VIKRAM SHAH, MUMBAI V. ITO WD- 21 (3)(5), MUMBAI

ITA 5222/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4070 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 10-09-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHAMMED RIZWAN
• Keywords: Depreciation; Business expenditure; Salary income; Rule of consistency; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 37(1); 13

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, J M & SHRI S. RIFAUR RAHMAN, AM ./ I.T.A. NO . 5222 , 5223 & 5224 / MUM/ 2018 ( / ASSESSMENT YEAR: 2011 - 12 TO 2013 - 14 ) VIKRAM SHAH, 3401, ERA III, MARATHON NEXT GEN, G. K. MARG, LOWER PAREL, MUMBAI - 400 013 / VS. J CIT - 18(2 ) , MUMBAI PIN - ./ ./ PAN NO. A A LPS 7781 H ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI SANJAY C. SHAH, AR / RESPONDENTBY : SHRI MOHAMMED RIZWAN, DR / DATE OF HEARING : 09 .12 .2019 / DATE OF PRONOUNCEMENT : 28.02.2020 / O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) : THE PRESENT THREE A PPEAL S HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. COMMIS S IONER OF INCOME TAX (APPEALS) - 3 3 , MUMBAI, D ATED 29.06 .18 FOR AY 2011 - 12 TO 2013 - 14 . 2 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH 2 . SINC E THE ISSUES RAISED IN THESE APPEALS ARE IDENTICAL, THEREFORE, FOR TH E SAKE OF CONVENIENCE, THESE APPEALS ARE CLUBBED, HEARD AND DISPOSED OF F BY THIS CONSOLIDATED ORDE R. FIR STLY, WE ARE TAKING ITA NO. 5222MUM/2018 FOR AY 2011 - 12 FILED BY THE ASSESSEE ON THE GROUNDS MENTIONED HEREIN BELOW: - 1. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN PART LY CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICER WHO M ADE DISALLOWANCE OF RS. 9,57,420 / - U/S 37 OF THE ACT (BEING 30% OF DEPRECIATION ON BUILDING, MAINTENANCE EXPENSES AND ELECTRICITY EXPENSES) OVER AND ABOVE DISALLOWANCE MADE BY THE APPELLANT IN THE RETURN OF INCOME FILED WHICH WAS REDUCED TO RS. 8,20,646/ - BY LD. CIT (APPEALS). APPELLANT SUBMITS THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW ENTIRE PART DISALLOWANCE U/S 37(1) OF THE ACT TO THE TUNE OF RS. 8,20,646/ - CONFIRM ED BY LEARNED CIT (APPEALS) IS BAD IN LAW AND DESERVES TO BE DELETED. 2. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN PARTLY CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICER IN SUSTAINING ADDITIONS OF RS. 168, 000/ - U/S 23(1 )(A) OF THE ACT TO TH E TOTAL INCOME OF THE APPELLANT ON THE PLEA THAT THE SAME IS TAXABLE AS 3 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH NOTIONAL RENT AS AGAINST AN ADDITION OF RS. 2, 52, 000 / - MADE BY LEARNED ASSESSING OFFICER, APPELLANT SUBMITS THAT IN VIEW OF THE FACTS AND C IRCUMSTANCES OF THE CASE AS WELL AS IN LAW TH E SAID ADDITION OF NOTIONAL RENT TO THE TUNE OF RS. 1,68, 000 / - IS BAD IN LAW AND DESERVES TO BE DELETED. WITHOUT PREJUDICE TO THE ABOVE, APPELLANT SUBMITS THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE SAID ADDITION MADE TO T HE TOTAL INCOME MAY PLEASE BE SUITABLY DELETED/ REDUCED AS PER THE PROVISIONS OF LAW. 3. LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF LEARNED ASSESSING OFFICER IN MAKING DISALLOWANCE OF RS. 7,79,118/ - U/S 14A OF THE ACT O N THE PLEA THAT SAME IS ALLEGED NOTIONAL EXPENDITURE FOR THE PURPOSE OF EARNING EXEMPT INCOME. APPELLANT SUBMITS THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE SAID DIS ALLOWANCE U/S 14A TO THE TUNE OF RS.7,79,118/ - IS BAD IN LAW AND DESERVES TO BE DELETED . 3. IN THE APPEAL, ASSESSEE HAS RAISED 3 GROUNDS AND OUT OF THESE 3 GROUNDS, ASSESSEE HAS NOT PRESSED GROUND NO. 2, 4 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH ACCORDINGLY GROUND NO. 2 IS DISMISSED AS NOT PRESSED. WE NOTICE THAT GROUND NO. 1 & 3 ARE COMMON GROUNDS IN O THER 2 APPEALS FILE D BY THE ASSESSEE FOR AY 2012 - 13 & 2013 - 14. GROUND NO. 1 4. NOW COMING TO GROUND NO. 1, THE RELEVANT FACTS IS THAT DURING ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS SHOWN INCOME FROM SALARY, BUSINESS AND OTHER SOURCES FOR WHICH ASSESSEE HAS FILED THE DETAILS. AO OBSERVED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF T RADING AND DEALING IN SHARES & UNITS AND FINANCE . A SSESSEE IS USING PART OF HIS HOUSE PROPERTY FOR BUSINESS PURPOSES AND CLAIMED DEPRECIATION 50% OF THE VALUE O F THE PROPERTY, 50% OF THE MAINTENANCE EXPENSES AND 50% OF THE ELECTRICITY EXPENSES. FURTHER, DURING ASSESSMENT PROCEEDINGS, AO DEPUTED AN INSPECTOR OF HIS OFFICE TO INSPECT THE HOUSE OF THE ASSESSEE AND IT IS REPORTED THAT CURRENTLY ASSESSEE IS USING 15% OF THE SAID HOUSE FOR ITS BUSINESS PURPOSES AND ACCORDINGLY, ASSESSEE WAS ASKED TO SUBSTANTIATE ITS CLAIM. IN RESPONSE, ASSESSEE FILED A LETTER DATED 22.02.13 SUBMITTED THAT DURING THIS ASSESSMENT YEAR, ASSESSEE WAS USING 50% OF THE RESIDENTIAL HOUSE FOR T HE PURPOSE 5 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH OF OFFICE AND SINCE ASSESSE WAS INCURRING HUGE LOSS IN THE SUBSEQUENT ASSESSMENT YEARS, ASSESSEE HAS REDUCED HIS BUSINESS OPERATION AND FOUND TO USING ONLY 15% OF THE HOUSE. SINCE THE AO VERIFIED DURING THE ASSESSMENT PROCEEDINGS I.E. IN YEAR 20 14, BUT IN THE PRESENT ASSESSMENT YEAR, ASSESSEE WAS USING 50% OF THE HOUSE PROPERTY, ACCORDINGLY, HE PRAYED THAT CLAIM OF THE ASSESSEE MAY BE ALLOWED. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND RESTRI CTED THE CLAIM OF THE ASSESSEE TO THE EXTENT OF UT ILIZATION OF THE HOUSE PROPERTY AS PER THE REPORT OF INSPECTOR. THEREFORE, AO INCREASED THE DISALLOWANCE OF 50% OF THE EXPENDIT URE TO 85% OF THE EXPENDITURE RELATING TO DEPRECIATION ON BUILDING, MAINTENANCE EXPENSES AND ELECTRICITY EXPENSES. 5. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE, REDUCED THE DISALLOWANCE OF 85% TO 80%. 6. AGGRIEVED WITH THE ABOVE ORDER OF L D. CIT(A), ASSESSEE FILED THE PRESENT APPEAL BEFORE US. 6 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH 7. BEFORE US, LD. AR BROUGHT TO THE NOTICE OF FACTS OF THE PRESENT CASE AND REFERRED PAGE 25 OF THE PAPER BOOK IN WHICH, ASSESSEE HAS MADE SUBMISSION BEFORE AO AND MADE A DETAIL SUBMISSION JUSTIFYING THE USAGE OF 50% OF FLAT AND OTHER EXPENDITURE AND SUBMITTED A FACTUAL ISSUE THAT AO HAS SENT THE INSPECTOR ONLY DURING THE ASSESSMENT PROCEEDING I.E. IN 2014 AND HE PRAYED THAT ASSESSEES PLEA MAY BE ACCEPTED AND GIVEN THE RELIEF. HE FURTHER SUBMITTED TH AT SIMILAR DISALLOWANCE WERE MADE IN SUBSEQUENT ASSESSMENT YEARS AND ASSESSEE IS MAKING SIMILAR PLEAS FOR THOSE ASSESSMENT YEAR ALSO. 8. ON THE OTHER HAND, LD. DR SUBMITTED THAT LD. CIT(A) HAS CONSIDERED THE SUBMISSION OF THE ASSESSEE AND GAVE RELIEF TO T HE ASSESSEE AND HE BROUGHT TO OUR NOTICE PARA 6 & 8 OF THE ORDER OF LD . CIT(A) AND SUPPORTED THE FINDINGS OF LD. CIT(A). 9 . CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL PLACED ON RECORD, WE NOTICE THAT ASSESSEE IS CARRYING ITS BUSINESS OPERATION FROM HIS RESIDENTIAL HOUSE AND CLAIMED BUSINESS EXPENDITURE TO THE EXTENT OF 50% OF THE HOUSE PROPERTY I.E. DEPRECIATION ON HOUSE PROPERTY, MAINTENANCE EXPENSES AND ELECT RICITY EXPENSES. 7 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH WE ALSO NOTICE THAT ASSESSEE IS INCURRING LOSS IN THE SUBSEQUENT ASSESSMENT YEARS AND IT IS FACT THAT AO HAS VERIFIED THE UTILIZATION OF OFFICE SPACE USED BY THE ASSESSEE FOR THE PURPOSE OF HIS BUSINESS IN THE RESIDENTIAL PROPERTY DURING T HE ASSESSMENT PROCEEDING I.E. IN YEAR 2014. AO DEALT WITH THE ISSUE OF THE AY 2011 - 12 I.E. AFTER 3 YEARS. 10. CONSIDERING THE OVERALL SITUATION AND TIME LAPSE BETWEEN THE CLAIM OF THE ASSESSEE AND VERIFICATION OF THE CLAIM OF THE ASSESSEE, IN OUR CONSIDERED VIEW, ASSESSEE MIGHT HAVE REDUCED THE SPACE OVER THE YEARS CONSIDERING THE BUSINESS CONDITION, WE MAY HAVE TO PASS ON THE BENEFIT OF DOUBT TO ASSESSEE AND HAVE TO GIVE RELIEF TO THE ASSESSEE AT LEAST TO THE EXTENT OF 40% OF THE CLAIM . THEREFORE, WE ARE INCLINED TO DIRECT THE AO TO DISALLOW 60% OF THE EXPENDITURE IN PLACE OF 80% OF DISALLOWANCE DIRECTED BY LD. CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED . G ROUND NO. 3 11. WITH REGARD TO GROUND NO. 3, AO OBSERVED THAT A SSESSEE HAS EARNED EXEMPT INCOME OF DIVIDEND TO THE TUNE OF RS. 8 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH 29,20,172.74/ - AND ALSO INCURRED D IRECT EXPENSES OF RS. 89,726/ - AND BUSINESS CHARGES OF RS. 1200/ - , THEREFORE ASSESSEE WAS ASKED WHY THE DISALLOWANCE U/S 14A R.W.R. 8D SHOULD NOT BE MADE. IN REPLY, ASSESSEE SUBMITTED THAT THE INVESTMENTS ARE IN THE NATURE OF STOCK IN TRADE AND DISALLOWANCE CAN NOT BE MADE ON SUCH INVESTMENT. FURTHER ASSESSEE SUBMITTED THAT THERE IS NO EXPENSES INVOLVED IN PPF INVESTMENTS A ND ALL THE STOCK DOES NOT EARN DIVIDEND INCOME. AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND PROCEEDED TO DISALLOW THE PROPORTIONATE DIRECT EXPENSES OF RS. 21,403 AND DISALLOW ED 0.5% OF THE AVERAGE INVESTMENT AS PER THE RULE 8D(2)(III) TO THE EXTENT OF RS. 7,57,715/ - . 12. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSIDERING THE SUBMISSI ON OF ASSESSEE, SUSTAINED THE ADDITION MADE BY AO. AGGRIEVED WITH THE ABOVE ORDER OF LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 13. BEFORE US, LD. AR BROUGHT TO OUR NOTICE CHART OF DISALLOWANCE OF EXPENDITURE U/S 14A FROM AY 2010 - 11 TO 2013 - 14 AND SUBMI TTED SIMILAR SUBMISSION WHICH WERE MADE BEFORE 9 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH LD. CIT(A) THAT THE DISALLOWANCE U/S 14A DOES NOT APPLY WHEN THE STOCK IS IN TRADE AND ON ALTERNATE PLEA, EV EN THE REASONABLE ESTIMATION MAY BE MADE FOR THAT PURPOSES. HE FURTHER SUBMITTED THAT IN ORDER TO CAL CULATE THE DISALLOWANCE BY FOLLOWING RULE 8D(2)(III) OF THE ACT ONLY THOSE INVESTMENTS WHICH EARNED DIVIDEND INCOME SHOULD BE CONSIDERED WHILE CALCULATING THE EXPENSES PERTAINS TO EXEMPT INCOME. HE FURTHER SUBMITTED THAT RULE OF CONSISTENCY SHOULD BE MAINT AINED AND BROUGHT TO OUR NOTICE THAT THE AB OVE SUBMISSIONS WERE MADE IN AY 2010 - 11 AND THE THEN AO HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT. SIMILARLY, IN THIS AY ALSO SUCH CONSISTENCY SHOULD BE MAINTA INED. 14. WITH REGARD TO REASONABILITY, HE BROUGHT OUR NOTICE VARIOUS EXPENSES WHICH WERE DEBITED TO P & L ACCOUNT AS PER CHART AND HE SUBMITTED THAT ONLY THOSE INDIRECT EXPENSES HAS TO BE CONSIDERED WHICH IS RELEVANT FOR THE PURPOSE OF BUSINESS AND THERE IS OTHER INDIRECT EXPENSES WHICH ARE NOT RELEVANT FOR THE BUSINESS SHOULD BE ELIMINATED. HE PRAYED THAT 10% OF THE INDIRECT EXPENSES AS PER CHART MAY BE CONSIDERED FOR DISALLOWANCE. 10 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH 15. ON THE OTHER HAND, LD. DR OBJECTED TO THE SUBMISSION OF LD. AR AND SU BMITTED THAT RULE 8D HAS TO BE FOLLOWED IRRESPECTIVE CONDITIONS OR SITUATION PARTICULARLY WHEN THERE IS SPECIFIC RULE FOR DI SALLOWANCE OF INDIRECT EXPENSES. SIMILARLY FOR DISALLOWANCE OF THE ADMINISTRATIVE EXPENSES HAS TO BE FOLLOWED AS PER RULE AND AO HAS CONSISTENTLY FOLLOWED RULES IN DISALLOWING THE EXPENSES IN ALL THE YEARS. 16 . CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL PLACED ON RECORD, WE NOTIC E THAT ASSESSEE HAS EARNED DIVIDEND INCOME WHICH IS EXEMPT INCOME DURING THIS YEAR AND WE DO NOT AGREE WITH THE ASSESSEE THAT THE EXEM PT INCOME WHICH IS EARNED OUT OF THE STOCK IN TRAD E, SHOULD NOT BE CONSIDERED FOR DISALLOWANCE U/S 14A OF THE ACT. AS FAR AS APPLICATION OF RULE 8D(2)(III) OF THE ACT IS CONCERNED, WE ARE IN AGREEMENT WITH THE TAX AUTHORITIES THAT RULE 8D(2)(III) OF THE ACT WILL BE APPLICABLE IN THE PRESENT CASE. THE RULE WAS INSERTED TO DISALLOW A PARTICULAR PERCENTAGE OF EXPENSES ON PRESUMPTION BASIS SINCE THERE IS DIFFICULTY IN DETERMINING THE ADMINISTERIAL EXPENSES AND OTHER RELEVANT EXPEN SES WHICH CANNOT BE ASCERTAINED BY APPLYING PROPER METHOD. HOWEVER, WE NOTICE THAT AO WHILE APPLYING THE RULE 11 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH 8D(2)(III) HAS CONSIDERED THE TOTAL INVESTMENT INSTEAD OF CONSIDERING ONLY THOSE INVESTMENT S WHICH EARNED DIVIDEND INCOME. IN THIS REGARD WE RELY ON THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF ACIT VRS. VIREET INVESTMENT PVT. LTD (ITA NO. 502/DEL/2012 ). ACCORDINGLY, WE DIRECT THE AO TO CONSIDER ONLY THOSE INVESTMENTS WHICH EARNED EXEMPT INCOME IN APPLYING RULE 8D(2)(III) OF THE ACT. ACCORDI NGLY, GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED . 1 7 . SINCE THE FACTS IN OTHER APPEAL S FILED BY THE ASSESSEE ARE SIMILAR TO THE FACTS O F ABOVE APPEAL I.E. ITA NO. 5222 /MUM/2018, THERE FORE, THE GROUNDS RAISED IN THESE APPEAL S ARE ALSO PARTLY A LLOWED . 18 . IN THE NET RESULT, ALL THE APPEAL S FILED BY THE ASSESSEE STA NDS PARTLY A LLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEB 2020 . SD/ - SD/ - (PAWAN SINGH ) (S. RIFAUR RAHMAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 28 . 02 .2020 SR.PS. DHANANJAY 12 I.T.A. NO . 5222, 5223 & 5224 /MUM/201 8 VIKRAM SHAH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI