Higher Depreciation on Goods Vehicles Cannot Be Denied at CPC Stage: ITAT Bangalore

Claim requiring verification cannot be outrightly disallowed by CPC through intimation u/s 143(1): ITAT Bangalore

The case namely Vikas Goyal Vs DCIT (ITAT Bangalore) addresses whether depreciation on goods carriage vehicles at the higher rate of 30% could be disallowed during return processing under section 143(1) and sustained through rectification under section 154 of the Income-tax Act. The assessee, engaged in transportation and trading businesses, claimed higher depreciation on vehicles used for transporting goods. The CPC restricted the claim to 15%, treating it as an ordinary depreciation issue, and the adjustment was later upheld in rectification and first appeal. The Tribunal held that entitlement to higher depreciation depends on the factual use of vehicles in a transportation business, which is a mixed question of fact and law. Such an issue cannot be decided through prima facie adjustments under section 143(1) or rectification under section 154, both of which are limited to obvious, non-debatable errors. Relying on Supreme Court rulings and a binding CBDT circular, the Tribunal ruled that the adjustment was beyond jurisdiction and deleted the disallowance, leaving verification, if any, to regular assessment proceedings.

Facts:

• The assessee, Mr. Vikas Goyal, is an individual engaged in multiple business activities, inter alia, trading in cement, sanitaryware, hardware and allied goods, and transportation of goods through goods carriage vehicles. The transportation activity was carried out by deploying goods vehicles owned by the assessee, which were used for carriage of goods in the course of business.
• For the Assessment Year 2021–22, the assessee filed his return of income under section 139(1) of the Income-tax Act, 1961, declaring a total income of ₹67,84,820. In the computation of income, the assessee claimed depreciation on goods carriage vehicles at the rate of 30%, treating the vehicles as eligible for higher depreciation under the Income-tax Rules on the footing that they were used in the business of transportation of goods. The total depreciation so claimed amounted to ₹73,62,335.
• The return of income was processed by the Centralised Processing Centre (CPC) under section 143(1) of the Act. While processing the return, the CPC restricted the depreciation allowable on the goods carriage vehicles to 15%, treating the said vehicles as ordinary plant and machinery, and not as vehicles eligible for higher depreciation. Consequently, depreciation was allowed only to the extent of ₹48,57,448, and depreciation of ₹25,04,887 was disallowed. On account of this adjustment, the returned income was recomputed at ₹92,89,710, and a tax demand of ₹11,94,370 was raised.
• The assessee thereafter filed a grievance and sought rectification, contending that the adjustment made under section 143(1) was contrary to the depreciation provisions and that the vehicles were duly used in the business of transportation, making them eligible for depreciation at 30%. Pursuant thereto, the Assessing Officer passed an order under section 154 dated 16 February 2024, wherein the adjustment relating to depreciation was sustained. While the credit for tax deducted at source claimed by the assessee was allowed, the Assessing Officer declined to grant higher depreciation on the ground that the issue involved verification of facts and therefore could not be treated as a mistake apparent from the record. Interest under section 220(2) was also levied while giving effect to the rectification order.
• Aggrieved by the rectification order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC). Before the first appellate authority, the assessee contended that the depreciation claim was in accordance with law, that the vehicles were used in the business of transportation of goods, and that the restriction of depreciation at the stage of processing under section 143(1) was beyond the permissible scope of prima facie adjustments.
• The CIT(A), however, dismissed the appeal and upheld the action of the Assessing Officer. The CIT(A) held that the allowability of depreciation at a higher rate required factual examination regarding the nature of use of vehicles and therefore constituted a debatable issue, which could neither be adjusted under section 143(1) nor rectified under section 154.
• Aggrieved by the order of the CIT(A), the assessee carried the matter in further appeal before the Income Tax Appellate Tribunal, Bangalore Bench.
• During the appellate proceedings before the Tribunal, the assessee reiterated that the goods carriage vehicles were used in the transportation business and that depreciation at the rate of 30% was correctly claimed. The Tribunal took note of the legal position governing depreciation on motor vehicles used in the business of transportation and the long-standing administrative and judicial guidance on the subject.
• In this context, the Tribunal referred to the judgment of the Hon’ble Supreme Court in Gupta Global Exim Pvt. Ltd. v. CIT (2008) 305 ITR 132 (SC), wherein it was held that motor vehicles used in the business of transportation on hire are eligible for higher depreciation. The Tribunal also noted the relevance of CBDT Circular No. 652 dated 14 June 1993, which clarifies that higher depreciation is admissible in respect of motor lorries used in the business of transportation of goods.
• The appeal thus arose from the restriction of depreciation at the stage of processing under section 143(1), the subsequent rectification under section 154, and the confirmation of such action by the first appellate authority, raising questions concerning the scope of prima facie adjustments, rectification powers, and the correct application of depreciation provisions to goods carriage vehicles.

Issues:

• Whether the CPC was justified in disallowing depreciation claimed at 30 percent on goods carriage vehicles while processing the return under section 143(1) of the Act.
• Whether the rectification order passed under section 154, confirming the disallowance of higher depreciation, was valid in law.
• Whether a claim involving determination of the rate of depreciation on vehicles used in transportation business constitutes a “prima facie” adjustment permissible under section 143(1).

Observations:

• The Tribunal noted that depreciation on motor vehicles is governed by Appendix I to the Income-tax Rules, which clearly provides a higher rate of depreciation for motor lorries used in the business of transportation of goods. The entitlement to such higher depreciation depends upon the use of the vehicle in a transportation business, and not merely on the ownership of the vehicle. The Tribunal observed that the assessee had consistently claimed that the vehicles in question were used in his transportation business and that depreciation at the higher rate of 30% had been claimed on that basis. Whether a vehicle is used in the business of transportation is a mixed question of fact and law, requiring examination of records such as nature of business activity, deployment of vehicles, and manner of use. In this context, the Tribunal placed reliance on the decision of the Hon’ble Supreme Court in Gupta Global Exim Pvt. Ltd. v. CIT (2008) 305 ITR 132 (SC), wherein it was held that motor vehicles used in the business of transportation of goods are entitled to higher depreciation, irrespective of whether the transportation is carried out for third parties or for self-use, so long as it forms part of the business activity.
• The Tribunal also took note of CBDT Circular No. 652 dated 14 June 1993, which clarifies that higher depreciation is admissible on motor lorries used in the business of transportation of goods. The Tribunal observed that such circulars, being beneficial and explanatory in nature, are binding on the tax authorities.
• The Tribunal then examined whether the restriction of depreciation from 30% to 15% could validly be carried out while processing the return under section 143(1). The Tribunal observed that section 143(1) permits only prima facie adjustments, such as arithmetical errors, incorrect claims apparent from the return, or claims inconsistent with information available in the return itself. An issue that requires verification of facts or interpretation of law falls outside the scope of section 143(1). The Tribunal held that the eligibility of higher depreciation on goods carriage vehicles cannot be determined merely from the face of the return and necessarily requires factual examination. Therefore, the adjustment made by the CPC in restricting depreciation was beyond the permissible scope of section 143(1). In support of this conclusion, the Tribunal relied upon the principle laid down by the Hon’ble Supreme Court in CIT v. Gujarat Poly-AVX Electronics Ltd. (1996) 222 ITR 140 (SC), wherein it was held that issues involving investigation or debate cannot be decided at the stage of prima facie adjustments.
• The Tribunal further examined whether the disallowance of depreciation could be sustained through rectification under section 154. It was observed that section 154 can be invoked only to correct a mistake apparent from the record, which must be obvious, patent and not debatable. Where two views are possible, or where factual verification is required, the matter ceases to be a mistake apparent from the record. The Tribunal noted that even the Assessing Officer, while passing the rectification order, had acknowledged that verification of facts was required. Having so observed, the Assessing Officer could not have sustained the disallowance under section 154. The Tribunal reiterated the settled position of law as laid down by the Hon’ble Supreme Court in S. Balaram, ITO v. Volkart Brothers (1971) 82 ITR 50 (SC), wherein it was held that a debatable issue cannot be treated as a mistake apparent from the record for the purpose of rectification.
• The Tribunal observed that both the CPC and the lower appellate authority had proceeded on the premise that the claim of higher depreciation was not verifiable at the stage of processing. However, instead of deleting the adjustment, the authorities sustained the disallowance, which was legally impermissible. The Tribunal held that once it is accepted that the issue is debatable and requires verification, the only course open to the Revenue was to examine the claim through a regular assessment under section 143(3), and not by making adjustments under section 143(1) or rectification under section 154.
• Therefore it is concluded that the claim of higher depreciation on goods carriage vehicles is a matter requiring factual examination and cannot be treated as an incorrect claim apparent from the return, the adjustment made under section 143(1) restricting depreciation was beyond jurisdiction, the rectification under section 154 was unsustainable as the issue was debatable and not a mistake apparent from the record, the orders of the lower authorities could not be sustained in law.
• Accordingly, the Tribunal held that the disallowance of depreciation was liable to be deleted, subject to verification, if necessary, in appropriate assessment proceedings.