VLCC HEALTH CARE LTD.,NEW DELHI vs. ADDL.CIT, SPECIAL RANGE- 9, NEW DELHI
What did the Tribunal hold?
The Tribunal held that expenses claimed for staff uniforms and gifts to associates cannot be considered personal expenses of directors. It also found that the ad hoc disallowance of car depreciation by the AO was unsustainable as no specific personal use was pointed out.
What were the facts?
The assessee company declared a certain income, and during scrutiny, the Assessing Officer (AO) made disallowances for personal expenses, Section 14A, and car depreciation. The CIT(Appeals) partly allowed the appeal, deleting the Section 14A disallowance and reducing the car depreciation disallowance.
What were the issues?
Whether expenses for staff uniforms and gifts to associates are personal expenses of directors, and whether ad hoc disallowance of car depreciation is justified without evidence of personal use.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI KUL BHARAT & SHRI PRADIP KUMAR KEDIA
O R D E R PER KUL BHARAT, JM: This appeal, by the assessee, is directed against the order of learned CIT(Appeals)-16, New Delhi dated 31.12.2018 pertaining to the assessment year 2014-15. The assessee has raised following grounds of appeal:
“1. The CIT(A) erred in law and on facts in confirming the disallowance of Rs. 15,79,287/- out of expenses incurred by the assessee by alleging the same as personal expenses of the directors on the basis of statement of one employee recorded during the course of survey without giving an VLCC Healthcare Ltd. Vs. Addl. CIT opportunity to cross-examine her though specifically asked for. Thus the addition so made ignoring the principles of natural justice should be deleted.
2. The CIT(A) erred in law and on facts in confirming the disallowance of Rs. 15,79,287/- by alleging it as incurred towards personal expenses of the directors ignoring the submissions and evidences placed on record. Thus the addition so made should be deleted.
The assessing officer erred in law and on facts in disallowing an amount of Rs. 89,439/- on estimate basis being 15% of the depreciation claimed on a BMW car arbitrarily ignoring the submissions and evidences placed on record to show that the car was owned by the assessee and used for the purpose of business. Thus the disallowance so made should be deleted.
4. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing.”
Facts, in brief, are that in this case the assessee filed return of income declaring total income of Rs. 14,00,72,370/-. The case was taken up for scrutiny assessment and the assessment u/s 143(3) of the income-tax Act, 1961 (in short “the Act”) was framed vide order dated 31.12.2016. While completing the assessment the Assessing Officer made disallowance of expenditure of 36,06,570/- being the personal expenses. The Assessing Officer made disallowance by invoking the provisions of Section 14A of the Act of Rs. 9,56,250/- and disallowed the claim of depreciation on account of running and maintenance of BMW car amounting to Rs. 1,49,065/-. Aggrieved against this the assessee preferred appeal before the learned CIT(Appeals), who after considering the submissions partly
VLCC Healthcare Ltd. Vs. Addl. CIT allowed the appeal. He deleted the disallowance made u/s 14A and further reduced the disallowance on car to Rs. 89,439/-. Aggrieved against this the assessee is in appeal before this Tribunal.
3. Ground nos. 1 & 2 of the assessee’s appeal are against confirming the disallowance of Rs. 15,79,287/- by the learned CIT(Appeals) on account of personal expenses of the director. Learned counsel for the assessee submitted that the assessing officer was not justified in making the disallowance looking to the fact that the assessee had declared income of Rs. 14,00,72,370/-. It is submitted that it was categorically stated before the assessing officer that the expenditure was for business exigency. The assessing officer on the basis of the statement of the employee recorded during the course of survey proceedings made addition of Rs.36,06,570/-. The learned CIT(Appeals) restricted the disallowance to the extent of Rs. 15,79,287/-. He contended that similar disallowance was made in earlier year and the Tribunal had deleted the disallowance.
On the contrary, learned DR opposed the submissions and supported the orders of the authorities below. He contended that it was incumbent upon the assessee to prove that the expenditure was incurred for business purposes. Any personal element involved in the expenditure would be liable for disallowance.
We have heard rival submissions and perused the material available on record. We find that the learned CIT(Appeals) restricted the disallowance to the VLCC Healthcare Ltd. Vs. Addl. CIT extent of Rs. 15,79,287/- out of disallowance of Rs. 36,06,570/- made by the Assessing officer. It is seen from the record that before the lower authorities, amount of Rs. 3,92,500/-, Rs. 3,57,000/- and Rs. 4,00,000/- was claimed on account of uniform for staff. In our considered view the expenditure relating to the staff and gift to the associates cannot be stated to be personal expenditure of the director. Therefore, the same cannot be disallowed as personal expenditure of the director, as has been done by the authorities below. Therefore, the same is hereby deleted. Ground nos. 1 & 2 are allowed.
Ground no. 3 is against disallowing the claim of depreciation of Rs. 89,439/- on account of running and maintenance of car. Learned counsel for the assessee submitted that the disallowance is made solely on the basis of ad hoc and treating the expenditure being personal in nature.
On the contrary, learned Sr. DR opposed the submissions and supported the orders of the authorities below.
We have heard rival submissions and perused the material available on record. We find that the assessing officer has made ad hoc disallowance of the claim made by the assessee on account of depreciation and car expenses. In our considered view the ad hoc disallowance made by the assessing officer cannot be sustained on account of the fact that the assessing officer has not specifically pointed out the personal use of the car. Hence, the disallowance is deleted. Ground VLCC Healthcare Ltd. Vs. Addl. CIT no. 3 of assessee’s appeal is allowed.
In the result, assessee’s appeal is allowed.
Order pronounced in open court on 29th July, 2022.
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