D. VENKATESH, Chennai V. ACIT NON CORPORATE CIRCLE 20(1), Chennai

ITA 1126/CHNY/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3081 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 16-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G JOHNSON
• Keywords: Depreciation; Earning of tax free income; Reasonable cause; Condonation of delay; Rule 8D
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ ITA NO.: 1126/CHNY/2019 / ASSESSMENT YEAR: 2013-14 SHRI VENKATESH DAGGUBATI, NO.7, PALAT MADHAVAN ROAD, MAHALINGAPURAM, CHENNAI 600 034. PAN: AAHPB 0939Q V. THE ACIT, NON-CORPORATE CIRCLE 20(1), CHENNAI. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : NONE /RESPONDENT BY : SHRI G. JOHNSON, ADDL.CIT /DATE OF HEARING : 28.04.2021 /DATE OF PRONOUNCEMENT : 14.06.2021 / O R D E R PER G. MANJUNATHA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-12, CHENNAI, DATED 31.01.2019 AND PERTAINS TO ASSESSMENT YEARS 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 2 I.T.A. NO.1126 /CHNY/2019 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX APPEALS, CHENNAI, IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING 25% OF THE DEPRECIATION ON THE CAR FOR PROBABLE PERSONAL USE AND THE DISALLOWANCE OF EXPENDITURE UNDER SECTION14A ARE BAD IN LAW, AGAINST THE PRINCIPLES OF JUSTICE, WEIGHT OF EVIDENCE AND PROBABILITIES OF THE CASE OF THE APPELLANT. 2. THE LEARNING ASSESSING OFFICER AND THE APPELLATE COMMISSIONER HAVE ERRED IN IGNORING THE FACT THAT ONCE A CAR IS ACQUIRED AND PUT TO USE FOR BUSINESS THE ASSET FALLS UNDER THE BLOCK OF ASSET CONCEPT AND IT BECOMES BUSINESS ASSET WHICH COULD NOT BE SEGREGATED FOR PERSONAL USE AND BUSINESS USE AND DISALLOWING 25% ON DEPRECIATION FOR PERSONAL USE IS UNTENABLE IN LAW. 3. THE LEARNED ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX, APPEALS WERE WRONG IN INVOKING THE PROVISIONS OF RULE 8D READ WITH SECTION 14A WHILE THAT PROVISIONS ARE NOT APPLICABLE TO THE CASE AND FACTS OF THE CASE OF APPELLANT. 4. THE LEARNED COMMISSIONER OF INCOME TAX APPEALS ERRED IN NOT CONSIDERING THE FACT THAT THE EXPENDITURE IN EARNING THE EXEMPTED INCOME HAD NOT INCURRED ANY EXPENDITURE WHICH HAD ANY NEXUS WITH THE EXEMPTED INCOME. 5. THE APPELLANT CRAVES LEAVE TO FILE AND FURNISH IN CASE OF A NEED ADDITIONAL GROUNDS IF ANY BEFORE THE HEARING AT THE TIME OF HEARING. 6. THE APPELLANT PRAYS THAT BOTH THE ADDITIONS MADE TO THE INCOME RETURNED BE DELETED AND JUSTICE RENDERED TO THE APPELLANT. 3. AT THE OUTSET, WE FIND THAT THE APPEAL FILED BY THE ASSESSEE IS TIME BARRED BY LIMITATION I.E. 11 DAYS AND THE ASSESSEE HAS FILED NECESSARY PETITION FOR CONDONATION OF DELAY ALONG WITH AFFIDAVIT EXPLAINING REASON FOR DELAY IN FILING THE APPEAL. THE ASSESSEE SUBMITTED THAT THE DELAY IN FILING THE SAID APPEAL WAS NEITHER WILLFUL NOR DELIBERATE BUT DUE TO CIRCUMSTANCES BEYOND THE CONTROL OF THE ASSESSEE BECAUSE HE 3 I.T.A. NO.1126 /CHNY/2019 WAS NOT IN STATION DUE TO HIS DAUGHTERS MARRIAGE DURING THE PERIOD WHEN THE ASSESSMENT ORDER WAS SERVED. BECAUSE OF THIS, THE APPEAL COULD NOT BE FILED WITHIN THE STATUTORY TIME ALLOWED UNDER THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). HAVING HEARD THE REVENUE AND CONSIDERED PETITION FILED BY THE ASSESSEE, WE ARE OF THE CONSIDERED VIEW THAT REASONS GIVEN BY THE ASSESSEE FOR NOT FILING THE APPEAL WITHIN THE TIME ALLOWED UNDER THE ACT COMES UNDER REASONABLE CAUSE AS PROVIDED UNDER THE ACT FOR CONDONATION OF DELAY AND HENCE, DELAY IN FILING OF ABOVE APPEAL IS CONDONED AND APPEAL FILED BY THE ASSESSEE IS ADMITTED FOR ADJUDICATION. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM HOUSE PROPERTY, BUSINESS AND OTHER SOURCE, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 26.07.2014 DECLARING TOTAL INCOME OF RS.3,11,64,900/-. THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) ON 17.03.2016 BY DETERMINING TOTAL INCOME AT RS.3,13,83,954/- BY MAKING ADDITION TOWARDS 25% DISALLOWANCE OF DEPRECIATION ON CAR, ON THE GROUND THAT USE OF CAR FOR PERSONAL PURPOSE CANNOT BE RULED OUT. SIMILARLY, THE AO HAS MADE ADDITION TOWARDS DISALLOWANCE OF 4 I.T.A. NO.1126 /CHNY/2019 EXPENSES U/S.14A R.W.R 8D OF INCOME TAX RULES, 1962 FOR RS.2,19,054/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE LD.CIT(A) FOR THE REASONS RECORDED IN HIS APPELLATE ORDER HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE, WHERE HE HAD CONFIRMED ADDITION MADE TOWARDS DISALLOWANCE OF DEPRECIATION ON CAR HOWEVER, RESTRICTED DISALLOWANCE OF EXPENDITURE U/S.14A TO THE EXTENT OF EXEMPT INCOME EARNED FOR THE YEAR AMOUNTING TO RS.1,990/-. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION IS DISALLOWANCE OF DEPRECIATION ON CAR. THE AO HAS MADE ADHOC DISALLOWANCE OF 25% OF DEPRECIATION ON CAR, ON THE GROUND THAT USE OF CAR FOR PERSONAL PURPOSES CANNOT BE RULED OUT. IT WAS THE CLAIM OF THE ASSESSEE BEFORE THE AO THAT ASSET IS PURCHASED FOR BUSINESS PURPOSE AND UNLESS THE AO BRINGS ON RECORD TO PROVE THAT CAR WAS USED FOR PERSONAL PURPOSE, NO ADHOC DISALLOWANCE CAN BE MADE TOWARDS DEPRECIATION. 5.1 HAVING HEARD THE LD.DR AND CONSIDERED MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE AO HAS DISALLOWED ADHOC DEPRECIATION ON CAR WITHOUT BRINGING ON RECORD ANY EVIDENCE TO PROVE THAT THE 5 I.T.A. NO.1126 /CHNY/2019 ASSESSEE HAS USED CAR FOR PERSONAL PURPOSE. NO DOUBT, IF AN ASSET IS USED FOR PERSONAL PURPOSE, EXPENSES RELATABLE TO SUCH PERSONAL USE CAN BE DISALLOWED. HOWEVER, BEFORE DOING SO, IT IS FOR THE AO TO BRING ON RECORD TO SUGGEST USE OF ASSET FOR PERSONAL PURPOSE. IN THIS CASE, NOTHING HAS BEEN BROUGHT ON RECORD TO PROVE THE CASE OF THE AO THAT CAR WAS USED FOR PERSONAL PURPOSE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN MAKING ADHOC DISALLOWANCE OF DEPRECIATION ON CAR AND HENCE, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS ADHOC DISALLOWANCE OF DEPRECIATION ON CAR. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION IS DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT. THE AO HAS DETERMINED DISALLOWANCE OF RS.2,19,054/- U/S.14A BY INVOKING RULE 8D OF THE IT RULES, AS AGAINST TOTAL EXEMPT INCOME BEING DIVIDEND INCOME EARNED FOR THE YEAR AT RS.1,990/-. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT DISALLOWANCE CONTEMPLATED U/S.14A OF THE ACT, CANNOT EXCEED EXEMPT INCOME EARNED FOR THE YEAR. IN THIS CASE, ALTHOUGH THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.1,990/-, THE AO HAS DETERMINED DISALLOWANCE OF RS.2,19,054/- WHICH IS OVER AND ABOVE EXEMPT INCOME EARNED FOR THE YEAR, CONTRARY TO THE LEGAL POSITION. THE LD.CIT(A) AFTER 6 I.T.A. NO.1126 /CHNY/2019 CONSIDERING RELEVANT FACTS HAS RIGHTLY RESTRICTED DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN FINDINGS RECORDED BY THE LD.CIT(A) TO RESTRICT DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND REJECT GROUND TAKEN BY THE ASSESSEE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 14 TH JUNE, 2021 AT CHENNAI. SD/- SD/- ( . ) (DUVVURU RL REDDY) / JUDICIAL MEMBER ( . ) (G. MANJUNATHA) /ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 14 TH JUNE, 2021. RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. /GF.