Shri Bhanwarlal Sharma, Ahmedabad V. The Income tax Officer,Cent.Ward-2(1), Ahmedabad

ITA 28/AHD/2011

• Counselvise Citation: 2820514 RSA 2011
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-11-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 05-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: GAURAV NAHATA
• Keywords: Business income; Depreciation; Salary income
• Section: 143(3); 37(1); 37

Judgement Text

, , . .. . . .. . , , , , ! !! ! . .. .'# !'# '# !'# '# !'# '# !'# , $ $ $ $ % % % % IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : AHMEDABAD BEFORE HONBLE SHRI D.K.TYAGI, J.M. & HONBLE SHRI A.MOHAN ALANKAMONY, A.M.) ! !! ! . ITA NO. 28/AHD./2011 : # &' - 2007-2008 BHANWARLAL SHARMA, ABAD VS- ITO, CENTRAL WAR D-2(1), ABAD (PAN : AJQPS 4134E) ( () /APPELLANT) ( *() /RESPONDENT ) () + , / APPELLANT BY : SHRI GAURAV NAHATA, A.R. *() + , / RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR.D.R. -#. + /$ / DATE OF HEARING : 04/11/2011 0'& + /$ / DATE OF PRONOUNCEMENT : 04/11/2011 1 1 1 1 / ORDER PER SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-III, AH MEDABAD IN APPEAL NO.CIT(A)-III/125/ITO/CW-2(2)/09-10 DATED 03 .11.2010 FOR THE ASSESSMENT YEAR 2007-2008 PASSED UNDER SECTION 250 R.W.S. 143(3) OF THE I.T. ACT, 1961. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE SOLIT ARY ISSUE, WHICH READS AS UNDER: 1) THE LD.CIT APPEALS III AHMEDABAD HAS ERRED IN LA W AND ON FACTS IN PASSING APPELLATE ORDER DATED 03/11/2010 F OR A.Y. 2007- 08 IN THE CASE OF APPELLANT BY CONFIRMING DISALLOWA NCE OF DEPRECIATION AND EXPENSES OF RS.11,86,221/-. 3. THE FACTS OF THE ISSUE, BRIEFLY, ARE THAT THE AS SESSEE IS AN INDIVIDUAL. HE FILED HIS RETURN OF INCOME ON 30.03. 2009 DECLARING TOTAL ITA NO. 28-AHD-11 2 INCOME OF RS.80,840/-, WHICH WAS PROCESSED UNDER SE CTION 143(1) OF THE ACT. SUBSEQUENTLY THE CASE WAS TAKEN UP FOR SCRUTIN Y AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E ACT ON 16.12.2009. DURING THE ASSESSMENT PROCEEDINGS, THE LD.AO OBSERVED THAT THE ASSESSEE WAS IN RECEIPT OF SALARY INCOME, AGRICULTURAL INCOME, RENTAL, INTEREST INCOME FROM BANK AND MISCELLANEOUS INCOME OF RS.6,55,000/- AGGREGATING TO RS. 11,53,847/-. AGAIN ST THIS GROSS RECEIPT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.11,92,214/ - WHICH INCLUDES DEPRECIATION ON MOTOR CAR OF RS.9,41,725/- AND INS URANCE EXPENSE ON MOTOR CAR RS.1,25,596/-. THE CLAIM OF THE ASSESSEE WAS THAT THE MOTOR CAR WAS UTILIZED FOR THE PURPOSE OF EARNING THE MIS CELLANEOUS INCOME OF RS.6,55,000/- WHICH IS ASSESSABLE UNDER THE HEAD OF INCOME FROM OTHER SOURCES. THE BIFURCATIONS OF THESE EXPENSES ARE AS UNDER: DEPRECIATION RS. 9,41,725.00 INSURANCE EXPENSES RS. 1,25,596.00 SALARY EXPENSES RS. 66,000.00 VEHICLE REPAIR AND MAINTENANCE EXPENSES RS. 52,900.00 --------------------------- TOTAL RS. 1 1,86,221.00 =============== HOWEVER THE LD. AO OPINED THAT THE ABOVE-MENTIONED CLAIM OF EXPENDITURE BY THE ASSESSEE ON MOTOR CAR REPAIRS AN D MAINTENANCE, INSURANCE AND DEPRECIATION, SALARY EXPENSE ETC WAS NOT INCURRED FOR EARNING THE MISCELLANEOUS INCOME OF RS.6,55,000/-. THEREFORE, THESE EXPENSES & DEPRECIATION AMOUNTING TO RS. 11,86,221/ - WERE DISALLOWED UNDER SECTION 57(III) OF THE ACT BY THE LDAO BUT AL LOWED THE BANK CHARGES AND DMAT ACCOUNT CHARGES. ITA NO. 28-AHD-11 3 4. THE ASSESSEE TOOK UP THE ISSUE BEFORE THE LD. CI T (A) FOR RELIEF. AFTER CAREFUL CONSIDERATION OF THE ASSESSEES CONTE NTIONS AND PERUSAL OF THE ASSESSMENT ORDER, THE LD. CIT (A) HAD CONFIRMED THE ACTION OF THE LD.AO. BY OBSERVING AS UNDER: 9. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT. FROM THE DETAILS OF THE EXPENSES, IT IS NOTICED THAT THE MAJ ORITY OF THESE EXPENSES REPRESENT THE DEPRECIATION AND INSURANCE E XPENSES OF MERCEDES CAR. THE AR WAS ASKED TO JUSTIFY AS TO HOW THE DEPRECIATION IS ALLOWABLE TO THE APPELLANT PARTICUL ARLY WHEN THERE IS NO BUSINESS ACTIVITY OF THE APPELLANT. HE WAS ALSO ASKED TO JUSTIFY THE CLAIM OF DEPRECIATION AND INSURANCE EXPENSES UN DER THE HEAD OF INCOME FROM OTHER SOURCES. FOR THIS PURPOSE HE W AS ASKED TO ESTABLISH THE NEXUS BETWEEN THE MISC. INCOME OF RS .6,55,000/- AND THE USE OF THE MERCEDES CAR FOR THE PURPOSE OF EARNING SUCH INCOME. THE AR STATED BEFORE ME THAT THE APPELLANT IS ENGAGED IN RESOLVING LAND DISPUTES ETC. THE MISCELLANEOUS INCO ME OF RS.6,55,000/-WAS EARNED BY HIM FROM SUCH ACTIVITY. HE WAS SPECIFICALLY ASKED THE NATURE OF THE BUSINESS ACTIV ITY OF RESOLVING THE LAND DISPUTES, TO WHICH HE COULD NOT THROW MUCH LIGHT. IN MY OPINION, IN THE ABSENCE OF ANY EVIDENCE, THERE CANN OT BE ANY BUSINESS ACTIVITY LIKE THE ONE SHOWN BY THE APPELLA NT. THEREFORE THE DEPRECIATION AND INSURANCE EXPENSES AND REPAIR AND MAINTENANCE OF THE MERCEDES CAR IS NOT AN ALLOWABLE EXPENDITURE UNDER THE HEAD OF BUSINESS INCOME. AT THE SAME TIME, IF THE A PPELLANT WANTS THAT HE IS ENTITLED TO SUCH EXPENSES UNDER SECTION 57(III) OF THE INCOME-TAX ACT, THEN HE HAS TO PROVE THE NEXUS BETW EEN THE INCOME EARNED AND THE EXPENSES INCURRED TO EARN SUC H INCOME. IN THIS CASE, THE NEXUS HAS NOT BEEN PROVED NEITHER BE FORE ME NOR BEFORE THE ASSESSING OFFICER. I THEREFORE AGREE WIT H THE AO THAT THE EXPENSES ARE NOT ALLOWABLE UNDER THE HEAD OF BUSINE SS INCOME OR UNDER THE HEAD OF INCOME FROM OTHER SOURCES. THE RE LIANCE OF THE APPELLANT THAT IN ASSESSMENT YEAR 2005-2006, IN THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, NO SUCH DISALLOWANCE OF EXPENSES WAS MADE BY THE AO IS OF NO HELP BECAUS E THE AO HAS NOT EXAMINED THAT ISSUE FROM THE ANGLE OF ALLOW ABILITY OF EXPENSES UNDER SECTION 32, 37 OR SECTION 57 OF THE INCOME-TAX ACT. FURTHER, IT COULD BE POSSIBLE THAT IN THE ASSESSMEN T YEAR 2005- 2006, THE APPELLANT COULD HAVE BEEN ENGAGED IN SOME BUSINESS ACTIVITY. IN THAT CASE, THE APPELLANT WOULD BE ENTI TLED NOT ONLY TO THE DEPRECIATION AND INSURANCE EXPENSES BUT ALSO TO SAL ARY AND REPAIR ITA NO. 28-AHD-11 4 AND MAINTENANCE ETC. IN THIS YEAR UNDER CONSIDERATI ON, THE APPELLANT HAS NOT PROVED THAT HE IS ENGAGED IN SOME BUSINESS ACTIVITY. THIS GROUND IS THEREFORE, DECIDED AGAINST THE APPELLANT. 5. DURING THE COURSE OF HEARING BEFORE US, THE LD. A R HAD REITERATED MORE OR LESS WHAT WAS SUBMITTED BEFORE THE LD. CIT (A). THE LD. A.R. SUBMITTED THAT THE ASSESSEE HAD DECLARED MISCELLANE OUS INCOME OF RS.6,55,000/- IN THE RETURN OF INCOME WHICH WAS EAR NED FROM RESOLVING LAND DISPUTES, ETC. HE ARGUED BY STATING THAT THE N ATURE OF ACTIVITY OF THE ASSESSEE IN GENERATING INCOME WAS BUSINESS BUT INAD VERTENTLY SHOWN UNDER THE HEAD INCOME FROM OTHER SOURCES. THE DEPRE CIATION WAS CLAIMED ON OFFICE BUILDING, FURNITURE AND CAR, WHIC H WERE USED FOR EARNING THE INCOME. SIMILARLY INSURANCE EXPENSES WERE INCUR RED FOR CAR. THE DETAILS OF SALARY WERE ALSO SUBMITTED TO THE AO WHE REIN NAMES OF PERSONS WERE STATED. THE LD. A.R. FURTHER SUBMITTED THAT IN THE ASSESSMENT YEAR 2005-06, THIS KIND OF MISCELLANEOUS INCOME WAS SHOWN UNDER THE HEAD BUSINESS INCOME AND THE SAME WAS A CCEPTED BY THE DEPARTMENT. REGARDING THE CLAIM OF DEPRECIATION, TH E LD. A.R. RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTIO N. I) ITAT, AMRITSAR BENCH IN THE CASE OF ITO-VS- SUR AJ SOVENT & VANASPATI INDUSTRIES LTD. (28) 16 DTR (ASR)(TR IB) 492 II) ITO-VS- KESHWA ENTERPRISES (P) LTD. (2006) 102 TTJ (CHD.)446 6. ON THE OTHER HAND, THE LD. D R VEHEMENTLY ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE AUTHORITIES. THE LD. D.R. SUB MITTED THAT THE EXPENSES ON ACCOUNT OF DEPRECIATION, INSURANCE OF MOTOR CAR AND REPAIR AND MAINTENANCE THEREOF HAVE NOT BEEN INCURRED BY T HE APPELLANT FOR EARNING THE MISCELLANEOUS INCOME OF RS.6,55,000/-. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAD NOT BEEN ABLE TO FU RNISH ANY EVIDENCE TO PROVE THAT HIS BUSINESS ACTIVITY RELATES TO RESO LVE LAND DISPUTES. THE LD.DR THEREFORE SUBMITTED THAT THE CLAIM OF THE ASS ESSEE CANNOT BE ITA NO. 28-AHD-11 5 ALLOWED WITH RESPECT TO DEDUCTION ON ACCOUNT OF DEP RECIATION, INSURANCE EXPENSES, REPAIR AND MAINTENANCE OF THE CAR ETC., U NDER THE HEAD OF BUSINESS INCOME OR UNDER SECTION 57(III) OF THE ACT ., SINCE THE ASSESSEE HAS NOT BEEN ABLE TO PROVE THE NEXUS BETWEEN THE IN COME EARNED AND THE EXPENSES INCURRED TO EARN SUCH INCOME AND PRAYE D THAT THE ORDER OF THE LD. CIT(A) MAY BE UPHELD. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS BEFORE US. FROM THE PAPER BOOK CONTAINING 1 TO 17 PAGES NO EVIDENCE CAN BE DRAWN THAT THE ASSESSEE WAS CARRYIN G ON ANY BUSINESS. THE LEDGER ACCOUNT SIMPLY STATES THAT THE ASSESSEE HAS RECEIVED IN AGGREGATE CASH OF RS. 6,55,000/- ON VARIOUS DATES. THE ASSESSEE HAS NOT ESTABLISHED THE SOURCE OF SUCH GENERATION OF CA SH AS TO FROM WHOM IT WAS RECEIVED AND FOR WHAT REASON. NO AGREEMENT OR C ONFORMATION OR ACKNOWLEDGEMENT FROM THE PAYEE WAS BROUGHT ON RECOR D BY THE ASSESSEE TO ESTABLISH THE NATURE OF INCOME OF THE A SSESSEE. THE APPREHENSION OF THE REVENUE THAT THESE INCOME COULD ALSO HAVE BEEN RESULTED FROM EXTORTIONS ETC., WHICH ARE LARGELY PR EVALENT IN REAL ESTATE TRANSACTIONS CANNOT BE SIMPLY OVERRULED IN PARTICUL AR WHEN NO EVIDENCE IS BROUGHT ON RECORD BY THE ASSESSEE TO PROVE HIS C LAIM THAT THE INCOME HAD RESULTED FROM RESOLVING OF DISPUTES IN REAL EST ATE TRANSACTIONS FALLING UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION . SECTION 37(1) OF THE ACT., HAS SPECIFICALLY BARED ANY CLAIM OF EXPE NDITURE INCURRED BY THE ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR PRO HIBITED BY LAW. THE LD. CIT(A) HAS RIGHTLY POINTED OUT THAT THE ASSESSE E MIGHT HAVE CARRIED ON WITH SOME BUSINESS ACTIVITY DURING THE EARLIER YEAR S HOWEVER FOR THE RELEVANT ASSESSMENT YEAR NO NEXUS BETWEEN THE INCOM E GENERATED AND THE ACTIVITY CONDUCTED IS ESTABLISHED. HOWEVER, SIN CE THE LD. A.R. CLAIMS THAT THE ASSESSEE IS IN POSSESSION OF SUFFICIENT DO CUMENTS TO ESTABLISH ITA NO. 28-AHD-11 6 HIS CLAIM THAT HE WAS IN RECEIPT OF GENUINE PAYMENT S RECEIVED FOR RESOLVING DISPUTES IN REAL ESTATE TRANSACTION, IN T HE INTEREST OF JUSTICE, WE HEREBY REMIT BACK THE MATTER BACK TO THE FILE OF TH E LD.AO WITH THE DIRECTIONS TO CONSIDER THE ISSUE AFRESH AND PASS AP PROPRIATE ORDER, AS PER LAW AND MERIT, AFTER EXAMINING ALL RELEVANT DOC UMENTS. THE ASSESSEE IS ALSO DIRECTED TO COOPERATE WITH THE REVENUE FOR THE SPEEDY DISPOSAL OF THE CASE. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 2 1 + 0'& 3#!' 04 / 11 /201 1 ' 4 + . 5 SD/- SD/- (D.K.TYAGI) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED : 04/11/2011 1 1 1 1 + ++ + */6 */6 */6 */6 76&/' 76&/' 76&/' 76&/' - 1. () 2. *() 3. !! / -8 4. -8 - - 5. 69 */# , , 5 6. :2 1 , ; / !< , 5 TALUKDAR/ SR. P.S .