2018 (3) TMI 1922 - AT - Income Tax

Addition on account of expenses of personal use - AO disallowed which is 10% of expenses on vehicle maintenance sales promotion staff welfare travelling and conveyance and telephone - HELD THAT - CIT(A) held that the element of personal use cannot be completely rules out therefore he sustain the disallowance to the tune of 81, 166/-. It can be seen that the Assessing Officer made disallowance only on the estimated basis. Therefore there is no need to interfere with the order of the CIT(A). Ground No. 1 of the Revenue s appeal is dismissed. Unverified expenses - Addition on account of Diwali expenses - onus was on assessee to establish that it was incurred wholly and exclusively for the purpose of business - HELD THAT - CIT(A) has correctly held that the books of accounts of the assessee are audited and the assessee is maintaining the computerized accounts books in the shape of Cash Book Ledger Stock Register Salary Register Sale Purchase Voucher bank statement etc. regularly. Therefore any disallowance on estimated basis is not tenable. There is no need to interfere with the finding of the CIT(A). Addition on account of incorrect claim of depreciation on commercial vehicle - whether these vehicles were acquired between 01.10.1998 and 31.03.1999 and put to use before 01.04.1999 as per the provision of third provision to section 31(1) - HELD THAT - The perusal of the records show that the assessee furnished all the relevant documents before the Assessing Officer. There is no additional evidence given by the assessee before the CIT(A). CIT(A) rightly held that the Assessing Officer wrongly disallowed a sum of 1, 71, 929/- depreciation on commercial vehicle. As per 3rd proviso to clause (ii) of Sub-section (1) of Section 32 of the Act the assessee has rightly claimed the depreciation @40%. Thus there is no need to interfere with the findings of the CIT(A). Addition on account of incorrect claim of cost of acquisition of shares while computing Long Term Capital Gain on sale of shares - HELD THAT - The persual of the records show that the assessee furnished all the relevant documents before the Assessing Officer. Therefore there is no additional evidence given by the assessee before the CIT(A). CIT(A) rightly held that cost of acquisition which was disclosed in the Financial Year 2003-04 as purchase and the same was allowed by the CIT(A). There is no need to interfere with the findings of the CIT(A). Ground No. 6 7 are dismissed. Long Term Capital Gain addition - HELD THAT - From the records it can be seen that shareholding pattern was not verified by the Assessing Officer as well as the CIT(A). In fact the assessee has converted his business from proprietorship to Pvt. Ltd. company w.e.f. 01.01.2009 with allotment of 99.66% share in his name. Neither the Assessing Officer not the CIT(A) has not taken into account the effect of the revaluation after the proprietary concern is converted into Private Limited Company as regards to the shares allotted to the assessee as a Director of the said Private Limited Company. Therefore this needs to be looked into by the Assessing Officer. The matter is remanded back to the file of the Assessing Officer. Needless to say the assessee be given opportunity of hearing by following principles of natural justice.

Summary

Issues:
1. Disallowance of expenses on account of personal use
2. Disallowance of Diwali expenses
3. Disallowance of unverified expenses claimed as freight and vehicle running
4. Incorrect claim of depreciation on commercial vehicle
5. Incorrect claim of cost of acquisition of shares while computing Long Term Capital Gain
6. Long Term Capital Gain addition based on submission without considering assessment order reasons
7. Admitting additional evidence at the appellate stage contrary to rules

1. Disallowance of expenses on account of personal use:
The Assessing Officer disallowed a portion of expenses on the basis of estimation, which the CIT(A) upheld. The appeal by the Revenue against this disallowance was dismissed as the personal use element could not be completely ruled out.

2. Disallowance of Diwali expenses:
The CIT(A) sustained the disallowance of Diwali expenses, stating that personal use cannot be entirely ruled out. The Revenue's appeal on this ground was dismissed.

3. Disallowance of unverified expenses claimed as freight and vehicle running:
The CIT(A) upheld that the audited books of accounts and computerized records maintained by the assessee justified no disallowance on an estimated basis. The Revenue's appeal against this decision was dismissed.

4. Incorrect claim of depreciation on commercial vehicle:
The CIT(A) found that the Assessing Officer wrongly disallowed depreciation on commercial vehicles. The claim was in line with the IT Act provisions, and no additional evidence was submitted at the appellate stage. The Revenue's appeal on this issue was dismissed.

5. Incorrect claim of cost of acquisition of shares while computing Long Term Capital Gain:
The CIT(A) allowed the claim of cost of acquisition of shares based on evidence produced before the Assessing Officer. The Revenue's appeal against this decision was dismissed.

6. Long Term Capital Gain addition based on submission without considering assessment order reasons:
The Revenue contended that the CIT(A) overlooked the reasons in the assessment order while deleting the addition on Long Term Capital Gain. The Tribunal remanded the matter back to the Assessing Officer for verification of shareholding pattern post-conversion of business to a Pvt. Ltd. company.

7. Admitting additional evidence at the appellate stage contrary to rules:
The CIT(A) admitted additional evidence without providing an opportunity of rebuttal to the Assessing Officer. The Tribunal partially allowed the Revenue's appeal on this ground for statistical purposes.

This comprehensive analysis of the judgment covers the various issues raised in the appeal and the decisions rendered by the CIT(A) and the Tribunal.