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2024 (8) TMI 1422 - AT - Income TaxDisallowance of depreciation relating to assets held in the name of directors - whether the assessee can claim depreciation on the assets when it did not hold a formal title of ownership but was in possession and used for business purposes? - HELD THAT - Hon ble Supreme Court in case of Mysore Mineral Ltd 1999 (9) TMI 1 - SUPREME COURT noted the legislative intent behind Section 32 emphasizing the words owned by the assessee. The ownership is a relative term that can include not just full legal ownership but also various shades of possession and control over the property. The Court recognized the concept of beneficial ownership where the person in control and possession of the property could be considered as the owner for tax purposes. The Hon ble Supreme Court decided in favour of assessee holding that for the purpose of claiming depreciation under Section 32 the term owner should be interpreted in a wider sense to include not only legal ownership but also cases where the assessee has acquired dominion over the asset and is in possession and control of the same. In the present case the assessee is using these assets for the purposes of business of the assessee - AO has not denied the same - AO has allowed all expenses relating to operating of these assets therefore we allow the claim of depreciation of the assessee. Thus this ground of the assessee is allowed. Disallowance of expenditure being 20% of total expenses - AO observed that during the assessment proceedings the assessee had claimed various office and other expenses which showed a significant increase compared to the previous year - AO s disallowance was primarily based on the assessee s failure to furnish complete documentary evidence for the claimed expenses - HELD THAT - Tribunal concludes that the disallowance made by the AO was based on assumptions and not on concrete evidence. The assessee s increased expenses are justified by the corresponding increase in turnover and the consistency in net profit margin further supports the genuineness of the expenses. Therefore we direct the deletion of the disallowance of 20% of the total expenditure made by the AO. Therefore this ground of assessee s appeal is allowed. Protective addition - unsecured loan u/s 68 - HELD THAT - We noted that the assessee had furnished substantial evidence including bank statements ITR copies and confirmations from TIPL. These documents prima facie established the identity creditworthiness and genuineness of the share application money received. We also noted that that the AO s primary concern was TIPL not being found at the given address. However it was emphasized that the AO did not conduct further investigations such as verifying the bank accounts or pursuing information from the Registrar of Companies. There was no substantive addition in the hands of TIPL. Protective assessments are primarily made to safeguard the revenue in situations of uncertainty. The protective assessment is inherently linked to the substantive assessment and without a substantive addition the protective assessment should also be nullified. As noted the decision of Pravinkumar Valjibhai Pujara HUF 2021 (7) TMI 1005 - ITAT AHMEDABAD wherein it was decided that substantive assessment has to precede protective assessment. AO s action to make protective assessment in the hands of assessee because TIPL has failed in producing it books of accounts at the time of their own assessment is not justifiable. As assessee has discharged the initial burden of proof by furnishing adequate evidence. The AO s failure to provide further substantial evidence or conduct thorough investigations meant that the protective addition under section 68 was not justified - this ground of assessee s appeal is allowed.
Issues Involved:
1. Disallowance of ROC Expenses of Rs. 4,00,000/- 2. Disallowance of Depreciation of Rs. 43,480/- 3. Disallowance of 20% of Total Expenses amounting to Rs. 1,47,786/- 4. Disallowance of Membership Fees of Rs. 12,000/- 5. Protective Addition of Rs. 75,00,000/- as Unexplained Unsecured Loan under Section 68 Detailed Analysis: On Ground Nos. 1 and 4: Issues: Disallowance of ROC Expenses of Rs. 4,00,000/- and Membership Fees of Rs. 12,000/- - The assessee's counsel did not press these grounds during the hearing, acknowledging that the ROC expenses issue is covered by judicial pronouncements and the membership fees issue involves a small amount. - Judgment: These grounds were dismissed. On Ground No. 2: Issue: Disallowance of Depreciation of Rs. 43,480/- - The Ld.Counsel for the assessee argued that the payments for the assets were made from the company's account and were used for business purposes. The AO allowed related expenses, indicating the assets' business use. - Reference was made to the Supreme Court judgment in Mysore Mineral Ltd. Vs. CIT (1999) 239 ITR 755 (SC), which supports the concept of "beneficial ownership." - Judgment: The Tribunal allowed the claim of depreciation, emphasizing that the term "owner" should include beneficial ownership where the assessee has control and possession of the asset. This ground was allowed. On Ground No. 3: Issue: Disallowance of 20% of Total Expenses amounting to Rs. 1,47,786/- - The AO disallowed 20% of expenses due to insufficient evidence and a significant increase in expenses compared to the previous year. - The Ld.Counsel for the assessee argued that the increase in expenses was proportional to the increase in turnover (68.08%) and that the net profit margin remained consistent. The books of accounts were duly audited with no adverse remarks. - Judgment: The Tribunal concluded that the disallowance was based on assumptions rather than concrete evidence. The increase in expenses was justified by the corresponding increase in turnover. This ground was allowed. On Ground Nos. 5, 6, & 7: Issue: Protective Addition of Rs. 75,00,000/- as Unexplained Unsecured Loan under Section 68 - The AO added Rs. 75,00,000/- as unexplained under section 68, citing doubts about the identity and genuineness of the transaction with M/s. Tripada Infrastructure Pvt. Ltd. (TIPL). - The Ld.Counsel for the assessee argued that substantial evidence was provided, including bank statements, ITR copies, and confirmations. The burden of proof shifted to the AO, who failed to disprove the genuineness of the transactions. - Judgment: The Tribunal noted that the assessee provided adequate evidence and that the AO failed to conduct thorough investigations. The protective addition was not justified without a substantive addition in TIPL's hands. This ground was allowed. Conclusion: - The appeal filed by the Assessee was partly allowed. - Order pronounced: 23 July, 2024 at Ahmedabad.
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