URANUS TRADING P.LTD, MUMBAI V. ITO 2(3)(4), MUMBAI

ITA 455/MUM/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3998 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 29-01-2016
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Additional evidence

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER I.T.A. NO. 455/M/2016 (ASSESSMENT YEAR: 2011 - 201 2 ) M/S. URANUS TRADING PVT LTD., 210, SIR VITHALDAS CHAMBERS, 16, MUMBAI SAMACHAR MARG, FORT, MUMBAI 400 001. / VS. INCOME TAX OFFICER, 2(3)(4), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACU1345F ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI K. GOPAL / RESPONDENT BY : SHRI SANJEEV JAIN, SR. DR / DATE OF HEARING : 16.03 .2016 / DATE OF PRONOUNCEMENT : 13 .04.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST ORDER WAS CIT (A) DATED 9 .11. 2015 FOR THE ASSESSMENT YEAR 20 11 2012 . THE EFFECTIVE GROUND RAISED B Y THE ASSESSEE IN THE APPEAL IS AS UNDER: LD CIT(A) ERRED IN NOT ALLOWING EXPENSES AND DEPRECIATION FULL AS CLAIMED BY YOUR APPELLANTS AND CONFORMING DISALLOWANCE TO THE EXTENT AS UNDER; I. MOTORCAR EXPENSES: RS. 1 24 682/ - II. LEGAL AND PROFESSIONAL EXPENSES: RS. 1 10, 000/ - III. INTEREST AND CAR LOAN PROVISION 19, 692/ - IV. TRAVELLING EXPEN SES RS. 5 61 844/ - V. DEPRECIATION RS 2 63 991/ - 2. FROM THE ABOVE IT IS EVIDENT THE MOTORCAR EXPENSES; INTEREST ON CAR LOAN AND TRAVELLING EXPENSES RELATE TO THE CAR MAINTAINED BY THE ASSESSEE. THE LEGAL AND PROFESSIONAL EXPENSE IS AN APPRENTICESHIP. SAME I S THE CASE WITH THE OTHER ISSUE AND THESE ISSUES ARE REQUIRED TO BE ADJUDICATE D SEPARATELY. THE ISSUE WISE ADJUDICATION IS TAKEN UP IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. 2 3. THE FIRST ISSUE RELATES TO THE ALLOWABILITY OF THE MOTORCAR EXPENSES, INTEREST ON CAR LOAN EXPENSES AND DEPRECIATION ON MOTOR CAR. DUR ING ASSESSMENT PROCEEDINGS THE ASSESSING O FFIC ER IS ALLOWED THE ENTIRE CLAIM O N ACCOUNTS OF MOTORCAR EXPENSES , INTEREST O N CAR LOAN AND THE DEPRECIATION ON CAR. AO TREATED THE SAME AS NON - BUSINESS EXPENDITURE. HOWEVER, DURING THE FIRST APPELLATE PROCEEDINGS BEFORE THE CIT (A), ASSESSEE MADE WRITTEN SUBMISSIONS AGAINS T THE CONCLUSIONS DRAWN BY THE ASSESSING O FFICER. AO IS OF THE OPINION THAT THESE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FO R THE BUSINESS OF THE ASSESSEE. HOWEVER , ASSESSEE ARGUED THAT THESE EXPENSES WERE INCURRED FOR THE BUSINESS PURPOSES OF THE ASSESSEE ONLY AND THEREFORE, THE CLAIM OF THE ASSESSEE IS FULLY ALLOWABLE. IN THIS REGARD, THE ASSESSEE SUBM ITTED THAT IT IS IN THE BUSINESS OF PURCHASE AND SALE OF THE PAINTINGS/ARTWORKS AND A COUPLE OF PAINTINGS WERE ALSO PURCHASE D DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THERE IS NO SALE OF PAINTING IN THIS YEAR. THE SAME SHOULD NOT BE CONSIDERED ERRONEOUSLY AS ABSENCE OF BUSIN ESS OPERATIONS IN THE YEAR UNDER CONSIDERATION. THERE IS REQUIREMENT OF TRAVELLING BY CAR FOR BUSINESS ACTIVITIES FOR