Tribunal grants appeal, directs deletion of disallowance under Section 40(a)(ia) & allows 30% depreciation on hired vehicles.

The Tribunal allowed the appeal filed by the assessee, directing the AO to delete the disallowance of Rs. 65,24,800 made under Section 40(a)(ia) and to allow depreciation at 30% on the vehicles used for hiring out. The stay petition filed by the assessee was dismissed as infructuous.

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Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961.
2. Entitlement to higher depreciation on vehicles used for hiring out.

Detailed Analysis:

1. Disallowance under Section 40(a)(ia):

The assessee was engaged in the business of plying trucks and filed a return of income for the relevant assessment year. The Assessing Officer (AO) issued a notice under Section 147, believing that the assessee had claimed higher depreciation at 30% instead of 15% without showing income from plying trucks on hire as a separate business. The AO also noted that a sum of Rs. 65,24,800 was paid to contractors without deducting tax at source, invoking the provisions of Section 194C read with Section 40(a)(ia).

Before the CIT(A), the assessee argued that he was not required to deduct tax at source from the payments identified by the AO, as the payments were made to truck owners who were not under any contractual obligation with the assessee. The CIT(A) upheld the AO's decision, stating that the payments were part of a contract and should have been subjected to TDS.

The assessee appealed, arguing that there was no contract between him and the truck owners, and hence, no requirement to deduct tax at source. The Tribunal considered various case laws, including CIT v. United Rice Land Ltd., which held that payments to truck owners without a formal contract do not attract the provisions of Section 194C. The Tribunal found that the payments were made for hiring trucks, not as part of a contractual obligation, and therefore, Section 40(a)(ia) was not applicable.

2. Entitlement to Higher Depreciation:

The second issue was whether the assessee was entitled to claim higher depreciation at 30% on vehicles used for hiring out. The AO had disallowed the higher depreciation, arguing that the assessee had not shown income from hiring out trucks as a separate business.

The Tribunal referred to various judicial pronouncements, including CIT v. Madan & Co. and CIT v. M.G.F (India) Ltd., which held that vehicles leased out for consideration qualify for higher depreciation. The Tribunal noted that the assessee was in the business of hiring out vehicles and had shown this income in the financial statements. Therefore, the assessee was entitled to claim higher depreciation at 30%.

Conclusion:

The Tribunal allowed the appeal filed by the assessee, directing the AO to delete the disallowance of Rs. 65,24,800 made under Section 40(a)(ia) and to allow depreciation at 30% on the vehicles used for hiring out. The stay petition filed by the assessee was dismissed as infructuous.

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