The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has partly allowed an appeal concerning the tax assessment of International Tractors Ltd. for Assessment Year 2016-17, granting relief on the issue of higher depreciation on commercial vehicles and disallowance under Section 14A of the Income Tax Act, while remitting the dispute relating to deduction claimed under Section 35(2AB) to the Assessing Officer for limited verification.
The bench of Mahavir Singh (Vice President) and Manish Agarwal (Accountant Member) has observed that
One of the principal issues before the Tribunal concerned the assessee’s claim for depreciation at the higher rate of 50% on certain commercial vehicles purchased during the period from January 1, 2009 to September 30, 2009.
The assessee had contended that the vehicles qualified as commercial vehicles under the applicable depreciation schedule and were therefore eligible for depreciation at 50%, instead of the 15% rate applied by the Assessing Officer. The CIT(A) had sustained the disallowance by following the order of his predecessor for an earlier assessment year.
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The assessee also argued that the depreciation on additions to the block of commercial vehicles had to be computed in accordance with Section 43(6)(c)(ii) of the Income Tax Act, rather than merely applying 15% proportionately to the 50% depreciation claimed.
The Tribunal noted that the controversy concerning higher depreciation had already been considered in the assessee’s own case for earlier assessment years.
In its order for AY 2009-10, the Tribunal had examined the definition of a light motor vehicle under the Motor Vehicles Act alongside the definition of commercial vehicles under the Income Tax depreciation schedule. It had concluded that the vehicles purchased by the assessee between January 1, 2009 and October 1, 2009 were eligible for depreciation at 50%.
The same view was subsequently followed in consolidated proceedings concerning AYs 2010-11 to 2013-14. The Tribunal recorded that the Assessing Officer had denied the higher rate on the reasoning that the vehicles did not satisfy the conditions for being treated as commercial vehicles and that the assessee had not produced sufficient evidence.
However, the Tribunal in the earlier proceedings had already held the vehicles to be eligible for the 50% rate. Following that precedent, the Tribunal allowed the corresponding ground in favour of the assessee.
The Tribunal also noted that the issue had continued to be decided consistently in the assessee’s favour in proceedings relating to AYs 2014-15 and 2015-16. It therefore followed the established view and allowed the ground concerning higher depreciation in the present appeal.
Another important dispute concerned a disallowance of ₹2,65,255 under Section 35(2AB) of the Income Tax Act.
The amount represented the difference between the expenditure approved by the Department of Scientific and Industrial Research (DSIR), amounting to ₹38,04,97,151, and the actual expenditure claimed by the assessee at ₹38,07,62,406. The assessee challenged the disallowance, relying upon earlier decisions of the Tribunal in its own case.
The Tribunal noted that the issue had previously been examined in the assessee’s earlier assessment years. In those proceedings, the assessee had argued that approval of the quantum of expenditure was not a mandatory condition for the relevant period and that the requirement relating to approval of expenditure quantum came into effect only from July 1, 2016.
It had further contended that research and development expenditure incurred wholly and exclusively for business purposes could alternatively qualify as business expenditure under Section 37(1). The earlier Tribunal proceedings had accepted the assessee’s contention, also taking note of the Delhi High Court’s decision in CIT v. JCB India Ltd., concerning allowability of research and development expenditure as revenue expenditure under Section 37.
For the present assessment year, however, the Tribunal considered it appropriate to remit the matter to the Assessing Officer for a limited purpose.
The Assessing Officer has been directed to verify the difference between the amount approved by DSIR and the actual expenditure incurred by the assessee and thereafter allow the claim in accordance with law, while considering the Tribunal’s earlier decisions in the assessee’s own case.
Thus, the Tribunal did not finally reject the assessee’s Section 35(2AB) claim but restored the issue for factual verification and fresh consideration in accordance with the applicable legal position.
The assessee had also challenged a disallowance of ₹87,03,973 under Section 14A of the Income Tax Act.
The assessee argued that the disallowance had been made without recording the requisite satisfaction and without establishing any nexus between borrowed funds and the investments generating exempt income.
The Tribunal noted that the issue was covered by its recent decision dated July 31, 2026 in the assessee’s own case for AYs 2014-15 and 2015-16.
In that earlier decision, the Tribunal had considered investments in dividend-yielding preference shares and tax-free bonds. The record showed that the assessee had substantial reserves and surplus, while the investments were significantly lower than the increase in reserves and surplus. On that basis, the Tribunal rejected the presumption that borrowed funds had necessarily been used for making the investments.
The Tribunal also relied upon the principle recognised by the Bombay High Court in CIT v. HDFC Bank Ltd., that where an assessee possesses sufficient interest-free and non-interest-bearing funds exceeding the investments in tax-free securities, a presumption can arise that the investments were made from such interest-free funds.
Following its earlier decision, the Tribunal deleted the disputed addition and allowed the assessee’s ground concerning Section 14A.
The Tribunal, however, declined to interfere with the disallowance relating to club expenses.
The CIT(A) had sustained an addition of ₹53,231 out of the total disallowance of ₹3,08,350 made by the Assessing Officer. The Tribunal observed that the expenses sustained by the CIT(A) were either personal in nature or incurred in the names of individuals.
According to the Tribunal, such expenditure could not be regarded as having been incurred wholly and exclusively for business purposes. It therefore found no infirmity in the CIT(A)’s order and rejected the assessee’s ground on this issue.
The ruling illustrates the Tribunal’s reliance on consistency where substantially identical issues have already been adjudicated in the assessee’s own earlier assessment years.
On commercial vehicle depreciation, the Tribunal followed its earlier findings that vehicles purchased during the relevant period qualified for the higher 50% depreciation rate. On the Section 14A issue, it followed its recent decision deleting a similar disallowance where sufficient interest-free funds were available.
At the same time, the Tribunal adopted a more limited approach on the Section 35(2AB) dispute by sending the matter back to the Assessing Officer for verification of the difference between DSIR-approved expenditure and actual expenditure, rather than finally determining the factual difference itself.
In the final result, the Delhi ITAT partly allowed the assessee’s appeal.
The Tribunal allowed the ground concerning higher depreciation on commercial vehicles, allowed the Section 14A ground following its earlier precedent, and remitted the Section 35(2AB) issue to the Assessing Officer for limited verification and fresh consideration in accordance with law.
However, the disallowance of ₹53,231 towards club expenses was sustained. The order was pronounced in open court on August 12, 2026.
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