2010 (9) TMI 1119 - AT - Income Tax

Tribunal adjusts aviation expenses, depreciation, interest expenditures, and ALV determinations in recent tax ruling.

Avinash Nivrutti Bhosale, Versus. Addl. CIT, Range-3, & vice versa

The Tribunal reduced disallowances for aviation expenses and depreciation to 1/7th for both Bell Helicopter and Cessna Aircraft, aligning with past ... Quantum of disallowance of aviation expenses and depreciation with respect to Bell Helicopter and Cessna aircraft - interest expenditure is allowable as a business expenditure while computing the total income - HELD THAT:- the revenue is no fair in adopting 20% (1/5th of the claim) in respect of the Bell Helicoptor and in adopting 30% (nearly 1/3th of the claim) in respect of the Cessna Aircraft and in our opinion, it constitutes an artificial difference. It is also relevant to mention that the section 038(2) refers to the expression ‘fair’ and neither of the IT authorities ie AO or CIT(A) have undertaken any exercise to establish the said fairness in adopting the said percentages. It is true that the onus is on the assessee to substantiate the claim of the assessee. Considering the peculiar circumstances better known to the assessee, there is surrender of claim to the extent of 1/7th of the total claims ₹ 93,96,771/- (ie ₹ 66,04,980/- on account of depreciation of vehicles and ₹ 27,91,791/- on account of aviation expenses). At this point of time, in our opinion, the Onus has shifted to the revenue to demonstrate that the said surrender is incorrect and estimations made by the AO are fair within the meaning of section 038(2). Fairness is an important factor in matters of quantification of the disallowances, when section 038(2) is invoked. The revenue has not done any probe independently to demonstrate that assessee’s offer is unfair and his estimations are fair. Hence, we are of the opinion, that the estimations made by the AO, which are confirmed in case of the Cessna Aircraft and alterted in case of Bell Helicoptor are hereby set aside. Therefore, we are of the opinion, that the offer of the assessee to restrict the disallowance to 1/7th of the claims in respect of both Bell Helicoptor and the Cessna Aircraft, is reasonable and fair. Accordingly, the AO is directed. Thus, the original grounds raised by the assessee are allowed. Income from house property - determination of the annual letting value (ALV) - HELD THAT:- In the present case, The assessee has let out space to the sister concern, and is receiving ₹ 10,000/- per month from each sister concern. Therefore, the assessee’s property is covered by provisions of clause (b) of section 23(1). This is a fact that assessee’s actually rent received or receivable in respect of the said property is not in excess of the ALV computed under clause (a) of section 23(1). In the light of these facts, AO’s decision to invoke a comparable case to the property covered under clause (b) is not in tune with the above referred legal position. Further, it is not also the case of the AO that assessee is covered by the exemptions provided in the Maharashtra Rent Control Act and, therefore, ALV of the property shall be determined on the basis of the comparable cases. In any case, the standard rent is upper limit for determination the ALV as held in the case of Makrupa Chemicals Pvt Ltd[2006 (9) TMI 207 - ITAT BOMBAY-F].Therefore, we are of the opinion that the order of the CIT (A) does not call for any interference. claim of interest expenditure - HELD THAT:- On considering the facts that the assessee is in fact entitled to the deduction in respect of the relatable interest on the loan invested in the acquisition of the TCS shares, the claim is allowable either u/s 36(iii) or section 48 and certainly not under the provisions of section 57(iii) for the reason that the impugned interest expenditure is not ‘expanded wholly and exclusively for the purpose of making or earning such income’ i.e interest income against which the said interest expenditure is allowed by the CIT(A) to be set off. Therefore, we do not agree with the CIT(A) in concluding that the addition of ₹ 22,13,037/- being disallowance of interest paid on borrowed funds is held to be allowable u/s. 57(iii). entitled to deduction either u/s 36(iii) - HELD THAT:- Regarding the relevant interest segment relatable to SPANCO shares, in the absence of any successful acquisition of shares and no consequential income chargeable to tax u/s 48 or 56 of the Act, we are of the opinion, the assessee is entitled to deduction u/s 36(iii) of the Act. Accordingly, the additional ground raised by the assessee is allowed and consequently, the ground raised by the revenue is dismissed. deletion of addition u/s 69C - HELD THAT:- The AO has not produced the details of any enquiries conducted by the Investigation Directorate in the case of the assessee for penny shares irregularly. No proof that the broker was paid 10% commission by the assessee was brought on record. No documents or statement of the assessee or the broker or any material on which the Assessing Officer has relied has been brought on record before making the addition @ 10% of the sale consideration. As the addition has been made entirely on conjectures and surmises the addition of ₹ 7,48,500/- is directed to be deleted. Therefore, it is the case of addition based on the surmises, which is not sustainable in law. Accordingly, the we find no reason to interfere with the order of the CIT(A). Accordingly, the revenues appeal is dismissed. Issues Involved:1. Estimation of disallowance of aviation expenses and depreciation for Bell Helicopter.2. Estimation of disallowance of aviation expenses and depreciation for Cessna Aircraft.3. Allowability of interest expenditure of Rs. 22,13,037/- as business expenditure.4. Determination of annual letting value (ALV) of house property.5. Disallowance of interest expenditure paid on borrowed funds used to acquire shares.6. Addition on account of unaccounted commission payments.Analysis:1. Estimation of Disallowance of Aviation Expenses and Depreciation for Bell Helicopter:The assessee contested the CIT(A)'s decision to disallow 20% of the aviation expenses and depreciation for Bell Helicopter, arguing that the disallowance should be restricted to 1/7th, as done in previous years. The AO had observed personal use of the helicopter, leading to a higher disallowance. The CIT(A) adjusted the disallowance to 20%, considering the personal nature of some trips and the lack of detailed expenditure records. The Tribunal found the disallowance percentage inconsistent with previous years and reduced it to 1/7th, deeming it fair and reasonable.2. Estimation of Disallowance of Aviation Expenses and Depreciation for Cessna Aircraft:Similar to the Bell Helicopter issue, the assessee argued against the 30% disallowance for Cessna Aircraft, advocating for a 1/7th disallowance. The AO noted the absence of logbooks and personal use of the aircraft. The CIT(A) upheld the 30% disallowance due to the lack of detailed records and personal trips. The Tribunal, referencing prior decisions and the principle of fairness under Section 38(2), reduced the disallowance to 1/7th, aligning with previous assessments.3. Allowability of Interest Expenditure of Rs. 22,13,037/- as Business Expenditure:The assessee claimed the interest expenditure on borrowed funds used for investing in shares should be allowed as business expenditure. The AO disallowed this, arguing it related to capital assets. The CIT(A) allowed the claim under Section 57(iii), stating the expenditure was incurred wholly and exclusively for earning income, even if no income was earned. The Tribunal upheld the CIT(A)'s decision, allowing the interest expenditure as business expenditure under Section 36(iii), considering the assessee's engagement in share trading.4. Determination of Annual Letting Value (ALV) of House Property:The AO determined the ALV of the let-out property at Rs. 6,00,000/- against the assessee's declared Rs. 1,50,000/-. The CIT(A) deleted the addition, favoring the assessee's method based on actual rental receipts. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's estimation was not in line with legal precedents and the standard rent should be the upper limit for determining ALV.5. Disallowance of Interest Expenditure Paid on Borrowed Funds Used to Acquire Shares:The AO disallowed the interest expenditure on borrowed funds used for acquiring TCS and SPANCO shares, arguing it was not allowable under Sections 57(iii) or 36(1)(iii). The CIT(A) allowed the expenditure under Section 57(iii), citing the Supreme Court's decision in Rajendra Prasad Moody. The Tribunal partially agreed, allowing the interest expenditure under Section 36(iii) for business purposes but not under Section 57(iii), as no income was earned from SPANCO shares.6. Addition on Account of Unaccounted Commission Payments:The AO added Rs. 7,48,505/- as unaccounted commission payments related to penny stock transactions. The CIT(A) deleted the addition, noting the lack of evidence for such payments. The Tribunal upheld the CIT(A)'s decision, stating the addition was based on conjecture and not supported by any direct evidence.Conclusion:The Tribunal provided a detailed analysis of each issue, ensuring fairness and consistency with prior assessments and legal precedents. The disallowances for aviation expenses and depreciation were reduced to 1/7th, the interest expenditure was allowed as business expenditure, the ALV determination was upheld based on actual rental receipts, and the addition for unaccounted commission payments was deleted due to lack of evidence.