ONKAR INTERNATIONAL PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

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ITA 310/DEL/2015Status: DisposedITAT Delhi02 August 2016AY 2009-106 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal deleted the disallowance of interest expenditure, holding that notional interest on interest-free advances from capital accounts cannot be added as it was not incurred by the assessee. It also deleted the disallowance of depreciation, following the Delhi High Court's precedent where destruction of documents due to fire was accepted.

What were the facts?

The assessee company, engaged in travel and tour operations, appealed against the CIT(A)'s order confirming disallowance of interest expenditure and depreciation. The assessee had given interest-free advances to directors and claimed depreciation on assets whose supporting documents were destroyed in a fire.

What were the issues?

Whether notional interest on interest-free advances to related parties can be added to income, and whether disallowance of depreciation is justified when supporting documents are destroyed in a fire.

Which sections of the Income-tax Act were involved?

Section 40A(2)(b)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, DELHI BENCH “SMC-3”, NEW DELHI

Before: SHRI H.S. SIDHU

Date of Hearing : 14-07-2016 Date of Order : 02-08-2016

ORDER PER H.S. SIDHU : JM Assessee has filed this Appeal against the impugned Order dated 27.10.2014 passed by the Ld. CIT(A)-XVI, Delhi relevant to assessment year 2009-10 on the following grounds:-

1. That the Ld. CIT(A) has erred in confirming the disallowance of Rs. 3,71,335/- on account of interest expenditure.

2. That the Ld. CIT(A) has erred in confirming the allowance of Rs. 2,44,414/- on account of depreciation.

3. That the order of the Ld. CIT(A) is bad in law and on the facts of the case; and

4. That the Appellant craves leave to add, alter,

amend or withdraw any of the grounds of appeal at any time before or at the time of the hearing of the appeal.

2.

The brief facts of the case are that the assessee filed its return of income on 14.10.2010 declaring total income of Rs. 27,99,371/-.

The Return was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter referred as the Act) and notice u/s. 143(2) of the Act was issued to the assessee on 5.9.2011, which was duly served upon the assessee company. Thereafter, further notices u/s. 142(1) of the I.T. Act, dated 5.10.2011 and 4.11.2011 were issued and duly served upon the assessee. In compliance to various notices, the Authorised Representative of the assessee appeared from time to time and filed replies/ details. The assessee was in the business of travel and tour operation. After considering all the documents, replies and the details filed by the assessee, the AO made the various additions and assessed the income of the assessee at Rs. 34,77,690/- u/s. 143(3) of the Act on 23.12.2011.

3.

Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 27.10.2014 has dismissed the appeal of the assessee.

4.

Aggrieved with the order of the Ld. CIT(A), Assessee is in appeal before the Tribunal.

5.

Ld. Counsel of the Assessee with regard to disallowance Rs. 3,71,335/- on account of interest expenditure has stated that assessee has given interest free temporary advance, withdrawals from their capital accounts to two parties namely Mr. Karanveer Singh Bahia Rs. 10,94,000/- and Mrs. Kanwaljeet Kaur Bahia Rs. 20,00,000/-. He further stated that assessee has not borrowed any funds to advance these amounts. He stated that the notional interest cannot be added because the same has not been incurred by the assessee. To support his contention, he relied upon the following case laws of the Hon’ble Delhi High Court.

- Shivanandan Buildcon Pvt. Ltd. - DLF Universal Ltd. Hence, he requested that the addition in dispute may be deleted.

5.1 As regards disallowance of Rs. 2,44,414/- on account of depreciation is concerned, it was stated by the Ld. Counsel of the Assessee that the reason for disallowance cited by the AO was that the Assessee was unable to produce the bills and vouchers as they perished in fire due to short circuit in the office of the assessee at H-32, Connught Place, New Delhi on 5.8.2009. To support his contention, he relied upon the decision of the Hon’ble Delhi High Court in the case of Jay Engineering Pvt. Ltd. reported in 113 ITR 389 and requested that the addition in dispute may be deleted.

6.

In this case, Notice of hearing for 14.7.2016 was sent to both the parties and in response to the same, assessee’s Authorised Representative appeared, but none appeared on behalf of the Department, nor filed any application for adjournment from the Department side. Keeping in view the facts and circumstances of the present case and the issue involved in the present Appeal, I am of the view that no useful purpose would be served to issue notice again, therefore, I am deciding the present appeal exparte qua Revenue, after hearing the Ld. A.R. of the assessee and perusing the records.

7.

I have heard the Ld. AR of the Assessee and perused the records available with me. With regard to addition of Rs. 3,71,335/- on account of interest expenditure is concerned, I find that assessee has given interest free temporary advance to the following person who are covered under section 40A(2)(b) of the Act.

S.No. Name Station the Amount of assessee Temporary Company Advance 1. Mr. Karanveer Singh Director & Rs. 10,94,000/- Bahia Shareholder 2. Mrs. Kanwaljeet Kaur -do- Rs. 20,00,000/- Bahia

From the records, it reveals that these advances were temporary withdrawals from their Capital Accounts and assessee has not borrowed any funds to advance these amounts. Therefore, in my considered opinion, such interest cannot be added in the hands of the assessee, because the same has not been incurred by the assessee itself. In the background of the aforesaid discussions, I delete the addition in dispute and allow the ground raised by the Assessee.

7.2 With regard to disallowance of Rs. 2,44,414/- on account of depreciation is concerned, I find that the reason for disallowance cited by the AO was that the assessee was unable to produce the bills and vouchers as they were destroyed in the fire incident occurred due to short circuit in the office of the assessee at H-32, Connaught Circus, New Delhi on 5.8.2010. I find considerable cogency in the assessee’s counsel contention that this issue is squarely covered by the decision of the Hon’ble Delhi High Court in the case of Jay Engineering Pvt. Ltd. reported in 113 ITR 389 wherein it has been held that such disallowance cannot be upheld.

Accordingly, respectfully follow the precedent in the case of Jay Engineering (Supra), I delete the disallowance in dispute and allow the ground raised by the assessee.

8.

In the result, the Appeal filed by the Assessee stands allowed.

Order pronounced in the Open Court on 02/08/2016.

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