ORDER
D. Manmohan, Judicial Member
1. These two appeals, filed at the instance of the assessee – firm, are directed against the common order dt.7.2.2003 passed by the C.I.T. (Appeals)-I, Visakhapatnam. The issue involved in both the appeals being common, they are disposed of together for the sake of convenience.
2. The assessee firm, during the previous years relevant to the assessment years 1999-2000 and 2000-2001, was engaged in the business of purchase and sale of steel and cement. It purchased mini vans for the purpose of transportation of steel and cement to the destination of its customers. The assessee claimed that the material purchased from the assessee was supplied to the customers on a package deal, which includes cost of the material as well as transport cost whereas in the cases of some customers, transport cost is separately charged. Under these circumstances, it was contended that the vehicles were run on hire on which higher rate of depreciation is allowable. The vehicles were plied on hire for the persons only who purchased the material from the assessee. It is not in dispute that the vehicles were not hired to outside parties. Under sub-item 2(I) of item III of Appendix-I to the Income Tax Rules, 1962 higher rate of depreciation is admissible on motor buses, motor lorries and motor taxies used in a business of running them on hire. The case of the assessee is that the vehicles were purchased with an intention to carry on business of hiring of vehicles and it registered its activity in the name of ‘Sridevi Mini Transport’ with the Labour Department.
3. The Assessing Officer analysed the facts and circumstances of the case to draw the inference that the assessee was not doing the business of transportation of goods on hire. The assessee mainly used lorries for its own business and occasionally gives it on hire for transporting the goods purchased from its shop to the customers’ place. Thus, the transportation facility was only a value added service given to the customers who purchase steel and cement. Since the vehicles were not given on hire for outside persons who purchased materials from other shops the assessee does not satisfy the condition laid down in the Appendix-I so as to enable itself to claim higher rate of depreciation in as much as the nature of activity cannot be considered as a “business of running the vehicles on hire”. Thus, as against the claim of 40% depreciation, the Assessing Officer restricted the allowable depreciation to 25% on the mini vans and in this regard relied upon the following decisions.
Veeneer Mills v. CIT
CIT v. Anoopchand & Co (1999) 156 ITR (MP)
Kailashchand Bargav v. CIT (2001) 169 ITR 351 (MP)
CIT v. Sardar Stones (1995) 125 CTR 197 (RAJ) : (1995) 215 ITR 350 (RAJ)
CIT v. Peerkhanchand Khan (1995) 136 CTR 308 (RAJ) : (1997) 227 ITR 796 (RAJ)
It may be noticed that the returns of income filed by the assessee claiming higher rate of depreciation were originally processed under Section 143(1) of the Income Tax Act, but subsequently reopened under Section 147 of the Act on the ground that the assessee claimed excessive depreciation which it was not otherwise entitled. The assessment was thus came to be made under Section 143(3) read with Section 147 of the Act.
4. Aggrieved, the assessee contended before the first appellate authority that reopening of assessment is bad in law and it amounts to change of opinion. It was further submitted that the vehicles having been registered as “goods carriage vehicles” with the Road Transport Department and the activity being carried on in the name and style of ‘Sridevi Mini Transport’ apart from the fact that the road tax is paid under the category of ‘vehicles used on hire, the assessee is entitled to claim higher rate of depreciation, i.e., at 40%.
5. The first appellate authority rejected the contention of the assessee. He observed that the returns of income having been processed under Section 143(1) of the Act, it cannot be said that there was application of mind at an earlier stage and reopening of assessment was made on account of change of opinion. By virtue of explanation to the provisions of Section 147 of the Act even excessive claim of depreciation can be a reason for reopening the assessment when the returns Were originally processed under Section 143(1) of the Act and thus the proceedings under Section 147 of the Act cannot be said to be illegal.
6. With regard to the claim of depreciation at 40%, learned C.I.T.(Appeals) affirmed the action of the Assessing Officer in the light of the decisions referred to by the Assessing Officer and further observed that the assessee ‘has not carried on any business of transportation of goods on hire’ and merely utilises the vans for delivering steel and cement products as and when customers required it and such use cannot be equated to using the vehicles in the business of hire. In other words, learned C.I.T. (A) was of the opinion that the activity is incidental to the part of the main activity of purchase and sale of steel and cement products. He also noticed that though the transport receipts were shown separately, the authorised representative accepted before him that sometimes the price is inclusive of sale price and products are delivered at the customers point. Under these circumstances, he concluded that the vehicles were not used in the transport business, but they were used in the business of purchase and sale of steel and cement products. Further aggrieved, the assessee is in appeal before the Tribunal.
7. The learned Counsel appearing on behalf of the assessee submitted that the assessment was reopened on mere change of opinion, which is not permissible under law. In this regard, he submitted that in the immediately preceding year, i.e., for the assessment year 1998-1999 the assessee claimed higher rate of depreciation on the cost of mini vans and the same was accepted by the Assessing Officer in the proceedings under Section 143(3) of the Act. Thus Assessing Officer has applied his mind to the issue and allowed higher rate of depreciation. Such being the case, reopening of the assessment for the later years on the same set of facts would amount to change of opinion. On merits, it was submited that though the assessee has not plied the mini vans on hire to outsiders, the fact remans that the vehicles were given on hire to some of his customers and thus it amounts to using the vehicles in a business of running them on hire. Since the Assessing Officer as well as the first appellate authority has referred to several reported decisions, the learned Counsel adverted my attention to the facts of each case to highlight that the case of the assessee is distinguishable on facts.
8. In the case of Veneer Mills (supra), the assessee has utilised lorries for transportation of raw material. Under those circumstances, the Court observed that the said assessee was not entitled to higher rate of depreciation. The vehicles were run on hire very occasionally and such stray incidents of hiring out idle lorries were held to be not entitled to the benefit of higher rate of depreciation whereas in the case of assessee herein hiring vehicles was not an occasional business but the mini vans were plied on hire on regular basis, though only to its customers. Similarly, in other cases relied upon by the tax authorities, the facts were not strong enough to show that the assessees therein were mainly engaged in the business of running the vehicles on hire. On the contrary, the Hon’ble High Court of Andhra Pradesh in the case of C.I. T. v. A.M. Constructions 238 ITR 775 laid down the principle that in order to be entitled to claim higher rate of depreciation, vehicles need not be exclusively used for hire. Per contra, occasional use on hire entitles the assessee to claim higher rate of depreciation. It could be noticed that in the afore-cited decision, substantial income of the assessee was from hiring of the tippers notwithstanding the fact that he used them for his agricultural operations also and under such circumstances, the jurisdictional High Court held that higher rate of depreciation is allowable on the tippers.
9. In the alternative, it was submitted that Section 32(1)(ii) comes into play when a particular asset forms part of a block of assets. It is only in the first year of purchase of an asset an enquiry requires to be made with regard to the rate of depreciation allowable on such asset. In the assessment year 1998-99, the Assessing Officer applied his mind to the issue and granted depreciation at 40% on the mini vans. Thus it formed part of that block of assets on which depreciation at 40% is allowable and no further enquiry need be made in the subsequent years in the light of the provisions of Section 32(i)(ii) of the Act.
10. On the other hand, learned Departmental Representative strongly relied upon the orders passed by the tax authorities. Placing reliance upon the case law referred to in the order of the Assessing Officer, learned Departmental Representative submitted that in order to be entitled to higher rate of depreciation, the assessee has to carry on ‘business of running vehicles on hire’ whereas, in the instant case, the dominant activity was purchase and sale of steel and cement and, in furtherance of that activity, the assessee provided value added service to its customers by providing the facility of transportation and thus such an activity cannot be considered as a business of running the vehicles on hire. He also submitted that the decision of the Andhra Pradesh High Court in the case of A.M.Constructions (supra) is distinguishable on facts inasmuch as in the said case there is a categorical finding that substantial income was from the activity of hiring of tippers and the limited issue that came up for consideration before the Hon’ble High Court was whether higher rate of depreciation is admissible in the case of an assessee who is exclusively carrying on the business of plying vehicles on hire or can the benefit be extended to a person who occasionally uses vehicles in his own business. On the other hand, in the case of the assessee herein, the fact that mini vans were never given on hire to outsiders other than its own customers is not in dispute. There is no evidence on record to show that substantial income of the assessee was from the hiring activity. Under these circumstances, learned D.R. placed reliance upon the decision of I.T.A.T, Visakhapatnam Bench in the case of M/s. City Auto Agencies I.T.A. No. 225/V/2000, dt. 29.6.2005) wherein the Bench relied upon the decision of Madhya Pradesh High Court in Kailash Chand Bagaria v. C.I.T. reported in 249 ITR 720 (MP) to conclude that even occasional hiring is not sufficient to allow depreciation at 40%.
11. With regard to block of assets formula, learned D.R. submitted that so long as an asset is identifiable in the block of assets, the W.D.V. of a particular asset can be taken out of that block so as to place the same in the block of assets wherein depreciation is allowably only at 20%. Since the assessee has not fulfilled the prerequisites for claiming depreciation at 40%, merely because in the immediately preceding year depreciation was allowed at 40% it does not operate as res judicata, more so when there was no discussion on this issue in the assessment order for the preceding year. In the same vein, the returns of income for the assessment years under consideration having been processed under Section 143(1) of the Income Tax Act, it cannot be said that the Assessing Officer has applied his mind; to the issue and in fact the amended provisions of Section 147 of the Act enab