The City of Ahmedabad Spg. & Mfg.Co.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(3), Surat

ITA 2612/AHD/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1247 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 20-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANIL R SHAH
• Keywords: Business income; Business expenditure; Earning of tax free income; Source of fund; Corroborative evidences
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE S/SHRI S. S. GODARA, JM, & MANISH BORAD, AM. ITA NO.2612/AHD/2011 ASST. YEAR:2008-09 THE CITY OF AHMEDABAD SPG. & MFG. CO. LTD.,, O/S. RAIPUR GATE, KANKARIYA ROAD, AHMEDABAD. VS INCOME-TAX OFFICER, WARD -1(1), AHMEDABAD. (APPELLANT) (RESPONDENT) PA NO.AAACT 7420L APPELLANT BY SHRI ANIL R. SHAH, AR RESPONDENT BY SHRI RAJDEEP SINGH, SR.DR DATE OF HEARING: 5/10/2015 DATE OF PRONOUNCEMENT: 9/10/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS APPEAL OF THE ASSESSEE IS FILED AGAINST THE O RDER OF CIT(A)- VI, AHMEDABAD, DATED 4.10.2011 FOR AY 2008-09. ASSE SSMENT WAS FRAMED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) ON 19.11.2010 BY ITO, WD-1(3), AHMEDABAD. ASSE SSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL - 1) THE CIT(A) HAS ERRED BOTH IN LAW AND IN FACT IN HOLDING THAT PROVISIONS OF SECTION 14A APPLIES TO THE FACTS OF T HE CASE AND THAT THE AO HAD RIGHTLY INVOKED THE SAME AND RIGHTL Y DISALLOWED A SUM OF RS.45,375/-. ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 2 IT IS SUBMITTED BY YOUR APPELLANT THAT THE APPELLAN T COMPANY HAS NOT SPENT ANY AMOUNT TO EARN TAX FREE INCOME AND TH AT THE DISALLOWANCE ON AD HOC AND ESTIMATE BASIS AND THAT DISALLOWANCE WORKED OUT UNDER RULE 8D IS NOT CORREC T. 2) THE CIT(A) HAS ERRED IN CONFIRMING RS.1,50,000/- DISALLOWED BY THE AO FROM RENTAL INCOME ON ESTIMATE AND AD HOC BA SIS. IT IS SUBMITTED BY YOUR APPELLANT THAT THE ENTIRE E XPENSES OF RS.17,99,762/- INCURRED BY YOUR APPELLANT IS WHOLLY AND FULLY ALLOWABLE AND THAT THE EXPENDITURE NOT BEING OF PER SONAL OR CAPITAL NATURE THE DISALLOWANCE IS REQUIRED TO BE D ELETED. 3) WITHOUT PREJUDICE TO ABOVE IT IS SUBMITTED THAT AS LONG AS THE EXPENSES ARE INCURRED FOR PURPOSE OF BUSINESS UNDER THE INCOME-TAX ACT THERE IS NO PROVISION OF MAKING ANY DISALLOWANCE ON ESTIMATE BASIS AND IN RELATION TO A MOUNT OF BUSINESS INCOME EARNED BY THE APPELLANT. IN VIEW OF THE DIRECT AND BINDING JUDGMENT OF HON. GUJARAT HIGH COURT IN THE CASE OF CIT V. CITY OF AHMEDABAD SPG. & MFG. CO. LTD. REPORTED IN 207 ITR PAGE 427 DISALLOWANCE OF RS.1,50,000/- IS REQUIRED TO BE DELETED. IT IS THEREFORE, SUBMITTED THAT RELIEF CLAIMED ABOV E BE ALLOWED AND THE ORDER OF THE AO BE MODIFIED ACCORDINGLY. YOUR APPELLANT RESERVES RIGHT TO ADD, ALTER, AMEND TO WITHDRAW ANY OR ALL GROUNDS OF APPEAL. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE IS A LIMITED COMPANY. IT FILED ITS RETURN OF INCOME ON 1 9.09.2008 DECLARING TOTAL INCOME OF RS.20,60,330/-. THE CASE WAS SELECT ED FOR SCRUTINY ASSESSMENT. NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 25.09.2009. ASSESSMENT WAS FRAMED BY THE AO BY MAKI NG DISALLOWANCE UNDER SECTION 14A OF THE ACT AT RS.45, 375/- AND ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 3 DISALLOWANCE OF EXPENSES PERTAINING TO INCOME FROM HOUSE PROPERTY OF RS.1,50,000/- TOTALING RS.1,95,375/-. 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE CIT(A) , WHO CONFIRMED THE ACTION OF AO. BEING FURTHER AGGRIEVED , THE ASSESSEE IS NOW IN APPEAL BEFORE US. 4. WE FIRST TAKE UP GROUND NO.1 WHICH IS AGAINST DI SALLOWANCE OF RS.45,375/- U/S 14A OF THE ACT. CIT(A) CONFIRMED TH E DISALLOWANCE MADE BY THE AO BY GIVING FOLLOWING OBSERVATIONS :- 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANTS SUBMISSION. APPELLANT MADE SUBSTANTIAL INVESTMENT IN SHARES AND SECURITIES ON WHICH EXEMPT INCOME OR INC OME TAXABLE IN CAPITAL GAIN HEAD WERE EARNED. FROM THE PROFIT AND LOSS ACCOUNT IT IS SEEN THAT APPELLANT INCURRED EXPENSES IS TO THE EXT ENT OF RS.17.99 LACS FOR EARNING VARIOUS INCOMES. FROM THE P&L ACCO UNT IT CAN BE SEEN THAT APPELLANT EARNED RENT OF RS.17.42 LACS, W AREHOUSE INCOME OF RS.17.61 LACS AND INCOME FROM INVESTMENTS RS.28. 28 LACS. THEREFORE IT CAN BE SEEN THAT SUBSTANTIAL INCOME IS EARNED BY THE APPELLANT FROM WHICH EXPENSES ARE NOT ALLOWABLE. PA RT OF SUCH INCOME IS EXEMPT FROM TAX. THEREFORE, IT IS CLEAR T HAT APPELLANT INCURRED EXPENSES WHICH ARE RELATING TO EXEMPT INCO ME BUT STILL APPELLANT DID NOT DISALLOW ANY PART UNDER SECTION 1 4A. SINCE APPELLANT DID NOT DISALLOW ANY EXPENSE TREATING THE SAME AS R ELATING TO EXEMPT INCOME, ASSESSING OFFICER HELD THAT ADMINISTRATIVE ANOTHER EXPENSES ARE PARTLY RELATING TO EXEMPT INCOME NOT ALLOWABLE UNDER SECTION 14A. THE DISALLOWANCE IS WORKED OUT BY THE AO AS PER RUL E 8D WHICH IS MANDATORY FROM THIS ASSESSMENT YEAR. THERE IS NO DI SPUTE OVER THE CALCULATION OF DISALLOWANCE UNDER RULE 8D (IIII). T HE JUDICIAL DECISIONS RELIED UPON BY THE APPELLANT ARE NOT RELEVANT TO TH E FACTS OF THIS CASE SINCE SUBSTANTIAL EXPENSES AS MENTIONED EARLIER WER E INCURRED WHICH ARE ALSO RELATING TO EXEMPT INCOME BUT STILL NO DIS ALLOWANCE WAS MADE BY THE APPELLANT. IN VIEW OF THIS AO JUSTIFIED IN MAKING ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 4 DISALLOWANCE U/S 14A READ WITH RULE 8D. THE DISALLO WANCE IS ACCORDINGLY CONFIRMED. AGGRIEVED, THE ASSESSEE IS NOW IN FURTHER APPEAL BE FORE THE TRIBUNAL. THE LD. AR OF THE ASSESSEE HAS FILED PAPER BOOK CON TAINING COMPUTATION OF TOTAL INCOME, ANNUAL REPORT OF THE A SSESSEE FOR F.Y.2007-08 AND THE WORKING OF ADDITION IN RESERVE SURPLUS VIS--VIS ADDITIONS IN TOTAL INVESTMENT IN MUTUAL FUNDS ALONG WITH LIST OF JUDICIAL PRONOUNCEMENTS. 5. ON THE OTHER HAND THE LD. DR RELIED OF THE ORDER S OF LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS RECORDS AV AILABLE. FROM GOING THROUGH THE PAPER BOOK AT PAGE -15 READ WITH RESPECT TO AUDITED ANNUAL REPORT OF THE COMPANY, WE OBSERVE TH AT THE TOTAL OF CAPITAL AND RESERVE SURPLUS AS ON 31.3.2007 WAS AT RS.72,91,694/- AND AFTER ADDING THE ADDITIONS MADE DURING THE YEAR AT RS.23,77,768/- , THE CLOSING BALANCE OF SHARE CAPITAL AND RESERVE SURPLUS AS ON 31.3.2008 STOOD AT RS.1,02,69,463/-. SO THERE WAS A N INCREASE IN THE CAPITAL AND RESERVE & SURPLUS BY RS.23,77,768. ON T HE OTHER HAND, THE TOTAL INVESTMENT IN SHARES AND MUTUAL FUNDS AS ON 31.3.2007 AT RS.80,66,131/- AND THE CLOSING BALANCE OF INVESTMEN T IN SHARES AND MUTUAL FUNDS AS ON 31.3.2008 STOOD AT RS.1,00,84,21 9/-. SO THERE WAS AN INCREASE IN THE INVESTMENT IN SHARES AND MUT UAL FUNDS BY RS.20,58,929/-. FURTHER AS PER SUBMISSIONS MADE BY LD. AR, THE ASSESSEE COMPANY HAS NO BANK BALANCE, THE COMPANY H AS NO BANK ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 5 OVERDRAFT/DEPOSITS ON INTEREST AND COMPANY DOES NOT PAY ANY INTEREST AND NOR CLAIMED ANY INTEREST AS DEDUCTION IN COMPUT ATION OF TOTAL INCOME AND NOR COMPANY HAS INCREASED IN DIRECT ADMI NISTRATIVE EXPENSES TO EARN EXEMPT INCOME. THE INCREASE IN THE INVESTMENT IN SHARES AND MUTUAL FUNDS T RS.20,58,929/- WAS MADE F ROM THE SOURCE OF FUNDS GENERATED DURING THE YEAR AT RS.23,77,768/ - IN THE FORM OF INCREASE IN GENERAL RESERVE AND PROFIT EARNED BY TH E ASSESSEE COMPANY DURING THE YEAR. 7. HON. GUJARAT HIGH COURT IN THE CASE OF CIT VS. T ORRENT POWER LTD. (2014) 363 ITR 474 (GUJ) HAS HELD THAT DISALLO WANCE U/S 14A IS NOT JUSTIFIED IF ASSESSEE HAD SUFFICIENT FUNDS FOR MAKING INVESTMENT AND IT HAD NOT USED BORROWED FUNDS FOR SUCH PURPOSE S AND THERE IS NOTHING ON RECORD TO INDICATE THAT THERE HAD BEEN I N FACT ANY ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING TA X FREE INCOME. SIMILARLY, THE CO-ORDINATE BENCH IN THE CASE OF ACI T VS. SAHITYA MUNDRANALAYA P. LTD. (2014) 33 ITR (TRIB) 108 (AHME DABAD) HAS HELD - WE FIND THAT THE AO HAS NOT SHOWN ANY NEXUS BETWEE N THE BORROWED FUNDS OF THE ASSESSEE AND THE INVESTMENT MADE BY TH E ASSESSEE TO ESTABLISH THAT THE BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE IN MAKING THE INVESTMENTS. THEREFORE, WE FIND NO ERROR IN THE ORDER OF THE CIT(A) HOLDING THAT THE ASSESSEE HAD INTEREST F REE FUNDS FAR IN EXCESS OF THE INVESTMENT MADE BY IT AS AT THE YEAR ENDING ON MARCH 31, 2007 AND DELETING THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.3,15,370/-. THUS, THIS GROUND OF APPEAL OF THE R EVENUE IS DISMISSED. APPLYING THE FACTS OF ASSESSEE ON THE ABOVE REFERRE D JUDICIAL PRONOUNCEMENT IT IS VERY CLEAR THAT IN THE CASE OF ASSESSEE NO BANK ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 6 BORROWINGS, NO BANK OVER-DRAFT/DEPOSITS AND NOR ANY INTEREST EXPENDITURE HAS BEEN CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME AND THE PORT-FOLIO MANAGEMENT WAS LOOK ED AFTER BY THE DIRECTOR. THERE WAS SUFFICIENT SOURCE OF FUNDS WHIC H WAS REQUIRED TO MAKE FRESH INVESTMENT IN SHARES AND MUTUAL FUNDS DU RING THE YEAR AND NOTHING CONTRARY TO THE ABOVE FACTS HAVE BEEN B ROUGHT ON RECORD BY THE REVENUE, AND IN THESE CIRCUMSTANCES, WE FIND IT JUSTIFIED TO DELETE THE ADDITION MADE BY THE AO IN REGARD TO DIS ALLOWANCE MADE U/S 14A OF THE ACT AT RS.45,375/-. THIS GROUND OF A SSESSEE IS ALLOWED. 8. THE SECOND GROUND OF THE APPEAL IS IN REGARD TO DISALLOWANCE OF RS.1,50,000/- BY THE AO FROM RENTAL INCOME ON ESTIM ATED AD HOC BASIS. BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE CIT(A) WHO CONFIRMED THE DISALLOWANCE MADE BY AO BY GIVING FOLLOWING OBSERVATIONS :- 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSES SMENT ORDER AND APPELLANTS SUBMISSIONS. IT IS NOT IN DISPUTE THAT APPELLANT WAS EARNING RENT AND OTHER INCOME AGAINST WHICH NO EXPENSE WERE ATTRIBUTED AND ENTIRE EXPENSES WERE CLAIMED AGAINST WAREHOUSE INCO ME WHICH CONSTITUTED ONLY 30% OF THE APPELLANTS TOTAL INCOM E. THE EXPENSES INCURRED BY THE APPELLANT ARE IN THE NATURE OF SALA RY, BUILDING REPAIR, LAND REVENUE, SECURITY EXPENSES AND VARIOUS OTHER S MALL EXPENSES. APPELLANT HAS NOT MAINTAINED ANY DETAILS AS TO WHIC H EXPENSES RELATES TO WHICH INCOME AND THEREFORE IT CANNOT BE SAID THAT ONLY THOSE EXPENSES RELATING TO WAREHOUSE INCOME WERE CL AIMED. THE TOTAL CLAIM OF EXPENSES WAS RS.17.99 LACS AS AGAINS T WAREHOUSE INCOME OF RS.17.61 LAKHS. IF THE EXPENSES ARE APPOR TIONED ON THE BASIS OF INCOME, THEN NOT EVEN ONE THIRD EXPENSES C AN BE CLAIMED AGAINST WAREHOUSE INCOME. THEREFORE, DISALLOWANCE O F EXPENSES ON THIS BASIS CAN BE MORE THAN 12 LAKHS. HOWEVER, AO O NLY ALLOCATED RS.1.50 LAKHS AGAINST HOUSE PROPERTY INCOME WHEREIN APPELLANT HAS ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 7 ALREADY CLAIMED 30% AS REPAIRS AND MAINTENANCE. APP ELLANT SUBMITTED THE DETAILS OF POSSIBLE DISALLOWANCE TO T HE EXTENT OF RS.5540/- WITHOUT ANY BASIS. ALL THE EMPLOYEES AND BUSINESS ASSETS AND EXPENSES WERE USED FOR EARNING CAPITAL GAIN AS WELL AS HOUSE PROPERTY INCOME WHERE NO SUCH EXPENSES ARE ALLOWABL E. IT IS ONLY AS PER INCOME TAX ACT, THESE THREE INCOMES ARE ASSESSA BLE IN THREE SEPARATE HEADS I.E. HOUSE PROPERTY HEAD, BUSINESS H EAD AND CAPITAL GAIN HEAD. BUT IT DOES NOT MEAN THAT EXPENSES WERE INCURRED ONLY FOR BUSINESS HEAD AND NO EXPENSES WERE INCURRED FOR INC OME TAXABLE UNDER THE OTHER HEADS. WHEN THE COMMON P & L ACCOUN T IS PREPARED FOR ENTIRE EXPENSES INCURRED BY THE APPELLANT, ONUS IS ON THE APPELLANT TO PROVE THAT WHICH EXPENSES RELATES TO WHICH INCOM E. IT CANNOT BE PRESUMED THAT ALL THE EXPENSES DEBITED IN P & L ACC OUNT RELATES TO ONLY BUSINESS INCOME WHICH DOES NOT CONSTITUTE EVEN ONE THIRD OF THE TOTAL INCOME. SINCE APPELLANT HAS NOT SUBMITTED DET AILS OF EXPENSES ATTRIBUTABLE TO PARTICULAR INCOME, APPELLANT DID NO T DISCHARGE ITS ONUS AND ACCORDINGLY AO IS JUSTIFIED IN ESTIMATING THE E XPENSES RELATING TO EARNING OF RENTAL INCOME. THE DISALLOWANCE MADE BY THE AO IS JUST RS.1.50 LAKHS WHICH IS VERY SMALL AS COMPARED TO TH E DISCUSSION MADE IN EARLIER PARA. THE DECISIONS RELIED UPON BY THE APPELLANT ARE NOT APPLICABLE TO THE SPECIFIC FACTS OF THIS CASE SINCE APPELLANT CLAIMED ALL EXPENSES RELATING TO ALL INCOMES TAXABLE UNDER DIFFERENT HEA DS AND NO BIFURCATION OF EXPENSES RELATING TO EACH INCOME HAS BEEN MADE. IT CANNOT BE SAID THAT THE RENTAL INCOME AND CAPITAL G AIN WERE EARNED WITHOUT SPENDING ANYTHING. IF EXPENSES WERE INCURRE D FOR EARNING THOSE INCOMES AGAINST WHICH EXPENSES ARE NOT ALLOWA BLE, SUCH EXPENSES WILL HAVE TO BE EXCLUDED FROM THE ALLOWABL E EXPENSES UNDER BUSINESS HEAD. WHEN APPELLANT ITSELF ADMITTED THAT SOME EXPENSES COULD HAVE BEEN INCURRED FOR EARNING THESE INCOME, IT WAS DUTY BOUND TO SUBMIT THE BASIS FOR ALLOCATING SUCH EXPENSES WITH EVIDENCE IN ABSENCE OF ANY EVIDENCE, I FIND THE DIS ALLOWANCE OF EXPENSES MADE BY THE AO VERY REASONABLE AND HENCE T HE SAME IS CONFIRMED. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. THE LD. AR OF THE ASSESSEE MADE THE FOLLOWING SUBMISSIO NS AGAINST THE ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 8 AD HOC DISALLOWANCE OF RS.1,50,000/- MADE BY AO AND CONFIRMED BY CIT(A)- 1. THE SECOND AND THIRD GROUNDS BEFORE YOUR HONOUR ARE AGAINST THE AO MAKING ON AD HOC DISALLOWANCE OT RS.1,50,000/- ON E STIMATE BASIS TO HAVE BEEN INCURRED FOR EARNING RENT INCOME. THE RELEVANT DISC USSION IS CONTAINED IN PARA 3 PAGES 3 TO 5 OF THE ASSESSMENT ORDER. WE MAY SUBMIT THAT THE AO HAS NOT GIVEN ANY SHOW CAUSE NOTICE OR A CHANCE OF PERSONAL HEARI NG BEFORE MAKING ANY SUCH DISALLOWANCE. 2. THE ONLY GROUND FOR THE ABOVE AD HOC DISALLOWANC E IS A SUSPICION THAT THE ASSESSEE MUST HAVE INCURRED VARIOUS EXPENSES I.E. S ALARY, LEGAL EXPENSES, CONVEYANCE, BANK CHARGES, AUDITORS FEES ETC,[PAGE 4 OF THE ORDER]. 3. ON THIS ISSUE WE STATE THAT WE HAVE MAINTAINED A LL VOUCHERS, BILLS, RECEIPTS ETC. WITH THE SUPPORTING EVIDENCES. IT IS SUBMITTED THAT ALL THE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND THE SAME DO NOT CONTAIN ANY ELEMENT FOR EARNING RENT INCOME. 4. WE THEREFORE STATE THAT DISALLOWANCE OF AN ESTI MATE MADE ON AN AD HOC BASIS FROM ESTABLISHED BUSINESS EXPENSES CANNOT BE MDE AS HELD BY HONBLE COURTS IN THE FOLLOWING CASES. (I) BUSINESS EXPENDITURE FOREIGN TRAVELLING EXPEN SES DIRECTOR OF ASSESSEE- COMPANY WENT ABROAD NO SPECIFIC ITEM OR INSTANCE OF PERSONAL EXPENDITURE NOTED NO VIOLATION OR R.6D PO INTED OUT NO JUSTIFICATION IN MAKING AD HOC DISALLOWANCE TO THE EXTENT OF 1/4 TH OF TOTAL EXPENDITURE. MAHENDRA OIL CAKE INDUSTRIES PVT. LTD. VS. ACIT 55 TTJ PAGE 711 (AHD). (II) BUSINESS EXPENDITURE FOREIGN EXPENSES AD HO C DISALLOWANCE AO HAS NOT POINTED OUT ANY EXPENDITURE OF PERSONAL NATURE RELATING TO THE PARTNER OR THE EMPLOYEE OF THE ASSESSEE- THU S AD HOC DISALLOWANCE MADE BY THE AO WITHOUT SUPPORTING EVID ENCE WAS NOT SUSTAINABLE. MODI EXPORTS VS. ACIT 117 TTJ PAGE 913 (DELHI) (III) EVEN THOUGH THE AO HAS GIVEN CATEGORICAL FIN DING THAT THE EXPENDITURE WAS FOR THE PURPOSE OF THE BUSINESS AND COMMERCIALLY EXPEDIENT AND THE SAME WAS ADMISSIBLE AS DEDUCTION HE MADE A ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 9 TOKEN DISALLOWANCE OF 20% OF SUCH EXPENSES ON THE G ROUND THAT ELEMENT OF EXCESSIVENESS IN SUCH REIMBURSEMENT CANN OT BE RULED OUT. NOT JUSTIFIED-AO HAS ACCEPTED THAT THE ACCOUNT S WERE DULY AUDITED DISALLOWANCE WAS INHERENTLY BIASED ON SURM ISES AND CONJECTURES AND DEVOID OF A LEGALITY SUSTAINABLE FO UNDATION CIT(A) JUSTIFIED IN DELETING THE DISALLOWANCE. ACIT VS. ARTHUR ANDERSON & CO. 94 TTJ PAGE 736 (MUM ) (IV) WHERE ASSESSEE COMPANY WAS CARRYING OUT VARIO US BUSINESS ACTIVITIES AND ALSO DERIVING RENTAL INCOME FROM HOU SE PROPERTY AND AO WITHOUT POINTING OUT ANY SPECIFIC ITEM OF EXPEND ITURE BEING INCURRED BY ASSESSEE TOWARDS MANAGEMENT OF HOUSE PR OPERTY FROM WHICH ASSESSEE HAD OFFERED RENTAL INCOME FOR TAX PU RPOSES, HAD SIMPLY MADE AN AD HOC PROPORTIONATE DISALLOWANCE TO WARDS PERSONNEL/ADMINISTRATIVE EXPENSES AFTER EXCLUDING F INANCIAL EXPENSES SHOWN BY ASSESSEE, SINCE ASSESSEE HAD FURN ISHED COMPLETE DETAILS OF EXPENSES INCURRED BY IT FOR BUS INESS, AO WAS NOT JUSTIFIED IN MAKING AD HOC PROPORTIONATE DISALL OWANCE OF THOSE EXPENSES. MIDLAND INTERNATIONAL LTD. VS. DY CIT 13 SOT 149/10 9 ITD PAGE 198 (DEL) 5. ALTERNATIVELY, THE DISALLOWANCE MAY BE CONFINED TO RS.5540/- AS PER OUR WORKING BASED UPON SCIENTIFIC AND REALISTIC BASIS T HE BREAK UP OF WHICH IS FILED UNDER THE COVER OF OUR LETTER DT.11.9.10 WHICH IS A LSO REPRODUCED IN PARA -3 PAGE 4 OF THE ASSESSMENT ORDER. FURTHER IN ADDITION TO THE JUDGMENTS REFERRED IN TH E PAPER BOOK FILED, THE LD. AR ALSO REFERRED TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN ASSESSEES OWN CASE REPORTED AT 207 ITR 427 (SUP RA), WHEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER :- FOR THE ASSESSMENT YEARS 1973-74, 1974-75 AND 1975 -76, THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF EXPENDITURE OF RS.1 8,336/-, RS.10,089/- & RS.19,722/- RESPECTIVELY ON THE GROUND THAT IT WAS BUSINESS EXPENDITURE AND, THEREFORE, AN ALLOWABLE DEDUCTION. THE ITO REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE EXPENDITURE CLAIMED WAS DISPROP ORTIONATE TO THE INCOME. AS THE ASSESSEE WAS AGGRIEVED BY THIS DISALLOWANCE , IT PREFERRED THREE SEPARATE APPEALS TO THE APPELLATE ASSISTANT COMMISS IONER. THE APPELLATE ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 10 ASSISTANT COMMISSIONER ACCEPTED THE CLAIM OF THE AS SESSEE AND ALLOWED THE APPEALS FILED BY THE ASSESSEE TO THAT EXTENT. THE DEPARTMENT THEN WENT IN APPEAL TO THE TRIBUNAL BY FILING THREE SEPARATE APPEALS. THE TRIBUNAL DISMISSED THE APPEAL S AGREEING WITH THE VIEW TAKEN BY THE APPELLATE ASSISTANT COMMISSIONER. THE SAME CONTENTION WHICH WAS URGED ON BEHALF OF T HE REVENUE BEFORE THE LOWER AUTHORITIES HAS BEEN URGED BEFORE US. NOW , IN THIS CONNECTION, WHAT IS REQUIRED TO BE BORNE IN MIND IS THAT IT IS FOUND AS A MATTER OF FACT THAT THE SAID EXPENDITURE WAS INCURRED AND IT DID RELATE TO THE B USINESS ACTIVITY OF THE ASSESSEE. MERELY BECAUSE THE ASSESSEES INCOME, AFT ER INCURRING SUCH EXPENSES, WAS FOUND TO BE LITTLE OR NEGLIGIBLE, IT CANNOT BE SAID THAT THE SAID EXPENDITURE BECAME AN IMPERMISSIBLE DEDUCTION. THE TRIBUNAL HAS RIGHTLY POINTED OUT THAT THE WHOLE APPROACH OF THE DEPARTME NT WAS NOT CORRECT. ONCE IT IS FOUND THAT THE EXPENDITURE WAS BONA FIDE INCURRED A ND THAT THE SAME RELATED TO THE BUSINESS ACTIVITY, THEN IT WOULD BECOME DEDUCTI BLE AS THE SAME IS PERMITTED BY THE PROVISIONS OF LAW. WHETHER BUSINESS EXPENDIT URE IS DEDUCTIBLE OR NOT WOULD DEPEND UPON THE RELEVANT PROVISIONS OF LAW AN D NOT HOW THE INCOME WAS EARNED AFTER INCURRING THAT EXPENDITURE. WE, THEREF ORE, HOLD THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE DEDUCTION IN RESPECT OF T HE EXPENDITURE OF RS.18,536, RS.10,089 AND RS.19,722 WAS ALLOWABLE FOR THE ASSES SMENT YEARS 1973-74, 1974-75 AND 1975-76. IN THE RESULT, THE QUESTION IS ANSWERED IN THE AFF IRMATIVE, THAT IS AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. NO ORDER AS TO COST. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS JUDICIAL P RONOUNCEMENTS REFERRED TO BY THE LD. AR IN PAPER BOOK FILED AND A LSO THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN ASSESSEES OWN CASE ( SUPRA). ASSESSEE HAS EARNED RENTAL INCOME OF RS.11,41,703/- AND HAS SHOWN THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, CLAIMED 30% DEDUCTION FOR REPAIRS ALLOWABLE UNDER SECTION 24A. ASSESSEES BOOKS ARE AUDITED AND IT IS A LIMITED COMPANY AND WORKING SINCE 94 YEARS. AO IN HIS ASSESSMENT ORDER HAS NOT BEEN ABLE TO BRI NG ANY SPECIFIC MATERIAL ON RECORD TO PROVE THAT EXPENSES SHOWN IN THE PROFIT AND LOSS ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 11 A/C WERE IN ANY WAY ATTRIBUTABLE SPECIFICALLY FOR E ARNING RENTAL INCOME. BUT HAS MADE AD HOC DISALLOWANCE OF RS.1,50,000/- D EEMING THAT THERE HAS BEEN SOME NEXUS OF SOME PORTION OF THE EX PENSES INCURRED BY THE ASSESSEE COMPANY DURING THE YEAR TO EARN REN TAL INCOME. THEREFORE, IN VIEW OF THE ABOVE AND FOR THE LACK OF PROPER WORKING TO SHOW THAT EXPENSES SPECIFICALLY FOR EARNING RENTAL INCOME HAVING CLAIMED AS EXPENDITURE UNDER THE HEAD BUSINESS OR P ROFESSION, WE ARE OF THE VIEW THAT AO WAS NOT JUSTIFIED IN MAKING SUCH AD HOC DISALLOWANCE. WE DELETE THE SAME. THIS GROUND IS AL SO ALLOWED. 10. OTHER GROUNDS ARE OF GENERAL NATURE AND NEED NO ADJUDICATION. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9/10/2015 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 9/10/2015 MAHATA/- ITA NO. 2612/AHD/2011 ASST. YEAR 2008-09 12 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 5/10/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 6/10/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 9/10/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: