DEEPAK CHANDULAL LOHANA, MUMBAI V. DCIT 22(2), MUMBAI

ITA 3309/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100731 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income
• Section: 40A(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN ,AM AND LALIT KUMAR, JM ./ I.T.A. NO . 3309/M/2012 ( / ASSESSMENT YEA R : 200 8 - 09 ) MR.DEEPAK CHANDULAL LOHANA, 503 - 504, 5 TH WING. GOLF SCAPPA, BEHIND HOTEL CELEGRATION, S T ROAD, CHEMBUR, MUMBAI - 400071 / VS. DY. COMMISSIONER OF INCOME TAX 22(2) , MUMBAI. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN : AAC PL2178E / APPELLANT BY SHRI K GOPAL / RSPONDENT BY MS.ANU AGGARWAL / DATE OF HEARING : 1 8 .8 . 201 5 / DATE OF PRONOUNCEMENT: 2. 9 . 201 5 / O R D E R P ER B .R.BASKARAN : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 29.2.2012 PASSED BY THE LD. CIT(A) - 33, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 200 8 - 09 . 2. THE GROUNDS URGED BY THE ASSESSEE GIVING RISE TO THE FOLLOWING ISS UES: A) DISALLOWANCE MADE UNDER SECTION 40A(3) OF THE ACT; B) DISALLOWANCE ON PURCHASE OF LAND FROM M/S LAXMAN MHATRE AND OTHERS; C) DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT; AND D) ADHOC DISALLOWANCE MADE OUT OF EXPENSES. ITA NO. 3309/M/2012 2 3. THE FACTS RELATING TO THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF GAOTHAN PLOTS IN NAVI MUMBAI AREA. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKING THE ADDITIONS LISTED ABOVE. WITH REGARD TO THE DISALLOWANCE OF RS.22.00 LAKHS MADE OUT OF PURCHASE OF LAND , THE AO DID NOT MAKE SEPARATE DISALLOWANCE, SINCE THE VERY SAME AMOUNT HAD ALREADY BEEN DISALLOWED U/S 40A(3) OF THE ACT . THE ASSESSEE WAS NOT SUCCESSFUL IN THE APPEAL FILED BEFORE LD CIT(A) AND HENCE HE HAS FILED THIS APPEAL BEFORE US. 4. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 40A(3) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS PURCHASED PLOTS WORTH RS.1.40 CRORES , OUT OF WHICH A SUM OF RS.74.39 LAKHS WAS PAID BY WAY OF CASH . THE AO TOOK THE VIEW THAT THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40A (3) OF THE ACT BY MAKING PAYMENTS BY WAY OF CASH AND ACCORDINGLY ASKED THE ASSESSEE TO CLARIFY THE SAME. IT IS PERTINENT TO NOTE THAT THE PROVISIONS OF SEC. 40A(3) PROVIDE FOR DISALLOWANCE OF EXPENDITURE, IF PAYMENT IS MADE IN A SUM EXCEEDING RS.20,000/ - OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE BANK DRAFT. IN REPLY, THE ASSESSEE SUBMITTED THAT THE CASH PAYMENT MADE TO ANY INDIVIDUAL PERSON O N ANY GIVEN DATE DID NOT EXCEED RS.20,000/ - AND HENCE THERE IS NO VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT. HOWEVER, THE AO TOOK THE VIEW THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE SAID CLAIM . ACCORDINGLY, THE AO DISALLOWED THE SUM OF RS.74.39 LAKHS CITED ABOVE UNDER SECTION 40A(3) OF THE ACT. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) TOOK THE VIEW THAT THE MEMORANDUM OF UNDERSTANDING ENTERED BY THE ASSESSEE WITH THE SELLERS OF PLOTS DID NOT SPECIFY THE MANNER OF PAYMENT OF THE CONSI DERATION AND FURTHER THE MOU WAS ENTERED INTO BY THE ASSESSEE MUCH PRIOR TO THE DATE OF ALLOTMENT OF PLOTS UNDER 12.5% SCHEME DRAWN BY THE CIDCO. ITA NO. 3309/M/2012 3 ACCORDINGLY, THE LD. CIT(A) TOOK THE VIEW THAT THE CLAIM OF PAYMENT OF CASH WAS NOT CONFIRMED BY THE ASSES SEE . WHEN QUESTIONED, THE ASSESSEE FILED DETAILS OF PAYMENT PAID TO THE SELLERS AND ALSO FILED AN AFFIDAVIT GIVEN BY THE MANAGER OF THE ASSESSEE WHO DEPOSED THAT HE DID NOT PAY ANY SUM EXCEEDING RS.20,000/ - ON A SINGLE DAY. FURTHER THE ASSESSEE ALSO FILED C OPIES OF CONFIRMATION LETTERS OBTAINED FROM THE SELLERS OF THE LAND , WHEREIN THEY CONFIRMED THAT THEY DID NOT RECEIVE ANY AMOUNT EXCEEDING RS.20,000 / - I N A DAY . HOWEVER, THE LD. CIT(A) TOOK THE VIEW THAT THE CONFIRMATION LETTERS FILED BY THE ASSESSEE DID NOT FURNISH THE DETAILS OF DA TE S AND PAYMENT S RECEIVED BY THEM. A CCORDINGLY, THE LD. CIT(A) TOOK VIEW THAT THE CLAIM OF THE ASSESSEE REMAINED UNSUPPORTED AND ACCORDINGLY CONFIRMED THE ACTION OF THE AO IN MAKING DISALLOWANCE U/S 40A(3). 6. WE HEARD TH E PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAS FURNISHED LEDGER ACCOUNT COPIES OF THE SELLERS OF PLOT AND A PERUSAL OF THE SAME WOULD SHOW THAT THE PAYMENT MADE TO EACH OF THE SELLER WAS LESS THAN RS.20,000/ - IN A DAY AND HENCE THE SAID PAYMENTS DID NOT EXCEED THE LIMIT PRESCRIBED UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THERE IS NO DISPUTE WITH REGARD TO THE LEGAL POSITION OF LAW THAT THE DISALLOWANCE U/S 40A(3) OF THE ACT IS NOT ATTRACTED DURING THE YEAR UNDER CONSIDERATION, IF THE SINGLE PAYMENT MADE TO A PERSON DOES NOT EXCEED RS.20,000/ - . WE NOTICE THAT THE ASSESSEE HAS ALSO FURNISHED AN AFFIDAVIT OBTAINED FROM THE EMPLOYEE OF THE ASSESSEE, WHEREIN HE HAS CONFIRMED THAT HE DID NOT DISBURSE ANY SUM EXCEEDIN G RS.20,000/ - IN A DAY TO ANY SINGLE PERSON. THE SAID AFFIDAVIT IS IN CONFORMITY WITH THE ENTRIES MADE IN THE BOOKS OF ACCOUNT. IN ADDITION TO THE ABOVE, RECIPIENT S OF THE CASH HAVE ALSO FURNISHED CONFIRMATION LETTERS , WHEREIN THEY HAVE CONFIR MED THAT TH EY DID NOT RECEIVE CASH EXCEEDING RS.20 ,000/ - . THUS, WE NOTICE THAT THE EMPLOYEE OF THE ASSESSEE WHO MADE DISBURSEMENTS HAVE CONFIRMED ABOUT THE FACTUAL ASPECTS AND THE ITA NO. 3309/M/2012 4 SAME IS ALSO CORROBORATED WITH THE ENTRIES MADE IN THE BOOKS OF ACCOUNT. FURTHER, THE RECIPIENTS OF THE CASH HAVE ALSO CONFIRMED THE SAID POSITION. THUS, IT IS SEEN THAT ALL THE PARTIES TO THE TRANSACTIONS HAVE CONFIRMED THE FACTUAL ASPECTS AND THE SAME IS ALSO CORROBORATED BY THE ENTRIES MADE IN THE BOOKS OF ACCOUNT. IT IS PERTINENT TO N OTE THAT T HE ASSESSING OFFICER HAS ACCEPTED THE BOOKS OF ACCOUNT . FURTHER, HE HAS ALSO NOT BROUGHT ON RECORD ANY OTHER MATERIAL TO SHOW THAT THE SUBMISSIONS SO MADE BY THE ASSESSEE AS WELL AS THE ENTRIES MADE IN THE BOOKS OF ACCOUNT WERE FALSE. UNDER THE SE SET OF FACTS, WE ARE OF THE VIEW THAT THE TAX AUTHORI T IES ARE NOT JUSTIFIED IN REJECTING THE SUBMISSIONS OF THE ASSESSEE WITHOUT BRINGING ANY OTHER CONTRARY MATERIALS ON RECORD. THE SAID ACTION OF TH E ASSESSING OFFICER WOULD SHOW THAT HE HA S MADE THE DI SALLOWANCE U/S 40A(3) OF THE ACT ON SURMISES AND CONJECTURES. IT IS WELL SETTLED PROPOSITION OF LAW THAT THE SUSPICION, HOW SO EVER BE STRONG, CANNOT REPLACE THE EVIDENCES AVAILABLE ON RECORD. THE LD CIT(A) HAS OBSERVED THAT THE CONFIRMATION LETTERS FILE D BY THE SELLERS OF THE PLOT DID NOT GIVE THE DETAILS OF PAYMENTS RECEIVED BY THEM AND HENCE HE REJECTED THE SAME. HOWEVER, THE DETAILS ARE AVAILABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND HENCE, WE ARE OF THE VIEW IT IS NOT CORRECT TO REJECT THE CO NFIRMATI ON LETTERS. FURTHER, IN OUR VIEW, THE OBSERVATIONS MADE BY THE LD CIT(A) WITH REGARD TO THE DATE OF ENTERING INTO MOU ARE NOT MATERIAL TO THE ISSUE UNDER CONSIDERATION, SINCE THE SALE OF PLOTS SO PURCHASED BY THE ASSESSEE HAS BEEN ACCEPTED AND THE ASSESSEE IS SHOWING THE SAME AS HIS BUSINESS INCOME. FURTHER, THE QUESTION OF DISALLOWANCE U/S 40A(3) WOULD ARISE ONLY, IF THE PURCHASES ARE ACCEPTED, I.E., WITH REGARD TO THE EXPENSES WITH ARE OTHERWISE ALLOWABLE UNDER THE ACT. FURTHER, WE NOTICE THAT THE ASSESSING OFFICER DID NOT EXAMINE THE RECIPIENTS OF THE CASH IN ORDER TO DISPROVE THE CLAIM OF THE ASSESSEE AS WELL AS THE CONFIRMATION LETTERS GIVEN BY THEM . HENCE, WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE U/S 40A(3) OF THE ACT IS NOT ITA NO. 3309/M/2012 5 JUSTIFIED. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. 7 . THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF RS.2 2 LAKHS OUT OR PURCHASES OF LAND. THE AO NOTICED THAT THE ASSESSEE HAS PURCHASED PLOTS FROM M/S LAXMAN MHATRE AND OTHERS AND ALSO PAID RS.22 .00 LAKHS BY WAY OF CASH . THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS NOT ENTER ED INTO A MOU WITH THE ABOVE SAID PARTIES AND A CCORDINGLY TOOK THE VIEW THAT THE GENUINENESS OF THE ABOV E SAID PAYMENT IS NOT SUBSTANTIATED. ACCORDINGLY, HE DISALLOWED THE SUM OF RS.22 LAKHS , REFERRED ABOVE . HOWEVER, SINCE THE VERY SAME AMOUNT WAS DISALLOWED BY HIM U/S 40A(3) OF THE ACT, THE AO GAVE TELESCOPING BENEFIT TO THE SAME AND ACCORDINGLY DID NOT M AKE SEPARATE ADDITION . THE LD. CIT(A) ALSO CONFIRMED THE DISALLOWANCE SO MADE BY THE AO. 8. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. WE NOTICE THAT THE AO HAS TAKEN THE VIEW THAT THERE IS NO MOU BETWEEN THE ASSESSEE AND LAXMAN MH ATRE AND OTHERS. ACCORDINGLY, HE HAS PROCEEDED TO DISALLOW THE CASH PAYMENT OF RS.22.00 LAKHS BY HOLDING THAT THE GENUINENESS OF PAYMENTS WAS NOT PROVED. BEFORE US, THE LD. AR SUBMITTED THAT THE ASSESSEE HAS ALREADY FURNISHED COPIES OF MOU ENTERED BETWEE N THE ASSESSEE AND M/S LAXMAN MHATRE AND OTHERS. HE ALSO SUBMITTED THAT THE COPIES OF THE MOU ARE PLACED AT PAGES 21 TO 27 OF THE ASSESSEES PAPER BOOK. WE NOTICE THAT THE AO HAS PROCEEDED TO EXAMINE THIS ISSUE WITH THE MISCONCEIVED NOTION THAT THERE IS NO MOU BETWEEN THE ASSESSEE AND M/S LAXMAN MHATRE AND OTHERS. WE NOTICE THAT THE AO HIMSELF HAS DISALLOWED THE VERY SAME AMOUNT OF RS.22 LAKHS U/S 40A(3) OF THE ACT, MEANING THEREBY, THE AO HIMSELF HAS ACCEPTED THE GENUINENESS OF PURCHASES AS WELL AS THE PAYMENTS , SINCE THE QUESTION OF DISALLOWANCE U/S 40A(3) WOULD ARISE ONLY IN RESPECT OF GENUINE EXPENDITURE ONLY . WE FURTHER ITA NO. 3309/M/2012 6 NOTICE THAT THE ASSESSEE HAS ENTERED INTO A MOU WITH M/S LAXMAN MHATRE AND OTHERS FOR PURCHASING THE LAND FOR A SUM OF RS.28.65 LAKH S, OUT OF WHICH A SUM OF RS.22 LAKHS WAS PAID BY WAY OF CASH AND THE BALANCE AMOUNT WAS PAID BY WAY OF CHEQUE. WE NOTICE THAT THE AO HAS ACCEPTED THE CHEQUE PAYMENT OF RS.6.65 LAKHS, WHICH MEANS THAT THE ASSESSING OFFICER BELIEVES A PORTION OF PURCHASES AND HENCE, IN OUR VIEW, HE IS NOT JUSTIFIED IN DISBELIEVING THE REMAINING PART. WE MAY STATE HERE THAT T HE AO COULD HAVE EXAMINED THE SAID CLAIM OF PURCHASES, BY ASCERTAINING THE MARKET VALUE AND ACCORDINGLY PROVED THAT THE PAYMENT OF RS.22.00 LAKHS MADE BY WAY OF CASH IS IN EXCESS OF THE PREVAILING MARKET VALUE , IN WHICH CASE, THERE COULD HAVE BEEN SOME JUSTIFICATION . WE NOTICE THAT THE AO DID NOT MAKE ANY SUCH ENQUIRIES. IN FACT, AS STATED EARLIER, THE AO HAS PROCEEDED WITH THE MISCONCEIVED NOTION THAT THERE IS NO MOU, WHICH WAS FACTUALLY INCORRECT. IT IS WELL SETTLED THAT THE AO CANNOT BE GIVEN A CHANCE FOR MISTAKE COMMITTED BY HIM. ACCORDINGLY, WE ARE OF THE VIEW THAT THE AO HAS MADE THE DISALLOWANCE OF RS.22 LAKHS ON MISCONCEIVED NOTIONS, WITHOUT PRO PERLY EXAMINING THE DOCUMENTS. WE ALSO NOTICE THAT THE LD CIT(A) HAS ALSO COMMITTED ERROR IN CONFIRMING THIS DISALLOWANCE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THIS ADDITION. 