NIMESH N.KAMPANI, MUMBAI V. DCIT 4(3), MUMBAI

ITA 3559/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8115 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 10-06-2015
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Keywords: Additional evidence; Wrong claim
• Section: 143(3); 37(1)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI , . . , , BEFORE SHRI JOGINDER SINGH, J UDICIAL M EMBER , A ND SHRI N.K. PRADHAN , A CCOUNTANT M EMBER ITA NO . 3559 /MUM/20 15 ASSESSMENT YEAR: 2009 - 10 MR. NIMESH N. KAMPANI 141, 14 TH FLOOR, MAKER CHAMBERS III, JAMNALAL BAJAJ MARG, NARIMAN POINT, MUMBAI - 400021 / VS. DCIT - 4(3), 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD , MUMBAI - 400020 ( /ASSESSEE) ( / REVENUE) P.A. NO. AA AC K3436F / ASSESSEE BY SHRI SANJAY PARIKH / REVENUE BY SHRI B.S. BIST - DR / DATE OF HEARING : 14 /02 /201 7 / DATE OF ORDER : 08 /0 3 /2017 NIMESH N. KAMPANI ITA NO. 3559/MUM/2015 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 04/03/2015 OF THE LD. FIRST APPELLATE AUTHORITY, MUMBAI , CHALLENGING CONFIRMATION OF PENALTY AMOUNTING TO RS.17 ,19,875/ - , IMPOSED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT) BY HOLDING THAT LEGAL AND PROFESSIONAL EXPENSES WERE NOT DIRECTLY OR REMOTELY RELATED TO EARNING INCOME, EARNED BY THE ASSESSEE , AS, INTENTIONALLY A FALSE CLAIM WAS MADE . 2 . DURING HEARING, SHRI SANJAY PARIKH, LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, CLAIMED THAT THE QUANTUM APPEAL WAS DECIDED IN FAVOUR OF THE ASSESSEE BY ORDER DATED 16/06/2016 (ITA NO.3316/MUM/2013). THIS FACTUAL MATRIX WAS NOT CONTROVERTED BY SHRI B .S. BIST, LD. DR. HOWEVER, HE DEFENDED THE IMPOSITION OF PENALTY. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE ABOVE, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION FROM THE AFORESAID ORD ER OF THE TRIBUNAL DATED 16/06/2016 FOR READY REFERENCE AND ANALYSIS: - THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER BY THE LD. CIT(A) - 8, MUMBAI DATED 26.02.2013 FOR THE ASSESSMENT YEAR (A.Y.) 2009 - 10. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED FOR NIMESH N. KAMPANI ITA NO. 3559/MUM/2015 3 DISALLOWANCE OF LEGAL EXPENDITURE OF RS.40,72,750/ - AND TRAVELLING, HOTEL EXPENDITURE OF RS.14,93,188/ - . 2. RIVAL CONTENTIONS HAVING BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE DEBITED AN AMOUNT OF RS.55,65,938/ - UNDER THE HEA D 'LEGAL FEES AND RELATED EXPENSES'. IN RESPECT OF THIS EXPENDITURE, THE ASSESSEE EXPLAINED TO THE ASSESSING OFFICER THAT THE ASSESSEE WAS DIRECTOR ON BOARD OF MANY COMPANIES INCLUDING ON THE BOARD OF M/S. NAGARJUNA FINANCE LTD. THIS COMPANY M/S. NAGARJUN A FINANCE LTD. RECEIVED FIXED DEPOSIT FROM THE PUBLIC. THIS COMPANY WAS CHARGED WITH DEFAULT IN REPAYMENT OF FIXED DEPOSITS AND INTEREST THEREON. THE ASSESSEE HAD BEEN MENTIONED AS ONE OF THE ACCUSED AMONG SEVERAL OTHERS FOR NON PAYMENT OF THESE FIXED DEPO SITS BY M/S. NAGARJUNA FINANCE LTD.. THE ANDRA PRADESH GOVERNMENT HAD FILED SUIT AGAINST DIRECTORS OF M/S. NAGARJUNA FINANCE LTD. INCLUDING AGAINST THE ASSESSEE. TO DEFEND HIMSELF, THE ASSESSEE HAD APPOINTED VARIOUS ADVOCATES TO REPRESENT HIS CASE BEFORE V ARIOUS COURTS VIZ., DISTRICT COURT, HIGH COURT, SUPREME COURT. THE APPELLANT PAID FEES TO THE ADVOCATES AND OTHER EXPENSES INCURRED. THE DETAILS OF SUCH EXPENSES WERE FURNISHED BY THE ASSESSEE TO THE ASSESSING OFFICER. THE ASSESSEE ARGUED BEFORE THE ASSESS ING OFFICER THAT THE EXPENDITURE WAS INCURRED TO PROTECT HIS BUSINESS INTEREST AND, THEREFORE, THE SAME SHOULD BE FULLY ALLOWABLE U/S.37(1) OF THE ACT. AS PER A.O. THE EXPENDITURE WERE PERSONAL IN NATURE, HE THEREFORE DISALLOWED THE SAME. BY THE IMPUGNED O RDER, THE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT THE ASSESSEE IS MERCHANT BROKER. DURING THE YEAR NET PROFIT OF RS.1 5.50 CRORES WAS OFFERED TO TAX. AGAINST OF THE INCOME SO OFFERED THE ASSESSEE HAS CLAIMED LEGAL FEES AND RELATED EXPENDITURE OF RS.55,65,938/ - , WHICH WAS DISALLOWED BY THE A.O. ON THE PLEA OF PERSONAL EXPENSES. FROM THE RECORD WE FOUND THAT THAT THE EXPEND ITURE IS INCURRED BY THE ASSESSEE IN HIS CHARACTER NIMESH N. KAMPANI ITA NO. 3559/MUM/2015 4 AS A PROFESSIONAL AND IS NOT AN EXPENDITURE WHICH IS PERSONAL IN NATURE. THE ASSESSEE HAS IN HIS PROFESSIONAL CAPACITY BEEN A DIRECTOR OF VARIOUS LIMITED COMPANIES HAS EARNED PROFESSIONAL FEES FOR THE SERV ICES RENDERED TO THESE COMPANIES. HE WAS A DIRECTOR OF NAGARJUNA FINANCE LIMITED (NFL) FROM 14 - 12 - 1982 TO 28 - 04 - 1999. THE ASSESSEE HAS EARNED PROFESSIONAL INCOME DURING ALL THE YEARS, HE WAS, A DIRECTOR OF NFL. THE DETAILS OF PROFESSIONAL INCOME EARNED DUR ING THE SAID YEARS ARE GIVEN IN ANNEXURE A WHICH IS PLACED ON RECORD. THE ASSESSEE SERVES AS AN INDEPENDENT DIRECTOR ON THE BOARD OF SEVERAL LEADING INDIAN COMPANIES SUCH AS APOLLO TYRES LIMITED, BRITANNIA INDUSTRIES LIMITED, DEEPAK NITRITE LIMITED AND K SB PUMPS LIMITED AND ALSO A MEMBER OF VARIOUSGOVERNING BOARDS OF CENTRE FOR POLICY RESEARCH, INDIAN INSTITUTE OF CAPITAL MARKETS, CII, SEBI ETC. HE REGULARLY GETS SITTING FEES AND COMMISSION FROM MANY OF THESE COMPANIES. THE ASSESSEE WAS ALSO AN INDEPENDEN T DIRECTOR ON THE BOARD OF NAGARJUNA FINANCE LIMITED. NAGARJUNA FINANCE LIMITED HAD COLLECTED FIXED DEPOSITS FROM THE PUBLIC. NAGARJUNA FINANCE LIMITED WAS CHARGED WITH DEFAULT IN REPAYMENT OF FIXED DEPOSITS AND INTEREST THEREON. MR. NIMESH KAMPANI HAS BEE N MENTIONED AS ONE OF THE ACCUSED AMONG SEVERAL OTHERS, FOR NON - PAYMENT OF THESE FIXED DEPOSITS BY NAGARJUNA FINANCE LIMITED. THE ANDHRA PRADESH GOVERNMENT HAD SINCE FILED SUIT AGAINST DIRECTORS OF NAGARJUNA FINANCE LIMITED INCLUDING MR. KAMPANI. TO DEFEND HIMSELF, MR. KAMPANI HAS APPOINTED VARIOUS ADVOCATES TO REPRESENT HIS CASE BEFORE VARIOUS COURTS VIZ, DISTRICT COURT, HIGH COURT OF ANDHRA PRADESH, SUPREME COURT OF INDIA. AS THE EXPENDITURE IS INCURRED TO PROTECT HIS BUSINESS INTEREST THE SAME IS REQUIRE D TO BE ALLOWED U/S. 37(1) OF THE ACT. ACCORDINGLY WE DIRECT THE A.O. TO ALLOW LEGAL EXPENSES OF RS.40,72,750/ - . 4. IN RESPECT OF TRAVELLING EXPENDITURE, IT APPEARS THAT THE ASSESSEE HAS FILED DETAILS BEFORE THE CIT(A) UNDER RULE 46A, WHICH WAS DECLINED B Y THE CIT(A) AS ADDITIONAL EVIDENCE. SINCE THE IMPUGNED EXPENDITURE ALSO PARTAKE THE CHARACTER OF PROFESSIONAL EXPENSES AND WHICH GOES TO THE ROOT OF THE ISSUE NIMESH N. KAMPANI ITA NO. 3559/MUM/2015 5 WHILE DECIDING ALLOWABILITY OF HOTEL AND TRAVELLING EXPENSES, WE RESTORE THE MATTER BACK TO THE FILE OF THE A.O. FOR CONSIDERING THE ADDITIONAL EVIDENCE FILED WITH REFERENCE TO EXPENDITURE OF RS.14,93,188/ - INCURRED ON TRAVEL AND HOTEL AND FOR DECIDING THE SAME AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. 5. IN THE RESULT, THE ASSESSEES APP EAL IS ALLOWED IN PART. 2.2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE DECLARED TOTAL INCOME OF RS.1,55,54,145/ - IN HIS RETURN 22/12/2011. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ASSESSING THE INCOME AT RS.2,21,30,580/ - . THE ASSESSEE WAS S ERVED WITH A PENALTY NOTICE U/S 274 R.W.S 271(1)(C) OF THE ACT ON 22/12/2011 TO SHOW CAUSE AS TO WHY PENALTY SHOULD NOT BE LEVIED. THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL) CHALLENGING THE ADDITIONS MADE IN THE ASSESS MENT ORDER. HOWEVER, WHILE DOING SO, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) CONFIRMED THE ADDITION WITH RESPECT TO LEGAL FEES AND RELATED EXPENSES AMOUNTING TO RS.55,65,939/ - . THE ASSESSEE FILED THE REPLY VIDE LETTER DATED 27/02/2014 . THE LEGAL EXPEN SES WERE DISALLOWED BY THE ASSESSING OFFICER AS THE ASSESSEE MADE THE PAYMENT IN PERSONAL CAPACITY AND NOT THE COMPANY WHERE HE WAS A DIRECTOR. THE LD. ASSESSING OFFICER OPINED THAT THE LEGAL EXPENSES ARE NOT DIRECTLY OR REMOTELY RELATED TO EARNING INCOME BY THE ASSESSEE AND CONSEQUENT ADDITION WAS MADE. THE LD. ASSESSING OFFICER ALSO IMPOSED PENALTY TO THE TUNE OF RS.17,19,875/ - . NIMESH N. KAMPANI ITA NO. 3559/MUM/2015 6 2.3. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEAL), WITH RESPECT TO PENALTY, THE VIEW TAKEN IN THE PENALTY ORD ER WAS AFFIRMED. THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 2.4. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADING TO ADDITION MADE TO THE TOTAL INCOME, PENALTY ORDER AND THE CONCLUS ION DRAWN IN THE IMPUGNED ORDER/THE TRIBUNAL ORDER ON QUANTU M ADDITION, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL, IF KEPT IN JUXTAPOSITION AND ANALYZED, W E FIND THAT IN THE PRESENT APPEAL, THE PENALTY WAS LEVIED BY THE ASSESSING OFFICER VIDE ORDER DATED 20/03/2014, U/S 271(1)(C) O F THE ACT WITH RESPECT TO CLAIMED LEGAL EXPENSES /RELATED EXPENSES AMOUNTING TO RS.55,65,939/ - AND THE TRIBUNAL WHILE ADJUDICATING THE QUANTUM APPEAL, THE LEGAL EXPENSES TO THE TUNE OF RS.40,72,750/ - WERE HELD TO BE ALLOWABLE EXPENSES AND THE REMAINING AMOU NT OF RS.14,93,188/ - WITH RESPECT TO PROFESSIONAL EXPENSES, THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE SAME. IN VIEW OF THIS FACTUAL MATRIX, THE PROPORTIONATE PENALTY IMPOSED WITH RESPECT TO LEGAL EXPENSES OF RS.40,72, 750/ - IS DIRECTED TO BE DELETED. OUR VIEW FIND SUPPORT FROM THE DECISION IN K.C. BUILDERS VS ACIT (2004) 265 ITR 562 (SC) AND THE RATIO LAID DOWN IN CIT VS S.P. VIZ, 176 ITR 76 (PATNA). EVEN OTHERWISE, WHEN THE QUANTUM ADDITION IS DELETED, THERE REMAINS NO BASIS AT ALL FOR LEVYING THE PENALTY FOR CONCEALMENT OR FURNISHING INACCURATE PARTICULARS. THE PENALTY CANNOT STAND ON ITS LEGS NIMESH N. KAMPANI ITA NO. 3559/MUM/2015 7 WHEN ADDITION ON THE BASIS OF WHICH THE PENALTY WAS IMPOS ED REMAINS NO MORE IN EXISTENCE. 3. SO FAR AS, THE REMAINING AMOUNT OF RS.14 , 93,188/ - IS CONCERNED, THE LD. COMMISSIONER OF INCOME TAX (APPEAL) DECLINED THE ADDITIONAL EVIDENCE, FILED BEFORE HIM. THE TRIBUNAL REMANDED THE CLAIMED EXPENDITURE OF RS.14,93,188/ - INCURRED ON TRAVEL AND HOTEL TO THE FILE OF THE ASSESSING OFFIC ER TO EXAMINE THE FACTUAL MATRIX AND THEREAFTER TO ADJUDICATE THE SAME, THEREFORE, THE PROPORTIONATE PENALTY, IF ANY, ON THE CLAIMED EXPENDITURE OF RS.14,93,188/ - IS ALSO SET - ASIDE TO THE FILE OF THE LD. ASSESSING OFFICER AS THE SAME WILL BE DEPENDENT UPO N THE OUTCOME OF THE ADJUDICATION OF EXPENDITURE OF RS.14,93,188/ - . THUS , TO THIS EXTENT THE PENALTY IS ALSO REMANDED TO THE FILE OF THE ASSESSING OFFICER , CONSEQUENTLY, TO THIS EXTENT IT IS ALLOWED FOR STATISTICAL PURPOSES. FINALLY, THE APPEAL OF THE ASS ESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. T HIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT T H E CONCLUSION OF THE HEARING ON 14 /02/2017 . S D/ - SD/ - ( N.K. PRADHAN ) (JOGINDER SINGH) / A CCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 08/03 /2017 SHEKHAR, P.S / NIMESH N. KAMPANI ITA NO. 3559/MUM/2015 8 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A) - , MUMBAI 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBA I,