TMI Blog2010 (9) TMI 1119X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of vehicles and ₹ 27,91,791/- on account of aviation expenses). At this point of time, in our opinion, the Onus has shifted to the revenue to demonstrate that the said surrender is incorrect and estimations made by the AO are fair within the meaning of section 038(2). Fairness is an important factor in matters of quantification of the disallowances, when section 038(2) is invoked. The revenue has not done any probe independently to demonstrate that assessee s offer is unfair and his estimations are fair. Hence, we are of the opinion, that the estimations made by the AO, which are confirmed in case of the Cessna Aircraft and alterted in case of Bell Helicoptor are hereby set aside. Therefore, we are of the opinion, that the offer of the assessee to restrict the disallowance to 1/7th of the claims in respect of both Bell Helicoptor and the Cessna Aircraft, is reasonable and fair. Accordingly, the AO is directed. Thus, the original grounds raised by the assessee are allowed. Income from house property - determination of the annual letting value (ALV) - HELD THAT:- In the present case, The assessee has let out space to the sister concern, and is receiving ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irregularly. No proof that the broker was paid 10% commission by the assessee was brought on record. No documents or statement of the assessee or the broker or any material on which the Assessing Officer has relied has been brought on record before making the addition @ 10% of the sale consideration. As the addition has been made entirely on conjectures and surmises the addition of ₹ 7,48,500/- is directed to be deleted. Therefore, it is the case of addition based on the surmises, which is not sustainable in law. Accordingly, the we find no reason to interfere with the order of the CIT(A). Accordingly, the revenues appeal is dismissed. - Shri I C Sudhir and Shri D. Karunakara Rao Appellant by : Shri S U Pathak Respondent by : Shri Abhay Damle ORDER Per D. Karunakara Rao AM These are the cross appeals filed by both the parties against the order of CIT(A)-II, Pune dated 22-08-2008. ITA No. 1425 1524/PN/08 A.Y 2005-06 2. The grounds in the assessee s appeal are as under:- 1. The learned CIT(A)-II erred in estimating the quantum of disallowance of aviation expenses and depreciation with respect to Bell Helicopter to the extent of 20% i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aggrieved with all the additions, the assessee filed an appeal before the CIT(A), who partly allowed the appeal of the assessee. Aggrieved with the relief given by the CIT(A), the Revenue filed the appeal vide ITA No. 1524/PN/2008. Further, aggrieved with the decision of the CIT(A) in sustaining the additions, the assessee filed the appeal with the grounds and additional grounds reproduced above. Now, we shall first take up the assessee s appeal. There are three issues in the appeal of the assessee and first two issue relate to reasonableness of claims of aviation expenditure and depreciation of both Bell Helicoptor and Cessna Aircraft. 6. Relevant facts in this regard are that during the assessment proceedings, the AO issued a letter dated 31-07-2007 requesting the assessee to furnish various details like copy of return of AOP, copy of purchase bill, share of the assessee in the total cost of aero engines. But those were not submitted for 2 months. Assessee filed the log book pertaining to Bell Helicoptor. The original log books for the Cessna aircraft were not produced. From the logbook of Bell Helicopter produced and verified by the Assessing Officer, it was observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. It is obvious that the assessee submitted that the disallowance at the rate of 30% of the claim is on higher side and restricting the disallowance to 1/7th of the claim as done in earlier Asst years would be alright. On considering the arguments and written submission of the assessee, the CIT(A) decided the issues as under. Relevant parts of the impugned order are reproduced as under. 5.3 I have gone through the facts of the issue. Regarding the Bell helicopter the Assessing Officer has not given any reasons for rejecting the explanation by the assessee that Mahabaleshwar was a landing point for visit to the Koyna site of the assessee. Further, the visits to Amby Valley and Lonavala were stated to have been undertaken for scouting of employees for hotel projects of the assessee. The Assessing Officer held that the trips to Amby Valley and Lonavala taken for the hotel projects, were not allowable because the hotel projects were being undertaken by different companies and not by the assessee in his individual capacity. The appellant has not contradicted this finding of the Assessing Officer in the appellate proceedings. It is correct that the assessee had not gone to Shirdi o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected the claim of the appellant that the aircraft was used by other members of the AOP as irrelevant as disallowance was being made only from the appellant s share of expenditure debited to the Profit and Loss Account. It is an established principle of law that the appellant has to lead evidence in support of the claim of an expenditure and that the burden of proof is cast upon the appellant to substantiate such claim. The primary condition for allowance of deduction of particular expenditure is that the expenditure is incurred wholly and exclusively for the purpose of business or profession. It has been judicially decided that the first adverb wholly in the phrase of laid out or expended wholly and exclusively in section 37(1) refers to the quantum of expenditure, the sum of moneys spent, while the second adverb exclusively has reference to the motive or object behind the expenditure. Unless such motive or object is exclusively, i.e. solely for the promotion of the business, the expenditure will not qualify for deduction. In support of this view, reference is made to the case of Siddho Mal Sons vs. ITO reported in 122 ITR 839 (Del.). In the case of Meattles Ltd. vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for personal use, disallowance on depreciation in the same proposition was justified (Senco Jeweler House- 17 ITD 223 (Cal) (AT). On the basis of the above the Assessing Officer is directed to disallow 20% of the depreciation and aviation expenses of Bell helicopter and 30% of the depreciation and aviation expense on Cessna aircraft. 8. Aggrieved with the above decision of the CIT(A), the assessee filed the present appeal with the above mentioned grounds. During the proceedings, Ld Counsel for the assessee made various submissions and briefly, they are: (a) the disallowances on accounts of use of both aviation vehicles must be restricted to 1/7th of the claim; (b) the inequal treatment in adopting the different adhoc percentages in respect of Helicoptor and the Aircraft is artificial and not based on any credible evidence; (c) no additional reasons are given by the revenue for finally arriving at the 20% in respect of Helicoptor or 30% in respect of Aircraft in this AY while the revenue restricted the disallowance to 1/7th only in the earlier years; (d) Ld counsel filed copies of the assessment orders for the earlier AYs demonstrating the disallowance was restricted to 1/7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In this regard, we have perused the provisions of section 38(2) of the Act which reads as under. Building, etc, partly used for business, etc, or not exclusively so used Section 38(1) . (2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and clause (ii) of sub-section (1) of section 32 shall be restricted to a fair proportionate part thereof which the Assessing Officer may determine, having regard to the user of such building, machinery , plant or furniture for the purposes of the business or profession. From the above, it is evident that the restriction should be a fair proportionate part thereof which the Assessing Officer may determine, having regard to the user of such .., machinery , plant or .. for the purposes of the business or profession . If the requirement of the law that the A.O is under obligation to determine having regard to the user of such machinery for determining the same, there is need for reliable data either supplied by the assessee or garnered by the A.O. Neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually in AY 90- 91 the matter was decided against the assessee. Therefore, there was a mistake in the Tribunal s order in assessment year 92-93. While deciding this issue in assessment year 93-94 in ITA No 429/PN/97 this position has been clarified and the issue was decided against the assessee in the light of the Tribunal s decision for assessment year 90-91. In assessment year 94-95 vide ITA No 606/PN/99 the issue was also decided against the assessee. In the course of hearing of this appeal, the assessee has relied on the Tribunal s decision in AY 92-93 which, in our considered view, is not actually in favour of the assessee, but is against the assessee. The case of other assesses who shared the aircraft expenses is on different footing, inasmuch as in the present case the assessee has not been able to prove and establish that the aircraft was used for the purpose of the assessee s business. In this view of the matter, the order of the CIT(A) is upheld in confirming the disallowance of ₹ 10,28,179/- (i.e. 15% of the claim) on account of aircraft expenses. (Emphasis supplied) 13. From the above, it is clear that special bench decision in the case of Gulathi Saree Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected. Thus, the original grounds raised by the assessee are allowed. 15. The additional ground raised by the assessee is relevant in the context of ground 3 raised in the appeal by the revenue vide ITA NO 1524/PN/2008. This ground is adjudicated while dealing with the appeal of the revenue. Accordingly, the additional ground is allowed. 16. In the result the appeal of the assessee is allowed. ITA NO 1524/PN/2008 17. The grounds in the Revenue s appeal are as under:- 1. On the facts and circumstances of the case and in law whether CIT(A) is right in deleting the addition made by Assessing Officer on account of income from house property by determining annual value of let out property at ₹ 6,00,000/- against ₹ 1,50,000/- as shown by assessee. 2. On the facts and circumstances of the case and in law whether CIT(A)-II, Pune is right in allowing the expenditure made in respect of interest of ₹ 22,13,037/- paid on borrowed funds which were utilized to acquire the shares. 3. On the facts and circumstances of the case and in law whether CIT(A) is right in restricting the disallowance made out of the depreciation and aviation expenses on Bell Helicop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of clause (b) of section 23 are as under:- 23(1) Annual value how determined Subsection (1) for the purpose of section 22, the annual value of any property shall be deemed to be, (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable . Clause (b) refers to a property, which are let. Annual value of a property determined under section 23 shall be adopted for computing the income from property in terms of section 22. The annual value determination shall be strictly in accordance with the provisions contained in section 23 as upheld by the Coordinate Bench in the case of Delite Enterprises (P) Ltd v. ITO [2008] 22 SOT 245(Mum). Accordingly, where the Rent Control Act is applicable only the standard rent is to be taken as the annual letting value. In the absence of standard rent the municipal ratable value is to be taken. Where the municipal ratable value of rent is less than actual rent, the actual rent shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, and deposits with other concerns. This is net income after substracting the interest expenditure of ₹ 37,62,811/-. It includes the interest expenditure of ₹ 22,13,037/- incidental to the loan taken from BNP Paribus Bank. The impugned loan was utilized for making the investments in IPOs as under. (i) 09-08-04 Amount withdrawn for Investment in TCS shares ₹ 8,09,99,500/- (ii) 09-11-04 Amount withdrawn for Investment in SPANCO shares ₹ 5,00,00,000/- The Assessing Officer disallowed the amount of ₹ 22,13,037/- out of interest ₹ 37,62,811/- relying upon various decisions and held that such expenditure of interest cannot be allowed as deduction against the assessee s business income also as they relate to the capital assets. Further, the AO mentioned that the TCS shares were sold by the assessee on 17-02-2005 treating them as his personal assets and corresponding long term capital gain or loss has been offered by the assessee. As far as SPANCO shares are concerned, the share application amount was received back by the assessee on 06-12-2004 and accordingly, no income was earned by the assessee on this transaction. Thus, the AO is of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Office in the assessment order for the decision in the case of CIT vs. Mangalam Cements Ltd. (supra) there was no nexus between the receipt of interest on short term deposits and payment of interest on loan borrowed. In the case of Bai Bhuriben Lalubhai vs. CIT (supra) again the observation was that there was no direct or indirect nexus between the expenditure incurred and the income earned on the fixed deposits, the decision in the case of CIT vs. Sujani Textiles Pvt. Ltd. (supra) the director was advancing money without charging interest and there was no investment in shares as in the case of the assessee and therefore, all the cases relied upon by the Assessing Officer are not applicable to the facts of the case. Further, the contention of the Assessing Officer that the expenditure on interest was not allowable against business income is not required to be adjudicated for it was not in dispute that those shares purchased were admittedly not the assessee s business assets. At the same time it cannot be stated that the assessee was not in the business of sale and purchase of shares for the assessee has shown a profit of ₹ 26,689/- from share trading business during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the acquisition of the share and therefore relatable to the earning of the capital gains/loss and not the business profits. 26. On the other hand, Ld Counsel for the assessee made various arguments and they are: (a) the assessee took the loan for investment in shares and accordingly, the assessee made investment in both TCS shares and SPANCO shares too. But, the allotment of SPANCO shares never materialized. However, the assessee had to make the payment of interest to the Bank and it is the expenditure incidental to the business of the share trading and relied on the additional ground raised by the assessee in this regard. The allotment of shares against the investment in the IPO of SPANCO shares is not the hands of the assessee; (b) assessee is engaged in the business of share trading and the same is evidenced by the fact of profit of ₹ 26,689/- from share trading business during the year under consideration; (c) as per the Counsel, the sum of ₹ 22,13,037/- being disallowance of interest paid on borrowed funds is actually and undisputedly incurred and he is entitled to deduction out of his total income; (d) the Counsel relied upon various citations in order to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gains/loss on account of TCS shares under capital gains head of income. To bring harmony, in our opinion, it is appropriate that the assessee is entitled to relevant interest segment relatable to TCS shares under the head capital gains head of income. AO may undertake appropriate action in this regard, if there are any tax implications in their favour. Otherwise, in the absence of any tax implications, there is no need for disturbing the computation of income as it merely an academic exercise to no gains or loss to either side of the dispute. Regarding the relevant interest segment relatable to SPANCO shares, in the absence of any successful acquisition of shares and no consequential income chargeable to tax u/s 48 or 56 of the Act, we are of the opinion, the assessee is entitled to deduction u/s 36(iii) of the Act. Accordingly, the additional ground raised by the assessee is allowed and consequently, the ground raised by the revenue is dismissed. 29. Ground 3 relates to the decision of the CIT(A) in restricting the disallowance made out of the depreciation and aviation expenses on Bell Helicopter to 20% against 30% as per Assessing Officer s order. This issue is already addre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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