2019 (6) TMI 1343 - AT - Income Tax

Depreciation on wheel loaders and wheel graders - @ 40% OR 25% - HELD THAT - The details of the fixed assets on which depreciation has been claimed are also filed before us. On perusal of the same, we find that the wheel loaders and graders are motor vehicles as held by the Coordinate Bench of this Tribunal in the case of NAC Infrastructure Equipment Ltd 2016 (7) TMI 1528 - ITAT HYDERABAD , assessee s sister concern. Therefore, respectfully following the decision of the Coordinate Bench, we do not see any reason to interfere with the order of the CIT (A). Therefore, the Revenue s appeals are dismissed. Disallowance of claim of leave encashment on provision basis - HELD THAT - Though the issue is covered in favour of the assessee by the decision of the Hon'ble Calcutta High Court in the case of Exide Industries Ltd vs. Union of India 2007 (6) TMI 175 - CALCUTTA HIGH COURT and the Coordinate Bench of the Tribunal in the case of DCIT vs. A.P Seeds Development Corporation Ltd 2014 (3) TMI 1004 - ITAT HYDERABAD has followed the same to hold that the provisions made towards leave encashment is allowable as a deduction, he submitted that the decision of the Hon'ble Calcutta High Court has been stayed by the Hon'ble Apex Court 2008 (9) TMI 921 - SC ORDER and the issue is pending for adjudication. As prayed that the issue may be remanded to the file of the AO to pass the final order after the Apex Court decides the issue - we deem it fit and proper to remand the issue to the file of the AO with a direction to give effect to the Hon'ble Supreme Court s decision in the case of Exide Industries Ltd (Supra). Thus, ground treated as allowed for statistical purposes Disallowance of labour charges - AO disallowed 5% of the labour charges -CIT (A) restricted the disallowance to ₹ 5.00 lakhs - HELD THAT - AO has made an adhoc disallowance without pointing out any discrepancy or defects in the books of account. The CIT (A) observed that the disallowance on the labour charges is on a higher side and hence restricted it to ₹ 5.00 lakhs. We are of the opinion that only such expenditure which is not substantiated by proper bills vouchers or which could not be explained by the assessee can be disallowed. Even for making the adhoc disallowance, there has to be a basis or comparative analysis. Since there is no such material on record, we are satisfied that the adhoc disallowance is not sustainable.

Summary

Issues:
- Interpretation of the definition of commercial vehicles for depreciation
- Disallowance of excess depreciation by AO
- Appeal by Revenue against CIT (A) order
- Cross Objection filed by the assessee

Interpretation of the definition of commercial vehicles for depreciation:
The Revenue raised common grounds in appeals for A.Ys 2012-13 to 2014-15 regarding depreciation on plant & machinery. The AO disallowed excess depreciation claimed by the assessee on assets like concrete boom placer, motor grader, etc., not considered commercial vehicles under the Motor Vehicles Act. The AO asked for justification, but the assessee cited Entry-III-(3)(ii) of Appendix-I of the I.T. Rules for claiming 30% depreciation. The AO disagreed, leading to an appeal before the CIT (A), who allowed the claim based on a previous ITAT decision. The Revenue challenged this decision.

Disallowance of excess depreciation by AO:
The AO disallowed excess depreciation claimed by the assessee on assets not considered commercial vehicles, resulting in a tax liability. The CIT (A) overturned this decision, relying on a previous ITAT judgment involving the assessee's sister concern. The Revenue appealed, arguing that the ITAT decision was based on low tax effect, but the Tribunal upheld the CIT (A) order, emphasizing that the assets were indeed motor vehicles eligible for higher depreciation.

Appeal by Revenue against CIT (A) order:
The Revenue contended that the CIT (A) erred in following a previous ITAT decision due to low tax effect, but the Tribunal upheld the CIT (A) order. The Tribunal reasoned that the AO had initially allowed 40% depreciation, indicating a conscious decision, and restricting it later was impermissible. The Tribunal also cited relevant case laws supporting the assessee's claim, ultimately dismissing the Revenue's appeal.

Cross Objection filed by the assessee:
The assessee filed a Cross Objection for A.Y 2014-15, challenging the disallowance of leave encashment and labour expenses. The Tribunal remanded the leave encashment issue to the AO pending a Supreme Court decision. Regarding labour expenses, the AO's ad hoc disallowance without rejecting the books of account was deemed unsustainable, and the CIT (A) decision to restrict the disallowance was partly allowed by the Tribunal.

In conclusion, the Tribunal dismissed the Revenue's appeals and partly allowed the Cross Objection filed by the assessee, emphasizing the importance of proper substantiation for disallowances and the relevance of precedent in interpreting depreciation rules for motor vehicles.