SARANG R. WADHAWAN, MUMBAI V. ACIT, CC-5(4), MUMBAI

ITA 2990/MUM/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3762 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 25-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D G PANSARI
• Keywords: Business income; Business expenditure; Salary income; Opportunity of being heard; Capital expenditure
• Section: 37; 234B; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM ITA NO. 2990 /MUM/ 2016 (ASSESSMENT YEAR: 2011 - 12 ) SHRI SARANG R. WADHAWAN WADHAWAN HOUSE, UNION PARK ROAD, 5, SHATRANJ HOTEL, BANDRA (W), MUMBAI - 400 050 VS. ASST. CIT, CENTRAL CIRCLE 5(4), MUMBAI PAN/GIR NO. AAAPW 2530 R ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI RAHUL HAKANI RESPONDENT BY : SHRI D. G. PANSARI DATE OF HEARING : 07.02.2019 DATE OF PRONOUNCEMENT : 18.02 .2019 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 53 (LD.CIT(A) FOR SHORT) DATED 31.12.2015 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2011 - 12. 2. THE GROUNDS OF APPEAL READ AS UNDER: GROUNDS OF APPEAL AGAINST THE ORDER DATED 31.12.2015 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 53, MUMBAI. FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER; 1) THE LEARNED CIT (A) HAS ERRED IN LAW & ON FACTS IN UPHOLDING DISALLOWANCES MADE OF DEDUCTION OF EXPENSES OF RS.48,43,622/ - CLAIMED U/S 57(III) UNDER THE HEAD 'INCOME FROM OTHER SOURCES' IN THE ORDER OF INCOME TAX PASSED BY THE ASSESSING OFFICER U/S. 143 (3) OF THE IN COME TAX ACT, 1961 WHICH IS BAD IN LAW. 2) THE LEARNED CIT (A) ERRED HAS ERRED IN LAW & ON FACTS IN UPHOLDING IMPOSITION/ RE - COMPUTATION OF INTEREST UNDER SECTION 234B AND 234D OF THE ACT IN THE ORDER OF INCOME TAX PASSED BY THE ASSESSING OFFICER U/S. 143 (3) OF THE INCOME TAX ACT, 1961 WHICH IS BAD IN LAW. 3) THE APPELLANT CRAVES LEAVE TO ADD TO AND/ OR AMEND AND/ OR DELETE AND/ OR MODIFY AND/ OR ALTER THE AFORESAID GROUNDS OF APPEAL AS AND WHEN THE OCCASION DEMANDS. 2 ITA NO. 2990/MUM/2016 4) ALL THE AFORESAID GROUNDS OF APPEAL ARE INDEPENDENT, IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO ONE ANOTHER. 3. THE ASSESSEE HAS ALSO FILED THE ADDITIONAL GROUND OF APPEAL BEFORE US WHICH READS AS UNDER: 1. THE LEARNED CIT(A) AND ASSESSING OFFICER FAILED TO APPRECIATE THAT INTEREST ON CAR LOAN OF RS.27,06,661/ - , PROFESSIONAL FEES OF RS.6,31,160/ - , SECURITY CHARGES OF RS.5,17,850/ - AND TRAVELLING EXPENSES OF RS.9,87,951/ - ARE ALTERNATIVELY ALLOWABLE U/S. 37 AS SAID EXPENSES ARE NOT PERSONAL IN NATURE AND ARE INCURRED WHOLLY AND EXCLUS IVELY FOR BUSINESS AND HENCE, THE ADDITION OF RS.48,93,622/ - MAY BE DELETED. 4. IN THIS CASE, THE ASSESSING OFFICER (A.O. FOR SHORT) OBSERVED THAT THE ASSESSEE IS MD OF M/S. HDIL AND HAVING SALARY INCOME AND SHARE TRADING FOR THE YEAR UNDER CONSIDERATION. 5. THE A.O. OBSERVED THAT F ROM THE PERUSAL OF THE RETURN OF INCOME FILED FOR A.Y. 2011 - 12, IT IS SEEN THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 57 OF THE ACT TO THE TUNE OF RS.49, 1 4,806/ - . THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF DEDUCTION U/S . 57 OF THE ACT VIDE ITS ORDER SHEET DATED 14.03.2014. IN RESPONSE TO THE SAME, THE ASSESSEE FILED ITS DETAILED REPLY DATED 18.03.2014. THE A.O. FURTHER OBSERVED THAT O N VERIFICATION OF THE STATEMENT OF TOTAL INCOME AND AFTER DUE CONSIDERATION OF THE MATERI AL AVAILABLE ON RECORD AND SUBMISSIONS OF THE ASSESSEE SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WA S SEEN THAT THE ASSESSEE HAS OFFERED DIVIDEND I NCOME OF RS .13,000/ - , BANK INTEREST OF RS.27,697/ - AND DIRECTOR SITTING FEES OF RS.10,000/ - T OTALING TO RS.50,697/ - . AGAINST THE SAID INCOME, THE ASSESSEE HAS CLAIMED BANK CHARGES OF RS. 71,184/ - INTEREST ON CAR LOAN OF RS. 27,06 ,661/ - , PROFESSIONAL FEES OF RS. 6,31,160/ - , SECURITY CHARGES O F RS. 5,17,850/ - AND TRAVELLING EXPENSES OF RS. 9,87,951/ - TOTALING TO RS . 49,14,806 / - AND SHOWN NET LOSS FROM OTHER S OURCES TO THE TUNE OF RS.48,64,109/ - . 3 ITA NO. 2990/MUM/2016 ACCORDING TO THE A.O. A S PER SECTION 57(III), WHICH READS AS UNDER: 57(III) ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME. 6. THE A.O. OBSERVED F URTHER THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS BETWEEN THE INCOME OFFERED AND THE EXPENSES CLAIMED VIZ., INTEREST ON CA R LOAN OF RS . 27,06 ,661/ - PROFESSIONAL FEES OF RS. 6,3 1,160/ - , SECURITY CHARGES OF RS. 5,17,850/ - AND TRAVELLIN G EXPENSES OF RS.9,87,951/ - . THAT THE SE EXPENSES ARE ALSO NOT ALLOWED TO THE ASSESSEE AS THESE EXPENSES ARE NOT INCURRED FOR EARNING INCOME FROM THE HEAD 'INCOM E FROM OTHER SOURCES'. THAT O NLY THE BANK CHARGES OF RS. 71,184/ - ARE ALLOWED AGAINST THE INTEREST INCOME OFFERED. TH AT TH EREFORE, EXCEPT THE BANK CHARGES THE EXPENSES DEBITED VIZ., INTEREST ON CAR LOAN, PROFESSIONAL FEES, AND SECURITY CHARGES AND TRAVELLI NG EXPENSES ARE DISALLOWED AND COMPUTED ACCORDINGLY. 7. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LD. CIT(A). 8. THE LD. CIT(A) NOTED THE SUBMISSIONS OF THE ASSESSEE AS UNDER: 5.2 DURING THE COURSE OF APPELLATE PROCEEDINGS, IT IS SUBMITTED THAT THE APPELLANT IS VICE - CHAIRMAN AND MANAGING DIRECTOR HDIL WHICH IS ENGAGED IN BUSINESS OF BUILDERS AND DEVELOPERS. IT IS CLAIMED THAT IN ORDER TO CONDUCT THE BUSINESS OF HDIL, IT IS VERY MUCH NECESSARY FOR THE APPELLANT TO REGULARLY VISIT VARIOUS GOVERNMENT OFFICES FOR THE PURPOSE OF OBTAINING APPROVALS AND SANCTIONS FOR WHICH CAR IS BEING USED WHICH IS TAKEN ON LOAN ON WHICH INTEREST IS BEING PAID, TRAVELLING EXPENSES INCURRED AND ALSO SI NCE THE NATURE OF BUSINESS OF HDIL IS OF BUILDERS AND DEVELOPERS, HE IS ALSO COMPELLED TO KEEP SECURITY GUARDS FOR WHICH PAYMENTS ARE MADE. IT IS STATED THAT THE PROVISION OF SECTION 57(III) NOWHERE MENTIONS THAT EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF MAKING OR EARNING THE INCOME SHOULD BE LESS THAN OR EQUAL TO INCOME EARNED. IT IS CONTENDED THAT IN THE CASE OF APPELLANT, EXPENDITURE INCURRED OF RS.48,43,622/ - SHOULD NOT BE LOOKED FROM THE ANGLE OF INCOME RECEIVED OF RS.50,697/ - AS DIRE CT NEXUS WAS ESTABLISHED BETWEEN EXPENDITURE INCURRED AND INCOME RECEIVED. IT IS CLAIMED THAT THE ABOVE MENTIONED EXPENSES VIZ. INTEREST ON CAR LOAN, TRAVELLING EXPENSES, PROFESSIONAL FEE AND SECURITY CHARGES ARE DIRECTLY ATTRIBUTABLE TO DIRECTORS' SITTING FEES RECEIVED BY THE APPELLANT AND ACCORDINGLY SHOULD BE ALLOWED UNDER THE PROVISION OF SECTION 57(III) OF THE ACT. IT IS SUBMITTED THAT THE ABOVE 4 ITA NO. 2990/MUM/2016 EXPENDITURE IS NEITHER IN THE NATURE OF CAPITAL EXPENDITURE NOR IN THE NATURE OF PERSONAL EXPENDITURE OF THE APPELLANT. BASED ON THE ABOVE FACTUAL AND LEGAL SUBMISSIONS, IT IS CONCLUDED THAT ALL THE CONDITIONS MENTIONED IN SECTION 57(III) OF THE ACT ARE SATISFIED AND DISALLOWANCE OF RS.48,43,622/ - MADE U/S 57(III)MAYBE DIRECTED TO BE DELETED 9. THE LD. CIT(A) W AS NOT CONVINCED. HE PLACED RELIANCE UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SMT. VIRMATI RAMKRISHNA VS. CIT 131 ITR 659 (GUJ.) . HE CONCLUDED AS UNDER: 5.3.2 ON APPLICATION OF AFORESAID LEGAL PROPOSITIONS TO THE FACTS OF THE P RESENT CASE, THE INESCAPABLE CONCLUSION IS THAT NONE OF THE AFORESAID EXPENSES INCLUDING INTEREST ON CAR LOAN, PROFESSIONAL FEES, SECURITY CHARGES AND TRAVELLING EXPENSES WERE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING DIVIDEND IN COME/ BANK INTEREST/ DIRECTOR'S SITTING FEES. IT WAS NOT THE MANIFEST AND IMMEDIATE PURPOSE OF AFORESAID EXPENSES TO EARN DIVIDEND INCOME OR BANK INTEREST OR DIRECTOR'S SITTING FEES. THE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND INCOME EARNED BY THE APPELLANT IS TOO REMOTE, FANCIFUL AND FAR - FETCHED VIZ. INCURRING INTEREST ON LOAN FOR CAR TO BE USED FOR REGULARLY VISITING VARIOUS GOVERNMENT OFFICES FOR THE PURPOSE OF OBTAINING APPROVALS AND SANCTIONS FOR CONDUCTING THE BUSINESS OF HDIL AND EARNING SITT ING FEES AS MD OF HDIL. THE APPELLANT HAS NOT DEMONSTRATED THAT HE HAD NO OPTION EXCEPT TO INCUR THE AFORESAID EXPENSES LIKE TRAVELLING EXPENSES AND SECURITY CHARGES ETC. IN ORDER TO MAKE POSSIBLE THE EARNING OF THE INCOME BY WAY OF DIVIDEND/ BANK INTEREST / SITTING FEES. AS A MATTER OF FACT, THE APPELLANT HIMSELF ADMITS THAT THE USER OF THE CAR ON WHICH INTEREST IS PAID, TRAVELLING EXPENSES AND SECURITY CHARGES WERE INCURRED 'IN ORDER TO CONDUCT THE BUSINESS OF HDIL' RATHER THAN TO EARN DIVIDEND INCOME OR B ANK INTEREST ETC. THERE IS NOTHING TO SHOW THAT THESE EXPENSES WERE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SITTING FEES AS DIRECTOR/MD OF HDIL. AS REGARDS APPELLANT'S CLAIM FOR DEDUCTION OF PROFESSIONAL FEES, IT WOULD NOT BE OUT OF PLACE TO REFER AGAIN TO THE CASE OF SZNF. VIRMATI RAMAKRISHNA CITED ABOVE WHEREIN IDENTICAL QUESTION OF DEDUCIBILITY OF EXPENDITURE ON PAYMENT OF FEES OF DIFFERENT TAX PRACTITIONERS FROM DIVIDEND INCOME U/S.57(III) OF THE ACT WAS DECIDED AS UNDER: - '17. ...................THE QUESTION WHICH WE MUST, THEREFORE, EXAMINE IS WHETHER SUCH EXPENDITURE WAS INCURRED SOLELY IN ORDER TO MAKE OR EARN THE DIVIDEND INCOME. IT IS NOT IN DISPUTE THAT THE SOURCE OF SUCH INCOME, THAT IS, THE SHARES AND SECURITIES, WAS NOT IN DIRECT JEOPARDY AND THAT THE EXPENDITURE WAS NOT INCURRED FOR THE IMMEDIATE PURPOSE OF PRESERVING OR PROTECTING SUCH SOURCE. IT IS ALSO APPARENT THAT THIS IS NOT A CASE WHERE THE ASSESSES HAS NO OPTION BUT TO INCUR THIS EXPENDITURE IN ORDER TO EARN DIVIDEND. IN OTHER WORDS, IT WAS NOT OBLIGATORY TO ENGAGE THE SERVICES O F THE TAX CONSULTANTS IN ORDER TO EARN SUCH INCOME. THE EXPENDITURE WAS NOT LAID OUT EVEN IN ORDER TO DISCHARGE THE ASSESSEE'S DUTIES AND OBLIGATIONS, STATUTORY OR OTHERWISE, AS A SHAREHOLDER. IN FACT, THE EXPENDITURE WAS NOT AT ALL INCURRED FOR THE IMMINE NT PURPOSE OF MAKING OR EARNING THE DIVIDEND INCOME OR FOR AUGMENTING THE SAME. IT WAS INCURRED PRIMARILY AND IMMEDIATELY FOR THE PURPOSE OF PROPER COMPUTATION OF THE TAX LIABILITY OF THE ASSESSEE UNDER THE IT ACT, WT ACT AND GT ACT. THE LIABILITY TO PAY T AX UNDER THOSE VARIOUS STATUTES IS UNDOUBTEDLY THE PERSONAL LIABILITY OF THE ASSESSEE AND ANY EXPENDITURE INCURRED 5 ITA NO. 2990/MUM/2016 FOR THE PROPER COMPUTATION OF SUCH LIABILITY WOULD BE CLEARLY FOR THE PRIVATE PURPOSE OF THE ASSESSEE. IT WOULD BE IN THE NATURE OF PERSONAL EXPENSE OF THE ASSESSEE WHICH BY THE STATUTORY INJUNCTION CONTAINED IN S. 58(L)(A)(I) IS CLEARLY OUTSIDE THE PALE OF S. 57(III)....... IT IS MORE A CASE OF APPLICATION OF INCOME AFTER IT IS EARNED THAN OF INCURRING EXPENDITURE FOR THE APPLICATION OF MAKING OR EARNING THE INCOME'. IN VIEW OF THE ABOVE DISCUSSION, I DO NOT FIND ANY ERROR OR INFIRMITY IN THE ACTION OF THE A.O. IN HOLDING THAT THE APPELLANT HAD FAILED TO ESTABLISH THE NEXUS BETWEEN THE EXPENSES INCURRED AND THE INCOME EARNED AND CONSEQUENTLY DI SALLOWING THE APPELLANT'S CLAIM FOR DEDUCTION OF AFORESAID EXPENSES AGGREGATING TO RS.48,43,622/ - U/S.57(III) UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE DISALLOWANCE MADE BY' THE A.O. IS, THEREFORE, SUSTAINED. GROUND NO.2 OF THE PRESENT APPEAL IS ACCO RDINGLY . 10. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS INCURRED THE IMPUGNED EXPENSES FOR EARNING THE DIRECTO R SITTING FEES. IN THE ALTERNATIVE THE LD. COUNSEL OF THE ASSESSEE PLEADED THAT THESE EXPENSES MAY ALSO BE CONSIDERED U/S. 37(1). FOR THIS PURPOSE, HE AGREED THAT THE ISSUE MAY BE REMITTED TO THE FILE OF THE A.O. TO EXAMINE THE SAME. 12. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (LD. DR FOR SHORT) RELIED UPON T H E ORDER OF THE AUTHORITIES BELOW. THE LD. DR SUBMITTED THAT TH E ALTERNATIVE GROUND IS AN ADDITIONAL GROUND WHICH IS A FACTUAL ISSUE AND THERE IS NO REASON WHY THE SAME WAS RAI SED BEFORE THE AUTHORITIES BELOW. 13. UPON CAREFUL CONSIDERATION, WE FIND THAT THE ASSESSEE HAS CLAIMED THE VARIOUS EXPENSES OF PROFESSIONAL FEES, SECURITY CHARGES, TRAVELLING EXPENSES, ETC. A GAINST THE MEAGRE DIRECTOR SITTING FEES OF RS.10,000/ - , THE AS SESSEES CLAIM IS THAT TO EARN THE SAID FEE, HE HAD TO DO LIASONING WITH VARIOUS GOVERNMENT AUTHORITIES, AND THE EXPENSES HAVE BEEN INCURRED GENUINELY. WE FIND THAT THIS PLEA IS NOT AT ALL ACCEPTABLE. BY NO 6 ITA NO. 2990/MUM/2016 STRETCH OF IMAGINATION, IT CAN BE ACCEPTED THAT T HE ASSESSEE HAS INCURRED THESE EXPENDITURE FOR EARNING THE DIRECTOR SITTING FEES. THE AUTHORITIES BELOW ARE QUITE CORRECT IN ARRIVING AT A CONCLUSION THAT THERE IS NO NEXUS BETWEEN THIS EXPENDITURE INCURRED AND THE MEAGRE INCOME SHOWN FROM OTHER SOURCES. HO WEVER, WE FIND THAT THE ALTERNATIVE SUBMISSIONS OF THE ASSESSEE DESERVE CONSIDERATION AS THE ASSESSEE HAS EARNED REMUNERATION WHICH IS ASSESSABLE AS BUSINESS INCOME. THESE EXPENSES CAN BE CONSIDERED U/S. 37(1) AS BUSINESS EXPENSES AFTER FACTUAL EXAMINATION OF THE NEXUS WITH EARNING THE BUSINESS INCOME . IN THIS REGARD, THE LD. COUNSEL OF THE ASSESSEE HAS AGREED THAT THE MATTER MAY BE REMITTED TO THE FILE OF THE A.O. TO EXAMINE THIS ASPECT. WE, ACCORDINGLY, ACC ED E TO THIS REQUEST. THE LD. DR'S OBJECTION TO T HE ALTERNATIVE REQUEST BEING ADDITIONAL GROUND NOT RAISED EARLIER CANNOT BE ENTERTAINED. AS IT WAS EXPOUNDED BY THE HON'BLE APEX COURT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT [2006] 284 ITR 323 (SC) THAT T HE ITAT HAS POWERS TO ADMIT THE GROUNDS RAISED OTHERWISE THAN BY FILING THE ORIGINAL RETURN. ACCORDINGLY, THE ALTERNATIVE ISSUE RAISED STAND REMITTED TO THE A.O. NEEDLESS TO ADD, THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 14. IN THE RESULT, THIS APPEAL BY THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 8 . 0 2 . 2 0 1 9 S D / - S D / - ( AMARJIT SINGH ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 1 8 . 0 2 . 2 0 1 9 ROSHANI , SR. PS 7 ITA NO. 2990/MUM/2016 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI