2022 (11) TMI 1251 - AT - Income Tax

Mercedes car gifted - Depreciation on car - capital account credited an amount towards value of a Mercedes Benz Car - Allowable business expenditure - HELD THAT - No infirmity does emerge from the observation of the A.O who had rightly brought the value of the car to tax u/s. 28(iv) of the Act. Apropos, the assessee s claim for depreciation on the aforesaid Mercedez Benz car, find that as observed by the A.O as the assessee had not only claimed any depreciation on the said car during the year under consideration, but had in fact claimed the depreciation on the entire value of the same only from A.Y.2014-15, therefore, the said fact establishes beyond doubt that the said vehicle was not being used for business purposes during the year under consideration. Finding no infirmity in the view taken by the A.O who had rightly declined the assessee s claim for depreciation on the aforesaid Mercedez Benz car as was raised in the course of the assessment proceedings, uphold the same. Thus, the Ground of appeal No.1 raised by the assessee is dismissed in terms of the aforesaid observations. Disallowance u/s 40A(2)(A) of interest charges that were paid by the assessee to her seven family members - AO had while making the aforesaid disallowance resorted to the comparison between the unlikes i.e. comparison between interest rate paid on unsecured loan, as against that paid on loans raised from a bank. As Section 40A(2)(a) of the Act presupposes a comparison between likes on the basis of which it could be gathered that the expenditure booked by the assessee as being excessive or unreasonable, therefore, the very basis leading to the aforesaid disallowance does not find favour for the reason that as in comparison to the loans raised from a bank which involves substantial formalities, hidden charges and offering of collateral securities etc., the raising of unsecured loan from a family member involves neither of such issues. Thus we are unable to concur with the very basis leading to drawing of adverse inference by the lower authorities, and thus, is of the considered view that the matter in all fairness requires to be restored to the file of the A.O, with a direction to re-adjudicate the issue after considering the rates at which unsecured loans at the relevant point of time would be available. Assessee ground allowed for statistical purposes. Difference in the account of MRF Tyres Industries Ltd. - As the assessee had not only failed to reconcile the aforesaid discrepancy before the lower authorities, but also adopting callous approach had not placed on record anything to substantiate the same in the course of the proceedings before me, therefore, as constrained to uphold the said addition. Thus, the Ground of appeal raised by the assessee is dismissed in terms of the aforesaid observations. Ground raised by the assessee is dismissed.

Summary

Issues:
1. Addition of value of Mercedes car gifted to appellant and disallowance of depreciation.
2. Disallowance of interest expenses under section 40A(2)(b) of the Income-tax Act, 1961.
3. Addition of difference in account of MRF Tyres and relevant ledger account of the appellant.

Issue 1: Addition of Mercedes Car Value and Depreciation:
The assessee filed an appeal against the order passed by the CIT(Appeals) confirming the addition of Rs.23,15,025 for the value of a Mercedes car gifted to her and disallowance of depreciation. The car was claimed to be a gift from M/s. J.K Tyres & Industries Ltd. The AO added the value of the car to the assessee's income under section 28(iv) of the Act. The assessee failed to provide a satisfactory explanation, leading to the addition. As the assessee did not claim depreciation for the car during the relevant year and only claimed it from the subsequent assessment year, the claim for depreciation was rightly declined. The appeal on this ground was dismissed.

Issue 2: Disallowance of Interest Expenses:
The AO disallowed a portion of interest expenses paid by the assessee to family members and another individual under section 40A(2)(b) of the Act. The disallowance was based on a comparison of interest rates paid by the assessee. The ITAT found the comparison flawed as it compared unlike situations - unsecured loans from family members and bank loans. The matter was directed to be re-adjudicated by the AO, considering prevailing rates for unsecured loans. The assessee was granted an opportunity to provide supporting evidence. The appeal on this ground was allowed for statistical purposes.

Issue 3: Addition of Difference in Account of MRF Tyres:
The AO added Rs.84,958 to the assessee's income due to a discrepancy in the account of MRF Tyres & Industries Ltd. The assessee failed to reconcile the difference or provide evidence to support the claim during the proceedings. As a result, the addition was upheld. The appeal on this ground was dismissed.

In conclusion, the ITAT partly allowed the assessee's appeal for statistical purposes, directing a re-adjudication of the interest expenses issue and upholding the additions related to the Mercedes car value and the discrepancy in the MRF Tyres account.