The Commissioner Of Income Tax, Rohtak v. M/S The Atlas Cycle Industries Limited, Sonepat

ITA No.163 of 2002 Date of decision: 20.7.2010 The Commissioner of Income Tax, Rohtak -----Appellant Vs. M/s The Atlas Cycle Industries Limited, Sonepat ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Krishan Kumar Mehta, Advocate for the revenue.Mr. Akshay Bhan, Advocate for the assessee. Adarsh Kumar Goel,J. 1.This appeal has been preferred by the revenue under Section260A of the Income Tax Act, 1961 (for short, ‘the Act’) against order dated17.1.2001 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘A’,New Delhi in ITA No.3410/Del/94 for the assessment year 1987-88,proposing to raise following substantial questions of law:- “i) Whether on the facts and in the circumstances of thecase, the ITAT was justified in law in confirming theorder of the CIT(A) restricting the disallowances madeunder section 40A(5) to the extent of recoveries madefrom the employees? ii) Whether on the facts and in the circumstances of thecase, the ITAT was justified in confirming the order ofCIT(A) deleting the disallowances made by theAssessing Officer under section 40A(5) of the Act? iii) Whether on the facts and in the circumstances of thecase, the ITAT was justified in directing the deletion ofdisallowance made under section 40 (c) of the IT Act?” 2.The assessee is manufacturer and exporter of bicycles. Duringthe course of assessment, the Assessing Officer disallowed deductionclaimed by the assessee by invoking Section 40A(5) of the Act, rejecting thecontention that since the employees were reimbursing the company for useof the company’s car to the extent of personal use, expenditure in thatregard could not be disallowed under section 40A(5) of the Act. On appeal,the CIT(A) reversed the said view and upheld the plea of the assessee. TheTribunal affirmed the view taken by the CIT(A). 3.Rajiv Kapur son of the President of the company was paidsalary and allowances. The Assessing Officer disallowed part of the amountas unreasonable payment under section 40(c). CIT(A) reversed the said viewwhich was upheld by the Tribunal. 4.We have heard learned counsel for the parties and perused the record. 5.The findings recorded by the CIT(A) upholding the claim ofthe assessee may be referred to, which are as under:- Re: (i) “Following my this order, addition of Rs.41,362/- andRs.15,995/- are deleted in full. As regards disallowance ofRs.2,50,000/- the same is restricted to the extent ofrecoveries of perquisites made by the assessee from theemployees under rule 3 of the IT rules, 1962. Ld. AO willobtain the details of recoveries of perquisites from theemployees and will recompute the disallowanceaccordingly.” Re: (ii): “16. Ground No.21 is against the disallowance ofRs.15,951/- under section 40(c) in respect of Shri RajivKapoor AED (W). 17.Similar issue has been decided by me in assessee’sown case for the assessment year 1986-87 in appeal No.mentioned supra. In view of the findings given by metherein, addition is deleted.” 6.It is clear from the above findings that disallowance by the Assessing Officer was with regard to the amounts recovered from theemployees to whom benefit of use of car was allowed. It was held thatsince the employees reimbursed the assessee for the use of car forpersonal use, there was no justification for disallowing expenditure oncar under Section 40A. Similarly, payment of salary and allowanceshave been held not to be unreasonable having regard to hisqualification and other circumstances. The said findings are findings of facts and are not shown to be perverse. 7.Accordingly, the appeal is dismissed. (Adarsh Kumar Goel) Judge July 20, 2010‘gs’ (Ajay Kumar Mittal) Judge