$~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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