RAJESH NATVARLAL NARIELWALA, BHARUCH GUJARAT V. OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, BHARUCH, BHARUCH

ITA 242/SRT/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2199 (ITAT-SURAT)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 05-05-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 01-03-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; General deduction; Depreciation; Earning of tax free income; Corroborative evidences
• Section: 37; 28; 40(b); 142(1); 37(1); 43D; 250; 143(2)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.242/SRT/2024 Assessment Year: (2012-13) (Physical Hearing) Rajesh Natvarlal Narielwala, D-1001, R. K. Habitet, B/h. INOX Multiplex, Zadeshwar Road, Bharuch – 392002. Vs. The ACIT, Circle -1, Bharuch èथायीलेखासं./जीआइआरसं./PAN/GIR No: ABCPN5981E (Appellant) (Respondent) Appellant by Shri Krutarth Desai, AR with Ms. Disha Kharod, CA Respondent by Shri J. K. Chandnani, Sr. DR Date of Hearing 06/05/2024 Date of Pronouncement 27/05/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: This appeal by the appellant emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 30.01.2024 by the Learned Commissioner of Income Tax (Appeals), [in short, ‘Ld. CIT(A)’] National Faceless Appeal Centre (in short, ‘NFAC’), Delhi, for the Assessment Year (AY) 2016-17. 2. The grounds of appeal raised by the assessee are as under: “1. The Learned Assessing Officer as well as Learned CIT (Appeals) has erred in considering the facts of the case and applicable legal position in disallowing the claim of Rs.542644/- under the provisions of Section 37 of the Act. 2. The Learned Assessing Officer as well as Learned CIT (Appeals) has erred in considering the factual aspect of the case that the expenses to the tune of 2 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala Rs.542644/- has been claimed as deduction against income chargeable to tax under the “income from business and profession”. 3. The Learned Assessing Officer as well as Learned CIT (Appeals) has erred in appreciating the fact that claim of deduction of Rs.542644/- has not been claimed in the hands of the partnership firms therefore the question of double deduction does not rise.” 3. The facts of the case in brief are that the assessee is an individual and is regularly assessed to tax. The assessee filed his return of income on 17.03.2017 declaring total income at Rs.18,27,070/-. The case was selected for scrutiny through CASS and statutory notice under section 143(2) of the Act was issued on 18.09.2017 and duly served upon the assessee. Subsequently, the notices under section 142(1) of the Act were issued on various dates and duly served upon the assessee through e-filing portal in response to which the assessee has submitted his replies. The Assessing Officer has duly considered the replies by the Assessing Officer. The assessee is a partner in two firms namely, M/s Shivam Alums & Chemicals and M/s Rang Surgen Chemicals. He has earned the remuneration and interest on capital from partnership firm, M/s Shivam Alums & Chemicals, amounting to Rs.27,81,952/- and share of profit of Rs.48,94,014/-. The assessee has earned share of profit of Rs.1,14,328/- from M/s Rang Surgen Chemicals, which is exempted under section 10(2A) of the Act. The assessee has however claimed expenditure of Rs.3,07,700/- and depreciation under section 32(1) amounting to Rs.2,34,944/- from his income from remuneration and interest on capital, which was received from partnership firm. 3 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala 4. During the assessment proceedings, the Assessing Officer asked as to why such expenses should not be disallowed and added to the total income. In response, the assessee filed its submissions and stated that the interest and remuneration income received from partnership firm are taxable in the hands of the partners and share of profit is exempted under section 10(2A) of the Act. The expenditure which was incurred for the purpose of earning such income, can be allowed as deduction from business income. The submission of the assessee was not accepted by the Assessing Officer. The Assessing Officer observed that assessee earned profit from partnership firms which are exempted under section 10(2A) of the Act. Further, the assessee has received interest on capital and remuneration from the partnership firm. The assessee’s partnership firms have already claimed expenses on income earned to make payments to the partners. The contention put forth by the assessee is not tenable and the expenses of Rs.5,42,644/- claimed on the computation of income was disallowed and added to the total income of the assessee. 5. Aggrieved by the order of Assessing Officer, the assessee went in appeal before Ld. CIT(A), who has confirmed the addition of the Assessing Officer. The Ld. CIT(A) observed that the assessee was afforded seven opportunities on various occasions. Before the Ld. CIT(A), the assessee stated that he had incurred expenses for the purpose of business i.e. car loan, fuel expenses and driver salary. He further state that he commuted with his personal car to look after the business of both the firms. He claimed that expenses are allowable 4 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala under section 37(1) of the Act. The assessee was asked to explain regarding the expenses claimed in the personal capacity rather than claiming the same in the name of partnership firm. In response to this, the assessee could not substantiate the claim with supporting evidences as required by Assessing Officer. As there was no cogent response from the assessee, Assessing Officer made disallowance of expenses claimed out of interest on capital and salary received from the partnership firm. Before the Ld. CIT(A), the assessee claimed that the expenses are not personal or capital in nature and were incurred only for the purpose of the business activities. To support his claim before the Ld. CIT(A), the assessee relied on various decisions viz. (i) CIT vs. Smt. Jiviben, 69 ITR 219 (Guj. HC), (ii) CIT vs. Ramniklal Kothari, 74 ITR 57 (SC), (iii) CIT vs K. G. Sadgopan, 5 CTR 342 (Mad. HC), (iv) Aman Tandon vs. ACIT, (2019 ITL 9164 (Del - Trib.), (v) Virendra K. Mehta vs. ACIT, 106 ITD 437 (Mum - Trib.). During the appellate proceedings, the Assessing Officer was asked to submit Remand Report which was submitted on 03.03.2023. In the Remand Report, the Assessing Officer stated that the assessee has not only received the interest on capital and remuneration from the partnership firm but also received share of profit which were exempted under section 10(2A) of the Act. The appellant failed to furnish necessary evidences regarding the expenses to substantiate his claim. 6. The submissions, case laws made by the assessee in the assessment order and Remand Report were examined by the Ld. CIT(A). The Ld. CIT(A) 5 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala finds that all claims of the expenses incurred by the assessee for the business purposes are deductible expenses in the hands of the partnership firm but not in the hands of the assessee. The assessee cannot prove the expenses incurred for business without providing any evidences to prove such claim. To sum up the expenses should have a direct nexus between the expenditure and the business operation for the expenditure to be claimed for the “business purpose”. In the present case, though the assessee claimed that substantial expenditure was incurred for the purpose of the business, in the absence of material evidence, it cannot be said the impugned expenditure incurred by the assessee was not personal in nature. The Ld. CIT(A) has not accepted the claim of the assessee for want of documentary evidences. Though the assessee submitted the expenses incurred on his own car was for the business purposes and not for personal purpose, no such evidence was produced before this appellate authority to substantiate his claim. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before this Tribunal. 7. The Learned Authorized Representative (Ld. AR) of the assessee submitted that the assessee has declared total income from business to the tune of Rs.27,81,952/- (Rs.15,81,952/- as interest on capital and Rs.12,00,000/- as remuneration from partnership firm). The income was not offered as share of profit from the partnership firm namely, M/s. Rang Surgen Chemical. The assessee submits that income of Rs.27,81,952/- was offered under the head “income from business and profession” and he has claimed deduction of 6 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala Rs.5,42,644/- from such income. The details of the expenses are tabulated below: Sr. No. Particulars Amount (in Rs.) 1) Car Loan Interest 52500/- 2) Depreciation 234944/- 3) Diesel Expenses 135200/- 4) Salary Expenses 1200000/- 5) TOTAL 542644/- The assessee submits that the aforesaid expenses are relatable to only the car and driver. The assessee has purchased the car in his own name by obtaining loan. The car is being used for the purpose of business. The genuineness of the expenses was not disputed by the Assessing Officer. The Assessing Officer has disallowed the expenses only on the ground that the same is inadmissible in view of the provisions of section 37(1) of the Act. The observation of the Ld. CIT(A) about evidence of expenditure would tantamount to alter the nature of expenses which was not permissible. The Ld. AR of the assessee submitted that the payment was not disputed but the legality of the claim was disputed. It was the mutual agreement between the partners that no partner shall claim deduction of car and its related expenses in the partnership firm. Therefore, the claim of car has not been made by any of the partners in any of the financial years. He submits that it cannot be said that there was a double deduction i.e. one by the partnership firm and the other by the assessee. The financial statement of both the partnership firm proves the fact beyond any doubt and therefore, the addition deserved to be deleted in the interest of justice. The Ld. AR of the assessee also submitted that it is common that the 7 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala partners of the partnership firm would use cars for the purpose of business and claim deduction thereof. Alternatively, if the expenses were claimed in the partnership firm then the same would be admissible expenses of the firm. The Ld. AR submitted that the income from remuneration from partnership firm and interest from partnership firm is taxable in the hands of the partner of the firm under the head “income from business and profession” under the provisions of section 28 of the Act. It is settled proposition of section 28 of the Act that while computing business income, deductions as provided under the provisions of section 30 to 37 are allowable. To support the claim of the assessee, the Ld. AR has relied upon the following decisions: 1. Aman Tandon vs. ACIT, 2019 ITL 9164 (Delhi Trib) 2. CIT vs. Jiviben, 69 ITR 219 (Guj. HC) 3. CIT vs. Ramniklal Kothari, 74 ITR 57 (SC) 4. CIT vs. K. G. Sadgopan, 5 CTR 342 (Mad. HC) 5. Virendra K. Mehta vs. ACIT, 106 ITD 437 (Mum Trib) 8. The Ld. AR of the assessee also submitted that the expenses were incurred for the purpose of business and not for personal purposes, and therefore all the conditions of section 37 of the Act were satisfied and the claim of deduction may be allowed in the interest of justice. 9. On the other hand, Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue submitted that the case laws relied upon by the assessee are different from the present fact. The case laws relied upon by the assessee are related to the expenses incurred to earn the profit from the business, whereas in the present appeal, the assessee has not furnished any 8 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala corroborating evidences establishing that the expenses were incurred for earning profit from the business. The appellant is not doing any business in his personal capacity to claim the expenses but only looking after the business affairs of the firm. Further, in absence of partnership deed, it is assumed that the deed is silent on use of personal vehicle for business purposes. As such, the assessee has no base to claim the expenses stating that the same was incurred for business purpose. The term for the purpose of business in the present case means for the purpose of business of the firm not the personal use of the assessee. The assessee failed to prove that the expenses were incurred wholly or exclusively for the purpose of the business or profession. Ld. Sr. DR also submitted that the assessee was earning profit from the firm which was exempted under section 10(2A) of the Act. 10. We have heard both the parties and perused the material available on record. We have also deliberated on the decisions relied on by the parties. The limited issue is whether the expenses claimed by the assessee towards interest on car loan, depreciation on the car, fuel expenses and salary of the driver of the car can be allowed as deduction from the remuneration and interest received by the assessee as partner of the firm. It is seen that assessee has received Rs.48,94,014/- and Rs.1,14,328/- as share profit from M/s. Shivam Alums & Chemicals and M/s. Rang Surgen Chemicals respectively. These shares profits were claimed as exempt income u/s 10(2A) of the Act. He has also received remuneration and interest on capital totalling to Rs.27,81,952/- from 9 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala the firm. From the above income, he has claimed car expenses of Rs.3,07,700/- and depreciation of Rs.2,34,944/- u/s 32(1) of the Act. The provisions relating to income chargeable under the head “profits and gains of business or profession” have been provided under section 28 of the Act. The general provisions of chargeability of tax are mentioned u/s 28(i) of the Act. The specific provisions of chargeability to tax are mentioned u/s 28(ii) to 28(iii) of the Act. The profits and gains of any business which was carried on by the assessee at any time during the year is covered u/s 28(i) of the Act. Any interest, salary, bonus, commission or remuneration due to, or received by, a partner of a firm from the firm is chargeable to tax under the head “profit and gains of business or profession” u/s 28(v) of the Act. However, where any interest, salary, bonus, commission or remuneration by whatever name called, or any part thereof has not been allowed to be deducted u/ 40(b) of the Act, in computation of income of the firm, the income to be taxed shall be adjusted to the extent of amount disallowed. As per section 29, the income referred to in section 28 shall be computed in accordance with provisions contained in sections 30 to 43D of the Act. 11. Let us examine the facts of the case against the above statutory background. There is no dispute regarding the fact that assessee has received interest and remuneration of Rs.27,81,952/- from the firm in which he is a partner. This is over and above share profit of the firm received by the assessee, which is not included in total income of the assessee in view of 10 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala provisions u/s 10(2A) of the Act. Hence, the interest on capital and remuneration of Rs.27,8,952/- is liable to be taxed under the specific provisions of chargeability to tax u/s 28(v) under the head “profits and gains of business as provisions”. The assessee would be, accordingly, eligible to claim deduction mentioned u/s 30 to 43D of the Act. The assessee has claimed the impugned expenditure u/s 37 of the Act, which is a residual section and deals with general deduction. For any expenditure to be eligible for deduction under sub-section (1) of the Section 37, all the following conditions should be satisfied: (i) the expenditure should not be covered by sections 30 to 36 of the Act, (ii) expenditure should not be capital in nature, (iii) it should not be personal expenditure of the assessee, (iv) it should be incurred wholly and exclusively for the purpose of business or profession, (v) it should be incurred during the year and (vi) it should not be incurred for any purpose which is an offence or which is prohibited by law. It is seen from the details on record that the expenses pertained to the car owned by the assessee. The assessee claimed that it was used by him for business purposes and no expenditure was claimed by the firm. This has not been disputed by Revenue. However, no evidence has been given by the assessee to support his claim that it was used only for the purpose of business and it was not at all used for any personal purpose. In absence of requisite details, we deem it proper to allow 50% of the expenditure for business purposes and the other 50% of it towards personal use of the car. Thus, disallowance made by Assessing Officer is restricted to 11 242/SRT/2024/AY.2016-17 Rajesh Natvarlal Narielwala Rs.2,71,322/- instead of Rs.54,26,44/- in the assessment order. Accordingly, the ground raised by the assessee is partly allowed. 12. In the result, the appeal of the assessee is partly allowed. Order is pronounced on 27/05/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 27/05/2024 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat