TMI Blog2015 (1) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... that the asses see company has, in fact, made the investment in pur chase 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. - Decided in favour of the Assessee Disallowance made u/s. 40A(2)(b) - Assessee had borrowed funds from related parties in earlier years - Held that:- Assessee had borrowed funds from related parties in earlier years also and no disallowance on account of interest was made by the Revenue while framing the assessment u/s. 143(3). The aforesaid submission of the Assessee has not been controverted by Revenue by bringing any contrary material on record. A.O while disallowing the expenses has noted that the loans from bank are available @ 12% or less. However we find that A.O has not placed on record any evidence of such interest being charged by the banks. It is also Assessee’s submission that the loans obtained from the related party are in the nature of unsecured loan whereas the loan from bank are in the nature of secured loan where the Assessee is required to provide s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal or non business element and since the expenditure is not of capital nature. CITA ought to have deleted the entire disallowance of motor car expenses of ₹ 1,15,313/- and motor car depreciation of ₹ 1,04,231/-. 3. CITA has erred in invoking provisions of Sec. 40A(2)(b) and in confirming disallowance of ₹ 7.81,962/- made by the 1TO u/s. 40(A)(2)(b). It is submitted that on facts and circumstances of the case and judicial pronouncement on the subject, the CITA ought to have deleted the entire disallowance of ₹ 7,81,962/-. since interest payment @ 24% is fair reasonable, keeping in mind the prevailing the rates of payment of interest. Without prejudice to above and in the alterative, it is submitted that disallowance u/s.40(A)(2b) of ₹ 7,81,962/- and disallowance of ₹ 3,11,390/- u/s.l4A/Rule 8D amount to double taxation/multiple addition of the same amount which is against principles of equity and justice and therefore it is submitted that the disallowance of ₹ 7,81,962/- made u/s.40A(2b) be deleted 1st ground is not pressed and therefore dismissed as not pressed. 2nd ground is with respect to disallowance of motor car expenses and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the owner since the ownership vests with the director who is a separate entity than the appellant company. As regards use for the purpose of business, assessing officer called for the details of use of car but the same were not furnished. Therefore use of car for the purpose of company's business is not established by the appellant. Although the onus to prove the user of asset was on the appellant, the same was not discharged either before the assessing officer or before the undersigned. Claim of an expense in the company accounts is not an evidence to prove that asset was used for the business of the company. In the absence of any tangible evidence to prove the business use of the motor car purchased in the name of director, it is held that the motor car was not used for the purpose of appellant's business. Coming to the appellant's argument of beneficial ownership, appellant submitted that payment for the car was made by the company and hence the appellant is the beneficial owner. Payment will not determine the ownership since payment can be made by way of loan also. In fact major payment is made by finance company but ft is not the beneficial owner. Singe both app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). 7. We have heard the rival submissions and perused the material on record. We find that A.O has disallowed the claim of depreciation on motor cars mainly for the reason that the motor car was in the name of the Director and not in the name of the Assessee. He has further disallowed the claim of the Assessee for expenses for the reason that Assessee could not prove that the expenses have been incurred wholly and exclusively for the purpose of business and were not in personal in nature. On perusing the Balance sheet placed by the Assessee in the paper book, it is seen that the motor car is reflected in the schedule of fixed assets. Before us, Revenue has not brought any material on record to controvert the submissions of Assessee that the funds of Assessee has been used for the purchase of motor car. We further find that on identical facts, in the case of Swati Autolink Pvt. Ltd. vs. ITO (supra), the issue was decided in favour of the Assessee by the Co-ordinate Bench by holding as under:- 14. We have heard the rival submissions and perused the material available on record. It is undisputed fact that the vehicle is standing in the name of the director of the company but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 191 (Cal), CIT v. Nidish Transport Corpn. [1910] 185 ITR 669/[1989] 44 Taxman 351(Ker.), CITv. Dilip Singh Bagga [1993] 201 ITR 995/11994] 77 Taxaman 66 (Bom), CIT v Navdurga Transport Co. [1999] 235 ITR 158 (All.) and CIT v Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88/123 Taxman 693 (Delhi) as also by the ITAT in their 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/l977-78 (Gauhati). 5.2. In the light of the 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 it in regard to its claim of depreciation, when the facts on record are undisputed that the asses see company has, in fact, made the investment in pur chase 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 upholding the findings of the Id. CIT(A). Consequently ground no. 1 relating to disallowance of depreciation on m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by appellant. The argument of the appellant that loans received from related parties are permanent and more stable is found to be incorrect by the assessing officer since there were regular inflow and outflow of funds from the accounts of these related parties. This makes it very clear that the funds provided by relatives were not stable or permanent. Rather their loan accounts were used as current account for the convenience of lenders. By no reasons interest rate on such loan can be higher than interest paid to outsiders for relatively stable loans. Considering this I do not find any reason or material for paying higher interest to related parties than to outsiders who were also not provided any security for obtaining loans by the appellant. The rate of interest paid to related parties is even higher than bank financing which is normally higher than private financing. There are several decisions as per which excess payment of expenses made to related parties are to be disallowed. Some of these decisions are as under- 1-MADANLAl RADHESHYAM V. INCOME-TAX OFFICER, 80 TAXMAN 338 (INDORE) ITAT INDORE BENCH Section 40A(2) of the Income-tax, 1961 -Business disallowance Excessive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o relatives in excess of interest paid to outsiders or bank is excessive and unreasonable and the same is disallowable. Facts of the appellant's case are identical to the facts of the case decided by 'honorable ITAT Indore bench. In that case also appellant claimed that funds borrowed from relatives were large and for long period which was not found acceptable by the tribunal and the disallowance of excess .interest was confirmed. Decisions of honorable Gujarat High Court and Kerala High Court are also supporting the assessing officer's action of disallowing excess interest paid to relatives. Respectfully following these decisions in the light of facts of the appellant, the disallowance of interest made by the assessing officer is confirmed. 10.Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us. 11.Before us, ld. A.R reiterated the submissions made before A.O and ld. CIT(A). He further submitted that to avail finance from bank various formalities are required to be complied with and the procedures are cumbersome and time consuming. Further considering the processing charges, commitment fees etc charge by the bank, the effective rat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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