Loading judgment…
Facts
The assessee, Hira Power and Steels Limited, challenged the CIT(A)'s order confirming disallowance of depreciation on vehicles, and remitting back disallowances for charity/donation and fine/penalty expenses to the AO. The disallowances were made by the AO and partly upheld or remanded by the CIT(A).
Held
The tribunal allowed the appeal regarding depreciation and donation expenses, finding the disallowances arbitrary and bad in law due to proper logbook maintenance and binding CBDT circulars. However, the tribunal dismissed the appeal concerning fine and penalty expenses, upholding the CIT(A)'s decision to remand the matter to the AO for verification.
Key Issues
Whether disallowance of depreciation on vehicles is justified when a logbook is maintained; whether donation expenses are allowable as per CBDT circulars; and whether fine and penalty expenses qualify under Section 37(1).
Sections Cited
Section 37(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, dated 30.10.2025 for the assessment year 2017-18 as per the following grounds of appeal:
1. Ld. CIT(A) erred in confirming disallowance of Rs. 7,30,872/-(being 30% of Rs.24,36,240/-) made by A.O out of depreciation on vehicles claimed by the appellant. The disallowance made by A.O and confirmed by Ld. CIT(A) is arbitrary, illegal, baseless and not justified.
2. Ld. CIT(A) erred in remitting back the matter to the A.O relating to disallowance of Rs.57,154/- on account of charity and donation expenses claimed by the appellant. The disallowance made by AO and is arbitrary, baseless and not justified.
3. Ld. CIT(A) erred in remitting back the matter to the A.O relating to disallowance of Rs.50,467/- on account of fine & penalty expenses debited in profit & loss account. The disallowance made by A.O and is arbitrary, baseless and not justified.
4. The appellant reserves the right to amend, modify or add any of the ground/s of appeal.”
In this regard, the Ld. Counsel for the assessee has filed following written submissions:
Per contra, the Ld. Sr. DR relied on the findings of the sub-ordinate authorities.
I have heard the submissions of the parties herein and perused the materials available on record. Firstly, on the issue of disallowance i.e. 30% of disallowance on account of depreciation, the Ld. Counsel for the assessee had relied on various judicial pronouncements which appears in his written submission. It was submitted by the Ld. Counsel that there cannot be any personal usage issue so far as company is concerned. However, the definition of ‘person’ in the Act itself includes the company and that it is no more “Res-Integra” that in order to ascertain rights and liabilities, time and again the Hon’ble Courts have lifted the corporate veil to understand the nature and scenario of the liability. Therefore, argument of the Ld. Counsel cannot be accepted on the ground that since it is a limited company, therefore, there cannot be personal liability fixed on such artificial entity on the ground of personal usage. The fact remains
7 Hira Power and Steels Limited Vs. ACIT, Central Circle-2, Raipur (C.G.) that by lifting corporate veil liabilities can be fastened and at the same time, rights can be determined and all these things are essential to determine the tax liability, for which, relevant provisions of the Act can be enforced.
At the same time, a part of the submissions of the Ld. Counsel is accepted that the assessee being limited company is subject to several audits and controls and each bill presented is properly vouched at different levels of the internal control and at the same time, log book is also maintained by the assessee. The Ld. Sr. DR failed to bring on record any evidence contrary to the submissions placed on record by the Ld. Counsel for the assessee. The Ld. Sr. DR could not establish that the findings of the A.O was correct and that there was no log book maintained by the assessee. That in absence of any such findings by the Department, in absence of any adverse material on record against the assessee by the Department, the submissions of the Ld. Counsel is therefore, accepted. That when log book has been maintained by the assessee, when every bills are audited which is in fact common parameter for a limited company and at the same time, since the Department has failed to bring any specific reasons, for such disallowance, hence, such disallowance is held to be arbitrary, bad in law and accordingly, the A.O is directed to delete the 8 Hira Power and Steels Limited Vs. ACIT, Central Circle-2, Raipur (C.G.) same from the hands of the assessee while providing appeal effect of this order. Thus, Ground of appeal No.1 of the assessee is allowed.
That as regards Ground of appeal No.2 i.e. disallowance of 6. donation expenses, the Ld. Counsel has brought to my notice two CBDT Circulars viz. (i) CBDT Circular No.17, dated 06.05.1943; and (ii) CBDT Circular No. 13A/20/68-114-II, dated 03.10.1968, wherein it has been directed by the Board to the Revenue authorities that donation made for festivities are allowable and accordingly, submitted since these circulars are binding on the Revenue Authorities, the A.O did not have any jurisdiction to make the said additions.
The Ld. Sr. DR supported the findings of the Revenue Authorities, however, could not refute these facts on record.
That the said circulars (supra) are binding on the Revenue Authorities and once, the parameters of such donations are well within the ambit of the afore-stated circulars, in such scenario, the A.O ceases to possess any valid inherent jurisdiction to make any disallowance. Hence, the A.O is directed to delete additions from the hands of the assessee while providing appeal effect of this order. Thus, Ground of appeal No.2 of the assessee is allowed.
As regards the Ground of appeal No.3 i.e. disallowance on account 9. of fine and penalty and whether they qualify within the provisions of Section 37(1) of the Act should be verified at the ground level since there are no clarity on this issue vis-à-vis facts pertaining to assessee in the impugned order. The Ld. CIT(Appeals)/NFAC had already remanded this issue to the file of the A.O for verification. Accordingly, I do not find any infirmity in the findings of the Ld. CIT(Appeals)/NFAC and the same is hereby upheld. Thus, Ground of appeal No.3 of the assessee is dismissed.
Ground of appeal No.4 is general only. 10.
In the result, appeal of the assessee is partly allowed as per aforesaid terms.
Order pronounced in open court on 09th day of March, 2026.