Revenue loses appeal on Honda City depreciation allowance under Rule 5 Income Tax Rules 1962

The ITAT PUNE ruled against revenue's appeal challenging depreciation allowance on a Honda City car. The AO had restricted depreciation to 50% under Rule 5 of Income Tax Rules, 1962, but the tribunal found this constituted an impermissible change of opinion citing Kelvinator of India Limited precedent. The reopening under section 147 was initiated beyond four years without establishing non-disclosure by the assessee. The tribunal noted the vehicle was insured and put to use on 30.09.2009, supporting the assessee's claim. The appeal was decided against revenue on both jurisdictional and merit grounds.

---

---

Issues involved: Appeal against assessment order for assessment year 2010-11 u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 regarding disallowance of depreciation on new Honda City car.

Grounds Pleaded by Revenue:
1. Whether the deletion of disallowance on new Honda City car of Rs. 3,62,525/- by the CIT(A) is justified.
2. Whether the deletion of disallowance of depreciation on new Honda City car ignoring Rule 5 of Income tax Rules, 1962 is justified.
3. Whether the deletion of disallowance on new car without evidence of use before 1st Oct 2009 is justified.
4. Whether the disallowance of depreciation is covered under exception 10(c) as per CBDT Circular 3 of 2018.
5. Request for leave to add, alter, amend, or delete any ground of appeal.

Detailed Judgment:
The detailed discussion by NFAC accepted the assessee's arguments on merits. The crux of the issue lies in the interpretation of CBDT Notifications regarding the purchase and use of the new commercial vehicle for claiming depreciation at the rate of 50%. The NFAC held that the word "put in use" in the IT Rules should be reasonably interpreted, and the asset's degree of utilization should not affect whether it is considered to be put to use. The NFAC emphasized that the CBDT intended to provide the benefit of depreciation for vehicles used for business purposes. The NFAC concluded that the appellant had effectively put the vehicle to use immediately upon purchase, as evidenced by the insurance policy being effective from the purchase date. Therefore, the appellant was entitled to the depreciation rate, and the addition made by the AO was directed to be deleted.

Upon careful consideration, it was found that the Revenue's arguments lacked merit. The Revenue's contention that the depreciation should be restricted to 50% due to registration after 01.10.2009 was not sustainable. The assessment order was for the year 2010-2011, and the initiation of action by the Assessing Officer beyond four years from the relevant assessment year was deemed improper. Citing relevant case law, it was established that the reopening reasons must stand on their own without room for improvement. Furthermore, the appellant had insured the vehicle on 30.09.2009, indicating its use, and the Revenue's arguments on the validity of reopening and merits were deemed unfounded. Consequently, the Revenue's appeal was dismissed.

In conclusion, the NFAC's decision to allow the appellant's claim for depreciation on the new Honda City car was upheld, emphasizing the importance of the CBDT Notifications and the effective use of the vehicle for business purposes. The Revenue's appeal was dismissed based on the lack of merit in their arguments regarding the depreciation disallowance.

---