2024 (9) TMI 132 - AT - Income Tax

Disallowance restricting the depreciation to 15% as against 40% claimed by the assessee on cars - assessee gave two cars on hire and earned income and this was offered to income under the head income from other sources - HELD THAT - The assessee provided copies of agreements, entered into for lease of the vehicles, however, we noticed that the AO restricted the depreciation to 15% only. The appendix where the rate of depreciation to be allowed on vehicles given on hire suggests that motor lorries and motor taxies used in a business of running them on hire are eligible for depreciation @ 30%. In this case, since in this case, the assessee has given his vehicles on lease basis on hire, the AO should have allowed depreciation @30% instead of 15%. Thus, we direct the AO to allow depreciation @ 30% against 40% claimed by the assessee and allowed by the AO at 15%. Interest paid on loan borrowed for purchase of plot as part of cost of acquisition - HELD THAT - We direct the AO to allow the interest on borrowed capital as part of cost of acquisition for the purpose of computing capital gains. Ground no.3 of grounds of appeal of the assessee is allowed. Recalculation of income from house property - HELD THAT - On perusal of the computation of income filed we observe that the assessee has declared income from house property at Rs. 1,80,000 and also declared lease rent from cars under the head income from other sources . On perusal of the assessment order, we notice that the AO misdirected himself in considering the rental income from property and in recomputing the income under the head income from house property Thus, we direct the Assessing Officer to delete the addition made in the assessment order. Loss on sale of land - HELD THAT - CIT (A) was under the view that this capital loss allowed by the Assessing Officer is not correct. We observe that the cost of acquisition arrived at by the assessee at Rs. 49,56,133/- includes interest of Rs. 19,22,524/- on borrowed loan for purchase of property which was treated as cost of acquisition. We also notice that the purchase cost of the property to the assessee s share of 50% is Rs. 29,91,391/- and after indexation, the cost of acquisition stood at Rs. 76,63,568/-. In the circumstances, the apprehension of CIT (Appeals) that the AO allowed Long Term Capital Gain loss appears to be not correct. Thus, there is no ground for any disallowance of capital loss as directed by the learned CIT (Appeals). This ground of appeal of the assessee is allowed.

Issues Involved:

1. Legality of the order passed by the CIT(A).
2. Depreciation rate on leased cars.
3. Interest paid on loan borrowed for the purchase of a plot.
4. Addition under the head 'income from house property'.
5. Enhancement of income due to loss incurred on the sale of land.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed by the CIT(A):

The first ground of appeal was of a general nature, questioning the overall legality of the CIT(A)'s order. This ground did not call for specific adjudication and was thus not addressed in detail.

2. Depreciation Rate on Leased Cars:

The assessee contended that the CIT(A) erred in confirming the AO's action of restricting the depreciation rate on leased cars to 15%. The assessee argued that the cars were used for hiring purposes, justifying a higher depreciation rate of 40%. The Tribunal reviewed the material and found that the cars were indeed given on lease and the income was offered under "income from other sources". The Tribunal directed the AO to allow depreciation at 30%, as motor lorries and motor taxis used in a business of running them on hire are eligible for this rate. Thus, the assessee's claim was partially upheld.

3. Interest Paid on Loan Borrowed for Purchase of Plot:

The assessee argued that the interest paid on a loan taken to purchase a plot should be considered part of the cost of acquisition. The AO had disallowed this, referencing a decision that interest paid from the date of acquisition to the date of sale does not form part of the cost. The Tribunal, however, found merit in the assessee's reliance on judicial precedents, including decisions from the Delhi High Court and Madras High Court, which held that interest on borrowed funds for asset acquisition is part of the actual cost. The Tribunal directed the AO to include the interest as part of the cost of acquisition for computing capital gains, thereby allowing the assessee's appeal on this ground.

4. Addition Under the Head 'Income from House Property':

The AO had added Rs. 2,75,520 to the assessee's income, assuming that the rental income from cars was part of the house property income. The assessee clarified that the rental income from house property was shown separately from the lease income of cars. The Tribunal found that the AO had misdirected himself by considering the lease income from cars as rent received from house property. The Tribunal directed the AO to delete the addition of Rs. 2,75,520, thereby allowing this ground of appeal.

5. Enhancement of Income Due to Loss Incurred on Sale of Land:

The CIT(A) had enhanced the assessee's income by Rs. 39,75,568, disallowing the loss on the sale of a plot. The assessee argued that the loss was not claimed in the original return and that the revised computation showed a capital gain, not a loss. The Tribunal found that the CIT(A) misinterpreted the facts, as the revised computation by the assessee did not claim any extra loss but rather reduced the previously claimed loss. The Tribunal observed that the cost of acquisition included interest on borrowed funds, which was justified. Consequently, the Tribunal directed that there was no ground for disallowing the capital loss, allowing this ground of appeal.

Conclusion:

In conclusion, the Tribunal allowed the appeal of the assessee on all grounds, directing the AO to make necessary adjustments as per the detailed findings. The order was pronounced in the open court on 14/02/2024.

← Previous Next →