Sunita Maganlal, Bhubaneswar V. ITO, Bhubaneswar

ITA 136/CTK/2014

• Counselvise Citation: 13622114 RSA 2014
• Duration Of Justice: 1 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 22-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURESH SIVANDAN
• Assessee Lawyers: BIBEKANANDA MOHANTY
• Keywords: Business income; Depreciation; Business expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK . , & , BEFORE S/SHRI B. RAMAKOTAIAH, ACCOUNTA NT MEMBER & PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ! ./ ITA NO.136/CTK/2014 ( ' ' ' ' #$ #$ #$ #$ / ASSESSMENT YEAR :2009-2010) SUNITA MAGANLAL, BHUBANESWAR. VS. ITO, WARD - 1(2), BHUBANESWAR. ! ./ %& ! ./PAN/GIR NO. ABFPM 4920 M ( ' /APPELLANT ) .. ( ()' / RESPONDENT ) '+ - - - - /ASSESSEE BY : SHRI BIBEKANANDA MOHANTY %# - - - - /REVENUE BY : SHRI SURESH SIVANDAN '#. + / DATE OF HEARING : 2 ND NOV. 2015 /$ + /DATE OF PRONOUNCEMENT 5 TH NOV. 2015 0 0 0 0 / O R D E R PER PARTHA SARATHI CHAUDHURY, JM CHALLENGING THE ORDER OF THE LD CIT(A)- BERHAMPUR D ATED 2.1.2014 , THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF ASSESSMENT AS WELL AS THE APPELLATE ORDER IS AGAINST LAW, WEIGHT OF EVIDENCES AND PROBABILITIES OF THE CASE. 2. THE LEARNED ASSESSING OFFICER AS WELL AS THE COMMIS SIONER OF INCOME TAX (APPEAL) HAS MOST ARBITRARILY DISALLOWED INTEREST ON BORROWI NG AMOUNTING TO RS.8,82,726/-, WITHOUT CONSIDERING THE SUBMISSION MADE BEFORE THEM THAT THE BORROWING HAS A NEXUS WITH THE PROFESSION OF THE APPELLANT. 3. THE LEARNED ASSESSING OFFICER HAS MOST ARBITRARILY DISALLOWED EXPENDITURE ON ESTIMATE UNDER THE FOLLOWING HEADS WHICH IS BAD IN LAW. ITA NO. 136/CTK/2014 ASSESSMENT YEAR :2009-2010 2 PARTICULARS EXPENDITURE PERCEN TAGE (%) OF DISALLOWANCE AMOUNT (IN RS.) LABOUR CHARGES 19,11,333.00 10 1,91,134.00 SITE OFFICE RENT 2,79,700.00 50 1,39,850.00 DONATION AND SUBSCRIPTION 2,001.00 100 2,001.00 VEHICLE EXPENDITURE 2,29,484.00 40 91,794.00 MISCELLANEOUS EXPENDITURE 27,3 55.00 2000.00 TOTAL 4,26,779.00 THE COMMISSIONER OF INCOME TAX (APPEAL) AGAIN ALLOW ED ON ESTIMATE EXPENDITURE OF RS.2,33,838/-, UNDER THE HEAD LABOUR CHARGES AMOUNTING TO RS.95,567/-,SITE OFFICE RENT OF RS.69,925/- AND VEH ICLE EXPENDITURE OF RS.68,346/-, ON SURMISE AND PRESUMPTION WITHOUT ADD UCING ANY REASON THEREOF. 4. THE LEARNED ASSESSING OFFICER HAS MOST ARBITRARILY ADDED RS.4,24,778/-, TO TOTAL INCOME ON ACCOUNT OF INTEREST ON FIXED DEPOSIT IN B ANK, UNDER THE HEAD INCOME FROM OTHER SOURCES WHEN THE SAME AMOUNT HAS BEEN OFFERED TO TAX, BEING INCLUDED IN PROFIT AND LOSS ACCOUNT FROM WHER E THE COMPUTATION OF TOTAL INCOME IS MADE. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN AR CHITECT AND DERIVES INCOME FROM CONSULTANCY AND ALSO EXECUTES PROJECTS RELATING TO INTERIOR WORK OF HOUSES, ENGAGING LABOURERS AND PROVIDING MATERIALS FOR CONSTRUCTION. SHE STARTED PROFESSION OF ARCHITECT 17 YEARS BACK. HER HUSBAND LATE LAKIT MAGANLAL WAS ALS O AN ARCHITECT. HER HUSBAND WAS A DIRECTOR IN A COMPANY NAMELY UNITED (P) LTD AND EXE CUTING CIVIL CONSTRUCTION WORK. HE HAD A PARTNERSHIP FIRM NAMELY AAKAR DEALING WITH F URNITURE. THE ASSESSEE HAD GIVEN A GENERAL POWER OF ATTORNEY TO HER HUSBAND LALIT MAGA NLAL TO ACT ON HER BEHALF IN DEALING WITH CLIENTS AND EXECUTE, MANAGE AND SUPERVISE WORK ON HER BEHALF. THE COPY OF GENERAL POWER OF ATTORNEY IS ON RECORD. SUBSEQUENT LY, THE ASSESSEES HUSBAND EXPIRED ITA NO. 136/CTK/2014 ASSESSMENT YEAR :2009-2010 3 ON 26 TH JUNE, 2007, FOR WHICH THE ASSESSEE CARRIED ON THE RESPONSIBILITY AND TOOK OVER THE LIABILITY AND ASSETS OF HER HUSBAND LATE LALIT MAGANLAL. THE SAID LATE LALIT MAGANLAL CONSTRUCTED A HOUSE IN F-11, BJB NAGAR, BHUBANESWAR FROM WHERE THE ASSESSEE WAS RUNNING HER BUSINESS. THE OFFICE ADDRESS AS APPEARS IN INCOME TAX RETURN IS THE HOUSE CONSTRUCTED BY LATE LALIT MAGANLAL. AFTER HIS DEATH , THE ASSESSEE TOOK OVER ALL THE LIABILITIES INCLUDING THE LOAN TAKEN BY LALIT MAGAN LAL FOR CONSTRUCTION OF HOUSE AND ALSO THE BANK LIABILITY OF THE CLOSED PARTNERSHIP FIRM N AMED AAKAR FOR WHICH HER HUSBAND WAS THE GUARANTOR. THE OTHER PARTNERS KEPT AWAY FRO M SHARING THE LIABILITY OF THE FIRM. TO MITIGATE THIS HARDSHIP, THE ASSESSEE WAS FORCED TO BORROW RS.1.00 CRORE FROM ICICI BANK BY MORTGAGING THE HOUSE CONSTRUCTED BY HER HUS BAND FOR THE PURPOSE OF RUNNING THE BUSINESS. AS APPEARING IN THE ASSESSMENT ORDER , THE LOAN WAS APPLIED IN THE FOLLOWING MANNER: SL.NO. PARTICULARS AMOUNT (IN RS.) 1. REPAYMENT OF HO USING LOAN OF CORPORATION BANK. 13,13,785.67 2. SQUARING OF CASH CREDIT LOAN OF CORPORATION BANK FOR M/S. AKAR 21,37,381.33 3. PAY MENT TO CORPORATION BANK FOR REPAYMENT OF LOAN OF LALIT MAGANLAL, HUSBAND OF THE ASSESSEE 18,77,181.33 TOTAL: 53,28,348.33 3. THE ABOVE LIABILITIES OF HER HUSBAND WAS PAID BY THE ASSESSEE SINCE SHE HAD OBLIGATION BECAUSE BY GIVING POWER OF ATTORNEY TO A SSIST HER BUSINESS. MOREOVER, THE ASSESSEE WAS RUNNING BUSINESS FROM THE HOUSE OF HER HUSBAND. THE ASSESSING OFFICER DISALLOWED THE ENTIRE INTEREST PAID BY THE ASSESSEE AGAINST THE LOAN APPLIED FOR THE BUSINESS FOR WHICH THE ASSESSEE HAS BUSINESS NEXUS . THEREFORE, THE CASE OF THE ASSESSEE IS THAT SHE WAS FORCED TO BORROW RS.1 CROR E FROM ICICI BANK BY MORTGAGING THE HOUSE CONSTRUCTED BY HER HUSBAND WHEREIN, SHE W AS OPERATING HER OFFICE AND AS SUCH, THE FUND WAS BORROWED FOR THE PURPOSE OF BUSI NESS AND THE INTEREST PAID ON THE ITA NO. 136/CTK/2014 ASSESSMENT YEAR :2009-2010 4 SAME IS NOTHING BUT BUSINESS EXPENDITURE AND WAS EL IGIBLE TO BE ALLOWED AS AN EXPENDITURE INCURRED TO EARN BUSINESS INCOME. THE ASSESSEE FURTHER STATES THAT THE AO NOT ONLY DISALLOWED THE GENUINE INTEREST EXPENDITUR E BUT ALSO DID NOT ACCEPT THE ASSESSEES OFFER OF INCOME EARNED IN FORM OF INTERE ST ON FIXED DEPOSIT INCOME CREDITED TO PROFIT AND LOSS ACCOUNT AND INSTEAD ADDED THE SA ME AS INCOME FROM OTHER SOURCES. THIS WAS DONE DESPITE THE FACT THAT THE FIXED DEPOS IT WAS OUT OF THE BORROWED FUND AND WHEN EXPENSES TOWARDS INTEREST ON BORROWED FUNDS HA VE NOT BEEN ALLOWED AS EXPENDITURE BY THE AO. THE SAID INTEREST INCOME, ONCE BEING OFFERED BY THE ASSESSEE BY CREDITING IT TO PROFIT & LOSS ACCOUNT AND THERE BEING NO CHANGE IN FIGURE OF RECEIPT AND CHARACTER OF RECEIPT, A FURTHER ADDITION TO INC OME FROM OTHER SOURCES WAS NOT CALLED FOR. LD D.R. RELIED ON THE ORDERS OF AUTHOR ITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND P ERUSED THE RECORD. AS SUBMITTED THE ASSESSEE IS CONDUCTING HER BUSINESS AS AN ARCHI TECT FROM THE HOUSE BUILT BY HER LATE HUSBAND. IT WAS THE SUBMISSION THAT THE ASSESSEE T OOK LOAN OF RS.1 CRORE FROM ICICI BANK TO DISCHARGE SOME FINANCIAL LIABILITIES. IN T HE GROUND ITSELF, THE ASSESSEE SUBMITTED THAT AN AMOUNT OF RS.53,28,348.33 WAS REP AID FOR HOUSING LOAN, CASH CREDIT LOAN AND OTHER LOANS OF THE FIRM AAKAR AND ALSO TAK EN BY HER LATE HUSBAND LALIT MAGANLAL. EVEN THOUGH THE ASSESSEE CLAIMS THAT THE RE IS NEXUS OF BORROWED FUNDS WITH THAT OF REPAYMENT OF LOANS TAKEN BY HER HUSBAND, TH E AO HAS NOT ESTABLISHED THE NEXUS WITH THE BUSINESS OR EXAMINED THE ISSUE AS C LAIMED BY THE ASSESSEE. HE SIMPLY REJECTED THE CONTENTION WITHOUT EXAMINING THE NATUR E OF LOANS OBTAINED, NATURE OF REPAYMENT AND ANY UTILIZATION FOR ANY PERSONAL PUR POSES OUT OF THE BORROWED FUNDS. MOREOVER, THERE IS A DIRECT NEXUS OF PART OF THE BO RROWED FUNDS WITH THAT OF FIXED DEPOSIT MADE IN THE BANKS. IF THE ASSESSEE PAYS IN TEREST TO THE BANK OUT OF THE BORROWED FUNDS, TO THE EXTENT OF NEXUS OF FIXED DEP OSIT, THE INTEREST SHOULD BE ALLOWED, ITA NO. 136/CTK/2014 ASSESSMENT YEAR :2009-2010 5 IF NOT UNDER THE HEAD BUSINESS, UNDER THE HEAD O THER SOURCES, WHEN THE FIXED DEPOSIT INTEREST IS TAXED. IN VIEW OF THIS, SINCE THE ASSE SSEES CONTENTION OF NEXUS OF THE BORROWED FUNDS HAS NOT BEEN EXAMINED BY THE AO, WE, IN THE INTEREST OF JUSTICE, RESTORE THE ENTIRE CLAIM TO THE FILE OF THE AO TO E XAMINE THE FACTS EITHER FROM THE PAST RECORDS OF THE ASSESSEE OR FROM THE RECORDS OF HER LATE HUSBAND AND DRAW NECESSARY CONCLUSIONS BASED ON FACTS. WE MAKE IT CLEAR THAT NO PART OF INTEREST CAN BE DISALLOWED IF THE ASSESSEE ESTABLISHES THE NEXUS WITH THE BORR OWED FUNDS AND ITS UTILIZATION EITHER FOR THE PURPOSE OF BUSINESS OR FOR THE PURPOSE OF M AKING FIXED DEPOSIT IN THE BANK. THE AO CAN DISALLOW ONLY TO THE EXTENT FUNDS UTILIZ ED FOR NON-BUSINESS PURPOSES. WITH THIS OBSERVATION AND DIRECTION, THE GROUND NO.2 & 4 ARE RESTORED TO THE FILE OF THE AO TO DECIDE THE ISSUE AFRESH AFTER GIVING DUE OPPORTUNIT Y TO THE ASSESSEE. HENCE, GROUND NOS.2 & 4 ARE ALLOWED FOR STATISTICAL PURPOSES. 5. THE NEXT GROUND RELATES TO DISALLOWANCE ON VARIOUS HEADS SUCH AS LABOUR CHARGES, SITE OFFICE RENT, DONATION AND SUBSCRIPTION, VEHICL E EXPENDITURE AND MISC. EXPENDITURE. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD OF THE CASE. WE DEAL WITH SEPARATELY VARIOUS EXPENSES CLAIMED BY THE ASS ESSEE. 6.1 AS REGARDS THE DISALLOWANCE UNDER THE HEAD LAB OUR CHARGES, WE FIND THAT THE ASSESSING OFFICER DISALLOWED A SUM OF RS.1,91,134/- BEING 10% OF RS.19,11,333/- CLAIMED BY THE ASSESSEE FOR WANT OF SUPPORTED BILLS AND VOUCHERS. THE LD CIT(A) RESTRICTED THE DISALLOWANCE TO RS.95,567/- BEING 50 % OF THE TOTAL CLAIM OF LABOUR CHARGES. ON PERUSAL OF THE ORDERS OF THE AUTHORITIE S BELOW, WE FIND THAT THE ADDITION HAS BEEN MADE ON ESTIMATE BASIS BY THE AO FOR THE R EASON THAT THE VOUCHERS ARE SELF MADE. THE LD CIT(A) HAS RESTRICTED THE DISALLOWANC E ON THE PLEA THAT SOME VOUCHERS ITA NO. 136/CTK/2014 ASSESSMENT YEAR :2009-2010 6 ARE NOT SIGNED. THE FACTS REMAINS THAT THE ASSESSEE IS AN ARCHITECT AND ENGAGEMENT OF LABOUR IS AN INDISPENSIBLE PART AND ACTIVITIES OF T HE ASSESSEES BUSINESS. HOWEVER, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE DISALLOWANCE SUSTAINED BY THE LD CIT(A) IS ON HIGHER SIDE. WE, ACCORDINGLY, IN THE INTEREST OF JUSTICE REDUCE THE DISALLOWANCE TO RS.40,000/-. 6.2 SO FAR AS EXPENSES WITH REGARD TO SITE OFFICE R ENT IS CONCERNED, WE FIND THAT THE ASSESSEE HAS CLAIMED RS.2,79,700/- UNDER THE HEAD SITE OFFICE RENT. BEFORE THE AO, ASSESSEE COULD NOT PRODUCE COPY OF AGREEMENT MADE W ITH THE LANDLORD FOR TAKING ON RECORD OF THE BUSINESS FOR VERIFICATION, THEREFORE, THE AO DISALLOWED 50% OF RS.2,79,700/- AND ADDED RS.1,39,850/- TO THE NET PR OFIT OF THE ASSAESSEE. THE LD CIT(A) RESTRICTED THE DISALLOWANCE TO RS.69,925/-. WE NOTICE THAT AS PER THE ASSESSMENT ORDER, THE ASSESSEE WAS UNABLE TO PRODUC E COPY OF AGREEMENT WITH THE LANDLORD AND VOUCHERS ARE PREPARED WITHOUT CONTAINI NG THE DETAILS. BEFORE US ALSO, THE ASSESSEE COULD NOT MAKE OUT THE ANY CLAIM IN SUPPOR T OF THE SITE OFFICE RENT. HENCE, WE UPHOLD THE ORDER OF THE LD CIT(A) ON THIS ISSUE RESTRICTING THE DISALLOWANCE TO RS.69,925/-. 6.3 AS REGARDS THE CLAIM OF DONATION OF RS.2,001/- DISALLOWED BY THE AO AND CONFIRMATION BY THE LD CIT(A), WE FIND THAT NO EVID ENCE HAS BEEN FILED BY THE ASSESSEE IN SUPPORT OF THE CLAIM. HENCE, WE CONFIRM THE DIS ALLOWANCE OF RS.2,001/-. 6.4 SO FAR AS VEHICLE EXPENSES OF RS.2,29,484/- IS CONCERNED, WE FIND THAT THE ASSESSEE HAS CLAIMED RS.2,29,484/-, COMPRISING RS.8 6,826/- UNDER THE HEAD FUEL & LUBRICANTS, RS.18,042/- UNDER THE HEAD MAINTENANC E AND RS.1,24,616/- UNDER THE HEAD DEPRECIATION. CONSIDERING THE FACT THAT THE PERSONAL USES OF VEHICLE FOR DOMESTIC ITA NO. 136/CTK/2014 ASSESSMENT YEAR :2009-2010 7 AS WELL AS OTHER PURPOSES CANNOT BE RULED OUT, THE AO DISALLOWED RS.91,292/- BEING 40% OF TOTAL CLAIM OF RS.2,29,484/-. HOWEVER, THE LD CIT(A) OBSERVED THAT THE DISALLOWANCE IS EXCESSIVE AND, ACCORDINGLY, RESTRIC TED THE SAME TO 10% OF THE CLAIM, WHICH COMES TO RS.22,948/-. WE FIND THAT THE ASSE SSEE IS AN ARCHITECT AND SHE IS REQUIRED TO TRAVEL MAXIMUM TIMES FOR THE PURPOSES O F HER BUSINESS. HOWEVER, SINCE THE PERSONAL USER IS NOT RULED OUT, WE, IN THE INTE REST OF JUSTICE, RESTRICT THE DISALLOWANCE TO 5% OF THE TOTAL CLAIM, WHICH COMES TO RS.11,474/-. IN VIEW OF THIS, GROUND NO.3 IS PARTLY ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 5 /11/20 15 SD/- SD/- . ,/B.RAMAKOTAIAH , PARTHA SARATHI CHAUDHURY /ACCOUNTANT MEMBER / JUDICIAL MEMBER CUTTACK; '! DATED 5 /11 /2015 B.K.PARIDA, SPS 0 0 0 0 (+ (+ (+ (+ 3$+ 3$+ 3$+ 3$+ / COPY OF THE ORDER FORWARDED TO : 4 44 4 4 44 4 4 44 4 4 44 4 4 44 4 0' 0' 0' 0' / BY ORDER, SR. PRIVATE SECRETARY, , / ITAT, CUTTACK 1. ' / THE APPELLANT : SUNITA MAGANLAL, BHUBANESWAR 2. ()' / THE RESPONDENT. ITO, WARD-1(2), BHUBANESWAR. 3. 5 ( ) / THE CIT(A), BERHAMPUR (CAMP)- BHUBANESWAR. 4. 5 / CIT , BHUBANESWAR 5. #6 (+' , / DR, ITAT, CUTTACK 6. 8 9. / GUARD FILE. )+ (+ //TRUE COPY//