PALLAVI SHARDUL SHROFF, MUMBAI V. JCIT 11(3), MUMBAI

ITA 3511/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48635 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: RASESH V PARIKH
• Keywords: Depreciation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER ITA NO.3511/MUM./2010 (ASSESSMENT YEAR : 2005-06 ) DATE OF HEARING: 25.4.2011 MRS. PALLAVI SHARDUL SHROFF LENIN CHAMBERS, 3 RD FLOOR DALAL STREET, FORT MUMBAI 400 001 PAN AQPPS7388Q .. APPELLANT V/S JT. COMMISSIONER OF INCOME TAX CIRCLE-11(3), MUMBAI .... RESPONDENT ASSESSEE BY : MR. RASESH V. PARIKH REVENUE BY : MR. SURENDRA KUMAR O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL FILED BY THE ASSESSEE, IS DIRECTED AGAI NST THE IMPUGNED ORDER DATED 7 TH AUGUST 2008, PASSED BY THE COMMISSIONER (APPEALS) - VII, MUMBAI, FOR ASSESSMENT YEAR 2005-06. 2. BRIEF FACTS ARE THAT, THE ASSESSEE IS A SENIOR PART NER OF A LEGAL FIRMS IN INDIA I.E., M/S. AMARCHAND & MANGALDAS & SURESH A. SHROFF & ?CO., AND A & M & HARILAL SHROFF & CO. SHE FILED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 28 TH OCTOBER 2005. THE TOTAL INCOME CONSISTED OF SALARY AT ` 48,72,000 TAXABLE UNDER SECTION 28(V) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) AND SHARE OF PROFIT OF ` 50,59,250, WHICH IS RECEIVED FROM MRS. PALLAVI SHARDUL SHROFF ITA NO.3511/MUM./2010 2 THE FIRMS IN WHICH SHE IS A PARTNER AND WHICH IS CL AIMED AS EXEMPT UNDER SECTION 10(2A) OF THE ACT. IN THE COMPUTATION OF TO TAL INCOME, SHE CLAIMED EXPENDITURE OF ` 5,02,151, CONSISTING OF SALARY PAID TO DRIVER, CAR EXPENSES, CAR DEPRECIATION AGAINST REMUNERATION RECEIVED FROM A PARTNERSHIP FIRM. THE ASSESSING OFFICER PARTLY DISALLOWED ON AD-HOC BASIS THE EXPENDITURE CLAIMED ON THE GROUND THAT PERSONAL ELEMENT CANNOT BE RULED OUT. FURTHER, HE INVOKED PROVISIONS OF SECTION 14A OF THE ACT AND AL LOCATED THE BALANCE EXPENDITURE BETWEEN TAXABLE INCOME AND EXEMPT INCOM E AND RE-COMPUTED THE INCOME IN THE FOLLOWING MANNER. 4 .6 THE PROPORTIONATE EXPENSES DISALLOWABLE UNDE R SECTION 14A OF THE ACT IS WORKED OUT AFTER REDUCING THE PER SONAL EXPENSES OF ` 75,323 FROM TOTAL EXPENSES OF ` 5,02,151. THE PROPORTIONATE DISALLOWABLE EXPENSES IS WORKED OUT AS UNDER:- SHARE OF PROFIT ` 50,59,215 REMUNERATION ` 48,72,000 EXPENDITURE CLAIMED ` 5,02,151 LESS; PERSONAL EXPENSES ` 75,323 ALLOCABLE EXPENSES ` 4,26,828 PROPORTIONATE EXPENSES ` 4,26,829 X ` 50,59,215 ` 99,31,215 PROPORTIONATE EXPENDITURE DISALLOWABLE ` 2,17,437 FURTHER, THE REFUND OF MUNICIPAL TAX OF EARLIER YE AR WAS BROUGHT TO TAX. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS) GRANTED PART RELIEF. FURTHER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS OF APPEAL. 1. THE COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMI NG THE DISALLOWANCE UNDER SECTION 14A AGAINST EXEMPT SHARE OF PROFIT WHEN SHARE OF PROFIT IS RECEIVED AFTER FULL PAYMENT OF T AX AND DISALLOWING AND TAXING AGAIN AMOUNTS TO DOUBLE TAXATION. MRS. PALLAVI SHARDUL SHROFF ITA NO.3511/MUM./2010 3 2. THE COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMI NG 15% MOTOR CAR EXPENSES AS PERSONAL EXPENSES WHEN 3 PERSONAL C AR EXPENSES OF THE FAMILY WHICH IS NOT CLAIMED BY THEM AND THE SAM E ARGUMENT IS ACCEPTED BY THE JT. COMMISSIONER OF INCOME TAX, 11( 3), IN A.Y. 2007- 08. 3. THE COMMISSIONER (APPEALS) ERRED IN TAXING REFUN D OF MUNICIPAL RECEIVED DURING THE YEAR WHICH IS OF EARLIER YEAR I N ABSENCE OF ANY CHARGING SECTION. 4. WE HAVE HEARD MR. RASESH V. PARIKH, LEARNED COUNSEL FOR THE ASSESSEE AND MR. SURENDRA KUMAR, LEARNED DEPARTMENTAL REPRES ENTATIVE FOR THE REVENUE. LEARNED COUNSELS CONTENTION IS THAT, BEFO RE JOINING THE FIRM AS A PARTNER, THE EXPENDITURE INCURRED BY THE ASSESSEE O N MAINTENANCE OF THE MOTOR CAR WERE PARTLY DISALLOWED @ 15%, ON THE GROU ND THAT THERE IS A PERSONAL ELEMENT INVOLVED. AFTER FORMATION OF THE P ARTNERSHIP FIRMS, IT IS THE POLICY OF THE FIRM NOT TO SEPARATELY REIMBURSE ANY EXPENDITURE INCURRED BY THE PARTNER ON THE MOTOR CAR. THUS, HE SUBMITS THAT NO MOTOR CAR EXPENSES WERE BOOKED IN THE BOOKS OF THE PARTNERSHIP FIRM. H E FURTHER SUBMITS THAT THE ASSESSEE HAD EARMARKED THREE CARS OWNED BY THE FAMILY MEMBERS AS PERSONAL CARS AND EXPENDITURE INCURRED ON THESE THR EE CARS WERE NEVER CLAIMED AS EXPENDITURE. THE EXPENDITURE INCURRED ON LY IN SUCH CARS WHICH IS EXCLUSIVELY USED FOR PROFESSION WAS CLAIMED. FOR TH IS YEAR, ONLY A PARTICULAR CAR WAS MARKED OUT FOR PROFESSIONAL USE AND WHEN TH E EXPENDITURE INCURRED ON THE OTHER CARS, WHICH WERE EARMARKED FOR PERSONA L USE, HAS NOT BEEN CLAIMED, AD-HOC OF 15%, AS WAS BEING DONE IN THE EA RLIER YEARS AND WHICH WAS ACCEPTED BY THE ASSESSEE, CANNOT BE REPEATED. O N THE ISSUE OF ALLOCATION OF EXPENDITURE UNDER SECTION 14A, HE SUBMITTED THAT IT IS NOBODYS CASE THAT THE EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR AN D ON BEHALF OF THE FIRM. HE POINTED OUT THAT THE FIRM HAS RECORDED ALL THE E XPENDITURE IN ITS BOOKS OF ACCOUNT AND WHAT THE ASSESSEE HAS INCURRED, WAS REL ATABLE TO THE REMUNERATION EARNED FROM THE PARTNERSHIP CONCERN FO R THE REASON THAT THE POLICY OF THE FIRM WAS NOT TO SEPARATELY REIMBURSE CAR EXPENSES BUT ONLY TO GIVE IT AS A PART AND PARCEL OF REMUNERATION. MRS. PALLAVI SHARDUL SHROFF ITA NO.3511/MUM./2010 4 5. ON GROUND NO.3, REGARDING TAXING OF REFUND OF MUNIC IPAL TAX, LEARNED COUNSEL SUBMITTED THAT THERE IS NO CHARGING SECTION IN THE ACT TO BRING THE SAME TO TAX. WHEN POINTED OUT THAT THE COMMISSIONER (APPEALS) HAS ACCEPTED THE ALTERNATE PLEA OF THE ASSESSEE AND GRA NTED RELIEF, THE LEARNED COUNSEL, THOUGH NOT LEAVING THIS GROUND, SUBMITTED THAT THE ISSUE NEED NOT BE ADJUDICATED IN VIEW OF THE RELIEF GRANTED TO THE ASSESSEE. 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, RELIED ON THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THE COMM ISSIONER (APPEALS) AND TOOK THIS BENCH AT PARA-5.1 CONTAINED AT PAGES-6 & 7 OF THE COMMISSIONER (APPEALS)S ORDER AND POINTED OUT THAT THE ASSESSEE HAD FAILED TO PROVE THE DIRECT NEXUS SO AS TO ESTABLISH THAT THE EXPENDITUR E WERE ATTRIBUTABLE TO THE EARNING OF REMUNERATION FROM THE FIRM. HE ALSO SUBM ITTED THAT THE ASSESSEE HAS NOT ADDUCED ANY EVIDENCE TO DEMONSTRATE THAT CA RS ARE SEPARATELY EARMARKED FOR PERSONAL USE. HE ALSO RELIED ON PARA- 5.8 CONTAINED IN COMMISSIONER (APPEALS)S ORDER AND SUBMITTED THAT N OTHING WAS BROUGHT ON RECORD TO SHOW THAT THE ASSESSEE WAS MAINTAINING TH E LOG BOOK OR ANY OTHER VERIFIABLE RECORD TO SEGREGATE PERSONAL AND PROFESS IONAL USER OF VEHICLES. 7. RIVAL CONTENTIONS WERE HEARD. ON CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOWS . (I) THE ASSESSEE WAS FOLLOWING A PRACTICE OF DISALLOWIN G 15% OF CAR EXPENDITURE ON AD-HOC BASIS UP TO THE ASSESS MENT YEAR 2003-04. AT THAT TIME, THE EXPENDITURE INCURRE D BY THE ASSESSEE ON ALL THE CARS MAINTAINED BY THE FAMI LY, WERE BEING CLAIMED AND OUT OF THE TOTAL EXPENDITURE, AD- HOC DISALLOWANCE @ 15% WAS MADE. FROM THE ASSESSMENT YE AR 2004-05, THE ASSESSEE HAS CLAIMED EXPENDITURE ON CA R AFTER EARMARKING CERTAIN CARS FOR PERSONAL USE. THI S FACT WAS BROUGHT OUT BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY EVIDENCE TO MRS. PALLAVI SHARDUL SHROFF ITA NO.3511/MUM./2010 5 REFUTE THIS SUBMISSION OF THE ASSESSEE. THE ASSESSE E HAS GIVEN THE AMOUNT OF EXPENDITURE AND DEPRECIATION IN CURRED ON THESE THREE CARS. THESE FIGURES HAVE NOT BEEN DI SPUTED. WHEN THE ASSESSEE HAS NOT CLAIMED EXPENDITURE ON AL L THE CARS MAINTAINED BY THE FAMILY AND THEN DISALLOW ON AD-HOC BASIS 15% OF THE TOTAL EXPENDITURE, THE ASSESSING O FFICER AS WELL AS THE COMMISSIONER (APPEALS) WERE NOT JUST IFIED IN FURTHER CONTINUING AD-HOC DISALLOWANCE OF 15% IN TH IS YEAR ALSO. THE EXPENDITURE INCURRED ON THE CAR WAS WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF PROFESSION AND, HENC E THE AD-HOC DISALLOWANCE IS HEREBY DELETED. (II) NOW, COMING TO THE APPLICATION OF PROVISIONS OF SEC TION 14A, THE FIRM IN WHICH THE ASSESSEE IS A PARTNER, I S NOT PAYING REMUNERATION AND CONVEYANCE ALLOWANCE OR CAR ALLOWANCE SEPARATELY. AS A MATTER OF POLICY, A CON SOLIDATED SUM IS PAID AS REMUNERATION AND THE PARTNER IS REQU IRED TO INCUR EXPENDITURE ON ITS OWN. UNDER THESE CIRCUMSTA NCES, IN OUR OPINION, THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING REMUNERATION WHICH IS BEING BROUGHT TO TAX UNDER SECTION 28(V). THE SH ARE OF INCOME OF THE FIRM HAS NO NEXUS WITH THE EXPENDITUR E INCURRED ON CAR BY THE ASSESSEE. ALL THE EXPENDITUR E OF THE FIRM ARE BOOKED IN THE FIRMS ACCOUNT AND THE EXPEN DITURE INCURRED BY THE PARTNER ON CAR CANNOT BE HELD TO HA VE A NEXUS IN THE EARNING OF SHARE INCOME FROM THE FIRM. HENCE, PROPORTIONATE DISALLOWANCE UNDER SECTION 14A, IN OU R OPINION, IS UNCALLED FOR. THUS, THE PROPORTIONATE DISALLOWANCE IS DISALLOWED. (III) INSOFAR AS THE ISSUE RELATING TO GROUND NO.3 IS CON CERNED, THE LEARNED COUNSEL SUBMITTED THAT HE DID NOT WISH TO PRESS THIS GROUND, TO WHICH LEARNED DEPARTMENTAL MRS. PALLAVI SHARDUL SHROFF ITA NO.3511/MUM./2010 6 REPRESENTATIVE DID NOT RAISE ANY OBJECTION. CONSEQU ENTLY, THIS GROUND IS DISMISSED AS NOT PRESSED . 8. IN THE RESULT, ASSESSEES APPEAL ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 27.4.2011. SD/- ASHA VIJAYRAGHAVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 27.4.2011 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, C BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI