COMM. OF INCOME TAX ROHTAK V. M/S ATLAS CYCLE IND. LTD SONEPAT

ITA/163/2002

AI Insights

The case involves the Commissioner of Income Tax, Rohtak as the appellant and M/s The Atlas Cycle Industries Limited, Sonepat as the respondent. The core issue revolved around the disallowances made under section 40A(5) and section 40(c) of the Income Tax Act, 1961 during the assessment year 1987-88. The Assessing Officer initially disallowed certain deductions claimed by the assessee, which were later reversed by the CIT(A) and upheld by the Tribunal. The High Court's decision focused on whether these reversals were justified under the law.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 719532 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 20-07-2010
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: AKSHAY BHAN
• Assessee Lawyers: KRISHAN MEHTA
• Keywords: Disallowance; Income Tax; Employee Perquisites; Car Expenditure; Salary Allowances
• Section: 260A; 40(c); 40A(5)

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITA No.163 of 2002 Date of decision: 20.7.2010 The Commissioner of Income Tax, Rohtak -----Appellant Vs. M/s The Atlas Cycle Industries Limited, Sonepat ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Krishan Kumar Mehta, Advocate for the revenue. Mr. Akshay Bhan, Advocate for the assessee. Adarsh Kumar Goel,J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) against order dated 17.1.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’, New Delhi in ITA No.3410/Del/94 for the assessment year 1987-88, proposing to raise following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in confirming the order of the CIT(A) restricting the disallowances made under section 40A(5) to the extent of recoveries made from the employees? ii) Whether on the facts and in the circumstances of the case, the ITAT was justified in confirming the order of CIT(A) deleting the disallowances made by the Assessing Officer under section 40A(5) of the Act? ITA No.163 of 2002 iii) Whether on the facts and in the circumstances of the case, the ITAT was justified in directing the deletion of disallowance made under section 40 (c) of the IT Act?” 2. The assessee is manufacturer and exporter of bicycles. During the course of assessment, the Assessing Officer disallowed deduction claimed by the assessee by invoking Section 40A(5) of the Act, rejecting the contention that since the employees were reimbursing the company for use of the company’s car to the extent of personal use, expenditure in that regard could not be disallowed under section 40A(5) of the Act. On appeal, the CIT(A) reversed the said view and upheld the plea of the assessee. The Tribunal affirmed the view taken by the CIT(A). 3. Rajiv Kapur son of the President of the company was paid salary and allowances. The Assessing Officer disallowed part of the amount as unreasonable payment under section 40(c). CIT(A) reversed the said view which was upheld by the Tribunal. 4. We have heard learned counsel for the parties and perused the record. 5. The findings recorded by the CIT(A) upholding the claim of the assessee may be referred to, which are as under:- Re: (i) “Following my this order, addition of Rs.41,362/- and Rs.15,995/- are deleted in full. As regards disallowance of Rs.2,50,000/- the same is restricted to the extent of recoveries of perquisites made by the assessee from the employees under rule 3 of the IT rules, 1962. Ld. AO will obtain the details of recoveries of perquisites from the employees and will recompute the disallowance accordingly.” 2 ITA No.163 of 2002 Re: (ii) : “16. Ground No.21 is against the disallowance of Rs.15,951/- under section 40(c) in respect of Shri Rajiv Kapoor AED (W). 17.Similar issue has been decided by me in assessee’s own case for the assessment year 1986-87 in appeal No. mentioned supra. In view of the findings given by me therein, addition is deleted.” 6. It is clear from the above findings that disallowance by the Assessing Officer was with regard to the amounts recovered from the employees to whom benefit of use of car was allowed. It was held that since the employees reimbursed the assessee for the use of car for personal use, there was no justification for disallowing expenditure on car under Section 40A. Similarly, payment of salary and allowances have been held not to be unreasonable having regard to his qualification and other circumstances. The said findings are findings of facts and are not shown to be perverse. 7. Accordingly, the appeal is dismissed. (Adarsh Kumar Goel) Judge July 20, 2010 (Ajay Kumar Mittal) ‘gs’ Judge 3 "