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TMI Blog2025 (4) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in law as well as on the facts of the case in confirming the disallowance of depreciation and interest claimed on vehicles of Rs. 5,32,219/-. The disallowance so made and confirmed by the CIT(A) being contrary to provisions of law and facts may be kindly deleted in full. 3. Rs. 41,855/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of the expenses claimed under the head of business promotion of Rs.41,855/-. The disallowance so made and confirmed by the CIT(A) being contrary to provisions of law and facts may be kindly deleted in full. 4. Rs. 3,69,334/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of interest on the loan given of Rs.3,69,334/-. The disallowance so made and confirmed by the CIT(A) being contrary to provisions of law and facts may be kindly deleted in full. 5. Rs.5,00,181/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of revenue expenditure on building construction of Rs.5,00,181/-. The disallowance so made and confirmed by the CIT(A) being contrary to provisions of law and facts may be kindly deleted in full. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roblem, collected these papers but again he had a migraine attack and unfortunately he immediately proceeded on leave because of his medical problem and therefore he could neither handover his responsibility to his colleagues nor he could inform the director of the company about the documents including the appeal papers with him. All though he resumed his job sometime from June 2024. Yet however, it did not occur to his mind that some appeal papers were to be signed, which were still lying pending with him. It is only thereafter, in the second week of June 2024 when the local tax consultant Shri Milind Vijayvargiya (CA) contacted the director of assessee company asking if any order was received related to CIT(A) by them because of the consequent proceedings (being the recovery of demand, penalty, etc.) and proceeding for other years, then Shri Rahul Gupta ("Accountant") was asked with regard to those appeal papers. It is only thereafter, the director immediately enquired and asked him to hand over subjected documents the appeal papers, who thereafter recollected and making an extensive search could lay his hand on the appeal papers. Upon getting hold on these papers director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of illness of Mr. Rahul Gupta employee of the assessee company and therefore, considering that aspect of the matter, the assessee company should not suffer. To drive home to this contention, ld. AR of the assessee relied upon the decisions; * Collector, Land & Acquisition v. Mst. Katiji & Others (1987) 167 ITR 471 (SC) * United Christmas Celebration Committee Charitable Trust vs. ITO (2017) 249 taxman 0372 (Madras) * Hosanna Ministries vs. ITO (2017) DTR 0008 (Mad.) * Mukesh Jesangbhai Patel vs. ITO (2013) 213 Taxman 37 (Mag.) (Guj.) (HC) * Vijay Vishin Meghani & Anr. Vs. DCIT & Anr. (Bom.HC), (2017) 100 CCH 0034 * Diamong Cargo Movers vs. State Tax Officer [2024] 167 taxmann.com 417 (Madras) * M/s Lahoti Overseas Ltd. vs. DCIT [ITA No. 3786/Mum/2012] vide order dt. 18.03.2016 Considering the judicial precedent, he prayed to condone the delay in the interest of substantial justice. 5. Per contra, ld. DR objected to condonation petition filed by the assessee contending that company was running by the Directors and reason advanced does not justify the delay of 569 days and considering the serious lapse on the part of the assessee company, the delay should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon mail as well as through speed post. Notice u/s 142(1) was issued to assessee on 04.09.2018 with queries. Considering the written submission and documents filed during the scrutiny assessment ld. AO made observation and made disallowance / addition as discussed herein subsequent paras. 8. Disallowance of depreciation and interest claimed on vehicles: Assessee has claimed interest expenses and depreciation on multiple vehicles. When the assessee was asked for the registration papers of vehicles, papers for only one car (Ciaz) were produced before the assessing officer. This car was not registered in the name of the company but was registered on the name of an individual. As per-loan-papers, the other car (Ciaz) was also in the name of an individual and not in the name of company Documentary evidence/Registration papers were not produced for any of the other vehicles from this it is concluded that none of these vehicles were registered in the name of the company and yet the company was bearing interest expenses and depreciation pertaining to them and therefore, ld. AO disallowed interest expenses of Rs. 1,66,448/- and claimed on depreciations to the extent of Rs. 3,65,771/- t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med to be put to use its capitalized value can be subjected to depreciation claim by the assessee. Hence 12% (as the borrowing rate of the assessee is 12%) of the said amount e. Rs. 5,00,181/ was disallowed as revenue expenditure and is being capitalized. 12. Disallowance of unverifiable salary expenses: Assessee has claimed Rs. 7,13,22,676/- as salary expenses. Break-up of this amount was asked to assessee vide Q. No. 15 of the notice issued u/s 142(1) dated 04.09.2018. Assessee furnished response on 19.11.2018. But this query was not answered by the assessee in the submission despite the fact that reply was furnished by the assessee after multiple reminders, and it had sufficient time to prepare the reply. Notice u/s 142(1) was issued with the further queries on 11/12/2018 again asking the assessee to furnish the reply to this question. Assessee furnished response on 18.12.2018, wherein assessee contended that the answer to this query attached with the reply submitted, but in fact there was no attachment with that reply. In 2nd questionnaire assessee was asked to submit 20 sample bills of various categories. Assessee submitted 23 bills averaging to Rs. 6,999 each. These bills w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitle the assessee to claim depreciation. The appellant has filed a copy of resolution in Board meeting regarding car Ciaz purchased in the name of a director, showing that the car has been purchased with company funds for wholly and exclusively business purpose of the company. 5.2.3 I am unable to accept the argument of the appellant. If a vehicle is in the name of director, then personal use cannot be ruled out. While vehicle expenses for running may be paid by the company, depreciation and interest on borrowed capital cannot be allowed on an asset owned by another person. This ground is rejected. 5.3.1 Ground No. 2: Disallowance Business Promotion: The AO disallowed an amount of Rs. 41,855/- out of business promotion as relevant bills could not be produced by the appellant. The appellant claims that all expenses had been made through account payee cheques and had been incurred for the purpose of business. 5.3.2 From the evidence filed in the form of self-made vouchers, it is seen that the expenses had been made in cash for hotel expenses for client visit etc. Considering that the bills had not been produced before the AO and contrary to the claim regarding payment by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his tribunal. Apropos to the grounds of appeal so raised by the assessee, ld. AR of the assessee filed the following written submission : "Brief General Facts: The assessee Ahluwalia Erectors & Febricators Private Limited, R/o E-77, Indraprasth Industrial Area, Kota, is Company incorporated under the provisions of Companies Act, 2013 (hereinafter referred to as "assessee"). The assessee, a well-established mechanical engineering firm operating since 1968, is engaged in providing a comprehensive range of engineering services. These services encompass erection, fabrication, commissioning, and repair of various machinery and equipment, including boilers for power plants, pressure vessels, propellers, sugar plant machinery, and cement plant machinery. The firm collaborates with clients to execute these projects, with the raw materials often being supplied by the client. The assessee e-filed its Return of Income "ROI" u/s 139(1) of Income Tax Act, 1961 (for short "the Act") declaring total income of Rs. 31,58,870/- on 16.10.2016 (PB 01-03). The case of assessee was selected for scrutiny and notice u/s 143(2) was issued on 24.09.2017 and various notice(s) u/s 142(1) to which assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32,219/-)" On this aspect, the ld. CIT(A) at page 6 para 5.2 held as under: "5.2.1 Ground No. 1: Disallowance of depreciation and interest on vehicles. The Assessing officer noted that the appellant had claimed depreciation and interest expenses on several vehicles. The AO asked the appellant to produce the registration papers of vehicles. Registration paper of only one car was produced. Even this vehicle was in the name of one individual and not in the name of the company. The loan p+apers for another car showed that it was also in the name of an individual. Papers in respect of other cars were not produced. The AO disallowed the interest and depreciation on these vehicles as the vehicles were not registered in the name of the company. 5.2.2 The appellant has claimed that there are 5 directors of the company who had used the vehicles for the purpose business. The appellant has claimed that as per judicial decisions it is not necessary that the vehicle is in the name of the assessee, but right of possession would entitle the assessee to claim depreciation. The appellant has filed a copy of resolution in Board meeting regarding car Ciaz purchased in the name of a director, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion time to time, as and when vehicles were purchased, reproduced here under: "It is hereby resolved that Vehicle Car Ciaz no RJ-20-CD-7188 Dated 17-06- 2015 purchased & registered in the name of Director Kuldeep Singh Ahluwalia. Funds have also been arranged by Company. This vehicle has been purchased wholly & exclusively for the Business Purpose usage of our company." Further Board Resolution was passed related to other car reproduced here under: "It is hereby resolved that Vehicle Car Ciaz no RJ-20-CE-1789 Dated 07-03-2016 purchased & registered in the name of Director Jagmohan Singh Ahluwalia. Funds have also been arranged by Company. This vehicle has been purchased wholly & exclusively for the Business Purpose usage of our company." Interestingly, one of the vehicles was purchased in the year 2012 and depreciation claimed therein has been allowed in the past. Which fact is not denied not any contrary evidence is brought on record. Rule of consistency is binding on the Revenue. 2. Supporting Case laws: 2.1 The Apex Court while interpreting section 32 of the Act, has held in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775, that S. 32 confers benefit on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But, When assessee was asked to submit the bills for the same, only bills amounting total of Rs. 86589/- were submitted. Hence difference amount of Rs. 41,855/- is being disallowed from the expenses claimed under the head of business promotion on account of being unverifiable. (Disallowance of the expenses claimed under the head of business promotion of Rs. 41,855/-)" On this aspect, the ld. CIT(A) at page 6 para 5.3 held as under: "5.3.1 Ground No. 2:- Disallowance Business Promotion : The AO disallowed an amount of Rs. 41,855/- out of business promotion as relevant bills could not be produced by the appellant. The appellant claims that all expenses had been made through account payee cheques and had been incurred for the purpose of business. 5.3.2 From the evidence filed in the form of self-made vouchers, it is seen that the expenses had been made in cash for hotel expenses for client visit etc. Considering that the bills had not been produced before the AO and contrary to the claim regarding payment by cheques, the expenses having been shown in cash, the veracity of the same is not acceptable. Hence, the disallowance by the AO is confirmed." Hence this ground. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected." Hence this ground. Submission: 1. At the outset, it is submitted that the authorities below did not appreciate the factual contention that there were no new loans advanced during the year and all (except opening balance of Rs.3,72,780/- (PB 40) in the case of Shri Kulbir Singh Ahluwalia) the balances were outstanding opening balances i.e. the amount of advances given to those parties were coming from earlier years (PB 41-43). In view of the admitted fact, there is no reason as to why the AO should have made disallowance in this year alone. In fact, there is no discussion nor any material has been brought on record which indicate any change in circumstances justifying the deviation from the past history. Such an approach goes directly against the Rule of Consistency. In the case of CIT vs. EXCEL INDUSTRIES LTD. 2013) 358 ITR 0295 (SC): Held that: "Income-Benefit under Advance licences and duty entitlement pass book-Year in which Taxable-In its return, assessee claimed deduction of advance licence benefit receivable and duty entitlement pass book benefit receivable-These benefits related to entitlement to import duty free raw material under relevant import and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take care of its interest. The law is settled that the AO cannot sit on the arm chair of the businessman. The allowability of claimed interest therefore should have been allowed accordingly. For this proposition, kindly refer JK Wollen (1969) 72 ITR 612 (SC). 3.2 Supporting Case Laws: In the facts of the present case, a useful reference can be made to the celebrated decision of Hon'ble Apex court in the case of S. A. Builders Ltd. Vs. CIT(A), Chandigarh reported in 288 ITR 1 where it was held as under: "18. We have considered the submission of the respective parties. The question involved in this case is only about the allowability of the interest, on borrowed funds and hence we are dealing only with that question. In our opinion, the approach of the High Court as well as the authorities below on the aforesaid question was not correct. 19. In this connection we may refer to section 36(1)(iii) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') which states that "the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession" has to be allowed as a deduction in computing the Income-tax under section 28 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 099 to the bank against loan and overdraft, and it is out of the amount which has been paid by the assessee at Rs. 10,99,099 that the AO has disallowed the interest. When there was no agreement to charge interest from the persons, to whom the assessee advanced short term loan/advance, the AO could not disallow part of the interest. It is also an admitted fact, as observed by the Tribunal, that the AO was not able to pin pointedly come to a definite conclusion that how interest bearing loans had been diverted towards interest free advances and since the AO was not able to prove nexus between interest bearing loans vis-a-vis interest free loans/advances, therefore, once the AO was not able to come to a definite conclusion as to nexus having been established about interest bearing loans having been diverted towards *interest free loans/advances, and such being a finding of fact based on appreciation of evidence, no substantial question of law arise on this question as well.-CIT vs. Vijay Solvex Ltd. (2015) 274 CTR (Raj) 384 : (2015) 113 DTR (Raj) 382 followed; Ram Kishan Verma vs. Addl. CIT (2012) 147 TTJ (Jp)(UO) 1 affirmed." Thus, in the light of above submission and legal positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loan taken for this purpose and the interest was paid thereon, towards the addition of the fixed assets. The very fact of making an estimation at the rate of 12% goes to show a presumption by the authorities below. On the other hand, the appellant was having interest-free surplus fund in the shape of addition in the Reserve & Surplus this year of Rs. 18,58,243/- and it has not been denied that this surplus has been utilized towards the addition so made. The proviso to S. 36(1)(iii) read as under: "Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction." Thus, what actually the provision under law contemplates is a situation where only a direct expenditure incurred for the acquisition of the assets up to the date of the installation/ put to use, can be disallowed but not otherwise. A bare reading of the proviso makes it clear that it is only any capital borrowed for acquisition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration paid to partners of Rs. 12,50,000/- and 23 bills averaging to Rs. 6,999 each. The credit of these is being given to the assessee. Thus, from the above amount of Rs. 6,99,11,699/- (7,13,22,676 - 12,50,000 - (23*6999)) is not verifiable. Hence, in view of the above, 5% of Rs. 6,99,11,699/- i.e. Rs. 34,95,585/- is being disallowed. (Disallowance of unverifiable salary expenses Rs. 34,95,585/-)" On this aspect, the ld. CIT(A) at page 7 para 5.6 held as under: "5.6.1 Ground No 5: - Disallowance out of salary and wages :- The appellant could not produce complete details of salary and wages paid. Although the expenditure on salary and wages was a staggering Rs. 7.13 crore, only few sample bills were submitted. The AO disallowed 5% of the expense, after excluding the amount for which details were filed. Disallowance of Rs. 34.95 lakh was made. 5.6.2 The appellant claims that in its nature of business main ingredient is temporary wages cost, for which sample vouchers had been filed. The AO has disallowed 5% of salary and wages on presumption without considering the facts and circumstances of the case. 5.6.3 The appellant has not been able to discharge the onus of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in a spinning mill. c. If it is not possible to keep such record (record of loss or wastage at subsequent stages) there was no other reason not to accept the book results of the records kept addition by way of estimate not permissible. d. Merely by comparison of the percentage of loss in a particular year, we do not think it is possible to say with any reasonable certainty that the increase in the percentage of loss must be attributable and must lead to a reasonable inference of suppression of production of yarn. e. Higher wastages alone was no ground for rejecting the claim for wastage. 1.3.2 CIT vs. Maharaja Shree Umaid Mills Ltd. 192 ITR 565 (Raj.) "The Tribunal was justified in holding that since the books of account had not been rejected the mere fact that there had been a fall in the gross profit rate would not lead to the inference that the expenditure had been inflated. No question of law arose form the order of the Tribunal." 1.3.3 DCIT v. Mewar Textile Mills Ltd. 21 Tax World 821 (JP) "The AO has nowhere invoked the provisions of section 145(1) and if the provisions are not invoked then the estimate of profit is not possible in the eyes of law. No d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supervision and sent to HO. There is no adverse remark or qualification given by the ld. Auditor. Once it is so, unless there is contrary cogent evidence brought on record by the Revenue there is no reason to disbelieve the audited accounts, which are otherwise binding upon the authorities below under the provisions of the Indian Evidence Act, 1872 r.w.s. 28 of the Bharatiya Sakshya Adhiniyam, 2023. Moreover, the very fact of disallowance at the rate of 5% only goes to show that 95% was held to be allowable. There appears no reason as to why 5% disallowance has been made and why it is not made 50% or why it is not made at 1% only. There is no basis at all. The law does not contemplate such a guess work made merely on presumption. No specific instance shown by AO. Add: GOA-7: Charging interest u/s 234A, 234B & 234D of the Act. Submission: It is submitted that such levy is contrary to the provisions of law and hence may kindly be quashed." 15. To support the contention so raised in the written submission reliance was placed on the following evidence / records: Paper Book Index Sr No Particulars Page No 1. Return of Income filed on 16.10.2016 u/s 139 of the I.T. Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he written submissions filed. As regard the disallowance interest on loans, ld. AR of the assessee submitted that three loans were not given in the year under consideration and therefore, no disallowance can be made. The assessee is having reserve and surplus for an amount of Rs. 1,31,56,717/- as on 31.03.2016 and amount of advance being very much less, the notional income cannot be disallowed. To drive home to this contention, the ld. AR of the assessee relied upon decision of CIT vs. Excel Industries Ltd. [2013] 358 ITR 0295 (SC) and also jurisdictional High Court decision in the case of CIT vs. Ram Kishan Verma (2016) 132 DTR 107 (Raj.). As regards the renovation expenditure the disallowance of interest considering, it has capital in nature the view taken by the lower authorities is not correct. Because the assessee has out of common kitty incurred the expenditure of renovation. Lower authorities did not establish direct nexus of following and incurring the renovation expenditure and therefore, disallowance of building construction for Rs. 5,00,181/- cannot be made in the hands of the assessee company. As regards the lump sum of disallowance of 5% out of the labour expenditure c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in the name of the director, then personal use cannot be ruled out. While vehicle expenses for running may be paid by the company and therefore, he hold that the depreciation and interest on vehicles cannot be allowed on an assets owned by another person. Before us the ld. AR of the assessee submitted the assessee claiming the said expenditure since 2012 and the relevant assets is reflected in the books of the company and has since the car is used for the purpose of the business interest and depreciation on the assets put to use by the company cannot be denied to the assessee. The ld. AR of the assessee cited the decision of the apex court in the case of CIT Vs. Poddar Cement P. Ltd.(Supra) wherein it has been held that "any one in possession of the property in his own title exercising such dominical over the property as would enable the others being excluded there from and having the right to use and occupy the property and / or to enjoy its usurp in his own right would be the owner". Respectfully following the binding precedent, we do not find any reason to sustain the disallowance of Rs. 5,32,219/- direct the ld. AO to delete the same. Based on these observations, ground num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the ld. CIT(A) he has confirmed the addition stating that the assessee could not refute the reasoning given by the ld. AO. Whether the assets is put to use or not without correlating the fact that the assessee has used the borrowed fund in building the assets then interest can be capitalized. When there is no nexus, no addition can be made. We get support for this view from our Jurisdictional Hon'ble High Court's decision in CIT Vs. Ram Kishan Verma (supra). Considering that aspect of the matter that no notional disallowance of interest can be made and thereby ground no. 5 raised by the assessee is allowed. 24. Ground no. 6 raised by the assessee for the disallowance of Rs. 34,95,585/- being the 5 % claim of the assessee under the head salary expenses. In the assessment proceeding ld. AO noted that the assessee claimed Rs. 7,13,22,676/- as salary expenses. Break-up of this amount was asked to assessee vide Q. No. 15 of the notice issued u/s 142(1) dated 04.09.2018. Assessee furnished response on 19.11.2018. But this query was not answered by the assessee. Notice u/s 142(1) was issued with the further queries on 11/12/2018 again asking the assessee to furnish the reply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. Even he has not given any basis by which he arrived to disallow 5 % of the expenses claimed. Thus, there is no such basis and that too without rejecting the books of account no disallowance can be made. To support this view we get strength from the decision our jurisdictional High Court in the case of Commissioner of Income Tax Vs. Gupta, K. N. Construction Co. [ 59 taxmann.com 293 (Rajasthan) ] wherein the Hon'ble High Court held that; 11. Though the argument of the learned officer of the Revenue can be said to be proper and justified that in a case where the assessee manipulates the accounts by keeping the profit margins commensurate with the past assessment years or slightly increases and that itself by a large cannot be a basis for acceptance of the results. But, in the face of the said facts, if it is for the Assessing Officer to bring on record some concrete material/evidence to make a proper addition. We have already noticed hereinabove that the Assessing Officer has merely disallowed 20 per cent. or 10 per cent., as the case may be, out of the various expenses, which, in our view, is not proper and he had to bring on record justifiable basis for making of an addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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