GLAMOUR PHOTO LAB P. LTD, MUMBAI V. ITO WD 6(3)(1), MUMBAI

ITA 270/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7239 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-11-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 13-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJNEESH SHARMA
• Assessee Lawyers: DR P DANIEL; M P MAKHIJA
• Keywords: Unexplained cash credit; Business income; Business expenditure; Opportunity of being heard; Proportionate interest; Bad and doubtful debts; TDS
• Section: 133(6); 68; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI A.L. GEHLOT, A.M. AND SMT. P. MADHAVI DEVI, J.M. ITA NO. 270/M/2009 ASSESSMENT YEAR: 2005-06 GLAMOUR PHOTO LAB. PVT. LTD., APPELLANT 3 RD FLOOR, SHAMROCK BUILDING, MAIN AVENUE, OFF LINKING ROAD, SANTACRUZ (WEST), MUMBAI 400 054. (PAN AAACG 1367 M) VS. INCOME TAX OFFICER, RESPONDENT 6(3)(1), MUMBAI APPELLANT BY : DR. P. DANIEL & M.P. MAKHIJA RESPONDENT BY : MR. RAJNEESH SHARMA ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- VI MUMBAI, PASSED ON 17.10.2008 FOR THE ASS ESSMENT YEAR 2005-06. 2. GROUND NO. 1 IS IN RESPECT OF ADDITION OF RS. 6, 82,637/- ON ACCOUNT OF LEGAL PROVISIONS OF SECTION 36(1)(VII) R .W.S. 36(2) OF THE ACT. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED RS. 6,82,637/- AS ME MORANDUM A/C WRITTEN OFF. THE AO ASKED THE ASSESSEE TO FURNISH JUSTIFICATION FOR ALLOW ABILITY OF THESE EXPENDITURE/ BAD DEBTS U/S 3 6(1)(VII) R.W.S. 36(2) OF THE ACT. HOWEVER, NO DETAILS WERE FILED BY THE A SSESSEE. THE AO DISALLOWED THE ASSESSEES CLAIM, WHICH HAS BEEN CON FIRMED BY THE ITA NO. 270/M/09 GLAMOUR PHOTO LAB P. LTD. 2 CIT(A) OBSERVING THAT SINCE NO DETAILS WERE FURNISH ED BY THE ASSESSEE, THE AO WAS JUSTIFIED IN DISALLOWING BAD DEBTS. 4. THE LEARNED AR SUBMITTED THAT THIS ISSUE IS COVE RED BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. STAR CHEMICALS (BOMBAY) P. LTD., [2009] 313 ITR 126 (BOM .) AND DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) V. OMAN INTE RNATIONAL BANK (SAOG), 313 ITR 128. 5. AFTER HEARING THE LEARNED DR, WE FIND THAT THE F ACTS OF THE ISSUE ARE REQUIRED TO BE EXAMINED IN THE LIGHT OF JUDGMEN TS OF JURISDICTIONAL HIGH COURTS IN THE CASE OF STAR CHEMICALS (BOMBAY) P. LTD. AND OMAN INTERNATIONAL BANK CITED SUPRA. WE, THEREFORE, REMI T THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE TH E ISSUE IN ACCORDANCE WITH THE ABOVE JUDGMENTS OF JURISDICTIONAL HIGH COU RT AFTER PROVIDING THE OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. GROUND NO. 2 IS IN RESPECT OF DISALLOWANCE OF RS . 18,91,138/- U/S 36(1)(III) OF THE ACT. 7. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICE D THAT THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE AND OTHE R FINANCIAL CHARGES OF RS. 18,81,163/-. THE AO ALSO NOTED THAT THE ASSESSEE HAD GIVEN FRESH INTEREST FREE ADVANCES TO THE TUNE OF R S. 1,24,92,596/-. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROPORTIONATE INTEREST SHOULD NOT BE DISALLOWED. SINCE, THE EXPLA NATION GIVEN BY THE ASSESSEE IS NOT CONVINCED BY THE AO, HE DISALLOWED THE PROPORTIONATE DISALLOWANCE OF RS. 19,81,138/-, WHICH HAS BEEN CON FIRMED BY THE CIT(A) OBSERVING THAT THERE WAS DIVERSION OF FUNDS AND INTEREST IS REQUIRED TO BE DISALLOWED ON THE SAME. 8. THE LEARNED REPRESENTATIVE OF THE PARTIES AT THE TIME OF HEARING BEFORE US SUBMITTED THAT THIS MATTER MAY BE REMITTE D BACK TO THE FILE ITA NO. 270/M/09 GLAMOUR PHOTO LAB P. LTD. 3 OF THE AO TO DECIDE THE ISSUE IN THE LIGHT OF DECIS ION OF ITAT, MUMBAI BENCHES IN THE CASE OF H.P. SHAH & CO. IN ITA NO. 3694/M/06 FOR AY 2003-04 VIDE ORDER DATED 15.01.2009. AFTER HEARING LEARNED REPRESENTATIVES OF THE PARTIES , WE REMIT THE MATTE R BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERIFY THE FACTS AND DEC IDE THE ISSUE IN THE LIGHT OF DECISION OF ITAT IN THE CASE OF HP SHAH & CO. CITED SUPRA AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 9. GROUND NO. 3 IS IN RESPECT OF ADDITION OF RS. 3, 56,646/- ON ACCOUNT OF EXPENSES ATTRIBUTED TO THE HOUSE PROPERT Y. 10. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAD CREDITED AN AMOUNT OF RS. 6,37,450/- O N ACCOUNT OF RENT BUT CLAIMED THE SAME AS BUSINESS INCOME. THE AO ALS O NOTED THAT THE INCOME WAS TO BE CONSIDERED AS INCOME FROM HOUSE PR OPERTY AND ONLY THAT EXPENDITURE CAN BE ALLOWED, WHICH HAS BEEN PRE SCRIBED U/S 24(1) OF THE ACT. THE ASSESSEE HAD SHOWN THE COMMON EXPEN SES, I) REMUNERATION TO EMPLOYEES RS. 9,68,717/-, II) ADMIN ISTRATIVE AND OTHER EXPENSES RS. 17,57,326/- AND FINANCIAL EXPENS ES RS. 13,52,978/-, TOTALING TO RS. 40,79,021/-. ACCORDING TO AO, THE RENT INCOME WAS 3.13% OF TOTAL RECEIPT, HENCE, HE HAD RE STRICTED THE CLAIM OF EXPENDITURE TO 3.13% OF RS. 40,79,021/- I.E. RS. 1,27,673/- OF THE COMMON EXPENSES WHICH IS RELATED TO RENT INCOME. F URTHER EXPENDITURE OF RS. 2,28,973/- ON ACCOUNT OF REPAIRS AND MAINTENANCE CHARGES INCLUDED UNDER THE ADMINISTRATIVE EXPENSES WERE HELD DIRECTLY RELATED TO THE RENT INCOME. HENCE, TOTALLY AN EXPENDITURE OF RS. 3,56,646/- (RS. 1,27,673 + 2,28,973) WAS HELD A S NOT AN ALLOWABLE DEDUCTION UNDER THE HEAD BUSINESS INCOME. THE CIT( A) CONFIRMED THE DISALLOWANCE MADE BY THE AO BY HOLDING THAT THE ASS ESSEE COULD NOT JUSTIFY THE CLAIM OF EXPENDITURE BEYOND THE ALLOWAB LE LIMIT OF SECTION 24(A), THEREFORE, THE AO JUSTIFIED IN RESTRICTING T HE CLAIM OF THE ASSESSEE IN THE RATIO OF RENTAL INCOME TO THE TOTAL RECEIPTS. ITA NO. 270/M/09 GLAMOUR PHOTO LAB P. LTD. 4 11. THE LEARNED AR REITERATED THE SUBMISSIONS, WHIC H WERE MADE BEFORE THE AO, WHICH READ AS UNDER:- AS REGARDS POINT NO. (V) WE STATE THAT WE HAVE RECE IVED A SUM OF RS. 5,50,000/- AS RENT FOR THE PERIOD APRIL, 2004 T O MARCH 2005 (AS PER TDS CERTIFICATE) AND RS. 87,450/- FOR THE P REVIOUS YEAR OUTSTANDING I.E. TOTAL RENTAL INCOME IS OF RS. 6,37 ,500/- HAVE BEEN RECEIVED FROM PUSHPRAJ PRINTERS PVT. LTD. THIS IS DUE TO FACT THAT M/ PUSHPARAJ PRINTERS PVT. LTD. CONTINUED IN T HE PREMISES ONLY UPTO JANUARY, 2005. PLEASE FIND ENCLOSED A COP Y OF THE TDS RECEIVED FROM THEM. THUS, THE RENTAL INCOME SHOWN I S CORRECT. WE DO NOT AGREE TO YOUR COMPUTATION OF COMMON EXPEN SES. THE EXPENSES, IF AT ALL, TO BE CONSIDERED AGAINST THE P ROPERTY SHOULD BE THE DIRECT EXPENSES ATTRIBUTABLE TO THE PARTICUL AR PROPERTY. THE CONCEPT OF COMMON EXPENSES ATTRIBUTABLE TO THE PROP ERTY IS NOT ACCEPTABLE BY US. 12. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES IN SUPPORT OF REVENUES CASE. 13. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THE REVENUE AUTHOR ITIES HAVE NOT APPRECIATED THE FACTS POINTED OUT BY THE ASSESSEE T HAT THE RENT WAS RECEIVED ONLY UP TO JANUARY, 2005 AND THERE ARE NO COMMON EXPENSES DIRECTLY ATTRIBUTABLE TO THAT PROPERTY. WE FIND FOR CE IN THE SUBMISSION OF THE LEARNED AR THAT ONLY DIRECT EXPENSES ATTRIB UTABLE TO THAT INCOME FROM HOUSE PROPERTY AND THE SAME WERE CLAIME D AS BUSINESS EXPENSES TO THAT EXTENT THE DISALLOWANCE IS WARRANT ED. IF THE EXPENSES WERE ONLY FOR THE PURPOSE OF BUSINESS AND THERE IS NO DIRECT EXPENSES RELATED TO THE INCOME FROM HOUSE PROPERTY, UNDER TH AT CIRCUMSTANCES NO DISALLOWANCE IS WARRANTED. THE FACTS AND NECESS ARY CALCULATION OF AMOUNT OF DISALLOWANCE IF ANY ARE REQUIRED TO BE CA LCULATED FROM THE RECORD IN THE LIGHT OF ABOVE DISCUSSIONS. WE THEREF ORE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERI FY THE FACTS FROM RECORD WITH REFERENCE TO THE CONTENTIONS OF THE ASS ESSEE, KEEPING IN VIEW OUR ABOVE DISCUSSIONS AND DECIDE THE ISSUE A F RESH AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E IN THE MATTER. ITA NO. 270/M/09 GLAMOUR PHOTO LAB P. LTD. 5 14. GROUND NO. 4 IS IN RESPECT OF ADDITION OF RS. 1 CRORE AS UNEXPLAINED CASH CREDIT U/S 68. 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO HAD NOTED THAT THE ASSESSEE HAD SHOWN RECEIPT OF RS. 1 CRORE DURING THE YEAR FROM M/S LAXMI PRODUCTIONS WHEREAS THE ASSESSEE WAS TO RECEIVE ONLY RS. 40 LAKHS AS ON 31.03.2004. THE ASSESSEE HAD SHO WN A NET BALANCE OF RS. 60 LAKHS AS ON 31.3.2005. SINCE THE ASSESSEE DID NOT FILE ANY CONFIRMATIONS FROM THE CONCERNED PARTIES EVEN AFTER PROVIDING VARIOUS OPPORTUNITIES AND THE ASSESSEE DID NOT FILE ANY SUB MISSION OR CLARIFICATION AGAINST THE SHOW CAUSE ISSUED BY THE AO, THE AO ADDED A SUM OF RS. 1 CRORE AS UNEXPLAINED CASH CREDIT U/S 6 8 BY HOLDING THAT THE ASSESSEE DID NOT DISCHARGE THE ONUS CAST UPON H IM BY RELYING ON VARIOUS JUDGMENTS, WHICH WERE MENTIONED AT PAGE 7 O F HIS ORDER. THE CIT(A) CONFIRMED THE ACTION OF THE AO BY REJECTING THE ASSESSEES SUBMISSION THAT THE PROPRIETOR OF M/S LAXMI PRODUCT ION I.E. MR. A. PURNACHANDRA RAO WAS NOT AVAILABLE AT THE TIME OF A SSESSMENT AND EVEN THE CIT(A) DID NOT ACCEPT THE CONFIRMATION FIL ED BEFORE HIM. 16. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. THE AO MADE THE ADDITION SINCE THE ASSESSEE DID NOT DISCHARGE THE ONUS CAST UPON HIM U/S 68 BY FILI NG CONFIRMATION FROM THE PARTY. BUT THE ASSESSEE FILED CONFIRMATION BEFORE THE CIT(A), HOWEVER, THE CIT(A) DID NOT ACCEPT THE CONFIRMATION ON THE GROUND THAT THE ASSESSEE FAILED TO FILE CONFIRMATION BEFOR E THE AO EVEN THOUGH THE AO HAS GIVEN MORE THAN 11 MONTHS TIME. ON CONSI DERING THE TOTALITY OF THE FACTS OF THE CASE, WE ARE OF THE VI EW THAT THE CIT (A) OUGHT TO HAVE ADMITTED THE CONFIRMATION FILED BY TH E ASSESSEE TO MEET THE ENDS OF JUSTICE. THEREFORE, WE THINK IT PROPER TO REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECI DE THE ISSUE AFTER ADMITTING THE EVIDENCE FILED BY THE ASSESSEE IN SUP PORT OF HIS CASE AND AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. ITA NO. 270/M/09 GLAMOUR PHOTO LAB P. LTD. 6 17. GROUND NO. 5 IS IN RESPECT OF ADDITION OF RS. 7 2,009/- ON ACCOUNT OF RECEIPTS FROM PRITISH NANDY COMMUNICATIO NS PVT. LTD. 18. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTICED THAT THE ITS DATA SHOWS THAT THE ASSESSEE HAD RECEI VED TWO PAYMENTS FROM PRITISH NANDY COMMUNICATIONS LTD. OF RS. 30,00 0/- AND RS. 42,009/-, WHICH WERE NEITHER SHOWN THE INCOME OR CL AIMED THE TDS. SINCE NO DETAILS FILED BY THE ASSESSEE, THE AO ADDE D THE AFORESAID SUMS TOTALING TO RS. 72,009/- AS INCOME OF THE ASSE SSEE. THE CIT(A) UPHELD THE ADDITION ON THE GROUND THAT ASSESSEE HAD NOT FILED ANY DETAILS EVEN THOUGH THE AO HAS GIVEN VARIOUS OPPORT UNITIES IN ASSESSMENT PROCEEDINGS. 19. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. THE CONTENTION OF THE ASSESSEE BEFORE THE REVENUE AUTHORITIES THAT THE PAYMENT RECEIVED FROM M/S PRIT ISH NANDY COMMUNICATIONS HAD ALREADY ACCOUNTED FOR AS INCOME AND THE BILLS RAISED ON THEM HAD BEEN TAKEN INTO ACCOUNT. SINCE T HE PARTY WAS NOT ISSUED TDS CERTIFICATES BEFORE FILING OF THE RETURN S, THE TDS HAS NOT BEEN CLAIMED. IT WAS CONTENDED THAT THE AFORESAID T RANSACTIONS HAS BEEN CONSIDERED AND MADE ENTRIES IN THE LEDGER ACCO UNT. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO VERI FY THE FACTS AND DECIDE THE ISSUE A FRESH IN ACCORDANCE WITH LAW AFT ER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD. 20. GROUND NO. 6 IS IN RESPECT OF ADDITION OF RS. 1 7,47,963/- ON ACCOUNT OF RECONCILIATION OF A/C OF THE ASSESSEE WI TH ITS SUNDRY CREDITORS. 21. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO CALLED FOR INFORMATION U/S 133(6) FROM SOME OF THE PARTIES WH OSE BALANCES WERE BEING AS SUNDRY CREDITORS AS ON 31.3.2005. ON RECEI PT OF THE ITA NO. 270/M/09 GLAMOUR PHOTO LAB P. LTD. 7 INFORMATION THE AO NOTED THAT THERE WERE SOME DIFFE RENCES IN THE BALANCE SHOWN IN THE ASSESSEES BOOKS AND IN THE CO NCERNED PARTIES BOOKS. ON BEING ASKED TO RECONCILE THE DIFFERENCES, THE ASSESSEE FILED RECONCILED STATEMENT, WHICH WAS REPRODUCED BY THE A O IN HIS ORDER. HOWEVER, THE AO NOTED THAT CERTAIN BILLS HAD NOT BE EN ENTERED IN ITS BOOKS OF ACCOUNT OR THERE WERE DIFFERENCE IN THE BI LLS OR DIFFERENCES IN THE OPENING BALANCES OF THE PARTIES CONCERNED. IN T HE ABSENCE OF EXPLANATION FROM THE ASSESSEE, THE AO MADE ADDITION OF RS. 7,47,963/-. THE CIT(A) CONFIRMED THE ACTION OF THE AO ON THE GROUND THAT THE ASSESSEE HAS NOT GIVEN ANY REASON FOR THE DIFFERENCES APPEARING IN THE BOOKS OF ACCOUNT AND DIFFERENCE IN THE PARTIES ACCOUNT BEFORE HIM ALSO. 22. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ASSESSEE FILED RECONCILIATION STATEMENT BEFORE THE AO, OF WHICH A COPY HAS BEEN P LACED AT PAGE NOS. 34 TO 36 OF ASSESSEES PAPER BOOK. ON PERUSAL OF TH E FACTS OF THE CASE, WE DEEM IT PROPER TO REMIT THE MATTER BACK TO THE F ILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE A FRESH AFTER VERIFYI NG THE DETAILS AND RECONCILIATION SUBMITTED BY THE ASSESSEE AND AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. PRONOUNCED ON THIS 23 RD DAY OF MARCH, 2010 SD/- SD/- (P. MADHAVI DEVI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 23 RD MARCH, 2010 ITA NO. 270/M/09 GLAMOUR PHOTO LAB P. LTD. 8 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV