M/s. Bajpai Valves Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(2), Ahmedabad

ITA 679/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 7729 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-07-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 02-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: K C THAKKAR
• Keywords: Depreciation
• Section: 143(3); 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH (BEFORE S/SHRI R.V.EASWAR, VICE-PRESIDENT AND D.C. AGRAWAL, ACCOUNTANT MEMBER) ITA.NO.679/AHD/2009 [ASSTT.YEAR : 2005-2006] M/S.BAJPAI VALVES PVT. LTD. 43, TEJENDRA PARK SOCIETY VIRATNAGAR, ODHAV AHMEDABAD. VS. ITO, WARD-1(2) AHMEDABAD. ASSESSEE BY : K.C.THAKKAR REVENUE BY : SHRI RAJEEV AGARWAL O R D E R PER R.V.EASWAR, VICE-PRESIDENT : THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF INDUSTRI AL VALVES, PIPE-FITTINGS AND MACHINERY PARTS. WE ARE CONCERNED WITH THE ASSESSME NT YEAR 2005-06. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER PASSED U/ S 143(3) OF THE IT ACT ON 28- 9-2007. 2. THE FIRST ISSUE IS WHETHER THE ASSESSEE IS ENTIT LED TO THE DEPRECIATION OF RS.95,500 ON THREE MOTOR CARS. THESE CARS WERE PURC HASED FROM PERSONS WHO WERE DIRECTORS OF THE ASSESSEE-COMPANY. THE PURCHAS E PRICE WAS CREDITED TO THE ACCOUNTS OF THE DIRECTORS BY PASSING A JOURNAL ENTR Y IN THE COMPANYS BOOKS ON 1-4-2004. PAYMENTS WERE HOWEVER MADE LATER, DURING THE RELEVANT ACCOUNTING YEAR AND THESE DETAILS HAVE BEEN GIVEN IN PAGE 2 OF THE ASSESSMENT ORDER IN A TABULAR FORM AND ARE NOT REPRODUCED FOR THE SAKE OF BREVITY. THE ASSESSEE PRODUCED THE REGISTRATION CERTIFICATE BOOKS BEFORE THE ASSESSING OFFICER WHO FOUND THAT THEY WERE IN THE NAMES OF THE ORIGINAL O WNERS, I.E., THE DIRECTORS AND THE CARS HAD NOT BEEN TRANSFERRED IN THE NAMES OF T HE ASSESSEE=COMPANY. THE ASSESSING OFFICER FURTHER NOTICED THAT THE AMOUNTS PAID TO THE DIRECTORS TOWARDS THE PURCHASE PRICE OF THE CARS WERE TAKEN BACK BY T HE COMPANY THE VERY NEXT DAY AS LOANS IN THEIR NAMES. ON THESE FACTS, HE TOO K THE VIEW THAT THE CLAIM OF PAGE - 2 ITA.NO.679/AHD/2009 -2- DEPRECIATION WAS MERELY A COLOURABLE DEVICE TO REDU CE THE TAX LIABILITY OF THE COMPANY. HE ACCORDINGLY DISALLOWED THE CLAIM FOR DE PRECIATION. THE DISALLOWANCE HAVING BEEN CONFIRMED BY THE CIT(A), T HE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL ARGUMENTS. THOUGH THE FA CTS NOTICED ABOVE DO GIVE RISE TO SOME SUSPICION THAT THE CARS MAY NOT H AVE BEEN ACTUALLY PURCHASED BY THE ASSESSEE AND THAT MERE ENTRIES WERE MADE IN THE BOOKS AS IF THEY WERE PURCHASED FROM THE DIRECTORS WITHOUT THE MONEY ACTU ALLY HAVING BEEN ENJOYED BY THEM, AS A MATTER OF LAW IT HAS TO BE HELD THAT ONCE THE PURCHASE PRICE WAS ACTUALLY PAID TO THE DIRECTORS (A FACT WHICH IS NOT DISPUTED BY THE DEPARTMENTAL AUTHORITIES) THE MONEY BELONGS TO THEM IN THEIR OWN RIGHT AND THEREAFTER IT IS FOR THEM TO USE IT AS THEY PLEASED. THE SUBSEQUENT ACT OF ADVANCING THE MONIES TO THE ASSESSEE-COMPANY IN WHICH THEY WERE DIRECTORS, THOUGH ON THE VERY NEXT DAY, IS AN ACT OF THE DIRECTORS VOLITION AND CANNO T BE ASSUMED TO INVALIDATE THE PURCHASE OF THE VEHICLES BY THE COMPANY OR THE SALE THEREOF BY THE DIRECTORS. THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED. THEREF ORE THE ASSESSING OFFICER CANNOT SAY THAT THE ASSESSEE-COMPANY DID NOT PAY TH E PURCHASE PRICE TO THE DIRECTORS ON THE DATES ON WHICH THEY WERE ENTERED I N THE BOOKS. THERE IS NO DISPUTE THAT THE EXPENDITURE ON THE RUNNING AND MAI NTENANCE OF THE VEHICLES HAS BEEN INCURRED BY THE ASSESSEE-COMPANY AND DEBITED I N ITS ACCOUNTS. THERE IS ALSO NO DISPUTE THAT THE VEHICLES HAVE BEEN SHOWN I N THE BALANCE-SHEET OF THE ASSESSEE-COMPANY. THE VEHICLES ARE MOVABLE ASSETS A ND THE PROPERTY THEREIN PASSES ON DELIVERY AND THE FACT THAT THE REGISTRATI ON CERTIFICATES (RC BOOKS) HAVE NOT BEEN AMENDED TO SHOW THE COMPANY AS THE OWNER I S NOT CONCLUSIVE AGAINST THE ASSESSEE-COMPANY. THE HONBLE GUJARAT HIGH COUR T HAS HELD IN CIT V DEEPAK NITRITE LTD (2000) 243 ITR 825, FOLLOWING TH E JUDGMENT OF THE SUPREME COURT IN MYSORE MINERALS LTD (1999) 239 ITR 775 THAT IF THE PURCHASE CONSIDERATION IS PAID AND POSSESSION IS TA KEN, THEN EVEN IN RESPECT OF IMMOVABLE PROPERTY THE ASSESSEE BECOMES THE OWNER F OR THE PURPOSE OF SEC.32 PAGE - 3 ITA.NO.679/AHD/2009 -3- (DEPRECIATION) NOTWITHSTANDING THAT THE CONVEYANCE DEED HAS NOT BEEN EXECUTED AND REGISTERED IN FAVOUR OF THE ASSESSEE. THE POSIT ION WOULD BE A FORTIORI IN RESPECT OF MOVABLE ASSETS. IN FACT, THERE IS A LONG SERIES OF JUDGMENTS OF VARIOUS HIGH COURTS HOLDING THAT REGISTRATION OF THE VEHICL ES IN THE NAME OF THE ASSESSEE IS NOT ESSENTIAL FOR THE CLAIM OF DEPRECIATION: CIT V SALKIA TRANSPORT ASSOCIATES (1983) 143 ITR 39 (CALCUTTA), CIY V AMBER CORPORATI ON (1981) 127 ITR 29, CIT V NIDISH TRANSPORT CORPORATION (1990) 185 ITR 6 69 (KERALA), CIT V UP STATE AGRO INDUSTRIAL CORPORATION LTD (1981) 127 IT R 97 (ALL.), CIT V DILIP SINGH SARDARSINGH BAGGA (1993) 201 ITR 995 (BOM) AN D CIT V BASTI SUGAR MILLS CO LTD (2002) 257 ITR 88 (DEL.). RESPECTFULLY FOLLOWING THE RATIO OF THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT AND THE OTHER JUDGMENTS CITED ABOVE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE DEPRECIATION OF RS.95,500 IN RESPECT OF THE VEHICLES. THE ISSUE IS THUS DECIDED IN FAVOUR OF THE ASSESSEE. 4. THE OTHER ISSUE IN THE APPEAL IS WHETHER THE ASS ESSEE IS ENTITLED TO THE ALLOWANCE OF THE INTEREST OF RS.23,240. IN RESPECT OF THE AMOUNTS TAKEN AS LOANS FROM THE DIRECTORS, THE ASSESSEE CLAIMED INTEREST P AYMENT WHICH WAS ALSO CLAIMED AS A DEDUCTION IN COMPUTING THE BUSINESS IN COME. THE INTEREST WAS PROVIDED FOR THE PERIOD COMMENCING FROM 1-4-2004 TI LL 31-3-2005. THE ASSESSING OFFICER HAS PREPARED A TABULAR STATEMENT SHOWING THE DETAILS OF THE CLAIM IN PAGE 4 OF THE ASSESSMENT ORDER. WE FIND TH EREFROM THAT THE INTEREST RELATES BOTH TO THE PERIOD PRIOR TO THE ACTUAL PAYM ENT OF THE PURCHASE PRICE AS ALSO TO THE PERIOD FROM THE DATE OF TAKING BACK THE MONIES PAID AS LOANS. FOR INSTANCE, IN THE CASE OF THE CAR ACQUIRED FROM J.S. BAJPAI (HUF), THE PURCHASE PRICE OF RS.1,50,000 WAS CREDITED TO HIS ACCOUNT ON 1-4-2004. THE AMOUNT WAS ACTUALLY PAID TO HIM ON 24-1-2005, BUT TAKEN BACK O N 24-2-2005. INTEREST IS PROVIDED AND CLAIMED FOR THE PERIOD FROM 1-4-2004 T O 24-1-2005 AND FROM 24- 2-2005 TO 31-3-2005. WE HAVE ALREADY HELD IN RESPEC T OF THE CLAIM FOR DEPRECIATION THAT THE ASSESSEE IS ENTITLED TO THE S AME, REJECTING THE THEORY THAT THE CLAIM IS ONLY A COLOURABLE DEVICE TO REDUCE THE TAX LIABILITY. THEREFORE, THE PAGE - 4 ITA.NO.679/AHD/2009 -4- ENTIRE CLAIM FOR DEDUCTION OF INTEREST CANNOT BE RE JECTED. THE INTEREST RELATING TO THE PERIOD FROM THE DATE ON WHICH THE ASSESSEE-COMP ANY TOOK THE LOANS FROM THE DIRECTORS, FOR INSTANCE, IN THE CASE OF J.S.BAJ PAI (HUF) FROM 24-2-2005, TILL THE END OF THE YEAR HAS TO BE ALLOWED AS A DEDUCTIO N SINCE THIS WAS TAKEN AS A LOAN FROM HIM. HOWEVER, THE INTEREST FROM 1-4-2004, ON WHICH DATE THE PURCHASE PRICE OF THE VEHICLES WAS MERELY CREDITED TO THE ACCOUNT OF THE DIRECTORS (SELLERS), TO THE DATE ON WHICH THE ASSES SEE ACTUALLY PAID THE MONIES DUE TO THEM CANNOT BE ALLOWED AS A DEDUCTION U/S 36 (1)(III) SINCE THERE IS NO BORROWING. INTEREST PAID ON UNPAID PURCHASE PRICE C ANNOT BE ALLOWED FOR THE REASON THAT THERE IS NO BORROWING. IT WAS SO HELD B Y THE SUPREME COURT IN THE CASE OF BOMBAY STEAM NAVIGATION COMPANY (1953) P LT D V CIT (1965( (56 ITR 52). THE PURCHASE PRICE REMAINED UNPAID FOR SOM E TIME AND UP TO THE DATE OF PAYMENT NO INTEREST CAN BE CLAIMED AND ALLOWED A S THERE IS NO ACT OF BORROWING. THEREFORE, IN ALL THE THREE CASES, THE A SSESSING OFFICER IS DIRECTED TO DISALLOW INTEREST FROM 1-4-2004 TILL THE DATE OF AC TUAL DISCHARGE OF THE PURCHASE CONSIDERATION BY THE ASSESSEE. THE INTEREST PAID TH EREAFTER WILL HAVE TO BE ALLOWED AS A DEDUCTION U/S 36(1)(III) SINCE THERE W AS AN ACT OF BORROWING BY THE ASSESSEE. THERE IS NO DISPUTE THAT THE BORROWING WA S FOR THE PURPOSE OF THE BUSINESS. THE ASSESSING OFFICER IS DIRECTED TO MODI FY THE DISALLOWANCE SUITABLY. THE GROUND IS PARTLY ALLOWED. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT THIS 24 TH OF JULY, 2009. SD/- SD/- (D.C.AGRAWAL) ACCOUNTANT MEMBER (R.V.EASWAR) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 24-07-2009 PAGE - 5 ITA.NO.679/AHD/2009 -5- COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR, ITAT, AHMEDABAD