Shri Rajesh Manibhai Shah, Baroda V. The ACIT., Circle-2, Baroda

ITA 3859/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5688 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 12-10-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P M MEHTA
• Keywords: Depreciation; Business expenditure; Earning of tax free income
• Section: 143(3); 37(1)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI MUKUL SHRAWAT, JM AND D.C.AGRAWAL, AM SHRI RAJESH MANIBHAI SHAH, 20, ANAND NAGAR SOCIETY, PRODUCTIVITY ROAD, BARODA. VS . ASSTT. CIT, CIR-2, BARODA. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI P. M. MEHTA, AR RESPONDENT BY:- SHRI K. MADHUSUDAN, SR.DR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE RAISING FO LLOWING GROUNDS :- 1. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF EXPENDITURE OF RS.1,44,848/- ON THE GROUND THAT EXPENDITURE OF VEHICLE EXPENSES, FINANCIAL CHARGES AND DEPRECIATION ON VEHICLE CANNOT BE ALLOWED AGAINST I NCOME FROM PARTNERSHIP FIRM. HE OUGHT TO HAVE ALLOWED THE CLAI M OF THE ASSESSEE. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN TREATING AGRICULTURAL INCOME TO THE EXTENT OF RS.1,58,094/- AS INCOME FRO M UNDISCLOSED SOURCES AND ALSO IN TREATING INCOME OF RS.1,49,043/- AS AGRICULTURAL INCOME, WHEN HE OUGHT TO HAVE TREAT ED THE ENTIRE INCOME OF RS.307,137/- SHOWN BY THE APPELLANT IN TH E RETURN OF INCOME AS AGRICULTURAL INCOME. HE OUGHT TO HAVE ALL OWED THE CLAIM OF THE ASSESSEE. ITA NO.3859/AHD/2007 ASST. YEAR :2003-04 2 3. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LD. CIT(A) HAS GROSSLY ERRED IN ESTIMATIN G EXPENDITURE @ 25% WITHOUT ANY BASIS, WHEN NO SUCH EXPENDITURE I S REQUIRED TO BE ESTIMATED. THE EXPENDITURE DECLARED BY THE AS SESSEE MAY BE ALLOWED. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE AND HIS CO-PARTNERS ARE ENGAGED IN THE BUSINESS OF CONSTRUCTION. HE HAS DEC LARED INCOME FROM SHARE INCOME FROM PARTNERSHIP FIRM, INTEREST AND RE MUNERATION. THE ASSESSEE IS PARTNER IN SEVEN FIRMS FROM WHICH HE HA S RECEIVED FOLLOWING SHARES OF PROFIT, INTEREST AND REMUNERATION:- SL.NO. NAME OF THE FIRM ITE MS OF INCOME SHARE OF PROFIT INTEREST REMUNERATION 1 M/S UNITY ELECTRICALS 689 815 - 2 M/S UNICON AGENCIES 5204 1700 - 3 M/S PRAPTI BUILDERS NIL NIL - 4 M/S GLOBAL MARKETING 17171 4491 3000 5 M/S GLOBAL CONSTRUCTION 45509 2404 - 6. M/S PRAPTI DEVELOPERS & CONSTRUCTION NIL NIL NIL 7 M/S PRAPTI CONSTRUCTION 52844 216890 - 444650 453156 90000 OUT OF THE ABOVE, SHARE OF PROFIT OF RS.4,44,650/- WAS CLAIMED EXEMPT WHEREAS INCOME FROM INTEREST AND REMUNERATION TOTAL ING TO RS.5,43, 156/- WAS OFFERED FOR TAXATION. THE ASSESSEE CLAIMED FOLL OWING EXPENDITURE AGAINST ABOVE INCOME :- (I) DEPRECIATION AS CLAIMED ON VEHICLES 1,25,648/ - (II) VEHICLE EXPENSE & FINANCIAL CHARGES RS.24,000 LESS: 1/5 TH FOR PERSONAL USE RS.4,800 19,200/- 1,44,848/- 3 IT WAS CLAIMED THAT ABOVE EXPENDITURE WAS INCURRED DURING THE COURSE OF BUSINESS IN EARNING DECLARED INCOME. HOWEVER, THE A O DISALLOWED THE CLAIM ON THE GROUND THAT (I) ABOVE EXPENDITURE REL ATED TO EXEMPT INCOME. IN VIEW OF SECTION 14A, SHARE INCOME FROM P ARTNERSHIP IS EXEMPT UNDER SECTION 10(2A). (II) REGARDING REMUNERATION A ND INTEREST ON CAPITAL THE AO HELD THAT THEY WERE DERIVED AFTER ADJUSTING OF EXPENSES INCLUDING EXPENSES RELATING TO REMUNERATION. (III) BY WAY OF CLAIMING FURTHER EXPENSES, THE ASSESSEE IS TRYING TO DILUTE THE TAXA BLE INCOME. THE EXPENSES ARE NOT ADMISSIBLE UNDER SECTION 37(1) IN THE INDIVIDUAL CAPACITY. 3. ACCORDINGLY HE DISALLOWED THE CLAIM OF EXPENSES AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL LD. CIT(A) CONFIRMED THE ORDER OF THE AO FOR THE SAME REASONING. ACCORDI NG TO HIM ALSO, BUSINESS EXPENSES ARE ALLOWABLE FULLY IN THE CASE O F FIRM. THE ASSESSEE IS NOT CARRYING OUT ANY INDEPENDENT BUSINESS ACTIVITY AND THAT THESE EXPENSES ARE PERSONAL IN NATURE. 4. BEFORE US, LD. AR FOR THE ASSESSEE SUBMITTED THA T REMUNERATION AND INTEREST FROM PARTNERSHIP FIRM IS TAXABLE UNDER SEC TION 28(V) OF THE ACT. SINCE IT IS ASSESSABLE AS PROFITS AND GAINS OF PROF ESSION AND BUSINESS THEN EXPENDITURE INCURRED TO EARN SUCH INCOME WOULD BE A LLOWABLE BUSINESS EXPENDITURE U/S 37(1). IN THE ALTERNATIVE LD. AR SU BMITTED THAT PRO-RATA EXPENDITURE SHOULD BE ALLOWED TREATING WHOLE OF THE EXPENDITURE SO INCURRED BY THE ASSESSEE FOR THE PURPOSES OF EARNIN G TOTAL INCOME OF RS.9,97,806/- INCLUDING SHARE OF PROFIT AT RS.4,44, 650/-. 5. THE LD. DR ON THE OTHER HAND, RELIED ON THE ORDE RS OF AUTHORITIES BELOW. 4 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT ASSESSEE WILL NOT BE ENTITLED TO WHOLE OF THE CLAIM OF EXPENSES INCLUDING DEPRECIATION AS INCOME OF RS.9,97,806/- INCLUDES EX EMPT INCOME OF RS.4,44,650/-. NO EXPENDITURE RELATING TO EXEMPT IN COME CAN BE ALLOWED IN VIEW OF SECTION 14A. SHARE OF PROFIT IS EXEMPT U NDER SECTION 10(2A) OF THE ACT. HOWEVER, WE ARE NOT CONVINCED WITH THE ARG UMENTS OF LD. DR/CIT(A)/AO THAT ALL THE EXPENDITURE RELATING TO O THER TWO INCOME I.E. REMUNERATION AND INTEREST HAS BEEN DEBITED IN THE B OOKS OF THE FIRM AND, THEREFORE, A PARTNER CANNOT CLAIM ANY EXPENDITURE. CERTAIN EXPENDITURE ARE EXCLUSIVELY TO THE INDIVIDUAL WHILE MOVING AROUND F OR THE PURPOSES OF BUSINESS OF THE FIRMS. A FINDING HAD TO BE GIVEN TH AT FIRMS HAD THEIR OWN VEHICLES WHICH WERE GIVEN TO THE INDIVIDUAL PARTNER FOR BUSINESS PURPOSES AND THERE WAS NO OCCASION FOR THE INDIVIDUAL PARTNE R TO UTILIZE PERSONAL VEHICLES FOR CARRYING OUT THE BUSINESS OF THE FIRM. IN ABSENCE OF SUCH A FINDING THE ARGUMENTS OF THE ASSESSEE THAT IT HAS U SED THE VEHICLE FOR THE PURPOSES OF BUSINESS IN THE FIRM AND THE EXPENDITUR E RELATING THERETO HAS NOT BEEN DEBITED IN THE BOOKS OF ANY FIRM HAS TO BE UPHELD. IN VIEW OF THIS WE ALLOW THE CLAIM OF THE ASSESSEE ON PRO-RATA BASI S. THE TOTAL CLAIM OF EXPENDITURE OF RS.1,44,848/-. THIS IS INCURRED TO E ARN INCOME OF RS.9,97,806/-. THE TAXABLE INCOME IS RS.5,43,156/- WHEREAS NON- TAXABLE/EXEMPT INCOME IS RS.4,44,650/-. ON THE BASI S OF THESE FIGURES PRO- RATA EXPENDITURE WOULD BE ALLOWED TO THE ASSESSEE. THIS GROUND OF ASSESSEE IS ALLOWED IN PART. 7. THE NEXT ISSUE IS ABOUT DISALLOWANCE OF PART OF AGRICULTURAL INCOME TREATING THE DISALLOWANCE AS INCOME FROM OTHER SOUR CES. THE FACTS ARE THAT ASSESSEE DECLARED A RECEIPT OF RS.4 LACS FROM AGRIC ULTURAL ACTIVITIES. IT CLAIMED AN EXPENDITURE OF RS.92,863/-. THUS DECLARE D AGRICULTURAL INCOME COMES TO RS.3,07,137/-. THE AO ASCERTAINED FROM THE STATE GOVERNMENT 5 ABOUT THE AREA HELD BY THE ASSESSEE AND CROP PRODUC E. HE FOUND THAT ASSESSEE HAD FOLLOWING AREA OF LAND IN HIS POSSESSI ON WHERE CROP AS MENTIONED IN THE LAST COLUMN WAS GROWN:- VILLAGE SURVEY NO. HECTOR/AREA/GUNTHA CROP PRODUCED SEVASI 810/1 0-27-32 BANANA SEVASI 810/2 0-25-30 BANANA SEVASI 721 0-52-42 TOBACCO SEVASI OUT OF 721 0-37-50 SUGARCANE THE AO FURTHER FOUND THAT PRODUCT HAS BEEN SOLD IN THE WHOLE-SALE BASIS IN THE MANDI. HE FOUND OUT THE RATES AND SUBSEQUENT LY WORKED OUT HOW MUCH ASSESSEE WOULD HAVE RECEIVED AS SALE PRICE OF AGRICULTURAL PRODUCE. THE DATA IS AS UNDER :- SL. NO. NAME OF THE CROP AREA OF LAND UNDER AGRICULTURE- HECTARE/ ACRE/GUNTHA YIELD PER HECTARE IN KGS. TOTAL PRODUCTIVITY IN KGS. (COLUMN 3 X COLUMN 4) MARKET VALUE PER KG. (WHOLESALE MANDI BUYING RATE) TOTAL VALUE (RS.) (1) (2) (3) (4) (5) (6) (7) 1 BANANA 0-27-32 76127 20798 RS.3.50 72793 2 BANANA 0-25-30 76127 19260 RS.3.50 67410 3 TOBACCO 0-52-42 1301 682 RS.20.00 1640 4 SUGARCANE 0-34-50 6934 2600 RS.2.00 5200 TOTAL 147043 THUS ACCORDING TO THE AO TOTAL SALE PROCEEDS WOULD BE RS.1,47,043/-. THUS HE ALLOWED AGRICULTURAL EXPENDITURE @ 35% WHIC H RESULTED IN AGRICULTURAL INCOME OF RS.95,578/- AS AGAINST CLAIM OF RS.3,07,137/- MADE BY THE ASSESSEE. THIS RESULTED IN EXCESS CLAIM OF A GRICULTURAL INCOME OF RS.2,11,559. THE AO REQUIRED THE ASSESSEE TO PRODUC E THE DETAILS OF THE SALE PROCEEDS, AGRICULTURAL EXPENSES ETC. BUT NO DE TAILS WERE FURNISHED 6 BEFORE HIM. HE ACCORDINGLY TREATED A SUM OF RS.2,11 ,559/- AS NON- AGRICULTURAL INCOME. 8. THE LD. CIT(A) FOUND THAT SALE CLAIM OF SUGAR CA NE RS.56,881/- AS AGAINST RS.5200/- ESTIMATED BY THE AO. THIS WAS DET ERMINED ON THE BASIS OF COPY OF BILL OF SUGAR CANE SOLD TO BARODA DISTRI CT SUGARCANE GROWER ASSOCIATION AND DEPOSIT OF CHEQUE IN ABN AMBRO BANK . ANY HOW LD. CIT(A) DIRECTED THE AO TO ALLOW 25% EXPENDITURE AS AGAINST 35% ESTIMATED BY THE AO. 9. BEFORE US, LD. AR FOR THE ASSESSEE SUBMITTED THA T IN THE SUBSEQUENT ASST. YEAR 2004-05 WHERE ASSESSMENT WAS MADE UNDER SECTION 143(3) AGRICULTURAL INCOME OF RS.3,98,000 WAS ACCEPTED. FU RTHER THERE IS DIRECT EVIDENCE OF SALE OF SUGARCANE TO BARODA DISTRICT SU GARCANE GROWER ASSOCIATION FROM WHOM THE ASSESSEE HAD RECEIVED A S UM OF RS.56,881/-. HOWEVER, EVEN ON OUR ASKING THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE AS TO THE DETAILS OF THE SALES MADE BY IT. HE SUBMI TTED THAT A CERTIFICATE WAS SUBMITTED FROM VILLAGE HEAD WHO IS WELL VERSED WITH THE TYPE OF CROP GROWN AND RATES PREVAILING IN THE MARKET. THE RATES TAKEN FROM THE MANDI IS FOR WHOLESALE AND SHOULD NOT BE APPLICABLE TO TH E CASE OF THE ASSESSEE. 10. AGAINST THIS, LD. DR SUBMITTED THAT NO EVIDENCE OF ANY AGRICULTURAL INCOME HAS BEEN PRODUCED. THERE IS NO EVIDENCE OF S ALE RATES OR TO WHOM THE SALES HAVE BEEN MADE. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE CLAIM OF AGRI CULTURAL INCOME IS VAGUE AND IS UNSUBSTANTIATED. THERE IS NO IOTA OF A NY EVIDENCE AS TO WHAT ASSESSEE HAS DONE, HOW MUCH ASSESSEE HAD PRODUCED A ND TO WHOM IT WAS 7 SOLD. ON OUR ASKING HE CONFIRMED THAT TOTAL WEIGHT OF CROP AS GIVEN BY THE AO IN HIS ORDER IS CORRECT. IN OTHER WORDS ONLY DIS PUTE SURVIVES IS ABOUT RATES AT WHICH ASSESSEE COULD SELL THE PRODUCE. IN RESPECT OF BANANA THE AO HAS TAKEN A RATE OF RS.3.50 PER KG. FOR WHOLESAL E MARKET. IN CASE OF TOBACCO THE RATE IS TAKEN AT RS.20 PER KG. HOWEVER, IN THE CASE OF SUGAR CANE LD. CIT(A) HAS TAKEN THE FIGURE OF RS.56,881/- WHICH WE ALSO ACCEPT AS THERE IS NO CONTRARY MATERIAL. IN ABSENCE OF ANY CONTRARY MATERIAL WHAT AO HAS TAKEN AND HE HAS RELIED ON AUTHENTIC RATES R ECEIVED FROM THE MANDI COMMITTEE WE UPHOLD AND DECLINE TO VARY THE R ATES ADOPTED BY HIM EXCEPT IN THE CASE OF SUGAR CAN FOR WHICH WE AD OPT THE FIGURE TAKEN BY LD. CIT(A). THIS WOULD MAKE TOTAL AGRICULTURAL R ECEIPTS AT RS.1,47,043/-(-) 5,200/- (+) 56,881/- = RS.1,98,654 /-. ROUNDING IT WE TAKE AS RS.2 LACS. AS IN OTHER CASES DECIDED BY THE TRIBUNAL WE TAKE 40% AS EXPENDITURE AND TREAT THE BALANCE AS AGRICULTURA L INCOME WHICH GIVES THE FIGURE AT RS.1,20,000/- AS AGAINST RS.95,578/- TAKEN BY THE AO. THEREFORE, THE ADDITION MADE BY THE AO IS REDUCED A CCORDINGLY. THE ASSESSEE GETS CONSEQUENTIAL RELIEF. THIS GROUND IS ALSO PARTLY ALLOWED. 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 02/07/2010 SD/- SD/- (MUKUL SHRAWAT) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED : 02/07/2010 MAHATA/- 8 COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD