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Income Tax Appellate Tribunal, DELHI BENCH : A : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 20th February, 2018 of the CIT(A)-7, New Delhi, relating to the assessment year 2013- 14.
Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 30th September, 2013 declaring the total income of Rs.1,16,90,726/-. The case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued on the assessee calling for various details/information. However, despite a number of opportunities granted by the AO, there was no appearance from the side of the assessee. Therefore, the AO proceeded to complete the assessment on the basis of material available on record. He noted that the assessee has shown gross receipt of Rs.5,28,74,884/- and net profit was shown at Rs.1,18,40,726/-. Since the assessee did not file the requisite details, the AO made addition of Rs.1,32,62,315/- appearing in the balance sheet as unsecured loan. Similarly, in absence of details filed for substantiating the various expenses claimed in the Profit & Loss Account, the AO disallowed an amount of Rs.11,89,992/- being 50% of the interest paid for unsecured loan of Rs.23,79,844/-. Similarly, he also disallowed 50% of expenses on account of other expenses (Rs.10,71,926/-), tour and travel expenses (Rs.7,70,165/-) and depreciation (Rs.9,61,370/-) all totaling to Rs.39,93,453/-. Thus, the AO determined the total income of the assessee at Rs.2,89,46,500/-.
In appeal, the ld. CIT(A) deleted the addition of Rs.1,32,62,315/- made by the AO u/s 68 of the IT Act for which the Revenue is not in appeal. Therefore, we are not concerned with the same. However, he sustained the disallowance of Rs.39,93,453/- by observing as under:-
“5.3. As regards to the disallowance of Rs.39,93,453/-, the AO noted that the appellant had claimed expenses in the P & L A/c whereas no business was carried out during the year. The appellant contended that the said expenditure of Rs.39,93,453/- were expenses necessary for maintenance corporate structure of the company. The AO examined the expenditure claimed and allowed certain expenses and disallowed the balance amount as no business activities were carried on by the appellant. I have perused the expenditure claimed under various heads allegedly on maintenance of corporate structure 2 by the appellant. It is noted that a certain percentage of expenses on interest expense, depreciation, other expenses and Tour and Traveling expenses incurred is claimed by the appellant. In the absence of any business activity and as income has been offered from income from house property and income from other sources only the claims made cannot be said to have been incurred wholly and exclusively for business purpose, a statutory prerequisite for claim of deduction u/s 37(1) of the Act. As the AO has allowed expenditure for maintenance of corporate structure, the mandate emerging from the judicial precedent cited by the appellant, I do not see any reason to interfere with his finding. Disallowance of Rs.39,93,453/- made by the AO in the business activities is, therefore, justified and is confirmed. This ground of appeal is partly ruled against the appellant.”
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- “
1. That the Commissioner (Appeal) erred in disallowing expenses to the tune of Rs.39,93,453 on the ground that the assessee had not carried out any business during the year, whereas the assessee had carried on the business during the year duly offering the income of more than Rs. one crore under the head "Income from Business or Profession" and, therefore, the disallowance of Rs.39,93,453 ought to be deleted.
2. That the ad hoc disallowance of 50% of expenses amounting to Rs.39,93,453, resulting into enhancement in net profit rate from the declared rate of 22% to 30%, without considering any industry comparables or past history of the assessee and without disturbing the turnover declared by the assessee in his audited accounts, is illegal and unjustified and, therefore, the disallowance of Rs.39,93,453 Ought to be deleted.
3. Without prejudice to the above, the disallowance of 50% of depreciation claimed by the assessee amounting to Rs. 961,370 (50% of Rs. 19,22,740), which included depreciation of Rs. 18,78,490 claimed on opening written down value of assets, resulting into addition of 50% of such depreciation also amounting to Rs. 9,39,245 (50% of Rs. 18,78,490), is illegal and unjustified and, therefore, ought to be deleted.
4. Without prejudice to the above, the assessment order passed u/s 143(3), not u/s 144, while the Assessing Officer categorically held that the assessee failed to comply with the terms of notice issued u/s 142(1), is illegal and thus liable to be quashed.
5. That the Commissioner (Appeal) erred in not deciding the abovementioned issues specifically raised by the assessee before him and finding place in his order itself, and therefore, the order passed by the Commissioner (Appeal) is illegal and unjustified.
6. That the assessee craves leave to add, delete, raise, modify, or alter any ground at the time of hearing of appeal.”
The ld. Counsel for the assessee submitted that depreciation on written down value of the assets cannot be disallowed even though the assessee has not filed any details. So far as the other expenses are concerned, he submitted that these expenses were required for maintaining the corporate entity of the assessee. He submitted that given an opportunity, the assessee is in a position to substantiate the expenses before the AO to his satisfaction.
The ld. DR, on the other hand, strongly opposed the arguments as advanced by the ld. Counsel for the assessee. He submitted that the assessee neither before the AO nor before the CIT(A) filed the requisite details to substantiate the various expenses claimed by him in the Profit & Loss Account, therefore, the order of the CIT(A) on this issue should be upheld.
We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO observing that the assessee has claimed various expenses in the Profit & Loss Account whereas no business was carried out during the year, disallowed 50% of the interest expenses, depreciation, other expenses and tour and travelling 4 expenses. We find, the ld. CIT(A) sustained the disallowance so made by the AO, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the ld. Counsel for the assessee that depreciation on written down value of the assets cannot be disallowed. Further, it is also his submission that given an opportunity, the assessee is in a position to substantiate the various expenses claimed in the Profit & Loss Account 50% of which has been disallowed by the AO.
Considering the totality of the facts of the case and in the interests of justice, we deem it proper to restore the issue back to the file of the AO with a direction to grant one more opportunity to the assessee to substantiate the expenses on account of other expenses and tour and travelling expenses and decide the issue as per fact and law. So far as the interest expenses is concerned, since the ld.CIT(A) has already deleted the addition on account of unsecured loan of Rs.1,32,62,315/- stating the same to be opening balance, therefore, we do not find any merit in the disallowance made by the AO on account of interest expenses. Similarly, so far as depreciation is concerned, since the same is on account of depreciation on the written down value of the assets and no addition was made by the assessee to the fixed assets, as stated by the ld. Counsel for the assessee, therefore, we direct the AO to verify the Schedule of Fixed Assets and, in case there is no addition to the fixed assets during the year is found, then, no disallowance on account of depreciation can be made on the WDV at the beginning of the year.
In the result, the appeal filed by the assessee is allowed for statistical purposes.