Income Tax Appellate Tribunal - Delhi
Ilac Investment Pvt. Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'C': NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
SHRI A.D. JAIN, JUDICIAL MEMBER
ITA No. 5396/Del/2010
Assessment Year: 2006-07
DCIT, M/s ILac Investment P. Ltd.,
Circle 11(1), Room No. 312, G-28, Kalkaji, New Delhi.
C.R. Building, New Delhi. Vs. AAACI1924Q
(Appellant) (Respondent)
Appellant by : Ms. Y.S. Kakkar, Sr. DR
Respondent by : Sh. Rajesh Durega, Adv.
ORDER
PER S.V. MEHROTRA, A.M.
This is the appeal filed by the Revenue and directed against the order of ld. CIT(A) dated 24.09.2010 for the A.Y. 2006-07.
2. Brief facts of the case are that in the relevant assessment year the assessee company was engaged in the business of investment and trading in shares. The assessee had filed its return of income declaring total income at Rs. 19,01,676/-. The assessment was completed at a total income of Rs. 37,27,496/- after making following disallowances: -
(i) u/s 14A of the I.T. Act 1579525 (ii) Depreciation on car 246295
3. Ld. CIT(A) while partly allowing the assessee's appeal deleted the disallowance in respect of depreciation on car and restricted the ITA No. 5396/D/2010 2 disallowance u/s 14A to Rs. 4,85,538/- as against Rs. 15,79,525/- made by the AO.
4. Being aggrieved with the order of ld. CIT(A), the department is in appeal before us and has taken the following grounds of appeal which read as under: -
"1. The order of ld. CIT(A) is wrong, perverse, illegal and against the provisions of law, liable to be set aside.
2. The ld. CIT(A) erred in deleting the addition of Rs. 2,46,000/- on account of depreciation on car.
3. The ld. CIT(A) erred in deleting the addition of Rs. 15,79,525/- u/s 14A of the I.T. Act.
4. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing."
5. Ground no. 1 is general and does not call for any adjudication.
6. Brief facts apropos ground no. 2 are that AO noticed that assessee had claimed depreciation of Rs. 2,46,295/- on car. He noticed that assessee had not used the car for business purposes as no expense for the car running had been claimed. He, therefore, disallowed the assessee's claim of depreciation.
7. Before the ld. CIT(A), the assessee had made following submissions: -
"During the appellate proceedings, the appellant has submitted that the AO while disallowing the depreciation on car overlooked the fact that the appellant had credited an income of Rs. 346500/- as car hire charges in the profit and loss account and duly shown it as income in its return of income. It was also submitted by the appellant that the depreciation on car was duly disclosed in the return of Fringe Benefits filed by it and the same has been accepted by AO. It has also been submitted that the depreciation was claimed against the car on which hire charges had been shown. In view of the above, it has been submitted that the addition made by AO may be deleted."ITA No. 5396/D/2010 3
8. Ld. CIT(A) deleted the disallowance for the following reasons: -
i) from the details filed by the assessee it was found that the car on which depreciation had been claimed was given on hire to M/s Dalmia (Bros.) Pvt. Ltd. and the income on account of hire charges of Rs. 3,46,500/- was duly reflected as income in the accounts of the assessee.
ii) the claim of depreciation on the car was duly reflected by the assessee in the return of Fringe Benefit which was accepted by the AO as correct.
iii) from the above facts, it was concluded that the car was being used for business purposes by the assessee.
iv) the depreciation had been duly taxed under the provisions of Fringe Benefits.
v) the AO had not brought on record any evidence to show that the car was not being used for business purposes.
9. Ld. DR submitted that before the AO the details regarding Fringe Benefits were not filed and the AO has given a finding that the car was not used for the business purposes. Ld. Counsel submitted that depreciation on car @ 20% had been taken as part of Fringe Benefits and, therefore, disallowance of the same again would result in double disallowance. He further submitted that, in any case, car was provided on hire to M/s Dalmia (Bros.) Pvt. Ltd. the hire charges from which have duly been taken into account as assessee's income.
10. We have considered the submissions of both the parties and have perused the records of the case. Ld. CIT(A) has deleted the disallowances, inter-alia, on the ground that the claim of depreciation on car was duly reflected by the assessee in the return of Fringe Benefit, ITA No. 5396/D/2010 4 which was accepted by the AO as correct. Section 115WA defines the charge of Fringe Benefit tax in addition to the income tax charged under the Income Tax Act. This additional income tax is in respect of Fringe Benefits provided or deemed to have been provided by an employer to his employees during the previous year. Section 115WB defines Fringe Benefits being various benefits which are provided in consideration for employment. All the items mentioned under this section are to be included in Fringe Benefits. Sub-section (2) lays down various items which are deemed to have been provided by the employer to his employees and are thus, covered under Fringe Benefits. Section 115WB sub-section (2) clause (h) reads as under: -
"115WB(2)(H) repair, running (including fuel), maintenance of motor cars and the amount of depreciation thereon;"
11. Thus, depreciation on motor cars provided by the employer to his employees in course of business results into Fringe Benefits to the employees. Only 20% of the depreciation is to be treated as Fringe Benefits in view of section 115WC(1)(c) and not the entire depreciation. In the backdrop of aforementioned legal position when we examine the assessee's claim then we find that this could not be a basis for deleting the disallowance because assessee's claim is that it had provided the car on hire to M/s Dalmia (Bros.) Pvt. Ltd. and not to the employees of assessee. In the Fringe Benefit Tax Return, assessee himself had shown the depreciation as part of Fringe Benefits and, therefore, AO could not reduce it from the Return. Therefore, merely because in assessment order of Fringe Benefit, the assessee's claim had been accepted is of no consequence in Income Tax proceedings. The addition to Fringe Benefit had been made on the basis of assessee's claim. This does not preclude the AO to examine the assessee's claim under the provisions of chapter IV of the I.T. Act dealing with computation of business income. In this ITA No. 5396/D/2010 5 regard, the AO has observed that assessee has not used the vehicle for business purposes. However, the ld. CIT(A) has observed that assessee had shown income on account of hire charges at Rs. 3,46,500/- which was reflected in assessee's accounts. From these facts it is evident that assessee's claim was self contradictory.
12. Ld. Counsel has rightly pointed out that even if this income was assessed as income from other sources, depreciation had to be allowed. This claim was not before the AO. It is not clear whether the hire charges income was in respect of the same car or not in respect of which Fringe Benefit tax has been paid by the assessee. Therefore, the facts needs to be re-marshaled in this regard. However, if it is found that the hire charges have been taxed as assessee's income in respect of that car for which depreciation was claimed, then depreciation in respect of that car has to be allowed u/s 56(2) read with section 57(ii). We, therefore, restore this issue to the file of AO to decide the denovo. In the result, this ground is allowed for statistical purposes.
13. Brief facts apropos ground no. 3 are that assessee had shown dividend income of Rs. 47,90,010/-. The AO required the assessee to furnish the working of disallowance u/s 14A as per Rule 8D. After considering the assessee's submissions, he made a disallowance under Rule 8D at Rs. 15,79,525/-. Ld. CIT(A) restricted the disallowance to Rs. 4,85,538/-. The department is aggrieved.
14. We have considered the submissions of both the parties and have perused the record of the case. We find that the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT & Othrs. has, inter-alia, observed that AO is required to determine the amount of expenditure on ITA No. 5396/D/2010 6 the basis of a reasonable and acceptable method of apportionment. This decision was not available to the Assessing Officer when he passed the asstt. order. We, therefore, restore the matter to the file of AO for quantifying the expenditure in view of the observations made by the Hon'ble Delhi High Court in the aforesaid judgment. In the result, this ground is allowed for statistical purpose.
15. In the result, departmental appeal is allowed for statistical purposes.
Order pronounced in the open court on 23.03.2012 Sd/- Sd/-
(A.D. JAIN) (S.V. MEHROTRA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 23.3.12
*Kavita
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
TRUE COPY
By Order
DEPUTY REGISTRAR