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COMMISSIONER OF INCOME TAX Vs. B.L. PASSI
March, 04th 2014
$~8 to 10
*         IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                     Date of decision: 10th February, 2014

+      ITA 80/1999
+      ITA 18/2000
+      ITA 95/2000

       COMMISSIONER OF INCOME TAX               ......Appellant
                      Through: Mr. Rohit Madan, Sr. Standing
                               Counsel with Mr. Akash Vajpai
                               and Ms. Pavitra Roy Choudhry,
                               Advocates.
               versus

       B.L. PASSI                                         ..... Respondent
                               Through:   Mr. C.S. Aggarwal, Sr. Advocate
                                          with Mr. Prakash Kumar and Mr.
                                          Sheel Vardhan, Advocates.

CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR

R.V. EASWAR, J. (OPEN COURT)


1.     These are three appeals filed by the revenue under Section 260A

of the Income Tax Act, 1961 (`Act', for short). On 16.10.2001 this

Court admitted the appeals and the following substantial questions of

law were framed for adjudication: -




ITA Nos.80/1999, 18/2000 & 95/2000                              Page 1 of 12
       (i)     Whether there was any material before the Tribunal to
               come to the conclusion that the trucks in question were
               given on hire?
       (ii)    Whether the Tribunal was correct in law in accepting
               assessee's claim of depreciation on the trucks?


2.     The appeals relate to the assessment years 1986-87, 1987-88 and

1988-89. The assessee is an individual and runs a proprietory concern

under the name and style of M/s. Pasco Automobiles which deals in sale

of Maruti cars on commission basis. He also derives share income from

two partnership firms which were dealing in the purchase and sale of

Telco trucks. Since the issue upon which questions of law have been

framed is the same in all the three years and since it has been discussed

in detail in the order of the Tribunal for the assessment year 1986-87, the

facts for that year may be noticed as illustrative for all the three years.

In the return filed for that year, the assessee claimed depreciation of

Rs.10,29,581/- in respect of the trucks. In the course of the assessment

proceedings, the AO took the view that the claim of depreciation was a

mere device to reduce the tax liability arising out of the commission

earnings of Rs.36.02 lakhs on sale of Maruti cars and Rs.6.5 lakhs on

sale of other vehicles. He noted that there was a steep ingress in the

commission income compared to the earlier year in which it was only

Rs.6.50 lakhs. On further investigation he found that the trucks on

ITA Nos.80/1999, 18/2000 & 95/2000                            Page 2 of 12
which the assessee had claimed depreciation were shown to have been

acquired from the sister concern of the assessee and that too in the fag

end of the relevant financial year i.e. between 03.03.1986 and

15.03.1986. The trucks were also allowed to have been acquired without

making any immediate payment. They were claimed to have been given

on hire to M/s. Bombay Okara Cargo Ltd. and M/s. Bombay Okara

Carriers and Movers (Regd.) for hire charges of Rs.300/- and Rs.290/-

per day respectively. The total charges thus received were Rs.14,850/-.

On being asked to furnish the details regarding the purchase,

registration, user and subsequent sale of the trucks early in the next

financial year, the assessee furnished such details. The AO thereafter

recorded the statement of the accountant of the aforesaid transport

companies. On the basis of this statement and not being satisfied with

the particulars submitted by the assessee, the claim of depreciation was

disallowed.


3.     On appeal the CIT (Appeals) by order dated 20.02.1990 set-aside

the assessment and directed the assessing officer to re-examine the claim

and record fresh findings on various points, including the question as to

whether these trucks were actually given on hire.




ITA Nos.80/1999, 18/2000 & 95/2000                          Page 3 of 12
4.     Pursuant to the directions, the AO made some inquiries and issued

notices under Section 131 of the Act to the parties from whom the

assessee received hire charges, but these notices came back unserved.

Those parties could not be produced by the assessee.             The AO

accordingly repeated the disallowance.


5.     On appeal against the fresh assessment, the CIT (Appeals) was

satisfied with the details furnished by the assessee in respect of the

purchase, registration, user and subsequent sale of the trucks. He also

relied on an affidavit of Sardar Inder Singh one of the directors of M/s.

Bombay Okara Carriers and Movers (Regd.) dated 23.03.1989. On this

basis he upheld the assessee's claim for depreciation.





6.     The revenue carried the matter in appeal to the Tribunal which

endorsed the view taken by the CIT (Appeals) and while doing so relied

heavily on the statement of Vijay Kumar dated 14.03.1989 and the

affidavit of the director of M/s. Bombay Okara Carriers and Movers

(Regd.). The Tribunal in its order dated 28.10.1998 found that the

transactions were made in the normal course of business and were not

open to the challenge of being a device to reduce the tax liability of the

assessee. A similar decision was given in respect of the other two years

also, by separate orders.

ITA Nos.80/1999, 18/2000 & 95/2000                           Page 4 of 12
7.     It is against the aforesaid orders of the Tribunal that the revenue

has filed the present appeals. Though the orders for the assessment years

1987-88 and 1988-89 were passed on different dates, the issue has been

mainly discussed by the Tribunal only in its order for the assessment

year 1986-87. The revenue has filed appeals against the orders of the

Tribunal for all the three years.


8.     The main question, as indicated by the first substantial question of

law framed by this Court is whether there was any material before the

Tribunal to hold that the assessee let out the trucks on hire. So far as this

aspect is concerned the discussion of the Tribunal is contained in

paragraphs 6.19 to paragraph 6.31. A perusal of these paragraphs shows

that the Tribunal has recorded a finding that the truck chassis were

purchased on 03.03.1986 and 15.03.1986 for a total price of Rs.20.69

lakhs and the assessee got the body built on each truck at a cost of

Rs.40,000/- each. Expenses were also incurred on transport of the truck

chassis, registration charges, insurance charges, etc. and the total

expenses came to Rs.25,73,952/-. These facts were not disputed before

the Tribunal. The Tribunal has also noticed that the trucks were got

registered on completion of all formalities on various dates between

14.03.1986 and 28.03.1986. The fact that the trucks were so registered

ITA Nos.80/1999, 18/2000 & 95/2000                              Page 5 of 12
was also not disputed before the Tribunal by the revenue.              The

Tribunal's finding that the trucks were actually paid for by three demand

drafts on 17th and 19th March, 1986 is also not disputed by the revenue.

Actually two demand drafts for Rs.10.5 lakhs appear to have been issued

to M/s. Pasco Automobiles. In para 6.20 of its order the Tribunal has

found that the expenses on purchase of the trucks and the body building,

registration, insurance, etc. were duly accounted for in the assessee's

books of accounts. It also noted that the copies of the purchase bills

were produced before the assessing officer along with the insurance

cover note and registration books for all the trucks in the course of the

original assessment proceedings.     It was on these materials that the

Tribunal held that the assessee was the owner of the trucks, which

materials and finding were not disputed by the revenue. One of the

conditions for the claim of depreciation prescribed by Section 32(1) of

the Act is that the assessee should be the owner of the asset. The

ownership thus stands established on the basis of the materials referred

to by the Tribunal and relied upon by it.


9.     The Tribunal also found that the assessee got the body building on

the chassis done from five body builders whose names and addresses are

given in para 6.20. In paragraph 6.21, the Tribunal has found that those

ITA Nos.80/1999, 18/2000 & 95/2000                          Page 6 of 12
body builders were paid through cheques drawn on Punjab & Sindh

Bank. Affidavits were also filed by the body builders. Though the

summons issued by the assessing officer to the body builders were

received back unserved but without any postal remarks, since the

registration certificates/ books were produced before the assessing

officer and evidence was also led with regard to the cheque payments

made to the body builders, the existence and ownership of the trucks

cannot be disputed. The Tribunal has referred to this aspect in para 6.21

by observing that the trucks can be got registered only when necessary

formalities about the completion of the body building, insurance, etc.

were completed. There was also a further finding that the trucks were

registered during the period from 14.03.1986 to 28.03.1986. Thus the

finding of the Tribunal that the assessee was owner of the trucks cannot

be disputed.


10.    So far as the receipt of hire charges is concerned, one Vijay

Kumar, Accountant of Bombay Okara Cargo Ltd. and Bombay Okara

Carriers and Movers (Regd.) appeared before the Assessing Officer in

response to the summons and produced the books of accounts and

vouchers to show the payment of hire charges to the assessee. The

relevant voucher numbers and the dates have been noted by the Tribunal

ITA Nos.80/1999, 18/2000 & 95/2000                          Page 7 of 12
in paragraph 6.22.          The Tribunal has also noted that the assessee

received the hire charges through cheques and they were in respect of

the period 25.03.1986 to 31.03.1986 and 01.04.1986 to 07.04.1986.

Vijay Kumar also confirmed that the trucks were taken on hire and were

used for local transportation. An affidavit from Sardar Inder Singh, who

was the Director of M/s. Bombay Okara Cargo Ltd. and the managing

partner of M/s. Bombay Okara Carriers and Movers (Regd.) was also

filed by the assessee as noted by the Tribunal and in this affidavit he

deposed that in addition to their own trucks, they also hired trucks

whenever necessary depending upon the need of their business. He

further states in the affidavit that it is a regular feature in this line of

business for them to engage trucks belonging to other persons in order to

carry on their business of transporting goods from one place to another.

The Tribunal has referred to this affidavit in some detail in para 6.23 of

its order and has also noted that the assessing officer, before whom the

affidavit was filed did not summon Sardar Inder Singh to verify the

correctness of contents of the affidavit nor did he make any inquiries

through the Inspector. It was the opinion of the Tribunal that in these

circumstances, the averments in the affidavit of Sardar Inder Singh

remain uncontroverted. In addition, the Tribunal has also referred to the


ITA Nos.80/1999, 18/2000 & 95/2000                             Page 8 of 12
correspondence exchanged between the assessee and the two transport

companies.





11.    There are other materials on the basis of which the Tribunal held

that the assessee did receive hire charges for letting out the trucks on

hire. It has noted that the hire charges received by the assessee in the

accounting year relevant to the assessment year 1986-87 were assessed

as the assessee's income. The hire charges were also received in respect

of the assessment year 1987-88. In the accounting year relevant to the

assessment year 1987-88, the trucks were sold for a total price of

Rs.15.91 lakhs as against the cost of Rs.25.73 lakhs. The Tribunal

accepted the genuineness of the sale on the basis of the evidence

adduced by the finance companies such as Motor and Finance Ltd. and

Finance House (India) Pvt. Ltd. The sale consideration was found by the

Tribunal to have been received by the assessee directly from the finance

companies. On the basis of these materials, the Tribunal did not find any

justification to doubt the genuineness of the sale of the trucks.


12.    In paragraph 6.24 of its order, the Tribunal also noted the fact that

the assessee hired out trucks and received hire charges since the

assessment year 1984-85 and in those years the assessing officer did not

entertain any doubt about the claim of depreciation and allowed the

ITA Nos.80/1999, 18/2000 & 95/2000                             Page 9 of 12
same. Whenever those trucks were sold, the balancing charge (excess of

the sale price over the written down value, to the extent of depreciation

already allowed) was seen to have been assessed by the assessing officer

under Section 41(2) of the Act, as business income. In the assessment

year 1984-85, hire charges of Rs.14,966/- were received and

depreciation of Rs.3,10,055/- had been allowed.       Even the loss on

account of depreciation from running the trucks on hire was determined

at Rs.2,95,089/- and allowed in that assessment year by an order passed

on 24.01.1986 under Section 143(3). In the assessment year 1985-86 the

assessee received truck hire charges of Rs.59,250/- and claimed

depreciation of Rs.5,62,532/- as well as bank interest on loan at

Rs.11,480/-. The aggregate amount of Rs.5,21,762/- was allowed as a

loss in a scrutiny assessment made under Section 143(3) on 11.05.1987.

In this year one more aspect which the Tribunal has noted is that the

profit of sale of the trucks amounting to Rs.17,416/- was assessed under

Section 41(2) as business income. Not only in those earlier years, but

also in the assessment year 1986-87, the excess amount realised on sale

of the trucks over the written down value, to the extent of depreciation

already allowed at Rs.36,054/- was declared and assessed by the

assessing officer under Section 41(2).


ITA Nos.80/1999, 18/2000 & 95/2000                          Page 10 of 12
13.    The Tribunal found it incongruous that on the one hand the

assessing officer was consistently assessing the hire charges and also the

profit on account of the sale of the trucks under Section 41(2) as

business income, but on the other hand the depreciation claimed on the

trucks was being disallowed, though in similar circumstances the AO

had no objection to allowing the depreciation claim in the assessment

years 1984-85 and 1985-86.


14.    It was only on the basis of the aforesaid materials that the Tribunal

came to the conclusion in all the three years that the assessee was in

receipt of hire charges and thus satisfied the second condition of Section

32(1) i.e. that the asset owned by the assessee should be used for the

purpose of the business of the assessee.        We have referred to the

materials relied upon by the Tribunal in some detail because the first

substantial question of law framed by this Court is whether the Tribunal

had any material before it to come to the conclusion that the assessee

was in receipt of hire charges. It is also to be noted that the assessing

officer was not able to discredit or impeach the evidence adduced by the

assessee to show that it was in receipt of hire charges. The assessing

officer was not able to show that the claim was bogus.




ITA Nos.80/1999, 18/2000 & 95/2000                             Page 11 of 12
15.    For the aforesaid reasons the answer to the first question of law is

in affirmative by holding that there was material before the Tribunal to

come to the conclusion that the trucks in question were given on hire.

There is no substantial question of law framed on the aspect of whether

the assessee was the owner of the trucks. Thus both the conditions of

Section 32(1) stand satisfied.       Accordingly, the second substantial

question of law i.e. whether the Tribunal was correct in law in accepting

the assessee's claim for depreciation on the trucks, is also answered in

the affirmative in favour of the assessee and against the revenue.


16.    For the above reasons, the Court answers the questions framed in

favour of the assessee and against the revenue.        Consequently, the

appeals are dismissed.



                                                    (R.V. EASWAR)
                                                        JUDGE



                                                (S. RAVINDRA BHAT)
                                                       JUDGE
FEBRUARY 10, 2014
hs




ITA Nos.80/1999, 18/2000 & 95/2000                            Page 12 of 12

 
 
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