2024 (5) TMI 591 - AT - Income Tax

Reopening of assessment u/s 147 - Disallowance of depreciation on new Honda City car - as per revenue depreciation had been rightly restricted to 50% as per Rule 5 of Income Tax Rules 1962; New Appendix-1; III Plant Machinery (3)(via) in very terms - HELD THAT - No merit in Revenue s arguments since it clearly appears to be an instance of change of opinion not sustainable in law going by Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT - It is deemed appropriate to observe herein that the assessment order herein is AY 2010-2011 and the AO had framed his sec. 143(3) assessment on 26.03.2013 followed by his sec. 148 notice issued in the year 2017. This chronology of events makes it clear that the AO had initiated his impugned action beyond a period of four years from the end of the relevant assessment year without even satisfying that assessee had not disclosed the relevant particulars fully and truly in the foregoing former round. That being the case we quote Hindustan Lever Ltd. v. R.B. Wadkar 2004 (2) TMI 41 - BOMBAY HIGH COURT that such reopening reasons have to be read on standalone basis without any scope of improvement or substitution or addition therein; as the case may be. Revenue s case hardly carries any merit as well once it is evident that the assessee had duly got it s vehicle(s) insured on 30.09.2009 which has been treated put to use in absence of any evidence to the contrary. Be that as it may find no merit in the Revenue s vehement arguments regarding validity of the impugned reopening as well as on merits. It fails in it s instant appeal in very terms. Decided against revenue.

Summary

Issues involved: Appeal against assessment order for assessment year 2010-11 u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 regarding disallowance of depreciation on new Honda City car.

Grounds Pleaded by Revenue:
1. Whether the deletion of disallowance on new Honda City car of Rs. 3,62,525/- by the CIT(A) is justified.
2. Whether the deletion of disallowance of depreciation on new Honda City car ignoring Rule 5 of Income tax Rules, 1962 is justified.
3. Whether the deletion of disallowance on new car without evidence of use before 1st Oct 2009 is justified.
4. Whether the disallowance of depreciation is covered under exception 10(c) as per CBDT Circular 3 of 2018.
5. Request for leave to add, alter, amend, or delete any ground of appeal.

Detailed Judgment:
The detailed discussion by NFAC accepted the assessee's arguments on merits. The crux of the issue lies in the interpretation of CBDT Notifications regarding the purchase and use of the new commercial vehicle for claiming depreciation at the rate of 50%. The NFAC held that the word "put in use" in the IT Rules should be reasonably interpreted, and the asset's degree of utilization should not affect whether it is considered to be put to use. The NFAC emphasized that the CBDT intended to provide the benefit of depreciation for vehicles used for business purposes. The NFAC concluded that the appellant had effectively put the vehicle to use immediately upon purchase, as evidenced by the insurance policy being effective from the purchase date. Therefore, the appellant was entitled to the depreciation rate, and the addition made by the AO was directed to be deleted.

Upon careful consideration, it was found that the Revenue's arguments lacked merit. The Revenue's contention that the depreciation should be restricted to 50% due to registration after 01.10.2009 was not sustainable. The assessment order was for the year 2010-2011, and the initiation of action by the Assessing Officer beyond four years from the relevant assessment year was deemed improper. Citing relevant case law, it was established that the reopening reasons must stand on their own without room for improvement. Furthermore, the appellant had insured the vehicle on 30.09.2009, indicating its use, and the Revenue's arguments on the validity of reopening and merits were deemed unfounded. Consequently, the Revenue's appeal was dismissed.

In conclusion, the NFAC's decision to allow the appellant's claim for depreciation on the new Honda City car was upheld, emphasizing the importance of the CBDT Notifications and the effective use of the vehicle for business purposes. The Revenue's appeal was dismissed based on the lack of merit in their arguments regarding the depreciation disallowance.