Apco Motors(India) Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(2), Ahmedabad

ITA 3413/AHD/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6854 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 16-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 24-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MEENA
• Assessee Lawyers: M K PATEL
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : SMC BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M .) I.T.A. NO. 3413/AHD./2010 ASSESSMENT YEAR : 2005-2006 APCO MOTORS (INDIA) PVT. LTD., ABAD -VS- I.T.O., WARD-1(2), AHMEDABAD (PAN : AADCA 0074A) (APPELLANT) (RES PONDENT) APPELLANT BY : SHRI M.K.PATEL, A.R. RESPONDENT BY : SHRI S.K.MEENA, SR.D.R. DATE OF HEARING : 16.08.2011 DATE OF PRONOUNCEMENT : 16.08.2011 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 16.09.2010 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI , AHMEDABAD FOR THE ASSESSMENT YEAR 2005-2006. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IN ITS A PPEAL IS AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.12,631/- BEING DEPRECIATION ON SCOOTER AND INTEREST ON LOAN FOR TH E SAME WITHOUT PROPER CONSIDERATION OF THE FACTS OF THE CASE AND WHILE RE LYING UPON DECISIONS WHICH ARE NOT DIRECTLY APPLICABLE TO THE FACTS OF THE APPELLA NT'S CASE. IN VIEW OF FACTS AND SUBMISSIONS FILED COUPLED WITH LEGAL POSITION, THE IMPUGNED DISALLOWANCE OF RS.12,631/- REQUIRES TO BE CANCELLED / DELETED. 3. BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THE AFORESAID GROUND OF APPEAL IS THAT IN THE ASSESSMENT ORDER, THE AO DISALLOWED 12, 631/- ON ACCOUNT OF DEPRECIATION AND INTEREST ON SCOOTER PURCHASED IN THE NAME OF THE DI RECTOR, NAMELY, SHRI MEHULBHAI POPATLAL DHOLAKIYA. THE REASONING GIVEN BY THE AO I S THAT THIS SCOOTER IN QUESTION IS PURCHASED IN THE NAME OF THE DIRECTOR AND THE ADDRE SS OF THE BILL IS THE RESIDENCE OF THE DIRECTOR. FOR CLAIMING DEPRECIATION ON THE ASSET BY THE COMPANY, TWO BASIC CONDITIONS ARE 2 ITA NO. 3413-AHD-2010 REQUIRED TO BE FULFILLED - (I) THE ASSET SHOULD BE OWNED BY THE COMPANY AND IT SHOULD BE PUT TO USE FOR THE PURPOSE OF BUSINESS OF THE COMPA NY. IN THE INSTANT CASE, THE ASSET IS NOT IN THE NAME OF THE COMPANY BUT IN THE NAME OF THE D IRECTOR. 4. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE CO NTENDED AS UNDER: ' THE APPELLANT, WHILE DISPUTING THE SAID DISALLOWANC E AND THE OBSERVATIONS OF THE A.O., HAS PUT FORTH THE FOLLOWING FACTS/CONTENTIONS : AT THE OUTSET, IT IS SUBMITTED THAT THE A.O. HAS NO T CONSIDERED THE SUBMISSION DATED 26/11/2007 [PARA 2] FILED BY THE APPELLANT COMPANY DURING THE ASSESSMENT PROCEEDINGS IN A RIGHT PERSPECTIVE MANNER. REFER PA GE NO. 57 TO 59 OF THE PAPER BOOK. THAT THE APPELLANT COMPANY DURING THE YEAR HAS PURC HASED HONDA ACTIVA AT RS.39488/- IN THE NAME OF THE DIRECTOR NAMELY MR. M EHUL P. DHOLAKIYA. FURTHER, THE INITIAL PAYMENT OF THE SCOOTER HAS BEEN MADE BY THE APPELLANT COMPANY. THE BOARD OF DIRECTORS HAS PASSED A RESOLUTION AUTH ORIZING THE COMPANY PURCHASE THE SCOOTER IN THE NAME OF THE DIRECTOR TO FACILITA TE ACQUISITION AND DISPOSAL. THE SAID SCOOTER IS DULY REFLECTED UNDER THE HEAD ' FIXED ASSETS' IN THE BALANCE SHEET OF THE APPELLANT COMPANY. THAT APART, THE SCOOTER IS USED EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND ALL THE RELATED' EXPENSES HAVE BEEN TREATED AS BUSINESS EXP ENSES BY THE APPELLANT COMPANY. IT MAY BE WORTHWHILE TO NOTE THAT THE A.O. IN FACT HAS ALLOWED THE VEHICLE RUNNING THE COM AN AS ALLOWABLE BUSINESS EX PENSES. 4.1 AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO, FOLLOWING THE DECIS ION OF THE DELHI HIGH COURT IN THE CASE OF MM FISHERIES PRIVATE LTD. VS- CIT REPORTED IN 277 ITR 204. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE ASSESSEE, SHRI M.K.PATEL APPEARED AND POINTED OUT THAT THE DECISION OF THE H ONBLE DELHI HIGH COURT IN THE CASE OF MM FISHERIES PRIVATE LTD. ( SUPRA ), RELIED ON BY THE LD. CIT(A) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. IN THAT CASE, THE CAR WAS PURCHASED WHEREAS IN THE CASE OF THE ASSESSEE, THE ASSESSEE COMPANY PURCHASED SCOOTER HO NDA ACTIVA. THIS SCOOTER WAS USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE S BUSINESS AND THE ASSESSEE COMPANY 3 ITA NO. 3413-AHD-2010 IS HAVING DOMINION OVER THE VEHICLE. THE ASSET PURC HASED IS REFLECTED IN THE BALANCE-SHEET OF THE ASSESSEE COMPANY. ITS MAINTENANCE AND PETROL EXPENSES ARE BORNE BY THE ASSESSEE COMPANY. THEREFORE, DISALLOWANCE OF RS.12,631/- ON ACCOUNT OF DEPRECIATION AND INTEREST ON SCOOTER BE DELETED. 6. ON THE OTHER HAND, SHRI S.K.MEENA, APPEARING ON BEHALF OF THE REVENUE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). 7. HAVING HEARD BOTH THE SIDES, I HAVE CAREFULLY GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE DECISION OF THE HO NBLE DELHI HIGH COURT IN THE CASE OF MM FISHERIES PRIVATE LTD. ( SUPRA ), RELIED ON BY THE LD. CIT(A) IN THE IMPUGNED ORDE R. IN THE CASE BEFORE ME, THE SCOOTER IN QUESTION, THOUGH PURCHASED IN THE NAME OF THE DIRECTOR, MR. MEHUL P. DHOLAKIYA, IT IS DULY REFLECTED IN THE BALANCE-SHEET OF THE ASSESSEE COMPANY. ITS COST OF MAINTENANCE AND PETROL IS ALSO BORNE BY THE ASSESSEE COMPANY. ON DOUBTS AND SUSPICION, THE AO, IN THE ASSESSMENT ORD ER, MENTIONED THAT THIS SCOOTER IS NOT USED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSE E. LOOKING TO THE NATURE OF THE BUSINESS OF THE ASSESSEE, I AM CONVINCED THAT THE SCOOTER IN QUESTION IS USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. THE ASSESSEE COMP ANY IS HAVING DOMINION OVER THE SCOOTER. IN THESE CIRCUMSTANCES, FOLLOWING THE DECI SION OF THE ITAT C BENCH, AHMEDABAD IN THE CASE OF DCIT-VS- AMBUJA SYNTHETICS MILL PVT. LTD. IN ITA NO.3087/AHD/1997 FOR THE ASSESSMENT YEAR 1992-93, I DIRECT THE AO TO ALLOW THE DEPRECIATION AND INTEREST ON SCOOTER AMOUNTING TO R S.12,631/-. THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED. 8. GROUND NO.2 RAISED BY THE ASSESSEE IN ITS APPEAL READ AS UNDER: 2. THE LEARNED CTT(A) HAS ERRED IN LAW AND ON FACT S IN PARTLY CONFIRMING THE ADDITION U/S.40A(2)(B) OF THE ACT TO THE EXTENT OF RS.40,000/- OUT OF TOTAL ADDITION OF RS.75,000/- MADE BY THE A.O. IN VIEW OF FACTS AN D SUBMISSIONS FILED AND CONSIDERING THE FACT THAT ON IDENTICAL FACTS, THE D EPARTMENT HAS NOT MADE ANY ADDITION IN PREVIOUS OR SUBSEQUENT YEAR IN SCRUTINY ASSESSMENT, NO ADDITION WAS WARRANTED DURING THE YEAR IN ABSENCE OF CHANGE IN F ACTS. ACCORDINGLY, THE IMPUGNED ADDITION TO THE EXTENT OF RS.40,000/- CONF IRMED BY THE LEARNED CIT(A) ALSO REQUIRES TO BE DELETED. 4 ITA NO. 3413-AHD-2010 9. FACTS RELATING TO CONTROVERSY INVOLVED IN THIS G ROUND OF APPEAL IS THAT IN THE ASSESSMENT ORDER, THE AO DISALLOWED RS.75,000/- FOR THE DETAILED REASONS GIVEN IN THE ASSESSMENT ORDER, WHICH ARE AS UNDER: FROM THE DETAILS SUBMITTED IT IS SEEN THAT WORKSHOP PREMISES OF THE ASSESSEE COMPANY AT BLOCK NO.451, NR. KENOF, SARKHEJ-BAVLA R OOD, AND POST SANATHAL TAL. SANAND, AHMEDABAD IS ALSO OCCUPIED BY ITS TWO SISTE R CONCERNS NAMELY M/S AUTO AGENCY & M/S DIVYA MOTORS. IF IS SEEN FROM THE DETA ILS SUBMITTED THAT TELEPHONE NUMBERS OF THE COMPANY AND THE TWO SISTER CONCERNS ARE COMMON. COMPANY HAS INCURRED EXPENSES OF RS. 2,16,000/- ON ACCOUNT OF R ENT, RS. 2,47,098/- ON ACCOUNT OF ELECTRICITY AND RS.3,15,292/- ON ACCOUNT OF TELE PHONE. THEREFORE, VIDE LETTER DTD. 20/11/07 ASSESSEE WAS ASKED THAT 'ADDRESS OF WORKSH OP OF COMPANY AT BLOCK NO.51 NR. KENAL SANAND IS COMMON WITH ASSOCIATE CON CERNS NAMELY AUTO AGENCY AND DIVYA MOTORS. HOW RENT AND OTHER EXPENSES ARE D IVIDED. WHY RENT AND RELATED EXPENSES SHOULD NOT BE PROPORTIONATELY DISALLOWED.' SUBMISSION MADE BY THE ASSESSEE IS DULY CONSIDERED HOWEVER, THE SAME IS NOT FULLY ACCEPTABLE. FROM THE P&L A/C OF M/S DIVYA MOTORS FOR F.Y. 2004-05 IT IS SEEN THAT IT HAS DEBITED TELEPHONE EXPENSES OF RS. 16.682/- FROM THE WHOLE YEAR. NO EXPENSES ON ACCOUNT OF RENT AND ELECTRICITY ARE DEBITED. IN THE CASE OF M/S AUTO AGENCY IN P&L O/C OF F.Y, 2004-05 ELECTRICITY EXPEN SES OF RS. 710/- HAVE BEEN DEBITED. ASSESSEE 'S CONTENTION THAT LANDLORD OF THESE SAID PREMISES WHO IS ALSO PARTNER IN M/S DIVYA MOTORS HAS REQUESTED TO PERMIT THE FIRMS TO USE PART OF THE PREMISES IN AN INTERNAL UNDERTAKING BETWEEN THE FAMILY MEMBERS AND ARE NOT RELEVANT TO THE ISSUE. THUS THE EXPENSES DEBITED IN THE ACCOUNT OF SISTER CONCERNS ARE NOT SUBSTANTIAL. EVEN THOUGH THE TWO CONCERNS OCCUPIES A SMALL PORTI ON OF THE PREMISES AND THEIR TURNOVER IS LESS IN COMPARISON TO THE ASSESSEE CERT AIN PART OF THESE EXPENSES ORE ATTRIBUTABLE TO THEM. SO SAME PART OF THE RENT, TEL EPHONE AND ELECTRICITY EXPENSES SHOULD HAVE BEEN SHARED WITH THE SISTER CONCERNS. B Y NOT DOING SO ASSESSES COMPANY HAS PROVIDER UNDUE BENEFIT TO TWO ASSOCIATE CONCERNS. SUCH PORT OF -THE EXPENSES ARE NOT ALLOWABLE AS PER PROVISION OF SECT ION 40A(2)(B) OF THE ACT. CONSIDERING ALL THE FACTS AN AMOUNT OF RS. 75,000/- IS DISALLOWED.' 10. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT(A ) RESTRICTED THE AFORESAID DISALLOWANCE TO RS.40,000/- FOR THE DETAILED REASON S GIVEN AT PARA 4.3, WHICH IS REPRODUCED HEREUNDER: 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASS ESSMENT ORDER AND APPELLANT'S SUBMISSION. ASSESSING OFFICER DISALLOWED OUT OF REN T, ELECTRICITY EXPENSE AND 5 ITA NO. 3413-AHD-2010 TELEPHONE EXPENSES ON ACCOUNT OF USE OF APPELLANT'S PREMISES BY ASSOCIATE CONCERNS UNDER SECTION 40A(2B). SINCE THESE PAYMENT S WERE NOT MADE TO RELATED CONCERNS, THE DISALLOWANCE CANNOT BE MADE UNDER SEC TION 40A(2B). HOWEVER IT IS NOT IN DISPUTE THAT APPELLANT ALLOWED THESE ASSOCIA TE CONCERNS SMALL PLACE IN ITS PREMISE TO RUN THEIR BUSINESS WHICH IS CONNECTED AN D USEFUL FOR THE APPELLANT'S BUSINESS ALSO. THE DISALLOWONCE OF EXPENSE NOT INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS CAN BE MADE UNDER SECTL ON 37(L). HOWEVER THE INTENTION OF THE AO APPEARS TO BE SAME . APPELLANT SUBMITTED THAT IN THE SUBSEQUENT YEAR IN SCRUTINY ASSESSMENT, NO DISALLOW ANCE WAS MADE BY THE ASSESSING OFFICER ON THIS ISSUE. CONSIDERING THE OV ERALL FACTS OF THE CASE, APPELLANT'S SUBMISSION AND THE FACT THAT IN SUBSEQU ENT YEAR NO DISALLOWANCE IS MADE, THE DISALLOWANCE IS RESTRICTED TO RS. 40,000. ASSESSING OFFICER WILL PROVIDE APPROPRIATE RELIEF. 11. I HAVE HEARD BOTH THE SIDES. AT THE TIME OF HEA RING, COUNSEL OF THE ASSESSEE POINTED OUT THAT NO DISALLOWANCE OUT OF VARIOUS EXPENSES, M ENTIONED IN THE ASSESSMENT ORDER, IS CALLED FOR BECAUSE THE FIRM DIVYA MOTORS IS ENGAGED IN THE BUSINESS OF TRADING IN SPARE PARTS OF ALL LOCAL BRANDS. THE ASSESSEE COMPANY IS PURCHASING LOCAL SPARE PARTS ESPECIALLY OF TOYOTA MOTORS FROM THE SAID FIRM WHICH ARE USED BY THE ASSESSEE IN ITS BUSINESS OF REPAIRING AND SERVICE WORK OF QUALIS MOTOR CAR OF T OYOTA COMPANY. THE SAID FIRM IS USING ONLY SMALL ROOM OF APPROX. 100 SQ. FEET FOR S TORAGE OF ITS STOCK OF SPARES. LOOKING TO THESE FACTS, NO DISALLOWANCE OUT OF VARIOUS EXPE NSES IS CALLED FOR. ON THE OTHER HAND, SHRI S.K.MEENA, SR.D.R. VEHEMENTLY SUPPORTED THE OR DER OF THE LD. CIT(A). IT IS PERTINENT TO NOTE THAT VARIOUS EXPENSES INCURRED BY THE ASSES SEE CANNOT BE SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. LOOKING TO THE FACTS, DISALLOWANCE TO THE EXTENT OF RS.40,000/- CONFIRMED BY THE LD. CIT( A), IN THE IMPUGNED ORDER, OUT OF TOTAL DISALLOWANCE OF RS.75,000/- IS FAIR AND REASONABLE. I, THEREFORE, INCLINE TO UPHOLD THE ORDER OF THE LD. CIT(A). 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 16.08.2 011. SD/- (T.K. SHARMA) JUDICIAL MEMBER DATED : 16/08/2011 6 ITA NO. 3413-AHD-2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE 2) THE DEPARTMENT. 3) CIT(A.) CONCERNED, 4) CIT CONCERNED, 5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD TALUKDAR/SR.P.S.