AMIIT TANDON, MUMBAI V. ACIT 24(1), MUMBAI

ITA 3231/MUM/2012

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 6012 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M R
• Assessee Lawyers: R C JAIN
• Keywords: Depreciation; Opportunity of being heard; Capital expenditure; Set aside
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI JOGINDER SINGH ( V ICE PRESIDENT ) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3231/MUM/2012 ASSESSMENT YEAR: 2008 - 09 MR. AMIT TANDON D - 1403/1404, ROYAL CLASSIC, NEW LINK RD. ANDHERI (W), MUMBAI - 400053. VS. ACIT 24(1), C - 13, ROOM NO. 503, 5 TH F LOOR, PRATYAKSH K AR BHAVAN BANDRA (E), MUMBAI - 400051. PAN NO. ABZPT3948C APPELLANT RESPONDENT ASSESSEE BY : MR. R.C. JAIN, AR REVENUE BY : MR. PANKAJ KUMAR , DR DATE OF HEARING : 31 /1 2 /2018 DATE OF PRONOUNCEMENT : 31/12/2018 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2008 - 09 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 34 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE 1 ST GROUND RAISED IN THIS APPEAL IS AGAINST THE DISA LLOWANCE OF RS.85,000/ - MADE BY THE AO WHICH WAS LATER ON CONFIRMED BY THE LD. CIT(A). THE ASSESSING OFFICER (AO) NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT AS PER SR. NO. 17(D)(I) OF FORM NO. 3CD, MR. AMIT TANDON ITA NO. 3231/MUM/2012 2 THE ASSESSEE HAS PAID RS.1,18,024/ - AS ENT RANCE FEES AND SUBSCRIPTION OF THE CLUB. THE AO ON VERIFICATION OF THE DETAILS FOUND THAT THE ASSESSEE HAD PURCHASED MEMBERSHIP OF COUNTRY CLUB FOR RS.85,000/ - AND THE REMAINING AMOUNT WAS INCURRED FOR HOSPITALITY OF THE CLIENTS IN THAT CLUB. IN RESPONSE T O A QUERY RAISED BY THE AO, THE ASSESSEE SUBMITTED THAT THE CLUB DID NOT FULFIL ANY OF ITS PROMISES AND THE ASSESSEE COULD NOT USE ITS FACILITIES PROPERLY AND DID NOT RECEIVE THE PROMISED PLOT OF LAND BY THE CLUB. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE AND MADE AN ADDITION OF RS.85,000/ - TREATING IT AS CAPITAL EXPENDITURE. 2.1 IN APPEAL, THE LD. CIT(A) VIDE ORDER DATED 28.03.2012 CONFIRMED THE ORDER OF THE AO WITH THE FOLLOWING OBSERVATIONS: 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSION MADE BY THE APPELLANT AND THE IMPUGNED ASSESSMENT ORDER ON THIS ISSUE. THE SUBMISSION OF THE APPELLANT THAT THE MEMBERSHIP FEES WAS PAID PRIMARILY TO ENTERTAIN HIS CUSTOMERS DOES NOT APPEAR TO BE CORRECT. THE APPE LLANT WAS MOSTLY INTERESTED IN THE PLOT OF LAND SUPPOSED TO HAVE BEEN ALLOTTED BY THE CLUB. HOWEVER, THERE IS NO EVIDENCE TO SHOW THAT THE MEMBERSHIP FE ES WAS PAID TO ENTERTAIN THE CUSTOMER AND ALSO THE APPELLANT WILL GET A PLOT OF LAND ALLOTTED. NO EVIDEN CE IN RESPECT OF THIS CLAIM WAS PRODUCED BEFORE ME. IN THE ABSENCE OF A SPECIFIC EVIDENCE, I AM INCLINED TO AGREE WITH THE CONTENTION OF THE APPELLANT. IN FACT, IT WAS THE CONTENTION OF THE APPELLANT THAT THE ASSESSEE WAS ADVISED TO WRITE OFF THE ENTIRE SU M. SUCH A WRITE OFF DID NOT TAKE PLACE DURING THE YEAR. AS POINTED OUT BY THE ASSESSING OFFICER, THE EXPENDITURE IS OF CAPITAL IN NATURE AND HENCE THIS CANNOT BE ALLOWED EVEN U/S 37 OF THE IT ACT. THE ADDITION OF THE ASSESSING OFFICER IS CONFIRMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 2.2 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE APPELLANT WITH A VIEW TO ENTERTAIN HIS CUSTOMERS, TOOK A MEMBERSHIP OF MR. AMIT TANDON ITA NO. 3231/MUM/2012 3 THE COUNTRY CLUB FOR WHICH HE PAID RS.85,000/ - . HOWEVER, THE SAID CLUB DI D NOT FULFIL ANY OF ITS PROMISES. IT IS STATED BY HIM THAT THE SAID CLUB HAS A LONG HISTORY OF MISREPRESENTATION AND FALSE PROMISES AND UPON NOT RECEIVING ANY BENEFIT, ENDURING OR OTHERWISE, THE ASSESSEE WAS ADVISED TO WRITE OFF THE ENTIRE SUM OF RS.85,000 / - AS EXPENSES. SINCE THE SAME WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS, THE SAME BE ALLOWED U/S 37 OF THE ACT. IN THIS REGARD, THE LD. COUNSEL FILES A COPY OF THE DECISION IN THE CASE OF CIT V. ENGINEERS INDIA LTD . (1999) 239 ITR 237 (DEL), CIT V. SAMTEL COLOR LT D. (2009) 180 TAXMAN 82 (DEL), CIT V. ANJANI KUMAR CO. LTD. (2002) 124 TAXMAN 429 (RAJ) AND CIT V. M/S IDEA CELLULAR LTD. (ITA NO. 516 OF 2015) OF BOMBAY HIGH COURT. 2.3 ON THE OTHER HAND, THE LD. DR SUBMITS THAT THE ASSESSEE FAILED TO FILE ANY EVIDENCE BEFORE THE LD. CIT(A) TO SHOW THAT THE MEMBERSHIP FEES WAS PAID TO ENTERTAIN THE CUSTOMER AND ALSO THAT THE ASSESSEE WOULD GET A PLOT OF LAND ALLOTTED. IN VIEW OF THE ABOVE FACTS, THE LD. DR SUPPORTS THE ORDER PASSE D BY THE LD. CIT(A). 3. THE 2 ND GROUND IN THE APPEAL IS AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE OF RS.1,81,750/ - MADE BY THE AO AS PRE - OPERATIVE EXPENSES. THE ASSESSEE HAS CLAIMED RS.1,81,740/ - TOWARDS PRE - OPERATIVE EXPENSES. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE SUBMITTED BEFORE THE AO THAT THESE EXPENSES ARE RELATING TO THE INTEREST PAID ON LOAN FROM UNITED WESTERN BANK LTD. THE CONCERN TANDON INFOTECH HAD GIVEN ADVANCE FO R BUYING IMPORTED EQUIPMENTS AND OBTAINED LOAN. AS THE CONSIGNMENT WAS DELAYED, THE INTEREST WAS CONSIDERED AS PRE - OPERATIVE EXPENSES MR. AMIT TANDON ITA NO. 3231/MUM/2012 4 AND HAVE BEEN AMORTIZED AS PER THE PROVISIONS OF SECTION 35D OF THE I.T. ACT. HOWEVER, THE AO WAS NOT CONVINCED WITH TH E ABOVE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT SECTION 35D IS VERY SPECIFIC WITH REGARD TO EXPENSES THAT CAN BE TREATED AS PRELIMINARY EXPENSES. INTEREST ON LOAN IS NOT PROVIDED FOR IN THE AFORESAID PROVISIONS. THEREFORE, THE AO MADE AN ADDITION OF RS.1,81,740/ - TO THE TOTAL INCOME SHOWN BY THE ASSESSEE. 3.1 IN APPEAL, THE LD. CIT(A) HELD THAT: CLAUSE (A) (B) AND (C) DESCRIBE THE NATURE OF EXPENDITURE TO BE AMORTIZED. IN THE APPELLANT S CASE, ONLY INTEREST ON LOAN TAKEN FROM UNITED WESTERN BANK LTD. IS BEING CLAIMED AS PRELIMINARY EXPENDITURE. STRICTLY GOING BY PROVISIONS OF SECTION 35D THE APPELLANT CANNOT AMORTISE THE INTEREST EXPENDITURE. FURTHER, THE CONTENTION OF THE APPELLANT THAT IF THE INTEREST EXPENDITURE IS CAPITALIZED AND DEPRECIATION IS CLAIMED ON THE MACHINERY, THEN THE AMOUNT OF DEDUCTION WOULD BE MUCH GREATER THAN THE DEDUCTION U/S 35D CANNOT BE A REASON FOR ALLOWANCE U/S 35D. FURTHER, SUCH OTHER EXPENDITURE MENTIONED IN CLAUSE (D) DOES NOT INCLUDE INTEREST EXPENDITURE ON THE BORROW ED LOANS. IN VIEW OF THIS, THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ABOVE DISALLOWANCE IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 3.2 BEFORE US, THE LD. COUNSEL SUBMITS THAT THE APPELLANT THROUGH HIS PROPRIETARY CONCERN M/S TANDON VIDEOTECH H AD OBTAINED TERM LOAN FOR IMPORTING EQUIPMENTS FOR CARRYING ON HIS BUSINESS. THE SAID TERM LOAN WAS PARTLY DISBURSED ON 28.03.2001 AND PARTLY ON 18.04.2001. HOWEVER, THE CONSIGNMENT WAS DELAYED AND MACHINERY WAS BOUGHT ON OCTOBER 2001. AS A RESULT OF THIS, THE ASSESSEE TRANSFERRED THE INTEREST PAID ON THE BORROWED FUNDS TILL THE DATE OF PURCHASE OF ITS ASSETS TO MR. AMIT TANDON ITA NO. 3231/MUM/2012 5 PRE - OPERATIVE EXPENSES ACCOUNT AND CLAIMED 20% OF IT IN EACH COMING YEAR. IT IS STATED BY HIM THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE ALTERNATE CLAIM OF THE ASSESSEE UNDER THE OTHER RELEVANT PROVISIONS OF THE ACT . 3.3. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 4. THE 3 RD GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE AD - HOC DISALLOWANCE OF RS.50,000 / - MADE BY THE AO. IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS CLAIMED MISCELLANEOUS EXPENSES OF RS.9,25,752/ - . ON VERIFICATION OF IT, THE AO FOUND THAT SOME OF THESE EXPENSES DO CONTAIN AN ELEMENT OF PERSONAL EXPENSES. AS PER THE AO, THESE EXPENSES WERE NOT FULLY VOUCHED THEREFORE, HE MADE AN AD - HOC DISALLOWANCE OF RS.50,000/ - . 4.1 IN APPEAL, THE LD. CIT(A) AGREED WITH THE ORDER OF THE AO AND CONFIRMED THE ABOVE DISALLOWANCE OF RS.50,000/ - . 4.2 BEFORE US, THE LD. COUNSEL SUBMITS THAT THOUGH FULL DETAILS WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAS RESORTED TO AD - HOC DISALLOWANCE WHICH DESERVES TO BE DELETED. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL SU BMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. OUR DECISION IN RESPECT OF THE ABOVE THREE GROUNDS OF APPEAL ARE GIVEN BELOW. IN RESPECT OF THE 1 ST GROUND OF APPEAL, THE LD. CIT(A) HAS RECORDED THAT NO EVIDENCE WAS FILED BY THE ASSESSEE BEFORE HIM TO MR. AMIT TANDON ITA NO. 3231/MUM/2012 6 SHOW THAT THE MEMBERSHIP FEES WAS PAID TO ENTERTAIN THE CUSTOMER AND ALSO THAT THE ASSESSEE WILL GET A PLOT OF LAND ALLOTTED. THE ASSESSEE ALSO FAILED TO FILE THE ABOVE EVIDENCE BEFORE THE AO. WE ARE OF THE CONSIDERED VIEW THAT THE RELEVANT EVIDENCE WO ULD BE CRUCIAL IN DECIDING THE PRESENT ISSUE. IN RESPECT OF THE 2 ND GROUND OF APPEAL, WE FIND THAT THE ALTERNATE CLAIM OF DEDUCTION HAS NOT BEEN ADJUDICATED BY THE LD. CIT(A). IN RESPECT OF THE 3 RD GROUND OF APPEAL, THE AO HAS RESORTED TO AD - HOC DISALL OWANCE OF RS.50,000/ - ON THE REASON THAT THE EXPENSES ARE NOT FULLY VOUCHED WHEREAS THE ASSESSEE SUBMITS THAT THE FULL DETAILS WERE FILED BEFORE HIM. IN VIEW OF THE ABOVE FACTUAL SCENARIO, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE AO TO MAKE A DE NOVO ORDER, AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT THE ASSESSEE TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. AS THE MATTER HAS BEEN RESTORED TO THE FILE OF THE AO, WE ARE NOT ADVERTING TO THE CASE LAWS RELIED ON BY BOTH THE SIDES. 6. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31/12/2018. SD/ - SD/ - ( JOGINDER SINGH ) (N.K. PRADHAN) V ICE PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED: 31/12/2018 RAHUL SHARMA, SR. P.S. MR. AMIT TANDON ITA NO. 3231/MUM/2012 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI