2018 (11) TMI 861 - AT - Income Tax

Disallowing the claim of Security Charges on ad-hoc basis - non allowable business expenses - Held that - The security charges for earlier year was disallowed at ₹ 1,48,540/- paid to Krishna Plastic site out of the total claim of the assessee at ₹ 4,46,480/-. There is increase in overall security charges to ₹ 8,14,896/- i.e. which almost double of the earlier year. From the order of lower authorities it is clear the neither genuineness nor expenses as business expenditure was doubted. We find that in earlier year disallowance was at ₹ 1,48,540/- and hence, we restricted the disallowance in this year at ₹ 1 lac. This issue of the assessee s appeal is partly allowed. Disallowance of deprecation claimed on Crane Crawlers - Held that - We noted that these cranes and crawlers purchased in 2009 (details are cited above). Accordingly, the assessee s claim for depreciation was allowed in earlier years and taking the same facts in this year, depreciation cannot be disallowed. Accordingly, we allow the claim of depreciation and this issue of assessee s appeal is allowed. Depreciation on motor car, interest and vehicle expenses disallowed - motor car was not purchases in the name of the assessee company once the same was purchased in the name of the directors - Held that - As decided in DCIT vs. Kaytee corporation 2017 (4) TMI 814 - ITAT MUMBAI depreciation is allowable in the hands of the company, even if it is registered in the name of its director provided that the vehicle is used for the purpose of business of company and income derived there from was shown as income of the company. As the funds for purchase of vehicles have been provided by the assessee company and they have been shown as assets of the assessee company. Hence, the assessee company should be considered as owner for all practical purposes and hence it is entitled for depreciation - Decided in favour of assessee. Addition of share application/ share premium treating the same as unexplained cash credit under section 68 - Held that - As decided in CIT vs. Orchid Industries Pvt. Ltd. 2017 (7) TMI 613 - BOMBAY HIGH COURT Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money.Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of security charges on an adhoc basis.
2. Disallowance of depreciation claimed on Crane Crawlers.
3. Disallowance of motor car depreciation, interest, and vehicle expenses.
4. Addition of share application/share premium as unexplained cash credit under section 68 of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Security Charges on an Adhoc Basis:
The assessee contested the CIT(A)'s confirmation of the AO's disallowance of ?2,00,000/- in security charges, arguing that the charges were business-related. The AO had noted an increase in security charges from ?4,46,480/- to ?8,14,896/-, deeming part of the increase excessive and unrelated to business. The CIT(A) upheld this disallowance, citing a similar disallowance in the previous year. The Tribunal found no doubt in the genuineness or business nature of the expenses but restricted the disallowance to ?1,00,000/- based on the previous year's disallowance of ?1,48,540/-. This issue was partly allowed in favor of the assessee.

2. Disallowance of Depreciation Claimed on Crane Crawlers:
The assessee claimed depreciation on crane crawlers purchased in the preceding year, which the AO disallowed due to insufficient evidence. The CIT(A) upheld this disallowance, noting the assessee's failure to provide the seller's address or confirmation. The Tribunal, however, allowed the depreciation claim, noting that the cranes were purchased in 2009 and depreciation had been allowed in earlier years. The Tribunal concluded that in the absence of any adverse material, the AO could not disallow depreciation.

3. Disallowance of Motor Car Depreciation, Interest, and Vehicle Expenses:
The AO disallowed ?15,88,936/- in motor car-related expenses, arguing that the cars were registered in the directors' names and not the company's. The CIT(A) confirmed this disallowance. The Tribunal, referencing previous Tribunal decisions and High Court rulings, held that the company could claim depreciation if the vehicles were used for business purposes, regardless of registration in the directors' names. Thus, the Tribunal allowed the depreciation, interest, and vehicle expenses.

4. Addition of Share Application/Share Premium as Unexplained Cash Credit:
The AO added ?15,83,52,000/- as unexplained cash credit under section 68, questioning the genuineness of the share premium received from the director and an associate concern. The CIT(A) upheld this addition. The Tribunal noted that the AO had accepted the share capital but questioned the high premium. The assessee provided substantial documentation, including financial statements, bank statements, and a valuation report justifying the premium. The Tribunal found that the AO had not conducted any independent inquiry and had not doubted the transaction's genuineness. Citing precedents from the Bombay High Court and the Supreme Court, the Tribunal deleted the addition, ruling in favor of the assessee.

Conclusion:
The appeal was partly allowed, with the Tribunal providing relief on the issues of security charges, depreciation on crane crawlers, motor car expenses, and share premium addition. The Tribunal emphasized the necessity of proper documentation and adherence to judicial precedents in determining the genuineness and business necessity of expenses and credits.