Case Law Details
Super Alloy Castings P. Ltd Vs ACIT (ITAT Delhi)
ITAT Grants Higher Depreciation for Office Electric Fittings Due to Misclassification & personal user cannot be visualized in the hands of corporate assessee
Introduction: In a recent decision by the Income Tax Appellate Tribunal (ITAT) Delhi, Super Alloy Castings P. Ltd. faced off against the Assistant Commissioner of Income Tax (ACIT). The case revolves around two key issues: the rate of depreciation on electrical fittings and charges related to personal use of certain expenses. This article provides an in-depth analysis of the ITAT Delhi’s judgment and its implications for the assessee.
Depreciation on Electrical Fittings: The dispute over depreciation hinges on the rate applicable to electric fittings. The electric fittings are divided between those installed in the office premises and those in the factory premises. The assessee claimed a 10% depreciation rate on office fittings, while asserting that the Factory Genset and certain machine’s Electrical Panels installed for factory purposes should be eligible for a 15% depreciation rate. The Assessing Officer and the Commissioner of Income Tax (Appeals) both failed to recognize this distinction and allowed only a 10% depreciation rate on all electric fittings.
Notably, in a previous assessment for the 2014-15 tax year, the Assessing Officer had issued a notice under Section 148 for excess depreciation claimed on these fittings. However, upon review during assessment under Section 143(3) r.w. Section 147, the Assessing Officer accepted the higher claim. The ITAT Delhi found substantial merit in the assessee’s claim and directed the Assessing Officer to reverse the disallowance related to depreciation on factory premises electric fittings.
Personal Use Charges: During the assessment year in question, the assessee incurred expenses on telephone, vehicle running, and vehicle maintenance, among others. The Assessing Officer estimated that 10% of these expenses, amounting to Rs. 1,62,096 in total, were incurred for personal use by the directors and others. However, the ITAT Delhi emphasized that personal use charges cannot be attributed to a corporate assessee. Instead, such charges, at most, can be considered as perquisites in the hands of the individuals benefiting from these expenses.
The ITAT Delhi cited the case of DCIT vs. Haryana Oxygen Ltd. (Del), where the Tribunal ruled against attributing personal use to corporate entities. In line with this precedent, the ITAT Delhi accepted the assessee’s plea, leading to the allowance of Ground No. 2 in the appeal.
Conclusion: The ITAT Delhi’s judgment in favor of Super Alloy Castings P. Ltd. marks a significant development in the realm of income tax assessments. The decision clarifies the distinction between depreciation rates for different categories of assets and reinforces the principle that personal use charges should not be imposed on corporate entities. This outcome underscores the importance of sound legal arguments and precedents in the field of tax law, providing clarity and relief to the assessee in this particular case.
FULL TEXT OF THE ORDER OF ITAT DELHI
The captioned appeal has been filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi (‘CIT(A)’ in short) dated 15.02.2023 arising from the assessment order dated 18.12.2019 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2017-18.
2. The grounds of appeal raised by the assessee read as under:
“1. That on the facts and the circumstances of the case the Ld CIT Appeals was not justified in confirming the disallowance of Rs.80,998 on account of Depreciation on Electrical Fittings. No such disallowance has been made in past assessments us 143(3).
2. That on the facts and the circumstances of the case the Ld CIT Appeals was not justified in the confirming the addition of Rs.1,62,500/- on account of personal use of Telephone, Vehicle Running Expenses and Vehicle repair and maintenance. No such disallowance has been made in past assessments framed us 143(3).”
3. When the matter was called for hearing, the ld. counsel for the assessee submitted that the dispute as per ground no.1 hinges on rate of depreciation applicable to the electric fittings. In the context, the ld. counsel submitted that the electric fittings are installed in the office premises as well as in the factory premises. The depreciation has been claimed @10% on the fittings installed in the office premises whereas the depreciation on Factory Genset and Electrical Panels of certain machine installed for factory premises are charged at 15% as eligible to the assessee. The Assessing Officer as well as the CIT(A) has failed to appreciate the distinction between the electric fittings installed in the factory premises vis-à-vis office premises and allowed depreciation @10% only on the electric fittings installed on factory premises too. It was further pointed out that for the Assessment Year 2014-15 on the same matter, the Assessing Officer issued notice under Section 148 on account of excess depreciation on such electric fittings. However, while framing the assessment under Section 143(3) r.w. Section 147 vide order dated 30.03.2012, the Assessing Officer found merit in the claim of the assessee and no additions were made on the identical point.
4. On appraisal of the orders of the authorities below as well as the facts placed on record, we find palpable merit in the plea of the assessee towards correctness of higher depreciation claimed on electric fittings installed at the factory premises. The Assessing Officer himself has accepted the higher claim of 15% in Assessment Year 2014-15. We thus see substantial force in the claim of the assessee. The order of the CIT(A) is set aside on this issue and the Assessing Officer is directed to reverse the disallowance on this score. Hence, Ground No.1 of the appeal of the assessee is allowed.
5. Apropos Ground No.2, the ld. counsel submitted that during the year under consideration, the assessee has inter alia incurred expenses on telephone, vehicle running and vehicle maintenance etc. In the course of the assessment, the Assessing Officer while framing the assessment has estimated 10% of such expenses amounting to Rs.1,62,096/- in aggregate to have been incurred towards personal user of the directors etc. In this regards, the ld. counsel submitted that such personal user cannot be visualized in the hands of corporate assessee and, at best, it can be regarded as perquisites in the hands of the directors benefitting from such expenses.
6. On perusal of the case records, we find merit in such plea. The Co-ordinate Bench of the Tribunal in the case of DCIT vs. Haryana Oxygen Ltd. (Del) 761 ITD 32 has endorsed the plea of the assessee towards absence of any personal user in the case of corporate assessee. In consonance with such view, we find merit in the plea of the assessee. Hence, Ground No.2 of the appeal of the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.
Order dictated and pronounced in the open Court on 22/08/2023
