2017 (11) TMI 640 - AT - Income Tax

Disallowance of vehicle running and maintenance expenses - allowable business expenses - Assessee argued that it is an adhoc addition - Held that - We do not agree with the contention of the Learned Counsel for the Assessee. The A.O. has given specific finding that assessee did not file copy of the account of these expenses and has not justified that entire expenditure having used for the purpose of business. The Ld. CIT(A) also found that if the total claim of assessee is considered, then the vehicle must have been used excessively atleast for 300 KM per day. Considering the nature of business of assessee i.e., Consultancy Services carried out from the residence of the assessee, the authorities below were justified in disallowing part of the expenditure. - Decided against assessee. Addition on account of travelling expenses - personal expenditure incurred by assessee for visiting Dubai - Held that - The assessee did not file specific reply before A.O. as per his query. The assessee has not established that the travelling expenses have been incurred for the business use. The Ld. Counsel for the Assessee admitted before Ld. CIT(A) that assessee has visited Dubai and the entire expenditure pertains to her Dubai visit. It was found that assessee had no business activities in Dubai and did not produce any evidence or material before A.O. to show that expenditure was incurred for the purpose of business. Since the assessee failed to justify that these expenses were incurred for the purpose of business, there were no justification to interfere with the orders of the authorities below. Further, it was found that during the year assessee was working for an American principal and had no business interest in Dubai. Learned Counsel for the Assessee during the course of arguments could not satisfy as to what business purpose have been served by visiting Dubai.- Decided against assessee. Addition on account of purchase of jewellery - A.O. found that the credit card statement did not show any entry of purchase of jewellery - Held that - Assessee referred to a bank statement of Citi Bank to show the entry of ₹ 32,871 through card. It is an account maintained by assessee. Therefore, this needs verification at the level of the A.O. I, accordingly, set aside the orders of the authorities below and restore this issue to the file of A.O. with a direction to re-decide this issue by verifying the fact of payment through bank statement of Citi Bank. Assessee is directed to produce copy of this bank statement before A.O. for his verification. The A.O. shall give reasonable, sufficient opportunity of being heard to the assessee. Accordingly, part of Ground No.4 of appeal of assessee is allowed for statistical purposes. Addition on account of purchase of two cars - Held that - As per statement of assessee and letter issued by the Financier on 26th October, 2005, the assessee has paid entire outstanding amount to M/s. Kotak Mahindra Primus Ltd., in respect of purchase of the vehicle and from the account submitted by the assessee it was seen that assessee paid total of ₹ 4,93,085 to M/s. Kotak Mahindra Primus Ltd., and no source have been explained. Assessee through his synopsis submitted that Hyundai Car was purchased on 13th April, 2005 for ₹ 5,80,417 and loan was taken from M/s. Kotak Mahindra Primus Ltd., on 04th October, 2005 for ₹ 4,50,000 and there are withdrawals of ₹ 1,40,000 from the Bank on 17th March, 2015. CIT(A), therefore, correctly did not accept the explanation of assessee because the car is purchased in April, 2005 but assessee had taken loan for purchase of car in October, 2005. The claim of assessee was therefore, wholly incorrect and an afterthought. No evidence was furnished by the assessee before the authorities below that vehicle was sold to her without payment. It is also highly improper that seller would sold the car to assessee without any payment. When loan was granted in October, 2005 for purchase of car, there is no question of purchase of car by assessee in April, 2005 without any payment. No evidence of withdrawal from the Bank connected with the purchase of the car in April, 2005 have been submitted before the authorities below. Therefore, authorities below were justified in holding that assessee made purchase of car from undisclosed source. Therefore, addition was correctly made against the assessee. Repayment of loan to M/s. Kotak Mahindra Bank, Assessee filed letter of Kotak Mahindra Bank to the assessee (PB-3) to show that amount have been returned to them. In this letter, column-4 have been mentioned cheque no. the next column-5 is receipt reference no. . Both these columns are blank and have not been filled-in. However, rest of the columns are filled-in to show payment of ₹ 4,93,085 on different dates. The assessee shall have to explain the source of the repayment of the loan to M/s. Kotam Mahindra Primus Ltd., However, assessee failed to explain the source of repayment of loan before the authorities below as well as before the Tribunal. Therefore, Ld. CIT(A) was justified in holding that payment is made from unaccounted income. Therefore, enhancement to the extent of ₹ 4,93,085 is wholly justified. As regards the second vehicle purchased by assessee on 15th October, 2005, the assessee claimed that part of the amount is invested after selling the first vehicle in February, 2006. No material has been brought on record by the assessee to show that the alleged sale consideration was received by her prior to the sale of the first vehicle on 18th February, 2006. No satisfactory evidence of withdrawal of the cash prior to purchase of the vehicle have been filed and explained. In its chart the assessee has mentioned certain dates of December, 2005 and January, 2006 of payment for purchase of second vehicle which were after the purchase of the second vehicle on 15th October, 2005. Therefore, would not able to explain the source of purchase of the car.

Summary

Issues Involved:
1. Validity of the CIT(A) order.
2. Disallowance of vehicle running and maintenance expenses.
3. Disallowance of traveling expenses.
4. Disallowance related to the purchase of jewelry and two cars.
5. Enhancement of income due to disallowance of repayment of car loan to Kotak Mahindra Bank.

Detailed Analysis:

1. Validity of the CIT(A) Order:
The appellant claimed that the order passed by the CIT(A) was wrong and bad in law. However, this ground was general in nature and required no adjudication.

2. Disallowance of Vehicle Running and Maintenance Expenses:
The assessee claimed ?2,02,381 in vehicle running and maintenance expenses. The Assessing Officer (A.O.) disallowed ?52,381 due to the absence of a copy of the account for these expenses and the personal use of the car. The CIT(A) confirmed the disallowance, noting that the vehicle must have been used excessively, at least 300 KM per day, which was not justified by the nature of the assessee’s business. The Tribunal upheld the disallowance, agreeing with the findings of the A.O. and CIT(A).

3. Disallowance of Traveling Expenses:
The assessee claimed ?1,28,341 in traveling expenses but failed to provide specific replies or evidence to justify the business purpose of these expenses. The CIT(A) found that the expenses were related to a personal trip to Dubai, with no business activities in Dubai. The Tribunal dismissed the ground, finding no justification to interfere with the orders of the authorities below.

4. Disallowance Related to Purchase of Jewelry and Two Cars:
The A.O. disallowed ?32,871 for jewelry and ?16,27,809 for two cars, treating them as unexplained investments under Section 69 of the I.T. Act. The CIT(A) confirmed these additions and further enhanced the income by ?4,93,085 for repayment of a car loan to Kotak Mahindra Bank. The Tribunal partially allowed the appeal for statistical purposes, directing the A.O. to verify the payment of ?32,871 for jewelry through the bank statement of Citi Bank.

5. Enhancement of Income Due to Disallowance of Repayment of Car Loan:
The CIT(A) found that the assessee failed to explain the source of ?4,93,085 paid to Kotak Mahindra Bank for the car loan. The Tribunal upheld the enhancement, noting that the assessee did not provide satisfactory evidence to explain the source of repayment. Additionally, the Tribunal confirmed the addition of ?16,27,809 for the purchase of two cars, as the assessee could not satisfactorily explain the source of funds.

Conclusion:
The Tribunal dismissed the grounds related to the disallowance of vehicle running and maintenance expenses, traveling expenses, and the enhancement of income due to the repayment of the car loan. However, it allowed the appeal for statistical purposes regarding the purchase of jewelry, directing the A.O. to verify the payment through the bank statement. The appeal was thus partly allowed for statistical purposes.