Shri Pankaj Katia, Bathinda V. The Income Tax Officer, Bathinda

ITA 316/ASR/2014

• Counselvise Citation: 31620914 RSA 2014
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-02-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 12-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Business income; Depreciation; Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.316(ASR)/2014 ASSESSMENT YEAR:2010-11 PAN :AEFPK9003K SH.PANKAJ KATIA, VS. INCOME TAX OFFICER, AMRIK SINGH ROAD, WARD 1(1), BATHINDA. BATHINDA. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.P.N.ARORA, ADVOCATE RESPONDENT BY:SH. TARSEM LAL, DR DATE OF HEARING:04/02/2015 DATE OF PRONOUNCEMENT:11/02/2015 ORDER PER B.P.JAIN,AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), BATHINDA, DATED 07.02.2014 FOR THE ASSESSMENT YEAR 2010-11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF RS.5,24,612/- ON ACCOUNT OF DEPRECIATION, INSURANCE AND INTEREST ON NEW CAR PURCHASED DURING THE YEAR BY HOLDING: A) THAT THE CLAIM OF DEPRECIATION ON THREE CARS IS NOT COMMENSURATE WITH THE INCOME DECLARED BY THE APPELL ANT FROM PROFESSION AS AN ADVOCATE DECLARING SUCH INCOM E ITA NO.316(ASR)/2014 2 WITHOUT APPRECIATING THAT THE INCOME SO DECLARED HA S BEEN DULY ACCEPTED AS PER BOOKS OF ACCOUNTS AND NO DEFECT IN THE SAME HAS BEEN POINTED OUT. B) THAT THE PAJERO IS A LUXURY VEHICLE WHICH CANNOT BE LOGICALLY USED FOR THE PURPOSE OF PROFESSION AS AN ADVOCATE WITHOUT APPRECIATING THAT THERE IS NO LAW IN THE ACT THAT LUXURY CAR CANNOT BE USED FOR THE PURPOSE OF PROFESSION AS AN ADVOCATE. C) THAT THE ASSESSEE APPELLANT HAS FAILED TO PROVE THA T THIS VEHICLE HAS BEEN PUT INTO USE FOR THE PURPOSE OF PROFESSION DURING THE RELEVANT YEAR WITHOUT APPRECI ATING THAT THE CAR HAS BEEN PURCHASED ON 09.06.2009 AND NECESSARY EVIDENCE HAS ALREADY BEEN PLACED ON THE F ILE AND FURTHER THE EXPENSES ON RUNNING OF THIS CAR HAV E BEEN ALLOWED THOUGH 1/4 TH OUT OF THE SAME HAS BEEN DISALLOWED. 2. THAT THE APPELLANT CRAVES TO ADD OR AMEND THE GR OUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE AS ARISING FROM THE ORDER OF THE AO AT PAGES 1 TO 3 ARE REPRODUCED FOR THE SAKE OF CONVENIENCE AS UNDER: 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT HAS BEEN NOTICED THAT THE ASSESSEE HAS SHOWN RECEIPT AS INCO ME FROM PROFESSION AT RS.3,20,000/- AS ADVOCATE PRACTICE AT CHANDIGARH AND CLAIMED FOLLOWING EXPENSES.: (I) CAR DEPRECIATION AND INSURANCE RS.5,21,767/- II) INTEREST ON CAR LOAN & LIC LOAN RS.1,36,877/- III) CAR PETROL EXPENSES RS. 38,000/- THE ABOVE MENTIONED EXPENSES RESULTED LOSS FROM BUS INESS PROFESSION AT RS.3,76,604/-. THE ASSESSEE WAS ASKED TO JUSTIFY THESE EXPENSES. IT CAME TO LIGHT, THE ASSESSEE IS MAINTAINING THREE CA RS, VARNA, HONDA CITY AND PAJERO. THE PAJERO CAR HAS BEEN PURCHASED DURING THE YEAR AT RS.20,70,000/- WHICH RESULTED DEPRECIATION OF RS .4,44,492/-. THE ASSESSEE WAS SPECIFICALLY ASKED TO JUSTIFY THE USES OF THREE CARS FOR ITA NO.316(ASR)/2014 3 CARRYING ON PROFESSION AS THE RECEIPTS FROM PROFESS ION ARE TOO LOW WHILE QUERY OF ORDER SHEET DATED 23.11.2012. IN RES PONSE TO THE QUERY, THE ASSESSEE SUBMITTED WRITTEN REPLY WHICH IS REPRO DUCED AS UNDER 2. THAT THE CARS OWNED BY ME WERE USED FOR THE PUR POSE OF CARRYING ON OF MY PROFESSION. 3. THAT THE PROVISION FOR THE AMOUNT OF INSURANCE WHICH IS PREPAID WAS OMITTED TO BE CARRIED FORWARD IN MY BOO KS. THE SAME MAY KINDLY BE TREATED AS A MISTAKE. 4. THAT CAR EXPENSES AND DEPRECIATION WERE CLAIMED BY ME AGAINST BUSINESS INCOME SINCE THE CAR WAS USED FOR THE PURPOSE OF CARRYING ON OF MY PROFESSION. THESE EXPENSES ARE TOTALLY INCIDENTAL AND NECESSARY TO THE CARRYING ON OF MY P ROFESSION AND HENCE I HAD CLAIMED THE SAID EXPENSES AGAINST T HE INCOME OF MY PROFESSION. THE CONTENTS OF THE REPLY OF THE ASSESSEE HAVE DULY BEEN CONSIDERED AND IT IS CONSTRUED THAT HE HAS FAILED T O SUBSTANTIATE HIS CLAIM WITH DOCUMENTARY EVIDENCE WHICH MAY JUSTIFY T HE USES OF THREE CARS FOR BUSINESS AND PROFESSION. IT SEEMS THAT THE PURCHASE OF CAR HAS BEEN SHOWN ONLY TO ADJUST INCOME EARNED UNDER OTHER HEADS. THE ASSESSEE WAS ALREADY OWNING TWO CARS AND THERE WAS NOT JUSTIFICATION BY MAKING ADDITION IN FIXED ASSETS BY PURCHASING A NEW PAJERO CAR TO CLAIM DEDUCTION OF INTEREST ON CAR LOAN AND HEAVY DEPRECIATION. HENCE, IT IS HELD THAT THE ASSESSEE HAS PURCHASED A NEW CAR DURING THE YEAR UNDER CONSIDERATION ONLY TO AVOID PAYMENT OF T AX ON THE INCOME EARNED. HENCE, IN THE INTEREST OF NATURAL JUSTICE, THE DEPRECIATION ON TWO CARS WHICH WERE OWNED BY HIM SINCE LAST YEAR AN D DEPRECIATION AND INTEREST EXPENSES ETC. ARE DISALLOWED ON CLAIM OF NEW CAR. THE CLAIM OF DEPRECIATION IS COMPUTED AS UNDER: A. OLD CARS HONDA & VERNA WDV RS.8,93,280/- DEPRECIATION @ 15% RS.1,33,992/- WDV RS.7,59,288/- CAR DEPRECIATION & INSURANCE CLAIMED IN COMPUTATION OF INCOME RS.5,21,727/- ADD: INTEREST ON CAR LOAN AND LIC RS.1,36,877/- LOAN ---------------- RS.6,58,604/- ITA NO.316(ASR)/2014 4 LESS: DEPRECIATION ALLOWED AS CALCULATED ABOVE RS.1,33,992/- EXPENSES DISALLOWED RS.5,24,612/- KEEPING IN VIEW THE ABOVE CALCULATIONS, AN ADDITION OF RS.5,24,612/- IS MADE BY DISALLOWANCE OF DEPRECIATI ON AND EXCESS CLAIM OF INSURANCE & INTEREST EXPENSES AND I T IS HELD THAT THE ASSESSEE HAS MADE ARRANGEMENT ONLY TO AVOID PA Y TAX ON INCOME EARNED UNDER HEAD INCOME FROM HOUSE PROPER TY, OTHER SOURCES AND SALARY BY CONCEALING THE FACTS AND FUR NISHING INACCURATE PARTICULARS. 4. THE EXPENSES SHOWN ON CAR PETROL AT RS.38,000/- CONSIDERED TO BE EXCESSIVE. THE USES OF CARS FOR PE RSONAL AND BY FAMILY MEMBERS CANNOT BE RULED OUT. HENCE, 50% OF T HE EXPENSES I.E. RS.19,000/- ARE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE ON ACCOUNT OF PERSONAL USE B Y SELF AND FAMILY MEMBERS I.E. OTHER EXPENSES & PROFESSION PUR POSE. 3. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSES SING OFFICER. 4. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN ACCEPTED BY BOTH THE AUTHORI TIES BELOW AND NO DEFECT IN THE SAME HAS BEEN POINTED OUT. AS REGARDS THE US E OF VEHICLE I.E. PAJERO CAR, THE AO OBSERVED THAT IT IS A LUXURY VEHICLE AN D LOGICALLY IT CANNOT BE USED BY AN ADVOCATE IN HIS PROFESSION. THE LD. COUN SEL FOR THE ASSESSEE ARGUED THAT THERE IS NO LAW IN THE ACT THAT ANY LUX URY CAR CANNOT BE USED FOR THE PURPOSE OF PROFESSION AS AN ADVOCATE AND THIS F INDING OF THE AO IS WITHOUT ANY BASIS. AS REGARDS THE USE OF THE CAR, T HE AO HIMSELF IN THE ORDER HAS ALLOWED 50% OF THE CAR EXPENSES THOUGH IN THE C OMPUTATION PART RS.38,000/- HAS BEEN DISALLOWED BEING 100% OF THE C AR EXPENSES. THE LD. ITA NO.316(ASR)/2014 5 CIT(A), IN FACT, HAS ALSO ACCEPTED THE USE OF ALL T HE THREE CARS AND ACCORDINGLY RESTRICTED THE DISALLOWANCE @ 25% OF TH E SAID CAR EXPENSES WHICH MEAN 75% OF RS.38,000/- AS CAR EXPENSES HAVE BEEN ACCEPTED BY THE DEPARTMENT AND THE DEPARTMENT IS NOT IN APPEAL WHIC H ITSELF SHOWS THAT PAJERO CAR HAS BEEN USED FOR THE PURPOSE OF PROFESS ION OF THE ASSESSEE. THE LD. COUNSEL FURTHER ARGUED THAT THE LD. CIT(A) IS N OT JUSTIFIED IN SUSTAINING 25% OF THE CAR EXPENSES IN THE ABSENCE OF ANY SPECI FIC DEFECT POINTED OUT. ACCORDINGLY, MR. P.N.ARORA, ADVOCATE PRAYED TO DELE TE THE SAID ADDITION SO SUSTAINED BY THE LD. CIT(A). 5. THE LD. DR, ON THE OTHER HAND, ARGUED THAT THE A SSESSEE HAS FAILED TO PROVE WHETHER PAJERO CAR HAS BEEN USED FOR THE PURP OSE OF PROFESSION AND THEREFORE, THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ACTION OF THE AO. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE UNDISPUTED FACTS IN THE PRESENT CASE ARE THAT T HE ASSESSEE IS AN ADVOCATE, DOING THE PRACTICE AT CHANDIGARH AND WAS ALREADY OW NING TWO CARS. DURING THE YEAR, A NEW CAR WAS PURCHASED FOR RS.20,70,000/ -. THE ASSESSEE WAS SHOW CAUSED BY THE AO TO JUSTIFY THE USE OF THREE C ARS FOR CARRYING ON PROFESSION AS THE RECEIPTS FROM PROFESSION WERE TOO LOW. THE ASSESSEE SUBMITTED THE EXPLANATION THAT THE CARS HAVE BEEN U SED FOR THE PURPOSE OF CARRYING ON HIS PROFESSION AND THE SAME ARE INCIDEN TAL TO CARRYING ON THE ITA NO.316(ASR)/2014 6 PROFESSION OF THE ASSESSEE. THE MAIN ALLEGATION OF THE AO WAS THAT THE PAJERO CAR HAS BEEN PURCHASED TO ADJUST INCOME UNDE R OTHER HEADS SINCE THE ASSESSEE WAS OWNING TWO CARS. THERE IS NO DISPUTE T O THE FACT THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE NOT BEEN REJECTED. AS REGARDS THE USE OF PAJERO CAR FOR THE PURPOSE OF PROFESSION OF THE ASS ESSEE, THE ASSESSEE HAS SUBMITTED THAT IT HAS BEEN USED FOR THE PURPOSE OF CARRYING ON THE PROFESSION AND EXPENSES ARE TOTALLY INCIDENTAL AND NECESSARY T O CARRY ON THE PROFESSION. IN THIS REGARD, THE AO VIDE PARA 4 OF HIS ORDER HAS ACCEPTED 50% OF THE EXPENSES ON ALL THE CARS BUT IN THE BODY OF THE CO MPUTATION AT PARA 5 HAS ADDED BACK 100% OF CAR EXPENSES BY MISTAKE WHICH WA S CORRECTED BY THE LD. CIT(A). THE LD. CIT(A), IN FACT, HAS ALLOWED 75 % OF RS.38,000/- BEING CAR EXPENSES AND HAS SUSTAINED 25% OF THE CAR EXPEN SES, WHICH MEANS THE AUTHORITIES BELOW HAVE ACCEPTED THE USE OF THE PAJE RO CAR ALONGWITH TWO OTHER CARS. ACCORDINGLY, AS PER SECTION 32(1), THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION U/S 32(1) OF THE ACT, WHICH IS ALLOWABLE EVEN IF THE ASSET IS OWNED WHOLLY OR PAR TLY BY THE ASSESSEE AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. THE REFORE, THE DEPRECIATION ON PAJERO CAR AT RS.3,10,500/- CANNOT BE DISALLOWE D AND IS ACCORDINGLY DIRECTED TO BE DELETED BEING PART OF DISALLOWANCE O F RS.5,24,612/-. ACCORDINGLY, THE CAR INSURANCE AMOUNTING TO RS.77,2 35/- AND INTEREST ON CAR ITA NO.316(ASR)/2014 7 LOANS AMOUNTING TO RS.1,36,877/- CANNOT BE DISALLOW ED AND THE SAME BEING PART OF DISALLOWANCE OF RS.5,24,612/- IS DIRECTED T O BE DELETED. 7. AS REGARDS THE DISALLOWANCE ON CAR EXPENSES, THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECT AND IN THE BODY OF THE ORDE R HAS DISALLOWED 50% OF RS.38,000/- WHEREAS IN THE COMPUTATION HAS MADE A DISALLOWANCE OF RS.38,000/- BY MISTAKE, WHICH WAS CORRECTED BY LD. CIT(A) WHO HAS FURTHER RESTRICTED THE DISALLOWANCE @ 25% OF THE TOTAL EXPE NSES OF RS.38,000/-. THE DISALLOWANCE WAS MADE BY AO ON ACCOUNT OF PERSONAL USE BY SELF AND THE FAMILY MEMBERS BUT NO BASIS OF ESTIMATION WERE GIV EN BY THE AO OR EVEN BY THE LD. CIT(A). BUT AT THE SAME TIME, IN THE ABSENC E OF ANY DETAILS OF CAR EXPENSES, THE PERSONAL ELEMENT ON CAR EXPENSES CANN OT BE RULED OUT AND ACCORDINGLY, THE LD. CIT(A) HAS RIGHTLY RESTRICTED THE DISALLOWANCE @ 25%. WE DO NOT FIND ANY INFIRMITY IN HIS ORDER. THUS, TH E APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.316(ASR)/2014 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH FEBRUARY, 2015. SD/- SD/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11TH FEBRUARY, 2015 /SKR/ COPY OF THE ORDER FORWARDED TO: ITA NO.316(ASR)/2014 8 1. THE ASSESSEE:SH.PANKAJ KATIA BATHINDA. 2. THE ITO WARD 1(1), BATHIHDA. 3. THE CIT(A), BATHINDA. 4. THE CIT, BATHINDA. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY