ITAT adjusts profit rate & affirms depreciation for truck under de facto ownership principle

The ITAT reduced the net profit rate from 15% to 12.5% for estimated charcoal sales, citing the need for consistency unless special circumstances justify a higher rate. In the case of allowing depreciation on a truck registered in another person's name, the ITAT upheld the decision, emphasizing beneficial ownership for tax purposes. The assessee, despite not being the registered owner, was deemed the de facto owner and entitled to depreciation as he controlled and benefitted from the truck. The assessee's appeal was partially allowed, while the Department's appeal was dismissed.

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Issues:
1. Application of net profit rate on estimated charcoal sales.
2. Allowance of depreciation on a truck registered in another person's name.

Analysis:

Issue 1: Application of net profit rate on estimated charcoal sales
The assessee contested the net profit rate of 15% applied by the AAC on estimated charcoal sales for the assessment year 1975-76. The ITO had estimated sales based on lease money paid, applying a net profit rate of 15%, resulting in a net income of Rs. 38,700. The assessee argued that a lower net profit rate of 12.5% was applied in previous years and should be adopted for consistency. The ITAT agreed, reasoning that unless special circumstances justified a higher rate, consistency should prevail. Thus, the net profit rate was reduced to 12.5%, and relief was granted accordingly.

Issue 2: Allowance of depreciation on a truck registered in another person's name
The Department disputed the AAC's decision to allow depreciation on a truck registered in the name of a third party, contending that only the owner is entitled to depreciation under Section 32 of the IT Act. The assessee, however, argued that despite registration in another's name, he was the de facto owner, having arranged financing, recorded the cost in accounts, and declared income from the truck. Citing relevant case law, the ITAT upheld the AAC's decision, emphasizing that beneficial ownership is crucial for tax purposes. The Tribunal clarified that even in benami transactions, de facto ownership prevails, and as the assessee controlled and benefitted from the truck, he was entitled to depreciation. Consequently, the appeal by the assessee was partially allowed, while the Department's appeal was dismissed.

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