Shri Prahladkumar Agrawal,, Surat v. The Income tax Officer,OSD-I, Range-2,, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH JMAND SHRI A N PAHUJA AM ] ITA NO.3974/AHD/2008 (ASSESSMENT YEAR:-2005-06) SHRI PRAHLAD KUMAR AGARWAL PROP. OF M/S AGRAWAL TEXTILES 401-A ELBEE APARTMENT RING ROAD SURAT [PAN:AAPPA6865L] V/S THE INCOME-TAX OFFICER OSD-1 RANGE-2 SURAT [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI RAJESH M UPADHYAY AR REVENUE BY:- SHRI C K MISHRA DR O R D E R A N PAHUJA: THIS IS AN APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 24-09-2008 OF THE LD. CIT(APPEALS)-II SURAT FOR ASSESSMENT YEAR 2005-06 [NOT AY 2004-05 AS MENTIONED IN THE IM PUGNED ORDER] RAISING THE FOLLOWING GROUNDS:- 1 LR. AO HAS ERRED IN LAW AND ON FACTS TO COMPUTE C APITAL GAIN ON SALE VALUE OF RS.9 45 700/- AS DETERMINED BY STAMP VALUA TION AUTHORITY RATHER THAN VALUE ADOPTED AS PER REGISTERED SALE DE ED. LR. CIT(A) IGNORING THE FACT BUYER OF THE SAID PROPERTY SOLD T HE SAID FLAT ON DATE 4- 10-2005 FOR AN AMOUNT OF RS.8 66 000/- ALSO ERRED I N CONFIRMING VALUE ADOPTED BY AO. 2 LR. AO HAS DISALLOWED OF DEPRECIATION AMOUNTING TO RS.72 202/- ASSUMING THAT CAR WAS NOT PURCHASED AND USED ON DAT E 30-9-2004. LR. CIT(A) ALSO ERRED IN CONFIRMING ITOS ACTION. 3 LR. AO DISALLOWED AN AMOUNT OF RS.38 558/- CLAIME D AS PETROL EXPENSES ON VEHICLES. CIT(A) HAS ALSO ERRED IN CONF IRMING ITOS ACTION. 4 LR. AO HAS ERRED IN DISALLOWING TELEPHONE EXPENSE S OF RS.9 864/-. CIT(A) HAS ERRED IN CONFIRMING ITOS ACTION. 5 THERE IS SHORT DELAY IN FILING THIS APPEAL WHICH IS PRAYED TO BE CONDONED AND PRAYED TO BE ADMITTED. DELAY IS CAUSED BECAUSE OUR AR BEING ITA NO.3974/AHD/2008 2 BUSY WITH COMPLETING ASSESSMENT FOR AY 2006-07 WHIC H ARE REQUIRED BY AO TO BE COMPLETED ON OR BEFORE 31-12-2008. 2 THIS APPEAL WAS INITIALLY DISPOSED VIDE ORDER DAT ED 19-02- 2009. SUBSEQUENTLY ON AN MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE THE APPEAL WAS RECALLED VIDE ORDER DATED 09-10-2009 IN MA NO.125/AHD/2009 AND ACCORDINGLY WAS LISTED FOR HEARING BEFORE US. AT THE OUTSET THE LD. AR ON BEHALF OF THE ASSE SSEE WHILE INVITING OUR ATTENTION TO GROUND NO.5 IN THE APPEAL SUBMITT ED THAT SINCE THE AUTHORIZED REPRESENTATIVE WAS BUSY WITH COMPLETION OF ASSESSMENT FOR THE AY 2006-07 THEREFORE THERE WAS A SHORT DEL AY OF THREE DAYS. THE LD. AR PLEADED THAT SHORT DELAY OF THREE DAYS MAY BE CONDONED. ON THE OTHER HAND THE LEARNED DR DID NOT DISPUTE THESE SUBMISSIONS ON BEHALF OF THE ASSESSEE 3. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE REASONS FOR DELAY. THE ISSUE BEFORE US IS AS TO WHETHER OR NOT THERE WAS SUFFICIENT CAUSE FOR DELAY IN FILING THE APPEAL. IN THE CASE OF STATE OF WEST BENGAL VS. ADMINISTRATOR HOWRAH MUNICIPALITY AIR 1972 SC 749 THE HON'BLE SUPREME COURT WHILE CONSIDERING THE SCOPE OF EXPRESSION 'SUFFICIE NT CAUSE' FOR CONDONATION OF DELAY HAVE HELD THAT THE SAID EXPRESSION SHOULD RECEIVE A LIBERAL CONSTRUCTION SO AS TO ADVANCE THE SUBSTANTIAL JUSTICE WHEN NO NEGLIGENCE OR INACTION OR WANT OF BONA FIDE IS IMPUTABLE TO THE PARTY. IN THE FACTS AND CIRCUMSTA NCES OF THE CASE WE ARE OF THE OPINION THAT THE REASONS GIVEN BY THE ASSESSEE FOR THE DELAY APPEAR TO BE SUFFICIENT CAUSE AND ACCORDINGLY THE DELAY IS LIABLE TO BE C ONDONED. THE LAW OF LIMITATION IS ENSHRINED IN THE MAXIM INTEREST REIPUBLICAE UT SIT FINIS LITIUM (IT IS FOR THE GENERAL WELFARE THAT A PERIOD BE PUT TO LITIGATION). RULES OF LIMITATION ARE NOT MEANT TO DESTROY THE RIGHTS OF THE PARTIES RATHER THE IDEA IS THAT EVERY LEGAL REMEDY MUST BE KEPT ALIVE FOR A LEGISLATIVELY FIXED PERIOD OF TIME. IN SHA NKARRAO V. CHANDRASENKUNWAR REPORTED IN [1987] SUPP SCC 338 THE HONBLE SUPREME COURT T OOK THE VIEW THAT THE COURT SHOULD NOT ADOPT AN INJUSTICE-ORIENTED APPROACH IN REJECTING THE APPLICATION FOR CONDONATION OF DELAY. IN O.P. KATHPALIA V. LAKHMIR SINGH REPORTED IN AIR 1984 SC 1744 THE HON'BLE SUPREME COURT HELD THAT IF THE R EFUSAL TO CONDONE THE DELAY RESULTS IN GRAVE MISCARRIAGE OF JUSTICE IT WOULD BE A GROU ND TO CONDONE THE DELAY. IN VIEW OF ITA NO.3974/AHD/2008 3 THE FOREGOING WE ARE OF THE OPINION THAT THE REASO NS GIVEN BY THE ASSESSEE FOR THE DELAY IN FILING THE APPEAL REFLECT SUFFICIENT CAUS E AND ACCORDINGLY THE DELAY OF THREE DAYS IN FILING THE APPEAL IS CONDONED. THUS GR OUND NO.5 IN THE APPEAL IS ALLOWED. 4 NOW ADVERTING TO GROUND NO.1 IN THE APPEAL RELAT ING TO THE ADDITION ON ACCOUNT OF CAPITAL GAINS IN TERMS OF PR OVISIONS OF SEC. 50C OF THE INCOME-TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RE TURN DECLARING INCOME OF RS.1 07 412/- FILED ON 31.10.2005 BY THE ASSESSEE ENGAGED IN THE TRADING OF ART SILK CLOTH AFTER BEI NG PROCESSED U/S 143(1) OF THE ACT WAS TAKEN UP FOR SCRUTINY WITH T HE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 20.10.2006. THE ASSESSING OFFICER[AO IN SHORT] NOTICED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD SOLD A RESIDENTIAL FLAT AT C-1 PA LLAVI APARTMENTS FOR A CONSIDERATION OF RS.7 LAKHS AS SHOWN IN THE SALE DEED . HOWEVER THE STAMP DUTY VALUATION AUTHORITY [SVA] H AD VALUED IT AT RS.9 45 700/- AND HAD RAISED A DEMAND OF ADDITIONAL STAMP DUTY WHICH HAD BEEN PAID WITHOUT DEMUR . TO A QUERY BY THE AO AS TO WHY THE PROVISIONS OF SEC. 50C OF THE ACT SHOULD NO T BE APPLIED THE ASSESSEE REPLIED THAT THE ACTUAL SALE CONSIDERATION WAS RS.7 LACS WHICH WAS REFLECTED IN THE SALE DEED. THIS HAD BEE N ADMITTED TO AND ACCEPTED BY THE BUYER AND THEREFORE IT WAS THE FA IR MARKET VALUE OF THE PROPERTY. NOTHING IN EXCESS OF THIS SUM HAD BEE N RECEIVED BY THE ASSESSEE. IT WAS ARGUED THAT THE VALUE ADOPTED BY T HE SVA WAS ONLY AN ESTIMATION AND THE ADDITIONAL STAMP DUTY HAD BEE N PAID BY THE BUYER ONLY IN ORDER TO AVOID FURTHER LITIGATION. SI NCE THE HIGHER VALUATION HAD BEEN ACCEPTED BY THE BUYER THE SAME COULD NOT BE APPLIED TO THE ASSESSEE THE SELLER. THE BUYER ON HIS PART HAD SHOWN IN HIS RECORDS THE PURCHASE CONSIDERATIO N AT RS.7 LACS + STAMP DUTY. IT WAS ALSO SUBMITTED THAT THE BUYER HA D SUBSEQUENTLY SOLD THE SAME PROPERTY AND STAMP DUTY HAD BEEN CHAR GED ON RS.8 66 000 WHICH WAS LOWER THAN THE VALUE DETERMI NED WHEN THE PROPERTY WAS SOLD BY THE ASSESSEE. HOWEVER THE AO REJECTED THESE ITA NO.3974/AHD/2008 4 SUBMISSIONS ON BEHALF OF THE ASSESSEE AND HAVING RE COURSE TO PROVISIONS OF SEC.50C OF THE ACT ADOPTED THE SALE CONSIDERATION AT RS.9 45 700 AND ACCORDINGLY COMPUTED THE LTCG AT R S.1 18 114/-. 5. ON APPEAL THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE AO CONTENDED THAT THE AO ADOPTED VALUE D ETERMINED BY SVA WITHOUT FOLLOWING THE PROCEDURE LAID DOWN IN TH E RELEVANT PROVISIONS OF SEC. 50C(2) OF THE ACT. IN THE LIGHT OF THESE SUBMISSIONS THE LD LD. CIT(A) UPHELD THE FINDINGS OF THE AO IN THE FOLLOWING TERMS: 5. IN THE WRITTEN SUBMISSIONS THE AR HAS BASICALL Y REITERATED THE SUBMISSIONS THAT WERE MADE BEFORE THE AO IN COURSE OF THE ASSESSMENT PROCEEDINGS. IT HAS BEEN CONTENDED THAT THE VALUE D ETERMINED BY THE SVA WAS ONLY AN ESTIMATION AND THE BUYER HAD PAID THE REQUISITE STAMP DUTY ON SUCH ESTIMATED VALUE IN ORDER TO AVOID FURTHER LITIGATION AND THE RESULTING DELAYS. ACCORDING TO THE AR THE AO HAD M ISINTERPRETED THE PROVISIONS OF SEC. 50C(2) OF THE IT ACT. FURTHER HE WAS NOT JUSTIFIED IN PRESUMING THAT A PERSON HAVING TWO CARS COULD NEVER BECOME FINANCIALLY WEAK. THE ASSESSEE HAD TO NECESSARILY PROCURE THE C ARS FOR THE PURPOSE OF HIS BUSINESS. FINALLY IT HAS BEEN CONTENDED THA T THE SVA IS NOT THE VALUATION AUTHORITY UNDER THE RELEVANT STATE ACT. H E HAS TO FOLLOW THE JANTRI RATES. THE AO HAD NEITHER MADE ANY ENQUIRY REGARDIN G THE CORRECT RATES NOR HAD FOLLOWED THE PROCEDURE LAID DOWN UNDER THE ACT. HE HAD STRAIGHTAWAY FOLLOWED THE VALUATION OF THE SVA AND HAD THUS VIOLATED THE PRINCIPALS OF NATURAL JUSTICE. 6 I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. IF THE AR'S PROPOSITIONS AND ARGUMENTS WERE TO BE ACCEPTED IT WOULD REQUIRE A COMPLETE CHANGE OF THE IT ACT. HE HAS ONLY STOPPED SHORT OF ARGUING THAT SEC. 50-C IS ULTRAVIRES OF THE CONSTITUTION. NONE OF HIS ARGUMENTS MAKE ANY SENSE. HE SAYS IT IS A SETTLED LAW THAT THE VAL UATION MADE BY THE SVA IS ONLY AN ESTIMATE AND NOT THE FAIR MARKET VALUE. HOWEVER HE DOES NOT SHOW HOW AND DOES NOT RELY ON ANY CASE-LAW. SEC.50 -C IS A SPECIAL PROVISION FOR ASCERTAINING WHAT IS THE FULL VALUE O F CONSIDERATION IN CERTAIN CASES. THIS SECTION PERTAINS SPECIFICALLY TO A SE LLER OF IMMOVABLE PROPERTY OR CAPITAL ASSET. SUB-SEC.(1) CLEARLY SAYS THAT T HE VALUE ADOPTED OR ASSESSED BY THE SVA FOR THE PURPOSE OF PAYMENT OF S TAMP DUTY IN RESPECT OF A TRANSFER OF A CAPITAL ASSET SHALL BE DEEMED T O BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF S UCH TRANSFER. THE AR HAS NOT UNDERSTOOD THE MEANING OF THE WORD 'DEEMED' AS USED IN THE SECTION. THE VALUE DETERMINED BY THE SVA IS TO BE DEEMED TO THE FAIR MARKET VALUE AND HENCE THE FULL VALUE OF THE CONSIDERATION RECE IVED AGAINST THE TRANSFER. ITA NO.3974/AHD/2008 5 VERBALLY HE ARGUED THAT THE AO WAS DUTY-BOUND TO RE FER THE MATTER TO THE DVO. SINCE HE FAILED TO DO SO NO ADDITION COULD BE MADE. HE ALSO ARGUED THAT SUB-SEC. (1) & (2) HAVE TO BE READ TOGE THER. YES THEY HAVE TO BE READ TOGETHER AND IF READ TOGETHER IT IS CLEAR LY SEEN THAT WHERE THE ASSESSEE CLAIMS BEFORE THE AO THAT THE VALUE ADOPTE D BY THE SVA EXCEEDS THE FAIR MARKET VALUE AND IF SUCH VALUE HA D NOT BEEN DISPUTED IN APPEAL OR REVISION AND NO REFERENCE HAS BEEN MADE BEFORE ANY OTHER AUTHORITY THE AO MAY REFER THE VALUATION OF THE C APITAL ASSET TO THE DVO'. IN THE CASE OF THE ASSESSEE THE VALUATION WAS NOT DISPUTED IN THE FIRST PLACE. THE ADDITIONAL STAMP DUTY DEMANDED BY THE SV A WAS PAID BY THE BUYER. IT IS NOT ARGUED THAT VALUATION OF THE SVA HAD EXCEEDED THE FAIR MARKET VALUE OF THE PROPERTY. IT IS ONLY ARGUED THA T THE VALUE ADOPTED BY THE AUTHORITY WAS ONLY AN ESTIMATE AND DID NOT REPR ESENT THE REAL CONSIDERATION RECEIVED BY THE ASSESSEE. THEREFORE THE CONDITION AS LAID DOWN IN CLAUSE (A) TO SUB-SEC. (2) WAS NOT SATISFIE D. IN ANY CASE THE SUB SEC.(2) LEAVES THE DECISION AS TO WHETHER OR NOT TH E VALUATION SHOULD BE REFERRED TO THE DVO ON THE ASSESSING OFFICER. IN TH IS CASE THE AO DID NOT REFER THE VALUATION TO THE DVO. THEREFORE THERE IS ABSOLUTELY NO BASIS FOR THE AR TO CONTEND THAT THE AO WAS DUTY BOUND TO REF ER THE MATTER TO THE DVO. ALL SAID AND DONE THE SUBMISSIONS OF THE AR A RE ABSOLUTELY BASELESS AND COMPLETELY CONTRADICTORY TO THE SPIRIT OF SEC. 50C OF THE IT ACT. 6.1 TAKING ALL SUCH FACTS AND CIRCUMSTANCES OF THE CASE INTO CONSIDERATION IT IS HELD THAT THE AO WAS FULLY JUSTIFIED IN APPLY ING THE PROVISIONS OF SEC. 50C OF THE IT ACT AND IN WORKING OUT THE UNDERSTATE D LONG TERM CAPITAL GAIN AT RS.1 18 114/-. THE ADDITION OF THE SAID SUM IS T HEREFORE CONFIRMED . 6. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE MERELY REITERATED THEIR SUBMISSIONS BEFORE THE LD. CIT(A) WHILE THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. IN TERMS OF PROVISIONS OF SEC. 50C OF THE ACT THE NORMAL RULE IS THAT WHERE STAMP DUTY VALUATION IS HIGHER THAN THE STATED CONSIDERATION ON TRANSFER THE SAME HAS TO BE ADOPTED FOR THE PURPOS ES OF COMPUTING CAPITAL GAINS. THE EXCEPTION IS THAT IN CASE THE ASSESSEE IS ABLE TO DEMONSTRATE THAT THE FAIR MARKET VALUATION IS LESS THAN THE STAMP DUTY VALUAT ION THE FAIR MARKET VALUE IS TO BE ADOPTED. IN EFFECT WHEN STAMP DUTY VALUATION O F A PROPERTY IS HIGHER THAN STATED VALUE OF SALE CONSIDERATION THE ONUS IS ON THE ASSESSEE TO PROVE THE FAIR ITA NO.3974/AHD/2008 6 MARKET VALUE . AS LONG AS ASSESSEE CAN REASONABLY D ISCHARGE THIS ONUS EVEN UNDER THE SCHEME OF S. 50C THE CONSIDERATION STATE D BY THE ASSESSEE CANNOT BE DISTURBED. HOWEVER IN THE INSTANT CASE THERE IS N O MATERIAL BEFORE US THAT FAIR MARKET VALUE ON THE DATE OF TRANSFER WAS LESS THAN THE VALUE DETERMINED BY THE SVA. THOUGH THE ASSESSEE ARGUED T HAT SUBSEQUENTLY BUYER HAD SOLD THE PROPERTY AT A LESSE R VALUE THE RELEVANT FACTS AND CIRCUSMSTANCES AFTER THE PROPE RTY WAS SOLD BY THE ASSESSEE ARE NOT BEFORE US NOR THESE ARE RELEV ANT AS ON THE DATE OF TRANSFER BY THE ASSESSEE. WHAT IS TO BE S EEN IS THE FAIR MARKET VALUE OF THE PROPERTY AS ON THE DATE OF TRA NSFER BY THE ASSESSEE. SINCE THE ASSESSEE HAS NOT PLACED ANY MA TERIAL EITHER BEFORE THE LOWER AUTHORITIES AND EVEN BEFORE US TH AT THE VALUE ADOPTED BY THE SVA EXCEEDS THE FAIR MARKET VALUE W E ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). THEREFORE GROUND NO. 1 IN THE APPEAL IS DISMISSED. 8. GROUND NO.2 IN THE APPEAL RELATES TO DISALLOWANC E OF DEPRECIATION AMOUNTING TO RS.72 202/-. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASS ESSEE PURCHASED A CAR ON 30.9.2004. TO A QUERY BY THE AO THE ASSESSEE DID NOT SUBMIT ANY EVIDENCE THAT THE CAR WAS ACTUA LLY USED FOR THE ASSESSEE'S BUSINESS ON THE SAME DAY NOR ANY PETROL EXPENSES WERE INCURRED ON 30.9.2004. SINCE THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE LIKE OCTROI RECEIPT DATE OF REGISTRATION ETC. WHICH WOULD ESTABLISH THE DATE ON WHICH THE SAID CAR WAS PUT TO USE THE AO ALLOWED ONLY 50% DEPRECIATION ON THE NEW CAR RE SULTING IN THE DISALLOWANCE OF A SUM OF RS.72 202/-. 9. ON APPEAL THE CIT(A) UPHELD THE DISALLOWANCE HOLDING AS UNDER: 10. I DO NOT AGREE WITH ANY OF THE POINTS MADE BY THE A R WITH REGARD TO SUCH DISALLOWANCES U/S. 32 (1) OF THE IT ACT. FOR F ULL DEPRECIATION TO BE ALLOWED ON AN ASSET IT HAS TO BE ACQUIRED AND PUT TO USE FOR A MINIMUM OF 180 DAYS DURING THE PREVIOUS YEAR. THE CAR WAS ALLE GEDLY PURCHASED ON ITA NO.3974/AHD/2008 7 30-9-2004. VERIFICATION MADE BY THE A O SHOWED THAT NO PETROL WAS PURCHASED ON THE SAID DATE. NO EVIDENCE OF OCTROI P AYMENT OR THE DATE OF REGISTRATION OF THE CAR WAS FURNISHED. THE A R HAS CONTENDED THAT THE DEALER ALWAYS PROVIDES SOME FUEL IN THE NEW CAR AND HAS ALSO STATED THAT IF IT IS PRESUMED THAT HE TAKES 2 TO 3 DAYS TO GET THE CAR OPERATIONAL THEN ALSO IT COULD BE PRESUMED THAT THE CAR WAS PUT TO U SE BY 2.10.2004. IN THAT CASE ALSO THE CAR WOULD HAVE BEEN PUT TO USE FOR 1 80 DAYS DURING THE YEAR AND HENCE FULL DEPRECIATION SHOULD HAVE BEEN ALLOWED. THE A R HAS SOUGHT TO PROVIDE COPY OF THE PETROL BILL DTD. 30.9 .2004. FIRSTLY THIS PETROL BILL WAS NOT PLACED BEFORE THE A O AND SUCH BILLS C AN ALWAYS BEEN PROCURED SUBSEQUENTLY FROM ANY PETROL PUMP. THE PRE SUMPTION OF THE CAR HAVING BEEN PUT TO USE ON OR BEFORE 2.10.2004 IS AL SO NOT BACKED UP BY ANY EVIDENCE. IN ANY CASE AT THE TIME OF THE ASSES SMENT PROCEEDINGS THERE WAS NOTHING BEFORE THE A O TO SHOW THAT THE N EW CAR HAD BEEN USED FOR A MINIMUM OF 180 DAYS DURING THE PREVIOUS YEAR. THE ADDITION OF RS.72 202 WILL THEREFORE BE SUSTAINED. 10. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAIN ST THE FORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE LD. CIT(A) RELIED UPON A DECISION IN THE CASE OF AJAY GOYAL VS. ITO 99 TTJ(J D)164 AND CONTENDED THAT EVEN PASSIVE USER OF CAR IS ENTITLED TO DEPRECIATION. ON THE OTHER HAND THE LD. DR SUPPORTED THE FINDING S OF THE LD. CIT(A). 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. WE FIND THAT THOUGH THE ASSESSEE PURCHASE D CAR ON 30.9.2004 DESPITE REQUEST MADE BY THE AO THE ASSE SSEE DID NOT FURNISH ANY EVIDENCE OF USE OF CAR FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE LD. AR APPEARING BEFORE US DID NO T DIVULGE AS TO WHEN THE CAR WAS INSURED AND WHAT WAS ITS DATE OF R EGISTRATION IN THE ASSESSEES NAME NOR EVEN AS TO WHEN THE ASSESSEE A PPLIED FOR REGISTRATION AND HOW THE CAR WAS USED OR KEPT READY FOR USE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE WHICH EARNED P ROFITS. SINCE THE RELEVANT FACTS ARE NOT AVAILABLE ON RECORDS NOR E VEN BEFORE US WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE O RDER OF THE LD. CIT(A) ON THIS ASPECT AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE RELATING TO DEPRECIATION ON CAR PURCHASED ON 30.9.2004 AFRE SH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSES SEE KEEPING IN MIND OUR ITA NO.3974/AHD/2008 8 AFORESAID OBSERVATIONS. THE ASSESSEE IS ALSO DIREC TED TO PLACE ALL THE RELEVANT INFORMATION BEFORE THE AO AND THE LATTER MAY UNDER TAKE ANY INDEPENDENT ENQUIRIES IF CONSIDERED NECESSARY. WITH THESE DIRE CTIONS GROUND NO.2 IN THE APPEAL IS DISPOSED OF. 12. GROUND NOS.3 & 4 RELATE TO DISALLOWANCE OF 20 % OF THE REPAIR AND PETROL EXPENSES AS ALSO DEPRECIATION AMOUNTING TO RS.38 558/- AND DISALLOWANCE OF 20% OF THE TELEPHONE EXPENSES OF RS.9 864/-. THE AO DISALLOWED 20% OF THE EXPENDITURE ON REPAIR AND MAINTENANCE OF CARS THEREBEING NO LOG BOOK OR ANY RECORD OF THE USE OF THE VEHICLES. LIKEWISE TELEPHONE EXPENSE S OF RS.49 321/- WERE CLAIMED WITHOUT MAINTAINING ANY CALL REGISTER OR OTHER RECORDS EVIDENCING THAT TELEPHONES WERE USED FOR THE PURPOS E OF BUSINESS OF THE ASSESSEE. TO A QUERY BY THE AO THE ASSESSEE SUBMITTED THAT ONE OF THE CARS WAS USED FOR THE ASSESSEE'S BUSINES S WHILE THE SECOND CAR HAD BEEN PARTLY USED FOR BUSINESS PURPOS ES. IT WAS ALSO SUBMITTED THAT IN THE A.Y.2003-04 IN THE ASSESSEE' S OWN CASE THE ITAT HAD RESTRICTED THE DISALLOWANCES OUT OF PETROL EXPENSES AND DEPRECIATION TO 1/8TH OF THE TOTAL EXPENDITURE CLAI MED HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE A ND DISALLOWED 20% OF THE EXPENSES AS STATED ABOVE. 13. ON APPEAL THE CIT(A) UPHELD THE AFORESAID DISALLOWANCES IN THE FOLLOWING TERMS:- 10.1 WITH REGARD TO THE VEHICLE EXPENSES INCLUDIN G EXPENDITURE INCURRED ON PETROL REPAIRING AND AS ALSO THE DISALLOWANCE M ADE OUT OF TELEPHONE EXPENSES. I AM OF THE VIEW THAT HOWEVER MUCH IT MAY BE CLAIMED THAT ASSETS SUCH AS VEHICLES AND TELEPHONES ARE PROCURED AND UTILISED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS YET TH E ELEMENT OF PERSONAL USE OF SUCH ASSETS CANNOT BE ENTIRELY RULES OUT ES PECIALLY WHEN NO RECORD OF THEIR USAGE IS MAINTAINED. THEREFORE I HOLD THA T THE A O WAS FULLY JUSTIFIED IN DISALLOWING 20% OF THE EXPENSES CLAIME D ON TELEPHONES VEHICLES AND DEPRECIATION ON MOTOR CAR. THE ADDITIO N OF TH4E SUM OF RS.48 422 (RS.38 558 + RS.9 864) IS THEREFORE CONF IRMED. ITA NO.3974/AHD/2008 9 14. THE ASSESSEE IS NOW IN APPEAL BEFORE US A GAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE REITERATED THEIR SUBMISSIONS BEFORE THE A O WHILE THE LD. DR SUPPORTED THE FINDINGS OF THE LD. CIT(A). 15. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE. UNDISPUTEDLY PERSONAL USE OF C ARS BY THE THE ASSESSEE AND HIS FAMILY MEMBERS OR STAFF HAS NOT BEEN DENIE D NOR IT WAS CLAIMED THAT THE ASSESSEE OR HIS FAMILY HAD THEIR INDEPENDENT VEHICL ES FOR PERSONAL USE. IN RESPECT OF TELEPHONE EXPENSES EVEN BILLS FOR CELL PHONES MAINTAINED BY THE ASSESSEE WERE NOT PLACED BEFORE THE AO OR THE LD. C IT(A). IN THESE CIRCUMSTANCES IN OUR OPINION DISALLOWANCE OF 1/8 TH OF REPAIR AND MAINTENANCE EXPENSES OF VEHICLES INCLUDING DEPRECIATION AND DI SALLOWANCE OF 1/8 TH TELEPHONE EXPENSES IN THE LIGHT OF PROVISIONS OF SEC. 38(2) OF THE ACT IS REASONABLE. EVEN IN THE. AY 2003-04 ITAT UPHELD THE DISALLOWANCE OF 1/8 TH OF SUCH EXPENSES. ACCORDINGLY THESE GROUND NOS.3 AND 4 OF THE APPEA L ARE PARTLY ALLOWED. 7 IN THE RESULT APPEAL IS PARTLY ALLOWED BUT FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 13 -04 -2010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 13-04-2010 COPY OF THE ORDER FORWARDED TO : 1. SHRI PRAHLAD KUMAR AGARWAL PROP. OF M/S AGRAWAL TEXTILES 401-A ELBEE APARTMENT RING ROAD SURAT 2. THE ITO OSD-1 RANGE-2 SURAT 3. CIT CONCERNED 4. CIT(A)-II SURAT 5. THE DR ITAT D BENCH AHMEDABAD 6. GUARD FILE ITA NO.3974/AHD/2008 10 BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD