CHANDRAMOHAN AMARNATH MALHOTRA, MUMBAI V. ITO 19(3)(1), MUMBAI

ITA 5161/MUM/2011

• Counselvise Citation: 516119914 RSA 2011
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 05-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Assessee Lawyers: PRADIP KEDIA
• Keywords: Depreciation; Business expenditure
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUD ICIAL MEMBER . / ITA NO. 5161 /MUM./ 2011 ( / ASSESSMENT YEAR : 2 0 0 6 07 ) M/S. CHANDRAMOHAN AMARNATH MALHOTRA 501, MARBLE ARCH, PALI HILL ROAD BANDRA (WEST), MUMBAI 400 050 .. / APPELLANT V/S INCOME TAX OFFICER WARD 19(3)(1), MUMBAI .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AACPM9305J / ASSESSEE BY : MR. PRADIP KEDIA / REVENUE BY : MR. SUMIT KUMAR / DATE OF HEARING 17 .06.2014 / DATE OF ORDE R 25.06.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HA S BEEN PREFERRED BY THE ASSESSEE , CHALLENGING THE IMPUGNED ORDER DATE D 25 TH MAY 2011 , PASSED BY THE LEARNED COMMISSIONER (APPEALS ) X X I , MUMBA I, FOR THE QUANTUM OF M/S. CHANDRAMOHAN AMARNATH MALHOTRA 2 ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 06 07 . 2 . THE ASSESSEE IS MAINLY AGGRIEVED BY TH E DISALLOWANCE OF INTEREST OF ` 5,66,188, MADE UNDER SECTION 36(1)(III), DISALLOWANCE OF MOTORCAR EXPENSES OF ` 15,629 AND DEPRECIATION ON MOTORCAR OF ` 18,410 ON AD HOC BASIS @ 20%. 3 . THE ASSESSEE, IN GROUND NO.3, HAS CHALLENGED THE INITIATION OF PENALTY P ROCEEDINGS UNDER SECTION 271(1)(C), WHICH IS REJECTED BEING PRE MATURE AS THE QUANTUM PROCEEDINGS AND PENALTY PROCEE DINGS ARE SEPARATE AND DISTINCT AND, THEREFORE, INITIATION OF PENALTY CAN BE CHALLENGED ONLY DURING T HE COURSE OF PENALTY PROCEEDINGS. 4 . FACTS IN BRIEF : THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF WHOLESALE DEALER IN PLYWOOD IN THE NAME AND STYLE OF BOMBAY PLYWOOD . THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS SHOWN NET INTEREST O F ` 11,38,489, AND REQUIRED THE ASSESSEE TO SUBMIT THE DETAILS OF INTEREST RECEIVED AND INTEREST PAID. ON VERIFICATION OF SUCH DETAILS, HE NOTED THAT THE ASSESSEE HAS EARNED INTEREST OF ` 17,32,363, ON THE FDRS AND HAS CLAIMED THE EXPENDITURE OF ` 5,93,873 , AS INTEREST PAID TO BANK ON OVERDRAFT ACCOUNT , CAR LOAN, ETC. IN RESPONSE THE SHOW CAUSE NOTICE AS TO WHY SUCH A DISALLOWANCE SHOULD NOT BE DISALLOWED AS THE M/S. CHANDRAMOHAN AMARNATH MALHOTRA 3 SAME HAS BEEN INCURRED ONLY FOR THE FIXED DEPOSIT INTEREST, THE ASSESSEE DID NOT SUBMIT ANY REPL Y AND, ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE EXPENDITURE CLAIMED CAN NEITHER BE ALLOWED UNDER SECTION 36(1)(III) NOR UNDER SECTION 57(III). THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS DEBITED MOTORCAR EXPENDITURE OF ` 78,145 AND DE PRECIATION ON CAR AT ` 92,041. SINCE THE ASSESSEE WAS NOT MAINTAINING LOG BOOK TO DIFFERENTIATE THE USE OF VEHICLE FOR BUSINESS AND PERSONAL USE, THEREFORE, THE ELEMENT OF PERSONAL EXPENDITURE CANNOT BE RULED OUT AND, ACCORDINGLY, H E DISALLOW ED 20% OF MOTO R CAR EXPENDITURE AND ALSO THE DEPRECIATION. 5 . BEFORE THE LEARNED COMMISSIONER (APPEALS), ON THE ISSUE OF DISALLOWANCE OF INTEREST, THE ASSESSEE SUBMITTED THAT THE INTEREST PAID BY THE ASSESSEE WAS AGAINST THE OVERDRAFT FACILITIES TAKEN BY THE BANK AFTER PL EDGING FIXED DEPOSIT. THE OVERDRAFT FACILITY WAS USED EXCLUSIV ELY FOR THE PURPOSE OF BUSINESS AND, THEREFORE, T HE INTEREST PAID HAS NOT BEEN CLAIMED AGAINST THE EARNING OF INTEREST ON FDR BUT ON ACCOUNT OF BUSINESS EXPENDITURE. IT WAS FURTHER SUBMITTED THA T THE ASSESSEE HAS FURNISHED ALL THE DETAILS OF OVER DRAFT FUNDS WHICH WERE USED TO DISCHARGE LIABILITY AND EXPENDITURE. THE SUMMARY OF THE OVERDRAFT ACCOUNT WAS ALSO SUBMITTED BEFORE THE LEARNED COMMISSIONER (APPEALS). ACCORDINGLY, IT WAS SUBMITTED THAT T HE BORROWING OF THE FUNDS IN THE FORM OF OVERDRAFT ACCOUNT WAS PURELY COMMERCIAL AND FOR M/S. CHANDRAMOHAN AMARNATH MALHOTRA 4 BUSINESS REQUIREMENT AND SUCH AN OVERDRAFT ACCOUNT WAS OBTAINED AGAINST THE SECURITY OF FIXED DEPOSIT ONLY AND, THEREFORE, THE INTEREST RECEIVED AND INTEREST PAID ARE INEXTRICABLY LINKED. 6 . THE LEARNED COMMISSIONER (APPEALS) , HOWEVER, REJECTED THE ASSESSEES CONTENTION ON THE GROUND THAT THE ONUS WA S UPON THE ASSESSEE TO PROVE THAT INTEREST EXPENDITURE OF ` 5,93,873, WAS INCURRED FOR BUSINESS PURPOSE . SIMPLY BECAUSE THE INTEREST HAS BEEN PAID ON OVERDRAFT FACILITY, IT CANNOT BE HELD THAT IT IS FOR THE PURPOSE OF BUSINESS. THUS, HE UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 7 . ON THE SECOND ISSUE ALSO, HE HELD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF MOTORCAR EXPENDITURE AND DEPRECIATI ON @ 20% IS QUITE FAIR AND JUST IN THE ABSENCE OF ANY DETAIL ABOUT THE USAGE FOR THE BUSINESS PURPOSE. 8 . BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WHOLESALE OF P LYWOOD. HE HAS ONLY ONE OVERDRAFT ACCOUNT FROM WHICH HE HAS BEEN CARRYING OUT HIS BUSINESS. FOR AVAILING THE OVERDRAFT FACILITIES, THE ASSESSEE HAD TO PLEDGE FDRS ON WHICH THE ASSESSEE HAD EARNED INTEREST. THUS, THE PAYMENT OF INTEREST ON OD ACCOUNT IS PUR ELY A BUSINESS EXPENDITURE WHICH NEEDS TO BE ALLOWED. M/S. CHANDRAMOHAN AMARNATH MALHOTRA 5 9 . ON THE DISALLOWANCE ON MOTORCAR AND DEPRECIATION, HE SUBMITTED THAT THE DISALLOWANCE HAS BEEN MADE PURELY ON AD HOC BASIS WHICH CANNOT BE SUSTAINED AND IN ANY CASE, THE DISALLOWANCE MADE ON ACCOUNT OF PERSONAL USE IS TOO HIGH AND EXCESSIVE. 10 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) AND SUBMITTED THAT WHETHER THE OVERDRAFT ACCOUNT HAS BEEN USED FOR THE PURPOSE OF BUSI NESS OR FOR SOME OTHER PURPOSE HAS NOT BE E N CLARIFIED BY THE ASSESSEE. FURTHER, THE INTEREST PAID CANNOT BE ALLOWED AGAINST THE INTEREST INCOME UNDER SECTION 36(1)(III) AND EVEN OTHERWISE ALSO, IT IS NOT ALLOWABLE UNDER SECTION 57(3). REGARDING DISALLOWANC E ON ACCOUNT OF MOTORCAR EXPENDITURE AND DEPRECIATION, HE STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 11 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECOR D. IT IS SEEN THAT THE ASSESSEE, IN THE TRADING ACCOUNT AND PROFIT & LOSS ACCOUNT, HAD SHOWN INTEREST OF ` 11,38,489, ON NET BASIS. THE INTEREST HAS BEEN RECEIVED UNDER THE FOLLOWING HEADS: I) INTEREST RECEIVED ON FDRS ` 4,12,924 II) INTEREST RECEIVED O N OTHERS ` 1,57,797 M/S. CHANDRAMOHAN AMARNATH MALHOTRA 6 III) INTEREST RECEIVED ON RECURRING DEPOSIT ` 11,61,642 ` 1 7 , 32 , 363 OUT OF THE AFORESAID AMOUNT OF ` 17,32,363, THE ASSESSEE HAS REDUCED ` 5,93,873, WHICH ARE AS UNDER: I) INTEREST PAID ON OVERDRAFT ACCOUNT WITH SBI ` 5,66,188 II) INTEREST PAID ON OTHERS ` 27,685 ` 5,93,873 12 . THUS, THE NET INTEREST OF ` 11,38,490, WAS SHOWN ON THE CREDIT SIDE OF PROFIT & LOSS ACCOUNT . THE ASSESSEES CLAIM OF INTEREST OF ` 5,66,188, PAID ON OVERDRAFT ACCOUNT HAS BEEN CLAIMED AS BUSINESS EXPEND ITURE UNDER SECTION 36(1)(III). THE ASSESSEES CONTENTION HAS BEEN THAT IT HAS ONLY ONE ACCOUNT WHICH IS OVERDRAFT ACCOUNT FROM WHICH HE HAS BEEN CARRYING OUT HIS BUSINESS AND ALSO HAS PERSONAL INVESTMENT. THIS OVERDRAFT FACILITY HAS BEEN OBTAINED AFTER PL EDGING OF THE FDRS. ON A PERUSAL OF THE ASSESSMENT ORDER AND THE ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS), IT IS NOT BORNE OUT , WHETHER THE FUND FLOW OF OVERDRAFT ACCOUNT HAS BEEN EXAMINED OR NOT TO ASCERTAIN , HOW MUCH OVERDRAFT CREDIT HAS BEEN U SED FOR BUSINESS PURPOSE AND HOW MUCH FOR THE PERSONAL USER. IF THE OVERDRAFT FACILITY HAS BEEN USED FOR THE PURPOSE OF BUSINESS, THEN THE INTEREST PAID HAS M/S. CHANDRAMOHAN AMARNATH MALHOTRA 7 TO BE ALLOWED UNDER SECTION 36(1)(III). THUS, IN THE INTEREST OF JUSTICE, WE ARE OF THE OPINION THA T TH IS MATTER NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER . CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE NATURE O F THE OVERDRAFT ACCOUNT AND THE FUND FLOW OF SUCH ACCOUNT TO EXAMINE THE UTILIZATION OF OVERDRAFT ACCOUNT FOR THE BUSINESS PURPOSE. THE INTEREST PAID CANNOT BE ALLOWED UNDER SECTION 57( III ) , IN THE PRESENT CASE, AS IT IS NEITHER THE CASE OF THE ASSESSING O FFICER NOR THE ASSESSEE THAT INTEREST EARNED BY THE ASSESSEE IS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES . THEREFORE, THE CLAIM OF THE INTEREST HAS TO BE EXAMINED UNDER SECTION 36(1)(III). THUS, GROUND NO.1, IS ALLOWED FOR STATISTICAL PURPOSES . 13 . AS REGARDS THE DISALLOWANCE OF MOTORCAR EXPENDITURE OF ` 15,629, AND DEPRECIATION ON MOTORCAR OF ` 18,410, IT IS SEEN THAT THE DISALLOWANCE HAS BEEN MADE ON ACCOUNT OF PERSONAL USER . IT IS ADMITTED FACT THAT THE ASSESSEE HAS NOT BEEN MAINTAINING A LOG B OOK FOR HIS BUSINESS PURPOSE , THEREFORE, PERSONAL ELEMENT OF USAGE OF MOTORCAR CAN NOT BE RULED OUT. H OWEVER, WE ARE OF THE OPINION THAT DISALLOWANCE @ 20% IS SLIGHTLY ON HIGHER SIDE AND, THEREFORE, WE RESTRICT THE DISALLOWANCE ON ACCOUNT OF MOTORCAR EXPENS ES AND DEPRECIATION @ 10%. ACCORDINGLY, GROUND NO.2, STANDS PARTLY ALLOWED. M/S. CHANDRAMOHAN AMARNATH MALHOTRA 8 14 . 1 4 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 25 TH JUNE 2014 ORDER PRONOUNCED IN THE OPEN COUR T O N 25 TH JUNE 2014 SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 25 TH JUNE 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI