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2019 (3) TMI 891 - AT - Income TaxDepreciation on two wheeler vehicles and Car registered in the name of Directors - assessee was not the owner of the assets - payment for purchase of assets made by company - beneficial owner of asset - used of assets for the business - HELD THAT - Regarding the ownership of the assets, we note that the beneficial ownership vest with the assessee. It is because the payment was made for the purchase of the assets by the assessee though the assets were registered in the name of the directors of the company. Since this fact has not been doubted by any of the authorities below, therefore, we can safely presume that the assessee is the beneficial owner of the assets. Case of MYSORE MINERALS LTD. VERSUS COMMISSIONER OF INCOME-TAX 1999 (9) TMI 1 - SUPREME COURT to be followed. Whether the assets were used for the business? - no disallowance for interest on a car loan, petrol expenses, repair and maintenance expenses etc.- - HELD THAT - It is one of the pre-condition to claim the depreciation on the assets that it should be used for the business - the assessee has claimed other expenses in connection with the vehicle as discussed above. These expenses are like interest on a car loan, petrol expenses, repair and maintenance expenses etc. The necessary details of such expenses are available in the financial statements. It is undisputed fact that these expenses have not been disallowed. Thus, it can be transpired that the Revenue has admitted these expenses incurred by the assessee for the business. Thus in our considered view, we find that the authorities below have made the addition on account of depreciation without the application of mind. - Decided in favour of assessee Disallowance on account of labour charges - assessee failed to furnish the details for the movement of jewelry to the labourers for carrying out the necessary job work - non deduction of tds - disallowance under the assessment framed under section 143(3) - HELD THAT - All the details of the laborers including the addresses and PAN were available with the authorities below. In case there is any doubt about the labour expenses claimed by the assessee, then the authorities below should have taken the confirmation from the respective parties. The authorities below were empowered to verify whether these labors have disclosed the receipt from the assessee in their respective income tax return or not. But we find that the authorities below have not exercised their power provided under the statute. On perusal of the ledgers of the laborers we note that the payment was made by the assessee periodically after the deduction of TDS. Thus, the assessee cannot be penalized if the laborers have raised the bills at the end of the accounting year. The assessee has shown huge turnover from the sale of jewelry amounting to ₹ 98.89 crores and against such sale the assessee has claimed Labour expenses only for ₹ 19,20,390/- only which is constituting less than 1% of the turnover. As such the genuineness of the Labour expenses cannot be doubted considering the huge turnover of the assessee as discussed above. - Decided in favour of assessee Addition u/s 14A r.w.r. 8D - AO during the assessment proceedings found that the assessee has made the investment in shares and securities - HELD THAT - As there was no exempt income earned by the assessee in the year under consideration. Therefore, in our considered view there cannot be any disallowance under section 14A read with rule 8D of the Act in view of the judgement of Hon ble Gujarat High Court in the case of CIT Vs Corrtech energy Pvt. Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT . Thus we hold that the disallowance under section 14A read with rule 8D of the income tax rule is not warranted- Decided in favour of assessee Disallowance of interest on account of diversion of interest bearing fund - Addition proportionately of advance - HELD THAT - We note that the own fund of the assessee exceeds the advances given without any interest. Therefore, we are of the view that no disallowance of interest expenses on account of diversion of the fund is warranted. In this regard, we find support and guidance from the judgement of Hon ble Bombay High Court in the case of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT - Decided in favour of assessee ad-hock disallowance of labor expenses @25% - HELD THAT - when assessee has submitted all the supporting documents related to labour charges such as PAN, address, nature of work done and justification of the rate charged. Revenue was expected to point out the specific defect in the details filed by the assessee before resorting to making the ad hoc disallowance. Accordingly, we direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
Issues Involved:
1. Disallowance of depreciation on vehicles. 2. Disallowance of labor charges. 3. Disallowance under Section 14A read with Rule 8D. 4. Disallowance of interest expenses on estimate basis. 5. Ad-hoc disallowance of labor expenses. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation on Vehicles: The assessee, a company engaged in trading and manufacturing gold and diamond ornaments, claimed depreciation on vehicles registered in the name of its directors. The Assessing Officer (AO) disallowed ?1,61,739/- on the grounds that the assessee was not the owner and failed to prove business use. The CIT(A) upheld this disallowance. The Tribunal found that the beneficial ownership vested with the assessee as it paid for the vehicles. Citing the Supreme Court's judgment in Mysore Minerals Ltd. vs CIT, it held that the tax benefit of depreciation belongs to the one who invested in and used the asset. The Tribunal noted that other vehicle-related expenses were allowed, indicating business use. Consequently, the disallowance was deemed unsustainable and was deleted. 2. Disallowance of Labor Charges: The assessee claimed labor expenses of ?19,29,390/-, but the AO disallowed ?13,45,356/- due to bills dated the previous financial year. The CIT(A) confirmed this disallowance, noting insufficient evidence of jewelry transfer for job work. The Tribunal observed that the AO did not verify the laborers' details despite having their addresses and PANs. It also noted that the assessee had deducted TDS and made payments periodically. Given the substantial turnover and minimal labor expenses, the Tribunal found the disallowance unjustified and directed its deletion. 3. Disallowance under Section 14A read with Rule 8D: The AO made a disallowance of ?1,84,600/- under Section 14A read with Rule 8D due to investments in shares and securities. The CIT(A) upheld this. The Tribunal noted that the assessee did not earn any exempt income during the year. Citing the Gujarat High Court's judgment in CIT Vs Corrtech Energy Pvt. Ltd., it held that no disallowance is warranted when no exempt income is earned. The Tribunal set aside the CIT(A)'s order and directed the deletion of the addition. 4. Disallowance of Interest Expenses on Estimate Basis: The AO disallowed ?8,70,000/- on the grounds that the assessee diverted interest-bearing funds for advances for capital assets. The CIT(A) confirmed this. The Tribunal found that the assessee's own funds exceeded the interest-free advances. It relied on the Bombay High Court's judgments in Reliance Utilities and Power Ltd. and HDFC Bank Ltd., which presume investments are made from interest-free funds if sufficient. The Tribunal held that no disallowance was warranted and directed the deletion of the addition. 5. Ad-hoc Disallowance of Labor Expenses: For the assessment year 2012-13, the AO made an ad-hoc disallowance of ?7,03,801/- (25% of ?28,15,202/-) in labor expenses, confirmed by the CIT(A). The Tribunal applied the same reasoning as in the earlier labor charges issue, noting the submission of supporting documents and the absence of specific defects pointed out by the Revenue. It directed the deletion of the ad-hoc disallowance. Conclusion: The Tribunal allowed the assessee's appeals for both assessment years, directing the deletion of disallowances related to depreciation, labor charges, Section 14A, interest expenses, and ad-hoc labor expenses. The judgments emphasized the importance of beneficial ownership, substantiation of business use, and the presumption of interest-free fund utilization in the absence of contrary evidence.
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