2017 (4) TMI 814 - AT - Income Tax

Claim of depreciation on motor car registered in the name of the Director and not the company - Held that - As decided in Edwise Consultants Pvt. Ltd. 2015 (12) TMI 297 - ITAT MUMBAI as relying on case of Aravali finlease Ltd (2011 (8) TMI 814 - Gujarat High Court ) and has taken the decision that the depreciation is allowable in the hands of the company, even if it is registered in the name of its director provided that the vehicle is used for the purpose of business of company and income derived there from was shown as income of the company. As the funds for purchase of vehicles have been provided by the assessee company and they have been shown as assets of the assessee company. Hence, the assessee company should be considered as owner for all practical purposes and hence it is entitled for depreciation - Decided in favour of assessee Disallowance u/s.14A - Held that - We find that assessee has not earned any exempt income in the present assessment year. Hence on the basis of Hon ble Delhi High Court decision in the case of Cheminvest Ltd. Vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT), since no exempt income has been earned no disallowance u/s.14A is liable to be made. However, in this case CIT(A) has affirmed the disallowance of ₹ 69,140/-. In this view of the matter revenue cannot have any grievance. Accordingly, we uphold the order of the learned CIT(A). - Decided against revenue Disallowance of prior period expenses - Held that - We find that Assessing Officer has not accepted the assessee s claim of prior period expenditure on the basis that assessee has not filed revised return. Nowhere in the assessment order, assessing officer has mentioned that otherwise he is satisfied with the expenditure claimed. In our considered opinion learned CIT(A) has erred in appreciating these aspect since Assessing Officer has not examined the veracity of these expenditures. We remand the issue to the file of the Assessing Officer. Assessing Officer will examine the veracity of these expenditures and allow accordingly as per law.

Summary

Issues involved:
1. Disallowance of depreciation on a motor car registered in the name of the Director and not the company.
2. Disallowance under Rule 8D for interest on car loan, packing credit interest, and term loan interest.
3. Claim of prior period expenses disallowed in A.Y. 2007-08.

Issue 1: Disallowance of depreciation on motor car:
The Assessing Officer disallowed the depreciation on a motor car as it was registered in the Director's name, not the company's. However, the CIT(A) allowed the depreciation based on the Supreme Court's ruling in Mysore Minerals Ltd. vs. CIT, stating that ownership for depreciation purposes can exist even without a formal deed of title. The Tribunal upheld the CIT(A)'s decision, citing precedents from the Hon'ble Gujarat High Court and Hon'ble Delhi High Court, emphasizing that if the vehicle is used for business purposes and owned by the company in practice, depreciation should be allowed. The Tribunal found in favor of the assessee, considering the ownership based on practical aspects.

Issue 2: Disallowance under Rule 8D for interest expenses:
The assessee explained to the Assessing Officer that no exempt income was earned during the assessment year, hence no disallowance under section 14A should be made. However, the AO made a disallowance under Rule 8D, which the CIT(A) reduced by granting relief for interest paid on car loan, packing credit interest, and term loan interest that were not related to investments in securities. The Tribunal upheld the CIT(A)'s decision, citing the Hon'ble Delhi High Court's ruling that no disallowance under section 14A is warranted if no exempt income is earned. The revenue's appeal was dismissed based on this reasoning.

Issue 3: Claim of prior period expenses:
The assessee claimed prior period expenses disallowed in A.Y. 2007-08 should be allowed as expenditure for the current year. The CIT(A) allowed the prior period expenses, citing a decision from the Hon'ble Bombay High Court. However, the Tribunal remanded the issue to the Assessing Officer, noting that the AO did not examine the veracity of the expenditures and directed the AO to re-examine and allow the expenses accordingly. The Tribunal partly allowed the revenue's appeal on this issue.

In conclusion, the Tribunal upheld the depreciation allowance on the motor car, dismissed the disallowance under Rule 8D for interest expenses, and remanded the claim of prior period expenses for further examination by the Assessing Officer.