G. S. Sridhar, Bangalore V. Deputy Commissioner of Income Tax, Circle - 9(1), Bangalore

ITA 491/BANG/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7449 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 01-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI
• Assessee Lawyers: B K MANJUNATH
• Keywords: Depreciation; Salary income; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 234B; 37(1); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N.V VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.491/ BANG/2017 (ASST. YEAR 2007-08) MR. G.S SRIDHAR, 36, WINDMILLS OF YOUR MIND, EPIP AREA, WHITEFIELD, BENGALURU. . APPELLANT PAN AGDPS5851L VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 9(1), BENGALURU. . RESPONDENT APPELLANT BY : SHRI B.K MANJUNATH, C.A RESPONDENT BY : SMT. PADMAMEENAKSHI, JCIT DATE OF HEARING : 12-10-2017 DATE OF PRONOUNCEMENT : -10-2017 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) - 1, BANGALORE DATED 30/12/2016 FOR ASST. YEAR 2007-08. 2. BRIEFLY STATED, THE FACTS OF THE CASE RELEVANT F OR THIS APPEAL ARE AS UNDER:- ITA NO.491/B/17 2 2.1 THE ASSESSEE, PROP: VERITAS MARKETING SERVICES AND ENGAGED IN THE BUSINESS OF TRADING IN COMPUTER HARDWARE AN D SOFTWARE, FILED HIS RETURN FOR ASST. YEAR 2007-08 ON 31/10/2007 DEC LARING INCOME OF RS.38,18,098/-, COMPRISING INCOME FROM SALARY, BUSI NESS AND INCOME FROM OTHER SOURCES. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) AND THE C ASE WAS SUBSEQUENTLY TAKEN UP FOR SCRUTINY. THE ASSESSMENT WAS CONCLUDED U/S 143(3) OF THE ACT VIDE ORDER DARED 9/12/2009, WHEREIN THE ASSESSEES INCOME WAS DETERMINED AT RS.57,07,705/- IN VIEW OF ON ADDITION/DISALLOWANCE OF RS.17,14,922/- ON ACCOUNT OF EXCESS EXPENDITURE CLAIMED OF RS.17,14,922/- IN CONNECTION WITH EARNING OF OFFICE FACILITY CHARGES AND AN AMOUNT OF RS.1,74,68 5/- ON ACCOUNT OF DISALLOWANCE U/S 10 OF THE ACT. ON APPEAL, THE LD CIT(A) DISMISSED THE ASSESSEES APPEAL VIDE THE IMPUGNED ORDER DATED 30/12/2016 ON THE AFORESAID ISSUE. 3. AGGRIEVED BY THE ORDER OF THE CIT(A)-1, BANGALOR E DATED 30/12/2016 FOR ASST. YEAR 2007-08, THE ASSESSEE HA S FILED THIS APPEAL BEFORE THE TRIBUNAL, WHEREIN HE HAS RAISED THE FOLL OWING GROUNDS:- 1. THAT THE ABOVE ORDER OF THE AUTHORITIES BELOW I N SO FAR AS IT IS AGAINST THE APPELLANT IS AGAINST TH E LAW, FACTS, CIRCUMSTANCES, NATURAL JUSTICE, EQUITY AND ALL OTHER KNOWN PRINCIPLES OF LAW. ITA NO.491/B/17 3 2. THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TAX COMPUTED IS HEREBY DISPUTED. 3. THE LEARNED ASSESSING OFFICER / CIT(A) ERRED IN DISALLOWING EXPENDITURE TO THE EXTENT OF RS. 17,14,922/-. 4. THE FINDINGS, REASONS AND CONCLUSION ARRIVED BY THE AO / CIT(A) FOR DISALLOWING THE EXPENDITURE ARE UNSUSTAINABLE AND UNTENABLE IN LAW REQUIRES TO BE REJECTED. 5. THE APPELLANT DENIES THE LIABILITIES FOR INTERES T U/S 234B. FURTHER PRAYS THAT THE INTEREST IF ANY SHOULD BE LEVIED ONLY ON RETURNED INCOME. NO OPPORTUNITY HAS BEEN GIVEN BEFORE LEVY OF INTEREST U/S 234B OF THE I T ACT. 6. WITHOUT PREJUDICE TO THE APPELLANT'S RIGHT OF SEEKING WAIVER BEFORE APPROPRIATE AUTHORITY THE APPELLANT BEGS FOR CONSEQUENTIAL RELIEF IN THE LEVY OF INTEREST U/S 234 B OF THE ACT. 7. FOR THE ABOVE AND OTHER GROUNDS AND REASONS WHICH MAY BE SUBMITTED DURING THE COURSE OF ITA NO.491/B/17 4 HEARING OF THIS APPEAL, THE ASSESSEE REQUESTS THAT THE APPEAL BE ALLOWED AS PRAYED AND JUSTICE BE RENDERED. 4. GROUNDS NOS.1,2 AND 7 4.1 THE GROUNDS RAISED AT S.NOS. 1,2 AND 7 (SUPRA), BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 5. GROUNDS 2 AND 3 DISALLOWANCE OF EXPENDITURE RS.17,14,922/- 5.1 IN THESE GROUNDS, THE ASSESSEE CONTENDS THAT TH E ORDERS OF THE AUTHORITIES BELOW WERE ERRONEOUS IN DISALLOWING THE EXPENDITURE OF RS.17,14,922/-. 5.2.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ON AN APPRAISAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT IN THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) OBSERVED THAT APART FROM THE ASSESSEES TURNOVER OF RS.1,80,21,763/- IN COMP UTER BUSINESS ON WHICH GROSS PROFIT OF RS.22,16,238/- WAS DECLARED, THE ASSESSEE HAD EARNED RS.48 LAKHS BY WAY OF OFFICE FACILITY CHARGE S FROM M/S TECHVOYANT INFOTECH PVT. LTD., WHEREIN THE ASSESSE E AND HIS WIFE WERE DIRECTORS. THE AO WAS OF THE VIEW THAT THE AS SESSEE, WITH THE INTENTION OF REDUCING HIS TAX LIABILITY ENTERED INT O AN AGREEMENT WHEREBY IN ORDER TO EARN OFFICE FACILITY CHARGES OF RS.48 LAKHS, EXPENDITURE OF RS.65,14,922/- WAS SHOWN AS INCURRED . THE AO WAS OF THE VIEW THAT THE ASSESSEE WAS UNABLE TO EXPLAIN AN D JUSTIFY THAT THE ITA NO.491/B/17 5 AFORESAID EXPENDITURE OF RS.65,14,922/- WAS EXPENDE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE ASSESSEES BUSI NESS AS REQUIRED U/S 37(1) OF THE ACT AND PROCEEDED TO DISALLOW THE EXCE SS EXPENDITURE OF RS.17,14,922/- INCURRED FOR EARNING THE OFFICE FAC ILITY CHARGES. THIS VIEW OF THE AO WAS UPHELD BY THE LD CIT(A) IN THE I MPUGNED ORDER AND WAS SUPPORTED BY THE LD DR FOR REVENUE BEFORE U S. 5.2.2 ACCORDING TO THE LD AR TO THE ASSESSEE, THE A O HAS MISGUIDED HIMSELF TO MAKE THE AFORESAID ERRONEOUS DECISION OF DISALLOWING THE EXPENDITURE AMOUNTING TO RS.17,14,922/-, ON THE GRO UND THAT THE ENTIRE EXPENDITURE OF RS.65,14,922/- WAS INCURRED F OR EARNING OF OFFICE FACILITY CHARGES; WHICH WAS THE RESULT OF TO TAL MISCONCEPTION OF FACTS BY THE AO. IN THIS REGARD, THE LD AR DREW TH E ATTENTION OF THE BENCH TO THE PAPER BOOK (PAGES 23-35) FILED BY THE ASSESSEE. REFERRING TO PAGES 24 TO 28 THEREOF, WHICH ARE COPI ES OF THE ASSESSEES PROFIT AND LOSS ACCOUNT, AND SCHEDULES J,K AND E TH ERETO, THE LD AR POINTED OUT THAT THE EXPENDITURE OF RS.65,14,922/- WAS INCURRED NOT ONLY IN RESPECT OF THE EARNING OF RS.48 LAKHS ON AC COUNT OF OFFICE FACILITY CHARGES, BUT WERE ALSO WAS, INTER ALIA, IN CURRED FOR EARNING INCOME FROM ITS COMPUTER BUSINESS WITH A TURNOVER O F RS.1,70,98,369/-. IT WAS FURTHER SUBMITTED THAT IF THE BREAKUP OF THE EXPENDITURE OF RS.65,14,922/- AS LAID OUT IN SCHEDU LES K AND E ARE PERUSED, IT IS CLEARLY EVIDENT THAT THEY ARE IN RES PECT OF DEPRECIATION, OPERATING COSTS AND FINANCIAL COSTS OF RS.42,65,505 /- WHICH ARE INCURRED FOR SALARIES, POSTAGE, CONVEYANCE, TELEPHO NE, RENT, BOOKS AND PERIODICALS, FREIGHT, TRAVELLING ETC. A PERUSAL IN DICATES THAT THESE ITA NO.491/B/17 6 EXPENSES ARE CLEARLY AND EVIDENTLY NOT EXPENDED SOL ELY AND EXCLUSIVELY FOR EARNING OFFICE FACILITY CHARGES OF RS.48 LAKHS BUT WERE EXPENDED ALSO THE ASSESSEES COMPUTER BUSINESS AND EARNING OF OTHER INCOMES ALSO AND THEREFORE THE DISALLOWANCE MADE BY THE AO WAS NOT WARRANTED. 5.2.3 WE FIND MERIT IN THE CONTENTIONS PUT FORWARD BY THE LD AR OF THE ASSESSEE, IN THAT THE DISALLOWANCE OF EXPENDITU RE OF RS.17,14,922/- MADE BY THE AO IS ERRONEOUS AND DUE TO A MISREADING OF FACTS IN THE FINANCIAL STATEMENTS OF THE ASSESSEE. IT IS AMPLY CLEAR TO US FROM A PERUSAL OF THE PAPER BOOK AT PAGES 24 TO 28 CONTAIN ING THE ASSESSEES FINANCIAL STATEMENTS THAT THE SAID EXPENDITURE OF R S.65,14,922/- WAS INCURRED NOT SOLELY FOR EARNING OF OFFICE FACILITY CHARGES AS ALLEGED BY THE AO, BUT WAS MAINLY, EXPENDED FOR THE COMPUTER B USINESS OF THE ASSESSEE AND, ALSO FOR EARNING OF OTHER INCOME. IN OUR CONSIDERED VIEW, THE AFORESAID DISALLOWANCE OF EXPENDITURE OF RS.17,14,922/- BY THE AO WAS NOT WARRANTED IN THE FACTS AND CIRCUMSTA NCES OF THE CASE AS DISCUSSED IN PARAS 5.2.1 TO 5.2.2 OF THIS ORDER (SUPRA) AND BEING FACTUALLY UNSUSTAINABLE, WE THEREFORE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW IN THIS REGARD. HOWEVER, IN THE INTEREST OF EQUITY AND JUSTICE WE DEEM IT APPROPRIATE TO REMAND THIS M ATTER TO THE FILE OF THE AO FOR EXAMINATION AND FRESH ADJUDICATION THERE ON, IN THE LIGHT OF OUR ABOVE OBSERVATIONS IN THIS REGARD, AND AFTER AF FORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD IN THE MATTER A ND TO FILE DETAILS AND SUBMISSIONS REQUIRED. CONSEQUENTLY, GROUNDS 2 AND 3 OF THE ASSESSEES APPEAL ARE ALLOWED FOR STATISTICAL PURPO SES. ITA NO.491/B/17 7 6. GROUNDS 5 AND 6 CHARGING OF INTEREST U/S 234B OF THE ACT 6.1 IN THESE GROUNDS, THE ASSESSEE DENIES ITSELF LI ABLE TO BE CHARGED INTEREST U/S 234B OF THE ACT. THE CHARGING OF INTE REST IS CONSEQUENTIAL AND MANDATORY AND THE AO HAS NO DISCRETION IN THE M ATTER. THIS PROPOSITION HAS BEEN UPHELD BY THE HONBLE APEX COU RT IN THE CASE OF ANJUM H GHASWALA (252 ITR 1) (SC) AND WE THEREFORE UPHOLD THE ACTION OF THE AO IN CHARGING THE SAID INTEREST. TH E AO IS, HOWEVER, DIRECTED TO RE-COMPUTE THE INTEREST CHARGEABLE U/S 234B OF THE ACT, IF ANY, WHILE GIVING EFFECT TO THIS ORDER. 7. IN THE RESULT, THE ASSESSEES APPEAL FOR ASST. Y EAR 2007-08 IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH OCTOBER, 2017 . SD/- SD/- (N.V VASUDEVAN) (JASO N P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEM BER BANGALORE DATED : 13/10/2017 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVAT E SECRETARY, ITAT, BANGALORE