SURINDER KAUR v. INCOME TAX OFFICER
[Citation -2008-LL-0627-10]

Citation 2008-LL-0627-10
Appellant Name SURINDER KAUR
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 27/06/2008
Assessment Year 2000-01
Judgment View Judgment
Keyword Tags business or profession • transfer of ownership • transfer of property • condition precedent • issuance of notice • reason to believe • service of notice • erroneous in law • incidence of tax • movable property • outstanding loan • prescribed time • actual transfer • capital asset • wear and tear • scrutiny case • motor vehicle • wrong claim • legal owner • legal title • time-limit • sale deed
Bot Summary: In assessee s appeal, main ground is against holding that a sum of Rs. 2,36,000 remained unexplained in the hands of the assessee and second ground, which according to the learned Authorised Representative goes to the root of the matter is about making addition of Rs. 2,36,000 which was beyond the scope of limited scrutiny. The Hon ble Delhi High Court in the case of CIT vs. Basti Sugar Mills Co. Ltd. held that even if vehicles are not registered in the name of the assessee but assessee is using them and declaring income, he is entitled for depreciation. If assessee is in possession of an asset, using it for the purposes of earning income and income earned therefrom is declared in the return of income which is accepted by the Revenue then for all purposes assessee is the owner of the asset and once it is being used for the purposes of business, assessee is entitled for depreciation. Once assessee has paid full price for the property and was using the building in question for his own business even if, for a specified period a formal sale deed could not be executed in favour of the assessee, the assessee is still entitled for claim of depreciation under s. 32. If a vehicle is registered in the name of a person, the presumption is that he is a legal owner of the vehicle but where the vehicle is not registered in the name of the assessee then it is not a presumption that assessee is not the owner of the vehicle. Since as facts stand, depreciation has been disallowed merely on the ground that vehicles are not registered in the name of assessee and no other facts about investment, transfer of liabilities, plying of trucks by the assessee, declaration of income therefrom by the assessee and acceptance of the same by the Department are not disputed then assessee is treated as legal owner of the vehicles and claim of depreciation is to be allowed. In case the AO has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, he shall serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce any evidence or particulars specified therein or on which the assessee may rely, in support of such claim.


These are two appeals, one filed by Revenue and other by assessee arising from same order of learned CIT(A) dt. 14th May, 2003. issue involved is about claim of depreciation on five trucks said to be purchased by assessee from her husband and source of explanation of cash amounting to Rs. 2,36,000 which was held as unexplained by learned CIT(A). In Revenue s appeal, following grounds have been raised: "1. That learned CIT(A) erred in law and on facts in holding that assessee being beneficiary owner of trucks was entitled for deduction of depreciation against income from trucks without appreciating facts that there was no valid transfer of vehicles in name of assessee. That learned CIT(A) erred in law and on facts in allowing depreciation of Rs. 8,30,075 to assessee without appreciating facts that trucks in question were registered in name of assessee s husband and it was only sham arrangement to avoid incidence of tax as no actual transfer of trucks took place. That learned CIT(A) erred in law and on facts in deleting addition of Rs. 2,20,979 out of total addition of Rs. 4,56,979 made to assessee s income on account of unexplained credits, without properly appreciating facts and circumstances of case. That order of learned CIT(A) being erroneous in law and on facts be vacated and order of AO restored." In assessee s appeal, main ground is against holding that sum of Rs. 2,36,000 remained unexplained in hands of assessee and second ground, which according to learned Authorised Representative goes to root of matter is about making addition of Rs. 2,36,000 which was beyond scope of limited scrutiny. Now, we take up Revenue s appeal first. Revenue is aggrieved against decision of learned CIT(A) wherein he has allowed claim of depreciation to assessee on five trucks which she claims to have been purchased from her husband, Shri Raghuvir Singh. facts of case are that return of income disclosing income of Rs. 1,49,970 was filed on 25th Sept., 2001 which was selected for limited scrutiny by issuing notice under s. 143(2)(i). During course of assessment proceedings, AO noted that assessee has disclosed gross income from five trucks at Rs. 0,50,075 (sic) on which depreciation was claimed at Rs. 8,30,075. It was submitted by assessee that these five trucks were purchased by her from Shri Raghuvir Singh, husband of assessee for Rs. 20,75,188 against which there was outstanding loan of Rs. 19,70,430 belonging to financiers and was payable by Shri Raghuvir Singh which now stood transferred to her. Since all five trucks were still registered in name of Shri Raghuvir Singh, AO disallowed claim of depreciation. learned CIT(A), considering following five judgments relied on by assessee before him allowed claim: (i) Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1: (1999) 239 ITR 775 (SC) (ii) Addl. CIT vs. UP State Agro Industrial Corporation Ltd. (1981) 20 CTR (All) 141: (1981) 127 ITR 97 (All) (iii) CIT vs. Orient Longman (P) Ltd. (1998) 145 CTR (AP) 142: (1997) 227 ITR 68 (AP) (iv) Gowersons Publishers (P) Ltd. vs. CIT (1999) 156 CTR (Del)(FB) 409: (1999) 240 ITR 191 (Del)(FB). (v) CIT vs. Basti Sugar Mills Co. Ltd. (2002) 176 CTR (Del) 294: (2002) 257 ITR 88 (Del). learned CIT(A), while allowing claim observed as under: "6. No doubt, above five trucks have not been registered in name of appellant. Yet appellant is beneficial owner of trucks. sale in favour of appellant is supported by sale letter. Also payment to extent of Rs. 1,04,758 has been made to transferor (by way of adjustment against loan given to transferor by appellant earlier). Also fact that appellant has plied these trucks during year under consideration and earned income therefrom is undisputed. appellant has also claimed to have made payments to financiers, namely Sundran Finance Ltd. and Tata Finance Ltd. in respect of these trucks. I, therefore, hold that appellant being beneficial owner of truck is entitled for deduction of depreciation against income from trucks. Accordingly ground of appeal No. 1 is decided in favour of appellant." Before us, learned Departmental Representative supported order of AO whereas learned Authorised Representative relied on order of learned CIT(A) and various authorities cited by him before learned CIT(A). We have considered rival submissions and perused material on record. In our considered view, there is no case for interference in order of learned CIT(A) on this issue. Hon ble Delhi High Court in case of CIT vs. Basti Sugar Mills Co. Ltd. (supra) held that even if vehicles are not registered in name of assessee but assessee is using them and declaring income, he is entitled for depreciation. In that case, it was held that transfer of movable property is not condition precedent for legal ownership. Further, issue is covered in favour of assessee by several decisions such as CIT vs. Salkia Transport Associates (1983) 33 CTR (Cal) 198: (1983) 143 ITR 39 (Cal), Continental Construction Ltd. vs. CIT (1990) 85 CTR (Del) 116: (1990) 185 ITR 178 (Del), CIT vs. Dilip Singh Sardarsingh Bagga (1993) 201 ITR 995 (Bom) and CIT vs. Mirza Ataullaha Baig & Anr. (1993) 202 ITR 291 (Bom). authorities held that wide meaning must be given to term "ownership". If assessee is in possession of asset, using it for purposes of earning income and income earned therefrom is declared in return of income which is accepted by Revenue then for all purposes assessee is owner of asset and once it is being used for purposes of business, assessee is entitled for depreciation. In case of Mysore Minerals Ltd. vs. CIT (supra), Hon ble Supreme Court gave very wide meaning to term ownership in context of depreciation. In this regard, we refer to relevant portion of headnotes from that judgment as under: "Sec. 32 of Act allows certain deductions, one of them being depreciation of buildings, etc., owned by assessee and used for purposes of business or profession. terms own , ownership and owned are generic and relative terms. They have wide and also narrow connotation. meaning would depend on context in which terms are used. CIT vs. Podar Cement (P) Ltd. (1997) 141 CTR (SC) 67: (1997) 226 ITR 625 (SC), is case under IT Act and has to be taken as trend-setter in concept of ownership. Assistance from law laid down therein can be taken for finding out meaning of term owned as occurring in s. 32(1) of Act. term owned as occurring in s. 32(1) of IT Act must be assigned wider meaning. Anyone in possession of property in his own title exercising such dominion over property as would enable others being excluded therefrom and having right to use and occupy property and/or to enjoy its usufruct in his own right would be owner of building though formal deed of title may not have been executed and registered as contemplated by Transfer of Property Act, Registration Act, etc. Building owned by assessee , expression as occurring in s. 32(1) of IT Act, means person who having acquired possession over building in his own right uses same for purposes of business or profession though legal title has not been conveyed to him consistently with requirements of laws such as Transfer of Property Act and Registration Act, etc. Generally speaking depreciation is allowance for diminution in value due to wear and tear of capital asset employed by assessee in his business. very concept of depreciation suggests that tax benefit on account of depreciation legitimately belongs to one who has invested in capital asset and is utilising capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace same by having lost its value fully over period of time. It is well-settled that there cannot be two owners of property simultaneously and in same sense of term. intention of legislature in enacting s. 32 of Act would be best fulfilled by allowing deduction in respect of depreciation to person in whom for time-being vests dominion over building and who is entitled to use it in his own right and is using same for purposes of his business or profession. Assigning any different meaning would not subserve legislative intent." Following above decision, Hon ble Delhi High Court (Full Bench) in case of Gowersons Publishers (P) Ltd. vs. CIT (supra) held that assessee, in whose favour sale deed was not executed but it was using factory building for purposes of its business, it was entitled for depreciation. Once assessee has paid full price for property and was using building in question for his own business, then, even if, for specified period formal sale deed could not be executed in favour of assessee, assessee is still entitled for claim of depreciation under s. 32. Hon ble Supreme Court in case of CIT vs. Mirza Ataullaha Baig & Anr. (supra) gave following observations in this regard: "The law is well-settled that in case of sale in which price is to be paid by instalments, property passes as soon as sale is made, even though price has not been fully paid and may later be paid in instalments. assessee, who has purchased motor vehicle for valuable consideration and used same for his business, cannot be denied benefit of depreciation thereon on ground that transfer was not recorded under Motor Vehicles Act or that vehicle stood in name of vendor in records of authorities under Motor Vehicles Act (see pp. 295f, h, 296a)." Similar view was held by Hon ble Bombay High Court in case of CIT vs. Dilip Singh Sardarsingh Bagga (supra) by observing as under: "Registration under Motor Vehicles Act is not essential pre-requisite for acquisition of ownership of motor vehicle but is obligation cast upon owner of vehicle for purpose of running vehicles in any public place. From plain reading of s. 31 of Motor Vehicles Act, 1988, it is clear that section does not deal with transfer of ownership of any motor vehicle nor does it impose any restriction on transfer of such ownership. It simply obligates transferor and transferee to report within specified time from date of transfer fact of transfer to registering authority. This section, in fact, presupposes transfer of ownership of motor vehicle. It is only after actual transfer is effected that obligation contemplated by this section comes into operation. Moreover, non-compliance with requirement of this section does not in any way affect or invalidate transfer of ownership of vehicle it only makes transferor or transferee liable to prosecution or penalty. Therefore, assessee who had purchased motor vehicle for valuable consideration and used same for his business, cannot be denied benefit of depreciation on ground that transfer was not recorded under Motor Vehicles Act or that vehicle stood in name of vendor in records of authorities under Motor Vehicles Act." As result, we hold that mere non-registration of vehicles under Motor Vehicles Act will not disentitle assessee for claiming depreciation. purpose of registration under Motor Vehicles Act is different. It permits assessee to ply vehicle in any public place. It does not indicate legal evidence of ownership. If vehicle is registered in name of person, presumption is that he is legal owner of vehicle but where vehicle is not registered in name of assessee then it is not presumption that assessee is not owner of vehicle. ownership of vehicle has to be determined from finances utilized in making purchases of vehicles, its control and management, use of same as apparatus for earning income, declaring income earned from these vehicles as assessee s in return of income and their acceptance by Department and there being no counter claim against such declaration. Since as facts stand, depreciation has been disallowed merely on ground that vehicles are not registered in name of assessee and no other facts about investment, transfer of liabilities, plying of trucks by assessee, declaration of income therefrom by assessee and acceptance of same by Department are not disputed then assessee is treated as legal owner of vehicles and claim of depreciation is to be allowed. ground raised by Revenue in this regard is rejected. other ground raised by Revenue is about deletion of addition of Rs. 2,20,979 out of total addition of Rs. 4,56,979 on account of unexplained credits. discussion regarding to this is contained on p. 2 of assessment order and in para No. 7 of learned CIT(A) s order. At outset, learned Authorised Representative submitted that this issue is against instructions of CBDT on limited scrutiny. provisions of limited scrutiny were introduced in statute book and were applicable only for asst. yr. 2000-01 after which it was deleted. In same context, assessee has raised ground relating to Rs. 2,36,000 which was not treated as explained by learned CIT(A) though he had allowed relief in respect of other additions. claim of learned Authorised Representative is that once it is held by Tribunal that new issue was raised against Board s Instructions on limited scrutiny, entire addition would be knocked off and therefore, neither ground raised by Revenue nor by assessee would survive. He submitted that Board has prescribed that for each issue to be taken up in limited scrutiny, notice has to be given to assessee, i.e only those issues can be considered in limited scrutiny case for which formal notice has been issued. In this regard, reference to para 6 of Instruction No. 5 of 2002 (F. No. 225/54/2002/ITA-II), issued on 28th June, 2002, is made. These instructions read as under: "Instruction No. 5/2002 [F. No. 225/54/2002/ITA-II] Government of India Ministry of Finance & Company Affairs Department of Revenue, CBDT New Delhi, 28th June, 2002 All Chief CITs. All Directors General of IT Sir, Subject: Guidelines in respect of limited scrutiny under s. 143(2)(i) After introduction of concept of limited scrutiny vide amendment to s. 143(2) by Finance Act, 2002 (Effective from 1st June, 2002) it has been decided that following procedure shall be adopted for limited scrutiny under s. 143(2)(i) of IT Act. In case AO has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in return is inadmissible, he shall serve on assessee notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on date to be specified therein to produce any evidence or particulars specified therein or on which assessee may rely, in support of such claim. notice is to be issued in prescribed performa (copy enclosed) for limited scrutiny. Reasons have to be recorded in writing before issue of any notice under s. 143(2)(i). Hence proper maintenance of order sheet is essential. For service of notice under s. 143(2)(i), there is time-limit of 12 months from date of receipt of return. This will require prior approval of Jt. CIT/Addl. CIT range. range head should monitor it on regular basis. For completion of assessments under s. 143(3)(i), there is time-limit of two years (from end of year in which income was first assessable). As such control registers have to be maintained to ensure that within prescribed time under s. 153(1) assessment is done in all cases, where notices have been issued under s. 143(2)(i). process of limited scrutiny has tremendous importance to Department s intent to prevent leakage of revenue through patently wrong claim etc. As such it is essential to fix responsibility for non selection of assessees for limited scrutiny. This responsibility should rest with concerned AO. This may enable Department to avoid possible audit objections. In case new issue comes up during hearing of scrutiny of one limited issue, it cannot be taken up without serving of separate notice in respect of that issue because two proceedings are separate/parallel proceedings and can run simultaneously. However, one consolidated assessment order can be passed under s. 143(3)(i) in respect of proceeding initiated to different notices under s. 143(2)(i). But separate notice will have to be served in respect of new item of loss etc. sought to be disallowed. Where in case, more than one notices under s. 143(2)(i) are required to be issued, prior approval of Addl. CIT/Jt. CIT will have to be obtained before issue of each such notice. Multiple notices could be served under s. 143(2)(i) within prescribed time-limit of 12 months from end of month in which return of income was filed. disallowance of any claim of exemption, deduction, allowance, relief etc. made through assessment under s. 143(3)(i) would ordinarily result in issuance of notice under s. 271(1)(c) for furnishing of inaccurate particulars of income . AO shall maintain separate data in register for cases selected and revenue raised/realised. Jt. CIT/Addl. CIT......... (not legible) register once month. Sd/- (Sangeeta Gupta) Director (ITA. II) CBDT." According to learned Authorised Representative, initially assessee was issued notice on 23rd Sept., 2002 in respect of depreciation for which it was making compliance. For this ITO had taken necessary approval from Addl. CIT, Range-2, Kanpur. approval letter for picking up case for limited scrutiny o n issue of depreciation was issued by Addl. CIT vide F.No./R- 2/Knp/2002-03 dt. 30th Sept., 2002. Later, during course of limited scrutiny, AO required assessee to furnish proof of assets claimed to be inherited by her from Late S. Lal Singh (father-in-law) for sum of Rs. 4,56,979. This is contained in item Nos. 5 and 6 of AO s letter No. ITO/2(4)/Knp/2002-03 dt. 24th Dec., 2002. This Bench asked learned Departmental Representative as to whether necessary approval has been obtained by AO from Addl. CIT, Range II, Kanpur on second issue pertaining to sum of Rs. 4,56,979; it was replied by AO to senior Departmental Representative vide his letter dt. 9th April, 2007, that documents pertaining to seeking of approval from Addl. CIT, Range II, in respect of second issue are not traceable. learned Authorised Representative made inference from this that no such approval on t h e second issue has been obtained. AO had in continuation of proceedings of first issue, sought for information and explanation of assessee in respect of second issue pertaining to inheritance of sum of Rs. 4,56,979. learned Departmental Representative opposed admission of this ground because this issue has not been taken up by assessee either before AO or before learned CIT(A). He submitted that objection to jurisdiction should have been taken within one month of issuance of notice as provided under s. 124(3). He referred to decision of Hon ble Allahabad High Court in case of Hindustan Transport Co. vs. IAC & Anr. (1991) 189 ITR 326 (All) for proposition that objection to jurisdiction cannot be raised after assessment is completed. He then referred to decision of Hon ble Himachal Pradesh High Court in case of Bhupindra Food & Malt Industries vs. CIT (1998) 229 ITR 496 (HP) for similar proposition that objection to jurisdiction should have been taken within prescribed time. He opposed to admission of this ground taken up by assessee on basis that this was not taken before lower authorities. He submitted that in case this ground is admitted for adjudication by Tribunal then it should go back to learned CIT(A) for deciding same in view of decision of Hon ble Madhya Pradesh High Court in case of CIT vs. Tollaram Hassomal (2006) 202 CTR (MP) 317: (2008) 298 ITR 22 (MP). He also referred to decision of Hon ble Kerala High Court in case of K.J. Thomas vs. CIT (2008) 4 DTR (Ker) 98: (2008) 301 ITR 301 (Ker) for proposition that failure to give notice under s. 143(2) will not invalidate assessment. On other hand, learned Authorised Representative submitted that admissibility of ground cannot be questioned on basis of decision of Hon ble Allahabad High Court referred to by learned Departmental Representative because those decisions were given in context of s. 120/124. There was no challenge to issuance of notice under s. 143(2)(i). In view of decision of Hon ble Supreme Court in case of National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249: (1998) 229 ITR 383 (SC), ground is required to be admitted and adjudicated. learned Authorised Representative also referred to various judgments such as CCE vs. Dhiren Chemical Industries (2002) 172 CTR (SC) 670: (2002) 254 ITR 554 (SC), Commr. of Customs vs. Indian Oil Corporation Ltd. (2004) 187 CTR (SC) 297: (2004) 267 ITR 272 (SC) for proposition that circulars of Board are binding on Revenue authorities. He also referred to decisions of CIT vs. Smt. Nayana P. Dedhia (2004) 192 CTR (AP) 526, Agrawal Farm Equipments vs. ITO (2004) 85 TTJ (Jab) 723 for proposition that assessment made in violation of Board s Instructions cannot be upheld. After considering rival submissions, we are of view that issue whether AO could take up question of inheritance of assets amounting to Rs. 4,56,979 in limited scrutiny case in which original notice after approval from Addl. CIT was issued on question of depreciation only, requires to be admitted because it goes to root of matter and no further investigation is required to be carried out. It is legal issue and requires to be adjudicated. We derive support in our decision from judgment of Hon ble apex Court in NTPC s case (supra). However, decision of Hon ble Madhya Pradesh High Court in case of CIT vs. Tollaram Hassomal (supra) is only decision on issue which says that after admission of new legal ground, matter should be restored to learned CIT(A) for adjudication. In this regard, we refer to headnotes from decision of Tollaram Hassomal (supra) as under: "Held, that Tribunal having permitted assessee to raise four additional grounds treating them to be legal grounds in appeal for first time, should have set aside order of CIT(A) and remanded case to CIT(A) for deciding appeal afresh on all issues including on those four grounds raised by assessee in appeal before Tribunal rather than to decide additional grounds on merits for first time by itself." In view of above, we restore this issue to file of learned CIT(A) who will decide as to whether there was any violation of Board Instructions on limited scrutiny and issue was raised by AO without giving formal notice to assessee and whether this will invalidate assessment on that issue and further whether such partial invalidation of assessment is possible. In other words, where case is selected for limited scrutiny, whether AO is empowered to take up any other issue/issues and after giving opportunity to assessee, make addition on other issue/issues if not satisfied with explanation of assessee. As result, this ground of assessee is allowed for statistical purposes. As result, appeal of Revenue is partly dismissed and partly allowed for statistical purposes and assessee s appeal is allowed for statistical purposes. *** SURINDER KAUR v. INCOME TAX OFFICER
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