2012 (5) TMI 253 - AT - Income Tax

Depreciation on vehicles - Addition u/s 40(a)(ia) - held that - It is an undisputed fact that the assessee firm has purchased the vehicles for its business purpose and details like RC books, purchase bills, diesel bills of the said vehicles were produced before the AO but he disallowed the depreciation claimed on purchase of vehicles amounting to Rs.21,20,283/- @ 30% which comes to Rs.6,36,084 - AO has not brought anything on record to hold that vehicles were not used by the assessee - Decided in favor of the assessee. Cash Credit - Section 68 - new capital introduced by the partners - held that - the two partners had introduced capital from sale of cash crop while the third partner had received amount and made the payment to the assessee by cheque. - The partners were identified. - If there was any doubt in the introduction of capital by the partners, the AO could have initiated action against the individual partners which was not done. - Addition made u/s 68 deleted - Decided in favor of assessee. Regarding addition u/s 40(a)(ia) - TDS u/s 194C - AThe stand of the assessee before AO was that it had made payment to only procure the vehicle on rent, without the services of the drivers, which had been provided by the assessee. The AO s view was that it was not a payment of rent for the naked vehicles but amounted to a contract for running of the vehicles covered u/s 194C for which the TDS should have been deducted. - held that - Since this is not a payment of rent, it amounted to be contract amount paid to the owners of vehicle in pursuant to contract, which attract provision of section 194C - Decided against the assessee.

Summary

Issues Involved:
1. Disallowance of depreciation on new vehicles.
2. Deletion of addition on account of unexplained cash credits under Section 68.
3. Deletion of addition under Section 40(a)(ia) for non-deduction of tax from payments to sub-contractors.

Issue-wise Detailed Analysis:

1. Disallowance of Depreciation on New Vehicles:
The Revenue challenged the CIT(A)'s decision to allow depreciation on new vehicles amounting to Rs. 6,36,084/-. The assessee, a partnership firm in the travel business, had purchased vehicles during the assessment year 2006-07 and claimed depreciation. The AO disallowed this claim, asserting that the assessee failed to furnish sufficient evidence regarding the purchase and use of the vehicles. However, the CIT(A) found that the assessee had indeed provided necessary documents like RC books, purchase bills, and diesel bills, and noted the AO's contradictory stance of taxing receipts from these vehicles while denying depreciation. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the depreciation as the AO did not provide evidence to disprove the assessee's claims.

2. Deletion of Addition on Account of Unexplained Cash Credits under Section 68:
The AO added Rs. 2,00,000/- as unexplained cash credits introduced by three partners, doubting their capacity to generate such funds. The CIT(A) deleted this addition, noting that the partners were identifiable and had accepted the introduction of capital. The Tribunal supported CIT(A)'s view, referencing the Gujarat High Court decision in Pankaj Dyestuff Industries, which held that once partners acknowledge the funds as their own, the onus shifts to the AO to assess the partners individually if not satisfied with their explanation. The Tribunal dismissed the Revenue's appeal on this issue.

3. Deletion of Addition under Section 40(a)(ia) for Non-Deduction of Tax from Payments to Sub-Contractors:
The AO added Rs. 39,04,731/- under Section 40(a)(ia), arguing that the payments made to vehicle owners were contractual and required TDS deduction. The assessee contended that these payments were merely for vehicle rentals without drivers, thus not necessitating TDS. The CIT(A) accepted the assessee's explanation, supported by agreements and records showing that the assessee bore expenses like driver salaries and diesel costs. However, the Tribunal found that the AO might not have had access to all relevant details and remanded the issue back to the AO for thorough verification and fresh adjudication. This ground was allowed for statistical purposes.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on depreciation and unexplained cash credits but remanded the issue of non-deduction of TDS for further verification, thereby partly allowing the Revenue's appeal for statistical purposes.