Yogesh Ramesh Shende, Pune V. Assistant Commissioner of Income-tax,

ITA 298/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9571 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 23-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANIL CHAWARE
• Assessee Lawyers: NILESH KHANDELWAL
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A; 37(1); 32

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO.298/PUN/2015 ' ' / ASSESSMENT YEAR : 2009-10 SHRI YOGESH RAMESH SHENDE, C/O. MZSK & ASSOCIATES CHARTERED ACCOUNTANTS, LEVEL 3, BUSINESS BAY, PLOT NO.84, WELLESLEY ROAD, NEAR RTO, PUNE 411 001 . / APPELLANT PAN: ANXPS3099M VS. THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(2), PUNE . RESPONDENT / APPELLANT BY : SHRI NILESH KHANDELWAL / RESPONDENT BY : SHRI ANIL CHAWARE DATE OF HEARING : 17.04.2017 / DATE OF PRONOUNCEMENT: 20.04.2017 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-12, PUNE, DATED 21.01.2015 RELATING TO ASSESSMENT YEAR 2009-10 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ON FACTS AND CIRCUMSTANCES PREVAILING IN THE CASE AND AS PER PROVISIONS AND SCHEME OF THE ACT IT BE HELD THAT, THE DISALLOWANCE /ADDITION OF RS.1,33,275/- ON ACCOUNT OF EXPENSES CLAIMED UNDER SECTION 37(1), TH AT OF RS.5,62,761/- ON ACCOUNT OF EXPENSES CLAIMED UNDER SECTION 57(III), THAT OF RS.2,66,103/- UNDER SECTION 14A MADE BY THE ASSESSING OFFICER AND THAT CONFIRMED BY THE IST ITA NO.298/PUN/2015 YOGESH RAMESH SHENDE 2 APPELLATE AUTHORITY IS UNWARRANTED, UNJUSTIFIED, CO NTRARY TO THE PROVISIONS OF THE ACT AND FACTS PREVAILING IN THE CASE. IT MAY FURTH ER BE HELD THAT NO DISALLOWANCE/ADDITION IS WARRANTED IN THE CASE OF T HE APPELLANT. THE ADDITION/DISALLOWANCE SO MADE AND CONFIRMED BY THE LD. APPELLATE AUTHORITY BELOW BE DELETED. THE APPELLANT BE GRANTED JUST AN D PROPER RELIEF IN THIS RESPECT. 2. THE APPELLANT BE GRANTED CONSEQUENTIAL RELIEF IF ANY AS DEEMED TO BE FIT. 3. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE, RAISE ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.1 HAS RAISED THREE ISSUES ON ACCOUNT OF THE FOLLOWING DISALLOWANCES MADE IN H IS HANDS : (I) DISALLOWANCE UNDER SECTION 37(1) OF THE ACT - RS.1,33,275/- (II) DISALLOWANCE UNDER SECTION 57(III) OF THE ACT - RS.5,62,761/- (III) DISALLOWANCE UNDER SECTION 14A OF THE ACT - RS.2,66,103/- 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSE E HAD FURNISHED RETURN OF INCOME DECLARING INCOME OF RS.12,27,610/-. THE ASS ESSEE DURING THE YEAR UNDER CONSIDERATION DECLARED INCOME FROM HOUSE PROP ERTY, INCOME FROM BUSINESS AND INCOME FROM OTHER SOURCES. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE AS SESSEE HAD CLAIMED EXPENSES UNDER THE HEAD INCOME FROM BUSINESS AND AL SO UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE DECLARED I NCOME FROM BUSINESS AT RS.36,20,748/- OUT OF WHICH THE INCOME FROM PARTNER SHIP FIRM WAS SHOWN AT RS.22,45,748/-, WHICH WAS CLAIMED AS EXEMPT UNDER S ECTION 10(2A) OF THE ACT. AGAINST THE BALANCE INCOME OF RS.13,75,000/-, THE A SSESSEE HAD CLAIMED EXPENDITURE OF RS.9,84,379/- ON ACCOUNT OF REPAIRS, INTEREST AND INSURANCE OF CAR AT RS.2,74,529/-, INTEREST TO JB TRADING AND KA NCHAN SANGHAVI AT RS.3,18,000/- AND DEPRECIATION OF CAR AT RS.3,91,85 0/-. THE ASSESSEE EXPLAINED THAT THE CARS AGAINST WHICH DEPRECIATION, INTEREST AND REPAIR HAD BEEN CLAIMED WAS PURCHASED IN THE INDIVIDUAL NAME OF THE ASSESSEE SINCE SANCTION OF LOANS IN THE NAME OF A CONSTRUCTION FIRM WAS NOT MADE BY MANY BANKS. HOWEVER, THE CARS WERE BEING USED BY THE SAID PARTN ERSHIP CONCERN AND THE ITA NO.298/PUN/2015 YOGESH RAMESH SHENDE 3 ASSESSEE HAD ONE MORE CAR ON WHICH NO DEDUCTION WAS CLAIMED. THE ASSESSEE ALSO EXPLAINED THE UTILIZATION OF THE FUND S RECEIVED FROM THE TWO PERSONS AGAINST WHICH INTEREST INCOME WAS CLAIMED A S DEDUCTION. THE ASSESSING OFFICER OBSERVED THAT SINCE THE ASSESSEE HAS NOT MAINTAINED ANY LOG BOOK OF THE VEHICLE IT WAS DIFFICULT TO VERIFY THE EXACT USE OF THE VEHICLE FOR THE BUSINESS PURPOSE AND IN THE ABSENCE OF SAME THE EXP ENDITURE INCURRED ON CAR INCLUDING DEPRECIATION TOTALING RS.6,66,379/- WAS D ISALLOWED IN THE HANDS OF ASSESSEE. FURTHER THE EXPENDITURE CLAIMED ON INTER EST PAID TO VARIOUS PARTIES AGAINST THE INTEREST INCOME EARNED BY THE ASSESSEE WAS ALSO DISALLOWED IN THE HANDS OF ASSESSEE IN THE ABSENCE OF ANY NEXUS BETWE EN THE INCOME EARNED AND INVESTMENT IN THE BANK OR THE OTHER SOURCE, DIS ALLOWANCE OF RS.5,62,761/- WAS MADE ON ACCOUNT OF DEDUCTION CLAIMED UNDER SECT ION 57(III) OF THE ACT. FURTHER THE ASSESSING OFFICER ALSO NOTED THAT AGAIN ST THE EXEMPT INCOME OF RS.22,45,748/-, I.E. REMUNERATION/INTEREST FROM THE PARTNERSHIP FIRM, WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(2A) OF THE ACT, THE ASSESSEE HAD CLAIMED EXPENSES OF RS.9,84,379/-. THE ASSESSING OFFICER W AS OF THE VIEW THAT IN THE ABSENCE OF DETAILS FURNISHED THE SAID EXPENDITURE M ERITS TO BE DISALLOWED UNDER RULE 8D OF IT RULES RESULTING IN ADDITION OF RS.9,8 4,379/-. HOWEVER, NO SEPARATE DISALLOWANCE WAS MADE ON THIS ACCOUNT AS THE AMOUNT WAS DISALLOWED IN PARA 5 OF THE ASSESSMENT ORDER. FURTHER DISALLOWANCE WA S MADE ON ACCOUNT OF INTEREST PAID WHICH WAS CLAIMED AS BUSINESS EXPENDI TURE OF RS.3,18,000/-. 5. THE CIT(A) RESTRICTED THE DISALLOWANCE UNDER SEC TION 37(1) OF THE ACT ON ACCOUNT OF PERSONAL USE TO THE EXTENT OF 20% OF THE TOTAL EXPENDITURE, I.E. RS.1,33,275/-. IN RESPECT OF BALANCE OF EXPENDITUR E OF RS.5,33,103/-, I.E. OUT OF THE CAR EXPENSES THE CIT(A) HELD THAT THE SAME IS T O BE ATTRIBUTED EQUALLY TOWARDS EARNING OF REMUNERATION FROM PARTNERSHIP FI RM AND EARNING OF SHARE OF PROFIT, THEREFORE, HALF OF THE EXPENDITURE WAS RS.2 ,66,571/- WAS DISALLOWED UNDER SECTION 14A OF THE ACT. THE CIT(A) ALLOWED T HE CLAIM OF ASSESSEE IN ITA NO.298/PUN/2015 YOGESH RAMESH SHENDE 4 RESPECT OF INTEREST ON BORROWED FUNDS UTILIZED FOR INVESTMENT IN THE PARTNERSHIP FIRM. IN RESPECT OF THE DISALLOWANCE MADE ON INTER EST CLAIMED AS EXPENDITURE UNDER SECTION 57(III) OF THE ACT, THE CIT(A) UPHELD THE DISALLOWANCE IN THE ABSENCE OF ANY DIRECT AND PROXIMATE CONNECTION BETW EEN THE INVESTMENT MADE. 6. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF C IT(A). 7. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT WHERE THE ASSESSEE WAS MAINTAINING THREE CARS OUT O F WHICH IN RESPECT OF ONE CAR NO EXPENDITURE WAS CLAIMED AND THE BALANCE CARS WERE USED FOR THE PURPOSE OF BUSINESS OF THE FIRM, IN WHICH THE ASSES SEE WAS A PARTNER, THERE IS NO MERIT IN RESTRICTING THE DISALLOWANCE AT 20% FOR PERSONAL USE. 8. THERE IS NO MERIT IN THE PLEA OF THE ASSESSEE AS THE ELEMENT OF PERSONAL USE OUT OF THE CAR EXPENSES INCURRED CANNOT BE RULE D OUT, HOWEVER, THE SAID DISALLOWANCE IS RESTRICTED TO 10% OF THE TOTAL EXPE NDITURE UNDER SECTION 37(1) OF THE ACT. 9. NOW COMING TO THE DISALLOWANCE THAT IS MADE UNDE R SECTION 14A OF THE ACT ON ACCOUNT OF REMUNERATION RECEIVED FROM THE PA RTNERSHIP FIRM AND ALSO THE SHARE OF PROFIT RECEIVED FROM THE PARTNERSHIP FIRM, WHICH WAS EXEMPT IN THE HANDS OF ASSESSEE. THE ASSESSING OFFICER HAD DISAL LOWED THE TOTAL EXPENDITURE AT RS.9,84,379/- UNDER RULE 8D ON ACCOUNT OF CAR E XPENSES AND CAR DEPRECIATION, WHICH WAS RESTRICTED BY THE CIT(A). 10. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT IN VIEW OF THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF VISHNU ANANT MAHAJAN VS . ACIT REPORTED IN (2012) 16 ITR 621 NO DISALLOWANCE IS WARRANTED UNDER SECT ION 32 WHILE APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT. IN RESPECT O F THE INTEREST EXPENSES ITA NO.298/PUN/2015 YOGESH RAMESH SHENDE 5 RELATABLE TO THE CAR INSTALMENTS HE POINTED OUT THA T NO FURTHER DEDUCTION IS TO BE MADE UNDER SECTION 14A OF THE ACT. 11. ON THE PERUSAL OF THE RECORD AND THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF VISHNU ANANT M AHAJAN VS. ACIT (SUPRA) WHILE WORKING OUT DISALLOWANCE UNDER SECTION 14A OF THE ACT, NO DISALLOWANCE IS TO BE MADE ON ACCOUNT OF CAR DEPRECIATION CLAIMED A S DEDUCTION UNDER SECTION 32 OF THE ACT. HOWEVER, IN RESPECT OF THE INTEREST EXPENDITURE ON THE CAR LOANS RAISED BY THE ASSESSEE THERE IS NO MERIT IN THE CLA IM OF THE ASSESSEE. ACCORDINGLY, 50% OF THE BALANCE EXPENDITURE IS TO B E DISALLOWED IN THE HANDS OF ASSESSEE. IN THE PARAS HEREINABOVE, WE HAVE ALREAD Y RESTRICTED THE DISALLOWANCE TO 10% OUT OF THE TOTAL EXPENSES FOR P ERSONAL USE AND AFTER EXCLUDING THE SAME 50% IS TO BE DISALLOWED UNDER SE CTION 14A OF THE ACT. 12. THE LAST ISSUE RAISED BY WAY OF GROUND OF APPEA L NO.1 ITSELF IS THE DISALLOWANCE MADE ON ACCOUNT OF INTEREST PAID AGAIN ST THE INTEREST INCOME EARNED BY THE ASSESSEE ON FDRS AND OTHER DEPOSITS D URING THE YEAR UNDER CONSIDERATION. THE ASSESSEE AT PAGE 15 OF THE PAPE R BOOK FURNISHED THE DETAILS IN THIS REGARD. THE LD. AUTHORISED REPRESE NTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER HAD DISALLOW ED THE CLAIM OF THE ASSESSEE AS NO DIRECT NEXUS WAS ESTABLISHED. HOWEVER, THE L D. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO PAGES 9 TO 13 OF THE PAPER BOOK TO ESTABLISH THE LINK BETWEEN THE AMOUNTS BORROWED AND THE INVESTMENTS THEREOF. A PERUSAL OF THE SAID DETAILS REFLECT THE NEXUS BET WEEN THE AMOUNT BORROWED BY THE ASSESSEE AND THE AMOUNT BEING DEPOSITED IN VARI OUS CONCERNS. ADMITTEDLY THE ASSESSEE HAD MADE INVESTMENT IN FDRS WITH BANKS BUT THE SAME WERE NOT ENCASHED FOR SEVERAL REASONS WHILE THE ASSESSEE MAD E BORROWALS FROM DIFFERENT CONCERNS IN ORDER TO MAKE INVESTMENT WITH VARIOUS CONCERNS. IN THE TOTALITY OF THE PRESENT FACTS AND CIRCUMSTANCES WHE RE THE ASSESSEE HAD EARNED ITA NO.298/PUN/2015 YOGESH RAMESH SHENDE 6 INTEREST INCOME FROM BANK FDRS AT RS.2,95,750/- AND AGAINST DEPOSIT WITH OTHER CONCERNS AT RS.5,23,500/-, THE INTEREST EXPEN DITURE CLAIMED AT RS.5,62,761/- MERITS TO BE ALLOWED IN THE HANDS OF ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER IS SO DIRECTED. GROUND OF APPEAL NO.1 IS THUS PARTLY ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED ORDER PRONOUNCED ON THIS 20 TH DAY OF APRIL, 2017 SD/- (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 20 TH APRIL, 2017 SATISH $ %'( )( / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; ' () THE CIT(A)-12, PUNE; ' THE CIT- 12, PUNE; % ((), ), , - / DR SMC, ITAT, PUNE; 0 / GUARD FILE. % ( // TRUE COPY // BY ORDER, % ( // TRUE COPY // / ASSISTANT REGISTRAR, ) , / ITAT, PUNE