Sanjay Kumar Bejwani, New Delhi V. ITO, Ward-61(1), New Delhi

ITA 2741/DEL/2022

AI Insights

The case involves Sanjay Kumar Bejwani, an individual who filed his income tax return for the assessment year 2018-19, declaring income from remuneration as a partner in a firm and other professional receipts. The Assessing Officer (AO) disallowed certain expenses claimed against this income, leading to an addition of Rs. 13,27,995 to the assessee's income. The Commissioner of Income-tax (Appeals) upheld the AO's decision. The Tribunal, however, found that the AO had exceeded his jurisdiction by disallowing expenses not covered under the limited scrutiny for which the case was selected, leading to the deletion of the addition.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 108586 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-05-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 20-11-2022
• Other Referred Cases: Anjum M H Ghaswala 252 ITR 1(SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 28; 143(3); 234B; 37(1)

Judgement Text

1 ITA No. 2741/Del/2022 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC”: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA No. 2741/DEL/2022 Assessment Year: 2018-19 Sanjay Kumar Bejwani, C-178, First Floor, Dayanand Colony, Lajpat Nagar-IV, New Delhi-110024. PAN- ACYPB0682K Vs Income-tax Officer, Ward-61 (1), New Delhi APPELLANT RESPONDENT Assessee represented by Dr. Rakesh Gupta, Adv.; Shri Somil Agarwal, Adv. Shri Deepesh Garg Adv. Shrey Jain, Adv. Department represented by Shri Om Parkash, Sr. DR Date of hearing 24.05.2023 Date of pronouncement 31.05.2023 O R D E R PER KUL BHARAT, JM: This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 22.09.2022, pertaining to the assessment year 2018-19. The assessee has raised following grounds of appeal: 2 ITA No. 2741/Del/2022 “1. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals), Delhi [hereinafter referred to as ‘Ld. CIT(A)’] has grossly erred in upholding and not deleting the addition of Rs. 13,27,995 as computed by the learned Income Tax Officer, Ward 61(1), Delhi [hereinafter referred to as the ‘Ld. DCIT’] vide order dated 05.03.2021 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) 2. That the Ld. CIT(A) grossly erred in law in not holding that the amount received by the Appellant as a partner in a partnership firm was assessable under the head “Profits and Gains from Business and Profession” under section 28(v) of the Act and as such the expenses incurred to earn the same were allowable as a deduction and instead erred in following the order as passed by the Ld. DCIT under section 143(3) of the Act. 3. That the Ld. CIT(A) grossly erred in confirming the addition on account of expenses claimed amounting to Rs. 14,49,995, without appreciating the fact that the said expenses were incurred by the Appellant wholly and exclusively for the purposes of earning income assessable under the head “Profits and Gains from business and profession” and thus, allowable in full in terms of section 37(1) of the Act. 4. That the Ld. CIT(A) erred in not allowing the said expenditure even though the Appellant had submitted the proofs of all the expenditure claimed along with the detailed justification/ nexus and rationale for claiming such expenses against the remuneration income and failed to appreciate the fact that all such expenses were vouched, genuine and were accepted as such by the Ld. DCIT. 5. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) have failed to appreciate the fact that the Appellant being a zero percent partner in the firm, is not deriving any share of profits from the partnership firm apart from fixed remuneration and also failed to appreciate the fact that the Appellant had to incur such expenses to ensure his sustainability in the firm and the firm was not obligated to reimburse the expenses as incurred by him to earn the revenue. 6. That on the facts and the circumstances of the case and in law, the Ld. C1T(A) has failed to appreciate the fact that it is not practically possible to bifurcate the expenses incurred by the Appellant and under the provisions of Income Tax Act, 1961, it is nowhere required to provide bifurcation of 3 ITA No. 2741/Del/2022 expenses which were incurred against the incomes which are taxable under the same head i.e., under Income from Profits and Gains of Business or Profession. 7. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate the fact that the provisions of Section 44ADA of Act should be equally applicable on “Remuneration Income” as received by the Appellant as a partner in the partnership firm apart from the other professional receipts of the Appellant, earned in his individual capacity. 8. That the Ld. CIT(A) grossly erred in charging interest under section 234B & 234C without going into the merits of the case 9. That the above-mentioned grounds are independent and without prejudice to each other 10. That the Appellant prays for leave to add, alter, amend and/or vary the ground(s) of appeal at or before the time of hearing.” 2. The assessee has also raised additional grounds of appeal which read as under: “1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not deleting the impugned disallowance of expenses of Rs. 13,27,995/- as the impugned disallowance made by the Ld. AO is beyond the scope and purview of limited scrutiny. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in not deleting the impugned disallowance of expenses of Rs. 13,27,995/-, is bad in law and against the facts and circumstances of the case and not sustainable on various legal and factual grounds.” 3. Facts of the case, in brief, are that for A.Y. 2018-19 the assessee, an individual, filed its return of income, declaring gross receipts from profession of 4 ITA No. 2741/Del/2022 Rs. 23,72,900/- [Rs. 21,30,000/- (remuneration from a firm in which assessee is partner; and Rs. 2,42,900/- comprised other professional receipts], and claimed expenses to the tune of Rs. 14,49,445/-. Thus, net profit from profession was declared at Rs. 9,23,455/-. The case of the assessee was selected for limited scrutiny assessment. The AO completed the assessment u/s 143(3) read with sections 143(3A) & 143(3B) of the Income-tax Act, 1961 (the “Act”) at an income of Rs. 22,51,450/-, inter alia, by observing as under: “Disallowances: During the scrutiny proceedings, the assessee has submitted details of expenditures of Rs. 14,49,445/- which are claimed to have been incurred for (i) earning remuneration of Rs. 21,30,000/- from the firm, Vikas Kochhar and associates and (ii) other professional receipts of Rs. 2,42,900/-. The assessee was required to explain the expenditures which are wholly and exclusively incurred for earning the remuneration of Rs. 21,30,000/-. The assessee explained that he cannot bifurcate the expenses incurred wholly and exclusively for earning remuneration of Rs. 21,30,000/- . As discussed above at para 6&7, the assessee is not eligible for expenses claimed towards earning the remuneration of Rs. 21,30,000/-. Hence, as the assessee failed to bifurcate the expenses for (i) earning remuneration of Rs. 21,30,000/- from the firm, Vikas Kochhar and associates and (ii) other professional receipts of Rs. 2,42,900/-, I hereby invoke sec 44ADA on other professional receipts to allow Rs. 1,21,450/- which is 50% of Rs. 2,42,900/- of other professional receipts as expenses and the remaining expenses are considered as personal expenses not wholly and exclusively incurred for earning the remuneration of Rs. 21,30,000/-. Accordingly, the whole remuneration receipt of Rs. 21,30,000/- is brought to tax without allowing the expenses claimed by the assessee as discussed above. Thus, the total income of the assessee for A.Y. 2018-19 is assessed u/s 143(3) as under: Income returned under the head Business or profession Rs. 9,23,455/- Add: Undisclosed income as discussed above. 13,27,995/- 5 ITA No. 2741/Del/2022 Total Income assessed under the head Business or Profession. 4. Aggrieved against it the assessee preferred appeal before the learned CIT(Appeals), who vide impugned order dated 22.09.2022 dismissed the appeal and affirmed the order of the AO, inter alia, by observing as under: “6.1 The undersigned has gone through the submission made by the appellant during the course of appellate proceeding. There is no doubt that the appellant is having income as remuneration from partnership firm as well as professional receipts in individual capacity. During the year under consideration, the appellant has gross receipt of Rs. 23,72,9001- which includes Rs. 21,30,000/- as remuneration/salary from the firm and Rs. 2,42,9001- as other professional receipts. The appellant also claimed expenses of Rs. 14,49,445/- to earn the said incomes. Further, the appellant also stated during the course of assessment proceedings that the bifurcation of expenses between for earning remuneration from firm and for professional receipts in individual capacity. The appellant during the appellate proceedings, submitted the copies of invoices in support of claim of his expenses. 6.2 In this context, it is pertinent to mention that the appellant being a partner in the partnership firm, the appellant is also doing profession apart from the firm business. The firm is a different entity and it cannot be clubbed with the individual business/profession of the partner. All the expenses which are borne for the business of the firm should be duly claimed by the firm only. The expenses borne by the partner is reimbursable from the firm and can be claimed as expenses only by the firm and not by the individual independently. In the instant case, the appellant as claimed the expenses towards earning the remuneration from the firm. The expenses made and claimed by appellant are on account of remuneration from the firm and the earning from his individual professional activity. In the context of earning as remuneration, the same cannot be treated as business activity of the appellant and hence the same does not constitute any activity which comes under the purview of section 28 of the Act. In the ledger of the firm, the payment has been shown as salary to the appellant. If the activity of the 6 ITA No. 2741/Del/2022 appellant for earning remuneration from the firm is in the form of salary, the expenses against the salary is not eligible for claiming deduction. 6.3 In view of the above discussion, it is quite clear that the appellant is not eligible for claiming deduction against the salary/remuneration received from the firm and as the appellant was not able to bifurcate the expenses related to his individual profession and against the remuneration from the firm, the undersigned find that the AO has correctly disallowed the expenses claimed by the appellant and allowed the deduction out of his individual professional receipts to the maximum extent as per the provision of section 44ADA of the Act i.e. 50% of total receipts. Therefore, there is no occasion to interfere in the order passed by the AO. Accordingly, the grounds related to disallowance of expenses claimed are dismissed. 7. The appellant raised another ground against the interest charged u/s. 234B & 234C of the Act. In this regard, it is pertinent to mention that the charging of interest u/s. 234B & 234C are mandatory in nature and there is no description in the matter as held by Hon’ble Apex Court in the case of Anjum M H Ghaswala 252 ITR 1(SC). Therefore no appeal can lie against the order charging interest if there is an incidence, unless it concerns a perceived an apparent non-application of mind. The appellant has not pointed out any such circumstances in his grounds of appeal. The AO is accordingly directed to levy the interest applicable as per law after taking into consideration the finding of this appellate order. Accordingly, the ground against the charging of interest u/s. 234B & 234C are not sustainable, and hence dismissed.” 5. Aggrieved against it the assessee is in appeal before this Tribunal. 6. Apropos to the grounds of appeal and additional ground of appeal, learned counsel for the assessee made elaborate submissions on the issue and vehemently argued that impugned disallowance of expenditure is unjustified and against the facts. In respect of additional ground, the submissions of assessee are that the case of the assessee was taken for limited scrutiny and the learned Assessing Officer 7 ITA No. 2741/Del/2022 traversed beyond its jurisdiction. Hence, the impugned disallowance deserves to be deleted on this ground alone. 7. On the other hand, learned DR opposed the submissions and supported the order of authority below. 8. I have heard the learned representatives of the parties and perused the material available on record. There is no dispute with regard to the fact that the case of the assessee was selected for limited scrutiny assessment in respect of issue of remuneration paid by the firm. The Assessing Officer while framing the assessment disallowed the expenses claimed by the assessee. It is the case of the assessee that while disallowing the expenses the Assessing Authority traversed beyond its jurisdiction. 9. The learned DR could not controvert the fact that the case was selected for scrutiny in respect of remuneration paid by the firm and it was not to verify the correctness of the claim related to the expenses. Therefore, without approval by the Competent Authority for making assessment beyond the issue for which the case was selected for scrutiny, is beyond jurisdiction of the learned Assessing Authority. Hence, the addition made by the Assessing Authority is hereby deleted. 8 ITA No. 2741/Del/2022 10. Since I have deleted the impugned addition made by the Assessing Authority, being without authority of law, the other grounds raised by the assessee need no separate adjudication. 11. Appeal of the assessee stands allowed accordingly. Order pronounced in open court on 31 st May, 2023. Sd/- (KUL BHARAT) JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI