2011 (3) TMI 1830 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of purchases from M/s. Deepak Enterprises.
2. Addition of interest paid.
3. Addition of partners' personal expenses on motor car expenses and depreciation.

Summary:

1. Disallowance of Purchases from M/s. Deepak Enterprises:
The assessee contested the disallowance of Rs. 2,12,551/- for purchases from M/s. Deepak Enterprises, arguing that the goods were received and consumed in the current year, and the corresponding purchases were recorded accordingly. The Ld. CIT(A) upheld the AO's decision, noting that the assessee failed to explain discrepancies in purchase dates and did not provide sufficient evidence during assessment proceedings. The Tribunal, however, allowed the admission of additional evidence based on precedents and remitted the issue back to the AO for re-examination, giving the assessee a reasonable opportunity to present evidence.

2. Addition of Interest Paid:
The Ld. CIT(A) confirmed the addition of Rs. 16,33,869/- of interest paid, citing the assessee's failure to establish the nexus between borrowed money and its business purposes. The assessee argued that advances to SIL were initially interest-bearing but later treated as interest-free due to SIL's financial difficulties. The Tribunal remitted the issue back to the AO to examine the balance sheet and decide afresh, considering the decision of the Jurisdictional High Court in CIT v. Reliance Utilities & Power Ltd.

3. Addition of Partners' Personal Expenses on Motor Car Expenses and Depreciation:
The Ld. CIT(A) upheld the AO's disallowance of 1/5th of vehicle running and maintenance expenses and 1/5th of depreciation on motor cars, amounting to Rs. 1,56,776/-. The Tribunal found no infirmity in this decision, considering the disallowance reasonable for personal use of motor cars by partners.

Conclusion:
The appeal filed by the assessee is partly allowed for statistical purposes, with the issues of disallowance of purchases and addition of interest paid remitted back to the AO for re-examination. The addition of partners' personal expenses on motor car expenses and depreciation is upheld.

Order pronounced on this 9th day of March, 2011.