DCIT CEN CIR 29, MUMBAI V. SHAH RUKH KHAN, MUMBAI

ITA 5651/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3948 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 02-06-2015
• Assessment Year: 1997-1998
• Appeal Filed On: 07-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Block assessment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI BEFORE SHRI C. N. PRASAD, JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO. 5651/MUM/2012 ( / ASSESSMENT YEAR: 1997-98) ASSISSTANT COMMISSIONER OF INCOME TAX,CENTRAL CIRCLE-29, R.NO. 411, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI-400 020. / VS. SHRI SHAH RUKH KHAN MANNAT, 15-J, BAND STAND, BANDRA (W), MUMBAI-400 050. ./ ./PAN/GIR NO. AAHPK 3293L ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI SATYAJIT MANDAL / RESPONDENT BY : SHRI HIRO RAI / DATE OF HEARING : 08/02/2016 !'# / DATE OF PRONOUNCEMENT : 26/02/2016 $% / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 11.06.2012 OF COMMISSIONER OF INCOME TAX (APPEALS)-40, MUMBAI (HE REINAFTER CALLED AS THE CIT(A)) FOR ASSESSMENT YEAR 1997-98. THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: 2 ITA NO. 5651/M/2012(A.Y.1997-98) ACIT VS. SHAH RUKH KHAN 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT FOR CALCULATING THE EL IGIBLE INCOME U/S 80RR, THE INDIRECT EXPENSES RELATABLE TO THE ASSESSEES F OREIGN INCOME BE CALCULATED ON THE NUMBER OF DAYS SPENT BY THE ASSES SEE ABROAD INSTEAD OF IN THE SAME PROPORTION WHICH THE FOREIGN TURNOVER HAS WITH THE TOTAL TURNOVER OF THE ASSESSEE AS DONE BY THE AO. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION ON ACCOUNT OF ON MONEY PAID IN RESPECT OF ACQUIRING TENANCY RIGHTS OF HERI TAGE BUNGALOW, WHICH WAS AN EXCLUSIVE PROPERTY, THE PAYMENT OF WHICH WAS MAD E THROUGH UNDISCLOSED SOURCES. 3. THE ISSUE RAISED IN THE FIRST GROUND BY THE REVE NUE IS AGAINST THE CIT(A) HOLDING THAT FOR THE PURPOSE OF CALCULATION OF INCO ME U/S 80RR OF THE ACT , THE INDIRECT EXPENSES RELATABLE TO THE FOREIGN INCOME B E CALCULATED BY TAKING THE NUMBER OF DAYS THE ASSESSEE SPENT ABROAD AS AGAINST THE PROPORTION WHICH THE FOREIGN RECEIPTS HAS TO THE TOTAL TURNOVER BY THE AO WHEREAS THE SECOND GROUND IS AGAINST THE DELETION OF ADDITION OF RS. 1,20,00,000 /- MADE BY THE AO ON ACCOUNT OF ON MONEY FOR ACQUIRING THE TENANCY RIGHTS OF HERI TAGE BUNGLOW. 4. THE BRIEF FACTS ARE THAT THE ASSESSEE FILED HIS RETURN OF INCOME ON 29.10.1997 DECLARING AN INCOME OF RS. 1,15,84,220/- ALONG WITH AUDIT REPORT U/S 44AB OF THE ACT. THE RESIDENTIAL PREMISES OF THE ASSESSEE WAS S EARCHED U/S 132(1) OF THE ACT ON 18.12.1996 AND NOTICE U/S 158BC WAS ISSUED FOR FILI NG THE RETURN OF INCOME 3 ITA NO. 5651/M/2012(A.Y.1997-98) ACIT VS. SHAH RUKH KHAN HOWEVER THE ASSESSEE DID NOT FILE ANY RETURN OF INC OME TAX FOR THE BLOCK PERIOD AND THE BLOCK ASSESSMENT WAS COMPLETED ON 26.08.1999 AT RS. 2,69,91,065/-. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD TRAVELLED ABROAD IN CONNECTION WITH HI S PROFESSIONAL ENGAGEMENTS AND THE AO WAS OF THE VIEW THAT THE DEDUCTION U/S 80RR OF THE ACT WAS TO BE CALCULATED AFTER CONSIDERING ALL THE EXPENSES DEBIT ED AND CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT WHETHER OR NOT ATTRIBUTABLE TO EARNING OF FOREIGN INCOME. THE ASSESSEES GROSS RECEIPTS INCLUDED RS. 95,27,000/- AS DOMESTIC RECEIPTS AND RS. 1,35,60,618/- FROM FOREIGN RECEIPTS AND THUS THE GR OSS TURNOVER OF THE ASSESSEE DURING THE YEAR WAS RS. 2,30,87,618/- AND THE TOTAL EXPENSES AS CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT WERE RS. 19,16,537/- RESULTING IN THE NET SURPLUS DURING THE YEAR OF RS. 2,11,71,081/-. THE AO WORKED OUT THE PROPORTIONATE EXPENSES RELATING TO FOREIGN TRAVEL AT RS. 11,25,6 86/- AS NOT BEING ALLOWABLE IN CALCULATING OF DEDUCTION U/S 80RR OF THE ACT AND DI SALLOWED AND ADDED 75% THEREOF TO THE INCOME OF THE ASSESSEE I.E RS. 8,44, 265/-. THE DETAILED CALCULATION OF THE SAID WORKINGS WERE GIVEN BY THE AO ON PAGE 30 P ARA 34 OF THE ASSESSMENT ORDER. 4 ITA NO. 5651/M/2012(A.Y.1997-98) ACIT VS. SHAH RUKH KHAN 5.1. ON APPEAL BEFORE THE CIT(A) BY THE ASSESSEE , THE CIT(A) ALLOWED THE APPEAL BY FOLLOWING THE APPEAL ORDER FOR THE AY 19 95-96 AND 1996-97 AND DIRECTED THE AO TO CALCULATE THE DISALLOWANCE BY TA KING THE NUMBER OF DAYS THE ASSESSEE STAYED ABROAD TO TOTAL NUMBER OF DAYS. 5.2. THE LD AR AT THE OUTSET POINTED OUT THAT THE C ASE OF THE ASSESSEE WAS COVERED IN HIS FAVOUR BY A DECISION OF THE TRIBUNAL BY OWN CASE IN THE ITA NO 6008/MUM/2006 ASSESSMENT YEAR 2003-04 VIDE ORDER D ATED 21.10.2008. THE LD COUNSEL SUBMITTED BEFORE US THAT THE ASSESSEE WAS ABROAD DURING THE YEAR FOR 17 DAYS IN ALL AND PRAYED FOR 15% OF THE EXPENSES BE T AKEN AS RELATING TO EARNING OF FOREIGN INCOME FOR THE PURPOSE OF CALCULATION OF DE DUCTION U/S 80RR.THE LD DR ON THE OTHER HAND RELIED ON THE ORDER OF AO. 5.3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIALS ON RECORDS AND AFTER GOING THE RECORDS BEFORE US FIND THAT IN ITA NO 6008/MUM/2006 ASSESSMENT YEAR 2003-04 A SIMILAR ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL VIDE ORDER DATED 21.10.2008. THE RELEV ANT PARA NO 7 OF THE SAID ORDER IS EXTRACTED BELOW:- WE HAVE CONSIDERED HIS SUBMISSIONS. WE FIND THAT I N ITA NO.787/MUM/02 FOR A.Y.1995-96 AS WELL AS ITA NO.389 4/MUM/02 AND 5 ITA NO. 5651/M/2012(A.Y.1997-98) ACIT VS. SHAH RUKH KHAN 3658/MUM/02 FOR A.Y. 1998-99, THE SAME ISSUE WAS CO NSIDERED BY THE TRIBUNAL AND THE TRIBUNAL HELD THAT THE ALLOCATION OF EXPENSES AGAINST THE INCOME ELIGIBLE FOR DEDUCTION U/S 80RR SHOULD B E ON THE BASIS OF NUMBER OF DAYS SPENT BY THE ASSESSEE ABROAD. IN A.Y . 1998-99, THE ASSESSEE HAD SPENT 13 DYAS ABROAD AND IN THAT YEAR, THE TRIBUNAL HELD THAT 10% OF THE EXPENSES SHOULD BE CONSIDERED AS HA VING BEEN INCURRED IN EARNING FOREIGN INCOME. IN AY 1995-96, NUMBER OF DAYS SPEND BY THE ASSESSEE ABROAD WAS 50 DAYS AND 25% OF THE EXPENSES WAS HELD TO BE ATTRIBUTABLE TO EARNING THE INCOME F ROM ABORAD. IN THE PRESENT ASSESSMENT YEAR, THE ASSESSEE HAS SPENT 6 D AYS ABROAD. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 7% OF THE EX PENSES CAN REASONABLY SAID TO BE ATTRIBUTABLE TO EARNING OF IN COME OUTSIDE INDIA. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE DEDUCT ION U/S 80RR ACCORDINGLY. THE APPEAL OF THE REVENUE IS DISMISSED WITH THE AFORESAID DIRECTIONS. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH OF MUMBAI, ARE OF THE VIEW THAT 15% OF THE EXPENSES ARE REASON ABLE AND BE ATTRIBUTED TO EARNING FOREIGN INCOME FROM OUTSIDE INDIA. THE AO I S DIRECTED TO COMPUTE DEDUCTION U/S 80RR OF THE ACT ACCORDINGLY. THE APPE AL OF THE REVENUE ON THIS GROUND IS DISMISSED WITH THE ABOVE DIRECTION. 6 ITA NO. 5651/M/2012(A.Y.1997-98) ACIT VS. SHAH RUKH KHAN 6. DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAD ACQUIRED A HERITAGE BUNGLOW AT BANDRA (W) ON TE NANCY BASIS OF PERMANENT NATURE BY PAYING A DEPOSIT OF 4,00,00,000/- CR AND MONTHLY RENTAL OF RS.5000/- WITH ABSOLUTE AUTHORITY TO FURTHER LEASE OUT THE PR OPERTY AND OTHER RIGHTS AS INCORPORATED IN PARA 35(2)(A)&(B) OF THE ASSESSMENT ORDER. THE SAID PROPERTY CONSISTED OF CONSTRUCTED AREA OF 5500 SQ. FTS WITH FREE HOLD LAND MEASURING 2500 PER SQ FTS. IT WAS ALSO OBSERVED THAT IN THAT ARE A THE STAMP DUTY VALUATION AS GOVT RATE WAS RS. 8,000/- PER SQ. FTS IN RESPECT OF CONS TRUCTED AREA AND RS. 3200/- PER SQ. FTS FOR THE LAND. THE MARKET RATE OF THE PROPERTY A S PUBLISHED IN SEPTEMBER EDITION OF ACCOMMODATION WAS RS. 10,000/- PER SQ. FTS. THUS FINALLY THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE MIGHT HAVE PAID RS. 1, 20,00,000/- AS ON MONEY ON THE BASIS THAT THE ASSESSEE PAID LESS 20% FOR THE PROPE RTY VALUE AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE ON PROTECTIVE BASIS AS S IMILAR ADDITION WAS MADE ON SUBSTANTIVE BASIS IN THE BLOCK ASSESSMENT. 6.1. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE CIT(A) WHO ALLOWED THE APPEAL BY HOLDING THAT THE T ENANCY AGREEMENT WAS ENTERED INTO ON 01.03.1996 WHEREAS THE PURCHASE AGREEMENT W AS MADE ON 25.08.2001 AFTER OBTAINING THE PERMISSION FROM INCOME TAX DEPARTMENT AND THE AO DID NOT BRING 7 ITA NO. 5651/M/2012(A.Y.1997-98) ACIT VS. SHAH RUKH KHAN ANY MATERIALS OR EVIDENCE ON RECORDS TO SUBSTANTIAT E HIS ACTION AND ADDITION MADE WITHOUT ANY MATERIALS ON RECORDS AND WAS ON BASED UPON SUSPICION. BESIDES NO INCREMATING MATERIALS WERE SEIZED DURING THE COURSE OF SEARCH TO CORROBAORATE OF THE ACTION OF AO AND BOTH DOCUMENTS AGREEMENT TO SE LL AND TENANCY AGREEMENT PERTAINED TO OTHER YEARS AND NOT THE YEAR UNDER CON SIDERATION. 