2014 (1) TMI 881 - AT - Income Tax

Disallowance u/s 36(1)(iii) of the Act Held that - There was no logic given by the authorities below as both the AO as well as CIT(A) has not given a finding as to how the assessee is required to capitalize the interest expenses - The reasoning far disallowance is self-contradictory - the disallowance made by the Assessing Officer and is not justified the assessee has pointed out that it has sufficient interest free fund and this is not contradicted by the authorities below even before the Tribunal no material has been placed on record suggesting that the assessee was not having interest free funds available for such advances The decision in Munjal Sales Corporation Versus Commissioner of Income Tax 2008 (2) TMI 19 - Supreme Court followed - the Assessing Officer to delete the disallowance Decided in favour of Assessee. Confirmation of depreciation interest on vehicle Held that - The terms owned ownership and own are generic terms - The meaning would depend on the context in which the term are used - the assessee has made submission that the cars were purchased in the name of the Director and such cars are utilized for the purposes of its business - the assessee would be entitled for the allowance depreciation as well as interest expenditure if the assessee is able to prove that the vehicles were under the dominion control of the assessee-company and were utilized for its business purpose - The contention of the assessee is that the vehicles were utilized for business purpose and the assessee-company has shown it in block of assets - this contention of the assessee is not considered by the authorities Relying upon Mysore Minerals Ltd. Versus Commissioner of Income-Tax 1999 (9) TMI 1 - SUPREME Court Ao is directed to delete the addition Decided in favour of Assessee.

Summary

Issues:
1. Disallowance under sec.36(1)(iii)
2. Disallowance of depreciation and interest on vehicles
3. Disallowance under sec. 40(a)(ia)
4. Disallowance under sec. 41(1) of the Act
5. Charging of interest under sec. 234A and 234B

Issue 1: Disallowance under sec.36(1)(iii)
The appeal challenged the order of the Commissioner of Income-tax (Appeals) regarding disallowance under sec.36(1)(iii) for the assessment year 2009-10. The Assessing Officer had made disallowances, which were partly upheld by the CIT(A). The primary contention was the disallowance of a claim amounting to Rs.92,17,379. The appellant argued that the disallowance was unjustified as they had sufficient interest-free funds for the advances made. The appellant cited legal precedents to support their claim. The Tribunal found that the disallowance made by the authorities was not justified as the appellant had demonstrated the availability of interest-free funds for the advances. The disallowance was consequently deleted.

Issue 2: Disallowance of depreciation and interest on vehicles
The second ground of appeal concerned the disallowance of depreciation and interest on vehicles totaling Rs.6,47,061. The appellant contended that the vehicles were used for business purposes even though registered in the name of the Director. The Tribunal noted that the authorities had not considered the appellant's argument in light of legal precedent, specifically the interpretation of ownership in the context of depreciation claims. Following the legal interpretation provided by the Hon'ble Supreme Court, the Tribunal allowed the appeal and directed the Assessing Officer to delete the disallowance related to depreciation and interest on vehicles.

Issue 3: Disallowance under sec. 40(a)(ia)
The grounds related to disallowance under sec. 40(a)(ia) and sec. 41(1) were not pressed by the appellant and were dismissed. The Tribunal did not delve into these issues as they were not actively pursued during the proceedings.

Issue 4: Charging of interest under sec. 234A and 234B
The final issue pertained to the charging of interest under sec. 234A and 234B of the Act. The Tribunal noted that this ground was considered consequential and did not require further adjudication. Therefore, no detailed analysis was provided on this issue.

In conclusion, the Tribunal partially allowed the appeal of the assessee, primarily focusing on the disallowances under sec.36(1)(iii) and the disallowance of depreciation and interest on vehicles. The Tribunal emphasized the importance of considering legal precedents and interpretations in deciding on such matters, ultimately leading to the deletion of the disallowances in question.