RELIANCES CAPITAL PARTNERS, MUMBAI V. JOINT COMMISSIONER OF INCOME TAX 19(2), MUMBAI

ITA 4822/MUM/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3167 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 10-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTHILAKSHMI NAYAKLD
• Assessee Lawyers: AMIT KHATIJALD ARS
• Keywords: Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

ITA NO.4822/MUM/2017 RELIANCE CAPITAL PARTNERS ASSESSMENT YEAR :2011-12 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.4822/MUM/2017 ( / ASSESSMENT YEAR : 2011-12 ) RELIANCE CAPITAL PARTNERS KAMALA MILLS COMPOUND TRADE WORLD, B-WING, 7 TH FLOOR S.B. MARG, LOWER PAREL MUMBAI- 400 013. / VS. J CIT - RANGE - 19(2) ROOM NO.309, 3 RD FLOOR PIRAMAL CHAMBERS LALBAUG, PAREL MUMBAI- 400 012. %& ./ ./PAN/GIR NO. AAIFR-9553-P ( &( /APPELLANT ) : ( )*&( / RESPONDENT ) ASSESSEE BY : S/SHRI JITENDRA SANGHVI AND AMIT KHATIJA-LD.ARS REVENUE BY : MS. JYOTHILAKSHMI NAYAK-LD. DR / DATE OF HEARING : 18/02/2020 / DATE OF PRONOUNCEMENT : 12/03/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2011-12 CONTEST THE ORDER OF L D. COMMISSIONER OF INCOME-TAX (APPEALS)-34, MUMBAI, [IN SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A)-34/JCIT-19(2)/IT-165/14-15 DATED 01/03/2017 ON FOLLOWING GROUNDS: - ITA NO.4822/MUM/2017 RELIANCE CAPITAL PARTNERS ASSESSMENT YEAR :2011-12 2 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 34, MUMBAI [ 'CIT(A) 1 ] ERRED IN UPHOLDING THE ACTION OF THE JOINT COMMISSIONER OF INCOME-TAX, RANGE - 19(2), MUMBAI ('ASSESSING OFFICER') IN DISALLOWING OF PROFESSIONA L FEES OF RS.1,40,01,500/- PAID TO M/S. SHARAN & CO. ON THE GROUND THAT THE APPELLANT HAS NOT CARRIED OUT THE BUSINESS OF TRADING IN PAINTINGS DURING THE YEAR AND THE SAI D EXPENDITURE OF PROFESSIONAL FEES ARE NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PUR POSE OF BUSINESS. THE APPELLANT SUBMITS THAT THE DISALLOWANCE OF RS.1 ,40,01,500/- IS WRONGLY MADE AND THE SAME OUGHT TO BE DELETED. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ASSESSING OFFICER'S CONCLUSI ON THAT DURING THE YEAR M/S. SHARAN & CO. HAS NOT RENDERED ANY PROFESSIONAL SERV ICES OF VERIFICATION OF ORIGINALITY OF PAINTINGS / ARTWORKS, PROVIDING ESTIMATES AND IN VESTIGATING AUTHENTICITY OF PAINTINGS / ARTWORKS. THE APPELLANT SUBMITS THAT THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT M/S. SHARAN & CO. HAVE ACTUALLY PROVIDED PROFESSIONAL SERVICES TO THE APPELLANT FOR WHICH A CONSIDERATION OF RS.1,40,01,500/- IS PAID BY THE AP PELLANT TO M/S. SHARAN & CO. AS PROFESSIONAL FEES. WITH PREJUDICE TO THE ABOVE: 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFI CER IN NOT RESTRICTING THE DISALLOWANCE OF PROFESSIONAL FEES PAID TO M/S. SHAR AN & CO. AT RS. 99,63,020/- AS AGAINST THE DISALLOWANCE OF RS.1,40,01,500/-, THE D IFFERENCE OF RS.40,38,480 BEING THE SUM OF PROFESSIONAL FEES IN TURN PAID BY M/S. S HARAN & CO. TO M/S. FIRST CANVASS FOR THEIR ASSISTANCE TO M/S. SHARAN & CO. IN RENDER ING SERVICES TO THE APPELLANT. THE APPELLANT SUBMITS THAT THE DISALLOWANCE OF THE PROFESSIONAL FEES OUGHT TO HAVE BEEN RESTRICTED TO RS. 99,63,020/-AS AGAINST THE SU M OF RS.1,40,01,500/-. WITH PREJUDICE TO THE ABOVE: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN NOT ADJUDICATING ON THE GROUND RAISED BY T HE APPELLANT WITH RESPECT TO ACTION OF THE ASSESSING OFFICER IN ALTERNATIVELY AND WITHO UT PREJUDICE RESTRICTING THE ALLOWABLY OF PROFESSIONAL FEES PAID TO M/S. SHARAN & CO. AT RS.40,36,980 AND THAT TOO BY TREATING THE SAME AS CAPITAL EXPENDITURE. THE APPELLANT SUBMITS THAT THE CIT(A) OUGHT TO HAVE ALLOW ENTIRE PROFESSIONAL FEES OF RS.1,40,01,500/- AS REVENUE EXPENDITURE AND NOT RES TRICTED THE ALLOWABILITY AT RS.40,36,980/- AS CAPITAL EXPENDITURE. AS EVIDENT, THE SOLE SUBJECT MATTER OF APPEAL IS DI SALLOWANCE OF RS.140.01 LACS. 2. WE HAVE CAREFULLY HEARD THE ARGUMENTS ADVANCED B Y RESPECTIVE REPRESENTATIVES AND PERUSED RELEVANT MATERIAL ON RE CORD INCLUDING ITA NO.4822/MUM/2017 RELIANCE CAPITAL PARTNERS ASSESSMENT YEAR :2011-12 3 DOCUMENTS PLACED IN THE PAPER-BOOK. WE HAVE ALSO DELIBERATED ON VARIOUS JUDICIAL PRONOUNCEMENTS AS CITED BEFORE US. OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN S UCCEEDING PARAGRAPHS. 3.1 BRIEFLY STATED, THE ASSESSEE BEING RESIDENT FIR M, STATED TO BE ENGAGED IN TRADING OF COMMODITIES, ARTICLES, SHARES ETC. WAS ASSESSED FOR YEAR UNDER CONSIDERATION U/S 143(3) ON 24/03/20 14 WHEREIN THE INCOME WAS DETERMINED AT RS.1747.43 LACS AFTER SOLE DISALLOWANCE OF RS.140.01 LACS, AS AGAINST RETURNED INCOME OF RS.16 07.41 LACS FILED BY THE ASSESSEE ON 30/09/2011. 3.2 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT ASSESSEE DEBITED SUM OF RS.140.01 LACS, BEING AMOUNT PAID TO M/S SHARAN & CO. TOWARDS SERVICES SUCH AS VERIFICATION OF ORIGINALIT Y OF PAINTINGS / ARTWORKS, PROVIDING ESTIMATES, INVESTIGATING AUTHENTICITY OF PAINTING / ARTWORKS ETC. THE ASSESSEE SUBMITTED THAT THE PAYMENT HAD A DIREC T CONNECTION WITH TRADING ACTIVITIES QUA PAINTINGS. 3.3 HOWEVER, IT WAS NOTED THAT THERE WAS NO PURCHAS E OF PAINTINGS DURING THE YEAR. THE LD. AO ALSO DOUBTED THE RENDER ING OF SERVICES. THE ASSESSEE, REFERRING TO INVOICES ISSUED BY THAT ENTI TY, SUBMITTED THAT PAYMENT MADE FOR SIMILAR SERVICES WAS DISALLOWED IN AY 2009-10 BUT THE SAME WAS DELETED BY LD. FIRST APPELLATE AUTHORITY. THE ATTENTION WAS ALSO DRAWN TO THE FACT THAT M/S SHARAN & CO. MADE FURTHER PAYMENT OF RS.40.36 LACS TO M/S FIRST CANVASS TOWARDS RENDERING OF SERVICES . THEREFORE, ALTERNATIVELY, THE DISALLOWANCE WAS TO B E RESTRICTED TO DIFFERENTIAL I.E. RS.99.63 LACS. ITA NO.4822/MUM/2017 RELIANCE CAPITAL PARTNERS ASSESSMENT YEAR :2011-12 4 3.4 HOWEVER, LD. AO OPINED THAT IN THE ABSENCE OF P URCHASE OF ANY PAINTINGS DURING THE YEAR, NO SUCH SERVICES COULD B E RENDERED AND THEREFORE, THE CLAIM WAS A FICTIOUS / SHAM CLAIM. 3.5 NOTING THE BACKGROUND OF THE ASSESSEE, IT WAS O BSERVED THAT THE ASSESSEE HAD ACQUIRED 36 PIECES OF PAINTING OF RENO WNED ARTISTS FOR AGGREGATE SUM OF RS.3654.72 LACS. DURING THE PERIOD OF 5 YEARS, THE ASSESSEE HAD SOLD ONLY ONE PAINTING DURING FY 2008- 09 FOR A SUM OF RS.22.50 LACS AND THEREFORE, THE CLAIM THAT THE ASS ESSEE CARRIED OUT BUSINESS OF TRADING OF PAINTINGS COULD NOT BE ACCEP TED. 3.6 THE ASSESSEE ALSO SUBMITTED THAT THE SAID PAINT INGS WERE KEPT AT THE PREMISES OF ONE OF THE PARTNERS AND THE ASSESSE E DID NOT OWN ANY SHOP OR GALLERY. THE ASSESSEE DID NOT PARTICIPATE I N ANY EXHIBITION. 3.7 IN THE ABOVE FACTUAL MATRIX, LD. AO CONCLUDE TH AT THE ASSESSEE HAD NOT CARRIED OUT ON ANY ACTIVITY WHICH COULD BE TERM ED AS TRADING OF PAINTINGS. THEREFORE, THE CLAIM WAS DISALLOWED SINC E THE SAME WAS HELD NOT TO BE A REVENUE EXPENDITURE. ALTERNATIVELY, THE CLAIM WAS TO BE RESTRICTED TO RS.40.36 LACS, BEING FEES PAID TO M/S FIRST CANVASS. 4. BEFORE LD. CIT(A), THE ASSESSEE, INTER-ALIA, RELIED ON THE FAVORABLE DECISION OF TRIBUNAL FOR AY 2009-10 DISMISSING REVE NUES APPEAL. HOWEVER, THE SUBMISSIONS COULD NOT FIND FAVOR WITH LD. CIT(A), WHO UPHELD THE STAND OF LD.AO BY OBSERVING AS UNDER: - 4.4 I HAVE CONSIDERED THE A.O'S ASSESSMENT ORDER AN D THE APPELLANT'S SUBMISSIONS I FIND THAT THE HON'BLE ITAT IN ITS ORDER DATED 01,03 .2016 IN THE CASE OF THE APPELLANT FOR A.Y. 2009-10 IN ITA NO.1024/MUM/2014 AS CITED B Y THE APPELLANT IN ITS SUBMISSION ABOVE HAD DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. HOWEVER, THE FACTS AS OBTAINING IN A.Y. 2009-10 AND THE FACTS OF THE YEAR UNDER CONSIDERATION ARE DIFFERENT. IN A.Y. 2009-10, IT WAS NOT DISPUTED THA T SERVICES WERE RENDERED. THE AO HAD ONLY HELD THAT THE PROFESSIONAL FEES PAID TO M/ S SHARAN & CO. (PROP; MR. ADITYA MITRA ANAND ) WAS EXCESSIVE AND HAD RESTRICTED THE EXPENSES TO THE AMOUNT PAID BY ITA NO.4822/MUM/2017 RELIANCE CAPITAL PARTNERS ASSESSMENT YEAR :2011-12 5 MR. ADITYA MITRA ANAND TO M/S FIRST CANVASS WHO HAD ACTUALLY PROVIDED THE SERVICES. IN THE PRESENT YEAR UNDER CONSIDERATION, THE APPELL ANT HAD SUBMITTED THAT PROFESSIONAL CHARGES WERE PAID TO M/S SHARAN & CO. TOWARDS SERVICES SUCH AS VERIFICATION OF ORIGINALITY OF PAINTINGS/ARTWORKS, PROVIDING ESTIMATES, AND INVESTIGATING AUTHENTICITY OF PAINTING/ARTWORKS. THE AO HAS CATEG ORICALLY MENTIONED IN THE ASSESSMENT ORDER THAT THERE WAS NO PURCHASE OR SALE S OF ANY PAINTING/ART WORK DURING THE YEAR UNDER CONSIDERATION. THIS FACT HAS NOT BEEN CONTROVERTED BY THE APPELLANT. WHEN THERE WAS NO PURCHASE OR SALES OF A NY PAINTING/ART WORK, THERE WAS NO SCOPE OF M/S SHARAN & CO. RENDERING SERVICES SUC H AS VERIFICATION OF ORIGINALITY OF PAINTINGS/ARTWORKS, PROVIDING ESTIMATES, AND INVEST IGATING AUTHENTICITY OF PAINTING/ARTWORKS. THE AO HAD ALSO OBSERVED THAT TH ERE IS NO TRADING ACTIVITY IN RESPECT OF PAINTINGS/ART WORKS. THE PROFESSIONAL FE E PAID TO M/S. SHARAN & CO. CANNOT, THEREFORE, BE SAID TO BE INCURRED WHOLLY AN D EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN VIEW OF THESE FACTS, THE ASSESSING OFF ICER WAS JUSTIFIED IN DISALLOWING THE PROFESSIONAL FEES OF RS.1,40,01,500/- PAID TO M /S. SHARAN & CO. AND THE SAME IS SUSTAINED. AGGRIEVED, THE ASSESSEE IS UNDER FURTHER APPEAL BEF ORE US. 5. FROM THE PERUSAL OF DETAILS OF SALE AND PURCHASE OF PAINTING YEAR- WISE, AS PLACED ON RECORD, IT IS OBSERVED THAT THE ASSESSEE HAS PURCHASED PAINTING AGGREGATING TO RS.3654.72 LACS D URING FINANCIAL YEARS 2006-07 TO 2008-09. IT HAS SOLD PAINTING OF R S.22.50 LACS DURING FINANCIAL YEAR 2008-09. THEREAFTER, NO SALE OR PURC HASE OF PAINTINGS HAVE TAKEN PLACE. HOWEVER, THE UNDISPUTED POSITION THAT EMERGES IS THAT FACT THAT THE SAID PAINTINGS HAVE BEEN HELD AS INVENTORI ES AND THE SAME FORMS PART OF ASSESSEES STOCK-IN-TRADE WHICH IS EV IDENT FROM THE PERUSAL OF FINANCIAL STATEMENTS, AS PLACED ON RECORD. THE F ACT THAT THESE CONSTITUTE INVENTORIES FOR THE ASSESSEE HAS NOT BEE N DISTURBED EVEN BY LOWER AUTHORITIES. THEREFORE, ANY EXPENDITURE INCUR RED IN CONNECTION WITH TRADING OPERATIONS WOULD BROADLY CONSTITUTE REVENUE EXPENDITURE FOR THE ASSESSEE. FOR EXAMPLE, RENT PAID BY THE ASSESSEE FO R PROPER STORAGE OF INVENTORY OR INSURANCE PREMIUM PAID TOWARDS INVENTO RY HELD BY THE ASSESSEE WOULD CERTAINLY CONSTITUTE ALLOWABLE REVEN UE EXPENDITURE FOR ITA NO.4822/MUM/2017 RELIANCE CAPITAL PARTNERS ASSESSMENT YEAR :2011-12 6 THE ASSESSEE. SIMPLY BECAUSE NO SALE / PURCHASE OF PAINTINGS HAS TAKEN PLACE DURING THE YEAR, THAT FACT ALONE COULD NOT UN SETTLE THE STATED PROPOSITION. 6. APPLYING THE SAME ANALOGY TO THE FACTUAL MATRIX OF THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS INCURRED EXPEND ITURE TOWARDS MAINTENANCE OF INVENTORIES. THE PAYMENT IS DULY SUP PORTED BY THE DEBIT NOTE ISSUED BY M/S SHARAN & CO. IT IS ALSO EVIDENT THAT SAID ENTITY HAS MADE FURTHER PAYMENT TO ANOTHER ENTITY I.E. M/S FIRST CANVASS TOWARDS RENDERING OF SERVICES, WHICH FACT LD. AO HAS ALSO A CCEPTED IN THE ALTERNATIVE AND PROPOSED THAT THE PAYMENT TO THAT E XTENT COULD BE ALLOWED TO THE ASSESSEE. 7. FROM PERUSAL OF TRIBUNAL ORDER FOR AY 2009-10, A S PLACED ON RECORD, IT IS ALSO NOTED THAT SIMILAR PAYMENT OF RS .192.65 LACS WAS PAID BY THE ASSESSEE TO AVAIL SIMILAR SERVICES IN THAT Y EAR. THE LD. AO TERMED THE PAYMENT TO BE EXCESSIVE AND ALLOWED PARTIAL CLA IM TO THE EXTENT OF RS.37.97 LACS. UPON FURTHER APPEAL, LD. CIT(A) DELE TED THE DISALLOWANCE AS PROPOSED BY LD.AO WHICH WAS AGITATED BY THE REVE NUE BEFORE THIS TRIBUNAL. THE TRIBUNAL, INTER-ALIA, NOTING THAT THE PAYMENT WAS IN ACCORDANCE WITH THE AGREED TERMS, IT WAS NOT CORREC T ON THE PART OF LD.AO TO QUESTION THE CORRECTNESS OF THE DECISION T AKEN BY THE ASSESSEE OUT OF COMMERCIAL EXPEDIENCY. THEREFORE, THE REVENU ES APPEAL WAS DISMISSED. 8. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTAN CES, WE FIND THAT AN EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE TOWAR DS MAINTENANCE / UPKEEP OF INVENTORIES AND THE SAME BEING PART OF TR ADING OPERATIONS, ITA NO.4822/MUM/2017 RELIANCE CAPITAL PARTNERS ASSESSMENT YEAR :2011-12 7 WOULD CONSTITUTE ALLOWABLE REVENUE EXPENDITURE. THE REFORE, BY DELETING THE IMPUGNED DISALLOWANCE, WE ALLOW GROUND NO.1 & 2 OF THE APPEAL. CONSEQUENTLY, THE ALTERNATIVE GROUNDS BECOME INFRUCTUOUS. 9. THE APPEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH, 2020. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; DATED : 12/03/2020 SR.PS, JAISY VARGHESE !'! / COPY OF THE ORDER FORWARDED TO : 1. &( / THE APPELLANT 2. )*&( / THE RESPONDENT 3. 1 ( ) / THE CIT(A) 4. 1 / CIT CONCERNED 5. 23),4 , 4 , / DR, ITAT, MUMBAI 6. 3567 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.