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Facts
The assessee company, engaged in manufacturing and trading of electronic goods, filed its return for AY 2014-15. The Assessing Officer made additions of Rs. 30,58,946, leading to an assessed income of Rs. 75,57,296. The assessee appealed against the disallowance u/s. 14A and car-related expenses.
Held
The Tribunal held that the disallowance u/s. 14A should be restricted to the extent of exempt income earned, which was Rs. 3,68,177, deleting the remaining amount. For car-related expenses, the Tribunal allowed the claim, as the cars were used for business purposes and appeared in the fixed assets, despite not being registered in the company's name.
Key Issues
Whether disallowance u/s. 14A should be limited to exempt income, and if car expenses are allowable when vehicles are registered in directors' names but used for business.
Sections Cited
14A, 143(3)
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Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of assessee pertaining to A.Y. 2014-15 is directed against the order dated 03.06.2025 framed by ld.Addl/JCIT(A), Bhubaneshwar arising out of Assessment order dated 25.11.2016 framed u/s.143(3) of the Income-tax Act, 1961 (in short ‘the Act’).
Assessee has raised 11 grounds of appeal but they pertain to following two issues :
(i) Disallowance u/s.14A of the Act at Rs.22,17,583/- (ii) Disallowance of Car related expenses at Rs.6,46,363/-.
Facts in brief are that the assessee is a Private Limited company and income of Rs.44,98,350/- declared in the return for A.Y. 2014-15 e-filed on 29.09.2014. The assessee company is engaged in the business of manufacturing and trading of Electronic and Electrical goods. Case selected for scrutiny through CASS followed by serving of statutory notices. Ld. Assessing Officer after considering the details filed by the assessee concluded the assessment proceedings by making additions totaling to Rs.30,58,946/- and assessed income at Rs.75,57,296/-.
Aggrieved assessee preferred appeal before ld.CIT(A) and partly succeeded and now the assessee is in appeal before this Tribunal against the disallowance u/s.14A at Rs.22,17,583/- and disallowance of car related expenses at Rs.6,46,363/-.
Ld. Counsel for the assessee submitted that the issue relating to disallowance u/s.14A of the Act stands covered by the decision of this Tribunal in assessee’s own case for A.Y. 2012-13 and A.Y. 2013-14 vide and 2375/PUN/2017 order dated 21.02.2020 wherein it has been held that disallowance u/s.14A of the Act should not exceed the exempt income. He further submitted that during the year the assessee has earned exempt income of Rs.3,68,177/- and the disallowance u/s.14A of the Act deserves to be restricted only to the extent of Rs.3,68,177/-.
So far as disallowance of car related expenses, he submitted that the same constitutes depreciation of Rs.4,81,454/-, car repair and maintenance expenses at Rs.1,13,024/- and insurance expenses at Rs.51,885/-. He submitted that the disallowance has been made solely on the ground that Cars are not registered in the name of the company. He submitted that the payments for the purchase of cars have been made by the company and even though the registration of the cars are in the names of Directors, the motor cars are appearing in the Fixed Asset chart and depreciation has been consistently claimed and allowed to the assessee. Reliance placed on the decision of Coordinate Bench Mumbai in the case of Kisan Ratilal Choksey Shares and Securities Pvt. Ltd. Vs. CIT (2015) 41 ITR 0114 (Trib) (Mumbai) and also that in the case of Edwise Consultants Pvt. Ltd. Vs. CIT in for A.Y. 2010-11.
On the other hand, ld. DR supported the orders of both the lower authorities.
We have heard the rival contentions and perused the record placed before us. First issue relates to disallowance u/s.14A of the Act. Ld. AO observed that the assessee had made huge investments in Equity shares and that in the balance sheet there are borrowed funds. Ld. AO applied Rule 8D of the Income Tax Rules, 1962 and computed the disallowance at Rs.22,17,583/-. We observe that during the year the assessee has earned exempt income in the form of Dividend at Rs.3,68,177/-. We also notice that similar issue in assessee’s own case came for adjudication for A.Y. 2012-13 and A.Y. 2013-14 and this Tribunal in and 2375/PUN/2017 vide order dated 21.02.2020 placed at paper book 43 to 47 has held that the disallowance u/s.14A is to be restricted only to the extent of exempt income earned by the assessee. Respectfully following the same, we hold that for the year under consideration, the disallowance u/s.14A of the Act is restricted to the extent of exempt income, i.e. Rs.3,68,177/-. Remaining amount of disallowance at Rs.18,49,406/- stands deleted. Grounds of appeal raised by the assessee anent to this issue are partly allowed.
Next issue relates to disallowance of Car related expenses. Admittedly, the motor cars on which the assessee has claimed depreciation and other related expenses including insurance are registered in the name of Directors of the company. It is also an undisputed fact that the payment for purchase of cars and the alleged expenses have been made by the assessee company through its financial sources. Also the motor cars are appearing in the Fixed Asset chart of the Audited balance sheet of the assessee company. It is not the case of the Revenue that motor cars have not been used for the business purposes or that the expenses claimed are not genuine but the reason for disallowance is solely on the ground that motor cars are not registered in the name of the company. This issue has come up before various Tribunals from time to time. Before us, ld. Counsel for the assessee has referred and relied on the decision of Coordinate Bench, Mumbai in the case of Edwise Consultants Pvt. Ltd. (supra) wherein also the vehicles were registered in the names of Directors but the cost of such cars was paid by the company and the vehicles/cars were used for the purpose of business of the company and the depreciation claimed by the assessee was allowed. Similar is the case before us and therefore respectfully following the judicial precedents, we are inclined to hold that since the assessee is using the motor cars for business purposes and the amount paid for purchasing the motor cars are appearing in the Balance sheet under the name of motors under the head ‘Fixed Assets’ and depreciation has been claimed consistently. Therefore, we are of the view that the claim of the assessee of car depreciation and other car related expenses at Rs.6,46,363/- deserves to be allowed. Finding of ld.CIT(A) is set aside and grounds of appeal raised by the assessee relating to this disallowance of car related expenses are hereby allowed.
In the result, the appeal filed by the assessee is partly allowed as per terms indicated above.
Order pronounced on this 12th day of September, 2025.