PURPOSES OF ATTENDING TO SE MINARS, VISITING EXHIBITIONS ETC AND THEREFORE, THE CLAIM OF THE ASSESSEE IS REASONABLE AND ALLOWABLE. AFTER CO NSIDERING THE WRITTEN SUBMISSIONS GIVEN BY THE ASSESSEE , THE CIT (A) ACCEPTED TH E FACT THAT THE SAID EXPENSES WERE IN FACT INCURRED FOR THE BUSINESS ACTIVITIES OF THE ASSESSEE. HOWEVER, ON THE QUANTIFICATION OF ALLOWABLE EXPENDITURE, THE CIT (A) HELD THAT IT WOULD BE REASONABLE IF ONE THIRD OF SUCH EXPENSES IS TOWARDS THE BUSINESS OF THE APPELLANT (PARA 4.3 OF THE ORDER OF TH E CIT (A) IS RELEVANT ). ACCORDINGLY, AO WAS DIRECTED TO ALLOW ONE THIRD OF THE ABOVE EXPENSES AND DISALLOW THE BALANCE OF THE ABOVE EXPENSES WITH REFERENCE TO THE MOTORCAR EXPENSES OF RS. 1, 87 , 023 / - AND INTEREST ON CAR LOAN EXPENSES OF RS. 29, 538 / - . IN EFFECT, RS. 1 , 24 , 682 / - WAS CONFIRMED ON ACCOUNT OF MOTORCAR EXPENSES AND RS. 19,692/ - WAS CONFIRMED ON ACCOUNT OF INTEREST ON CAR LOA N ACCOUNT. THE CIT (A) CONFIRMED THE DISALLOWANCE OF RS 1,44, 374/ - . 4. AGGRIEVED WITH THE ABOVE DECISION OF THIS CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. ON THIS ISSUE, LD C OUNSEL FOR THE ASSESSEE FAIRLY MENTIONED THAT THE ASSESSEE IS ENGAGED IN TRA DING ACTIVITY OF PAINTS AND THERES A REQUIREMENT OF TRAVELLING. IT IS A 3 FACT THAT ASSESSEE DO ES NOT OWN A CAR EXCLUSIVELY FOR PERSONAL U SE. IN ANY CASE DISALLOWING SUM OF RS. 1,44, 374 / - IS ON HIGH SI DE. THEREFORE, AS PER THE LD C OUNSEL, THE DISALLOWANCE OF SUM OF RS. 50,000 / - ON AD - HOC BASIS SHOULD MEET BOTH ENDS OF THE JUSTICE. AFTER HEARING THE LD DR FOR THE R EVENUE, WE FIND , THE ADH OC ISM ADOPTED BY THE ASSESSING O FFICER IS WITHOUT ANY BASIS. AO HAS NOT GARNERED ANY EVIDENCE TO DEMONSTRATE THAT THE ASSE SSEE DID NOT USE THE CAR FOR THE PURPOSE OF THE BUSINESS. AO MERELY PRESUMED THAT THE SAID EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. FURTHER , WE ALSO FIND , THER E IS NO BASIS FOR THE CIT (A) IN THE RESORTING TO AD HOC ISM BY C ONSIDERING ONE THIRD OF THE EXPENDITURE IS ONLY INCURRED FOR BUSINESS PURPOSES. WHAT I S THE BASIS FOR THIS ONE THIRD? CONSIDE RING THE OVERALL FACTUAL METRIX OF THIS CASE, WE OF THE OPINION THAT THE DISALLOW ANCE OF A NOMINAL AMOUNT OF RS. 50,000 / - A S CONCEDE D BY THE LD COUNSE L FOR ASSESSEE SHOULD MEET ENDS OF JUSTICE . ACCORDINGLY, WE DIRECT THEIR ASSESSING O FFICER TO RESTRICT THE DISALLOWANCE TO SUM OF RS. 50,000 / - ONLY. TO TH AT EXTENT, THE ORDER OF THE CIT (A) I S MODI FIED. ACCORDINGLY RELEVANT PART OF THE GRO UND NO.1 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 5 . WE SHALL NOW TAKE UP THE ISSUE OF DEPRECIATION ON THE CAR, COMPUTER ETC . RELEVANT FACTS INCLUDE THAT THERE ASSESSEE DID NOT CONDUCT ANY BUSINESS OPERATIONS DURING THE YEAR UNDER CONSIDERATION AS EVIDENT F ROM THE P&L ACCOUNT WHERE NO INCOME IS CREDITED. HOWEVER , ASSESSEE SHOWN THE FACT THERE WERE PURCHASES OF COUPLE OF PAINTINGS AS MENTIONED ABOVE. EVENTUALLY , AO TOOK AN ADVERSE VIEW ON THE MATTER THAT THE RE NO DEPRECIATION ON MOTORCAR, TELEPHONE AND COMP UTER WHEN THERE IS NO INCOME REPORTED IN THE INCOME TAX RETURNS. HOWEVER , THE CIT (A) TOOK A DIFFERENT VIEW AND HELD THAT THE ABOVE ASSETS WERE PUT TO USE FOR BUSINESS ACTIVITIES IN THE YEAR UNDER CONSIDERATION. THEREFORE , ASSESSEE IS ENTITLED TO THE CLAIM OF DEPRECIATION. HOWEVER , ON QUANTIFICATION ISSUE, IN HARMONY WITH THE DECISION TAKEN IN RESPECT OF MOTORCAR EXPENSES AND THE INTEREST ON CAR LOAN, THE CIT (A) FOUND THAT THE DISALLOWANCE OF DEPRECIATION TO THE EXTENT OF ONE THIRD IS ONLY ALLOWABLE AND THE BALANCE OF TWO THIRD OF THE CLAIM OF DEPRECIATION SHOULD BE DISALLOWED. THEREFORE , THE ASSESSEE IS AGGRIEVED WITH THE DISALLOWANCE ON ACCOUNT OF D EPRECIATION TO THE EXTENT OF RS . 2,63,991/ - . 4 6. BEFORE US, LD AR FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE PURCHASED A COUPLE OF AR TWORKS AND MADE USE OF THE DEPRECIABLE ASSETS IE COMPUTER, CAR ETC FOR BUSINESS ACTIVITIES IN THE YEAR UNDER CONSIDERATION. THESE ASSETS IN QUESTION HAVE ALREADY ENTERED THE BLOCK OF ASSETS . IN SUCH CASES, WHERE THE DEPRECIABLE ASSETS ALREADY ENTERED TH E BLOCK OF ASSETS, THE DEPRECIATION CANNOT BE DISALLOWED ON INDIVIDUAL ASSETS OF THE SAID BLOCK. THERE IS NO PLACE FOR ADHOCISM IN MATTERS OF MAKING DISALLOWANCE OF DEPRECIAT ION ON THE INDIVIDUAL ASSETS ON AD - HOC BASIS. THE CONC LUSION DRAWN BY THIS CIT ( A) LACKS ANY SUPPORT OF THE ORDERS OR THE JUDGMENTS. AFTER HEARING BOTH THE PARTIES ON THIS ISSUE , WE FIND THAT THE DISALLOWANCE OF DEPRECIATION ON THE FACTS OF THIS CASE IS NOT LEGALLY SUSTAINABLE. THIS IS A CASE WHERE THE ASS ETS WERE UNDISPUTEDLY PUT TO USE. AS SUCH , THEY ALREADY CONFIRMED THE ADDITION TO THE TUNE OF RS 50,000 / - ON REVENUE ACCOUNT. THEREFORE , ANY FURTHER D ISALLOWANCE ON ACCOUNT OF DEPRECIA TION IS NOT LEGALLY SUSTAINABLE AS THE ASSETS IN QUESTION ARE UNDISPUTEDLY FOUND TO BE USED FOR BUSIN ESS ACTIVITIES. ACCORDINGLY , THE GROUND RAISED BY THE ASSESSEE IN THIS REGARD IS ALLOWED IN FAVOUR OF THE ASSESSEE. 7. LEGAL AND PROFESSIONAL EXPENSES: RELEVANT FACTS ARE THAT THE A SSESSEE INCURRED A SUM OF RS. 1, 10 , 000 / - ON ACCOUNT OF LEGAL AND PROFESSIO NAL EXPENSES . ACCORDING TO THE ASSESSEE , FEE OF RS. 50,000 / - WAS PAID FOR PROFESSIONAL ADVISES FOR HOLDING CONFERENCES ON SEVERAL OCCASIONS. THIS AMOUNT WAS PAID TO JAYANTILAL THAKKAR ASSOCIATES (C AS ) . THE SAID AMOU NT WAS PAID BY WAY OF CHEQUE NO. 541015. ASSESSEE DEDUCTED TAX AT SOURCE A SUM OF RS. 5000/ - AS PER THE TDS PROVISIONS. AFTER CONSIDERING THE ABOVE FACTS AND HEARING BOTH T HE PARTIES IN THE LITIGATION WE A RE IN OPINION , THE SAID CLAIM OF THE ASSESSEE SHOULD BE ALLOWED IN FULL. THERE IS A FIND ING OF THE CIT (A) ON RECORD, WHICH IS UNDISPUTED BY THE REVENUE WITH ANY INCRIMINATING EVIDENCES, THAT THERE IS A BUSINESS ACTIVITY D U R I N G T H E Y E A R A N D T H E A M O U N T S WERE PAID TO THE PROFESSIONALS FOR BUSINESS PURPOSES. THEREFORE, WE DIRECT THE CIT (A) / AO TO DELETE THE ENTIRE AD DITION ON THIS ACCOUNT. ACCORDINGLY, RELEVANT GROUND IS ALLOWED IN FULL. 5 8. THE LAST ISSUE RELATES TO THE TRAVELL ING EXPENSES AMOUNTING TO RS. 5, 61 ,844/ - : R ELEVANT FACTS IN THIS REGARD INCLUDE THAT THE ASSESSEE IS ENGAGED IN THE TRADING OF ARTW ORK. THE CASE OF THE ASSESSEE IS THAT THE SAID EXPENDITURE WAS INCURRED ON FOREIGN TRAVEL BY THE ASSESSEE IN VISITING VARIOUS COUNT RIES ABROAD. REFERRING TO PAGE 25 OF THE PAPER BOOK, LD C OUNSEL FOR THE ASSESSEE MENTIONED THAT JANSA R . THACKERSEY , DIRECTOR TRAVELLED ABROAD IE ZURICH AND DUBAI IN THE YEAR UNDER CONSIDERATION AND THE SAID AMOUNT INCLUDES THE EXPENDITURE ON ACCOUNT OF VISA AND OTHER CHARGES. IN THE WRITTEN SUBMISSIONS , ASSESSEE SUBMITTED THAT THERE IS A REQUIREMENT OF VISITING ABROAD BY THE AS SESSEE FOR SELECTION AND PURCHASE OF ART . IT IS ALSO SUBMITTED THAT THE D IRECTOR NAMELY MRS . JASNA R THACKERSEY HAS BEEN CONSISTENTLY VISITING FOREIGN COUNTRIES FOR THIS PURPOSE AND THE CLAIM OF THE ASSESSEE WAS ALLOWED BY THE ASSESSING O FFICER IN THE PAS T. LD C OUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO PAGES 25 TO 31 AND EVIDENCED THE FACT OF I NCURRING OF THE EXPENDITURE. HOWEVER , THERE IS NO REFERENCE IN ANY OF THESE PAGES THAT INDICATES THE PURPOSE OF THE VISIT BY THE COMPANYS D IRECTOR TO ZURICK AND DUBAI. WE FIND NOTHING ON RECORD TO DEMO NSTRATE THAT THE SAID VISITS WERE AIMED AT PURCHASE OF THE ART WORKS AS SUBMITTED B Y THE ASSESSEE . THIS IS A SETTLED PROPORTION OF LAW THAT THE SAID EXPENDITURE SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS TO SUPPORT THE CLAIM . THERE MUST NOT BE ANY PERSONAL ELEMENT IN THE EXPENDITURE CLAIMED BY THE ASSESSEE. IN ANY CASE IT IS NOT THE CASE OF THE AO THAT THE SAID EXPENDITURE WAS NOT INCURRED BY THE ASSESSEE. THE EVIDENCES FILED IN THE PAPE R BOOK REVOLVE AROUND THE GENUINENESS OF THE EXPENDITURE. WHAT WE ARE LOOKING FOR IS THE PURPOSE RELATED EVIDENCES AND NOT THE GENUINENESS, WHICH IS ACTUALLY UNDIS PUTED BY THE R EVENUE. IN ALL FAIRNESS , WE ARE OF THE OPINION THAT FOR WANT OF FACTS, THE MATTER SHOULD BE R EMANDED TO THE FILE OF AO FOR FRESH EXAMINATION OF THE ISSUE UNDER CONSIDERATION. ASSESSEE SHOULD DEMONSTRATE WITH CLEAR EVIDENCE THE PURPOSE OF VISITS TO FOREIGN COUNTRIES . AO IS DIRECTED TO ENTER TAIN ANY FURTHER EVIDENCES EVEN IF IT ME ANS ADDITIONAL EVIDENCE, WHICH ARE LIKELY TO BE PRODUCED BY THE ASSESSEE IN THE REMAND PROCEEDINGS. AO IS ALSO DIRECTED TO GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN 6 ACCORDANCE WITH THE SET PRINCIPLES OF NATURAL J USTICE. ACCORDINGLY , THIS PART OF THE GROUND RELATING TO TRAVELLING EXPENSES IS ALLOWED FOR STATISTICAL PURPOSE S . 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOU NCED IN THE OPEN COURT ON 1 3 T H APRIL, 2016. S D / - S D / - ( RAM LAL NEGI ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 1 3 .4.2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI