C.V RAMNARAYAN PROP PROINT & CONSER, MUMBAI V. ITO 23(2)-2, MUMBAI

ITA 4840/MUM/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4153 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-10-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: C W ANGOLKAR
• Assessee Lawyers: S LETTER DATED ITA M
• Keywords: Rejection of books of accounts; Business income; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Corroborative evidences; Revenue expenditure
• Section: 143(3); 133(6); 37(1); 147; 148; 139

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER , I.T.A. NO.4730 /MUM/2010 ( / ASSESSMENT YEAR : 2005-06) INCOME TAX OFFICER - 23(2)(2), C-10/203, 2 ND FLOOR, PRATYAKSHAKAR BHAVAN, BKC, MUMBAI 51. V. SHRI C.V. RAMNARAYANAN, 101- SUNRISE APARTMENTS, BEHIND DEEP MANDIR CINEMA, OPP. LBS MARG, MULUND (W), MUMBAI 80. PAN : AAHPR6415P ( ! / APPELLANT ) .. ( '#! RESPONDENT ) I.T.A. NO.4840 /MUM/2010 ( / ASSESSMENT YEAR : 2005-06) SHRI C.V. RAMNARAYANAN, 101- SUNRISE APARTMENTS, BEHIND DEEP MANDIR CINEMA, OPP. LBS MARG, MULUND (W), MUMBAI 80. V. INCOME TAX OFFICER - 23(2)(2), C-10/203, 2 ND FLOOR, PRATYAKSHAKAR BHAVAN, BKC, MUMBAI 51. PAN : AAHPR6415P ( ! / APPELLANT ) .. ( '#! RESPONDENT ) REVENUE BY SHRI C.W. ANGOLKAR (D.R) ASSESSEE BY : ASSESSEES COUNSEL LETTER DATED 19-10-15 ITA 4730/M/10 & 4840/M/10 2 $ %&' ( / DATE OF HEARING : 26-10-2015 )*+, &' ( / DATE OF PRONOUNCEMENT : 27-01-2016 O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THESE TWO APPEALS BEING CROSS APPEALS BY THE REVENU E AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF THE LEARNED COMM ISSIONER OF INCOME TAX(APPEALS)- 33, MUMBAI (HEREINAFTER CALLED THE C IT(A)) DATED 22-03-2010 PERTAINING TO THE ASSESSMENT YEAR 2005-06. BOTH THE SE APPEALS ARE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER F OR THE SAKE OF CONVENIENCE AND BREVITY. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE WHEREAS A LETTER DATED 19-10- 2015 HAS BEEN SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE REQUESTING THAT THE WRITTEN SUBMISSIONS DATED 07-10-2014 FILED BY T HE ASSESSEE MAY BE CONSIDERED BY THE TRIBUNAL AND THE APPEAL MAY BE DE CIDED ON MERITS. THE BENCH, THEREFORE DECIDED TO DISPOSE OF THE APPEALS IN THE ABSENCE OF THE ASSESSEE AFTER HEARING THE LD. D.R. AND CONSIDERING THE WRITTEN SUBMISSIONS OF THE ASSESSEE AND OTHER MATERIAL PLACED ON RECORD. 3. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITA NO. 4830/MUM/2010 IN MEMO OF APPEAL FILED WITH THE TRIB UNAL READ AS UNDER:- THE COMMISSIONER OF INCOME TAX (APPEALS) -33 MUMBA I IS NOT JUSTIFIED IN : 1. CONFIRMING THE DISALLOWANCE OF BUSINESS DEVELOPM ENT EXP AMOUNTING TO RS. 9,44,810/- WHEREAS AS PER THE FACT S & CIRCUMSTANCES IT SHOULD BE ALLOWED. 2. CONFIRMING THE DISALLOWANCE OF CONSULTING CHARGE S AMOUNTING TO RS. ITA 4730/M/10 & 4840/M/10 3 5,57,004/-WHEREAS AS PER THE FACTS & CIRCUMSTANCES IT SHOULD BE ALLOWED. 3. CONFIRMING THE DISALLOWANCE OUT OF ENTERTAINMENT EXPENSES AMOUNTING TO RS. 1,68,298 /- ON ADHOC BASIS WHEREAS AS PER THE FACTS & CIRCUMSTANCES IT SHOULD BE ALLOWED. 4. CONFIRMING THE DISALLOWANCE OUT OF MOTOR CAR, TR AVELLING AND CONVEYANCE EXPENSES AMOUNTING TO RS.2,10,022/- ON A D HOC BASIS WHEREAS AS PER THE FACTS & CIRCUMSTANCES IT SHOULD BE ALLOWED. 5. CONFIRMING THE DISALLOWANCE OUT OF DEPRECIATION ON CAR AMOUNTING TO RS.41,600/- ON ADHOC BASIS WHEREAS AS PER THE FACTS & CIRCUMSTANCES IT SHOULD BE ALLOWED. 6. CONFIRMING THE DISALLOWANCE OUT OF DIWALI & NEW YEAR EXPENSES AMOUNTING TO RS.9,357 /- ON ADHOC BASIS WHEREAS AS PER THE FACTS & CIRCUMSTANCES IT SHOULD BE ALLOWED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND A PROFESSIONAL SERVING LARGE CORPORATE HOUSES IN THE FIELD OF OIL AND GAS SECTOR. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 2 5-10-2005 WITH THE REVENUE WHEREBY INCOME OF RS. 8,80,860/- WAS DECLAR ED WHICH WAS PROCESSED BY THE REVENUE ON 20.11.2005 U/S 143(1) O F THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). THE CASE WAS SELECTED FOR SCRUTINY AND A NOTICE U/S 143(2) OF THE ACT WAS ISSUED BY THE LEAR NED ASSESSING OFFICER(HEREINAFTER CALLED THE AO) AND SERVED UPO N THE ASSESSEE FOR FRAMING AN ASSESSMENT U/S 143(3) OF THE ACT READ WITH SECTI ON 143(2) OF THE ACT. THE ASSESSEE CHALLENGED THE NOTICE ISSUED BY THE AO U/S 143(2) OF THE ACT ON THE GROUND THAT THE NOTICE WAS NOT SERVED WITHIN THE TI ME LIMIT PRESCRIBED IN THE ACT. TO PROTECT THE INTEREST OF REVENUE, A NOTICE U /S 148 DATED 5-9-2007 WAS ISSUED BY THE REVENUE AND SERVED UPON THE ASSESSEE AFTER RECORDING THE REASONS. IN RESPONSE, THE ASSESSEE SUBMITTED THAT R ETURN FILED U/S 139 ON 25.10.2005 MAY BE TREATED AS RETURN OF INCOME FILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT. ITA 4730/M/10 & 4840/M/10 4 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS INCURRED BUSINESS DEVELOPMEN T EXPENSES OF RS. 9,78,410/- GIVEN TO THE SISTER CONCERN FOR DEVELOPM ENT OF BUSINESS, FOR WHICH EXPLANATION WAS CALLED BY THE A.O. TO PROVE THE SER VICES RENDERED BY M/S SUNRISE ENTERPRISES, PROPRIETARY CONCERN OF WIFE OF THE ASSESSEE FOR WHICH THE EXPENSES WERE STATED TO BE INCURRED BY THE ASSESSEE AND TO FURNISH INVOICES AND ESTABLISH THE REASONABLENESS OF THE EXPENSES BY WHICH ASSESSEES BUSINESS IS DEVELOPED. THE ASSESSEE WAS ALSO ASKED TO PRODUCE EDUCATIONAL QUALIFICATION AND EXPERIENCE OF THE WIFE IN THIS LI NE OF BUSINESS AND TO SUBMIT COPIES OF RETURN OF INCOME OF WIFE ALONG WITH INCOM E STATEMENT, BALANCE SHEET, P&L ACCOUNT, CAPITAL ACCOUNT ETC. FOR THE LAST 5 YE ARS ALONG WITH HER BANK STATEMENT. THE ASSESSEE IN REPLY SUBMITTED COPIES OF BILLS OF BUSINESS DEVELOPMENT ISSUED BY THE ASSESSEES WIFE. THE ASS ESSEE SUBMITTED THAT TOTAL CONSULTANCY CHARGES RECEIVED FROM M/S SUPRASESH GEN ERAL INSURANCE WAS RS. 19,71,000/- OUT OF WHICH THE ASSESSEE HAS PAID RS. 9,78,410/- TO M/S SUNRISE ENTERPRISES (PROP. MRS. VIDYA RAMNARAYANAN IYER WIFE OF THE ASSESSEE) FOR THE FOLLOWING REASONS ; SUPRASESH GEN ERAL INSURANCE PVT. LTD. IS INTO PROVIDING THE ONSHORE AND OFFSHORE OIL & GAS I NSURANCE POLICY. THE ASSESSEE SUBMITTED THAT THE ASSESSEE DID ONE PROJEC T FOR THE CONSULTANCY WITH M/S SUPRASESH GENERAL INSURANCE PVT. LTD. FOR WHICH HE RECEIVED CONSULTANCY IN 2003 AND IN THE CURRENT FINANCIAL YEAR HIS BUSIN ESS WAS FLOURISHING AND HE WAS BUSY IN HIS ROUTINE WORK FOR OIL AND GAS EXPLOR ATION/EXPLOITATION, TENDER PREPARATION ETC., SO WHEN SUPRASESH GENERAL INSURAN CE PVT. LTD. APPROACHED FOR FURTHER BUSINESS, THE ASSESSEE WAS UNABLE TO CA TER THE SAME DUE TO TIME CONSTRAINTS AND TOOK THE DECISION TO DISCUSS WITH H IS WIFE MRS. VIDYA RAMNARAYAN IYER AND SHE GAVE SUGGESTION THAT SHE WO ULD HANDLE THE SAID PROJECT AND THE ASSESSEE WILL PAY 50% OF SERVICE CH ARGES RECEIVED FROM SUPRASESH GENERAL INSURANCE PRIVATE LIMITED. AFTER HER INTRODUCTION, SHE WAS HANDLING THE SAID PROJECT SUCH AS TO LOOK AFTER LIAISON WORK AND INCURRED ALL EXPENSES INCLUDING CONVEYANCE AND TRAVELING EXP ENSES, ENTERTAINMENT ITA 4730/M/10 & 4840/M/10 5 EXPENSES AND SHE ALSO LOOKED AFTER ARRANGING MEETIN G ETC. . THE ASSESSEE SUBMITTED THAT HIS WIFE HAD DONE A PROFESSIONAL COU RSE IN NURSING AND EXCEPT THAT , OTHER WORK EXPERIENCE FOR GIVING CONSULTANCY AND OTHER SERVICES HAVE NOT BEEN ESTABLISHED. THE A.O., HOWEVER, REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE ASSESSEE IS NOT ABLE TO ESTABLISH THE WORK EXPERIENCE OF HIS WIFE AND HAS NOT PRODUCED ANY COR RESPONDENCE DONE BY HIS WIFE DURING THE TIME OF CONSULTANCY SERVICES .THE A O HELD THAT HOW SHE HANDLED THE PROJECT IS NOT PROVED THE A.O. OBSERVE D THAT THIS IS A FAMILY ARRANGEMENT TO REDUCE THE INCOME AND THE WIFE OF TH E ASSESSEE HAS GOT NO PRIOR EXPERIENCE IN THE FIELD OF CONSULTANCY BUSINE SS. ACCORDINGLY, THE A.O. REJECTED THE CLAIM OF ASSESSEE FOR BUSINESS DEVELOP MENT EXPENSES OF RS. 9,44,810/- AND ADDED THE SAME TO THE TOTAL INCOME O F THE ASSESSEE VIDE ASSESSMENT ORDERS DATED 30.12.2008 PASSED U/S 143(3 ) READ WITH SECTION 147 OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.12.20 08 PASSED U/S 143(3) OF THE ACT READ WITH SECTION 147 OF THE ACT BY THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 6. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE A.O. IS NOT JUSTIFIED IN REJECTING THE CLAIM MERELY ON THE BASIS THAT ONE SHOULD HAVE PRIOR EXPERIENCE BEFORE PROVIDING ANY PARTICULAR SERVICE. THE ASSESSEE SUBMITTED THAT THE SERVICES ARE PROVIDED TO M/S SUPRASESH GEN ERAL INSURANCE PVT. LTD. FOR RS. 19,71,000/- AND THE SAME WAS TREATED AS INC OME OF THE ASSESSEE, BUT FOR PROVIDING SERVICES SOME EXPENSE ARE BOUND TO BE INCURRED. THE ASSESSEE SUBMITTED THAT AS DIRECTED BY THE A.O., THE COPIES OF INCOME TAX RETURN FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 OF MRS. VIDYA RAMANARAYANAN IYER WAS ALSO SUBMITTED FOR PERUSAL OF THE AO. THE ASSE SSEE ALSO SUBMITTED THE FOLLOWING DETAILS OF SERVICE PROVIDED BY HIS WIFE T O M/S SUPRASESH GENERAL INSURANCE PVT. LTD.:- ITA 4730/M/10 & 4840/M/10 6 MANY OFFSHORE SERVICE COMPANY FLOATS VARIOUS TENDE RS AND BID FOR VARIOUS SERVICES IN REGARDS TO ENGINEERING/ PROCUREMENT/CON STRUCTIONS AND NUMBER OF PERSONS PARTICIPATE IN THAT BIDDING PROCESS. THE PA RTICIPANT WHO WINS THE BID HAS TO TAKE INSURANCE COVER FOR THE ENTIRE SCOPE OF WORK AS PER TENDER REQUIREMENT. IN THIS REGARDS THE APPELLANT'S WIFE H AS PROVIDED DURING THE YEAR SUCH SERVICE AS TO ENQUIRE ABOUT THE FLOATED TENDER S IN THE COMPANIES, WHAT IS THE SCOPE OF THE TENDER, WHO ARE THE PARTICIPANTS I N THE BID PROCESS AND WHO IS THE BIDDING WINNER AND FORWARD THE SAME DETAILS TO MI S. SUPRASESH GENERAL INSURANCE SERVICES. SHE ALSO STARTS THE INITIAL INT ERACTION WITH THE PARTICIPANT WHO WINS THE BID AND THEN HANDOVER THE FURTHER PROC ESS TO THE EXECUTIVES OF M/S. SUPRASESH GENERAL INSURANCE SERVICES. THE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HELD THAT THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED ON TH IS ISSUE. HE HELD THAT ON EXAMINATION OF RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-06 OF MRS. VIDYA RAMANARAYANAN IYER SHOWS THAT INCOME SAID TO HAVE RECEIVED BY HER AMOUNTING TO RS. 9,78,410/- FOR PROVIDING SERVICE T O THE ASSESSEE IS NOT INCLUDED IN THE RETURN OF INCOME FILED WITH THE REV ENUE EVEN THOUGH A RETURN OF INCOME HAS BEEN FILED SHOWING INCOME OF RS. 1,80 ,356/- RECEIVED FROM ONE KEEPWELL DAREFRONT AND HENCE THE ASSESSEE HAS NOT B EEN ABLE TO EXPLAIN THIS DISCREPANCY. THE CIT(A) HELD THAT IF THE ASSESSEES CONCERN HAD INDEED UTILIZED THE SERVICES OF MRS. VIDYA RAMANARAYANAN IYER , THE PAYMENTS MADE BY THE ASSESSEE SHOULD HAVE BEEN REFLECTED IN HER RETURN O F INCOME FILED WITH REVENUE. THE ASSESSEE WAS GIVEN SEVERAL OPPORTUNIT IES TO SUBMIT THE DETAILS OF SERVICES RENDERED BY MRS. VIDYA RAMANARAYANAN IY ER BUT THE ASSESSEE FAILED TO GIVE DETAILS OF SERVICES RENDERED BY MRS. VIDYA RAMANARAYANAN IYER. ON PERUSAL OF THE ASSESSEES WORK, THE CIT(A) OBSER VED THAT THE JOB INVOLVES IS A SPECIALIZED JOB AND INVOLVES LOT OF DOCUMENTATION AND TECHNICAL KNOWHOW AND NO DOCUMENTS WERE PRODUCED BY THE ASSESSEE TO E STABLISH THAT HIS WIFE MRS. VIDYA RAMANARAYANAN IYER RENDERED ANY SERVICES IN CONNECTION WITH THE ASSIGNMENT OF M/S SUPRASESH GENERAL INSURANCE PVT. LTD . UNDER THESE CIRCUMSTANCES, THE CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE AND IN SUPPORT HE RELIED UPON THE FOLLOWING JUDGMENTS:- ITA 4730/M/10 & 4840/M/10 7 I) DCIT V. PANORAMA PLASTICS (2006) 200 CTR (AHD.TRIB) 938 II) DAVINDER SINGH V. ACIT (2006) 101 TTJ (ASR.TRIB) 50 5 III) ITO V. D.B. TARAPOREVALA SONS & CO. (P) LTD. (2005) 1 SOT 123 (MUM- TRIB) IV) SAURASHTRA BALL PENS (P) LTD. V. DCIT (2008) 24 SOT 556(MUM-TRIB) THE CIT(A) AGREED WITH THE A.O.S OBSERVATION THAT THE EXPENSES OF RS.9,78,410/- PAID TO WIFE OF THE ASSESSEE CLAIMED FOR PROVIDING SERVICES TO THE ASSESSEE COULD NOT BE ALLOWED AS DEDUCTION DUE TO THE FOLLOWING CIRCUMSTANCES AND DISALLOWANCE MADE BY THE AO WAS C ONFIRMED BY THE CIT(A) VIDE ORDERS 22.03.2010 :- I) THE APPELLANT HAS HIRED OTHER CONSULTANTS ALSO TO DO THE WORK SAID TO BE DONE BY HIS WIFE AND HAS PAID RS. 1 3,05,265/- TO THEM IN THE YEAR. II) THE APPELLANT HAS ALSO NOT BEEN ABLE TO DISTING UISH THE NATURE OF WORK DONE BY BOTH THE ABOVE PARTIES TO WA RRANT PAYMENTS TO MRS. VIDYA RAMANARAYANAN ALSO. III) IT IS ALSO SEEN THAT MRS. VIDYA RAMANARAYANAN HAS NOT OFFERED THE AMOUNT RECEIVED BY HER FOR TAXATION IN HER RETURN OF INCOME FOR THE YEAR. V) THERE IS ABSOLUTELY NO MATERIAL ON RECORD TO SUGGES T THAT THE WIFE OF THE APPELLANT HAD RENDERED SERVICE TO THE APPELL ANT BUSINESS CONCERN AND IF SHE DID RENDER THE SERVICE WHAT WERE THE DETAILS OF THE SAME. 7. AGGRIEVED BY THE ORDERS DATED 22.03.2010 OF THE CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. ITA 4730/M/10 & 4840/M/10 8 8. THE ASSESSEE HAS SUBMITTED A LETTER DATED 19 TH OCTOBER, 2015 THROUGH HIS COUNSEL WHEREIN IT WAS STATED THAT HIS WRITTEN SUBMISSION DATED 7 TH OCTOBER, 2014 FILED WITH THE TRIBUNAL SHOULD BE CON SIDERED ON MERIT AND THE CASE MAY BE DECIDED ACCORDINGLY. IN HIS WRITTEN SUB MISSION, THE ASSESSEE REITERATED HIS SUBMISSION WHAT WAS SUBMITTED BEFORE THE LOWER AUTHORITIES AND SUBMITTED THAT MRS. VIDYA RAMANARAYANAN IYER (P ROP. OF M/S SUNRISE ENTERPRISES AND WIFE OF THE ASSESSEE) HAS PROVIDED SERVICE AS UNDER: 'SHE ENQUIRES ABOUT THE FLOATED TENDERS IN THE COMPANIES , WHAT IS THE SCOPE OF THE TENDER, WHO ARE THE PARTICIPANTS IN THE BID PROCESS AND WHO IS THE BIDDING WINNER AND FORWARD THE SAME DETAILS TO M/S. SUPRASE SH GENERAL INSURANCE SERVICES. SHE ALSO STARTS THE INITIAL INTERACTION W ITH THE PARTICIPANT WHO WINS THE BID AND THEN HANDOVER THE FURTHER PROCESS TO TH E EXECUTIVES OF M/S. SUPRASESH GENERAL INSURANCE SERVICES. MRS. VIDYA R AMANARAYANAN IYER HAS MADE ACCOUNTING ON CASH BASIS AND SHOWN THE SAID IN COME IN THE ASSESSMENT YEAR 2006-2007. IT WAS ALSO SUBMITTED TH AT SHE HAS PLACED ON RECORD COPY OF RETURN OF INCOME FILED WITH REVENUE FOR THE ASSESSMENT YEAR 2006-2007. THE ASSESSEE RELIED UPON THE FOLLOWING D ECISIONS IN SUPPORT OF HIS CONTENTION:- I) ADDL. CIT V. NESTLE INDIA LIMITED. (ITAT DELHI BENC H (2005) 94 TTJ (DEL) 53. II) TALLY SOLUTIONS (P) LTD. V. DCIT, ITAT BANGALORE BE NCH (2010) 130 TTJ (BANG) 234: (2010) 37 DTR 310 (2011) 8 ITR 434. 9. THE LD. D.R. RELIED UPON THE ORDERS OF AUTHORITI ES BELOW. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING WRITTEN SUBMISSIONS F ILED BY THE ASSESSEE WHICH ARE PLACED IN THE FILE. IT IS OBSERVED THAT THE AS SESSEE HAS CLAIMED TO HAVE INCURRED EXPENSES OF RS. 9,44,810/- PAYABLE TO MRS . VIDYA RAMANARAYANAN IYER, PROP. OF M/S SUNRISE ENTERPRISES , BEING WIFE OF THE ASSESSE. THE ASSESSEE HAS PRODUCED THE COPIES OF TAX RETURN OF M RS. VIDYA RAMANARAYANAN ITA 4730/M/10 & 4840/M/10 9 IYER AND STATED THAT SHE INCLUDED THE INCOME OF RS. 9,44,810/- ON CASH BASIS IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 200 6-07. THE ASSESSEE HAS STATED TO HAVE AVAILED THE SERVICES OF MRS. VIDYA R AMANARAYANAN IYER AND THE NATURE OF SERVICES STATED TO HAVE BEEN RENDERED IS BEING PRODUCED IN THE PRECEDING PARA, HOWEVER, THE ASSESSEE HAS NOT PROVE D THE RENDERING OF SERVICES BY HER WIFE WITH ADEQUATE EVIDENCES/DOCUME NTS. ON GOING THROUGH THE TAX RETURN, IT IS NOT CLEAR THAT THE INCOME OF RS. 9,44,810/- WAS INCLUDED IN THE SAID RETURN OF INCOME FOR THE ASSESSMENT YEA R 2006-07. IN OUR CONSIDERED VIEW , INTEREST OF JUSTICE WILL BE BEST SERVED IF THE ISSUE IS SET ASIDE TO THE FILE OF A.O. FOR DE-NOVO CONSIDERATION OF TH E ISSUE, AFTER CONSIDERING THE SUBMISSIONS AND EVIDENCES FILED BY THE ASSESSEE TO SUPPORT HIS CONTENTIONS . THE ASSESSEE IS DIRECTED TO FILE NECESSARY EVIDENCE S/DOCUMENTS BEFORE THE AO TO SUBSTANTIATE HIS CLAIM WITH RESPECT TO ALLOWABIL ITY OF BUSINESS DEVELOPMENT EXPENSES OF RS.9,44,810/- CLAIMED AS REVENUE EXPEND ITURE BY THE ASSESSEE TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSES OF THE BUSINESS. ACCORDINGLY, WE SET ASIDE THIS MATTER TO THE FILE O F A.O. WHO WILL DECIDE THE ISSUE AFRESH IN THE LIGHT OF EVIDENCES AND EXPLANAT IONS FILED BY THE ASSESSEE. NEEDLESS TO SAY THAT THE AO SHALL PROVIDE SUFFICIEN T OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH LAW IN COMPLIANC E OF PRINCIPLES OF NATURAL JUSTICE. WE ORDER ACCORDINGLY. 11. REGARDING THE NEXT ISSUE, THE ASSESSEE HAS INCU RRED CONSULTANCY CHARGES AMOUNTING TO RS. 13,05,262/- AND THE ASSESS EE WAS CALLED UPON TO FURNISH THE NAME AND ADDRESS OF THE PERSONS TO WHOM CONSULTANCY CHARGES WERE PAID ALONG WITH NATURE OF CONSULTANCY PROVIDE D AND DETAIL OF WORK CARRIED OUT BY THEM AND TO FURNISH THE BILLS RAISED AND WHETHER TDS WAS DEDUCTED OR NOT BY THE ASSESSEE AND WHETHER THE SAM E WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. THE ASSESSEE IN REPLY SUBMITTED THE DETAILS OF CONSULTANCY CHARGES AND EX PLAINED THAT ENGINEERING CONSULTANCY OF UNDERWATER PETROLEUM PIPE LINE REPAI RING WORK (MECHANICAL ITA 4730/M/10 & 4840/M/10 10 CONNECTORS/ROV) IS DONE BY THESE PROFESSIONAL. VER IFICATION BY THE AO OF ANNEXURE FILED BY THE ASSESSEE REVEALS ONLY A LEDGE R ACCOUNT WITH NAMES OF VARIOUS PERSONS. THE ASSESSEE SUBMITTED THE NAME A ND ADDRESS OF THE PARTIES WHICH IS AS UNDER:- 1. S.S.SHIP SERVICES RS.3,25,000/- 43, ASHOK CHAMBERS, P.D'MELLO ROAD, MASJID, MUMBAI - 400 009 2. RAJNI SINGHAL RS. 87,000/- ADDRESS AS ABOVE 3. P. NAYYAR RS. 1,75,000/- QRTS. NO.11, LURAH, BAKSHI NAGAR JAMMU TAWI, J&K 180001 4. BALJIT KAUR RS. 1,44,251/- NO ADDRESS 5. SILICON VALLY INTERNATIONAL RS. 5,73,261/- N-42, JAL VAYU VIHAR, POWAI, MUMBAI - 72. THE A.O. ISSUED NOTICES U/S 133(6) OF THE ACT TO PA RTIES 1,2 AND 5 TO VERIFY THE GENUINENESS OF THE CLAIM .AS PER WARD INSPECTOR'S R EPORT THE PARTY MENTIONED AT SR. NO. 1 & 2 I. E. M/ S. S. S. SHIP SERVICES AN D RAJNI SINGHAL COULD NOT BE SERVED WITH NOTICES AS THE PARTIES WERE NOT AVAILAB LE ON THE GIVEN ADDRESS AND THEY LEFT THE PLACE 2-3 YEARS BEFORE. WITH RESPECT TO SR. NO. 4, I.E. BALJIT KAUR THE INFORMATION COULD NOT BE GATHERED AS THE ASSESS EE HAS NOT GIVEN THE ADDRESS. WITH RESPECT TO SR. NO. 3, I.E. P. NAYYAR AS THE MATTER WAS GETTING BARRED BY LIMITATION ON 31.12.08, THE SAME COULD NO T BE VERIFIED AS THE ADDRESS GIVEN IS JAMMU TAWI AS THERE IS NOT MUCH TI ME LEFT. AS REGARDS SR. NO. 5, M/S. SILICON VALLY INTERNATIONAL HAS SUBMITT ED THE DETAILS WHICH IS VERIFIED BY THE AO. IN THE ABSENCE OF ANY PROPER EV IDENCES, OR ANY OTHER PROOF, THE A.O. DISALLOWED A SUM OF RS. 5,57,004/- AS THE EXPENSES HAS NOT BEEN ITA 4730/M/10 & 4840/M/10 11 PROVED BY THE ASSESSEE EXCEPT WITH RESPECT TO SR. N O.5. ON FURTHER VERIFICATION BY THE A.O. , IT WAS ALSO REVEALED THAT IN THE OFFI CE ADDRESS GIVEN BY THE ASSESSEE, THERE WAS NO NAME PLATE OF THE COMPANY EI THER ON THE MAIN DOOR OR ON NOTICE BOARD OF THE SOCIETY AND AT THE TIME OF V ISIT BY THE INSPECTOR, HIS WIFE AND TWO CHILDREN RESIDES ON THE ABOVE PLACE AN D IT WAS SEEN THAT ASSESSEE IS NOT DOING ANY BUSINESS AT THE ABOVE PLA CE AND NO COMPANY OR PROPRIETORSHIP CONCERN OF THE ASSESSEE M/S PROINT A ND SONSER EXISTED AT THE GIVEN ADDRESS. UNDER THESE CIRCUMSTANCES, THE A.O. DISALLOWED AN AMOUNT OF RS. 5,57,004/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE VIDE ASSESSMENT ORDERS DATED 30.12.2008 PASSED U/S 143(3 ) READ WITH SECTION 147 OF THE ACT. 12.AGGRIEVED BY THE ASSESSMENT ORDERS DATED 30.12.2 008 PASSED BY THE AO U/S 143(3) READ WITH SECTION 147 OF THE ACT , THE A SSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT THE ASSESSEE H AS FURNISHED THE DETAILS OF CONSULTANCY CHARGES PAID OF RS. 13,05,262/- ALONG W ITH BANK STATEMENT FOR PROOF OF ITS PAYMENT. THE ASSESSEE CONTENDED THAT T HE AO WAS NOT JUSTIFIED IN DISALLOWING THE EXPENSES OF RS. 5,57,004/- ON MERE GROUND THAT THE NOTICE CANNOT BE SERVED TO THE THIRD PARTIES SINCE THEY HA VE LEFT THE PLACE 2-3 YEARS AGO BUT IT IS CLEAR THAT THEY EXISTED THERE BEFORE 2-3 YEARS. THE ASSESSEE WAS TRYING TO GET THE CONFIRMATION FROM THOSE PERSONS T HAT WAS TIME CONSUMING JOB AS THEY LEFT THE PLACE LONG AGO ON WHICH THERE IS NO CONTROL OF THE ASSESSEE AS THE SERVICES WERE PROVIDED IN THE FINANCIAL YEAR 2004-05 AND THE NOTICES WERE ISSUED IN THE FINANCIAL YEAR 2008-09. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT PAYMENTS MADE TO THE THIRD PARTIES WA S BY CHEQUE AND PARTIES WERE IN EXISTENCE THEN, HENCE THE DISALLOWANCE SHOU LD BE REJECTED. THE ASSESSEE ALSO FILED BANK STATEMENT ACCOUNT OF HDFC BANK TO SHOW THAT ALL PAYMENTS HAVE BEEN MADE THROUGH CHEQUES FOR THE SE RVICES RENDERED. THE CIT(A) ON PERUSAL OF THE BANK STATEMENT OBSERVED TH AT IT IS NOT CLEAR TO WHOM THE PAYMENTS WERE MADE AS IT IS NOT MENTIONED OR AS CERTAINABLE FROM THE ITA 4730/M/10 & 4840/M/10 12 BANK STATEMENT AND ALSO IT IS NOT SUFFICIENT PROOF OR VERIFICATION . THE ONUS IS ON THE ASSESSEE TO PROVE THE PAYMENTS. THE A.O. TRI ED TO ESTABLISH THE IDENTITY OF THE PERSONS BUT HIS EFFORTS DID NOT YIELD RESULT S DUE TO LACK OF INFORMATION GIVEN BY THE ASSESSEE. THE CIT(A) HELD THAT THE AS SESSEE HAS FAILED TO PROVE THE GENUINENESS OF THE PAYMENTS. EVEN PRIMARY EVIDE NCES SUCH AS PAN , CONFIRMATION, , RETURN OF INCOME HAS NOT BEEN FURNI SHED BY THE ASSESSEE. THE CIT(A) HELD THAT THE A.O.IS QUITE RIGHT IN DISALLOW ING THE SAME AND THE CIT(A) UPHELD THE ORDERS OF THE AO AND THE ADDITIONS MADE WERE SUSTAINED BY THE CIT(A) VIDE ORDERS DATED 22.03.2010 . 13.AGGRIEVED BY THE ORDERS OF THE CIT(A) DATED 22.0 3.2010 , THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. VIDE ASSESSEE S WRITTEN SUBMISSION IT WAS CONTENDED THAT THE DETAILS OF THE CONSULTANCY SERVI CES WERE SUBMITTED AND THE A.O. WAS NOT JUSTIFIED IN DISALLOWING THE EXPENSES OF RS. 5,57,004/- ON A MERE GROUND THAT THE NOTICE CANNOT BE SERVED TO THE THIR D PARTIES SINCE THEY LEFT THE PLACE 2-3 YEARS AGO BUT IT IS CLEAR THAT THEY EXIST ED THERE BEFORE 2-3 YEARS. THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS TRYING TO GET THE CONFIRMATION FROM THOSE PERSONS BUT THAT WAS TIME CONSUMING AS T HEY LEFT THE PLACE LONG AGO ON WHICH THE ASSESSEE HAS NO CONTROL. THE PAYME NTS WERE MADE TO THE PARTIES BY CHEQUES AND PARTIES WERE IN EXISTENCE T HEN . IN SUPPORT, THE ASSESSEE RELIED UPON THE DECISION OF ITAT IN THE CA SE OF SETH TEXTILES V. ITO, (2003) 80 TTJ 329(MUMBAI) AND FORTE POINT CONSTRUC TION PRIVATE LIMITED V. DCIT (2011) 7ITR(TRIB.)205(DEL.) AND CONTENDED THAT THE ADDITIONS MADE BY THE AO AND AS CONFIRMED/SUSTAINED BY THE CIT(A) BE DELETED. 14. THE LD. D.R. RELIED UPON THE ORDERS OF THE AUTH ORITIES BELOW. 15. WE HAVE HEARD THE LD. D.R. AND ALSO PERUSED THE MATERIAL PLACED ON RECORD INCLUDING THE WRITTEN SUBMISSIONS FILED BY T HE ASSESSEE. WE HAVE OBSERVED THAT THE ASSESSEE HAS STATED TO HAVE INCUR RED CONSULTANCY CHARGES ITA 4730/M/10 & 4840/M/10 13 OF RS. 13,05,262/- CLAIMED AS REVENUE EXPENDITURE B Y THE ASSESSEE IN THE RETURN OF INCOME FILED WITH THE REVENUE OUT OF WHIC H RS. 5,57,004/- WAS DISALLOWED BY THE AO AND ADDED TO THE INCOME OF THE ASSESSEE WHICH WAS CONFIRMED BY THE CIT(A). THE ASSESSEE HAS STATED T HAT ALL THE PAYMENTS WERE MADE BY CHEQUE FOR WHICH THE BANK STATEMENT WAS ALS O PRODUCED BEFORE THE AUTHORITIES BELOW. THE PRIMARY ONUS IS ON THE ASSE SSEE TO PROVE THAT THE EXPENSES INCURRED ARE WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS AS PER MANDATE OF SECTION 37(1) OF THE ACT. THE ASSES SEE HAS MERELY PRODUCED THE BANK STATEMENT OF HDFC BANK TO CONTEND THAT THE PAYMENTS HAVE BEEN MADE BY CHEQUE BUT THE ASSESSEE HAS TO FURTHER ESTA BLISH BY WAY OF COGENT EVIDENCES THAT THE SERVICES HAVE BEEN RENDERED BY T HE PROFESSIONALS TO THE ASSESSEE AND THE SAME ARE INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS . THE ASSESSEE HAS STATED THAT THE SAID PR OFESSIONALS SHIFTED THEIR ADDRESS AND HENCE IT WAS TIME CONSUMING TO GET THE CONFIRMATIONS ETC. BUT THE PRIMARY AND INITIAL ONUS IS ON THE ASSESSEE WHI CH THE ASSESSEE HAS TO DISCHARGE TO GET THE BENEFIT OF ALLOWABILITY/DEDUCT ION AS BUSINESS EXPENSES U/S 37(1) OF THE ACT OF THESE EXPENSES AND IN OUR CONSIDERED VIEW INTEREST OF JUSTICE WILL BE BEST SERVED, IF THIS ISSUE IS RESTO RED TO THE FILE OF THE A.O. FOR DE- NOVO CONSIDERATION AND DETERMINATION OF THE ISSUE. ACCORDINGLY , WE SET ASIDE THIS ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH IN THE LIGHT OF EVIDENCES AND EXPLANATIONS FILED BY THE ASSESSEE. THE ASSESSEE IS DIRECTED TO FILE ALL THE NECESSARY EVIDENCES IN CONNECTION WITH THE SERVICES RENDERED BY THE SAID PROFESSIONALS TO ESTABLISH THAT THESE EXPE NSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE AO IS DIRECTED TO CONSIDER THE SAME ON MERITS AND DECIDE ACCORDINGLY ON MERIT S. NEEDLESS TO SAY THAT THE ASSESSEE BE GRANTED SUFFICIENT OPPORTUNITY OF BEING HEARD BY THE AO IN ACCORDANCE WITH LAW IN COMPLIANCE WITH PRINCIPLES O F NATURAL JUSTICE. WE ORDER ACCORDINGLY. ITA 4730/M/10 & 4840/M/10 14 16. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF ENT ERTAINMENT EXPENSES. DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE HAS STATED TO HAVE INCURRED ENTERTAINMENT EXPENSES OF RS. 8,81,488/- O UT OF WHICH THE A.O. HAS DISALLOWED 40% I.E. RS. 3,36,595/- ON AD-HOC BASIS. THE ASSESSEE WAS CALLED UPON BY THE AO TO EXPLAIN THE NATURE OF EXPENSES CL AIMED WITH THE SUPPORTING EVIDENCES LIKE BILLS AND VOUCHERS TO PRO VE THAT THE EXPENSES ARE GENUINE. IN REPLY, THE ASSESSEE EXPLAINED THAT THE SE EXPENSE ARE INCURRED ON A ROUTINE BASIS FOR IMPROVEMENT OF BUSINESS AND BUS INESS RELATIONSHIP FOR EXISTING AND FUTURE PROJECTS. IN THE ABSENCE OF AN Y SUPPORTING EVIDENCE, 40% OF THE CLAIM AMOUNTING TO RS. 3,36,595/- WAS DISALL OWED BY THE A.O. VIDE ASSESSMENT ORDER DATED 30.12.2008 PASSED U/S 143(3) OF THE ACT READ WITH SECTION 147 OF THE ACT. 17.AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.12.20 08 PASSED BY THE AO U/S 143(3) OF THE ACT READ WITH SECTION 147 OF THE ACT, THE ASSESSEE FILED FIRST APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THESE E XPENSES ARE WARRANTED AND WITHOUT POINTING OUT ANY DEFECT, AD-HOC DISALLO WANCE AS MADE BY THE AO COULD NOT BE SUSTAINED. THE CIT(A) HELD THAT NO DO UBT THE ASSESSEE IS IN THE LINE OF BUSINESS AND WAS REQUIRED TO INCUR EXPENSES AND WAS JUSTIFIED IN CLAIMING THEM AS DEDUCTION BUT AT THE SAME TIME THE ASSESSEE WAS REQUIRED TO DISCHARGE THE ONUS OF PROVING IT TO BE GENUINE E XPENSES. THE ASSESSEE HAS NOT PRODUCED ANY VOUCHERS/BILLS AND CLAIMED THESE E XPENSE ON AN ESTIMATED BASIS. HOWEVER, THE CIT(A) KEEPING IN VIEW THE IN TEREST OF JUSTICE RESTRICTED THE DISALLOWANCE TO 20% OF THE EXPENSES INCURRED VI DE ORDERS DATED 22.03.2010. 18. AGGRIEVED BY THIS DECISION OF THE CIT(A) VIDE O RDERS DATED 22.03.2010, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA 4730/M/10 & 4840/M/10 15 19. AS PER THE WRITTEN SUBMISSION SUBMITTED BY THE ASSESSEE, THE ASSESSEE CONTENDED THAT THE ALL THE EXPENSES INCURRED ARE FU LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND IN SERVICE SECTOR THIS KIND OF EXPENSES ARE ROUTINE EXPENSES. THE ENTERTAINMENT EXPENSES CONSISTS OF EX PENDITURES INCURRED ON THE MEETING WITH BUSINESS ASSOCIATES AND/OR PROSPEC TIVE CLIENTS, THEIR LODGING AND BOARDING, FOOD & RESTAURANT BILLS, ETC. . FURTH ER THE A.O. HAS MISINTERPRETED THE NOTES FORMING PART OF THE ACCOUN TS AS 'THE EXPENSES FOR NO SUPPORTING AVAILABLE ARE CERTIFIED BY PROPRIETOR AS BUSINESS EXPENSES' WHILE IT STATED THAT 'THE EXPENSES FOR WHICH NO SUPPORTING W ERE AVAILABLE, ARE CERTIFIED BY PROPRIETOR AS BUSINESS EXPENSES' AND IT DOES NOT MEAN THAT THE ASSESSEE HAS NO SUPPORTING AT ALL FOR THE EXPENSES INCURRED. IT WAS SUBMITTED THAT SINCE THE ACCOUNTS OF THE ASSESSEE ARE AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT, NO AD-HOC DISALLOWANCE CAN BE MADE UNLE SS AND UNTIL SOME SPECIFIC ITEM OF EXPENDITURE IS PROVEN TO BE BOGUS, HENCE THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE OF ENTERTAINMENT EX PENSES AS UPHELD BY THE CIT(A) TO THE TUNE OF RS.1,68,298/- SHOULD BE DELET ED. 20. THE LD. D.R. SUPPORTED THE ORDER OF AUTHORITIES BELOW. 21. WE HAVE HEARD THE LD. D.R. AND ALSO PERUSED THE MATERIAL PLACED ON RECORD INCLUDING THE WRITTEN SUBMISSIONS FILED BY T HE ASSESSEE. WE HAVE OBSERVED THAT THE ASSESSEE HAS CLAIMED EXPENSES OF RS. 8,81,488/- TOWARDS ENTERTAINMENT EXPENSES. THE ASSESSEE IS IN THE BUS INESS OF CONSULTANCY SERVICES WHEREBY GROSS BILLING COMES TO RS. 71,51,8 32/- AS PER THE DOCUMENTS PRODUCED BEFORE US , WHICH WAS OFFERED FOR TAXATION BY THE ASSESSEE AFTER CLAIMING EXPENSES. WE HAVE OBSERVED THAT AD-HOC DI SALLOWANCE OF ENTERTAINMENT EXPENDITURE OF 40% MADE BY THE A.O. W AS WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE VOUCHERS OR PROVING THE SAME TO BE BOGUS EXPENSES BUT WAS AN AD-HOC DISALLOWANCE. THE A.O. HAS ALSO NOT REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THUS, IN NUTSHELL THE AD -HOC DISALLOWANCE OF 40% ITA 4730/M/10 & 4840/M/10 16 OF ENTERTAINMENT EXPENDITURE OF RS.8,81,488/- WAS M ADE BY THE AO AMOUNTING TO RS. 3,36,595/- ON AD-HOC BASIS , WHICH DISALLOWANCE WAS FURTHER REDUCED TO 20% AMOUNTING TO RS.1,68,298/- B Y THE CIT(A) AND AGAIN ON AD-HOC BASIS WHEREBY NO SPECIFIC DEFECTS HAS BEE N POINTED BY THE CIT(A) IN THE VOUCHERS/BOOKS OF ACCOUNTS NOR IT IS PROVED THA T THESE EXPENSES ARE BOGUS EXPENSES AND ALSO BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED BY THE CIT(A). THE BOOKS OF ACCOUNTS ARE DULY AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT. THIS DISALLOWANCE OF RS.1,68,298/- BEIN G 20% OF TOTAL ENTERTAINMENT EXPENDITURE OF RS.8,81,488/- CANNOT B E SUSTAINED WHEN NO DEFECT HAS BEEN POINTED BY THE AUTHORITIES BELOW NO R ARE THEY BEEN PROVEN TO BE BOGUS EXPENSES CLAIMED BY THE ASSESSEE AND THE B OOKS OF ACCOUNTS HAVE ALSO NOT BEEN REJECTED BY THE REVENUE, THUS THIS CO NFIRMATION OF DISALLOWANCE BY THE CIT(A) OF 20% OF ENTERTAINMENT EXPENDITURE B EING RS.1,68,298/- OUT OF TOTAL ENTERTAINMENT EXPENDITURE OF RS. 8,81,488/- O N AD-HOC BASIS IS ORDERED TO BE DELETED. WE ORDER ACCORDINGLY, 22. THE NEXT ISSUE BEING THAT THE A.O. DISALLOWED EXPENSES ON AD-HOC BASIS @ 50% OF THE TOTAL EXPENSES OF RS. 10,48,112/- (I.E . TRAVELLING RS. 4,60,704/-, VEHICLE EXPENSES RS. 4,27,980/- AND TELEPHONE EXPEN SES RS. 1,69,428/- ) FOR WHICH PROPER BOOKS WERE NOT MAINTAINED. NO EVIDENC E HAS BEEN PRODUCED TO SUPPORT THE CLAIM OF THE ASSESSEE. THE A.O. DISALL OWED AN AMOUNT OF RS. 5,24,056/- AND ADDED TO THE INCOME OF THE ASSESSEE AS UNVERIFIED AND OUT OF DEPRECIATION, 40%(SIC TO BE READ AS 25%) OF THE CLA IM WHICH WORKS OUT TO RS. 52,000/- WAS ALSO DISALLOWED AND ADDED TO THE INCOM E OF THE ASSESSEE. SIMILARLY, WITH REGARD TO NEW YEAR EXPENSES OF RS.2 2,100/- AND DIWALI EXPENSES OF RS.24,785/- , THE ASSESSEE DID NOT SUBM IT CONCRETE EXPENSES THAT THESE EXPENSES ARE ESSENTIAL FOR CONDUCTING HIS PRO FESSION/BUSINESS. THE AO DISALLOWED 50% OF THE EXPENSES WHICH WORKED OUT TO RS.23,392/- AND ADDED THE SAME TO INCOME OF THE ASSESSEE, VIDE ASSESSMENT ORDERS DATED 30.12.2008 PASSED BY THE AO U/S 143(3) READ WITH SECTION 147 O F THE ACT. ITA 4730/M/10 & 4840/M/10 17 23. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 30.12. 2008 PASSED BY THE AO U/S 143(3) OF THE ACT READ WITH SECTION 147 OF THE ACT, THE ASSESSEE FILED HIS FIRST APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THESE EXPENSES ARE WARRANTED AND WITHOUT POINTING OUT ANY DEFECT, AD-H OC DISALLOWANCE COULD NOT BE MADE. THE CIT(A) HELD THAT NO DOUBT THE ASSESS EE IS IN THE LINE OF BUSINESS HE IS IN, THE ASSESSEE WAS REQUIRED TO INC UR EXPENSES AND WAS JUSTIFIED IN CLAIMING THEM AS DEDUCTION BUT AT THE SAME TIME THE ASSESSEE WAS REQUIRED TO DISCHARGE THE ONUS OF PROVING THESE EXP ENSES TO BE GENUINE EXPENSES. THE ASSESSEE HAS NOT PRODUCED ANY VOUCHER S/BILLS AND CLAIMED THESE EXPENSE ON AN ESTIMATED BASIS. THE CIT(A) KE EPING IN VIEW THE INTEREST OF JUSTICE RESTRICTED THE DISALLOWANCE TO 20% OF T HE EXPENSES INCURRED VIDE ORDERS DATED 22.03.2010. 24. AGGRIEVED BY THE DECISION OF THE CIT(A) VIDE O RDERS DATED 22.03.2010, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 25. VIDE HIS WRITTEN SUBMISSIONS, THE ASSESSEE SUBM ITTED THAT THESE DISALLOWANCES ARE UNJUSTIFIED AND BASED ON MERE CON JECTURES AND SURMISES. THE ASSESSEE SUBMITTED THAT ALL THE EXPENSES INCURR ED ARE FULLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND REASONA BLE KEEPING IN VIEW THE VOLUME AND NATURE OF THE BUSINESS. THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND NO AD-HOC DISALLOWANCE COULD BE MADE UNLESS AND UNTIL SOME SPECIFIC ITEM OF EXPENDITURE IS PROVEN TO BE BOGUS.THE ASSES SEE RELIED UPON THE DECISIONS OF BABU JEWELLERS V. ITO (2011) 141 TTJ ( CHD.)(UO)73 AND ACIT V. ALLIED CONSTRUCTION (2007) 106 TTJ 616(DEL.) TO CON TEND THAT NO AD-HOC DISALLOWANCE CAN BE MADE UNLESS SPECIFIC DEFECTS AR E POINTED OUT AND MERELY BECAUSE THE VOUCHERS ARE SELF MADE NO DISALLOWANCE IS WARRANTED WITHOUT PINPOINTING THAT THE ITEM OF EXPENDITURE IS UN-VERI FIABLE. WITH RESPECT TO DISALLOWANCE OF DEPRECIATION ON MOTOR CAR, THE ASSE SSEE SUBMITTED THAT THE ITA 4730/M/10 & 4840/M/10 18 CAR IS FULLY AND EXCLUSIVELY USED FOR THE PURPOSES OF BUSINESS.THE ASSESSE ALSO CONTENDED THAT MOTOR CAR WAS RENTED OUT AND THE REN TAL OF RS.1,16,645/- WAS CREDITED TO PROFIT AND LOSS ACCOUNT, WHICH FACT WAS NOT CONSIDERED BY THE AO. 26. THE LD. D.R. RELIED UPON THE ORDERS OF THE AUTH ORITIES BELOW. 27. WE HAVE HEARD LD. D.R. AND ALSO PERUSED THE MAT ERIAL PLACED ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE HAS STATED TO HA VE CLAIMED THESE EXPENSES AS REVENUE EXPENDITURE . THE ASSESSEE IS IN THE BUSINESS OF CONSULTANCY SERVICES WHEREBY GROSS BILLING COMES TO RS. 71,51,832/- AS PER THE DOCUMENTS PRODUCED BEFORE US. WE HAVE OBSERVED THAT AD-HOC DISALLOWANCE OF 40% WAS MADE BY THE A.O. WITH RESPE CT TO EXPENSES OF RS.10,48,112/- STATED TO BE HAVE BEEN INCURRED BY T HE ASSESSEE (TRAVELLING- RS.4,60,704/-, VEHICLE EXPENSES-RS.4,27,980/- AND T ELEPHONE CHARGES- RS.1,69,428/-) ,WHEREBY DISALLOWANCE AGGREGATING T O RS. 5,24,056/- OF THE EXPENSES WAS MADE BY THE AO WITHOUT POINTING OUT AN Y DEFECT IN THE VOUCHERS OR PROVING THAT THESE EXPENSES ARE BOGUS E XPENSES CLAIMED BY THE ASSESSEE. FURTHER , THE AO DISALLOWED RS.52,000/- B EING 25% OF THE DEPRECIATION ON THE CAR OF RS. 2,08,000/- CLAIMED B Y THE ASSESSEE. SIMILARLY, WITH REGARD TO NEW YEAR EXPENSES OF RS.22,100/- AND DIWALI EXPENSES OF RS.24,785/- , THE ASSESSEE DID NOT SUBMIT CONCRETE EXPENSES THAT THESE EXPENSES ARE ESSENTIAL FOR CONDUCTING HIS PROFESSIO N/BUSINESS. THE AO DISALLOWED 50% OF THE EXPENSES WHICH WORKED OUT TO RS.23,392/- AND ADDED THE SAME TO INCOME OF THE ASSESSEE . THE A.O. HAS A LSO NOT REJECTED THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSE. THE BOOKS O F ACCOUNT HAS BEEN DULY AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT. THUS, IN NUTSHELL THE AD-HOC DISALLOWANCE OF EXPENDITURE WAS MADE BY AO WHICH WA S FURTHER REDUCED TO 20% BY THE CIT(A) WHICH IS AGAIN ON AD-HOC BASIS WI THOUT REJECTING THE BOOKS OF ACCOUNT AND WITHOUT POINTING OUT ANY SPECIFIC DE FECTS IN THE VOUCHERS OR ESTABLISHING THAT THESE EXPENSES ARE BOGUS. THUS D ISALLOWANCE ON AD-HOC ITA 4730/M/10 & 4840/M/10 19 BASIS OF EXPENSES CANNOT BE SUSTAINED WHEN NO DEFEC T HAS BEEN POINTED NOR IS IT PROVED THAT THESE ARE BOGUS EXPENSES, THUS THIS DISALLOWANCE OF EXPENSES ON ACCOUNT OF TRAVELLING, VEHICLE EXPENSES AND TELE PHONE EXPENSES AS SUSTAINED BY THE CIT(A) AGGREGATING TO RS.2,10,022/ - IS ORDERED TO BE DELETED. SIMILARLY, ADDITION OF RS.41,600/- TO THE INCOME OF THE ASSESSEE BEING DISALLOWANCE OF DEPRECIATION ON CAR BEING SUSTAINED BY THE CIT(A) IS HEREBY ORDERED TO BE DELETED. SIMILARLY, WITH REGARD TO NE W YEAR EXPENSES OF RS.22,100/- AND DIWALI EXPENSES OF RS.24,785/- , TH E ADDITIONS OF RS.9,377/- IS ORDERED TO BE DELETED. WE ORDER ACCORDINGLY. ITA NO. 4730/MUM/2010 (REVENUES APPEAL) 28. IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY THE DECISION OF THE CIT(A) IN DELETING THE ADDITION OF RS. 7,78,254/- ON ACCOUNT OF EXPENDITURE CLAIMED BY THE ASSESSE FOR THE OFFICE RENT OF RS. 62,500/-, SA LARY AND WAGES OF RS. 5,05,000/- AND STAFF WELFARE OF RS. 2,10,754/-. 29. ON VERIFICATION OF THE RETURN OF INCOME OF THE ASSESSEE FILED WITH THE REVENUE, THE A.O. OBSERVED THAT THE ASSESSEE HAS CL AIMED TOTAL EXPENDITURE OF RS. 7,78,254/- TOWARDS OFFICE RENT OF RS. 62,500/-, SALARY AND WAGES OF RS. 5,05,000/- AND STAFF WELFARE OF RS. 2,10,754/-. AS PER THE A.O. THERE IS NO BUSINESS DONE BY THE ASSESSEE FROM THE ADDRESS GIVE N BY THE ASSESSEE AND ALSO THERE IS NO OFFICE FUNCTIONING FROM THE SAID A DDRESS AND NO OTHER OFFICE ADDRESS IS GIVEN BY THE ASSESSEE, HENCE, THE A.O. C ONCLUDED THAT THE ASSESSEE EXCESSIVELY CLAIMED THESE EXPENSES IN ORDER TO PAY LESS TAXES. AS PER THE AO, THE PERUSAL OF THE TAX AUDIT REPORT REVEALS THAT TH E PROPRIETOR HIMSELF HAS CERTIFIED THE EXPENSES CLAIMED BY HIM AS THERE IS N O SUPPORTINGS AVAILABLE AGAINST THESE EXPENSES. THE A.O., THEREFORE, FULLY DISALLOWED THE ENTIRE AMOUNT OF EXPENSES AGGREGATING TO RS. 7,78,254/- TO WARDS OFFICE RENT,SALARY AND STAFF WELFARE STATED TO HAVE BEEN INCURRED BY T HE ASSESSEE AND ADDED THE ITA 4730/M/10 & 4840/M/10 20 SAME TO THE TOTAL INCOME OF THE ASSESSEE FOR WANT O F SUFFICIENT PROOF, VIDE ASSESSMENT ORDER DATED 30.12.2008 PASSED U/S 143(3) OF THE ACT READ WITH SECTION 147 OF THE ACT. 30. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.12.2 008 PASSED BY THE AO U/S 143(3) OF THE ACT READ WITH SECTION 147 OF THE ACT , THE ASSESSEE FILED FIRST APPEAL BEFORE THE CIT(A) WHO DELETED THE ADDITION B Y HOLDING THAT THE A.O. HAS MADE THE DISALLOWANCE ON THE BASIS OF THE REPORT GI VEN BY THE INSPECTOR WITHOUT CONSIDERING THAT FOR RUNNING A BUSINESS , T HE ASSESSEE WOULD HAVE REQUIRED AN OFFICE AND THE EXPENSES RELATING TO SAL ARY, STAFF WELFARE ETC. ARE TO BE INCURRED. NO FURTHER ENQUIRY HAS BEEN MADE BY TH E AO. THE AO HAS NOT CONSIDERED THAT IF THERE WAS NO OFFICE WHAT COULD B E THE MODE OF RUNNING THE BUSINESS OF THE ASSESSEE. THE ASSESSEE WAS NOT BEEN CONFRONTED WITH THE INSPECTORS REPORT. AN AD-HOC DISALLOWANCE MADE ON P RESUMPTIONS WITHOUT TAKING THE TOTALITY OF CIRCUMSTANCES INTO CONSIDERA TION CANNOT SURVIVE AND IS LIABLE TO BE DELETED. THEREFORE THE ADDITION MADE B Y THE A.O. AGGREGATING TO RS. 7,78,254/- TOWARDS OFFICE RENT, SALARY AND STAF F WELFARE WAS DELETED BY THE CIT(A) VIDE ORDERS DATED 22.03.2010. 31.AGGRIEVED BY THE ORDERS DATED 22.03.2010 OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 32. THE LD. D.R. SUBMITTED THAT AS PER THE WARD INS PECTORS REPORT , NO OFFICE WAS FOUND FUNCTIONING FROM THE OFFICE ADDRES S SPECIFIED BY THE ASSESSEE AND THERE WAS NO BUSINESS DONE FROM THE ADDRESS GIV EN BY THE ASSESSEE. THEREFORE, THE A.O. IS RIGHT IN DISALLOWING THE ENT IRE CLAIM OF THE EXPENSES AGGREGATING TO RS.7,78,254/- CONSISTING OF OFFICE R ENT OF RS. 62,500/- , SALARY AND WAGES OF RS. 5,05,000/- AND STAFF WELFARE OF RS . 2,10,754/- . ITA 4730/M/10 & 4840/M/10 21 33. AS PER THE WRITTEN SUBMISSION OF THE ASSESSEE, IT WAS CONTENDED THAT ALL THE EXPENSES INCURRED ARE FULLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SINCE THE ACCOUNTS OF THE ASSESSEE ARE AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT, NO AD-HOC DISALLOWANCE CAN BE MADE UNLE SS AND UNTIL SOME SPECIFIC ITEM OF EXPENDITURE IS PROVEN TO BE BOGUS. THE OFFICE RENT CLAIMED BY ASSESSEE HAS BEEN PAID THROUGH CHEQUES FOR SMALL S PACE AT PREMISES OWNED BY ONGC, MUMBAI FOR THE PERIOD SEPTEMBER-04 TO JANU ARY-05 @ RS.12,500/- PER MONTH FOR CARRYING OUT BUSINESS ACTIVITY FROM T HAT PREMISES, HENCE THE SAME CANNOT BE DISALLOWED. FURTHER THE A.O.'S CONTE NTION THAT THE ASSESSEE DOES NOT CARRY BUSINESS FROM ANY OFFICE AND NOR FRO M RESIDENCE AND HENCE THESE EXPENSES CANNOT BE ALLOWED IS BAD IN LAW. IT IS SUBMITTED BY THE ASSESSEE THAT IT IS NO WHERE STATED THAT A PERSON C ANNOT CARRY BUSINESS FROM HIS RESIDENCE AND/OR HE HAS TO DISPLAY THE NAME OF PROPRIETORSHIP CONCERN AT HIS RESIDENCE FOR CONDUCTING BUSINESS. FURTHER , TH E A.O. HAS MISINTERPRETED THE NOTES FORMING PART OF THE ACCOUNTS AS ''THE EXP ENSES FOR NO SUPPORTING AVAILABLE ARE CERTIFIED BY PROPRIETOR AS BUSINESS E XPENSES' WHILE IT IS STATED THAT ''THE EXPENSES FOR WHICH NO SUPPORTING WERE AV AILABLE, ARE CERTIFIED BY PROPRIETOR AS BUSINESS EXPENSES' AND IT DOES NOT ME AN THAT THE ASSESSEE HAS NO SUPPORTING AT ALL FOR THE EXPENSES INCURRED. THE ASSESSEE HAS ALREADY GIVEN THE DETAILS REGARDING SALARY VIZ. PERSONS TO WHOM S ALARY PAID AND AMOUNT, OUT OF THE ABOVE ONE PERSON IS DRIVER OF THE CAR AND OT HERS WERE ASSISTING THE ASSESSEE IN COMMUNICATING WITH CLIENTS AND BUSINESS ASSOCIATES AND VISITING VARIOUS PLACES WHERE SERVICE HAS TO BE PROVIDED AND THIS IS OBVIOUS THAT ASSESSEE CANNOT ACHIEVE SUCH HUGE BUSINESS INCOME O F RS.72 LACS (APPROX.) ALONE WITHOUT ANY ASSISTANT FOR MISCELLANEOUS WORK AND HENCE IT WAS CONTENDED BY THE ASSESSEE THAT THE CIT(A) HAS RIGHT LY ALLOWED THE EXPENSES. TO SUPPORT HIS CONTENTION, THE ASSESSEE RELIED UPON THE DECISION IN THE CASE OF (I) BABU JEWELLERS VS. INCOME TAX OFFICER, ITAT, CH ANDIGARH 'A' BENCH.(2011) 141 TT J (CHD.) (UO) 73, (II) ASST. COMM. OF INCOME TAX VS. ALLIED CONSTRUCTION (2007) 106 TTJ 616 (DELHI) WHERE IT WA S OBSERVED THAT 'AD HOC ITA 4730/M/10 & 4840/M/10 22 DISALLOWANCE OF LABOUR EXPENSES COULD NOT BE MADE S IMPLY ON THE BASIS THAT THE VOUCHERS WERE SELF MADE AND NOT RELIABLE WITHOU T MAKING ANY TEST CHECK AND PIN-POINTING WHICH ITEM OF EXPENDITURE IS NOT V ERIFIABLE. 34. WE HAVE HEARD LD. D.R. AND ALSO PERUSED THE WRI TTEN SUBMISSION FILED BY THE ASSESSEE AND OTHER CASE LAWS RELIED UPON BY THE ASSESSEE. WE HAVE OBSERVED THAT THE ASSESSEE HAS CLAIMED RS. 7,78,254 /- ON ACCOUNT OF EXPENDITURE FOR OFFICE RENT OF RS. 62,500/-, SALARY AND WAGES OF RS. 5,05,000/- AND STAFF WELFARE OF RS. 2,10,754/-. THE ASSESSEE H AS EARNED GROSS INCOME OF RS. 71,51,832/- AND THE ASSESSEE HAS CLAIMED THESE EXPENSES FOR EARNING THIS INCOME. THE A.O. HAS MERELY RELIED ON THE WARD INS PECTORS REPORT AND CAME TO THE CONCLUSION THAT THE PREMISES OCCUPIED BY THE ASSESSEE IS A RESIDENTIAL PREMISE AND WIFE AND CHILDREN ARE STAYING IN THE SA ID PREMISES. THE DISALLOWANCE WAS MADE BASED ON THE WARD INSPECTORS REPORT. THE COPY OF THE SAID WARD INSPECTOR REPORT WAS NOT GIVEN TO THE ASS ESSEE TO REBUT THE ALLEGATION WHICH IS A SERIOUS BREACH OF PRINCIPLES OF NATURAL JUSTICE. THE ASSESSEE HAS DULY SUBMITTED ALL THE DETAILS OF THES E EXPENSES AND ACCOUNTS OF THE ASSESSEE ARE DULY AUDITED BY A QUALIFIED CHARTE RED ACCOUNTANTS. THE REVENUE HAS NOT BROUGHT ON RECORD ANY COGENT MATERI AL TO PROVE THAT THESE EXPENSES ARE BOGUS EXPENSES AND ARE NOT ALLOWABLE W HILE THE ASSESSEE ON THE OTHER HAND HAS DULY GIVEN ALL DETAILS. THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH ARE ALSO AUDITED WERE NOT REJECTED BY THE REV ENUE. IN OUR CONSIDERED VIEW, THE CIT(A) IS QUITE RIGHT IN ALLOWING THE CLA IM OF THE ASSESSEE WITH RESPECT TO THESE EXPENSES TOTALING RS.7,78,254/- O N ACCOUNT OF EXPENDITURE FOR OFFICE RENT OF RS. 62,500/-, SALARY AND WAGES O F RS. 5,05,000/- AND STAFF WELFARE OF RS. 2,10,754/- AS BUSINESS EXPENSES DEDU CTIBLE AS REVENUE EXPENDITURE UNDER THE ACT AND WE CONFIRM THE ORDERS OF THE CIT(A) DATED 22.03.2010 WITH RESPECT TO THIS ADDITION AND WE ORD ER THE DELETION OF THE SAME AS WE HAVE NOT FOUND ANY INFIRMITIES IN THE OR DER OF THE CIT(A) WITH ITA 4730/M/10 & 4840/M/10 23 RESPECT TO THE DELETION OF ADDITION OF RS.7,78,254/ - MADE BY THE AO. HENCE, THE GROUND RAISED BY THE REVENUE IS DISMISSED. WE O RDER ACCORDINGLY. 35. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JANUARY, 2016. &)*+, -$ . 27.01.2016 *&/% SD/- SD/- (SHAILENDRA KUMAR YADAV) (RAMIT KOCHAR) 0123435678798: 544;1<=5<=78798: >% MUMBAI ; -$ DATED 27.01.2016 [ $ R.K. R.K. R.K. R.K. , EX. SR. PS ! ' #$%& ' &$ COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. ?' @ A / THE CIT(A)- CONCERNED, MUMBAI 4. ?' / CIT- CONCERNED, MUMBAI 5. BC /''$DE (DE , >% / DR, ITAT, MUMBAI H BENCH 6. / FGH % GUARD FILE. ! ( / BY ORDER, # B''' //TRUE COPY// )/(* + ( DY./ASSTT. REGISTRAR) , >% / ITAT, MUMBAI