9 . THE N EXT ISSUE RELATES TO DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.32,819/ - AND CLAIMED THE SAME AS EXEMPT . THE AO WORKED OUT THE DISALLOWANCE UNDER SECTION 14A R.W.R.8D AT RS.82,367/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) ALSO CONFIRMED THE SAME. 10. WE HEARD THE PARTIES ON THIS ISSUE. THE LD A.R SUBMITTED THAT THE DISALLOWANCE WORKED OUT BY THE AO IS EXCEEDING THE AMOUNT OF DIVIDEND AND ACCORDINGLY PLEADED THAT TH E DISALLOWANCE MADE BY THE AO MAY BE RESTRICTED TO THE AMOUNT OF DIVIDEND. HE FURTHER SUBMITTED THAT THE ITA NO. 3309/M/2012 7 DIVIDEND OF RS.11,239/ - RECEIVED FROM THE MUTUAL FUNDS WERE NOT CLAIMED AS EXEMPT AND ACCORDINGLY IT HAS BEEN OFFERED TO TAX. HOWEVER, THE AO HAS WOR KED OUT THE DISALLOWANCE BY CONSIDERING THE INVESTMENTS MADE IN THE MUTUAL FUNDS ALSO. HE SUBMITTED THAT THE INVESTMENTS HAVE DRASTICALLY COME DOWN DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY HE SUBMITTED THAT THE DISALLOWANCE WORKED OUT BY THE AO IS ON THE HIGHER SIDE. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE AO HAS WORKED OUT THE DISALLOWANCE AS PER RULE 8D ONLY. 11. THUS, ACCORDING TO THE ASSESSEE, THE DIVIDEND RECEIVED FROM MUTUAL FUNDS HAS NOT BEEN CLAIMED TO BE EXEMPT, BUT OFFERED TO TAX. THE AO HAS WORKED OUT THE DISALLOWANCE BY CONSIDERING THE INVESTMENTS MADE IN MUTUAL FUNDS ALSO. SINCE, THE DISPUTED DISALLOWANCE IS ONLY ABOUT RS.82,000/ - , CONSIDERING THE SMALLNESS OF THE AMOUNT AND ALSO CONSIDERING THE VARIOUS SUBMISSIONS MAD E, WE ARE OF THE VIEW THAT THIS ISSUE MAY BE PUT AT REST BY SUSTAINING THE ADDITION TO THE EXTENT OF RS.50,000/ - . ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS.50,000/ - . 12 . THE NEXT I SSUE RELATES TO DISALLOWANCE MADE OUT OF EXPENSES. THE ASSESSEE HAD CLAIMED EXPENSES TOWARDS CAR, TELEPHONE AND BUSINESS PROMOTION. THE AO TOOK THE VIEW THAT THE DISALLOWANCE OF 1 /5 OF THE EXPENDITURE BY HOLDING THAT THE PERSONAL ELEMENT INVOLVED IN THESE EXPENSES CANNOT BE RULED OUT FOR THESE EXPENSES. THE LD CIT(A) ALSO CONFIRMED THE SAME. WE NOTICE THAT THE AO DISALLOWED 1/5 TH OF FOLLOWING EXPENSES: - CAR EXPENSES 75,488 TELEPHONE EXPENSES 1,20,473 BUSINESS PROMOTION EXPENSES 2,59,439 ----------------- 4,55,400 ========= ITA NO. 3309/M/2012 8 WITH REGARD TO CAR AND TELEPHONE EXPENSES, WE ALSO AGREE WITH THE VIEW OF THE AO THAT THE INVOLVEMENT OF PERSONAL ELEMENT CANNOT BE RULED OUT. HOWEVER, WITH REGARD TO THE BUSINESS P ROMOTION EXPENSES, WE ARE OF THE VIEW THAT THE AO SHOULD HAVE ANALYSED THE NATURE OF EXPENSES BEFORE COMING TO SUCH A CONCLUSION. WE NOTICE THAT THE LD CIT(A) ALSO DID NOT EXAMINE THIS ASPECT. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND DIRECT T HE AO TO MAKE DISALLOWANCE OUT OF CAR AND TELEPHONE EXPENSES ONLY. 13 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 2ND SEPTEMBER, 2015. 2ND SEPTEMBER , 2 015 SD SD ( LALIT KUMAR) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 2ND SEP , 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR ) , /ITAT, MUMBAI