Income Tax Appellate Tribunal - Jodhpur
Income Tax Officer vs Bharat Motors on 11 April, 2000
Equivalent citations: (2000)68TTJ(JODH)431
ORDER
B.M. Kothari, A.M. The revenue has preferred this appeal against order dated 7-9-1994, passed by the Commissioner (Appeals) for assessment year 1988-89.
2. The first ground relates to deletion of the disallowance of interest of Rs. 26,253. The assessing officer observed that the assessee had invested Rs. 1,75,022 on a residential plot at Jawahar Nagar, Sriganganagar. Since this plot is residential one and has no connection with the assessee's business, the interest which the assessee is required to pay on borrowed funds to this extent has nothing to do with the assessee's business. The assessing officer, therefore, calculated interest @ 18 per cent on the said sum of Rs. 1,75,122 which worked out to Rs. 26,253. The assessing officer disallowed the same out of assessee's claim for interest expenditure. The Commissioner (Appeals) deleted the same on the ground that the assessee had purchased the plot from UIT in auction in assessment year 1982-83. This was a residential plot and the assessee did not get permission for conversion into a commercial plot. The investment in this plot was made out of capital of the partners. The capital of the partners as on 1-4-1987 was Rs. 6,81,657 and it was Rs. 7,36,868 on 31-3-1988. There was no nexus between money paid for purchase of the plot with the funds borrowed on interest. The Commissioner (Appeals) deleted the disallowance out of interest amounting to Rs. 26,253.
3. The aforesaid reasons given by the Commissioner (Appeals) while deleting the disallowance out of interest expenditure are perfectly valid, reasonable and justified. The partners' own capital was substantially more than the amount invested by the firm for purchase, and hence there was no justification for disallowance out of interest expenditure, particularly when the assessing officer has failed to establish any nexus between the funds borrowed on interest with the amount invested for purchase of the said plot. The view taken by the Commissioner (Appeals) is, therefore, confirmed. Ground No. 1 is rejected.
4. In ground No. 2, revenue has challenged the deletion of disallowance of Rs. 15,000, Rs. 7000 and Rs. 32,832 which represents the expenses incurred for purchase of new Maruti car, maintenance of the car and depreciation. The assessing officer disallowed the same on the ground that it was not at all necessary for assessee's business purposes to purchase a new Maruti car when they had already an old car with them. The assessing officer observed that this car was used for the personal user of the partners. He, therefore, disallowed the entire expenses and depreciation.
5. The learned counsel contended that the Commissioner (Appeals) has rightly deleted the entire disallowance. She observed that the old car was very old and was unfit for use. The assessee, therefore, purchased a new car for business purposes.
The appellant was covering the entire Bikaner Division and the old car was not dependable for such an extensive tour. The acquisition of the new car was necessary for purpose of assessee's business. The motor cycle was used by the employees of the firm. The Commissioner (Appeals) after considering the entire material and submissions made on behalf of the assessee held that the car was purchased for purposes of business and directed the assessing officer to allow the entire expenditure.
6. The learned Departmental Representative relied upon the reasons given in the assessment order.
7. I have considered the submissions made by the learned Representatives. It is the trader's decision as to whether they should purchase a new car or not for their business purposes. The assessing officer cannot substitute his decision that purchase of new Maruti Car was not necessary for the assessee's business. The Commissioner (Appeals) after considering the material has come to the conclusion that the new car was purchased by the assessee for business purposes. The Bench required the assessee to state as to whether any disallowance out of car maintenance had been made by the assessing officer in respect of expenses incurred for running the old car. The learned counsel submitted that 1/4th of expenses incurred on old car was disallowed by the assessee himself in the computation of taxable income. I am, therefore, of the view that it would be just and proper to direct the assessing officer to restrict the disallowance in respect of Maruti Car and depreciation on to 1/4th only. The total deletion made by the Commissioner (Appeals) is, therefore, modified to this extent that the assessing officer will restrict the disallowance out of car maintenance expenses and depreciation only to the extent of 1/4th.
8. The next ground relates to the deletion of the expenses of Rs. 32,733 which was disallowed by the assessing officer by treating the same as entertainment expenditure.
9. The learned Commissioner (Appeals) has observed that the expenses in question were incurred in connection with the inauguration of new showroom near new Tractor Market. The Commissioner (Appeals) has mentioned all the relevant facts in para 7 of her order. She has further observed that the expenditure incurred was for the purpose of advertisement and publicising the image of the appellant firm. The gifts of three silver plates to the executives of TAFE Ltd. rightly falls under the provisions of section 37(3) read with rule 3 of Income Tax Rules. The Commissioner (Appeals) confirmed the disallowance of Rs. 4,025 incurred for purchase of those silver plates. The balance expenditure was allowed as it was incurred for expanding the existing business and bringing to the notice of the concerned persons the shifting of the appellant's premises to a new site. I do not find any infirmity in the view so taken by the learned Commissioner (Appeals). I hold that the deletion of the disallowance to the extent of Rs. 32,733 is perfectly valid and justified. This ground is also, therefore, rejected.
10. Ground No. 4 relates to the deletion of the disallowance of Rs. 20,700 made in respect of commission paid to late Shri Tulsi Das. The assessing officer disallowed the said commission as according to him the commission bills pertained to assessment year 1987-88 and the two bills were relating to the period after the death of Shri Tulsi Das.
11. I have considered the submissions made by the learned representatives of the parties and have gone through the order of the learned departmental authorities. The Commissioner (Appeals) has discussed the facts in para 8.1 of her order. The assessing officer observed that the appellant had shown payment of Rs. 2,200 as commission to one Shri Tulsidas in June, 1987, even though he died on 20-5-1987. Similarly, appellant firm had shown payment to Shri Tulsi Das through three cheques of Rs. 5,000, Rs. 5000 and Rs. 7000 in the months of April, May, 1987 while the bank a/c of Tulsidas examined and it was found that during the said period there were no deposits in the said account. The assessing officer, therefore, disallowed the said payments made to Shri Tulsidas to the extent of Rs. 20,700.
12. The Commissioner (Appeals) observed that Shri Tulsidas had worked actively for the firm during the 2-1/2 months of the year under consideration. The commission was paid to him for the services rendered from February, 1987 to May, 1987, and he expired on 20-5-1987. Three cheques of Rs. 5000, Rs. 5000 and Rs. 7000 were paid by A/c payee cheques. The payment was duly recorded in the payment voucher which is signed by Shri Tulsidas. Copies of such vouchers and counterfoils of the relevant A/c payee cheques have been submitted in the compilation at pp. 22 to 26 of the paper-book. These vouchers could not have been signed afterwards. It is not the case of the department that signatures on vouchers are not of Shri Tulsidas. After his death, the assessee was not in a position to produce the pass book of Shri Tulsidas. This cannot be a ground for disallowance of payment made to him during his lifetime. The remaining amount was paid to his wife Smt. Laxmi Devi, as is evident from the photocopies of the vouchers and her application submitted at pp. 31-32 of the paper book.
13. In my view, the learned Commissioner (Appeals) has deleted the said disallowance after a careful and deep scrutiny of all the relevant documents. The deletion of the said disallowance is, therefore, held to be perfectly valid, reasonable and justified. Hence ground No. 4 of revenue 's appeal is dismissed.
14. The next ground relates to deletion of addition of Rs. 1,31,663 made in respect of unexplained investment in the house property.
15. The Commissioner (Appeals) had discussed this point in paras 11 to 11.2 of her order. The assessee constructed a new showroom during the period from April, 1985 to 31-3-1988, and showed an expenditure of Rs. 7,71.411. The assessing officer made a reference under section 131(d) to the Valuation Officer who estimated the cost at Rs. 9,03,074.
15.1. The assessing officer accepted the cost of construction as estimated by the Valuation Officer (VO) and the difference between the two estimates of Rs. 1,31,663 has been treated as unexplained investment in the property by the assessee. The learned Commissioner (Appeals) has observed that the assessee has maintained complete details of construction and the same were produced before the assessing officer. The Commissioner (Appeals) has also considered the main item of difference between report of the Valuation Officer and the cost of construction declared by the assessee. The main difference is due to adoption of Central Board of Direct Taxes valuation formula by the Valuation Officer instead of local PWD rates. The minimum difference between the two rates is 10 per cent. Such a difference was taken at Rs. 90,307. The second item relates to fees paid to architects. The assessee paid Rs. 2,200 while the Valuation Officer estimated at Rs. 18,836. The difference of Rs. 16,636 was a notional expenditure estimated by the Valuation Officer. The third difference was on account of the fact that deduction for self- supervision was estimated by the assessee at 10 per cent of the cost as against which, the Valuation Officer had allowed only 7.5 per cent. The difference comes to Rs. 16,958. The 4th difference relates to covered area of showroom. According to the assessee, it was 274.48 sq. mts. as against 289.8 sq. mts. computed by the Valuation Officer. Deduction on this count comes to Rs. 16,255. The difference in cost of services as per the actual cost and as estimated by the Valuation Officer comes to Rs. 54,718. The last item of difference relates to inferior specifications for the construction of Chowkidar's room, bathroom, toilet blocks. Such a difference was estimated at Rs. 14,207.
The aggregate amount of such deductions referred to on pp. 11 and 12 of the order of the learned Commissioner (Appeals) comes to Rs. 2,28,070. The Commissioner (Appeals) also relied upon the judgement of Hon'ble Rajasthan High Court in the case of CIT v. Pratap Singh Amro Singh & Ors. (1993) 200 ITR 788 (Raj) in which it was held that where the Income Tax Officer did not find any defect or deficiency in the books of accounts or vouchers and has not rejected the same as unreliable nor has he found any expenditure actually incurred but not recorded in the construction account books, no addition can be made on estimate basis. The learned Commissioner (Appeals) deleted the entire addition of Rs. 1,31,663.
16. Before me, the learned counsel relied on the judgment of Hon'ble Ralasthan High Court in the case of Prakash Singh Amrao Singh & Ors. (supra) and 22 TW 807. In these two judgments, it was held by the Hon'ble Rajasthan High Court that where account books for the construction are regularly maintained and the same are verifiable, there should be no reason not to accept the same for assessing the value of assets. There should be strong reasons with the assessing officer to discard the construction account furnished by the assessee.
17. After giving a thoughtful and deep consideration of the entire relevant facts, and in view of the elaborate reasons given in the order of the learned Commissioner (Appeals) coupled with the above referred judgments of the Rajasthan High Court, I am of the view that the Commissioner (Appeals) has rightly deleted the addition of Rs. 1,31,663. I do not find any justification to interfere with the view of the Commissioner (Appeals). Hence ground No. 5 is also rejected.
18. Ground No. 6 challenges the deletion of disallowance of Rs. 15,500 on account of new tractor expenses. The assessing officer disallowed Rs. 25,645 debited under the head 'new tractor expenses'. The assessee claimed expenses of Rs. 68,788 under the. head 'new tractor expenses'. It was stated on behalf of the assessee that under the agreement with TEFE, the assessee had to supply the tractors in perfect road-worthy conditions after trial. The assessee had to replace an the defective parts before its delivery to the buyers. The assessing officer disallowed expenses on tyre, front -replacement, transmission case, fuel pump, etc. amounting to Rs. 25,645. The assessee explained before the Commissioner (Appeals) that out of Rs. 25,645, three amounts aggregating to Rs. 10,125 was credited in this account and, therefore, no deduction in respect of Rs. 10,125 was claimed. The balance amount of deduction in question comes to Rs. 15,520 only. The Commissioner (Appeals) after considering the entire relevant facts came to the conclusion that Rs. 15,520 represent actual expenditure incurred by the assessee on rendering the vehicles sale-worthy. She deleted the entire disallowance.
19. I have considered the submissions made by the learned representatives of both sides and have gone through the orders of the learned departmental authorities. The Commissioner (Appeals) has given detailed reasons in support of cancellation of such disallowance. I am of the considered opinion that deletion of the said disallowance by Commissioner (Appeals) is reasonable and justified, This ground of revenue 's appeal has no merit.
20. In the result the revenue 's appeal is partly allowed.