DEPUTY COMMISSIONER OF INCOME-TAX ,, JALGAON vs. M/S. RAJMAL LAKHICHAND & SONS,,

आदेश / ORDER आदेश आदेश आदेश

PER D. KARUNAKARA RAO, AM :

These are the cross appeals filed by assessee and the Revenue for the assessment year 2009-10 are directed against the order passed by CIT(Appeals)-2, Nashik dated 08.05.2014.

2 ITA Nos.1360 & 1547/PUN/2014

filed his return of income for the year under consideration declaring total

income at Rs. ‘Nil’. In the scrutiny assessment proceedings u/s. 143(3) of

the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), the claims

made in the return of income were scrutinized and the assessed income is

determined again at Rs.‘Nil’ after giving the benefit of set-off to the brought

forward loss. The business income of the assessee was determined at

Rs.1,17,44,301/- against return from business income at Rs.46,90,306/-.

Assessing Officer made a major addition of Rs.50,96,700/- on account of

sale of stock made to its sister concern. The Assessing Officer also

disallowed the excess interest paid to Shri Manish Jain amounting to

Rs.4,86,837/-. Other additions/disallowances include the addition of

Rs.2,39,399/- on account of vehicle expenses and addition of

Rs.12,31,059/- u/s. 14A of the Act r.w.Rule 8D of the I.T. Rules.

above additions/disallowances. Eventually, the CIT(A) granted partial

relief to the assessee and thus, partly allowed the appeal of assessee.

Aggrieved with the additions confirmed by the CIT(A), assessee is in appeal

with the grounds extracted below. The only issue raised in the grounds by

the assessee relates to disallowance made u/s. 14A r.w. Rule 8D of the

I.T Rules, 1962.

We shall take up assessee’s appeal first.

ITA No. 1360/PUN/2014 ( By Assessee) A.Y. 2009-10

“Disallowance u/s. 14A - Rs.12,31,059/- 5.1 The learned CIT(A) erred in confirming the disallowance of Rs. 12,31,059/- U/S 14A on the ground that the appellant had invested amount in the shares of the sister concerns, the income from which was not taxable.

3 ITA Nos.1360 & 1547/PUN/2014

5.2 The learned CIT(A) was not justified in sustaining the above disallowance U/S 14A for the following reasons –

a. There was no dividend income received from the sister concerns during the year by the appellant and thus, no disallowance U/S 14A was warranted.

b. The appellant would not have received the bank finance on its own and thus, to increase the business, the investment in the shares of the group concerns was made by the appellant and accordingly, it was out of business necessity and hence, disallowance u/s. 14A was not warranted.

5.3 WITHOUT PREJUDICE the learned CIT(A) failed to appreciate that the disallowance made by the A.O. u/s. 14A / rule 8D was excessive in as much as he (the A.O.) had taken into account all the investments including which were made for specific purposes.

5.4 The learned CIT(A) erred in holding that the above interest is disallowable u/s. 36 as the borrowings are not used for the purposes of business but they are used for the investment in the shares of the sister concerns.

5.5 WITHOUT PREJUDICE the learned A.O. failed to appreciate that the disallowance u/s. 14 A r.w.s 8D could not exceed the exempt income which in this case was admittedly Rs. NIL.

5.6 WITHOUT PREJUDICE assuming that the provisions of sec. 14A/ Rule 8D are capable of more than one interpretation as a golden rule the view favourable to the assessee should be followed.

5.7 The learned CIT(A) erred in relying upon CBDT circular No. 225/182/2013 dated 11.02.2014 ignoring the decisions relied upon by the appellant and the correct legal position in this behalf.

5.8 The appellant craves leave to add, amend, alter or delete any one or more of the grounds of appeals as may be required in the nature and circumstances of the case.

5.9 The appellant prays leave to adduce such further evidence to substantiate its case as the occasion may demand.”

r.w. Rule 8D include that the assessee invested Rs.1,15,00,000/- in the

shares of group companies and earned ‘Nil’ dividend income. The

Assessing Officer invoked the provisions of section 14A of the Act r.w. Rule

8D of the I.T Rules and quantified the disallowance at Rs.12,31,059/-.

The assessee relied on various decisions against invoking the said

provisions. The Assessing Officer rejected the same and made the said

disallowance. During the First Appellate proceedings, the assessee heavily

relied on the decision of the Hon'ble Bombay High Court in the case of

4 ITA Nos.1360 & 1547/PUN/2014

Godrej & Boyce, 328 ITR 81. According to the assessee, in the absence

of any exempt income which formed part of the total income, the

provisions of section 14A of the Act should not be invoked. The CIT(A)

considered the same and however, confirmed the addition of Assessing

Officer relying on the decision of Cheminvest Ltd. Vs. Income Tax

Officer, 378 ITR 33 as well as CBDT Circular No. 225/182/2013 dated

11.02.2014.

14A r.w.r 8D of the I.T. Rules, Ld. Counsel for the assessee submitted that

the instant case is squarely covered in favour of the assessee. Referring to

the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd.

Vs. CIT (supra.), Ld. Counsel for the assessee submitted that disallowance

u/s.14A of the Act is not sustainable in the year in which no exempt

income formed part of the total income of the assessee for the year under

consideration. Further, he relied on the decision of Pune Bench of

Tribunal in the case of Shri Goyal Ishwarchand Kishorilal Vs. JCIT in ITA

No. 422/PN/2013 decided on 26.06.2014 for the similar proposition. He

also relied on the another decision of the same Tribunal in the case of

Avinash Bhosale Infrastructure Pvt. Ltd. Vs. DCIT in ITA No.984/PN/2016

decided 14.10.2016. Further, Ld. Counsel brought our attention to the

contents of Para-11 of the decision of Avinash Bhosale Infrastructure Pvt.

Ltd. Vs. DCIT (supra) and the same reads as under:

“11. In view of above said judicial precedents, there is no merit in the orders of authorities below in the absence of any exempt income earned by the assessee during the year. No disallowance was warranted under section 14A of the Act read with Rule 8D of the Rules and the same is thus, deleted. The grounds of appeal raised by the assessee are allowed.”

Assessing Officer and CIT(A).

5 ITA Nos.1360 & 1547/PUN/2014

record and considered the decisions referred above. The only issue raised

in the ground of appeal relates invoking provisions of Section 14A of the

Act when factually no exempt income is either earned or formed part of

the total income of the assessee in the year under consideration. In this

regard, we perused the judgment of Hon'ble Delhi High Court in the case

of Cheminvest Ltd. Vs. CIT (supra.) and found that the above question is

answered in favour of assessee. The relevant portion of the said judgment

is extracted as under:

“Expression ‘does not form part of the total income’ in section 14A envisages that there should be an actual receipt of income, which was not includable in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income.”

From the above discussion, it is evident that relevant legal

proposition is well settled in favour of the assessee by the said orders of

the Hon'ble High Court and the Pune Bench of the Tribunal. On facts, it

is undisputed that the assessee did not earn any exempt income on the

investment mentioned above. Therefore, we are of the opinion that the

issue raised by assessee is squarely covered by the above referred

judgment in favour of assessee. Accordingly, the core issue raised in the

grounds by the assessee is allowed. Further, the grounds raised without

prejudice are dismissed as academic.

ITA No. 1547/PUN/2014 ( By Revenue) A.Y.2009-10

the assessee on the issue relating to addition of (i) Rs. 50,96,700/- on

account of sales to the sister concerns, (ii) Rs.4,86,837/- on account of

6 ITA Nos.1360 & 1547/PUN/2014

excess interest; and (iii) Rs.2,39,399/- on account of vehicle expenses and

depreciation on car towards the personal use of the same. The Revenue

raised following grounds and the same are extracted as under :

“1.On the facts and in the circumstances of the case and in law, the Ld CIT(A)-II, Nashik has erred in deleting the additions being diversion of profits on a/c of sales made to associate concern at a lower rate in the Bullion A/c. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-II, Nashik has erred in deleting the disallowance of excess interest amounting to Rs.4,86,837/- paid to partner Shri Manish Jain over Gold Deposit Scheme. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-II, Nashik has erred in deleting the additions of Rs.2,39,399/- towards vehicle expenses and depreciation for personal use. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-II, Nashik be cancelled on the above issues and that of the AO be restored. 5. The appellant craves leave to add, alter, modify, delete amend any of the grounds with prior permission of the Hon'ble CIT, as per the circumstances of the case. 6. The appellant prays to file any of the additional evidence appropriate to the grounds taken in appeal.”

nature and the same requires to be dismissed. Accordingly, ground No. 4

to 6 are dismissed as general. Rest of the ground Nos. 1 to 3 are

adjudicated in the following paragraphs.

to sale of 62 kg of bullion. The relevant facts of this issue are discussed in

Para No.6 of the assessment order. It includes that the assessee

purchased the Bullion from the Banks and effected sales of the same to

the sister concerns during the year. AO noted the discrepancy in the sale

prices of the same. Sometimes, the sales price is lesser than the purchase

price. When the discrepancy is informed to the assessee, the assessee,

the assessee maintained day-to-day stock records, the Registers for sales,

purchases and expenses maintained by him. During assessment

7 ITA Nos.1360 & 1547/PUN/2014

proceedings, in connection with purchase and sale prices with regard to

the sales to sister concern, the assessee filed a chart giving details of the

purchase prices of the goods and submitted that the sales rates of the

Bullion change on day to day basis and therefore, the sales price being

guided by the market price can be lesser some times. The Assessing

Officer considered the said submissions and held that the assessee sold

the bullion to the sister concerns at lower rate. AO alleged that the

assessee-firm diverted its profit to the sister concern by making sale of

goods at lower rates. Rejecting the assessee’s claim, the Assessing Officer

ignored the book profits on these sales to the sister concerns and

estimated a profit margin of uniform rate of 6% of such sales. Thus, the

AO made addition of Rs. 50,96,700/-. The working is given in the

following table (Page 9 of the assessment order) :

3.5.08 11905-11750=155 x 5 kg= 77,500 8.5.08 12377-11665=712 x 24 kg= 17,08,800 14.5.08 12377-11665=805 X 5 kg= 4,02,500 26.5.08 13569-12787=782 x 3 kg= 2,34,600 10.6.08 13321-12385=936 x 8 kg= 7,48,800 17.9.08 12496-12300=196 x 5 kg = 98,000 2.12.08 13684-12525=1159 x 7 kg= 8,11,300 17.3.08 16328-15200=1128 x 9 kg= 10,15,200 66 kg= 50,96,700

said decision of Assessing Officer constitutes guess work and therefore,

should not be sustained. Absence of provisions for taxing the cases of

lower sales price, similar to that of section 40A(2)(b) of the Act, the

fluctuations in the prices of Bullion, absence of any basis to the AO for

adopting profit rate of 6%, absence of any evidence against the assessee,

the background history of non-disclosure of such huge GP rate of 6% by

the assessee in the past as well as in subsequent assessment years,

existence of finding of the CIT(A) in case of M/s. Rajmal Lakhichand in

A.Y. 2009-10, are some of the reasons for the CIT(A) for granting relief to

8 ITA Nos.1360 & 1547/PUN/2014

the assessee. The CIT(A) considered the submissions of the assessee and

allowed the claim of the assessee as per discussion given in Para 6.4 of the

order of CIT(A). The CIT(A) held that estimation made by Assessing Officer

@6% is baseless. For the sake of completeness, the said para No.6.4 is

extracted below and the summary of the same includes the following :

“6.4 I have gone through the appellant’s submissions and the assessment order and the AO’s remand report. The learned AR has rightly contended that selling prices is dependent upon several market factors and it is purely commercial decision. Again there is no provision corresponding to Sec.40A(2)(b) to make addition on account of sale at a lower price especially when all the concerned parties are in the same tax bracket. The AO has, without giving any basis or bringing any material on record, assumed the Gross Profit % to be static at 6% in the line of business where prices vary frequently. No evidence is brought on record by the AO justifying that the sales were effected at less than the market rate prevailing on that day. It is also seen that there was/is no such G.P. addition in the past and in subsequent years, i.e. AYs 2010-11 and 2011-12 in the appellant’s case. The appellant’s books of account were not rejected in the past and in subsequent years on account of sales made to sister concerns at lower rate. In the case of M/s. Rajmal Lakhichand for A.Y. 2009-10, a sister concern, the addition of Rs.12,01,63,323/- on account of alleged diversion of profit was deleted by the CIT(A)-II, my predecessor as there is no specific section in the Act in this regard. Considering the above facts, I find no justification in the addition made. The appellant gets a relief of Rs.50,96,700/-.”

to the sister concerns are fully accounted and submitted that all the

concerns involved in these sales are assessed tax. He also relied on the

order of Tribunal in assessee’s own case for the A.Y. 2009-10 and

submitted that the ratio of the decision of the Tribunal on this issue of

profit margin may be considered for the sake of parity and decide the

issue. In this regard, Ld. Counsel brought our attention to the contents of

Para Nos. 6.8, 8.18 and 8.32 of the order for A.Y.2009-10 in assessee’s

own case and submitted that this issue stands covered.

order of Assessing Officer and CIT(A).

Authorities and submissions of assessee. The core issue for adjudication

9 ITA Nos.1360 & 1547/PUN/2014

relates to the rejection of book profit and estimation of GP @6% of the total

sales made to the sister concern. In this regard, the case of the Revenue

is that the assessee diverted its profit by under pricing the sales made to

the sister concerns by quoting a lower rate of bullion. Without giving any

basis or bringing any material on record, the Assessing Officer assumed

that the gross profit on such sales is at 6% and ignored the fact that, in

the line of business, the sales price vary frequently due to domestic as

well as international reasons. Further, we find the order of Tribunal in

the case of M/s. Rajmal Lakhichand Vs. JCIT and vice-versa in ITA

Nos.532, 663/PN/2013 & ITA No.607/PN/2013 is later to the order of the

CIT (A) dated 08.05.2014. We find that the order of the Tribunal for the

A.Y. 2009-10 was not available to the CIT(A) at the time when the CIT(A)

deleted the additions. Considering the above, we perused the order of

CIT(A) and the contents of Para No.6.4 and the same is already extracted

in the earlier paragraphs of this order.

reference to the GP rates and find the contents of Para No.6.8, 8.18 and

8.32 are relevant. For the sake of completeness, these paragraphs are

extracted here as under :

“6.8 As regards the allegation of the Revenue that the assessee has transferred profits to the sister concerns by paying a higher price for purchases and charging a lower price for the sales effected to sister concerns he submitted that this finding is also wrong. Referring to page 52 of Paper Book 1, he drew the attention of the Bench to the chart giving the details of sales of bullion effected to sister concerns and submitted that these sales have fetched excess price of Rs.l,13,57,471/- to the assessee during the year. Thus, the contention of the A.O is wrong. Assessee has not passed profits on sale of bullion to the sister concerns at all. 8.18 In respect of the alleged diversion of the profit of Rs.12,01,63,323/- which was for allegedly selling the ornaments to its sister concerns at an average lower price as compared to the average price of the ornaments sold to unrelated parties/third parties, the Ld.CIT(A) has observed that the assessee has charged an average price of Rs.13,350/10 gms from sister concerns as against the average price of Rs.13,906/10 gms charged from other parties for sale of gold ornaments. As noted by the Ld.CIT(A) the difference in the average sale price worked out to Rs.55.60/gm as against Rs.40.96/gm taken by the AO in the assessment order. The Ld.CIT(A) has

10 ITA Nos.1360 & 1547/PUN/2014

also observed that although there is no provision in the Income Tax unlike section 40A(2)(b) which is in respect of the expenditure but the said aspect also cannot be ignored which has affected the gross profit and suggest that books of account do not depict the correct picture. 8.32 We also find that again while making the addition in respect of sale of ornaments to the group concerns/sister concerns, both the authorities below have adopted the comparison formula based on the sale of ornaments to the unrelated parties and sale of ornaments to the related parties. It is stated that if the average price is taken then the assessee has charged Rs.10,350/10 gms on the sale to the sister concerns as against the average price of Rs.13,906/10 gms charged to the third parties/unrelated parties on the sale of gold ornaments. The AO has worked out the difference of Rs.40.96/gm but the Ld.CIT(A) has worked out the difference at Rs.55.60/gm. The Ld.CIT(A) has also observed that unlike section 40A(2)(b) of the I.T. Act, there is no provision even if there is a sale at lower price comparing with the prevailing market prices of the commodity or goods. In our opinion as far as the issue of ornaments is concerned, approach of both the authorities below adopting the average price formula is not correct. As far as the ornaments are concerned, the price may vary from design to design, from item to item, from purity of gold etc. In case of the ornaments normally the sales are made from the 916 tounch (22 karat). The ornaments may be of 18karat, 20 karat and 21 karat also. We cannot take the average price of the ornaments to the entire sale of the year as different factors are also involved as mentioned above which changes the price of the ornaments. Moreover, there may be variation in the labour charges also. Hence, we do not agree with the average price formula adopted by both the authorities below for making the addition of Rs.12,01,63,323/- on alleged selling of the ornaments to the sister concerns at lower price than the price charged to the unrelated parties.”

From the above, it is a settled legal proposition that in the absence

of any incriminating evidences, the addition adopting the uniform flat rate

of profit of 6% is unsustainable. The Tribunal decided the issue in

connection with sale of ornaments to the sister concerns. In our view, the

principles laid down by the Tribunal apply to the sale of bullion to the

sister concerns. As such, there are no statutory provisions to make

addition, when there is a case of lower sales price of the sales to the sister

concerns. As such, the provisions of section 40A(2)(b) of the Act come in

operation only if there is excessive or unreasonable payments to sister

concerns. As such, it is in the knowledge of everybody that the sale price

of the Bullion is market guided one. Further, it is not the case of the

Revenue that the Bullion price vary on a particular date qua the sister

concerns and third party transactions. Considering the absence of any

incriminating evidence against the entries in the books of account, we find

11 ITA Nos.1360 & 1547/PUN/2014

the order of Commissioner of Income Tax (Appeals) is fair and reasonable

and it does not call for any interference. Accordingly, the ground No. 1

raised in appeal by Revenue is dismissed.

disallowance on account of excess interest amounting to Rs.4,86,837/-

paid to Shri Manish Jain partner of the firm. Relevant facts included that

the assessee started a scheme called as ‘Gold Deposit Scheme’ (GDS) since

2006. Under this scheme, people deposit gold with the firm as well as with

the assessee’s partner. Interest is payable to the depositors of gold. In

this case, Mr. Jain, the partner also deposited the gold. Mr. Jain also

collected gold from his customers. The said gold so deposited with the

firm against the interest rate of 6% as per the clauses in the partnership

Deed. The firm paid the said interest amounting to Rs.29,61,618/- to

Shri Manish Lalwani (Jain) while the latter was paid interest of Rs.

24,74,781/- to his depositors. The difference of Rs.4,86,837/- has been

considered as excess payment by the firm to the individual and therefore,

the Assessing Officer disallowed the same. The CIT(A) discussed this issue

in Para 5.5 of his order and finally granted relief to the assessee. We

perused the said Para and extracted the same for the sake of

completeness.

“5.5 I have gone through the AO's order, the remand report and the appellant's submissions. The AO has allowed interest on the partners' contributing capital in the form of gold (received by him under his Gold Deposit Scheme only to the extent he has paid to his depositors. He has accordingly disallowed the difference of Rs.4,86,837/-. While it is not uncommon or unusual in partner's contributing capital in the firm by making personal borrowing, he would be entitled to receive interest from firm at the rate specified in the partnership deed, subject to provisions of section 40 (b) of the Act and he may in turn claim deduction in his personal return for the interest paid by him to the parties from whom he has borrowed the funds and utilized them in depositing the same with the firm. In the present case, the appellant has claimed interest on capital contributed by partner @ 6% which is authorized by the partnership deed and is within the limits of Section 40(b) of the Act. The firm is not concerned with the rate at which the partner is paying interest on the funds borrowed and invested in the firm.

12 ITA Nos.1360 & 1547/PUN/2014

Therefore, the AO is not justified in disallowing some portion out of interest paid to the partner. The appellant gets a relief of Rs.4,86,837/-.

came up for consideration of the Tribunal for the A.Y. 2009-10 (supra) in

case of M/s. Rajmal Lakhichand and such addition was deleted giving

credit to the relevant enabling clauses in the partnership deed. The

contents of the order of the Tribunal in Para Nos. 12.6 and 12.7 are

relevant. The same are extracted as under :

“12.6 We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We find in the instant case the Assessing Officer made addition of Rs.18,92,421/- being the difference between the interest paid by the firm to the partner at Rs.45,31,460/- and the interest paid by the partner Shri Ishwarlal I. Lalwani to the customers on GDS. According to the Assessing Officer, if the gold would have been directly routed through the firm, the firm would have saved Rs.18,92,421/-. Although the firm has paid interest @9%, however, indirectly it has benefitted the partner and therefore this is a colourable device and the firm gave excess interest of Rs.19,82,421/- to the partner. It is the submission of the Ld. Counsel for the assessee that since the assessee firm had given interest @9% on the gold deposit by the partner which is below the prescribed limit of 12% as per the partnership deed, therefore, there should not be any disallowance u/s.40A(2)(b). Further, according to the Ld. Counsel for the assessee, the assessee firm could receive additional gold deposit than what it could have received under its own gold deposit scheme on account of gold deposit scheme started by one of its partner. It is also the submission of the Ld. Counsel for the assessee that the firm would have paid higher amount of bank interest by getting that much quantity of gold than it paid to the partner on account of such quantity of gold. 12.7 We find merit in the above submission of the Ld. Counsel for the assessee. There is no bar for the partner to obtain the gold under the gold deposit scheme which was simultaneously done by the assessee firm also. As long as the interest paid to the partner on such gold under the gold deposit scheme is within the permissible limit, there should not be any disallowance. Since in the instant case the firm has paid interest @9% on the gold deposited by the partner obtained from the customers under the gold deposit scheme account, therefore, it is immaterial as to at what rate of interest the partner has paid to the customers. In this view of the matter, we set-aside the order of the CIT(A) on this issue and direct the Assessing Officer to delete the addition. This ground by the assessee is accordingly allowed.”

From the above, the decision of the Tribunal revolves around the

disallowance of interest paid to the partner Mr. Lalwani in connection with

Gold Deposit Scheme. Considering the commonality of the facts, we find

the decision of the CIT(A) in deleting the addition is fair and reasonable. It

13 ITA Nos.1360 & 1547/PUN/2014

does not call for any interference. Accordingly, Ground No. 2 raised by

Revenue in appeal is dismissed.

Rs. 2,39,399/- towards vehicle expenses and depreciation for personal

use. The assessee on its own had disallowed 1/4th of the total amount of

depreciation on vehicles being attributable to the personal use of the

partners. The Assessing Officer allowed depreciation of Rs.4,95,775/- only

but determined closing written down value at Rs. 37,45,852/- ignoring Rs.

1,65,258/- and made addition of Rs.1,65,259/-. The assessee also paid

Rs. 95,928/- to its diver Shri Rajesh Naik as salary and bonus for the

F.Y.2008-09 and the said salary is fixed sum payable to him. But the

Assessing Officer without taking into consideration disallowed ¼th of the

driver salary Rs.23,982/-. The assessee paid interest on car loan of

Rs.2,00,633/- and the Assessing Officer disallowed 1/4th of the interest on

car loan amounting to Rs.50,158/-. The Ld. Counsel for the assessee

submitted that interest liability has nothing to do with quantum of use of

vehicles by the partners. The CIT(A) discussed this issue vide Para 7.8 and

7.9 of the CIT(A)’s order. For the sake of completeness, the contents of

Para 7.8 and 7.9 are extracted as under:

“7.8 Depreciation on vehicles: The AO is in error while determining WDV in terms of See.43(6) of the Act. Provisions of the law are very clear. Only depreciation actually allowed is to be deducted (and not allowable depreciation) while determining the WDV. The cases relied upon by the appellant also support the correctness of the appellant's stand in this respect. The AO has not brought on record any contrary decision. The appellant's working being in accordance with law, no disallowance is called for. The addition of Rs.1,65,259/- is therefore deleted, while the closing WDV would be Rs. 39,11,110/- and not Rs.37,45,852/- as worked by the AO. 7.9 Disallowance out of salary paid to driver and interest on car loan. The AO has made disallowance without appreciating the provisions of section 38(2) of the Act, which reads as under:

14 ITA Nos.1360 & 1547/PUN/2014

Sec. 38(2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub- clause (ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and [ clause (ii) of sub- section (1)] of section 32 shall be restricted to a fair proportionate part thereof which the [Assessing] Officer may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession.

It is thus clear that only following items are covered for some disallowance on account of partial use of assets for non business or personal purposes.

Particulars Nature of expenditure covered

Sub clause (ii) of clause (a) Current repairs to the premises And (c) of Sec. 30. an amount of Insurance premium Clause (i) & (ii) of Sec. (3) paid for premises.

Current repairs and insurance premium for Furniture, plant & Machinery which includes Motor Car. Clause (ii) of Sec. 32(i) Depreciation.

Thus driver’s salary and interest on car loan are not items covered by any of the provisions of section 38(2). The appellant is right in saying that salary to driver and interest on car loan, being fixed, such expenditure would remain same whether the vehicle is used for personal purposes or not. The disallowances of Rs.23,982/- out of driver’s salary and of Rs.50,158/- on account of interest on car loan are not in accordance with the law and therefore, the same are cancelled.”

came up for adjudication by the Tribunal in the assessee’s own case for

A.Y. 2009-10 and such additions were deleted by the CIT(A) and confirmed

by the Tribunal. The contents of the order of the Tribunal in Para Nos. 17

and 18 along with their sub-paragraphs are relevant.

order of the Tribunal in assessee’s own case in A.Y. 2009-10 (supra), we

find the findings given by the Tribunal are relevant an therefore, the same

are extracted here for the sake of completeness of this order :

“17. Ground of appeal No.5 by the Revenue reads as under :

“5. On the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in addition made on account of Driver's Salary of Rs. 32,086/-.”

15 ITA Nos.1360 & 1547/PUN/2014

17.1 Facts of the case, in brief, are that the Assessing Officer in the assessment disallowed 1/3rd salary of the drivers amounting to Rs.32,086/- out of the salary and bonus paid to one Sri Ramdas Kardille amounting to Rs.96,258/- being attributable to personal use. In appeal the Ld.CIT(A) deleted the addition holding that the drivers salary is not an item covered by any of the provisions of section 38(2). Further, salary to driver being fixed such expenditure remains same whether the vehicle is used for personal purpose or not. The provisions of section 38(2) relied upon by the Assessing Officer according to the Ld.CIT(A) also supports the contention of the assessee. He accordingly deleted the disallowance of Rs.32,086/- out of driver’s salary on the ground that the same is not in accordance with law. The Ld. Departmental Representative could not point out any mistake in the above finding of the Ld.CIT(A). In view of the above, we find no infirmity in the order of the Ld.CIT(A). Accordingly, same is upheld and the ground raised by the Revenue on this issue is dismissed. 18. Ground of appeal No.6 by the Revenue reads as under :

“6. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made on account of Depreciation on vehicles of Rs.8,14,855/-”.

18.1 Facts of the case, in brief, are that out of total depreciation on vehicles amounting to Rs.24,44,656/- the assessee suomoto disallowed 1/3rd of depreciation amounting to Rs.8,14,885/- and claimed depreciation of Rs.16,29,770/-. The assessee accordingly determined the WDV as on 31-03-2009 at Rs.1,46,67,933/-, the details of which are as under : WDV as on 01-04-2008 Rs.1,62,97,704 Depreciation on vehicles @15% Rs. 24,44,656 Less : 1/3rd disallowed Rs. 8,14,885 Depreciation actually claimed Rs. 16,29,770 --------------------- WDV as on 31-03-2009 Rs.1,46,67,773/- ---------------------

18.2 The Assessing Officer however worked out the WDV as on 31-03- 2009 at Rs.1,38,53,048/- by deducting the depreciation @ 15% amounting to Rs.24,44,656/- out of the WDV of Rs.1,62,97,704/-. The Assessing Officer thus made addition of Rs.8,14,855/- to the total income of the assessee being difference in the closing WDV, i.e. Rs.1,46,67,933 – Rs.1,38,53,048/-. 18.3 Before CIT(A) the assessee brought to his notice the provisions of section 43(6) and submitted that the Assessing Officer has taken an incorrect view in the matter of working of the WDV. The decision of Hon’ble Delhi High Court in the case of CIT Vs. Chirangilal reported in 74 ITR 80 and the decision of Hon’ble Calcutta High Court in the case of CIT Vs. Suman Tea and Plywood Industries reported in 204 ITR 719 were relied upon. The Ld.CIT(A) called for a remand report from the Assessing Officer. However, no specific comments were given by the Assessing Officer on this issue but the Assessing Officer reiterated the finding of the predecessor Assessing Officer. After considering the remand report the Ld.CIT(A) deleted the disallowance by observing as under : “35. The Assessing Officer is in error while determining WDV in terms of Sec.43(6) of the Act. provisions of the law are very clear. Only depreciation actually allowed is to be deducted (and not allowable depreciation) while determining the WDV. Cases relied upon by the appellant’s A/R also support the correctness of appellant’s stand in this respect. AO has not

16 ITA Nos.1360 & 1547/PUN/2014

brought on record any contrary decision. The appellant’s working being in accordance with law, no disallowance was called for. The addition of Rs.8,14,855/- is therefore, deleted; while the closing WDV would be Rs.1,46,67,933/- and not Rs.1,38,53,048/- as worked out by the AO.”

18.4 Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 18.5 After hearing both the sides, we find no infirmity in the order of the CIT(A) who decided the issue on the basis of the provisions of section 43(6) as well as the decisions cited before him. In absence of any contrary material brought to our notice by the Ld. Departmental Representative, we find no infirmity in the order of the CIT(A) on this issue. Accordingly, the same is upheld and the ground raised by the Revenue is dismissed.”

Considering the commonality of the facts, we find the decision of the

CIT(A) in deleting the addition is fair and reasonable. It does not call for

any interference. Accordingly, Ground No. 3 raised by Revenue in appeal is dismissed.

Order pronounced in the open court on 14th day of May, 2018.

Sd/- Sd/- (सुषमा सुषमा सुषमा चावला सुषमा चावला चावला / Sushma Chowla ) (डी चावला डी डी.क�णाकरा राव डी क�णाकरा राव क�णाकरा राव/D. Karunakara Rao) क�णाकरा राव �याियक सद�य �याियक सद�य /JUDICIAL MEMBER लेखा सद�य लेखा सद�य / ACCOUNTANT MEMBER �याियक सद�य �याियक सद�य लेखा सद�य लेखा सद�य

पुणे / Pune; �दनांक / Dated : 14th May, 2018. SB आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-2, Nashik. 4. The CIT-2, Nashik. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “ए” ब�च, पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6. // True Copy // आदेशानुसार / BY ORDER,

िनजी सिचव /Sr.Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.