Partnership Firm May Claim Vehicle Depreciation Despite Registration in Partner’s Name
Fact and issue of the case
Ads by This appeal is filed by the assessee against the order dated 02.03.2023 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [“CIT(A)” in short] for Assessment Year 2017-18.
The Grounds of appeal are as under :-
That on facts, and in law, the learned NFAC has grievously erred in confirming the disallowance of depreciation of Rs.59,475/- made by the AO.
That on facts, and in law, the learned NFAC has grievously erred in not considering the evidences and submissions and in disallowing the claim of deprecation by making incorrect observations on page 6, para 10.1 of the order under appeal.”
The return of income in respect of Assessment year 2017-18 was filed by the assessee on 06.10.2017 declaring total income of Rs.16,95,140/-. Later, the assessee on 11.09.2018 revised its return of income declaring total income of Rs.19,83,890/-. The return filed was duly processed and the case was selected for complete scrutiny. Notice under Section 143(2) of the Income-tax Act, 1961 [“the Act” in short] was issued on 14.08.2018 and duly served upon the assessee. The assessee filed its reply through e-proceedings. The Assessing Officer observed that the assessee is a firm deriving income from business and profession. The assessee-firm has 7 partners and one partner is in the capacity of HUF i.e. Rameshchandra N. Shah HUF. Regarding the remuneration paid to HUF partner, the Assessing Officer observed that the HUF cannot be a working partner in the firm; therefore, he made disallowance of Rs.5,27,241/-. The Assessing Officer also made a disallowance of Rs.59,475/- towards claim of depreciation, thereby stating that the depreciation claim on motor vehicle is not allowable as the bills and proof of purchase of the asset is in the name of Rameshchandra N. Shah and also registered in the name of Rameshchandra N. Shah.
Being aggrieved by the assessment order, assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The learned AR submitted that the CIT(A) has allowed/deleted the disallowance in respect of remuneration paid to HUF partner thereby observing that the salary paid to Karta of HUF, who is a working partner in the firm, would be admissible as deduction under Section 40(b) of the Act. The learned AR further submitted that the depreciation on motor vehicle, which was exclusively purchased by the said partner who is Karta of HUF in assessee’s firm, was disallowed on the basis that the assessee failed to furnish the evidence to show that the vehicle was purchased with the funds of the assessee firm. The learned AR pointed out the Profit and Loss account and the balance-sheet as well as the treatment given by the assessee to the old car as well as new purchased car along with the bills and invoices to that extent as well as ledger account of the said motor vehicle.
The learned DR relied upon the assessment order and the order of the CIT(A).
Observation of the court
Heard both the parties and perused all the relevant material available on record. It is pertinent to note that there is no dispute in respect of the Karta of HUF who is a working partner in the assessee-firm and the motor vehicle was purchased for the business purpose of the assessee-firm itself. The treatment given by the assessee-firm to the new purchased motor vehicle as well as the old motor vehicle which was sold clearly sets out that fund of the partnership firm was used for purchase of the said motor vehicle and the vehicle is exclusively used for the business purpose only. Merely the vehicle is registered in the name of partner cannot deny the assessee-partnership firm the depreciation on the said vehicle. Therefore, the disallowance made by the Assessing Officer on depreciation of vehicle is not justifiable; hence, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 07/07/2023 at Ahmedabad.
Conclusion
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
