Conybio Healthcare (I) Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 797/CHNY/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5035 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 31-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: N C PRABHAKAR
• Keywords: Depreciation; Business expenditure
• Section: 32

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , , $ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO. 797/MDS/2017 / ASSESSMENT YEAR : 2010-11 CONYBIO HEALTHCARE (I) PVT. LTD., NO. C-39, THIRUVIKA INDUSTRIAL ESTATE, GUINDY, CHENNAI 600 034. [PAN: AABCC 1948D] VS. ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -1(3), CHENNAI 600 032. ( / APPELLANT) ( / RESPONDENT) &' / APPELLANT BY : SHRI. N.C. PRABHAKAR, ADVOCATE *+&' / RESPONDENT BY : SHRI. S. VIJAYAPRABHA, JCIT ' /DATE OF HEARING : 02.11.2017 ' /DATE OF PRONOUNCEMENT : 10.01.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, CHENNAI IN ITA NOS. 494/13-14, NEW NO. ITA 103/CIT(A)-2013-14 DATED 05.12.2016 FOR ASSESSMENT YEAR 2010-11. :-2-: ITA NO. 797/MDS/2017 2. M/S CONYBIO HEALTHCARE (I) PVT LTD., THE ASSESS EE, IS A MULTI-LEVEL MARKETING COMPANY AND IMPORTS ITS PRODUCTS FROM MAL AYSIA. THE PRODUCTS INCLUDE VESTS, BRIEFS, KNEE-CAPS, ELBOW-BRAZIERS AN D ALSO SOME AYURVEDIC PRODUCTS. DURING THIS A Y 2010-11, IT ADDED AN APARTMENT IN PORUR FOR RS. 80,69,798/- TO ITS FIXED ASSETS AND CLAIMED DEPREC IATION OF RS. 4,03,490/- WHICH INCLUDED ON THE VALUE OF THE LAND ALSO AND T HE INTEREST AT RS 8,97,996/- ON THE BORROWING. THE AO NOTED THAT THE ASSET IN QU ESTION I.E., THE APARTMENT WAS PURCHASED BY SHRI K. KANAGENDRAN, D IRECTOR OF THE ASSESSEE, IN HIS INDIVIDUAL NAME , ON UNDER THE SC HEME GRIHA PRAKASH , OUT OF THE LOAN OF RS 60,00,000/- SANCTIONED BY THE LIC HOUSING FINANCE LTD ON 30.6.2008. FOR THE FY 2008-09, THE INTEREST AND THE PRINCIPAL WAS DIRECTLY REMITTED BY HIM. THE ASSESSEE EXPLAINED THAT SHRI K . KANAGENDRAN PAID THE INTEREST AND THE PRINCIPAL AT RS 15,32,414/- AND TH E BALANCE RS 44,67,586/- IS SHOWN UNDER THE HEAD SECURED LOANS. THE AO REJECT ED SUCH EXPLANATION AS AN AFTER- THOUGHT AND HELD THAT THE DEPRECIATION AND THE INTEREST CLAIMED BY THE ASSESSEE COULD NOT BE ALLOWED AS A DEDUCTION AS IT IS NOT THE OWNER OF THE ASSET . ON APPEAL, THE CIT(A) DISMISSED THE AP PEAL. AGGRIEVED AGAINST THE ORDER OF THE CIT (A), THE ASSESSEE FILED THIS APPEAL WITH FOLLOWING GROUNDS OF APPEAL: 1) THE ORDER OF THE LEARNED COMMISSIONER OF INCOME -TAX (APPEALS-1) IS OPPOSED TO LAW, EQUITY AND JUSTICE. :-3-: ITA NO. 797/MDS/2017 2) THE LEARNED CIT APPEALS-1 HAS CONFIRMED THE ORDE R OF THE LOWER AUTHORITIES IN CONFIRMING THE DISALLOWANCE OF DEPRE CIATION AMOUNTING TO RS.4,03,490/- AND DISALLOWANCE OF INTEREST AMOUNTIN G TO RS.8,97,996/-. 3) THE LEARNED CIT APPEALS-1 WHILE ADJUDICATING THE MATTER HAS DISALLOWED THE ABOVE TWO ADDITIONS BY RELYING ON IT AT DECISIONS IN THE CASE OF EDWISE CONSULTANTS P LTD VS. ADDITIONAL CIT 143 ITD 307 (MUMBAI) BUT ERRONEOUSLY OVERLOOKED THE FACT THAT YOUR APPELLANT BEING A MULTILEVEL MARKETING COMPANY WHEREIN NEITHER THE FINANCIALS NOR THE BANK S CAME FORWARD TO LEND THE LOANS FOR ACQUIRING THE PROPERTY. THIS FACT HAS NOT BEEN DISPUTED BY THE LEARNED CIT APPEALS-1 IN PARA NO.6 AND PARA NO.7 OF THE APP ELLATE ORDER IN PAGE NO.3. 4) THE LEARNED CIT APPEALS-1 HAS ERRONEOUSLY COME T O A CONCLUSION BY OVERLOOKING THE NATURE OF THE BUSINESS OF YOUR APPE LLANT AND ALSO WHEN THERE IS NO PECUNIARY ADVANTAGE TO BE GAINED BY YOUR APPELLA NT BY CLAIMING INTEREST AND DEPRECIATION AND WITHOUT THESE TWO EXPENDITURES YOU R APPELLANT HAS ALREADY INCURRED LOSS AND THEREFORE BY THESE FACTS WHICH AR E ON RECORD ONLY GOES TO SHOW THAT THE ASSET WHICH OUGHT TO HAVE BELONGED TO YOUR APPELLANT WAS ACQUIRED IN THE NAME OF THE DIRECTOR ONLY TO OBTAIN LOAN TO SATISFY THE LENDERS. 5) YOUR ATTENTION IS ALSO INVITED TO THE DECISION O F THE GUJARAT HIGH COURT IN THE CASE OF PWS ENGINEERS LTD VS. DCIT REN DERED ON 6.6.2016 WHEREIN THE DEPARTMENT INVOKED SEC.40A(2) ON THE EXCESSIVE REMUNERATION PAID TO THE DIRECTORS WHEREIN THE RATE OF TAX FOR THE COMPANY A S WELL AS DIRECTORS WAS AT 30% AND IT WILL NOT MAKE ANY DIFFERENCE BY ALLOWING THE EXPENDITURE IN THE HANDS OF THE COMPANY AS THE ISSUE WAS REVENUE NEUTR AL ON THE SAME ANALOGY WHEN THERE IS NO PECUNIARY ADVANTAGE BY CLAIMING TH ESE EXPENDITURES, THE SAME SHOULD BE ALLOWED AS A BUSINESS EXPENDITURE IN THE HANDS OF THE APPELLANT CONSIDERING THE NATURE OF THE BUSINESS OF YOUR APPE LLANT. 6) FOR THE ABOVE REASONS AND SUCH OTHER REASONS TO BE ADDUCED AT THE TIME OF HEARING, YOUR APPELLANT PRAYS THAT THE ADDI TION MADE BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME- TAX MAY BE DELETE D AND JUSTICE RENDERED IN ACCORDANCE WITH LAW. :-4-: ITA NO. 797/MDS/2017 3. THE AR PRESENTED THE CASE ON THE ABOVE LINES . PER CONTRA, THE DR SUBMITTED THAT FOR CLAIMING THE DEPRECIATION, THE ASSESSEE SHOULD ESTABLISH THAT (I) IT IS THE OWNER OF THE IMPUGNED ASSET AND (II) THAT ASSET THAT IT IS USED FOR THE PURPOSE OF THE BUSINESS. FROM THE FACT S ESTABLISHED , IT IS CLEAR THAT THE IMPUGNED ASSET , BEING AN IMMOVABLE PROPER TY, THE ASSESSEE IS NOT ABLE TO SHOW THAT IT WAS ACQUIRED BY IT IN ITS NAME BY SHOWING THE REQUIRED REGISTERED DEED ETC. FURTHER, IT HAS NOT LAID ANY MATERIAL TO ESTABLISH THAT SUCH ASSET WAS USED FOR THE PURPOSE OF ITS BUSINES S ALSO . THEN, THE DR TOOK US THROUGH RELEVANT PORTION OF THE ASSESSMENT ORDER AND THE APPEAL ORDER AND SUPPORTED THE FINDINGS THEREIN. 4. WE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH RELEVANT MATERIAL. THE RELEVANT PORTION OF THE ORDER OF THE CIT(A) IS EXTR ACTED AS UNDER : 7. IT IS PLEADED BY THE APPELLANT THAT IT INTENDED TO ACQUIRE PROPERTY FOR WHICH IT APPROACHED SEVERAL DEVELOPERS AND FINANCIA L INSTITUTIONS FOR OBTAINING LOAN WHICH WERE ORALLY REJECTED. THEREAFTER IT APPL IED TO THE LLC HOUSING FINANCE FROM WHICH THE REQUISITE LOAN WAS OBTAINED AND WAS UTILIZED TO SECURE THE CAPITALIZED ASSET OF RS.80,69,798. THE APPELLANT AL SO PLACED ON RECORD THAT THEY WERE COMPILING REASONS FOR ACQUIRING THE ASSET IN T HE NAME OF THE DIRECTOR AND THAT NO PECUNIARY ADVANTAGE HAD ACCRUED TO THE DIRE CTOR ON ACCOUNT OF THE SAME. FURTHER THAT SUCH A DECISION TO ACQUIRE THE P ROPERTY IN THE NAME OF THE DIRECTOR AND UTILIZE THE SAME FOR THE APPELLANT COM PANY WAS APPROVED BY THE BOARD OF DIRECTORS IN A RESOLUTION PASSED. 8. THE REQUISITES FOR CLAIM OF DEPRECIATION U/S 32 OF THE ACT INCLUDES THE ASSET TO BE OWNED AND USED FOR THE PURPOSE OF BUSIN ESS. IN THIS CASE THE ASSET WAS NOT OWNED BY THE APPELLANT COMPANY BUT BY THE D IRECTOR. :-5-: ITA NO. 797/MDS/2017 9. IT WILL SERVE USEFUL PURPOSE TO REFER TO DECISIO N IN EDWISE CONSULTANTS P LTD V. ADDL.CIT 143 ITO 307 (MUMBAI) IN THIS REGA RD. IN THAT CASE THE ISSUE WAS WITH REGARD TO DISALLOWANCE OF DEPRECIATION ON 3 CARS REGISTERED IN THE NAME OF THE DIRECTORS WHILE THE SAME WERE SHOWN IN THE BOOKS OF THE COMPANY AND APPEARED AS ASSET OF THE COMPANY IN ITS BALANCE -SHEET. THE MOTORCARS WERE USED FOR THE BUSINESS OF THE ASSESSEE COMPANY AND ACCORDINGLY DEPRECIATION WAS CLAIMED ON THE SAID CARS. THE TRIB UNAL NOTED THAT NOT ONLY THE INVOICE/BILLS HAS BEEN ISSUED IN THE INDIVIDUAL NAM ES OF THE DIRECTORS BUT THEY WERE ALSO THE REGISTERED OWNERS OF THE SAID CARS. T HE SAID CARS HAVE BEEN SHOWN NO DOUBT AS ASSETS IN THE BOOKS OF ACCOUNT OF THE COMPANY. AFTER CONSIDERING THE EXTANT AUTHORITIES ON THE SUBJECT T HE ITAT NEGATED THE CLAIM OF THE APPELLANT UPHOLDING THE VIEW TAKEN BY THE CIT(A ) WHO HAD OBSERVED THAT PAYMENT HAVING BEEN MADE BY THE ASSESSEE COMPANY FO R THE CARS WHICH WERE PURCHASED BY THE DIRECTORS IN THEIR OWN NAME REQUIR ES THAT SUCH PAYMENT BE TREATED AS ADVANCE/ LOAN TO THE DIRECTORS . THE FAC TS OF THE CASE PARI MATERIAL SIMILAR TO THE FACTS OBTAINING IN THE CASE AT HAND. THE IMPUGNED ASSETS NOT ONLY HAVE BEEN ACQUIRED BY THE DIRECTOR BUT ALSO HAVE BE EN HELD LEGALLY AS SUCH. HENCE FOLLOWING THE RATIO IN THE CASE OF EDWISE CON SULTANTS (SUPRA) I AM CONSTRAINED TO AFFIRM THE VIEW TAKEN BY THE AO AND IN AS MUCH NEGATING THE CLAIM OF THE APPELLANT WITH REGARD TO CLAIM OF DEPR ECIATION AND INTEREST OF THE IMPUGNED ASSET. THIS GROUND OF APPEAL IS DISMISSED. FROM THE ABOVE, IT IS CLEAR THAT THE CIT (A) FOUND THAT THE IMPUGNED ASSET IS NOT ONLY ACQUIRED BY THE DIRECTOR BUT ALSO HAVE BEEN HELD LEGALLY BY HIM AS SUCH. AFTER THIS FINDING ALSO, THE ASSESSEE IS NOT ABLE TO ESTABLISH THAT IT IS THE OWNER OF THE IMPUGNED ASSET AND SUCH ASSE T WAS USED FOR THE PURPOSE OF ITS BUSINESS . IN THE FACTS AND CIRCUMST ANCES, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A). THE ASSESSEES APPEAL GROUNDS FAIL . :-6-: ITA NO. 797/MDS/2017 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED. ORDER PRONOUNCED ON WEDNESDAY, THE 10 TH DAY OF JANUARY, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 10 TH JANUARY, 2018 JPV '*2343 /COPY TO: 1. &/ APPELLANT 2. *+& /RESPONDENT 3. 5 ) (/CIT(A) 4. 5 /CIT 5. 3* /DR 6. 7 /GF