Disallowance for personal use of Car cannot be made for mere non maintenance of log book

Golden Public School Samiti Vs ITO (ITAT Delhi)

It is observed from the assessee’s submissions made before the authorities below that the cars were used by the society for its work of school. The assessee submitted that these cars were used for various purposes, such as, liaisoning with DIOS and CBSE Board etc. Such contentions have not been refuted with any cogent evidence except for the fact that no service of driver was availed and, further, the log book was not maintained. It is seen that the assessee society has used vehicles in the succeeding years as well for which no disallowance of depreciation has been made. In view of the foregoing discussion, I am satisfied that the ld. CIT(A) erred in sustaining the disallowance of depreciation and the same is directed to be deleted.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This appeal by the assessee arises out of the order passed by the CIT(A) on 21.12.2015 in relation to the assessment year 2010-11.

2. No one was present on behalf of the Revenue. In fact, the Revenue has filed en bloc adjournment applications for all the cases listed today. Ex consequenti, there is no one in the Court Room to represent the Revenue. The ld. AR seriously objected to the grant of adjournment in his case. As such, I am not inclined to accept the adjournment application filed for the Revenue and proceeding to dispose of the appeals on merits ex parte qua the Revenue.

3. The first issue raised in this appeal is against the sustenance of addition to the tune of Rs.7,82,465/- on account of honorarium.

4. Briefly stated, the facts of the case are that the assessee is a registered society duly approved by the CIT, Meerut, but without there being any certificate for exemption u/s 80G of the Act. During the course of assessment proceedings, it was observed that out of gross receipts of Rs.43,27,675/-, the assessee claimed salary of Rs.21,72,890/-. Apart from salary, the assessee also claimed deduction for a sum of Rs.7,82,465/-under the head ‘Honorarium expenses.’ Vide order sheet dated 12.03.2013, the assessee was asked to provide details of the persons with name and address, to whom such honorarium was paid along with their identity, qualification and proof of service rendered. The case was fixed for 15.03.2013. On such date, the assessee submitted one confirmatory letter along with PAN Card without being backed by the nature of services rendered. The assessee simply stated that some lectures were delivered by these persons for which the honorarium was paid. On perusal of such list of persons placed on record by the assessee, the Assessing Officer observed that 52 persons were shown to have been paid honorarium ranging between Rs.9,000/- to Rs.16,000/-. In the absence of the assessee furnishing complete requisite details, the Assessing Officer made disallowance of Rs.7,82,465/-. This was done after considering certain infirmities in partial details furnished by the assessee, as has been recorded on para 6 of the assessment order. No relief was allowed in the first appeal.

5. After hearing the ld. AR and perusing the relevant material on record, it is observed that the Assessing Officer raised query on 12.03.2013 and the assessment order was passed on 28.03.2013. The ld. AR contended that insufficient opportunity was granted by the Assessing Officer for providing necessary details. Considering the time allowed by the Assessing Officer and the nature of evidence required, I am of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of Assessing Officer. I order accordingly and direct him to decide this issue afresh as per law, after allowing a reasonable opportunity of being heard to the assessee.

6. Ground No.2 is against confirmation of disallowance of Rs.4,54,300/-, being, the amount of salary paid to family members of the management of the society.

7. The facts apropos this ground are that the assessee paid a sum of Rs.1,38,000/- to Shri R.K. Gupta; Rs.1,12,800/- to Smt. Kiran Gupta; Rs.1,23,700/- to Shri Rohit Gupta; and Rs.79,800/- to Miss Nidhi Gupta. Invoking the provisions of section 13(3) read with section 13(2), the Assessing Officer treated the entire amount as excessive. This led to the disallowance of Rs.4,54,300/-. The ld. CIT(A) sustained the addition after considering the assessee’s explanation, which has been recorded on page 8 of the impugned order.

8. Having heard the ld. AR and perused the relevant material on record, it is observed that the assessee runs a school having a strength of 1030 students. Smt. Kiran Gupta, who was paid Rs.1,12,800/-, is the Principal and President of the society. Shri R.K. Gupta, who was paid Rs.1,38,000/- is the Secretary of the society, looking after overall work at the school. The other two persons, namely, Shri Rohit Gupta and Miss Nidhi Gupta are B.Ed. and drew salary at a nominal level. Payments made to these persons are not excessive, calling for any disallowance. Similar expenses were incurred in the succeeding years as well, which got allowed at the hands of the Assessing Officer. Under these circumstances, I am of the considered opinion that the disallowance of Rs.4,54,300/- was wrongly sustained. The same is ordered to be deleted.

9. Ground No.3 has two components, namely, disallowance of depreciation and interest. The assessee claimed depreciation on Honda City Car and i10 cars. In the absence of any log book of cars and the further fact that no salary payments were made to the drivers, the Assessing Officer disallowed the amount of depreciation, which action came to be upheld in the first appeal. The assessee is aggrieved against such sustenance of disallowance.

10. It is observed from the assessee’s submissions made before the authorities below that the cars were used by the society for its work of school. The assessee submitted that these cars were used for various purposes, such as, liaisoning with DIOS and CBSE Board etc. Such contentions have not been refuted with any cogent evidence except for the fact that no service of driver was availed and, further, the log book was not maintained. It is seen that the assessee society has used vehicles in the succeeding years as well for which no disallowance of depreciation has been made. In view of the foregoing discussion, I am satisfied that the ld. CIT(A) erred in sustaining the disallowance of depreciation and the same is directed to be deleted.

11. The other component of this ground is disallowance of interest. The Assessing Officer observed that funds of the society were diverted to M/s Dev Packaging and Shri Sanjay Gupta, who is one of the trustees of the society. Such diversion of funds to M/s Dev Packaging and Shri Sanjay Gupta amounted to Rs.17 lac. The Assessing Officer held that the assessee should have earned interest @ 10% from these persons. That is how, addition of Rs.1,70,000/- was made. The ld. CIT(A) allowed relief of Rs.1,19,000/- by holding that the rate of interest at 10% for three months was quite excessive. Applying the rate of 12% for three months, he reduced the disallowance to Rs.51,000/-. The assessee is aggrieved against this disallowance.

12. The ld. AR contended that the funds to M/s Dev Packaging and Shri Sanjay Gupta were given for purchase of some property, which transaction could not fructify. It was further stated that such amount of Rs.17 lac given to M/s Dev Packaging and Shri Sanjay Gupta was later returned. The ld. AR still further contended that the Assessing Officer did not grant adequate opportunity to the assessee to put forth the evidence in support of this contention. Considering the entirety of the facts and circumstances as prevailing in the instant case, I set aside the impugned order on this score and remit the matter to the file of Assessing Officer for examining the contention of the assessee in the light of evidence, which it proposes to file. Needless to say, the assessee will be allowed a reasonable opportunity of hearing.

13. The last ground is against the addition of Rs.2,04,757/-. The Assessing Officer treated `surplus’ as income. The ld. CIT(A) noticed that the assessee was enjoying registration u/s 12A of the Act and its income was exempt u/s 11. Considering the application of income at 85%, the ld. CIT(A) held that the addition was not called for. However, on perusal of the details filed by the assessee for application of income, he observed that the assessee, inter alia, claimed incurring of capital expenditure of Rs.2,04,757/- towards cost of construction of building and other capital assets, for which no details/evidence were given. This is how, surplus of Rs.2,04,757/- was added.

14. The ld. AR contended that the ld. CIT(A) did not give any opportunity before treating utilization of surplus of Rs.2,04,757/- as not backed by any evidence. It was submitted that the addition was made by the ld. CIT(A) without confronting the assessee with his point of view. Considering the facts and circumstances of the instant case, I am of the considered opinion that the ends of justice would meet adequately if the impugned order on this issue is also set aside and the matter is restored to the file of Assessing Officer for deciding it afresh as per law, after allowing a reasonable opportunity of being heard to the assessee.

15. In the result, the appeal of the assessee is partly allowed.

Order Pronounced in the open Court on 18.12.2017.