Income Tax Appellate Tribunal - Delhi
Om Parkash Arora, Delhi vs Jcit (Osd), New Delhi on 6 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : SMC-2 : NEW DELHI
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
ITA No.3245/Del/2015
Assessment Year : 2009-10
Om Prakash Arora, Vs. JCIT (OSD),
A-82, Chander Nagar, Circle-49(1),
Janak Puri, Delhi. New Delhi.
PAN: AAGPA9515J
(Appellant) (Respondent)
Assessee By : Shri Sachin Kumar, CA
Department By : Shri S.K. Jain, Sr.DR
Date of Hearing : 26.12.2016
Date of Pronouncement : 06.01.2017
ORDER
PER RAJPAL YADAV, JM:
The assessee is in appeal before the Tribunal against the order of the CIT(A) dated 23rd March, 2015 passed for Assessment Year 2009-
10.
2. The grounds of appeal taken by the assessee are not in consonance with Rule 8 of ITAT Rules. They are descriptive and ITA No.3245/Del/2015 argumentative in nature. At the time of hearing, the ld. Counsel for the assessee has confined the grievance of the assessee to the two issues, namely, (a) that the ld.CIT(A) has erred in upholding the disallowance of depreciation on car amounting to Rs.7,06,204/-; and
(b) that the ld.CIT(A) has erred in upholding the ad hoc disallowance of expenses out of conveyance, repair and maintenance, business promotion, etc. He did not press other grounds.
3. As far as the first fold of grievances is concerned, the brief facts are that the assessee has filed his return of income on 30th September, 2009 declaring an income of Rs.36,93,160/-. The case of the assessee was selected for scrutiny assessment and a notice u/s 143(2) of the Income-tax Act, 1961 (for short 'the Act') was issued on 23rd August, 2010. It emerges out from the record that at the relevant time the assessee was running two proprietorship firms, namely, M/s Delhi Investigators and M/s DI Management International Services. Apart from these two proprietorship concerns, he was also director in M/s Citi Collections India Pvt. Ltd. The assessee has purchased a 'Porsche' car in the month of August, 2007 for a consideration of Rs.52,56,504/-. The assessee had claimed depreciation on this car in 2 ITA No.3245/Del/2015 assessment year 2008-09 which was allowed to the assessee. According to the assessee, he has sold this car to one Shri Jasvinder Singh, who was a broker, but, ultimately this car was purchased by Mr. Parmanand Vijay Kumar. Shri Jasvinder Singh has assigned his rights to Mr. Parmanand Vijay Kumar. The car was sold in August, 2010. The assessee has claimed depreciation on this car. This claim of depreciation was denied to the assessee by the Assessing Officer on the ground that a sum of Rs.29 lac was received by the assessee in F.Y. 2007-08 itself. Only Rs.60,000/- was received at the time of alleged actual transfer of the car. The ld. Assessing Officer assumed that for all practical purposes, the car was transferred by the assessee in FY 2007-08 and, therefore, he is not entitled for the depreciation in instant assessment year. Accordingly, he disallowed the claim of the assessee and made an addition of Rs.7,06,204/-.
4. The appeal to the CIT(A) did not bring in relief to the assessee.
5. The ld. Counsel for the assessee, at the very outset, submitted that the car was agreed to be sold for a sum of Rs.35 lac. Since possession was not given and it got scratch mark, therefore, 3 ITA No.3245/Del/2015 ultimately, a sum of Rs.29,60,000/- was received by the assessee. The car was transferred on 2nd November, 2010. For buttressing this contention, he took me through page No.15 of the paper book wherein information collected from the Office of the Motor Licensing Officer has been placed on record. He also took me through page 14, where copy of Form No.29 issued under Rule 55(1) of Motor Vehicle Act, 1988 has been placed. On the strength of these documents, he contended that the transfer of the vehicle took place on 2nd November, 2010. Therefore, the depreciation should have been granted to the assessee.
6. On the other hand, the ld. DR relied upon the order of the CIT(A) and submitted that the ld. First appellate authority has highlighted circumstantial evidence exhibiting the fact that car might not have been used by the assessee and it was given to the prospective vendee.
7. I have duly considered the rival contentions and gone through the record carefully. Depreciation is being provided u/s 32 of the 4 ITA No.3245/Del/2015 Income Tax Act. It is pertinent to take note of the relevant part of this section:-
"Depreciation.
32. (1) In respect of depreciation of--
(i) buildings, machinery, plant or furniture, being tangible assets;
(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed--
(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;
(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:
.............................................."
8. A bare reading of this section would indicate that in order to claim depreciation, the assessee should demonstrate ownership over the asset and its user for the purpose of the business. The ld.CIT(A) while rejecting the claim of the assesseer has observed that the assessee failed to bring demonstrative evidence of the user of the car for the purpose of business. The ld. First appellate authority further observed that once the assessee has received substantial part of the sale consideration, then, it be assumed that the car must have been 5 ITA No.3245/Del/2015 transferred by the assessee. In my opinion, the ownership of an asset can be demonstrated by the relevant evidence, namely, if it is a tangible asset being building, land, etc., the registered sale deed could prove the ownership. If it is a machinery like car, ship, etc., then, the registration certificate could demonstrate the ownership. In the present case, it is pertinent to take note of the certificate issued by the licensing authority which is the authorised agency for keeping the record of vehicles under the Motor Vehicle Act. This certificate read as under:-
"OFFICE OF THE MOTOR LICENSING OFFICER, TRANSPORT DEPARTMENT, GOVT. 'OF NCT OF DELHI, WEST ZONE -I, JANAK PURl, NEW DELHI-110058.
No F/MLO/WZ-I/2014/8125 Dated: 2/7/2014 To, Sh. O. P. Arora, A-82, Chander Nagar, Janak Puri, New Delhi - 110058.
Sub: Information asked under Right to Information Act 2005, (ID No. 10949).
Sir, With reference to letter no. F.No.19(26)/ID No. 10949 /TPT /RTI/14/2814 dated 09/06/2014, of PlO (RTI), received in this office on 10/06/2014 on the subject cited above. The para-wise reply is furnished as under:6 ITA No.3245/Del/2015
Para 2 & 3 : The Vehicle No. DL4CAV 1260 was transferred in the name of Sh.Parmanand Vijay Kumar on dated 02/ 11/2010 as per the record held in this office. Rest of the information cannot be provided as it is exempted under Section 8 (j) of RTI Act, 2005.
Sd/-
PlO/Motor Licensing Officer, West Zone-I, Janak Puri Copy for information to:
1. PlO (RTI), Transport Department, 5/9, Under Hill Road, Delhi- 110054.
Sd/-
PlO/Motor Licensing Officer, West Zone-I, Janak Puri"
9. The ownership of a vehicle is not only necessary for the purpose of claiming depreciation, but, also relevant for other laws, i.e., Motor Vehicle Act. In case the vehicle met with an accident and injured somebody, then, who will be responsible for making the payment of compensation, to whom the insurance company would reimburse the claim in case of theft. How an assessee can afford to hand over a vehicle to an unauthorized person under attending circumstances which can expose him for payment of compensation in case it met with an accident? The owner of the vehicle could be held liable in case it is involved in some criminal or anti social activities. There could be chances for receipt of purchase price, but, to my mind, 7 ITA No.3245/Del/2015 transfer of ownership could only be construed when it is effected under the Motor Vehicle Act. There may be dispute between the vendee and vendor, payments might have been made, but, unless transfer is effected under the Motor Vehicle Act, the ownership on the basis of circumstances cannot be recognized. To my mind, the ld. first appellate authority has erred in appreciating the controversy on the said strength of circumstantial evidence and holding that the assessee was not owner of the vehicle. As far as demonstrative evidence exhibiting user of this vehicle for business purposes is concerned, it is quite difficult for an assessee to bring that type of evidence. That may be a corroborative factor, but, once ownership is not in doubt and depreciation was granted in earlier year, it cannot be denied in this year also. In view of the above discussion, I allow this fold of grievances and deleted the disallowances.
10. In the next fold of grievances, the assessee has pleaded that the ld. First appellate authority has upheld ad hoc disallowance out of various expenses. The assessee has filed written submissions and in the submissions the ld. Counsel for the assessee has tabulated the details of expenditure claimed by the assessee, disallowed by the 8 ITA No.3245/Del/2015 Assessing Officer and also quantified the percentage of the disallowance to the total expenditure. For appreciating the controversy in a more scientific way, I would like to take note of these details from the submissions of the ld. Counsel for the assessee. It read as under:-
Expenses Total Disallowed % age of Disallowance receipt in %age of total expenses.
M/s Delhi Investigators Conveyance and petrol 22,72,613 24,000 11.52% 1.06% expenses incurred for towing of vehicles Office repair & 3,28,444 25,000 1.67% 7.61% maintenance on the ground that "some vouchers un-vouched"
and expenses have been incurred in cash M/s D.I. Management International Services Office repair & 9,88,595 40,000 2.36% 4.05% maintenance to cover up unvouched expenses Business promotion and 35,577 30,000 1.64% 4.36% staff welfare expenses 6,51,655 on the ground that the expenses of personal nature cannot be ruled out.
Vehicle repair & 1,34,301 16,790 0.32% 12.5% maintenance expenses being 1/8 on the ground of use of the assessee Depreciation on vehicle 42,060 5,260 12.5% being 1/8 on the ground of use of the assessee Telephone expenses on 39,80,658 12,000 9.49% 0.30% the ground of use of the assessee 9 ITA No.3245/Del/2015
11. With the assistance of the ld. Representatives, I have gone through the record carefully. In order to claim expenditure for the purpose of business, the onus lies upon the assessee to demonstrate that the expenditures were incurred wholly and exclusively for the purpose of business. The ld. Assessing Officer has made analysis of the details submitted by the assessee and arrived at a conclusion that some part of the expenditure have been incurred for using these facilities for personal purposes or for non-business purposes. Accordingly, he partly disallowed the expenditure on ad hoc basis. It is true that this discretion was exercised by the Assessing Officer on an estimate basis and whenever some disallowances is being made on estimate basis, there would be a guess work. Whenever we face this type of controversy at the level of the Tribunal, we find it very difficult to adjudicate the issue this way or that way because it is an estimated opinion and it is not advisable for the second appellate authority to interfere in the discretion exercised by the two subordinate authorities. At the level of the Tribunal, we are unanimous for confirming such disallowance roughly in between 5% to 10% of the total disallowances unless the assessee proved that 10 ITA No.3245/Del/2015 expenditures were incurred exclusively for the purposes of business. The ld. Counsel for the assessee has pointed out that out of office repair and business promotion, the ld. Assessing Officer has made double disallowance i.e., in the case of M/s Delhi Investigators as well as M/s DI Management International Services. Considering this aspect, I concur with the ld. Revenue authorities in principle, but, direct the Assessing Officer to re-examine the details of these expenditure and exclude the item which has been disallowed twice. The disallowance to the extent of 10% or lower to that, excluding double on any of the items is being upheld and if there is any disallowance over and above 10% that would stand deleted. The ld. Assessing Officer may quantify the amounts after providing an opportunity of hearing to the assessee.
12. In the result, the appeal of the assessee is partly allowed.
The order pronounced in the open court on 6th January, 2017.
Sd/-
[RAJPAL YADAV] JUDICIAL MEMBER Dated, 6th January, 2017.
11 ITA No.3245/Del/2015 dk Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT AR, ITAT, NEW DELHI.12