V KAY TRASLINES P. LTD, NAVI MUMBAI V. ITO WD 10(3)(4), MUMBAI

ITA 1562/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3564 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2006-2007
• Appeal Filed On: 26-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: R ANAND
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts; Revenue expenditure; TDS; Rule 8D
• Section: 14A; 40(a)(ia); 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F,MUMBAI BEFORE SHRI R.V. EASWAR (PRESIDENT) & SHRI S.V. ME HROTRA (AM) I.T.A.NO. 1562/MUM/2010 (A.Y. 2006-07) ) M/S.V. KAY TRANSLINES (P) LTD., 616, JK CHAMBERS, SECTOR 17, VASHI, NAVI MUMBAI-400 703. PAN: AAACV4937G VS. INCOME-TAX OFFICER, WARD 10(3)(4), MUMBAI. APPELLANT RESPONDENT APPELLANT BY SHRI R. ANAND. RESPONDENT BY SHRI S.S. RANA. O R D E R PER S.V. MEHROTRA, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A)-22, MUMBAI, ON 09-12-2009 IN RELATION TO THE ASSTT. YEAR 2006-07. 2. THE ASSESSEE COMPANY IN THE RELEVANT ASSESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF GOODS TRANSPORTERS. IT HAD FILED IT S RETURN DECLARING TOTAL INCOME OF RS.2,18,953/-. THE ASSESSMENT WAS COMPLETED ON A TOTAL INCOME OF RS.7,92,796/-, INTER ALIA, MAKING THE FOLLOWING DIS ALLOWANCES: DISALLOWANCE U/S.14A RS. 78,084/- DISALLOWANCE U/S.40(A)(IA) RS. 1,00,000/- LOSS ON CHIT FUNDS RS. 1,10,01 0/- LEGAL & PROFESSIONAL CHARGES RS. 1,92,660/- THE LD. CIT(A), WHILE PARTLY ALLOWING THE ASSESSEE S APPEAL, SUSTAINED THE AFOREMENTIONED DISALLOWANCES. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE FIRST GROUND OF APPEAL RAISED BY THE ASSESSE E READS AS UNDER : ITA 1562/MUM/10 2 1. THE LEARNED ASSESSING OFFICER HAS ERRED IN D ISALLOWING A SUM OF RS.78,084/- U/S.14A AS PERTAINING TO EXEMPT INCO ME AS THERE WAS NO EXPENSE INCURRED, EITHER DIRECTLY OR I NDIRECTLY IN EARNING THE DIVIDEND INCOME OF RS.4,500/-. THE BRIEF FACTS APROPOS THIS ISSUE ARE THAT THERE W AS INVESTMENT WORTH RS.18,84,000/- IN ASSESSEES BALANCE-SHEET. THE AO NOTICED THAT A SUM OF RS.6,03,064/- WAS CHARGED TO P & L A/C. TOWARDS BAN K INTEREST AND RS.2,65,785/- ON ACCOUNT OF OTHER INTEREST. HE NOTED THE ASSESSEE HAD EARNED DIVIDEND OF RS.4,500/-. APPLYING THE PROVISIONS OF SEC. 14A REA D WITH RULE 8D, HE COMPUTED THE DISALLOWANCE AT RS.78,084/-, BEING INTEREST ATT RIBUTABLE TO EARNING OF DIVIDEND INCOME. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE F OLLOWING THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF DAGA CAPITAL M ANAGEMENT P.LTD. 4. AT THE TIME OF HEARING, BOTH THE PARTIES AGREED THAT IN VIEW OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ & BOYCE MFG. LTD. VS. DCIT (2010) 328 ITR 81 (BOM.), RULE 8D, BEING HELD TO BE PROSPECTIVE, COULD NOT BE INVOKED IN THE RELEVANT ASSESSMENT YEAR AND, THEREF ORE, THE MATTER NEEDS TO BE RESTORED BACK TO THE FILE OF AO FOR DECIDING THE IS SUE DE NOVO. WE DIRECT ACCORDINGLY. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO. 2 READS AS UNDER : 2.THE ITO AND CIT(A) HAS FAILED TO APPRECIATE THAT THE AMOUNT PAID AS LABOUR CHARGES FOR MANUFACTURING THE ASSET WAS N OT CHARGED AS AN EXPENSE BUT HAS ONLY BEEN CAPITALIZED. THE APPEL LANT HAD NOT CLAIMED THIS AMOUNT AS AN REVENUE EXPENDITURE, CONS EQUENTLY THE DISALLOWANCE U/S.40(A)(IA) OF RS.1,00,000/- IS NOT SUSTAINABLE. THE BRIEF FACTS APROPOS THIS ISSUE ARE THAT FROM TH E DETAILS SUBMITTED REGARDING ADDITION TO FIXED ASSETS THE AO NOTICED THAT IN RES PECT OF ONE PARTY, VIZ. VIPUL ENGG. WORKS, A SUM OF RS.1,00,000/-HAD BEEN INCURRE D TOWARDS LABOUR CHARGES FOR MANUFACTURING OF AMMONIA STEEL CONTAINER. HOWEV ER, THE ASSESSEE HAD NOT BEEN ABLE TO CORRELATE THESE CHARGES AND EXPLAIN IT S ALLOWABILITY. MOREOVER, NO ITA 1562/MUM/10 3 TDS HAD BEEN DEDUCTED ON THESE LABOUR CHARGES. INVO KING THE PROVISIONS OF SEC. 40(A)(IA), THE AO DISALLOWED RS.1,00,000/-. 5.1 BEFORE THE LD. CIT(A), IT WAS POINTED OUT THAT LABOUR CHARGES PAID TO VIPUL ENGG. WORKS FOR MANUFACTURING OF AMMONIA STEEL CON TAINER WERE ADDED TO THE COST OF THE ASSET AND HENCE THERE WAS NO QUESTION O F DISALLOWING THE SAME. THE ASSESSEE FURTHER SUBMITTED THAT SEC. 40(A)IA) IS AP PLICABLE IN RESPECT OF TDS DEFAULT IF AMOUNT IS PAYABLE. THE LD. CIT(A), HOWEV ER, CONFIRMED THE DISALLOWANCE, INTER ALIA, OBSERVING THAT SINCE THE ASSESSEE HAD NOT DEDUCTED TAX U/S.194C, THE PROVISIONS OF SEC. 40(A)(IA) WERE CLE ARLY ATTRACTED. 6. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE D ECISION OF ITAT SPECIAL BENCH IN THE CASE OF SMS DEMAG P. LTD. VS. DCIT IN ITA NO.3636/DEL/2008 DATED 29-01-2010 WHEREIN IT HAS BEEN HELD IN PARA 8 THAT THE PROVISIONS OF SEC. 40(A)(I) ARE NOT APPLICABLE FOR CLAIM OF DEDUCTION U/S.32 OF THE ACT. HE, THEREFORE, SUBMITTED THAT EVEN THE DEPRECIATION CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED. 6.1 THE LD. D.R. RELIED ON THE ORDER OF CIT(A). 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE RECORD OF THE CASE. THE FACTS ARE NOT DISPUTED. THE PAYMENT HAD BEEN MADE TO A CONTAINER FABRICATOR AND TAX HAD NOT BEEN DEDUCTED FROM THIS PAYMENT. SECTION 40(A)(IA) READS AS UNDER : (A) IN THE CASE OF ANY ASSESSEE (IA) ANY INTEREST, COMMISSION OR BROKERAGE, REN T, ROYALTY, FEES FOR SERVICES FOR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RE SIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING O UT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AN D SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAI D. A BARE PERUSAL OF THIS SECTION REVEALS THAT TAX WAS REQUIRED TO BE DEDUCTED, INTER ALIA, ON AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CON TRACTOR, BEING RESIDENT, FOR ITA 1562/MUM/10 4 CARRYING OUT ANY WORK AT SOURCE UNDER CHAPTER XVII- B. THE CONTENTION OF THE ASSESSEE IS THAT IF IT HAD CLAMED THIS AMOUNT IN T HE P & L A/C., THEN ONLY DISALLOWANCE WAS CALLED FOR, BUT SINCE THE AMOUNT H AS BEEN CAPITALIZED, THEREFORE, NO DISALLOWANCE IS CALLED FOR. WE ARE NOT INCLINED TO ACCEPT THIS CONTENTION BECAUSE THE TERM USED IS AMOUNTS PAYABLE, AND IF TDS WAS REQUIRED TO BE MADE FROM THIS AMOUNT, THEN THE ASSESSEE SHOULD HAV E DEDUCTED THE TAX FOR ALLOWABILITY OF THIS AMOUNT. IT IS TRUE THAT SINCE THE ASSESSEE HAD NOT CLAIMED THE ENTIRE AMOUNT, THEREFORE, ONLY TO THE EXTENT THE AM OUNT HAS BEEN CLAIMED AS DEPRECIATION, DEDUCTION IS TO BE DISALLOWED. THE LD . COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION IN THE CASE OF SMS DEMAG P .LTD. (SUPRA). IN THIS CASE, THE FACTS WERE THAT THE AO RECEIVED INTERNAL INFORMATION THAT THE ASSESSEE COMPANY HAD MADE PAYMENT OF ROYALTY. FROM ORDER UND ER 201/201(1A), IT WAS NOTICED THAT THE ASSESSEE MADE SAP MAINTENANCE EXPE NSES OF RS.1,82,48,673/- TO THE PARENT COMPANY M/S. SMS DEMAG AG GERMANY WIT HOUT DEDUCTING TAX IN INDIA DURING THE FINANCIAL YEAR 1999-2000 RELEVANT TO ASST. YEAR 2000-01. THE AO ISSUED SHOW CAUSE NOTICE AS TO WHY THE PAYMENT OF R S.1,82,48,673/- SHOULD NOT BE DISALLOWED U/S.40(A)(I). THE ASSESSEE POINTED OU T THAT THE AMOUNT OF RS.1,82,48,673/- WAS NOT CHARGED TO P & L A/C. IN T HE RELEVANT ASSESSMENT YEAR. THE AMOUNT REPRESENTED THE CHARGES PAYABLE TO SAP INSTALLATION CHARGES WHICH WERE CAPITALIZED IN THE BOOKS OF ACCOUNT UNDE R THE HEAD COMPUTER AND THIS FORMED PART OF THE TOTAL ADDITION UNDER THE HE AD COMPUTER. THE CONTENTION WAS THAT SINCE THE AMOUNT WAS NOT CHARGED TO P & L A/C., THE PROVISIONS OF SEC.40(A)(I) HAVE NO APPLICABILITY. THIS ARGUMENT WAS REJECTED. THE AO NOTED THAT THE ASSESSEE COMPANY HAD CHARGED DEPRECIATION @ 60% U/S.32 OF THE ACT ON AMOUNT OF RS.1,81,48,673/- WHICH WAS PAID TO ITS PARENT COMPANY. THE AO RESTRICTED THE ALLOWANCE OF DEDUCTION TO THE EXTENT OF 50% ALLOWABLE ON COMPUTERS WHICH RESULTED IN ADDITION OF RS.54,74,60 2/-. BEFORE THE CIT(A), IT WAS ITA 1562/MUM/10 5 SUBMITTED THAT THE PAYMENT WAS NOT IN THE NATURE OF ROYALTY FOR TECHNICAL SERVICES. THE LD. CIT(A), HOWEVER, REJECTED THE ASS ESSEES CONTENTION, INTER ALIA, OBSERVING THAT THE EXPENDITURE WAS INCURRED TOWARDS INSTALLATION OF SOFTWARE, NAMELY, SAP, AND THEREFORE THE SAID PAYMENT WAS IN THE NATURE OF ROYALTY/FEE FOR TECHNICAL SERVICES/INTEREST. HE UPHELD THE DISALLOW ANCE OF DEPRECIATION CLAIMED BY THE ASSESSEE. THE TRIBUNAL, AFTER CONSIDERING THE S UBMISSIONS OF BOTH THE PARTIES, INTER ALIA, CONCLUDED THAT THE PAYMENT MADE FOR PUR CHASE OF SOFTWARE COULD NOT BE TREATED EITHER AS ROYALTY OR EVEN FOR TECHNICAL SERVICES. THEREFORE, THE PAYMENT FOR SAP SOFTWARE COULD NOT BE CHARGED TO TA X IN INDIA AS INTEREST OR ROYALTY OR FEE FOR TECHNICAL SERVICES. THE TRIBUNAL CONCLUDED THAT THE PAYMENT MADE FOR ACQUISITION OF AN ASSET, WHETHER IT IS A R EVENUE EXPENDITURE OR CAPITAL, THE PROVISIONS OF SEC. 40(A)(I) OF THE ACT WILL NOT BE APPLICABLE IN RESPECT OF THE RESPONDENT ASSESSEE FOR ASSTT. YEAR 2000-01. THE TR IBUNAL, THEREFORE, HELD THAT THE AMOUNT PAID BY THE ASSESSEE FOR ACQUISITION OF COMPUTERS WAS NOT CHARGEABLE TO TAX IN INDIA. SINCE THE TRIBUNAL HELD THAT THE P ROVISIONS OF SEC. 40(A)(I) WERE NOT APPLICABLE, THEREFORE, IT DELETED THE DISALLOWA NCE MADE BY THE AO ON ACCOUNT OF DEPRECIATION. FROM HE ABOVE, IT IS EVIDENT THAT THE FACTS IN THE SAID DECISION WERE ENTIRELY DIFFERENT INASMUCH AS THE APPLICABILI TY OF SEC. 40(A)(I) WAS RULED OUT. HOWEVER, IN THE PRESENT CASE, THE APPLICABILIT Y OF SEC. 40(A)(IA) HAS NOT BEEN RULED OUT AND, THEREFORE, TO THE EXTENT THE ASSESSE E HAD MADE CLAIM OF DEPRECIATION IN THE P & L A/C., THE SAME IS TO BE D ISALLOWED. WE DIRECT ACCORDINGLY. IN THE RESULT, THIS GROUND IS DISMISSE D. 8. THE THIRD GROUND OF APPEAL IS REGARDING DISALLOW ANCE OF RS.1,10,010/- ON ACCOUNT OF CHIT FUNDS. THE FACTS APROPOS THIS ISSUE ARE THAT IN THE P & L A/C. UNDER FINANCE EXPENSES, THE ASSESSEE HAD CLAIMED A SUM OF RS.1,10,010/- TOWARDS LOSS ON CHIT FUNDS. IN REPLY TO AOS QUERY, THE ASSESSEE POINTED OUT THAT THE CHIT SUBSCRIPTION WAS LIKE A DEPOSIT AND THE DIVIDEND RE CEIVED EVERY MONTH HAD BEEN ITA 1562/MUM/10 6 TREATED AS INCOME. WHEN THE CHIT IS BID, THE AMOUNT FOREGONE IS TREATED AS LOSS ON CHIT FUND AND CLAIMED AS EXPENDITURE. THE AO AGA IN REQUIRED THE ASSESSEE TO FURNISH DETAILS. THE ASSESSEES REPLY HAS BEEN REPR ODUCED AT PAGE 2 OF THE ASSESSMENT ORDER IN WHICH IT HAS BEEN POINTED THAT THE TOTAL LOSS HAD BEEN ON ACCOUNT OF THREE CHITS VIZ. (A) RS.3 LACS CHIT, (B) RS.10 LACS CHIT AND (C) RS.1 LAC CHIT. IT WAS POINTED OUT THAT IN RESPECT OF ALL THE SE THREE CHITS, THE ASSESSEE HAD DECLARED INCOME IN EARLIER YEAR. THE AO, HOWEVER, R EFERRED TO CBDT INSTRUCTION NO.1175 UNDER ORDER F.NO.169/21/78-IT(80) DATED 16. 5.1978 AND POINTED OUT THAT IN THE HANDS OF THE SUBSCRIBERS, ONLY FEW WILL BE RECEIVING MORE THAN WHAT THEY HAVE SUBSCRIBED. THIS EXTRA AMOUNT CAN BE CLAI MED AS A LOSS, AFTER CONSIDERING THE PURPOSE OF ALLOWANCE DEPENDING UPON HOW THE MONEY WAS UTILIZED BY THE SUBSCRIBER. HE POINTED OUT THAT IN THE PRESENT CASE THE ASSESSEE HAD NOT EXPLAINED THE PURPOSE AND THE MANNER AS TO HOW THAT MONEY WAS UTILIZED. HE, THEREFORE, DISALLOWED THE ASSESSEES CLAIM, INTER ALIA, OBSERVING THAT THE ASSESSEES BUSINESS IS THAT OF GOODS TRANSPORTE RS AND NOT DOING THE BUSINESS OF CONTRIBUTING TOWARDS CHIT FUNDS. HE RELIED ON FO LLOWING CASE LAWS: 1. SODA SILICATE & CHEMICAL WORKS VS. CIT (1989) 1 79 ITR 588 2. CIT VS. KOVUR TEXTILE (1982) 136ITR 61 (AP). 8.1 THE LD. CIT(A) CONFIRMED THE DISALLOWANCE, INTE R ALIA, OBSERVING THAT THE ASSESSEE NEITHER BEFORE THE AO NOR BEFORE HIM COULD EXPLAIN THE PURPOSE AND THE MANNER AS TO HOW MONEY BORROWED WAS UTILIZED BY IT FOR THE PURPOSE OF ITS BUSINESS PARTICULARLY WHEN THE ASSESSEE HAS NOTHING TO DO WITH THE BUSINESS OF CHITS. 9. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PAG E 11 OF PAPER BOOK AND POINTED OUT THAT AS PER OBJECTS CLAUSE 19 THE ASSES SEE COULD UTILIZE SUCH SURPLUS FUNDS FOR INVESTING IN SHARES, STOCKS, SECURITIES, ETC. HE FURTHER REFERRED TO CLAUSE 30 OF THE OBJECTS CLAUSE, WHICH READS AS UNDER : ITA 1562/MUM/10 7 30. SUBJECT TO PROVISIONS OF THE ACT, TO INVEST A ND DEAL WITH THE MONEYS AND FUNDS BELONGING TO OR ENTRUSTED WITH OR BORROWED BY THE COMPANY NOT IMMEDIATELY REQUIRED FOR THE BUSINE SS OF THE COMPANY IN ANY MANNER WHATSOEVER: THE LD. COUNSEL REFERRED TO THE DETAILS REGARDING C HIT VALUE OF RS.3 LACS CONTAINED AT PAGE 13 OF PAPER BOOK AND POINTED OUT THAT THE P ROFITS OF RS.22,000/- IN ASSTT. YEAR 2005-06 AND RS.10,276/- IN ASSTT. YEAR 2006-0 7 HAVE BEEN ACCEPTED. HE REFERRED TO SCHEDULE 9 TO P & L A/C. CONTAINED AT P AGE 9 OF PAPER BOOK TO SUBMIT THAT IN OTHER CHITS THE ASSESSEE DECLARED PROFIT. T HEREFORE, THE EXPENDITURE WAS CLAIMED AS BUSINESS EXPENDITURE. 9.1 THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAD NO T FURNISHED ANY EVIDENCE TO DEMONSTRATE THAT CHIT AMOUNT RECEIVED FROM CHIT FUNDS HAD BEEN UTILIZED FOR BUSINESS PURPOSES. 10. WE HAVE CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORD. IN THE DECISION OF ITAT IN THE CASE OF RAJEES VS. ITO [63 ITD 330 (COCH)], THE TRIBUNAL HAS CONSIDERED SIMILAR ISSUE AND HAS OBSERVED IN PA RAGRAPHS 11 & 12 AS UNDER : 11. THE CENTRAL BOARD OF DIRECT TAXES ALSO ISSUED INSTR UCTIONS IN THIS CONNECTION. HOWEVER, IN ALL THE ABOVE MENTIONE D JUDGMENTS, INSTRUCTION NO.1175 ISSUED BY THE CBDT U NDER ORDER F.NO.169/21/78-IT(80) DATED MAY 16, 1978 WAS NOT TAKEN INTO ACCOUNT. THE GIST OF THE INSTRUCTIONS IS REPRODUCED BELOW :- (A) IF ANY PERSON ORGANIZES CHIT FUNDS AND FOR THIS PURPOSES BRINGS THE MEMBERS TOGETHER, ADMINISTERS T HE CHIT FUNDS AND THEREBY EARNS COMMISSION, ETC., PROF IT MADE BY SUCH A PERSON IS INCOME FROM BUSINESS AND I F FOR ANY SPECIAL REASON THERE IS LOSS THEN IT IS BUS INESS LOSS. NORMALLY THERE SHOULD BE NO LOSS TO THE ORGAN IZER UNLESS HE TAKES OVER THE LIABILITY OF SOME OF THE MEMBERS. IN SUCH A CASE THE UNRECOVERED AMOUNT DUE FROM SUCH MEMBERS WILL HAVE TO BE TREATED AS BAD DEBTS AND THE TEST TO BE ADOPTED IN USUAL BUSINESS ASSESSMENT FOR THE ALLOWANCE OF BAD DEBTS WOULD BE APPLICABLE IN SUCH CASES ALSO. (B) IN THE HANDS OF THE SUBSCRIBERS, A FEW WILL BE RECE IVING MORE THAN WHAT THEY HAVE SUBSCRIBED. THIS EXTRA AMOUNT IS THE NATURE OF INTEREST AND AS SUCH, TAXAB LE. ITA 1562/MUM/10 8 MEMBERS WHO TAKE THE MONEY EARLIER FROM THE CHIT WI LL NECESSARILY HAVE TO; CONTRIBUTE MORE WHICH MEANS TH AT THEY INCUR LOSS, WHICH IS NOTHING BUT INTEREST PAID FOR MONEYS TAKEN IN ADVANCE. THE CLAIM OF SUCH A LOSS W ILL HAVE O BE CONSIDERED FOR THE PURPOSE OF ALLOWANCE ACCORDING TO THE PROVISIONS OF THE ACT DEPENDING UP ON HOW THE MONEY WAS UTILIZED BY THE SUBSCRIBER. AFTER THE JUDGEMENT OF THE PUNJAB & HARYANA HIGH CO URT IN THE CASE OF SODA SILICATE & CHEMICAL WORKS (SUPRA), THE INCOME-TAX DEPARTMENT IN DELHI STARTED REOPENING S EVERAL COMPLETED ASSESSMENTS BY INVOKING THE PROVISIONS OF SECTION 263 OR SECTION 147 OF THE INCOME-TAX ACT, 1961 AND IN THE PENDING ASSESSMENTS, IT STARTED REFUNDING THE CLAI M OF LOSS ON ACCOUNT OF A CHIT. HOWEVER, IN ONE OF THE CASES, TH E COMMISSIONER IN PROCEEDINGS UNDER SECTION 263, HAVI NG BEEN SATISFIED ABOUT THE ALLOWABILITY OF THE CLAIM ON TH E BASIS OF THE JUDGMENT OF ANDHRA PRADESH HIGH COURT AS WELL AS TH E BOARDS INSTRUCTION NO.1175 ON THE SUBJECT, REFERRED THE MA TTER AGAIN TO THE CBDT FOR ISSUING THE NECESSARY GUIDELINES. THE CBDT HAS RECENTLY ISSUED INSTRUCTIONS TO ALL THE COMMISS IONERS VIDE LETTER DATED MARCH 25, 1992 HOLDING THAT THE EXISTI NG INSTRUCTION NO.1175 ON THE SUBJECT CANNOT BE WITHDR AWN ON HE BASIS OF THE JUDGMENT OF PUNJAB & HARYANA HIGH COUR T. IN A WAY, THE CBDT HAS UPHELD THE POSITION THAT IN CASE THE AMOUNT OF CHIT FUND MONEY IS UTILIZED FOR THE PURPO SES OF BUSINESS, ANY LOSS INCURRED OUT OF THE SAME IS ALLO WABLE AS BUSINESS EXPENDITURE. 12. IN ACCORDANCE WITH HE ABOVE REFERRED THREE DECI SIONS AND THE INSTRUCTION NO.1175 ISSUED BY THE CBDT, IT IS OBVIOUS THAT IF A SUBSCRIBER INCURS LOSS IN SUBSCRIBING TO THE CHIT FUND TO RAISE FUNDS TO USE THEM IN HIS BUSINESS OR FOR T HE BUSINESS PURPOSE, SUCH A LOSS IS AN ALLOWABLE DEDUCTION IN T HIS VIEW OF THE MATTER, THE APPELLANT SUCCEEDS AND THE APPEAL IS ALLOWED. FROM THE ABOVE, IT IS EVIDENT THAT IF THE FUNDS RAI SED THROUGH CHIT FUNDS HAVE BEEN UTILIZED FOR BUSINESS PURPOSES, THEN LOSS ON C HIT FUNDS IS AN ALLOWABLE DEDUCTION. KEEPING IN VIEW THE ARGUMENTS OF LD. COU NSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THAT THIS ISSUE NEEDS TO BE EXAMINED AFRESH AND, THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF AO TO DECIDE IT D E NOVO, AND IF HE FINDS THAT THE FUNDS RAISED THROUGH CHIT FUNDS WERE UTILIZED FOR B USINESS PURPOSES, THEN NO DISALLOWANCE IS CALLED FOR. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. ITA 1562/MUM/10 9 11. THE 4 TH GROUND OF APPEAL IS IN REGARD TO DISALLOWANCE OF L EGAL & PROFESSIONAL CHARGES AMOUNTING TO RS.1,98,660/- . THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED LEGAL AND PROFESSIONAL CHARGES AMOUNTING TO RS.1,98,660/- (RS.6000/- BEING LEGAL EXPENSES AND RS.1,92,660/- BEING PROFES SIONAL EXPENSES). HE NOTED THAT TDS HAD NOT BEEN DEDUCTED ON PROFESSIONAL EXPE NSES TOWARDS RTO CONSULTANT OF RS.1,66,360/-. HE FURTHER OBSERVED TH AT THESE EXPENSES WERE CAPITAL IN NATURE AND, THEREFORE, DISALLOWED RS.1,9 2,660/-. 11.1 THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OBSE RVING, INTER ALIA, THAT THE EXPENSES HAD BEEN INCURRED WITH REFERENCE TO THE VE HICLES ON ACCOUNT OF WORK OF REGISTRATION WITH RTO AND THEREFORE WAS CAPITAL IN NATURE. 12. THE LD. COUNSEL REFERRED TO PAGE 19 OF THE PAPE R BOOK, WHEREIN ITS SUBMISSIONS ARE CONTAINED, IN WHICH IT HAS BEEN POI NTED OUT AT PAGE 21 THAT THE TOTAL AMOUNT OF PROFESSIONAL SERVICES RENDERED BY D EEPAK JAGNADE WAS RS.1,66,360/- AND TDS @ 5.1% SHOULD HAVE BEEN RS.8, 485/- BUT THE ASSESSEE HAD ONLY DEDUCTED RS.5,430/-. AT PAGE 36 OF PAPER B OOK, THE DETAILS OF BILL NO.30 DATED 08-06-2005 ARE CONTAINED. WITH REFERENC E TO ALL THESE DOCUMENTS, THE LD. COUNSEL SUBMITTED THAT PROPORTIONATE AMOUNT IS TO BE ALLOWED. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT DETAILED SUBMISSIONS MADE BY T HE ASSESSEE HAVE NOT BEEN CONSIDERED AND, THEREFORE, IT WOULD BE IN THE INTER EST OF JUSTICE TO RESTORE THIS ISSUE TO THE FILE OF AO FOR DECIDING IT DE NOVO. WH ILE DECIDING THIS ISSUE, THE AO WILL ALSO TAKE INTO CONSIDERATION THE DECISION OF HONBLE SUPREME COURT REPORTED IN 124 ITR 1. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ITA 1562/MUM/10 10 ORDER PRONOUNCED ON THE 29TH DAY OF DECEMBER, 2 010. SD/- SD/- (R.V. EASWAR) (S.V. MEHROTRA) PRESIDENT ACCOUNTANT MEMBER MUMBAI:29TH DECEMBER , 2010. NG: COPY TO : 1. ASSESSEE. 2.DEPARTMENT. 3 CIT(A)-22,MUMBAI. 4 CIT-10,MUMBAI. 5.DR,F BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST. REGISTRAR, ITAT, MUMBAI. ITA 1562/MUM/10 11 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 3-12-2010 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 20-12-2010 SR.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/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER