for 365 days. However, the Assessing Officer (AO) granted depreciation at a lower rate of 15%, a decision upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Tribunal examined the relevant provisions, including the third proviso to Section 32, and the Explanation thereto, to determine the rate of depreciation applicable in the given scenario.

The Tribunal referred to the ITAT, Mumbai Bench's decision in a similar case and analyzed the legal provisions in detail. It highlighted that the third proviso to Section 32 allows for a prescribed percentage of depreciation on the written down value of a commercial vehicle acquired between specific dates and put to use for business purposes. The definition of "commercial vehicle" and related categories were crucial in determining the applicable depreciation rate. The Tribunal emphasized that the legislative intent was to provide higher depreciation to assets meeting specific criteria, excluding vehicles used for hire or reward from certain benefits.

The AO's decision to grant depreciation at 15% was based on past practices and impressions, without a thorough examination of the relevant legal provisions. The CIT(A) also failed to consider the specific definitions and provisions related to commercial vehicles, leading to an incorrect decision. The Tribunal, after careful consideration, allowed the appeal of the assessee and deleted the disallowance made by the AO. The judgment clarified that the rate of depreciation should align with the statutory provisions and definitions provided, ensuring that the assessee receives the appropriate depreciation benefits as per the law.

In conclusion, the Tribunal's detailed analysis of the legal provisions governing the rate of depreciation on commercial vehicles acquired for business purposes highlighted the importance of adhering to statutory definitions and guidelines. The judgment emphasized the need for a thorough examination of relevant provisions to determine the correct rate of depreciation applicable to assets, ensuring compliance with the law and fair treatment for taxpayers.