2016 (8) TMI 110 - HC - Income Tax

Allowance of process loss in Sun Flower Oil - ITAT allowed the claim - Held that - Tribunal has considered the facts on record. Several relevant factors have been examined. These facts included uncertainty of the nature of business and fluctuating nature of process loss. By the very nature of things, the business of assessee depended on quality of cotton seed oil procured from the market. Such cotton seed oil depending on quality of cotton produced being an agricultural commodity, naturally quality would depend on the seeds used, the technique employed by farmers for production, soil, rainfall, irrigation and so on. In absence of any additional material, only on basis of an isolated answer by one of the Directors of the company, the Assessing Officer could not have come to the conclusion that the process loss was artificially inflated. Tribunal had also relied on certificate given by the supplier of machine who stated that typically the process loss ranges between 2.65% to 4.20%. - Decided in favour of assessee. Depreciation on trucks given on hire - Held that - As the trucks were not used in the business of running them on hire, the Tribunal was not right in allowing depreciation at the rate of 40% by reversing the order of the Commissioner (Appeals). The depreciation on trucks ought to have been restricted to 25% as has been rightly granted by the Assessing Officer which has been confirmed by the Commissioner (Appeals). - Decided in favour of revenue.

Summary

Issues involved:
1. Challenge to the order of the Income-tax Appellate Tribunal regarding depreciation on trucks not used for business purposes.
2. Interpretation of the rules for claiming depreciation on trucks used for business purposes.

Analysis:

Issue 1: Challenge to Tribunal's order on depreciation for trucks not used for business:
The High Court addressed the appeal challenging the Income-tax Appellate Tribunal's decision regarding the depreciation on trucks not utilized for the business purpose of running them on hire. The Tribunal had reversed the decision of the Commissioner of Income-tax (Appeals) and allowed the depreciation, which was contested by the revenue through this appeal. The court framed substantial questions of law related to the process loss in Sun Flower Oil and the entitlement to depreciation on trucks given on hire.

The court referred to a previous judgment concerning the same assessee for a different assessment year where the Tribunal's decision in favor of the assessee was upheld. The court analyzed various factors such as Gross Profit rate, process loss, quality of raw materials, and previous tribunal decisions to conclude that the process loss claimed by the assessee was justified. Consequently, Issue No. 1 was resolved in favor of the assessee based on the precedent and factual analysis.

Issue 2: Interpretation of rules for claiming depreciation on trucks used for business purposes:
Regarding the second issue, the dispute centered on the claim of depreciation at a rate of 40% on trucks that were not used for hiring out to others but for transporting edible oil in the assessee's business. The Assessing Officer restricted the depreciation claim to 25% as the trucks were not employed in the business of running them on hire. The Commissioner of Income-tax (Appeals) upheld this decision, but the Tribunal reversed it, allowing the higher rate of depreciation based on the trucks being given on hire to another entity.

The appellant contended that the Tribunal erred in its decision, citing relevant legal precedents emphasizing that the higher rate of depreciation is applicable only when the trucks are used in the business of running them on hire. Referring to the Supreme Court's ruling and a local court decision, the High Court reiterated that the key consideration is whether the assessee was in the business of hiring out the trucks. As the trucks were not utilized for hire purposes, the court upheld the Assessing Officer's decision to restrict the depreciation claim to 25%, contrary to the Tribunal's ruling. Consequently, Issue No. 2 was decided in favor of the revenue, and the appeal was disposed of accordingly.

In conclusion, the High Court's detailed analysis of the issues involved led to a nuanced interpretation of the rules governing depreciation claims on trucks not used for hire purposes, ensuring a fair and legally sound judgment.