2021 (12) TMI 694 - AT - Income Tax

Addition u/s 41(1) - as assessee has not written off the outstanding liability in the books of account and are still in existence. Therefore it was contended that the assessee has acknowledged his liabilities as per the books of account - HELD THAT - In the instant case admittedly it is loan creditors and not a trading liability. So the assessee has not obtained allowance or deduction in computing the profits and gains of business or profession in respect of assessment of any year. Therefore the first condition enumerated u/s 41(1) of the I.T.Act does not have application to the facts of the instant case. Hence the addition made by the A.O. and sustained by the CIT(A) is deleted. - Decided in favour of assessee. Disallowance of depreciation on motor car and revolver - Disallowance of interest on car loan - business v/s personal expenses - claims made by the assessee was disallowed by the A.O. by holding that these are personal in nature - HELD THAT - AR during the course of hearing had fairly submitted that the assessee did not place necessary evidences for claiming depreciation and interest before the Income Tax Authorities. Even before the ITAT no evidence are placed on record for claiming deduction / disallowance. Hence the claim of deduction of depreciation and interest is sustained. - Decided against assessee.

Summary

Issues:
1. Addition u/s 41(1) of the I.T.Act
2. Disallowance of depreciation on motor car and revolver
3. Disallowance of interest on car loan

Addition u/s 41(1) of the I.T.Act:
The appeal was against the CIT(A)'s order regarding additions contested under section 41(1) of the I.T.Act. The assessee failed to furnish confirmations from loan creditors, leading to a show cause notice by the Assessing Officer. The AO found discrepancies in the confirmations provided and treated an amount as cessation of liability under section 41(1). The CIT(A) upheld the addition due to the lack of further confirmations. Before the Tribunal, the AR argued that the liability was not written off and still existed, hence section 41(1) did not apply. Several judicial pronouncements were relied upon. The Tribunal found that the conditions of section 41(1) were not met as the liability was from loan creditors, not a trading liability, and the addition was deleted.

Disallowance of depreciation on motor car and revolver, and interest on car loan:
The AO disallowed the depreciation on motor car and revolver, along with interest on car loans, totaling a disallowance of &8377;12,30,011, considering them personal expenses. The CIT(A) confirmed this disallowance. The assessee appealed to the Tribunal, but during the hearing, it was revealed that necessary evidence for claiming these deductions was not provided to the authorities or the ITAT. As a result, the claim for deduction of depreciation and interest was dismissed. Other grounds raised were not argued during the hearing and were also dismissed. The appeal was partly allowed by the Tribunal.

In conclusion, the Tribunal ruled in favor of the assessee regarding the addition under section 41(1) of the I.T.Act, deleting the amount added. However, the disallowance of depreciation on motor car and revolver, as well as interest on car loans, was upheld due to lack of evidence provided by the assessee.