SEVANTILAL KANTILAL & CO., MUMBAI V. ADDL CIT 14(3), MUMBAI

ITA 3711/MUM/2010

• Counselvise Citation: 371119914 RSA 2010
• Duration Of Justice: 2 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 09-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Fair market value
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 3711/MUM/2010 ASSESSMENT YEAR 2006-07 M/S. SEVANTILAL KANTILAL & CO., 7, MANGALDAS ROAD, PRINCESS STREET, MUMBAI 400 002. PAN: AAAFS 4445H VS. ADDL. COMMISSIONER OF INCOME TAX, 14(3), MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HARI S. RAHEJA REVENUE BY : SHRI D.S. SUNDER SINGH, DR DATE OF HEARING : 09-05-2012 DATE OF PRONOUNCEMENT : 30-05-2012 ORDER PER RAJENDRA, A.M. THERE ARE TWO EFFECTIVE GROUNDS OF APPEAL FILED BY THE ASSESSEE CHALLENGING THE ORDER OF THE CIT(A)-25, MUMBAI DT. 25-03-2010. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING DISALLOWANCE OF ` 1,01,717/- BEING SOCIETY CHARGES PAID IN RESPECT OF PROPERTY GIVEN ON LEAVE AND LICE NCE BY THE APPELLANT AS A DEDUCTION IN COMPUTING INCOME FROM H OUSE PROPERTY. 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN NOT APPRECIATING THE FACT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF THE APPELLANT HAD CLARIFIED THAT THE AMOUNT OF ` 1,01,717/- BEING SOCIETY CHARGES PAID IN RESPECT OF PROPERTY GIVEN ON LEAVE AND LICENCE BY THE APPELLANT TO THE THIRD PARTY SHOULD BE ALLOWED AS A DEDUCTION WHILE COMPUTING IN COME UNDER ITA NO. 3711/MUM/2010 M/S. SEVANTILAL KANTILAL & CO., , 2 THE HEAD INCOME FROM HOUSE PROPERTY AND NOT WHILE COMPUTING INCOME FROM BUSINESS. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING DISALLOWANCE OF ` 6,29,081/- FROM GENERATOR RUNNING EXPENSES MADE BY THE ASSESSING OFFICER ON AN ADHOC BASIS 2.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN STATING THAT NO EVIDENCE WAS PRODUCED BY THE APPELL ANT FOR EXPENSES HAVING INCURRED GENUINELY FOR THE DIESEL E XPENDITURE WHEN IN FACT THE APPELLANT HAD PRODUCED ALL THE BIL LS OF THE THIRD PARTIES FOR THE PURCHASE OF DIESEL BEFORE THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2. FACTS OF THE CASE: UNDER THE SUB-HEAD SOCIETY CHARGES AND ALV, ASSESS ING OFFICER (AO) HAS DISCUSSED THE ISSUE WITH REGARD TO GROUND OF APPEAL NO.1 AS UNDER: THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 1,01,717/- AS SOCIETY CHARGES IN RESPECT OF THE MEHTA MAHAL PROPE RTY UNDER THE HEAD REPAIRS & MAINTENANCE. THE ASSESSEE WAS ASK ED TO EXPLAIN HOW AN AMOUNT WHICH HAS NO CONNECTION WHATS OEVER WITH THE BUSINESS OF THE ASSESSEE CAN BE ALLOWED AS A DEDUCTION. THE ASSESSEE STATED THAT THIS AMOUNT WAS SPENT AS H OUSING SOCIETY CHARGES IN RESPECT OF PROPERTY RENTED OUT. THE ASSESSEE FURTHER RELIED ON THE TRIBUNAL DECISION IN THE CASE OF SHARMILA TAGORE VS. JCIT (93 TTJ 483), IT IS SEEN THAT THE CASE RELIED UPON BY THE ASSESSE E HAS NO RELEVANCE IN THE PRESENT CASE AS IT WAS DECIDED IN CONNECTION WITH WHETHER HOUSING SOCIETY CHARGES COULD BE ALLOW ED AS DEDUCTION UNDER HOUSE PROPERTY INCOME. IN THE CA SE OF THE ASSESSEE THIS AMOUNT IS BEING CLAIMED AS DEDUCTION FROM PROFIT OF HIS BUSINESS WHICH CANNOT BE ALLOWED UNDER THE INCO ME TAX ACT. FURTHER, THE RENTAL AGREEMENT OF THE ASSESSEE WITH THE TENANT NOWHERE MENTIONS THAT IT IS THE RESPONSIBILITY OF T HE ASSESSEE TO PAY HOUSING SOCIETY EXPENSES. THUS, THE AMOUNT OF ` 1,01,717/- IS HEREWITH DISALLOWED AS DEDUCTION FROM THE INCOME OF THE ASSESSEE. ITA NO. 3711/MUM/2010 M/S. SEVANTILAL KANTILAL & CO., , 3 3. IN APPELLATE PROCEEDINGS, CIT(A) DECIDED THE ISS UE IN THE FOLLOWING MANNER: I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMISSI ONS AND ALSO PERUSED THE ORDER OF THE AO. I FIND THAT THE AO HA S DISCUSSED THIS ISSUE BY STATING THAT AN AMOUNT OF ` 1,01,717/- AS SOCIETY CHARGES IN RESPECT OF MEHTA MAHAL PROPERTY UNDER THE HEAD REPAIRS AND MAINTENANCE IS DEBITED. THE ASSESSEE WAS ASKED TO EXPLAIN HOW AN AMOUNT WHICH HAS NO CONNECTION WHATSOEVER WITH THE BUSINESS OF THE A SSESSEE CAN BE ALLOWED AS DEDUCTION. THE ASSESSEE STATED THAT THI S AMOUNT WAS SPENT AS HOUSING SOCIETY CHARGES IN RESPECT OF PROPERTY R ENTED OUT AND RELIED ON THE DECISION IN THE CASE OF SHARMILA TAGORE. IT IS SEEN THAT THE CASE RELIED UPON BY THE ASSESSEE HAS NO RELEVANCE IN THE PRESENT CASE AS IT WAS DECIDED IN CONNECTION WITH WHETHER HOUSING SOCI ETY CHARGES COULD BE ALLOWED AS DEDUCTION UNDER HOUSE PROPERTY INCOM E. IN THE CASE OF THE ASSESSEE THIS AMOUNT IS BEING CLAIMED AS DEDUCT ION FROM PROFIT OF HIS BUSINESS WHICH CANNOT BE ALLOWED UNDER I.T. ACT . FURTHER, THE RENTAL AGREEMENT OF THE ASSESSEE WITH A TENANT NOWH ERE MENTIONS THAT IT IS THE RESPONSIBILITY OF THE ASSESSEE TO PAY HOU SING SOCIETY EXPENSES. THUS, THE AMOUNT OF ` 1,01,717/- IS DISALLOWED. IN THE ABOVE SUBMISSIONS, THE AR OF THE APPELLANT HAS MORE OR LE SS REITERATED WHAT HAS BEEN STATED BEFORE THE AO BUT THERE IS NO DISPU TE REGARDING THE FACT THAT CLAIM IS NOT ADMISSIBLE A DEDUCTION EITHER UND ER THE HEAD INCOME FROM HOUSE PROPERTY OR UNDER THE HEAD BUSINESS. TH E ADMISSIBLE DEDUCTION U/S. 24 IS VERY SPECIFIC AND ALSO INCLUSI VE IN NATURE. NO DEDUCTION IS PRESCRIBED TO BE ADMISSIBLE ON ACCOUNT OF SOCIETY CHARGES AND THE RELIANCE PLACED BY THE APPELLANT ON THE DEC ISION OF SHARMILA TAGORE IS DISTINGUISHABLE ON FACT AS IN THAT CASE N ON OCCUPANCY CHARGES WERE LEVIED BY THE SOCIETY. IN THE CASE OF THE APP ELLANT NO SUCH CHARGES IS FOUND HAVING LEVIED. THE NATURE OF SOCIETY CHAR GES ALSO COULD NOT BE ASCERTAINED AND EXPLAINED BY THE APPELLANT. THEREF ORE, THE SAME IS NOT ADMISSIBLE AS DEDUCTION U/S. 24 OF THE I.T.ACT. SI MILARLY, THE APPELLANT HAS NOT DISPUTED THE FACT THAT THE SAME IS PERTAINI NG TO THE MEHTA MAHAL PROPERTY AND A DEDUCTION ONCE FOUND INADMISSI BLE UNDER ONE HEAD CANNOT BE TREATED AS ADMISSIBLE UNDER ANOTHER HEAD OF INCOME. THEREFORE, I DO NOT FIND ANY INFIRMITY IN THE ACTIO N OF THE AO IN DISALLOWING THE SOCIETY CHARGES OF ` 1,01,717/-, THE DISALLOWANCE MADE IS UPHELD. THIS GROUND IS DECIDED AGAINST THE APPE LLANT. 4. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMIT TED THAT ACTUAL RENT RECEIVED BY THE ASSESSEE WAS AFFECTED BY THE P AYMENT MADE TO SOCIETY, THAT DEFINITION OF THE ALV SAME EVEN AFTER AMENDMENT TO SECTION 23, THAT ASSESSEE WAS ENTITLED TO CLAIM THE DEDUCTION. DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT ISS UE WAS COVERED IN FAVOUR OF THE REVENUE. HE RELIED UPON CASE OF R ARE ROSE PREMISES PVT. LTD., (ITA 2575/MUM/2009 A.Y. 2005-06) ITA NO. 3711/MUM/2010 M/S. SEVANTILAL KANTILAL & CO., , 4 5. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSING THE DECISION OF THE CO-ORDINATING BENCH, WE ARE OF THE OPINION THAT ASSESSEES APPEAL SHOULD BE REJECTED. THE MATTER OF RARE ROSE (SUPRA ) WAS DECIDED BY THE TRIBUNAL AS UNDER: WE FIRST TAKE-UP THE ASSESSEES APPEAL BEING ITA N O. 2575/MUM/2009. THE FIRST ISSUE IS IN RESPECT OF DI SALLOWANCE OF SOCIETY CHARGES OF ` 1,95,038/-. WE HAVE HEARD THE PARTIES. THE ASSESSEE-COMPANY IS THE OWNER OF THE COMMERCIAL OFFICE PREMISES WHICH IS LET OUT AND ASSESSEE RECEIVES THE RENTAL INCOME. THE ASSESSEE HAS REDUC ED THE SOCIETY CHARGES OF ` 1,95,308/- FOR THE PURPOSE OF ARRIVING AT THE NET ANNUAL VALUE (ALV) OF THE PROPERTY. THE ASSESSEE C ONTENDED BEFORE THE AO THAT THE PROPERTY TAX AND SOCIETY CHA RGES ARE DIRECT CHARAGES TO BE DEDUCTED FROM GROSS RENT AND THOSE E XPENSES ARE IN THE NATURE OF EARNING THE INCOME. THE AO WAS NO T IMPRESSED WITH THE CONTENTION OF THE ASSESSEE AND DECLINED TO GIVE THE SOCIETY CHARGES OF ` 1,95,308/-. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) BUT WITHOUT SUCCESS. NOW, TH E ASSESSEE IS IN APPEAL BEFORE US. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORDS. THE LD. COUNSEL PUT HER RELIANCE ON T HE FOLLOWING DECISIONS:- I) SHARMILA TAGORE VS. JCIT -93 TTJ 483 (MUMBAI) II) BOMBAY OIL INDUSTRIES LTD., VS. DCIT -82 ITD 6 26 (MUMBAI) THE LD. D.R. RELIED ON THE DECISION IN THE CASE OF 83 ITD 467. THE SHORT CONTROVERSY IS IN RESPECT OF THE DEDUCTIBILIT Y OF THE SOCIETY CHARGES FROM THE GROSS RENT. AS PER THE PROVISIONS OF SECTION 23 OF THE ACT, THE ANNUAL LETTING VALUE OF THE PROPERTY I S DETERMINED. AS PER THE FICTION CREATED IN CL(A) OF SECTION 23(1 ), THE FAIR MARKET VALUE ALSO CAN BE TREATED AS THE ANNUAL LETTING VAL UE IF THE SAME IS MORE THAN ACTUAL RENT RECEIVED OR RECEIVABLE. S ECTION 24 PROVIDES THE RIGHTS OF THE ASSESSEE TO CLAIM THE DE DUCTION. AS PER THE LAW APPLICABLE FOR THE A.Y. 2005-06 FOLLOWING T WO DEDUCTIONS ARE AVAILABLE TO THE ASSESSEE:- ITA NO. 3711/MUM/2010 M/S. SEVANTILAL KANTILAL & CO., , 5 (I) SOME EQUAL TO 30% OF THE ANNUAL VALUE AND (II) INTEREST ON THE BORROWED CAPITAL IF THE SAME IS USE D FOR ACQUIRING, CONSTRUCTING OR RENOVATING THE PROPERTY OTHER THAN THIS, NO OTHER DEDUCTION IS ALLOWED. TH E DECISIONS RELIED ON BY THE LD. COUNSEL WERE RENDERED IN THE C ONTEXT OF THE LAW APPLICABLE IN THE RESPECTIVE YEAR. IN OUR OPIN ION, THE AO HAS RIGHTLY DENIED THE DEDUCTION TO THE ASSESSEE. WE F IND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). ACC ORDINGLY, GROUND NO.1 IS DISMISSED. IN LIGHT OF THE ABOVE DISCUSSION, GROUND OF APPEAL NO.1 IS DECIDED AGAINST THE ASSESSE. 6. GROUND OF APPEAL NO.2 HAS BEEN DISCUSSED AND DEC IDED BY THE CIT(A) AS UNDER: I HAVE CAREFULLY CONSIDERED THE FACTS AND SUBMISSI ONS AND ALSO PERUSED THE ORDER OF THE AO. I FIND THAT THE AO HA S DISCUSSED THIS ISSUE IN PARA 4.2 BY STATING THAT THE ASSESSEE HAS CLAIMED DIESEL EXPENSES OF ` 8,29,081/- AGAINST THE DIESEL EXPENSES OF ` 33,000/- IN THE PRECEDING ASSESSMENT YEAR. THE AS SESSEE WAS ASKED TO EXPLAIN THE ABNORMAL INCREASE IN CONSUMPTI ON OF DIESEL DURING THE YEAR UNDER CONSIDERATION TO WHICH THE AS SESSEE CLAIMED THAT NEW GENERATOR WAS PURCHASED TO CATER T O THE STORAGE FACILITY OF BRISTOL-MYERS SQUIBB. THE DIESEL CONSU MPTION PATTERN OF THE ASSESSEE WAS ALSO EXAMINED. IT IS FOUND THA T THE TOTAL DIESEL EXPENSES OF THE ASSESSEE UPTO DECEMBER, I.E. , FOR THE FIRST NINE MONTHS OF THE PREVIOUS YEAR WERE ` 58,220/- ONLY. WHEREAS THE LAST THREE MONTHS CONSUMPTION OF DIESEL WAS ` 7,72,372/-. THE ASSESSEE DID NOT SUBMIT PROOF IN SUPPORT OF ITS CLAIM THAT THE POWER CONSUMPTION INCREASED ABNORMALLY DURING THE Y EAR DUE TO SEVERE POWER CUTS IN BHIWANDI AREA WHERE THE GODOWN OF THE ASSESSEE IS LOCATED. SECONDLY, THE ASSESSEE REPLAC ED HIS OLD GENERATOR WITH A NEW ONE AND NO ADDITIONAL GENERATO R WAS PURCHASED DURING THE YEAR. THE GENERATOR IS OF THE CAPACITY OF 35 KWA AND KEEPING IN VIEW THE AVERAGE DIESEL CONSUMPT ION OF A GENERATOR, THE DIESEL CONSUMPTION EXPENDITURE CLAIM ED IS ABNORMALLY HIGH. IN VIEW OF THE ABOVE THE DIESEL E XPENDITURE CLAIMED BY THE ASSESSEE IS RESTRICTED TO 2 LAKH AND BALANCE IS DISALLOWED. ITA NO. 3711/MUM/2010 M/S. SEVANTILAL KANTILAL & CO., , 6 THE APPELLANT IN THE ABOVE SUBMISSION HAS REITERATE D WHAT HAS BEEN STATED BEFORE THE AO WHO HAS REPRODUCED THE AP PELLANTS SUBMISSION IN THE ORDER ITSELF. IN NONE OF THE SUB MISSIONS THE APPELLANT HAS EITHER DISPUTED THE OBSERVATIONS OF T HE AO IN THE ASSESSMENT ORDER SUCH AS UPTO THE FIRST NINE MONTHS I.E., UPTO DECEMBER, 2005 DIESEL EXPENSES WERE ONLY OF ` 58,220/- WHEREAS THE LAST THREE MONTHS WAS SHOWN AT ` 7,72,372/-. NO EVIDENCES COULD BE ADDUCED FOR DISRUPTION IN POWER SUPPLY DURING THESE LAST THREE MONTHS. NO GENERATOR EXCEP T REPLACING THE OLD GENERATOR WAS PURCHASED BY THE APPELLANT. NO OT HER EVIDENCES COULD BE PRODUCED FOR THE DIESEL EXPENDIT URE CLAIMED FOR THE LAST 3 MONTHS. IN THE ABSENCE OF ANY REBUT TAL FROM THE APPELLANT, AGAINST THESE OBSERVATIONS OF THE AO AND ALSO IN THE ABSENCE OF ANY EVIDENCES WHATSOEVER OF THE EXPENSES HAVING INCURRED GENUINELY AND ALSO ON ADMISSION ON THE PAR T OF THE APPELLANT DURING THE APPELLATE PROCEEDINGS THAT THE E IS NO WRITTEN AGREEMENT WITH THE SAID PARTY FOR BEARING THE EXPEN SES ON ACCOUNT OF DIESEL AND POWER ETC BY THE APPELLANT, H E DISALLOWANCE MADE BY THE AO IS THUS JUSTIFIED. THEREFORE, THE A CTION OF THE AO IS UPHELD. THIS GROUND IS ALSO DECIDED AGAINST THE APPELLANT. 7. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMIT TED THAT DIESEL GENERATOR WAS FOR THE WAREHOUSE OF APPELLANT, THAT ALL BILLS WERE PRODUCED BEFORE THE AO. DEPARTMENTAL REPRESENTATIV E (DR) RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. FROM THE DETAILS FILED BY THE ASSESSEE, IT WAS NOTICED THAT PAYMENTS WERE MADE IN VIOLATION OF SEC. 40A(3) FOR PURCHASING DIESEL. AR OF THE ASSESSEE A DMITTED THE SAID FACT. 8. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE, WE RESTRICT THE DISALLOWANCE TO ` 1,51,315/- OUT OF THE DISALLOWANCE UPHELD BY THE CIT(A). 9. APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY 2012. SD/- SD/- (B.R. MITTAL) (RAJENDRA) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATE: 30 TH MAY 2012 ITA NO. 3711/MUM/2010 M/S. SEVANTILAL KANTILAL & CO., , 7 TNMM COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR J BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI