By TIOL News Service

AHMEDABAD, MAR 09, 2019: THE ISSUE IS - Whether registration of vehicle in the name of company is sine qua non to claim depreciation on such tangible asset. NO IS THE ANSWER.

Facts of the case

The assessee filed its return and claimed dividend income and deduction on depreciation of vehicle. The case was selected for scrutiny and notices u/ss 142(1) & 143(2) r/w section 129 were issued due to change of incumbent. The AO noted that assessee had earned dividend income and also made investment in Mutual Funds and Shares of various Companies. In reply to the notices, the assessee submitted that it had not incurred any expenditure for the purpose of investment that yielded tax free income. However, the assessee made a suo moto disallowance u/s 14A r.w.r. 8D. Such pleas of the assessee were not accepted and the AO proceeded to make disallowance u/s 14A r/w rule 8D on account of expenditure incurred for earning exempted income.

The assessee also submitted that the vehicle on which depreciation was claimed was registered in the name of the Directors of the company and funds for such purchase of the assets was provided by the assessee company. Such pleas were rejected by the AO on the grounds that the assessee was not a registered owner of the vehilce and such vehicle was not used for business purposes. Accordingly, addition was made by the AO. The AO also found, upon examination of 3CD Report, unutilized CENVAT Credit. The assessee submitted that there was no effect on the profit and it has prepared its account as per AS II and as such there was no understatement of profit. Such pleas were rejected by the AO and addition was made.

The matter was carried to the CIT(A) which set aside the the entire disallowances made by the AO and deleted all the additions.

On hearing the appeal, the Tribunal held that,

++ on the issue of dividend income, the assessee has not claimed any exempt income in the instant case. The ratio laid down in the decision of the jurisdictional High Court in CIT vs Corrtech Energy Ltd. fits the present case. In that case it was held, where the assessee has not made any claim for exemption of any income payment of tax, no disallowance could be made u/s 14A. This ratio has rightly been applied by the CIT(A). In the result, revenue's ground of appeal is dismissed;

++ on the issue of depreciation, when the vehicles in question where in use for the purpose of business of the assessee company and when the same duly reflected in the Books of accounts of the assessee company, the claim of depreciation cannot be disallowed. This view has already been confirmed by the jurisdictional High Court in DCIT vs. M/s. Axel Ploymers Ltd. The Apex Court in Mysore Minerals vs CIT also confirms that merely because the vehicle are not registered in the name of the company but in the name of the Directors, the assessee cannot be denied of the claim of depreciation. Following such findings, the issue is decided against the Revenue;

++ on the issue of CENVAT Credit, the AO made the addition on ground that if inclusive method of accounting was followed, the assessee would have earned higher profit then profit shown as per exclusive method of accounting. The AO further observed that unused CENVAT credit is required in the closing stock of raw material but the case of the assessee is this since the company is following exclusive method of accounting it has recognized explanation in the P&L account in all CENVAT Credit received by it hence to that extent expenditure is already adopted by the lower amount. However, when such addition on unutilized CENVAT credit was made u/s 145A in assessee's own case for AY 2010-11, it was deleted by the first appellate authority by relying on the decision of the jurisdictional Tribunal in Alpanil Industries-vs-ACIT and also by holding that credit cannot be a subject matter of addition being tax neutral.

(See 2019-TIOL-610-ITAT-AHM)