ITAT allows 30% depreciation on hired vehicles instead of 15% and permits interest as acquisition cost for capital gains

ITAT Delhi allowed assessee's appeal regarding depreciation on hired vehicles, directing AO to allow 30% depreciation instead of 15% as vehicles given on hire qualify for higher rate. Tribunal permitted interest on borrowed capital as part of cost of acquisition for capital gains computation. Addition made by AO in house property income calculation was deleted due to misdirection. Capital loss on land sale was upheld against CIT(A)'s disallowance, as indexed cost of acquisition was correctly computed including borrowing interest.

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Issues Involved:

1. Legality of the order passed by the CIT(A).
2. Depreciation rate on leased cars.
3. Interest paid on loan borrowed for the purchase of a plot.
4. Addition under the head 'income from house property'.
5. Enhancement of income due to loss incurred on the sale of land.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed by the CIT(A):

The first ground of appeal was of a general nature, questioning the overall legality of the CIT(A)'s order. This ground did not call for specific adjudication and was thus not addressed in detail.

2. Depreciation Rate on Leased Cars:

The assessee contended that the CIT(A) erred in confirming the AO's action of restricting the depreciation rate on leased cars to 15%. The assessee argued that the cars were used for hiring purposes, justifying a higher depreciation rate of 40%. The Tribunal reviewed the material and found that the cars were indeed given on lease and the income was offered under "income from other sources". The Tribunal directed the AO to allow depreciation at 30%, as motor lorries and motor taxis used in a business of running them on hire are eligible for this rate. Thus, the assessee's claim was partially upheld.

3. Interest Paid on Loan Borrowed for Purchase of Plot:

The assessee argued that the interest paid on a loan taken to purchase a plot should be considered part of the cost of acquisition. The AO had disallowed this, referencing a decision that interest paid from the date of acquisition to the date of sale does not form part of the cost. The Tribunal, however, found merit in the assessee's reliance on judicial precedents, including decisions from the Delhi High Court and Madras High Court, which held that interest on borrowed funds for asset acquisition is part of the actual cost. The Tribunal directed the AO to include the interest as part of the cost of acquisition for computing capital gains, thereby allowing the assessee's appeal on this ground.

4. Addition Under the Head 'Income from House Property':

The AO had added Rs. 2,75,520 to the assessee's income, assuming that the rental income from cars was part of the house property income. The assessee clarified that the rental income from house property was shown separately from the lease income of cars. The Tribunal found that the AO had misdirected himself by considering the lease income from cars as rent received from house property. The Tribunal directed the AO to delete the addition of Rs. 2,75,520, thereby allowing this ground of appeal.

5. Enhancement of Income Due to Loss Incurred on Sale of Land:

The CIT(A) had enhanced the assessee's income by Rs. 39,75,568, disallowing the loss on the sale of a plot. The assessee argued that the loss was not claimed in the original return and that the revised computation showed a capital gain, not a loss. The Tribunal found that the CIT(A) misinterpreted the facts, as the revised computation by the assessee did not claim any extra loss but rather reduced the previously claimed loss. The Tribunal observed that the cost of acquisition included interest on borrowed funds, which was justified. Consequently, the Tribunal directed that there was no ground for disallowing the capital loss, allowing this ground of appeal.

Conclusion:

In conclusion, the Tribunal allowed the appeal of the assessee on all grounds, directing the AO to make necessary adjustments as per the detailed findings. The order was pronounced in the open court on 14/02/2024.

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