Akhilendra Nath Patnail(HUF), Cuttack v. ACIT, Sambalpur

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( ) BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 74/CTK/2010 / ASSESSMENT YEAR 2004 - 05 AKHILENDRA NATH PATNAIK (HUF) AT/P.O.H - 12 CIVIL TOWNSHILP ROURKELA PAN : AACHA 0426 Q - - - VERSUS - ACIT CIRCLE 1(1) SAMBALPUR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI S.N.SAHU AR / FOR THE RESPONDENT: / SHRI S.C.MOHANTY DR / ORDER . . SHRI K.K.GUPTA ACCOUNTANT MEM BER. THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER O N DISALLOWING DEPRECIATION PARTLY ON THE BASIS OF HIS HOLDING A VIEW THAT THE ENTIRE PLANT AND MACHINERY WA S NOT LET OUT ON HIRE ENTITLING THE ASSESSEE TO CLAIM DEPRECIATION AT A HIGHER RATE WHEN THE FACTS AND CIRCUMSTANCES AS NOTED BY BOTH THE AUTHORITIES CLEARLY INDICATE THAT THE CASE LAW CITED BY THEM HAD NO BEARING TO THE FACTS OF THE CASE OF THE ASSESSEE. MINOR AMOUNTS DISALLOWED IN THE VEH ICLE MAINTENANCE AND TELEPHONE CHARGES IS ALSO AGITATED BEFORE US WHICH THE LEARN ED CIT(A) HAD NOT ADJUDICATED U PON. LOSS FROM SALE OF ASSETS HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AS LOSS FROM SHORT TERM CAPIT AL GA INS WHICH IS TO BE SEPARATELY CONSIDERED HAS BEEN MISINTERPRETED UNDER THE PROVISIONS OF SECTIONS 50(2) R.W.S. 74(1)(A)/ 2. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS SUBMITTED THAT THE ASSESSING OFFICER HAS CATEGORICALLY TRIED TO FIND OUT THE I.T.A.NO. 74/CTK/2010 2 NATURE OF CLAIMING DEPRECIATION AT THE HIGHER RATE VIS - - VIS THE RATE ALLOWABLE ON THE BASIS OF LETTING OUT ON HIRE A COMPLETE SET OF EXCAVATOR LOADERS AND DRILLER WHEN APPROPRIATE BILLS HAVE BEEN RAISED ON FOR TRANSPORTATION CHARGES RESULTING IN INCOME OF RS.29 55 000 AND ALSO SEPARATELY IDENTIFYING THE HIRE CHARGES WHEN THE COST OF FUEL AND OTHER EXPENSES ARE BORNE BY THE HIRER. THE RATE OF CHARGE THEREFORE DIFFERS WAS SUITABLY ACCOUNTED FOR IN THE BO O KS OF ACCOUNT UNDER THE HEAD TRANSPORT CHAR GES AND HIRE CHARGES WHICH THE LEARNED CIT(A) FAILED TO APPRECIATE INSPITE OF THE ASSESSING OFFICER ACKNOWLEDGING THAT THE MACHINERIES PARTLY WERE UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE OF HIRING OUT ALONG WITH ASESSEES OWN BUSINESS OF EXTR ACTING BY RELYING ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX. V. MANJEET STONE CO. (190 ITR 183) . HAVING THIS PROPOSITION HE PERUSED THE SAID DECISION BY POINTING OUT THAT IT WAS A CASE WHE RE STAY TRANSACTION OF HIRING OUT WAS NOTED BY THE HONBLE HIGH COURT TO DISTINGUISH THAT WOULD NOT PERMIT THE ASSESSEE TO CLAIM A HIGHER RATE OF DEPRECIATION. HE SUBMITTED IN PAPER BOOK AT PAGES 8 AND 9 WHE RE THE RATE OF TRANSPORTATION CHARGES BY HIRING OUT THE COMPLETE SET OF PLANT AND MACHINERY WAS HIGHER THAN THE CASES WHEN THEY WERE LET OUT BY THE ASSESSEE TO ITS RELATIVES HAS BEEN COMPARED BY THE AUTHORITIES BELOW TO HOLD THAT THE ENTIRE PLANT AND MACHINERY WAS NOT LET OUT. HE ARGUED THAT THERE WAS NO CONTROVERTING MATE RIAL FOUND AT THE TIME OF ASSESSMENT TO INITIATE THE DISALLOWANCE AT A HIGHER RATE EXCEPT THAT A NEW EXCAVATOR WAS PURCHASED IN THE IMPUGNED ASSESSMENT YEAR REQUIRING DEPRECIATION AT A HIGHER RATE WHICH MAY HAVE BEEN PARTLY USED IN THE IMPUGNED ASSESSMENT YEAR. WITH RESPECT TO OTHER DISALLOWANCE S HE POINTED OUT THAT THE ASSESSING OFFICER REQUIRED THE DETAILS OF INDIVIDUAL EXPENSES INCURRED FOR VEHICLE MAINTENANCE AND TELEPHONE EXPENSES WHICH THE ASSESSING OFFICER PERUSED BUT REQUIRED LOG I.T.A.NO. 74/CTK/2010 3 BOOK DETAILS TO D ETERMINE PERSONAL USE WHICH WAS NOT AVAILABLE INSOFAR AS BOTH THE ASSETS ARE USED FOR THE BUSINESS OF THE ASSESSEE AS PER THE DETAILS GIVEN IN THE PAPER BOOK PAGES 13 AND 18 ONWARDS. HE SUBMITTED THAT A REASONABLE DISALLOWANCE BE MADE FOR PERSONAL USE WHIC H THE AUTHORITIES WERE INCLINED TO CONSIDER AT A HIGHER RATE. ON THE ISSUE OF CLAIM OF LOSS ON SALE OF ASSETS HE POINTED OUT THAT THE ASSETS WERE BEING USED FOR THE BUSINESS OF THE ASSESSEE AND WERE PART OF THE BLOCK OF ASSETS AS APPEARING IN THE SCHEDULE ATTACHED TO THE BALANCE SHEET AND WERE THEREFORE DEPRECIATED FOR MORE THAN ONE YEAR REQUIRING THE CLAIM OF THE ASSESSEE TO BE IDENTIFIED FROM THE BLOCK OF ASSETS AS WAS CONSIDERED FOR DISCLOSURE PURPOSES. IT MAY BE VISUALIZED THAT THE LOSS ON SALE OF ASSE TS WAS NOTHING BUT THE DEPRECIATION WHICH WOULD HAVE BEEN ALLOWED TO THE ASSESSEE IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME - TAX ACT WHICH DEPRECIATION HAS BEEN SEPARATED BY DECLARING AS LOSS ON SALE OF ASSETS HAVING BEEN REPLACED BY OTHER ASSETS. THE LEARNED ASSESSING OFFICER THEREFORE MISDIRECTED HIMSELF TO CONSIDER THAT THE SAME IS TO BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 74 WHICH IN THE CASE OF THE ASSESSEE CANNOT BE INVOKED. ON THESE THREE PART DISALLOWANCE S THE LEARNED CIT(A) HAD NOT ADJUDICATED CONFINING HIMSELF TO THE MAIN ISSUE WITH RESPECT TO DISALLOWANCE OF DEPRECIATION OF 3 72 975. HE PRAYED FOR DELETION OF ALL THE DISALLOWANCES. 3. THE LEARNED DR POINTED OUT THAT IT WAS A SHAM TRANSACTION BETWEEN THE ASSESSEE AND HIS RELATIVES TO SHOW HIRE CHARGES TO ENABLE IT TO CLAIM A DEPRECIATION OF HIGHER AMOUNT OF 40% INSOFAR AS THE ASSESSING OFFICER NOTED THAT THE RATE OF CHARGING WAS DIFFERENT IN THE CASE OF THE ASSESSEES RELATIVES VIS - - VIS THE OTHER PARTIES . THIS CLEARLY INDICATES THAT THE ASSESSEE HAD NOT HIRED OUT THE ASSETS WHICH DEPRECIATION WAS SUITABLY AMENDED BY THE ASSE SSING OFFICER AS CAN BE PERUSED IN HIS ORDER. HE FULLY SUPPORTED THE I.T.A.NO. 74/CTK/2010 4 ORDERS OF THE AUTHORITIES BELOW FOR HIS PART SUBMISSIONS. WITH RESPECT TO THE OTHER DISALLOWANCE HE SUBMITTED THAT THE ASSESSEE HAD NOT BEEN ABLE TO FURNISH THE DETAILS OF EXPENSES SO C LAIMED IN THE PROFIT & LOSS ACCOUNT DULY AUDITED THEREFORE REQUIRES CONSIDERATION FOR DISALLOWANCE AS THE ASSESSEE COULD NOT ESTABLISH WHETHER WERE WHOLLY INCURRED FOR THE BUSINESS OF THE ASS ESSEE. LOSS ON SALE OF ASSETS IS THEREFORE RIGHTLY DISALLOWED IN VIEW OF THE ASSESSEE NOT ABLE TO FURNISH THE PROOF OF REDUCING THE SAME FROM BLOCK OF ASSETS WHICH MAY BE CONSIDERED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON O UR CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCE S ON THE ISSUE OF CLAIM OF DEPRECIATION WE ARE INCLINED TO HOLD THAT THE LEARNED CIT(A) AFTER HAVING VERIFIED THE VARIOUS FACTS BROUGHT ON RECORD REGARDING THE PLANT AND MACHINERY PUT TO USE BY THE A SSESSEE WHEN THE COMBINED EXCAVATORS LOADERS AND DRILLING MACHINES ARE LET OUT ARE TO BE CONSIDERED FOR HIGHER DEPRECIATION WHEN THE PURCHASE OF FUEL AND LUBRICANTS EITHER HAS BEEN BORNE BY THE ASSESSEE OR BORNE BY THE HIRER. THE USE OF THE MACHINERY ENT ITLING IT TO CLAIM HIGHER DEPRECIATION HAS TO BE ALLOWED IRRESPECTIVE OF THE FACT THAT THE SAME ARE USED BY THE ASSESSEE FOR ITS OWN BUSINESS AS WELL. THE ASSESSEE HAS BEEN ABLE TO ESTABLISH THAT LETTING OUT ON HIRE WAS NO STRAY CASE OF THE ASSESSEE AS WAS CONSIDERED BY THE ASSESSING OFFICER RELYING ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX. V. MANJEET STONE CO. (190 ITR 183) . WE FIND FORCE IN THE SUBMISSIONS OF THE LEARNED COUNSEL F OR THE ASSESSEE THAT THE F ACTS HERE ARE DISTINGUISHABLE INSOFAR AS THE ASSESSEE HAS RAISED BILLS FOR HIRING OUT BY IDENTIFYING THE RECEIPTS PURELY ON ACCOUNT OF TRANSPORTATION CHARGES RECEIVED WHEN THE EXPENSES OF DRIVER FUEL AND OTHER CONSUMABLES WERE BORNE BY THE ASSESSEE AND OTHERWISE WHEN ALL THESE FACILITIES ARE BORNE I.T.A.NO. 74/CTK/2010 5 BY THE HIRER THE RATE GET SUBSTANTIALLY REDUCED. IN THE CASE OF THE ASSESSEES RELATIVES THE RATES WERE SUBSTANTIALLY REDUCED THEREFORE CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE THAT THE ASSESSEE WAS NOT E NTERING INTO SHAM TRANSACTIONS TO CLAIM HIGHER RATE OF DEPRECIATION AS SUGGESTED BY THE EARNED DR HERE IN BEFORE US. THE BILLS COPIES OF WHICH HAVE BEEN PRODUCED CLEARLY INDICATE TRANSPORTING AND LOADING CHARGES WHICH RATES ARE HIGHER THAN THE RATE CHARGE D FROM THE RELATIVES THEREFORE MAY HAVE BEEN SUBJECT MATTER OF CONSIDERATION UNDER THE PROVISIONS OF SECTION 40A(2). IN THE LIGHT OF THE SAME WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED CIT(A) AFTER NOTING DOWN THE RELEVANT SUBMISSIONS OF THE ASSESSEE APPELLANY BEFORE HIM ONLY HELD THAT THE MACHINES WERE NOT LET OUT WHICH WE ARE UNABLE TO APPRECIATE. THE AO IS DIRECTED TO ALLOW THE DEPRECIATION AS CLAIMED BY THE ASSESSEE. 4.1. WITH RESPECT TO THE DISALLOWANCE ON ACCOUNT OF VEHICLE MAINTENANCE AND TELE PHONE CHARGES AS HAVE BEEN SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US PERSONAL USE COULD NOT BE TOTALLY IGNORED INDICATES THAT A TOKEN SUM OF 10 000 EACH FOR USE OF MOTOR AND TELEPHONE MAY BE DISALLOWED AS NOT INCURRED FOR THE ASSESSEES BUSINESS. WE HAVE PERUSED THE PAPER BOOK WHEREIN THE CLAIM ON VEHICLE AND TELEPHONE EXPENSES HAVE BEEN BORNE BY THE ASSESSES BUSINESS WERE TO BE ONLY AUTHENT ICATED BY SOME MODE TO INDICATE THAT NO ELEMENT OF PERSONAL USE WAS THERE. 4.2. ON THE LAST ISSUE BEING LOSS ON SALE OF ASSETS WE ARE INCLINED TO HOLD THAT THE LOSS HAS BEEN CLAIMED AS BUSINESS LOSS IN VIEW OF THE FACT THAT THE ASSESSEE IS MAINTAINING TH E FIXED ASSETS IN A BLOCK OF ASSETS IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT. THOSE HAVE BEEN PUT TO USE FOR MORE THAN A YEAR AND THE DEPRECIAT ED AMOUNT HAS BEEN SHOWN AS LOSS THEREFORE DOES NOT BENEFIT THE REVENUE TO THE EXTENT THAT THE CAPITAL GAIN HAS TO BE ADJUSTED AGAINST CAPITAL LOSS WHEN THE CAPITAL GAINS ALONE IS TO BE IDENTIFIED FOR I.T.A.NO. 74/CTK/2010 6 TAXATION SEPARATELY AT A LOWER RATE AS AGAINST DEPRECIATION WHICH IS THE NOTIONAL LOSS CHARGED TO THE PROFIT & LOSS ACCOUNT WOULD BE LOSS TO THE ASSESSEE. IN OTHER WORDS THE ACTION OF THE ASSESSEE IN CLAIMING LOSS ON SALE OF ASSETS IS TO BE ACCEPTED AS RETURNED. WE DIRECT ACCORDINGLY. 5. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 25 TH FEBRUARY 2011 SD/ - SD/ - ( . . . ) ( K.S.S.PRASAD RAO) JUDICIAL MEMBER ( . . ) (K.K.GUPTA) ACC OUNTANT MEMBER. ( ) DATE: 25 TH FEBRUARY 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : AK HILENDRA NATH PATNAIK (HUF) AT/P.O.H - 12 CIVIL TOWNSHILP ROURKELA 2 / THE RESPONDENT: ACIT CIRCLE 1(1) SAMBALPUR. 3 . / THE CIT 4 . ( )/ THE CIT(A) 5 . / DR CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY ( ) ( H.K.PADHEE ) SENIOR.PRIVATE SECRETARY.