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2017 (11) TMI 1067 - AT - Income TaxDisallowance u/s 14A - Held that - As assessee has not earned any exempt income, then no disallowance u/s 14A can be made in this year in view of the ratio and principle laid down by the Hon ble Jurisdictional High Court in the case of Cheminvest Ltd. vs. ACIT (2015 (9) TMI 238 - DELHI HIGH COURT). Thus, on this ground alone, we hold that the disallowance u/s 14A read with Rule 8D cannot be sustained and is directed to be deleted. Disallowance of depreciation and car running expenses - personal use of assets - Held that - There is no dispute that these cars are assets of the assessee company which have been shown as part of the fixed assets in the balance sheet. Most of the cars are appearing as WDV in the schedule of fixed assets and depreciation has been claimed. Once the cars are owned by the assessee company and is found to part of fixed assets then, ostensibly depreciation has to be allowed. The assessee before the AO as well as before the Ld. CIT (A) has categorically submitted that since renovation work was carried out at hotel premises, therefore, these cars were parked at the residence of Shri Suresh Nanda and his son Shri Sanjeev Nanda who held majority stake directly or indirectly in the assessee company. Mere parking of cars at the premises of these persons, cannot ipso facto lead to an inference that the depreciation has to be disallowed which otherwise are the assets of the assessee company. Assessee had also submitted that these cars were used purely and wholly for the purpose of hotel business and in absence of rebuttal of this explanation, depreciation cannot be disallowed and accordingly, we held Ld. CIT (A) has rightly allowed depreciation.- Decided in favour of assessee. Disallowance of bad debts - Held that - The amount written off as bad debt has been admitted to be offered to tax in the earlier years and it has been written off from the books of accounts in this year and hence, the conditions as laid down u/s 36(2) read with section 36(1)(vii) stands satisfied and therefore, the bad debt written off has to be allowed as deduction.- Decided in favour of assessee. Allowability of trade advance written off - Held that - It is not in dispute that the amount of ₹ 11,05,058/- is a trade advance given during the course of business and for business purpose which had become irrecoverable. In this situation, ostensibly such an amount has to be allowed either as business expenditure u/s 37(1) or as a business loss while computing the profit and gains u/s 28 read with section 29, because such a trade advance was given during the course of the running of the business. Thus, the said amount though may not be allowed as bad debt but has to be allowed as business loss. Accordingly, we hold that the amount of trade advance written off in this year has to be allowed and consequently, ground No. 3 is allowed. Adhoc disallowance in respect of expenses of running and maintenance of cars - Held that - AO while making the disallowance has made purely adhoc disallowance without pin pointing any specific nature of expenditure which can be said to be not for the purpose of business. In the case of the company, which is running a five star hotel and using cars for its hotel business and maintaining all the records, the AO has to point out as to which part of the expenditure debited are not been verifiable. Simply because cars were parked for temporary period at the premises of promoters, it does not mean it were used for non-business purpose. Such an adhoc disallowance cannot be sustained. Ld. CIT (A) has not examined this issue at all and gave a wrong finding of fact that AO has not made any such disallowance. Accordingly, we direct the deletion of such adhoc disallowance made by the A.0. - Decided in favour of assessee. Depreciation on gym equipments installed in the premises of Managing Director - Held that - Simply because it is being used by Managing Director it cannot be held to be for private use so as to warrant disallowance of depreciation. At the most if any equipment has been placed for exclusive use of Managing Director the same should be added as perquisite in the hands of the said Director but cannot be disallowed in the hands of the assessee company when this asset already forms part of the block of the assets and depreciation has been allowed earlier. Accordingly, we do not find any reason to sustain such disallowance and the same is directed to be deleted. - Decided in favour of assessee.
Issues Involved:
1. Deletion of disallowance under Section 14A read with Rule 8D. 2. Deletion of addition on account of disallowance of depreciation and car running expenses. 3. Deletion of addition on account of bad debts written off. 4. Legality of the order under Section 153A. 5. Ad hoc disallowance of expenses on running and maintenance of cars. 6. Disallowance of depreciation on gym equipment. Issue-wise Detailed Analysis: 1. Deletion of Disallowance under Section 14A read with Rule 8D: The Revenue contended that the CIT(A) erred in deleting the disallowance of ?9,71,73,724/- made by the AO under Section 14A read with Rule 8D. The Tribunal noted that the assessee did not earn any exempt income during the relevant year, a fact acknowledged by both the AO and CIT(A). The Tribunal relied on the jurisdictional High Court's decision in Cheminvest Ltd. vs. ACIT, which held that if no exempt income is earned, no disallowance under Section 14A can be made. Consequently, the Tribunal directed the deletion of the disallowance. 2. Deletion of Addition on Account of Disallowance of Depreciation and Car Running Expenses: The AO disallowed depreciation and car running expenses amounting to ?33,03,519/- on the grounds that certain cars were found at the residences of individuals with significant control over the assessee company. The CIT(A) allowed the depreciation, noting that the cars were owned by the assessee company and used for its business purposes. However, the CIT(A) did not address the specific disallowance of ?20 lacs for car running expenses. The Tribunal upheld the CIT(A)'s decision on depreciation, stating that the cars were part of the company's fixed assets and used for business purposes. The Tribunal also directed the deletion of the ad hoc disallowance of ?20 lacs, finding it unsustainable. 3. Deletion of Addition on Account of Bad Debts Written Off: The AO disallowed a bad debt claim of ?18,80,396/-, which was partially allowed by the CIT(A) to the extent of ?7,75,338/-. The Tribunal noted that the amount written off as bad debt had been offered to tax in earlier years and written off in the current year, satisfying the conditions under Section 36(2) read with Section 36(1)(vii). The Tribunal upheld the CIT(A)'s decision to allow the bad debt claim of ?7,75,338/-. Regarding the trade advance of ?11,05,058/- written off, the Tribunal held that it should be allowed as a business loss, as it was given during the course of business and became irrecoverable. 4. Legality of the Order under Section 153A: The assessee challenged the legality of the order under Section 153A, arguing that the additions were made despite no incriminating documents being found during the search. However, since the Tribunal decided the issues on merits, the legal ground became academic and was not adjudicated. 5. Ad Hoc Disallowance of Expenses on Running and Maintenance of Cars: The AO made an ad hoc disallowance of ?20 lacs for car running and maintenance expenses. The Tribunal found that the AO did not specify any particular expenditure that was unverifiable or not for business purposes. The Tribunal directed the deletion of the ad hoc disallowance, noting that the cars were part of the company's fixed assets and used for its business. 6. Disallowance of Depreciation on Gym Equipment: The AO and CIT(A) disallowed depreciation on gym equipment installed at the Managing Director's residence, considering it private use. The Tribunal disagreed, noting that the equipment was owned by the company and part of its fixed assets. The Tribunal held that the depreciation could not be disallowed in the company's hands and directed its deletion. If used exclusively by the Managing Director, it should be treated as a perquisite in his hands. Conclusion: The Tribunal dismissed the Revenue's appeals and allowed the assessee's cross objections. The Tribunal upheld the CIT(A)'s decisions on various disallowances and directed the deletion of ad hoc disallowances and disallowance of depreciation on gym equipment. The issues raised on the legality of the order under Section 153A were deemed academic and not adjudicated.
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