TMI Blog2020 (10) TMI 1204X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided to the assessee s director. This fact is evidenced in the Notes to the Accounts at Point No.9. In these circumstances, the addition u/s. 69C of the Act was not justified. Disallowance of depreciation is use of BMW car by the director of assessee - HELD THAT:- There is use of car by director of company for the purpose of business of assessee and this is not disputed. There is nothing to show that property was used only for personal purposes. The car in question was a business asset and depreciation had to be allowed on the same. The AO could have disallowed depreciation on the ground of personal user in respect of a particular item of depreciable asset. He could not have disallowed the entire claim of depreciation. Disallowance of depreciation on the ground that there was no business activity, cannot also be sustained, for the reasons which will be given later. Employee cost was salary paid to 3 employees and had to be allowed as a deduction - no dispute that salary was paid to employees of the assessee. No valid justification for the comments and conclusions of AO in the order of assessment which was endorsed by the CIT(Appeals). Whether lack of business activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48,926/-; d. Travelling and conveyance of ₹ 4,43,957/-; e. Professional Consultancy Charges of ₹ 5,55,000/-; f. Audit Fees of ₹ 4,41,930/-; g. Interest expenses of ₹ 7,14,805/-; h. Gifts of ₹ 11,998/- i. Other genuine business expenditures - ₹ 7,87,862. 4. The assessee is a company engaged in the business of distributing security products like self-service terminals like ATMs and other lines of business including software, hardware, middleware and switching solutions. 5. For the AY 2010-11, the assessee filed a return of income declaring total income at NIL. The AO has noticed that in the past assessment years, the percentage of business income to the total income declared by the assessee was as follows:- A.Y. Income from Business Other income as rent interest received % of business income of total income Expenditure claimed 07-08 2.20.000 2,13,12,630 1.02% 1,94,70,714 08-09 6,15,000 1,90,77.569 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and VHPL were located in the same floor and the same address and that VHPL had no staff for the past 7 years and did not pay any rents to the assessee. It also emerged that the directors of VHPL and assessee were one and the same. VHPL had offered loss of ₹ 19,313 for AY 2012-13 and ₹ 74,80,750 for AY 2010-11. The nature of services received could not be explained by VHPL Vice President, Mr. G. Kishor when he was examined. Based on the above, the AO came to the conclusion that income of ₹ 6 lakhs offered by the assessee as business income was unexplained credit and required to be added u/s. 68 of the Act. In the computation of total income, the AO included a sum of ₹ 6 lakhs. 8. The AO then found that out of expenditure of ₹ 1.3 crores claimed by the assessee in the P L account, the AO found that the rent of ₹ 2,27,142 was claimed by the assessee. The assessee had office in Bangalore and Chennai and both were owned by assessee. The godown in Pondicherry was taken on rent of ₹ 1,300 per month. The AO s conclusion was that except the sum of ₹ 15,600 being rent for godown at Pondicherry, the remaining rental expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out that in law it was not necessary that for a business to be in existence, it should always have work and that there may be long intervals of inactivities, but still the concern will be a going concern. The assessee relied on judicial pronouncements in support of the arguments so advanced. 13. The CIT(Appeals), however, was not convinced and was of the view that the AO was justified in disallowing expenses. He also found that VHPL was operating from the same premises of assessee and had no employees for carrying out its day to day functions and expenditure claimed by assessee included expenditure of VHPL also. On the legal proposition advanced by the assessee that expenses have to be allowed, when the business has not been closed permanently and that in periods of lull, there is bound to be absence of income, but expenses will have to be incurred; the CIT(A) took the view that assessee has not brought on record any evidence to show that business has not ceased and expenses were incurred only to keep business alive. 14. On the issue that similar expenses were allowed by the Tribunal in AY 2009-10, the CIT(Appeals) took the view that the fact that prevailed in AY 2009- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um treated as unexplained has to be assessee s money. TDS has been deducted on the sum payable by VHPL. The AO himself has found that VHPL does not have employees and assessee catered to the needs of VHPL. In these circumstances, the addition of ₹ 6 lakhs u/s. 68 was not justified. 20. As far as disallowance of expenses is concerned, what we notice is that out of rental expenditure of ₹ 2,27,142 claimed by assessee, the AO has treated a sum of ₹ 2,11,542 as unexplained expenditure u/s. 69C of the Act. The assessee has explained that apart from the rent for godown of the previous year, which was allowed by the AO at ₹ 15,600, the balance amount of ₹ 2,11,542 was rent paid to accommodation provided to the assessee s director. This fact is evidenced in the Notes to the Accounts at Point No.9. In these circumstances, the addition u/s. 69C of the Act was not justified. 21. As far as depreciation claimed by the assessee is concerned, the first thing which we notice is that the assessee is in business of security product distribution. A perusal of depreciation schedule given in the order of assessment shows that apart from BMW Car, there are other asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a concern may still be a going concern, though it may for some time, be quiet and dormant, would not mean that it has ceased to exist. If the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business would be successful, the expenses have to be allowed and has to be considered as having been incurred for the purpose of business of assessee. In the light of the legal position emerging from the aforesaid decisions and in the facts and circumstances of the present case, we are of the view that the business of assessee had not come to a complete halt and it was a going concern and expenses in question had to be incurred to keep the concern going. We are therefore of the view that the expenses in question should be allowed as a deduction. 24. We also find that the Tribunal in the appeal of the revenue for AY 2009-10, on the aforesaid reasoning had upheld the order of CIT(Appeals) deleting the addition made by AO by way of disallowance of expenses. We are therefore of the view that the expenses claimed by the assessee should be allowed as a deduction and it has also to be held that income of ₹ 6 lakhs has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered. As regards claim of the appellant that in its return of income it had already disallowed an expenditure of ₹ 9,71,317/- for earning of such income, the same is not found to be correct. A perusal of the return of income shows that in Part A-OI(7)(g) relating to 'Amount of expenditure in relation to income which does not form part of the total income ' the amount given is 'Nil'. Although the appellant has disallowed certain expenses under Part A-OI(7)(i), but the same are the amount not allowable under Section 37 of the Act. The appellant is now trying to claim that the same include disallowance under Section 14A of the Act, which cannot be accepted. 27. The CIT(Appeals) thereafter held that since he had disallowed the entire expenditure, there was no question of making disallowance u/s. 14A. He, however, added a rider that in the event of appellate authorities allowing the claim of assessee for deduction, the disallowance u/s. 14A would survive. Aggrieved by the aforesaid order of CIT(Appeals), the assessee is in appeal before the Tribunal. 28. We have heard the rival submissions. We have perused the computation of total income of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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