2015 (8) TMI 83 - AT - Income Tax

Disallowance of depreciation - whether CIT(A) ought not to have upheld that the vehicles were not used for running them on hire so that depreciation @ 40% was not admissible? - Held that - Revenue could not controvert the submission of the assessee that it has, in fact, given its vehicles to various parties during the relevant accounting period on hire, and has declared income thereof. Merely because, there was no separate lease agreement with various parties, is not decisive of the issue. The vehicles were given to various parties on per trip basis, and therefore, separate agreement for carting income for each trip with various parties is not practicable to be executed and produced before the Revenue authorities. In these facts of the case, we are of the view that the assessee was entitled to higher depreciation at the rate of 40% - Decided in favour of assessee. Disallowance of bad debts - Held that - We find that admittedly, this claim was not made by the assessee at the time of original assessment, and therefore, there is no justification for making this claim after the search operation carried out in the business premises of the assessee. Accordingly, the claim of the assessee is rejected, and the ground of the appeal of the assessee on this issue is dismissed. - Decided against assessee. Undisclosed income on account of seized diary - Held that - The peak amount of credit and debit entries on the seized papers amounting to ₹ 14,35,666/- could be validity taxed in the hands of the assessee. In our view, there is no justification for further adding net profit at the rate of 5% on the gross receipts on the seized papers of the assessee. There is also no justification for the AO to add the entire receipts side of these seized paper, and not considering the peak of the credit and debit entries. In this view of the matter, we hold that the addition should be sustained to the extent of ₹ 14,35,666/- as against ₹ 19,42,771/- sustained by the learned CIT(A) - Decided partly in favour of assessee. Excess claim of Ujjain division - Held that - The assessee has claimed a loss of ₹ 13.23 lakhs in its Ujjain division with regard to the work done for road construction, whereas the exact amount of loss determined by the PWD was for ₹ 10,98,087/-. The difference was claimed by the assessee as business loss. In our view, the actual loss being ₹ 10,98,087/-, the balance loss of ₹ 2,24,982/- was rightly disallowed and the issue is accordingly decided against the assessee.

Issues Involved:
1. Disallowance of interest and depreciation.
2. Legality of proceedings initiated under section 153A(b).
3. Eligibility for higher depreciation on vehicles.
4. Disallowance of bad debts.
5. Addition of undisclosed income based on seized diary.
6. Excess claim of loss and depreciation.

Issue-wise Detailed Analysis:

1. Disallowance of Interest and Depreciation:
The appellant challenged the partial confirmation of disallowance of interest and depreciation by the CIT(A) as illegal and against the principles of natural justice. However, these grounds were deemed general in nature and required no adjudication.

2. Legality of Proceedings Initiated Under Section 153A(b):
The appellant contested the legality of proceedings initiated under section 153A(b) for A.Y. 2002-03. This ground was not pressed by the appellant's counsel and was subsequently dismissed.

3. Eligibility for Higher Depreciation on Vehicles:
The appellant argued for a higher depreciation rate of 40% on trucks and JCBs used for hire during off-peak business periods. The CIT(A) had denied this, citing a lack of specific lease agreements. However, upon reviewing the ledger accounts and carting income details, the Tribunal found the appellant's claims substantiated. The vehicles were indeed used for hire, and the absence of separate lease agreements for each trip was not deemed decisive. Thus, the Tribunal allowed the higher depreciation rate of 40%.

4. Disallowance of Bad Debts:
For A.Y. 2004-05, the appellant's claim of bad debts amounting to Rs. 13,36,532/- was disallowed as it was not made during the original return filing but only after a search operation. The Tribunal upheld this disallowance, finding no justification for the delayed claim.

5. Addition of Undisclosed Income Based on Seized Diary:
The CIT(A) had added undisclosed income based on entries in a seized diary. For A.Y. 2004-05, the Tribunal found that only the peak amount of credit and debit entries, totaling Rs. 14,35,666/-, should be taxed, not the entire receipts. This principle was similarly applied to subsequent years, reducing the additions to Rs. 6,70,742/- for A.Y. 2005-06 and Rs. 5,76,707/- for A.Y. 2006-07.

6. Excess Claim of Loss and Depreciation:
For A.Y. 2006-07, the appellant's claim of excess loss of Rs. 2,24,982/- from the Ujjain division was disallowed as the actual loss determined was Rs. 10,98,087/-. The claim for excess depreciation on vehicles was allowed in line with the decision for A.Y. 2003-04. For A.Y. 2007-08, the excess depreciation claim of Rs. 58,033/- was similarly allowed, but the excess loss claim of Rs. 1,25,442/- was disallowed.

Revenue's Appeals:
The Revenue's appeals for A.Y. 2004-05, 2005-06, and 2006-07 contested the CIT(A)'s restriction of additions based on seized diary entries. The Tribunal upheld the CIT(A)'s approach of taxing only the peak credit and debit entries, dismissing the Revenue's appeals.

Conclusion:
The Tribunal partly allowed the appellant's appeals, granting higher depreciation claims and reducing additions based on seized diary entries. The Revenue's appeals were dismissed, affirming the CIT(A)'s methodology for undisclosed income assessment.

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