SH. TEJINDER SINGH,CHANDIGARH vs. DCIT, C-1(1), CHANDIGARH

आदेश/Order

Per Sudhanshu Srivastava, Judicial Member:

This appeal is preferred by the assessee against order dated 23.03.2018 passed by the Ld. Commissioner of Income Tax-1, Chandigarh [hereinafter referred to as ‘CIT(A)’] for assessment year 2013-14.

2.0 The brief facts of the case are that the assessee is a salaried employee of M/s Medel India Pvt. Ltd. as a Director since 2006. The return of income was filed declaring total income of Rs. 63,10,470/-, which included income from

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 2 salary, income from house property and income from other

sources. The assessee’s case was selected for scrutiny under

the CASS guidelines and during the course of assessment

proceedings, the Assessing Officer (AO) noted that the

assessee had given his car on lease to the employer company

and had received a lease rent of Rs. 4,08,000/- as ‘income

from other sources’. The AO further noted that the assessee

had shown a net loss on account of lease to the tune of Rs.

4,33,020/ after claiming depreciation of Rs. 4,39,662/-,

interest on loan amounting to Rs. 3,19,572/- repairs and

maintenance amounting to Rs. 41,970/- and insurance

amounting to Rs. 39,816/-. The assessee was required by

the AO to justify the allowability of expenditure relating to

depreciation, interest, repairs and maintenance and

insurance. The assessee submitted a detailed reply.

However, after considering the reply of the assessee, the AO

noted that depreciation was allowable only if the asset had

been used for the purpose of business whereas, the assessee

was not in the business of car leasing and furthermore the

said car was not registered as a Taxi. The AO also noted

that there was no agreement or contract with the employer

company against which the car had been given on lease.

Based on this observation, the AO proceeded to disallow

such entire expenses claimed u/s 57 of the Income Tax Act,

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 3 1961 [in short 'the Act'] by the assessee which were to the

tune of Rs. 8,41,020/-.

2.1 In addition to the above, the AO also made an addition

of Rs. 6,10,443/- on account of payment made by the

employer company to meet the credit card bill of the

assessee on the ground that the same was a perquisite in the

hands of the assessee. The assessment was completed at an

income of Rs. 77,61,933/-.

2.2 Aggrieved, the assessee approached the Ld. First

Appellate Authority who deleted the addition pertaining to

the payment made by the employer towards the credit card

expenses and also partly upheld the disallowance of car

related expenditure by restricting it to the lease rent earned

by the assessee and confirmed the disallowance of balance

expenditure of Rs. 4,33,020/-

2.3 Now, the assessee has approached this Tribunal

challenging the order of the Ld. CIT(A) by raising the

following grounds of appeal:

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 4 expenses of Rs. 4,33,020/- claimed u/s 57 of Income Tax Act, 1961.

3.0 When the appeal was called out for hearing, none was

present on behalf of the assessee. However, an application

from Shri Sunil Kumar Bhasin, Chartered Accountant, the

Ld. AR for the assessee was placed before us requesting

adjournment on the ground that due to heavy rush of Tax

Audit assignments, the case could not be prepared.

3.1 On perusal of the file, it is seen that this case was

earlier fixed for hearing on 19.07.2022 and on that date, the

Ld. AR had sought an adjournment on the ground that due

to heavy rush of Income Tax Returns, it was not possible for

him to attend the hearing. Still earlier, the hearing was

fixed for hearing on 24.05.2022 and on that date the Ld. AR

had sought adjournment on the ground that due to

engagement in other assignments, he could not prepare his

submissions. It is also seen from the file that this appeal

had earlier been heard ex.parte qua the assessee on

06.08.2018 and had been dismissed on the ground that

there was non-prosecution of the appeal on behalf of the

assessee. Thereafter, on assessee’s application for

restoration of the appeal in M.A. No. 27/Chd/2019, the said

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 5 order of the Tribunal was recalled vide order dated

08.02.2022. However, in spite of the appeal having been

dismissed once for the reason of non-prosecution, the

assessee / the Ld. AR has again sought adjournment thrice

by citing some reason or the other which makes it apparent

that neither the assessee, nor the Ld. AR is interested in

pursuing this appeal. Therefore, looking into the casual

and non- serious attitude of the assessee Ld. AR, we are

constrained to hear this appeal ex. parte qua the assessee.

4.0 The Ld. Sr. DR submitted that the Ld. CIT(A) had been

more than reasonable in allowing relief to the assessee by

restricting the disallowance to the tune of Lease Rental

earned by the assessee. It was submitted by the Ld. Sr.DR

that the assessee had given his vehicle on hire to the

employer company and was using the same and the entire

usage was being shown as official, whereas, the assessee

was using the vehicle both for official as well as personal

purposes and, therefore, the Ld. CIT(A) had rightly upheld a

disallowance of Rs. 4,33,020/-. It was prayed that the

appeal of the assessee be dismissed and the order of the Ld.

CIT(A) be upheld.

5.0 We have heard the Ld. Sr. DR and have also perused

the material on record. It is seen that the facts are not in

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 6 dispute. The assessee had leased out his vehicle to his

employer company and had shown lease rent of Rs.

4,08,000/- under the head ‘income from other sources’ and

had claimed an expenditure of Rs.8,41,020/- against the

said lease rental. No doubt, the assessee is not in the

business of leasing out cars on rent and that is the reason

he has shown the income under the head ‘income from other

sources’ rather than showing the same as income from

business. The quantum of lease rent received or the

quantum of expenditure claimed has not been doubted

either by the AO or by the Ld. CIT(A) and the AO had made

the impugned disallowance on the ground that the assessee

was not engaged in the business of car leasing and that the

assessee did not have any agreement or contract with the

employer company for giving the vehicle on hire. It was also

observed by the AO that the vehicle was not registered as a

taxi and further no detail regarding the kind of vehicle given

on lease had been submitted by the assessee. However, these

observations of the AO were refuted by the assessee before

the Ld. CIT(A) wherein, it was submitted that, although, the

assessee was not engaged in the business of car leasing, the

assessee had in fact entered into an agreement with the

employer company and a copy of the same had been

furnished before the AO. The assessee had also submitted

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 7 before the Ld. CIT(A) that another observation of the AO that

no details regarding the kind of vehicle given on lease had

been submitted by the assessee was also incorrect in as

much as a copy of the invoice and copy of certificate of

registration of the vehicle had also been produced before the

AO along with the insurance related documents. It was also

the contention of the assessee before the AO that as far as

the AO’s observation that the vehicle was not registered as

taxi was concerned, the same was irrelevant in as much as

the vehicle was given on lease to the employer company for

official use and not for the use by public at large.

5.1 A perusal of the impugned order shows that the Ld.

CIT(A) did not consider any of these submissions made

before him but simply proceeded to restrict the disallowance

tune of to the income received from lease i.e. Rs. 4,08,000/-

by holding that the assessee was using the vehicle both for

official as well as personal use. This reasoning for

upholding part of the disallowance cannot be upheld for the

simple reason that depreciation (Rs. 4,39,662/- in this case

) has been held to be an allowable deduction even against

income shown under the head ‘income from other sources’.

Likewise, interest paid on loans, repairs and maintenance as

well as insurance related expenses are all allowable

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 8 expenses while computing the net income under the head

‘income from other sources’. There is plethora of judicial

precedents in this regard. Although, the assessee had cited

the order of the Ahmedabad Bench of the ITAT in the case of

M/s Serendipity Apparels Pvt. Ltd Vs. CIT in ITA No.

1244/Ahd/2014 before the Ld. CIT(A) wherein, vide order

dated 21.10.2015, the Ahemdabad Bench of the ITAT had

held that depreciation was an allowable expenditure u/s

57(iii) of the Act, the Ld. CIT(A) did not comment on the

same.

5.2 It is seen that clauses (i), (ia), (ii) and (iia) of section 57

of the Act specifically mention the deductions available while

computing the income chargeable under the head ‘income

from other sources’ whereas clause (iii) to section 57 allows

admissibility of deduction of any other expenditure (not

being in the nature of capital expenditure) laid out or

expended wholly and exclusively for the purpose of making

or earning such income i.e. income chargeable under the

head ‘income from other sources’. Section 57(iii) of the Act

is in line with section 37 (1) of the Act which in general

(subject to its Explanation) makes available deduction of any

expenditure, not being expenditure of the nature described

in sections 30 to 37 of the Act and not being in the nature of

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 9 capital expenditure or personal expenses of the assessee,

expended wholly and exclusively for the purposes of the

business or profession while computing the income

chargeable under the head ‘profit and gains of business or

profession’. Thus, as per the mandate of section 57 (iii) of

the Act, it is necessary that the primary motive of incurring

such expenditure should be directly relatable to the earning

of income falling under the head ‘income from other

sources’. In the present case it is beyond doubt that

depreciation, interest on loan, repairs and maintenance

expenses as well as insurance expenses were directly

relatable to the earning of lease rental which was shown by

the assessee under ‘income from other sources’. Further, a

plain reading of section 57 (iii) of the Act would lead one to

the conclusion that it does not say that the expenditure

shall be deductible only if any net positive income is made or

earned. Therefore, there can even be a negative income /

loss u/s 57(iii) of the Act. Therefore, by this reasoning

also, the Ld. CIT(A) was incorrect in directing that the

amount of deduction should be restricted to the income

earned.

5.3 Accordingly, on an overall view of the facts of the case

and in view of our discussion in the preceding paragraphs,

ITA No. 574-Chd-2018 (A.Y. 2013-14) - Sh. Tejinder Singh, Chandigarh 10 we are of the considered view that the Ld. CIT(A) was legally

wrong in restricting the disallowance to the quantum of

lease rental earned. While allowing the appeal of the

assessee, we direct the AO to allow the impugned

expenditure claimed in full.

6.0 In the final result, the appeal of the assessee stands

allowed.

Order pronounced on 28.09.2022.

sd/- sd/- ( VIKRAM SINGH YADAV) (SUDHANSHU SRIVASTAVA) Judicial Member Accountant Member Dated : 28.09.2022 “आर.के.”

आदेशक���त+ल,पअ-े,षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकरआयु.त/ CIT 4. आयकरआयु.त (अपील)/ The CIT(A) 5. ,वभागीय��त�न1ध, आयकरअपील$यआ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File

आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar