SHARP & TANNAN, MUMBAI V. ASST CIT RG 11(3), MUMBAI

ITA 5088/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3733 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 05-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: HEENA DOSHI
• Keywords: Gift; Opportunity of being heard; Principle of natural justice
• Section: 143(3)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 5088 /MUM/2014 ( / ASSESSMENT YEAR : 2010-11) M/S. SHARP & TANNAN RAVINDRA ANNEX, 194 CHURCHGATE RECLAMATION DINSHAW WACCHA ROAD MUMBAI-400 020. ACIT-11(3) 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD NEW MARINE LINES MUMBAI-400 020. (APPELLANT) (RESPONDENT) PAN NO.AAAFS2967E ASSESSEE BY MS. HEENA DOSHI REVENUE BY SHRI PREMANAND J. ,DR DATE OF HEARING 18.2 . 201 6 DATE OF PRONOUNCEMENT 29 .4 . 201 6 O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER :- THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDERS DATED 21.03.2014 OF THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS)-2, MUMBAI FOR THE ASSESSMENT YEAR 2010-11(HEREINAFTER CALLED THE CIT(A)), THE APPELLATE PROCEEDINGS BEFORE THE CIT(A) ARISING FRO M THE ASSESSMENT ORDER DATED 30-11-2012 PASSED BY THE ASSESSING OFFICER(HE REINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961(HEREINAFTER C ALLED THE ACT). 2. THE GROUNDS RAISED BY THE ASSESSEE IN THE MEMO O F APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- ITA 5088/MUM/2014 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONOURABLE CIT(A) HAS ERRED IN CONFIRMING ADHOC DISALLOWANE OF SUNDRY EXPENSES OF RS. 50,000/- U/S. 37 OF THE INCOME TAX ACT, 1961. HE OU GHT NOT TO HAVE DONE SO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONOURABLE CIT(A) HAS ERRED IN DISALLOWING FOREIGN TRAVEL EXPE NDITURE OF RS. 2,36,218/- OVERLOOKING THE SUBMISSIONS MADE BY ASSESSEE. HE OU GHT NOT TO HAVE DONE SO. 3. WITHOUT PREJUDICE TO GROUND NO. 2 ABOVE, ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT(A) HAS ERRE D IN ENHANCING FOREIGN TRAVEL DISALLOWANCE FROM RS. 1,74,520/- TO RS. 2,36,218/- WITHOUT GIVING REASONABLE OPPORTUNITY AS MENTIONED IN SUB SECTION 2 OF SECTIO N 251 OF THE INCOME TAX ACT, 1961. HE OUGHT TO HAVE GIVEN OPPORTUNITY TO SHOW CA USE AGAINST SUCH ENHANCEMENT. 4. YOUR APPELLANT COMPANY CRAVES LEAVE TO ADD, TO AMEN D, TO MODIFY ANY OF THE AFORESAID GROUNDS OR TAKE AN ADDITIONAL GROUND OF A PPEAL, IF NEED BE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM OF CHARTERED ACCOUNTANTS. THE ASSESSEES SOURCE OF INCOME CONSIS TS OF INCOME FROM BUSINESS OR PROFESSION AND INCOME FROM OTHER SOURCE S. THE ASSESSEE HAS CLAIMED RS. 12,22,557/- TOWARDS SUNDRY EXPENSES. TH E ASSESSEE WAS ASKED BY THE AO TO SUBMIT DOCUMENTS IN SUPPORT OF THE CLAIM. THE ASSESSEE SUBMITTED ONLY BREAK-UP OF THE EXPENSES WITHOUT ANY SUPPORTIN G BILLS/VOUCHERS. AS PER THE AO , THE NATURE OF EXPENSES ARE SUCH THAT PERSO NAL EXPENSES CANNOT BE RULED OUT, THEREFORE 20% OF RS. 12,22,557/-TO THE E XTENT OF RS. 2,44,511/- WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF TH E ASSESSEE BY THE AO, VIDE ASSESSMENT ORDERS DATED 30.11.2012 PASSED BY THE AO U/S. 143(3) OF THE ACT. 4. THE ASSESSEE HAS CLAIMED RS. 8,72,600/- TOWARDS FOREIGN TRAVEL EXPENSES. THE ASSESSEE WAS ASKED BY THE AO TO SUBMI T DOCUMENTS IN SUPPORT OF THE CLAIM. THE ASSESSEE SUBMITTED ONLY BREAK-UP OF THE EXPENSES WITHOUT ANY SUPPORTING BILLS/VOUCHERS. AS PER THE AO THE NA TURE OF EXPENSES ARE SUCH THAT PERSONAL ELEMENT CANNOT BE RULED OUT AND IN VI EW OF THIS 20% OF THE ABOVE EXPENSES TO THE EXTENT OF RS. 1,74,520/- WAS DISALL OWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE BY THE AO, VIDE ASSESS MENT ORDERS DATED 30-11- 2012 PASSED BY THE AO U/S 143(3) OF THE ACT. ITA 5088/MUM/2014 3 5. AGGRIEVED BY THE ORDERS DATED 30-11-2012 PASSED BY THE AO U/S 143(3) OF THE ACT , THE ASSESSEE PREFERRED AN APPEAL BEFOR E THE CIT(A). 6. THE ASSESSEE IN THE FIRST APPEAL SUBMITTED BEFOR E THE CIT(A) THAT ALL EXPENSES WERE SUPPORTED BY BILLS AND VOUCHERS AND S UBMITTED COMPLETE DETAILS. WITH RESPECT TO SUNDRY EXPENSES AND EACH H EADS OF EXPENSES, SUPPORTING BILLS AND VOUCHERS WERE SUBMITTED BY THE ASSESSEE BEFORE THE CIT(A). THE CIT(A) CALLED FOR THE REMAND REPORT FRO M THE AO UNDER RULE 46A OF INCOME TAX RULES, 1962, WHEREBY ALL DETAILS AND SUP PORTING DOCUMENTS WERE FORWARDED BY THE CIT(A) TO THE AO. THE AO FURNISHED HIS COMMENTS IN REMAND REPORT THAT EXPENSES OF RS. 45,000/- IN RESPECT OF DIWALI SWEET AND POOJA EXPEN SES, SNACKS, IT WAS OBSERVED THAT THOUGH THE BILLS ARE ON RECORD, THE EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. WATER CHARGES, WEDDING EXPENSES AND STAFF WELFARE EXPENSES ARE SUPPORTED BY SELF MA DE VOUCHERS, THE AO IN REMAND REPORT OBSERVED THAT THE ELEMENT OF PERSONAL USAGE CANNOT BE RULED OUT. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) IN REPLY T O REMAND REPORT PROCEEDINGS OF THE AO THAT THE ASSESSEE IS A PROFES SIONAL FIRM OF ELEVEN PARTNERS WHO WERE CHARTERED ACCOUNTANTS, 55 EMPLOYE ES AND CONSULTANTS AND 65 ARTICLED CLERKS. DIWALI SWEET AND POOJA EXPENSES WERE INCURRED ON THE OCCASION OF DIWALI POOJA PERFORMED IN THE OFFICE AN D ATTENDED BY THE PARTNERS, EMPLOYEES AND CONSULTANTS ALONG-WITH THEIR SPOUSES WHICH AS PER THE ASSESSEE CANNOT BE HELD TO BE NON-PROFESSIONAL PURPOSES SINC E THE EMPLOYEES AND THEIR FAMILY MEMBERS HAVE BEEN TRADITIONALLY PARTICIPATIN G IN THE SAID POOJA AND LOOK FORWARDS FOR THIS EVENT AND RECEIVING SWEETS. THEREFORE, IT WAS SUBMITTED BY THE ASSESSEE THAT IT BE CONSIDERED TO BE PART OF STAFF WELFARE. WITH RESPECT OF THE WATER CHARGES EXPENSES, IT WAS SUBMITTED BY THE ASSESSEE THAT THE EXPENSES OF RS. 33,480/- TOWARDS COST OF MINERAL WA TER AND BALANCE EXPENSES ITA 5088/MUM/2014 4 OF RS. 1,10,350/- IS TO BE PAID TOWARDS LEAVE AND L ICENSE AGREEMENT. WEDDING GIFT OF RS.17,506/- REPRESENTS CHANDLAS/GIFTS GIVEN TO THE EMPLOYEES OF THE FIRM OR BUSINESS CONTACTS ON THE OCCASION OF THEIR CHILD RENS MARRIAGE. SIMILARLY, FOR STAFF WELFARE EXPENSES, MOST OF THESE EXPENSES ARE IN THE NATURE OF REIMBURSEMENT OF EXPENSES LIKE WASHING ALLOWANCE OF RS.10,100/-PAID TO PEONS SINCE THEY ATTEND TO OUTDOOR WORK. CONVEYANCE EXPENSES OF RS. 2,03,400/- REIMBURSED TO AUDIT STAFF AND TEA, SNACK S , LUNCH EXPENSES OF RS. 75,110/- REIMBURSED TO ALL PERSONS FOR WORKING ON H OLIDAYS OR WEEKENDS OR OUTDOOR WORK DURING LUNCH TIME. SUCH REIMBURSEMENTS WERE MADE ON THE BASIS OF OFFICE VOUCHERS. STAFF WELFARE EXPENSES AL SO INCLUDE SPECIAL ALLOWANCE OF RS. 1,32,755/- PAID TO STAFF, AS PER THE TERMS O F EMPLOYMENT PAID ALONG WITH MONTHLY SALARY. THUS IT WAS REQUESTED BY THE ASSESS EE THAT THE ENTIRE ADDITIONS OF RS.2,44,511/- BE DELETED. LEARNED CIT(A) CONSIDERED THE SUBMISSIONS AND HELD THAT CERTAIN EXPENSES WERE SUPPORTED BY SELF MADE VOUCHERS AND CERTAIN EX PENSES ARE IN THE NATURE OF ENTERTAINMENT, ELEMENT OF PERSONAL USAGE CANNOT BE RULED OUT AND HENCE ADDITIONS WERE RESTRICTED TO RS. 50,000/- INSTEAD O F RS. 2,44,511/- BY THE CIT(A) VIDE ORDERS DATED 21.3.2014. 7. SIMILARLY WITH RESPECT TO THE FOREIGN TRAVEL EXP ENSES, DETAILS WERE FORWARDED TO THE AO BY THE CIT(A) FOR REMAND REPORT AND THE AO HELD THAT THE TRAVELLING EXPENSES INCURRED BY THE ASSESSEE IS SUP PORTED BY VOUCHERS BUT PERSONAL ELEMENT CANNOT BE RULED OUT. THE ASSESSEE SUBMITTED THAT EXPENSES INCLUDED SPOU SES EXPENSES BE ALLOWED WHICH ARE DELEGATE FEES AS FOLLOWS :- DELEGATE FEE FOR MRS. KUNTE US$ RS. 50,465/- DELEGATE FEE FOR MRS. PHADKE US$ RS. 50465/- DELEGATE FEE FOR MRS. AUGSTIN US$ 1000 RS. 46, 155/- VISA FEE CHARGES RS. 24,233/- AIR FARE FOR MRS. AUGSTIN RS. 64900/- ITA 5088/MUM/2014 5 TOTAL : RS. 2,36,218/- THE CIT(A) CONSIDERED THE REPLY OF THE ASSESSEE AND HELD THAT THE EXPENDITURE OF RS. 2,36,218/- WAS INCURRED ON THE TRAVEL AND RE LATED EXPENSES OF THE SPOUSES OF THE PARTNERS, WHICH INCLUDED COST OF HOT EL ACCOMMODATION AND IT IS NOT EXPLAINED BY THE ASSESSEE AS TO HOW THE SPOUSES OF THE PARTNERS ARE COVERED BY THE DEFINITION OF BUSINESS PURPOSES SO AS TO MAKE THE SAID EXPENDITURE AS ALLOWABLE DEDUCTION. THEREFORE IT WA S HELD BY THE CIT(A) THAT IT CANNOT BE HELD THAT THE SAID EXPENDITURE WAS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION AND HENCE THE DISALLOWANCE WAS ENHANCED FROM RS. 1,74,520/- TO RS. 2,36,218/-, VID E ORDERS DATED 21.3.2014 PASSED BY THE CIT(A). 8. AGGRIEVED BY THE ORDERS DATED 21.03.2014 PASSED BY THE CIT(A), THE ASSESSEE HAS FILED THE SECOND APPEAL BEFORE THE TRI BUNAL. 9. THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW. THE SUBMITTED THAT THE SUNDRY EX PENSES OF RS.50,000/- HAS BEEN DISALLOWED BY THE CIT(A) ON THE GROUNDS THAT E LEMENT OF PERSONAL USAGE CANNOT BE RULED OUT, WHILE DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES HAVE BEEN ENHANCED FROM RS. 1,74,520/- TO RS. 2,36,218/- BY THE CIT(A). NO NOTICE OF ENHANCEMENT HAS BEEN GIVEN TO THE ASSESSEE BY TH E CIT(A). ALL DETAILS WERE FURNISHED BEFORE THE CIT(A) WITH RESPECT TO THE DIS ALLOWANCE OF RS. 50,000/- ON ACCOUNT OF SUNDRY EXPENSES INCURRED BY THE ASSESSEE . 10. LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDERS OF THE AUTHORITIES BELOW WITH RESPECT TO THE DISALLOWANCE OF RS. 50,000/- TOWARDS SUNDRY EXPENSES INCURRED BY THE ASSESSEE. 11. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GO NE THROUGH THE ORDERS OF THE AUTHORITIES BELOW ON RECORD. WE ARE OF THE CONS IDERED VIEW THAT THE DISALLOWANCE OF RS. 50,000/- OUT OF SUNDRY EXPENSES OF RS.12,22,557/- IS QUITE REASONABLE AS MADE BY THE CIT(A) KEEPING IN VIEW TH E FACTS AND CIRCUMSTANCE OF THE CASE , THAT THE ELEMENT OF PERSONAL USAGE CA NNOT BE RULED OUT AND AS ITA 5088/MUM/2014 6 WELL VOUCHERS ARE SELF MADE VOUCHERS AS SET OUT ABO VE IN PRECEDING PARAS. WE DONOT FIND ANY INFIRMITY IN THE ORDERS OF THE CIT(A ) WITH RESPECT TO DISALLOWANCE OF RS.50,000/- TOWARDS THE SUNDRY EXPENSES WHICH WA S AN REASONABLE ESTIMATE MADE BY THE CIT(A) KEEPING IN VIEW FACTS A ND CIRCUMSTANCES OF THE CASE , WHICH ORDER OF THE CIT(A) WE CONFIRM. HOWEVE R, WITH RESPECT TO THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS. 2,36 ,218/-, WHICH HAS BEEN ENHANCED BY THE CIT(A) FROM RS. 1,74,520/- MADE BY THE AO , WE HAVE OBSERVED THAT NO NOTICE OF ENHANCEMENT OF INCOME WA S GIVEN TO THE ASSESSEE BY THE CIT(A) BEFORE ENHANCEMENT OF THE INCOME AND IN OUR CONSIDERED VIEW THIS ISSUE NEEDS TO BE SET ASIDE TO THE FILE OF CIT (A) FOR FRESH ADJUDICATION AFTER GIVING PROPER NOTICE OF HEARING TO THE ASSESSEE WIT H RESPECT TO PROPOSED ENHANCEMENT OF INCOME AND AFTER GIVING PROPER AND A DEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRI NCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. 12. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 29. 4.2016. SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 20/4/2016 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 PS