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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN
आदेश / O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-1, Madurai in & 311/2016-17 both dated 20.02.2019 for the assessment years 2013-14 & 2014-15, respectively.
M/s. Arasan Beedi Company (P) Ltd., the assessee, is engaged in manufacturing and sale of Beedi. While making the assessment for 2 & 1317/Chny/2019 the assessment year 2013-14, the assessee claimed depreciation on BMW car purchased during the assessment year. On examination, the AO found that the Director of the assessee company purchased the car by availing car loan from HDFC Bank in his name and the car was registered in his name. On examination, the assessee replied that the initial down payment and the monthly installments of the vehicle loan was paid from the funds of the company, the asset value has been accounted for in its books of account, the car has been put into use only for the purpose of company’s business, therefore, the interest paid on the car loan, the car maintenance expenses and depreciation have been charged in its books of account. Though the car has been registered in the Director’s name, the company is the beneficial owner of the car and hence it is entitled for the above expenditure and the depreciation claim. The AO held that there were no extraneous reasons preventing the assessee in registering the asset in its name and it has not made any efforts to change the registration in its name. Since the registered and beneficial ownership of the car has not conclusively been proven by the assessee, he refused to allow them. Further, the AO found that the assessee has advanced loans to the related parties. On enquiry about the nature of transaction, the assessee could not offer reasonable explanation. Since the assessee
3 & 1317/Chny/2019 borrowed funds from banks at the interest rate of 10.76% during the financial year, the AO disallowed proportionate interest on the loans to the related parties and completed the assessment.
2.1 In the assessment made for the assessment year 2014-15, for the same reasons as held in the assessment for A.Y. 2013-14, the AO disallowed the assessee’s claim of depreciation, interest and maintenance expenses for the BMW car. Aggrieved against those orders, the assessee filed appeals before the CIT(A).
The Ld CIT (A) held, inter-alia, that the ownership of the high valued BMW car lies in the name of the Director who purchased the car for his own use and it is not required for the purpose of the assessee company. Therefore, the Ld.CIT(A) upheld the orders of the AO. On the issue of proportionate disallowance of interest on the loans to related parties, the Ld.CIT(A) dismissed the assessee’s plea. Aggrieved against those orders, the assessee filed these appeals.
The Ld.AR pleaded that the Ld.CIT(A) failed to note that the car was accounted in the books of account and was used for the purpose of business. Even though it was registered in the name of the 4 & 1317/Chny/2019 Director, the car was not given to the Director as perquisite. Therefore the Ld CIT(A) ought to have deleted the disallowances of depreciation, interest and maintenance expenses of the car. In this regard, the Ld.AR relied on the decision of the Ahmedabad ITAT in the case of Swagat Infrastructure Ltd, in ITA No.2084/Ahd/2012, dated 28.06.2013. When the Bench raised certain queries, those queries and the Ld.AR replies are as under : Whether the assessee had owned cars and other vehicles, other than the high valued BMW car, and accounted them in its books of account, the Ld.AR replied positively. Was there any legal or procedural impediments for the assessee in acquiring the high valued car in its name, the Ld.AR replied that there is no such legal or procedural impediments. Whether the company passed any resolution in connection with the acquisition of high valued car and also on the Director’s entitlement etc., the Ld.AR did not answer.
5.1. With regard to the interest disallowance, the Ld.AR submitted that the Ld.CIT(A) failed to note that the assessee was having adequate interest free funds and the AO did not establish the direct nexus between the borrowed funds and the alleged interest free
5 & 1317/Chny/2019 advances. The Ld.AR invited our attention to the column 2 of Schedule to the Balance Sheet as on 31.03.2013 titled as reserves and surplus and submitted that the assessee had Rs.161,844,715/- as opening surplus and Rs.39,425,653/- as current year surplus. Against such huge reserves & surplus, the assessee has advanced just Rs.50,01,648/- only towards the related parties without any interest. Relying on the Ahmedabad ITAT decision in the case of Swagat Infrastructure Ltd, in ITA No.2084/Ahd/2012, dated 28.06.2013, the Ld.AR submitted that the assessee is having sufficient interest free funds. Therefore, the interest disallowance made by the AO is unwarranted and hence pleaded that the disallowance made by the AO may be deleted.
Per contra, the Ld.DR supported the orders of the lower authorities.
We heard the rival submissions and gone through relevant material. On the ownership of the high valued BMW car, the ld CIT(A) recorded findings that it lies in the name of the Director, who purchased the car for his own use and there may not be any doubt that such high valued car could have always been used by the said
6 & 1317/Chny/2019 Director only. On the usage of the car by the assessee, the ld CIT(A) held that during the course of assessment proceedings, the assessee could not produce any documentary evidence that the car was wholly and exclusively utilized for the purpose of business of the assessee. Further, he held that the assessee is in the business of manufacture and sale of beedi and considering the line of business, the high valued BMW car is not required wholly and exclusively for the business of the assessee. While making TDS on the salary payment to the Director, this amount has not been considered as perquisite. Therefore, the ld CIT(A) held , inter alia, that the assessee purposefully had taken over the liability to finance the cost of the car and incurred the expenses relating to running and maintenance of the car. Such liability of Rs 33,53,821/- has led to an under assessment of income to that extent. Therefore, the assessee erred in claiming the depreciation, interest and maintenance expenses for the BMW car and hence he upheld the orders of the AO. Thereafter, the assessee filed these appeals before this Tribunal. But for relying on the case law referred to, supra, and others the assessee has not laid any material to dislodge the findings recorded by the lower authorities on these issues. Further, during the hearing, this Bench raised certain queries recorded in para 5, supra. From the replies furnished by the Ld AR on 7 & 1317/Chny/2019 them and from the above facts and circumstances, it is clear that the assessee has not established that it is owner of the impugned Car and the car was used wholly and exclusively for the purposes of its business. Therefore, on the above facts and circumstances, we hold that the disallowances of depreciation, interest on the car loan and maintenance expenses of the BMW car, made for the assessment years 2013-14 & 2014-15 are justified and hence dismiss the corresponding grounds of appeal of the assessee.
8.1 On the issue of proportionate disallowance of interest on the related party loans, we have considered the submissions made by the Ld AR, recorded in para 5.1, supra, and gone through the relevant material. We find that the facts and the figures associated with the issue have not been properly examined by the lower authorities. Therefore, this issue is remitted back to the AO for a fresh examination. The assessee shall place all the material in support of its contention before the AO and shall comply with his requirements in accordance with the law. The AO shall after affording due opportunity to the assessee shall pass an appropriate order. The corresponding grounds of appeal are treated as allowed for statistical purpose.
8 & 1317/Chny/2019 9. In the result, the assessee’s appeal for the assessment year 2013-14 is partly allowed and the appeal for the assessment year 2014-15 is dismissed.
Order pronounced on the 31st July, 2019 at Chennai.