9911796707
TMI Blog2020 (10) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,600, the balance amount of 2,11,542 was rent paid to accommodation provided to the assessee s director. This fact is evidenced in the Notes to the Accounts at Point No.9. In these circumstances, the addition u/s. 69C of the Act was not justified. Disallowance of depreciation is use of BMW car by the director of assessee - HELD THAT:- There is use of car by director of company for the purpose of business of assessee and this is not disputed. There is nothing to show that property was used only for personal purposes. The car in question was a business asset and depreciation had to be allowed on the same. The AO could have disallowed depreciation on the ground of personal user in respect of a particular item of depreciable asset. He could not have disallowed the entire claim of depreciation. Disallowance of depreciation on the ground that there was no business activity, cannot also be sustained, for the reasons which will be given later. Employee cost was salary paid to 3 employees and had to be allowed as a deduction - no dispute that salary was paid to employees of the assessee. No valid justification for the comments and conclusions of AO in the order of assessment which was endo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 4,43,957/-; e. Professional & Consultancy Charges of ₹ 5,55,000/-; f. Audit Fees of ₹ 4,41,930/-; g. Interest expenses of ₹ 7,14,805/-; h. Gifts of ₹ 11,998/- i. Other genuine business expenditures - ₹ 7,87,862. 4. The assessee is a company engaged in the business of distributing security products like self-service terminals like ATMs and other lines of business including software, hardware, middleware and switching solutions. 5. For the AY 2010-11, the assessee filed a return of income declaring total income at NIL. The AO has noticed that in the past assessment years, the percentage of business income to the total income declared by the assessee was as follows:- A.Y. Income from Business Other income as rent & interest received % of business income of total income Expenditure claimed 07-08 2.20.000 2,13,12,630 1.02% 1,94,70,714 08-09 6,15,000 1,90,77.569 3.12% 2,15.56,158 09-10 8,02,240 1,12,56,015 6.65% 3,11,10,524 6. With this background, the AO examined the Profit & Loss account for the year ended 31.3.2010 and found that the expenditure incurred with reference to the stream of revenue earned by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Chennai and both were owned by assessee. The godown in Pondicherry was taken on rent of ₹ 1,300 per month. The AO's conclusion was that except the sum of ₹ 15,600 being rent for godown at Pondicherry, the remaining rental expenditure debited in the P&L account had to be treated as unexplained expenditure u/s. 69C of the Act. The AO, however, has not made a separate addition u/s. 69C as he had disallowed the entire expenditure claimed in the P&L account. 9. The AO then examined the claim of depreciation of assessee which was at a sum of RS.54,71,780. The conclusion of the AO was that one of the items of the asset on which depreciation was claimed was a BMW car, which was used by Director of company for personal purpose and depreciation cannot be allowed. A perusal of depreciation chart reproduced in para 6.4.2 of the AO's order shows that apart from vehicle, the assessee owned several other assets and the depreciation component on the vehicle was only ₹ 32,52,495. 10. The AO thereafter examined the employee cost of ₹ 27,34,237 and came to the conclusion that only 3 employees were working for past 3 years and therefore the employee cost was not genuine. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness has not ceased and expenses were incurred only to keep business alive. 14. On the issue that similar expenses were allowed by the Tribunal in AY 2009-10, the CIT(Appeals) took the view that the fact that prevailed in AY 2009-10 were different and therefore the decision for that year was not relevant, since in AY 2009-10 there was no enquiry conducted by the AO as was done in the present AY 2010-11. 15. For all the above reasons, the CIT(Appeals) confirmed the order of AO. 16. Before us, the ld. counsel for the assessee reiterated the submissions that were made before the CIT(Appeals) and further placed reliance on the following decisions:- 1. CIT v. Lawrence D'Souza [2011] 203 Taxman 200 [Kar] 2. CIT v. Integrated Technologies Ltd. (ITA No.530/2011 dated 16.12.2011). 3. DCIT v. IDEB Builders Pvt. Ltd. (ITA Nos.517 & 1390/Bang/2014 dtd. 7.11.2018). 4. Hirsh Bracelet India P. Ltd. v. ACIT (ITA No.3392/Bang/2018 dtd. 3.7.2019). 17. The ld. counsel for the assessee also brought to our notice that in the subsequent Assessment Year i.e., AY 2012-13, the AO after examining all the expenses and after analysis of the submissions made by the assessee passed an order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst thing which we notice is that the assessee is in business of security product distribution. A perusal of depreciation schedule given in the order of assessment shows that apart from BMW Car, there are other assets on which depreciation has been claimed by the assessee. Depreciation is an item of expenditure which has to be statutorily allowed u/s. 32 of the Act, irrespective of its user in view of the concept of block of assets. The only reason given by the AO for disallowance of depreciation is use of BMW car by the director of assessee. As rightly contended, there is use of car by director of company for the purpose of business of assessee and this is not disputed. There is nothing to show that property was used only for personal purposes. The car in question was a business asset and depreciation had to be allowed on the same. The AO could have disallowed depreciation on the ground of personal user in respect of a particular item of depreciable asset. He could not have disallowed the entire claim of depreciation. Disallowance of depreciation on the ground that there was no business activity, cannot also be sustained, for the reasons which will be given later. 22. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of disallowance of expenses. We are therefore of the view that the expenses claimed by the assessee should be allowed as a deduction and it has also to be held that income of ₹ 6 lakhs has to be regarded as operating business income. We hold and direct accordingly. The relevant grounds of appeal of the assessee are allowed. 25. The next issue that arises for consideration is disallowance of expenses u/s. 14A of the Act. The first aspect we notice on this issue is that the AO had disallowed a sum of ₹ 7,85,024 u/s. 14A. It is not in dispute that the assessee received dividend income of ₹ 22,13,427 which was claimed exempt u/s. 10(35) of the Act. The break-up of disallowance u/s. 14A made by the AO was as follows:- A Total amount of Direct interest/other expenses pertaining to tax-exempt investments 0 B Total amount of indirect interest pertaining to tax-exempt investments 300000 2009-10 2010-11 AVERAGE C Average amount of tax exempt investments 122608979 137507153 130058066 D Average amount of total assets 282039250 297140638 289589944 E Proportionate indirect interest Disallowed BX(C/D) 134733 F 0.5 % of average amount of tax exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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