RITU CHOUDHARY, MUMBAI V. ITO WD NO. 11(1)(3), MUMBAI

ITA 2911/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2045 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 07-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAVINDRA SABNIS
• Keywords: Depreciation; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, MUMBAI. BEFORE S/SHRI N.V.VASUDEVAN, JM & T.R.SOOD, AM I.T.A NO. 2911/ MUM/2009 ASSESSMENT YEAR: 2005-06 RITU CHOUDHARY, V. THE ITO WARD 11(1)(3), C-13, OBEROI SKY GARDEN, 3 RD CROSS LANE, AAYAKAR BHAVAN, M.K. ROAD, LOKHANDWALA COMPLEX, ANDHERI(W), MUMBAI. MUMBAI-53. PA NO.AAAPC 6097 R (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAVINDRA SABNIS RESPONDENT BY : SHRI AARSI PRASAD O R D E R PER T.R.SOOD, AM THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 4.9.2008 OF LD CIT (A)-XI, MUMBAI FOR THE ASSESSMENT YEAR 2005 -06. 2. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- 1. THE LD CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIATION OF RS.10,40,254/- ON OFFICE PREMISES AND INTEREST ON O FFICE LOAN OF RS.4,91,640/- HOLDING THE PREMISES AS RESIDENTIAL P REMISES. 2. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWA NCE OF DEPRECIATION ON 2 CARES OF RS.74,917/- AND RS.90,554/- ON HONDA CIT Y CAR AND LANCER CAR RESPECTIVELY. 3.. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.91,000/- ON MEDICAL EXP0ENSES FOR DENTAL TREATMENT. 4. THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWA NCE OF RS.2,99,260/- ON CLOTHING EXPENSES. 3. AT THE TIME OF HEARING, LD COUNSEL FOR THE ASSES SEE DID NOT PRESS GROUND NO.2 BEFORE US AND, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. ITA NO.2911/M/2009 MISS RITY CHOUDHARY 2 4. APROPOS GROUND NO1, AFTER HEARING BOTH THE PARTI ES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE OWNED TWO RESIDENTIAL PROPERTIES AT LOKHANDWALA, THE FIRST PR OPERTY WORTH RS.73.95 LAKHS, WHICH WAS SELF OCCUPIED PROPERTY AND THE SECOND PROPERTY WORTH RS.1.04 CRORES WAS ALSO SITUATED IN THE SAME BUILDING AND CLAIMED BY THE AS SESSEE AS OFFICE. THE ASSESSING OFFICER OBSERVED THAT FOR COMMUNICATION PURPOSES, T HE ADDRESS GIVEN WAS THAT OF RESIDENTIAL PROPERTY. THERE WAS NO TELEPHONE OR EL ECTRICITY BILL TO PROVE THAT THE RESIDENTIAL HOUSE WAS USED FOR OFFICE PURPOSES. TH E ASSESSEE HAD CLAIMED DEPRECIATION OF RS.10,48,254/- AND INTEREST OF RS.6,41,640/-. I N THIS BACKGROUND, THE AO ESTIMATED THE FAIR RENT OF THE SECOND PROPERTY @ RS.25,000/- PER MONTH AND DETERMINED THE STANDARD RENT AT RS.3 LAKHS. ACCORDINGLY, WHATEVER INTEREST COULD BE ADJUSTED AGAINST THAT RENTAL INCOME WAS ADJUSTED AND BALANCE OF RS.4 ,91,640/- WAS DISALLOWED. 5. BEFORE THE CIT (A), IT WAS MAINLY SUBMITTED THAT THERE IS NO PROHIBITION UNDER LAW FOR MAINTAINING AN OFFICE IN RESIDENTIAL PREMISES A ND THE ASSESSEE REQUIRED THIS OFFICE FOR PROFESSIONAL PURPOSES. THE CIT (A) AFTER EXAMINING THE SUBMISSIONS OF THE ASSESSEE, REJECTED THE ASSESSEES CLAIM VIDE PARA 3.2 OF HIS ORDER, WHICH READS AS UNDER:- I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MAT ERIALS ON RECORD. THE AO HAS BROUGHT OUT SOME IMPORTANT FACTS SUCH AS (A) THE ADDRESS FOR COMMUNICATION CONTINUED TO BE HER RESIDENCE AT LOKH ANDWALA AND NOT THE SO-CALLED OFFICE; (B) THE APPELLANT DID NOT PRO VIDE ANY TELEPHONE OR ELECTRICITY BILLS TO SHOW THAT THE SAME WAS AN OFFI CE AND (C) THE RATE OF PAYMENT OF MUNICIPAL TAX WAS THAT OF A RESIDENTIAL PREMISE AND NOT THAT OF A COMMERCIAL ONE. THESE ARE IMPORTANT FACTS WHI CH HAVE NOT BEEN CONTROVERTED BY THE APPELLANT. THE APPELLANTS ONL Y CONTENTION IS THAT THE OFFICE IS MAINTAINED ON ONE FLOOR OF THE PREMISE WH ERE SHE RESIDES. THIS IS THE PLACE WHERE HER STAFF MEMBERS SIT AND OPERAT E FROM. NO EVIDENCE HAS BEEN PLACED ON RECORD AS TO THE STAFF SIZE ETC INDICATING A FUNCTIONAL OFFICE. IN FACT, FROM THE MATERIALS ON RECORD, IT IS CLEAR THAT IT IS ANOTHER HOUSE PROPERTY OWNED BY THE APPELLANT WHICH NEEDED TO BE TAXED IN TERMS OF ANNUAL LETTING VALUE. THE APPELLANT HAS N OT DISPUTED THE DETERMINATION OF THE AL AND THE CONSEQUENT DISALLOW ANCES. THAT BEING THE CASE, THE AOS FINDINGS DO NOT CALL FOR ANY INT ERFERENCE. 6. BEFORE US, IT WAS MAINLY SUBMITTED THAT THE ASSE SSE WAS A WELL-KNOWN CINE STAR AND WAS PARTICIPATING IN VARIOUS AWARD CEREMONIES, STAR PERFORMANCE, TOURS, CHARITY EVENTS, PROMOTIONAL EVENTS, ADVERTISEMENTS ETC. FOR THIS PURPOSE, SHE REQUIRED AN OFFICE AND THESE PREMISES WERE MAINLY USED FOR THE REHEARS ALS AS WELL AS FILM SHOOTING ETC. IT WAS ALSO ARGUED THAT THERE IS NO PROHIBITION IN USI NG THE RESIDENTIAL PREMISES FOR THE PURPOSE OF OFFICE. WHEN A SPECIFIC QUERY WAS RAISE D BY THE BENCH WHY THERE ARE NO ITA NO.2911/M/2009 MISS RITY CHOUDHARY 3 ELECTRICITY OR TELEPHONE BILLS, LD COUNSEL REPLIED THAT NOW A DAYS, DUE TO USE OF MOBILE PHONES, THERE IS NO REQUIREMENT OF LANDLINE PHONE A ND AS FAR AS ELECTRICITY BILL IS CONCERNED, IT WAS SUBMITTED THAT THE ELECTRICITY BI LLS WERE PAID BY THE SOCIETY AND LATER ON WILL BE RECOVERED FROM THE ASSESSEE. 7. LD D.R. STRONGLY SUPPORTED THE ORDERS OF THE REV ENUE AUTHORITIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. WE FIND THAT THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH ANY EVIDENCE BEFORE TH E LOWER REVENUE AUTHORITIES THAT THE SAID PREMISE WAS BEING USED AS OFFICE. HOWEVER, IN THE INTEREST OF JUSTICE, WE FEEL THAT IF THE ASSESSEE IS ABLE TO PRODUCE THE ELECTRICITY BILLS(BECAUSE IT IS DIFFICULT TO IMAGINE THAT THE PREMISES IN PLACE LIKE MUMBAI, OFFICE IS U SED WITHOUT ELECTRICITY), THEN THE CLAIM OF THE ASSESSEE CAN BE CONSIDERED. THEREFORE, IN T HE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THIS ISSUE TO THE F ILE OF THE AO WITH A DIRECTION TO EXAMINE THE ELECTRICITY BILLS, WHICH ARE SAID TO HA VE PAID THROUGH SOCIETY AND LATER ON REIMBURSED BY THE ASSESSEE AND THEN DECIDE THE CLAI M OF THE ASSESSEE. THE ASSESSEE IS DIRECTED TO FURNISH THE PROOF OF ELECTRICITY BILLS PAID BY HER THROUGH THE SOCIETY AS CLAIMED. IF THE PROOF OF ELECTRICITY BILL IS NOT P RODUCED, THEN THE ADDITION MAY BE SUSTAINED. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 9. APROPOS GROUND NOS. 3 & 4, AFTER HEARING BOTH TH E SIDES, WE FIND THAT THE ASSESSEE HAD INCURRED A SUM OF RS.91,000/- TOWARDS MEDICAL EXPENSES, WHICH WAS DISALLOWED BECAUSE THE SAME WAS OF PERSONAL NATURE. THE CIT (A) CONFIRMED THE AOS ACTION. 9.1 THE ASSESSEE HAD CLAIMED CLOTHING EXPENSES TO T HE TUNE OF RS.5,38,511/-, FOR WHICH, SOME VOUCHERS WERE PRODUCED. IT WAS NOTICED BY THE AO THAT ONE OF THE VOUCHERS WAS CASH VOUCHER FOR THE PURCHASE OF 18+1 2 PIECES OF GARMENT FOR A TOTAL VALUE OF RS.2,99,260/-. ACCORDING TO THE AO, THIS VOUCHER RELATED TO PERSONAL EXPENSES. ULTIMATELY, HE ALLOWED ONLY A SUM OF RS.38,511/- AN D MADE A DISALLOWANCE OF RS.5,00,000/-. 9.2 BEFORE THE CIT (A), IT WAS MAINLY SUBMITTED THA T THE ASSESSEE WAS A HIGH PROFILE ACTRESS AND SHE WAS REQUIRED TO MAKE PURCHASE OF VA RIOUS CLOTH MATERIALS FOR STAGE ITA NO.2911/M/2009 MISS RITY CHOUDHARY 4 SHOW ETC. THE CIT (A) ALLOWED THE PARTIAL CLAIM AS PER PARA 6.2 OF HIS ORDER WHICH READS AS UNDER:- I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MAT ERIALS ON RECORD. THE APPELLANT HAS STATED THAT FOR STAGE SHOWS THE ORGAN IZERS PAY FOR HER CLOTHES. THAT IS WHY THIS DEBIT ENTRY IS MADE. HOWEVER, PRO PER DETAILS WERE NOT PRODUCED DURING ASSESSMENT PROCEEDINGS. THE AO HAS FOUND TH AT THE BILL FOR RS.2,99,260/- WAS OF A VERY GENERAL NATURE AND HENCE NOT ALLOWABL E. THE AO SHOULD HAVE TRIED TO FIND OUT OTHER DETAILS FOR FURTHER DISALLOWANCE. THEREFORE, THE DISALLOWANCE OF RS.5,00,000/- IS ON ESTIMATE BASIS ONLY. CONSEQUEN TLY, DISALLOWANCE OF RS.2,99,260/- CAN ONLY BE SUSTAINED. THE BALANCE D ISALLOWANCE IS DELETED. 9.3 BEFORE US, LD COUNSEL FOR THE ASSESSEE SUBMITTE D THAT AS FAR AS MEDICAL EXPENSES ARE CONCERNED, THE SAME WERE FOR COSMETIC DENTAL SU RGERY, WHICH WAS REQUIRED FOR IMPROVING APPEARANCE OF THE ASSESSEE AND THUS, EXPE NDITURE WAS FOR THE PURPOSE OF PROFESSION. AS FAR AS CLOTHING IS CONCERNED, HE SU BMITTED THAT THE ASSESSEE WAS REQUIRED TO MAINTAIN A HIGH PROFILE BY WEARING COST LY FANCY CLOTHES AND, THUS, THEY WERE REQUIRED FOR THE PURPOSE OF PROFESSION. IT WAS ALS O SUBMITTED THAT IN EARLIER YEARS ALSO, CLOTHING EXPENSES HAVE BEEN ALLOWED. HE ALSO ARGUE D THAT THESE EXPENSES CANNOT BE CALLED AS PERSONAL EXPENSES AND IN THIS REGARD, HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF STATE OF MADRAS V G.J. COELHO, 53 ITR 186 (SC). 9.4 ON THE OTHER HAND, LD D.R. SUBMITTED THAT THESE ARE CLEARLY EXPENDITURE OF PERSONAL NATURE. HE ARGUED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF G.J.COELHO (SUPRA) WAS RENDERED ON A DIFFERENT P RETEXT AND THUS, DISTINGUISHABLE. HE ALSO SUBMITTED THAT IN EARLIER YEARS, CLOTHING EXPE NSES WERE ALLOWED ONLY UNDER INTIMATION MADE U/S.143(1) AND ISSUE WAS NEVER EXAM INED. 9.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. THE EXPENDITURE INCURRED FOR COSMETIC DENTAL SURGERY AS WELL AS PURCHASE OF CLOT HS ARE CLEARLY PERSONAL IN NATURE. THE CIT (A) HAS ALREADY OBSERVED IN PARA 6.2 THAT FOR S TAGE SHOWS, EXPENDITURE FOR CLOTHES WAS TO BE PAID BY THE ORGANIZERS. HE HAS, IN ANY C ASE, REDUCED THE DISALLOWANCE FROM RS.5 LAKHS TO RS.2,99,260/-. AS FAR AS THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF G.JH.COELHO (SUPRA), IS CONCERNED, WE FIND THAT IN THAT CASE, THE ASSESSEE HAD PURCHASED AN ESTATE COMPRISING OF TEA, COFFEE AND R UBBER PLANTATIONS AND OUT OF THE PURCHASE PRICE OF RS.3,10,000/-, A SUM OF RS.2,90,0 00/- WAS BORROWED ON INTEREST. THE ISSUE AROSE REGARDING ALLOWANCE OF INTEREST EXPENSE S. THE HONBLE SUPREME COURT HAS HELD AS UNDER:- ITA NO.2911/M/2009 MISS RITY CHOUDHARY 5 1. THE INTEREST WAS NOT CAPITAL EXPENDITURE AS NO NEW ASSET WAS ACQUIRED OR ENDURING BENEFIT OBTAINED AS A RESULT OF THE PAYMEN T OF INTEREST. 2. THAT THE PAYMENT OF INTEREST WAS NOT ANAL EXPENS E. EVERY EXPENSE TO DISCHARGE A PERSONAL OBLIGATION DID NOT BECOME A PE RSONAL EXPENSE WITHIN SECTION 5(E). PERSONAL EXPENSES INCLUDED ONLY EX PENSES ON THE PERSON OF THE ASSESSEE OR TO SATISFY HIS PERSONAL NEEDS SUCH AS C LOTHES, FOODS, ETC., OR FOR PURPOSES NOT RELATED TO THE BUSINESS FOR WHICH THE DEDUCTION WAS CLAIMED. 3. THAT IT WAS IMPOSSIBLE TO DISASSOCIATE THE CHARA CTER OF THE RESPONDENT AS THE OWNER OF THE PLANTATION AND AS A PERSON WORKING THE M. HE HAD BOUGHT THE PLANTATIONS FOR WORKING THEM AS PLANTATIONS. THE P AYMENT OF INTEREST ON THE AMOUNT BORROWED FOR THE PURPOSE OF THE PLANTATIONS WHEN THE WHOLE TRANSACTION OF PURCHASE AND THE WORKING OF THE PLANTATIONS WAS VIEWED AS AN INTEGRATED WHOLE WAS SO CLOSELY RELATED TO THE PLANTATIONS THA T THE EXPENDITURE COULD BE SAID TO BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF THE PLANTATIONS. FROM THE ABOVE, IT IS CLEAR THAT THE DECISION WAS R ENDERED ON ITS OWN FACTS AND HAS NOTHING TO DO WITH THE CASE OF THE ASSESSEE. IN FA CT, THIS DECISION GOES AGAINST THE ASSESSEE. THE HONBLE SUPREME COURT HAS CLEARLY OB SERVED THAT PERSONAL EXPENSES INCLUDED EXPENSES ON THE PERSON OF THE ASSESSEE OR TO SATISFY HIS PERSONAL NEEDS AS SUCH CLOTHES, FOOD, ETC. THUS, THE EXPENSES ON MEDICAL IS ON PERSONAL NATURE AND THE EXPENSES ON CLOTHES WOULD CLEARLY FALL UNDER THE CA TEGORY OF PERSONAL EXPENSES. IN THESE CIRCUMSTANCES, WE FIND NOTHING WRONG IN THE O RDER OF LD CIT (A) AND, ACCORDINGLY, CONFIRM THE SAME. GROUND NOS. 3 & 4 ARE DISMISSED. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE STA NDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 21 ST MAY, 2010 SD/- (N.V.VASUDEVAN) (JUDICIAL MEMBER) SD/- (T.R.SOOD) (ACCOUNTANT MEMBER) MUMBAI, DATED 21 ST MAY, 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-XI, MUMBAI 4. COMMISSIONER OF INCOME TAX, XI-, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH D, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.2911/M/2009 MISS RITY CHOUDHARY 6 DATE INITIALS 1. DRAFT DICTATED ON 17.5.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 17.5.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER ITA NO.2911/M/2009 MISS RITY CHOUDHARY 7