Income Tax Appellate Tribunal - Chandigarh
Biyani Chambal Ka Mahabhandar vs Income Tax Officer on 13 September, 2004
Equivalent citations: (2005)92TTJ(CHD)780
ORDER
N.K. Saini, A.M.
1. This is an appeal by the assessee against the order of learned CIT(A), dt. 1st May, 2003.
2. First ground of this appeal relates to the sustenance of disallowance of Rs. 15,083 out of depreciation claimed on jeep for Rs. 90,500.
3. The facts of the case in brief are that the assessee claimed depreciation of Rs. 90,500 on the jeep. When the AO questioned about the details of expenditure of jeep as well as the depreciation, it was stated that the temporary use of jeep by the partners would not effect liability of salary to the driver for the year as a whole and that the assessee was entitled for the depreciation for full year even when the vehicle is used for half year. The AO, on the other hand, opined that use for the purpose other than business had been admitted by the assessee and only a general explanation was given by it. He was of the view that the depreciation on the vehicle was to be disallowed to the extent that the expenditure had been incurred for personal use of the vehicle in terms of Section 38(2) of IT Act, 1961. The AO, therefore, disallowed 1/6th of expenditure on maintenance of jeep and scooter, depreciation on jeep and driver's salary. Accordingly, the disallowance of Rs. 24,150 was made.
4. In appeal before the learned CIT(A), the assessee challenged the disallowance amounting to Rs. 15,083 on account of depreciation.
5. Learned CIT(A) observed that the disallowance had been made considering the fact that the personal use of the vehicle could not be ruled out. He opined that the depreciation was admissible for an asset which was exclusively used for business. He further stated that the assessee had not been able to rebut the presumption that personal use of the vehicle was not ruled out and there was no evidence in the nature of log book or otherwise to substantiate the argument that the vehicle was exclusively used for the business purposes. He accordingly confirmed the disallowance made by the AO. Now, the assessee is in appeal.
6. Learned counsel for the assessee submitted that no disallowance was called for because the depreciation had been allowed on the written down value of the asset and it was immaterial whether the vehicle was used for a single day or for the full year. According to him, depreciation was allowable even if vehicle was used for a single day, He placed reliance on the following case law :
(i) Allied Publishers (P) Ltd. v. CIT (1968) 68 ITR 546 (Bom)
(ii) CIT v. Chiranji Lal (1969) 74 ITR 480 (Cal)
7. In his rival submissions, learned Departmental Representative for the Revenue supported the orders of authorities below and submitted that personal use of vehicle had been admitted by the assessee. Therefore, vehicle was used for non-business purposes and for that reason the AO was fully justified in making the disallowance, and the learned CIT(A) had rightly confirmed the disallowance made by the AO.
8. We have considered the rival submissions and gone through the material available on record. In the instant case, it seems that the assessee could not rebut this finding of the AO that the vehicle was used by the partners for their personal purposes. Only claim of the assessee was that the depreciation being a statutory deduction was allowable to the assessee. It is also noticed that the AO asked the assessee to furnish evidence with regard to expenses of diesel borne by the partners as claimed but no such evidence had been furnished. It is true that in such type of cases, use of vehicle by the partners and their family members cannot be ruled out. Therefore, we are of the opinion that the learned CIT(A) was justified in confirming the action of the AO for disallowing the depreciation to the extent of 1/6th considering the same for personal use by the partners.
9. The next issue vide ground No. 2 relates to disallowance of Rs. 72,000 out of expenses incurred on freight and wages amounting to Rs. 3,37,618.
10. The facts of the case in brief are that there was a credit balance of Rs. 18,000 each in the names of four persons, namely, S/Shri Sohan Lal, Badri Nath, Yogender Singh and Umesh Chand. The AO asked the assessee to produce those persons for examining them in respect of credit balances. In response to that the assessee furnished that the aforesaid payments had been made only at the time when the labourers came to collect such outstanding amount and as such the assessee could not be held responsible for making payments late. It was further stated that the assessee was having sufficient cash in hand to make the payments to those persons. The AO observed that the assessee had paid nominal amount to those persons and the persons were poor people. The AO asked the assessee to produce those persons. However, the assessee submitted that the workers worked collectively and for the sake of accountancy they maintained separate account of each worker and those were not the permanent with any handling agent. So, their personal presence was not possible. The AO did not find substance in the submission of the assessee by stating that availability of cash did not help the assessee and since the assessee failed to produce the persons, the AO considered the credits to be non-genuine, and made addition of Rs. 72,000.
11. The assessee carried the matter to the learned CIT(A) and submitted that the disallowance had been made only on presumptions because all necessary evidences were produced in support of the claim of the expenditure. It was stated that the balances were reflected in the schedule of sundry creditors which represented unpaid wages payable to the four persons and included in the expenditure incurred on freight and wages amounting to Rs. 3,77,618. It was further stated that the outstanding payments were made on 10th Oct., 2000, when the labourers came forward to collect the outstanding amount. It was stated that the expenditure of Rs. 72,000 was a part of total expenditure of Rs. 3,37,618 and same was supported by vouchers, it should be allowed in full.
12. Learned CIT(A) after considering the submissions of the assessee observed that the AO considered certain expenditure to be of doubtful nature. He, therefore, gave an opportunity to the assessee to substantiate its claim. This opportunity was not availed off by the assessee who only stated that the assessee had enough cash balance to make the payment on the relevant date also but did not do so since the workers did not come forward to claim the payment. Learned CIT(A) opined that the daily wagers living on subsistence wages depended on these wages to carry on their day-to-day activities. According to him it was unbelievable that all the four labourers did not turn up for six months to claim the wages and thus the explanation was not reasonable. He further stated that the onus of proving the correctness of the expenditure had not been discharged by the assessee who shied away from producing the persons before the AO. He, therefore, confirmed the disallowance made by the AO by relying on the order of the Hon'ble Calcutta High Court in the case of Laxmi Narayan Sen & Sons Ltd., In re (1936) 4 ITR 255 (Cal). Now, the assessee is in appeal.
13. Learned counsel for the assessee reiterated the submissions made before the authorities below and vehemently argued that when expenses were allowed then there was no question of doubting the creditors related to the expenses. He further submitted that outstanding payments had been made in the next year and the assessee was not in a position to compel the labourers to collect the money. It was for the labourers to take the money when they were in need. He accordingly submitted that disallowance made by the AO and sustained by the learned CIT(A) was not justified.
14. In his rival submissions learned Departmental Representative for the Revenue strongly supported the order of learned CIT(A) and submitted that the onus was on the assessee to prove the correctness and genuineness of the expenses. However, the assessee miserably failed to produce the persons in whose names amounts had been shown as outstanding.
15. After considering the rival submissions, it is noticed that the AO asked the assessee to produce the persons in whose names a sum of Rs. 72,000 was outstanding, Claim of the assessee was that the amount in question was outstanding on account of freight and wages. It is true that the assessee could not produce the persons although it was required to do so. The onus was on the assessee to prove the genuineness and the correctness of the amount outstanding. It is not in dispute that the aforesaid payments were outstanding in the names of the labourers who generally depend on the day-to-day earning for their livelihood. So, it is unbelievable that those persons waited for six months to claim their daily wages. The assessee did not produce those persons before the AO for their examination although the AO specifically asked to do so. Therefore, the assessee miserably failed to establish the bona tide nature of the outstanding amount. In that view of the matter, we do not find any merit in this ground of assessee's appeal.
16. The next issue vide ground No. 3 relates to disallowance of Rs. 34,125 out of interest paid by the assessee.
17. Facts related to this issue in brief are that the assessee claimed a deduction of Rs. 4,80,883 on account of interest paid to other persons and Rs. 2,64,660 on account of interest paid to the partners. The AO noticed that the assessee had advanced a sum of Rs. 3.50 lakhs to one Shri Yogesh Biyani on 16th Sept., 1999, which remained outstanding as on last day of the year. The assessee had not charged any interest from that person and the AO asked the assessee as to why interest from that person was not charged and to state as to why proportionate disallowance out of claim be not made. In reply to that the assesses stated that it was a current account and he was an associate person so no interest was chargeable. According to the AO interest was only allowable if the borrowings had been utilised for the business purposes only and since the assessee had advanced borrowed funds for the purpose other than business purposes, he, therefore, disallowed the interest on the advance of Rs. 3.50 lakhs on pro-rata basis. Accordingly, a sum of Rs. 34,125 was disallowed and added to the income of the assessee.
18. Before the learned CIT(A), it was submitted that the AO had not discharged the burden to establish that the borrowings made by the assessee had been diverted for non-business purposes. Reliance was placed on the judgment of the Hon'ble MP High Court in the case of Ram Kishan Oil Mills v. CIT (1965) 56 ITR 186 (MP). Reliance was also placed on the judgment of Hon'ble Supreme Court in the case of Madhav Prasad Jatia v. CIT (1979) 118 ITR 200 (SC) and also on the decision of Tribunal, Delhi Bench, in the case of Modipon Ltd. v. ITO (1985) 22 TTJ (Del) 108. Another contention raised by the assessee was that Shri Yogesh Biyani was constituent of Prem Parkash, HUF and such advance was made to keep the partners in good humour and, therefore, it could not be said that the funds were diverted for non business purposes.
19. Learned CIT(A) after considering the submissions of the assessee observed that the advance was made constituent of one of the HUF which was a partner of the firm. He also noticed that the assessee had been borrowing funds and paid interest on the same whereas this particular advance was interest free. He opined that in terms of Section 36(1) (iii) it was to be seen whether the assessee had borrowed funds and whether interest was paid on those funds and also whether the borrowings were for the purpose of business. According to him it was not enough on the part of the assessee to say that the interest was not charged to keep the assessee-partner in good humour. Learned CIT(A) was of the view that the assessee could not establish that advance given was for business purposes or whether the assessee could derive the benefit out of not charging interest. Learned CIT(A) did not accept this contention of the assessee that the cash balance was available by stating that if cash balances were available borrowings itself were not for the purpose of business and the assessee with liquidity could not claim that it could give interest free advances to the partners and others and then borrow funds from the bank on interest for business purposes. Accordingly, he held that the AO was perfectly justified in disallowing the interest in proportion to the advances made. Reliance was placed on the judgment of the Hon'ble Kerala High Court in the case of CIT v. B.I. Baby & Co. Now, the assessee is in appeal.
20. Learned counsel for the assessee reiterated the submissions made before the authorities below and stated that the AO had not established any nexus between the interest bearing funds and the interest free advances. It was stated that the amount was advanced from composite fund and as such no disallowance was called for.
21. In his rival submissions learned Departmental Representative for the Revenue while supporting the orders of authorities below submitted that advance was given for non-business purposes and the assessee was paying interest on the borrowings. Therefore, the AO was fully justified in making the disallowance on the advances for non-business purposes and the learned CIT(A) had rightly confirmed the action of the AO.
22. We have given our careful consideration to the rival contentions and also perused the material available on record. In the present case, it is noticed that the assessee advanced a sum of Rs. 3.50 lakhs to one Shri Yogesh Biyani, a constituent of Prem Parkash, HUF, partner with the firm. It is also noticed that the assessee was paying interest to the partners. In other words, interest was paid to Prem Parkash, HUF whose constituent was Shri Yogesh Biyani to whom interest free advance had been given. The assessee could not establish that the amount so advanced was for business purpose. Assessee's contention was that to keep the partner in good humour interest free advance was given. This contention of the assessee is not sustainable because, on the one hand, interest was given to the partners on their capital, on the other hand, interest free advance was given to the constituent of the partner HUF. As regards to the contention of the learned counsel for the assessee that the AO had not established the nexus between the interest bearing funds and the interest free advance, it is noticed that the assessee had paid interest of Rs. 4,80,883 on the funds borrowed and also paid interest of Rs. 2,64,660 on the capital of the partners. So, the onus was on the assessee to prove that interest free advance given to Shri Yogesh Biyani was out of interest free funds available with it. However, the assessee could not establish that interest free advance was out of interest free funds available with it. It is true that the assessee was paying the interest on the capital of the partners and, on the other hand, no interest was charged on the advances given to the constituent of one of the partners which clearly established that the assessee diverted the interest bearing funds for non-business purposes and therefore, the AO rightly made the disallowance on pro-rata basis and the learned CIT(A) was fully justified in confirming the disallowance made by the AO. We do not find any valid ground to interfere with the findings of the learned CIT(A) on this issue.
23. In the result, appeal of the assessee is dismissed.