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आदेश/Order
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 02.09.2019 of the Commissioner of Income Tax(Appeals)-2, Chandigarh [hereinafter referred to as ‘CIT(A)’].
In this appeal, the assessee has raised following grounds of appeal:-
1. That on the facts, circumstances and legal position of the case, the Worthy CIT(A) in Appeal No. 10133/2/18-19 has erred in passing that order in contravention of the provisions of S. 250(5) of the Income Tax Act, 1961. -Chd-2019- Shri Harish Goyal, Chandigarh 2
2. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in allowing only part relief of Rs. 16,25,305/- out of total addition of Rs. 32,50,610/- thereby confirming the addition of Rs. 16,25,305/- by holding that 5% out of total claim of wages deserve disallowance as against made by the Ld. AO @ 10% even when complete records were produced before the Ld. AO, no discrepancy therein was found and the discrepancies mentioned in the assessment order do not exist at all and they were never confronted to the appellant and therefore the Worthy CIT(A) should have deleted the entire addition.
3. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in allowing only part relief of Rs. 10,58,345/- out of total addition of Rs. 21,16,690/- thereby confirming the addition of Rs. 10,58,345/- by holding that 50% out of total claim of depreciation and interest on loan in respect of car purchased by the assessee deserve disallowance as against made by the Ld. AO @ 100% even when the Worthy CIT(A) should have deleted the entire addition.
4. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO wherein he had erred in making addition of Rs. 5,36,844/- under the head house property by estimating the rental income from Plot No. 100, Indl. Area, Phase-I, Chandigarh at Rs. 9,46,920/- as against correctly declared actual realized rent of Rs. 1,80,000/- of the portion let out.
5. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO wherein he had erred in making addition of Rs. 2,94,000/- under the head louse -Chd-2019- Shri Harish Goyal, Chandigarh 3
property by estimating the rental income from House No. 1073/21 B, Chandigarh at Rs. 5,40,000/- as against correctly declared actual realized rent of Rs. 1,20,000/- of the portion let out.
6. That on law, facts and circumstances of the case, the worthy CIT(A) has erred in confirming the action of Ld. AO wherein he had erred in making addition of Rs. 44,100/- under the head house property by estimating the rental income from House No. 1124/37 B, Chandigarh at Rs. 2,40,000/- as against correctly declared actual realized rent of Rs. 1,77,000/- of the portion let out.
7. That on law, facts and circumstances of the case, the worthy CIT(A) has erred in confirming the action of Ld. AO wherein he had erred in making addition of Rs. 67,200/- under the head house property by estimating the rental income from House No. 659/16 B, Panchkula at Rs. 1,80,000/- as against correctly declared actual realized rent of Rs. 84,000/- of the portion let out.
That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.
3. Ground No.1 : Ground No.1 is general in nature and does not require any specific adjudication.
4. Ground No.2: Vide ground No.2, the assessee has agitated the action of the CIT(A) in confirming the disallowance of 5% of expenditure incurred on payment of wages to the labourers.
Brief facts of the case are that the assessee is carrying on civil construction business. The Assessing Officer on examination of the -Chd-2019- Shri Harish Goyal, Chandigarh 4 muster rolls found that the same were incomplete. At certain places, there were no signatures and no revenue stamps were fixed on the wage register for payments made to the labourers. The assessee explained that some of the labourers were illiterate and, hence, their signatures were not appended on the register. That sometimes the payments were made through group leaders. Further, that the Revenue stamps fixed may have been detached later on and moreover the fixing or non-affixation of Revenue stamps cannot be said to be criteria to determine that the wages were not paid. Considering the above submissions of the assessee, the Ld. Assessing Officer disallowed 10% of the total expenditure incurred on wages. However, the Ld. CIT(A) considering the over all facts and circumstances of the case restricted the said disallowance to 5% of the total wages. Being aggrieved by the said order, the assessee has come in appeal before us.
The Ld. Counsel for the assessee has submitted before us that the discrepancies pointed out by the Assessing Officer were very less as compared to the total payments made by the assessee to the labourers.
Even aggregate of the instance of payments, wherein, discrepancies were pointed out by the Assessing Officer was less than Rs. 2 lacs, whereas, the disallowance of 10% of the total wages paid amounted to Rs. 32.50 lacs has been made by the Assessing Officer which has been further reduced to 16.25 lacs by the CIT(A). -Chd-2019- Shri Harish Goyal, Chandigarh 5
We have considered the rival contentions of the parties. It is noted that the aforesaid disallowance had been made totally on adhoc basis by the Assessing Officer as well as by the CIT(A). There is no denial to the contention of the assessee that the aggregate of the amount, wherein, discrepancies were pointed out does not exceed Rs. 2 lacs.
Under the circumstances, the adhoc disallowance amounting to Rs. 16.25 lacs, in our view, cannot be held to be justified.
Considering the over all facts and circumstances, in our view, the interest of justice will be well served if the disallowance on account of discrepancies is restricted to lump sum amount of Rs. 1 lac. We order accordingly.
8. Ground No.3 : Vide ground No.3, the assessee has agitated the action of the Ld. CIT(A) in restricting the disallowance out of depreciation and interest on loan in respect of luxury car purchased by the assessee to the extent of 50% as against 100% disallowed by the Assessing Officer.
The Assessing Officer observed that the assessee had claimed interest on loan and depreciation on purchase of two luxury cars worth Rs. 183.52 lacs by the assessee. On being asked to explain in this respect, the assessee explained that it has been using many cars for business purposes. Some of the cars were being used at site by his employees and some by his marketing staff and some of the cars were -Chd-2019- Shri Harish Goyal, Chandigarh 6 being used by the assessee also. All the cars were being used wholly and exclusively for business purposes only. The Assessing Officer observed that the assessee has claimed depreciation on 6 cars, out of which there were two high end luxury cars costing Rs. 183.52 crores.
The Assessing Officer observed that the assessee has failed to explain that how all the six cars owned by the assessee were used by him for business purposes in sole proprietary business. He observed that the assessee had failed to prove that the high end luxury cars were used for business purposes. He, accordingly disallowance the depreciation and expenditure of interest on car loan in respect of the aforesaid two cars amounting to Rs. 21,16,690/-. In appeal, the Ld. CIT(A) restricted the disallowance to 50% by observing as under:
“9.2 I have considered the assessment order and submission of the applicant. The facts of the issue reveal that the Assessing Officer rebutted the contentions of the assessee that the high end cars are put only to business use. However, if he had come to this conclusion, the natural course would have been to disallow both the investment in the cars as also the claims of interest on the loans taken to acquire them as not qualifying as business expenditure. Not having done that the action of disallowing depreciation on the same can't be held tenable (This aspect needs to be re-looked into by the AO to see whether rectificatory measures available in the statute could be invoked). Further, this being a survey matter the issue could have been nailed during the course of survey itself by examining both the employers and employees on oath. These necessary actions were clearly not undertaken (at least the assessment order doesn't record any finding on the averred issue). Having not done so the officer clearly has overstretched himself in disallowing the entire depreciation claimed on the so-called high end luxury vehicles. The rationale adopted however can't -Chd-2019- Shri Harish Goyal, Chandigarh 7 be brushed away in its entirety. That two vehicles costing Rs. 183.52 lacs were used only for business doesn't fit completely into the realm of human probability. Such claims also defy what is normally observed in the daily routine of life. High end cars, bought from funds of the business, are predominantly used for domestic and personal usage. Taking both the strands of reasoning together it would be in fitness of things that the disallowance of depreciation is reduced by half to account for personal use. The assessee would be entitles to 50% relief from the addition made on this count Ground No. 4 is partly allowed.”
Being aggrieved by the above order of the CIT(A) the assessee has come in appeal before us.
The Ld. Counsel for the assessee has submitted that the disallowance made by the lower authorities was totally unreasonable.
That there was no provision in the Act to prescribe any brand or model or the maximum price of the car. He has further submitted that the cars were being used for business purposes, therefore, depreciation on these cars as well as interest on car loans deserves to be allowed. He, in this respect has also relied upon the decision of the Tribunal in the case of ‘Ramaban Hospital, Navsari vs Department of Income Tax’ (ITA No. 4059/Ahd/2008].
We have heard the rival contentions of the Ld. Authorized Representatives of both the parties. Admittedly, the assessee has claimed the depreciation and interest expenditure on the purchase of two high end luxurious cars costing Rs. 183.52 lacs. Admittedly, the -Chd-2019- Shri Harish Goyal, Chandigarh 8 assessee is assessed as a proprietor in individual capacity. There is no plea that for his individual / personal requirement, the assessee is keeping any other car. It is also not explained that how the high end luxurious cars were related to any special business requirement of the assessee. Though, no doubt the Income-tax authorities cannot sit into the arm chair of the business man, however, there must be some rational or some relation to show that the expenditure incurred was towards the requirement or need of the business. The plea of the assessee is that the cars were used exclusively for business purposes.
When asked to explain in this respect by the Assessing Officer, the assessee has not explained about the general or special need of the business for purchase of the high end luxury cars except that to say that there is no provision in the Act to prescribe any brand or model and make or the price of car which may be used for business purposes. As observed above, there is no plea that for individual or personal need of the assessee any other vehicle was being used. Even in the case laws relied upon by the assessee i.e ‘Ramaban Hospital, Navsari vs Department of Income Tax’ (supra), the Tribunal has upheld the disallowance of 20% of the vehicle expenses and depreciation.
Considering the over all facts and circumstances of the case, in our view, upholding of disallowance by CIT(A) of 50% of the total expenditure made by the Assessing Officer on this account seems to be -Chd-2019- Shri Harish Goyal, Chandigarh 9 on higher side and the same is accordingly restricted to 25% of the disallowance made by the Assessing Officer.
Accordingly, this ground of appeal is partly allowed.
13. Ground Nos. 4 to 7 : Vide ground Nos.4 to7 of the appeal, the assessee has agitated the action of the CIT(A) in confirming the addition made by the Assessing Officer towards the annual letting value of the different houses / properties of the assessee. The only plea raised by the assessee in this respect is that the Assessing Officer has calculated the Annual Letting Value (ALV) as per his own estimation without referring to any rental value of the adjoining or similar situated properties in the vicinity and even without taking the ALV from the municipal authority.
The Ld. DR has submitted that in respect of one property, the Assessing Officer had considered the property tax levied on the property. In rebuttal, the Ld. AR of the assessee has submitted that the said property was industrial property, whereas, the other properties were residential properties and that the Assessing Officer while estimating the annual letting value has not pointed out any yard stick adopted by him for such estimation.
After considering the rival submissions and also after going through the record, we find that the Assessing Officer estimated the ‘Annual rateable value’ without adopting any criteria or yard stick, i.e. the annual letting value of the similar properties in the vicinity or -Chd-2019- Shri Harish Goyal, Chandigarh 10 referring to any municipal relatable value etc. In view of this, the issue involved in these grounds is restored to the file of the Assessing Officer with a direction to decide this issue afresh after referring to the relevant evidences including the ‘Annual letting Value’ of the similar situated properties in the vicinity as well as the municipal relatable value or any other yard stick, as may be found relevant by the Assessing Office in this respect and thereafter to assess the annual rateable value / deemed rental value accordingly.
These grounds of appeals are allowed for statistical purposes only. In view of this, the appeal of the assessee is treated as partly allowed. Order pronounced in the Open Court on 21.10.2019.