AI Drafter 
TaxTMI 
TaxTMI 
2025 (4) TMI 532
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.... quashed. 2. Rs. 5,32,219/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of depreciation and interest claimed on vehicles of Rs. 5,32,219/-. The disallowance so made and confirmed by the CIT(A) being contrary to provisions of law and facts may be kindly deleted in full. 3. Rs. 41,855/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of the expenses claimed under the head of business promotion of Rs.41,855/-. The disallowance so made and confirmed by the CIT(A) being contrary to provisions of law and facts may be kindly deleted in full. 4. Rs. 3,69,334/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of interest on the loan given of Rs.3,69,334/-. The disallowance so made and confirmed by the CIT(A) being contrary to provisions of law and facts may be kindly deleted in full. 5. Rs.5,00,181/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of revenue expenditure on building construction of Rs.5,00,181/-. The disallowance so made and confirmed by the CIT(A)....
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.... continued lying with him in his possession. 2.2 Thereafter, Shri Rahul Gupta when got normal from his medical problem, collected these papers but again he had a migraine attack and unfortunately he immediately proceeded on leave because of his medical problem and therefore he could neither handover his responsibility to his colleagues nor he could inform the director of the company about the documents including the appeal papers with him. All though he resumed his job sometime from June 2024. Yet however, it did not occur to his mind that some appeal papers were to be signed, which were still lying pending with him. It is only thereafter, in the second week of June 2024 when the local tax consultant Shri Milind Vijayvargiya (CA) contacted the director of assessee company asking if any order was received related to CIT(A) by them because of the consequent proceedings (being the recovery of demand, penalty, etc.) and proceeding for other years, then Shri Rahul Gupta ("Accountant") was asked with regard to those appeal papers. It is only thereafter, the director immediately enquired and asked him to hand over subjected documents the appeal papers, ....
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....ng case on the subject and has a binding force on all the officers subordinate thereto. 4. In addition to the above application ld. AR of the assessee submitted that the delay was on account of illness of Mr. Rahul Gupta employee of the assessee company and therefore, considering that aspect of the matter, the assessee company should not suffer. To drive home to this contention, ld. AR of the assessee relied upon the decisions; * Collector, Land & Acquisition v. Mst. Katiji & Others (1987) 167 ITR 471 (SC) * United Christmas Celebration Committee Charitable Trust vs. ITO (2017) 249 taxman 0372 (Madras) * Hosanna Ministries vs. ITO (2017) DTR 0008 (Mad.) * Mukesh Jesangbhai Patel vs. ITO (2013) 213 Taxman 37 (Mag.) (Guj.) (HC) * Vijay Vishin Meghani & Anr. Vs. DCIT & Anr. (Bom.HC), (2017) 100 CCH 0034 * Diamong Cargo Movers vs. State Tax Officer [2024] 167 taxmann.com 417 (Madras) * M/s Lahoti Overseas Ltd. vs. DCIT [ITA No. 3786/Mum/2012] vide order dt. 18.03.2016 Considering the judicial precedent, he prayed to condone the delay in the interest of substantial justice. 5. Per contra, ld. DR objected to condonat....
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.... out from the records are that the assessee efiled its return of income on 16.10.2016 declaring total income of Rs. 31,58,870/-. The case was selected for scrutiny and therefore notice u/s 143(2) was issued on 24.09.2017, which was duly served upon mail as well as through speed post. Notice u/s 142(1) was issued to assessee on 04.09.2018 with queries. Considering the written submission and documents filed during the scrutiny assessment ld. AO made observation and made disallowance / addition as discussed herein subsequent paras. 8. Disallowance of depreciation and interest claimed on vehicles: Assessee has claimed interest expenses and depreciation on multiple vehicles. When the assessee was asked for the registration papers of vehicles, papers for only one car (Ciaz) were produced before the assessing officer. This car was not registered in the name of the company but was registered on the name of an individual. As per-loan-papers, the other car (Ciaz) was also in the name of an individual and not in the name of company Documentary evidence/Registration papers were not produced for any of the other vehicles from this it is concluded that none of these vehicles were registere....
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....e this asset for business purpose which was clear from the fact that construction expenses continued to be incurred till March 2016. Hence this was not considered as revenue expenditure. So, interest proportionate to that amount was considered liable to be capitalized. When this asset claimed to be put to use its capitalized value can be subjected to depreciation claim by the assessee. Hence 12% (as the borrowing rate of the assessee is 12%) of the said amount e. Rs. 5,00,181/ was disallowed as revenue expenditure and is being capitalized. 12. Disallowance of unverifiable salary expenses: Assessee has claimed Rs. 7,13,22,676/- as salary expenses. Break-up of this amount was asked to assessee vide Q. No. 15 of the notice issued u/s 142(1) dated 04.09.2018. Assessee furnished response on 19.11.2018. But this query was not answered by the assessee in the submission despite the fact that reply was furnished by the assessee after multiple reminders, and it had sufficient time to prepare the reply. Notice u/s 142(1) was issued with the further queries on 11/12/2018 again asking the assessee to furnish the reply to this question. Assessee furnished response on 18.12.2018, wherein as....
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....tered in the name of the company. 5.2.2 The appellant has claimed that there are 5 directors of the company who had used the vehicles for the purpose business. The appellant has claimed that as per judicial decisions it is not necessary that the vehicle is in the name of the assessee, but right of possession would entitle the assessee to claim depreciation. The appellant has filed a copy of resolution in Board meeting regarding car Ciaz purchased in the name of a director, showing that the car has been purchased with company funds for wholly and exclusively business purpose of the company. 5.2.3 I am unable to accept the argument of the appellant. If a vehicle is in the name of director, then personal use cannot be ruled out. While vehicle expenses for running may be paid by the company, depreciation and interest on borrowed capital cannot be allowed on an asset owned by another person. This ground is rejected. 5.3.1 Ground No. 2: Disallowance Business Promotion: The AO disallowed an amount of Rs. 41,855/- out of business promotion as relevant bills could not be produced by the appellant. The appellant claims that all expenses had been made throu....
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.....6.3 The appellant has not been able to discharge the onus of furnishing the details. Nothing specific has been filed during the appellate proceeding as well. In these circumstances, the action of the AO is upheld. This ground is rejected. 6. In effect, the appeal is dismissed." 14. As the appeal of the assessee was dismissed by the NFAC the assessee aggrieved from that order filed the present appeal before this tribunal. Apropos to the grounds of appeal so raised by the assessee, ld. AR of the assessee filed the following written submission : "Brief General Facts: The assessee Ahluwalia Erectors & Febricators Private Limited, R/o E-77, Indraprasth Industrial Area, Kota, is Company incorporated under the provisions of Companies Act, 2013 (hereinafter referred to as "assessee"). The assessee, a well-established mechanical engineering firm operating since 1968, is engaged in providing a comprehensive range of engineering services. These services encompass erection, fabrication, commissioning, and repair of various machinery and equipment, including boilers for power plants, pressure vessels, propellers, sugar plant machinery, and cement plant machinery. The firm ....
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..... * Depreciation claimed by assessee are as under: * On one of the Ciaz = 7.5% of Rs. 10,36,479 = Rs. 77,736 * On other Ciaz = 15% of Rs. 9,20,236 = Rs. 1,38,035 * On Duster = 15% of Rs. 10,00,000* = 1,50,000 (* = Bills for Duster have not been submitted by the assessee, hence price has been taken on estimate basis) So, depreciation claimed on vehicle amounting to total Rs. 3,65,771 is being disallowed considering the reason, as stated above. (Disallowance of depreciation and interest claimed on vehicles of Rs. 5,32,219/-)" On this aspect, the ld. CIT(A) at page 6 para 5.2 held as under: "5.2.1 Ground No. 1: Disallowance of depreciation and interest on vehicles. The Assessing officer noted that the appellant had claimed depreciation and interest expenses on several vehicles. The AO asked the appellant to produce the registration papers of vehicles. Registration paper of only one car was produced. Even this vehicle was in the name of one individual and not in the name of the company. The loan p+apers for another car showed that it was also in the name of an individual. Papers in respect of other cars we....
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....by the AO, which was not legally permissible for him, unless the assessee was confronted in advance. There apart it is also settled that in the case of a limited or private limited company there can't be any personal user and no disallowance can be made on that plea as has been held in several cases. Kindly refer: ACIT v/s M/s Anil Special Steel Industries Ltd. (2014) 52 TW 189 (JP) held that no disallowance can be made in case of a Limited/Private Limited Company decision in the case of Sayaji Iron & Eng. Co. v/s CIT 253 ITR 749 (Guj.) referred. The above factual averments are also supported by the Board of Director passed resolution time to time, as and when vehicles were purchased, reproduced here under: "It is hereby resolved that Vehicle Car Ciaz no RJ-20-CD-7188 Dated 17-06- 2015 purchased & registered in the name of Director Kuldeep Singh Ahluwalia. Funds have also been arranged by Company. This vehicle has been purchased wholly & exclusively for the Business Purpose usage of our company." Further Board Resolution was passed related to other car reproduced here under: "It is hereby resolved that Vehicle Car C....
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....les Act or vehicle stood in name of vendor in records of the authorities under the Motor Vehicles Act. This judgment has been followed by Delhi High Court in the case of CIT v. Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88. 2.3 Reliance is also placed on the case of Anil Bulk Carriers (P) Ltd. vs. CIT (2005) 276 ITR 625 (All) wherein it is held as under: Thus, the impugned disallowance deserves to be deleted in full. GOA-3: Rs. 41,855/-: Disallowance of the expenses claimed under the head of business promotion. Facts: The ld. AO at Pg. 2 of the order held as under: "(II) Disallowance of the expenses claimed under the head of business promotion: Assessee has claimed business promotion expenses of Rs. 1,28,444/. But, When assessee was asked to submit the bills for the same, only bills amounting total of Rs. 86589/- were submitted. Hence difference amount of Rs. 41,855/- is being disallowed from the expenses claimed under the head of business promotion on account of being unverifiable. (Disallowance of the expenses claimed under the head of business promotion of Rs. 41,855/-)" On this aspect, the ld. CIT(A) at page....
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....%) on the total amount of Rs. 30,77,780 i.e. Rs. 3,69,334/- is being disallowed. (Disallowance of the interest on the loan given Rs. 3,69,334/-)" On this aspect, the ld. CIT(A) at page 7 para 5.4 held as under: "5.4.1. Ground No. 3 :- Disallowance of interest on loans and advances :- The AO noted that the appellant had given interest free advances to some parties. Although the appellant claimed that the loans and advances were business advances, no evidence could be filed is support of this claim. Hence, the AO disallowed interest at estimated 12% rate on such loans and advances. 5.4.2 The appellant's claim is that these are not new loans but are opening balances of earlier years. However, this claim is not relevant. In the absence of linkage with business activity, the AO has rightly disallowed interest on estimated loans on the interest - free advances. This ground is rejected." Hence this ground. Submission: 1. At the outset, it is submitted that the authorities below did not appreciate the factual contention that there were no new loans advanced during the year and all (except opening balance of Rs.3,72,780....
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....nue-Thirdly, there was no dispute that in subsequent FY, assessee did make imports and did derive benefits under advance licence and duty entitlement pass book and paid tax thereon-Therefore, it was not as if revenue has been deprived of any tax-Rate of tax remained same-There was, thus, no need for revenue to continue with this litigation" 2. On Merits: Otherwise also, all these parties are already in the line of fabrication work, colonizer and developer which is also at par with the nature of the business of the assessee. Moreover, it is not alleged that all or any of these parties are directly or indirectly related to the assessee except Kulbir Singh Ahluwalia, who is a director of assessee-company (advance of Rs.8,77,780/-) . 3.1 Businessman is the best judge: It will be appreciated that the decision as to what rate of interest or not interest should have been paid/charged, is a decision to be taken by businessman, who is the best judge to take care of its interest. The law is settled that the AO cannot sit on the arm chair of the businessman. The allowability of claimed interest therefore should have been allowed accordingly. For this proposition, ki....
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....2,98,474/- (PB 25) and capital Rs.1 lakh as against the alleged interest free advance to Director Kulbir Singh Ahluwalia at Rs. 8,77,780/-. Hence the legal presumption is that the amount so advanced came out of the interest free fund which did not call for any disallowance u/s 36(1)(iii) on account of the alleged diversion of funds. Kindly refer CIT vs. Ram Kishan Verma (2016) 132 DTR (Raj) 107 where it was held that: "Admittedly the assessee had an opening capital of Rs. 5,70,74,967 of his own and the advances, if at all, being interest free, is to the extent of Rs. 98,93,950 which is far below the capital of the assessee and, therefore, the Tribunal has rightly come to the conclusion that to the extent of his own capital the assessee could advance money without interest for business expediency or/and relatives, and none can be forced to charge interest. It is also noticed by the lower authorities that assessee earned bank interest to the extent of Rs. 24,48,843 out of which he paid total amount of Rs. 10,99,099 to the bank against loan and overdraft, and it is out of the amount which has been paid by the assessee at Rs. 10,99,099 that the AO has disallowed the interest. ....
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.... was required to be capitalized. The AO disallowed 12% of the amount and held this amount should be added to the value of asset for the purpose of depreciation, as and when the same is put to use. The appellant has not been able to refute this reasoning of the AO. Hence, this addition is confirmed." Hence this ground. Submission: The authorities below evidently, proceeded on a misconception of fact and law. The impugned disallowance made u/s 36(1)(iii), of the nature the way which has been made in the present case, is completely devoid of merits and in fact the onus lay upon the AO was not discharged for the simple reason that the authorities below did not at all point out which particular loan was taken for the addition of the fixed assets of Rs. 41,68,178/-, (which is under consideration). No doubt, the assessee made addition during the year which is shown in the Depreciation/ Fixed Asset chart (PB 33-34) also but a perusal of the Balance Sheet (PB 23) does not show any specific loan taken for this purpose only. Hence, it can't be said that there was any earmarked loan taken for this purpose and the interest was paid thereon, towards the addition of....
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....018. It was submitted by the assessee that the answer to this query is attached with the reply submitted. But, no attachment in this regard was attached. In 2nd questionnaire assessee was asked to submit 20 sample bills of various categories. Assessee submitted 23 bills averaging to Rs. 6999 each. These bills were related to non-permanent labor staff. Thus, assessee has submitted neither any breakup of the salary/wages paid nor any detail related to number of employees. Assessee just submitted 23 bills averaging to Rs. 6,999 each which does not make much sense in the absence of corresponding data about number of employees. The assessee has also shown to pay salary/wages for job work done and to other employees, in addition to temporary labor the bills for which have been furnished by assessee on sample basis. In the absence of number of employees in each of these categories, it is impossible to estimate the accurate labor bill of the assessee. Assessee has not discharged its onus of furnishing these details so that the amount of Rs. 7,13,22,676 to be claimed as salary expense can be satisfactorily accepted. The assessing officer has only details about rem....
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....clared results. 1.2 In the entire order the ld. AO has not whispered if there was some defect and therefore has not even invoked sec. 145(3). In other words, he felt satisfied with the books of accounts maintained by assessee and duly audited and produced before him and therefore feeling satisfied, he did not reject the same. Once this is the admitted fact, there is no reason as to why the AO must have alleged a difference in the terms of quantity/value of the stock in trade shown in audited books account vis-à-vis through the stock registered impounded during survey (no hard copies of stock were seized but it was hard disk seized by the Economic Offence Wing, Mumbai where from, this data was taken as a clone and printouts were taken and forwarded to present AO). 1.3 There is a consistent view of various High Courts and Tribunals to this effect. Kindly refer: 1.3.1 M/s Bansilal Abirchand Spg. & Wvg. Mills 75 ITR 260 (Bom.) a. A finding has to be recorded as to the unacceptability of the method and irregularity of the method and irregularity of accounts kept. b. The mere fact that percentage of dead loss of cotton is high in a part....
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....appellant allegedly failed to provide the complete details of salary & wages. However, this contention that the temporary wages cost was the main ingredient in the total cost looking in the nature of the business being carried out by the appellant, was not appreciated. The cost incurred on Salaries & Wages during the year is reproduced hereunder: Particulars Amt. (in Rs.) Salaries, Wages, Bonus and Allowances etc. 20,15,857 Temporary Labour & Wages 5,41,87,636 Job Work Charges 1,38,69,183 Remuneration to Directors 12,50,000 Total 7,13,22,676 Very interestingly and surprisingly the AO proceeding very mathematically, allowed the expenditure only to the extent of firstly Rs.12.50 Lakhs on account of payments to Directors and secondly Rs. 1,60,977/- on account of 23 sample bills submitted before him (23 sample bills x 6,999) but out of the balance Rs. 6,99,11,699/- (7,13,22,676 - 12,50,000 - (23*6999)) an ad-hoc disallowance of 5% i.e. Rs. 34,95,585/- was made. Such an approach itself shows an arbitrary and whimsical exercise on the part of the authorities below. The authorities did not appreciate that it was a case of a Private Lim....
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....ooks of assessee. 40-43 9. Director Remunration Ledger A/c for the period 01.04.2015 to 31.03.2016 showing payments made to the Directors of the Company 44 10. Temp. Labour wages Ledger Account for the period 01.04.2015 to 31.03.2016 in the books of assessee. 45 11. Job Work Charges Ledger Account for the period 01.04.2015 to 31.03.2016 in the books of assessee. 46 12. Ledger Account w.r.t. Salary Expenses for the period 01.04.2015 to 31.03.2016 in the books of assessee. 47-49 16. The ld. AR of the assessee in addition to the above written submission vehemently argued that disallowance of depreciation and interest both assets and loan which interest was paid by the company and duly reflected in the books of account of the company. Therefore, considering the written submission and the case laws cited therein, the addition made is required to be deleted. As regards the interest paid on loan since the same being used for the purpose of the business interest is allowable to the assessee. Car was purchased in the year 2012 and since then the assessee year on year claim the expenditure. To drive home to the contention ld. AR of the assessee relie....
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.... of depreciation and interest, the car was not in the name of the company and therefore, interest and depreciation claimed by the assessee cannot be allowed. The assessee has not provided any log sheet to prove the car's use for company work. The AO reasonably disallowed the salary expenditure as the assessee failed to provide the necessary information to justify the claim. 19. We have heard the rival contentions and perused the material placed on record. Ground no. 1 raised by the assessee being general and there is no specific grievance raised by the assessee therefore, the same is not required to be adjudicated. 20. Ground no. 2 deals with the disallowance of Rs. 5,32,219/- comprises of interest expenses of Rs. 1,66,448/- and claim of depreciations to the extent of Rs. 3,65,771/-. While disallowing the said expenditure the ld. AO noted that interest expenses and depreciation claimed for the car which was not in the name of the company but was registered in the name of the Individual. As per-loan-papers, the other car (Ciaz) was also in the name of an individual and not in the name of company. Therefore, ld. AO considered that the vehicles were not registered in the nam....
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....rary to the claim regarding payment by cheques, the expenses having been shown in cash, the veracity of the same is not acceptable. Hence, the disallowance by the AO is confirmed. Before us ld. AR of the assessee did not rebut the finding of the ld. CIT(A) that claim made was contrary on facts and the expenditure was incurred in cash and therefore, we do not find any merit in this grounds of appeal raised by the assessee and same is dismissed. 22. Ground no. 4 raised by the assessee for disallowance of Rs. 3,69,334/- being the interest on the loan given. On this aspect of the matter we note that the advance were not given in the year under consideration except Shri Kulbir Singh. The ld. AR of the assessee submitted that all the parties in the line of fabrication work, colonizer and developer which is also at par with nature of the business of the assessee. Even otherwise there was no direct nexus was established and the assessee was having sufficient interest free funds and therefore, considering the decision of the jurisdictional high court cited by the ld. AR of the assessee in his written submission we do not find any reason to sustain the addition and therefore, the same ....
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....of furnishing these details so that the amount of Rs. 7,13,22,676 to be claimed as salary expense cannot be satisfactorily accepted. The assessing officer has only details about remuneration paid to partners of Rs. 12,50,000/- and 23 bills averaging Rs. 6,999 each. The credit for these is being given to the assessee. Thus, from the above amount of Rs. 6,99,11,699/- (7,13,22,676-12,50,000 - (23*6999)) was considered as not verifiable and thereby ld. AO made, 5% of Rs. 6,99,11,699/- i.e. Rs. 34,95,585/- was disallowed. When the matter carried before the ld. CIT(A) he held that "The appellant has not been able to discharge the onus of furnishing the details. Nothing specific has been filed during the appellate proceedings as well. In these circumstances, the action of the AO is upheld. This ground is rejected." Before us the ld. AR of the assessee filed a detailed submission objecting to the addition. The ld. AR submitted that the ld. AO asked for the 20 sample bills assessee supplied 23 bills. The ld. AO did not find any defect on these bills and directly jumped to make the adhoc disallowance without rejecting the book result and finding any defects in the records so produced. The be....