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TMI Blog2018 (5) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... tive claim of the assessee regarding depreciation on the said interest being capitalized by the Assessing Officer. In the result, ground no. 1 of the assessee’s appeal is dismissed and ground no. 2 is allowed. Disallowance 10% of the expenditure in the nature of telephone, travelling, conveyance and depreciation on cars - Held that:- The expenditure has been disallowed on the basis that the personal use of the telephone facility cannot be ruled out and during the course of hearing, the ld AR has stated that the personal usage by the Partners is minimal though the quantum of disallowance is on a higher side. Given that no basis or allocation has been brought on record, we find that the AO is reasonable to disallow 10% of telephone expense and the same is upheld. Travel expenditure allowability, AR has submitted that expenditure is fully vouched and no specific instance has been brought on record by the Assessing officer determining the personal travel expenditure being claimed as part of official travel expenditure. We agree with the contentions of the ld AR and disallowance made regarding travel expenditure is deleted. Disallowance of conveyance expenditure, no specific a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings, the Assessing Officer observed that the assessee has taken certain loan for building construction which has been capitalized in A.Y. 2012-13, however, for the year under consideration, the interest expenses on the said loan has not been capitalized. The assessee was issued a show-cause notice to justify why interest expense should not be capitalized before the building has been put to use by the assessee instead of claiming the interest expense as revenue expenditure. After considering the assessee s submission, the Assessing Officer has returned a finding that by assessee s own admission, the loan was taken for business purpose of building construction and interest expense has been capitalized for A.Y. 2012-13, the same should also be capitalized till the building is put to use. As per the Assessing Officer, the new showroom was built and put to use in September 2012 accordingly, the interest paid for the period April,2012 to August, 2012 amounting to ₹ 16,81,057/- was disallowed as revenue expenditure and the same was capitalized in the building account of the assessee. However, no depreciation on the said amount being capitalized was allowed by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the previous assessment year, interest cannot be disallowed without establishing correlation between the two as each assessment year is independent and bonafide error in an earlier year cannot be the basis of disallowance in subsequent year. Without prejudice, it was further submitted that since the building was ready for use and started being used by June, 2012 itself, though full-fledged business operations started in September, 2012 interest can only be disallowed/ capitalized upto June, 2012 only and not upto September, 2012 when the showroom started functioning. Further, without prejudice, it was submitted that if the interest is disallowed as being capital expenditure pertaining to the building, depreciation @ 10% on ₹ 16,81,057/- deserved to be allowed on the amount of interest disallowed being of capital in nature and cost of the building and the written down value of building has to be accordingly adjudicated. 5. The ld. DR is heard who has relied on the finding of the Assessing Officer and drawn our attention to the fact that during the course of assessment proceedings, the assessee itself has admitted that the loan has been taken for the purpose of building co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ₹ 4,28,126/-. The Assessing Officer observed that the said expenses are related to such facilities which are certainly proved to be used for other than business purpose and referring to the decision of Hon ble Madras High Court in case of Sundram Industries Ltd 239 ITR 405 has observed that disallowance out of such expenses on account of personal nature is justified. It was further observed by the AO that the some of the these expenses in respect of conveyance and travelling were made in cash on the basis of self made vouchers so the complete verification of these expenses was not possible. Accordingly, 1/10th expenses were disallowed and added back to the income of the assessee which has been confirmed by the ld. CIT(A) holding the same to be reasonable. 8. During the course of hearing, the ld. AR submitted that the telephone expenses are fully vouched. Same are mainly of telephone installed at the shop and mobiles given to employees. Personal use by Partners is minimal and disallowance of 10% is excessive and deserves to be substantially reduced. The assessee is in business of ladies wear. Most of the purchases for retail business are from outside Jaipur and almost a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s owned. Once it is not disputed by the Revenue that the vehicles are owned by the firm, the depreciation being a statutory allowance deserves to be allowed. At the same time, where it is established that the vehicle has been used for personal purposes, in such a scenario, the Revenue is well within its right to tax the vehicle running expenditure as perquisite in hands of the employees/directors. In the result, the ground of appeal is partly allowed. 10. Regarding ground no. 4, brief facts of the case are that the Assessing officer has disallowed 10% of entertainment and staff refreshment expenses amounting to ₹ 69,765 holding that these expenses were not fully supported by the proper bills due to which these expenses could not be verified completely. The disallowance has been confirmed by the ld. CIT(A) holding the same to be reasonable. 11. During the course of hearing, the ld. AR submitted that the A.O. has erred in disallowing 10% of expenditure on entertainment and Staff Refreshment (total expenditure ₹ 6,97,658/-). The assessee is in business of sarees and ladies wear. Nature of business is such that tea, coffee, cold drinks, mineral water, chocolates etc h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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