M/S VECTRA INVESTMENT PVT LTD, V. ACIT CIR 5(3),

ITA 3949/MUM/2003

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8382 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2014
• Assessment Year: 2000-2001
• Appeal Filed On: 22-05-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Source of fund; Deemed dividend; Onus to prove
• Section: 234B; 68; 145

Judgement Text

B IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI , , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. : 4204/MUM/2003 (ASSESSMENT YEAR: 2000-01) ACIT -5(3), AAYAKAR BHAVAN, M K MARG, CHURCHGATE, MUMBAI -400 020 VS M/S VECTRA INVESTMENTS P. LTD., NAVYUG NIKETAN, GROUND FLOOR, 185, WALKESHWAR ROAD, MUMBAI -400 006 (APPELLANT) ! (RESPONDENT) ITA NO. : 3949/MUM/2003 (ASSESSMENT YEAR: 2000-01) M/S VECTRA INVESTMENTS P. LTD., MUMBAI -400 006 #.: PAN: AAACV 4971 C VS ACIT -5(3), AAYAKAR BHAVAN, M K MARG, CHURCHGATE, MUMBAI -400 020 (APPELLANT) ! (RESPONDENT) APPELLANT-ASSESSEE BY : SMT. ARATI VISSANJI/ SHRI AJIT C SHAH RESPONDENT-REVENUE BY : SHRI VIVEK BATRA & '() /DATE OF HEARING : 13-10-2014 *+,- '()/ DATE OF PRONOUNCEMENT : 21-11-2014 O R D E R , ! PER VIVEK VARMA, J.M. : THE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORDER OF CIT(A)-V, MUMBAI, DATED 28.03.2003. FOR THE SAKE OF CONVENIEN CE AND BREVITY, THE TWO APPEALS ARE BEING DISPOSED OFF VIDE COMMON AND CONSOLIDATED ORDER. ITA NO. : 4204/MUM/2003 : AY 2002-03 : DEPARTMENTS APPEAL : 2. THE DEPARTMENT RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT SOLITARY TRANSACTION I S NOT ENOUGH FOR REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S 145 OF THE I.T. ACT. M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOU NT OF REMITTANCES RECEIVED FROM M/S VENUS PVT LTD UK AND M/S TATRA SI POX UK, WHEN THE EVIDENCE RELATING TO IDENTITY AND CREDIBILITY OF TH E CONCERNS WAS NOT FILED DURING THE ASSESSMENT PROCEEDINGS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT LOAN AND ADVANCE OF RS. 20.94 LAKHS RECEIVED BY THE ASSESSEE COMPANY IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE COMPANY U/S 2(22)(E) OF THE I.T. ACT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEPRECIATI ON IN RESPECT OF DUMPERS WHEN THE ASSESSEE COMPANY WAS NEITHER IN PO SSESSION OF THE SAID DUMPERS NOR THEY WERE REGISTERED IN THE NAME O F THE ASSESSEE COMPANY. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING EXPENSES IN RESPECT OF LEA SE DUMPERS GIVEN TO SISTER CONCERNS OF THE ASSESSEE COMPANY. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLOW THE EXPENS ES RELATING TO SERVICE CHARGES FROM M/S TATRA SIPOX UK. 7. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 8. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD ANY OTHER GROUNDS WHICH MAY BE NECESSARY. 3. GROUND NO. 1 RELATES TO REVERSING THE ORDER OF THE AO WITH REGARD TO REJECTION OF BOOKS OF ACCOUNT U/S 145 OF THE INC OME TAX ACT, 1961. 4. THE AO IN THE ASSESSMENT ORDER OBSERVED THAT AS SESSEE HAS ASSOCIATE ENTITIES AND HAD TAKEN LOAN FROM ONE SUCH ENTITY, I.E. VENUS UDYOG (I) LTD, TO WHICH THE ASSESSEE PAID INTEREST OF RS. 2,00,174/-. THIS TRANSACTION U/S 40A(2)(B) WAS NOT REVEALED IN THE TAR. TAKING THIS TRANSACTION AS THE BASIS, THE AO PROCEEDED TO REJECT THE BOOKS OF THE ASSESSEE, HOLDING THAT THE BOOKS, AS WELL AS AU DITORS REPORT ARE FAULTY. 5. THE ASSESSEE APPROACHED THE CIT(A) AND SUBMITTE D ITS OBJECTIONS AGAINST THE REJECTION OF BOOKS OF ACCOUNT. THE CIT( A) ON LEASING THE ASSESSEE AND GOING THROUGH WITH THE ASSESSMENT ORDE R OBSERVED THAT THERE WAS A DISCREPANCY IN THE FORM NO. 3CD. SO FAR AS THE FACTUM OF PAYMENT OF RS. 2,00,174/- WAS CONCERNED, IT HAD NOT BEEN DISPUTED. THE CIT(A) OBSERVED THAT APART FROM THIS DISCREPANC Y IN THE TAR NO M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 3 OTHER INFIRMITY HAS BEEN POINTED OUT BY THE AO, WHI CH WOULD RENDER THE BOOKS OF ACCOUNT FAULTY. 6. THE CIT(A) THUS HELD, THAT AN ISOLATED TRANSACT ION, WHICH WAS LEFT TO BE SUPPLIED, WOULD NOT RENDER THE BOOKS FAU LTY TO BE ELIGIBLE FOR REJECTION THEREOF. 7. AGAINST THIS DECISION OF THE CIT(A), THE DEPART MENT IS IN APPEAL BEFORE THE ITAT. 8. BEFORE US, THE DR BASICALLY RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THE ORDER OF THE CIT(A) IS AT INFIRM ITY. 9. THE AR RELIED ON THE ORDER OF THE CIT(A). 10. WE HAVE HEARD THE ARGUMENT OF BOTH THE SIDES. THE BASIC FACT IS THAT NEITHER THE AO NOR THE DR HAS BEEN ABLE TO POI NT OUT ONE TRANSACTION WHICH WAS DEFECTIVE AND WOULD RENDER TH E ACCOUNTS AND COMPUTATION OF INCOME AT NEGATION. THE FACT IS THAT THE AUDITOR DID NOT FILL IN THE TAR CORRECTLY. IN ANY CASE, IT IS NOT T HE CASE OF THE AO/DR THAT THEY HAVE DETECTED AN INFIRMITY IN THE BOOKS O F ACCOUNTS. 11. ON AN ENQUIRY FROM THE BENCH, AS TO WHAT ACTIO N WAS TAKEN IN THE HANDS OF THE RECIPIENT, I.E. M/S VENUS UDYOG (I ) LTD OR WHETHER THE AMOUNT WAS ADDED THERE U/S 68, THE DR CATEGORICALLY RESPONDED THAT, NEITHER THE AMOUNT WAS DISALLOWED NOR ADDED U/S 68. THIS ONLY MEANS THAT THE PAYMENT MADE BY THE ASSESSEE WAS GENUINE A ND THEREFORE, THERE WAS NO OCCASION FOR REJECTION OF BOOKS. 12. GROUND NO. 1 IS THEREFORE REJECTED. 13. GROUND NO. 2 PERTAINS TO REMITTANCE RECEIVED F ROM VENUS PVT LTD (UK) AND TETRA SIPOX UK. M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 4 14. THE FACTS ARE THAT THE ASSESSEE RECEIVED RS. 2 .22 CRORES FROM VENUS PVT LTD. (UK) AND RS. 10.67 LACS FROM TETRA S IPOX UK. IT WAS EXPLAINED TO THE AO THAT ASSESSEE RECEIVED FUNDS TO THE TUNE OF RS. 2.22 CRORES AS SHARE CAPITAL FROM VENUS, ON BEHALF OF MRS. & MR. RISHI. BUT SINCE THE NAMES DID NOT SHOW ON THE SHARE HOLDE RS LIST ON THE CLOSING DATE, THE SUM WAS ADDED TO THE INCOME OF TH E ASSESSEE. IT WAS ALSO EXPLAINED THAT THE SUM OF RS. 2.22 CRORES WAS CREDITED AND THE NAMES OF THE MRS. & MR. RISHI WERE ADDED TO THE LIS T OF SHARES ALLOTMENT AND NOTIFIED TO THE RBI. IT WAS ALSO SUBM ITTED TO THE AO THAT SUCH FUNDS WERE NEITHER LOAN NOR ADVANCE. THE AO RE JECTED THE SUBMISSIONS OF THE ASSESSEE AND SINCE HE HAD ALREAD Y REJECTED THE BOOKS, THE SUM SO RECEIVED WAS ADDED BACK. SIMILARL Y, THE AO ADDED BACK RS. 10.67 LACS, BEING THE AMOUNT RECEIVED FROM TETRA SIPOX LTD ON IDENTICAL FACTS. 15. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM, THE ASSESSEE REITERATED THE FACTS, THAT WERE SUBMITTED BEFORE THE AO. THE CIT(A) ON CONSIDERING THE FACTS, HELD, I HAVE GONE THROUGH THE CONTENTION OF THE APPELLAN T AS WELL AS THAT OF THE AO. IT IS NOT IN DISPUTE THAT THE AFORES AID AMOUNT WAS RECEIVED FROM THE BANKING CHANNELS. IT IS ALSO NOT IN DISPUTE AS TO THE SOURCE OF THE REMITTANCE THAT THE SAME WAS RECEIVED FROM VENUS PROJECTS UK. THE OBJECTION OF T HE AO IN THIS REGARDS IS THAT THE AFORESAID AMOUNT WERE NOT CREDI TED TO THE ACCOUNT OF THE SAID VENUS PROJECTS. HOWEVER IT APPE ARS THAT THE AO HAS IGNORED THE FACT THAT THE SAID AMOUNT WAS CRE DITED TO THE SHARE APPLICATION ACCOUNT AND WAS ALSO APPEARIN G IN THE BALANCE SHEET OF THE APPELLANT COMPANY AS ON 31.3.2 000. IT IS ALSO NOT IN DISPUTE THAT FROM VARIOUS CERTIFICATES ISSUED BY CANARA BANK THE ONLY FACT THAT EMERGES WAS THAT HE SAID AMOUNT WAS RECEIVED AGAINST ISSUE OF SHARES. IT IS ALSO NOT IN DISPUTE THAT THE APPELLANT HAD UNDER THE SCRUTINY O F RBI HAD ISSUED THE SHARES TO THE SAID MR. & MRS. RISHI. THE ONLY OBJECTION OF THE AO IN THIS REGARDS WAS THAT THE RBI IS NOT REGULATING AUTHORITY TO VOUCH THE APPROPRIATION OF THE AMOUNT RECEIVED. IN THIS REGARDS IT IS PERTINENT TO NOTE T HAT EVEN IF THE RBI IS ASSUMED TO BE NOT THE REGULATING AUTHORITY IN THIS REGARDS THE FACT STILL REMAINS THAT THE APPELLANT COMPANY W AS DUTY BOND TO SUBMIT THE FORM DIN WHERE IN THE APPELLANT IS RE QUIRED TO GIVE VARIOUS DETAILS REGARDING THE ISSUE OF SHARES TO NR I AND IF SAME M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 5 IS THE CASE IT CANNOT BE DENIED THAT THE INFORMATIO N GIVEN IN THE SAID FORM CANNOT BE IGNORED WHILE CONSIDERING THE I SSUE UNDER REVIEW. FURTHER THOUGH THE AO HAS STATED THAT THE SH ARES ISSUED TO MR. & MRS. RISHI AT RS. NIL HAS NOT BROUGHT TO RE CORD ANY MATERIAL IN HIS SUPPORT TO JUSTIFY ITS FINDINGS. HO WEVER, IF THE COPY OF RETURN OF ALLOTMENT SUBMITTED TO THE ROC IS SEEN THE FACT WOULD HAVE REVEALED THE CORRECTNESS OF THE ISSUE OF SUCH SHARES THOUGH IT APPEARS THAT THE SAID FACT IS NOT LOOKED INTO. CONSIDERING VARIOUS DOCUMENTS AND SUBMISSION MADE B Y THE APPELLANT AS ALSO RELYING ON THE JUDGMENT OF DELHI HIGH COURT IN CASE OF STELLAR INVESTMENTS LTD 192 ITR 287 (THE SLP AGAINST THIS ORDER IS REJECTED BY SC 251 ITR 263) I AM NOT I NCLINED TO ACCEPT THE OBSERVATIONS OF THE AO AND THEREFORE THE ADDITIONS MADE BY THE AO IN THIS REGARDS IS HEREBY DELETED. THE FACTS OF THE CASE ARE ANALOGOUS TO THAT OF THE AMOUNT RECEIVED FROM VENUS PROJECTS UK. IN THE INSTANT CAS E THE APPELLANT COMPANY HAD ISSUED SHARES TO MR. & MRS. R ISHI ON 1.6.1999 I.E. BEFORE THE YEAR ENDED ON 31.3.2000. T HE AO HAS NOT DELIBERATED ON THIS ISSUE IN THIS REGARDS. HOWE VER THE AO HAS TRIED TO CORRELATE THE PAYMENT WITH THE OTHER B USINESS TRANSACTIONS. HOWEVER, IN ABSENCE OF ANY CATEGORIC FINDING BY THE AO AS TO SUCH RECEIPT BEING OF REVENUE CHARACTER NO ADDITION CAN BE ENVISAGED U/S 68. IN CONSONANCE WITH MY EARL IER VIEW, THE ADDITION MADE BY THE AO IN THIS REGARDS IS ALSO DELETED. 16. THE CIT(A), THUS DELETED THE SAID ADDITION. 17. AGAINST THE OBSERVATIONS OF THE CIT(A), THE DE PARTMENT IS IN APPEAL BEFORE THE ITAT. 18. BEFORE US, THE DR RELIED ON THE ORDER OF THE A O, WHEREAS, THE AR RELIED ON THE ORDER OF THE CIT(A). 19. AFTER HEARING THE ARGUMENTS AND ON GOING THROU GH THE ORDERS, WE FIND THAT THE ADDITIONS SO MADE U/S 68 CANNOT ST AND, BECAUSE, THE ASSESSEE HAS PROVED THE IDENTITY, GENUINENESS AND S OURCE OF THE REMITTANCE RECEIVED BY THE ASSESSEE. THE BURDEN TO PROVE THE NEGATIVE RESTED WITH THE AO/DR, WHICH THEY HAVE FAILED. ON T HE OTHER HAND, THE AR MADE REFERENCE WITH REGARD TO THE CORRECT CLAIM MADE BY THE ASSESSEE, AS IS EVIDENT FROM VARIOUS EVIDENCES PLACED IN THE APB. M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 6 20. CONSIDERING THE FACTS AND PLACING RELIANCE ON THE DECISION OF STELLAR INVESTMENTS LTD. VS CIT, REPORTED IN 192 IT R 287 (SLP FILED BY THE DEPARTMENT HAVING BEING REJECTED AS REPORTED IN 251 ITR 263), WE ARE INCLINED TO SUSTAIN THE ORDER OF THE CIT(A) AND CONSEQUENTIALLY, REJECT THE GROUND RAISED BY THE DEPARTMENT. 21. WE, THEREFORE, DIRECT THE AO TO DELETE THE ADD ITION MADE AT RS. 2.22 CRORES AND RS. 10.67 LACS. 22. GROUND NO. 3 PERTAINS TO RECEIPT OF RS. 20.94 LACS, HELD TO BE DEEMED DIVIDEND BY THE AO. 23. IN THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD RECEIVED RS. 20.94 LACS FROM VENUS UDYOG (I) LT D. ON SHORT TERM ARRANGEMENT ON RECIPROCAL BASIS. THE AO DISREGARDED THE CONTENTIONS OF THE ASSESSEE AND ADDED IT BACK UNDER THE DEEMING PROVISIONS OF SECTION 2(22)(E). BEFORE THE CIT(A), THE ASSESSEE R EITERATED THE SUBMISSIONS MADE BEFORE THE AO AND ALSO SUBMITTED T HAT THE DEEMING PROVISIONS COULD NOT GET ATTRACTED, AS THE ASSESSEE WAS NOT A SHARE HOLDER OF VENUS UDYOG (I) LTD. 24. THE CIT(A), FOUND MERIT ON THE FACTS AND ON THE SUBMISSIONS , THAT THE ASSESSEE WAS NOT A SHAREHOLDER OF THE ASSE SSEE, DELETED THE ADDITION OF RS. 20.94 LACS MADE UNDER SECTION 2(22) (E). 25. AGAINST THIS ORDER, THE DEPARTMENT IS IN APPEA L BEFORE THE ITAT. 26. BEFORE US, THE DR REITERATED THE ARGUMENTS OF THE AO, AS PER THE ASSESSMENT ORDER, WHEREAS, THE AR SUPPORTED THE ORD ER OF THE CIT(A), BASED ON FACTS. M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 7 27. WE HAVE HEARD THE ARGUMENTS OF EITHER SIDE AND HAVE PERUSED THE MATERIAL ON RECORD. AT THE OUTSET, THE DR COULD NOT PROVE ANYTHING, WHICH COULD INDICATE THAT THE ASSESSEE WAS A SHAREH OLDER OF VENUS UDYOG. IN SUCH A SITUATION, WHEN THE RECIPIENT IS N OT A SHAREHOLDER OF THE PAYING COMPANY, THE DEEMING PROVISIONS CANNOT B E ATTRACTED. 28. WE, THEREFORE, SUSTAIN THE ORDER OF THE CIT(A) , THEREBY REJECTING THE GROUND RAISED BY THE DEPARTMENT. 29. GROUND NO. 3 IS THEREFORE REJECTED. 30. GROUND NO. 4 PERTAINS TO ALLOWANCE OF DEPRECIA TION ON DUMPERS. 31. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O NOTED THAT THE ASSESSEE HAD PURCHASED 7 DUMPERS OF WHICH 4 DUMPERS WERE PURCHASED ON 01.10.1999 AND 3 DUMPERS WERE PURCHASE D SUBSEQUENTLY. IT WAS FOUND BY THE AO THAT THE ASSES SEE HAD CLAIMED FULL DEPRECIATION ON FOUR DUMPERS AND ON THE REST O F THE 3 DUMPERS, CLAIMED DEPRECIATION AT 50%. 32. IT WAS EXPLAINED TO THE AO THAT THE DUMPERS WER E ACQUIRED BY THE ASSESSEE FROM BANGALORE TO BE USED AT TEHRI DAM SITE BY GURU MEHER CONSTRUCTION (GMC), TO WHOM THEY WERE GIVEN O N LEASE. 33. THE AO CONSIDERED THE SUBMISSIONS OF THE ASSESS EE, BUT DID NOT FIND MERITS ON THE SAME. ACCORDING TO THE AO THE DU MPERS CAME INTO POSSESSION OF THE ASSESSEE ONLY AFTER 01.10.1999, A ND THAT TOO WITH REGISTRATION OF NAGALAND, THE SUBMISSION OF THE ASS ESSEE WERE NOT CONVINCING AND HE THEREFORE REDUCED THE DEPRECIATIO N AT 50% ON THE FOUR DUMPERS AND ADDED BACK RS. 23,38,987/-. M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 8 34. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM, THE ASSESSEE SUBMITTED THAT THE DUMPERS WERE PURCHASED ON 01.10. 1999 AND HENCE THEY WERE CAPABLE OF BEING USED, AS SOON AS THEY WERE ACQUIRED. IT WAS ALSO SUBMITTED THAT THE ASSESSEE O N FINALIZING OF PURCHASE HAD REQUESTED THE SUPPLIER THAT THE DUMPER S BE DELIVERED TO GMC AT THE CONSTRUCTION PROJECT SITE AT UTTARANCHAL . THE ASSESSEE, THEREFORE, CLARIFIED THAT THE ASSESSEE WAS ELIGIBLE FOR FULL DEPRECIATION. 35. THE CIT(A), AFTER TAKING INTO CONSIDERATION THE ARGUMENTS OF THE ASSESSEE ALSO CAME TO THE CONCLUSION THAT GMC WAS NOT A RELATED PARTY BUT WAS ONLY A CONTRACTOR, WHO USED THE DUMPERS FOR TWO YEARS AND RETURNED THEREAFTER. THE CIT(A), THUS HELD, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE I AM OF THE CONSIDERED VIEW THAT THE LEASE IN THE INSTANT CASE IS THE OPERATING LEASE AND NOT THE FINANCE TRANSACTION AS ENVISAGED BY THE AO AND ACCORDINGLY THE DEPRECIATION SHOULD BE A LLOWED TO THE APPELLANT COMPANY. AS REGARDS USAGE OF DUMPERS F OR MORE THAN 180 DAYS ARE CONCERNED, THE AR OF THE APPELLANT RELIED ON THE JUDGMENT OF KERALA HIGH COURT IN THE CASE OF CI T VS GEO TECH CONSTRUCTION CORPORATION REPORTED IN 244 ITR 4 52. IN THE SAID JUDGMENT IT WAS HELD THAT USED FOR THE PURPOS E OF BUSINESS WERE CAPABLE OF A LARGER INTERPRETATION. THE OWNERSHIP OF THE 4 DUMPERS IS NOT IN DISPUTE. ITS S UBSEQUENT USE AT TEHRI DAM SITE IS ALSO NOT DISPUTED. THE APP ELLANT IS IN LEASING BUSINESS IS ALSO APPARENT AND THESE DUMPERS WERE LEASED OUT IMMEDIATELY AFTER THEIR PURCHASE. IN VIE W OF THESE FINDINGS, AO IS DIRECTED TO ALLOW FULL DEPRECIATION AS PER APPELLANTS CLAIM ON THESE FOUR DUMPERS. 36. AGAINST THIS ORDER, THE DEPARTMENT IS BEFORE TH E ITAT. 37. BEFORE US, THE DR RELIED ON THE ORDER OF THE AO AND THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A). 38. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E ORDERS, THE AO HAS OBSERVED THAT THE ASSESSEE PURCHASED 4 DUMPE RS ON 01.10.1999 AND WERE LEASED TO GMC AT TEHRI DAM PROJ ECT IN UTTRANCHAL. ONCE IT HAS BEEN ACCEPTED THAT IT WAS T HE ASSESSEE WHO M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 9 HAD PURCHASED DUMPERS, THE DEPRECIATION HAS TO BE A LLOWED. BUT THE AO RESTRICTED THE DEPRECIATION AT 50% OF THE NORMAL DEPRECIATION, WHICH IN OUR OPINION IS NOT THE CORRECT APPRECIATIO N OF LAW, AS THE 2 ND PROVISO TO SECTION 32(1) CATEGORICALLY SAYS 180 DAY S, BUT IF THE PURCHASE OF THE ASSET IS ON 1 ST OF OCTOBER, IT IS WELL WITHIN 180 DAYS, THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEPRECIATIO N ON FULL AMOUNT, AS CLAIMED. 39. WE THEREFORE, ON USE OF DUMPERS FOR BUSINESS PU RPOSES AND THE NUMBER OF DAYS, HOLD THAT THE ASSESSEE IS ELIGIBLE FOR FULL DEPRECIATION. AS A RESULT, THE GROUNDS NO. 4 & 5, AS TAKEN BY THE DEPARTMENT ARE REJECTED. 40. GROUND NO. 6 PERTAINS TO ALLOWANCE OF EXPENSES FROM TETRA SIPOX UK. 41. AT THE TIME OF HEARING, THE AR SUBMITTED THAT T HE AO HAS HIMSELF ALLOWED THE EXPENSES WHILE GIVING EFFECT TO THE CIT (A), HENCE, THE GROUND OF APPEAL TAKEN BY THE DEPARTMENT BECOMES IN FRUCTUOUS, HENCE IT IS REJECTED. 42. IN THE RESULT, THE APPEAL AS FILED BY THE DEPAR TMENT IS DISMISSED. ITA NO. 3949/M/2003 : ASST. YEAR 2000-01 : ASSESSEES APPEAL : 43. THE FOLLOWING GROUNDS HAVE BEEN TAKEN: ON BEING AGGRIEVED BY THE ORDER OF THE HONBLE CIT (A)-V, MUMBAI THIS APPEAL IS BEING SUBMITTED ON THE FOLLOWING GROUNDS, WHICH IT IS PRAYED MAY BE CONSIDERED WITHOUT PREJUDICE TO ONE ANOTHER. 1.0 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HONBLE CIT(A) ERRED IN UPHOLDING DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 88,983/-. THE LEARNED CIT(A) ERRED IN NOT ACCEPT ING CONTENTION OF THE APPELLANT THAT DISALLOWANCE IS NOT WARRANTED PARTICULARLY HAVING REGARD TO AVAILABILITY OF NON-INTEREST BEARI NG FUNDS. 2.0 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HONBLE CIT(A) ERRED IN UPHOLDING DISALLOWANCES BY TREATING THEM TO BE NON- BUSINESS EXPENSES: M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 10 25% OF ENTERTAINMENT EXPENDITURE 22,228 25% OF GUEST HOUSE EXPENDITURE 20,755 25% OF MOTOR CAR EXPENDITURE 20,953 50% OF TELEPHONE EXPENSES 2,16,554 2,80,490 3.0 THE APPELLANT CRAVES HEREIN LEAVE AND RAISES THE FO LLOWING ADDITIONAL GROUND BEFORE THE HONBLE ITAT. THE APPEL LANT BELIEVES THAT THE GROUND INVOLVES LEGAL ISSUE AND IS BASED O N FACTS ALREADY ON RECORD. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED LOWER AUTHORITIES OUGHT TO HAVE HELD THAT THE APPEL LANT WAS ENTITLED TO DEPRECIATION @ 40% (INSTEAD OF 25%) IN RESPECT O F DUMPERS THE SAME BEING TRUCKS USED IN THE BUSINESS OF HIRE 4.0 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HONBLE CIT(A), ERRED IN NOT DELETING CERTAIN ADDITIONS (AS PER ANNEXURE TO THE APPEAL) AND, INSTEAD DIRECTING AO TO ALLOW AFT ER VERIFICATION: 5.0 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HONBLE CIT(A) ERRED NOT GRANTING CLAIM OF THE APPELLANT FO R GRANT OF SET OFF OF BROUGHT FORWARD BUSINESS LOSS. 6.0 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE HONBLE CIT(A) ERRED IN TREATING LEVY OF SECTION 234B INTER EST TO BE OF CONSEQUENTIAL IN NATURE INSTEAD OF HOLDING THAT INT EREST WAS NOT AT ALL LEVIABLE. 7.0 YOUR APPELLANT CRAVES LEAVE TO ADD TO AMEND, ALTER, DELETE AND/OR MODIFY THE ABOVE GROUNDS OF APPEAL ON OR BEFORE THE FINAL DATE OF HEARING OF THIS APPEAL PETITION. 44. GROUND NO. 1 PERTAINS TO DISALLOWANCE OF RS. 88 ,983/-. 45. THE AO NOTICED THAT THE ASSESSEE HAD ADVANCED L OAN TO ITS SUBSIDIARY M/S SHOWA INVESTMENTS P LTD. THIS MONEY WAS UTILIZED BY SHOWA FOR PURCHASE OF RESIDENTIAL FLAT, THEREFORE T HE AO CONCLUDED THAT THE ASSESSEE WHO HAD BORROWED FUNDS AS WELL HAD ADV ANCED THE SAME TO ITS SUBSIDIARY FOR NON BUSINESS PURPOSES. THE AO , THEREFORE, DISALLOWED THE INTEREST COMPUTED AT 18% FOR SEVEN D AYS. 46. THE ASSESSEE APPROACHED THE CIT(A) AND SUBMITTE D THAT SINCE THE ASSESSEE HAD MIXED BAG OF FUNDS, IN SUCH A CIRC UMSTANCE, IT HAD TO BE PRESUMED THAT THE ASSESSEE UTILIZED ITS FUNDS FO R SHOWA AND HENCE THE DISALLOWANCE WAS UNCALLED FOR. 47. THE CIT(A), OBSERVED, M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 11 I HAVE GONE THROUGH THE APPELLANTS CONTENTION AS WELL AS THE FINDINGS OF THE AO. THE APPELLANT HAS NOT REFUTED TH E AOS FINDINGS THAT THE AMOUNT IN QUESTION WERE NOT PAID OUT OF FUNDS BORROWALS MADE FROM THE BANK. THEREFORE IN VIEW OF THE FACT THAT THE AO HAS IDENTIFIED THE SOURCE OF FUND NO INT ERFERENCE IS CALLED FOR. EVEN THE JUDGMENTS RELIED UPON BY THE A PPELLANT IN THE PRESENT CIRCUMSTANCES ARE OF NO AVAIL AND THERE FORE, THE DISALLOWANCE MADE BY THE AO IS HEREBY CONFIRMED. 48. THE CIT(A), THEREFORE, SUSTAINED THE DISALLOWAN CE. 49. AGAINST THIS FINDING OF THE CIT(A), ASSESSEE IS BEFORE THE ITAT. 50. BEFORE US, THE AR REITERATED THE SUBMISSIONS MA DE BEFORE THE REVENUE AUTHORITIES AND PLEADED THAT NO DISALLOWANC E WAS CALLED FOR. 51. THE DR VEHEMENTLY SUPPORTED THE ORDER OF THE RE VENUE AUTHORITIES. 52. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED TH E ORDER. 53. THE ORDER OF THE CIT(A) IS VERY CATEGORICAL THA T THOUGH THE FUNDS MAY HAVE BEEN FROM OWN SOURCES, BUT IN SUCH CIRCUMS TANCES THE DISALLOWANCE HAS TO BE MADE. 54. WE ARE OF THE OPINION THAT WHEN THE ASSESSEE HA S NOT BEEN ABLE TO REBUT THE FINDING OF THE AO THAT THE FUNDS ADVAN CED TO SHOWA WAS ACTUALLY UTILIZED FOR PURCHASE OF RESIDENTIAL PROPE RTY AND NOT FOR BUSINESS PURPOSES, THEN THE DISALLOWANCE HAS TO BE MADE. 55. WE, THEREFORE, SUSTAIN THE ORDERS OF THE REVENU E AUTHORITIES AND REJECT THE GROUND OF APPEAL, AS RAISED. 56. GROUND NO. 1 IS REJECTED. 57. GROUND NO. 2 PERTAINS TO AD-HOC DISALLOWANCE. 58. AFTER DELIBERATION, THE CIT(A) OBSERVED, M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 12 APPARENTLY I DONT FIND ANY REASON TO DISBELIEVE T HE APPELLANTS CLAIM IN THIS REGARDS. HOWEVER, IT IS ALSO TRUE THAT THE APPELLANT HAS NOT BEEN ABLE TO FULLY JUSTIFY ITS CLAIM ON CASE TO CASE BAS IS AND THEREFORE THE DISALLOWANCE IN THIS REGARDS IS RESTRICTED TO 25% O F SUCH EXPENSES TREATING THE SAME AS FOR NON BUSINESS PURPOSES AND ACCORDINGLY THE AO IS DIRECTED TO REDUCE THE DISALLOWANCE ON GUEST HOU SE EXPENSE, ENTERTAINMENT EXPENSES, & MOTOR CAR EXPENSES TO 25% . HOWEVER IN RESPECT OF TELEPHONE EXPENSES THE AO HAS RIGHTLY POI NTED OUT THAT THE SAID MR. RISHI WAS HAVING VARIOUS OTHER INTEREST IN THE COUNTRY AS OUTSIDE AS WELL AND THEREFORE I AM NOT INCLINED TO INTERFERE IN THE AOS FINDINGS IN THIS REGARDS AND ACCORDINGLY THE DISALL OWANCE MADE BY THE AO FOR TELEPHONE EXPENSES IS HEREBY CONFIRMED. 59. AGAINST THIS ORDER, THE ASSESSEE IS IN APPEAL B EFORE THE ITAT. 60. BEFORE US, THE AR SUBMITTED THAT INSTANTLY, IT IS THE CASE OF A COMPANY, WHERE THE COMPANY BEARS THE EXPENSES AND N OT THE DIRECTORS OR ANY OTHER INDIVIDUAL. HENCE THE AD-HOC DISALLOWANCE IS UNCALLED FOR. 61. WE HAVE HEARD THE ARGUMENTS, WE ARE OF THE OPIN ION THAT ONCE IT IS ESTABLISHED THAT THE EXPENSE IS BORNE BY THE COM PANY AND DEBITED IN ITS ACCOUNTS, THE EXPENSES HAS TO BE TAKEN AS GE NUINE, SUBJECT TO ANY ADVERSE INFERENCE, BASED ON DOCUMENTARY EVIDENC E. 62. IN SUCH A CIRCUMSTANCE, RELYING ON THE DECISION OF ITO VS MAYEN AGARWAL, TM DECISION REPORTED IN 128 ITD 55, WE ARE OF THE OPINION THAT THE EXPENSES HAVE TO BE ALLOWED. 63. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE AO TO DELETE THE AD-HOC DISALLOWANCES MADE BY HIM AND WHAT HAS BEEN SUSTAINED BY THE CIT(A). 64. THE ASSESSEE GETS THE ENTIRE RELIEF. 65. GROUND NO. 2 IS THEREFORE ALLOWED. M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 13 66. GROUND NO. 3 PERTAINS TO DEPRECIATION ON DUMPER S. 67. THE AR SUBMITTED THAT THE DUMPERS HAVE BEEN TAK EN TO THE FIXED ASSETS SCHEDULE AND THEREFORE ALLOWABLE. 68. WE HAVE REFERRED TO THE APB AND WE FIND THAT TH E DUMPERS HAVE BEEN MADE PART OF THE FIXED ASSETS AND THEREFORE, D EPRECIATION IS ALLOWABLE. 69. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE AO TO ALLOW THE DEPRECIATION AS CLAIMED. 70. GROUND NO. 5 PERTAINS TO NON ALLOWANCE OF BROUG HT FORWARD LOSS. 71. THE AR SUBMITTED THAT THE ISSUE HAS BEEN ALLOWE D BY THE AO IN THE APPEAL EFFECT ORDER HENCE THE GROUND BECOMES IN FRUCTUOUS, HENCE DISMISSED. 72. GROUND NO. 4 PERTAINS TO OBJECTION OF THE ASSES SEE AGAINST THE RESTORATION OF THE ISSUE TO THE AO. 73. ON HEARING BOTH THE PARTIES, WE SUSTAIN THE ORD ER OF THE CIT(A), WHEREIN THE ISSUE HAS BEEN RESTORED TO THE AO. WE H OLD ACCORDINGLY. 74. GROUND NO. 6 IS COMPUTATION OF INTEREST U/S 234 B. 75. THE ISSUE BECOMES CONSEQUENTIAL AND THE AO IS D IRECTED TO RECOMPUTE THE INTEREST AS PER LAW AND AS APPLICABLE . 76. GROUND NO. 7 IS GENERAL. 77. IN THE RESULT, THE APPEAL, AS FILED BY THE ASSE SSEE IS PARTLY ALLOWED. M/S VECTRA INVESTMENTS P. LTD. ITA NO. 4204/MUM/2003 ITA NO. 3949/MUM/2003 14 SUM-UP: DEPARTMENTS APPEAL STANDS DISMISSED ASSESSEES APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER, 2014. SD/- SD/- ( ) ( ) (N.K. BILLAIYA) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 21 ST NOVEMBER, 2014 (/ COPY TO:- 1) / THE APPELLANT. 2) !/ THE RESPONDENT. 3) THE CIT (A)-V, MUMBAI. 4) 1 1 2( CITY-V, MUMBAI / THE CIT- CITY-V, MUMBAI. 5) 45 (67 B '' 1 )67 - , #& THE D.R. B BENCH, MUMBAI. 6) 589& COPY TO GUARD FILE. 1: / BY ORDER / / TRUE COPY / / [ ;/< #= 1 )67 - , #& DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI ` *@A< .. * CHAVAN, SR. PS