Depreciation u/s 32 not allowable to Car received as Gift to Firm: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Pune bench comprising Shri R.S. Syal, Vice President, and Shri S.S. Viswanethra Ravi, Judicial Member has held that a business entity cannot claim depreciation under section 32 of the Income Tax Act, 1961 towards the car gifted by the brother of the Director/Partner.

The assessee, Mangesh Krishnath Ekbote, is engaged in the business of Software Management consultancy and trading in Futures and Options (F&O). A return was filed declaring a total income of Rs.1.23 crore. During the course of assessment proceedings, the Assessing Officer (AO) made an addition to the fixed assets towards the gift of Swift car amounting to Rs.3,06,059/- received from the assessee’s brother, Sh. Rajesh Ekbote.

The assessee submitted that the gift of the car was recorded in his books at the written down value (WDV) in the hands of his brother and therefore, depreciation shall be allowed.

Section 43(1) defines the term ‘actual cost’ in relation to assets. Explanation 2 to section 43(1) states that where an asset is acquired by the assessee by way of gift, the actual cost of the asset to the assessee shall be the actual cost to the previous owner, as reduced by the amount of depreciation actually allowed in respect of any previous year commencing before the 01-04-1988 and the amount of depreciation that would have been allowable to the assessee if the asset was the only asset in the assessment year commencing on or after 01-04-1988.

Upholding the order, the Tribunal held that “This shows that the written down value of the asset in the hands of the donor is considered as the `actual cost’ of the asset in the hands of the donee for the purpose of allowing depreciation. The assessee furnished necessary details before the ld. CIT(A) to the effect that the actual cost of the car received as a gift from his brother was recorded at its written down value in the hands of the donor. The ld. CIT(A) has admitted this fact but refused to allow depreciation on the ground that there was no `actual cost’ as the car was received as a Gift. In view of the clear mandate of Explanation 2 to section 43(1), we hold that the authorities below were not justified in disallowing depreciation on fixed assets to the extent of Rs.45,909/-. The impugned order is overturned to this extent.”

Shri Abhay Avchat appeared for the assessee.

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