By Ashok Dhere, Jagdish D. Shah, Chartered Accountants
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8 Shashikant Janardan Kulkarni v.
ITO
ITAT Pune Bench SMC, Pune
Before Mukul Shrawati (JM)
ITA No. 1357 /PN/2005
A.Y. : 2001-02. Decided on : 27-4-2007
Counsel for assessee/revenue : Arvind Kulkarni/
Vilas Shinde
S. 32 read with Explanation 3 to S. 43(1) of the Income-tax
Act, 1961 — Depreciation on second-hand vehicle — Previous owner had not used
the vehicle for the purpose of business, nor claimed any depreciation — Vehicle
transferred to the assessee at the original cost to the previous owner — Whether
the present owner justified in claiming depreciation on its original cost to the
previous owner — Held, Yes.
Facts :
A vehicle in question was purchased by the assessee’s HUF in
the year 1997 at Rs.3.87 lac. It was brought to the business by the assessee in
his individual capacity in the previous year relevant to the A.Y. 2001-02 at the
original cost of Rs.3.87 lac and depreciation @ 25% was claimed thereon. The
assessee justified his action on the ground that no depreciation was claimed by
the HUF till the time it remained its owner. However, applying Explanation 3 to
S. 43(1) of the Act, the AO held that the assessee had claimed excessive
depreciation by enhancing the cost. He therefore, reduced the cost to Rs.2 lac
and computed the depreciation accordingly. The CIT(A) on appeal confirmed the
AO’s action.
Held :
According to the Tribunal, as per Explanation 3 to S. 43(1),
the AO is empowered to substitute the cost of vehicle only if the following two
conditions were satisfied viz. :
à
The asset in question was at any time used by any person for the purpose of
business; and
à
He is satisfied that the assessee had taken resort to a subterfuge or a device
in order to avoid tax or acted fraudulently or the transaction was colourable.
It also agreed with the view expressed by the CIT(A) that the
vehicle being three years old, ought to have been subjected to wear and tear.
However, it noted that the applicable provisions did not take into account such
a situation and did not give discretion of any kind to the AO. Thus, since the
vehicle in question had not been used by the HUF for the purpose of business and
no depreciation thereon was claimed in the past on such vehicle, the Tribunal
held that the AO had no jurisdiction to substitute the value by any other
figure.
