S.D.N. COMPANY, MUMBAI V. ITO WD 12(2)(1), MUMBAI

ITA 4863/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1810 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 15-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 26-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI B.R.BASKARAN (AM) AND SHRI RAM LAL NEGI ( JM) ITA NO 4863/MUM/2012 ASSESSMENT YEAR: 2008-09 M/S. S.D.N. COMPANY, LIBERTY BUILDING, SIR. V.T. MARG, MUMBAI- 400 020. PAN:- AAAFS7385N VS. THE ITO WARD 12(2)(1), AAYAKAR BHAVAN, M.K.MARG, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. JITENDRA JAIN RESPONDENT BY : SHRI. NITIN WAGHMODE DATE OF HEARING: 20 /10 /2016 DATE OF PRONOUNCEMENT: 18/11/20 16 O R D E R PER RAM LAL NEGI, JM THE PRESENT APPEAL HAS BEEN FILED BY THE ASSES SEE AGAINST ORDER DATED 15/05/2012 PASSED BY THE LD. CIT(APPEALS)-23 MUMBAI FOR THE ASST. YEAR 2008-09, WHEREBY THE LD. CIT(A) PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE, AGAINST ORDER DATED 27/12/2010 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE A CT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM, ENGAGED IN THE BUSINESS OF FINANCING INVESTMENTS AND HIRING PR EMISES FILED ITS RETURN OF INCOME FOR THE RELEVANT ASST. YEAR, DECLARING THE T OTAL INCOME AS NIL. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THE CAS E WAS SELECTED FOR SCRUTINY AND ACCORDINGLY ASSESSMENT ORDER U/S 143(3) OF THE ACT WAS PASSED, 2 ITA NO 4863/MUM/2012 ASSESSMENT YEAR: 2008-09 DETERMINING THE TOTAL INCOME AT RS. 17,18,412/- AF TER MAKING INTER ALIA DISALLOWANCE OF RS. 14,25,020/-, BROKERAGE PAID BY THE ASSESSEE AND DISALLOWANCE OF RS. 3,14,322/- CLAIMED AS REPAIRS A ND MAINTENANCE EXPENSES. THE ASSESSMENT ORDER WAS CHALLENGED BEFORE THE LD. CIT(A). IN APPEAL THE LD. CIT(A) AFTER HEARING THE ASSESSEE ENHANCED THE DISA LLOWANCE CLAIMED AS BROKERAGE FROM RS. 14,25,020/-DETERMINED BY THE AO TO RS. 21,91,020/- AND ALSO CONFIRMED THE DISALLOWANCE CLAIMED AS REPAIRS AND MAINTENANCE EXPENSES. 3. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL:- 1) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DISALLOWING BROKERAGE PAID TO THE TUNE OF RS. 21,19,020/-. 2) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN ASSUMING JURISDICTION TO MAKE AN ENHANCEMENT, WITHOUT SATISF YING THE JURISDICTIONAL CONDITIONS PRESCRIBED BY SECTION 251(2). 3) THE APPELLANT SUBMITS THAT THE ENHANCEMENT IN TH E DISALLOWANCE OF BROKERAGE BE, IN ANY EVENT, CANCELLED. 4) THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) ERRED IN IGNORING THE PROCEEDINGS WHICH HAS TAKEN PLACE BEFORE THE ASSESS ING OFFICER, INCLUDING THE SUMMONS ISSUED TO THE PAYEE. 5) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT DELETING THE DISALLOWANCE OF RS. 3,14,322/- ON ACCOUNT OF RE PAIRS AND MAINTENANCE. 6) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN GIVING FINDINGS WHICH WERE IRRELEVANT FOR DECIDING THE ISS UE OF ALLOWABILITY OF REPAIRS EXPENDITURE. 7) THE APPELLANT SUBMITS THE ADDITIONS SUGGESTED BY COMMISSIONER OF INCOME TAX (APPEALS) ON ACCOUNT OF REPAIRS BE DELET ED. 3 ITA NO 4863/MUM/2012 ASSESSMENT YEAR: 2008-09 8) THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN ASSUMING JURISDICTION TO MAKE AN ENHANCEMENT ON THE ISSUE OF REPAIRS. 4. IN THE PRESENT CASE BASICALLY THE APPELLANT/ASS ESSEE HAS RAISED TWO ISSUES I.E., ISSUE RELATING TO DISALLOWANCE OF BROKERAGE A MOUNT PAID BY THE ASSESSEE AND ISSUE PERTAINING TO DISALLOWANCE OF REPAIRS AND MAINTENANCE EXPENSES OF RS 3,14,322/. AS REGARDS THE FIRST ISSUE, THE LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE DURING THE RELEVANT YEA RS ENTERED INTO A LEAVE AND LICENSE AGREEMENT TO HAND OVER A FLAT IN BUILDING C ALLED SUNITA TO INDUSIND BANK LTD. ON A MONTHLY LICENSE FEES @ RS. 7,66,000/ -. THE ASSESSEE ALSO RECEIVED SECURITY DEPOSIT OF RS. 7 CRORES. THE APPE LLANT/ASSESSEE PAID BROKERAGE OF RS. 21,91,020/- IN RESPECT OF THE SAID LEAVE AND LICENSE AGREEMENT TO VIWA CHEM PVT. LTD. I.E. 2% SECURITY D EPOSITS OF RS. 7 CRORES PLUS 2% OF LICENSE FEES FOR THE PERIOD OF 36 MONTHS AND SERVICE TAX @ 12.36%. THE LD. COUNSEL FURTHER SUBMITTED THAT VIWA CHEM PVT. L TD. HAS CONFIRMED THE PAYMENT. THE AO HAS WRONGLY APPLIED THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT AND DISALLOWED RS. 14,25,020/- OUT OF THE TOTAL AMOUNT CLAIMED WRONGLY HOLDING THAT ONE OF THE DIRECTORS OF THE COMPANY IS THE SON OF A PARTNER OF THE ASSESSEE FIRM. SHRI. F.A.VAKIL, ONE OF THE DIRECTOR S OF VIWA CHEM PVT. LTD. IS THE HUSBAND OF ONE OF THE PARTNERS OF THE ASSESSEE FIRM , SMT. S.F. VAKIL AND HE IS NOT SON OF THE PARTNERS. MOREOVER, SECTION 40A(2)(B ) HAS NO APPLICABILITY AS THE VIWA CHEM PVT. LTD. IS NOT A PERSON REFERRED U/ S 401A(2)(B) OF THE ACT. SINCE, THE DISALLOWANCE MADE BY THE AO IS BASED ON WRONG ASSUMPTION, THE LD. CIT(A) OUGHT TO HAVE DELETED THE SAME. BUT INSTEAD OF DELEGATING OF DISALLOWANCE THE LD. CIT(A) HAS WRONGLY ENHANCED TH E DISALLOWANCE TO THE TOTAL AMOUNT CLAIMED EXCEEDING THE POWERS CONFERRED ON HI M U/S 251OF THE ACT. 5. ON THE OTHER HAND THE LD. DEPARTMENTAL REPRESE NTATIVE (DR) RELYING UPON THE ORDER PASSED BY THE LD. CIT(A) SUBMITTED THAT S AME HAS BEEN PASSED IN 4 ITA NO 4863/MUM/2012 ASSESSMENT YEAR: 2008-09 ACCORDANCE WITH THE PROVISIONS OF LAW AND AS PER TH E EVIDENCE ON RECORD. THEREFORE, THERE IS NO MERIT IN THE APPEAL FILED BY THE ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO G ONE THROUGH THE MATERIAL PLACED BEFORE US INCLUDING THE CASE LAWS RELIED UPO N BY THE PARTIES. WE NOTICE THAT OUT OF THE TOTAL AMOUNT OF RS. 21,91,020/- BRO KERAGE FEES CLAIMED BY THE ASSESSEE, AO HAS ALLOWED ONLY RS. 7,66,000/- HOLDIN G THAT IN MUMBAI NORMALLY BROKERAGE FEES IS CHARGED @ 1% OF THE TRANSACTION A ND THE AMOUNT OF BROKERAGE CLAIMED IN THIS CASE IS ABNORMALLY HIGHER THAN THE NORMAL RATE. ON THE OTHER HAND THE LD. CIT(A) RELYING ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CIT VS. MACDOWELL & CO VS. CIT (1985) 154 ITR 148(S C) , HONBLE HIGH COURT OF CALCUTTA, IN CIT VS SHEKKAWAT RAJPUTANA TRADING CORPORATION(1999 ) 236 ITR 1950 CAL AND HONBLE BOMBAY HIGH COURT IN TWINSTAR HOLDING LTD.VS DCIT (2003) 260 ITR 8 (BOM.) , DISALLOWED THE ENTIRE AMOUNT CLAIMED BY THE ASSESSEE HOLDING THAT THE COMPANY TO WHOM THE BROKE RAGE WAS PAID HAS FAILED TO ESTABLISH THAT IT WAS AUTHORIZED TO ACT AS A BRO KER. MOREOVER, MERE PAYMENT OF MONEY BY THE ASSESSEE IN THIS CASE IS NOT SUFFIC IENT TO PROVE THE GENUINENESS OF THE TRANSACTION AND REAL SUBSTANCE OF THE TRANSA CTION IS REQUIRED TO BE SEEN. 7. ADMITTEDLY, THE ASSESSEE HAS MADE PAYMENT OF R S.19,42,777/-VIDE CHEQUE DATED 27.3.2008 ISSUED IN FAVOUR OF VIWA CHEM. PVT. LTD. AND DEPOSITED TDS OF RS. 2,48,243/- THEREON VIDE CHEQUE DATED 27.3.2008 ISSUED BY THE ASSESSEE FIRM. THE SAID FACTS PRIMA FACIE ESTABLISH THE CLAI M OF THE ASSESSEE THAT IT HAS PAID NET BROKERAGE OF RS. 19,42,777/-AND DEDUCTED T HE TAX OF RS 2,48,243/- AT SOURCE. IN OUR CONSIDERED OPINION THE SAID FACTS A RE SUFFICIENT TO DRAW A PRESUMPTION THAT THE TRANSACTION IN QUESTION IS GEN UINE AND SAID PRESUMPTION CAN ONLY BE REBUTTED BY COGENT AND CONVINCING EVIDE NCE. THE AUTHORITIES BELOW HAVE HELD THE TRANSACTION AS COLOURABLE DEVICE ON T HE BASIS OF SURMISES AND CONJUNCTURES WITHOUT REFERRING TO ANY CONVINCING EV IDENCE. AO HAS NOT BROUGHT 5 ITA NO 4863/MUM/2012 ASSESSMENT YEAR: 2008-09 ANY EVIDENCE ON RECORD EITHER TO PROVE THAT THE TRA NSACTION IS A COLOURABLE DEVICE TO DISALLOW THE SAME OR THE BROKERAGE PAID B Y THE ASSESSEE IN THE PRESENT CASE IS EXCESSIVE OR UNREASONABLE TO APPLY THE PROVISIONS OF SECTION 40(A)(2) OF THE ACT. SIMILARLY, THE LD. CIT(A) HAS NOT RECORDED THE REASONS FOR HOLDING THAT THE OBJECT BEHIND MAKING PAYMENT OF TH E AMOUNT IN QUESTION WAS TAX AVOIDANCE THROUGH A COLORABLE DEVICE. THE FINDI NG OF THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) ARE, THEREFORE, NOT BASED ON ANY EVIDENCE. SINCE, THE LD. CIT(A) HAS NOT REFERRED ANY EVIDENCE TO JUSTIFY THE DISALLOWANCE MADE BY THE AO OR TO ENHANCE THE SAME, IT CAN SAFELY BE PRESUME D THAT THE PAYMENT IN QUESTION HAS BEEN MADE BY THE ASSESSEE AS BROKERAGE . THE IMPUGNED ORDER IS THEREFORE NOT SUSTAINABLE IN THE EYES OF LAW. ACCOR DINGLY, WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. SINCE, WE HAVE DECIDED THE FIRST ISSUE IN FAVOUR OF THE ASSESSEE ON MERIT, THE ISSUE REGARDING JURISDICTION OF LD. CIT( A) TO ENHANCE THE DISALLOWANCE BECOMES ACADEMIC HENCE WE DO NOT CONSIDER IT NECESS ARY TO ADJUDICATE THIS ISSUE SEPARATELY. 8. SECOND ISSUE PERTAINS TO DISALLOWANCE OF REPAI RS AND MAINTENANCE EXPENSES OF RS 3,14,322/-. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE PROFIT AND LOSS ACCOUNT, IN WHICH A SUM OF RS. 15,71,612/-HAD BEEN DEBITED BEING EXPENSES FOR REPAIR AND MAINTENANCE OF PREMISES, SU BMITTED THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED THE DISALLOWANCE MADE BY THE AO. PER CONTRA THE LD. DR RELYING ON THE FINDINGS OF THE LD. CIT(A) SUBMITTED THAT SINCE THE ASSESSEE HAD INCURRED THE EXPENSE OF RS. 11,83,241/- IN CONNECTI ON WITH MAINTENANCE OF ASSESSEES OFFICE PREMISES AT 3 RD FLOOR, LIBERTY BUILDING, THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE DISALLOWANCE. 9. DURING ASSESSMENT PROCEEDINGS THE ASSESSEE PRO DUCED COPY OF LEDGER ACCOUNT AS PER WHICH THE ASSESSEE HAD INCURRED THE EXPENSE OF RS. 3,88,371/- 6 ITA NO 4863/MUM/2012 ASSESSMENT YEAR: 2008-09 FOR REPAIRING WORKS CARRIED OUT AT FLAT IN SUNITA B UILDING AND SERVANTS QUARTER AND REMAINING AMOUNT OF RS. 11,83,241/- WAS INCURRE D FOR PAINTING, PURCHASE OF PAINT, PAINT MATERIALS AND CONTRACTORS CHARGE F OR OFFICE PREMISES OF THE ASSESSEE FIRM AT 3 RD FLOOR, LIBERTY BUILDING. ACCORDINGLY, THE A.O DIS ALLOWED 20% OF THE TOTAL AMOUNT CLAIMED ON THE GROUND THAT NO BILLS & VOUCHERS WERE PRODUCED FOR VERIFICATION. ON THE BASIS OF VOUCHERS PRODUCED BY THE ASSESSEE DURING APPELLATE PROCEEDINGS, THE LD. CIT(A) ALLOWE D SOCIETY MAINTENANCE CHARGES AGGREGATING TO RS. 293866/-. WITH REGARD TO THE REMAINING EXPENSES HE TOOK THE VIEW THAT THEY ARE CAPITAL IN NATURE AND A CCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY AO. 10. WE NOTICE THAT THE AO HAS DISALLOWED 20% OF E XPENSES FOR WANT OF EVIDENCE, HOWEVER, THE LD. CIT(A) HAS TAKEN ALTOGET HER NEW GROUND AND TAKEN THE VIEW THAT THE EXPENDITURE OTHER THAN THE SOCIET Y CHARGES AFORESAID, ARE CAPITAL IN NATURE. WE ALSO NOTICE THAT THE CIT(A) D ID NOT SEEK ANY EXPLANATION FROM THE ASSESSEE BEFORE ARRIVING AT SUCH A CONCLUS ION. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE LD. CIT(A). WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF TH E LD. CIT(A) WITH THE DIRECTION TO ADJUDICATE THIS ISSUE AFRESH AFTER AFFORDING A REAS ONABLE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE SAME. 11. IN THE RESULT APPEAL FILED BY THE ASSESSEE F OR A.Y. 2008-09 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2016 SD/- SD/- ( B.R.BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED:18/11/2016 7 ITA NO 4863/MUM/2012 ASSESSMENT YEAR: 2008-09 / 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. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA