2020 (12) TMI 977 - AT - Income Tax

Higher depreciation claim - Receipt from business of hiring of plant and machinery - AO to restrict depreciation on plant and machinery @ 15% as against the claim @ 30% by assessee - HELD THAT - Assessee in this assessment year has received total receipt and from which the assessee has received from hiring which is more than 66% of the total receipt. The assessee s claim is that since the substantial income i.e. 2/3rd of its income is from hiring business, it qualifies for higher depreciation @ 30%. For that the Ld. A.R has relied on the decision of Hon ble Rajasthan High Court in Bansiwala Iron Steels Ltd. 2003 (9) TMI 813 - RAJASTHAN HIGH COURT find that assessee s income from hiring constitutes more than 2/3rd of its total income therefore since the assessee s substantial income is from hiring business, relying on the ratio laid (supra), the assessee s claim for higher depreciation should be allowed @ 30% instead of 15% allowed by the AO. Therefore, the assessee s claim of allowing higher depreciation @ 30% is directed to be allowed.

Summary

Issues:
Disallowance of higher depreciation claim

Analysis:
The appeal was against the disallowance of a depreciation claim by the Ld. CIT(A) for the Assessment Year 2016-17. The dispute centered around the depreciation rate applied by the assessee on plant and machinery, with the AO restricting it to 15% instead of the claimed 30%. The AO's contention was that since the nature of the business was stated as "contractors," the depreciation should be at 15% as the assets were used for the assessee's own business. The AO also raised concerns regarding the filing of service tax returns and the lack of evidence supporting the claim. The Ld. CIT(A) upheld the AO's decision, emphasizing the absence of conclusive evidence proving that the entire amount was from hiring charges. The Ld. CIT(A) noted that the books of accounts were not produced, and the receipts included various components, not solely hiring charges. The appellant argued that a significant portion of the income was indeed from hiring, justifying the higher depreciation claim at 30%. The appellant cited a case law precedent to support this argument.

The Tribunal considered the substantial income derived from hiring activities, amounting to over 66% of the total receipts. Relying on the precedent cited by the appellant, the Tribunal concluded that since more than 2/3rd of the income was from hiring business, the higher depreciation claim at 30% should be allowed. The Tribunal found merit in the appellant's argument and directed the allowance of the higher depreciation rate. The Tribunal's decision favored the appellant, allowing the appeal and directing the higher depreciation claim at 30% to be accepted.

In conclusion, the Tribunal's judgment revolved around the interpretation of the nature of income derived by the assessee, specifically focusing on the proportion of income generated from hiring activities. The decision underscored the significance of substantial income from hiring business in justifying a higher depreciation claim, aligning with the legal precedent cited during the proceedings.