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Before: Shri H.S. Sidhu & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the Assessee against the order of ld. CIT(A)- XXVI, New Delhi dated 18.09.2014 for the assessment year 2010-11 on the following grounds : “
1. That the order passed by the Ld. CIT(A)-XXVI u/s. 250 of the Income Tax Act is both bad in law and wrong on the facts of the case.
2. That the Ld. CIT(A) erred in upholding disallowance of Rs.8,76,355/- made by the AO under section 14A of the Act without appreciating facts of the case and the legal position in this regard.
3. That the ld. CIT(A) erred in upholding disallowances made by the AO of Rs.5,970/- out of telephone expenses and of Rs.2,67,722/- out of vehicle expenses, including depreciation on cars without appreciating the correct factual position in this regard.”
ITA No. 6952/Del./2014 2
The brief facts of the case are that the assessee filed return declaring income of Rs. 5,77,63,590/- on 15.10.2010 . The case was selected for scrutiny and statutory notices were issued to the assessee which were served upon the assessee within time. The assessee was engaged mainly in the business of export of ready-made garments through her property concerns M/s diamond exports apart from a business income the assessee has shown house property income, capital gain income and income from other sources. During the year the assessee has earned exempt income of Rs.3,19,443/-in the form of dividend from the companies mutual funds etc. The exempt income is only 0.553% of the total income of the assessee. There was opening balance of investments as on 01.04.2009 of Rs.14,99,91,195/- and closing balance of investments as on 31st March 2010 of Rs. 20,05,51,195/-. The Ld. Assessing Officer relied on M/s Daga Capital Management Private limited (ITA No. 8057/Mum/2003) and applied to section 14A and accordingly he computed disallowance of Rs.8,67,355/- towards earning the exempt income as per rule 8D (2)(iii) of the Income Tax Rules 1962, i.e. 0.5 % of average investments for the impugned year. Further the Ld. Assessing Officer also disallowed 10% on adhoc basis on Telephone & Mobile expenses of Rs. 5970/-. Further on the scrutiny of vehicle expenses the Ld. assessing officers observed that the ITA No. 6952/Del./2014 3 assessee has given details of vehicle expenses of Rs.10,97,584/- and claimed depreciation on vehicles of Rs.82,804/- . From the details filed by the assessee, it was observed that there is a total 13 number of vehicles which were used.
Therefore, the assessing officer disallowed on the basis of the average expenditure of 13 vehicles of Rs.2,67,722/-. The Ld. assessing officer observed that the assessee has not maintained any logbook, therefore, personal element cannot be ruled out . Aggrieved by these additions, the assessee preferred an appeal before the CIT(A) and the learned CIT(A) appeal upheld the disallowance of Rs. 8,76,355/- towards earning of exempt income under section 14A and also confirmed the addition of Rs. 5970/- and 2,67,722/- towards telephone expenses and vehicle expenses respectively. Aggrieved by the additions the assessee is in appeal before the Tribunal.
The ld. AR reiterated the submissions made before the CIT (A) and submitted a written synopsis which is as under :
Disallowance u/s 14A As mentioned in the assessment order (para 4.1) the exempt income received was of Rs.3,19,443/-. Income was mainly from mutual funds as per details given in Annexure-1. As against claim of the appellant that no expense was incurred, the Assessing Officer made disallowance on account of administrative expenses of Rs.8,76,355/- at 0.5% of average total investments. The claim of the appellant is that no expenditure had been incurred in relation to exempt income. In any case, disallowance cannot exceed the ITA No. 6952/Del./2014 4 exempt income in view of settled legal position by various decisions, including the decisions of jurisdictional High Court and this Hon'ble Tribunal, as per list enclosed as Annexure-2. The Assessing Officer in assessment orders for immediately preceding years i.e. A.Yrs. 2008-09 and 2009-10, copy each of the orders is enclosed as Annexures 3 & 4, had restricted the disallowance to the extent of exempt income (refer para 6 and 7 of aforesaid orders on pages 6 and 10).
Disallowance on account of telephone expenses The Assessing Officer has considered 10% of telephone expenses incurred on landline and mobile telephones used by the appellant i.e. Rs.5,975/- of total expenses of Rs.59,706/-. It is submitted that the use of the telephones by the appellant was generally for the purpose of export business and there was no personal element.
Vehicle running expenses The appellant was having total 13 vehicles for the use in business. Total expenditure incurred was Rs.34,80,388/-. The Assessing Officer on proportionate basis determined expense of one car at Rs.2,67,722/- and has disallowed the same. The contention of the appellant is that there has been no personal use. The Assessing Officer in assessment orders passed for earlier years i.e. A.Yrs. 2008-09 and 2009-10, referred above, had made disallowance of only 10% of proportionate expenses determined in respect of one car as can be observed from para 5 on page 5 and para 5 on page 9 from the orders for A.Yrs. 2008-09 and 2009-10. On this basis disallowance for the year under reference could be Rs.26,772/-. In subsequent assessment years i.e. in assessment orders passed for A. Yrs. 2012-13, 2013-14 and 2014-15 no disallowance has been made out of vehicle running expenses. A copy each of assessment orders is enclosed as Annexures 5,6, & 7.”
On the other hand the Ld. DR relied on the order of the lower authorities and he submitted that the lower authorities have done reasoned orders which do not require any interference. He further submitted that the every assessment year is a different assessment years and principle of res judicata
ITA No. 6952/Del./2014 5 does not apply in the income tax Act. The case laws relied by the assessee are distinguishable being based on different footings.
After hearing both the sides and perusing the materials available on records and case laws relied by the assessee we observe that in respect of ground No. 2, addition of Rs. 8,76,355/- was confirmed by the Ld. CIT (A) on the reasons given by the Assessing Officer. During the impugned year, total investments have increased by Rs. 5,05,60,000/-, therefore, it cannot be denied that the some administrative expenditures may have been incurred.
The assessee has received a sum of rupees 3,19,443/- as exempted income during the year. The Ld. authorized representative has submitted that in the next assessment years the learned AO has restricted to the disallowance under section 14A to the extent of exempted income received. The copy of the assessment orders were produced for the assessment year 08-09 and 09-10 pages marked as annexure 3 and 4. The assessee’s case is also covered by the jurisdictional High Court’s as well as Tribunal’s orders as cited supra. In view of the above the ground No. 1 is partly allowed and addition is sustained to the extent of exempted income received of Rs. 3,19,443/-.
ITA No. 6952/Del./2014 6
In respect of ground 3, the Ld. CIT (A) has rightly upheld the action of the assessing officer. The assessee was unable to produce any logbooks or any evidences for the vehicles run by him. The findings of the CIT(A) are as under, which we do not find to be unjustified or unreasonable in the facts and circumstances of the present case : “6.3. I have carefully considered the facts of the case and the submission of the appellant. The AO may entertain a doubt that the appellant and his family members might have used cars and telephones for non business purposes particularly when the appellant firm failed to demonstrate, with the help of any log books of cars and call details of telephones that vehicle running & maintenance and telephone expenses have been wholly and exclusively incurred for the business purposes. Here, the circumstantial evidence is non-production of the log books of cars and call details of telephones. Now, it is the appellant who has to demonstrate, with the help of evidence that the vehicle running & maintenance and telephone expenses have been wholly and exclusively incurred for the business purpose. This demonstration presupposes not relying upon various decisions or orders but demonstrate by way of evidence. It was not demonstrated that the appellant and his family members have vehicle and telephone in their personal capacity whose expenses are not debited into the books of account of the business concern. Therefore, the vehicle running & maintenance including depreciation on cars and telephone expenses which have not been wholly and exclusively incurred for business purposes are held disallowable u/s 37 and 38. Further, if evidence beyond reasonable doubt is not available, the totality of circumstances has to be looked into to evolve a process which would adapt to situation in pursuit of the truth & justice. In support of the view that where direct evidences are not available, the circumstantial evidences could be treated as sufficient for deciding a case has been consistently held by the Hon'ble Courts. Here, all the facts and circumstantial evidence justify the findings of the AO regarding disallowance out of vehicle running & maintenance including depreciation on cars and telephone expenses. I do not find merit in the appellant argument that he has used only one car for personal purpose and therefore, the disallowance out of one car expenses may be done particularly when the appellant failed to demonstrate that how
ITA No. 6952/Del./2014 7 other cars are used wholly and exclusively for business purposes. Therefore, in such facts & circumstances, I find merit in the AO's finding that it can not be ruled out that there is no personal/non-business element embedded in the vehicle running & maintenance including depreciation on cars and telephone expenditures. In view of above, I am of the considered view that the disallowance Rs.5,970/- out of Telephone expenses, Rs.2,57,722/- out of Vehicle expenses including depreciation on cars is justified and therefore, the same is sustained. The AO may look into the taxability of 13 cars owned by the appellant under the Wealth Tax Act as cars are chargeable wealth under the Wealth Tax Act.”
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 09.11.2017.