Ramanlal Jivrajbhai Patel, Thane V. The Income Tax Officer, Ward-1, Himatnagar

ITA 515/AHD/2024

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6572 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 05-06-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 20-03-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KETAN GAJJAR
• Keywords: Business income; Depreciation; Business expenditure
• Section: 37; 40A(3); 80C; 143(3); 37(1); 143(2)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘B’, अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद । ।। । IN THE INCOME TAX APPELLATE TRIBUNAL “ B ” BENCH, AHMEDABAD ] ] BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTNAT MEMBER ITA No.515/Ahd/2024 Assessment Year : 2016-17 Ramanlal Jivrajbhai Patel B-2003, Shreeji Heights (Palm Beach Road, Navi Mumbai – Thane, Nerul Node –III SO) Sector 46A, Plot No.1, 1A, 1B, 1C Thane 400 706 Maharashtra Vs The ITO Ward-1 Himatnagar PAN: ABCPP 1551 G / (Appellant) .. / (Respondent) Assessee by : Shri B.K. Patel, CA Revenue by : Shri Ketan Gajjar, Sr.DR /Date of Hearing : 06/06/2024 /Date of Pronouncement: 11/06/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER This appeal by the Assessee is directed against the order dated 20/02/2024 passed by the Ld.Commissioner of Income Tax (Appeals)- NFAC, Delhi [hereinafter referred to as 'the Ld. CIT(A)'] in the matter of assessment order passed by the Assessing officer [hereinafter referred to as 'the AO’] under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for the Assessment Year (AY) 2016-17. Facts of the Case: ITA No.515/Ahd/2024 Ramanlal Jivrajbhai Patel vs. ITO Asst. Year : 2016-17 2 2. The brief facts of the case are that the assessee is a partner in three firms. He has declared income under the heads of Income from House Property, Profits and gains of Business or Profession and has and Other Sources. The assessee filed his return of income on 06/01/2017 for the AY 2016-17 declaring a total income of Rs.28,25,340/-. The case was subsequently selected for scrutiny and a notice under Section 143(2) of the Act was issued on 19/09/2017. The Assessing Officer (AO) passed an order under Section 143(3) of the Act on 19/12/2018, making an addition of Rs.24,72,507/- and assessing the income of the assessee at Rs.52,97,847/-. 3. Aggrieved by the order of Assessing Officer, the assessee filed an appeal before the Ld.CIT(A), who upheld the addition of Rs.16,75,102/-. 4. The assessee is now in appeal before us against the said order of the Ld. CIT(A) with the following grounds of appeal: “1. The Learned Commissioner of Income Tax (Appeals) - NFAC, Delhi[thereinafter referred to as "the Learned CIT(A)"] has erred in law and on facts as much as confirming the addition of Rs.9,60,000/- made by the learned AO without considering the facts that the assessee has earned income which falls under section 28(v) of the Income Tax Act, which is considered as business income and expenditure incurred i.e. Salary paid by assessee to his son to the tune of Rs.9,60,000/- to earn business income is allowable expenditure u/s. 37(1) as per Income Tax Act, 1961. Such expenditure was incurred for wholly and exclusively for business purpose only. 2. The Learned CIT(A) has erred in law and on facts as much as confirming the addition of Rs.2,70,507/- made by the learned AO without considering the facts that the assessee is eligible for deduction u/s. 80C for payment of LIC premium of his son to the extent of Rs.1,50,000/-. Further the learned CIT(A) has erred in law and on facts as much as ITA No.515/Ahd/2024 Ramanlal Jivrajbhai Patel vs. ITO Asst. Year : 2016-17 3 confirming the addition of Rs.2,70,507/- made by the learned AO without considering the facts that the assessee has actually claimed deduction u/s. 80C of Rs.1,50,000 only and not of Rs.2,70,507/-, as it is maximum permissible deduction u/s. 80C of the Income Tax Act, 1961. 3. The Learned CIT(A) has erred in law in facts as much as confirming the addition of Rs.4,44,595/- made by the learned AO without considering the facts that the assessee has earned income which falls under section 28(v) of the Income Tax Act, which is considered as business income and expenditure incurred viz Driver Salary of Rs.1,92,000/-, Bank Charges of Rs.555/-, Car Expenses of Rs. 1,42,500/, Depreciation of Rs.11,555/- and Office and Other Expenses of Rs.98,540/-, these expenses are very reasonable and incurred for earning business income, which is allowable expenditure u/s. 37(1) as per Income Tax Act, 1961. Such expenditures incurred for wholly and exclusively for business purpose only. 4.1. Therefore, it is prayed that such additions need to be deleted by passing appropriate order. Further, the assessee craves leave to add, amend, alter or delete all or any of the grounds of appeal at the time of hearing of the appeal. Ground No. 1: 5. The Ld.Counsel for the assessee contended that the salary of Rs.9,60,000/- paid to the assessee's son is a legitimate business expenditure as it was incurred wholly and exclusively for the purpose of business. He further stated that the assessee is partner in three firms, and he needed assistance in executing the business of these firms. Assessee’s son is also engaged in the similar business and have expertise in real estate business, hence he was assisting the assessee for conducting business of one firm. He also stated that the details with copy of return of income of his son, Paresh Patel was submitted to the AO during the course of assessment. ITA No.515/Ahd/2024 Ramanlal Jivrajbhai Patel vs. ITO Asst. Year : 2016-17 4 6. The Ld.Departmental Representative (DR) relied on the order of Ld.CIT(A) and contented that the salary to son is paid to exploit the tax arbitrage as concluded by the Ld.CIT(A) as son is paying taxes at lower tax bracket. He also raised the question relating to education qualification and nature of service. The Ld.Counsel for the assessee explained that the son is doing supervision of work as submitted to the AO. 7. We have considered the contention of both the parties and perused the material available on record. Section 37 of the Income Tax Act, 1961, deals with the allowability of business expenditure that is not expressly covered by any other specific section of the Act. The concept of reasonability within Section 37 of the Act revolves around ensuring that the expenses claimed are not only genuinely incurred for business purposes, but are also reasonable in the context of the business operations. 7.1. If the transaction is having commercial substance, tax arbitrage need not be a reason to disallow the expenditure. The amount of expenditure should be reasonable in relation to the nature of the business and the benefit derived from it. 7.2. In the present case, the assessee has derived following economic benefits from one of the firms i.e. Raj Group (PAN: AALFR9689K): Amount of Benefit % to Total - Share of profit – Exempt u/s 10(2A) Rs. 18,71,013 43.80% - Remuneration from the firm Rs. 24,00,000 56.20% Total ....... Rs. 42,71,013 100% ITA No.515/Ahd/2024 Ramanlal Jivrajbhai Patel vs. ITO Asst. Year : 2016-17 5 7.3. However, the assessee has claimed deduction towards salary paid to his son of Rs.9,60,000/- only against taxable part of benefit, i.e. Remuneration from the firm of Rs.24,00,000/-. Therefore, in our opinion, this expenditure will be reasonable if allowed proportionately. We, therefore, allow Salary to the extent of Rs.5,39,520/- (i.e. 56.20% of Rs.9,60,000/-). Thus, Ground No.1 of assessee’s appeal is partly allowed. Ground No.2: 8. The assessee's counsel argued that the disallowance of Rs.2,70,507/- made by the AO in respect of insurance premium of son of the assessee under Section 80C of the Act is incorrect as the same is allowed under the Act. He further stated that the same is paid out of the bank account of the assessee. To support this claim, he submitted bank statement and premium paid certificate. He also contented that when assessee has claimed deduction of Rs.150,000/- disallowance should not be of Rs. 2,70,507/-. 9. As per clause (b) of sub-section (4) of Section 80C of the Act, insurance premium paid in respect of a child is allowed as deduction irrespective of the child being dependent or independent, minor or major, married or unmarried. For the sake of clarity, we produce the relevant part of the same – (4) The persons referred to in sub-section (2) shall be the following, namely: — (a) for the purposes of clauses (i), (v), (x) and (xi) of that sub-section, — (i) in the case of an individual, the individual, the wife or husband and any child of such individual, and ITA No.515/Ahd/2024 Ramanlal Jivrajbhai Patel vs. ITO Asst. Year : 2016-17 6 (ii) in the case of a Hindu undivided family, any member thereof; 9.1. Therefore, legitimate claim for deductions under the provisions of section 80C of the Act should not be disallowed without proper justification. Therefore, the ground of the assessee is allowed. Ground No.3: 10. The assessee's counsel submitted that the expenses amounting to Rs.4,44,595/- disallowed by the AO and also confirmed by Ld.CIT(A) were incurred wholly and exclusively for the purpose of business and are allowable under Section 37(1) of the Act. 10.1. Details of the such expenses as confirmed by CIT(A) are – Salary, Rs.1,92,000/-, Car Expenses Rs. 1,42,500/-, Depreciation Rs. 11,555, Office and Other Expenses Rs. 98,540/-. 11. We have gone through the details and evidence submitted. In our opinion, the reasonableness of business expenditure should be judged from the point of view of the businessman and not the Revenue. However, while allowing such claim as business expenditure u/s.37 of the Act, provisions of section 40A(3) of the Act should not be ignored. We have observed that entire amount of salary of Rs.1,92,000/- is paid in cash (Rs.16000/- per month). Also, Car expenses to the extent of Rs.21,800/- (Rs.10,500/- and Rs.11,300/-) are incurred in cash. When the assessee is claiming any expenditure against the business income provisions related to such claim need to be adhered to. In light of the provision of section 40A(3) of the Act, we, therefore, upheld the addition of Rs.2,13,800/- and delete the remaining ITA No.515/Ahd/2024 Ramanlal Jivrajbhai Patel vs. ITO Asst. Year : 2016-17 7 addition confirmed by the Ld. CIT(A). Thus, Ground No.3 of the assessee’s appeal is partly allowed. 12. In the result, the appeal filed by the Assessee is partly allowed. Order pronounced in the Open Court on 11 th June, 2024 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, Dated 11/06/2024 . ी. य , . . ./T.C. NAIR, Sr. PS ! "# /Copy of the Order forwarded to : 1. "!ी $% / The Appellant 2. &य$% / The Respondent. 3. '(')* य य + / Concerned CIT 4. य य + )"!ी (/ The CIT(A)-(NAFC) 5. . /ीय )* , य "!ी य ")* , ज /DR,ITAT, Ahmedabad, 6. / 12 3 /Guard file. / BY ORDER, &य ! //True Copy// ह य !'जी (Asstt. Registrar) य "!ी य ")* , ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 07.06 .2024 2. Date on which the typed draft is placed before the Dictating Member. : 07.06 .2024 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 11.6.24 7. Date on which the file goes to the Bench Clerk. : 11.6.24 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order :