2024 (9) TMI 1101 - AT - Income Tax

Unexplained income - Amount received from behalf of customers for tractor sales - assessee was involved in arranging finance for the customers from a NBFC and assessee received an amount from NBFC on behalf of its customer to whom the sale of tractor has been made in the subsequent financial year - HELD THAT - We have analysed assessment order wherein, the AO mentioned that there was an enquiry u/s. 133(6) of the Act from NBFC/M/s. MMFSL relating to the transactions between the assessee and M/s. MMFSL. In this enquiry it is established that there was no amount due to the financier from the assessee, hence the AO treated the same as unexplained income. In our observation, this information is correct but the interpretation taken by the AO is incorrect as the same amount received from NBFC/M/s. MMFSL, but belongs to the customers on whose behalf the assessee received the same and in very next year disclosed the same in its turnover. Clearly, it s a case of an inadvertent error in classification and has no bearing on the revenue or tax liability of the assessee. Disallowance u/s. 38(2) - depreciation on car presuming, element of personal use by the directors of the company - HELD THAT - On this issue the position of law is very clear that no disallowance can be made in the hands of the assessee company being an artificial judicial person. At the max, if the AO is able to establish the persons views of the assets of the company the same can be added back as business perks in the hands of directors, but no disallowance can be there in the hands of the assessee company. Based on above, this ground of appeal is also allowed and AO is directed to delete the addition made in the hands of the assessee company. Appeal of the assessee is allowed.

Summary

Issues:
1. Confirmation of assessment order by CIT(A)
2. Addition of undisclosed income
3. Disallowance of depreciation for personal use

Analysis:

Confirmation of Assessment Order by CIT(A):
The appellant challenged the order of National Faceless Appeal Centre (NFAC) dated 23.02.2023 under section 250 of the Income Tax Act, 1961 for the assessment year 2014-15. The CIT(A) confirmed the assessment order dated 23.12.2016, leading to the appellant's appeal before the ITAT Jabalpur. The appellant raised various grounds of appeal questioning the legality of the assessment order, citing violations of natural justice principles. The ITAT reviewed the orders of the AO and CIT(A) along with the appellant's submissions. The ITAT proceeded to address each ground of appeal individually.

Addition of Undisclosed Income:
The primary issue revolved around the addition of Rs. 17,60,151 as unexplained income by the AO. The appellant, a dealer of Eicher Tractors, received this amount from Mahindra & Mahindra Financial Services Ltd. (MMFSL) on behalf of customers for tractor sales. The ITAT scrutinized the balance sheet, ledger accounts, and reconciliation documents submitted by the appellant. It was revealed that the amount credited to MMFSL actually belonged to the customers, as evidenced by subsequent sales. The AO's classification of this amount as unexplained income was deemed incorrect by the ITAT, noting it was an inadvertent error with no impact on the appellant's tax liability. Consequently, the ITAT directed the AO to delete the addition.

Disallowance of Depreciation for Personal Use:
Another issue pertained to the disallowance of Rs. 20,000 as depreciation on a car for presumed personal use by the company's directors. The ITAT clarified that no disallowance could be imposed on the artificial juridical person of the company. Any personal use by directors could only be treated as business perks in their individual capacity. Therefore, the ITAT instructed the AO to delete the disallowed depreciation amount from the company's assessment.

In conclusion, the ITAT allowed the appellant's appeal, overturning the CIT(A)'s confirmation of the assessment order and directing the deletion of both the addition of undisclosed income and the disallowed depreciation amount. The judgment was pronounced on 19th June 2024.