PARESH P/. SHAH, MUMBAI V. ACIT 11(3), MUMBAI

ITA 2904/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9411 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 29-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 15-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N PADMANABAND R
• Assessee Lawyers: DR K SHIVARAM SHRI RAHUL SARDA
• Keywords: Business income
• Section: 234B; 14A; 43(5)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO. 2904/MUM/2013 (A.Y.2008-09) PARESH P. SHAH 302, K.K. SQUARE ABOVE SKODA SHOWROOM 470-CARDINAL GRACIOUS ROAD CHAKALA, ANDHERI (E) MUMBAI-400 099. GIR NO./PAN : AAIPS 4292 G (APPELLANT ) VS. THE A CIT - 11(3) , ROOM NO.446, AAYAKAR BHAVAN , CHURCHGATE MUMBAI-400 020. (RESPONDENT) APPELLANT BY : DR. K. SHIVARAM, SHRI RAHUL SARDA RESPONDENT BY : SHRI N . PADMANABAN-DR DATE OF HEARING : 16/02/2015 DATE OF PRONOUNCEMENT : 25/02/2015 ORDER PER CHANDRA POOJARI, A.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15/01/2013 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.15,590/- WITHOUT APPRECIATING THE FACT THAT ALL THE ENTRIES WERE EXP LAINED AND HENCE ADDITION MAY BE DELETED. 2. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWA NCE OF RS.54,271/- UNDER SECTION 14A R.W.R. 8D, WITHOUT APPRECIATING THE FACT THAT T HE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PROFESSION AND NOT FOR EARNING ANY EXEMPT I NCOME, HENCE THE DISALLOWANCE MAY BE DELETED. 2 ITA NO.2904/M UM/13 3. THE LD. CIT(A) ERRED IN TREATING THE DERIVATIVE LOSS OF RS.15,96,479/- AS CAPITAL LOSS INSTEAD OF BUSINESS LOSS AND THUS ERRED IN ENH ANCING THE INCOME WITHOUT ISSUE OF MANDATORY NOTICE UNDER SECTION 251. 4. THE LD. CIT(A) ERRED IN ADJUSTING THE DERIVATIVE LOSS OF RS.15,96,479/- AGAINST CAPITAL GAINS INSTEAD OF ALLOWING THE SET OFF AGAIN ST BUSINESS INCOME. 5. THE LD. CIT(A) ERRED IN CONFIRMING THE ADHOC DIS ALLOWANCE OF RS.1,14,125/- UNDER THE FOLLOWING HEADS:- I) CONVEYANCE @10% RS. 7,017/- II) LOCAL TRAVELLING @5% RS. 5,243 /- III) FOREIGN TRAVELLING @20% RS. 52, 014/- IV) MOTOR CAR EXPENSES @20% RS. 22,36 0/- V) TELEPHONE EXPENSES @20% RS. 27,491/- RS.1,14,125/- 6. THE LD. CIT(A) ERRED IN CONFORMING THE INTEREST LEVIED UNDER SECTION 234B AND 234C. 2. BEFORE US, THE LD. AR MADE AN ENDORSEMENT THAT T HE ASSESSEE IS NOT INTERESTED IN PRESSING GROUND NO.1 AND 2. THE LD. DR RAISED NO OB JECTION IF THE GROUND NOS. 1 AND 2 ARE NOT PRESSED. ACCORDINGLY THESE TWO GROUNDS ARE DISMISSED AS NOT PRESSED. 3. GROUND NO. 3 AND 4 ARE INTER-LINKED. THE MAIN GR IEVANCE OF THE ASSESSEE IS THAT THE DIRECTION OF CIT(A) IN TREATING THE DERIVATIVE LOSS OF RS.15,96,479/- AS CAPITAL LOSS INSTEAD OF BUSINESS LOSS WHICH RESULTS IN ENHANCEME NT OF INCOME OF THE ASSESSEE WITHOUT GIVING MANDATORY NOTICE UNDER SECTION 251. 3.1 IN THIS CASE THE ASSESSEE CLAIMED SHORT TERM CA PITAL GAINS AT RS.21,56,073/-. AT THE SAME TIME THERE WAS CLAIM OF RS.15,96,479/- AS DERIVATIVE LOSS. THE ASSESSEE CLAIMED THE SAME AS SHORT TERM CAPITAL LOSS AND SET OFF AGAINST SHORT TERM CAPITAL GAINS. THE AO ADJUSTED THE ABOVE LOSS AGAINST SHORT TERM C APITAL GAINS BUT DID NOT SET OFF THE SAME U/S. 43(5) FROM THE OTHER BUSINESS INCOME TO A RRIVE AT THE BUSINESS INCOME. THE ASSESSEES PLEA WAS THAT U/S. 70(1) OF THE INCOME T AX ACT THE LOSS COULD BE SET OFF AGAINST INCOME FROM ONE SOURCE AGAINST INCOME FROM OTHER SOURCES UNDER THE SAME HEAD OF INCOME AND THIS LOSS TO BE SET OFF FROM BUS INESS INCOME AS PER THIS PROVISION. ACCORDINGLY THE ASSESSEE CARRIED ON THE APPEAL BEFO RE CIT(A). THE LD. CIT(A) OBSERVED THAT THE ASSESSEE IS DEALING IN SECURITIES AS INVE STMENT AND GAIN FROM THE DEALING IN 3 ITA NO.2904/M UM/13 SECURITIES IS TO BE CONSIDERED AS CAPITAL GAIN, LO SS TO BE CONSIDERED AS CAPITAL LOSS AND IT CANNOT BE CONSIDERED AS BUSINESS LOSS. NOW THE GRIE VANCE OF THE ASSESSEE BEFORE US IS THAT CIT(A) HAS TAKEN A UNILATERAL DECISION TREATIN G DERIVATIVE LOSS AS SHORT TERM CAPITAL LOSS WITHOUT GIVING MANDATORY NOTICE U/S. 251 OF TH E INCOME TAX ACT. THUS, ACCORDING TO THE LD. AR THERE IS VIOLATION OF PRINCIPLES OF NAT URAL JUSTICE. THE LD. DR RELIED ON THE ORDER OF CIT(A). 4. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. FR OM THE PERUSAL OF ORDERS OF CIT(A) WE OBSERVE THAT CIT(A) HAS GIVEN A DIRECTION TO THE AO TO TREAT THE DERIVATIVE LOSS AS SHORT TERM CAPITAL LOSS AND NOT AS BUSINESS LOSS WHICH RESULTED IN ENHANCEMENT OF INCOME OF THE ASSESSEE WITHOUT THE CIT(A) HAVING COMPLIED WITH THE PROVISIONS OF SECTION 251(2) OF THE INCOME TAX ACT. THERE IS A MA NDATORY REQUIREMENT U/S. 251(2) THAT WHENEVER THERE IS ENHANCEMENT OF INCOME THE CI T(A) HAS TO ISSUE A NOTICE SO AS TO GIVE A REASONABLE OPPORTUNITY OF HEARING TO THE ASS ESSEE. SINCE THE CIT(A) FAILED TO ISSUE NOTICE U/S.251(2) OF THE INCOME TAX ACT TO TH E ASSESSEE THE IMPUGNED FINDING OF THE CIT(A) ON THIS ISSUE STANDS VACATED AND MATTER IS REMITTED TO CIT(A) TO DECIDE THE APPEAL ON MERIT AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE . ACCORDINGLY THIS ISSUE IS REMITTED TO THE FILE OF C IT(A) FOR FRESH CONSIDERATION. 5. GROUND NO.5 REGARDING CONFIRMATION OF ADHOC DISA LLOWANCE OF RS.1,14,125/- UNDER VARIOUS HEADS LIKE CONVEYANCE, LOCAL TRAVELLI NG, FOREIGN TRAVELLING, MOTOR CAR EXPENSES TELEPHONE EXPENSES ETC. 5.1 THE FACTS OF THE ISSUE ARE THAT WITH REGARD TO LOCAL TRAVELLING THE ASSESSEE HAD CLAIMED LOCAL TRAVELLING EXPENSES OF RS.1,04,860/- WHICH WERE INCURRED IN CASH. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE WAS ASKED TO PRODUCE LEDGER, BILLS AND VOUCHERS FOR THE SAME. THE AUTHORIZED REPRESENTATIV E OF THE ASSESSEE PRODUCED THE SAME OUT OF WHICH THE AO FOUND THAT MANY VOUCHERS W ERE SELF MADE. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE EXPENSES ON SELF MADE VOUCHERS BE ALLOWED. IN REPLY, THE AR OF THE ASSESS EE STATED THAT THE SELF MADE VOUCHERS WERE BUSINESS NECESSITY. THE AO AFTER CONS IDERING THE SUBMISSION OF THE 4 ITA NO.2904/M UM/13 ASSESSEE MADE AN ADHOC DISALLOWANCE OF 5% AMOUNTING TO RS.5,243/- ON ACCOUNT OF SELF MADE VOUCHERS IN THE ABSENCE OF RELIABLE PROOF AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. WITH REGARD TO FOREIG N TRAVELLING THE ASSESSEE HAD CLAIMED RS.2,62,068/- TOWARDS FOREIGN TRAVELLING EXPENSES. THE AR OF THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE EXPENSES SHOULD NOT BE TREATE D AS USED FOR PERSONAL PURPOSES. IN HIS REPLY HE STATED THAT SUCH EXPENSES WERE INCURRE D FOR BUSINESS PURPOSES ONLY. THE AO AFTER CONSIDERING THE REPLY OF THE ASSESSEE DISA LLOWED 20% OUT OF THE ABOVE EXPENSES CLAIMED BY THE ASSESSEE AMOUNTING TO RS.52 ,014/- STATING THAT PERSONAL ELEMENT CANNOT BE RULED OUT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE . AS REGARDS MOTOR CAR EXPENSES AND TELEPHONE EXPENSES THE ASSES SEE CLAIMED RS.1,11,800/- TOWARDS MOTOR CAR EXPENSES AND RS.1,37,456/- TOWARD S TELEPHONE EXPENSES. THE AR OF THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY SUCH EX PENSES SHOULD NOT BE TREATED AS USED FOR PERSONAL PURPOSES. IN REPLY THE LD. AR OF THE ASSESSEE STATED THAT SUCH EXPENSES WERE INCURRED FOR BUSINESS PURPOSES ONLY. AFTER CONSIDERING THE SUBMISSION OF THE LD. AR THE AO HOWEVER OBSERVED THAT NATURE OF E XPENSE IS SUCH THAT PERSONAL ELEMENT CANNOT BE RULED OUT AND THEREFORE, HE DISAL LOWED 20% OUT OF MOTOR CAR EXPENSES AND TELEPHONE EXPENSES TO THE EXTENT OF RS .22,360 AND RS. 27,491/- RESPECTIVELY AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5.2 ON APPEAL LD. CIT(A) CONFIRMED THE ADDITION ON THE REASON THAT THE ASSESSEE HAS NO REQUISITE EVIDENCE IN SUPPORT OF HIS CLAIM OF TH E EXPENDITURE. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 5.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE ASSESSEE HAS NOT PRODUCES REQUISITE EVIDENCE TO SUBSTANTIATE ITS CLAIM IN SUPPORT OF THE EXPENDITURE. WHENEVER THE A SSESSEE CLAIMS ANY EXPENDITURE IT IS INCUMBENT UPON THE ASSESSEE TO PRODUCE NECESSARY BI LLS, VOUCHERS ETC. TO SUBSTANTIATE THE EXPENDITURE INCURRED. THE ASSESSEE HAS NOT FULL Y DISCHARGED THE BURDEN CAST UPON IT. BEING SO, WE ARE INCLINED TO HOLD THAT THERE IS EVERY CHANCE OF INFLATING EXPENSES BY SELF MADE VOUCHERS. HENCE, WE DIRECT THE AO TO DISA LLOW 5% OF EXPENDITURE WHICH IS 5 ITA NO.2904/M UM/13 SUPPORTED ONLY BY SELF MADE CASH VOUCHERS. THIS GR OUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 6. IN THE RESULT APPEAL IN ITA NO. 2904/MUM/2013 I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25/02/2 015 !'# $ %&' 25/02/2015 ' ( SD/- SD/- ( . . / I.P. BANSAL) ( /CHANDRA POOJARI ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; %& DATED 25/02/2015 . & . ./JV, SR. PS )*+ )*+ )*+ )*+ ,+#* ,+#* ,+#* ,+#* / COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. )/-. / THE RESPONDENT. 3. 0 ( ) / THE CIT(A)- 4. 0 / CIT 5. +1( )*& , , / DR, ITAT, MUMBAI 6. (2 3 / GUARD FILE. & & & & / BY ORDER, /+* )* //TRUE COPY// 4 44 4 / 5 5 5 5 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI