AHLUWALIA ERECTORS AND FEBRICATIONS PVT. LTD.,KOTA V. ACIT CIR-1 KOTA , KOTA

ITA 953/JPR/2024

AI Insights

The case involves Ahluwalia Erectors & Fabricators Pvt. Ltd., which appealed against the order of the NFAC concerning various disallowances made by the Assessing Officer (AO) under section 143(3) of the Income Tax Act for the assessment year 2016-17. The disallowances included depreciation and interest on vehicles, business promotion expenses, interest on loans, revenue expenditure on building construction, and unverifiable salary expenses. The Tribunal examined each ground of appeal, considering the legal provisions, the facts presented, and the arguments made by both the assessee and the revenue.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 28447 (ITAT-JAIPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Other Referred Cases: Collector, Land & Acquisition v. Mst. Katiji & Others, United Christmas Celebration Committee Charitable Trust vs. ITO, Hosanna Ministries vs. ITO, Mukesh Jesangbhai Patel vs. ITO, Vijay Vishin Meghani & Anr. Vs. DCIT & Anr., Diamong Cargo Movers vs. State Tax Officer, M/s Lahoti Overseas Ltd. vs. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITA RINES H
• Assessee Lawyers: MAHENDRA GARGIEYA; HEMANG GARGIEYA
• Keywords: Condonation of delay; Revenue expenditure; Reasonable cause; Question of law; Depreciation; Rule of consistency; Commercial expediency; Principle of natural justice; Bonafide mistake; Charitable institution
• Section: 143(3); 142(1); 143(2); 201; 192; 32; 139(1); 113; 139; 274; 234B; 145; 28; 44AB; 72; 20; 101

Judgement Text

" vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA No. 953/JP/2024 fu/kZkj.k o\"kZ@Assessment Years : 2016-17 Ahluwalia Erectors & Febricators Pvt. Ltd. E-77, IPIA, Kota cuke Vs. ACIT Circle-01, Kota LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAHCA 0089 K vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Mahendra Gargieya, Adv. & Sh. Hemang Gargieya, Adv. jktLo dh vksj ls@ Revenue by : Mrs. Anita Rinesh, JCIT-Sr. DR lquokbZ dh rkjh[k@ Date of Hearing : 01/01/2025 mn?kks\"k.kk dh rkjh[k@Date of Pronouncement: 19/02/2025 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM On being aggrieved by the order of the National Faceless Appeal Centre, Delhi dated 19/10/2022 [ for short ‘CIT(A) or NFAC’] the captioned assessee preferred the present appeal. The dispute relates to the assessment year 2016-17. The said order of the ld. CIT(A) arises because the assessee challenged the order of assessment dated 21.12.2018 2 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT passed under section 143(3) of the Income Tax Act, [ for short “Act”] by ACIT, Circle-01, Kota [ for short AO]. 2. In this appeal, the assessee has raised the following grounds: - “1. The impugned order u/s 143(3) of the Act dated 21.12.2018 is bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be quashed. 2. Rs.5,32,219/-: The Id. CIT(A) erred 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. 6. Rs.34,95,585/-: The Id. CIT(A) erred in law as well as on the facts of the case in confirming the disallowance of unverifiable salary expenses of Rs.34,95,585/-. The disallowance so made and confirmed by the CIT(A) being contrary to provisions of law and facts may be kindly deleted in full. 7. The Id. CIT(A) further erred in law as well as on the facts of the case in confirming the charging interest u/s 234A, 234B & 234D of the Act. The appellant totally denies its liability of charging of any such interest. The interest, so 3 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT charged, being contrary to the provisions of law and facts, kindly be deleted in full. 8. The appellant prays your honor to add, amend or alter any of the grounds of the appeal on or before the date of hearing.” 3. At the outset of hearing, the Bench observed that there is delay of 569 days in filing the appeal by the assessee for which the ld. AR of the assessee filed an application for condonation of delay with following prayers: 1. That in the aforesaid matter, the ld. CIT(A) passed the Order u/s 143(3) on dated 19.10.2022 (hereinafter referred as “impugned order”), Accordingly, the appeal was to be filed on/before dt. 18.12.2022 however, the same has been filed on dated 10.07.2024. Thus, the appeal was filed with a delay of 569 days. 2.1 Reasonable Cause Existed: With regard to the delay, it is humbly submitted that there did exist a reasonable cause and the delay so caused was completely unintended and bonafide in as much as the appeal order was received on mail 19.10.2022, however this was followed by Diwali vacation from 22.10.2022 to 26.10.2022 and therefore nothing could be done. However thereafter, on 02.11.2022 Shri Jagmohan Singh Ahluwalia (“director of assessee company”) left the office for the outstation journey ? hence, he could not handover these papers for further action there on. However thereafter someday around 16.11.2022, he handed over the appeal order and other papers to Shri Rahul Gupta (accountant of assessee company”) for onward submission to his local counsel at Kota. Shri Rahul Gupta unfortunately had a migraine attack sometime in the mid of November 2022. Therefore, he completely forgot whatever paper he received and even he did not remember the task assigned to him. Thus, the paper continued lying with him in his possession. 2.2 Thereafter, Shri Rahul Gupta when got normal from his medical problem, 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 4 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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 immediately sent these papers to local counsel and in turn, he forwarded the same to the counsel at Jaipur without any further delay. It is only after this the appeal papers could be prepared and immediately appeal was filed. 2.4 Thus, the delay in filing of the instant appeal was not at all deliberate or intentional but arose due to circumstances beyond the assessee’s control, primarily stemming from the unintended and bonafide mistake committed by the Employee working at the Assessee-Company. The Assessee has acted diligently and in good faith throughout this process, taking all necessary steps to rectify the situation and ensure compliance. 2.5 That the applicant was a layman & not very conversant with the complex tax laws and due to the circumstances stated above, the delay so caused was beyond their control but was bonafide and unintended. The assessee was not going to gain any benefit because of the delayed finding and their conduct was not contumacious. 3. In support, affidavits of director Shri Jagmohan Singh Ahluwalia and employee Rahul Gupta are enclosed herewith and marked as Annexure-1 and Annexure-2 respectfully. 4. Supporting Case Laws: It is submitted that the Hon'ble Supreme Court in the case of Collector, Land & Acquisition v. Mst. Katiji & Others (1987) 167 ITR 471 5 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT (SC) has advocated for a very liberal approach while considering a case for condonation of delay. The following observations of the Hon'ble Court are notable: \"The legislature has conferred the power to condone delay by enacting section 5 of the Limitation Act 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on 'merits'. The expression 'sufficient cause' employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which sub serves the ends of justice-that being the life- purpose of the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy.\" The said judgment is a leading case on the subject and has a binding force on all the officers subordinate thereto. 4. In addition to the above application ld. AR of the assessee submitted that the delay was on 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 6 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT • 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 be condoned. The judgment cited by assessee in condonation petition are not applicable being different on facts and in support of revenue contentions, she relied on the decision of Delhi High Court in the case of Zoom Communication. But at the same she did not denied to the principles of natural justice to the assessee. 6. We have considered the arguments and reviewed the record. The assessee contended that there exist a reasonable cause and the delay so caused was completely unintended and bonafide in as much as the appeal order was received on mail 19.10.2022, however this was followed by Diwali vacation from 22.10.2022 to 26.10.2022 7 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT and remain unattended. Thereafter, on 02.11.2022 Shri Jagmohan Singh Ahluwalia (“director of assessee company”) left the office for the outstation journey hence, he could not handover these papers for further action there on. However thereafter someday around 16.11.2022, he handed over the appeal order and other papers to Shri Rahul Gupta (accountant of assessee company”) for onward submission to his local counsel at Kota. Shri Rahul Gupta unfortunately had a migraine attack sometime in the mid of November 2022. Therefore, he completely forgot whatever paper he received and even he did not remember the task assigned to him. Thus, the paper continued lying with him in his possession and therefore it had remained to be filed and the ultimately the same was filed with delay. As is evident that the assessee is a company and here director who is responsible to act has handed over the task to the employee of the assessee company and due to medical issue the same remained unattended. This shows the unserious approach on the part of the employee of the company and thereby the assessee company should not deprived of the justice which either wise available to the assessee company. Looking to this facts we condone the delay of 569 days in view of the decision of Hon’ble 8 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT Supreme Court in the case of Collector, land Acquisition vs. Mst. Katiji and Others, 167 ITR 471 (SC) as the assessee is prevented by sufficient cause. 7. Now, coming to the merits of the issue the brief facts of the case as culled out from the records are that the assessee efiled its return of income on 16.10.2016 declaring total income of Rs. 31,58,870/-. The case was selected for scrutiny and therefore notice u/s 143(2) was issued on 24.09.2017, which was duly served 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 9 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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/- totaling Rs. 5,32,219/- was added in the income of the assessee. 9. Disallowance of the expenses claimed under the head of business promotion: Assessee has claimed business promotion expenses of Rs. 1,28,444. When the assessee was asked to submit the bills for the same, only bills amounting to Rs. 86,689/- were submitted. Hence the difference of Rs. 41,855/- is being disallowed from the expenses claimed under the head of business promotion on account of same being unverifiable. 10. Disallowance of the interest on the loan given. Ld. AO contended that the assessee provided interest free loans and advances to certain parties. When it was asked to assessee that why these 10 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT loans and advances are given to parties are interest free. It was submitted by the assessee that these loans and advances are pertaining to business advances. On perusal of the documents submitted by the assessee, below are the details of loans and advances given by the assessee (a) Kulbeer Singh ahluwalia Rs. 8,77,780/- (b) Om Metals Infraprojects Ltd. Rs. 9,00,000/- (c) Vastuwadik Colonizers & Developers Rs. 12,00,000/- (d) Solanky Fabricators. Rs 1,00,000/- Total Rs. 30,77,780/- Out of these above parties, party (a) is a related party to the assessee, which is not a business advance. Party (b) and (c) seem to be builders/ infraprojects /colonizers related parties, and these are likely to be advances for immovable property purchases. Further, the assessee has not submitted any proof or documentary evidence which can prove that these are business advances. Interest claimed by the assessee on loans taken by it is liable to be disallowed in proportion to the loans given by the assessee without any interest charged thereon. Hence 12% of Interest expenses (as the borrowing rate of the assessee is 12%) on the total amount of Rs. 30,77,780 i.e. Rs. 3,69,334/-i.e. was disallowed. 11. Disallowance of revenue expenditure on building construction: 11 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT Assessee incurred expenditure of Rs. 41,68,178/ for building construction as per the \"building construction\" ledger. As assessee has not put to use this asset for business purpose which was clear from the fact that construction expenses continued to be incurred till March 2016. Hence this was not considered as revenue expenditure. So, interest proportionate to that amount was considered liable to be capitalized. When this asset claimed 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 12 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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 were related to non-permanent labor staff. The assessee has also shown to pay salary/wages for job work done and to other employees, in addition to temporary labor the bills for which have been furnished by assessee on sample basis. In the absence of number of employees in each of these categories, it was impossible to estimate the accurate labor bill of the assessee. Ld. AO thus stated that assessee has not discharged its onus of furnishing these details so that the amount of Rs. 7,13,22,676 to be claimed as salary expense cannot be satisfactorily accepted. The assessing officer has only details about remuneration paid to partners of Rs. 12,50,000/- and 23 bills averaging Rs. 6,999 each. The credit for 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)) was considered as not verifiable and thereby ld. AO made, 5% of Rs. 6,99,11,699/- i.e. Rs. 34,95,585/- as disallowance. 13 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 13. Based on the above observation the ld. AO passed an assessment order on 21.12.2018 which the assessee challenged by filling an appeal online on 11.01.2019. The said appeal was taken up for hearing by the National Faceless Appeal Center and was ultimately disposed off with the following finding: “5. Findings & determination: 5.1 The appellant is in appeal against various disallowances of expenses made by the Assessing Officer in the assessment order passed u/s 143(3) of the Act. 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 papers 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, 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 14 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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. 5.4.1. Ground No. 3: Disallowance of interest on loans and advances :- The AO noted that the appellant had given interest free advances to some parties. Although the appellant claimed that the loans and advances were business advances, no evidence could be filed is support of this claim, Hence, the AO disallowed interest at estimated 12% rate on such loans and advances. 5.4.2 The appellant's claim is that these are not new loans but are opening balances of earlier years. However, this claim is not relevant. In the absence of linkage with business activity, the AO has rightly disallowed interest on estimated loans on the interest - free advances. This ground is rejected. 5.5 Ground No. 4: Disallowance of interest on building construction - The AO noted that expenditure of Rs. 41.68 lakh had been incurred towards building construction. The interest for such amount was required to be capitalized. The AO disallowed 12% of the amount and held this amount should be added to the value of asset for the purpose of depreciation, as and when the same is put to use. The appellant has not been able to refute this reasoning of the AO. Hence, this addition is confirmed. 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. 15 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 5.6.3 The appellant has not been able to discharge the onus of furnishing the details. Nothing specific has been filed during the appellate proceeding as well. In these circumstances, the action of the AO is upheld. This ground is rejected. 6. In effect, the appeal is dismissed.” 14. As the appeal of the assessee was dismissed by the NFAC the assessee aggrieved from that order filed the present appeal before this 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 submitted response but unfortunately however, the ld. AO completed the assessment u/s 143(3) on dt. 21.12.2018 with huge impugned addition/disallowance as under: • Rs. 5,32,219/-: Disallowance of depreciation and interest claimed on vehicles; • Rs. 41,855/-: Disallowance of expenses claimed under the head of business promotion; • Rs. 3,69,334/-: Disallowance of interest expense on the loan given; • Rs. 5,00,181/-: Disallowance of Revenue expenditure on building construction, • Rs. 34,95,585/-: Disallowance of alleged unverifiable salary expenses. Aggrieved from the above order, the assessee filed appeal before ld. CIT(A)/NFAC on 11.01.2019 which was unfortunately dismissed vide order dt. 19.10.2022. 16 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT Against the above order, the assessee filed this appeal. GOA-1: General Ground. GOA-2: Rs.5,32,219/-: Disallowance of depreciation and interest claimed on vehicles. Facts: The ld. AO at Pg. 1 of the order held as under: “(I) Disallowance of depreciation and interest claimed on vehicles: Assessee has claimed interest expenses and depreciation on multiple vehicles. When assessee was asked for the registration papers of vehicles, papers of only for 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 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. • Interest expenses claimed by assessee are as under: • As per “Interest on vehicle loan” ledger: Rs. 91,570 + Rs. 37,354 (on Duster) + Rs. 37,524 (on Ciaz) = Rs. 1,66,448/- is being disallowed for the reason as discussed above. • Depreciation claimed by assessee are as under: • On one of the Ciaz = 7.5% of Rs. 10,36,479 = Rs. 77,736 • On other Ciaz = 15% of Rs. 9,20,236 = Rs. 1,38,035 • On Duster = 15% of Rs. 10,00,000* = 1,50,000 (* = Bills for Duster have not been submitted by the assessee, hence price has been taken on estimate basis) So, depreciation claimed on vehicle amounting to total Rs. 3,65,771 is being disallowed considering the reason, as stated above. (Disallowance of depreciation and interest claimed on vehicles of Rs. 5,32,219/-)” 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. 17 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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, 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.” Hence this ground. Submission: 1. The major basis of making the disallowance by the AO was that the vehicle as was registered in the name of the individual (director) but not in the name of the appellant company, and the other objection being that the registration paper of one vehicle was not produced, though asked. However, on the other the ld. CIT(A) gave a different direction by saying that the vehicle being in the name of the director, personal use can't be ruled out, which was not a case made out by the AO. 2. At the outset, we may submit that authorities below have proceeded on a serious misconception of fact and against the settled law in as much as while allowing depreciation, what is to be seen is the beneficial ownership and not the legal ownership. It is not denied that the company was the de facto owner of the vehicles. The fact of purchase and ownership by the company and also the incurrence of the expenditure on account of use of the vehicles, are the facts evident from the audited Balance Sheet (PB 20). Once the funds to purchase the vehicle has flown from the company, the company has been using the same for its business purposes, the Revenue is bound to allow the depreciation. Further, the ld. CIT(A) firstly, raised a new ground, not earlier raised by the AO, which was not legally permissible for him, unless the assessee was confronted in advance. There apart it is also settled that in the case of a limited or private limited company there can't be any personal user and no disallowance can be made on that plea as has been held in several cases. Kindly refer: ACIT v/s M/s Anil Special Steel Industries Ltd. (2014) 52 TW 189 (JP) held that no disallowance can be made in case of a Limited/Private Limited Company decision in the case of Sayaji Iron & Eng. Co. v/s CIT 253 ITR 749 (Guj.) referred. 18 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT The above factual averments are also supported by the Board of Director passed resolution 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 the assessee. The provision should be so interpreted and the word used therein should be assigned such meaning as would enable the assessee to secure the benefits intended to be given by the legislature to the assessee. It is also settled that where there are two possible interpretation of taxing provision, one which is favourable to the assessee should be preferred. Two requirements to claim depreciation under section32 of the Act; (i) the assets should be owned by the assessee and (ii) it should be used for the purposes of business or profession. The Supreme Court has preferred to give wide meaning to the term ‘owned’ following its earlier judgment given in the case of CIT v. Poddar Cement (P.) Ltd. [1997] 226ITR 6251, in which 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 bethe ‘owner’ of the building though the formal deed or title may not have been executed or registered as contemplated by Transfer of Property Act and Registration of Property Act etc. 2.2 The same view has been taken by Division Bench of Bombay High Court in the case of CIT v. Dilip Singh Sardarsingh Bagga [1993] 201 ITR995. Registration 19 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT under the Motor Vehicles Act, to claim depreciation under the Income-tax Act, it is not an essential prerequisite. Assessee purchasing motor vehicle for valuable consideration and using the same for his business cannot be denied benefit of depreciation on ground that transfer was not recorded under Motor Vehicles Act or vehicle stood in name of vendor in records of the authorities under the Motor Vehicles Act. This judgment has been followed by Delhi High Court in the case of CIT v. Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88. 2.3 Reliance is also placed on the case of Anil Bulk Carriers (P) Ltd. vs. CIT (2005) 276 ITR 625 (All) wherein it is held as under: Thus, the impugned disallowance deserves to be deleted in full. GOA-3: Rs. 41,855/-: Disallowance of the expenses claimed under the head of business promotion. Facts: The ld. AO at Pg. 2 of the order held as under: “(II) Disallowance of the expenses claimed under the head of business promotion: Assessee has claimed business promotion expenses of Rs. 1,28,444/. 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. Submission: 20 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT Thus, the impugned disallowance deserves to be deleted in full. GOA-4: Rs.3,69,334/-: Disallowance of interest on the loan & Advance. Facts: The ld. AO at Pg. 2 of the order held as under: “(III) Disallowance of the interest on the loan given: Assessee has given interest free loans and advances to some parties. When it was asked to assessee that why these loans and advances are given to parties are interest free. It was submitted by the assessee that these loans and advances are pertaining to business advances. On perusal of the documents submitted by the assessee, below are the details of loans and advances given: (a) Kulbeer Singh ahluwalia = Rs. 8,77,780/- (b) Om Metals Infraprojects Ltd. = Rs. 9,00,000/- (c) Vastuwadik Colonizers & Developers = Rs. 12,00,000/- (d) Solanky Fabricators = Rs. 1,00,000/- Total = Rs. 30,77,780/- Out of these above parties, party (a) is a related party to the assessee, which is not a business advance. Party (b) and (c) are seems to be builders/ infraprojects/colonizers related parties, and these are likely to be advances for immovable property purchases. Further, assessee has not submitted any proof or documentary evidence which can prove that these are business advances. Interest claimed by the assessee on loans taken by it is liable to be disallowed in proportion to the loans given by the assessee without any interest charged thereon. Hence 12% of Interest expenses (as the borrowing rate of the assessee is 12%) on the total amount of Rs. 30,77,780 i.e. Rs. 3,69,334/- is being disallowed. (Disallowance of the interest on the loan given Rs. 3,69,334/-)” On this aspect, the ld. CIT(A) at page 7 para 5.4 held as under: “5.4.1. Ground No. 3 :- Disallowance of interest on loans and advances :- The AO noted that the appellant had given interest free advances to some parties. Although the appellant claimed that the loans and advances were business advances, no evidence could be filed is support of this claim. Hence, the AO disallowed interest at estimated 12% rate on such loans and advances. 5.4.2 The appellant’s claim is that these are not new loans but are opening balances of earlier years. However, this claim is not relevant. In the absence of 21 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT linkage with business activity, the AO has rightly disallowed interest on estimated loans on the interest – free advances. This ground is 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 export policy by way of reduction from raw material consumption—AO stated that taxability of benefits was covered u/s 28(iv) which provides that value of any benefit or perquisite, whether convertible into money or not, arising from a business or a profession is income—According to AO, along with an obligation of export commitment, assessee gets benefit of importing raw material duty free— CIT(A) followed conclusion of ITAT in A.Ys. 1999-2000 and 2000-01 and held that advance benefits ought not to be taxed in this year—ITAT upheld view of CIT(A)— Held, applying three tests laid in various decisions, namely, whether income accrued to assessee is real or hypothetical; whether there is a corresponding liability of other party to pass on benefits of duty free import to assessee even without any imports having been made; and probability or improbability of realisation of benefits by assessee considered from a realistic and practical point of view, it was quite clear that in fact no real income but only hypothetical income had accrued to assessee and Section 28(iv) would be inapplicable—Secondly, consistent view had been taken in favour of assessee, starting with A.Y. 1992-93, that benefits under advance licences or under duty entitlement pass book do not represent real income of assessee—Thus, there was no reason to take a different view unless there are very convincing reasons, none of which had been pointed out by revenue—Thirdly, there was no dispute that in subsequent FY, assessee did make imports and did derive benefits under advance licence and duty entitlement pass book and paid tax thereon—Therefore, it was not as if revenue 22 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT has been deprived of any tax—Rate of tax remained same—There was, thus, no need for revenue to continue with this litigation” 2. On Merits: Otherwise also, all these parties are already in the line of fabrication work, colonizer and developer which is also at par with the nature of the business of the assessee. Moreover, it is not alleged that all or any of these parties are directly or indirectly related to the assessee except Kulbir Singh Ahluwalia, who is a director of assessee-company (advance of Rs.8,77,780/-) . 3.1 Businessman is the best judge: It will be appreciated that the decision as to what rate of interest or not interest should have been paid/charged, is a decision to be taken by businessman, who is the best judge to 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 the Act. 20. In Madhav Prasad Jatia v. CIT AIR 1979 SC 1291, this Court held that the expression \"for the purpose of business\" occurring under the provision is wider in scope than the expression \"for the purpose of earning income, profits or gains\", and this has been the consistent view of this Court. 21. In our opinion, the High Court in the impugned judgment, as well as the Tribunal and the Income-tax authorities have approached the matter from an erroneous angle. In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. 22. In our opinion, the decisions relating to section 37 of the Act will also be applicable to section 36(1)(iii) because in section 37 also the expression used is 23 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT \"for the purpose of business\". It has been consistently held in decisions relating to section 37 that the expression \"for the purpose of business\" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby.” 4. There is always a presumption in favour of the assessee that where there are larger interest free funds available with the assessee which is there in this case as, reserve surplus Rs.1,12,98,474/- (PB 25) and capital Rs.1 lakh as against the alleged interest free advance to Director Kulbir Singh Ahluwalia at Rs. 8,77,780/-. Hence the legal presumption is that the amount so advanced came out of the interest free fund which did not call for any disallowance u/s 36(1)(iii) on account of the alleged diversion of funds. Kindly refer CIT vs. Ram Kishan Verma (2016) 132 DTR (Raj) 107 where it was held that: “Admittedly the assessee had an opening capital of Rs. 5,70,74,967 of his own and the advances, if at all, being interest free, is to the extent of Rs. 98,93,950 which is far below the capital of the assessee and, therefore, the Tribunal has rightly come to the conclusion that to the extent of his own capital the assessee could advance money without interest for business expediency or/and relatives, and none can be forced to charge interest. It is also noticed by the lower authorities that assessee earned bank interest to the extent of Rs. 24,48,843 out of which he paid total amount of Rs. 10,99,099 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 position the impugned disallowance deserves to be deleted in full. GOA-5: Rs.5,00,181/-: Disallowance of revenue expenditure on building construction. Facts: The ld. AO at Pg. 3 of the order held as under: “(IV) Disallowance of revenue expenditure on building construction: 24 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT Assessee has incurred expenditure of Rs. 41,68,178/ for building construction as per the “building construction” ledger. Assessee has not put to use this asset for business purpose which is clear from the fact that construction expenses continued to be incurred till March 2016. Hence this is not assessee’s revenue expenditure. So, interest proportionate to this amount is liable to be capitalized. When this asset will 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 i.e. Rs. 5,00,181/- is being disallowed as revenue expenditure and is being capitalized. (Disallowance of revenue expenditure on building construction Rs. 5,00,181/-)” On this aspect, the ld. CIT(A) at page 7 para 5.5 held as under: “5.5 Ground No. 4: - Disallowance of interest on building construction – The AO noted that expenditure of Rs. 41.68 lakh had been incurred towards building construction. The interest for such amount was required to be capitalized. The AO disallowed 12% of the amount and held this amount should be added to the value of asset for the purpose of depreciation, as and when the same is put to use. The appellant has not been able to refute this reasoning of the AO. Hence, this addition is confirmed.” Hence this ground. Submission: The authorities below evidently, proceeded on a misconception of fact and law. The impugned disallowance made u/s 36(1)(iii), of the nature the way which has been made in the present case, is completely devoid of merits and in fact the onus lay upon the AO was not discharged for the simple reason that the authorities below did not at all point out which particular loan was taken for the addition of the fixed assets of Rs. 41,68,178/-, (which is under consideration). No doubt, the assessee made addition during the year which is shown in the Depreciation/ Fixed Asset chart (PB 33-34) also but a perusal of the Balance Sheet (PB 23) does not show any specific loan taken for this purpose only. Hence, it can't be said that there was any earmarked 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 25 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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 an asset. The law contemplates a specific borrowing only for the acquisition of an asset, which is not the case here. There is no whisper on that aspect what to talk of establishing this fact. Thus, the impugned disallowance deserves to be deleted in full. GOA-6: Rs.34,95,585/-: Disallowance of unverifiable temporary labour expenses. Facts: The ld. AO at Pg. 3 of the order held as under: “(V) 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 as below: --------xxx--------xxx--------xxx--------xxx--------xxx--------xxx--------xxx-------- Reminder notices were issued u/s 142(1) on 09/10/2018, 24/10/2018, 01/11/2018. 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. It was submitted by the assessee that the answer to this query is attached with the reply submitted. But, no attachment in this regard was attached. In 2nd questionnaire assessee was asked to submit 20 sample bills of various categories. Assessee submitted 23 bills averaging to Rs. 6999 each. These bills were related to non-permanent labor staff. Thus, assessee has submitted neither any breakup of the salary/wages paid nor any detail related to number of employees. Assessee just submitted 23 bills averaging to Rs. 6,999 each which does not make much sense in the absence of corresponding data about number of employees. The assessee has also shown to pay salary/wages for job work done and to other employees, in addition to temporary labor the bills for which have been furnished by assessee on sample basis. In the absence of number of employees in each of these categories, it is impossible to estimate the accurate labor bill of the assessee. Assessee has not discharged its onus of furnishing these details so that the amount of Rs. 7,13,22,676 to be claimed as salary expense can be satisfactorily accepted. 26 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT The assessing officer has only details about remuneration 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 furnishing the details. Nothing specific has been filed during the appellate proceeding as well. In these circumstances, the action of the AO is upheld. This ground is rejected.” Hence this ground. Submission: 1.1 Addition without jurisdiction: At the outset it is submitted that the assessee has admittedly maintained complete books of accounts on day-to-day basis, the other subsidiary record showing the quantitative and financial details both the Purchase, Sale and expenses were duly supported by proper vouchers. The Accounts were even subjected to Tax Audit under S. 44AB of Act (PB103-121). Notably there was no adverse remark made by the ld. Tax Auditor in the Audit Report nor it is so alleged by the ld. AO. Needless to say, that the accounts so maintained in the regular course of business has a binding evidentiary value u/s 145 of the Act r/w S.34 of The Indian Evidence Act,1872 (now S.28 of The Bharatiya Sakshya Adhiniyam, 2023). Unless the assessing officer reject the books of accounts under cogent ground provided under section 145(3), he does not get any jurisdiction at all to make any variation in the declared results. 1.2 In the entire order the ld. AO has not whispered if there was some defect and therefore has not even invoked sec. 145(3). In other words, he felt satisfied with the books of accounts maintained by assessee and duly audited and produced before him and therefore feeling satisfied, he did not reject the same. 27 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT Once this is the admitted fact, there is no reason as to why the AO must have alleged a difference in the terms of quantity/value of the stock in trade shown in audited books account vis-à-vis through the stock registered impounded during survey (no hard copies of stock were seized but it was hard disk seized by the Economic Offence Wing, Mumbai where from, this data was taken as a clone and printouts were taken and forwarded to present AO). 1.3 There is a consistent view of various High Courts and Tribunals to this effect. Kindly refer: 1.3.1 M/s Bansilal Abirchand Spg. & Wvg. Mills 75 ITR 260 (Bom.) a. A finding has to be recorded as to the unacceptability of the method and irregularity of the method and irregularity of accounts kept. b. The mere fact that percentage of dead loss of cotton is high in a particular year cannot lead to the loan inference that thereby there has been a suppression of the production 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 defect of any kind was pointed out by the AO\" 1.3.4 Mohd. Umer v. CIT 101 ITR 525 (Pat) (Page 528) \"No finding was recorded by the departmental authorities as to the unacceptability of the method and irregularity of the account kept by the assessee. It is well settled that in the absence of such a finding recorded by the authorities, the book results cannot be ignored or brushed aside.\" \"In the absence of any such finding, there being no reason germane to the unacceptability of the book results.....\" Thus, in the light of above facts and judicial precedents we conclude: Firstly, thus, in absence of any rejection of books of account, AO could not have made any 28 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT addition at all. Secondly, he was bound to have accepted the trading results as declared u/s 145 of the Act. Hence, the entire addition deserves to be deleted here itself. 2. Addition illegal - misconceived: The sole basis which appears for the disallowance at the rate of 5% out of the total labour expenses of Rs. 7,13,22,676/- is that the appellant allegedly failed to provide the complete details of salary & wages. However, this contention that the temporary wages cost was the main ingredient in the total cost looking in the nature of the business being carried out by the appellant, was not appreciated. The cost incurred on Salaries & Wages during the year is reproduced hereunder: Particulars Amt. (in Rs.) Salaries, Wages, Bonus and Allowances etc. 20,15,857 Temporary Labour & Wages 5,41,87,636 Job Work Charges 1,38,69,183 Remuneration to Directors 12,50,000 Total 7,13,22,676 Very interestingly and surprisingly the AO proceeding very mathematically, allowed the expenditure only to the extent of firstly, Rs.12.50 Lakhs on account of payments to Directors and secondly, Rs. 1,60,977/- on account of 23 sample bills submitted before him (23 sample bills x 6,999) but out of the balance Rs. 6,99,11,699/- (7,13,22,676 – 12,50,000 – (23*6999)) an ad-hoc disallowance of 5% i.e. Rs. 34,95,585/- was made. Such an approach itself shows an arbitrary and whimsical exercise on the part of the authorities below. The authorities did not appreciate that it was a case of a Private Limited Company and its accounts were fully audited. All the expenses were fully vouched and were examined by the Statutory Auditor (PB 14-21). The different work centers maintained. Muster Role/ Attendance Chart under 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. 29 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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, 1961 along with computation of Total income. 01-03 2. Tax Audit Report FORM NO. 3CA u/s 44AB of Act by ld. Tax Auditor dt. 11.09.2016 04-13 3. Independent Statutory Auditor’s Report for year ended 31.03.2016 as per Companies Act, 2013 14-21 4. Audited Financial statement for AY 2016-17 along with notes and annexure forming part of accounts. 22-34 5. Business promotion ledger A/c for the period 01.04.2015 to 31.03.2016 in the books of assessee 35 6. Building Construction ledger A/c for the period 01.04.2015 to 31.03.2016 in the books of assessee. 36-37 7. Interest ledger a/c for interest paid to Bank on OD and Vehicle loan. 38-39 Paper Book Index-II Sr No Particulars Page No 8. Ledger A/c of • Kulbeer Singh Ahluwalia, • Om Metals Infraprojects Ltd, 40-43 30 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT • Solanky Fabricators, and • Vastuvadik Colonizers & Developers for the period 01.04.2015 to 31.03.2016 in the books of assessee. 9. Director Remunration Ledger A/c for the period 01.04.2015 to 31.03.2016 showing payments made to the Directors of the Company 44 10. Temp. Labour wages Ledger Account for the period 01.04.2015 to 31.03.2016 in the books of assessee. 45 11. Job Work Charges Ledger Account for the period 01.04.2015 to 31.03.2016 in the books of assessee. 46 12. Ledger Account w.r.t. Salary Expenses for the period 01.04.2015 to 31.03.2016 in the books of assessee. 47-49 16. The ld. AR of the assessee in addition to the above written submission vehemently argued that disallowance of depreciation and interest both assets and loan which interest was paid by the company and duly reflected in the books of account of the company. Therefore, considering the written submission and the case laws cited therein, the addition made is required to be deleted. As regards the interest paid on loan since the same being used for the purpose of the business interest is allowable to the assessee. Car was purchased in the year 2012 and since then the assessee year on year claim the expenditure. To drive home to the contention ld. AR of the assessee relied upon the decision of CIT vs. Poddar Cement (P.) Ltd. [1997] 226 ITR 6251. Ld. AO as well as ld. CIT(A) 31 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT has not alleged there is a personal use of vehicle and therefore, interest and depreciation should be allowed. 17. As regards ground No. 3 for depreciation of business promotion of expenditure, ld. AR of the assessee relied upon the 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. 32 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT As regards the lump sum of disallowance of 5% out of the labour expenditure claimed by the assessee. No disallowance can be made in the hands of the assessee. The assessee is a private limited company regularly assessed to tax and are subject to audit under the company Act as well as under the Income Tax Act. The auditor has not commented any adverse comment on maintenance of books of accounts and therefore, the addition of lump sum in the hands of the assessee company cannot be made. To drive home to this contention, ld. AR of the assessee relied upon the following decisions; • M/s Bansilal Abirchand Spg. & Wvg. Mills 75 ITR 260 (Bom.) • CIT vs. Maharaja Shree Umaid Mills Ltd. 192 ITR 565 (Raj.) • DCIT vs. Mewar Textile Mills Ltd. 21 Tax World 821 (JP) • Mohd. Umer vs. CIT 101 ITR 525 (Pat) 18. Per contra, the ld. DR supported the orders of lower authorities. As regards the disallowance of depreciation and interest, the car was not in the name of the company and therefore, interest and depreciation claimed by the assessee cannot be allowed. The assessee has not provided any log sheet to prove the car's use for company work. The AO reasonably disallowed the salary expenditure as the assessee failed to provide the necessary information to justify the claim. 33 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 19. We have heard the rival contentions and perused the material placed on record. Ground no. 1 raised by the assessee being general and there is no specific grievance raised by the assessee therefore, the same is not required to be adjudicated. 20. Ground no. 2 deals with the disallowance of Rs. 5,32,219/- comprises of interest expenses of Rs. 1,66,448/- and claim of depreciations to the extent of Rs. 3,65,771/-. While disallowing the said expenditure the ld. AO noted that interest expenses and depreciation claimed for the car which was not in the name of the company but was registered in the name of the Individual. As per-loan-papers, the other car (Ciaz) was also in the name of an individual and not in the name of company. Therefore, ld. AO considered that the vehicles were not 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/- totaling Rs. 5,32,219/-. When the matter carried before the ld. CIT(A) he rejected the claim of the assessee by observing that if a vehicle 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 34 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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 number. 2 raised by the assessee is allowed. 21. Ground no. 3 raised by the assessee for disallowance of Rs. 41,855/-. The brief fact of the issue is that assessee has claimed business promotion expenses of Rs. 1,28,444. When the assessee was asked to submit the bills for the same, only bills amounting to Rs. 86,689/- were submitted and 35 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT thereby the difference of Rs. 41,855/- was disallowed being unverifiable expenditure. The ld. AR of the assessee submitted that the claim was for the purpose of the business of the assessee. When the matter carried to ld. CIT(A) he observed as under : 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. Before us ld. AR of the assessee did not rebut the finding of the ld. CIT(A) that claim made was contrary on facts and the expenditure was incurred in cash and therefore, we do not find any merit in this grounds of appeal raised by the assessee and same is dismissed. 22. Ground no. 4 raised by the assessee for disallowance of Rs. 3,69,334/- being the interest on the loan given. On this aspect of the matter we note that the advance were not given in the year under consideration except Shri Kulbir Singh. The ld. AR of the assessee submitted that all the parties in the line of fabrication work, colonizer and developer which is also at par with nature of the business of the assessee. Even otherwise there was no direct nexus was established and the assessee was having 36 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT sufficient interest free funds and therefore, considering the decision of the jurisdictional high court cited by the ld. AR of the assessee in his written submission we do not find any reason to sustain the addition and therefore, the same is directed to be deleted. 23. Ground no. 5 relates to the disallowance of revenue expenditure of Rs. 5,00,181/- @ 12 % on the building construction expenditure for an amount of Rs. 41,68,178/-. Ld. AO noted that since the assets on which the expenditure incurred was not put to use the notional income is required to be added and ordered to be capitalized. When the matter carried before 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. 37 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 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 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 to that reply. In the 2nd questionnaire the assessee was asked to submit 20 sample bills of various categories. Assessee submitted 23 bills averaging to Rs. 6,999 each. These bills were related to non-permanent labor staff. The assessee has also shown to pay salary/wages for job work done and to other employees, in addition to temporary labor the bills for which have been furnished by the assessee on sample basis. In the absence of the number of employees in each of these categories, it was impossible to estimate the accurate labor bill of the assessee. Ld. AO thus stated that the assessee has not discharged its onus of furnishing these details so that the amount of Rs. 38 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 7,13,22,676 to be claimed as salary expense cannot be satisfactorily accepted. The assessing officer has only details about remuneration paid to partners of Rs. 12,50,000/- and 23 bills averaging Rs. 6,999 each. The credit for 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)) was considered as not verifiable and thereby ld. AO made, 5% of Rs. 6,99,11,699/- i.e. Rs. 34,95,585/- was disallowed. When the matter carried before the ld. CIT(A) he held that “The appellant has not been able to discharge the onus of furnishing the details. Nothing specific has been filed during the appellate proceedings as well. In these circumstances, the action of the AO is upheld. This ground is rejected.” Before us the ld. AR of the assessee filed a detailed submission objecting to the addition. The ld. AR submitted that the ld. AO asked for the 20 sample bills assessee supplied 23 bills. The ld. AO did not find any defect on these bills and directly jumped to make the adhoc disallowance without rejecting the book result and finding any defects in the records so produced. The bench noted that it was case of a private limited company and its books of accounts are audited as per the Companies Act and as per the Income Tax Act as well. There was no defect pointed out by the ld. AO 39 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT in the books or that of with the vouchers. Even the vouchers produced for which the ld. AO gave the credit this itself shows that the ld. AO acted based on the assumptions and presumptions. 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 and bring on record some evidence for making of addition. Respectfully following the binding precedent as above and as cited in the written submission consider the ground no. 6 raised by the assessee and direct the ld. AO delete the disallowance so made on estimate basis. 40 ITA No. 953/JP/2024 Ahluwalia Erectors & Febricators Pvt. Ltd., vs. ACIT 25. Ground no. 7 raised by the assessee deals with the charging of interest u/s. 234A/B/C which are consequential in nature and therefore, the same are not required to be adjudicated. 26. Ground no. 8 raised by the assessee being general does not require our adjudication. In the result the appeal of the assessee is partly allowed. Order pronounced in the open court on 19/02/2025. Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 19/02/2025 *Ganesh Kumar, Sr. PS vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Ahluwalia Erectors & Febricators Pvt. Ltd., Kota 2. izR;FkhZ@ The Respondent- ACIT, Circle-01, Kota 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 953/JP/2024) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar "