Asstt. Commissioner Of Income Tax, Lucknow V. Shri Ashok Kumar Arora, Lucknow

ITA 556/LKW/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100366 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Salary income
• Section: 143(3); 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI SU DHANSHU SRIVASTAV , JUDICIAL MEMBER ITA NO.556/LKW/2013 ASSESSMENT YEAR:2008 - 09 A.C.I.T., RANGE - 3, LUCKNOW. VS. SHRI ASHOK KUMAR ARORA, C - 1, SEC. - C, ALIGANJ, LUCKNOW. PAN:ACCPA0974F (APPELLANT) (RESPONDENT) APPELLANT BY SMT. ALKA SINGH, D. R. RESPONDENT BY SHRI RAKESH GARG, ADVOCATE DATE OF HEARING 14/08/2015 DATE OF PRONOUNCEMENT 3 0 /09/2015 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER OF LD CIT(A) - II LUCKNOW, DATED 06/05/2013 FOR THE ASSESSMENT YEAR 2008 - 09. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE C I T(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.26,17,350/ - ADDED ON ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF EARNING INCOME OF RS.39,58,533/ - AS REMUNERATION AND INTEREST FROM FIRMS IN WHICH THE ASSESSEE IS A PARTNER WITHOUT APPRECIA TING THE FACT THAT NO DEDUCTION FROM REMUNERATION AND INTEREST CAN BE MADE AS PER PROVISIONS OF SECTION 28(V) EXCEPT ANY PART THEREOF WHICH HAS NOT BEEN ALLOWED TO BE DEDUCTED UNDER CLAUSE (B) OF SECTION 40. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION MADE BY THE AO BECAUSE THE ASSESSEE HAD FILED STATEMENT OF HIS ONLY SAVING BANK ACCOUNT WHICH HE HOLDS IN BOB AND NEITHER ANY RECEIPT OF THE INCOME NOR DEBIT 2 OF EXPENSES CLAIMED WERE REFLECTED THIS BANK ACCOUNT OF THE ASSESSEE. 3. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO SUBMITTED THAT ON PAGES 25 TO 27 OF THE PAPER BOOK IS THE COPY OF ASSESSMENT ORDER PASSED BY TH E ASSESSING OFFICER U/S 143(3) OF THE ACT FOR ASSESSMENT YEAR 2004 - 05 AND IN THAT YEAR , ONLY A TOKEN DISALLOWANCE OF RS.26,286/ - WAS MADE BY THE ASSESSING OFFICER OUT OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF CAR RUNNING EXPENSES, TELEPHONE EXPENSES, SALARY TO DRIVER AND TRAVELLING AND CONVEYANCE ETC. HE SUBMITTED THAT EVEN IN THE PRESENT YEAR ALSO, SOME TOKEN DISALLOWANCE MAY BE MADE BUT THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE WHOLE OF THE EXPENSES INCURRED FOR EARNING REMUN ERATION INCOME FROM THE PARTNERSHIP FIRM IS NOT JUSTIFIED. IN THE REJOINDER, IT WAS SUBMITTED BY LEARNED D.R. OF THE REVENUE THAT RES JUDICATA IS NOT APPLICABLE IN INCOME - TAX PROCEEDINGS AND THEREFORE, IN THIS YEAR , THE ISSUE SHOULD BE DECIDED INDEPENDENT LY. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT AS PER THE GROUNDS RAISED BY THE REVENUE, IT IS THE CONTENTION RAISED THAT AS PER THE PROVISIONS OF SECTION 28(V), NO EXPENSES IS ALLOWABLE AGAINST REMUNERATION INCOME FROM PARTNERSHIP FIRM EXCEPT AS PER THE PROVISIONS OF CLAUSE (B) OF SECTION 40. WE FIND THAT THIS CONTENTION OF THE REVENUE IN GROUND NO. 1 IS MISCONCEIVED. AS PER SECTION 28 OF THE ACT, VARIOUS INCOMES ARE STATED TO BE CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BU SINESS OR PROFESSION AND AS PER CLAUSE (V) OF SECTION 28, ONE INCOME SO SPECIFIED TO BE ASSESSED AS BUSINESS INCOME IS THE AMOUNT OF INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION BY WHATEVER NAME CALLED , DUE