SATISH KRISHNA MENON, MUMBAI V. ACIT 20(3), MUMBAI

ITA 2072/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71579 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 08-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 28-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ABANIKANT NAYAK
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Depreciation; Proportionate interest; Commercial expediency

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI . . , ! ' #'' '$ , % ! & BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 2072 / / 2012 A.Y. 2006-2007 ITA NO. : 2072/MUM/2012 (ASSESSMENT YEAR: 2006-2007) MR. SATISH KRISHNA MENON, 9/6/5, HIGHLAND PARK SOCIETY, BHAWANI NAGAR, M.M. ROAD, ANDHERI (EAST), MUMBAI -400 059 .: PAN: AAHPM 1905 B VS DCIT 20(3), ROOM NO. 506, 5 TH FLOOR, PIRAMAL CHAMBERS, LALBUG, PAREL, MUMBAI -400 012 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJAY R. PARIKH RESPONDENT BY : SHRI ABANIKANT NAYAK /DATE OF HEARING : 08-10-2013 !' / DATE OF PRONOUNCEMENT : 23-10-2013 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE INSTANT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 31, MUMBAI, DATED 31.01.2012, WHEREIN A NUMBER OF G ROUNDS HAVE BEEN TAKEN AND BEING ADJUDICATED HEREUNDER: 2. GROUND NO. A PERTAINS TO DISALLOWANCE OF RS. 4,5 4,550/- ON ACCOUNT OF INTEREST FREE LOANS GIVEN TO RELATIVES AND STAFF. 3. THE ASSESSEE, IN HIS INDIVIDUAL CAPACITY, IS RUN NING MARUTI AUTHORIZED SERVICE STATION (MASS) IN THE NAME OF POWAI AUTO WO RKS, IN THE STATUS OF A PROPRIETOR. THE CASE WAS PICKED UP FOR SCRUTINY AND IN THE ASSESSMENT PROCEEDINGS, 4. AFTER SCRUTINY OF VARIOUS DETAILS FILED DURING THE C OURSE OF ASSESSMENT PROCEEDINGS AND ON EXAMINATION OF THE RETURN OF INCOM E AND ANNEXURES MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 2 ATTACHED THERETO, THE FOLLOWING ISSUED HAVE EMERGED FO R DISCUSSION / DISALLOWANCE. 4.1 DISALLOWANCE OUT OF INTEREST CLAIMED : ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FILED WITH THE RETURN OF INCOME IT WAS NOTICED THAT THE ASSESSEE HAS DEBITED RS. 5,46,27 1/- AS INTEREST PAID TO BANK. IN THIS CONTEXT IT WAS NOTICED THAT THE ASSESSE E HAD ADVANCED RS. 3,29,775/- UNDER THE HEAD OTHER ADVANCES AND LOANS TO RELATIVES AMOUNTING TO RS. 4,54,550/- FOR WITHOUT ANY BUSINESS CONSIDERATI ON AND NO INTEREST WAS CHARGED BY THE ASSESSEE ON SUCH ADVANCES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE OF THE ASSESSEE WAS ASKED TO EXPLAIN WHY PROPORTIONATE INTEREST CALCULATED AT THE RATE AT WHI2H THE ASSESSEE HAS PAID INTEREST TO THE BANK ON THE AMOUNTS OF ADVANCES GRANTED INTEREST-FRE E BY THE ASSESSEE SHOULD NOT BE CURTAILED FROM THE TOTAL INTEREST CLAIMED MADE B Y SHE ASSESSEE AS ON THE ONE HAND, ASSESSEE IS PAYING INTEREST ON THE LOANS RA ISED FROM THE BANK AND ON THE OTHER BAND, THE INTEREST BEARING FUNDS ARE DIVERT ED FOR GRANTING INTEREST-FREE ADVANCES FOR WITHOUT ANY BUSINESS CONSIDERATION TO FRI ENDS AND RELATIVES. THE ASSESSEE HAS NOT MADE ANY SUBMISSION ON THIS ISSUE AND ACCORDINGLY THE INTEREST CLAIMED BY THE ASSESSEE CALCULATED @ 12% ON THE AMOUNT OF ADVANCES GRANTED INTEREST-FREE WHICH WORKS OUT RS. 94,119/- IS DISALLOWED OUT OF THE TOTAL INTEREST CLAIM MADE BY THE ASSESSEE IN VIEW OF THE SP ECIFIC PROVISIONS OF SEC. 36(1)(III) R.W.S. 37 OF THE ACT. THE SAME IS ADDED TO TH E TOTAL INCOME OF THE ASSESSEE. 4. THE AO NOTICED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 5,46,271/- AS INTEREST PAID TO BANK. ON SCRUTINY OF ACCOUNTS, THE AO FOUND THAT THE ASSESSEE HAD MADE ADVANCES OF RS. 3,29,775 /- AS OTHER ADVANCES AND IN ADDITION TO THAT, THERE WERE CERTAIN LOANS G IVEN TO RELATIVES, WHICH AGGREGATED TO RS. 4,54,550/-. ON AN ENQUIRY MADE, T HE AO FOUND THAT NEITHER THE ADVANCES WERE MADE FOR ANY BUSINESS CONSIDERATI ON NOR ANY INTEREST WAS CHARGED ON THE LOANS GIVEN TO RELATIVES. AS NO EXPL ANATION WAS FORTHCOMING, THE AO MADE AN ADDITION OF RS. 94,119/-, ON ACCOUNT OF INTEREST COMPUTED AT 12% ON THE AMOUNT OF INTEREST FREE ADVANCES MADE BY THE ASSESSEE. 5. THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM THE ASSESSEE SUBMITTED THAT OUT OF RS. 44,54,550/-, RS. 2,00,000 /- WAS PAID TO HIS BROTHER IN LAW FROM HIS OWN FUNDS AND THE REMAINING FUNDS WERE GIVEN TO THE STAFF. IT WAS EXPLAINED BY THE ASSESSEE THAT THE AD VANCE GIVEN OUT OF OWN FUNDS IS NOW COVERED BY THE DECISION OF HONBLE BOM BAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. VS. CIT, RE PORTED IN 313 ITR 340 (BOM). THE ASSESSEE, THEREFORE, PRAYED THAT THE ADDITION M ADE IS NOT CORRECT. 6. ON EXAMINATION OF THE FACTS AS BROUGHT OUT BY TH E AO AND THE SUBMISSIONS MADE BY THE ASSESSEE, THE CIT(A) OBSERV ED THAT THE AO HAS PROVED THE DIVERSION OF INTEREST BEARING FUNDS FOR NON BUSINESS PURPOSES AND THAT THE ASSESSEE COULD NOT GIVE ANY SATISFACTO RY EXPLANATION WITH REGARD TO ADVANCING LOAN TO BROTHER IN LAW AND TO THE STAF F. MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 3 7. HE, THEREFORE, SUSTAINED THE ADDITION OF RS. 94, 119/-. 8. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 9. BEFORE US, THE AR SUBMITTED THAT THE CONTROVERSY IS WITH REGARD TO ADVANCE MADE AT RS. 4,54,550/- AND CONSEQUENTIAL DI SALLOWANCE OF RS. 94,119/- COMPUTED THERE ON. 10. THE AR POINTED OUT THAT ALL THE RELEVANT DETAIL S WERE PLACED BEFORE THE REVENUE AUTHORITIES CONCERNING THE AVAILABILITY OF FUNDS WITH THE ASSESSEE AND SINCE THE ASSESSEE HAD MIXED BAG OF FUNDS, THE CASE OF RELIANCE UTILITIES LTD. ( SUPRA ) SQUARELY COVERS THE ISSUE. THE AR, BEFORE US REFE RRED TO THE APB, WHEREIN DETAILS HAD BEEN PLACED. THE AR POINTED OUT THAT THE ASSESSEE HAD OPENING CAPITAL AT RS. 20,20,572/- AND YEARS PROFI T OF RS. 54,84,330/-. HE ALSO POINTED OUT THAT ON THE DATE WHEN LOAN OF RS. 2,00,000/- WAS GIVEN TO THE RELATIVE, THE ASSESSEE HAD ENOUGH FUNDS IN THE BANK AND THE REMAINING AMOUNT OF RS. 2,54,550/- WAS GIVEN TO STAFF MEMBERS ONLY. 11. THE AR SUBMITTED THAT THE ABOVE FACTS WERE THER E BEFORE THE REVENUE AUTHORITIES AND SINCE THE ADVANCES WERE GIVEN OUT O F FUNDS ALREADY AVAILABLE, AS IS EVIDENT FROM CAPITAL ACCOUNT, PRECEDING YEAR S PROFIT AND PROVED FROM THE BANK STATEMENT AND LOANS GIVEN TO STAFF WHICH W ERE MAINLY SMALL AMOUNTS, DOES NOT CALL FOR AN ADVERSE INFERENCE AND THEREFORE, THE REVENUE AUTHORITIES WERE INCORRECT TO ADD BACK INTEREST OF RS. 94,119/-. 12. THE DR ON THE OTHER HAND POINTED OUT THAT THE F UNDS GIVEN TO THE RELATIVE WERE OUT OF BUSINESS FUNDS AND NOT OUT OF OWN FUNDS. HE THEREFORE, SUBMITTED THAT THE LOAN GIVEN TO THE RELATIVE, EVEN IF, THERE WERE ENOUGH FUNDS, THE CASE OF RELIANCE UTILITIES IS DISTINGUIS HABLE ON FACTS. HE, THEREFORE, SUBMITTED THAT THE REVENUE AUTHORITIES WERE CORRECT IN LAW TO ADD BACK THE INTEREST OF RS. 94,119/-, AS THE LOANS GIVEN WERE F ROM BUSINESS FUNDS. 13. WE HAVE HEARD THE ARGUMENTS OF THE CONTESTING P ARTIES AND WE FIND MERIT IN THE ARGUMENT OF THE AR THAT THE ADVANCES M ADE WERE OUT OF FUNDS AVAILABLE WITH HIM IN HIS CAPITAL ACCOUNT. THE FACT THAT THE ASSESSEE IS A PROPRIETOR OF POWAI AUTO WORKS AND THAT THE FUNDS A VAILABLE WITH THE ASSESSEE ARE BUSINESS FUNDS MAKE NO DIFFERENCE, BEC AUSE, THE ASSESSEE IS HAVING FUNDS WHICH ARE INTEREST BEARING AND NON INT EREST BEARING. EVEN ON A MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 4 CURSORY LOOK AT THE BALANCE SHEET SHOWS THAT BESIDE S SUBSTANTIAL FUNDS AVAILABLE IN THE CAPITAL ACCOUNT AND SUBSTANTIAL PR OFIT IN THE YEAR, THE ASSESSEE HAS FIXED DEPOSITS WITH BANK AT RS. 22,62, 956/- AND DEBTORS AT RS. 15,53,423/- (APB 497). ALL THIS SHOWS THAT THE ASSE SSEE HAVE SUBSTANTIAL FUNDS ROLLING IN THE BUSINESS. BESIDES THAT, THE BA NK STATEMENT ALSO SHOWN A RUNNING CURRENT ACCOUNT AND THE FUNDS GIVEN TO RELA TIVE WERE FROM THE RECURRING ACCOUNT ITSELF. 14. FOCUSING NOW ON THE ADVANCES MADE TO THE STAFF EMPLOYEES, WHICH ARE SMALLER AND REGULAR ADVANCES GIVEN TO THE STAFF. TH ESE ADVANCES CANNOT BE HELD TO BE NON BUSINESS BECAUSE THE ADVANCES MADE T O STAFF IS FOR KEEPING CORDIAL RELATIONS WITH THE STAFF TO KEEP THEM IN GO OD RELATIONS WITH THE EMPLOYERS. 15. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES ERRED IN NOT TAKING THE ABOVE FACTS INTO CONSIDERAT ION. WE, THEREFORE, ARE OF THE OPINION THAT THE REVENUE AUTHORITIES WERE NOT J USTIFIED TO ADD BACK THE INTEREST OF RS. 94,119/- ON THE LOANS GIVEN TO THE RELATIVE AND STAFF. 16. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS. 94,119/-. 17. GROUND NO. A IS THEREFORE ALLOWED. 18. GROUND NO. B PERTAINS TO DISALLOWANCE OF EMPLOY EE CONTRIBUTION TO ESIC OF RS. 1,418/-. 19. THE FACTS ARE THAT THE AO NOTICED THAT THERE WA S A DELAY OF DEPOSIT OF PF AND ESIC BY THE ASSESSEE. HE, THEREFORE, DISALLO WED THE CONTRIBUTIONS MADE AFTER THE DUE DATE. 20. BEFORE THE CIT(A), THE ASSESSEE POINTED OUT THA T THE ASSESSEE DEPOSITED PF ON 26.06.2005 AND ESIC WAS DEPOSITED ON 30.06.20 05. THE CIT(A) OBSERVED THAT PAYMENT OF PF WAS WITHIN THE GRACE PE RIOD BUT THE PAYMENT OF ESIC WAS BEYOND THE GRACE PERIOD. HE, THEREFORE, DE LETED THE ADDITION MADE ON ACCOUNT OF PF, BUT CONFIRMED THE DISALLOWANCE OF PAYMENT ON ACCOUNT OF ESIC. MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 5 21. AGGRIEVED, THE ASSESSEE IS BEFORE THE ITAT ON A CCOUNT OF DISALLOWANCE OF PAYMENT OF ESIC. 22. THE AR POINTED OUT THAT THOUGH THERE WAS A SLIG HT DELAY IN PAYMENT OF ESIC AND BEYOND THE DUE DATE, BUT SINCE THE PAYMENT WAS MADE ON 30.06.2005, MUCH BEFORE THE FILING OF THE RETURN, T HE DISALLOWANCE SHOULD BE DELETED. HE FURTHER POINTED OUT THAT THE ISSUE IS S QUARELY COVERED BY THE DECISIONS IN THE FOLLOWING CASES: I) CIT VS ALOM EXTRUSIONS LTD., REPORTED IN 319 ITR 30 6 (SC); II) B.D.P.S. SOFTWARE LIMITED VS DCIT, REPORTED IN 340 ITR 375 (BOM) 23. THE DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE REVENUE AUTHORITIES. 24. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND WE ARE OF THE OPINION THAT THE ISSUE IS COVERED BY THE DECISIONS AS CITED BY THE AR, WHEREIN HONBLE BOMBAY HIGH COURT IN THE CASE OF BDPS SOFTW ARE (SUPRA) HELD, AS REGARDS THE DISALLOWANCE OF RS. 7,53,103 ON ACCOUNT OF LATE PAYMENT OF PROVIDENT FUND AMOUNT IS CONCERNED, COUNSEL ON BOTH SID ES AGREE THAT IN VIEW OF THE DECISION OF THE APEX COURT IN THE CASE OF ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 (SC), THE ISSUE HAS TO BE ANSWERED IN FAVOUR OF THE A SSESSEE. ACCORDINGLY, THE APPEAL IS DISPOSED AND BY SETTING ASIDE THE ORDER OF THE INCOME-TAX APPELLATE TRIBUNAL IN SO FAR AS IT RELATES TO DISALLOWING THE PROVIDENT FUND DUES PAID BELATEDLY. IT WAS THUS ACCEPTED BY BOTH THE PARTIES THAT, SO F AR AS LATE PAYMENT WITH REGARD TO PROVIDENT FUND IS CONCERNED, THE DECISION HAVE BEEN ACCEPTED IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD., REPORTED I N 319 ITR 306, WHEREIN, THE HONBLE SUPREME COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, AS REPRODUCED HEREINABOVE, IN THE HELD PORTION OF B OMBAY HIGH COURT IN THE CASE OF B.D.P.S. SOFTWARE LIMITED ( SUPRA ). 25. RESPECTFULLY FOLLOWING THE DECISIONS, OF THE HO NBLE BOMBAY HIGH COURT, WE SET ASIDE THE ORDER OF THE CIT(A) ON DISA LLOWANCE OF ESIC AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 1,418/-. 26. GROUND NO. B IS, THEREFORE, ALLOWED. 27. GROUND C PERTAINS TO DISALLOWANCE OF DEPRECIATI ON ON INDUSTRIAL GALAS PURCHASED DURING THE YEAR. MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 6 28. THE FACTS ARE THAT THE ASSESSEE PURCHASED TWO G ALAS DURING THE YEAR. AS PER THE PURCHASE DEEDS SUBMITTED BEFORE THE AO, IT WAS NOTICED BY THE AO THAT ONE GALA WAS PURCHASED BEFORE SEPTEMBER 2005 O N WHICH THE ASSESSEE CLAIMED DEPRECIATION AT 10% AND THE OTHER GALA WAS PURCHASED IN JANUARY 2006, ON WHICH THE ASSESSEE CLAIMED THE DEPRECATION AT 5%. ON PERUSAL OF THE ACCOUNTS, THE AO FOUND THAT NEITHER OF THE GALA S WERE USED DURING THE FINANCIAL YEAR NOR WAS THERE ANY EXPENDITURE INCURR ED ON ELECTRICAL FITTINGS, FURNITURE OR FIXTURE. IN FACT, THE ASSESSEE HIMSELF ADMITTED THAT THE GALAS WERE ACTUALLY PUT TO USE IN THE NEXT FINANCIAL YEAR. EVE N FURNITURE, FIXTURES AND FITTINGS WERE ALSO CARRIED OUT IN THE NEXT YEAR. TH E AO, THEREFORE, CONCLUDED THAT THE DEPRECIATION COULD NOT BE ALLOWED DURING T HE FINANCIAL YEAR, HE, THEREFORE, DISALLOWED THE DEPRECATION CLAIMED AT RS . 8,49,915/-. 29. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT DUE TO THE FLOODS OF JULY 2005 A LOT OF CARS GOT SUBMERGED IN WATER AND A LOT OF WORK POURED IN WITH THE ASSESSEE FOR THE REPAIR OF THOSE CARS. IN THESE CIRCUMSTANCES, IT REQUESTED THE SECRETARY OF THE INDUSTRIAL ESTATE, WHERE THE G ALAS WERE SITUATED, TO ALLOW THE CARS TO BE PARKED IN THE GALAS PURCHASED BY THE ASSESSEE (APB 133). THE ASSESSEE ALSO ACCEPTED THAT ACTUAL UTILIZATION OF T HE GALAS, WHICH WAS IN ACCORDANCE WITH MASS SPECIFICATIONS WAS ONLY A THE SUBSEQUENT YEAR. THE ASSESSEE, THEREFORE SUBMITTED BEFORE THE CIT(A) THA T FACTUALLY, THE GALAS WERE PUT TO USE DURING THE FINANCIAL YEAR, AND THEREFORE , ELIGIBLE FOR DEPRECIATION. 30. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND THE ORDER OF THE AO CONCLUDED THAT THE COMMERCIAL ACTIV ITY OF THE GALAS, ONLY BEGAN IN THE SUBSEQUENT FINANCIAL YEAR, AND THUS TH E ASSESSEE WAS NOT ELIGIBLE FOR THE DEPRECIATION. 31. AGAINST THIS, THE ASSESSEE IS BEFORE THE ITAT. 32. BEFORE US, THE AR REITERATED THE SUBMISSIONS MA DE BY THE ASSESSEE BEFORE THE REVENUE AUTHORITIES AND SUBMITTED THAT T HE FACT THAT THE GALAS WERE PURCHASED FOR INDUSTRIAL ACTIVITY AND THAT THE GALAS WERE USED FOR PARKING THE CARS/VEHICLES, DUE TO HEAVY RUSH AND WO RK LOAD GOES TO PROVE THAT THE BUSINESS ACTIVITY WAS PERFORMED BY THE ASS ESSEE AND THEREFORE, THE ASSESSEE WAS ELIGIBLE AND RIGHTFULLY CLAIMED THE DE PRECIATION ON THE INDUSTRIAL GALAS PURCHASED BY THE ASSESSEE. THE AR PLACED RELI ANCE ON THE DECISIONS OF MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 7 HONBLE P&H HIGH COURT IN THE CASE OF CIT VS KHANNA (O.P.) AND SONS, REPORTED IN 140 ITR 558, WHEREIN, IT WAS HELD, THAT IN THE INSTANT CASE THE ASSESSEE WAS ABLE TO S HIFT HIS BUSINESS INTO THE NEW BUILDING WITHIN A FEW MONTHS. DURING THIS TRANSITORY P ERIOD THE BUILDING PURCHASED BY THE ASSESSEE HAD BEEN USED AND THE D EPRECIATION ALLOWANCE HAD TO BE MADE IN RESPECT OF IT WHILE COMPUTING ITS BUSINE SS INCOME FOR THE ASSESSMENT YEAR 1971-72. 33. THE AR ALSO CITED THE CASE OF KHIMJI VISRAM AND SONS (GUJARAT) PRIVATE LIMITED V. CIT , REPORTED IN 209 ITR 993; WHEREIN, HONBLE GUJARAT H IGH COURT HELD, ( I) THAT AS THE ASSESSEE HAD INCURRED EXPENDITURE INCIDENTA L TO CARRYING ON BUSINESS, DEDUCTION HAD TO BE GRANTED UNDER SECTION 37 OF THE INCOME- TAX ACT. EVEN PRESUMING THAT THE CLAIM OF THE ASSES SEE WAS NOT SUSTAINABLE UNDER SECTION 30 IN RESPECT OF GROUND RENT AND MUNICIPAL TAXES PAID BY IT FOR THE PREMISES OCCUPIED BY IT SINCE 1975, YET AS THE SAID RENT AND TAXES WERE PAID WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS, ACCORDING TO COMMERCIAL EXPEDIENCY ALSO, IT WA S REQUIRED TO BE DEDUCTED UNDER SECTION 37. (II) THAT SINCE THE ASSESSEE HAD PURCHASED THE PREMISE S FOR THE PURPOSE OF ITS BUSINESS OR SETTING UP OF THE BUSINESS AND THAT IT TOOK OVER POSSESSION IN JULY, 1975, AND HANDED OVER THE SAME TO ITS AGENT FOR FURNISHING AND REPAIRS, IT COULD BE SAID THAT, AFTER TAK ING OVER THE POSSESSION, THE PREMISES WERE USED FOR THE PURPOSE OF THE BUSINESS. THEREFORE, THE ASSESSEE WAS ENTITLED TO DEPRECIATION IN RESPECT OF ITS OFFICE PREMISES IN BOMBAY FOR THE ASSESSMENT YEAR 197 6-77. 34. THE AR, THEREFORE, PRAYED THAT THE DEPRECIATION SHOULD BE ALLOWED. 35. THE DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES AND SUBMITTED THAT WHEN THE ASSESSEE HI MSELF HAS ACCEPTED THAT NO COMMERCIAL ACTIVITY WAS UNDERTAKEN BY THE ASSESS EE DURING THE FINANCIAL YEAR, DEPRECIATION COULD NOT BE ALLOWED. 36. WE HAVE HEARD THE ARGUMENTS OF THE CONTESTING P ARTIES. THE BUSINESS OF THE ASSESSEE IS REPAIRS AND SERVICE OF MARUTI CA RS/VEHICLES. AT TIMES, THE CARS AND VEHICLES ARE LEFT WITH THE SERVICE STATION EITHER BECAUSE OF MAJOR REPAIRS OR WHEN THE VEHICLE IS KEPT IN WAITING. THE GALAS PURCHASED BY THE ASSESSEE WERE FOR THE SOLE PURPOSE OF BUSINESS ACTIVITY TO BE PERFORMED BY THE ASSESSEE IN THE INDUSTRIAL ESTATE. SINCE THE GALAS WERE LOCATED IN THE INDUSTRIAL ESTATE ITSELF SPEAKS THAT THE PURPOSE IS INDUSTRIAL. SECONDLY, THE FACT THAT THERE WERE FLOODS AND DAMAGE DONE TO LOTS OF VEHICLES IS NOT CONTROVERTED BY THE REVENUE AUTHORITIES. THIS UNFOR TUNATE EVENT BROUGHT UNEXPECTED BUSINESS AND BECAUSE OF HEAVY WORK LOAD, THE CARS/VEHICLES BROUGHT IN FOR REPAIRS HAD TO BE PARKED SOMEWHERE, WHICH, THE ASSESSEE DID IN THE GALAS, WHICH HE HAD PURCHASED. THE PARKING O F VEHICLES AWAITING THE MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 8 REPAIRS IS A PART OF THE BUSINESS ACTIVITY OF THE A SSESSEE. THIS ASPECT, ACCORDING TO US WAS COMPLETELY IGNORED BY THE REVEN UE AUTHORITIES. 37. TESTING THE CASE LAWS CITED BY THE AR, IT HAS B EEN LAID DOWN THAT EVEN THE NEW BUILDING WAS USED DURING THE TRANSITORY PER IOD, DEPRECIATION HAD TO BE ALLOWED. WHEN WE TAKE INTO CONSIDERATION THE DEC ISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF KHIMJI VISRAM (SUPRA) , THAT AFTER TAKING OVER THE POSSESSION, WHEN THE PREMISES WERE HANDED OVER FOR THE RENOVATION WORK, IT COULD BE SAID TO BE USED FOR BUSINESS. IN THE INSTA NT CASE, THE ASSESSEE ACTUALLY UTILIZED THE GALAS FOR PARKING OF THE VEHI CLES, THAT WERE BROUGHT TO THE SERVICE STATION FOR REPAIRS. THIS WOULD TANTAMOUNT TO THE USAGE OF THE PREMISES FOR THE BUSINESS. 38. WE, THEREFORE ARE OF THE OPINION THAT THE REVEN UE AUTHORITIES ERRED IN DISALLOWING THE CLAIM OF DEPRECIATION ONLY ON THE P RETEXT THAT THERE WERE NO EXPENSES OF FURNITURE, FIXTURE, FITTING AND BASIC E LECTRIC METER READING. THESE ASPECTS ARE IMPORTANT, BUT TO TAKE AN ADVERSE DECIS ION, AN OVERALL PICTURE HAS TO BE KEPT IN MIND. VARIOUS COURTS, INCLUDING THE H ONBLE SUPREME COURT HAS HELD THAT FIRST THE REVENUE AUTHORITIES MUST EXAMIN E THE ASPECT BY STEPPING INTO THE SHOES OF THE ASSESSEE AND GAUGE THE BUSINE SS ASPECT OR BUSINESS EXIGENCY, THEN CONSIDER THE DISALLOWANCE. 39. IN THE PRESENT CASE, REVENUE AUTHORITIES DID NO T TAKE INTO CONSIDERATION THE BUSINESS EXIGENCY, WHICH LEAD THE ASSESSEE TO ACTUALLY, TO PUT TO USE THE GALAS PURCHASED. 40. WE, THEREFORE, ON THE ABOVE OBSERVATIONS ARE OF THE VIEW THAT THE REVENUE AUTHORITIES ERRED IN DISALLOWING THE CLAIM OF DEPRECIATION. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THI S ASPECT AND DIRECT THE AO TO ALLOW THE DEPRECIATION AT RS. 8,49,915/-, AS CLAIME D BY THE ASSESSEE. 41. GROUND NO. C IS THEREFORE, ALLOWED. 42. GROUND D PERTAINS TO ADHOC DISALLOWANCE OF 20% OF WAGES PAID TO TEMPORARY WORKERS AND ADDING BACK RS. 4,15,590/-. 43. IN THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD DEBITED LABOUR CHARGES PAID AT RS. 15,18,595/-. IN ADDITION TO THIS, THE MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 9 ASSESSEE HAD ALSO CLAIMED LABOUR CHARGES PAID AT RS . 20,77,951/- TO TEMPORARY LABOURERS. THE AO SOUGHT AN EXPLANATION F ROM THE ASSESSEE, AS THE ASSESSEE DID NOT HAVE ENOUGH SPACE TO ACCOMMODA TE HIS REGULAR EMPLOYEES AND THE TEMPORARY EMPLOYEES AND ALSO THAT PAYMENT MADE TO THESE TEMPORARY LABOUR COULD NOT BE VERIFIED AS THE Y WERE PAID IN CASH. ON THIS BASIS, THE AO DISALLOWED 20% OUT OF THE CLAIM MADE AT RS. 20,77,951/- AS THE JOBS PERFORMED BY THEM COULD NOT BE VERIFIED . 44. THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM THE ASSESSEE SUBMITTED THAT THE POST FLOODS OF 26,07.2005, THE A SSESSEE WAS OVER LOADED WITH REPAIRS TO THE MARUTI VEHICLES AND SINCE REGUL AR STAFF WAS UNABLE TO COPE UP WITH THE HUGE WORK PRESSURE, TEMPORARY LABOURERS WERE EMPLOYED. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE WAGES W ERE SUPPORTED THROUGH SALARY REGISTER AND EACH EMPLOYEE HAD ACKNOWLEDGED THE RECEIPT OF WAGES. THE CIT(A) CONSIDERED THE EXPLANATION AND OBSERVED THAT THERE WAS NO CORRESPONDING INCREASE IN THE REVENUE OF THE ASSESS EE, AND SINCE THE EXPENSE WAS INCURRED IN CASH, THE VERIFICATION WAS NOT FEAS IBLE OR POSSIBLE DUE TO NON AVAILABILITY OF COMPLETE DETAILS. HE THEREFORE SUST AINED THE DISALLOWANCE MADE BY THE AO. 45. AGAINST THIS DECISION, THE ASSESSEE IS NOW BEFO RE THE ITAT. 46. BEFORE US, THE AR SUBMITTED THAT THE DISALLOWAN CE HAS BEEN SUSTAINED BY THE CIT(A), BECAUSE, ACCORDING TO HIM THERE WAS NO CORRESPONDING INCREASE IN REVENUES. IN RESPONSE TO THIS, THE AR SUBMITTED, THAT BEING MASS, THE ASSESSEE WAS INSTRUCTED BY THE COMPANY, I.E. MUL TH AT NOTHING EXTRA SHALL BE CHARGED FROM THE CUSTOMERS, WHOSE CARS HAD BEEN DAM AGED IN THE FLOODS OF 26.07.2005. SINCE THE ASSESSEE PERFORMED AND GAVE S PEEDY RESULTS, MUL ACKNOWLEDGED THE PERFORMANCE BY PRESENTING THE ASSE SSEE WITH THE CERTIFICATES OF APPRECIATION. THE AR FURTHER POINTE D OUT THAT THE CURRENT YEARS TURNOVER WAS AT RS. 3,24,21,680/- AS AGAINST RS. 2, 39,36,493/- IN THE PRECEDING YEAR (APB 8). THIS SHOWS A BIG JUMP IN TH E REVENUE. ON THE OTHER POINT TAKEN BY THE REVENUE AUTHORITIES, THAT NO DET AILS WERE FILED. THE AR POINTED OUT THAT COMPLETE WAGES MUSTER WAS FILED (A PB 296 TO 327). THE AR, THEREFORE, SUBMITTED THAT THE DISALLOWANCE MADE DES ERVES TO BE DELETED. MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 10 47. ON THE OTHER HAND, THE DR SUBMITTED THAT NO DETAILS WERE FILED BY THE ASSESSEE TO SUPPORT THE CLAIM OF ENHANCED LABOUR CHARGES, PAID TO TEMPORARY LABOURERS. THE DR ALSO SUBMITS THAT THE DIS ALLOWANCE IS VERY REASONABLE. 48. WE HAVE HEARD THE RIVAL CONTENTIONS OF EITHER SIDE. T HE FACTUM OF MUMBAI GETTING FLOODED ON 26.07.2005 IS UNDISPUTED, THE FACTU M OF HORDES OF CARS/VEHICLES GETTING DAMAGED AND REQUIRING IMM EDIATE ATTENTION INCREASED SUBSTANTIALLY, AND THE FACTUM OF CERTIFIC ATES GIVEN BY MUL ARE ALSO UNDISPUTED. THESE THREE FACTS WERE WITH THE AO ALONG WITH COPIES OF BOOK RESULTS AND MUSTER ROLLS. THESE DETAILS, CERTIFIED BY THE ASSESSEE TO HAVE BEEN PLACED BEFORE THE AO CANNOT BE BRUSHED ASIDE. FROM THE P&L A/C AT APB 8 IT CAN BE SEEN THAT T HE TURNOVER OF THE ASSESSEE JUMPED BY OVER 75 LACS OVER THE CORRESP ONDING PRECEDING YEAR. THIS FACT, THOUGH AVAILABLE BEFORE BOTH THE REVENUE A UTHORITIES, WERE NOT APPROPRIATELY CONSIDERED. THE FACTUM OF INCREASE IN LABOUR WAGES AS PER MUTER ROLL WAS ALSO NOT TAKEN INTO ACCOUNT BY THE REVENUE AUTHORITIES BECAUSE AS WE FOUND THAT TILL JULY 20 05, THE ASSESSEE HAD 20 EMPLOYEES, BUT FROM AUGUST 2005 ONWARD S, THE NUMBER OF EMPLOYEES SIGNING THE MUST ROLLS WERE OVER 34. T HIS SHOWS THAT THERE WAS AN INCREASE IN THE WORK FORCE. FROM THE APB, WE FIND THAT, THIS ISSUE WAS REMANDED BY THE CIT(A). IN THE REMA ND REPORT THE DCIT ACKNOWLEDGED THE PRODUCTION OF MUSTER ROLL. BUT THE DCIT REFRAINED TO GIVE ANY OBSERVATIONS ON INCREASED REVENUE AND PAYMENT MADE TO EXTRA LABOURERS. HE ALSO ACKNOWLEDGED THAT ORIGIN ALS HAD BEEN VERIFIED BY THE CIT(A) HIMSELF, AND SINCE ONLY ZEROX COPIES WERE PRODUCED BEFORE THE DCIT, IT WAS DIFFICULT TO ESTABLISH THE CORRECTNES S. 49. ALL THESE EVIDENCES EXAMINED BY THE REVENUE AUTHORIT IES AT VARIOUS STAGES, DIRECT TO ONE FACT, WHICH HAS BEEN ACCE PTED BY THE REVENUE AUTHORITIES, THAT THE ASSESSEE, DID IN FACT, EMPLOY EXTRA WORK FORCE IN THE FORM OF TEMPORARY LABOURERS. AT NO POINT OF T IME, EITHER THE AO OR THE CIT(A) HAS PLACED ANY JUSTIFICATION FOR MAKING AN ADHOC MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 11 DISALLOWANCE OF 20%. WHY NOT 30% OR 10% OR EVEN TOTAL DISA LLOWANCE, IF THE REVENUE AUTHORITIES WERE REALLY, NOT SATISFIED, WITH TH E FACTS OF THE CASE/ISSUE. 50. WE ARE THEREFORE, NOT IMPRESSED WITH THE ACTION OF TH E REVENUE AUTHORITIES, WHEN THE AVAILABILITY OF PRIMARY EVIDENCE WAS ALR EADY ON RECORD WITH THE AO, EVEN AT THE TIME OF FILING OF RETURN AND DURING THE ASSESSMENT PROCEEDINGS. 51. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUES AND DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 4,15,590/- M ADE ON ACCOUNT OF LABOUR EXPENSES. 52. GROUND NO. D IS THEREFORE, ALLOWED. 53. GROUNDS NO. E AND F PERTAIN TO 10% DISALLOWANCE EACH ON ACCOUNT OF TELEPHONE EXPENSES AND MISCELLANEOUS EXPENSES. 54. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD DEBITED RS. 1,93,265/- AS TELEPHONE EXPENSE S AND RS. 1,78,691/- AS MISCELLANEOUS EXPENSES. ON ENQUIRIES MADE BY THE AO, HE CAME TO THE CONCLUSION THAT PERSONAL AND NON BUSINE SS PURPOSES OF TELEPHONE COULD NOT BE RULED OUT AND SINCE THERE WERE CERTAIN EXP ENSES WHICH WERE MADE IN CASH AND NOT VERIFIABLE, CERTAIN EXPENSE S HAD TO BE DISALLOWED. THE AO, THEREFORE, DISALLOWED 10% OF THE EXPENS ES DEBITED UNDER THESE HEADS AND MADE THE ADDITION OF RS. 1 9,326/- ON ACCOUNT OF TELEPHONE EXPENSE AND RS. 17,869/- ON ACCOUN T OF MISCELLANEOUS EXPENSES. 55. THE ASSESSEE APPROACHED THE CIT(A) BEFORE WHOM THE ASSESSEE SUBMITTED THAT THE BOOKS OF THE ASSESSEE HAD BEEN AUD ITED AND THE AUDITOR HAS NOT MADE ANY ADVERSE COMMENTS OR QUANLIFIED THE REPORT. ACCORDING TO THE ASSESSEE, THE EXPENSES WERE RIGHTLY DEBITED. MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 12 56. THE CIT(A) AFTER CONSIDERING THE REPLY OF THE ASSESS EE ON BOTH THESE ADDITIONS, OBSERVED THAT THE TELEPHONE EXPENSES WERE INC LUSIVE OF PERSONAL NATURE FOR WHICH NO SEPARATE DETAILS WERE SUBMIT TED. SIMILARLY, WITH REGARD TO MISCELLANEOUS EXPENSES, THE VERIFICAT ION OF EXPENSES MADE IN CASH WAS NOT FEASIBLE, THOUGH THE ASSE SSEE HAD PRODUCED BILLS. HE, THEREFORE, SUSTAINED THE DISALLOWANCE AS M ADE BY THE AO UNDER BOTH THESE HEADS. 57. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 58. BEFORE US, THE AR SUBMITTED THAT THE AO SHOULD NOT H AVE DISALLOWED THE EXPENSES UNDER BOTH THESE HEADS. 59. THE DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE REVENUE AUTHORITIES. 60. WE HAVE HEARD THE ARGUMENTS AND PERUSED THE MATE RIAL ON RECORD. THE FACT THAT THE BOOKS OF ACCOUNT HAVE BEEN A UDITED AND THERE WAS NO QUALIFICATION THEREOF, AND THE FACT THAT THE AO ACC EPTED THEM TO BE FAIR AND CORRECT, SQUARELY GETS COVERED BY THE DECIS ION OF HONBLE P & H HIGH COURT IN THE CASE OF CIT VS SSP (P) LTD., REPORTE D IN 202 TAXMAN 386. WE, ARE, THEREFORE OF THE VIEW THAT THERE WA S NO JUSTIFICATION OF ANY DISALLOWANCE UNDER THE MISCELLANEOUS OFFICE EXPENSES WHERE BILLS AND PAYMENTS MADE AGAINST THEM HA D BEEN SUBMITTED. 61. HOWEVER, CONSIDERING TELEPHONE EXPENSES, THE ABOVE C ASE IS DISTINCT ON FACTS, I.E. THE CASE OF THE ASSESSEE IS THAT OF A N INDIVIDUAL AND THE CASE BEFORE HONBLE P & H HIGH COURT WAS IN THE CASE OF A PRIVATE LIMITED COMPANY. WE, THEREFORE, CANNOT IGNORE THE FA CT THAT CERTAIN TELEPHONE EXPENSE COULD HAVE BEEN MADE FOR PERS ONAL USAGE. IN THESE CIRCUMSTANCES, WE FEEL THAT A TOTAL DISALLOWANCE O F RS. 5,000/- WOULD MEET THE ENDS OF JUSTICE ON ACCOUNT OF TELEPHONE EXPENSE. MR. SATIS H KRISHNA MENON. ITA 2072/MUM/2012 13 62. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON BO TH THESES ADDITIONS & DIRECT THE AO TO DELETE THE ADDITION OF RS. 17,8 69/- UNDER THE HEAD OFFICE AND MISCELLANEOUS EXPENSE AND RESTRICT THE DISALLOWANCE AT RS. 5,000/- ON ACCOUNT OF TELEPHONE EXPENS E, OUT OF RS. 19,326/-, THEREBY GIVING A RELIEF OF RS. 14,327/-. 63. GROUND NO. E IS THEREFORE, PARTLY ALLOWED AND GROUND NO. F IS ALLOWED. 64. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TRE ATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2013. SD/- SD/- ( . . ) ( #'' '$ ) ! ! (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER &&' MUMBAI, () DATE: 23 RD OCTOBER, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) * * + ( ) - 31, MUMBAI / THE CIT (A)-31, MUMBAI. 4) THE CIT-20 / _____, MUMBAI, 5) -./ 0 , * 0 , &' / THE D.R. E BENCH, MUMBAI. 6) /1 2 COPY TO GUARD FILE. *)3 / BY ORDER / / TRUE COPY / / 4 / 5 6 * 0 , &' DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *895 . . * CHAVAN, SR. PS