ITO 3(2)(3), MUMBAI V. RODERICK SALE, MUMBAI

ITA 2529/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7364 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 20-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Keywords: Business income; Revenue expenditure; Capital Gains
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 2529/MUM/2009 (ASSESSMENT YEAR: 2004-05) INCOME TAX OFFICER 3(2)(3) MR. RODERICK SALE ROOM NO. 673, 6TH FLOOR C/O. LEX INDE, B. HARGOVIND A BLDG. AAYAKAER BHAVAN, M.K. ROAD VS. 1ST FLOOR, 18/20 K. DUBASH MARG MUMBAI 400020 FORT, MUMBAI 400020 PAN - ANMPS 9760 Q APPELLANT RESPONDENT APPELLANT BY: SHRI T.T. JACOB RESPONDENT BY: SHRI S.S. DIVATIA/SHRI JB. KADGE/ MS. P.R. IYER O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) III, MUMBAI DATED 02.03.2009. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE EXPENSES O F RS.21,49,550/- WERE INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF HIS BUSINESS AND, THEREFORE, ALLOWABLE U/S 37(1) OF THE I.T. ACT, 1961 EVENTHOUGH HE HAD NOT DECLARED ANY BUSINESS INCOME FOR THE YEAR UNDER CONSIDERATION. 3. THE ASSESSEE, A FOREIGN CITIZEN, WAS EMPLOYED WITH J.P. MORGAN INDIA PVT. LTD. FROM 1995 TO MAY 2002 IN INDIA. HE HAS FI LED TAXABLE SALARY UPTO A.Y. 2003-04 AND CONSEQUENT TO HIS TERMINATION OF E MPLOYMENT IN MAY 2002 STARTED HIS OWN CONSULTANCY CONCERN FOR PROVIDING S TRATEGIC BUSINESS ADVISORY AND CONSULTANCY SERVICES. THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.24,93,380/- AND THE A.O. CONSIDERED THAT AN AMOU NT OF RS.21,49,550/- CLAIMED AS BUSINESS LOSS CANNOT BE ALLOWED IN THE A BSENCE OF ANY INCOME FROM THE ACTIVITY. THE BALANCE AMOUNT WAS DISALLOWE D BY THE ASSESSEE HIMSELF AS PERSONAL EXPENDITURE. THE CIT(A) WAS OF THE OPINION THAT THE ITA NO. 2529/MUM/2009 MR. RODERICK SALE 2 ASSESSEE ALSO OFFERED HIS INCOME UNDER THE HEAD PRO PERTY INCOME, CAPITAL GAINS AND INCOME FROM OTHER SOURCES AND IT IS FOR E STABLISHING AND INITIATION OF A NEW BUSINESS THAT VARIOUS EXPENSES HAVE BEEN I NCURRED. HE FURTHER OBSERVED AS UNDER: - ALL THESES FACTS HAVE BEEN OBSERVED BY THE AO IN T HE ORDER OF ASSESSMENT ITSELF. THE ONLY GROUND ON WHICH AO HAS MADE DISALLOWANCE IS THAT DURING THE YEAR APPELLANT HAS NOT OFFERED A NY INCOME THROUGH THIS ACTIVITY. TO MY MIND, THIS IS NOT AN ADEQUATE GROUN D FOR MAKING DISALLOWANCE. ONCE IT IS ACCEPTED THAT APPELLANT HA S STARTED BUSINESS, EXPENSES INCURRED HAVE GOT TO BE ALLOWED BECAUSE TH ESE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PU RPOSE AND THEREFORE QUALIFY FOR DEDUCTION U/S. 37(1) OF THE ACT. THE DI SALLOWANCE MADE BY AO IS NOT AT ALL JUSTIFIED AND IS DELETED. 4. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE LEARNED D.R. AND THE LEARNED COUNSEL, WE ARE OF THE OPINION THAT REVENUE HAS NOT MADE OUT ANY CASE IN DISALLOWING THE EXPENDITURE. THE ASSESSEE W AS BEING ASSESSED IN EARLIER YEARS ON THE SALARIED INCOME AND AFTER HIS TERMINATION FROM EARLIER EMPLOYMENT STARTED HIS OWN CONSULTANCY FIRM WITH HI S EXPERIENCE. EVENTHOUGH THERE WERE NO RECEIPTS DURING THE YEAR, IT WAS SUBMITTED THAT THE ASSESSEE HAS RECEIVED CONSULTATION FEES IN THE LATER YEARS, BUT ALREADY A FINING WAS GIVEN BY THE A.O. AS WELL AS THE CIT(A) THAT THE ASSESSEE HAS STARTED THE CONSULTANCY BUSINESS AND THE EXPENDITUR E CLAIMED IS REVENUE IN NATURE. JUST BECAUSE THERE IS NO INCOME EARNED DURI NG THE YEAR THE A.O. CANNOT DISALLOW THE REVENUE EXPENDITURE GENUINELY I NCURRED. ON THE FACTS OF THE CASE THERE IS NO NEED TO INTERFERE WITH THE ORD ER OF THE CIT(A), WHICH IS CORRECT BOTH LEGALLY AND FACTUALLY. GROUND OF THE R EVENUE IS REJECTED. 5. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED.- ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH 2010. SD/- SD/- (R.K. GUPTA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 18 TH MARCH 2010 ITA NO. 2529/MUM/2009 MR. RODERICK SALE 3 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) III, MUMBAI 4. THE CIT III, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.