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The Asstt. Commr. of... v. M/s Ravji Manji Sora...

Income Tax Appellate Tribunal

Mar 24, 2022

Judgment

Subsequent
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CaseIQ

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Concise Analytical Summary of the Opinion — ITA No. 344/Rjt/2016 (AY 2012-13)

Factual and Procedural Background

This is an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-3, Rajkot dated 06.06.2016, arising from an assessment order dated 09.01.2015 passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 for Assessment Year 2012-13.

The dispute concerned the rate of depreciation claimed by the assessee (M/s. Ravji Manji Sorathia & Co.). The assessee claimed higher rate depreciation @30% on dumpers, trucks and similar vehicles to the extent of Rs.5,58,37,567.78. The Assessing Officer held that the assessee was not in the business of running motor lorries on hire and therefore restricted depreciation to 15%, thereby making an addition of excess depreciation of Rs.2,79,18,784/-. The assessee filed an appeal to the CIT(A), who partly allowed the appeal. The Revenue then appealed to the Income Tax Appellate Tribunal (ITAT), Rajkot Bench.

The ITAT heard the matter on 14/03/2022 and pronounced its order on 24/03/2022.

Legal Issues Presented

Whether the assessee is entitled to higher rate of depreciation @ 30% on motor buses, motor lorries and motor taxis (including dumpers/trucks) under Appendix I to the Income-tax Rules, on the ground that such vehicles were used in the business of running them on hire?
Whether the Assessing Officer erred in restricting depreciation to 15% on such vehicles on the basis that the assessee was not in the business of running vehicles on hire?

Arguments of the Parties

Appellant (Revenue) — Primary Contentions

The solitary ground of appeal asserted that the CIT(A) erred on facts and law in defining the nature of the assessee's business as that of a transporter and in holding that the assessee was entitled to the higher rate of depreciation @30% on dumpers, trucks etc., contrary to the Assessing Officer's allowance of 15%.

Respondent (Assessee) — Primary Contentions and Evidence

The assessee relied on the relevant provision in Appendix I (Part A, Item III sub-item (2)(ii)) to rule 5 providing 30% depreciation for "motor buses, motor lorries and motor taxis used in the business of running them on hire." The assessee asserted that specific vehicles used for transportation work were placed in the 30% depreciation asset block.
The assessee explained that while some vehicles used for its own contractual work were shown in the 15% block, the vehicles engaged in transportation (including transportation for others) were shown separately in the 30% block.
To demonstrate that such vehicles were used for hire/transportation business, the assessee submitted supporting documents: sample work orders for transportation work, bills for transportation/hiring receipts, ledger accounts for freight and transportation charges, and letters of intent/contracts (including from Bridge & Roof Co. India Ltd. and from M/s. Mundra Port & Special Economic Zone).
The assessee pointed to the audit report and Form No.3CD which recorded the nature of business as "Civil Contract & Transportation."
The assessee cited CBDT Circular No. 652 dated 14/06/1993 (and referred to Circular No.609) interpreting the rule to permit higher depreciation where motor lorries are used in the business of transportation of goods on hire, and argued that such circulars support the claim.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
PCIT v. Durga Construction Co. [2018] 93 taxmann.com 436 (Gujarat High Court)	Held that where contract terms require provision of equipment/vehicles on hire with manpower for excavation, loading and removal of minerals, the activity constitutes running vehicles on hire and entitles assessee to higher depreciation as per rule (and circular) applying 30% rate.	The ITAT respectfully followed this Jurisdictional High Court judgment as persuasive authority on substantially similar facts; the Tribunal relied on the reasoning in that case to uphold CIT(A)'s allowance of 30% depreciation.
I.C.D.S. Ltd. v. CIT [2013] 350 ITR 527 / 212 Taxman 550 / 29 taxmann.com 129 (Supreme Court)	Referenced in relation to how CBDT circulars and relevant authorities might operate in related contexts (discussion not decided here).	The ITAT noted the Supreme Court decision but observed that the specific issue was not directly before it in a manner that required a conclusive ruling on that decision; it declined to decide the matter in that broader context.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in a structured manner focused on the statutory provision, the factual matrix, and the authorities cited:

Statutory framework: The Tribunal referred to section 32 of the Income-tax Act and to Appendix I (applicable for AY 2006-07 onwards), Part A, Item III which prescribes different depreciation rates for tangible assets. Sub-item (2)(ii) prescribes 30% for "motor buses, motor lorries and motor taxis used in the business of running them on hire." The question was whether the assessee's vehicles fell within that description.
Factual assessment: The Tribunal examined the material on record and observed that the assessee's declared nature of business (Form 3CD) included "Civil Contract & Transportation." The assessee produced contracts, letters of intent, work orders, freight/transportation ledger entries, and evidence showing that during the relevant year it performed transportation work for others and had vehicles specifically identified in a 30% depreciation block.
Contract terms and operation: The Tribunal noted that tender terms (and associated contracts) required the assessee to provide machinery and vehicles for excavation, transportation of excavated material, and other movements — effectively providing equipment (and trained manpower) for hire. The Tribunal emphasized that the principal (contracting party) had operational control over deployment of the equipment under the contract, which is consistent with the practical operation of hired equipment.
Precedent and guidance: The Tribunal relied on the Gujarat High Court decision in PCIT v. Durga Construction Co., where similar contractual arrangements were found to amount to a business of providing equipment and motor vehicles on hire, entitling the assessee to higher depreciation. The Tribunal also considered CBDT Circular No. 652 (and referenced Circular No. 609) which clarifies that higher depreciation is admissible for motor lorries used in the business of transportation of goods on hire.
Conclusion of analysis: Applying the statutory provision to the undisputed facts and following the cited High Court authority and circular, the Tribunal concluded that there was no error in the view taken by the CIT(A) to allow higher rate depreciation. The Tribunal observed that even if vehicles had been used in the assessee's own mining operations the position would not necessarily be different in light of the circulars and the authorities, but it did not decide that hypothetical point as it was unnecessary to the disposal of this appeal.
No substantial question of law: The Tribunal expressly recorded that, on the basis of the reasoning and authorities, "No question of law arises."

Holding and Implications

Holding: The Tribunal dismissed the Revenue's appeal and therefore upheld the CIT(A)'s allowance of higher rate depreciation on the assessee's qualifying vehicles.

REVENUE'S APPEAL DISMISSED.

Immediate Consequences

The effect of the decision is to sustain the CIT(A)'s view that the assessee was entitled to claim depreciation at the higher rate (30%) on those vehicles which the record shows were used in the business of running them on hire and which had been placed in the 30% depreciation block.
Practically, the ITAT's dismissal means the Assessing Officer's addition (reducing the depreciation to 15% and adding back excess depreciation) is set aside in accordance with the CIT(A)'s order.

Wider Legal Implications

The Tribunal explicitly followed the Jurisdictional High Court (PCIT v. Durga Construction Co.) and relied on CBDT Circular No. 652 in its reasoning. The Tribunal noted the Supreme Court decision I.C.D.S. Ltd. v. CIT but did not treat this case as requiring a broader pronouncement on those authorities. The opinion does not claim to establish a new legal precedent; it applies existing authority to the facts before it.

Order pronounced in open court on 24/03/2022 by the Rajkot Bench (Judicial Member: Shri Mahavir Prasad; Accountant Member: Shri Waseem Ahmed).

Show all summary ...

IN THE INCOME TAX APPELLATE TRIBUNAL

"RAJKOT" BENCH, RAJKOT

[Conducted through E-Court at Ahmedabad]

BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR

& SHRI WASEEM AHMED, ACCOUNTANT MEMEBR आयकर अपील सं./I.T.A. No. 344/Rjt/2016 (नधार ण वष / Assessment Year : 2012-13)

Assistant Commissioner of बनाम/ M/s. Ravji Manji

Income-tax Vs. Sorathia & Co. Gandhidham Circle, Plot No.460/461, Near Gandhidham-Kutch Vandna Ground, Khodiyar

Tower, Ward-3B, Adipur-

Kutch थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAHFR1846C (अपीलाथ /Appellant) . . (यथ / Respondent)

अपीलाथ ओर से/Appellant by : Shri S. S. Rathi, Sr. D.R. यथ क ओर से / Shri Mehul Ranpura, A.R.

Respondent by :

सनुवाई क तारख / Date of

14/03/2022

Hearing घोषणा क तारख /Date of

24/03/2022

Pronouncement ORDER

PER MAHAVIR PRASAD, JM:

The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-3, Rajkot ('CIT(A)' in short), dated 06.06.2016 arising in the assessment order dated 09.01.2015 passed by the

Manji Sorathia & Co.] AY 2012-13 - 2 - Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY. 2012-13.

2. The Revenue has taken solitary ground that learned

CIT(A) has erred on facts and law in defining the nature of business of the assessee as transporter and in holding that the assessee is entitled to higher rate of depreciation @ 30% on dumpers as against depreciation @15% allowed by the AO.

3. The facts of the case are that it is seen from the Schedule- of Fixed Asset and Depreciation' to the Balance Sheet of Audit Report that the assessee has claimed higher rate of depreciation on Dumper, Truck etc. @ 30% to the tune of Rs.5,58,37,567.78 instead of 15% of depreciation usually available. Hence AR of the assessee vide order sheet entry dated 26-11-2014 was asked that 'why depreciation @ 30% claimed on Dumpers, Trucks should not be allowed only on 15% as company not in business of running them on hire.' The assessee vide its reply dated 15- 12-2014 has submitted their reasons and case law for admissibility of higher rate of depreciation @ 30% on dumper, trucks etc. The submission of the assessee is reproduced as under:

JUSTIFICATION FOR CLAIMING DEPRECIATION @ 30 % ON TRUCKS/DUMPER.

1. In order to appreciate the claim of depreciation on trucks and dumpers @ 30 %, the clause III (3) (ii) of Part A of appendix I under rule 5 is reproduced below:

III. Machinery and Plant. Rate of depreciation on WDV

(1) & (2) xxxxxx

(3) (i)xxx

Manji Sorathia & Co.] AY 2012-13 - 3 - (ii) Motor buses, motor Lorries and motor taxis used in the business

of running them on hire. 30%

2. In this regard your honour's kind attention is invited Assets block of 15% depreciable assets of the depreciation schedule block. In this block the various issets were put to use. These assets include various vehicles/ Tractors, equipments like JCB machines, Concrete Mixers, hydraulic jacks, Loaders etc. which are used in discharging the contractual obligations. Since these assets were used for its own use your assessee claimed depreciation @ 15 %. For ready reference copy of depreciation chart is attached herewith.

3. In addition to its own contractual work your assessee during the year under consideration and in preceding year had carried out the transportation work for others and for that it had purchased majority of new trucks/ dumpers. In order to appreciate the job carried out by the firm sample copy of work order for transportation work and sample copy of bills for transportation hiring receipt and sample copy of work order for the same are attached herewith.

4. The vehicles used in transportation work for others were separately mentioned in Assets Block @30% of the depreciation, schedule where depreciation @ 30 % was claimed.

5. In this regard your honour's kind attention is invited to the auditor's report. It may be observed from the that auditor righty mention in Form No.3CD at point No.8(a), the nature of business or profession is "Civil Contract & Transportation".

6. It is further submitted that Truck and Dumper is a type of goods transportation heavy vehicles provided with additional equipments so as to enable in unloading the contents mechanically.

7. The truck and dumpers are registered as a truck with Motor Vehicle Act. The term "Dumper" is specifically used for the type of truck within the business community because of the facil ity which is available with these types of truck i.e. mechanically unloading the goods.

8. In this regards, your honour's kind attention is invited to CBDT's circular No. 652 dated 14/06/1993, Section 32, Rule 5, "Under sub-item 2(ii) of Item-III of Appendix-I to the I.T. Rules, 1962, higher rate of depreciation is admissible

Manji Sorathia & Co.] AY 2012-13 - 4 - on motor buses, motor lorries and motor taxis used in a business of running them on lire. A question has been

raised as to whether, for deriving the benefit of higher

depreciation, motor Lorries must be hired out to some

other person or whether the user of the same in the

assessee's business of transportation of goods on hire

would suffice ." Copy of Circular is attached at page no. A-

135 for your kind consideration.

The learned AO did not agree with the contention of the

assessee and held that assessee was not in business of running

motor lorries on hire and therefore, claim of depreciation is

restricted to Rs.2,79,18,784/- as against the depreciation

claimed by the assessee at Rs.5,58,37,567.78 on dumper, truck

etc. Therefore, excess depreciation claimed on dumper, truck

etc. of Rs.2,79,18,784/- was added back to the total income of

the assessee.

4. Thereafter, the assessee preferred first statutory appeal

before the CIT(A) who partly allowed the appeal of the assessee.

5. Now, Revenue came before us.

6. We have gone through the relevant record and impugned order and heard both the parties. Undisputedly, assessee is in the business of civil contract and sub-contract of road work, over burden removal and mining work. The learned AO himself has mentioned above the said in his assessment order. Undisputedly, assessee is in the business of transportation; loading, unloading of the mined/ excavated/ over-burdened waste rock from the mine to the separate demarcated specific

Manji Sorathia & Co.] AY 2012-13 - 5 - areas. In support of its contention, the assessee has filed the letter of intent from Bridge & Roof Co. India Ltd., wherein

nature of contract has been defined as 'providing & supplying

of potable water required and also submitted a letter from M/s.

Mundra Port & special Economic Zone wherein contract was

given to the assessee for transportation. Assessee has also

submitted audit report to emphasize that Form No.3CD clearly

declared the nature of his business. Assessee has also filed

ledger accounts for freight charges and transportation charges

before the lower authorities. In similar facts and circumstances,

Hon'ble Gujarat High Court in case of PCIT vs. Durga

Construction Co. [2018] 93 taxmann.com 436 (Gujarat) has

granted relief to the assessee and dismissed the Revenue's

appeals by observing as under:

"5. The assessee has been awarded contract for providing

equipments on hire with manpower to execute the work of excavation, loading and removal of minerals from one place to another. The entire operation is scheduled and controlled by the principal. The assessee is required to provide st ipulated equipments and vehicles on hire. The assessee would not be allowed to remove any equipments or vehicles provided under the contract without prior permission of the principal. I he business of the assessee-firm i tself was providing equipments and motor vehicles on hire.

6. CIT[A] accepted the assessee's contention and reversed the decision of Assessing Officer, relying oil the earlier decision. The Appellate Commissioner has also relied on CBDT Circular No. 652 which provides that under sub-item 2[ii] of Item III of Appendix I to the Rules, higher rate of depreciation would be admissible on motor buses, motor lorries and motor taxis used in the business of running them on hire. It was clarified that higher depreciation will also be admissible on motor lorries used in the assessee's business of transportation of goods on hire.

7. The revenue carried the matter in appeal before the Tribunal. The Tribunal confirmed the view of the CIT [A] taking note of the scope of work awarded to the assessee under the tender

Manji Sorathia & Co.] AY 2012-13 - 6 - terms as also placing reliance on the CBDT Circular No. 652 dated 14th June 1993.

8. Against such judgment, the Revenue has filed the present appeal.

9. Facts in all other appeals are substantially similar and are therefore not separately recorded.

10 Section 32 [1] of the Income-tax Act, 1961 ["the Act" for brevity] provides for depreciation in respect of buildings, machinery, plant or furniture, being tangible assets as well as certain intangible assets owned wholly or partly by the assessee and used for the purpose of the business or profession, at the prescribed rates. New Appendix I, which is applicable for AY 2006-2007 and onwards, in Part-A contends specific rate of depreciation for "tangible assets". Capital-Ill thereof pertains to

"machinery and plant". Under sub-item [2] of Item [3] (iii), the rate of depreciation on "motor buses, motor lorries and motor taxis used in the business of running them on hire" is prescribed @ 30%. It is in this context we have to test the correctness of the view taken by CIT [A] and the Tribunal. Revenue's main contention appears to be that the assessee had not given the said machinery on hire since the assessee was awarded the contract for mining. However, we have noticed some of the leading terms of the tender. These terms inter alia required the assessee to provide machinery for hire for excavation of overburden; transportation of such excavated overburden minerals; transportation of minerals from mines to pit-head, stock piles or at any other place, and the transportation of overburden of minerals and excavated minerals to be done by running motor vehicles such as tippers, dumpers etc. Essentially, therefore, the assessee was awarded contract for providing such equipments on hire. It was in this context, the assessee has highlighted that the assessee has no control over the equipments so hired and it was the principal which would decide to deploy the equipments at the appropriate place.

11. From the material available on record though the assessee essentially was awarded contract for providing specialized equipments and trained manpower for mining and transportation of excavated minerals on hire, the terms of the tender and the eventual contract awarded would suggest that the assessee was given the work of mining. The assessee was essentially required to provide equipments and manpower on hire. In view of such discussion, we find no error in the view taken by the Tribunal. Even if the assessee had used such equipments and manpower for its direct mining operations for the contract , if it was so awarded, we wonder whether that would make any difference particularly in view of CBDT Circulars No. 609 and 652 and the decision of the Supreme Court in case of I.C.D.S. Ltd. v. CIT [2013] 350 1TR

Manji Sorathia & Co.] AY 2012-13 - 7 - 527/212 Taxman 550/29 taxmann.com 129. However, when this issue does not arise for direct consideration, we need not conclude the same.

12. All in all , we see no error in the view taken by the Tribunal. No question of law arises.

Tax Appeals are dismissed." In view of above, respectfully following the Hon'ble Jurisdictional High Court's judgment, we dismiss the appeal of the Revenue.

7. In the result, the captioned appeal filed by the Revenue is dismissed.

This Order pronounced in Open Court on 24/03/2022

Sd/- Sd/-

(WASEEM AHMED) (MAHAVIR PRASAD)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Ahmedabad: Dated 24/03/2022 True Copy

S.K.SINHA आदेश क तल प अे षत / Copy of Order Forwarded to:- 1. राजव / Revenue 2. आवदे क / Assessee

3. सबं )ं धत आयकर आयु+त / Concerned CIT 4. आयकर आयु+त- अपील / CIT (A) 5. /वभागीय 2त2न)ध, आयकर अपीलय अ)धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड 8 फाइल / Guard file. By order/आदेश से,

Deputy/Asst t . Registrar

ITAT, Rajko t