Shivam Water Treaters Pvt. Ltd. Vs ACIT (ITAT Ahmedabad)
The 1st issue that arises for our consideration whether the assessee is eligible to claim the depreciation on the purchase of cars in the manner as provided under section 32 of the Act. To claim the depreciation under section 32 of the Act, the following conditions needs to be specified/satisfied.
(a) Assets should be owned wholly or partially and
(b) Used for the business purpose
20.1 From the above, the 1st condition arises for adjudication whether the assessee is the owner of the cars in dispute. The assessee has shown purchase of 5 cars in in the year under consideration. Out of the 5 cars, 2 cars namely Audi-A4 and BMW, there is no dispute as far as the ownership of the cars is concerned. However, the AO has disallowed the depreciation claimed by the assessee with respect to the remaining 3 cars namely Audi-A6, Sonata, Innova on the reasoning that the assessee has failed to furnish the ownership of the cars in dispute which is one of the prerequisite to claim depreciation. Admittedly, the assessee has furnished the purchase invoices and RC book which are placed on pages 145 to 158 of the paper book. However on perusal of the invoice/ RC book and the copy of the ledger furnished by the assessee, we find certain discrepancies as detailed in following paragraph.
It was disputed by the authorities below that the cars are registered in the name of the directors and the assessee was not maintaining the logbook. Therefore the AO was of the view that the possibility of personal use of the car cannot be ruled out. There is no dispute to the fact that all the cars were purchased in the name of the directors but the payment was made through the assessee company. Thus it is transpired that the legal ownership though vest with the individual directors but the Dominion ownership rest with the assessee. For the reason that, the assessee has made the payment for the purchase of the car from its books of accounts. Therefore the assessee is very much eligible for depreciation on these cars. The assessee being a body corporate, there is no possibility for the directors to use the car for the personal purposes. Assuming the assessee doesn’t maintain the logbook and the director of the company uses the car for the personal purposes. Then in such a situation, at the most such facility extended by the company to the directors can be treated as perquisites under the provisions of section 17(2) of the Act which can be brought to tax in India hands of the director as part of salary.
It is also interesting to note that the depreciation is an allowance and not an expenditure which has to be allowed in pursuance to the provisions of section 32 of the Act irrespective of its use by the director or the company.
It is also important to note that the assessee cannot be denied the depreciation merely on the reasoning that the cars were registered in the name of the directors. It is for the reason that there is no dispute raised by the Revenue as far as the payments for the purchase of the car is concern. Thus, we are interpreting that the payments made by the assessee, as reflected in the books of accounts, amounts to beneficial owner ship of the assessee and eligibility to claim depreciation.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeals have been filed at the instance of the Assessee and the Revenue against the separate orders of the Learned Commissioner of Income Tax (Appeals)-XIV, Ahmedabad, arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Years 2009-10, 2011-12 & 2012-2013.
First we take up ITA No.1320/Ahd/2014, an appeal by the assessee for A.Y. 2009-10
2. The assessee has raised the following grounds of appeal:
1. Addition of Rs. 48,85,005 on account of disallowance of depreciation on plant and machinery installed by the appellant company be deleted. It is so held now.
2. Addition of Rs.872 145 on account of disallowance of depreciation on cars be deleted. It be so held now.
3. Addition of Rs.6,99,82,515/- u/s.68 be deleted, it be so held now.
4. Addition of Rs.1500000 u/s.40A (2)(b) be deleted, it be so held now.
5. Such other reliefs as may be admissible in case of the Appellant may also be granted to the Appellant.
3. The 1st issue raised by the assessee is that the learned CIT-A erred in confirming the disallowance made by the AO for Rs. 48,85,005/- representing the depreciation claimed on the plant and machinery.
4. The necessary facts as arising from the order of the authorities below are that the assessee in the present case is a private limited company and engaged in the business of manufacturing & marketing of water treatment plants and parts. The assessee was awarded a contract by Water and Sanitation Management Organization (In short WASMO) under the scheme of Government of Gujarat to install the RO plant in the rural areas of Gujarat under BOOT system vide agreement dated 4th October 2008. The assessee accordingly, in the year under consideration, has purchased the RO being plant and machineries of ₹ 6,51,33,397/- which were capitalized in the books of accounts. The assessee on such addition of plant and machineries claimed depreciation amounting to Rs. 48,85,005/- only. However, the assessee in support of the addition of the plant and machineries failed to furnish the details of the bills in order to establish the date of purchase, date of installation, date of commissioning and the date of put to use. The reason for not furnishing the details was submitted by the assessee vide letter dated 23rd August 2011 that all the relevant documents have been seized by the VAT department as a result of search conducted on 24-06-2011. However, the assessee to justify the purchase of the plant and machineries filed the loan sanctioned letter for the purchase of impugned assets from the UCO bank for Rs. 450 Lacs. The assessee has also filed the copy of the payment advice in order to demonstrate that the loan was disbursed to the assessee in the month of March 2009.
4.1 However, the AO was not satisfied with the contention of the assessee in the absence of necessary details such as date of purchase, installation, commissioning and put to use. Likewise, the assessee has also not furnished the copies of the ledger for the plant and machinery and fixed assets register. Thus the AO disallowed the claim of the assessee for the depreciation of Rs. 48,85,005/- and added to the total income of the assessee.
5. Aggrieved assessee preferred an appeal to the learned CIT-A.
6. The assessee before the learned CIT-A submitted that it failed to furnish the requisite details to the AO during the assessment proceedings for the reasons which were beyond its control. As such there was a search operation by the VAT department dated 24th of June 2011 and all the books of accounts including the purchase bills of the plant and machineries were seized by the VAT department. Thus, it was prayed to the AO to call for the necessary and requisite details from the VAT department but the AO has not done so. Likewise it was also prayed to the AO to obtain the necessary details from the WASMO department to establish the fact that the plant and machineries were duly installed and put to use in the year under consideration. But the AO has not done so.
6.1 The assessee during the appellate proceedings furnished the bills for the purchase of plant and machineries in duplicate before the learned CIT-A which are sufficient enough to establish the fact that the machineries were purchased and installed in the year under consideration. The assessee also furnished the invoices raised by it in the month of April 2009 to WASMO for the services rendered out of the use of the plant and machineries. The invoices raised pertains to the services rendered by the assessee in the month of March 2009. Thus there remains no ambiguity to the fact that the plant and machineries were installed in the year under consideration.
7. The learned CIT-A called for the remand report from the AO vide letter dated 23rd May 2013 on the detail submitted by the assessee. The assessing officer filed the remand report vide letter dated 5th November 2013. The AO in the remand report submitted that the assessee has only furnished 25 bills for the purchase of the plant and machineries against the 35 items of the plant and machineries. At the same time, there was no detail furnished by the assessee to justify the date of installation of the plant and machineries which becomes important in the given facts and situation as all the machineries were purchased at the fag end of the financial year i.e. February and March 2009.
7.1 The ledger copy of the invoice raised to WASMO against the services provided by the assessee pertains to the month of April 2009 and does not relate to the year under consideration.
7.2 The learned CIT-A considered the assessment order, submission of the assessee and the remand report of the AO and found that there was no rejoinder furnished by the assessee with respect to the remand report of the AO despite having granted several opportunities.
7.3 The learned CIT-A further observed that the assessee has not furnished any details to establish that the plant and machineries were installed and put to use in the year under consideration. Thus in the absence of such details, the learned CIT-A confirmed the order of the AO.
8. Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
9. The learned AR before us filed a paper book running from pages 1 to 381 and contended that the relevant documents were not filed by the assessee as the same were seized by the VAT department in the search conducted upon it. However, there were bank loan related documents for the purchase of machineries which were filed before the AO to establish the fact for the purchase of the machineries. Likewise, there were bills raised to the parties pertaining to the year under consideration which evidence that all the machines were put to use in the year under consideration.
10. On the contrary, the learned DR submitted that it is one of the prerequisite that the asset on which the depreciation was claimed by the assessee was put to use during the relevant year. But the assessee has not furnished any evidence with regard to the same. Thus the learned DR vehemently supported the order of the authorities below.
11. We have heard the rival contentions of both the parties and perused the materials available on record. For claiming the depreciation under section 32 of the Act, the assessee has to satisfy the conditions mentioned therein. Section 32 of the Act stipulates that Building machinery plant or furniture on which depreciation is claimed should be owned by the assessee and Building, machinery, plant or furniture should be used for the purposes of business or profession.
11.1 In the present case, there was the addition of the plant and machineries amounting to Rs. 6,51,33,397/- only. In this regard, we have perused the purchase ledger which is placed on page 66 of the paper book. Based on purchase ledger, we find that all the plant and machineries were purchased by the assessee at the fag end of the financial year under consideration. Thus it becomes imperative to ascertain whether the plant and machineries were put to use in the year under consideration. Indeed the onus lies upon the assessee to establish this fact based on the documentary evidence. However, we note that the assessee has not discharged its onus by submitting the primary documents.
11.2 We have also seen the bank sanctioned latter placed on page 72 of the paper book which states that the commercial operation shall commence from the month of June 2009. From the above letter, we find that the project was commercially due to start from June 2009.
11.3 Admittedly, there was also difficulty with the assessee to provide the necessary details on account of search operation of the VAT department. Therefore, the assessee time and again has requested to the AO to collect the necessary details from the VAT department as well as from the WASMO, a unit of Government of Gujarat. The relevant extract of the submission of the assessee reads as under:
11.4 Before the AO:
That as regards the bills for new machinery purchased for WASMO Project is concerned, we have made addition of Rs.65133397/- in the Machinery Account, but we are unable to file the copy of bills as the VAT Department has seized out sales and purchase files.
11.5 Before the learned CIT-A:
a. After filing the return of income for the assessment year in question, VAT department of the Gujarat Government had conducted a search in the premises of the assessee company on 24.06.2011 i.e the date prior to giving ample opportunity for submitting the details to the Ld.AO. The AR of the appellant had categorically stated this fact from time and again to the Ld.AO and requested to call for the details from the VAT department. This is because of the fact the one government department will definitely give proper details to the other government department, but unfortunately the Ld.AO has never attempted to write a letter directly to the VAT department or given an authority to the AO of the appellant for getting the details from the VAT department. Because of this the assessee could not submit certain relevant documents during the course of the hearing.
11.6 But we note that the authorities below have not exercised its powers granted under the statute i.e. under section 133(6)/131 of the Act in order to find out whether the commercial operation began in the year under consideration.
11.7 We are also conscious to the fact that the genuineness of the plant and machinery has not been doubted by the authorities below. It is also the settled law that the actual use of the plant and machinery is not necessary for claiming the depreciation. As such when the plant and machinery is ready to use becomes eligible for depreciation. In holding so we draw support and guidance from the judgment of Hon’ble Punjab and Haryana Court in the case of Commissioner of Income-tax, Karnal v. Shahbad Co-op. Sugar Mills Ltd., Shahbad reported in 12 taxmann.com 421 wherein it was held as under:
“Reference was also be made to dictionary meaning of the word ‘depreciation’ as also the object of allowing depreciation. In the present case, the machinery in question is vapour cell, juice clarifier and fly ash arrester paid pweitier which according to the assessee had to be kept ready for use for its business expediency. Stand of the assessee is that it resulted in increase of capacity of the plant and that on account of technical justification for the said machinery, items of the machines were installed. Even though the auditors may not have accepted the said stand, the assessee was entitled to free play in joints in taking a decision to install the machinery if in its view the same was necessary for its business. If the assessee was to install such a machinery on its bona fide business consideration, mere absence of proof of actual use thereof was not enough to deny the claim for depreciation. Accordingly, we do not find any ground to interfere with the finding of the Tribunal, holding that the assessee was entitled to depreciation on the machinery, as claimed.”
11.8 However, in the absence of necessary details, we are inclined to give one more opportunity to the assessee to raise its point of contention before the AO in support of its arguments. It is also seen that the assessee has filed additional papers demonstrating the list of villages where RO Plant has been installed, charts of parties with details & remark of Wasmo Project and 9 bills of machineries of WASMO project which are available in the paper book. These papers are necessary to be considered by the AO for adjudicating the issue on hand. Thus in the interest of justice and fair play, we set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. The assessee is also at the liberty to furnish the necessary details before the AO and should extend the full cooperation without fail. Hence the ground of appeal of the assessee is allowed for the statistical purposes.
12. The next issue raised by the assessee is that the learned CIT-A erred in confirming the order of the AO by sustaining the disallowance of the depreciation claimed by it (the assessee) with respect to the additions of 5 cars in the block of assets in the year under consideration.
13. The assessee in the year under consideration has purchased 5 cars which were claimed to be registered in the name of the directors. The necessary details of the additions of cars stand as under:
