NITIN KILLAWALA & ASSOCIATES, MUMBAI V. ITO 11(3)(1), MUMBAI

ITA 1611/MUM/2013

• Counselvise Citation: 161119914 RSA 2013
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R K BOTHRA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.1611/M/2013 ASSESSMENT YEAR: 2008-09 M/S. NITIN KILLAWALA & ASSOCIATES, D-4, N.S. ROAD NO.10, JVPD SCHEME, VILE PARLE (W), MUMBAI 400 049 PAN: AAAFN1163F VS. INCOME TAX OFFICER 11(3)(1), MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI R.K. BOTHRA, A.R. REVENUE BY : SHRI YOGESH KAMAT, D.R. DATE OF HEARING : 04.06.2015 DATE OF PRONOUNCEMENT : 16.09.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 23.10.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2008-09. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: A. WHETHER THE LEA R NED CIT (A) WAS JUSTIFIED I N NOT RENDERING ANY DEC I S I ON ON THE F I RST GROUND OF APPEA L REGARDING EXTENDING THE AREAS OF SCRUTINY BEYOND THE ITEMS MENT I ONED IN THE A.I . R.? B. ON THE FACTS AND C I RCUMSTANCES OF THE CASE WHETHER THE CO M M I SS I ONER OF INCOME TAX ( APPEALS ) WAS J UST I FIED I N CON FIR M I NG D I SA L LOWANCE MADE BY T H E ASSESS I NG OF FI CER OF RS.8 , 28, 1 57 I NCURRED BY FI R M ON T H E EDUCAT I ON O F AN EMP L OYEE? C. ON THE FACTS AND CIRCUMSTANCES OF THE CASE WHETH ER THE COMMISSIONER OF ITA NO.1611/M/2013 M/S. NITIN KILLAWALA & ASSOCIATES 2 INCOME TAX (APPEALS) WAS JUSTIFIED I N CONF I RMING DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 8,24,612 OF FOREIGN TRAVEL EXPENSES? THE APPELLANT CRAVES LEAVE TO ADD, ALTER , AMEND AND OR MOD I FY ALL OR ANY GROUNDS OF APPEAL MENTIONED ABOVE AT OR BEFORE THE TIME OF FINAL HEARING. ASSESSEE VIDE LETTER DATED 01.12.2014 HAS TAKEN THE FOLLOWING REVISED GROUND OF APPEAL: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE WHETHER THE LEARNED A.O. WAS JUSTIFIED IN EXTENDING THE AREA OF SCRUTINY WIT HOUT OBTAINING THE PERMISSION OF HIGHER AUTHORITIES AS REQUIRED BY CIRCULAR DATED 8 TH SEPTEMBER 2010 ISSUED BY CBDT AS THE CASE OF APPELLANT WAS SELECTED FOR SCRUTINY UNDER CASS. FURTHER WHETHER LEARNED CIT(A) WAS JUSTIFIED IN NOT ADJUDICATING TH E SAID GROUND OF APPEAL HOLDING THAT THE ORDER PASSED BY A.O. WAS WITHOUT ASSUMING VALID JURISDICTION AND THEREFORE BAD IN LAW. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM ENGAGED IN THE PROFESSION OF ARCHITECTURE AND INTER IOR DECORATION. RETURN DECLARING TOTAL INCOME OF RS.12,13,640/- OR E-FILED BY THE ASSESSEE ON 22.09.08. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF TH E ACT. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE UND ER SECTION 143(2) WAS ISSUED TO THE ASSESSEE. THE ASSESSEE WAS REQUIRED TO FURNISH THE DETAILS/RECONCILIATION OF THE ITEMS MENTIONED IN TH E AIR INFORMATION. THE AO, HOWEVER, WIDENED THE AREA OF SCRUTINY OF THE ASSESS MENT. THE ASSESSEE, DURING THE ASSESSMENT YEAR, HAS DEBITED AN AMOUNT OF RS.8, 28,157/- TOWARDS EDUCATION EXPENSES TO INCOME AND EXPENDITURE ACCOUNT. ON BEI NG ASKED BY THE AO TO SUBSTANTIATE THE EXPENSES INCURRED ON EDUCATION, TH E ASSESSEE SUBMITTED THAT THE SAID EXPENDITURE HAS BEEN INCURRED ON MS. RESHMA KI LLAWALAS POST GRADUATION, WHO WAS AN EMPLOYEE OF THE FIRM, IN INT ERIOR LIGHTING DESIGN IN THE NEW SCHOOL FOR DESIGN IN NEW YORK FOR A PERIOD OF T WO YEARS FOR THE SAKE OF FIRMS BENEFIT. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLANATION OFFERED BY THE ASSESSEE, THEREFORE DISALLOWED THE AMOUNT OF RS.8,28,157/- INCURRED BY THE ASSESSEE ON THE EDUCATION EXPENSE OF ITS EMPLOY EE. THE AO ALSO OBSERVED ITA NO.1611/M/2013 M/S. NITIN KILLAWALA & ASSOCIATES 3 THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.8,24, 612/- TOWARDS FOREIGN TRAVEL EXPENSES TO INCOME AND EXPENDITURE ACCOUNT BUT THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE LIKE COPIES OF BILLS OR OTHER DOCUMENT ARY EVIDENCE IN THIS REGARD, HENCE HE DISALLOWED THE AMOUNT OF RS.8,24,612/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A) WHO AGAIN CONFIRMED THE ABOVE DISALLOWANCES MADE BY THE AO. HENCE, THE ASSESSEE HAS COME IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORDS. BEFORE US, THE LD. A.R. OF THE ASSESSEE H AS STRESSED THAT AS PER THE CBDT INSTRUCTION NO.225/26/2006 DATED 23.05.2007, T HE SCOPE OF INQUIRY IN ASSESSMENT PROCEEDINGS SELECTED FOR SCRUTINY ON THE BASIS OF AIR INFORMATION IS LIMITED TO THE ASPECT OF AIR INFORMATION ONLY. HOWE VER, THE AO IS NOT DEBARRED FROM THE EXTENDING THE SCRUTINY IN AREAS O THER THAN MENTIONED IN THE AIR BUT SUBJECT TO OBTAINING OF WRITTEN PERMISSION OF ADDITIONAL COMMISSIONER IN THIS RESPECT. THE LD. A.R. HAS FUR THER STRESSED THAT THE SAID INSTRUCTIONS HAVE BEEN FURTHER RECONSIDERED BY THE BOARD AND VIDE F.NO.225/26/2006-ITA-II(PT.) DATED 08.09.2010 AND I T HAS BEEN DECIDED THAT SCRUTINY OF SUCH CASES WOULD BE LIMITED TO THE ASPE CTS OF INFORMATION RECEIVED THROUGH AIR. HOWEVER, A CASE MAY BE TAKEN UP FOR W IDER SCRUTINY WITH THE APPROVAL OF ADMINISTRATIVE COMMISSIONER WHERE IT IS FELT THAT APART FROM THE AIR INFORMATION THERE IS A POTENTIAL ESCAPEMENT OF INCOME OF MORE THAN RS.10 LAKHS. THE LD. A.R. HAS SUBMITTED THAT THE AO, WHI LE WIDENING THE SCOPE OF INQUIRY, HAS NOT TAKEN THE NECESSARY APPROVAL EITHE R AS PER THE INSTRUCTION DATED 23.05.2007 OR AS PER THE INSTRUCTION DATED 08.09.20 10. ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT IN THE ASSESSEES CASE NOTICE UNDER SECTION 143(2) WAS ISSUED ON 20.08.09 WHEREAS THE INSTRUCTIONS OF ITA NO.1611/M/2013 M/S. NITIN KILLAWALA & ASSOCIATES 4 CBDT REGARDING WIDER SCRUTINY AND ADMINISTRATIVE AP PROVAL WERE ISSUED ON 08.09.2010, HENCE THE SAME CANNOT BE APPLIED TO EAR LIER PERIOD. HE ALSO RELIED UPON THE DECISION OF THE CHANDIGARH BENCH OF THE TR IBUNAL IN THE CASE OF ANUP SHARMA VS. ACIT IN ITA NO.161/CHD/2012 DECID ED ON 10.09.2014. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND HAV E ALSO GONE THROUGH THE RECORDS. THE UNDISPUTED FACT IN THIS CASE IS THAT THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. IT IS ALSO UNDISPUTED THAT TH E CASS INFORMATION WAS REGARDING THE RECEIPT/PAYMENT OF FEES FOR PROFESSIO NAL/TECHNICAL SERVICES ETC. AND IN RELATION TO INTEREST OTHER THAN SECURITIES. APART FROM THE ASPECTS OF AIR INFORMATION, THE AO WIDENED THE AREA OF INQUIRY IN RESPECT OF THE EXPENSES INCURRED BY THE ASSESSEE ON THE EDUCATION OF ITS EM PLOYEE AND FOREIGN TOUR EXPENSES. THE SCOPE OF ENQUIRY UNDER CASS IS DEFIN ED BY THE BOARD IN CBDT CIRCULAR F.NO.225/26/2006-ITA-II(PT.) DT. 23 RD MAY,2007. THIS IS EXTRACTED HEREUNDER FOR READY REFERENCE: F.NO.225/26/2006-ITA-II(PT.) GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NEW DELHI, DT. 23 RD MAY,2007 TO: ALL CHIEF COMMISSIONERS OF INCOME TAX ALL DIRECTORS GENERAL OF INCOME TAX SIR/MADAM, SUB : SELECTION OF CASES FOR SCRUTINY ON THE BASIS OF D ATA IN AIR RETURNS AND SUBSEQUENT ASSESSMENT PROCEEDINGS REG. KINDLY REFER TO INSTRUCTIONS ISSUED FROM TIME TO TI ME REGARDING THE PROCEDURE FOR SELECTION OF CASES FOR SCRUTINY ON THE BASIS OF DAT A IN AIR RETURNS AND THE SUBSEQUENT ASSESSMENT PROCEEDINGS. AS HAS ALREADY BEEN CLARIFIED VIDE LETTER OF EVEN N UMBER DT. 25TH OCTOBER,2006 SCRUTINY IN CASES OF ASSESSMENT YEAR 2005-06 SELECT ED SPECIFICALLY ON THE BASIS OF INFORMATION RECEIVED THROUGH AIR RETURNS SHOULD BE LIMITED TO ONLY THAT ASPECT. HOWEVER, IF ITA NO.1611/M/2013 M/S. NITIN KILLAWALA & ASSOCIATES 5 THE ASSESSING OFFICER FEELS THAT SOME OTHER AREAS A RE REQUIRED TO BE LOOKED INTO HE MAY, WITH THE APPROVAL OF THE ACIT.JCIT RANGE, TAKE UP T HE CASE FOR WIDER SCRUTINY. SUCH CASES SHOULD BE MONITORED BY THE ACIT/JCIT. THIS SHOULD BE IMMEDIATELY BROUGHT TO THE NOTICE OF ALL OFFICERS WORKING IN YOUR REGION. YOURS FAITHFULLY, SD/- (RENU JAUHRI) DIRECTOR (ITA-II) 6. THESE INSTRUCTIONS HAS BEEN REITERATED IN BOARD CIRCULAR F.NO. 225/26/2006-ITA.II(PT.) DT. 8TH SEPTEMBER,2010 WHIC H IS EXTRACTED BELOW FOR READY REFERENCE. F.NO.225/26/2006-ITA-II(PT.) GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NEW DELHI, DT. 8TH SEPTEMBER MAY,2010 TO: ALL CHIEF COMMISSIONERS OF INCOME TAX ALL DIRECTORS GENERAL OF INCOME TAX SIR/MADAM, SUB : SELECTION OF CASES FOR SCRUTINY ON THE BASIS OF D ATA IN AIR RETURNS AND SUBSEQUENT ASSESSMENT PROCEEDINGS REG. REFERENCE IS INVITED TO BOARDS LETTER OF EVEN NUMB ER DT. 23RD MAY,2007 REGARDING SCOPE OF ENQUIRY IN THE SCRUTINY CASES SELECTED ONL Y ON THE BASIS OF INFORMATION RECEIVED THROUGH THE AIR RETURNS. 2. THE ABOVE MENTIONED GUIDELINES HAVE BEEN RECONSI DERED BY THE BOARD AND IT HAS BEEN DECIDED THAT THE SCRUTINY OF SUCH CASES WOULD BE LIMITED ONLY TO THE ASPECTS OF INFORMATION RECEIVED THROUGH AIR. HOWEVER, A CASE M AY BE TAKEN UP FOR WIDER SCRUTINY WITH THE APPROVAL OF THE ADMINISTRATIVE COMMISSIONE R, WHERE IT IS FELT THAT APART FROM THE AIR INFORMATION THERE IS A POTENTIAL ESCAPEMENT OF INCOME MORE THAN RS.10 LACS. 3. IT HAS ALSO BEEN DECIDED THAT IN ALL THE CASES WHICH ARE PICKED UP FOR SCRUTINY ONLY ON THE BASIS OF AIR INFORMATION, THE NOTICE UNDER S ECTION 143(2) OF THE INCOME TAX ACT, 1961 SHOULD CLEARLY BE STAMPED WITH AIR CASE. THIS SHOULD BE IMMEDIATELY BROUGHT TO THE NOTICE OF ALL THE OFFICERS WORKING IN YOUR REGION. YOURS FAITHFULLY, SD/- (AJAY GOYAL) ITA NO.1611/M/2013 M/S. NITIN KILLAWALA & ASSOCIATES 6 DIRECTOR (ITA.II) 7. ADMITTEDLY, THE NECESSARY APPROVAL HAD NOT BEEN TAKEN BY THE AO WHILE WIDENING THE SCOPE OF INQUIRY. THOUGH THE LD. D.R. HAS SUBMITTED THAT THE NOTICE IN THIS CASE WAS ISSUED ON 20.08.09 WHEREAS THE INSTRUCTION OF CBDT REGARDING THE WIDER SCRUTINY WAS ISSUED ON 08.09.20 10 AND THAT THE SAID CIRCULAR WAS APPLICABLE PROSPECTIVELY AND NOT RETRO SPECTIVELY, HOWEVER, IT IS NOTED THAT THE SAID INSTRUCTION OF 2010 HAS BEEN PA SSED IN RECONSIDERATION OF INSTRUCTION DATED 23.05.2007. UNDER SUCH CIRCUMSTA NCES, THE INSTRUCTION OF 2007 WAS OPERATIVE ON THE DATE OF ISSUE OF NOTICE. THE LD. D.R. HAS NOT SUBMITTED ANY EVIDENCE ON THE FILE THAT THE AO HAD TAKEN THE NECESSARY APPROVAL OF ACIT/JCIT FOR WIDENING THE SCOPE OF INQ UIRY. THE INSTRUCTIONS OF THE BOARD ARE BINDING UPON THE REVENUE/AO. THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF AMAL KUMAR GHOSH VS. ACIT 201 4 (105) DTR (CAL.) 351 HAS HELD THAT THE CIRCULARS OF THE CBDT ARE BIN DING UPON THE DEPARTMENT. THE DEPARTMENT IS BOUND BY THAT STANDARD AND CANNOT ACT WITH DISCRIMINATION. HENCE, THE INSTRUCTION DATED 23.05.2007 WAS VERY MU CH BINDING UPON THE AO. SO FAR AS THE RELIANCE OF THE LD. D.R. ON THE DECIS ION OF THE CHANDIGARH BENCH OF THE TRIBUNAL IS CONCERNED, WE FIND THAT THE SAME IS RELATING TO THE INSTRUCTION DATED 08.09.2010. HOWEVER, THERE IS NO DISCUSSION IN THE SAID DECISION ABOUT THE APPLICABILITY OF THE INSTRUCTION OF THE YEAR 20 07. HENCE, THE SAID DECISION IS NOT APPLICABLE TO THE FACT AND CIRCUMSTANCES OF THE PRESENT CASE. THE ACTION OF THE AO IN WIDENING THE SCOPE OF THE INQUIRY WITHOUT OBTAINING THE NECESSARY PERMISSIONS AS PER THE BOARDS INSTRUCTION WAS WITH OUT JURISDICTION AND THE SAME IS ACCORDINGLY SET ASIDE AND CONSEQUENTLY THE ADDITIONS MADE BEYOND THE SCOPE OF AIR INFORMATION ARE ORDERED TO BE DELETED. THE ASSESSEES APPEAL SUCCEEDS ON TECHNICAL/LEGAL GROUND TAKEN BY THE ASS ESSEE VIDE REVISED GROUND OF APPEAL. ITA NO.1611/M/2013 M/S. NITIN KILLAWALA & ASSOCIATES 7 8. THE GROUNDS TAKEN BY THE ASSESSEE ON MERITS OF T HE CASE, THUS, HAVE BECOME INFRUCTUOUS AND NEED NOT ANY ADJUDICATION AT THIS STAGE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.09.2015. SD/- SD/- (G.S. PANNU) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.09.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.