Zee Marketing (Guj.) Private Limited, Ahmedabad V. The Dy. Commissioner of Income Tax, Central Circle-1(1), Ahmedabad

ITSSA 19/AHD/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3475 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 07-03-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 28-02-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 23-02-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 143(3); 153A; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER I. T(SS). A. No. 19 /Ahd /2 023 ( नधा रण वष / Ass ess ment Year : 201 6-1 7) Ze e M a rk e t i ng ( G uj . ) Pri va t e L im it e d 30 4 , Aa ka ns ha B u i l din g , Op p. V a d i la l H o us e , Na vr a n g pu r a , A h m eda ba d - 38 0 0 09 बनाम/ V s . T h e D y . Co m m is s io ner of I n co me T ax C e n tr al C ir cle 1 ( 1 ) , A h m e da ba d थायी लेखा सं./जीआइआर सं./P A N / G I R N o . : A AA C Z 0 6 2 7 K (अपीलाथ /Appellant) . . ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri M. S. Chhajed, AR यथ क ओर से/Respondent by : Shri Akhilendra Pratap Yadaw, CIT. D.R. स ु नवाई क तार ख / D a t e o f H e a ri ng 29/02/2024 घोषणा क तार ख /D a t e o f P r o n o u nc e me n t 08/03/2024 O R D E R PER Ms. MADHUMITA ROY - JM: The instant appeal filed at the behest of the assessee is directed against the order dated 23.12.2022 passed by the Ld. Commissioner of Income Tax (Appeals)-11, Ahmedabad (in short ‘CIT(A)’) arising out of the order dated 30.12.2018 passed by the ACIT, Central Circle-1(1), Ahmedabad under Section 143(3) r.w.s. 153A of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’) for Assessment Year 2016-17. IT(SS)A No. 19/Ahd/2023 (Zee Marketing (Guj.) Pvt. Ltd. vs. DCIT) A.Y.– 2016-17 - 2 - 2. The assessee has come up in appeal with the following grounds: “1. The order passed by the Ld. CIT(A) is against law, equity & justice. 2. The CIT(A) has erred in law and on facts in upholding disallowance of travelling expenses of Rs.2,92,650/-. 3. The CIT(A) has erred in law and on facts in upholding addition of Rs.1,72,553/- s power and fuel expense. 4. The appellant craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal.” 3. Ground Nos. 1 & 4 are general in nature. 4. Ground No.2 relates to disallowance of travelling expenses to the tune of Rs.2,92,650/- is under challenge before us. During the course of assessment proceeding, the assessee was asked to substantiate the claim of the impugned expenses along with evidences. Upon perusal of the documents submitted by the assessee, it was found that the travels was undertaking by one Shri Tehmul B Sethna. The hotel bills and boarding passes of some air travels centering at Delhi & Mumbai were also perused. However, it appears that the assessee’s receipts of income were from Ahmedabad based companies and therefore, the Ld. AO came to the conclusion that the assessee does not have any business or client either at Delhi or Mumbai and rejected the claim. The Ld. CIT(A) further, in appeal, was not satisfied as to whether such travel expenses were incurred by Shri Tehmul B Sethna as individual or in the capacity of partner of M/s. Apaji Amin & Co. or as the Director of the appellant company and further that the expenses were actually as business expenses or not. In the absence of any plausible explanation/reason, the claim was not found to be acceptable by the Ld. CIT(A) and addition, therefore, was confirmed. 5. Before us, the relevant documents in support of the case of the appellant have been duly furnished and the plea taken that as the expenditure IT(SS)A No. 19/Ahd/2023 (Zee Marketing (Guj.) Pvt. Ltd. vs. DCIT) A.Y.– 2016-17 - 3 - has been incurred by the Director of the appellant company, the same cannot be treated as a personal expense other than business expense. The issue is squarely covered by the judgment passed by the Jurisdictional High Court in the case of Sayaji Iron & Engg. Co. vs. CIT, reported in [2002] 121 Taxman 43 (Guj.) as contended by the Ld. AR. The identical expenses cannot be said to be non-business purpose as the ratio laid down therein was relied upon and submitted that addition, therefore, is not called for and liable to be quashed is found to be accepted. Moreso, such submission made by the Ld. AR has not been able to be controverted by the Ld. DR. 6. Upon perusal of the entire documents placed before us and upon hearing Ld. Counsels appearing for the parties, after careful consideration of the judgment passed by the Jurisdictional High Court as relied by the Ld. AR in regard to the expenses incurred by the Director Company in the case of Sayaji Iron & Engg. Co. vs. CIT (supra), we find while deleting the addition, the Hon’ble Court was pleased to observe as follows: "As the directors of the assessee-company were entitled to use the vehicles of the assessee- company for their personal use as per the terms and conditions on which they were appointed, it was not proper on the part of the Assessing Officer to disallow one-sixth of the expenditure incurred by the assessee on maintenance of its vehicles. Section 309 of the Companies Act, 1956 provides the modality for determining the remuneration payable to directors, including any managing or full- time director. Such remuneration is payable either as stated in the articles of association of the company or in accordance with the resolution which may be passed by the company in the general meeting. This payment of remuneration is subjected to overall limits of managerial remuneration laid down in section 198 of the Companies Act. After going through section 198 of the Companies Act, it was clear that the expenditure incurred by the assessee-company on maintenance of vehicles which were available to the directors for their personal use would fall within the meaning of remuneration' as defined in the Explanation to section 198 of the Companies Act and once such remuneration was fixed as provided in section 309 of the Companies Act it was not possible to state that the assessee-company incurred an expenditure for personal use of the directors. The same was as per the terms and conditions of service and insofar as the assessee-company was concerned, it was a business expenditure and not disallowable as such. IT(SS)A No. 19/Ahd/2023 (Zee Marketing (Guj.) Pvt. Ltd. vs. DCIT) A.Y.– 2016-17 - 4 - There was one more aspect of the matter which required to be considered. The assessee, which was a private limited company, was a distinct assessable entity as per the definition of 'person' under section 2(31) of the Act. Therefore, it could not be stated that when the vehicles were used by the directors even if they were personally used by the directors', the vehicles were personally used by the company, because a limited company by its very nature cannot have any 'personal use. The limited company is an inanimate person and there cannot be anything personal about such an entity. The view was supported by the provision of section 40(c) and section 40A(5) of the Act. Once the expenditure in question was in terms as provided in sections 309 and 198 of the Companies Act, there could not be any non-business purpose insofar as the assessee-company was concerned. In the circumstances, the Tribunal was wrong in disallowing one-sixth of the total car expenditure and depreciation claimed by the assessee-company on account of the personal use of the cars which had been used by the directors." 7. Considering the fact of the matter and the ratio of the judgment as cited above, we find that as the expenses has been incurred by the Director of the Company, the same ought to have been treated as business expenditure and allowed. Thus, with the aforesaid observation, we delete the addition made in the hands of the appellant. 8. Ground No.3 relates to upholding the addition of Rs.1,72,553/- as power & fuel expense. During the course of assessment proceeding, it was found from the P&L account that the appellant has claimed expenses of Rs.2,30,070/- on account of power & fuel. The appellant duly filed the details in support of such claim which were paid through banking channel. As several entities are carrying out their business from the premises of the appellant, the case made out by the appellant that entire power expense has been borne by the appellant was not found to be allowable by the Ld. AO. The Ld. AO only considered Rs.57,517/- as appellant’s share of fuel expenses and remaining power & fuel expenses to tune of Rs.1,72,553/- was disallowed and added to the total income of the appellant, which was upheld by the First Appellate Authority. Hence, the instant appeal before us. IT(SS)A No. 19/Ahd/2023 (Zee Marketing (Guj.) Pvt. Ltd. vs. DCIT) A.Y.– 2016-17 - 5 - 9. It is the case of the appellant that the expenditure incurred by the appellant also to run his business since the part of the premises were also given on rental basis to other parties and in terms of the agreement, the appellant is required to incur the electricity and fuel expenses thereof. The same is, therefore, claimed as business expense and the same is, therefore, liable to be allowed as the crux of the submissions made by the Ld. AR. However, we are not fully satisfied with the plea taken by the appellant and, therefore, we restrict the addition at 10% of the expenditure incurred by the appellant. The Ld. AO is directed to give relief accordingly. 10. In the result, the appeal preferred by the assessee is partly allowed. This Order pronounced on 08/03/2024 Sd/- Sd/- (ANNAPURNA GUPTA) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 08/03/2024 True Copy S. K. SINHA आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं%धत आयकर आय ु 'त / Concerned CIT 4. आयकर आय ु 'त(अपील) / The CIT(A)- 5. *वभागीय -त-न%ध, आयकर अपील य अ%धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड3 फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad