2013 (6) TMI 821 - AT - Income Tax

Summary

Issues involved:
The judgment involves appeals filed by the assessee against three different orders passed by the ld. CIT(A)-I, Agra for the Assessment Years 2000-01, 2001-02 & 2002-03. The main issues include the validity of assessment order u/s 153A of the Income Tax Act, 1961, disallowance of salary/remuneration to partners, disallowance of car expenses, and disallowance of interest.

Validity of Assessment Order u/s 153A:
The appellant challenged the assessment order passed by the A.O. u/s 153A of the Income Tax Act, 1961, citing the absence of a proper search warrant against the assessee. However, the ld. Authorised Representative withdrew this ground for all three Assessment Years, leading to its dismissal.

Disallowance of Salary/Remuneration to Partners:
The A.O. disallowed the payment of salary/remuneration to partners as the partnership deed did not quantify the amount, citing Circular No.739. The I.T.A.T. order in a similar case favored the assessee, following the judgment of the Hon'ble High Court of Himachal Pradesh. Consequently, the disallowances made by the A.O. for salary/remuneration to partners were deleted for all three Assessment Years.

Disallowance of Car Expenses:
The A.O. disallowed a portion of car expenses for personal use, a decision upheld by the CIT(A). The I.T.A.T. confirmed the disallowance, stating that if expenses are not wholly and exclusively for business purposes, they cannot be allowed under section 37 of the Act. Therefore, the additions made by the A.O. for car expenses were upheld for all three Assessment Years.

Disallowance of Interest:
The assessee challenged the disallowance of interest, arguing it was notional due to depreciation adjustments. However, the A.O. upheld the disallowance, considering the diversion of business funds to partners. The I.T.A.T. confirmed the disallowance of interest, as the borrowed funds were diverted, making the interest not allowable under section 36(1)(iii) of the Act. Consequently, the disallowance of interest was sustained for the relevant Assessment Years.

In conclusion, the appeals filed by the assessee were partly allowed, with decisions varying on different grounds such as disallowance of salary/remuneration to partners, car expenses, and interest.