M/s Banu Mal Inder Lal, Ambala Cantt. V. DCIT, Ambala

CO 66/CHANDI/2009

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5258 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-07-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 02-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S S KEMWAL
• Keywords: Unexplained investment; Unexplained expenditure; Business income; Depreciation; Salary income; Deemed to accrue or arise in india
• Section: 69C; 143(3); 133A; 69; 6; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI G. S.PANNU, ACCOUNTANT MEMBER AND MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.1016 /CHD/2009 ASSESSMENT YEAR : 2006-07 THE D.C.I.T., VS. M/S BANU MAL INDER LAL, AMBALA. KASERA BAZAR, AMBALA CANTT. AND C.O.NO.66/CHANDI/2009 (IN ITA NO.1016 /CHD/2009) ASSESSMENT YEAR : 2006-07 M/S BANU MAL INDER LAL, VS. VS. THE D.C.I.T., KASERA BAZAR, AMBALA CANTT AMBALA. PAN: AAAEFB5325K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.S.KEMWAL RESPONDENT BY : SHRI JASPAL SHARMA O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A), DATED 21.8.2009 REL ATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT. 2 2. THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST T HE APPEAL FILED BY THE REVENUE. BOTH THE APPEAL OF THE REVENUE AND TH E CROSS OBJECTION FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE B EING DISPOSED OF BY THIS CONSOLIDATED OR FOR THE SAKE OF CONVENIENCE. 3. THE GROUND NOS.1 TO 5 RAISED BY THE REVENUE ARE AS UNDER :- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD.CIT (APPEALS) HAS ERRED IN LAW IN HOLDING THAT THE ADDITIONAL INCOME OF RS.44 LACS DECLARED A T THE TIME OF SURVEY U/S 133A(1) AND ASSESSED BY THE A.O. U/S 69 B AND 69 A OF THE INCOME-TAX ACT, 1961 AS THE DEEMED INCOME, IS ON ACCOUNT OF THE BUSINESS ACTIVITY OF THE ASSESSEE AND FORMS PART OF ITS BUSINESS; THUS, IGNORING THE APPLICABILITY OF THE HON'BLE GUJARAT HIGH COURTS DECISION IN THE CASE OF FAKIR MOHAMAD HAJI HASAN (2002) 247 ITR 290, WHEN THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCES OF THE SAID ADDITIONAL INCOME WITH THE SUPPORT OF ANY DOCUMENTARY EVIDENCE EITHER AT THE TIME OF SURVEY OR AT THE TIME OF ASSESSMENT. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD.CIT (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,90,000/- OUT OF SALARY OF RS.2,40,000/- PAID TO THE WORKING PARTNERS U/S 40(B)(I) BY HOLDING THAT THE ADDITIONAL INCOME OF RS.44 LACS DECLARED AT THE TIME OF SURVEY IS NOT ASSESSABLE AS THE DEEMED INCOME UNDER SECTION 69B AND U/S 69A AND THE SAME WAS A PART OF THE BUSINESS INCOME. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RENT AT RS.1,92,000/- U/S 40A(2)(B) BY IGNORING THE FACTS OF THE STATEMENT OF SH.VIJAY KUMAR, RECORDED AT THE TIME OF SURVEY U/S 133A(1). IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT (APPEALS) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO 50% OF DEPRECIATION ON COMPUTERS EVEN WHEN HE OBSERVED THAT NUMBER OF COMPUTERS WAS MORE THAN THE GENUINE REQUIREMENT OF THE ASSESSEES BUSINESS. V) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.54,112/- MADE BY THE AO BY DISALLOWANCES 4/5 TH OUT OF TELEPHONE EXPENSES ATTRIBUTABLE TO THE PERSONAL USE BY IGNORING THE FA CT 3 THAT AS MANY AS MANY 3 TELEPHONES WERE INSTALLED AT THE PARTNERS RESIDENCE. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS DERIVING INCOME FROM SALE AND PURCHASE OF GOLD, SILVER AND D IAMOND ORNAMENTS. A SURVEY OPERATION UNDER SECTION 133A OF THE INCOME -TAX ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSE E ON 7.10.2005. THE STATEMENT OF SHRI VIJAY KUMAR, PARTNER OF THE ASSES SEE FIRM WAS RECORD. THE ASSESSEE SURRENDERED ADDITIONAL INCOME OF RS.44 LACS FOR THE YEAR UNDER CONSIDERATION AS PER THE OFFER LETTER DATED 7 .10.2005. THE ASSESSEE HAD OFFERED ADDITIONAL INCOME OF RS.8 LACS FOR ASSESSMENT YEAR 2005-06 AND ADDITIONAL INCOME OF RS.44 LACS RELATIN G TO ASSESSMENT YEAR 2006-07. THE BREAK-UP OF THE ADDITIONAL INCOME OFF ERED BY THE ASSESSEE IS AS UNDER :- A.Y.2005-06 GOLD ORNAMENTS RS.6,00,00,000/- CASH RS.2,00,000/- RS.8,00,000/- A.Y. 2006-07 GOLD ORNAMENTS RS.24,00,000/- DIAMOND JEWELLERY RS.10,00,000/- CASH RS.10,00,000/- RS.44,00,000/- 5. THE ADDITIONAL INCOME OF RS.8 LACS DECLARED BY T HE ASSESSEE RELATING TO ASSESSMENT YEAR 2005-06 WAS CONSIDERED WHILE COMPLETING THE ASSESSMENT FOR ASSESSMENT YEAR 2005-06. IN RESPECT OF THE ADDITIONAL INCOME OF RS.44 LACS OFFERED FOR ASSESSMENT YEAR 20 06-07, THE ASSESSING OFFICER NOTED THAT THE OFFER FOR SURRENDERING THE A DDITIONAL INCOME WAS AS A RESULT OF SURVEY OPERATION CONDUCTED AT THE BU SINESS PREMISES OF THE ASSESSEE, WHEREIN DISCREPANCIES IN THE STOCK, CASH AND BOOKS OF ACCOUNT WERE DETECTED. THE ASSESSEE HAD OFFERED UNEXPLAI NED GOLD ORNAMENTS OF RS.24 LACS AND DIAMOND JEWELLERY AMOUNTING TO RS .10 LACS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAME ARE TO BE ASSESSED UNDER 4 SECTION 69B OF THE ACT AS THESE WERE UNEXPLAINED IN VESTMENTS OF THE ASSESSEE. THE UNEXPLAINED CASH OF RS.10 LACS WAS A SSESSABLE AS DEEMED INCOME UNDER SECTION 69A OF THE ACT, IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN, 247 ITR 290 ( GUJ), THE ASSESSING OFFICER. THE ASSESSEE HAD INC LUDED THE ADDITIONAL INCOME AS PART OF ITS INCOME FROM BU SINESS. HOWEVER, THE ASSESSING OFFICER EXCLUDED THE SAME FROM THE PROFIT & GAINS OF THE BUSINESS AND INCLUDED UNDER SECTION 69 A & 69B OF T HE ACT AS ADDITIONAL INCOME SURRENDERED BY THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER ADJUSTED THE SAID ADDITIONAL INCOME AGAINST THE BUS INESS LOSS DETERMINED DURING THE YEAR. THE ASSESSING OFFICER RESTRICTED THE DISALLOWANCE OF PARTNERS SALARY FROM THE PROFITS OF BUSINESS IN VIE W OF THE BUSINESS LOSS WORKED OUT IN THE HANDS OF THE ASSESSEE. THE ASSES SING OFFICER ALSO NOTED THAT THE ASSESSEE HAD INCURRED THE LOSS OF RS .9,24,410/- WITHOUT ADDITIONAL INCOME SURRENDERED DURING THE SURVEY. 6. THE COMMISSIONER OF INCOME-TAX (A) UPHELD THE SU BMISSIONS OF THE LEARNED AR FOR THE ASSESSEE THAT THE ADDITIONAL IN COME DECLARED BY THE ASSESSEE DURING THE COURSE OF SURVEY WAS ON ACCOUN T OF ITS BUSINESS ACTIVITIES AND FORMED PART OF ITS BUSINESS INCOME. THE COMMISSIONER OF INCOME-TAX (A) FURTHER OBSERVED THAT AFTER THE SURV EY AT THE BUSINESS PREMISES OF THE ASSESSEE, THE EXCESS STOCK WAS FOUN D AND SURRENDERED AND SUCH DECLARATION IS RELATABLE TO THE BUSINESS OF TH E ASSESSEE. THE COMMISSIONER OF INCOME-TAX (A) FURTHER HELD THAT TH E RATIO LAID DOWN BY THE HON'BLE GUJARAT HIGH COURT WAS NOT APPLICABLE A S IN THE CITED CASE CONTRABAND GOLD WAS SEIZED BY THE CUSTOMS AUTHORITI ES WHICH WAS HELD TO BE DEEMED INCOME OF THE ASSESSEE. THE DECLARED INC OME BEING PART OF 5 THE BUSINESS ACTIVITY OF THE ASSESSEE AND WAS DISCL OSED AS PART OF THE BUSINESS INCOME, THE ORDER OF ASSESSING OFFICER IN TREATING IT DEEMED INCOME WAS HELD TO BE NOT JUSTIFIED. CONSEQUENTLY, RESTRICTION OF SALARY TO PARTNERS WAS HELD TO BE NOT JUSTIFIED. 7. THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF THE COMMISSIONER OF INCOME-TAX (A) BY WAY OF GROUND NO. (I) AND (II). 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE RECORDS. THE ASSESSEE DURING THE COURSE OF SURVEY HAD OFFERE D ADDITIONAL INCOME OF RS. 44 LACS, WHICH COMPRISED OF RS. 34 LACS IN S TOCK OF GOLD AND DIAMOND JEWELLARY AND RS. 10 LACS IN CASH. THE SA ID OFFER WAS MADE PURSUANT TO THE DIFFERENCE IN STOCK FOUND AND STOCK AVAILABLE AS PER BOOK RECORDS AND CASH FOUND DURING SURVEY. 9. THE HON'BLE GUJARAT HIGH COURT IN FAKIR MOHMED HAJ HASAN VS. CIT (SUPRA)HAD HELD AS UNDER:- IT FOLLOWS THAT THE MOMENT A SATISFACTORY EXPLANAT ION IS GIVEN ABOUT SUCH NATURE AND SOURCE BY THE ASSESSEE, THEN THE SOURCE WOULD STAND DISCLOSED AND WILL, THEREFOR E, BE KNOWN AND THE INCOME WOULD BE TREATED UNDER THE APPROPRIATE HEAD OF INCOME FROM ASSESSMENT AS PER T HE PROVISIONS OF THE ACT. HOWEVER, WHEN THESE PROVISIO NS APPLY BECAUSE NO SOURCE IS DISCLOSED AT ALL ON THE BASIS OF WHICH THE INCOME CAN BE CLASSIFIED UNDER ONE OF THE HEADS OF INCOME UNDER SECTION 14, IT WOULD NOT BE POSSIBLE TO CLASSIFY SUCH DEEMED INCOME UNDER ANY OF THESE HEAD S INCLUDING INCOME FROM OTHER SOURCES WHICH HAVE TO BE SOURCES KNOWN OR EXPLAINED. WHEN THE INCOME CANNOT BE SO CLASSIFIED UNDER ANY ONE OF THE HEAD OF INCOME UNDE R SECTION 14, IT FOLLOWS THAT THE QUESTION OF GIVING ANY DEDUCTIONS UNDER THE PROVISIONS WHICH CORRESPOND TO SUCH HEAD OF INCOME WILL NOT ARISE. IF IT IS POSSIBLE TO PEG THE INCOME UNDER ANY ONE OF THOSE HEAD BY VIRTUE OF A SATISFACTORY EXPLANATION BEING GIVEN, THEN THESE PR OVISIONS 6 OF SECTION 69, 69A, 69B AND 69C WILL NOT APPLY, IN WHICH EVENT THE PROVISIONS REGARDING DEDUCTIONS, ETC APPL ICABLE TO THE RELEVANT HEAD OF INCOME UNDER WHICH SUCH INCOME FALLS WILL AUTOMATICALLY BE ATTRACTED. THE OPENING WORDS OF SECTION 14 SAVE AS OTHERWISE PROVIDED BY THIS ACT CLEARLY LEAVE SCOPE FOR DEEME D INCOME OF ALL NATURE COVERED UNDER THE SCHEME OF S ECTION 69, 69B AND 69C BEING TREATED SEPARATELY, BECAUSE S UCH DEEMED INCOME IS NOT INCOME FROM SALARY, HOUSE PROP ERTY, PROFITS AND GAINS OF BUSINESS OR PROFESSION, OR CAP ITAL GAINS, NOR IS IT INCOME FROM OTHER SOURCE BECAUSE THE PROVISIONS OF SECTION 69, 69A, 69B AND 69C TREAT UNEXPLAINED INVESTMENTS, UNEXPLAINED MONEY, BULLION , ETC. AND UNEXPLAINED EXPENDITURE AS DEEMED INCOME WHERE THE NATURE AND SOURCE OF INVESTMENT, ACQUISITION OR EXPENDITURE, AS THE CASE MAY BE, HAVE NOT BEEN EXP LAINED OR SATISFACTORILY EXPLAINED. THEREFORE, IN THESE C ASE, THE SOURCE NOT BEING KNOW, SUCH DEEMED INCOME WILL NOT FALL EVEN UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, THE CORRESPONDING DEDUCTION WHICH ARE APPLICABLE TO THE INCOME UNDER ANY OF THESE HEADS, WILL NOT BE ATTRACTED IN THE CASE OF DEEMED INCOMES WHICH AR E COVERED UNDER THE PROVISIONS OF SECTION 69, 69A AND 69C IN VIEW OF THE SCHEME OF THOSE PROVISIONS . 10. IN THE FACTS OF THE PRESENT CASE BEFORE US, WE FIND THAT UNACCOUNTED CASH OF RS. 10 LACS WAS FOUND DURING THE COURSE OF SURVE Y OPERATION IN THE POSSESSION OF THE ASSESSEE AND THE SAME WAS SURREND ERED AS ADDITIONAL INCOME FOR THE YEAR UNDER APPEAL. THE ASSESSEE HAS FAILED TO EXPLAIN THE NATURE AND SOURCE OF THE SAID CASH FOUND WHICH WAS NOT RECORDE D IN THE BOOKS OF ACCOUNT AND EVEN WHILE SURRENDERING THE ADDITIONAL INCOME A ND DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF CASH OF RS. 10 LACS. THE HON'BLE GUJRAT HIGH COURT IN FAKIR MOHMED HAJ H USSAIN VS CIT HAD HELD AS UNDER : THE SCHEME OF SECTIONS 69, 69A, 69B, AND 69C OF TH E INCOME-TAX ACT, 1961, WOULD SHOW THAT IN CASES WHER E THE NATURE AND SOURCE OF ACQUISITION OF MONEY, BULLION, ETC., OWNED BY THE ASSESSEE OR THE SOURCE OF EXPENDITURE INCURRED BY THE ASSESSEE ARE NOT EXPLAINED AT ALL, OR NOT SA TISFACTORILY EXPLAINED, THEN THE VALUE OF SUCH INVESTMENTS AND M ONEY OR THE VALUE OF ARTICLES NOT RECORDED IN THE BOOKS OF ACCOUNT OR THE UNEXPLAINED EXPENDITURE MAY BE DEEMED TO BE THE INCOME OF SUCH ASSESSEE. 7 11. IN THE ABSENCE OF THE EXPLANATION / EVIDENCE RE GARDING THE SOURCE OF THE ADDITIONAL INCOME BEING SATISFACTORILY EXPLAINED BY THE ASSESSEE AND APPLYING THE RATIO OF THE HON'BLE GUJRAT HIGH COURT IN FAKIR MOHMED HAJI HASAN VS. CIT (SUPRA), WE HOLD THAT THE ADDITIONAL INCOME O F RS. 10 LACS ON ACCOUNT OF CASH OFFERED IS DEEMED INCOME ASSESSABLE U/S 69A O F THE ACT AND NO DEDUCTION IS ALLOWABLE AGAINST SUCH DEEMED INCOME ASSESSED U/ S 69A OF THE ACT IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER TREA TED THE SAID ADDITIONAL INCOME OF RS. 10 LACS AS DEEMED INCOME. WE SET ASI DE THE ORDER OF CIT(A) ON THIS COUNT AND UPHOLD THE ORDER OF ASSESSING OFFICE R IN INCLUDING THE SURRENDER OF CASH OF RS. 10 LACS AS DEEMED INCOME U/S 69A OF THE ACT. 12. THE ASSESSEE HAS FURTHER OFFERED ADDITIONAL INC OME OF RS. 34 LACS ON ACCOUNT OF STOCK OF GOLD & JEWELLARY. THE ASSESSEE IS ENGAGED IN BUSINESS OF SALE / PURCHASE OF GOLD & DIAMOND JEWELLARY AND THE DECLARED ADDITIONAL INCOME WAS ON ACCOUNT OF ASSETS GENERATED DURING TH E COURSE OF BUSINESS ACTIVITY. THE SAID ADDITIONAL INCOME OF RS. 34 LACS IS PART OF THE BUSINESS INCOME OF THE ASSESSEE AND IS TO BE INCLUDED AS INC OME FROM BUSINESS, AGAINST WHICH THE ASSESSEE IS ENTITLED TO ITS CLAIM OF DEDU CTION ON ACCOUNT OF SALARY PAID TO PARTNERS U/S 40(B) OF THE ACT. WE UPHOLD T HE ORDER OF CIT(A) IN DIRECTING THE ASSESSING OFFICER TO INCLUDE THE ADDI TIONAL INCOME OF RS. 34 LACS AS INCOME FROM BUSINESS. 13. THE ISSUE IN GROUND NO.(II) RAISED BY THE ASSES SEE IS AGAINST DELETION OF DISALLOWANCE OF SALARY PAID TO THE WORK ING PARTNER UNDER SECTION 40(B)OF THE INCOME-TAX ACT. THE GROUND IS LINKED TO DETERMINATION OF BUSINESS INCOME AS PER GROUND NO.( I). THE LEARNED A.R. AND LEARNED D.R. FOR THE REVENUE FAIRLY CONCED ED THAT THE ISSUE IN 8 GROUND NO.(II) IS CONSEQUENTIAL TO THE ISSUE DECIDE D IN GROUND NO.(I). IN LINE WITH OUR DECISION IN PARAS HEREINABOVE, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DEDUCTION U/S 40(B) OF THE A CT ON ACCOUNT OF SALARY PAID TO THE PARTNERS OF THE ASSESSEE FIRM. T HE GROUND NOS (I) & (II) ARE DECIDED AS INDICATED ABOVE. 14. THE GROUND NO.(III) RAISED BY THE REVENUE IS IN RESPECT OF THE DELETION OF DISALLOWANCE OF RENT. THE ASSESSEE DUR ING THE YEAR UNDER CONSIDERATION HAD DEBITED A SUM OF RS.1,92,000/- ON ACCOUNT OF RENT PAID TO SHRI VIJAY KUMAR HUF AND SHRI VINOD KUMAR HUF @ RS.96,000/- EACH. SIMILAR ISSUE WAS RAISED IN THE SCRUTINY AS SESSMENT PROCEEDINGS RELATING TO ASSESSMENT YEAR 2005-06. THE ASSESSING OFFICER NOTED THAT DURING THE COURSE OF SURVEY, SHRI VIJAY KUMAR, PAR TNER IN HIS STATEMENT RECORDED ON 7.10.2005 STATED THAT THIS SHOP IS PERSONALLY OWNED BESIDES THIS, WE DO NOT OWN ANY SHOP OR GODOWN . THE ASSESSING OFFICER OBSERVED THAT THERE WAS NO RENTAL AGREEMENT AND HEL D THE CLAIM OF THE ASSESSEE TO BE NON-GENUINE. THE SAID RENT PAID BY THE ASSESSEE WAS DISALLOWED UNDER SECTION 40A(2)(B) OF THE ACT. BEF ORE THE COMMISSIONER OF INCOME-TAX (A) THE PLEA OF THE ASSESSEE WAS THAT THE RENT WAS BEING PAID FROM ASSESSMENT YEAR 2001-02 TO HUFS, WHO WERE EXISTING ASSESSEES AND WERE DECLARING THE SAID RENTAL INCOME IN THEIR RETURNS OF INCOME. IT WAS ALSO POINTED OUT BY THE LEARNED D.R. BEFORE THE COMMISSIONER OF INCOME-TAX (A) THAT IN ASSESSMENT YEAR 2005-06 SIMI LAR PAYMENT OF RENT WAS CONSIDERED BY THE ASSESSING OFFICER AND DISALLO WANCE WAS MADE ON ACCOUNT OF DEDUCTION CLAIMED UNDER SECTION 24(I) OF THE ACT TOTALING RS.27,800/-. THE COMMISSIONER OF INCOME-TAX (A) A LLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT THE PAYMENT OF RENT AS SU CH WAS NOT DOUBTED IN 9 ASSESSMENT YEAR 2005-06 AND IN THE STATEMENT THE PA RTNER HAD ADMITTED THAT THE SHOP WAS PERSONALLY OWNED AND ONCE THE SHO P IS OWNED BY HUF OF THE TWO PARTNERS, IN COMMON PARLANCE IT CAN BE S AID TO BE OWNED BY THEM INDIVIDUALLY. IN VIEW OF THE FACTUAL POSITIO N AS PER RECORD, DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS HELD TO BE UNJUSTIFIED. 15. THE REVENUE IS IN APPEAL AGAINST THE SAID ALLOW ANCE OF RENT. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RE CORD. THE ASSESSEE HAS PLACED ON RECORD A COPY OF ASSESSMENT ORDER DAT ED 20.12.2007 RELATING TO ASSESSMENT YEAR 2005-06 AT PAGES 14-17 OF THE ACT OF THE PAPER BOOK. A PERUSAL OF THE SAID ASSESSMENT ORDE R REVEALS THAT IN ASSESSMENT YEAR 2005-06, THE ASSESSEE HAD DEBITED A SUM OF RS.1,92,000/- ON ACCOUNT OF RENT PAID TO THE TWO HU FS. THE ASSESSING OFFICER IN THE SCRUTINY PROCEEDINGS NOTED THAT THE RENT HAD INCREASED FROM RS.66,000/- IN THE IMMEDIATELY PRECEDING YEAR TO RS.96,000/- EACH IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS ASKED TO JUSTIFY AND THE CLAIM OF THE ASSESSEE WAS THAT THE SAID RENT HA S BEEN DECLARED BY THE SAID HUF IN THEIR RESPECTIVE RETURNS OF INCOME FOR ASSESSMENT YEAR 2005- 06. THE ASSESSING OFFICER ON PERUSAL OF THE RETURN OF INCOME OBSERVED THAT BY CLAIMING THE DEDUCTION UNDER SECTION 24(I) OF THE ACT, THE SAID PERSONS HAD AVOIDED THE PAYMENT OF TAX ON THE RENTA L INCOME TO THE EXTENT OF REPAIRS. THE PAYMENT OF EXTRA RENT TO T HE EXTENT OF RS.37,800/- WAS HELD TO BE EXCESSIVE AND UNREASONAB LE AND WAS DISALLOWED UNDER SECTION 40A(2)(B) OF THE ACT AND A DDED BACK TO THE INCOME OF THE ASSESSEE. THE ASSESSEE HAS FAILED T O POINT OUT ANY REVERSAL OR MODIFICATION OF THE ORDER OF THE ASSESS ING OFFICER RELATING TO ASSESSMENT YEAR 2005-06. 10 16. THE CLAIM OF THE ASSESSEE BEFORE US WAS THAT SI MILAR PAYMENT OF RENT HAS BEEN ALLOWED IN THE PRECEDING YEAR AND THE RE WAS THE ONLY DISALLOWANCE TO THE EXTENT OF DEDUCTION CLAIMED IN THE HAND OF RECIPIENT UNDER SECTION 24(I) OF THE ACT. WE FIND NO MERIT IN THE SAID CLAIM OF THE ASSESSEE. IN LINE, WITH OUR OBSERVATION IN PAR A HEREINABOVE, WE DISALLOW THE PAYMENT OF EXTRA RENT TO THE EXTENT OF RS.37,800/- ON THE BASIS OF THE PARAMETERS APPLIED IN ASSESSMENT YEAR 2005-06 AND ACCORDINGLY THE SAME IS DISALLOWED UNDER SECTION 40 A(2)(B) OF THE ACT. GROUND NO.(III) RAISED BY THE REVENUE IS THUS PARTL Y ALLOWED. 17. THE ISSUE IN GROUND NO.(IV) IS IN CONNECTION WI TH THE RESTRICTION OF DISALLOWANCE TO 50% OF DEPRECIATION ON COMPUTERS. THE ASSESSEE VIDE GROUND NO.1 IN ITS CROSS OBJECTION HAS RAISED THE I SSUE AGAINST THE DISALLOWANCE OF 50% OF THE DEPRECIATION CLAIMED ON THE COMPUTERS INSTALLED AT OFFICE/SHOP OF THE ASSESSEE FIRM. THE ISSUE IN THE SAID GROUND RAISED BY THE ASSESSEE AND THE REVENUE BEING ON THE SAME DISALLOWANCE IS BEING DISPOSED OF HERE UNDER. 18. THE ASSESSING OFFICER NOTED THAT THERE WAS ADDI TION TO THE TUNE OF RS.4,41,343/- UNDER THE HEAD COMPUTERS, ON WHICH DEPRECIATION OF RS.3,52,552/- WAS CLAIMED IN THE PROFIT & LOSS ACCO UNT. THE ASSESSING, OFFICER ON EXAMINATION OF BILLS AND VOUCHERS, FOUND THAT ALL THE PURCHASES WERE MADE FROM ONE PARTY VIDE 16 BILLS BE TWEEN 26 TH JULY TO 28 TH SEPTEMBER, 2005. ON THE PERUSAL OF DETAILS OF PU RCHASES, THE ASSESSING OFFICER ANALYZED THE ITEMS PURCHASED AND FOUND THAT THE ASSESSEE HAD PURCHASED 30 MONITORS WHEREAS HARD DIS CS DRIVE WERE ONLY 19, CABINET WAS 23, MOTHER BOARD WERE 25, CPU WERE 15 AND PRINTERS 11 WERE 12. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THEY HAD TOTALLY COMPUTERIZED OFFICE/SHOP AND THE COMPLE TE BILLS OF PURCHASE OF VARIOUS ITEMS WERE BEING FILED WHICH REVEALED TH AT THESE ITEMS WERE PURCHASED MUCH BEFORE THE SURVEY. THE ASSESSING O FFICER WAS OF THE VIEW THAT THE VOUCHERS SUBMITTED BY THE ASSESSEE IN RESPECT OF ADDITION OF THE FIXED ASSET WERE NOT GENUINE AND THE EXPENDI TURE WAS NOT INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. ACCORD INGLY, THE CLAIM OF DEPRECIATION OF RS.3,52,552/- WAS DISALLOWED BY THE ASSESSING OFFICER. 19. BEFORE THE COMMISSIONER OF INCOME-TAX (A) THE C LAIM OF THE ASSESSEE WAS THAT M/S GOEL COMPUTERS, AMBALA CANTT, WAS ENGAGED FOR COMPUTERIZATION OF THE OFFICE/SHOP AND AS PER THE R EQUIREMENTS OF THE BUSINESS, THE ITEMS WERE INSTALLED AT DIFFERENT LOC ATIONS. THE ASSESSEE FURNISHED AN AFFIDAVIT FROM THE SUPPLIER TO PROVE T HE GENUINENESS OF THE TRANSACTION. FURTHER CLAIM OF THE ASSESSEE WAS THA T ALL THE ITEMS MENTIONED IN THE BILLS WERE INSTALLED AT THE BUSINE SS PREMISES OF THE ASSESSEE AND WERE BEING USED FOR BUSINESS PURPOSES. THE COMMISSIONER OF INCOME-TAX (A) OBSERVED THAT THE PURCHASE OF COM PUTERS WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND THE PURCHASE BILLS WERE FOUND TO BE GENUINE. THE COMMISSIONER OF INCOME-TA X (A), HOWEVER, HELD THAT NUMBER OF COMPUTERS INSTALLED BY THE ASSE SSEE WERE MUCH MORE THAN THE GENUINE REQUIREMENT OF THE ASSESSEE. A S PECIFIC QUERY WAS RAISED BY THE COMMISSIONER OF INCOME-TAX (A) DURING THE APPELLATE PROCEEDINGS REGARDING THE JUSTIFICATION FOR NUMBER OF COMPUTERS INSTALLED IN THE BUSINESS PREMISES VIS--VIS REQUIREMENT OF T HE ASSESSEE. THE EXPLANATION OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT THE COMPLETE SHOP AS WELL AS THE OFFICE WERE COMPUTERIZED INCLUD ING THE REINSTALLATION 12 OF SECURITY SYSTEM BY WAY OF ELECTRONIC SURVEILLANC E SYSTEM. A CHART SHOWING INSTALLATION OF COMPUTERS AT VARIOUS PLACES WAS FILED BEFORE THE COMMISSIONER OF INCOME-TAX (A). THE COMMISSIONER O F INCOME-TAX (A) NOTED THAT AS PER THE CHART EIGHT COMPUTERS WERE SH OWN TO BE INSTALLED AT GOLD COUNTERS BUT QUESTIONED THE PURPOSE OF INSTALL ATION OF EIGHT PC AT GOLD COUNTER. THE COMMISSIONER OF INCOME-TAX (A) N OTED THAT THE SIZE OF THE SHOWROOM WAS 48X 18 AND WAS OF THE VIEW TH AT IT WAS NOT POSSIBLE THAT SO MANY PCS CAN BE INSTALLED IN THE A REA. THE COMMISSIONER OF INCOME-TAX (A) ACCEPTED THE GENUINE NESS OF THE PURCHASES AND THE USE OF THE COMPUTERS BEING INCIDE NTAL TO THE BUSINESS. HOWEVER, IN VIEW OF NON-JUSTIFICATION OF A COMPUTER ON EACH COUNTER, IT WAS HELD BY THE COMMISSIONER OF INCOME-TAX (A) THAT NUMBER OF COMPUTERS INSTALLED WERE NOT AS PER THE REQUIREMENT OF THE ASSESSEE. ACCORDINGLY, DEPRECIATION CLAIMED BY THE ASSESSEE TO THE EXTENT OF 50% WAS ALLOWED AND THE BALANCE WAS DISALLOWED BY THE C OMMISSIONER OF INCOME-TAX (A). 20. ON CONSIDERATION OF THE ISSUE AND THE FACTUAL A SPECTS AND THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A) WE FIND THAT THE PURCHASE OF COMPUTERS BY THE ASSESSEE HAS BEEN FOUND TO BE GENU INE AND ALSO THE COMMISSIONER OF INCOME-TAX (A) HAS ACCEPTED THAT TH E USER OF THE COMPUTERS IS INCIDENTAL TO THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THE ABOVE-SAID SCENARIO WHERE THE ASSESSEES CLAIM OF ADDITION TO THE FIXED ASSETS HAD BEEN FOUND TO BE GENUINE AND ALSO THE USER OF THE SAID ASSET WAS INCIDENTAL TO THE BUSINESS CARRIED ON BY THE ASSESSEE, ON MERE SURMISES, THERE IS NO JUSTIFICATION IN RESTRICTING THE ALLOWANCE OF DEPRECIATION ON THE SAID ASSETS. IT IS FOR THE BUS INESS MAN TO DECIDE THE 13 MANNER IN WHICH ITS BUSINESS IS TO BE CONDUCTED AND IN CASE OF ANY EXPANSION OR MODERNIZATION, THE ASSESSEE UNDERTAKE S COMPUTERIZATION OF ITS OFFICE/SHOP, THE EXPENDITURE INCURRED ON PURCHA SE OF THE ASSET ONCE FOUND TO BE GENUINE AND THE USER BEING ESTABLISHED, ENTITLES THE ASSESSEE TO CLAIM DEPRECIATION ON THE SAID ADDITIONS TO THE ASSET. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEPRECIATION ON COMPUTERS AT RS.3,52,552/-. THE GROUND NO.4 RAISE D BY THE REVENUE IS THUS DISMISSED AND GROUND NO.1 RAISED BY THE ASSESS EE IN CROSS OBJECTION IS ALLOWED. 21. THE ISSUE IN GROUND NO.5 RAISED BY REVENUE IS A GAINST THE DELETION OF PART DISALLOWANCE OUT OF TELEPHONE EXPENSES. TH E ASSESSING OFFICER HAD ESTIMATED DISALLOWANCE OF 4/5 TH OF THE TOTAL TELEPHONE EXPENDITURE, ON THE GROUND THAT THREE TELEPHONES OUT OF FIVE WER E INSTALLED AT THE RESIDENCE OF THE PARTNERS OF THE ASSESSEE FIRM AND THE EXPENDITURE RELATED TO THE PERSONAL USE BY THE PARTNERS AND THEIR FAMIL Y MEMBERS. THE ASSESSEE WHILE COMPUTING THE PROFITS OF BUSINESS H AD DISALLOWED RS.18,040/- BEING 1/5 TH OF THE EXPENDITURE AS AGAINST WHICH THE ASSESSING OFFICER MADE AN ADDITION OF RS.54,112/-. THE COMMISSIONER OF INCOME-TAX (A) ALLOWED THE CLAIM OF THE ASSESSEE . IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES WE ARE IN CONFORMITY WI TH THE ORDER OF THE COMMISSIONER OF INCOME-TAX (A) THAT PERSONAL USE OF TELEPHONE CANNOT BE RULED OUT AND SUCH DISALLOWANCE BE RESTRICTED TO 1/5 TH OF THE TOTAL EXPENSES, WHICH HAVE ALREADY BEEN ADDED BY THE ASSE SSEE. THE GROUND NO.5 RAISED BY THE REVENUE IS THUS DISMISSED. 22.. THE GROUND NO.2 RAISED BY THE ASSESSEE IN CROS S OBJECTION IS 14 AGAINST THE SALARY PAID TO S/SHRI ANIRUDH WINDLAS A ND VIKRAM WINDLAS AMOUNTING TO RS.1,92,000/-. THE SALARY PAID TO THE SONS OF THE PARTNER WAS DISALLOWED BY THE ASSESSING OFFICER AS DURING T HE COURSE OF SURVEY IN THE STATEMENT RECORDED, THE PARTNER SHRI VIJAY K UMAR HAD ADMITTED THAT HIS SON WAS MARRIED AND WAS LIVING SEPARATELY AND HAD NO DEALING WITH HIS FIRM. SIMILAR WAS THE POSITION OF SHRI V IKRAM WINDLAS. ON THE BASIS OF THE SAID STATEMENT THE ASSESSING OFFIC ER DISALLOWED THE PAYMENT OF SALARY TO THE TWO PERSONS. 23. BEFORE THE COMMISSIONER OF INCOME-TAX (A), EXPL ANATION OF THE LEARNED COUNSEL WAS THAT BOTH THE PERSONS WERE LIVI NG IN AMBALA ONLY AND THEY HAD CONTINUED TO HELP IN THE BUSINESS OF T HE ASSESSEE. IT WAS FURTHER ARGUED THAT IN THE STATEMENT NOWHERE IT IS MENTIONED THAT THE TWO PERSONS WERE NOT THE EMPLOYEES OF THE ASSESSEE. TH E COMMISSIONER OF INCOME-TAX (A) NOTED THAT BOTH THE PERSONS WERE CAR RYING ON THEIR OWN BUSINESS AT MANI MAJRA AND WERE ALSO LIVING SEPARAT ELY FROM THE PARTNERS OF THE ASSESSEE FIRM, THOUGH THEY ARE THEIR SONS. IT WAS FURTHER OBSERVED THAT THEY WERE CARRYING ON THEIR BUSINESS AT A PLAC E 50 KM. AWAY FROM BUSINESS PREMISES OF THE ASSESSEE AND IT WAS NOT PO SSIBLE FOR THEM TO RENDER ANY SERVICE. THE DISALLOWANCE OF SALARY PA ID TO BOTH OF THEM UNDER SECTION 40A(2)(B) OF THE ACT WAS UPHELD BY CO MMISSIONER OF INCOME-TAX (A). 24. THE LEARNED A.R. FOR THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO PROVE THE STAND OF THE ASSESSEE THAT TH E SAID PERSONS WERE ASSISTING IN THE BUSINESS OF THE ASSESSEE FIRM, THO UGH THE SALARY RECEIVED BY THE TWO PERSONS IN THE EARLIER YEARS AND YEAR UN DER APPEAL WAS BEING 15 SHOWN AS THEIR INCOME. HOWEVER, IN VIEW OF THE STA TEMENT OF THE PARTNERS OF THE ASSESSEE FIRM AND THE ABSENCE OF AN Y EVIDENCE OF RENDERING OF SERVICES TO THE ASSESSEE, WE CONFIRM T HE DISALLOWANCE OF SALARY PAID TO THE AFORESAID PERSONS. THE GROUND N O.2 IN CROSS OBJECTION IS DISMISSED. 25. IN THE RESULT, APPEAL OF THE REVENUE AND THE CR OSS OBJECTION FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF OCTOBER, 2010. SD/- SD/- (G.S.PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 22 ND OCTOBER, 2010 *RATI/RKK* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR.