TaxTMI 
TaxTMI 
2010 (9) TMI 1119
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....owance at 1/7th of the amount of depreciation and aviation expenses as has been done in the past." 3. Further, during the proceedings before us, the assessee filed an additional ground which is reproduced as follows:- "Without prejudice to the claim of the assessee that the interest expenditure of Rs. 22,13,037/- is rightly allowed by the learned CIT(A) while computing income from other sources, the assessee submits that alternatively, the said interest expenditure is allowable as a business expenditure while computing the total income." 4. Thus, from the grounds and the additional grounds, it is evident that the following are the issue's for adjudication:- 1) Fairness of the estimation of the aviation expenses and depreciation relatable to Bell Helicopter @ 1/5th of the claim instead of 1/7th as agreed by the assessee. 2) Fairness of the estimation of quantum of disallowance of aviation expense and depreciation relatable to Cessna Aircraft @ 30% of the claim as against 1/7th of the claim of expenditure agreed to by the assessee. 3) whether the CIT(A) should have allowed the claim of interest expenditure of Rs. 22,13,037/- as business expenditure too. 5. Briefly stated r....
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....y for the purpose of enjoyment but it was a landing point for visit to Koyna site of the assessee. Further, the visit to Lonavala and Amby Valley was for scouting of employees for hotel projects of the assessee. On the basis of the above, it was stated that all such trips are not for the personal purposes of the assessee. The Assessing Officer applied the provisions of section 38(2) of the Act and disallowed the depreciation and aviation expenses @ 30% totaling Rs. 28,19,032/-. The claims as per assessee and the disallowances by the AO are tabulated as follows. Sr. No. Name of the Aeroengine Depreciation Claimed Aviation exp. Claimed Disallowance @ 30% 1. Bell Helicopter 16,81,010/- 19,39,836/- 10,86,254/- 2. Cessana Aircraft 49,23,970/- 8,51,955/- 17,32,778/- 66,04,980/- 27,91,791/- 28,19,032/- 7. Aggrieved with the above disallowances the assessee filed the appeal before the CIT(A). During the first appellate proceedings, it was submitted that the assessee claimed total expenditure of Rs. 66,04,980/- on account of depreciation in respect of two aero engines. It was further stated that out of this total expenditure of ....
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....16-10-2007 and 26-11-2007 when the original logbooks of the Bell helicopter were produced from where the Assessing Officer was able to know the personal nature of the expenditure incurred for various trips. It was only on 18-12-2007 that the reply to the final notice was given to the Assessing Officer. In view of the above facts and taking into consideration the reply of the assessee, in my considered view, the ends of justice would be met if 1/5th of the aviation expenses are disallowed with respect to Bell helicopter. 5.4 Regarding the Cessna aircraft, the Assessing Officer lamented that the assessee was requested several times to produce the logbook of Cessna aircraft so to see the use for business activity, but no logbook was produced. The final notice was issue on 17-12-2007 proposing to disallow the entire depreciation when Xerox copies of the logbook were produced on 19-12-2007. the original logbooks of Cessna aircraft were not produced before the Assessing Officer. Those logbooks were not produced in the appellate proceedings also. The Assessing Officer also brought on record the fact that the use of both the aero engines for personal purposes could not be denied as many ....
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....eration. If the expense is found to bear an element other than the trade or business interest of the assessee the expenditure is not allowable one. On the basis of the fact that the assessee was not maintaining the details of passengers traveling on Cessna aircraft, the purpose of visit and there was undeniably visits to holy places like Tirupati and tourist places like Goa, etc. the action of the Assessing Officer in disallowing 30% of the expenditure for non-business purposes is, confirmed. 5.5 Further, the provisions of section 38(2) of the Income Tax Act are squarely applicable in the case of the assessee as both the aero engines were not exclusively used for the purposes of business. In Section 38(2), the words used are "not exclusively used for the purposes of business or profession." It signifies that the asset has been used for other purposes and not exclusively for the purposes of business or profession. This section specifically provides for part disallowance of certain expenses including depreciation in relation to business asset. Where the motor car belonging to the assessee were used partly for nonbusiness purposes the depreciation is required to be partly disallowed....
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....s. Further, he argued stating that the onus is on the assessee in these matters relating the making of claims of deduction and in this case, the assessee failed miserably to discharge the same. As per the DR, assessee neither filed the logbook in respect of the aircraft nor filed the list of the passengers travelled nor the details of the destinations covered by these helicopter or aircraft, as the case may be nor the purposes of the travel using the impugned helicopter or aircraft. In such circumstances, the decisions of the CIT(A) do not need any mutation or interference. 10. We have heard the parties and perused the orders and the paper books made available to us. Undisputed facts are that the assessee used both Bell helicopter as well as the Cessna aircraft for the mixed use and therefore, there is no dispute on the invoking of the provisions of section 38(2) of the Act. Further, there is no dispute that the AO restricted the disallowance art 1/7th of the claim. The same is evidenced by filing the copies of the assessment orders for the AYs 2002-03 to AYs 2004-05. They are placed at pages 128 to 145 of the paper book. For the instant year, the AO adopted 30% as against 1/7th i....
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....TAT Chandigarh Bench], the Tribunal held that even after the incorporation of the concept of block asset, the provisions of section 38(2) were applicable and the Assessing Officer was empowered to restrict the depreciation to a fair part thereof having regard to the user of asset for the purposes of business. In this view of the matter, we hold that order of the revenue authorities is correct in law. As far as the proportion of disallowance for personal use is concerned, we find that the revenue authorities have made a reasonable proportionate disallowance at the rate of 1/6th of the total expenses including depreciation. Accordingly, we decline to interfere in the matter." Further, it has come to our notice that the Pune bench has taken decision in the case of M/s Kirloskar Oil Engines Ltd vide ITA no 1039 and 1040 for the AY 1995-96 and 1996-97 in connection with the disallowance of aircraft expenditure and held that the disallowances at the rate of 15% (nearly 1/7th) of the claim is fair and reasonable. Relevant para 12 and 13 of the said decision is as follows. "12. Ground No 4 is directed against the CIT(A)'s order in confirming Aircraft expenses amounting to Rs. 10,28,179/....
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....s an artificial difference. It is also relevant to mention that the section 38(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 Rs. 93,96,771/- (ie Rs. 66,04,980/- on account of depreciation of vehicles and Rs. 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 38(2) of the Act. Fairness is an important factor in matters of quantification of the disallowances, when section 38(2) of the Act 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 an....
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....before us. Ld DR for revenue argued that the AO is empowered to determine the ALV of the property on the basis of the comparable cases. In this regard, he relied on the decision of the co-ordinate Bench in the case of Makrupa Chemicals (P) Ltd (108 ITD 95) where the ITAT has discussed the scope of different decisions of the judgments of the High Courts as well as the Supreme Court and the Tribunal in Para 14 of the said order that the "Municipal ratable value is not binding on the AO if the AO can show that the ratable value and municipal laws does not represent the fair rent. Further, he relied on the order of the AO. 20. On the other hand, Ld AR for assessee heavily relied on the orders of the CIT (A) and the jurisdictional High Court judgments in the case of J K Investors (Bom) Ltd and above cited apex court judgments ie Dewan Daulat Rai Kapoor (supra). He took us through the relevant paras of the said judgments. He argued that the AO is under obligation to go by the ratable value or Standard Rent and the AO must not invoke the comparable cases. 21. We have heard the rival submissions and perused the orders of the revenue authorities as well as paper book filed before us....
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....use (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 (supra). Therefore, we are of the opinion that the order of the CIT (A) does not call for any interference. 22. Thus, it is not the case of the revenue that the ALV determined by the assessee is less than the standard rent. Considering the above factual and legal position in force, we are of the opinion that the order of the CIT(A) does not call for any interference for the above reasons. Accordingly, ground 1 of the revenue is dismissed. 23. Ground 2 relates to claim of interest ex....
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....n shares..." It was held that decision in the case of Shree Digvijay Cement Co. Ltd. vs. CIT (supra) was applicable. In that case the investment in shares made out of borrowed funds was not proved as no new borrowings were made. The TCS shares were sold by the assessee on 17-02-2005 and long term capital gain has been offered for taxation. In case of SPANCO shares, the share application amount was received back by the assessee on 06-12-2004 and according to the Assessing Officer no income was earned by the assessee on these transactions. 4.3 Irrespective of the fact whether any income was earned by the appellant from the investment in shares, interest paid on money borrowed for investment in shares is deductible u/s. 57(iii) of the Act for section 57(iii) requires that the expenditure must be laid out and expended wholly and exclusively for making and earning income and not that such income must have been earned. Reliance is placed in this regard on the decision in the case of CIT vs. Rajendra Prasad Moody reported in 115 ITR 519 (SC). The contention of the Assessing Officer that the deduction is permissible u/s. 57(iii) only if there was some income earned under the head 'income....
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....y earned in the year under consideration. Finally, as per the CIT(A), the addition of Rs. 22,13,037/- being disallowance of interest paid on borrowed funds is held to be allowable u/s. 57(iii) of the Act. 25. Aggrieved with the said decision of the CIT(A), the revenue filed the present appeal with ground 2. During the proceedings, the Ld DR mentioned that the impugned interest claim of Rs. 22,13,037/- has two segment ie (i) the interest relatable to the investment in TCS shares and (ii) the interest relatable to the investment in the IPO of the SPANCO shares. As per the DR, the Revenue has strong objection to the decision of the CIT(A) in treating the interest payment relatable to the borrowed funds invested in SPANCO shares unsuccessfully as allowable u/s. 57(iii) of the Act, as this is the case of investment which never resulted in earning of the shares forget about the earning of dividend income. As per the DR, this part of the reasoning given by the CIT(A) must be dismissed. Regarding the other reasoning about the allowability of the impugned interest claim as business expenditure u/s 36(iii) of the Act, the DR mentioned that, when the assessee invested in SPANCO shares, the a....
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....ression such income in the provisions of section 57(iii) relates to incomes chargeable to tax u/s 56 of the Act. The same reasoning applies to the interest expenditure relatable to the loan invested in the investment SPANCO shares too and the assessee is not eligible for set off against the other interest income receipts chargeable to tax u/s 56 of the Act as the assessee has no chance of 'such income' out of the SPANCO shares as he never got allotment of such shares. Therefore, we do not agree with the CIT(A) in concluding that the addition of Rs. 22,13,037/- being disallowance of interest paid on borrowed funds is held to be allowable u/s. 57(iii) of the Act. 28. Now we proceed to examine if the assessee is entitled to deduction either u/s 36(iii) of the Act or not. In this regard, we have considered the following undisputed facts, ie (i) very existence of business of trading in shares, (ii) earning of profit to the tune of Rs. 26,689/- from share trading activity during the year, (iii) undisputed fact of actual incurring of expenditure in the form of interest payment to the Bank incidental to the process of acquisition of the shares. In our opinion, the assessee entitled to the....
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.... the same as per the discussion given in para 7.2 of the impugned order. During the proceedings, Ld Counsel for the assessee brought to our notice the decision of the Tribunal of the Pune bench for the proposition that the addition is not sustainable in the absence of any evidences to support the payment of unaccounted commission in connection with the investment in the penny stock. On the other hand, Ld DR for the revenue relied on the order of the AO. 31. We have heard the parties and perused the orders of the revenue and the paper book filed before us. It is a fact that the assessee surrendered the unaccounted investment in the penny stocks. At the same time, it is also a fact that there is no direct evidence to demonstrate the payment of the alleged commission to the broker for arranging the transactions of bogus purchase and sale bill and other incidental services. In such cases, the possibility of payment is as equal as possibility of non payment. It is not necessary that in each and every case of the impugned transactions, commission payment is necessarily involved. With this back ground, we have perused the contents of para 7.2 of the impugned order, which read as follows.....