PRAFULLA RAM MARFATIA ( LEGAL HEIR OF RAM MARFATIA), MUMBAI V. ITO 4(2)(1), MUMBAI

ITA 1825/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4296 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 16-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C TRIPURA SUNDARIDR
• Keywords: Business expenditure
• Section: 143(3); 14A; 133(6)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL MUMBAI - C BENCH MUMBAI . .. . . .. . , ,, , / ! ! ! ! '#$ '#$ '#$ '#$ , # # # # BEFORE S/SH. B.R.MITTAL, JUDICIAL MEMBER & RAJE NDRA,ACCOUNTANT MEMBER /. /./. /. ITA NO. 1825/M/2012, & & & & ' ' ' ' / ASSESSMENT YEAR 2005-06 PRAFULLA RAM MARFATIA (LEGAL HEIR OF RAM MARFATIA) FLAT NO. 61 & 62, PLOT NO. 57, DWARKA, JN OF TAGORE ROAD AND GREEN, SANTACRUZ (W) MUMBAI VS. ITO 4(2)(1) MUMBAI PAN: AAOPM0707G ( () / // / ASSESSEE ) ( *+() / RESPONDENT) () / ASSESSEE BY: SHRI DR. K. SHIVARAM/AJAY R.SINGH/ K.S. CHOKSHI *+() , - # /RESPONDENT BY : MS. C. TRIPURA SUNDARI (DR) & , ./ / DATE OF HEARING : 09 .0 7 .2013 01' , ./ / DATE OF PRONOUNCEMENT : 09. 0 7. 2013 & & & & , 1961 , ,, , 254 )1( # ## # .2. .2. .2. .2. #3 #3 #3 #3 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DATED 07.12.2011 OF THE CIT(A )-9 MUMBAI, ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.THE LEARNED CIT(A) HAS FAILED TO CONSIDER THE AND ANALYZE THE DETAILED EXPLANATION AND RELEVANT SUPPORTING ALONG WITH THE VARIOUS CASE LAWS FILED A ND HAS ERRED IN PASSING AN ORDER BASED ON THE VIEWS CONSIDERED BY HIS PREDECESSOR HENCE THE SAID ORDER IN ITS ENTIRETY IS BAD IN LAW. 2.A)THE LEARNED CIT(A) HAS ERRED IN DISALLOWING KEY MAN INSURANCE OF RS.10,25,000/-WITHOUT CONSIDERING FACTS AND CIRCUMSTANCES OF THE CASE. TH E SAME BE ALLOWED. B)THE LEARNED CIT(A) HAS ERRED IN PASSING THE ORDER WITHOUT CONSIDERING THE DETAILED SUBMISSION AND EXPLANATION FILED BEFORE HIM. HE HAS PASSED THE ORD ER WITHOUT ANALYZING THE FACTS AND GIVING JUSTIFICATION FOR THE VARIOUS DISALLOWANCES MADE. T HE SAME BE ALLOWED. C)THE LEARNED CIT(A) HAS ERRED IN DISALLOWING KEY M AN INSURANCE OF RS 1025000 I- ON THE BASIS OF THE VIEW HELD IN THE SAID MATTER BY HIS PREDECESSOR WIT HOUT EXAMINING THE FACTS AND CIRCUMSTANCES OF THE CASE INDEPENDENTLY. THE SAME BE ALLOWED. D)THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE FACTS PLACED BEFORE HIM WITH REGARD TO THE KEY MAN INSURANCE POLICY, THE STATUS REPORT THE ENDORSE MENT MADE ON THE FACE OF THE POLICY AND RECEIVED FROM LIC. THE SAME BE DELETED. E)THE LEARNED CIT(A) HAS ERRED IN STATING THAT RAKS HIT MARFATIA AND SHOBHIT MARFATIA WERE NOT KEY MAN BY RELYING ON THEIR RESPECTIVE INCOME TAX RETUR N FILED BY THEM. THE SAME BE ALLOWED. 3.THE LEARNED CIT(A) HAS ERRED IN ADDITION OF RS. 1 20000/- AS NOTIONAL RENT AS INCOME FROM HOUSE PROPERTY FOR FLAT AT SANJOG SOCIETY WITHOUT CONSIDE RING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE SAME BE DELETED. 4.THE LEARNED CIT(A) HAS ERRED IN DISALLOWING RS. 1 79160/- BEING 5% OF INCOME FROM DIVIDEND AND LONG TERM CAPITAL GAIN WITHOUT CONSIDERING FACTS AN D CIRCUMSTANCES OF THE CASE. THE SAME BE ALLOWED. 2 ITA NO. 1825/MUM/2012 (AY-2005-06) PRAFULLA RAM MARFATIA THE APPELLANT CRAVE LEAVE TO ADD, ALTER, AMEND, ADD OR DELETE ANY OF THE AFORESAID GROUNDS OF APPEAL AS THEY MAY BE ADVISED FROM TIME TO TIME. 2. LATE ASSESSEE, PRAFULLA RAM MARFATIA, AN INDIVIDUAL ,HAD FILED HIS RETURN OF INCOME ON 26.10.2005 DECLARING TOTAL INCOME OF RS. 6.61 LACS. INITIALLY THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT,ON 15.02.2006,ACCEPTING THE RETURNED INCOME .SUBSEQUENTLY,CASE WAS SELECTED FOR SCRUTINY AND WAS ASSESSED U/S 143(3) OF THE ACT,ON 19.12.200 7,DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 19.51 LACS. 2.1 LEGAL HEIRS OF THE ASSESSEE SUBMITTED THAT THERE WA S DELAY OF 5 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL, THAT THEY HAVE SHIFTED TO A NEW PLACE , THAT NOTICE WAS RECEIVED BY THEM AFTER DUE DATE OF FILING THE APPEAL. WE ARE OF THE OPINION THAT IT IS A FIT CASE FOR CONDONING THE DELAY. THEREFORE, DELAY OF 5 DAYS IN FILING THE APPEAL IS CONDONED. 3. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE OF KEY MAN INSURANCE OF RS. 10.25 LACS.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE H AS DEBITED RS. 10.25 LACS AS KEY MAN INSURAN -CE TO THE PROFIT & LOSS ACCOUNT. HE DIRECTED THE A SSESSEE TO FILE DETAILS OF INSURANCE PAID AND TO JUSTIFY THE CLAIM AS BUSINESS EXPENDITURE. AFTER CO NSIDERING THE LETTERS OF THE ASSESSEE DATED 04.03. 2007 AND 08.11.2007,HE HELD THAT THE ASSESSEE HAD T AKEN KEY MAN INSURANCE POLICY IN THE NAME OF HIS TWO SONS MR. SHOBHIT RAM MARFATIA AND MR. RAKSH IT RAM MARFATIA, THAT BOTH HIS SONS WERE SHOWN AS EMPLOYEES OF HIS PROPRIETOR CONCERNED, THA T HIS SONS WERE NOT REGULAR EMPLOYEE OF THE ASSESSEE, THAT THEY WERE NOT THE KEY PERSONS OF THE BUSINESS.FINALLY, HE HELD THAT DEDUCTION OF RS. 10.25 LACS CLAIMED BY THE ASSESSEE AS KEY MAN INSUR ANCE POLICY WAS NOT ALLOWABLE AS DEDUCTION. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,FAA HELD THAT IT WAS DI FFICULT TO ASCERTAIN AS TO WHETHER THE POLICY TAKEN BY THE LATE ASSESSEE WERE NORMAL POLICY OR KE Y MAN INSURANCE POLICY.FOLLOWING THE DECISION OF HIS PREDECESSOR FOR THE EARLIER YEAR,HE CONFIRMED THE DISALLOWANCE MADE BY THE AO AMOUNTING TO RS. 10.25 LACS. 3.2. BEFORE US,AR SUBMITTED THAT LATE ASSESSEE HAD TAKEN FOR KEY MAN INSURANCE POLICY FOR TWO OF HIS SONS,THAT KEY MAN INSURANCE COULD BE TAKEN BY P ROPRIETY CONCERNS FOR KEY MAN EMPLOYEES AS WELL AS FOR A PERSON WHO WAS CONNECTED IN ANY MANNE R WITH THE BUSINESS OF THE SUBSCRIBER, THAT BOTH OF HIS SONS WERE LATER ON APPOINTED DIRECTOR O F THE COMPANY, THAT THEIR APPOINTMENT AS DIRECTOR WAS PROOF OF THEIR BEING KEY MAN EMPLOYEES . HE RELIED UPON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY DELIVERED IN THE CASE OF B.N. EXPORT (323 ITR 178). DR RELIED UPON THE ORDER OF THE AO AND FAA. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE FIND THAT ISSUE OF PURCHASING KEY MAN INSURANCE HAS BEEN DISCUSSED AND DECIDED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF B.N. EXPORTS (SUPRA).IN THAT MATTER IT HAS BEEN HELD THAT KEY MAN INSURANCE POLICY CAN BE PURCHASED BY THE BUSINESSMAN FOR A PERSON CONNEC TED WITH THE BUSINESS AND SUCH EXPENDITURE IS AN ALLOWABLE EXPENDITURE.IN THE CASE UNDER CONSI DERATION KEY MAN INSURANCE PREMIUM WAS PAID BY THE ASSESSEE FOR HIS SONS WHO LATER ON BECAME DI RECTORS OF THE COMPANY. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE JUD GMENT OF B N EXPORTS(SUPRA), WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 4. NEXT GROUND OF APPEAL IS ABOUT ADDITION OF RS. 1.2 LACS AS NOTIONAL RENT IN RESPECT OF A FLAT WHICH WAS VACANT.DURING THE ASSESSMENT PROCEEDINGS, AO FO UND THAT ASSESSEE HAD SHOWN RS. 838 UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AO CALLED FO R INFORMATION U/S 133(6) OF THE ACT FROM OFFICE BEARERS OF THE CO-OPERATIVE HOUSING SOCIETY IN WHICH THE PROPERTY IN QUESTION WAS SITUATED. AFTER CONSIDERING THE REPLY OF THE SECRET ARY, HE DEPUTED HIS INSPECTOR TO MAKE INDEPENDENT ENQUIRES. VIDE HIS REPORT DATED 19.11.2 007, INSPECTOR SUBMITTED THAT RENT FOR THE SIMILAR FLAT IN THE LOCALITY WAS RS. 10,000/- PER M ONTH. AO ISSUED THE LETTER TO THE ASSESSEE ON 28. 11.2007 AND ASKED TO EXPLAIN AS TO WHY INCOME FROM THE HOUSE PROPERTY SHOULD NOT BE TAKEN AT 3 ITA NO. 1825/MUM/2012 (AY-2005-06) PRAFULLA RAM MARFATIA RS.10,000/- P.M.?AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HE HELD THAT CASE OF THE ASSESSEE WAS COVERED BY CLAUSE (A) OF SECTION 23(1) OF THE ACT, THAT PROVISIONS OF SECTION 23(1)(C) OF THE ACT WERE NOT APPLICABLE IN THE CASE UNDER CO NSIDERATION,THAT THE AMOUNT SHOWN BY THE ASSESSEE WAS NOT ACTUAL RENT,THAT AS PER THE LETTER OF THE SECRETARY OF THE SOCIETY AND THE REPORT OF THE INSPECTOR EXPECTED RENT OF THE PROPERTY COULD B E DETERMINED AT RS. 10,000/- PER MONTH. HE MADE AN ADDITION OF RS. 1.2 LACS TO THE INCOME OF T HE ASSESSEE AS ANNUAL VALUE OF THE HOUSE PROPERTY U/S. 23(1)(A) OF THE ACT. 4.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA.AFTER C ONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE ASSESSEE, HE HELD THAT IN THE CA SE UNDER CONSIDERATION NO STANDARD RENT HAD BEEN FIXED IN RESPECT OF THE FLAT OF THE ASSESSEE, THAT THE AO WAS DUTY BOUND TO ESTIMATE ANNUAL VALUE OF THE PROPERTY FOR WHICH THE PROPERTY MIGHT REASON ABLY BE EXPECTED TO LATE ASSESSEE FROM YEAR TO YEAR AS PROVIDED IN SECTION 23(1)(A) OF THE ACT. HE CONFIRMED THE ACTION OF THE AO TO ESTIMATE THE PROPERTY ON THE BASIS OF THE LETTER OF THE CHAIRMAN /SECRETARY OF THE CO-OPERATIVE SOCIETY AND REPORT FILED BY THE INSPECTOR. 4.2. BEFORE US,AR SUBMITTED THAT BUILDING WAS PURCHASED FOR RS. 1.2 LACS ONLY, THAT THE SOCIETY HAD PAID PROPERTY TAX OF RS.32,338/- ONLY, THAT NO ADDI TION ON NOTIONAL BASIS COULD BE MADE,THAT MUNICIPAL RATABLE VALUE/ANNUAL RATABLE VALUE WAS TH E PROPER YARDSTICK FOR DETERMINING THE INCOME FROM THE HOUSE PROPERTY.DR SUBMITTED THAT STANDARD RENT/MUNICIPAL RATABLE VALUE WERE NOT AVAILABLE, THAT AO AND FAA HAD TAKEN A DECISION AFT ER CONSIDERING THE LETTER OF THE CHAIRMAN/ SECRETARY OF THE SOCIETY AND THE REPORT OF THE INCO ME TAX INSPECTOR, THAT ACTION OF BOTH THE AUTHORITIES WERE AS PER THE PROVISION OF SECTION 23 (1)(A) OF THE ACT. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DETERMINING THE INCOME UNDER THE HEAD HOUSE PROPERT Y, AO HAD MADE ENQUIRIES WITH THE OFFICE BEARER OF THE SOCIETY.HE HAD ALSO DIRECTED THE INSP ECTOR TO MAKE ENQUIRIES IN THE NEARBY LOCALITY.IN THESE CIRCUMSTANCES,ESTIMATED ANNUAL VALUE OF THE P ROPERTY IN QUESTION,DETERMINED BY THE ASSESSEE IS NOT AS PER THE PROVISIONS OF THE ACT.IN ABSENCE OF ANY MATERIAL SUBMITTED BY THE ASSESSEE ABOUT STANDARD RENT/MUNICIPAL RENT,WE UPHOLD THE ORDERS O F THE FAA.WE FIND THAT SECRETARY OF THE SOCIETY HAD IN HIS LETTER HAD MENTIONED THAT MONTHL Y RENT FOR THE PROPERTY OF SIMILAR FLAT WAS RS. 8,000/- TO 10,000/- PER MONTH. ADOPTING RS.8,000/- P.M.AS INCOME FROM HOUSE PROPERTY FOR THE YEAR UNDER CONSIDERATION,WE ALLOW ASSESSEE RELIEF O F RS.24,000/-.ASSESSEE WILL ALSO BE ENTITLED TO CLAIM THE STANDARD DEDUCTION AS PER THE PROVISION O F SECTION 24 OF THE ACT. GROUND NO.2,FILED BY THE ASSESSEE,IS ALLOWED IN PAR T. 5. GROUND NO.3 IS ABOUT DISALLOWANCE OF EXPENSES U/S. 14A OF THE ACT R.W.RULE 8D.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE H AD RECEIVED DIVIDEND INCOME OF RS.3.08 LACS AND LONG TERM CAPITAL GAINS OF RS. 32.74 LACS.INVOK ING THE PROVISIONS OF SECTION 14A R.W. RULE 8D,AO DISALLOWED 5% OF THE DIVIDEND AND LONG TERM C APITAL GAIN. IN THE APPELLATE PROCEEDINGS, FAA CONFIRMED THE ORD ER OF THE AO. 5.1 .BEFORE US, AR SUBMITTED THAT RULE 8D WAS NOT APPLI CABLE IN THE YEAR UNDER CONSIDERATION, THAT DISALLOWANCE COULD NOT BE MADE AVAILABLE LONG TERM CAPITAL GAINS U/S.14A OF THE ACT. DR RELIED UPON THE ORDER OF THE AO AND FAA. 5.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT HONBLE JURISDICTIONAL HIGH COURT HAS HELD IN THE CASE OF G ODREJ BOYCE MANUFACTURING COMPANY LTD.(328 ITR81)THAT RULE 8DWAS NOT APPLICABLE FOR THE YEAR 2 005-06.IN THESE CIRCUMSTANCES, IN OUR OPINION INVOKING OF PROVISIONS OF RULE 8D WAS NOT PROPER.SE CONDLY LONG TERM CAPITAL GAIN COULD NOT BE DISALLOWED U/S 14A OF THE ACT. IN THESE CIRCUMSTANC ES, WE RESTRICT THE DISALLOWANCE @ 5% OF THE 4 ITA NO. 1825/MUM/2012 (AY-2005-06) PRAFULLA RAM MARFATIA DIVIDEND INCOME I.E. RS. 3.08 LACS.ACCORDINGLY,AO I S DIRECTED TO RE-CALCULATE THE DISALLOWANCE AND RESTRICT IT TO DIVIDEND INCOME ONLY. GROUND NO. 3 IS PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS AL LOWED IN PART. 4 .5 & 4. 6 7 , 2 3 8 # 9. , '. :;. ORDER PRONOUNCED IN THE O PEN COURT ON 09 TH JULY, 2013 . #3 , 01' # < =& 9 ' 2013 1 , 2 B SD/ SD/- ( . .. . . .. . . .. . B.R.MITTAL ) ( '#$ '#$ '#$ '#$ / RAJENDRA ) / JUDICIAL MEMBER # # # # /ACCOUNTANT MEMBER / MUMBAI, =& /DATE: 09 TH JULY,2013 SK #3 #3 #3 #3 , ,, , *.C *.C *.C *.C D#C'. D#C'. D#C'. D#C'. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / () 2. RESPONDENT / *+() 3. THE CONCERNED CIT (A) / E F 4. THE CONCERNED CIT / E F 5. DR C BENCH, ITAT, MUMBAI / CG2 *.& , . . . 6. GUARD FILE/ 2 H +C. *. //TRUE COPY// #3& / BY ORDER, I / : ' DY./ASST. REGISTRAR , /ITAT, MUMBAI