2014 (1) TMI 744 - AT - Income Tax

Deletion of disallowance of excess depreciation on tippers road rollers and JCB u/s 32 of the Act - Held that - Depreciation on tippers road rollers and JCB will be allowable @ 40% as against 25% allowed by the AO treating these machineries as plant and machinery and not under the category of motor vehicles there was no infirmity in the order passed by ld. CIT (A) allowing the higher rate of depreciation in respect of tippers road rollers and JCBs in both the years though for different reasons - Relying upon CIT vs. A.M. Construction 1998 (8) TMI 58 - ANDHRA PRADESH High Court . Deletion of disallowance u/s 40(a)(ia) of the Act - Non-deduction of TDS on transport expenses Held that - The payments for purchase of material and supply at the site of construction has not resulted in carrying out of any work by a contractor or a sub-contractor for the purposes of section 194C of the Act - the tax was not to be deducted at source u/s 194C of the Act - the assessee had not made payment to a contractor or a subcontractor - Relying upon Birla Cement Works v CBDT 2001 (2) TMI 8 - SUPREME Court - The payment has been made for the purchase of building material which included the cost of transportation upto the site of the assessee Thus the payment made for purchase of material including the transportation cost would not fall under the category of payment to contractor or sub-contractor - the payment made by the assessee will not be hit by the provisions of Section 40 (a)(ia) of the Act. Deletion on account of remission or cessation of liabilities u/s 41 (1) of the Act Held that - The assessee has not written back the liabilities nor have the parties forgone their claims Thus no benefit has been derived by the assessee - the assessee has made payment to the parties in the year under consideration by way of cash the payments made to outstanding creditors cannot be treated as income u/s 41(1) of the Act the assessee had not derived any benefit as the assessee had paid off the liability in the year under consideration - There was no remission or cessation of liability - The AO had not collected any material on record to show that the parties to whom the payments were shown to have been made by the assessee had written off the amounts in the year under consideration - there was no cessation or remission of liability the amount was not liable to be added u/s 41(1) of the Act decided against Revenue.

Summary

Issues Involved:
1. Deleting the disallowance of excess depreciation claimed on tippers, road rollers, and JCB.
2. Deleting the disallowance made under Section 40(a)(ia) on account of non-deduction of TDS on transport expenses.
3. Deleting the addition on account of remission or cessation of liabilities under Section 41(1).

Issue-wise Detailed Analysis:

1. Deleting the disallowance of excess depreciation claimed on tippers, road rollers, and JCB:

The assessee firm, deriving income from contract receipts and hiring of JCB/Dumpers/road rollers, claimed depreciation at higher rates on these assets for the assessment years 2005-06 and 2006-07. The Assessing Officer (AO) allowed lower depreciation rates, treating these assets as 'Plant and Machinery' instead of 'Motor Vehicles.' The CIT (A) allowed the higher depreciation rates, considering these assets as motor vehicles used for hiring purposes, thus eligible for higher depreciation. The Tribunal upheld this view, referencing various judicial pronouncements, including the Andhra Pradesh High Court's decision in CIT vs. A.M. Construction, which supported higher depreciation rates for tippers used for hiring purposes.

2. Deleting the disallowance made under Section 40(a)(ia) on account of non-deduction of TDS on transport expenses:

The AO disallowed transport expenses for non-deduction of TDS under Section 194C, citing Section 40(a)(ia). The assessee argued that payments were made for the purchase of construction materials, including transportation costs, and not for transport services alone. The CIT (A) agreed, noting that the payments were for material supply, which included transportation costs, thus not attracting TDS provisions under Section 194C. The Tribunal upheld this decision, referencing the Supreme Court's ruling in Birla Cement Works v CBDT, which clarified that mere transportation of goods does not constitute 'carrying out any work' under Section 194C.

3. Deleting the addition on account of remission or cessation of liabilities under Section 41(1):

The AO treated certain sundry creditors as ceased liabilities and added them as income under Section 41(1), due to lack of evidence of payment. The assessee contended that these liabilities were paid off during the year, and no remission or cessation occurred. The CIT (A) found that the AO had not provided evidence of cessation or remission and that the liabilities were indeed paid. The Tribunal upheld this view, stating that since the liabilities were paid and not written back, Section 41(1) was not applicable.

Conclusion:

The Tribunal dismissed the appeals filed by the Revenue for both assessment years, affirming the CIT (A)'s decisions on all issues. The order was pronounced in the open court on 28.07.2011.