TRANS AIR SERVICES, MUMBAI V. ITO 20(3)(1), MUMBAI

ITA 3082/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71865 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 18-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 04-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M M PERUMAL
• Assessee Lawyers: N V SHETH
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 3082/M/12 ASSESSMENT YEAR: 2007 - 08 M/S. TRANS AIR SERVICES 12 , ADARSH INDL. ESTATE, SAHAR ROAD, CHAKALA, ANDHERI EAST, MUMBAI 400 099 PAN: AAAFT0693E VS. ITO 20(3)(1) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI N.V. SHETH REVENUE BY : SHRI M.M. PERUMAL DATE OF HEARING : 18. 11.13 DATE OF PRONOUNCEMENT : 29.11.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) DATED 20.03.12 RELEVANT TO ASSESSMENT YEAR 2007 - 08. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. 1. THE ASSESSING OFFICER ERRED IN DISALLOWING INTEREST OF RS.4,99,568/ - PAID TO PARTNERS WITHOUT TAKING INTO CONSIDERATION FACT OF THE CASE AND SUBMISSION MADE DURING THE ASSESSMENT PROCEEDING U/S 143(3). 2. THE ASSESSIN G OFFICER ERRED IN DISALLOWING CLEARING &FORWARDING EXPENSES OF RS.2,94,352/ - WITHOUT TAKING INTO CONSIDERATION FACT OF THE CASE AND SUBMISSION MADE DURING THE ASSESSMENT PROCEEDING U/S 143(3). 3. THE ASSESSING OFFICER ERRED IN DISALLOWING OFFICE EXPENSES OF RS.1,00,000/ - WITHOUT TAKING INTO CONSIDERATION FACT OF THE CASE AND SUBMISSION MADE DURING THE ASSESSMENT PROCEEDING U/S 143(3). 4. THE ASSESSING OFFICER ERRED IN DISALLOWING LOADING & UNLOADING EXPENSES OF RS.1,00,000/ - WITHOUT TAKING INTO CONSIDERATI ON FACT OF ITA NO .3082/M/12 M/S. TRANS AIR SERVICES 2 THE CASE AND SUBMISSION MADE DURING THE ASSESSMENT PROCEEDING U/S 143(3). 5. THE APPELLANT CRAVES TO LEAVE, ADD, ALTER, AMEND AND/OR DELETE ANY GROUNDS OF APPEAL DURING THE COURSE OF APPEAL. GROUND NO.1 : VIDE GROUND NO.1 THE ASSESSEE HAS AG ITATED THE CONFIRMATION OF DISALLOWANCE OF INTEREST OF RS.4,99,568/ - PAID TO PARTNERS. 3. DURING THE ASSESSMENT PROCEEDINGS THE A.O. DISALLOWED THE ABOVE SAID AMOUNT OF INTEREST PAID TO THE PARTNERS OBSERVING THAT THE SAME WAS NOT DEDUCTABLE AS THE SAME WAS NOT IN ACCORDANCE WITH TERMS AND CONDITIONS OF THE PARTNERSHIP DEED AS REQUIRED UNDER SECTION 40(B) OF THE INCOME TAX ACT. 4. THE LD. CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE OBSERVING AS UNDER: 2.3.6. SIMILARLY, REGARDING THE DISALLOWANCE OF INTEREST PAID TO PARTNERS ON THE CAPITAL INTRODUCED AS DISCUSSED IN THE ASSESSMENT ORDER AND PARTICULARLY, CONSIDERING TO THE ADMITTED FACTS THAT NO SUCH INTEREST IS CHARGED ON THE LOANS GIVEN TO THE SAME PARTNERS, AS DISCUSSED IN THE ASSESSMENT ORDER, I F IND THAT THE AO IS FULLY JUSTIFIED IN DISALLOWING THE ENTIRE INTEREST CLAIMED BY THE APPELLANT ON THIS ACCOUNT. THE AR HAS DULY ADMITTED THE GRANTING OF LOAN OF RS.91,27,000/ - AGAINST THE CAPITAL INTRODUCED OF RS.84,11,754/ - TO THE PARTNERS AS ON 31.03.20 07. THEREFORE, MERELY BECAUSE INTEREST IS PAID AS PER THE TERMS AND CONDITIONS OF THE PARTNERSHIP DEED, IT CANNOT BE HELD AS A GENUINE BUSINESS EXPENDITURE OF THE APPELLANT, PARTICULARLY, CONSIDERING TO THE FACT THAT THE ENTIRE CAPITAL INTRODUCED IS RETUR NED BACK TO THE CONCERNED PARTNERS BY THE APPELLANT. MOREOVER, THE LOAN GIVEN TO THE PARTNERS IS MORE THAT THE CAPITAL INTRODUCED, THEREFORE, IT SHOWS THAT THE ENTIRE CAPITAL INTRODUCED BY THE PARTNERS ARE RETURNED BACK AND THE CAPITAL CONTRIBUTED BY THE PARTNERS ARE NOT UTILIZED FOR THE BUSINESS PURPOSE OF THE APPELLANT DURING THE RELEVANT ACCOUNTING YEAR. THEREFORE, IN VIEW OF THE SAME, I FIND THAT THE CHARGING OF INTEREST ON THE CAPITAL RETURNED BACK IN THE SHAPE OF LOANS GIVEN TO THE PARTNERS IS NOT J USTIFIED. THEREFORE, ON ACCOUNT OF THIS ADMITTED FACTS BROUGHT ON RECORD, THE ENTIRE DISALLOWANCE MADE ON THIS ACCOUNT IS CONFIRMED. THIS GROUND RAISED BY THE APPELLANT IS THEREFORE, DISMISSED . ITA NO .3082/M/12 M/S. TRANS AIR SERVICES 3 5. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PART IES AND HAVE ALSO GONE THROUGH THE RECORDS. THE LD. A.R. BEFORE US HAS RELIED UPON AN ORDER OF THE SMC BENCH OF THE TRIBUNAL DATED 09.05.12 IN THE CASE OF M/S. MAYRA & KHATRI VS. ITO (ITA NO.7940/MUM/2011) WHEREIN SUCH INTEREST PAID TO THE PARTNERS HAS BEEN HELD TO BE DEDUCTABLE BY THE SMC BENCH OF THE TRIBUNAL. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS REPRODUCED AS UNDER: 3. I FIND THAT THE A.O. HAS INTERPRETED THE BALANCE SHEET OF THE ASSESSEE FIRM. IN THE OPINION OF THE A.O. THE AMOUN T SHOWED IN THE BALANCE SHEET TOWARDS TDS SHOULD HAVE BEEN PROPERLY APPROPRIATED AGAINST THE PARTNERS CAPITAL ACCOUNTS OR SAME SHOULD HAVE BEEN DEBITED TO THE P&L ACCOUNT. THE STATUS OF THE SAID LIABILITY IS NOT KNOWN. THE A.O. HAS NOT BROUGHT ON RECORD ANY OTHER FACTS EXCEPT INTERPRETING THE BALANCE SHEET OF THE ASSESSEE FIRM. NOWHERE IT IS DISPUTED BY THE A.O. THAT THE TERMS OF DEED OF PARTNERSHIP HAS AUTHORISED TO PAY AN INTEREST TO THE PARTNERS ON THEIR CAPITAL A/CS.. AS PER THE PROVISIONS OF SEC.40(B ) THE A.O. HAS TO SEE WHETHER THE PAYMENT OF THE INTEREST IS AUTHORISED BY THE DEED OF PARTNERSHIP OR NOT AND THE RATE OF INTEREST THEREOF. THE A.O. HAS NO AUTHORITY TO INTERPRET THE BALANCE SHEET OF THE ASSESSEE FIRM WHEN ADMITTEDLY THE STATUS OF THE OUTS TANDING LIABILITY IS NOT CLEAR. I FIND NO JUSTIFICATION TO SUSTAIN THE ADDITION MADE BY THE A.O. I, ACCORDINGLY, DELETE THE SAME. 6. IT MAY BE OBSERVED THAT THE SMC BENCH OF THE TRIBUNAL IN THE ABOVE NOTED CASE RELIED UPON BY THE LD. A.R. HAS HELD THAT IF, THE TERMS OF DEED OF PARTNERSHIP AUTHORIZE TO PAY AN INTEREST TO THE PARTNERS ON THEIR CAPITAL ACCOUNTS , THEN THE SAME IS ALLOWABLE DEDUCTION. 7. THE ASSESSEE IN THE CASE IN HAND HAS PLACED ON FILE A COPY OF THE SUPPLEMENTARY DEED OF PARTNERSHIP DATE D 01.04.1992 TO THE ORIGINAL PARTNERSHIP DEED DATED 11.01.1979 . C LAUSE (2)(I) OF THE SAID PARTNERSHIP DEED IS RELEVANT FOR CONSIDERATION WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED AS UNDER: NOTWITHSTANDING ANYTHING CONTAINED IN THE CLAUSE 6 OF T HE SAID PARTNERSHIP DEED DATED 11 TH JANUARY, 1979: I). EACH PARTNER SHALL BE GIVEN INTEREST AT THE RATE 18% SIMPLE INTEREST P.A. OR AT SUCH OTHER RATE AS MAY BE MUTUALLY AGREED UPON ITA NO .3082/M/12 M/S. TRANS AIR SERVICES 4 OR PRESCRIBED U/S. 40(B) OF THE INCOME TAX ACT, 1961, ON THE AMOUNT STAND ING TO HIS CREDIT IN THE BOOKS OF THE FIRM. IF THERE IS ANY DEBIT BALANCE IN THE ACCOUNT OF ANY PARTNER, INTEREST AT THE SAME RATE SHALL BE PAYABLE BY HIM. 8. A PERUSAL OF THE ABOVE CLAUSE REVEALS BEYOND DOUBT THAT AS PER THE TERMS AND CONDITIONS OF T HE DEED, THE PARTNERS ARE ALLOWED SIMPLE INTEREST @ 18% P.A. ON THE AMOUNT STANDING TO THEIR CREDIT IN THE BOOKS OF THE FIRM. IT HAS ALSO BEEN MENTIONED THAT IF THERE IS ANY DEBIT BALANCE IN THE ACCOUNT OF ANY PARTNER, INTEREST AT THE SAME RATE SHALL BE P AYABLE BY HIM. T HE AO IN THE CASE IN HAND HAD DISALLOWED THE INTEREST PAID TO THE PARTNERS OBSERVING THAT A LOAN OF RS.91,27,000/ - WAS GRANTED BY THE FIRM TO THE PARTNERS AGAINST THE CAPITAL INTRODUCED OF RS.84,11,754/ - WHICH MEANS THAT THE LOAN GIVEN TO THE PARTNERS WAS MUCH MORE THAN THE CAPITAL INTRODUCED BY THEM AND WHICH FURTHER SHOWED THAT THE ENTIRE CAPITAL INTRODUCED BY THE PARTNERS WAS RETURNED BACK AND THE SAME WAS NOT UTILIZED FOR THE PURPOSE OF BUSINESS. T HE INTEREST WAS NOT CHARGED ON THE LOAN AMOUNT GIVEN TO THE PARTNERS IN VIOLATION OF THE TERMS OF THE PARTNERSHIP DEED. AS PER THE REQUIREMENT OF SECTION 40(B) , THE INTEREST PAID ON THE CAPITAL OF THE PARTNERS IS ALLOWABLE DEDUCTION , IF THE SAME IS AS PER THE TERMS OF THE PARTNERSHIP DEED. HO WEVER, AS OBSERVED ABOVE, THE PARTNERS WERE ALSO LIABLE TO BE CHARGED INTEREST ON ANY SUM DEBITED TO THEIR ACCOUNT AT THE SAME RATE AT WHICH THEY ARE ALLOWED INTEREST ON THEIR CAPITAL INTRODUCED. IN THE CASE IN HAND THE INTEREST ON THE CAPITAL INTRODUCED HAS BEEN PAID TO THE PARTNERS BUT NO INTEREST HAS BEEN CHARGED ON THE LOANS GIVEN TO THE SAME PARTNERS. THE TERMS AND CONDITIONS OF A DEED CANNOT BE READ IN ISOLATION TO EACH OTHER. THE WHOLE DEED IS REQUIRED TO BE READ AS ONE DOCUMENT AND ITS VARIOUS CL AUSES IN HARMONY WITH EACH OTHER UNLESS SPECIFICALLY PROVIDED OTHERWISE. IN THE CASE IN HAND, THE ASSESSEE HAS BEEN RELYING UPON ONLY A PART OF THE CLAUSE AND NOT ONLY IGNORING BUT IN VIOLATION TO THE OTHER PART/CONTENTS OF THE SAME CLAUSE OF THE DEED IN Q UESTION, WHICH IN OUR VIEW, IS NOT PERMISSIBLE UNDER LAW. ITA NO .3082/M/12 M/S. TRANS AIR SERVICES 5 HENCE, IN OUR VIEW , THE AO HAS RIGHTLY DISALLOWED THE INTEREST PAID TO THE PARTNERS BEING NOT IN CONFORMITY WITH THE TERMS AND CONDITIONS OF THE PARTNERSHIP DEED. THE SMC BENCH CASE OF M/S. MAYRA & KHATRI (SUPRA) RELIED UPON BY THE ASSESSEE IS DISTINGUISHABLE ON ITS OWN FACTS . M OREOVER THE ORDER OF THE SMC BENCH OF THE TRIBUNAL HAS NO BINDING EFFECT ON THE DIVISION BENCH OF THE TRIBUNAL. THIS GROUND OF THE APPEAL OF THE ASSESSEE IS THEREFORE DIS MISSED. GROUND NO.2: 9. VIDE GROUND NO.2 THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF CLEARING AND FORWARDING EXPENDITURE OF RS.2 ,9 4,352/ - . DURING THE ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.27,61,560/ - TO THE PROFIT & LOSS ACCOUNT BEING CLEARING AND FORWARDING EXPENSES OUT OF WHICH A SUM OF RS.14,71,760/ - WERE SHOWN TO BE INCURRED IN CASH. SINCE T HE CASH EXPENSES WERE NOT SUPPORTED BY PROPER DOCUMENTAR Y EVIDENCES/BILLS AND VOUCHERS, HENCE THE AO DISALLOWED A S UM OF RS.2,94,352/ - OUT OF THE CASH EXPENSES OF RS.14,71,760/ - BEING 20% OF THE SAME , FOR WANT OF PROPER VERIFICATION . THE LD. CIT(A) ALSO DISALLOWED THE SAID EXPENDITURE OBSERVING THAT NEITHER SUCH EVIDENCE FOR VERIFICATION WAS FILED BY THE ASSESSEE BEFO RE THE AO NOR BEFORE HIM. 10. WE HAVE ALSO SPECIFICALLY ASKED THE LD. A.R. TO SHOW ANY EVIDENCE IN THE SHAPE OF BILLS AND VOUCHERS TO PROVE THE CASH EXPENDITURE SO CLAIMED BY THE ASSESSEE. HOWEVER, THE LD. A.R. COULD NOT BRING TO OUR NOTICE ANY SUCH EVIDENCES. THE ASSESSEE HAS NEITHER PRODUCED PROPER AND SUFFICIENT EVIDENCES TO PROVE HIS CLAIM BEFORE THE LOWER AUTHORITIES NOR HAS BROUGHT ANY SUCH EVIDENCES IN OUR NOTICE. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITIES WHIL E DISALLOWING THE SAID EXPENDITURE WHICH IS @ 20% OF THE TOTAL CASH EXPENDITURE CLAIMED BY THE ASSESSEE. THIS GROUND OF APPEAL IS ACCORDINGLY DISMISSED. ITA NO .3082/M/12 M/S. TRANS AIR SERVICES 6 GROUND NO.3: 11. VIDE GROUND NO.3 THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF OFFICE EXPENDITURE OF RS.1,00,000/ - . DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT A SUM OF RS.2,95,449/ - PAID TO THE PARTNERS WAS DEBITED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT UNDER THE HEAD OFFICE EXPEN SES . THE AO DISALLOWED THE SAME OBSERVING THAT THE CLA IM WAS NOT SUPPORTED WITH PROPER EVIDENCES. THE LD. CIT(A) ALSO FOUND THAT MOST OF THE EXPENSES WERE INCURRED IN CASH BY THE ASSESSEE AND WERE NOT PROPERLY SUPPORTED BY BILLS/VOUCHERS. HOWEVER, CONSIDERING OVERALL FACTS AND CIRCUMSTANCES HE RESTRICTED TH E DISALLOWANCE TO RS.1,00,000/ - ON ADHOC BASIS. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THIS ISSUE. 12. THE LD. A.R. BEFORE US HAS SUBMITTED THAT THE EXPENDITURE CLAIMED UNDER THIS HEAD WAS MAINLY ON ACCOUNT OF REIMBURSEMENT OF THE EXPENSES P ERTAINING TO THE APPELLANT FIRM INCURRED BY THE RESPECTIVE PARTNERS. HE HAS FURTHER SUBMITTED THAT THE ADHOC DISALLOWANCE OF RS.1,00,000/ - WAS ON THE HIGHER SIDE. IN OUR VIEW THE DISALLOWANCE OF RS.1,00,000/ - OUT OF THE TOTAL CLAIMED EXPENDITURE OF RS.2, 95,449/ - ON ADHOC BASIS SEEMS TO BE ON HIGHER SIDE. KEEPING IN VIEW THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE , THE DISALLOWANCE UNDER THIS HEAD IS RESTRICTED TO RS.50,000/ - ONLY. THIS ISSUE IS ACCORDINGLY PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. GROUND NO.4: 13. VIDE GROUND NO.4 THE ASSESSEE HAS AGITATED THE DISALLOWANCE OF RS.1,00,000/ - RELATING TO LOADING AND UNLOADING EXPENSES. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED IN ITS RETURN A SUM OF RS. 3,13,329/ - ON ACCOUNT OF LOADING AND UNLOADING EXPENSES. THE AO DISALLOWED A SUM OF RS.2,56,588/ - OUT OF THE SAID EXPENDITURE BEING NOT SUPPORTED WITH PROPER EVIDENCES LIKE BILLS AND VOUCHERS ETC. THE LD. ITA NO .3082/M/12 M/S. TRANS AIR SERVICES 7 CIT(A), HOWEVER, RESTRICTED THE SAID DISALLOWANCE TO RS.1, 00,000/ - AS AGAINST THE DISALLOWANCE OF RS.2,56,588/ - MADE BY THE AO. 14. T HE LD. A.R. , BEFORE US, HAS SUBMITTED THAT THE ADHOC DISALLOWANCE OF RS.1,00,000/ - WAS ON THE HIGHER SIDE. IN OUR VIEW THE DISALLOWANCE OF RS.1,00,000/ - OUT OF THE TOTAL CLAIMED EXPENDITURE OF RS. 3 , 13 , 32 9/ - ON ADHOC BASIS SEEMS TO BE ON HIGHER SIDE. KEEPING IN VIEW THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE , THE DISALLOWANCE UNDER THIS HEAD IS RESTRICTED TO RS.50,000/ - ONLY. THIS ISSUE IS ACCORDINGLY PARTLY ALLOWED IN FAVO UR OF THE ASSESSEE. 1 5 . GROUND NO.5 IS GENERAL IN NATURE AND DOES NOT NEED ANY FINDING. 1 6 . IN THE RESULT APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.11. 2013. SD/ - SD/ - ( D. KARUNAKARA RAO ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 29.11. 2013. * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED , MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.