TMI Blog2018 (7) TMI 2310X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is partly allowed. Disallowance being 1/6th of car and telephone expenses and further disallowance at the rate of 15% of entertainment expenses for personal use - HELD THAT:- Vehicles of the assessee company are used as per terms and conditions of the service and since the assessee is a private limited company, it is assessable as a distinct assessable entity, as per the definition of person under section 2(31) of the Act. The Hon'ble High Court in Dinesh Mills Ltd [ 2001 (12) TMI 65 - GUJARAT HIGH COURT] clearly held that it could not be stated that when the vehicles were used by the directors 'even if they were personally used by the directors', the vehicles were 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. The view was supported by the provision of section 40(c) and section 40A(5) of the Act. Once the expenditure in question was in terms as provided in sections 309 and 198 of the Companies Act, there could not be any 'non-business' purpose insofar as the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.298, 75,97,709/- by showing a gross profit of Rs.1,56,31,880/-, which amounts to 0.523% of the turnover. The comparative chart of gross profit for different Assessment Years has been shown/mentioned in para-6 of the assessment order, which ranges from 0.523% to 0.529%. A search action under section 132 of the Act was carried out in NIBR Bullion Group, its directors, associates and relative persons on 25/09/2008. The flagship company of the group is M/s NIBR Bullion Pvt. Ltd. (the present assessee) and the business of this group is controlled and managed by sons of Late Charandas J. Arora. Shri Ajay C. Arora, Shri Harmesh Arora and Shri Anil C. Arora are the directors of the assessee company. Notice under section 143(2) of the Act and thereafter notice under section 142(1) along with questionnaire were issued/served upon the assessee. The assessee attended the proceedings from time to time and furnished the relevant documents, bank account and other details before the Ld. Assessing Officer. The Ld. Assessing Officer made addition of Rs.4,91,607/- by estimating the gross profit @ 1% of the purchases amounting to Rs.10,30,624/- for purchase of silver. 3.2. On appeal before the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion paid on purchase of silver bills. The crux of the argument is that the commission was estimated by the Ld. Assessing Officer @0.5%, which may be reduced to 0.2%. Our attention was invited to page -8 of the paper book (para 7.4) and also para-16 (page-8) of the impugned order. However, the Ld. CIT-DR defended the estimation of payment of commission by the Ld. Assessing Officer. 4.1. We have considered the rival submissions and perused the material available on record. It is noted that during search proceedings, statement of Shri S. K. Bajaj was recorded on 25/09/2008, where he allegedly confess that he merely issued sale bills to the assessee without actual delivery of goods and he received cheque against the bills and he received Rs.50 to 60 as commission per Kg. of silver. He further tendered that he was filing sales tax return also. However, the statement was later on retracted and initially even he did not accept that he was giving accommodation entries. It is noted that silver was purchased from M/a Art Jewellery @ Rs.23,011/- per kg on 07/05/2008 and on the same day also purchased from M/s Krishna Trading Company @ Rs.23,000/- per kg. Similarly, Silver was purchased fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the instance of the assessee, the following question has been referred to this Court for its opinion under the provisions of section 256(1) of the Income-tax Act, 1961 ('the Act'), by the Tribunal, Ahmedabad Bench 'C' : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing 1/6th of the total car expenses and depreciation claimed by the assessee because of the personal use of the car entrusted to the director by it ? 2. The learned advocate Shri Manish Shah for Mr. J.P. Shah has appeared for the applicant-assessee whereas learned advocate Shri Bharat Naik has appeared for the respondent. 3. The assessee is a private limited company. For the purpose of its business, it owned several vehicles. For the assessment year 1979-80, the assessee had incurred expenditure to the tune of Rs. 96,653 on the vehicles maintained by it. The assessee had claimed the said amount as business expenditure, but the Assessing Officer came to the conclusion that all the vehicles of the assessee-company were not exclusively used for the business and as the directors were also using the vehicles of the company for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view expressed by the Tribunal regarding disallowance of 1/6th of the expenditure is justified. 8. We have heard the learned advocates and have also perused the impugned orders. 9. In our opinion, as the directors of the assessee were entitled to use the vehicles of the assessee-company for their personal use as per the terms and conditions on which they were appointed, it was not proper on the part of the Assessing Officer to disallow 1/6th of the expenditure incurred by the assessee on maintenance of its vehicles. Section 309 of the Companies Act, 1956 provides the modality for determining the remuneration payable to directors, including any managing or full-time director. Such remuneration is payable either as stated in the articles of association of the company or in accordance with the resolution or if provided by articles, by a special resolution which might be passed by the company in the general meeting. This payment of remuneration is subject to overall limits of managerial remuneration laid down in section 198 of the Act. What is more material for the purpose of the present controversy is Explanation to section 198 of the Companies Act which permits and provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Tribunal's earlier orders in the assessee's own case have been distinguished by giving reasons which are, to say the least, unwarranted. The earlier orders of the Tribunal are distinguished by stating that even if there is no personal user of cars by the company, it would yet be user for 'non-business purpose'. As already stated hereinbefore once the expenditure in question is in terms as provided in sections 309 and 198 of the Companies Act, 1956, there cannot be any 'non business' purpose insofar as the assessee-company is concerned. 9.4 In relation to the aforesaid approach of the Commissioner (Appeals) and the Tribunal, we cannot do better than reiterate what the Madras High Court has stated in the case of CIT v. L.G. Ramamurthi [1977] 110 ITR 453 : No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, accordingly, with no order as to costs. 5.3. Likewise, Hon'ble Gujarat High Court in the case of Dinesh Mills Ltd. vs CIT ((supra)), vide order dated 05/12/2001 held as under:- The Tribunal, Ahmedabad Bench 'A' has referred the following questions at the instance of the assessee as well as Commissioner under section 256(1) of the Income-tax Act, 1961 ('the Act') : At the instance of assessee : Assessment year : 1977-78 only in (R.A. No. 223) (Ahd.) of 1987. 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in disallowing the embezzlement loss of Rs. 7,80,000 ? (For assessment years : 1979-80 and 1980-81) (In R.A. Nos. 224 and 225) (Ahd.) of 1987. 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in disallowing the commission paid to the Directors as perquisite in the assessment years 1979-80 and 1980-81, for the purposes of section 40(c) of the Act ? At the instance of revenue : (Assessment years 1977-78, 1979-80 and 1980-81) (R.A. Nos. 241, 242 and 243) (Ahd.) of 1987 : 1. Whether, on the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective positions taken by the assessee and the department. According to the Commissioner (Appeals), the whole amount of embezzlement had to be considered as comprising of two parts, viz., the part which could reasonably be estimated to be recoverable and the other part, if any, which could not be reasonably expected or estimated to be recoverable. This position had to be ascertained at the end of the previous year, viz., as on 31-12-1976. Based on this line of reasoning, the Commissioner (Appeals) held that a sum of Rs. 7,20,000, the assessee could have reasonably hoped to recover while the balance of Rs. 6,20,000 was lost by the assessee for all time to come. Accordingly, he granted deduction to the tune of Rs. 6,20,000 in the assessment year 1977-78. 6. The assessee carried the matter in appeal before the Tribunal and relying upon the Circular issued by the Central Board of Direct Taxes being Circular No. 35-D(XLVII-20) of 1965, dated 24-11-1965 submitted that the approach of the learned Commissioner (Appeals) was not correct. It was pointed out that in a later year the assessee had, in fact, recovered an amount of Rs. 5,60,704 and, thus, the balance of Rs. 7,79,000 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r further proceedings pertaining to the assessment year 1981-82, any deduction from the balance of loss was allowed, the petitioner-assessee would not raise any objection and surrender the same for the purpose of taxability. 8. In view of the fact that Mr. Shah has made a statement to the effect that no deduction has been allowed in any subsequent year, we hold that the assessee would be entitled to deduction of loss during the year under consideration as this is the year in which the loss on account of embezzlement was, in fact, discovered. There is no dispute as to the fact that the loss is incidental to business carried on by the assessee. The Tribunal while giving effect to this judgment shall ascertain the allowability or otherwise of the loss in light of the aforesaid statement made by Mr. Shah and then allow deduction of the balance amount of loss in the year under consideration. 9. Insofar as the question No. 2 at the instance of the assessee, pertaining to assessment years 1979-80 and 1980-81 is concerned, Mr. Shah has not pressed the said question and, hence, it is not necessary to answer the same. 10. Both the questions referred to us at the instance of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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