M/s. Jewel Paper Pvt. Ltd., Surendranagar V. The Joint Commissioner of Income Tax, Surendranagar Range, Surendranagar

ITA 181/RJT/2013

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4247 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 03-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT [CONDUCTED THROUGH E COURT AT AHMEDABAD] BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA.NO.181/RJT/2013 [ASSTT.YEAR : 2009-2010] AND ITA NO.116/RJT/2015 / ASSTT. YEAR: 2010-2011 M/S.JEWEL PAPER P.LTD. 706, RD PHASE, GIDC ESTATE WADHAWAN CITY SURENDRANAGAR. VS JCIT, SURENDRANAGAR RANGE SURENDRANAGAR. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SMT.ARTI N. SHAH, AR REVENUE BY : SHRI PRAVEEN VERMA, SR.DR / DATE OF HEARING : 26/10/2018 / DATE OF PRONOUNCEMENT: 1 /11/2018 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST SEPARATE ORDERS OF THE LD.CIT(A)-XVI, AHMEDABAD DAT ED 11.3.2013 AND 5.1.2015 PASSED FOR THE ASSTT.YEARS 2009-10 AND 201 0-11. SINCE ISSUES INVOLVED IN BOTH APPEALS ARE COMMON, THEREFORE, WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OF THESE APPEALS BY THIS COMMON ORDER. 2. THE ASSESSEE HAS TAKEN FIVE GROUNDS OF APPEAL IN EACH ASSESSMENT YEAR. HOWEVER, ITS GRIEVANCE REVOLVES AROUND TWO ISSUES V IZ. (A) THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.1,70,294/- AND RS.1,71,784/- BEING ITA NO.181/RJT/2013 2 10% OF FOLLOWING EXPENSES IN THE ASSTT.YEAR 2009-10 AND 2010-11 RESPECTIVELY: PARTICULARS A.Y. 2009-10 A.Y2010-11 ADMINISTRATIVE EXPENSES 79,553 76,952 TRAVELLING EXPENSES 40,714 27,369/- CONVEYANCE EXPENSES 50,027 TELEPHONE EXPENSES 24,745/- MOTOR CAR EXPENSES 42,718/- TOTAL 1,70,294 1,71,784 AND (B) THE LD.CIT(A) HAS ERRED IN CONFIRMING DISAL LOWANCE OF DEPRECIATION AMOUNTING TO RS.5,50,334/- AND RS.7,88,506/- CLAIME D ON MOTOR CARS. THERE IS NO DISPARITY OF FACTS ON ALL VITAL POINTS, THERE FORE, FOR THE FACILITY OF REFERENCE, WE TAKE UP THE FACTS FROM THE ASSTT.YEAR 2009-10. 3. THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE EXTRUSION COATED PACKING M ATERIAL. IT HAS FILED ITS RETURN F INCOME ELECTRONICALLY ON 26.9.2009 DECLARI NG CURRENT YEAR INCOME AT RS.67,07,511/-. IT HAS SET OFF UNABSORBED LOSS AND DEPRECIATION OF THE ASSTT.YEAR 2006-07 AND 2007-08, AND SHOWN NET INCOM E FOR THIS ASSTT.YEAR AT RS.33,87,180/-. SIMILARLY, IN THE ASSTT.YEAR 2010- 11, IT HAS FILED RETURN OF INCOME ON 16.9.2010 DECLARING TOTAL INCOME AT RS.52 ,18,170/-. THE CASE OF THE ASSESSEE SELECTED FOR SCRUTINY ASSESSMENT IN BO TH YEARS, AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSES SEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THERE WAS A FA LL IN NET PROFIT WHICH WAS 1.79% IN THE PRECEDING YEAR, AND 0.26% IN THE ASSTT .YEAR 2009-10. THE LD.AO HAS MADE ADHOC DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES, TRAVE LING EXPENDITURE AND CONVEYANCE EXPENDITURE. HE DID NOT MAKE DISCUSSION IN THE ASSESSMENT ORDER. IN THE ASSTT.YEAR 2010-11, THE L D.AO HAS MADE AN OBSERVATION THAT PERSONAL USER OF THE FACILITIES CO ULD NOT BE RULED OUT, AND THEREFORE HE MADE DISALLOWANCE AT 10% OF THE TOTAL EXPENDITURE DEBITED UNDER ITA NO.181/RJT/2013 3 THE HEAD TRAVELLING, TELEPHONE, MOTOR CAR, ADMINIST RATIVE ETC. ON APPEAL IN THE ASSTT.YEAR 2009-10, THE LD.CIT(A) HAS NOTICED THE S UBMISSIONS MADE BY THE ASSESSEE ON BOTH THE ISSUES I.E. ADHOC DISALLOWANCE OUT OF VARIOUS EXPENDITURE AS WELL AS DISALLOWANCE OF DEPRECIATION. THE FINDI NG RECORDED BY THE LD.CIT(A) READS AS UNDER: A PERUSAL OF THE ABOVE ORDER OF HON'BLE HIGH COURT INDICATES THAT AS FAR AS OWNERSHIP OF MOTOR CARS IS CONCERNED, DEPREC IATION IS ADMISSIBLE TO AN ASSESSEE EVEN IF THE SAID CAR IS NOT REGISTER ED IN THE NAME OF SUCH ASSESSEE BUT HAS BEEN USED FOR THE PURPOSES OF ASSE SSEE'S BUSINESS. IT IS SEEN THAT THERE IS A SLIGHT DISTINCTION BETWEEN THE FACTS OF THE CASE DECIDED BY HON'BLE HIGH COURT AND THOSE EXISTING IN THE PRESENT APPEAL IN THE CASE BEFORE HONBLE HIGH COURT, THE RELATION SHIP BETWEEN THE OWNERS IN WHOSE NAME MOTOR CARS WERE REGISTERED AND THE PERSONS WHO WERE CLAIMING DEPRECIATION WAS ESTABLISHED BY WAY O F AN AGREEMENT. IN THE INSTANT CASE THE APPELLANT COMPANY HAS NOT BEEN ABLE TO PRODUCE ANY AGREEMENT OR ARRANGEMENT BETWEEN ITSELF AND THE IMPUGNED REGISTERED OWNERS OF THE CAR TO INDICATE THAT THE C ARS WERE GIVEN BY THEM TO BE USED BY THE APPELLANT COMPANY FOR THE PU RPOSES OF ITS BUSINESS THIS ASPECT ASSUMES GREAT SIGNIFICANCE PAR TICULARLY IN VIEW OF THE FACT THAT SOME OF THE CARS ARE REPORTEDLY REGIS TERED IN THE NAME OF SHAREHOLDERS AND FAMILY MEMBERS OF DIRECTORS FURTHE R, THERE IS NOTHING ON RECORD TO INDICATE THAT THE IMPUGNED CARS WERE U TILISED FOR THE PURPOSES OF APPELLANTS BUSINESS. ATLEAST THE APPELL ANT HAS NOT ADVANCED AN EVIDENCE TO THIS EFFECT. THE JUDICIAL CITATIONS RELIED UPON BY THE APPELLANT THAT DO NOT COME TO ITS ITS RESCUE. ACCOR DINGLY, IT IS HELD THAT THE ADDITION MADE BY THE ID A O RESTS UPON FIRM GRO UNDS AND NO INTERFERENCE IS REQUIRED TO BE MADE TO THE SAME AT THIS STAGE. THE ADDITION OF RS. 5,50,334/- IS THEREFORE CONFIRMED. AS FAR AS THE ADDITION OF RS. 1,70,294/- MADE ON ACCOUNT OF ELEMENT OF PER SONAL USE IN CERTAIN EXPENSES CLAIMED BY THE APPELLANT, IT IS SEEN ELEME NT OF PERUSAL USE CANNOT BE ALTOGETHER RULED OUT IN EXPENSES OF THIS NATURE. THE APPELLANT HAS NOT BEEN ABLE TO ADDUCE ANY EVIDENCE TO ESTABLISH COMPLETE BUSINESS CONNECTION WITH THE CLAIMED EXPEN SES. THE ESTIMATION MADE BY THE LD.AO HAS BEEN FOUND TO BE F AIR AND REASONABLE AND HENCE THE SAME IS CONFIRMED ACCORDINGLY, THE A DDITION MADE BY THE AO OF RS.5,50,334/- ON ACCOUNT OF DEPRECIATION AND RS.1,70,294/- ON ACCOUNT OF PERSONAL ELEMENT IN CERTAIN BUSINESS EXPENSES IS CONFIRMED AND THE GROUNDS OF APPEAL RAISED ARE DISM ISSED. ITA NO.181/RJT/2013 4 4. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE A SSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF D EPRECIATION ON MOTOR CAR AMOUNTING TO RS.5,50,334/- IN A.Y.2009-10 AND RS.7, 88,506/-. WE FIND THAT THE LD.AO TOOK NOTE OF REGISTRATION NUMBER OF CARS AND OBSERVED THAT THESE CARS WERE REGISTERED IN THE NAMES OF DIRECTORS AND SHAREHOLDERS. HE CONSTRUED THAT CARS WERE NOT USED BY THE ASSESSEE, AND THEREF ORE, IT IS NOT ENTITLED FOR DEPRECIATION. BEFORE THE LD.CIT(A) IT WAS CONTENDE D THAT EVEN IF THE CAR IS NOT REGISTERED IN THE NAME OF COMPANY, THEN ALSO DEPREC IATION WOULD BE GRANTED, IF IT IS ESTABLISHED THAT VEHICLES WERE OWNED BY TH E COMPANY. THE LD.CIT(A) DID NOT DISPUTE WITH REGARD TO THE PROPOSITION CANV ASSED BY THE ASSESSEE, BUT CONFIRMED THE DISALLOWANCE ON ACCOUNT OF THE ASSESS EES FAILURE TO ESTABLISH THAT THESE CARS WERE ACTUALLY OWNED BY THE ASSESSEE AND USED FOR THE BUSINESS PURPOSE. 5. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD. AS FAR AS ADHOC DISALLOWANCE OUT OF DIFFERENT EXPENDITURE VIZ. TRAVELLING, CONVEYANCE, ADMINISTRATIVE ETC. ARE CON CERNED, THE LD.COUNSEL FOR THE ASSESSEE DID NOT EMPHASIS MUCH ON ACCOUNT OF SM ALLNESS OF THE AMOUNTS INVOLVED IN THESE ISSUES. THOUGH THE LD.AO HAS NOT MADE ANY DISCUSSION IN THE ASSTT.YEAR 2009-10 AND STRAIGHT-AWAY DISALLOWED THIS EXPENDITURE, BUT THE LD.CIT(A) HAS DEVOTED SOME ENERGY AND JUSTIFIED DIS ALLOWANCE., WE DO NOT APPRECIATE THE APPROACH OF THE AO, BUT SIMULTANEOUS LY THE QUANTUM IS SO LESS THAT LITIGATION COST TO THE ASSESSEE WILL BE MORE F OR VERIFICATION OF THE VOUCHERS, BILLS, IN ORDER TO FIND OUT WHETHER THESE EXPENDITURE WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINES S. CONSIDERING THIS ASPECT, THE LD.COUNSEL DID NOT EMPHASISE MUCH ON THIS ISSUE . THEREFORE, TAKING INTO CONSIDERATION OVERALL CIRCUMSTANCES, WE CONFIRM THE ADHOC DISALLOWANCE WHICH HAS BEEN MADE ON ESTIMATE BASIS. HOWEVER, AS FAR AS THE DISALLOWANCE WITH REGARD TO THE DEPRECIATION IS CONCERNED, A PER USAL OF THE FINDING OF THE ITA NO.181/RJT/2013 5 LD.CIT(A) EXTRACTED (SUPRA) WOULD INDICATE THAT THE LD.CIT(A) IN PRINCIPLE CONCURRED WITH THE ASSESSEE THAT THE DEPRECIATION W OULD BE ADMISSIBLE TO THE ASSESSEE, EVEN IF THE CARS ARE NOT REGISTERED IN TH E NAME OF THE COMPANY. THE LD.CIT(A) UPHELD THE DENIAL OF DEPRECIATION ON NON- ESTABLISHMENT OF THEIR USER FOR THE PURPOSE OF BUSINESS. IT IS PERTINENT TO OBSERVE THAT IT IS HIGHLY DIFFICULT TO BRING DEMONSTRATIVE EVIDENCE BEFORE TH E AO SHOWING EXCLUSIVE USER OF THE CARS FOR THE BUSINESS OF THE ASSESSEE. IN THE GIVEN FACTS AND CIRCUMSTANCES, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE TO THE FILE OF THE AO. THE LD.AO SHALL FIND OUT IF THE COST OF PURCHASE IS BORNE BY THE COMPANY, THEN IT WILL BE CONSTRUED THAT DE FACTO VEHICLE IS OWNED BY THE ASSESSEE COMPANY. FOR EXAMPLE, IF A PARTICULAR VEHICLE WAS PURCHASED ON LOAN AND INSTALMENTS WERE PAID FROM THE ACCOUNTS OF THE ASSESSEE, THEN I T WILL BE CONSTRUED THAT VEHICLES BELONG TO THE COMPANY. IT IS ALSO TO BE S EEN IF THE ASSESSEE HAS ESTABLISHED INCURRENCE OF FUEL EXPENDITURE AND PURC HASE COST OF VEHICLES, THEN DEPRECIATION SHOULD BE GRANTED TO THE ASSESSEE, OTH ERWISE, THE LD.AO SHALL DECIDE THE ISSUE IN ACCORDANCE WITH LAW. 6. THE ABOVE OBSERVATION MADE BY US WILL NOT IMPAIR OR INJURE THE CASE OF THE AO OR WILL NOT CAUSE ANY PREJUDICE TO THE EXPLA NATION/DEFENCE OF THE ASSESSEE. WITH THIS OBSERVATION, WE DISPOSE OF GR OUNDS OF APPEAL RAISED BY THE ASSESSEE IN BOTH APPEALS. 7. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 1 ST NOVEMBER, 2018 AT AHMEDABAD. SD/- SD/- ( WASEEM AHMED ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 1/11/2018