ROHIT G. SHARMA, MUMBAI V. JT.C.I.T.RG. 25(2), MUMBAI

ITA 5472/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79149 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 19-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM BATRA
• Keywords: Gift; Depreciation; Business expenditure; Salary income
• Section: 143(3)

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI .. , . . . . BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM ./ I.T.A. NO.5472 /MUM/2012 ( / ASSESSMENT YEAR : 2009-2010 ROHIT G. SHARMA, C/O R. SANGHVI & CO., CHARTERED ACCOUNTANTS, 104, RIZVI CHAMBERS- NO. 2, BANDRA (W), MUMBAI 400 050. / VS. J .C.I.T. RANGE 25(2), C-11, PRATYAKSHKAR BHAVAN, BANDRAKURLA COMPLEX, BANDRA (E), MUMBAI 51. ./ PAN : BLNPS3297Q ( % / APPELLANT ) .. ( &'% / RESPONDENT ) A PPELLANT BY SHRI RAJESH SANGHVI R E SPONDENT BY : SHRI VIKRAM BATRA * / DATE OF HEARING : 19-05-2014 * / DATE OF PRONOUNCEMENT : 181612014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) 35, MUMBAI DATED 25-6-2012. 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS APPEAL ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PROFESSIONAL CRIC KETER WHO IS ALSO DERIVING INCOME FROM SALARY AND CAR RENTALS. THE RETURN OF I NCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 23-09-2009 DECLAR ING TOTAL INCOME OF RS. 3,80,56,452/-. IN THE P&L ACCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS. 20 LACS WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF CONTRACT CHARGES. ITA 5472/M/12 2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSE WAS CALLED UPON BY THE A.O. TO EXPLAIN THE NATURE OF THIS EXPENDITURE. IN REPLY, THE FOLLOWING EXPLANATION WAS OFFERED BY THE ASSESSEE:- THE SAID CONTRACT CHARGES WAS PAID BY OUR CLIENTS TO HIS FATHER AND WAS MAINLY PAID TO LOOK AND TAKE CARE, FOLLOW UP, D O NECESSARY PAPER WORK, COORDINATE AND MANAGE ON HIS BEHALF FOR ALL H IS BRAND ENDORSEMENT AND IPL RELATED WORK. TDS WAS DEDUCTED ON PAYMENTS MADE TO HIM AND THE SUM WAS PAID IN CHEQUE. SINCE T HIS WAS FIRST YEAR OF PRIVATE CONTRACT WITH IPL FRANCHISEE AND TO COOR DINATE WITH VARIOUS AGENCIES FOR OUR CLIENTS PERSONAL BRAND ENDORSEMENT THERE WAS REQUIREMENT OF A MANAGER AND SO OUR CLIENTS DECIDED TO ENGAGE HIS FATHER. 3. ON FURTHER ENQUIRY MADE BY THE A.O., THE FOLLOWI NG SUBMISSION WAS MADE BY THE ASSESSEE IN SUPPORT OF HIS CLAIM FOR DE DUCTION ON ACCOUNT OF CONTRACT CHARGES AMOUNTING TO RS. 20 LACS: IT IS PERTINENT TO NOTE THAT THIS WAS THE FY (FIRS T YEAR) (01.04.08 TO 31.03.09) DURING WHICH OUR CLIENTS HAD A MAJOR EXPO SURE TO THE ENTIRE IPL FORMAT OF CRICKET AS A SPORT AND ITS RELATED IS SUES. THIS KIND OF A VENTURE INVOLVED A LOT OF PREPARATORY WORK, PRE AND POST ANALYSIS, MEETING AND CO-ORDINATION, NEGOTIATIONS, FOLLOW UPS , FIND MANAGEMENT, ADMINISTRATION, ISSUES, TIME AND DATE MANAGEMENT, C LOSE MONITORING OF TRAINING PROGRAMMES, HEALTH ISSUE, MANAGING COACHIN G AND PRACTICE, LIASIONING WITH CORPORATE / OTHER CLIENTS, LOGISTIC AND TRANSPORT MANAGEMENT, EXPLORING AND ADMINISTERING NEW BUSINES S OPPORTUNITIES, MEDIA MANAGEMENT, HELPING IN PRIVACY ISSUES, ETC. - OUR CLIENTS DID NOT HAVE MUCH EXPERIENCE AND TIM E TO MANAGE ALL THE ABOVE ISSUED WHICH THOUGH SIMPLE IN NATURE, HAD TO BE HANDLED BY SOMEONE VERY CLOSE TO OUR CLIENTS AND IN WHOM OU R CLIENTS COULD IMPOSE MAXIMUM CONFIDENCE. IN THE CIRCUMSTANCE THE ONLY OPTION FOR OUR CLIENTS WAS TO ENGAGE HIS OWN FATHER TO HELP HI M HANDLE ALL THE ABOVE ISSUES AND LUMPSUM CONTRACT AMOUNT OF RS.20 L ACS ( ALL INCLUSIVE) WAS DETERMINED. - IN FACT AS OUR CLIENT UNDERSTAND THERE ARE CERTAI N AGENCIES WHO ARE CHARGING FEES RANGING FROM 10 TO 15% OF GROSS C OLLECTION. OUR CLIENT FOUND A BETTER ALTERNATIVE IN HIS OWN FATHER AND HE NCE THE AMOUNT WAS PAID. OUR CLIENTS HUMBLY PLEADS THE AMOUNT IS REASONABLE, KEEPING IN MIND THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA 5472/M/12 3 4. THE ABOVE SUBMISSION MADE BY THE ASSESSEE WAS NO T FOUND ACCEPTABLE BY THE A.O. ON THE FOLLOWING GROUNDS: (I) SHRI GURUNATH SHARMA FATHER OF THE ASSESSEE IS NOT IN POSSESSION OF ANY EXPERTISE KNOWLEDGE ABOUT THE JOB FOR WHICH HE IS ASSIGNED BY THE ASSESSEE. (II) IT IS MERE A TRANSFER OF FUND FROM SON TO HIS FATHER. (III) THE BOND OF RELATIONSHIP BETWEEN FATHER AND S ON IS SO STRONG THAT (A) THE ASSESSEE HAS GIVEN RS. 53,11,000/- AS GIFT TO H IS FATHER CLAIMED TO BE OUT OF NATURAL LOVE AND AFFECT ION. (B) THE ASSESSEE HAS ALSO GIVEN LOAN AMOUNTING TO RS. 40,000/- TO HIS FATHER WITHOUT ANY INTEREST. (C) SHRI GURUNATH SHARMA IS STAYING WITH THE SON IN THE RESIDENTIAL FLAT OWNED BY THE ASSESSEE. FOR THE REASONS GIVEN ABOVE, THE A.O. HELD THAT THE SERVICES RENDERED BY SHRI GURUNATH SHARMA TO THE ASSESSEE WERE IN THE NATURE OF PARENTAL DUTY OF A FATHER TOWARDS SON AND THE AMOUNT PAID FOR THE SAID SERVICES COULD NOT BE ALLOWED AS BUSINESS EXPENDITURE OF THE ASSESSEE. 5. THE ASSESSEE HAD ALSO CLAIMED DEPRECIATION ON BM W CAR AMOUNTING TO RS. 12,95,594/- AND ON SKODA CAR AMOUNTING TO RS. 2 ,64,041/-. ACCORDING TO THE A.O., THE PROFESSIONAL CRICKETER LIKE THE ASSES SEE IS GENERALLY PROVIDED CONVEYANCE FACILITY BY THE ORGANIZERS OF THE MATCHE S WITHOUT CHARGING ANY MONEY. HE THEREFORE ALLOWED THE CLAIM OF THE ASSESS EE FOR DEPRECIATION ON BMW CAR ONLY TO THE EXTENT OF 50% I.E RS. 6,47,797/ -. THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON SKODA CAR AMOUNTING TO RS. 2,64,041/-, HOWEVER, WAS ENTIRELY DISALLOWED BY THE A.O. THE AS SESSEE HAD ALSO CLAIMED MOTOR CAR AND FUEL EXPENSES AMOUNTING TO RS. 89,874 /- AND RS. 29,433/- RESPECTIVELY WHICH WERE DISALLOWED BY THE A.O. TO T HE EXTENT OF 75% I.E RS. 89,480/- ON ACCOUNT OF PERSONAL USE. ACCORDINGLY, T HE TOTAL INCOME OF THE ITA 5472/M/12 4 ASSESSEE WAS COMPUTED BY THE A.O. AT RS. 4,10,57,77 0/- IN THE ASSESSMENT COMPLETED U/S 143(3) OF THE ACT. 6. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) DIS PUTING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF VARIOUS EXPENSES. AS REGARDS THE DISALLOWANCE MADE ON ACCOUNT OF CONTRACT CHARGES, T HE SUBMISSIONS MADE BEFORE THE A.O. WERE REITERATED ON BEHALF OF THE AS SESSEE BEFORE THE LD. CIT(A). THE LD. CIT(A), HOWEVER, DID NOT FIND MERIT IN THE SAID SUBMISSIONS AND CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON ACCO UNT OF CONTRACT CHARGES OBSERVING THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO PROVE THAT THE EXPENDITURE INCURRED ON PAYMENT OF CONTRACT CHARGES TO HIS FATHER WAS FOR ANY BUSINESS CONSIDERATION. AS REGARDS THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF DEPRECIATION ON BMW CAR, IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) BY THE ASSESSEE THAT THE SAID CAR WAS GIVEN ON RENT AND THE CLAIM FOR THE DEPRECIATION ON THE SAID CAR THEREFORE WAS ENTI RELY ALLOWABLE AGAINST THE RENTAL INCOME. ACCORDING TO THE LD. CIT(A), THERE W AS, HOWEVER, NO EVIDENCE PRODUCED BY THE ASSESSEE TO SHOW THAT THE BMW CAR W AS PUT TO COMMERCIAL USE. IN THE ABSENCE OF SUCH EVIDENCE, HE CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF DEPRECIATION ON BMW CAR TO T HE EXTENT OF 50%. AS REGARDS THE DISALLOWANCE MADE BY THE A.O. ON ACCOUN T OF DEPRECIATION ON SKODA CAR TO THE EXTENT OF 100% AND MOTOR CAR AND F UEL EXPENSES TO THE EXTENT OF 75%, THE LD. CIT(A) DID NOT GIVE ANY SPEC IFIC FINDING IN HIS IMPUGNED ORDER ON THESE ISSUES BUT FINALLY DISMISSED THE ENT IRE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSES SEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING GROUNDS:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 20,00,000/- MADE BY THE ASSESSING OFFICER BY DISALLOWING THE EN TIRE CONTRACT CHARGES OF RS. 20,00,000/- PAID BY THE APPELLANT TO HIS FAT HER FOR SERVICES RENDERED. ITA 5472/M/12 5 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.6,47,797/- MADE BY THE ASSESSING OFFICER BY DISALLOWING 50% DEPRECI ATION ON BMW MOTOR CAR WHICH WAS RENTED AWAY BY THE APPELLANT. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2,64,041/- MADE BY THE ASSESSING OFFICER BY DISALLOWING ENTIRE DEPRECIATION ON SKODA MOTOR CAR CLAIMED BY THE APPELLANT. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 89,480/- MADE BY THE ASSESSING OFFICER BY DISALLOWING 75% OF THE GROSS EXPENSES ON MOTOR CAR AND FUEL EXPENSES AS CLAIMED BY THE APPEL LANT. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS THE ISSUE RAISED IN GROUND NO. 1, IT IS OBSERVED THAT THE CONTRACT CHARGES OF RS. 20 LACS CLAIMED TO BE PAID BY THE ASSESSEE TO HIS FATHER WERE DISALLOWED BY THE A.O. ON THE GROUND THAT THE SERVICES CLAIMED TO BE RENDERED BY THE FAT HER WERE IN THE NATURE OF PARENTAL DUTY OF FATHER TOWARDS SON. WHILE CONFIRMI NG THE SAID DISALLOWANCE MADE BY THE A.O., THE LD. CIT(A) AGREED WITH THE BA SIS GIVEN BY THE A.O. TO JUSTIFY THE SAID DISALLOWANCE AND FURTHER OBSERVED THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO PROVE THAT THERE WAS AN Y BUSINESS CONSIDERATION FOR MAKING PAYMENT OF CONTRACT CHARGES TO HIS FATHE R. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE, BESIDE S REITERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, HAS INVITED OUR ATTENTION TO THE COPY OF SERVICE AGREEMENT DATED 22-4-2008 ENTER ED INTO BETWEEN THE ASSESSEE AND HIS FATHER. A PERUSAL OF THE SAID AGRE EMENT SHOWS THAT THE SERVICES AGREED TO BE RENDERED BY HIS FATHER TO THE ASSESSEE ARE VERY GENERAL IN NATURE AND THERE IS NO EVIDENCE WHATSOEVER BROUG HT ON RECORD TO SHOW THAT ANY OF THE SAID SERVICES WERE ACTUALLY RENDERED BY THE FATHER OF THE ASSESSEE FOR THE PURPOSE OF ASSESSEES BUSINESS. THE ONUS IN THIS REGARD IS ON THE ASSESSEE AND SINCE THE ASSESSEE, IN OUR OPINION, HA S FAILED TO DISCHARGE THE SAME BY PRODUCING ANY DOCUMENTARY EVIDENCE TO SUPPO RT HIS CLAIM FOR THE ITA 5472/M/12 6 EXPENDITURE OF RS. 20 LACS ON CONTRACT CHARGES, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE. THE SAME IS THEREFORE UPHELD AND GROUND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED. 8. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 2 RE LATING TO THE DISALLOWANCE OF DEPRECIATION ON BMW CAR MADE BY THE A.O. TO THE EXTENT OF 50% AND CONFIRMED BY THE LD. CIT(A), IT IS OBSERVED THAT A SPECIFIC PLEA WAS RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT T HE BMW CAR HAVING BEEN GIVEN ON RENT DURING THE YEAR UNDER CONSIDERATION, HE WAS ENTITLED FOR FULL DEPRECIATION ON THE SAID CAR AT THE SPECIFIED RATE. THE LD. CIT(A), HOWEVER, DID NOT ACCEPT THIS PLEA OF THE ASSESSEE ON THE GROUND THAT THERE WAS NO EVIDENCE ADDUCED BY THE ASSESSEE TO ESTABLISH THAT THE BMW C AR WAS PUT TO COMMERCIAL USE. HE, HOWEVER, APPEARS TO HAVE OVERLO OKED THE VITAL FACT THAT THE CAR RENTAL INCOME OF RS. 3,16,700/- RECEIVED DU RING THE YEAR UNDER CONSIDERATION WAS DULY OFFERED BY THE ASSESSEE TO T AX IN HIS RETURN OF INCOME AND THE A.O. HAVING ALREADY ASSESSED THE SAME, THER E WAS NO JUSTIFIABLE REASON TO DOUBT OR DISPUTE THE CLAIM OF THE ASSESSE E THAT THE BMW CAR WAS PUT TO COMMERCIAL USE. IN OUR OPINION, THE ASSESSEE WAS ENTITLED TO FULL DEPRECIATION AT THE SPECIFIED RATE OF BMW MOTOR CAR AND THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF SUCH DEPRECIATION TO THE EXTENT OF 50% WAS NOT SUSTAINABLE IN THE FACTS OF THE CASE. WE THEREF ORE REVERSE THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE AND DIRECT THE A.O. TO DELETE THE SAID DISALL OWANCE. GROUND NO. 2 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 9. AS REGARDS THE ISSUE RAISED IN GROUND NO. 3 RELA TING TO THE DISALLOWANCE OF RS. 2,64,041/- MADE BY THE A.O. ON ACCOUNT OF DE PRECIATION ON SKODA CAR WHICH HAS BEEN CONFIRMED BY THE LD. CIT(A), IT IS O BSERVED THAT THE DEPRECIATION CLAIMED BY THE ASSESSEE ON SKODA CAR W AS ENTIRELY DISALLOWED BY ITA 5472/M/12 7 THE A.O. ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH ON EVIDENCE THAT THE SAID CAR WAS USED FOR THE PURPOSE OF HIS BUSINE SS OR PROFESSION. IN OUR OPINION, THIS BASIS GIVEN BY THE A.O. TO DISALLOW T HE ENTIRE DEPRECIATION CLAIMED BY THE ASSESSEE ON SKODA CAR WAS UNTENABLE INASMUCH AS IF AT ALL NO RECORD WAS MAINTAINED BY THE ASSESSE TO SHOW THAT T HE SKODA CAR WAS USED FOR THE PURPOSE OF HIS BUSINESS OR PROFESSION, THE DISALLOWANCE ON ACCOUNT OF PERSONAL USE OF THE CAR COULD HAVE BEEN MADE TO SOM E EXTENT ON ESTIMATED BASIS BUT NOT THE ENTIRE DEPRECIATION MERELY BECAUS E THE ASSESSEE WAS MAINTAINING A FLEET OF CARS WHICH WAS KEPT READY FO R USE FOR THE PURPOSE OF HIS BUSINESS OR PROFESSION. HAVING REGARD TO ALL THE F ACTS OF THE CASE, WE ARE OF THE VIEW THAT IT WOULD BE FAIR AND REASONABLE TO MA KE A DISALLOWANCE OF 25% OF THE TOTAL DEPRECIATION CLAIMED BY THE ASSESSEE O N SKODA CAR ON PERSONAL USE. ACCORDINGLY, WE MODIFY THE IMPUGNED ORDER OF T HE LD. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO RESTRICT THE DISALLOWANCE MA DE ON ACCOUNT OF DEPRECIATION ON SKODA CAR TO 25%. GROUND NO. 3 OF THE ASSESSEES APPEAL IS THUS PARTLY ALLOWED. 10. AS REGARDS THE ISSUE RAISED IN GROUND NO. 4 REL ATING TO THE DISALLOWANCE OF MOTOR CAR AND FUEL EXPENSES MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) TO THE EXTENT OF 75% FOR PERSONAL USE, WE FO LLOW OUR DECISION RENDERED ON THE ISSUE INVOLVED IN GROUND NO. 3 AND DIRECT TH E A.O. TO RESTRICT THE DISALLOWANCE MADE ON THIS ISSUE AT 75% TO 25%. GRO UND NO. 4 OF THE ASSESSEES APPEAL IS THUS PARTLY ALLOWED. ITA 5472/M/12 8 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON18TH J UNE, 2014. * 7 8 181612014 * SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 8 DATED 181612014 [ .../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. % / THE APPELLANT 2. &'% / THE RESPONDENT. 3. ; () / THE CIT(A)35, ,MUMBAI. 4. ; / CIT 25,,MUMBAI 5. > &@ , @ , / DR, ITAT, MUMBAI D BENCH 6. B / GUARD FILE. / BY ORDER, '> & //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI