2022 (9) TMI 71 - AT - Income Tax

Disallowance of depreciation on car on estimation basis - Car used for personal purpose of the partners of the assessee firm - Assessee contented no basis with the Revenue authorities to hold that the car had been used for personal purposes and the disallowance was based merely on surmises and conjectures - HELD THAT - There is no basis given by the AO for his finding that the car was used for personal purposes also alongwith user in the business by the assessee. He merely states that personal user cannot be ruled out. No details have been called for, nor any inquiry done on the issue by the AO. On the contrary the AO mentions the assessee producing all books of accounts and vouchers and he having test checked the same. Nothing adverse has been found by the AO in the books of the assessee also. The disallowance surely is purely adhoc. We see no reason to uphold the disallowance and we direct the deletion of the same. Set off of unabsorbed loss of preceding year - We direct the AO to grant benefit of set off of brought-forward losses if any as available as per law.

Summary

Issues:
1. Disallowance of depreciation on car for personal use
2. Claim of set off of unabsorbed loss of preceding year

Disallowance of Depreciation on Car for Personal Use:
The appeal was filed against the order passed by the Commissioner of Income-Tax (Appeals) concerning the disallowance of depreciation on a car for estimated personal use by the partners of the assessee-firm. The grounds raised by the assessee challenged the addition of Rs. 42,872 related to the depreciation on the motor car. The counsel for the assessee argued that the Revenue authorities had no valid basis to conclude that the car was used for personal purposes, emphasizing that the disallowance was speculative. The Tribunal observed that the Assessing Officer (AO) failed to provide any concrete evidence or conduct an inquiry to support the personal use claim. As the AO did not find any discrepancies in the books of accounts during the assessment, the Tribunal deemed the disallowance arbitrary and directed its deletion.

Claim of Set Off of Unabsorbed Loss of Preceding Year:
Regarding the claim for the set off of unabsorbed losses from the preceding year, the counsel for the assessee highlighted that significant losses were incurred in the previous assessment year, but due to additional assessments, the losses were nullified, and income was assessed at Rs. 61,50,420. The AO did not allow the carry forward of losses, stating that none were available. The counsel argued that the matter related to the additions made in the previous year was under appeal before the Commissioner (Appeals). Therefore, the assessee requested the Tribunal to direct the AO to grant the benefit of carrying forward and setting off the losses in the current year. The Tribunal, along with the agreement of the Revenue representative, directed the AO to provide the benefit of set off of any brought-forward losses as per the law. Consequently, the ground of appeal related to the set off of losses was allowed.

In conclusion, the Tribunal partially allowed the appeal of the assessee by directing the deletion of the disallowance of depreciation on the car and instructing the AO to grant the benefit of set off of any brought-forward losses. The remaining grounds of appeal were dismissed, and the order was pronounced on 3rd August 2022 at Ahmedabad.