ACIT vs. Gopal Fabrics (ITAT Ahmedabad)

AO while making this disallowance has observed as under:

6. Disallowance of Claim of Depreciation:

On perusal of the submitted details, it is noticed that the assessee has claimed depreciation on motor vehiclesamounting of Rs.2,93,169/- in the year under consideration, but during the course of assessment proceeding the assessee has produced bills and proof of purchase of the assets and it is seen from the details furnished by the assessee the vehicles are registered in the name of partners and it is used by the form even though the vehicles are at the disposal of the firm the legal ownership is with the partners only. Thereforethe depreciation claimed by the assessee has to be disallowed considering the ownership notbelonging to the assessee. During the course of hearing, the assessee has furnished a sales invoice of, for purchase of a Hundai Getz asking Rs.4,51,900/- which is in the name of Paresh kumar Ratilal shah [partner of the firm].

The car was registered in the name of the partner of the firm and hence assessee cannot be considered as the legal owner of the vehicle. The “ownership” in the legal context means that the asset, under consideration, should be bought and registered in the name of the assessee, then only it would qualify the “Ownership” aspect. While dealing with the similar issue, the territorial jurisdictional High Court in the case of CIT Vs Bordubi Rice Mills, reported in 105 ITR 739, has held that in the eyes of law, there cannot be more than one owner for different purpose. Under such circumstances, the depreciation cannot be allowed in the firm’s case, when the car was registered in the name of the partner. While following the above ruling and considering the fact that since the car was bought and registered in the name of one of the partner, thus for all legal and practical purposes, the ownership of the same was bestowed with the partner only and, therefore, it cannot be claimed as assessee ‘s own assets under the IT Act. Since the assessee has failed to qualify one of the basic criteria to claim the depredation, stipulated u/s 32 of the Act. Therefore, the depreciation claim of Rs. 2,93,169/- made on account of car purchased in the name of partner is disallowed and added back to thetotal income of the assessee. Penalty, proceeding u/s 271(1)(c) for furnishing in accurate particulars and concealment of Income.”

Assessee’s submission before Ld. CIT(A) was as under: -“6.1 Disallowance of depreciation of Rs. 293,169/-

It is a normal practice of acquiring vehicles in the name of partners of a firm, although payments are made by the firm. There are several considerations for this practice.

Depreciation has been allowed on such purchases in earlier assessments also.

In such cases, the ownership lies with the firm only, because the vehicle was acquired by the firm out of its own funds. While deciding about the ownership of vehicle the A.O. has ignored this vital fact. Moreover, there was only one incident during the year for purchase of a motor car in the name of partner on behalf of the firm ( for Rs 4,51,000) .which has been highlighted by the officer in AO. Instead of considering depreciation on this single vehicle, the officer has arbitrarily disallowed much higher depreciation of Rs. 2,93,169/- without giving any base or reasoning. This is unjust, unlawful and bad in law.

The case law quoted by the officer is not relevant to the subject matter of this case, and hence, does not serve any purpose.”

Ld. CIT(A) had deleted this addition by observing as under:-
“7.2 I have carefully consideredthe rival submissions. Perusal of the balance sheet of the appellant reveals that all these cars are reflected in the schedule of fixed assets. The appellant had claimed depreciation on these cars. Some of those cars were purchased in the previous years and depreciation on these cars are regularly allowed. Perusal of balance sheet further reveals that the appellant raised loans from bank to purchase some of these cars. Secondly, the A. O. had accepted the running and maintenance expenses debited by the appellant in the P & L A/c. These facts makes it abundantly clear that these cars were purchased from the funds of the appellant firm and is being used for the purposes of business of the appellant firm. In such a case, in my considered view the appellant is entitled to claim depreciation on these cars. The appellant’s case is fully covered by the decision of Hon‘ble Supreme Court in the case of Mysore Minerals Ltd. vs CIT(1999) reported at 239 ITR 775 (S.C). In view of above facts, I am inclined to agree with the contentions of the appellant. The A. O. is directed to allow depreciation on motor cars of Rs. 2,93,169/-. This ground of appeal is allowed.”

Since Ld. CIT(A) has given relief to the assessee by following the Hon’ble Supreme Court’s decision in the case of Mysore Minerals Ltd vs. CIT(1999) reported at 239 ITR 775, we feel no need to interfere with the order passed by Ld. CIT(A) and the same is hereby upheld.

Source- ACIT vs. Gopal Fabrics (ITAT Ahmedabad) – ITA No.3338/Ahd/2010 and 463/Ahd/2013 (Date of pronouncement : 29-11-2013)