Case Law Details
S.P. Chips Potato Pvt. Ltd Vs DCIT (ITAT Ahmedabad)
Held that principle of res judicata is not applicable to decision of revenue authorities and, therefore, decisions given in an assessment for an earlier year are not binding either on assessee or on department in a subsequent year.
Facts-
The case of the assessee was selected for scrutiny and the assessee claimed depreciation @30% on opening WDV of Rs 22.95 lakhs under the head “plant and machinery”. Pr. CIT noticed that no such asset eligible for depreciation @30% is found under the head “plant and machinery”. It was also noticed that depreciation allowable to the assessee under the head “plant and machinery” would be @15% and not @30% and therefore, excess depreciation was incorrectly allowed to the assessee @30%.
Pr. CIT rejected the contention of the assessee and set aside the assessment order.
Conclusion-
Held that there is nothing on record to demonstrate (either from any agreement between the parties or from financial records) to show that assessee was engaged in business of letting out vehicles on hire so as to be eligible for a higher claim of depreciation @30%.
We are somehow not persuaded to agree with the contention of the counsel for the assessee that if an incorrect/higher claim of depreciation has been allowed to the assessee in a previous year, the same shall be allowed to the assessee in the following years as well, simply for the reason that the asset was forming part of the block of assets on which higher depreciation has been allowed (albeit incorrectly) in the previous year.
The Tribunal in the case of Meeraj Estate & Developers v. DCIT has held that principle of res judicata is not applicable to decision of revenue authorities and, therefore, decisions given in an assessment for an earlier year are not binding either on assessee or on department in a subsequent year.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This is an appeal filed by the assessee against the order of the ld. Principal Commissioner of Income Tax-4, Ahmedabad vide order dated 1202-2019 passed for the assessment year 2014-15.
2. The assessee has taken the following grounds of appeal:-
“Your appellant being aggrieved by the Order passed by the Principal Commissioner of Income Tax-4, Ahmedabad [hereinafter referred to as “Learned CIT”] dated 12/02/2019 presents this appeal against the same on the following amongst other grounds of appeal. The grounds of appeal set out hereunder are independent of and without prejudice to each other:
1.0 The learned CIT erred in law and on facts in passing order u/s 263 of the Act. It is submitted that in the facts and circumstances of the case, no such order u/s 263 was warranted. It is submitted that it be so held now and order passed u/s 263 be quashed.
2.0 Without prejudice to above, the learned CIT erred in law and on facts in passing order u/s 263 when necessary enquiries relating to the issue under consideration were already made by the learned A.O. during the course of original assessment proceedings and thereafter an order u/s 143 (3) was passed by him. It is submitted that it be so held now. In the facts and circumstances of the case it cannot be said that there were no enquiry or the lack of enquiry on the part of the learned A.O. while framing original assessment so as to consider the order passed by him as erroneous and prejudicious to the interest of the revenue. Under the circumstances, the order passed u/s 263 be held as bad in law and liable to be quashed. It is submitted that it be so held now.
Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal.”
3. The brief facts of the case are that the assessee filed its return of income for assessment year 2014-15 declaring total income of ₹ 25,31,420/-. The assessment u/s 143 (3) of the Income Tax Act, 1961 (Act) for assessment year 2014-15 was finalized on 01-12-2016 by the DCIT accepting the returned income and book profit u/s 115JB of the Act as per the return of income at ₹ 3,54,138/-. The case of the assessee was selected for scrutiny and the assessee claimed depreciation @30% on opening WDV of ₹ 22.95 lakhs under the head “plant and machinery”. However, Ld. Pr. CIT noticed that no such asset eligible for depreciation @30% is found under the head “plant and machinery”. It was also noticed that depreciation allowable to the assessee under the head “plant and machinery” would be @15% and not @30% and therefore, excess depreciation was incorrectly allowed to the assessee @30%. The Ld. Pr. CIT issued notice under section 263 of the Act on 17-12-2018 and in response thereof, the counsel for the assessee submitted that the assessee was doing trading in potatoes and having two cold storages. The trucks on which depreciation was claimed @30% were used for delivery of potatoes and a sum of ₹ 5,79,960/- has been earned as freight income, which is shown as trading receipts, but not shown separately in the accounts. Therefore, the assessment order is not erroneous and prejudicial to the interests of the revenue.
4. The Ld. Pr. CIT however rejected the assessee’s contention and set aside the assessment order with the following observations:
4.2 The expenses in Schedule-16 to Schedule 20 are several items including purchases of potatoes, seeds, bardan, changes in inventories, employee expenses, finance costs and other expenses. None of the income/revenue show any income of freight for running the trucks on hire. Although the truck carting expenses has an amount at Rs. 17,46,212/- in schedule-20. The assessee has also shown an income of Rs. 7,335/- on sale of truck. There is no expenditure shown on salary of driver, diesel, toll tax and other truck operating expenses in the accounts. From the submissions, recorded, account of truck rent expenses for Rs. 63,33,914/- is available and transferred to the purchase account. During the present hearing also, though the assessee has submitted that it has received a sum of Rs. 5.80 lakhs as freight income but no details of expenses on running those trucks such as driver’s salary, toll tax tec. with evidence thereof has been furnished.
5. While completing the assessment and allowing the depreciation@ 30% on trucks owned by the assessee, it was imperative on the part of the A.O. to conduct enquiries to ensure whether these trucks are used by the assessee running them on hire separately from the business of trading in potatoes and whether they are eligible for depreciation @ 30%. However, the A.O. has not done any such enquiry while completing the assessment. The assessee has also during the present proceedings made various fresh submissions to substantiate its claim which was not made before the A.O. while completing the assessment. Hence, it is evident the A.O. failed to do necessary enquiries before depreciation @ 30% was allowed. The assessee has not produced any evidence to show that trucks were used for running on hire in an independent business of transportation. As submitted, they were used for delivery of potatoes to the customers but it cannot be called a business of trucks running on hire or a transportation of goods business. In any case, the A.O. has not examined whether the assessee has any business of running trucks on hire. Therefore, the assessment has been completed without conducting necessary enquires and investigations and therefore it is erroneous and also prejudicial to the interest of revenue, since depreciation at higher rates has been allowed on trucks.
6. Therefore, the assessment order dated 01-12-2016 passed by the A.O. u/s. 143(3) of the Act in the case of the assessee is erroneous and that it is prejudicial to the interest of the revenue by reason of failure by the A.O. to make proper inquiry in allowing the depreciation claim @ 30% , is set aside and direct the A.O. to make a fresh assessment after making all necessary enquiries properly and verification in respect of all relevant aspects including those identified in this order supra.
5. Before us, the counsel for the assessee drew our attention to the show cause notice u/s 263 of the Act to point out that there is no mention of the term “vehicles” in the show cause notice. He then drew our attention to page 45 of paper book to point out that the sum of ₹ 17,46,212/- has been claimed as “truck carting expenses” and hence the Ld. Pr. CIT has erred in stating that the assessee did not submit details of expenses on running those trucks with evidence thereof. The counsel for the assessee further submitted that depreciation @30% has been allowed to the assessee on trucks in the previous year as well (though admittedly the order was passed under section 143(1) of the Act for the previous year). Further, the counsel for the assessee also admitted that while enquiry in relation to the expenses forming part of the profit loss account was made during assessment proceedings, however no separate enquiry/analysis regarding the claim of higher depreciation @30% in respect of trucks used for hire was done during the course of assessment proceedings. The counsel for the assessee drew our attention to the case of Swati Synthetics Ltd. v. ITO 38 SOT 208 (Mum), that once the asset enters the block of assets and depreciation on the same has been allowed in earlier years, then even if the assets were not put to use during the year under consideration, depreciation was allowable in the same. Similarly in the instant facts, once the trucks have entered the block of assets and depreciation has been allowed thereon @30% in the earlier year, then following the above law on the subject, the assessee cannot be denied the benefit of higher depreciation @30% on trucks in this year as well. In response, Ld. Departmental Representative argued that the primary issue before us is whether the trucks were used for the purpose of letting out on hire. He drew our attention to page 44 of the paper book to point out that no income was earned by the assessee by way of plying the trucks on hire basis. A perusal of the financial statements would show that primarily the assessee earned income from sale of potatoes, seeds etc. but no income was earned by the assessee by plying the trucks on hire. The Ld. Departmental Representative then drew our attention to page 49 of the paper book (Form Number 3CD) at 8 (a) to point out that the assessee was in the business of “trading in potatoes”. He further drew our attention to pages 58-74 of the paper book (freight earnings) to point out that the assessee earned income from potato sale only and not from letting on trucks for hire, which is a prerequisite for claim of depreciation on trucks at a higher rate of 30%. The Ld. Departmental Representative further drew attention to submission of the assessee dated 04-01-2019 at page 6 of the paper book at para 1 to point out that as per assessee’s own submission, trucks are used for delivery of potatoes and related freight income is also booked in respect thereof for past many years. The Ld. Departmental Representative submitted that if inadvertently the Department has allowed the assessee’s incorrect claim of depreciation in earlier year, it is not under any obligation to perpetuate this incorrect claim / allow the assessee to make an incorrect claim in the subsequent years as well. He pointed out that as per Explanation 2 to section 263 of the Act, if the Principal Commissioner of Income Tax discovers that any specific enquiry which should have been made during the assessment proceedings has not been carried out, it shall be within his powers to set aside the assessment proceedings for de novo adjudication. In the instant facts, while the assessee had made general enquiries, but from the assessment records it is seen that no specific enquiry in relation to the excess/higher claim of depreciation @30% on trucks was made. Hence, the assessment order being erroneous and prejudicial to the interests of the Revenue is liable to be set aside.
6. We have heard the rival contentions and perused the material on record. While it is a settled law that if the assessee earns rental receipts from letting out vehicles on hire basis, he is entitled to higher rate of depreciation of 30% and depreciation at higher rate is allowable on vehicles used for running on hire even in absence of separate agreement with various parties to whom such vehicles are let out on hire (M/s. Tirupati Construction Company Vs ACIT (ITAT Ahmedabad) IT(SS)A No. 178 to 182/Ahd/2009). However, in the facts of the case, there is nothing on record to demonstrate (either from any agreement between the parties or from financial records) to show that assessee was engaged in business of letting out vehicles on hire so as to be eligible for a higher claim of depreciation @30%. The various assessment records point out to the fact that the assessee was engaged in the business of sale of potatoes, seeds etc. and trucks were used primarily for the assessee’s own business and assessee was not in the business of hiring out the trucks and earning rental income thereon, which is a prerequisite to be eligible for claim of higher depreciation @30% on trucks. Also, while allowing the claim of the assessee for higher depreciation, the counsel for the assessee has not been able to demonstrate from the assessment records that this aspect was enquired into/analysed by the assessing officer during the course of assessment proceedings . We are somehow not persuaded to agree with the contention of the counsel for the assessee that if an incorrect/higher claim of depreciation has been allowed to the assessee in a previous year, the same shall be allowed to the assessee in the following years as well, simply for the reason that the asset was forming part of the block of assets on which higher depreciation has been allowed (albeit incorrectly) in the previous year. The Agra Tribunal in the case of Meeraj Estate & Developers v. DCIT [2014] 44 taxmann.com 431 (Agra – Trib.) held that principle of res judicata is not applicable to decision of revenue authorities and, therefore, decisions given in an assessment for an earlier year are not binding either on assessee or on department in a subsequent year. This case was affirmed by the Allahabad High Court in Meeraj Estate & Developers v. CIT [2020] 113 taxmann.com 231 (Allahabad), wherein the High Court made the following relevant observations in this context:
21 From the reading of the judgment of the Apex Court, it is clear that the judgment relied by the assessee in case of Radhasaomi Satsang (supra) was dealt by the Apex Court in the case of BSNL (supra) and Supreme Court held that principal of res-judicata does not apply in matter pertaining to tax for different assessment years, because res-judicata applies to debar courts from entertaining issues on the same cause of action, whereas cause of action for each assessment year is distinct. In the case in hand, the AO for assessment year 2005-06 had accepted claim of the assessee without examining relevant records, as well as without recording any finding on the issue in question. Thus, for subsequent year, the claim of assessee cannot be accepted without examining records and material, and AO after examining the records came to conclusion and took a view that receipts at the hand of assessee was to be assessed under income from house property and income from other sources and not business income. In CIT v. British Paints India Ltd., [1991] 54 Taxman 499/188 ITR 44 (SC) Supreme Court while interpreting Section 145 of the Act held that even if the assessee had adopted a regular system of accounting, it was the duty of the Assessing Officer to consider whether correct profits and gains would be deduced from the account so maintained.
6.1 On the principles of res judicata, the Supreme Court in the case of Municipal Corpn. of City of Thane v. Vidyut Metallics Ltd. [2007] 8 SCC 688 made the following pertinent observations:
“14. So far as the proposition of law is concerned, it is well-settled and needs no further discussion. In taxation-matters, the strict rule of res judicata as envisaged by section 11 of the Code of Civil Procedure, 1908 has no application. As a general rule, each year’s assessment is final only for that year and does not govern later years, because it determines the tax for a particular period. It is therefore, open to the revenue/taxing Authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or octroi on that basis in subsequent years. A decision taken by the authorities in the previous year would not estop or operate as res judicata for subsequent year, [vide Maharana Mills (P.) Ltd. v. ITO1959 Supp. (2) SCR 547 : AIR 1959 SC 881; Visheshwar Singh v. CIT [1961] 3 SCR 287; Instalment Supp. (P.) Ltd. v. Union of India [1962] 2 SCR 644; New Jehangir Vakil Mills v. CIT [1964] 2 SCR 971; Amalgamated Coalfields Ltd. v. Janapada Sabha 1963 Supp. (1) SCR 172; Devilal v. STO [1965] 1 SCR 686; Udayan Chinubhai v. CIT [1967] 1 SCR 913; M.M. Ipoh v. CIT [1968] 1 SCR 65; Kapur Chand v. Tax Recovery Officer [1969] 1 SCR 691; CIT, W.B. v. Durga Prasad AIR 1971 SC 2439; Radhasoami Satsang v. CIT[1992] 1 SCC 659; AIR 1992 SC 377; Society of Medical Officers v. Hope 1960 AC 55; Broken Hill Proprietary Co. Ltd. v. Municipal Council 1925 All ER 675; 1926 AC 94 : 95 LJPC 33; Turner on Res Judicata, 2nd Edn. para 219, p. 193].
6.2 In the instant set of facts, we note that the claim of higher depreciation at the rate of 30%, which is available to the assessees engaged in the business of letting out vehicles on hire was not examined by the assessing officer during the course of assessment proceedings. Even in the 263 proceedings before Ld. Pr. CIT and in the proceedings before us, the learned counsel for the assessee has not been able to bring anything on record to substantiate that the assessee was primarily engaged in the business of letting out vehicles on hire, so as to be eligible for claim of higher rate of depreciation on vehicles @30%. In view of the above facts, we are of the considered view that Ld. Pr. CIT has not erred in facts and in law in coming to the conclusion that the assessment order is erroneous and prejudicial to the interests of the revenue.
7. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 29-06-2022
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