TO BE RECEIVED BY A PARTNER OF A FIRM FROM SUCH FIRM. AS PER THE PROVISO TO THIS CLAUSE (V) OF SECTION 28, IF ANY PART OF REMUNERATION, INTEREST ETC. IS NOT ALLOWED AS DEDUCTION IN THE HANDS OF THE PARTNERSHIP FIRM FROM WHICH IT WAS RECEIVED, THEN T HE INCOME TO BE TAXED IN 3 THE HANDS OF THE CONCERNED PARTNER WILL BE REDUCED BY THAT AMOUNT, WHICH IS NOT ALLOWED AS DEDUCTION IN THE HANDS OF THE FIRM AS PER THE PROVISION S OF CLAUSE (B) OF SECTION 40. HENCE, THIS PROVISO OF SECTION 28(V) IS NOT IN RESPEC T OF ALLOWING DEDUCTION AGAINST SUCH INTEREST AND SALARY INCOME BUT THIS PROVISO IS IN RESPECT OF REDUCING THE INCOME CHARGEABLE IN THE HANDS OF THE PARTNER U/S 28(V) IF THE ALLOWING OF DEDUCTION IN THE HANDS OF THE FIRM ON ACCOUNT OF PAYMENT OF INTEREST A ND REMUNERATION TO PARTNER IS RESTRICTED UNDER CLAUSE (B) OF SECTION 40. THE STAND OF THE REVENUE IS THAT AGAINST THE INTEREST AND REMUNERATION RECEIVED BY A PARTNER OF A PARTNERSHIP FIRM, NO DEDUCTION IS ALLOWABLE OTHER THAN THE AMOUNT NOT ALLOWED IN THE HANDS OF THE FIRM UNDER CLAUSE (B) OF SECTION 40. IF THIS STAND IS ACCEPTED THEN AS PER SECTION 28(III), ENTIRE INCOME DERIVED BY A TRADE, PROFESSION OR SIMILAR ASSOCIATION FROM SPECIFIC SERVICES PERFORMED FOR ITS MEMBERS WILL BE LIABLE TO TAX WITHOUT AL LOWING ANY DEDUCTION ON ACCOUNT OF EXPENSES INCURRED FOR RENDERING OF SUCH SERVICES. AS PER THE STAND OF THE REVENUE, IF THE PARTNER HAS INTRODUCED CAPITAL IN THE PARTNERSHIP FIRM BY BORROWING MONEY ON INTEREST THEN ALSO , WHOLE AMOUNT OF INTEREST O N CAPIT AL RECEIVED BY THE PARTNER FROM THE PARTNERSHIP FIRM WILL BE LIABLE TO TAX WITHOUT ALLOWING ANY DEDUCTION ON ACCOUNT OF INTEREST PAYMENT BY THE PARTNER ON THE FUNDS BORROWED BY HIM FOR INTRODUCING CAPITAL IN THE PARTNERSHIP FIRM. THIS IS ABSURD PROPOSITIO N. HENCE, IT IS SEEN THAT THE STAND OF THE REVENUE IS MISCONCEIVED AND WITHOUT ANY BASIS AND NOT ACCEPTABLE. 4.1 AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT SECTION 28(V) OF THE ACT IS FOR THE PURPOSE THAT INTEREST AND REMUNERATION RECEIVED BY A PARTNER FR OM THE PARTNERSHIP FIRM IS TO BE TAX ED AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES OR UNDER ANY OTHER HEAD. WHEN AN INCOME IS TO BE TAXED UNDER THE HEAD INCOME FROM BUSINESS, DEDUCTION IS ALLOWABLE IN RESPECT OF THOSE EXPENSES, WHICH ARE INCURRED FOR EARNING THE SAID INCOME AND THE SAME CAN BE DISALLOWED IF IT IS ESTABLISHED THAT SUCH EXPENDITURE IS EITHER ON A CCOUNT OF PERSONAL EXPENSES OR CAPITAL EXPENSES OR NOT INCURRED FOR BUSINESS PURPOSES. IN 4 THE PRESENT CASE, THE BASIS OF THE ASSESSING OFFICERS ACTION OF DIS ALLOWING EXPENSES OF RS.26.17 LAC S IS THAT FOR EARNING REMUNERATION INCOME OF RS.18.90 LAC FROM T HE PARTNERSHIP FIRM M/S TALENT INDIA, INCURRING OF SUCH HUGE EXPENSES OF RS.26.17 LAC S IS NOTHING BUT A COLOURABLE DEVICE TO REDUCE THE INCOME OF THE ASSESSEE. BUT THIS ALLEGATION IS WITHOUT ANY BASIS AND WITHOUT BRINGING ANY EVIDENCE ON RECORD TO SHOW TH AT THE CLAIM OF THE ASSESSEE REGARDING VARIOUS EXPENSES IS BOGUS. WE ALSO FIND THAT A CLEAR FINDING HAS BEEN GIVEN BY LEARNED CIT(A) IN PARA 4(9) OF HIS ORDER THAT THE ASSESSING OFFICER HAS NOWHERE EXAMINED THE EXPENSES AND HAS NOT COME TO A FINDING THAT THE EXPENDITURE WAS NOT ACTUALLY