B.Y. SRINIVASAN & ASSOCIATES, MUMBAI V. ITO WD 11(2)(2), MUMBAI

ITA 1637/MUM/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1204 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 03-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANADR V ANJANEYULU
• Assessee Lawyers: SRINIVASAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, MUMBAI. BEFORE S/SHRI S.V.MEHROTRA, AM & VIJAY PAL RAO, JM I.T.A NO. 1637/MUM/2010 ASSESSMENT YEAR: 2006-07 B.Y.SRINIVASAN & ASSOCIATES, CA, V. THE I.T.O. WAR D 11(2)(2), SHARDA SADAN, 2 ND FLOOR, OPP. HOTEL MIDTOWN AAYAKAR BHAVAN, M,K.ROAD , S.G.MARG, DADAR(E), MUMBAI-14. MUMBAI. PA NO.AABFB 1698 Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI B.Y.SRINIVASAN RESPONDENT BY: SHRI S.S.RANA/DR V.ANJANEYULU O R D E R PER S.V.MEHROTRA, AM THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 15.1.2010 OF LD CIT (A)-III, MUMBAI FOR THE ASSESSMENT YEAR 2006 -07. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THE AO HAS ERRED IN TREATING THE UNSECURED LOAN S OF RS.1,54,446/- RECEIVED FROM PARTNERS AS UNEXPLAINED INCOME. 2, THE AO HAS ERRED IN DISALLOWING THE COMPUTER EXP ENSES OF RS.53,230/-. 3. THE AO HAS ERRED IN MAKING ADHOC ADDITIONS OF RS .2,87,914/- AS DISALLOWANCE AT 20% IN THE TOTAL EXPENSES OF THE FIRM (SALARIES STAFF RS.7,42,885/- , CONVEYANCE EXPENSES RS.4,78,775/-, LEASE RENT RS.86 ,360/-, TELEPHONE AND FAX CHARGES RS.1,31,527/- TOTALING TO RS.14,39,547/-). 2. GROUND NO.2 WAS NOT PRESSED, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A FIRM O F CHARTERED ACCOUNTANTS. IT HAD FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME A T RS.2,45,598/-. THE RETURN WAS ACCOMPANIED WITH STATEMENT OF TOTAL INCOME, AUDIT R EPORT IN FORM 3CB AND 3CD, INCOME AND EXPENDITURE ACCOUNT, CAPITAL ACCOUNT AND BALANC E SHEET. THE ASSESSING OFFICER NOTICED FROM ANNEXURE -1 OF THE AUDIT REPORT THAT T HERE WAS UNSECURED LOANS OF RS.1,54,446/- BUT AS PER THE BALANCE SHEET, NO UNSE CURED LOANS HAD BEEN SHOWN. HE, THEREFORE, TREATED THE SAME AS UNEXPLAINED INCOME O F THE ASSESSEE. ITA NO.1637/M/2010 M/S. B.Y.SRINIVASAN & ASSOCIATES 2 4. BEFORE THE LD CIT (A), IT WAS POINTED OUT THAT T HE BALANCE SHEET CLEARLY SHOWS THE SUM AS LOANS FROM PARTNERS. IT WAS ALSO POINTED OU T THAT IN THE SUBMISSIONS MADE BEFORE THE AO, IT WAS EXPLAINED THAT THE LOANS WERE TEMPORARY CONTRIBUTIONS TO BRIDGE THE CASH FLOW MIS-MATCHES AND WERE REPAID AS SOON A S THE FIRM HAD POSITIVE CASH FLOWS. THUS, IT WAS CLARIFIED THAT THESE WERE GENUINE INTE REST FREE UNSECURED LOANS WHICH WERE BROUGHT IN BY THE PARTNERS AND, THEREFORE, COULD NO T BE TREATED AS UNEXPLAINED INCOME. LD CIT (A) HAD REMANDED THE MATTER FOR VERIFICATION TO THE AO AND IN THE REMAND REPORT, THE AO STATED THAT THE BALANCE OF UNSECURED LOAN MATCHES THE UNSECURED LOAN SHOWN IN THE NAME OF PARTNERS IN THE BALANCE SHEET. HOWEVER, HE CONFIRMED THE FINDINGS OF THE AO FOR THE FOLLOWING REASONS:- I) NO DETAILS WERE SUBMITTED BEFORE THE AO IN RESPE CT OF THE PARTNERS AND THE EXTENSION OF LOAN BY THEM TO THE ASSESSEE. II) IN THE COPY OF RETURN OF ONE OF THE PARTNERS I. E. SHRI B.Y.SRINIVASAN, THE OUTSTANDING LOAN WAS NOT SHOWN. III) NO OTHER COPY OF ACCOUNTS OR CONFIRMATIONS FROM PAR TNERS, NOR THEIR SOURCES WERE FILED BEFORE THE AO. LD CIT (A), ACCORDINGLY, CONFIRMED THE FINDINGS OF THE AO. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD OF THE CASE. THE MAIN GROUND FOR MAKING THE ADDITION BY THE AO W AS THAT THOUGH IN THE ANNEXURE-I TO AUDIT REPORT, THE UNSECURED LOAN APPEARED BUT IN THE BALANCE SHEET, IT WAS NOT THERE. HOWEVER, WHEN THE MATTER WAS REMANDED BY THE LD CIT (A), THIS FACT WAS DULY CONFIRMED BY THE AO HOLDING THAT THE UNSECURED LOAN MATCHES THE UNSECURED LOAN SHOWN IN THE NAME OF PARTNERS IN THE BALANCE SHEET. HOWEVER, LD CIT (A) CONFIRMED THE ADDITION BECAUSE IN THE PARTNERS RETURN, THIS AMOUNT WAS NOT REFLECTED AS UNSECURED LOAN. LD CIT (A) FAILED TO APPRECIATE THE PARTNER S EXPLANATION THAT ALONGWITH HIS RETURN OF INCOME, HE HAD ONLY FILED INCOME AND EXPENDITURE ACCOUNT AND, THEREFORE, THERE WAS NO OCCASION FOR SHOWING THE UNSECURED LOAN TO FIRM AS OUTSTANDING IN THE FINANCIAL STATEMENT FILED WITH THE RETURN. THE ASSESSEES EX PLANATION THAT THE LOANS WERE TEMPORARILY GIVEN BY THE PARTNERS TO BRIDGE THE CAS H FLOW MIS MATCHES AND WERE REPAID AS SOON AS THE FIRM HAD POSITIVE CASH FLOW, HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. THUS, THESE WERE GENUINE INTEREST FREE UNSECURED LOANS AND COULD NOT AT ALL BE TREATED AS UNEXPLAINED INCOME OF THE ASSESSEE FI RM. IT IS A NORMAL PRACTICE IN PROFESSIONAL FIRMS THAT PARTNERS SPEND ON BEHALF O F FIRM AND GET THE SAME REIMBURSED ITA NO.1637/M/2010 M/S. B.Y.SRINIVASAN & ASSOCIATES 3 FROM THE FIRM. THIS AMOUNT IN BOOKS OF FIRM IS TREA TED AS LOAN FROM PARTNER AND DEBITED TO PARTICULAR EXPENDITURE ACCOUNT IN FIRMS BOOKS. THE AO SHOULD HAVE TAKEN INTO CONSIDERATION THE FACT THAT IT WAS HIGHLY IMPROBABL E THAT IN THE AUDIT REPORT, UNSECURED LOAN WOULD BE SHOWN THOUGH NOT APPEARING IN THE BAL ANCE SHEET. HE HAS MADE THE ADDITION IN THREE LINES WITHOUT PROPER VERIFICATION . WE, ACCORDINGLY, SET ASIDE THE ORDER OF THE CIT (A) AND DELETE THE ADDITION OF RS.1,54,4 46/- . GROUND NO.1 IS, ACCORDINGLY, ALLOWED. 6. APROPOS GROUND NO.3, BRIEF FACTS ARE THAT THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE THE DETAILS AND EVIDENCE FOR EXPENSES CLAIMED BUT SINCE THE ASSESSEE FAILED TO PRODUCE TH E EVIDENCE, THE AO DISALLOWED RS.2,87,914/- BEING 20% OF RS.14,39,547/- I.E.(SALA RIES TO STAFF RS.7,42,885/-, CONVEYANCE EXPENSES RS.4,78,775/-, LEASE RENT RS.86 ,360/- AND TELEPHONE & FAX CHARGES RS.1,31,527/-). 7. LD CIT (A) ALLOWED THE ASSESSEES CLAIM AS REGAR DS THE DISALLOWANCE OUT OF SALARY EXPENSES AFTER THE SALARY REGISTERED WAS PRODUCED B EFORE HER. HOWEVER, SHE CONFIRMED THE OTHER DISALLOWANCES AS THE ASSESSEE FAILED TO P RODUCE THE LEASE RENT, DETAILS OF CONVEYANCE EXPENSES AND TELEPHONE & FAX CHARGES. 8. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE AS SESSEE HAS IN ITS SUBMISSIONS BEFORE USIN THIS REGARD, WHICH ARE CONTAINED AT PAG ES 5 TO 6 OF PB, INTER ALIA, STATED AS UNDER:- 3. A SEPARATE CERTIFICATE IN ORIGINAL DATED 30.10. 2009 FROM THE STATUTORY AUDITORS STATING THAT THE ASSESSEE HAD SUBMITTED FO R ALL THE BRANCHES OF CASH BOOKS, BANK BOOKS, BANK STATEMENTS, PETTY CASH BOOK S, SUBSIDIARY LEDGER/REGISTERS FOR ALL THE EXPENSES, VOUCHERS AND GENERAL LEDGER FOR OUR EXAMINATION FOR THE STATUTORY AUDIT CARRIED OUT BY THEM FOR THE A.Y. 2006-07 WAS ALSO SUBMITTED BY THE ASSESSEE TO THE AO. 4. THE AO HAS OVERLOOKED THE FACT THAT ALONG WITH S ALARY REGISTERS THE ASSESSEE HAD ALSO SUBMITTED DURING THE HEARINGS/REMAND PROCE EDINGS CONVEYANCE EXPENSES REGISTER, TELEPHONE EXPENSES REGISTER BEAR ING THE SIGNATURE OF THE STAFF MEMBERS ON STAMPED RECEIPTS WHICH PROVES THE CONVEY ANCE AND TELEPHONE EXPENDITURE MADE AND CLAIMED. THE ACKNOWLEDGEMENT OF THE SUBMISSION OF THE CONVEYANCE EXPENSES, TELEPHONE EXPENSES REGISTERS T O THE AO FINDS A PLACE IN HER REMAND REPORT DATED 23.11.2009 AND ALSO BEARS R EFERENCE TO OUR SUBMISSION OF THE SALARY, TELEPHONE AND CONVEYANCE REGISTERS I N OUR SUBMISSION LETTER DT.6.11.2009 ADDRESSED TO HER AND IN OUR SUBMISSION LETTER DT.15.7.2009 ADDRESSED TO THE CIT (A). 5. LEASE RENT PAID RS.86,300/- ARE ONLY FOR MUMBAI AND CHENNAI OFFICES. THE RENT FOR MUMBAI OFFICE IS RS.3,000/- PER MONTH. TH E RENT IS RS.4000/- PER MONTH FOR CHENNAI OFFICE RS.2000/- EACH FOR 2 LANDLORDS. THE RENTS PAID ARE LOW. LANDLORDS HAD NOT AGREED TO EXECUTE LEAVE AND LICEN SE AGREEMENTS. AS ALL RENT ITA NO.1637/M/2010 M/S. B.Y.SRINIVASAN & ASSOCIATES 4 PAYMENTS WERE MADE BY CHEQUES DULY SUPPORTED BY ENT RIES IN THE CASH BOOKS AND IN THE BANK STATEMENTS WHICH WERE SHOWN TO THE AO, THEY CONSTITUTE CONCLUSIVE PROOF FOR RENT PAYMENTS MADE AND CLAIMED . WE FIND THAT AS FAR AS DISALLOWANCE RELATING TO LEA SE RENT IS CONCERNED, THE SAME IS NOT CALLED FOR BECAUSE THE PAYMENTS HAVE BEEN MADE THRO UGH CHEQUE AND DULY SUPPORTED BY BANK STATEMENTS. IT IS NOT NECESSARY THAT IN EVE RY CASE, THERE COULD BE LEAVE AND LICENCE AGREEMENT BEFORE THE DEDUCTION IS ALLOWED. THEREFORE, THERE WAS NO BASIS FOR MAKING THE DISALLOWANCE OF RS.86,360/-. AS REGARDS THE DISALLOWANCE RELATING TO CONVEYANCE AND TELEPHONE EXPENSES OF RS.1,31,527/- IS CONCERNED, THE PAYMENT OF RS.95,043/- WAS MADE BY CHEQUE/ECS AS NARRATED AT P AGE 15 OF PB WITH REFERENCE TO SUBMISSION TO CIT(A) AND THE BALANCE AMOUNT OF RS.3 0,064/- IN CASH TO ARTICLED/AUDIT ASSISTANTS AT CHENNAI. ALL THESE PAYMENTS ARE DULY SUPPORTED BY PAYEES SIGNATURES. THEREFORE, NO DISALLOWANCE IS CALLED FOR IN THIS RE GARD. AS REGARDS CONVEYANCE EXPENSES OF RS.4,78,775/-, IT WAS POINTED OUT THAT THE PAYMENT WAS MADE BY CHEQUE AMOUNTING TO RS.93,192 AND THE BALANCE PAYMENT OF R S.3,79,953/- WAS MADE IN CASH TO ARTICLE/AUDIT ASSISTANTS AT CHENNAI. THE CONVEYANC E EXPENSE REGISTER ACKNOWLEDGING THE RECEIPT OF MONTHLY PAYMENTS BY THE STAFF MEMBER S WAS SUBMITTED BEFORE THE AO. THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN THE S AME. UNDER SUCH CIRCUMSTANCES, NO ADHOC DISALLOWANCE IS CALLED FOR. HENCE, GROUND NO. 3 IS ALLOWED. 9. IN THE RESULT, APPEAL STANDS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 2 ND JULY, 2010 SD/- (VIJAY PAL RAO) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANT MEMBER) MUMBAI, DATED 2 ND JULY, 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI 4. COMMISSIONER OF INCOME TAX-II MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.1637/M/2010 M/S. B.Y.SRINIVASAN & ASSOCIATES 5 DATE INITIALS 1. DRAFT DICTATED ON 28.6.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 28.6.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER ITA NO.1637/M/2010 M/S. B.Y.SRINIVASAN & ASSOCIATES 6