2014 (5) TMI 1080 - AT - Income Tax

Tribunal rules on revenue appeal, upholds AO decisions on membership fees & vehicle depreciation

Dy. C.I.T., Central Circle-2, Kanpur. Versus M/s Kaya Products (P) Ltd.,

The Tribunal partly allowed the Revenue's appeal, upholding the AO's decisions on the issues of membership fee expenditure and vehicle depreciation, while ... Disallowance u/s 40A(2)(b) - Held that:- In the present case, it is not the case of the Assessing Officer that any part of the remuneration paid by the assessee company to the directors was on account of extra commercial consideration and hence, the judgment of Punjab State Industrial Development Corporation Ltd. Vs Commissioner of Income-tax as reported in [1996 (12) TMI 6 - SUPREME Court ] by learned D.R. of the Revenue is not applicable in the facts of the present case. We also find that it is noted by CIT(A) that his predecessor has also adjudicated upon the same issue in favour of the assessee in assessee’s own case in the immediately preceding year and nothing has been brought on record before us by learned D.R. of the Revenue that the order of CIT(A) in the earlier year was reversed or modified by the Tribunal. We also find that although the Assessing Officer has invoked the provisions of section 40A(2)(b) of the Act but he has not established that the increase in remuneration to the directors is excessive or unreasonable. Under these facts, we do not find any infirmity in the order of learned CIT(A) on this issue. Accordingly, this ground of Revenue is rejected.- Decided against revenue. Disallowance of depreciation on the vehicle - whether the assessee did not own the assets and it did not furnish the certificate of transfer of vehicle on which it had claimed depreciation at any point of time during the relevant part of the year - Held that:- In the facts of the present case, the entire purchase price paid by the assessee was received back because the car had some technical defects. For allowing depreciation on an asset, the assessee has to fulfill two preconditions that the asset should be owned by the assessee and it should be used by the assessee for business purposes. So far the user is concerned, it was submitted by the assessee that the assessee was using the car till it was returned to the seller but for the other condition i.e. the assessee was owning the car, we find that although the car in question was in possession of the assessee and the assessee used it also but no effort was made to get the car transferred in the name of the assessee company. It may have been different case if an effort was made to get the car transferred but the same could not be transferred for some technical defects. In the present case, no document has been brought on record to show that any effort was made by the assessee to get the vehicle transferred in its name. In fact, in the same year, the assessee intimated to the seller to take back the vehicle and refund the entire amount and the entire amount was refunded also although in a subsequent year. The assessee was retaining the car only because the seller did not return the money. As and when he returned the money, the assessee returned the car. Since the seller was using the money, the assessee was using the car. It does not make the assessee an owner of the car. The assessee was not even a beneficial owner and he is a bailor only because the assessee was to receive the full amount paid by it. Under these facts, in our considered opinion, it cannot be said that the assessee was owner of the car and therefore, depreciation is not allowable to the assessee. - Decided against assessee. Issues Involved:1. Deletion of addition for disallowance out of salary paid to the Directors.2. Deletion of addition on account of expenditure debited towards membership fee paid to an association.3. Deletion of disallowance of depreciation claimed on a vehicle.Detailed Analysis:1. Deletion of Addition for Disallowance Out of Salary Paid to the DirectorsThe Revenue contended that the CIT(A) erred in deleting the addition of Rs. 3,00,000/- made by the AO for disallowance out of salary paid to the Directors. The AO argued that the payment was excessive under Section 40A(2)(b) of the IT Act 1961. However, the CIT(A) noted that the AO did not provide material evidence showing that the remuneration was excessive compared to other directors with similar qualifications and duties. The CIT(A) had previously adjudicated a similar issue in favor of the assessee in the preceding year, and no contrary evidence was presented. The Tribunal found no infirmity in the CIT(A)'s order, thus rejecting the Revenue's ground.2. Deletion of Addition on Account of Expenditure Debited Towards Membership Fee Paid to an AssociationThe Revenue challenged the deletion of Rs. 10,00,000/- on account of expenditure towards membership fees paid to United Smokeless Tobacco Association, claiming it was capital expenditure not related to the business and not deductible under Section 37 of the IT Act 1961. The CIT(A) had allowed the deduction, but the Tribunal noted discrepancies in the nature of the payment-whether it was membership fees or a special contribution. The Tribunal found that the payment, being a special contribution, took the character of a donation and was not supported by proper documentation for deduction under Section 80G. It ruled that the payment was capital expenditure, reversing the CIT(A)'s order and restoring the AO's decision.3. Deletion of Disallowance of Depreciation Claimed on a VehicleThe Revenue argued against the deletion of Rs. 75,000/- disallowed by the AO for depreciation on a vehicle, asserting that the assessee did not own the vehicle. The CIT(A) had allowed the depreciation, but the Tribunal found that the vehicle was not transferred to the assessee's name, and the entire purchase amount was refunded due to technical defects. The Tribunal emphasized that ownership and usage are prerequisites for claiming depreciation. Since the assessee did not own the vehicle, the Tribunal reversed the CIT(A)'s order and restored the AO's decision.ConclusionThe Tribunal partly allowed the Revenue's appeal, upholding the AO's decisions on the issues of membership fee expenditure and vehicle depreciation, while rejecting the Revenue's contention on the salary paid to the Directors.