2013 (1) TMI 425 - AT - Income Tax

Claim of loss on sale of car rejected - assessee submitted that car is a business asset and used for the purpose of business - Held that - It is not in dispute that the claimed loss on sale of cars was related to the sale of an imported car used as business asset for the business purpose by the assessee. It is also not in dispute that the assessee did not claim any depreciation on this imported car and he was not allowed any depreciation on it in view of prime condition attached to section 2(11). Thus CIT(A) rightly held that the loss incurred on sale of imported car was of capital loss. Hence, the same cannot be charged to P&L account because the imported car was not a part of block of asset and the same cannot be allowed as revenue loss - unable to see any reason to interfere with the impugned order in this regard - against assessee. Claim of interest rejected making reference to provisions of sec. 14A, 36(1)(iii) and 43B - Held that - In the cases of S.A. Builders (2006 (12) TMI 82 - SUPREME COURT) and Madhav Prasad Jatia (1979 (4) TMI 2 - SUPREME COURT) it is held that the authorities should have ensured as to whether the interest free loan was given to the sister concern (which is a subsidiary of the assessee) as a measure of commercial expediency and if it was, then it should have been allowed. But in the present case, the issue of commercial expediency in advancing interest free loan to the sister concern has not been considered by the authorities below as assessee has neither submitted any details pertaining to the financial charges and interest as claimed in the Profit & Loss account nor explained the purpose of interest bearing loan and its use for commercial expediency and never furnished the source of funds of investment yielding tax free interest and dividend for the assessee. The onus is on the assessee to prove that the expenditure or loss is admissible. The assessee has to prove that the expenditure or loss claimed is an admissible deduction (Commissioner of Income Tax v Calcutta Agency Ltd. (1950 (12) TMI 4 - SUPREME COURT). If the assessee does not prove or fails to prove that the deduction is admissible, then the inference goes against him/her (Commissioner of Income Tax v Ashwani Kumar Liladhar (1996 (7) TMI 111 - ALLAHABAD HIGH COURT). However, once the assessee has discharged the initial onus to prove that the deduction is allowable, the onus to prove that the deduction is not admissible, shifts to the tax authorities (Janyantilal Kishorilal v CIT(1984 (8) TMI 54 - MADHYA PRADESH HIGH COURT). Since this fact is not in dispute that the assessee did not submit books of account and vouchers before authorities below to show that the interest bearing loans were taken for business purpose and indeed used for the same and investment which accrue tax free income were made from difference source of funds and which has no relation to interest bearing loans. At the same time, there is no material to show that the AO had an opportunity to examine the issue of claim u/s 36(1)(iii) and to determine the amount of expenditure incurred in relation to income which does not form part of total income in accordance with such method prescribed in section 14A(2) - the issue of disallowance of financial charges (interest) requires de novo adjudication thus restored back to the file of AO - in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Disallowance of loss on sale of car.
2. Disallowance of interest claimed under various sections of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Loss on Sale of Car:
The assessee contended that the Commissioner of Income Tax (Appeals) [CIT(A)] was not justified in disallowing the loss on the sale of a car amounting to Rs. 25,52,839/-, which was claimed under Section 32 of the Income Tax Act, 1961. The assessee argued that the car was a business asset used for business purposes, and the loss was genuine. However, the Departmental Representative (DR) argued that the assessee did not produce the necessary books of accounts and vouchers to substantiate the claimed loss. The CIT(A) held that the imported car was considered a plant under Section 43(3) of the Act, but it was not part of the block of assets as defined under Section 2(11), which is a prerequisite for claiming depreciation. Consequently, the loss on the sale of the imported car was treated as a capital loss and not allowable as a revenue loss. The Tribunal upheld the CIT(A)'s decision, stating that the loss incurred on the sale of the imported car could not be charged to the Profit & Loss account as it was not part of the block of assets. Therefore, ground no. 1 was dismissed.

2. Disallowance of Interest Claimed:
The assessee challenged the disallowance of interest amounting to Rs. 29,34,984/- under Sections 14A, 36(1)(iii), and 43B(d) of the Act. The assessee argued that the interest was a permissible deduction and there was no valid basis for its disallowance. The DR supported the CIT(A)'s decision, which was based on the precedent set by the ITAT Mumbai in the case of Metro Exporters Ltd. vs. ITO. The CIT(A) observed that the assessee had invested Rs. 1,05,39,000/- in shares and advanced Rs. 80,11,229/- to sister concerns, which did not generate taxable income. The CIT(A) held that the interest payable on loans to the extent of investment in shares was not fully allowable under Section 14A as it was indirectly utilized for earning non-taxable income. The Tribunal noted that the assessee did not produce the books of accounts and vouchers to substantiate the claimed expenses and interest. The Tribunal also observed that the CIT(A) correctly applied the provisions of Section 14A, which disallows expenditure incurred in relation to income that does not form part of the total income. The Tribunal held that the issue required de novo adjudication and restored the matter to the Assessing Officer (AO) for a fresh decision. The AO was directed to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the Act, in accordance with Section 14A(2). The assessee was directed to furnish all relevant details and evidence of expenditure incurred in managing and supervising the investments in shares. Consequently, ground no. 2 was partly allowed for statistical purposes.

Conclusion:
The appeal was dismissed on ground no. 1 and partly allowed on ground no. 2 for statistical purposes. The AO was directed to re-examine the disallowance of interest claimed by the assessee under Section 14A(2) of the Act, allowing the assessee to furnish the necessary evidence to substantiate their claim.