2015 (1) TMI 1234 - AT - Income Tax

Disallowance of motor car expenses and depreciation on motor car - A.O has disallowed the claim of depreciation mainly for the reason that the motor car was in the name of the Director and not in the name of the Assessee and also disallowed the claim of the Assessee for expenses for the reason that Assessee could not prove that the expenses have been incurred wholly and exclusively for the purpose of business and were not in personal in nature - Held that - On perusing the Balance sheet placed by the Assessee in the paper book, it is seen that the motor car is reflected in the schedule of fixed assets. Before us, Revenue has not brought any material on record to controvert the submissions of Assessee that the funds of Assessee has been used for the purchase of motor car. We further find that on identical facts, in the case of Swati Autolink Pvt. Ltd. vs. ITO (2013 (2) TMI 727 - ITAT AHMEDABAD) as held mere non-registration of a vehicle in the name of the company under the Motor Vehicles Act, cannot disentitle it in regard to its claim of depreciation, when the facts on record are undisputed that the asses see company has, in fact, made the investment in pur chase of the vehicle and such vehicle is being used for its business. The requirement of section 32 is that the vehicle must be owned by the assessee and not that the assessee must be a registered owner of the same under the Motor Vehicles Act. - Decided in favour of the Assessee Disallowance made u/s. 40A(2)(b) - Assessee had borrowed funds from related parties in earlier years - Held that - Assessee had borrowed funds from related parties in earlier years also and no disallowance on account of interest was made by the Revenue while framing the assessment u/s. 143(3). The aforesaid submission of the Assessee has not been controverted by Revenue by bringing any contrary material on record. A.O while disallowing the expenses has noted that the loans from bank are available @ 12% or less. However we find that A.O has not placed on record any evidence of such interest being charged by the banks. It is also Assessee s submission that the loans obtained from the related party are in the nature of unsecured loan whereas the loan from bank are in the nature of secured loan where the Assessee is required to provide security and also required to comply with other formalities. These submissions of Assessee have also not been controverted by Revenue by placing any contrary material on record. Further no material has been brought on record by Revenue to demonstrate that the funds borrowed by the Assessee have been used for non business purposes. Considering the totality of the aforesaid facts, we are of the view that no disallowance on account of interest is required in the present case and therefore direct the deletion of disallowance. - Decided in favour of the Assessee

Issues Involved:
1. Applicability of Section 14A and disallowance under Rule 8D.
2. Disallowance of motor car expenses and depreciation.
3. Disallowance under Section 40A(2)(b) for excessive interest payments.

Detailed Analysis:

1. Applicability of Section 14A and Disallowance under Rule 8D:
The Assessee challenged the disallowance of Rs. 3,11,390/- made by the Assessing Officer (A.O.) under Section 14A/Rule 8D. However, this ground was not pressed by the Assessee and was therefore dismissed as not pressed.

2. Disallowance of Motor Car Expenses and Depreciation:
The A.O. disallowed the depreciation of Rs. 1,04,231/- and motor car expenses of Rs. 1,15,313/- on the grounds that the motor car was registered in the name of the director and not the company. The A.O. argued that the Assessee, being a separate legal entity from its director, could not prove the business use of the car. The CIT(A) upheld this view, stating that ownership and business use must be established for depreciation claims, which the Assessee failed to do.

The Tribunal, however, found that the motor car was reflected in the Assessee's fixed assets and that the funds for its purchase were provided by the Assessee. It cited the case of Swati Autolink Pvt. Ltd., where similar circumstances led to a favorable decision for the Assessee. The Tribunal held that mere non-registration of the vehicle in the company's name does not disqualify the Assessee from claiming depreciation if the vehicle is used for business purposes. Therefore, the Tribunal allowed the Assessee's claim for depreciation and motor car expenses.

3. Disallowance under Section 40A(2)(b) for Excessive Interest Payments:
The A.O. disallowed Rs. 7,81,962/- of the interest expenses paid to directors and related persons, arguing that the 24% interest rate was excessive compared to the 12% or less available from banks. The CIT(A) upheld this disallowance, citing various judicial precedents that support disallowing excessive interest payments to related parties.

The Tribunal, however, noted that the Assessee had paid similar interest rates in previous years without disallowance. It also observed that the A.O. had not provided evidence of the lower interest rates from banks or considered the unsecured nature of the loans from related parties, which do not require collateral or compliance with bank formalities. The Tribunal concluded that the disallowance was not justified and directed the deletion of the disallowance.

Conclusion:
The Tribunal allowed the Assessee's appeal in part. It upheld the claims for motor car expenses and depreciation, and directed the deletion of the disallowance under Section 40A(2)(b). The ground related to Section 14A was dismissed as not pressed. The appeal was thus partly allowed.

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