Case Law Details
Span Air Pvt Ltd Vs ACIT (ITAT Delhi)
Introduction: In a significant judgment, the Income Tax Appellate Tribunal (ITAT) Delhi has interpreted the phrase ‘used for the purposes of business’ to include assets ready for use but not actually put to use. The ruling came in the case of Span Air Pvt Ltd Vs ACIT, pertaining to the disallowance of a portion of depreciation under section 32 of the Income Tax Act.
Analysis: Span Air Pvt Ltd had claimed full depreciation on a vehicle purchased in 2014, which was ready for use in the first half of the financial year but registered in the second half. The Assessing Officer (AO), and later the Commissioner of Income Tax (Appeals), disallowed 50% of the depreciation on the grounds that the vehicle was registered after 180 days from the start of the financial year.
The ITAT, however, sided with the assessee, noting that the vehicle was purchased, insured, and ready for use well within the first half of the year. In support of its ruling, the ITAT referred to judgments by the Delhi High Court, which interpret the term ‘used for the purpose of the business’ in a broader sense, including both active and passive use of an asset.
Conclusion: The ITAT’s ruling in the Span Air Pvt Ltd Vs ACIT case expands the interpretation of ‘used for the purposes of business’ to cover assets ready for use but not necessarily in active use. This provides valuable guidance for businesses, particularly in terms of claiming depreciation on assets. This judgment further reinforces the need for a comprehensive understanding of the law and judicial precedents while dealing with taxation issues.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the assessee is directed against the order dated 04.02.2019 passed by the Commissioner of Income Tax (Appeals) – XXV, New Delhi for Assessment Year 2015-16.
2. Brief facts of the case as culled out from the material on record are as under :-
3. Assessee is a company stated to be engaged in the business of providing non-scheduled flights to organizations, professionals worldwide. Assessee electronically filed its return of income for A.Y. 2015-1 on 28.11.2015 declaring loss of Rs.1,12,04,454/- under the normal provision of Income Tax Act and Rs.26,46,978/- under section 115JB of the Act. Therefore, the case was selected for scrutiny and assessment was framed u/s 143(3) of the Act vide order dated 27.12.2017 and the total loss was determined at Rs.96,60,400/-.
4. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who vide order dated 04.02.2019 in Appeal No.10305/18-19 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal before Tribunal and has raised the following grounds:
1. “That having regard to the facts of the case , provisions of law and judicial propositions the Ld. CIT(A) grossly erred in disallowing Rs.6,42,840/- in considering vehicle registration date i.e. 22/11/2014 as the date when the vehicle was available for use and thus allowed only 50% depreciation u/s 32 of the Income Tax Act disregarding the provisions of law including that of judicial precedents where it was established that for claiming depreciation under section 32 there is no need that vehicle should be registered under ” Motor Vehicles Act” in the assessee’s name , hence impugned disallowance of Rs.6,42,840/- is arbitrary and untenable deserves to be deleted in full.
2. Without prejudice point no-1, That having regard to the facts of the case, provisions of law and judicial propositions the Ld. CIT(A) grossly erred in disallowing Rs.6,42,840/- in considering vehicle registration date i.e. 22/11/2014 as the date when the vehicle was available for use and thus allowed only 50% depreciation u/s 32 of the Income Tax Act as the vehicle was available to use for less than 180 days. AO has been grossly erred in disregarding judicial pronouncements of several High Courts including that of Jurisdictional Delhi High Court where it has been held that the expression “used for the purpose of the business” for claiming depreciation u/s 32 , the use of the asset may be active or passive e kept ready for use. Date of possession of asset and keeping ready for use in the business shall be date for claiming depreciation i.e 28.09.2014 thus assessee is entitled 100% depreciation, hence impugned disallowance of Rs.6,42,840/- is arbitrary and untenable shall be deleted .
3. The appellant craves the right to amend, add, delete, replace, all or any of the grounds of appeal either during the course of hearing or at any time before hearing of this appeal.”
5. Before us, Learned AR submitted that though assessee has raised various grounds but the sole issue is with respect to the disallowance of depreciation.
6. During the course of assessment proceedings, AO noticed that assessee has claimed depreciation on vehicle. He noticed that the vehicle was purchased during the year and registration of the vehicle was done on 22.11.2014 and according to AO, since the registration was done on 22.11.2014, it was eligible for the depreciation @ 50% on the normal rate i.e. @7.5% in A.Y. 2015-16. He accordingly disallowed 50% of the depreciation on new vehicle amounting to Rs.6,42,840/-. Aggrieved by the order of AO, assessee carried the matter before CIT(A). CIT(A) in his order upheld the order of AO. Aggrieved by the order of CIT(A), assessee is now before us.
7. Before us, Learned AR reiterated the submissions made before lower authorities and further submitted that assessee had purchased the vehicle on 22.09.2014, the vehicle was insured also on 22.09.2014. He submitted that assessee had paid the entire purchase price including the insurance before 30.09.2014 but the vehicle got registered on 22.11.2014. He submitted that since the vehicle was ready for use on the date of purchase i.e. on 22.09.2014, it satisfied the concept of ‘Passive User’ and since the vehicle was ready for use during the first half of F.Y. 2014-15, the assessee was entitled to claim 100% depreciation u/s 32 of the Act for full year. In support of his contention that the vehicle was purchased before 30.09.2014, he placed on record the copy of the invoice of the purchase of vehicle. He also placed on record the copy of the Certificate issued by vendor of the vehicle specifying the delivery of the vehicle to be on 28.09.2014. He, thereafter, placed reliance on the decision of Delhi High Court in the case of National Thermal Power Corporation Ltd. vs. Commissioner of Income-tax (2012) 28 taxmann.com 89 (Delhi) wherein the Hon’ble High Court has held that the expression ‘used for the purposes of the business’ under section 32 of the Act would also mean an asset which is kept ready for use but is not actually put to use. He also placed reliance on the decision of Delhi High Court in the case of CIT vs. Refrigeration and Allied Industries Ltd. (2000) 113 Taxman 103 (Delhi – H.C.) wherein the Hon’ble High Court has held that the expression ‘used’ in Section 32(1) of the Act includes both passive and active user. He, therefore, submitted that the AO was not justified in disallowing the 50% claim of depreciation. He, therefore, submitted that assessee be allowed the full depreciation.
8. Learned DR on the other hand took us through the order of lower authorities and supported the order of lower authorities.
9. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the disallowing 50% of depreciation on vehicle. The reason for disallowing the 50% of depreciation was for the reason that the vehicle was registered in the second half of the relevant previous year. Before us, assessee has submitted that though the registration was done in the second half i.e. on 22.11.2014 but it had paid for the purchase of vehicle in the first half of the year i.e. on 22.09.2014 and also received the delivery of the vehicle on 22.09.2014 and the vehicle was thus in the possession of the assessee before 30.09.2014. The aforesaid factual submissions of the assessee has not been controverted by Revenue. We find force in the argument of Learned AR that since the assessee had paid for the entire purchase cost and had vehicle in its possession before 30.09.2014 and simply because the registration was done on 22.11.2014, the assessee cannot be denied the benefit of depreciation for the full year. We find support in the decision of Hon’ble Delhi High Court in the case of National Thermal Power Corporation Ltd. vs. Commissioner of Income-tax (supra) wherein the Hon’ble High Court has held that ‘used for the purposes of the business’ would include the asset which is kept ready for use but actually not put to use. Before us, Revenue has not pointed to any contrary binding decision in its support. In such a situation, we hold that assessee is entitled for deprecation for entire year. We, therefore, direct the AO to allow the claim of depreciation for the entire year. Thus the ground of assessee is allowed.
10. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 31.05.2023
