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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
This appeal of revenue for Assessment Year 2009-10 is directed against the orders of Ld. Commissioner of Income Tax (Appeals)-II, Indore (in short ‘CIT(A)’), dated 25.03.2013, which is arising out of order u/s 143(3)/147 of the Income Tax Act (In short the ‘Act’) dated 25.11.2011 framed by ACIT, Range-5, Indore.
When the case was called up for hearing none appeared on behalf of the assessee. Since various opportunity have been given 1 Lakhani Foot Care Ltd in the past, it was decided to hear the appeal with the assistance of the Ld. Departmental Representative and available records.
Brief facts of the case are that the assessee is a private limited company engaged in the manufacturing of foot wear. Income of Rs.94,82,505/- declared in the e-return of income filed on 30.09.2009. Case selected for scrutiny followed by issuance of notices u/s 143(2) & 142(1) of the Act. After examining the records Ld. A.O made various additions totaling to Rs.1,03,15,845/- and assessed income at Rs.1,97,98,350/- in the following manner:-
Income as declared by the assessee 94,82,505 Add: 1. Disallowance u/s 14A 90,15,265 Add.2. Disallowance out of interest expenses 7,74,603 Add:3. Disallowance of depreciation installed at M.D. 5,25,977 residence Total Income 1,97,98,350
Aggrieved assessee preferred appeal before Ld. CIT(A) and partly succeeded.
Now the Revenue is in appeal before the Tribunal raising two grounds firstly restricting the disallowance of addition made u/s 14A of the Act and secondly for deletion of disallowance of depreciation.
Ld. Departmental Representative vehemently argued and supporting the orders of Ld. A.O.
We have heard contention of Ld. Departmental Representative and perused the records placed before us. We will first take up Ground No.1 raised by the revenue which reads as under;
“(i) Restricting the addition u/s 14A of the Act from Rs.90,15,265/- to Rs.1,21,702/- when the provision of section14A was clearly applicable on assessee’s investment in share of sister concern, dividend where from was exempt”.
Ld. CIT(A) deleted the disallowance made u/s 14A of the Act observing that the assessee has not earned any exempt income during the year. It is an undisputed that no exempt income have been earned by the assessee. The Hon'ble Delhi High Court in the case of M/s. Cheminvest Ltd V/s CIT (2015) 378 ITR 33 order dated 02.09.2015 held that in the absence of any exempt income earned no disallowance u/s 14A can be levied. Recently Hon'ble 3 Lakhani Foot Care Ltd Apex Court in Special Leave Petition (Civil) Appeal No.21175 of 2019 has dismissed the revenue’s special leave petition against the decision of Hon'ble Delhi High Court holding that no question of law arises against the decision of Income Tax Appellate Tribunal thereby deleting the addition made u/s 14A of the Act, absent any exempt income during the year. We therefore respectfully following the above judgment and in the given facts and circumstances of the case find no reason to interfere in the finding of Ld. CIT(A) and dismiss Ground No.1 challenging the deletion of disallowance u/s 14A of the Act at Rs.88,98,365/-.
Now we take up Ground No.2 of the revenue which reads as follows;
“(ii) Deleting the disallowance out of depreciation of Rs.5,25,977/- in respect of plant and machinery installed at the house of managing director, neither the employee of the company nor withdrawing any salary, ruling out its equation as perquisite to the managing director”.
Brief facts relating to this issue are that the assessee claimed depreciation of Rs.5,25,977/- on the machinery installed at the residence of Managing Director. Ld. CIT(A) allowed this claim Lakhani Foot Care Ltd Tribunal in assessee’s case vide Income-tax Act, 1961,. No.162/Ind/2007;
"Para 20, page 11:- We have considered the submissions made by both the sides, material on record and the orders of the authorities below. It is noted that on these assets) the MD of the assessee has offered a sum of Rs. 11,16,145/ - as perquisite in this individual capacity. This amount has not been claimed by the assessee as deduction at all, hence) the same can not be added in the hands of the company. Thus) this addition is deleted. As regards the issue of allowability of depreciation on assets installed at the residence of the MD, we find that the assessee has offered the perquisite in his hands as per rules in respect of such assets and) therefore) such assets have to be treated as have been utilized for the pU1pose of business of the assessee. Accordingly) this part of the ground is also accepted. Thus, ground no. 2B is also allowed”
From perusal of the above finding of Tribunal we find that the claim of depreciation was allowed since the assessee as Managing Director offered perquisite income in respect of such assets.
However in the year under appeal it was stated by the assessee that no remuneration was given and no amount of perquisite was provided to the Managing Director. It was also submitted by the assessee before Ld. CIT(A) that the Managing Director was neither given any salary nor perquisite were provided. In these given facts Lakhani Foot Care Ltd when the machineries which are purely used at the residence of the Managing Director for the residential purposes, cannot be treated as deemed to have been used for business purposes since no amount have been offered to tax as perquisite by the Managing Director. Accordingly we set aside the finding of Ld. CIT(A) and confirm the disallowance for depreciation of Rs.5,25,577/-.
Ground No.2 of Revenue’s appeal is allowed.
In the result appeal of the revenue is partly allowed.
The order pronounced in the open Court on 07.08.2019.