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TMI Blog2023 (12) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... e and not disallowable as such. The assessee, which was a private limited company, was a distinct assessable entity as per the definition of 'person' under section 2(31) of the Act. Therefore, it could not be stated that when the vehicles were used by the directors 'even if they were personally used by the directors', the vehicles were personally used by the company, because a limited company by its very nature cannot have any 'personal use'. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view was supported by the provision of section 40(c) and section 40A(5) of the Act. Once the expenditure in question was in terms as provided in sections 309 and 198 of the Companies Act, there could not be any 'non-business' purpose insofar as the assessee-company was concerned. Thus we find that the case of the present assessee company is squarely covered by the judgment of the Hon ble Jurisdictional High court in the above-mentioned case. Appeal of the assessee is hereby allowed. Disallowance u/s 14A r.w.r.8D - disallowance of the interest expense - sufficiency of own funds - HELD THAT:- It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MADUMITA ROY, JUDICIAL MEMBER For the Assessee by: Shri Tushar Hemani, Sr. Advocate Shri Parimalsinh B. Parmar, A.R. For the Revenue by: Ms. Chitra Soneji, Sr. D.R. ORDER PER : WASEEM AHMED, ACCOUNTANT MEMBER:- This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax, CIT(A)-2, Ahmedabad, in the proceeding u/s 250 of the Act vide dated 27/08/2019 passed for the assessment year 2016- 17. 2. The assessee has raised following grounds of appeal:- Your appellant being dissatisfied with the order passed by the Commissioner of Income Tax (Appeals)-2, Ahmedabad presents this appeal against the same on the following amongst other grounds. 1. The order passed by Commissioner of Income Tax (Appeals) is bad in law and on facts and hence, it is submitted that the same be cancelled and be suitably modified. a) The learned Commissioner of Income Tax (Appeals), has erred in law and on facts in confirming disallowance made by the AO for a sum of Rs. 5,60,888/ being 1/5 of the vehicle expenses by treating the same as personal expenses by wrongly considering that car has been used for personal purposes also i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring of appeal. 3. The first issue raised by the assessee is that the learned CIT(A)erred in confirming the disallowance of 1/5th of vehicle expenses amounting to Rs. 5,68,888/- only. 4. The brief facts are that the assessee, a private limited company, is engaged in the business of Fertilizers, Chemicals, Paints. The assessee during the year claimed vehicle expenses for Rs. 28,44,439/-. However, the AO found that one vehicle, being Porsche Car has been purchased and registered in the name of its director. Therefore, the expenditure attributable to the car registered in the name of director cannot be allowed. However, the AO, in absence logbook and bifurcation of expenses incurred in relation to this vehicle, disallowed 1/5th of the total vehicle expenses amounting to Rs. 5,68,888/-on ad-hoc basis. 5. Aggrieved assessee preferred an appeal before the learned CIT (A) and confirmed the disallowance made by the AO by observing as under:- As regard to disallowance of 1/5th of motor car expenses of Rs. 5,68,888/- being 1/5 of vehicle expenses of Rs. 28,44,439/- the appellant has not been able to prove by log book etc. that car has not been used for personal use and used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, including any managing or full-time director. Such remuneration is payable either as stated in the articles of association of the company or in accordance with the resolution which may be passed by the company in the general meeting. This payment of remuneration is subjected to overall limits of managerial remuneration laid down in section 198 of the Companies Act. After going through section 198 of the Companies Act, it was clear that the expenditure incurred by the assessee-company on maintenance of vehicles which were available to the directors for their personal use would fall within the meaning of 'remuneration' as defined in the Explanation to section 198 of the Companies Act and once such remuneration was fixed as provided in section 309 of the Companies Act it was not possible to state that the assessee-company incurred an expenditure for personal use of the directors. The same was as per the terms and conditions of service and insofar as the assessee-company was concerned, it was a business expenditure and not disallowable as such. There was one more aspect of the matter which required to be considered. The assessee, which was a private limited company, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure of Rs. 4,71,458/- and administrative expenditure as per Rule 8D(2) (ii) of Rs. 10,13,915/-. As the appellant has earned exempt income, the expenditure relating to earn the same has to be allocated and disallowed. In the preceding year also, I have restricted the disallowance to the extent of exempt income in view of the decision of Gujarat High Court in the case of Corrtech Energy Pvt. Ltd. (supra). Following the above decision, the disallowance u/s. 14A is restricted to the exempt income of Rs. 10,85,354/-. 12.1 Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 13. The learned AR before us submitted that there cannot be any disallowance of the interest expense because interest free own fund of the assessee exceeds the amount of investment. 14. On the other hand, the learned DR vehemently supported the order of the authorities below. 15. We have heard the rival contentions of both the parties and perused the materials available on record. It is the settled position of law by virtue of the findings of several competent courts that if there are mixed funds, then the power of presumption would be that the investment has be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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