INCURRED. THIS CATEGORICAL FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE. IN THE SAME PARA OF HIS ORDER, IT IS ALSO OBSERVED BY LEARNED CIT(A) THAT THE EXPENSES HAVE BEEN INCURRED IN ACCORDANC E WITH THE MOU ENTERED INTO BY THE ASSESSEE WITH OTHER PARTNERS OF THE FIRM FOR THE PURPOSE OF CARRYING OUT HIS OBLIGATIONS TOWARDS THE FIRM AND THEREFORE, THE EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING THE SALARY AND INTEREST ON CAPITAL FROM THE FIRM IN WHICH THE ASSESSEE IS A PARTNER. THIS IS ALSO OBSERVED BY LEARNED CIT(A) THAT UNDER SIMILAR CIRCUMSTANCES , THE EXPENSES CLAIMED BY THE ASSESSEE WERE ALLOWED IN ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2004 - 05 IN THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT ON 21/10/2005. IN THIS REGARD, THIS IS THE OBJECTION OF REVENUE THAT THE PRINCIPLE OF RES JUD ICATA IS NOT APPLICABLE IN INCOME TAX PROCEEDINGS AND EACH YEAR IS SEPARATE AND INDEPENDENT AND THEREFORE, THE PRESENT ISSUE SHOULD BE DECIDED INDEPENDENT OF AY 2004 - 05. EVEN WHEN WE DO SO, WE FIND THAT THERE IS NO VALID OBJECTION OF THE ASSESSING OFFICER REGARDING NON ALLOWABILITY OF THE EXPENSES CLAIMED BY THE ASSESSEE BECAUSE A CLEAR FINDING HAS BEEN GIVEN BY CIT(A) THAT THE ASSESSING OFFICER HAS NOWHERE EXAMINED THE EXPENSES AND HAS NOT COME TO A FINDING THAT THE EXPENDITURE WAS NOT ACTUALLY INCURRED A ND THIS FINDING OF CIT(A) COULD NOT BE CONTROVERTED BY LEARNED D.R. OF THE REVENUE. HENCE, WE FEEL THAT THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING EXPENSES IN FULL IS NOT SUSTAINABLE. BUT AT THE SAME TIME, WE FIND THAT IN THE ASSESSMENT 5 ORDER FO R ASSESSMENT YEAR 2004 - 05, DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER OF RS.26,286/ - ON THE BASIS THAT THERE MAY BE S OME PERSONAL EXPENSES OUT OF CAR RUNNING EXPENSES CLAIMED BY THE ASSESSEE AND OUT OF TELEPHONE EXPENSES AND TRAVELLING AND CONVEYANCE E XPENSES CLAIMED BY THE ASSESSEE. IN THAT YEAR , THE ASSESSING OFFICER HAS DISALLOWED 20% OF CAR RUNNING EXPENSES, TELEPHONE EXPENSES AND 10% OF SALARY TO DRIVER AND 10% OF TRAVELLING AND CONVEYANCE EXPENSES. BUT LEARNED CIT(A) IN THE ASSESSMENT ORDER FOR THE PRESENT YEAR HAS DELETED THE ENTIRE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, WE FEEL THAT SOME DISALLOWANCE IN THE PRESENT YEAR IS ALSO JUSTIFIED ON THE SAME BASIS AS HAS BEEN MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2004 - 05 AND ACCE PTED BY THE ASSESSEE IN THAT YEAR . IN ASSESSMENT YEAR 2004 - 05, THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE WERE OF RS.7.43 LAC S AS PER DETAILS AVAILABLE ON PAGE NO. 30 OF THE PAPER BOOK WHEREAS IN THE PRESENT YEAR , THE EXPENSES CLAIMED BY THE ASSESSEE IS R S.26.17 LAC. IN ASSESSMENT YEAR 2004 - 05, THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER OF RS.26,286/ - AND ON PRO RATA BASIS, IN THE PRESENT YEAR , WE CONFIRM THE DISALLOWANCE OF RS.1 LAC. WE DIRECT THE ASSESSING OFFICER TO DISALLOW AN AMOUNT OF RS.1 LAC IN THE PRESENT YEAR OUT OF TOTAL EXPENSES CLAIMED BY THE ASSESSEE OF RS.2 6 ,17,350/ - . 5. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. ( SUDHANSHU SRIVASTAV ) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 0 /09/2015 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR