2004 (9) TMI 562 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of addition of Rs. 22,400 made by the Assessing Officer on account of income from vehicle No. CH 01 9525 under section 44AE of the Income-tax Act, 1961.
2. Deletion of addition of Rs. 98,547 made by the Assessing Officer on account of income from vehicle No. CHW 8425 under section 44AE of the Income-tax Act, 1961.
3. Deletion of addition of Rs. 1,43,927 made by the Assessing Officer on account of disallowance of interest on borrowed capital.
4. Deletion of addition of Rs. 24,000 made by the Assessing Officer on account of interest paid to M/s. H.D. Kohli & Sons.

Issue-wise Detailed Analysis:

1. Deletion of addition of Rs. 22,400 made by the Assessing Officer on account of income from vehicle No. CH 01 9525 under section 44AE of the Income-tax Act, 1961:

The Assessing Officer (AO) added Rs. 22,400 as income from vehicle No. CH 01 9525 under section 44AE. The assessee argued that the vehicle was leased to M/s. Kohli Bros., and expenses were maintained in audited books. The AO's addition was based on the belief that sub-clause (6) of section 44AE had been omitted by the Finance Act, 1997. However, the sub-clause was re-inserted with retrospective effect from 1-4-1997 by the Income-tax (2nd Amendment) Act, 1998. The CIT(A) deleted the addition, noting the AO's ignorance of the reinstated provision and the proper maintenance of audited accounts. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee was entitled to the benefit of sub-section (6) of section 44AE.

2. Deletion of addition of Rs. 98,547 made by the Assessing Officer on account of income from vehicle No. CHW 8425 under section 44AE of the Income-tax Act, 1961:

The AO added Rs. 98,547 as income from vehicle No. CHW 8425, which was used for the assessee's business. The assessee claimed expenses of Rs. 76,947 and the AO applied section 44AE to determine income at Rs. 21,600, making a total addition of Rs. 98,547. The CIT(A) deleted the addition, citing the maintenance of complete accounts and the applicability of sub-section (6) of section 44AE. The Tribunal found no infirmity in the CIT(A)'s order and upheld the deletion.

3. Deletion of addition of Rs. 1,43,927 made by the Assessing Officer on account of disallowance of interest on borrowed capital:

The AO disallowed Rs. 1,43,927 as interest on borrowed capital, noting that the assessee had given interest-free advances to close relatives while paying interest on unsecured loans. The assessee argued that interest-free loans were more than the advances given and that Rs. 24,000 shown as interest was actually rent. The CIT(A) deleted the addition, accepting the assessee's explanation and noting the lack of direct nexus between interest-bearing loans and interest-free advances. The Tribunal upheld the CIT(A)'s decision, confirming that the assessee had sufficient interest-free loans to cover the advances given.

4. Deletion of addition of Rs. 24,000 made by the Assessing Officer on account of interest paid to M/s. H.D. Kohli & Sons:

The AO added Rs. 24,000, believing it was interest paid to M/s. H.D. Kohli & Sons, as it was not reflected in the interest details. The assessee clarified that the amount was rent for premises and not interest. The CIT(A) accepted the explanation, noting the clerical error and confirming that the amount was correctly shown as rent. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the deletion.

Conclusion:

The Tribunal dismissed the department's appeal, upholding the CIT(A)'s deletions of the additions made by the Assessing Officer on all issues.