NITIN KILLAWALA & ASSOCIATES, MUMBAI V. ASST CIR CIR 11(3), MUMBAI

ITA 3409/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9326 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 04-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARJU GORADIA
• Assessee Lawyers: BHAVIK V SHAHCA
• Keywords: Depreciation; Earning of tax free income; Additional evidence; Reasonable cause
• Section: 14A

Judgement Text

, INCOME- TAX APPELLATE TRIBUNAL -JBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBE R AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./3409/MUM/2015, /ASSESSMENT YEAR: 2010-11 M/S. NITIN KILLAWALA & ASSOCIATES D-4, N.S. ROAD NO.10, JVPD SCHEME, VILE PARLE(W),MUMBAI-400 049. PAN:AAAFN 1163 F VS. ASTT. CIT, CIRCLE-11(3)[NOW CIRCLE 16(3)] 4TH FLOOR, ROOM NO.447, AAYAKAR BHAVAN MUMBAI. ( /APPELLANT) ( / RESPONDENT) / REVENUE BY: MS. ARJU GORADIA /ASSESSEE BY: SHRI BHAVIK V. SHAH-CA / DATE OF HEARING: 11/07/2017 / DATE OF PRONOUNCEMENT: /09/2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 27.02.2015,OF THE CIT ( A)-7, MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE-FIRM,ENGAGED IN THE BUSINES S OF ARCHITECTURE AND INTERIOR DESIGNING FILED ITS RETURN OF INCOME,ON 28/09/2010,DECLARING TOTAL INCOME AT RS.81.99 LAKHS.THE ASSESSING OFFICER(AO) COMPLETED THE ASSESSMENT U/S.143(3)OF T HE ACT,ON 30/11/2012,DETERMINING ITS INCOME AT RS.1.02 CRORES. 2. THE ASSESSEE HAS FILED AN APPLICATION FOR ADMITTING ADDITIONAL EVIDENCES.IT WAS STATED THAT THE LEDGER FOR MUTUAL FUND STATEMENT FOR DIVIDEND AND L TCGS WERE REQUIRED TO BE CONSIDERED FOR DECIDING THE FIRST TWO GROUNDS OF APPEAL,THAT THOSE DOCUMENTS COULD NOT BE PRODUCED BEFORE AO/FIRST APPELLATE AUTHORITY (FAA) AS SAME WERE NOT DIRECTED TO BE FILED,THAT ONLY AFTER GETTING THE ORDER OF FAA THE ASSESSEE CAME TO KNOW THAT THE DEPARTMENTAL AUTHORITIES HAD MADE ADDITIONS TO THE INCOME OF THE ASSESSEE WITHOUT CON SIDERING THE BASIC FACTS,THAT OTHER TWO DOCUMENTS WERE ASSESSMENT ORDERS FOR THE SUBSEQUENT A.S,THAT IN THOSE YEARS THE AO HAD NOT MADE ANY ADDITIONS THOUGH THE FACTS FOR ALL THE YEA RS WERE SIMILAR,THAT THE ORDERS WERE NOT AVAILABLE AT THE TIME OF APPELLATE PROCEEDINGS. 2.1. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)REITERAT ED THE FACTS MENTIONED IN THE APPLICATION AND REQUESTED THAT ADDITIONAL EVIDENCES SHOULD BE A DMITTED AS PER PROVISIONS OF RULE 29 OF ITAT RULES,1963.THE DEPARTMENTAL REPRESENTATIVE(DR)LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.AFTER CONSIDERING THE AVAILABLE MATERIAL,WE A RE OF THE OPINION THAT ADDITIONAL EVIDENCES 3409/M/15-M/S. NITIN KILLAWALA & ASSOCIATES 2 PRODUCED BY THE ASSESEE,WOULD BE USEFUL TO DECIDE T HE ISSUES RAISED BY IT,THAT THERE WERE REASONABLE CAUSE FOR NOT PRODUCING THE SAME BEFORE THE AO/FAA,SO,WE ADMIT THE ADDITIONAL EVIDENCES AS PER THE PROVISIONS OF RULE 29 OF THE I TAT RULES. 3. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE UNDER SECTION 14 A OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO NOTED THAT THE ASSESS EE HAD MADE INVESTMENT,THAT IT HAD CLAIMED EXEMPTION OF DIVIDEND INCOME ( RS.39,324/-)AS WELL AS OTHER EXEMPT INCOME (RS.48,385/-),THAT IT HAD NOT MADE ANY SUO-MOTU DISALLOWANCE.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY SUCH DISALLOWANCE OF EXPENSES SHOULD NOT BE MADE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO HELD THAT EXPLANATION FILED BY IT WAS NOT SA TISFACTORY, THAT MANAGEMENT OF INVESTMENT INVOLVED MONITORING,THAT IN TURN IT WOULD NECESSITA TE EXPENDITURE IN TERMS OF MAN-HOURS AND ADMINISTRATIVE EXPENDITURE. REFERRING TO THE JUDGME NT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD. (ITA NO. 616 OF 2010), HE DISALLOWED AN AMOUNT OF RS.34,205/- UNDER RULE 8D(2)(III) OF T HE INCOME TAX RULES, 1962 (RULES). 3.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FAA AND MADE ELABORATE SUBMISSIONS. AFTER CONSIDERING THE A VAILABLE MATERIAL,HE HELD THAT FROM THE AY. 2008-09, RULE 8D WAS APPLICABLE, THAT THE AO WAS FR EE TO COMPUTE THE DISALLOWANCE OF EXPENDITURE AS PER THE RULE IN RESPECT OF THE EXEMP T INCOME,THAT IT ALSO INCLUDED THE CASES WHERE THE ASSESSEE HAD CLAIMED THAT ABSOLUTELY NO EXPENDI TURE HAD BEEN INCURRED,THAT WITHOUT INCURRING EXPENDITURE IT WAS NOT POSSIBLE TO EARN EXEMPT INCO ME, THAT IT WAS NOT MAINTAINING SEPARATE ACCOUNTS FOR MAKING INVESTMENT IN SHARES/MUTUAL FUN DS, THAT IT COULD NOT BE ACCEPTED THAT IT HAD NOT INCURRED EVEN A SINGLE PENNY FOR MAKING INVESTM ENT MAINTAINING THE INVESTMENT PORTFOLIO, THAT THE VERY KNOWLEDGE OF THE FACT ON THE PART OF THE AO THAT THE ASSESSEE HAD NOT DISALLOWED ANY EXPENDITURE WAS SUFFICIENT FOR HIM TO COMPUTE T HE DISALLOWANCE UNDER RULE 8D READ WITH SECTION 14 A OF THE ACT. HE ALSO REFERRED TO THE CA SE OF GODREJ AND BOYCE MFG. COMPANY LTD. (SUPRA) AND UPHELD THE DISALLOWANCE MADE BY THE AO. 3.2. DURING THE COURSE OF HEARING BEFORE US,THE AR ARGUE D THAT ASSESSEE HAD INVESTED ITS SURPLUS FUNDS IN GROWTH SCHEMES,THAT IT WAS EARNING DIVIDEN D INCOME, THAT DIVIDEND WAS REINVESTED AUTOMATICALLY, THAT IT HAD NOT INCURRED AN EXPENDIT URE FOR EARNING EXEMPT INCOME.HE RELIED UPON THE CASE OF DAGA GLOBAL CHEMICALS PRIVATE LTD (ITA/ 5592/MUM/2012,DATED 01/01/2015).THE DR SUPPORTED THE ORDER OF THE FAA. 3409/M/15-M/S. NITIN KILLAWALA & ASSOCIATES 3 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AGAINST TH E EXEMPT INCOME, THAT THE AO/FAA HAVE NOT MENTIONED THE BASIC FACT AS TO HOW MUCH EXPENDITURE WAS INCURRED BY IT FOR EARNING TAX FREE INCOME.THE IDEA BEHIND INTRODUCING THE PROVISIONS O F SECTION 14A WAS TO DISCOURAGE THE PRACTICE OF CLAIMING DOUBLE BENEFIT I.E.CLAIMING EXEMPTION F OR A PARTICULAR ITEM OF INCOME AND CLAIMING EXPENDITURE AGAINST SUCH INCOME.BUT,IF THE ASSESSEE DOES NOT CLAIM ANY EXPENSES AGAINST THE EXEMPT INCOME,THEN NO DISALLOWANCE CAN BE MADE.IN S HORT,THE PRE-CONDITION FOR MAKING ANY DISALLOWANCE U/S.14A R.W. RULE 8D IS INCURRING OF E XPENDITURE FOR EARNING EXEMPT INCOME.AS THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE AGAINST TH E DIVIDEND INCOME OR OTHER EXEMPT INCOME, SO,IN OUR OPINION,THE FAA WAS NOT JUSTIFIED IN UPHO LDING THE ORDER OF THE AO. RESPECTFULLY, FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF DAGA GLOBAL CHEMICALS PRIVATE LTD. (SUPRA),WE DECIDE FIRST GROUND OF APPEAL IN FAVOUR OF THE ASSE SSEE. 4. SECOND GROUND IS ABOUT DISALLOWANCE MADE UNDER THE HEAD ELECTRICITY EXPENSES OF RS.1.90 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUN D THAT THE ASSESSEE HAD CLAIMED RS. 1, 90, 610/- TOWARDS ELECTRICITY EXPENSES.HE DIRECTED IT T O SUBMIT DETAILS IN THAT REGARD. THE PERUSAL OF THE SUBMISSIONS REVEALED THAT THE INVOICES WERE IN THE NAME OF A.R. KILLAWALA AND NOT IN THE NAME OF THE ASSESSEE, THAT THE ADDRESS OF THE CONSU MER WAS DIFFERENT.HE HELD THAT THE ELECTRICITY EXPENSES CLAIMED BY THE ASSESSEE WERE NOT OF THE OF FICE PREMISES. FINALLY,HE ADDED AN AMOUNT OF RS.1,90,610/- TO THE TOTAL INCOME OF THE ASSESSEE. 4.1. DURING THE APPELLATE PROCEEDINGS,THE ASSESSEE MADE A DETAILED SUBMISSION STATING THAT LATE A.R.KILLAWALA WAS THE MOTHER OF THE PARTNER NITIN K ILLAWALA, THAT THE ASSESSEE WAS PAYING ELECTRICITY EXPENSES FOR TWO METERS, THAT IT HAD AP PLIED FOR A CHANGE OF NAME AND CORRECTION OF ADDRESS, THAT IN ONE METER CHANGE WAS DONE IN 2012, WHILE IN ANOTHER THE CORRECTION WAS CARRIED OUT IN 2014. IT SUBMITTED THE COPIES OF BILLS OF 20 09, 2012 AND 2014 TO PROVE THE CHANGE AND CORRECTIONS MADE BY RELIANCE ENERGY. AFTER CONSIDERING THE RIVAL SUBMISSIONS THE FAA HEL D THAT THE ELECTRICITY INVOICE WAS IN THE NAME OF MOTHER OF ONE OF THE PARTNERS AND NOT IN THE NAM E OF ASSESSEE, THAT ADDRESS ON THE INVOICE WAS 1 JUHU SCHEME-SMRITI NS ROAD NO.10, VILE PARLE (W), MUMBAI-56., THAT AS PER THE RETURN OF INCOME THE ADDRESS OF THE ASSESSEE IS DUPLEX-4, NS ROAD NO.10, JVPD SCHEME,VILE PARLE (W), MUMBAI -49, THAT THE AO HAD NOT DISALLOWED ELECTRIC ITY EXPENSES FOR OFFICE PREMISES OF ASSESSEE 3409/M/15-M/S. NITIN KILLAWALA & ASSOCIATES 4 THAT HE HAD DISALLOWED THE EXPENDITURE IN RESPECT O F OTHER PREMISES I.E., (1) JUHU SCHEME SITUATED WHICH WAS IN THE NAME OF AR KILLAWALA, THAT THE ASS ESSEE HAD NOWHERE STATED THAT ITS OFFICE WAS AT 1 JUHU SCHEME. FINALLY, HE HELD THAT ELECTRICITY EXPENSES CLAIMED IN RESPECT OF PREMISES, OTHER THAN THE OFFICE PREMISES OF ASSESSEE HAD BEEN RIGH TLY DISALLOWED BY AO. 4.2. BEFORE US, THE AR STATED THAT ELECTRICITY BILLS WER E IN THE NAME OF THE MOTHER OF ONE OF THE PARTNER, THAT ASSESSEE HAD APPLIED TO THE RELIANCE ENERGY FOR CHANGE IN NAME, THAT THE ROAD NO. IS SAME, THAT IN NEW BILL METER NO. IS GIVEN, THAT NEW BILL CONTAINED NEW ADDRESS AND NEW NAME, THAT AO HAD DISALLOWED TOTAL EXPENDITURE . HE REFER RED TO PAGES 19-32 OF THE PB. THE DR STATED THAT METERS NO. WERE DIFFERENT, THAT AO AND FAA HAD RIGHTLY DISALLOWED THE EXPENDITURE. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE AVAILABLE MATERIAL. WE FIND THAT AT PG- 19 AND 20 OF PB WHICH CONTAINS BILL DT.8/12/2012, T HAT METER NO. IS 776819 ,THAT IT IS ISSUED IN THE NAME OF NITIN R. KILLAWALA, THAT PG-21-22 ARE THE B ILL ISSUED IN THE NAME OF K.R KILLAWALA AND THE METER NO. IS 7716819, THAT THE SAID BILL IS FOR THE MONTH OF NOV.2009, THAT IN THE MONTH OF MARCH 2014 THE BILL ISSUED IN THE NAME NITIN R KILL AWALA (PG-23-24) OF PB DISPLAYED METER NO.7716820, THAT VIDE ITS APPLICATION DATED NIL THE ASSESSEE HAD SUBMITTED AN UNDERTAKING FOR CHANGE OF NAME (PG-27 TO 31 ) OF THE PB, THAT ON PG -29 PRESENT ADDRESS OF THE ASSESSEE IS GIVEN. IT APPEARS THAT AO AND THE FAA HAD DECIDED THE ISSUE W ITHOUT CONSIDERING THESE VITAL PIECES OF INFORMATION.THEREFORE,IN THE INTEREST OF JUSTICE,MA TTER IS RESTORED BACK TO FILE OF AO FOR FRESH ADJUDICATION WHO WOULD DECIDE THE MATTER AFTER CONS IDERING THE DOCUMENTS REFERRED TO BY US.GROUND NO.2 IS DECIDED IN FAVOUR OF THE ASSESSEE IN PART. 5. NEXT EFFECTIVE GROUND(GOA 3-5)DEALS WITH AD HOC DIS ALLOWANCES UNDER VARIOUS HEADS.DURING THE ASSESSMENT PROCEEDINGS,THE AO DIRECTED THE ASSE SSEE TO SUBMIT DOCUMENTS IN SUPPORT OF THE VARIOUS EXPENSES INCURRED BY IT AND TO PROVE THAT SAME WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES.HE HELD THAT THE NATURE OF EXPENS ES WERE SUCH THAT PERSONAL ELEMENT COULD NOT BE RULED OUT.HE DISALLOWED 20% OF MOTOR CAR EXPENSE S (RS.49,444/-), MOTOR CAR DEPRECIATION (RS. 80,859/-), TELEPHONE EXPENSES (RS.37, 901/-). 5.1. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA,DURING THE APPELLATE PROCEEDINGS,HELD THAT THE ASSESSEE HA D RELIED UPON CERTAIN CASE LAWS,THAT UNLESS A SPECIFIC DEFECT WAS POINTED OUT NO DISALLOWANCE COU LD BE MADE ON AD HOC BASIS FOR ANY EXPENDI - 3409/M/15-M/S. NITIN KILLAWALA & ASSOCIATES 5 TURE,THAT EXPENSES INCURRED UNDER THE HEADS MOTOR C AR AND TELEPHONE HAD TO BE EXAMINED CONSIDERING THE LOGBOOKS AND TELEPHONE CALL RESISTE RS. HE UPHELD THE DISALLOWANCE WITH REGARD TO MOTOR CAR EXPENSES AND TELEPHONE EXPENSES AND DELET ED THE REMAINING DISALLOWANCES MADE BY THE AO. 5.2. BEFORE US,THE AR ARGUED THAT THE ASSEESSEE WAS A FI RM ENGAGED IN THE BUSINESS OF ARCHITECT,THAT EXPENSES INCURRED BY IT WERE NOT EVE N 10% OF THE TOTAL REVENUE,THAT DEPRECIATION ON MOTOR CAR SHOULD NOT HAVE BEEN DISALLOWED,THAT THE AO HAD ACCEPTED THAT THE EXPENSES WERE INCURRED,THAT THERE WERE 13 PERSONS WORKING IN THE OFFICE. HE RELIED UPON THE CASES OF SUSHIL MORE IN (ITA/1474/KOL/2012);SSP PVT.LTD.(14 TAXMANN .COM87) AND GANPATI ENTERPRISES LTD. (32 TAXMANN. COM 262).THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 5.3. WE FIND THAT THE AO HAD NOT REJECTED THE BOOKS OF A CCOUNT NOR HAS HE POINTED OUT SPECIFIC DEFECTS ABOUT EXPENDITURE INCURRED BY THE ASSESSEE. IN THE AUDIT REPORT THERE IS NO MENTION OF THE PERSONAL EXPENSES INCURRED BY THE ASSESSEE FOR THE PARTNERS.THEREFORE, IN OUR OPINION AD HOC DISALLOWANCES SHOULD NOT HAVE BEEN MADE WHERE THE R ESULTS OF BOOKS HAVE BEEN ACCEPTED.IN THE CASE OF SSV PVT.LTD.(SUPRA),THE HONBLE PUNJAB &HAR YANA HIGH COURT HAS HELD THAT AD HOC DISALLOWANCE CANNOT BE MADE ONCE BOOKS OF ACCOUNTS ARE AUDITED AND IF SAME ARE ACCEPTED TO BE AS PER LAW BY THE AO.RESPECTFULLY FOLLOWING THE ABO VE JUDGMENT WE ALLOW GROUNDS NO.3,4 AND 5 FILED BY THE ASSESSEE . AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER , 2017. 21 , 2017 SD/- SD/- ( . . / C.N.PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 21.09.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3409/M/15-M/S. NITIN KILLAWALA & ASSOCIATES 6 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.