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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Ms. Annapurna Gupta & Shri Siddhartha Nautiyal
आदेश/ORDER
PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-XX, Ahmedabad in Appeal no. CIT(A)-XX/65/13-14 vide order dated 23/04/2014 passed for the assessment year 2010-11.
I.T.A No. 1754/Ahd/2014 A.Y. 2010-11 Page No. 2 M/s. Dineshchandra R. Agrawal Infraction Pvt. Ltd. vs. Jt. CIT
The assessee has taken the following grounds of appeal:-
“1) The ld. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in law and on facts in confirming the addition of Rs. 12,32,064=00 in respect of disallowance of depreciation and RTO expenses and erred in not properly appreciating the explanation and submission of the appellant. 2) The ld. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in law and on facts in confirming the addition of Rs. 6,35,000=00 in respect of disallowance u/s. 40A(3) of the I.T. Act, 1961 and erred in not properly appreciating the explanation and submission of the appellant. 3) The ld. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in law and on facts in confirming the addition of Rs. 2,83,505=00 for non deduction of TDS from payment made to transporters and erred in not properly appreciating the explanation and submission of the appellant. 4) The learned CIT (A) has erred in law and on facts of the case in confirming action of the Id. AO in levying interest u/s. 234B / C of the Act. 5) The learned CIT (A) has erred in law and on facts of the case in initiating penalty proceedings u/s. 271 (1)(c) of the Act. 6) It is therefore, prayed that the order of the id. Commissioner of Income-Tax (Appeals)-XX, Ahmedabad may be set-aside and the return of income of the appellant be accepted. 7) The Appellant Crave leave to add, amend, alter, vary or withdraw any or all the grounds of appeal before or at the time of hearing of appeal.”
The assessee has taken primarily three grounds of appeal, which shall be taken up individually in the succeeding paragraphs.
Ground number 1: Disallowance of depreciation of � 12,32,064/-
The brief facts in relation to this ground of appeal are that during the course of assessment proceedings, the AO observed that certain assets
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(vehicles) were purchased on which assessee had claimed depreciation which were not held in the name of the assessee company. Accordingly, the AO disallowed the depreciation claimed by the assessee on such assets on the basis that the assessee company could not submit any proof in respect of the claim that the dominion over the said assets vested with assessee company and the assets under consideration were indeed used for the purpose of the assessee’s business. In the instant case, the AO held that not only were the assets not in the name of the assessee company, but also no proof or evidence have been submitted to substantiate the claim that the dominion over the assets were with the assessee company and the assets were used for the business of the assessee. Accordingly, the AO relied on this case of Mysore minerals Ltd v. CIT 239 ITR 775 (SC) and disallowed the claim of depreciation on such assets and also the vehicle insurance expenses were also disallowed.
In appeal, Ld. CIT(Appeals) dismissed the assessee’s appeal, and confirmed the order of the AO with the following observations:
“3.5. On going through the facts and submissions, it was found that the appellant has claimed that the assets have been acquired out of the funds of the appellant company and shown in its balance sheet is found unsubstantiated. In support a copy of the depreciation schedule, profits and loss account for the year under consideration has been enclosed by the appellant before the A.O. As noticed from the above that the vehicles includes Chevrolet Cruze Car, Hyundai i10 Car, Innova Car and Mercedes Benz etc. but how and in what manner those have been recorded in the books of accounts is not known. From the schedule and the profit and loss account the appellant's contention is not verifiable. How the payments from the books of accounts of the appellant company has been made is also not demonstrated by the appellant. Specific details could have been furnished to support its contention which is found absenting. Even the vehicles have been purchased in the name of various persons like Shri Bharatkumar O. Agarwal, Dineshchandra R. Agarwal, Dineshchandra R. Agarwal and Dineshchandra R.
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Agarwal but the appellant has not shown the relation of these persons with the appellant company. Merely purchasing the vehicle in the name of the outsiders and claiming to have dominion control thereupon by the appellant is not accepted. Whether the running expenditures relating to these vehicles have been debited in the books of accounts of the appellant company has also not been demonstrated. No bill copies of the vehicle purchases, their repairing and maintenance expenses and diesel, petrol expenses have been submitted alongwith the respective ledger account copies to verify the contention of the appellant. Whether those vehicles have been utilized for the purpose of business of the appellant company has also not been proved. Further, verification about the possession of those vehicles under the appellant in absence of any details and supporting evidences remained unverifiable. Therefore, the case laws relied upon by the appellant are also not applicable over the facts of the case as those were specific to the vehicle in the name of the directors but in our case it is not so. Therefore the AO's action for making the disallowance of depreciation is correct and justified and the ground of the appellant is dismissed.”
Before us, the counsel for the assessee submitted that the CIT failed to appreciate the fact that the vehicles were used wholly and exclusively for the purpose of assessee’s business and the assessee company had dominion over the vehicle. He further submitted that the assets were purchased in the name of the Directors of the assessee company and it is a well-settled law that in the case of a company, even if the assets were purchased in the name of the directors of the company, if they are used wholly and exclusively for the purpose of business of the assessee company, depreciation and other related expenses can be claimed by the company. The counsel for the assessee further submitted that the assets purchases were reflected in the balance sheet of the assessee and its maintenance and petrol-diesel expenses were borne by the assessee company and the same have been debited in the profit and loss account. He further submitted that the vehicles formed part of the block of assets, on which depreciation had been claimed. In response, DR relied on the observations made by CIT and AO in their respective orders.
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We have heard the rival contentions and perused the material on record. In our view, it is a well settled position that even if the assets are purchase in the name of the Directors of the company and the same are used for the purpose of the business of the assessee company, then the assessee company is eligible to claim depreciation on the same, irrespective of the fact that the assets (vehicles) are not registered in the name of the company. In the case of Aravali Finlease Ltd. [2012] 21 taxmann.com 147 (Gujarat), the Gujarat High Court held that where vehicle in question, though registered in name of Director of assessee-company, was used for purpose of business of company, income derived from leasing vehicle was shown as income of company, and entire fund for purchase of vehicle had also gone from coffers of company, assessee was entitled to depreciation on said vehicle. In the case of Bajaj Herbals (P.) Ltd [2021] 130 taxmann.com 258 (Ahmedabad - Trib.), the ITAT Ahmedabad held since car was reflected as an asset of company and car loan also appeared as a liability in balance sheet of company and car was used for business of assessee, assessee was to be allowed benefit of depreciation on said car even though it was bought by company in name of its Director.
7.1 However, in the instant facts, Ld. CIT(Appeals) has made a specific observation that firstly, the assets (vehicles) have not been acquired out of funds of the assessee company, secondly, the assets have been purchased in the names of Shri Bharat Agarwal, Dinesh Chandra Agrawal, however, the assessee has not been able to show the relation of these person with assessee company. In view of the above facts, we are hereby restoring the file to the Ld. CIT(Appeals) to verify whether the firstly, assets (vehicles) have been
I.T.A No. 1754/Ahd/2014 A.Y. 2010-11 Page No. 6 M/s. Dineshchandra R. Agrawal Infraction Pvt. Ltd. vs. Jt. CIT
acquired out of funds of the assessee company, secondly, whether Shri Bharat Agarwal, Dinesh Chandra Agrawal i.e. person in whose names the vehicles have been registered are the Directors of the assessee company. In case, the assessee is able substantiate the above two aspects, Ld. CIT(Appeals) may allow the appeal of the assessee in light of several Rulings highlighted above.
In the result, Grounds No.1 of the assessee’s Appeal is allowed for statistical purposes.
Grounds of Appeal No. 2: Addition of � 6,35,000/- u/s 40A(3) of the Act:
The brief facts in relation to this ground of appeal are that during the course of assessment of Shri Dharmendra Rajput, proprietor of Sunrise Construction, the AO observed that the assessee has paid a total amount of amount of � 3,09,16,336/- to him. However, it was observed that a sum of � 635,000/- was paid by way of bearer cheques. Accordingly the AO of the assessee disallowed a sum of � 635,000/-, admittedly since it was paid by bearer cheques, under section 40A(3) of the Act.
In appeal, Ld. CIT(Appeals) confirmed the additions with the following observations:
“4.3. I have considered the facts of the case and submission made by the appellant. The AO has made the disallowance u/s. 40A(3) of the Act amounting to Rs.6,35,000/- for the reason that the payments have not been made through the account payee cheques. On inquiry by the A.O. of the payee i.e. ITO, Ward-5(1), Baroda it was found that these payments were made to Sunrise Construction his
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assessee through bearer cheques which was in violations of the provisions of Section 40A(3) of the Act. In the appellate proceedings, the appellant has simply mentioned that the payments were not made by way of cash. Further pleaded that there was no malafide intention on the part of the appellant in issuing bearer cheques. All cheques have been stamped as account payee but due to bonafide mistake of the clerk affixing payees account only stamp on cheques. He enclosed the copy of the cheques of Rs.2,35,000/- and Rs.1,00,000/-. However, those were not endorsed as account payee cheque. With regard to the other cheques no details were submitted. The case laws relied upon by the appellant are not applicable over the case due to difference in facts. The section of 40A(3) does not say about the intentions of the appellant but is very specific with regard to the mode of payment i.e. by way of account payee cheques and therefore being violations the assessee is in default and thus the provisions of Section 40A(3) would be applied and disallowances are confirmed. Thus, the ground of the appellant is dismissed.”
The assessee is in appeal before us against the aforesaid additions confirmed by Ld. CIT(Appeals). In appeal, the counsel for the assessee submitted that a total of � 3.09 crores was made by the assessee to Dharmendra Rajput, proprietor of Sunrise constructions, during the year under consideration. It was in respect of only three cheques, that the assessee inadvertently forgot to mention “A/c Payee cheques” on the face of the cheque, which is the cause of the present disallowance. It is nobody’s case that any amount was withdrawn in cash. Further the payee also treated the aforesaid bearer cheques as account payee cheques and deposited the money in the bank account. Therefore, in the instant facts, the disallowance was made clearly on account of bona fide a mistake on part of the assessee. All the payments relating to � 3.09 crores were made by way of account payee cheques and in this instant of set of facts, it may be seen that this was an inadvertent mistake on part of the assessee. The counsel for the assessee drew our attention to page 23 and 25 of the paper book and submitted that though the cheques were bearer cheques, however the same are credited to
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the bank account of the assessee. In response, the DR relied upon the observations made by the AO and Ld. CIT(Appeals) in their respective orders.
We have heard the rival contentions and perused the material on record. We are in agreement with the arguments put forward by the learned counsel for the assessee that in the instant set of facts, out of the total payment of Rs. 3.09 crores made to the same party i.e. Shri Dharmendra Rajput, proprietor, Sunrise Construction, a sum of Rs. 6,35,000/- was paid by way of bearer cheque, on account of an inadvertent mistake, wherein “account payee cheque” was omitted to be mentioned on the face of the cheque. It is not the case of the Department that any cash withdrawal was made in the instant facts. Further, the payee also treated the aforesaid bearer cheque as “account payee cheque” and deposited the money in the bank along with other account payee cheques. The genuineness and details of the payee/transaction are not also doubted. In the case of Ramaditya Investments Vs. CIT 296 ITR 324, it was held that the provisions of section 40A(3) are not attracted where the parties are identified and there was no material on record to doubt the genuineness of payment. In the case of Walford Transport vs. CIT 240 ITR 902 at page 906, it was held that where a transaction is found to be genuine and the identity of the payee is established, a liberal view on compelling and mitigating circumstances should be taken. This principle was also affirmed in the case of Janam Bhoomi Vs. CIT 225 ITR 517 and also in the case of Chrome Leather 235 ITR 708. In the present case, the mistake is clearly bona-fide and inadvertent looking into the totality of circumstances.
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13 In view of the above, the Ground No. 2 of assessee’s appeal is allowed.
Grounds of Appeal No. 3: disallowance of � 2,83,505/- for non- deduction of TDS:
The brief facts in relation to this ground of appeal are that the AO made disallowance of � 283,505/- due to non- deduction of TDS on payments made to transporters as per list given in the assessment order. Before Ld. CIT(Appeals), he observed that the assessee has failed to submit the PAN of recipients and thus there was violation of the provisions of section 194C of the Act. In appeal, the Ld. CIT(Appeals) gave part relief to the assessee in respect of two recipients for whom the assessee furnished copy of the PAN numbers, and confirmed the balances disallowance with respect to the four parties.
14.1 In our view, as per the facts placed before us, admittedly the assessee has not deducted TDS on payments made to some parties and has also not furnished in their PAN numbers. Accordingly, we find no infirmity in the order of Ld. CIT(Appeals), who on appreciation of the instant facts, gave partial relief to the assessee.
In the result, ground number 3 of the assessee’s appeal is dismissed.
I.T.A No. 1754/Ahd/2014 A.Y. 2010-11 Page No. 10 M/s. Dineshchandra R. Agrawal Infraction Pvt. Ltd. vs. Jt. CIT
In the combined result, the assessee’s appeal is partly allowed for statistical purposes.
Order pronounced in the open court on 16 -11-2022
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 16/11/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद