M/s Rangshala, New Delhi V. ACIT, New Delhi

ITA 327/DEL/2011

• Counselvise Citation: 32720114 RSA 2011
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 22-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 19-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: K P GANGULI
• Keywords: Depreciation; Additional evidence
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER & SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NO. 327/DEL/2011 ASSESSMENT YEAR: 2005-06 RANGSHALA, VS. ACIT, C/O UMESH CHAND & CO., CIRCLE 22(1), 1315, ANSAL TOWER, 38, NEW DELHI. NEHRU PLACE, NEW DELHI. AENPK8990C (APPELLANT) (RESPONDENT) APPELLANT BY : K.P. GANGULI, ADV. RESPONDENT BY : SMT. PRATIMA KAUSHIK, SR. DR DATE OF HEARING: 22.12.2011 DATE OF PRONOUNCEMENT: 22.12.2011 ORDER PER K.G. BANSAL, A.M. IN THIS APPEAL, THE ASSESSEE HAS TAKEN UP FOUR GRO UNDS. GROUND NOS. 1 & 2 ARE AGAINST DISALLOWANCE OF RENT AND ELECTRICITY EXPENSES OF RS. 1,41,971/- AND RS. 20,3 64/- RELATING TO RESIDENTIAL PROPERTY LOCATED AT A-12, FIRST FLOO R, SECTOR-36, NOIDA. GROUND NO. 3 IS AGAINST DISALLOWANCE OF 1/6 TH OF TELEPHONE EXPENSES, AMOUNTING TO RS. 28,912/- AND G ROUND NO. 4 IS AGAINST DISALLOWANCE OF RS. 50,000/- FROM CAR EXPENSES ETC. ITA NO. 327/D/11 2 2. THE FACTS IN RELATION TO GROUND NOS. 1 & 2, AS M ENTIONED IN THE ASSESSMENT ORDER, ARE THAT THE ASSESSEE HAS BEEN CARRYING ON HIS PROPRIETARY BUSINESS OF DYEING OF G ARMENTS AND PRINTING THEREOF BY WOODEN BLOCKS. IN THIS YEAR RE SIDENTIAL PREMISES AS AFORESAID WERE TAKEN ON RENT. EXPENSES OF RS. 1,41,971/- AND RS. 20,364/- WERE INCURRED AS RENT A ND ELECTRICITY CHARGES. THE AO PERUSED THE RENT AGREE MENT, WHICH SHOWS THAT THE PROPERTY CONSISTS OF THREE BED ROOMS, DRAWING/DINING ROOM, LOBBY AND KITCHEN. CLAUSE 6 O F THE AGREEMENT PROVIDES THAT THE LESSEE SHALL USE THE PR EMISES FOR THE PURPOSE OF HIS AND HIS FAMILYS RESIDENCE. THE AO HAS RECORDED A FINDING THAT THE PREMISES HAVE BEEN USED FOR RESIDENTIAL PURPOSES AND HAVE NOT BEEN USED FOR THE PURPOSE OF BUSINESS. THEREFORE, BOTH THE EXPENSES HAVE BEE N DISALLOWED. 2.1 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT DU E TO SEALING OF THE BUSINESS PREMISES AT TUGHLAKABAD VIL LAGE, BUSINESS OPERATIONS WERE DISRUPTED. THEREFORE, THE AFORESAID PREMISES WERE TAKEN ON RENT FOR THE PURPOSE OF BUSI NESS. OTHERWISE THE ASSESSEE HAS BEEN RESIDING IN G-69, S AKET, NEW DELHI. IN SUPPORT THEREOF, A COPY OF ELECTION COMMISSION ITA NO. 327/D/11 3 CARD WAS FILED. THE LD. CIT(A) CONSIDERED THE FACT S OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. IT IS MENTIONED T HAT THE ELECTION CARD WAS ISSUED IN THE YEAR 1997, THEREFOR E, IT IS NOT A RELEVANT EVIDENCE FOR THE RESIDENCE OF THE ASSESSEE IN THIS YEAR. IN FACT SAKET IS NEARER TO TUGHLAKA BAD THAN NOIDA AND IT WOULD HAVE BEEN MORE CONVENIENT TO CARRY ON THE BUSINESS FROM SAKET. THEREFORE, THE DISALLOWANCE MADE BY TH E AO HAS BEEN UPHELD. 3. BEFORE US, THE LD. COUNSEL SUBMITTED THAT DUE TO SEALING OF BUSINESS PREMISES AT TUGHLAKABAD VILLAGE, THE AS SESSEE WAS FORCED TO TAKE A RESIDENTIAL PREMISE ON HIRE AN D USE THE SAME FOR BUSINESS. OTHERWISE HE HAS BEEN RESIDING IN SAKET AT THE GIVEN ADDRESS. IT IS HIS CASE THAT SINCE TH E PREMISES WERE USED FOR THE PURPOSE OF BUSINESS, THE RENT AND ELECTRICITY CHARGES ARE DEDUCTIBLE IN COMPUTING THE INCOME. 3.1 IN REPLY, THE LD. SR. DR SUBMITS THAT THERE IS NO EVIDENCE WHATSOEVER TO PROVE THAT THE PREMISES WERE USED FOR THE PURPOSE OF BUSINESS. THE PLEA THAT HE WAS LIVING I N SAKET ALSO DOES NOT STAND ESTABLISHED AS THE PROOF RELATES TO THE YEAR 1997 AND NOT THE CURRENT YEAR. CARRYING ON THE BUS INESS FROM RESIDENTIAL PREMISES WOULD NORMALLY INVOLVE OBTAINI NG A NUMBER OF PREMISSIONS. THE ELECTRICITY CHARGES WIL L ALSO HAVE ITA NO. 327/D/11 4 TO BE PAID ON COMMERCIAL RATES. THUS, IT IS ARGUED THAT THE CONCURRENT FINDINGS OF THE LOWER AUTHORITIES MAY BE UPHELD. 3.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACT IS THAT NO EV IDENCE EXISTS ON RECORD TO SHOW THAT THE RENTED PREMISES W ERE USED FOR THE PURPOSE OF BUSINESS. HOWEVER, IT IS ALSO T HE CASE OF THE LD. COUNSEL THAT THE ASSESSEE IS IN POSSESSION OF SUFFICIENT EVIDENCE TO PROVE THAT THE PREMISES WERE USED FOR T HE PURPOSE OF BUSINESS. HE WANTED TO FILE SUCH EVIDEN CE AS ADDITIONAL EVIDENCE. HOWEVER, EVEN IF SUCH EVIDENC E IS FILED, THE MATTER WILL HAVE TO BE REMANDED TO THE AO FOR I TS VERIFICATION. IN THE LIGHT OF THIS PROBLEM, IT WAS SUGGESTED THAT THESE MATTERS MAY BE RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER CONSIDERING WHATEVER EVIDENCE TH E ASSESSEE WANTS TO FILE. BOTH THE PARTIES HAD NO OB JECTION TO THIS COURSE OF ACTION. CONSEQUENTLY, THE MATTER CO NTAINED IN GROUND NOS. 1 & 2 IS RESTORED TO THE FILE OF THE AO FOR DECIDING THE ISSUE AGAIN AFTER CONSIDERING THE EVIDENCE FILE D BY THE ASSESSEE. THUS, THESE GROUNDS ARE TREATED AS ALLOW ED FOR STATISTICAL PURPOSE. 4. IN REGARD TO DISALLOWANCE FROM TELEPHONE EXPENSE S, IT IS MENTIONED IN THE ASSESSMENT ORDER THAT EXPENDITURE OF RS. ITA NO. 327/D/11 5 1,73,470/- WAS INCURRED ON TELEPHONE AND MOBILE PHO NES. THE TELEPHONES HAVE BEEN INSTALLED AT THE BUSINESS AS WELL AS RESIDENCE OF THE ASSESSEE. THE EXPENDITURE ALSO IN CLUDES MOBILE PHONE CHARGES. APART FROM THIS PROPRIETARY CONCERN, THE ASSESSEE IS PARTNER/DIRECTOR IN OTHER BUSINESS UNITS. IN SUCH A SITUATION, ELEMENT OF PERSONAL USE CANNOT BE DENIED. THEREFORE, 1/6 TH OF THE EXPENDITURE, AMOUNTING TO RS. 28,912/-, HAS BEEN DISALLOWED. THIS FINDING HAS BEEN CONFIRM ED BY THE LD. CIT(A) THAT THE ELEMENT OF PERSONAL USE OF THE TELEPHONE CANNOT BE DENIED AND NO ADDITIONAL ARGUMENT HAS BEE N MADE IN THE COURSE OF APPELLATE PROCEEDINGS. 4.1 BEFORE US, THE LD. COUNSEL RELIED ON THE SUBMIS SIONS MADE BEFORE THE LOWER AUTHORITIES WHILE THE LD. SR. DR RELIED ON THE CONCURRENT FINDINGS OF THE LOWER AUTHORITIES . 4.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE ASSESSEE IS A PROP RIETOR OF M/S RANGSHALA. THE EXPENSES PERTAIN TO RESIDENTIAL AND BUSINESS PREMISES AS ALSO THE MOBILE PHONE. THERE IS NO EVIDENCE THAT ALL THE EXPENSES HAVE BEEN INCURRED F OR THE PURPOSE OF BUSINESS. IT CANNOT BE DENIED THAT RESI DENTIAL LINE AND CELL PHONE WOULD BE USED FOR PERSONAL PURPOSES ALSO. IN ITA NO. 327/D/11 6 THE LIGHT OF THESE FACTS, DISALLOWANCE OF 1/6 TH OF THE EXPENDITURE IS QUITE REASONABLE. THUS, GROUND NO. 3 IS DISMISS ED. 5. IN RESPECT OF DISALLOWANCE FROM MOTOR CAR EXPENS ES ETC., IT IS MENTIONED IN THE ASSESSMENT ORDER THAT THE AS SESSEE HAS INCURRED VEHICLE MAINTENANCE EXPENSES UNDER THE HEA D POWER AND FUEL EXPENSES OF RS. 3,79,700/-. THE DEPRECIATION OF RS. 1,02,743/- HAS ALSO BEEN DEDUCT ED. NO LOG BOOK FOR RUNNING THE CAR HAS BEEN MAINTAINED. THE ASSESSEE DOES NOT HAVE ANY OTHER CAR FOR THE USE OF SELF AND FAMILY MEMBERS. IN THESE FACTS, IT HAS BEEN HELD T HAT PERSONAL USER CANNOT BE DENIED. ACCORDINGLY, A SUM OF RS. 5 0,000/- HAS BEEN DISALLOWED. THIS FINDING HAS BEEN CONFIRM ED BY THE LD. CIT(A) BY MENTIONING THAT THE ASSESSEE COULD NO T FILE ANY EVIDENCE TO PROVE THAT THE CAR WAS USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 6. BEFORE US, THE LD. COUNSEL RELIED ON THE SUBMISS IONS MADE BEFORE THE LOWER AUTHORITIES WHILE THE LD. SR. DR RELIED ON THE FINDINGS OF THE LOWER AUTHORITIES. WE FIND THAT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS. 3,79,700/- ON RUNNING AND MAINTENANCE OF THE CAR. BESIDES DEPREC IATION AMOUNTING TO RS. 1,02,743/- HAS BEEN CLAIMED. THUS , THE TOTAL EXPENDITURE AND DEDUCTION AMOUNT OF RS. 4,82,443/-. IN SO FAR ITA NO. 327/D/11 7 AS SATISFACTION OF THE CONDITION MENTIONED IN SEC. 37(1) REGARDING USER WHOLLY AND EXCLUSIVELY FOR BUSINESS, THE ASSESSEE HAS NOT BEEN ABLE TO PROVE ITS CASE. LOOK ING TO THE FINDING GIVEN IN RESPECT OF TELEPHONE EXPENSES, THE DISALLOWANCE OF RS. 50,000/- IS HELD TO BE IN ORDER AS IT IS LESS THAN 1/6 TH OF THE EXPENDITURE AND THE DEPRECIATION. 7. THE RESULT OF THE AFORESAID DISCUSSION IS THAT G ROUND NOS. 1 & 2 ARE RESTORED TO THE FILE OF THE AO AND GROUND NOS. 3 & 4 ARE DISMISSED. THUS, THE RESULT IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. SD/- SD/- (R.P. TOLANI) (K.G. BANS AL) JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED: 22.12.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR ITA NO. 327/D/11 8 ITA NO. 327/D/11 9 ITA NO. 327/D/11 10 ITA NO. 327/D/11 11 ITA NO. 327/D/11 12 ITA NO. 327/D/11 13