2014 (2) TMI 662 - AT - Income Tax

Lumpsum disallowance out of total crane operating expenses Held that - The net profit rate declared by the assessee company is on very higher side in the year and the expenses are fully vouched and in some cases self-made vouchers are where proper vouches are not possible - adhoc disallowance is not justified - The assessee has disclosed better net profit rate as company to assessment year 2007-08 - When net profit rate has increased in this year, the tallying of percentage wise expenditure in two years is also not justified - the AO has not been able to pinpoint any bogus or fake vouchers or it does not related to the assessee business thus, the expenses have to be allowed Decided in favour of Assessee. Disallowance u/s 36(i)(iii) of the Act Held that - When the assessee has not paid any interest either on borrowed funds or on the capital of the partners then any sum advanced to the family members of the partners without interest cannot terminate in charging notional interest and making the addition - the advance has been made on account of business expediency Relying upon S.A. Builders Ltd. vs CIT 2006 (12) TMI 82 - SUPREME COURT - only real income is to be taxed - When interest bearing funds have not been diverted then such notional disallowance is not justified thus, the disallowance made u/s 36(1)(iii) is not justified Decided in favour of Assessee. Deletion made on account of excess depreciation Held that - Numerous pieces of evidences have been filed by the assessee in support of its claim which includes RTO registration wherein the cranes are registered under the head Truck Crane which shows that crane is mounted on vehicle - A certificate of the Distt. Transport Officer, stating the crane registered under Vehicle No. for which fitness is not required thus, there was no infirmity in the order of the CIT(A) Decided against Revenue.

Summary

Issues Involved:
1. Disallowance of lumpsum amount in crane operating expenses.
2. Disallowance of interest under section 36(i)(iii).
3. Deletion of addition for excess depreciation claimed on Hydraulic Crane Machine.

Analysis:

Issue 1: Disallowance of lumpsum amount in crane operating expenses
- The assessee contested the lumpsum disallowance of Rs. 4.50 lakhs in crane operating expenses, arguing that expenses were fully justified and vouched for. The AO disallowed the amount due to lack of proper records. However, the Tribunal noted the higher net profit rate declared by the assessee and found the expenses fully vouched. Adhoc disallowance was deemed unjustified, especially as no fake vouchers were identified. Citing relevant precedents, the Tribunal ordered the deletion of the disallowed amount, disagreeing with the AO and CIT(A).

Issue 2: Disallowance of interest under section 36(i)(iii)
- The AO proposed disallowing interest on a proportionate basis, which the assessee objected to as no interest was paid on borrowed funds or partner capital. The Tribunal agreed with the assessee, noting that no interest was charged on advances to family members of partners. It held that notional interest cannot be levied when funds were advanced for business expediency, citing legal precedents emphasizing taxation of real income. Consequently, the Tribunal ordered the deletion of the disallowed interest amount, allowing the assessee's appeal.

Issue 3: Deletion of addition for excess depreciation claimed on Hydraulic Crane Machine
- The Revenue's sole ground concerned the deletion of an addition for excess depreciation claimed on Hydraulic Crane Machine. The AO disallowed the claimed depreciation, asserting that the machines were eligible for a lower rate. However, the Tribunal found in favor of the assessee, noting evidence provided, including RTO registration and certificates, supporting the higher depreciation claim. Distinguishing cited precedents, the Tribunal upheld the deletion of the addition, dismissing the Revenue's appeal.

In conclusion, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal, providing detailed reasoning and legal analysis for each issue raised in the cross-appeals.