Case Law Details
DCIT Vs Surat Road King (ITAT Mumbai)
Key Issue: Depreciation on Assets Registered in Partners’ Names
The core of the dispute for the Assessment Year (AY) 2014-15 was the disallowance of depreciation amounting to on trucks. The Assessing Officer (AO) disallowed the claim on the grounds that the vehicles were registered in the name of the partners and not the partnership firm, thereby concluding the firm was not the legal owner and ineligible to claim depreciation under Section 32(1) of the Income Tax Act, 1961.
The assessee, Surat Road King, a transport services provider, contended before the Commissioner of Income Tax (Appeals) [CIT(A)] that although the registration was in the partners’ names for convenience, the trucks were purchased by the firm, reflected in its block of assets and balance sheet, and the purchase consideration and finance interest were paid by the firm. The CIT(A) was convinced by the evidence of ownership and regular business use by the firm and consequently deleted the disallowance.
ITAT Ruling and Judicial Precedent
The ITAT upheld the CIT(A)’s finding, citing the Supreme Court’s landmark decision in Mysore Minerals Ltd. vs. CIT (1999) 239 ITR 775 (SC). This precedent established that the term ‘owned’ in Section 32(1) has a wider meaning. Depreciation is legitimately claimable by the party who invested in the asset, is utilizing it for business, and is bearing the loss from wear and tear, even if the formal registration is not yet in their name. The Tribunal noted that the subsequent coordinate bench decision in Edwise Consultant Pvt. Ltd. (2017) 83 taxmann.com 27 (Mumbai – Trib.) had overruled the earlier contrary decision relied upon by the Revenue.
Ad-hoc Disallowance on Personal Use
The Revenue also contested the deletion of an ad-hoc disallowance of one-third of the depreciation claimed on a home theatre and motor car, which the AO had disallowed on the presumption of possible personal use. The ITAT concurred with the CIT(A), stating that additions to income cannot be made on presumptions and surmises or on an ad-hoc basis without the AO bringing any concrete evidence on record to prove personal usage.
Conclusion
The ITAT dismissed the Revenue’s appeal, confirming that the economic ownership and use of assets for business purposes are paramount for claiming depreciation, as established by the Supreme Court. It further reaffirmed that ad-hoc disallowances based purely on conjecture are unsustainable in law.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the revenue is preferred against the order of the ld. CIT(A)-51, Mumbai [hereinafter ‘the ld. CIT(A)’], dated 29/10/2024, pertaining to AY 2014-15.
2. The grievance of the revenue read as under:-
“1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made on account Of expenses depreciation in respect of Block of assets amounting to Rs.2,50,69,971/- out of total depreciation claimed of Rs.4,32,05,874/- on Trucks without appreciating the facts brought on record by the AO that these vehicles were not registered in the name of assesses firm.
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not following the Hon’ble JTAT, Mumbai decision in the case of Edwise consultant Pvt Ltd, 35 com 149.
3. Whether on the facts and circumstances of the case and in law, the Ld. ClT(A) erred in deleting the addition made on account of depreciation claim on Home Theatre and Motor Car amounting to Rs.4,07,687/-.
4. The appellant craves the leave to add, substitute, modify, alter, delete or amend all or any ground of appeal either before or at the time of hearing.”
3. Briefly stated the facts of the case are that the assessee is engaged in the business of providing transport services and filed its return electronically on 31/10/2014 declaring total income at Rs. 4,12,07,910/. During the course of the scrutiny assessment proceedings, the AO asked the assessee to produce bills of sales of vehicles. The assessee explained that it has sold the vehicles out of the block of vehicles on which it has claimed depreciation @ 30%. The AO found that the vehicles are in the name of partner and not in the name of the partnership firm. The AO was of the opinion that the assessee has not provided any details regarding the ownership of vehicles as the ownership lies with the partner and not the partnership firm. Since the AO has formed the belief that the assessee firm is not the owner of the vehicles, he disallowed the claim of depreciation of Rs. 4,61,09,712/-.
4. When the matter was agitated before the ld. CIT(A) it was strongly contended that though the vehicles are registered in the name of partner for the sake of convenience but were purchased by the firm and are duly reflected in the block of asset of the firm. The ld. CIT(A) after considering the submission of the assessee was convinced that the assessee has been using these trucks regularly and the same form a part of its own balance sheet and block of assets. The ld. CIT(A) further found that the purchase consideration was paid by the assessee firm and also the interest on the financing of these trucks. The ld. CIT(A) accordingly deleted the disallowance of depreciation.
5. The AO in the assessment further disallowed 1/3rd depreciation in respect of home theater and motor car on estimate basis, on the ground of personal usage cannot be ruled out.
5.1. The ld. CIT(A) was of the opinion that the AO has not brought anything on record to show that home theatre or the vehicle were used for personal usage. The ld. CIT(A) also deleted the adhoc disallowance made by the AO. The revenue has heavily relied upon the decision of Co-ordinate Bench in the case of Edwise Consultant Pvt Ltd. 35 Taxmann.com 149 but we find that the decision of the Co-ordinate Bench has been over-ruled by another decision of the Co-ordinate Bench in the case of Edwise Consultant Pvt. Ltd. [2017] 83 taxmann.com 27 (Mumbai – Trib.).
5.1.1. The Hon’ble Supreme Court in the case Mysore Minerals Ltd. vs. CIT (1999) 239 ITR 775 (SC) has held that term ‘owned’ in Section 32(1) has a wider meaning. Tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, even if the registration of the asset may not have been completed in his name. The ld. CIT(A) has followed the decision of the Hon’ble Supreme Court, we, therefore do not find any reason to interfere with the findings of the ld. CIT(A). This grievance is dismissed.
5.2. Further we find that 1/3rd disallowance is made on adhoc basis and on presumption that the personal usage of home theatre and car cannot be ruled out. The additions cannot be made on presumptions and surmises that too on adhoc basis. We, therefore, do not find any reason to interfere with this finding of the ld. CIT(A) also. Accordingly, the effective ground/s raised by the revenue stand dismissed.
6. In the result, appeal of the revenue is dismissed.
Order pronounced in the Court on 28th February, 2025 at Mumbai.
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