2016 (6) TMI 1084 - AT - Income Tax

Higher rate of depreciation on account of hiring of vehicles - rectification of mistake - AO reduced the depreciation from 30% to 15% by resorting to provisions of section 154 - Held that - When an assessee receives hire charges/rental receipt on account of hiring of vehicles the issue relating to rate of depreciation is a debatable one. The Hon ble Supreme Court in the case of Volkart Brothers and others (1971 (8) TMI 3 - SUPREME Court ) has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record. It has also been held by various decisions that rectification proceedings u/s.154 cannot be initiated on debatable issues. Since the issue in the instant case is a highly debatable issue, i.e. whether the assessee is entitled to higher rate of depreciation on account of hiring of vehicles, therefore, we are of the considered opinion that it is not a case for rectification u/s.154 of the I.T. Act. We, therefore, are of the considered opinion that the AO could not have reduced the depreciation from 30% to 15% by resorting to provisions of section 154 of the I.T. Act. The Ld. Counsel for the assessee also made a statement at the bar that in the subsequent year although the assessee has claimed such higher rate of depreciation at 30%, however, no proceedings u/s.154,163/148 has been initiated. In this view of the matter, we set aside the order of the CIT(A) and direct the AO to delete the addition made by him. - Decided in favour of assessee

Summary

Issues:
Allowability of higher rate of depreciation on vehicles used for hiring purposes.

Analysis:
The appeal was filed by the assessee against the CIT(A)'s order for Assessment Year 2008-09. The assessee, a partnership firm engaged in manufacturing cement and concrete pipes, filed its return declaring total income of ?80,47,920. The AO later determined the total income at ?1,48,03,630, noting that the assessee had claimed excess depreciation on vehicles. The AO issued a notice u/s.154 proposing to rectify the depreciation rate from 30% to 15% for vehicles used for hiring. The assessee objected, citing income from vehicle hire charges in the profit and loss account. However, the AO rejected the objection, leading to an addition of ?5,71,165 as excess depreciation.

Before the CIT(A), the assessee reiterated its stance, arguing that since it received hire charges for vehicles, depreciation at 30% was justified. However, the CIT(A) upheld the AO's decision, stating that the business did not fall under the category justifying higher depreciation. Aggrieved, the assessee appealed, contending that the issue was debatable and not subject to rectification under section 154.

The Tribunal considered the arguments and relevant case laws. It noted that when an assessee receives rental receipts from hiring vehicles, the issue of depreciation rate is debatable. Citing the decision in Urmila Enterprises Pvt. Ltd., the Tribunal held that rectification proceedings under section 154 cannot be initiated on debatable issues. As the issue of higher depreciation rate for vehicles used for hiring was debatable, the AO's reduction of depreciation from 30% to 15% was deemed incorrect. The Tribunal directed the AO to delete the addition made, allowing the assessee's appeal.

In conclusion, the Tribunal allowed the appeal, emphasizing that the issue of higher depreciation rate for vehicles used for hiring was debatable and not suitable for rectification under section 154. The Tribunal's decision was based on the principle that rectification proceedings cannot be initiated on debatable issues, ensuring that the assessee was entitled to claim higher depreciation at 30% for vehicles used for hiring purposes.