G.Chella Krishna, CHENNAI V. ACIT, CHENNAI

ITA 1219/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6039 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-05-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 05-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M PALANICHAMY
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Salary income; Principle of natural justice; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . , ' , % & BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ ITA NO.1219/MDS/2016 %' ' /ASSESSMENT YEAR: 2011-12 M/S.G. CHELLA KRISHNA, NO.66, BAZULLAH ROAD, T.NAGAR, CHENNAI-600 017. VS. THE ASST. COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-1, CHENNAI. [PAN: ADHPC 962 1 R ] ( ( /APPELLANT) ( )*( /RESPONDENT) ( + / APPELLANT BY : MR.S.SRIDHAR, ADV. )*( + /RESPONDENT BY : MR.M.PALANICHAMY, JCIT + /DATE OF HEARING : 12.10.2017 + /DATE OF PRONOUNCEMENT : 12.10.2017 / O R D E R PER GEORGE MATHAN , JUDICIAL MEMBER : ITA NO.1219/MDS/2016 IS AN APPEAL FILED BY THE ASS ESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-2, CHENNAI, IN ITA NO.56/CIT(A)-2/2013-14 DATED 01.03.2016 FOR THE AY 2011-12. 2. MR.M.PALANICHAMY, JCIT, REPRESENTED ON BEHALF OF THE REVENUE AND MR.S.SRIDHAR, ADV., REPRESENTED ON BEHALF OF THE AS SESSEE. ITA NO.1219/MDS/2016 :- 2 -: 3. IT WAS SUBMITTED BY THE LD.AR THAT THE ASSESSEE IS A CHARTERED ACCOUNTANT WHO IS A PARTNER IN M/S.CNGSN & ASSOCIAT ES AS ALSO IN M/S.GEETH FINANCE & INVESTMENTS, M/S.G.F. SECURITIE S AND M/S.GK HOLDINGS. THE ASSESSEE HAD RECEIVED SALARY INCOME AND SHARE OF INCOME FROM THE PARTNERSHIP FIRM M/S.CNGSN & ASSOCIATES. IT WAS A SUBMISSION THAT THE ASSESSEE WHEN FILING HIS RETURN HAD CLAIME D EXPENSES TO AN EXTENT OF RS.48,09,817.64 AGAINST THE SALARY INCOME AND TH E OTHER INCOMES EARNED BY HIM. IT WAS A SUBMISSION THAT THE ASSESS EE BEING A PARTNER IN THE FIRMS AS PER THE PROVISIONS OF SEC.28(V), THE A SSESSEE HAD OFFERED HIS INCOME UNDER THE HEAD PROFITS AND GAINS OF THE BUS INESS AND HAD CLAIMED THE EXPENSES. THE AO HAD ALLOWED 25% OF THE EXPENSE S RELATING TO THE CAR REPRESENTING THE CAR LOAN INTEREST, DEPRECIATION, P ETROL EXPENSES AND VEHICLE REPAIR EXPENSES AND DISALLOWED THE BALANCE OF 75% ALONG WITH ALL OTHER EXPENSES CLAIMED. IT WAS A SUBMISSION THAT T HE AO HAD DISALLOWED THE SAME BY HOLDING THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS ON ACCOUNT OF EARNING OF INCOME FROM DIFFERENT ENTITY, WHOSE ACCOUNTS ARE ALREADY AUDITED AND THAT THE ASSESSEE HAD FAILED TO ESTABLISH THE GENUINENESS BY PRODUCING THE EVIDENCE IN THE FORM O F BILLS AND VOUCHERS EXCEPT A FEW VOUCHERS ON VEHICLE REPAIRS. THE LD.A R DREW OUR ATTENTION TO THE PAPER BOOK FILED BY THE ASSESSEE CONTAINING 180 PAGES TO SUBMIT THAT ALL THE DETAILS AND EVIDENCES IN RELATION TO THE EX PENSES CLAIMED HAD BEEN PRODUCED BEFORE THE AO. IT WAS A FURTHER SUBMISSIO N THAT SUBSTANTIAL PORTION OF THE PAYMENTS WERE MADE BY CHEQUE, DEBIT CARDS OR CREDIT CARDS. IT WAS A SUBMISSION THAT ON APPEAL, THE LD.CIT(A) H AD CONFIRMED THE ITA NO.1219/MDS/2016 :- 3 -: DISALLOWANCE MADE BY THE AO BY HOLDING THAT THERE I S NO COMMERCIAL EXPEDIENCY AND ALSO QUESTIONING THE GENUINENESS. IT WAS A SUBMISSION THAT AS THE INCOME OF THE ASSESSEE HAS BEEN ASSESSE D BY APPLYING THE PROVISIONS OF SEC.28(V) UNDER THE HEAD INCOME FROM THE PROFITS OF THE BUSINESS, THE ASSESSEE WAS ENTITLED TO CLAIM ALL EX PENDITURE IN RESPECT OF WHICH VOUCHERS AND DETAILS HAD ALREADY BEEN PRODUCE D BEFORE THE AO. IT WAS A SUBMISSION THAT THE DISALLOWANCE AS MADE BY T HE AO MAY BE DELETED. 4. IN REPLY, THE LD.DR SUBMITTED THAT THE PROVISION S OF SEC.28(V) WAS A DEEMING PROVISION AND THE EXPENSES WERE NOT FOR THE PURPOSE OF EARNING THE INCOME WHICH HAS BEEN ASSESSED BY APPLYING SEC. 28(V). IT WAS A SUBMISSION THAT THE ORDER OF THE LD.CIT(A) WAS LIAB LE TO BE CONFIRMED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AT THE OUTSET, IT HAS TO BE NOTICED THAT THE REVENUE HAS NOT CHALLENGED THE FAC T THAT PAPERS WHICH HAVE BEEN SUBMITTED IN THE PAPER BOOKS WERE NOT PRO DUCED BEFORE THE AO OR THE LD.CIT(A). THE PAPER BOOK CONTAINS THE PROO F OF VARIOUS EXPENSES WHICH HAVE BEEN CLAIMED. SOME OF THE PAYMENTS PERT AIN TO VARIOUS CLUBS, THE VOUCHERS IN RESPECT OF THE BOOKS AND PERIODICAL S, PAYMENTS HAVE BEEN MADE BY A CREDIT CARD, BOARDING AND LODGING BY HIS CREDIT CARD, INTEREST BY CHEQUE PAYMENTS, SALARY EXPENSES BY CHEQUE/NEFT, TE LEPHONE BY CHEQUES, TRAVEL IS ALSO BY CHEQUES. THE ASSESSEE H AS ALSO PRODUCED THE BANK ACCOUNT FROM WHICH THE PAYMENTS HAVE BEEN MADE . THE AO HAS ITA NO.1219/MDS/2016 :- 4 -: DISALLOWED THE SAID EXPENSES ONLY ON TWO GROUNDS TH AT THE ASSESSEES CLAIM OF EXPENDITURE IS ON ACCOUNT OF EARNING INCOM E FROM DIFFERENT ENTITY, WHOSE ACCOUNTS ARE ALREADY AUDITED BEING ONE WHICH CANNOT BE ACCEPTED AS THE ACCOUNTANT OF THE PARTNERSHIP FIRM M/S.CNGSN & ASSOCIATES HAS CATEGORICALLY CONFIRMED THAT THE SAID EXPENSES WHIC H HAVE BEEN CLAIMED IN THE ASSESSEES RETURN HAVE NOT BEEN CLAIMED IN THE HANDS OF THE FIRM. THE ISSUE OF THE GENUINENESS, WHICH IS A SECOND LIMB OF THE REASON FOR THE DISALLOWANCE MADE BY THE AO ALSO, DOES NOT SURVIVE IN SO FAR AS THE ASSESSEE IS NOT MAKING ANY CLAIM IN RESPECT OF ANY CASH PAYMENTS. THEY ARE SUBSTANTIALLY MADE BY CHEQUE AND CREDIT CARDS. THE LD.DR ARGUED THAT THE PROVISIONS OF SEC.28(V) IS A DEEMING PROVI SION ALSO DOES NOT HOLD WATER IN SO FAR AS THE PROVISIONS OF SEC.28(V) DO N OT TALK OF ANY DEEMING PROVISION AT ALL. THE PROVISIONS OF SEC.28(V) WAS R EADS ANY INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATE VER NAME CALLED, DUE TO, OR RECEIVED BY, A PARTNER OF A FIRM FROM SUCH F IRM SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFIT AND GAINS BUSIN ESS OR PROFESSION. ONCE THE SAID INCOME IS CHARGEABLE TO INCOME TAX UN DER THE HEAD PROFITS AND GAINS BUSINESS OR PROFESSION THEN THE ASSESSEE IS ENTITLED TO CLAIM ANY EXPENSES WHICH HE HAS INCURRED FOR THE PURPOSE OF E ARNING SUCH INCOME. THE AO HAS TAKEN A STAND THAT THE EXPENSES WERE NOT FOR THE PURPOSE OF EARNING INCOME. THE AO HAS HELD CERTAIN EXPENSES I N RESPECT OF LADIES CLUB TO BE PERSONAL IN NATURE. FURTHER, IN THE COU RSE OF THE ASSESSMENT, THE ASSESSEE HIMSELF HAS VOLUNTEERED FOR DISALLOWAN CE OF 25% OF THE EXPENSES TO BE DISALLOWED. IN THESE CIRCUMSTANCES, CONSIDERING THE FACT ITA NO.1219/MDS/2016 :- 5 -: THAT THE ASSESSEE IS A CHARTERED ACCOUNTANT AND PRO FESSIONAL, THE REQUIREMENT OF HIS HAVING TO ENTERTAIN CLIENTS AT C LUBS AND TRAVEL FOR HIS BUSINESS REQUIREMENTS. WE ARE OF THE VIEW THAT IT CANNOT BE HELD THAT ALL THE CLUB EXPENSES ARE PERSONAL IN NATURE. THE BANK CHARGES ADMITTEDLY ARE FOR THE PURPOSE OF ASSESSEES BUSINESS. THE ASS ESSEE WOULD HAVE TO ATTEND VARIOUS MEETINGS CONSEQUENTLY BOARDING AND L ODGING. TO KEEP UP- TO-DATE BOOKS AND PERIODICALS HAVE TO BE PURCHASED AND EXPENSES INCURRED. SO ALSO TELEPHONE CHARGES, TRAVELLING EXP ENSES AND OTHER SUBSCRIPTIONS, KEEPING AN EMPLOYEE TO LOOK AFTER HI S WORKS WOULD ALSO INCUR SALARY EXPENSES. A PERUSAL OF THE INCOME EXP ENDITURE ACCOUNT OF THE ASSESSEE CLEARLY SHOWS THAT THE ASSESSEE HAS NOT CL AIMED ANY SPECIFIC PERSONAL EXPENSES IN THE SAID INCOME EXPENDITURE AC COUNT AND THE EXPENSES ARE CLEARLY ALLOWABLE EXPENSES WHILE COMPU TING THE INCOME UNDER THE HEAD PROFITS AND GAINS BUSINESS OR PROFES SION. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE HAS AGREED T O A DISALLOWANCE OF 25% BEFORE THE AO, AS ALSO CONSIDERING THE FACT THA T THE AO HAS ALLOWED 25% OF THE VEHICLE EXPENSES AS ALLOWABLE EXPENSES, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE TO 25% OF THE EXPENSES AS CLAIMED BY THE ASSESSEE, IN THE INTEREST OF NATURAL JUSTICE, THE B ALANCE 75% OF THE EXPENSES ARE DIRECTED TO BE ALLOWED. ITA NO.1219/MDS/2016 :- 6 -: 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 12, 2017, AT CHENNAI. SD/- SD/- ( . ) ( ABRAHAM P GEORGE ) /ACCOUNTANT MEMBER ( ' ) (GEORGE MATHAN) % /JUDICIAL MEMBER /CHENNAI, 2 /DATED: OCTOBER 12, 2017. TLN + )%34 54 /COPY TO: 1. ( /APPELLANT 4. 6 /CIT 2. )*( /RESPONDENT 5. 4 )%% /DR 3. 6 ( ) /CIT(A) 6. ' /GF