J, N MARSHALL & CO. (STEEL DEPT.), MUMBAI V. ITO 12(1)(4), MUMBAI

ITA 2022/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71442 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 07-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 27-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER & SHRI N K BILLAIYA, ACCOUNTANT MEMBER ITA NO.2022 /MUM/2012 FOR ASST. YEAR: 2007-08 J N MARSHALL L& CO. (STEEL DEPT) APEEJAY CHAMBERS, 5, WALLACE STREET, FORT, MUMBAI- 400 001 PAN AACFJ5661L VS. THE ITO 12(1)(4), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY SINGH RESPONDENT BY : SHRI R K SAHU DATE OF HEARING : 07.10.2013 DATE OF PRONOUNCEMENT: 11.10.2013 O R D E R PER N.K.BILLAIYA (AM) : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-21, MUMBAI, DATED 27.01.2012 PERTAINING TO A.Y. 2007-08 . 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL. GROUND NO.1 RELATES TO THE DISALLOWANCE OF RS.40,87,818/- ON AC COUNT OF EXPENDITURE BEING NOT GENUINE, FICTITIOUS, BOGUS OR INFLATED. GROUND NO. 2 RELATES TO THE ADHOC DISALLOWANCE ON ACCOUNT OF REPAIRS AND MAINTENANCE @20% AMOUNTIN G TO RS.79,095/-. 3. THE ASSESSEE HAS FILED THE RETURN OF INCOME DECL ARING TOTAL INCOME AT RS. NIL. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES U/S. 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE ALONG WITH A QUESTIONNAIRE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEES BUSINESS ACTIVITIES WERE RENTAL INCOME RECEIVED IN RESPECT OF COMMERCIA L ASSETS I.E. OFFICE PREMISES & GODOWNS, AND SERVICE CHARGES RECEIVED FROM SISTER C ONCERNS FOR PROVIDING SERVICES 2 ITA NO.2022/MUM/12 AY: 2007-08 SUCH AS ADMINISTRATION, EDP, COMPUTER SERVICES, MAN AGEMENT SERVICES ETC. WHILE SCRUTINIZING THE TAX AUDIT REPORT, THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE IS IN TRADING BUSINESS HOWEVER, ON ANALYZING THE PROFIT & LOSS ACCOUNT HE FOUND THAT THERE ARE NO SALES OF ANY GOODS. THE ASSESSING OFFICER F URTHER NOTICED THAT THE ASSESSEE HAS SHOWN INCOME OF RS.67,14,733/- UNDER THE HEAD INCOME FROM OTHER SOURCES COMPRISING OF RENTAL INCOME AT RS.40,49,411/-, INCO ME FROM SERVICES AT RS.25,72,884/-, INTEREST ON DEPOSITS AT RS.43,812/- , MISCELLANEOUS RECEIPTS AT RS.48,480/- AND DIVIDEND AT RS.86/-. AGAINST THESE RECEIPTS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DEBITED CERTAIN EXPE NDITURE IN RESPECT OF EMPLOYEE COST, REPAIRS AND MAINTENANCE, SOCIETY CHARGES, TEL EPHONE AND TELAX AND TRAVELLING AND VEHICLE EXPENSES. OUT OF THE INCOME FROM SERVI CES EARNED FROM THE TENANTED PREMISES AT RS.25,72,884/-, THE ASSESSEE HAS SHOWN EMPLOYEE COST AT RS.29,22,226/- AND OTHER EXPENSES AT RS.30,82,033/- . THE ASSESSING OFFICER SOUGHT EXPLANATION FROM THE ASSESSEE TO JUSTIFY THE HUGE E XPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT AGAINST THE INCOME FROM SERVICES. IT WAS EXPLAINED THAT THE ASSESSEE IS PROVIDING SERVICES TO ITS SISTER CONCERN FOR WHICH IT HAD TO INCUR AFORE-STATED EXPENSES. THE EXPLANATION OF THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE ASSESSING OFFICER, WHO WAS OF THE OPINION THAT FOR EARNING SERVICE CHARGES OF RS.25,72,884/-, NO PRUDENT BUSINESSMAN WOULD INCUR A COST OF RS.60,04,259/-. THE ASSESSING OFFICER FURTHER NOTICED THAT AS PER THE T DS CERTIFICATE, WHAT THE ASSESSEE HAS RECEIVED IS ACTUALLY RENT. THE ASSESSING OFFIC ER WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS CHANGED THE COLOUR OF THE RECEIPTS BY SHOWING IT AS SERVICE CHARGES WHEN THE SAME SHOULD HAVE BEEN SHOWN AS RENT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE COULD NOT BRING ANY AGRE EMENT WITH ITS SISTER CONCERNS TO JUSTIFY ITS CLAIM. IN THE OPINION OF THE ASSESSING OFFICER THE ASSESSEE FAILED TO EXPLAIN THE NATURE AND EXTENT OF SERVICES RENDERED BY IT TO ITS SISTER CONCERNS. THE ASSESSING OFFICER FINALLY CONCLUDED THAT LOOKING AT THE NATUR E AND QUANTUM OF RECEIPTS, THE EXPENSES CLAIMED BY THE ASSESSEE ARE EXORBITANT AND UNJUSTIFIED. THE ASSESSING OFFICER ALLOWED CERTAIN EXPENDITURE AS MENTIONED AT PARA 5.5 ON PAGE 4 OF THE ASSESSMENT ORDER I.E. EXPENSES OF RS.19,16,441/- OU T OF RS.60,04,259/- AND, 3 ITA NO.2022/MUM/12 AY: 2007-08 ACCORDINGLY, DISALLOWED RS.40,87,818/- BEING PART O F EMPLOYEE COST AND OTHER EXPENSES. 4. THE ASSESSING OFFICER FURTHER FOUND THAT THE ASS ESSEE HAS INCURRED EXPENDITURE TOWARDS REPAIRS AND MAINTENANCE AT RS.3 ,95,477/-. THE ASSESSING OFFICER FURTHER NOTICED THAT ALL THESE EXPENSES ARE MOSTLY SUPPORTED BY SELF-MADE VOUCHERS AND, ACCORDINGLY, MADE ADHOC DISALLOWANCE @20% FOR WANT OF VERIFICATION AND DISALLOWED A SUM OF RS.79,095/-. 5. THE ASSESSEE STRONGLY AGITATED THESE TWO DISALLO WANCES BEFORE THE CIT(A). BEFORE THE CIT(A), IT REITERATED ITS CLAIM OF EXPEN DITURE STATING THAT ALL THE EXPENDITURE HAVE BEEN INCURRED IN PROVIDING SERVICE S TO ITS SISTER CONCERNS. THE CIT(A) OBSERVED THAT FROM THE LAST FEW YEARS, THE A SSESSEE WAS NOT CARRYING OUT ANY BUSINESS ACTIVITY. THE ASSESSEE HAS RENTED OUT SOM E OF ITS PREMISES TO ITS SISTER CONCERNS FROM WHICH IT WAS EARNING RENTAL INCOME OF RS.40,49,411/-. THE CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS ALSO RECEIVE D SERVICE CHARGES OF RS.25,72884/- FROM ITS SISTER CONCERNS. AFTER CONS IDERING THE FACTS AND SUBMISSIONS MADE BY THE ASSESSEE AND ALSO AFTER CAREFULLY PERUS ING THE STATEMENT OF ACCOUNT, THE CIT(A) WAS IN AGREEMENT WITH THE ASSESSING OFFICER S CONCLUSION THAT THE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR ASSESS EES BUSINESS AND, ACCORDINGLY, CONFIRMED THE DISALLOWANCES MADE BY THE ASSESSING O FFICER. AGGRIEVED BY THIS THE ASSESSEE IS IN APPEAL BEFORE US. 6. CONTESTING FOR THE FIRST GROUND, THE COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. I T IS THE SAY OF THE COUNSEL THAT THE ASSESSEE HAS 19 EMPLOYEES, WHO HAVE BEEN ENGAGED BY IT SINCE 1974 ONWARDS. THE ASSESSEE HAS ENGAGED ALL THESE EMPLOYEES FOR PROVID ING SERVICES TO ITS SISTER CONCERNS, THEREFORE ALL THE EXPENSES INCURRED ON EM PLOYEES COST DESERVES TO BE ALLOWED. THE COUNSEL FURTHER STATED THAT THE LOWER AUTHORITIES HAVE NOT DOUBTED THE GENUINENESS OF THE EXPENSES BUT HAVE DISALLOWED THE EXPENSES HOLDING THAT THE SAME HAS NOT BEEN INCURRED FOR THE PURPOSES OF EARN ING INCOME. PER CONTRA, THE DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHOR ITIES. 4 ITA NO.2022/MUM/12 AY: 2007-08 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE RELEVANT MATERIAL EVIDENCES ON RECORD. IT IS INTERESTING TO NOTE THAT AS PER THE COMPUTATION OF INCOME EXHIBITED AT PAGE 1 OF THE PAPER-BOOK, THE A SSESSEE ITSELF HAS SHOWN RENTAL INCOME FROM PROPERTIES UNDER THE HEAD INCOME FROM HOUSE PROPERTY. FURTHER THE ASSESSEE HAS SHOWN RENT RECEIVED FROM SUB-LETTING T HE PROPERTY UNDER THE HEAD INCOME FROM OTHER SOURCES. IT IS NOT UNDERSTANDA BLE HOW THE ASSESSEE HAS SHOWN RENT RECEIVED FROM SUB-LETTING OF PROPERTIES UNDER THE HEAD INCOME FROM OTHER SOURCES, WHEN THE ASSESSEE ITSELF HAS SHOWN MAJOR PART OF THE RENT UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS IN TRADING IN STEEL FROM T HE PAST MANY YEARS. THEREFORE, THERE IS NO QUESTION OF ALLOWING ANY BUSINESS EXPEN DITURE. MERELY BY CHANGING THE COLOUR OF THE RENT RECEIVED FROM SUB-LETTING OF PRO PERTY AND SHOWING IT AS INCOME FROM OTHER SOURCES, WOULD NOT ENTITLE THE ASSESSEE TO CLAIM EMPLOYEE COST ON ACCOUNT OF SALARIES, WAGES AND BONUS AT RS.22,77,39 8.78/-, CONTRIBUTION TO PROVIDENT FUND RS.4,55,491 AND STAFF WELFARE AT RS.1,84,536/- WE ALSO FAIL TO UNDERSTAND THE RELEVANCE OF CLAIMING EXPENDITURE ON ACCOUNT OF FRE IGHT AND DELIVERY, POSTAGE, TELEX & TELEPHONE, TRAVELLING & CONVEYANCE, VEHICLE EXPEN SES, LEGAL & PROFESSIONAL CHARGES, SALES TAX, EXPORT PROMOTION EXPENSES AND OTHER MISC ELLANEOUS EXPENSES. IN OUR HUMBLE OPINION, SINCE THE ASSESSEE IS NOT DOING ANY BUSINESS NOR IT HAS CLAIMED TO HAVE DONE ANY DURING THE YEAR UNDER CONSIDERATION, MERELY BECAUSE A PART OF THE RENT IS SHOWN UNDER THE HEAD INCOME FROM OTHER SOU RCES GIVING IT THE COLOUR OF SERVICE CHARGES RECEIVED FROM ITS SISTER CONCERNS, DOES NOT ENTITLE/JUSTIFY THE ASSESSEES CLAIM FOR ANY EXPENDITURE FROM THIS RECE IPT. FURTHER, FOR THE REASONS BEST KNOWN TO THE LOWER AUTHORITIES, CERTAIN EXPENDITURE HAS BEEN ALLOWED TO BE DEDUCTED FROM SUCH INCOME. THAT ISSUE NOT BEING BEFORE US, WE CANNOT COMMENT ON THE SAME. HOWEVER, THE OTHER DISALLOWANCES MADE BY THE ASSESSING OFFICER AND AS CONFIRMED BY THE CIT(A) DO NOT REQUIRE ANY INTERFER ENCE. THE FINDINGS OF THE CIT(A) ARE CONFIRMED AND GROUND NO.1 IS ACCORDINGLY DISMIS SED. 8. GROUND NO.2 RELATES TO THE CLAIM OF REPAIRS AND MAINTENANCE. AS WE HAVE HELD HEREIN ABOVE THAT THE INCOME SHOWN UNDER THE H EAD INCOME FROM OTHER 5 ITA NO.2022/MUM/12 AY: 2007-08 SOURCES IS, IN FACT, RENTAL INCOME THOUGH NOT ASSE SSED AS SUCH, FOR THE REASONS GIVEN ABOVE, WE DO NOT FIND ANY REASON FOR THE CLAIM OF S UCH EXPENDITURE. ALTHOUGH THE ASSESSING OFFICER HAS DISALLOWED ONLY 20% OF THE EX PENDITURE, WHICH HAS BEEN CONFIRMED BY THE CIT(A), WE DO NOT WANT TO INTERFER E WITH THE FINDINGS OF THE CIT(A). GROUND NO. 2 IS ALSO DISMISSED. 9. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH OCTOBER, 2013 SD/- SD/- (VIJAY PAL RAO) (N.K.BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEM BER MUMBAI, DT :11 TH OCTOBER, 2013 SA COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T, MUMBAI 4. THE CIT (A)- 21, MUMBAI 5. THE DR, J- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI