Full year depreciation on vehicle can not be denied based on registration date

Full year depreciation on vehicle can not be denied on the ground that registration was done later as assessee had vehicle in its possession.

ABCAUS Case Law Citation:
ABCAUS 3759 (2023) (06) ITAT

Important Case Laws relied upon:
National Thermal Power Corporation Ltd. vs. Commissioner of Income-tax (2012) 28 taxmann.com 89
CIT vs. Refrigeration and Allied Industries Ltd. (2000) 113 Taxman 103

Full depreciation vehicle registration

In the instant case, the assessee had challenged the order passed by the Commissioner of Income Tax-Appeals (CIT(A)) in disallowing full years depreciation on vehicle on the basis of vehicle registration date which fell in the second half of the financial year.

The appellant assessee was a Private Limited Company. During the course of assessment proceedings, The Assessing Officer (AO) noticed that assessee had claimed depreciation on  vehicle.  He noticed that the said vehicle was purchased during the year and registration of the vehicle was done in the month of November.

According to AO, since the registration was done in the month of November, it was eligible for the depreciation @ 50% on the normal rate.

He accordingly disallowed 50% of the depreciation on new vehicle. Aggrieved by the order of the AO, assessee carried the matter before CIT(A). who upheld the order of AO.

As per Section 32 of the Income Tax Act, 1961 (the Act) if  an asset is acquired during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the depreciation in respect of such asset shall be restricted to fifty per cent of the depreciation calculated at the percentage prescribed.

The assessee contended that for claiming depreciation under section 32 there is no need that vehicle should be registered under “Motor Vehicles Act” in the assessee’s name, hence impugned disallowance was arbitrary and untenable.

Before the Tribunal, the assessee contended that it had purchased the vehicle in the month of September, the vehicle was insured also in September. He submitted that assessee had paid the entire purchase price including the insurance before 30th September but the vehicle got registered in the month of November.

It was the submission of the assessee that since the vehicle was ready for use on the date of purchase i.e. in the month of September, it satisfied the concept of ‘Passive User’ and since the vehicle was ready for use during the first half of the financial year, it was entitled to claim 100% depreciation u/s 32 of the Act for full year.

The assessee placed reliance on the judgments of the Hon’ble High Courts where it was held that the expression ‘used for the purposes of the business’ under section 32 of the Act would also mean an asset which is kept ready for use but is not actually put to use. It was also held that the expression ‘used’ in Section 32(1) of the Act includes both passive and active user.

The Tribunal opined that since the assessee had paid for the entire purchase cost and had vehicle in its possession before 30th September and simply because the registration was done next month, the assessee cannot be denied the benefit of depreciation for the full year.

The Tribunal observed that High Courts had held that ‘used for the purposes of the business’ would include the asset which is kept ready for use but actually not put to use. The Revenue could not point to any contrary binding decision in its support.

Accordingly, the Tribunal held that assessee was entitled for deprecation for entire year and directed the AO to allow the claim of depreciation.

Download Full Judgment Click Here >>

read latest abcaus posts

----------- Similar Posts: -----------

Leave a Reply