DHARMASINH MORARJI POPAT, MUMBAI V. ASST CIT 11(2), MUMBAI

ITA 3767/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2993 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 26-02-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ZNDRA ANAND
• Keywords: Sale consideration of property below Jantri Value; Business expenditure; Salary income; Earning of tax free income; Period of limitation; Valuation report
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI RAJESH KUMAR , AM ./ ITA NO. 3767/MUM/2011 ( / ASSESSMENT YEAR: 2006 - 07 ) SHRI DHARMASINGH MORARJI POPAT / VS. A C I T - 11 ( 2) C/O M/S. MULLA AND MULLA AND CARIGIE BLUNT AND CAR OE MULLA HOUSE, 51 MAHATMA GANDHI ROAD, FORT MUMBAI 400001 ROOM NO. 440, AYAKAR BHAVAN M.K. ROAD, MUMBAI 400020 ./ PAN - AAMPP3239N /APPELLANT / RESPONDENT / APPELLANT BY: SHRI MADHUR AGARWAL & MS. ZNDRA ANAND / RESPONDENT BY : SHRI VIVEK ANAND OJHA / DATE OF HEARING : 05.10. 2015 / DATE OF PRONOUNCEMENT : 27 .10.2015 / O R D E R PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22.03.2011 PASSED BY CIT(A) - 3, MUMBAI AND IT PERTAINS TO A.Y. 2006 - 07. 2. FOLLOWING GROUNDS WERE URGED BY THE ASSESSEE BEFORE US: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX APPEALS - (CIT( A)) ERRED IN 1. RETAINING ADDITIONS TO CAPITAL GAINS. THIS HAS BEEN DONE ON THE BASIS OF ALLEGED SALE CONSIDERATION 'AS ESTIMATED BY VALUATION OF FICER' (SEE PARAGRAPH 2.1.3 LINES 3 AND 4) WHEN IN FACT, THE VALUATION OFFICER HAS NOT MADE ANY ESTIMATE. 2 ITA NO. 3767/MUM/2011 SHRI DHARMASINGH MORARJI POPAT 2. I. ENHANCING THE ASSESSMENT TO INCREASE THE DISALLOWANCE OF BUSINESS EXPENDITURE INCURRED BY THE APPELLANT FROM RS. 5,82,417/ - BY ASSESSING OFFICE R TO RS. 651,162/ - BY THE CIT(A). II. THE LEARNED CIT (A) ERRED IN CONSIDERING SECTION 14A AS BEING APPLICABLE. ASSUMING WHILE DENYING THAT SECTION 14A IS APPLICABLE, THE SAME SHOULD HAVE BEEN APPLIED IN THE MANNER DONE IN ASSESSEE'S OWN CASE IN ASSESSMEN T YEAR 2001 - 02, WHERE PURSUANT TO THE ITAT'S ORDER DATED 6TH JANUARY 2009, THE DISALLOWANCE IS WORKED OUT ON THE PRINCIPLES AND THE BASIS OF RULE 8D(2)(III). III. THE CIT(A) FAILED TO APPRECIATE THAT ALL THE EXPENSES AS CLAIMED WERE INCURRED 'WHOLLY AND E XCLUSIVELY' FOR EARNING THE PROFESSIONAL INCOME. THE EXPENSES WHICH HAVE BEEN DISALLOWED THOUGH BEING WHOLLY AND EXCLUSIVELY FOR PROFESSION ARE EXPENSES INCURRED FOR ATTENDING 'ARBITRATION PROCEEDINGS BY THE ASSESSEE'. SUCH DISALLOWANCE IS INCONSISTENT WIT H AND IN CONTRAVENTION OF CIRCULAR NO. 4 [C NO. 27(3) IT/50] DATED 19 - 6 - 1950 WHICH IN SUBSTANCE STATES: EXPENDITURE ON VISITS TO FOREIGN COUNTRIES - THE QUESTION OF ADMISSIBILITY OF EXPENDITURE ON VISITS TO FOREIGN COUNTRIES SHOULD NOT BE APPROACHED FROM THE POINT OF VIEW AS TO WHETHER SUCH VISITS RESULT IMMEDIATELY IN THE EARNING OF PROFITS. ALL THAT THE LAW REQUIRES IS THAT THE EXPENDITURE SHOULD NOT BE IN THE NATURE OF CAPITAL EXPE NDITURE OR PERSONAL EXPENDITURE OF THE ASSESSEE, AND SHOULD BE WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS. 3. THE FIRST ISSUE IS REGARDING ADDITION TO THE CAPITAL ACCOUNT. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS SHOWN CAPITAL GA INS IN RESPECT OF SIX PROPERTIES. IN RESPECT OF PROPERTIES AT SR. NO. 1 TO 4, ASSESSING OFFICER FOUND THE STAMP VALUATION TO BE HIGHER THAN THE VALUE DISCLOSED BY THE ASSESSEE. RELYING ON PROVISIONS OF SECTION 50C, ASSESSING OFFICER MADE A REFERENCE TO THE VALUATION OFFICER BUT DUE TO PERIOD OF LIMITATION, MADE AN ADDITION ON THE BASIS OF STAMP VALUATION. 3 ITA NO. 3767/MUM/2011 SHRI DHARMASINGH MORARJI POPAT 3.1 THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN THE CIT(A) HELD AS UNDER: - 2.1.3 FACTS AND MATERIAL ON RECORD ARE CONSIDERED. TH E VALUATION REPORT HAS NOT YET BEEN RECEIVED. NEVERTHELESS, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ASSESSING OFFICER IS DIRECTED TO ADOPT THE DALE CONSIDERATION OF THE PROPERTIES AT SR. NOS. 1 TO 4 AS ESTIMATED BY VALUATION OFFICER IN THIS REGARD. BAS ED ON THE SAME, ASSESSING OFFICER MAY COMPUTE LONG TERM CAPITAL GAINS AND APPELLANTS SHARE ACCORDINGLY. THEY MAY BE DONE WHILE GIVING EFFECT TO THIS ORDER. SAME HAS BEEN OPPOSED ON BEHALF OF ASSESSEE ON REASONING RAISED IN GROUND OF APPEAL BEFORE US AN REQUESTED TO ALLOW THE CLAIM A PROPOSED. ON THE OTHER HAND LEARNED D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 3.2 AFTER HEARING THE RIVAL CONTENTIONS AND GOING THROUGH THE MATERIAL ON RECORD, IN THE INTEREST OF JUSTICE, WE RESTORE THE MATTER TO THE ASSESSING OFFICER TO DECIDE THE SAME AS PER FACTS OF LAW BECAUSE BOTH THE PARTIES WERE NOT HAVING THE REPORT OF VALUATION OFFICER AT RELEVANT POINT OF TIME . 4. NEXT ISSUE IS REGARDING DISALLOWANCES OUT OF ACTUAL EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR PR OFITS AND GAINS OF PROFESSION. ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CREDITED SALARY INCOME FROM M/S. MULLA & MULLA OF ` 13,65,000/ - APART FROM PROFESSIONAL FEES OF ` 8,88,148/ - . ASSESSEE HAS CLAIMED VARIOUS EXPENSES TOTALING TO ` 14,27,438/ - AGAINST T HE PROFESSIONAL FEES AND ARRIVED AT A NET PROFIT OF ` 8,25,710/ - . THE MAJOR EXPENSE WAS OF TRAVELLING EXPENSES OF ` 10,23,469/ - . ASSESSING OFFICER OBSERVED THAT THE TOTAL EXPENSES CLAIMED AGAINST THE PROFESSIONAL INCOME WAS HIGHLY DISPROPORTIONATE TO THE PRO FESSIONAL FEES DECLARED. THEREFORE HE ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE EXPENSES CLAIMED SHOULD NOT BE 4 ITA NO. 3767/MUM/2011 SHRI DHARMASINGH MORARJI POPAT RESTRICTED TO 10% OF THE TOTAL ARBITRATION FEES SHOWN AND WHY THE BALANCE EXPENSES CLAIMED SHOULD NOT BE DISALLOWED. ASSESSEE OBJECT ED TO THE PROPOSED DISALLOWANCE OF EXPENSES UNDER SECTION 14A. THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY WHEREIN THE CIT(A) HELD AS UNDER: - 2.3.4 IN THE FACTS AND CIRCUMSTANCES, THEREFORE, THE DISALLOWABLE EXPENDITURE U/S. 14A IS T O BE CONSIDERED IN PROPORTION OF TAXABLE INCOME I.E. PROFESSIONAL FEE AND REMUNERATION ON ONE SIDE AND EXEMPT SHARE OF PROFIT ON THE OTHER TO THE GROSS. THE PROFESSIONAL FEE AND REMUNERATION ARE ` 8,88,148/ - AND ` 13,65,000/ - WHEREAS EXEMPT SHARE PROFIT IS ` 46,02,360/ - . OUT OF TOTAL ` 68,55,508/ - , TAXABLE INCOME IS 33.86% WITH EXEMPT INCOME BEING 67%. ACCORDINGLY, EXPENSES DISALLOWABLE U/S.14A ARE 67% OF ` 9,71,883/ - AMOUNTING TO ` 6,51,162/ - . ASSESSING OFFICER IS DIRECTED TO ACCORDINGLY ADD THIS SUM OF ` 6,51,16 2/ - TO THE TOTAL INCOME WHILE GIVING EFFECT TO THIS ORDER. INCOME IS ENHANCED ACCORDINGLY. PENALTY PROCEEDINGS U/S. 271(1)(C) ARE INITIATE SEPARATELY IN THIS REGARD FOR FILING OF INACCURATE PARTICULARS OF INCOME. 4.1 IT WAS POINTED OUT THAT SAME ISSUE CAM E OUT IN ASSESSMENT YEARS. 2004 - 05 AND 2005 - 06 IN ITA NO. 27 & 20/MUM/2011 IN ASSESSEES OWN CASE WHEREIN THE ITAT D BENCH HAS HELD AS UNDER: - 3. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. IN THE INTEREST OF JUSTICE WE RESTORE THIS ISSUE TO THE FILE OF THE LD. CIT(A) WITH A DIRECTION TO GIVE AN OPPORTUNITY TO THE ASSESSEE AND RE - ADJUDICATE THE GRIEVANCE OF THE ASSESSEE REGARDING DISALLOWANCE OTHER THAN SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT). 4.2 BOTH THE PARTIES AGREED TO THE FACT THAT T HIS MATTER MAY BE RESTORED TO THE CIT(A) WITH SIMILAR DIRECTION AS HAS BEEN GIVEN FOR ASSESSMENT YEARS 2004 - 05 AND 2005 - 06. FACTS BEING THE SAME, FOLLOWING THE ABOVE CITED DECISION, WE RESTORE THIS ISSUE WITH A 5 ITA NO. 3767/MUM/2011 SHRI DHARMASINGH MORARJI POPAT DIRECTION TO DECIDE THE SAME AS PER PROVISION S OF LAW AFTER PROVIDING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH OCTOBER, 2015. 27.10.2015 SD/ - SD/ - (RAJESH KUMAR) ( SHAILENDRA KUMAR YADAV ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI , DATED 27 TH OCTOBER, 2015 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) - 3 , MUMBAI 4. / THE CIT - 11 , MUMBAI 5. , , / DR, D BENCH ITAT, MUMBAI 6. / GUARD FILE . / B Y O RDER //TRUE COPY// /ASSTT. REGISTRAR) , /ITAT, MUMBAI