Income Tax Appellate Tribunal - Ahmedabad
Bpc Projects And Infrastructure ... vs Assessee on 27 January, 2009
IN THE INCOME T AX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A"
Before SHRI BHAVNESH S AINI,JM & SHRI A N P AHUJ A, AM
ITA No.1274/Ahd/2009
(Assessment Year:-2005-06)
BPC Proejcts & Infrastructure V/s Income Tax Officer,
Private Limited,"Darshak" 14A, Ward 1(2), Ahmedabad.
Swastik Society,Punjabi Hall
Lane, Navrangpura,
Ahmedabad.
PAN: AADCA 0018 L
[Appellant] [Respondent]
Assessee by :- Shri S.N.Soparkar,AR
Revenue by:- Shri R.K. Dhanesta, DR
(आदे श)/ORDER
)/ A.N. PAHUJA : This appeal by the assessee against an order dated 27-1-2009 of the Ld. C.I.T.(A)-VI, Ahmedabad raises the following grounds:-
"1. That the Ld. CIT(A)-VI has erred both in law and on facts of the case while passing an appellate order dated 27-1- 2009 for Assessment Year 2005-06.
2. That the Ld. C.I.T (A) VI has erred in confirming the following disallowances made by the Assessing Officer.
Out of salary expenses Rs.2,09,500
Disallowance u/s.40A (3) of the I.T. Act. Rs. 4,237
2 ITA.No.3163/Ahd/2009
3. That the Ld. CIT (A) VI has erred in confirming the disallowance:
(a) Depreciation on Motor car Rs. 2,50,232
(b) Interest on Motor car Rs. 36,276
(c ) Vehicle expenses @ 1/6th Rs. 1,05,297
4. The Ld. CIT(A) has erred in confirming disallowance of depreciation on trucks of Rs.4,94,058/-.
5. The Ld. CIT (A) VI has erred in confirming the initiation of penalty proceedings u/s. 271(1)(c ) of the I. T. Act.
6. Your appellant craves leave to add, alter, amend, omit all or any of the grounds of appeal before the appeal is finally heard and decided."
2. Adverting first to ground no.2 in the appeal, facts, in brief, as per relevant orders are that return declaring loss of Rs.9,16,821/- filed on 30- 10-2005 by the assessee, engaged in the business of manufacturing and trading of ready mixed concrete besides civil construction, after being processed u/s. 143(1) of the Act (hereinafter referred to as the Act), was selected for scrutiny with the service of a notice u/s. 143(2) of the Act on 9-6-2006. During the course of assessment proceedings, the Assessing officer[AO in short] noticed that the assessee debited salary paid to Shri Maheshbhai L. Patel every month and total amount paid was Rs.98,500/-. However, on 30-3-2005 the assessee again debited salary of Rs.1,01,500/- to the same person. Likewise, the assessee debited salary of Rs.1,08,000/- paid to Shri Ashokbhai Vora on 30-3-2005 while there was no corresponding entry on account of monthly salary paid to him. The AO was of the opinion that the assessee claimed double deduction of salary paid to Shri Maheshbhai L. Patel while it was not possible that employee was not claiming salary. To a query by the AO, the assessee explained that only an adjustment entry had been made at the end of the year whereby payment towards allowances was segregated. However, 3 ITA.No.3163/Ahd/2009 the AO did not accept the submissions of the assessee on the ground that the assessee claimed double deduction for salary paid to Shri Maheshbhai L. Patel while there were no entries in books for monthly salary paid to Shri Ashok Vora and only an entry was made at the year end. Accordingly the AO disallowed an amount of Rs.2,09,500/-.
3. On appeal, the Ld. C.I.T.(A) upheld the finding of the AO in the following terms:-
" Keeping in view the aforesaid facts and circumstances, the fact emerges that in the case of Shri Mahesh K. Patel, salary has been debited twice (i.e. month-wise and again in the month of March) in salary account, thereby, there is double deduction of salary. In the given facts and circumstances the Assessing Officer has rightly disallowed the salary of Rs.1,01,500/- debited in the month of March,2005 by J.V. Further, it is a fact that there are no entries of month-wise salary in the salary account pertaining to sum of Rs.1,08,000/- (i.e. pertaining to Shri Ashokbhai Vora). In the given facts and circumstances, the Assessing Officer has rightly disallowed the total amount of Rs.2,09,500/- (i.e. Rs.1,01,500 + 1,08,000) on this ground and added back to the total income of the appellant. With the result, the action of the Assessing Officer is hereby confirmed on this ground."
4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT (A). The ld. AR on behalf of the assessee while drawing our attention to page 3 and 4 of the paper book, submitted that there was no claim for double deduction of salary to Shri Mahesh K. Patel or Ashokbhai and that the ld. C.I.T.(A) did not appreciate the facts. To a query by the Bench, the ld. A.R. added that matter may be restored to the filed of the AO for necessary verification. On the other hand, the DR supported the finding of the ld. CIT(A).
5. We have heard both the parties and gone through the facts of the case. We find that the ld, C.I.T. (A) upheld the findings of the AO on the ground that in the case of Shri Maheshbhai L. Patel salary has been 4 ITA.No.3163/Ahd/2009 debited twice while in the case of Shri Ashokbhai Vora, monthly entries of salary were not appearing in his account. On the other hand, the AR claimed before us that no such double claim has been made on account of salary paid to the aforesaid two persons and merely adjustment entries were made. In view of the foregoing, especially when the factual verification of claim of the assessee is necessary, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the issue raised in ground no. 2 in respect of disallowance of salary, to his file for deciding the matter afresh in accordance with law, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the learned CIT(A) shall pass a speaking order, keeping in mind, inter alia, the mandate of provisions of sec. 250(6) of the Act, bringing out clearly as to how the accounts have been reconciled, if the assessee made double claim of salary to the aforesaid two persons. With these directions, ground no. 2 in relation to disallowance of salary is disposed of.
6. Next issue in ground no.2 in respect of disallowance u/s. 40A(3) of the Act was not pressed before us by the ld. AR on behalf of the assessee. Accordingly, ground no.2 in relation to disallowance of Rs.4,237/- u/s 40A(3) of the Act is dismissed .
7. Ground no.3 relates to disallowance of depreciation of Rs.2,50,232/- on motor car, interest of Rs.36,276/- on car loan and 1/6th of vehicle expenses-Rs.1,05,297/-. The AO noticed during the assessment proceedings that the assessee purchased a new car at a cost of Rs.12,51,159/-on 7-6-2004 and claimed depreciation @ 20% thereon. However, the car was in the name of Shri Prahlad Shivram Patel, a Director of the Company while the address on the bill was his residential address. Since the assessee was not the owner of the car, the AO disallowed the claim for depreciation of Rs.2,50,232/-. Beside, the AO disallowed interest of Rs.36,276/- paid on loan taken by the company for 5 ITA.No.3163/Ahd/2009 the purchase of car and expenses related to the car. The AO also disallowed 1/5th of the vehicle expenses of Rs.6,31,356/- for the remaining vehciles.
8. On appeal, the ld. CIT(A) adjudicated the issue in the following terms:-
" Keeping in view the aforesaid facts; circumstances and various judicial pronouncements, the fact emerges that the car in question on which depreciation of Rs.2,50,232/- has been claimed by the appellant @ 20% is in fact in the name of the director of the appellant i.e. Shri Prahlad Shivram Patel; car is never transferred in the name of the appellant. With the result, the appellant has never been the owner of car in question. Thus, one of the prescribed conditions i.e. ownership of an asset; for claiming depreciation is not fulfilled.
In order to avail depreciation, the following conditions must be fulfilled:
(a) Asset must be owned by the assessee;
(b) It must be used for the purpose of business or
profession; and
(c) It should be used during the relevant accounting year.
First of all asset must be owned by the assessee - In order to be entitled to depreciation allowance, the assessee has to show that the asset is owned by him or assessee is the co-owner of the asset. It is only the owner of the assets who is entitled to claim depreciation on them.
Secondly, asset must be used for business or profession. The asset, in respect of which depreciation is claimed, must have been used for the purpose of business or profession.
Thirdly, asset must be used during the relevant accounting year. Depreciation is allowed only if the asset is used for the purpose of business or profession at least for sometime during the previous year. However, from the A.Y. 1992-93, where an asset is acquired and "put to use", for the purpose of business or profession for less than 180 days during the previous year in which it is acquired, depreciation there on shall be allowed @ 50% of the depreciation allowable according to the percentage prescribed in respect of block of asset comprising such asset.6 ITA.No.3163/Ahd/2009
Keeping in view the aforesaid facts and circumstances as well as various judicial pronouncements; the fact emerges that the appellant has purchased a new car at the cost of Rs.12,51,159/- in the name of Shri Prahlad S. Patel, who is one of the directors of the appellant. As the car is purchased in the name of the director,. thereby, it cannot be said to be owned by the appellant. Consequently, it is not put to use for appellant's business purposes. In the given facts and circumstances, the Assessing Officer has rightly disallowed appellant's claim of depreciation of Rs.2,50,232/- on the car in question and added back to the total income of the appellant. With the identical facts and circumstances; with identical reasoning, the payment of interest of Rs.36,276/- by the appellant has rightly been disallowed by the Assessing Officer and added back to the total income of the appellant. It is also a fact that the appellant has debited the amount of Rs.6,31,780/- on account of vehicle expenses. As discussed above, one of the vehicle is not owned by the appellant, thereby, personal element cannot be eliminated wholly and exclusively. With the result, the Assessing Officer has rightly made the disallowance on this account. However, keeping in view the volume, magnitude and size of the business, the disallowance of 1/5th of vehicle expenses of Rs.6,31,780/- appears to be on the higher side, thereby, the same is restricted to 1/6th of vehicle expenses. With the result, the appeal is partly allowed on this ground."
9. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee while relying on the decisions in CIT vs. Dilip Singh Sardar Singh Bagga, 201 ITR 995(Bom.), CIT vs. Navdurga Transport Co.,235 ITR 158 (All) and Sayaji Iron & Engg. Co. v CIT ,253 ITR 749 (Guj) contended that no disallowance could be made in respect of car purchased by the assessee in the name of the Director nor expenses can be disallowed for personal user of the car . On the other hand, the DR supported the findings of the ld. CIT(A).
11. We have heard both the parties and gone through the facts of the case as also the decisions relied upon. The relevant provisions of section 32 of the Act stipulate depreciation in respect of building, machinery, plant 7 ITA.No.3163/Ahd/2009 or furniture "owned by the assessee" and "used" for the purposes of the business or profession. Indisputably, the innova car was purchased with the funds of the company and used by the assessee for the purposes of its business. The controversy is in regard to ownership of the car. The contention of the assessee is that car being not registered under the Motor Vehicles Act in the name of the company, by itself is not sufficient to hold the contrary. The factual position as stated by the assessee is not disputed by the Revenue. The contention of the Revenue is that unless the car is registered in the name of the assessee under the Motor Vehicles Act, the assessee would not be entitled to deduction of depreciation allowance in respect thereof. We are of the opinion that the assessee, who had purchased the car for valuable consideration and used the same for its business, cannot be denied the benefit of depreciation on the ground that the transfer was not recorded under the Motor Vehicles Act or that the vehicle stood in the name of a director of the assessee company in the records of the authorities under the Motor Vehicles Act.
11.1 The aforesaid view is supported by the decision in the case of CIT Vs. Navdurga Transport Co.,235 ITR 150(All), wherein the issue was as to whether firm was entitled to depreciation on cars, brought in to the firm for use of business of the firm, even though cars continued to be registered in the name partners. Hon'ble Allahabad High Court held that the Tribunal rightly reached the conclusion that the assessee owned and used the three vehicles within the meaning of s. 32 of the Act. Similar view was taken in the case of CIT Vs, Mohd. Bux Shokat Ali(No.2), 256 ITR357(Raj), CIT Vs Fazilka Dabwali TPT Co. Ltd. (2004) 270 ITR 398 (P&H), CIT v. Salkia Transport Associates [1983] 143 ITR 39/13 Taxman 191 (Cal.), CIT v. Nidish Transport Corpn. [1910] 185 ITR 669/[1989] 44 Taxman 351(Ker.), CIT v. Dilip Singh Sardar Singh Bagga [1993] 201ITR 995/[1994] 77 Taxman 66(Bom.), and CIT v. Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88/123 Taxman 693 (Delhi) as also by the ITAT in their 8 ITA.No.3163/Ahd/2009 decision in the case of The Curious House (P) Ltd. v ITO (1980) 9 TTJ 348(Indore) and ITO Vs. Modi Agency, ITA no. 198/Gau/1977- 78(Gauhati).
11.2 In the light of view taken in the aforesaid decisions, mere non- registration of a vehicle in the name of the company under the Motor Vehicles Act, cannot disentitle the assessee in regard to its claim of depreciation, when the facts on record are undisputed that the assessee company has, in fact, made the investment in purchase of the vehicle and such vehicle is being used for its business. The requirement of section 32 is that the vehicle must be owned by the assessee and not that the assessee must be a 'registered owner' of the same under the Motor Vehicles Act. Therefore, we have no hesitation in vacating the findings of the ld. CIT(A) . The AO is directed to allow the claim of the assessee for depreciation and interest on funds borrowed for purchase of car. Consequently, ground nos. 3(a) & (b) relating to disallowance of depreciation on motor car and interest on loan for purchase of car is allowed.
11.3 As regards disallowance of expenses on running and maintenance of car in the case of a company ,Hon'ble jurisdictional High Court in the case of Sayaji Iron & Engg. Co. v CIT, 172 CTR 339 (Guj), held that a private limited company is a distinct assessable entity as per the definition of "person" under section 2(31) of the Act and therefore, it cannot be stated that when the vehicles are used by the directors, "even if they are personally used by the directors," the vehicles are personally used by the company, because a limited company by its very nature cannot have any "
personal use". The limited company is an inanimate person and there cannot be anything personal about such an entity. In the light of the said decision, disallowance of expenses on running and maintenance of cars is deleted. Therefore, ground no.3(c) is allowed.9 ITA.No.3163/Ahd/2009
12. Next ground No.4 relates to restriction of depreciation @ 25% on trucks instead of 40% claimed by the assessee. The AO disallowed the claim for depreciation @ 40% on trucks on the ground that the trucks were not being used in the business of hire and were used for transporting ready made mixuture.
13. On appeal, the Ld. CIT (A) upheld the findings of the Assessing Officer in following terms:-
" Keeping in view the aforesaid facts and circumstances as well as various judicial pronouncements, the fact emerges that the appellant has claimed depreciation on trucks @ 40% whose WDV is Rs.1,05,39,906/- and it is a fact that the trucks in question are exclusively used for appellant's own business only. Consequently, the appellant's claim of depreciation @ 40% is not at all correct as trucks in question are not at all used for hire. Consequently, excess claim of depreciation on trucks has to be disallowed. In the given facts and circumstances, the Assessing Officer has rightly disallowed the excess claim of depreciation to the extent of Rs.4,94,058/- and added back to the total income of the appellant. With the result, the action of the Assessing Officer is hereby confirmed on this ground."
14. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee contended that the assessee claimed depreciation at the normal rates only and not @ 40% as concluded by the AO or the ld. CIT (A) . He added that the matter needs to be restored to the file of the AO for necessary verification. The ld. DR did not oppose these submissions of the ld. AR
15. We have heard both the parties and gone through the facts of the case. The AO & the ld. CIT(A) noticed that assessee claimed depreciation @ 40% on trucks as against normal rate of 25% while the AR of the assessee claimed that depreciation has been claimed only at the normal rate of 25%. Since the facts are disputed, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the 10 ITA.No.3163/Ahd/2009 issue raised in ground no. 4 in respect of depreciation @40% on trucks, to the file of the AO with the directions to verify as to whether or not depreciation on trucks has been claimed @ 25%. If not ,depreciation in excess of normal rates should be disallowed after allowing sufficient opportunity to the assessee. With these directions, ground no.4 is disposed off.
16. Ground no.5 relates to initiation of penalty proceedings u/s. 271(1) (c) of the Act. Since mere initiation of penalty u/s 271(1)(c) of the Act is not appealable, this ground is dismissed. .
17. Ground no.1 being general in nature nor any submissions having been made before us, does not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no. 6 in the appeal , accordingly, these grounds are dismissed.
18. No other plea or submissions have been made before us.
19. In the result, appeal is partly allowed, but for statistical purposes.
Order pronounced in the court today on 8 -04-2011 Sd/- Sd/-
(BHAVNESH S AINI) (A N P AHUJA) JUDICI AL MEMBER ACCOUNT ANT MEMBER Dated : 8-4-2011 Copy of the order forwarded to:
1. BPC Proejcts & InfrastructurePrivate Limited,"Darshak" 14A, Swastik Society,Punjabi Hall Lane, Navrangpura,Ahmedabad.
2. Income Tax Officer,Ward 1(2),Insurance Building,Ashram Road, Ahmedabad
3. CIT concerned
4. CIT(A)-VI, AhmedabadValsad
5. DR, ITAT, Ahmedabad Bench-A, Ahmedabad
6. Guard File BY ORDER Deputy Registrar/Asistant Registrar ITAT, AHMEDABAD