2023 (1) TMI 23 - AT - Income Tax

Disallowance of excess depreciation on motor vehicles - buses were put to use for less than 6 months only - HELD THAT - AO ignored bills for purchase of diesel and Revenue generated from business, but has only considered payment made by the assessee for diesel bills and observed that the assessee has put to use the buses in the business from December, 2014 onwards. We find that the AO is grossly erred in holding the assets were put to use for less than 182 days and allowed only 50% depreciation on motor buses, because the buses were acquired and put to use before 30.09.2014 and also the assessee has generated income from the month of August, 2014 itself. Therefore, in so far as 8 buses are concerned, the assessee has put to use those buses for more than 182 days and eligible for 100% depreciation. Therefore, we direct the AO to allow 100% depreciation on 8 buses. In so far as remaining 2 buses, as admitted by the assessee, those buses were registered on 08.10.2014. The bill for building body to buses was also in the month of October, 2014. From the above, it is very clear that the remaining 2 buses were acquired and put to use in the business in the month of October, 2014, which is less than 182 days. Therefore, the assessee is entitled for 50% of actual depreciation on remaining 2 buses. Therefore, we do not find any errors in the reasons given by the AO to allow 50% depreciation on remaining 2 buses and thus, we reject the arguments of the assessee. To sum up, the assessee is entitled for 100% depreciation on 8 buses and thus, we direct the AO to consider the claim of the assessee and for remaining 2 buses, disallowance of excess depreciation is upheld. Disallowance of interest on borrowed capital u/s.36(1)(iii) - HELD THAT - Since, we already held that the assessee has acquired and put to use the buses from the month of August, 2014 itself, in so far as interest paid on borrowed capital for 8 buses are concerned, the AO is directed to allow interest paid on borrowed capital to banks u/s.36(1)(iii) of the Act, as claimed by the assessee. As regards remaining 2 buses, since we held that the buses were put to use for business from the month of October, 2014 onwards, the disallowance of interest on borrowed capital up to the date of capitalization of 2 buses are upheld. To sum up, the assessee gets relief towards disallowance of interest u/s.36(1)(iii) of the Act, for 8 buses and for remaining 2 buses, the additions made by the AO is upheld. Disallowance of rates taxes - Nature of expenses - HELD THAT - As we find that amount paid to Member Secretary, Pondicherry Planning Authority, is for taking permission to let out the premises to tenant for different purpose other than the purpose for which the planning permission has been taken from the local authority and said expenditure will definitely in the nature of Revenue in nature and therefore, we direct the AO to delete the additions made towards amount paid to Member Secretary. Pondicherry Planning Authority - As regards payment made to Mr.R.Viswanathan towards ROC fees, it is a professional fee paid for rendering professional services in connection with filing documents with ROC an thus, same cannot be considered as capital in nature and thus, we direct the AO to delete additions made on this accoun t- As regards payment for property tax to Pondicherry Panchayat, it is an annual property tax levied by local municipal authorities and the same will be in the nature of Revenue expenditure and therefore, we direct the AO to delete the additions made towards disallowance of property tax paid to Pondicherry Panchayat. Nature of expenses - Pondicherry Permit Expense - revenue or capital expenditure - HELD THAT - The road taxes paid to state government for permitting vehicles to run in different states is recurring expenditures which needs to be incurred by a transporter for plying buses. In this case, the assessee being in the business of plying motor buses has paid Pondicherry permit charges to Government of Pondicherry to operate buses in the state of jurisdiction of Pondicherry and same would be in the nature of Revenue expenditure. The AO without appreciating the fact simply made disallowance towards Pondicherry Permit Expense and thus, we direct the AO to delete addition made towards Pondicherry Permit Expense . Disallowance of expenditure of Penal in nature u/s.37(1) - assessee has debited a sum under the head Vehicle Permit Tax - assessee claimed that said expenditure is paid towards taking permission to run vehicles for a particular period - AO disallowed Vehicle Permit Tax on the ground that it is in the nature of compounding fees for violation of law in force and hence panel in nature, cannot be allowed u/s.37(1) - HELD THAT - AO on the basis of sample receipt issued by the Transport Department opined that it is panel in nature for violation of law in force. We find that the assessee has paid road taxes to Transport Department for taking permit to run buses and in the sample receipt considered by the AO nowhere it has specified that the assessee has violated any law and the Department has imposed penalty to consider said payment as panel in nature. The AO without understanding the concept of road tax being paid by transport operators simply disallowed amount paid to Transport Department as compounding fee which is panel in nature. In fact, it is a tax paid by the assessee to Transport Department to take permit to run the buses. Therefore, we are of the considered view that the AO is erred in disallowing expenditure u/s.37(1) of the Act, and thus, we direct the AO to delete the additions made u/s.37(1).

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Disallowance of excess depreciation on motor vehicles.
3. Disallowance of interest on borrowed capital under Section 36(1)(iii).
4. Disallowance of rates and taxes.
5. Disallowance of Pondicherry Permit Expense.
6. Disallowance of expenditure of penal nature under Section 37(1).

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was delayed by 376 days. The appellant attributed the delay to the lockdown imposed due to the Covid-19 pandemic. The Supreme Court in Miscellaneous Petition No.21 of 2022 extended the limitation period for all proceedings in courts and tribunals. Considering this, the tribunal condoned the delay in the interest of natural justice.

2. Disallowance of Excess Depreciation on Motor Vehicles:
The assessee claimed 30% depreciation on 10 buses, asserting they were used for more than 182 days. The AO allowed only 50% depreciation, arguing the buses were used for less than 182 days based on diesel bill payments starting from October 2014. The tribunal found evidence of diesel purchases and revenue generation from August 2014, indicating the buses were in use for more than 182 days. Thus, the tribunal directed the AO to allow 100% depreciation on 8 buses registered before 30.09.2014 and upheld the 50% depreciation on the remaining 2 buses registered on 08.10.2014.

3. Disallowance of Interest on Borrowed Capital under Section 36(1)(iii):
The AO disallowed interest on borrowed capital up to the date of capitalization of the buses, assuming they were used from October 2014. The tribunal, having established that 8 buses were used from August 2014, directed the AO to allow the interest on borrowed capital for these buses. For the remaining 2 buses, the disallowance was upheld.

4. Disallowance of Rates and Taxes:
The AO disallowed payments totaling Rs.8,20,602/- as capital expenditure. The tribunal found that payments to the Pondicherry Planning Authority (Rs.6,40,709/-) and property tax to Pondicherry Panchayat (Rs.1,66,793/-) were revenue in nature. Additionally, the ROC fees (Rs.13,100/-) were for professional services. The tribunal directed the AO to delete these disallowances.

5. Disallowance of Pondicherry Permit Expense:
The AO disallowed Rs.13,20,600/- paid for Pondicherry state permit as capital expenditure. The tribunal held that such road taxes are recurring expenses necessary for the transport business and are revenue in nature. The AO was directed to delete the disallowance.

6. Disallowance of Expenditure of Penal Nature under Section 37(1):
The AO disallowed Rs.51,65,350/- as compounding fees for violation of laws. The tribunal found no evidence in the sample receipt indicating any law violation. The payment was for road taxes to obtain permits to run the buses. The tribunal directed the AO to delete the disallowance.

Conclusion:
The appeal was partly allowed, with specific directions to the AO on each issue. The tribunal's analysis was based on the evidence provided and the applicable legal provisions, ensuring a fair and just resolution.