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Income Tax Appellate Tribunal, RAIPUR BENCH “SMC”, RAIPUR
Before: SHRI RAVISH SOOD
आदेश / ORDER PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals)-I, Raipur, dated 28.06.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 23.03.2016 for the assessment year 2013-14. The assessee has assailed the impugned order on the following grounds of appeal: “1. In the facts and circumstances of the case and in law, the ld. Commissioner of Income-tax (Appeals) has erred in confirming the addition of Rs.23,15,025/- made on account of value of Mercedes car gifted to appellant and also erred in not allowing depreciation on the vehicle which was used for business. 2. In the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of Rs.3,23,898/- made out of interest expenses u/s.40A(2)(b) of the Income-tax Act, 1961. 3. In the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in confirming the addition of Rs.84,958/- made as difference between account of MRF Tyres and relevant ledger account of the appellant. 4. The impugned order is bad in law and on facts. 5. The Appellant reserves right to add, alter, amend, omit, withdraw any of the grounds of appeal.”
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Succinctly stated, the assessee who is engaged in the business 2. of trading of tyres of various companies had e-filed her return of income for the assessment year 2013-14 on 31.10.2013, declaring an income of Rs.7,62,630/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act.
During the course of the assessment proceedings, it was, inter alia, observed by the A.O that the assessee had in her capital account credited an amount of Rs.23,15,025/- towards value of a Mercedes Benz Car. On being queried about the source of acquisition of the aforesaid car, it was submitted by the assessee that the same was received by her as a gift out of natural love and affection from the owner of M/s. J.K Tyres & Industries Ltd. It was the claim of the assessee that the aforesaid car was first purchased and registered in the name of M/s. J.K Tyres & Industries Ltd., and thus, was a second hand car that was gifted to her. In order to substantiate the aforesaid gift transaction the assessee filed with the A.O a copy of the gift deed in support thereof. On being queried as to why the value of the said car of Rs.23,15,025/- credited in the capital account may not be treated as her income u/s. 28(iv) of the Act, the assesee failed to come forth with any reply. In order to verify the factual position the A.O made necessary verification with M/s. J.K Tyres & Industries Ltd., which in reply stated that the said vehicle was gifted to the assessee for having
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achieved the prescribed sales target and was purely in the nature of a business transaction. As the assessee vide letter dated 29.02.2016 offered the value of the aforesaid car of Rs.23,15,025/- for tax as her income from business/profession, therefore, the A.O made an addition of the said amount to her returned income. It was however requested by the assessee that depreciation on the aforesaid car which was being used for business purpose may be allowed. However, the A.O was of the view that as the assessee had not claimed any depreciation on the car, therefore, her claim could not be accepted, more so for the reason that she had claimed depreciation on the entire value of the said car only from A.Y.2014-15. Accordingly, the A.O declined the assessee’s claim for depreciation on the aforesaid car.
It was further observed by the A.O that the assessee had during the year paid interest @18% to her family members who were covered by the definition of specified person u/s.40A(2)(b) of the Act, as under:-
Sl. Name of the specified Opening Interest paid Rate of No. person balance as on interest 01.04.2012 1. Shri Kanhaiyalal Chhugani 10,06,376 1,81,148/- 18% 2. Shri Kanhaiyalal Chhugani 23,33,976/- 4,20,116/- 18% (HUF) 3. Shri Rakesh Chhugani 9,54,204/- 1,82,613/- 18%
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Shri Rakesh Kumar 10,14,514/- 1,71,757/- 18% Kanhaiyalal (HUF) 5. Miss Reena Chhugani 12,26,103/- 2,20,699/- 18% 6. Miss Soumya Chhugani 14,08,258/- 2,53,486/- 18% 7. Shri Vikas Chhugani 9,08,587/- 1,76.506/- 18% 8. Shri Vikas Kumar Kanhaiyalal 10,22,984/- 1,84,137/- 18% (HUF) Apart from that, it was observed by the A.O that though the assessee had paid interest @18% to Mrs. Chandra Khatuja alias Sarita Khatuja of Rs.1,46,927/-, but the latter person had not disclosed the said interest income in her income tax return. It was observed by the A.O that the assessee was availing Cash Credit Account with SBI with a limit of Rs.80 lacs on which interest was being charged by the bank @12.35%. It was also observed by the A.O that the assessee had not utilized its Cash Credit Account to its maximum limit of Rs.80 lacs through out the year. In reply, it was the claim of the assessee that the cash credit limit of Rs.47 lacs was increased to Rs.80 Lacs only in February, 2013. Considering the fact that loans were easily available in the market from financial institutions and private parties @ 12% to 15%, the A.O was of the view that the interest paid by the assessee to the aforementioned persons and to Smt. Chandra Khatuja @18% was excessive. Accordingly, the A.O restricted the assessee’s claim for deduction of interest charges to 15% and made a disallowance of the
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excess interest charges of Rs.3,22,898/- (out of total interest payment of Rs.19,37,389/-).
Also, it was observed by the A.O that while for the closing balance in the ledger account of MRF Tyres Ltd., as appearing in the books of account of the assessee was Rs.47,68,199/-, but the same as per the books of account of the aforementioned company was Rs.68,53,157/-. On being queried, it was submitted by the assessee that an amount of Rs.20 lacs was paid to the aforementioned company on 22.08.2012 was shown by the company in their books of account as a deposit. Apropos the difference of Rs.84,958/-, it was stated by the assessee that as at the time of delivery of goods/tyres it was found that some of the goods were not of the desired quality, and thus, were rejected, therefore, for the said reason the amount to the said extent was reduced from bills of the aforementioned company. The A.O in order to verify the factual position called upon the aforementioned company viz. MRF Tyres Ltd. to confirm the explanation of the assessee. In reply, though the aforementioned supplier company confirmed the explanation of the assessee qua the amount of Rs.20 lac (supra) but did not confirm its claim of quality cut charges of Rs.84,958/- (supra), which as stated by the assessee was reduced from the company’s bills for not supplying the desired quality goods. Also, it was observed by the A.O that the assessee had not come forth with
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the bills against which the said amount was claimed to have been reduced for the reason that goods received were not found to be desired quality. The A.O thus made an addition of Rs.84,958/- to the returned income of the assessee. Accordingly, on the basis of the aforesaid observations the A.O vide his order passed u/s.143(3), dated 23.03.2016 assessed the income of the assessee at Rs.34,85,510/-.
Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without any success.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before me. As the assessee appellant despite having been intimated about the hearing of appeal had failed to put up an appearance, therefore, I am constrained to proceed with and dispose off the appeal as per Rule 24 of the Appellate Tribunal Rules, 1963, i.e, after hearing the respondent revenue and perusing the orders of the lower authorities.
Ostensibly the A.O had made an addition of Rs.23,15,025/- (supra) towards value of a Mercedez Benz car that was credited in the capital account of the assessee, and was claimed to have been received as a gift from the owner of M/s. J.K Tyres & Industries Ltd. As per the records, it was gathered by the A.O that the aforesaid vehicle was gifted by M/s J.K Tyres & Industries Ltd. to the assessee on having achieved
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its sale targets. Considering the aforesaid fat the A.O called upon the assessee to explain as to why the value of the aforesaid car may not be brought to tax in her hands u/s 28(iv) of the Act, which, we find was accepted by the assessee. Before proceeding any further, I deem it fit to cull out sub-section (iv) of Section 28 of the Act, as under:
“28. The following income shall be chargeable to income-tax under the head “profits and gains of business or profession,- ……….. (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;”
As confirmed by M/s. J.K Tyres & Industries Ltd., the aforesaid car was given to the assessee for achievement of prescribed sales target. Also, there is no denying of the fact that the assessee had in the course of the assessment proceedings vide her letter dated 29.02.2016 offered the value of the aforesaid car of Rs.23,15,025/- for tax u/s.28(iv) of the Act. Considering the aforesaid facts which had not been rebutted by the assessee, I am of the considered view that no infirmity does emerge from the observation of the A.O who had rightly brought the value of the car to tax u/s. 28(iv) of the Act. Apropos, the assessee’s claim for depreciation on the aforesaid Mercedez Benz car, I find that as observed by the A.O as the assessee had not only claimed any depreciation on the said car during the year under consideration, but
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had in fact claimed the depreciation on the entire value of the same only from A.Y.2014-15, therefore, the said fact establishes beyond doubt that the said vehicle was not being used for business purposes during the year under consideration. I, thus, finding no infirmity in the view taken by the A.O who had rightly declined the assessee’s claim for depreciation on the aforesaid Mercedez Benz car as was raised in the course of the assessment proceedings, uphold the same. Thus, the Ground of appeal No.1 raised by the assessee is dismissed in terms of the aforesaid observations.
Adverting to the part disallowance u/s 40A(2)(A) of interest charges that were paid by the assessee to her seven family members and Mrs. Chandra Khatuja, I find that the lower authorities had scaled down the assessee’s claim for deduction from 18% to 15%, therein, leading to consequential disallowance of an amount of Rs.3,22,898/-.
After having given a thoughtful consideration to the aforesaid issue, I am of the considered view that the A.O had while making the aforesaid disallowance resorted to the comparison between the unlikes i.e. comparison between interest rate paid on unsecured loan, as against that paid on loans raised from a bank. As Section 40A(2)(a) of the Act presupposes a comparison between likes on the basis of which it could be gathered that the expenditure booked by the assessee as
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being excessive or unreasonable, therefore, the very basis leading to the aforesaid disallowance does not find favour with me. I, say so, for the reason that as in comparison to the loans raised from a bank which involves substantial formalities, hidden charges and offering of collateral securities etc., the raising of unsecured loan from a family member involves neither of such issues. Considering the aforesaid facts, I am unable to concur with the very basis leading to drawing of adverse inference by the lower authorities, and thus, is of the considered view that the matter in all fairness requires to be restored to the file of the A.O, with a direction to re-adjudicate the issue after considering the rates at which unsecured loans at the relevant point of time would be available. Needless to say, the A.O in the course of set- aside proceeding shall grant a reasonable opportunity of being heard to the assessee, who will remain at a liberty to place on record supporting documentary evidence to substantiate her claim. Thus, the Ground of appeal No.2 raised by the assessee is allowed for statistical purposes in terms of the aforesaid observation.
Adverting to the addition of Rs.84,958/- qua the difference in the account of MRF Tyres & Industries Ltd., I am of the considered view that as the assessee had not only failed to reconcile the aforesaid discrepancy before the lower authorities, but also adopting callous approach had not placed on record anything to substantiate the same
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in the course of the proceedings before me, therefore, I am constrained to uphold the said addition. Thus, the Ground of appeal No.3 raised by the assessee is dismissed in terms of the aforesaid observations.
In the result, appeal of the assesee is partly allowed for statistical purposes in terms of the aforesaid observations.
Order pronounced in open court on 23rd day of November, 2022.
Sd/- (रवीश सूद /RAVISH SOOD) �या�यक सद�य/JUDICIAL MEMBER रायपुर / Raipur; �दनांक / Dated : 23rd November, 2022 **SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-1, Raipur (C.G.) 4. The Pr. CIT-1, Raipur (C.G.) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक-सद�य” ब�च, रायपुर / DR, ITAT, “SMC” Bench, Raipur. गाड� फ़ाइल / Guard File. 6.
आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur