2013 (12) TMI 590 - AT - Income Tax

Restriction of rate of depreciation claimed on lorries to 25% - Held that - Following CIT vs. Gupta Global Exim P. Ltd. 2008 (5) TMI 7 - SUPREME COURT - Mere inclusion of certain amount in the total business income is not the determinative factor for deciding whether trucks were used by the assessee during the relevant year in a business of running them on hire - The returns filed by the assessee as well as the constitution of the assessee-company were not available - No evidence was produced to show that the assessee was in the business of hiring out motor lorries for running them to earn business income - The entire inference is drawn by the Commissioner of Income-tax(Appeals) only on the footing that the Assessing Officer had treated Rs. 12,59,639/- as part of total business income which is not determinative of the above test, viz., whether the trucks were used in the transportation business as claimed by the assessee The issue was restored to AO for fresh examination. Disallowance of purchase of iron and steel of Rs. 6,59,164 The assessee could produce only photocopy and carbon copies of the relevant purchase bills and not the original bills - Held that - The assessee failed to produce the photocopies of the relevant bills before the Tribunal - The Assessing Officer also did not record a finding that the bills have been authenticated by the concerned sellers - The claim of the assessee have not been verified by anybody The issue was restored to AO for verification of the photocopies of the bills. Disallowance of a part of purchases of broken stones Rs. 1,08,876 The purchases of broken stones are supported by either type written papers or hand written papers and not proper printed bills - Held that - The AO examined some of the suppliers of the broken stones he could not obtain proper bills as expected by him - The trade practice prevailing in that trade is to supply the broken stones on the basis of type written slips or hand written slips only The details were required from various suppliers of broken stones and most of them confirmed the transactions entered by them with the assessee - The assessee has effected payments by way of cheques in most of the cases Based on the facts and circumstance of the assessee s business and prevailing trade practice Decided in favour of assessee.

Summary

Issues:
1. Restriction of rate of depreciation claimed on lorries to 25%.
2. Disallowance of purchase of iron and steel of Rs. 6,59,164/-.
3. Disallowance of a part of purchases of broken stones Rs. 1,08,876/-.

Issue 1: Restriction of rate of depreciation on lorries to 25%
The assessee claimed depreciation on lorries at 40% due to hiring them out to other parties and using them for personal business. Tax authorities restricted it to 25%, stating lorries must be exclusively used for hiring to claim 40%. The Supreme Court case CIT vs. Gupta Global Exim P. Ltd. was cited, emphasizing the need for lorries to be used in the hiring business to claim higher depreciation. The Tribunal found lack of evidence to determine if the assessee was also in the hiring business, thus directing the Assessing Officer to re-examine the issue in line with the Supreme Court decision.

Issue 2: Disallowance of purchase of iron and steel
The Assessing Officer disallowed Rs. 6,60,614/- for lack of original bills, accepting only photocopies. The assessee argued that authenticated photocopies and payments via cheques validate the bills. The Tribunal noted the absence of original bills and seller authentication verification, directing the Assessing Officer to verify the bill authenticity and delete the disallowance if confirmed.

Issue 3: Disallowance of a part of purchases of broken stones
The AO disallowed 20% of broken stones purchase amount due to lack of proper printed bills. After a remand report, the CIT(A) accepted Rs. 62,24,141/- of purchases. The Tribunal observed the trade practice of supplying broken stones with type or handwritten slips, supported by supplier examinations and cheque payments. As suppliers confirmed transactions and slips were produced, the genuineness of expenses was upheld. The Tribunal directed the AO to delete the disallowance, considering the available evidence.

In conclusion, the ITAT Cochin directed the reassessment of depreciation on lorries based on business usage, verification of bill authenticity for iron and steel purchases, and deletion of disallowance for broken stones purchases, providing detailed reasoning and legal references for each issue.