6.2. THE LD DR RELIED ON THE ORDER OF AO BY SUBMIT TING THAT THE ASSESSEE PAID ON MONEY TO ACQUIRE INTEREST IN THE PROPERTY OF PERPET UAL NATURE AND THE AO HAD MADE THE ADDITIONS RIGHTLY AND PRAYED THAT ORDER OF CIT( A) BE SET ASIDE BY UPHOLDING THE ORDER OF AO. PER CONTRA LD AR FOR THE ASSESSEE ARGU ED THAT THE DATE OF THE TENANCY AGREEMENT WAS 01.03.1996 WAS AND DID NOT RELATE TO THE AY 1997-98. THE DEED OF ASSIGNMENT WHICH WAS MADE ON 25.08.2001 AFTER OBTA INING THE DUE PERMISSION FROM THE INCOME TAX DEPARTMENT U/S 269UL(3) OF THE ACT ALSO DID NOT PERTAIN TO THE YEAR UNDER CONSIDERATION A COPY OF WHICH IS PLA CED AT PAGE 28 OF THE PAPER BOOK OF THE ASSESSEE. THE LD COUNSEL DREW OUR ATTEN TION TO THE VARIOUS CLAUSES IN THE SAID DEED OF ASSIGNMENT INCLUDING THE CONSIDERA TION FOR PURCHASE OF RS. 13.32 CR WHICH IS PLACED AT PAGE NO 9 TO 36 OF THE PAPER BOOK. THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SHRI HERO RAI FINAL LY SUBMITTED BEFORE US THAT THE LD CIT(A) HAS PASSED BY ORDER AFTER GOING INTO VARIOUS LEGAL AND FACTUAL INVOLVED IN THE CASE OF THE ASSESSEE AND DID NOT REQUIRE ANY IN TERFERENCE. HE SUMMED UP BY 8 ITA NO. 5651/M/2012(A.Y.1997-98) ACIT VS. SHAH RUKH KHAN ARGUING THAT THE PROPERTY WAS NOT ACQUIRED DURING T HE YEAR BUT AS A MATTER OF FACT WAS PURCHASED IN THE SUBSEQUENT YEAR THAT TOO WITH THE PRIOR PERMISSION OF THE INCOME TAX DEPARTMENTS AND ULTIMATELY PRAYED THAT T HE ORDER OF CIT(A) BE UPHELD. 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS ON RECORDS. WE FIND FROM THE ORDER OF AO THAT DURING THE YEAR T HE ASSESSEE HAD NEITHER TAKEN ANY PROPERTY ON LEASE NOR PURCHASED AS IS CLEAR FRO M TENANCY AGREEMENT AND DEED OF ASSIGNMENT WHICH RELATES TO THE YEARS OTHER THAN THE YEAR IN QUESTION. WE ALSO NOTE THAT THE ADDITION IN THE CURRENT YEAR WAS ON P ROTECTIVE BASIS AND THE SUBSTANTIVE ADDITION WAS MADE IN THE BLOCK ASSESSME NT WHICH WAS STATED TO BE BARRED BY LIMITATION. WE FIND MERIT IN THE ARGUMENT S OF LD AR THAT THAT THE PROPERTY TAKEN ON TENANCY IN THE EARLIER YEAR WAS SUBSEQUENT LY PURCHASED WITH THE PRIOR PERMISSION OF THE DEPARTMENTS AND THE CERTIFICATE U /S 269UL(3) OF THE ACT IS PLACED AT PAGE NO 28 OF THE PAPER BOOK. IN THE LIGHTS OF A LL THESE FACTS THE ADDITION AS MADE BY THE AO IS JUST A NOTIONAL AND HYPOTHETICAL WHICH LACKS ANY BASIS AND THERE IS NOTHING ON RECORDS TO CORROBORATE THE ACTION OF THE AO. IN OUR OPINION THE ORDER OF CIT (A) WHO HAD COMPREHENSIVELY GONE IN INTO ALL TH E ISSUES APPEARS TO CORRECT AND DOES NOT REQUIRE ANY INTERFERENCE ON OUR PART A ND ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMISSED. 9 ITA NO. 5651/M/2012(A.Y.1997-98) ACIT VS. SHAH RUKH KHAN IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEBRUARY, 2016 SD/- SD/- (C.N. PRASAD) (RAJESH KUMAR) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED : 26.02.2016 PS. ASHWINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI