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2016 (4) TMI 1009 - AT - Income TaxAddition u/s 40A(2)(b) - Held that - In the present case, it is noticed that neither the AO nor the ld. CIT(A) has given any basis for restricting the interest claimed by the assessee on the loans raised for the business purposes. In the instant case, nothing is brought on record to substantiate that the loans raised by the assessee were not utilized for the business purposes or were diverted for any other purposes. It is also noticed that neither the AO nor the ld. CIT(A) brought any material on record to substantiate that the rate of interest paid by the assessee was excessive. We, therefore, delete the addition sustained by the ld. CIT(A) and direct the AO to allow the claim of the assessee. - Decided in favour of assessee. Disallowance of various expenses - Held that - In the present case, it is noticed that the assessee suo motu disallowed ₹ 24,200/- being 1/5th of vehicle running and maintenance expenses amounting to ₹ 1,21,200/-. However, the AO disallowed 1/5th of car insurance, car depreciation, telephone expenses, interest on car loan also. In the instant case, it is not in dispute that car insurance, car depreciation and interest on car loan was to be borne by the assessee even when the vehicles were not used for the personal purposes or remained idle. In the present case, nothing is brought on record that those vehicles were not used for the business purposes and were not the asset of the assessee. Therefore, disallowance of car insurance, car depreciation and interest on car loan was not justified. At the same time, the personal use of telephone cannot be ruled out in such type of cases but the disallowance of 1/5th of the telephone expenses appears to be excessive. We, therefore, restrict the disallowance to 10% of the telephone expenses and the disallowance out of vehicle running and maintenance expenses is sustained because the assessee itself suo motu disallowed the same. In view of the above and by keeping in view the peculiar facts of this case the disallowance out of car insurance, depreciation and interest on car loan is deleted.
Issues involved:
1. Restriction of interest rate claimed by the assessee. 2. Disallowance of various expenses by the Assessing Officer. Issue 1 - Restriction of interest rate claimed by the assessee: The case involved the assessee filing a return of income declaring an amount, which was later scrutinized by the Assessing Officer (AO). The AO noticed interest paid on unsecured loans and questioned the rate of interest paid. The assessee defended the interest rate paid, stating it was reasonable and necessary for business purposes. The AO, however, restricted the interest rate, leading to an addition to the income. The assessee appealed to the CIT(A), arguing for the deletion of the addition. The CIT(A) partially agreed with the assessee and restricted the interest payment to lenders at 13%. The assessee further appealed, emphasizing that the loans were essential for business and no excessive interest was paid. The ITAT Delhi observed that there was no evidence to show the loans were misused or that the interest rate was excessive. Consequently, the ITAT directed the AO to allow the claim of the assessee, deleting the addition. Issue 2 - Disallowance of various expenses: The AO disallowed a portion of expenses, including car insurance, car depreciation, telephone expenses, vehicle running and maintenance, and interest on car loan. The assessee had voluntarily disallowed a part of vehicle expenses for personal use. The AO, however, disallowed more expenses, leading to a further disallowance. The CIT(A) upheld the AO's decision, stating that fixed statutory allowances did not justify personal use of assets. The assessee appealed, arguing that the expenses were for business purposes. The ITAT Delhi noted that while some expenses were justifiably disallowed for personal use, others like car insurance, car depreciation, and interest on car loan were necessary regardless of personal use. The ITAT restricted the disallowance to 10% of telephone expenses and upheld the disallowance of vehicle running and maintenance expenses. The disallowance of car insurance, car depreciation, and interest on car loan was deleted. The findings in this issue applied to another appeal with similar grounds and amounts. In conclusion, both appeals were partly allowed by the ITAT Delhi, with detailed analysis and reasoning provided for each issue involved in the judgment.
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