SBM CHEMICALS & INSTRUMENTS P. LTD, MUMBAI V. DCIT CIR 7(2), MUMBAI

ITA 1320/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48667 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 30-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Depreciation; Onus to prove; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI P.M. JAGTAP P.M. JAGTAP P.M. JAGTAP P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO.1320/MUM/2010 ASSESSMENT YEAR- 2005-06 M/S. SBM CHEMICALS & INSTRUMENTS PVT. LTD., 701-D, POONAM CHAMBERS, SHIV SAGAR ESTATE, WORLI, MUMBAI-400 018 PAN-AABCS 4417M VS. THE DCIT - RANGE - 7(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRAKASH K. JOTWANI RESPONDENT BY: SHRI D. SONGATE O R D E R O R D E R O R D E R O R D E R PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.11.2009 PASSED BY THE LD. CIT(A)-13 F OR THE ASSESSMENT YEAR 2005-06. 2. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 31. 10.2005 DECLARING TOTAL INCOME OF `. 1,14,23,770/-. THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF TRADING AND COMMISSION AGENTS. THE ASSESSIN G OFFICER WHILE COMPLETING THE ASSESSMENT U/S. 143(3) HELD AS FOLLO WS: NO EVIDENCE HAD BEEN ADVANCED TO JUSTIFY THE CLAIM OF THE USE OF GUEST HOUSE AS OFFICE OR FOR THE PURPOSE OF BUSINE SS OF THE ASSESSEE. THE NEXUS BETWEEN SUCH EXPENSES WITH THE BUSINESS OF THE ASSESSEE HAS NOT BEEN PROVED. HENCE, THE TOTAL EXPENDITURE OF `. 10,32,433/- (`. 7,82,000/- + `. 2 ,28,000/- + `. 22,433/-) IS TREATED AS EXPENDITURE FOR NON BUSINESS PUR POSE. THE ABOVE DISALLOWANCE IS MADE U/S. 37(1) OF THE I.T. ACT, 1961 AS THE ASSESSEE HAS NOT DISCHARGED ITS BURDEN/ONUS TO PROVE THE GENUINENESS OF THE ABOVE CLAIMS. THE ASSESSEE H AS ITA NO. 1320/M/2010 2 NOT BEEN ABLE TO PROVE THAT SERVICES WERE RENDERED AN D IF RENDERED, PROOF OF SUCH SERVICES HAVING BEEN RENDERED . 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) AT PARA 2.1 HELD AS FOLLOWS: THE ASSESSEE HAS SHOWN THE FOLLOWING EXPENSES RELATING TO GUEST HOUSE AT ALIBAG: A) REPAIRS EXPENSES OF THE GUEST HOUSE SHOWN AS ADDITIONS TO FIXED ASSETS `. 7,82,000/ - B) RENT PAID TO DIRECTORS (S.V. MALANEY & H.S. MALANEY) `. 2,28,000/ - C) DEPRECIATION ON VARIOUS FURNITURE ETC. PROVDED IN THE GUEST HOUSE `. 22,433/ - TOTAL `. 10,32,433/ - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE THE EVID ENCE TO JUSTIFY THE CLAIM OF THE USE OF GUEST HOUSE AS OFFICE OR FOR BUSINESS OF THE ASSESSEE. HOWEVER, NO SUCH DOCUMENTS/EVIDENCE COULD BE PRODUCED BY THE ASSESSEE REGARDING THE USE OF THE PREMISES AS GUEST HOUSE BY THE ASSESSEE. 4. FURTHER THE LD. CIT(A) HELD THAT THE ASSESSEE IS NOT ENTITLED TO ALLOWANCE U/S. 37(1) OF THE I.T. ACT AND CONFIRMED T HE DISALLOWANCE MADE BY THE ASSESSING OFFICE OF `. 10,32,433/- AS EXPE NSES NOT RELATING FOR NON-BUSINESS PURPOSES. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE SHRI PRAKASH K. JOTWANI SUBMIT TED THAT REPAIR EXPENSES OF GUEST HOUSE AMOUNTING TO `. 7,82,000/- WAS S HOWN IN THE BALANCE SHEET AS ASSET WHICH COMPRISED OF CONSTRUCTION C OST ACCUMULATED OF EARLIER YEARS. THE SAID AMOUNT IS NOT D EBITED IN PROFIT AND LOSS ACCOUNT IN ASSESSMENT YEAR 2005-06 AS REPAIRS. IT IS W.D.V OF PREMISES USED AS GUEST HOUSE. DETAILS OF COMPANIES ASSETS AS PER BALANCE SHEET MARKED AS ANNEXURE I WAS PRODUCED IN W HICH THE SAID ITA NO. 1320/M/2010 3 AMOUNT OF `. 7,82,000/- APPEARS AS FIXED ASSETS. HENCE THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE LD. CIT(A ) ERRED IN CONFIRMING THE DISALLOWANCE OF GUEST HOUSE EXPENSES OF ` . 10,32,433/- OUT OF WHICH `. 7,82,000/- WAS CAPITALIZED BY THE ASSE SSEE AND SHOWN AS ADDITION TO FIXED ASSETS. HE SUBMITTED THAT THE AMOU NT OF `. 7,82,000/- WAS NOT DEBITED AS REVENUE EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. 6. THE LD. DEPARTMENTAL REPRESENTATIVE PRAYED THAT T HIS FACT SHOULD BE VERIFIED BY THE ASSESSING OFFICER AND REQUESTED THAT MATTER SHOULD BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER 7. WE HEARD BOTH THE PARTIES. WITH RESPECT TO RENT P AID TO DIRECTORS FOR GUEST HOUSE AMOUNTING TO `. 2,28,000/-, WE ARE OF THE OPINION THAT IT IS AN ALLOWABLE EXPENDITURE U/S. 37(1 ) AS THE SAME HAS BEEN PAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND IS NOT A CAPITAL EXPENDITURE. FURTHER FROM THE A SSESSMENT ORDER FURNISHED BY THE COUNSEL FOR ASSESSMENT YEARS 2006-07, 20 07-08 AND 2008-09 (THAT IS SUBSEQUENT 3 YEARS), WE FIND THAT THE RENT PAID FOR GUEST HOUSE HAS BEEN ALLOWED AS REVENUE EXPENDITURE. H OWEVER FOR THIS YEAR WITH RESPECT TO `. 7,82,000/- BEING REPAIR EXPENSES OF THE GUEST HOUSE SHOWN AS ADDITION TO FIXED ASSETS, WE REMIT T HE MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY WHETHER T HE SAME HAS BEEN CAPITALIZED AS FIXED ASSETS IN THE BALANCE SHEET AND HEN CE COULD NOT HAVE BEEN CLAIMED AS REVENUE EXPENDITURE U/S. 37(1) O F THE I.T. ACT AND THEREFORE IT APPEARS THAT THE LD. CIT(A) HAS WRON GLY INCLUDED `. 7,82,000/- WHILE CONFIRMING THE DISALLOWANCE OF GUEST HOUSE. THE ASSESSING OFFICER SHALL AFTER VERIFICATION DECIDE THE ISSUE IN ACCORDA NCE WITH LAW. 8. GROUND NO. 2 WAS NOT PRESSED BY THE ASSESSEE THEREFORE IT IS DISMISSED AS NOT PRESSED. ITA NO. 1320/M/2010 4 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL, 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH APRIL, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1320/M/2010 5 DATE INITIALS 1 DRAFT DICTATED ON: 1 2.0 4 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 1 2.0 4 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______