JAMALUDDIN K. MASALAWALLA, MUMBAI V. ITO 19(3)(2), MUMBAI

ITA 5669/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78987 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 16-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 07-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP
• Keywords: Sale consideration of property below Jantri Value; Business income; Depreciation; Business expenditure; Proportionate interest; Onus to prove
• Section: 50C; 37(1); 37

Judgement Text

, , INCOME TAX APPELLATE TRIBUNAL MUMBAI - J BENCH MUMBAI , , / , BEFORE S/SH. VIJAY PAL RAO, JUDICIAL MEMB ER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.5669/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2009-10 JAMALUDDIN K. MASALAWALLA, A/15, 283, KANTI APARTMENTS, MOUNT MARY ROAD, BANDRA(W), MUMBAI-400050 VS. ITO 19(3)(2), ROOM NO. 306,PIRAMAL CHAMBER, LALBAUG, MUMBAI-400012 PAN: AAACI7871E ( #$ / APPELLANT) ( %&#$ / RESPONDENT) #$ ' / APPELLANT BY : NONE %&#$ ( ' / RESPONDENT BY : SHRI MOURYA PRATAP ! ! ! ! ( (( ( )* )* )* )* / DATE OF HEARING :29-05-2014 +,' ( )* / DATE OF PRONOUNCEMENT :29- 05- 2014 ! ! ! ! , 1961 ( (( ( 254 )1( )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) ! ! ! ! PER RAJENDRA,A.M: CHALLENGING THE ORDER DT.03.07.2012 OF THE CIT(A)-3 0,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW IN DISALLOWING EXPENSES OF RS. 9,02,421/- OUT O F ASSESSEES TOTAL CLAIM OF EXPENSES OF RS. 10,67,745/- AGAINST THE BUSINESS INCOME. 2)ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) HAS ERRED IN FACTS AND IN LAW IN UPHOLDING THE AOS ACTION IN ASSESSING THE L ONG TERM CAPITAL GAIN (LTCG) ON TRANSFER OF TENANCY RIGHT IN PROPERTY AT RS. 14,57,829/- BY INV OKING THE PROVISIONS OF SECTION 50C OF THE I. T. ACT, 1961. 3)THE APPELLANT CRAVES LEAVE TO AMEND, ALTER, ADD O R DELETE ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 2. ASSESSEE,AN INDIVIDUAL,HAVING INCOME FROM HOUSE PRO PERTY AND OTHER SOURCES,FILED HIS RETURN OF INCOME ON 31.07.2009 DECLARING TOTAL INCOME OF RS.9 ,04,800/-.ASSESSING OFFICER (AO)FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 05.12.2011,DETE RMINING THE TOTAL INCOME AT RS.35,51, 780/-. FIRST GROUND OF APPEAL PERTAINS TO DISALLOWANCE OF EXPENDITURE OF RS.9.02 LAKHS OUT OF THE TOTAL 2 ITA NO. 5669/MUM/2012 JAMALUDDIN K. MASALAWALLA EXPENSES OF RS.10.67 LAKHS CLAIMED BY THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD DEBITED VARIOUS EXPENSES AGAI NST THE INCOME RECEIVED FROM THE PARTNERSHIP FIRMS WHEREIN HE WAS A PARTNER.HE DIRECTED THE ASSE SSEE TO FILE EXPLANATION IN THAT REGARD AND SHOW CAUSE AS TO WHY THE EXPENSES CLAIMED BY HIM SH OULD NOT BE DISALLOWED.AFTER CONSIDERING THE REPLY OF THE ASSESSEE DATED 31.10.2011,AO HELD THAT THE ASSESSEE WAS A PARTNER IN THREE FIRMS,THAT DURING THE YEAR UNDER CONSIDERATION HE H AD NOT CARRIED OUT ANY BUSINESS OR PROFESSION IN INDIVIDUAL CAPACITY OR PROPRIETARY CAPACITY,THAT TH E CLAIM MADE BY HIM U/S. 37(1) OF ACT COULD NOT BE ALLOWED,THAT THE PARTNERSHIP FIRMS WERE SEPARAT E LEGAL ENTITIES AND THE EXPENSES INCURRED BY THE PARTNERS FIRM HAD TO BE CLAIMED IN THE HAND OF THE PARTNERSHIP FIRM AND NOT IN THE HANDS OF THE PARTNER AGAINST HIS INCOME FROM REMUNERATION OR INT EREST INCOME.REFERRING TO THE PROVISIONS OF THE SECTION,HE HELD THAT THE EXPENSES CLAIMED BY THE AS SESSEE DID NOT FALL U/S.37(1) OF THE ACT,THAT THE EXPENSES MADE FOR EARNING REMUNERATION AND INTEREST FROM PARTNERSHIP FIRM COULD NOT BE TREATED AS BUSINESS EXPENSE OF THE ASSESSEE,THAT THE EXPENSES CLAIMED WERE PERSONAL IN NATURE AND COULD NOT BE ALLOWED AS DEDUCTION,THAT THE PERSON EMPLOYED BY THE ASSESSEE WAS ENGAGED IN ACTIVITIES OF THE PARTNERSHIP FIRM AND THE SERVICES WERE RENDERED TO THE ASSESSEE IN THE CAPACITY OF A PARTNER,THAT THE EXPENSES OF THE PARTNERSHIP CONCERN COULD NOT BE AL LOWED AS EXPENSE FROM THE INCOME OF PARTNER IN HIS INDIVIDUAL CAPACITY.HENCE SALARY OF RS. 4,65 ,000/-,PAID TO THE DRIVER CUM HELPER WAS DISALLOWED.ABOUT THE INTEREST EXPENDITURE OF RS.5,5 5 883/ -, AO HELD THAT LOAN ACQUIRED BY THE ASSESSEE AND IT WAS UTILISED TOWARDS FUNDING OF THE BUSINESS AND PURCHASE OF MOTOR CAR,THAT THAT ASSESSEE HAD NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO SHOW THAT THE FUNDS WERE INVESTED IN BUSINESS,THAT THE FUNDS WERE ALSO UTILISED FOR PURC HASE OF MOTOR CAR WHICH WAS PERSONAL IN NATURE.HE DISALLOWED THE EXPENDITURE CLAIMED UNDER THE HEAD INTEREST EXPENDITURE.ABOUT THE CLAIM OF DEPRECIATION ON MOTOR CAR,HE HELD THAT SAME COUL D NOT BE ALLOWED AS THE EXPENSES WERE PERSONAL IN NATURE.HE ALSO DISALLOWED OTHER EXPENSE S NAMELY OFFICE EXPENSES(RS.22,965/ -), MOTOR CAR INSURANCE(RS.14,185/-),BANK CHARGES(RS.487/-),P ROFESSIONAL TAX(RS.2,500/-),INTEREST ON CAR LOAN(RS.6,725/-).HE WAS OF THE OPINION THAT THOSE E XPENSES WERE ALSO OF PERSONAL NATURE AND 3 ITA NO. 5669/MUM/2012 JAMALUDDIN K. MASALAWALLA HENCE DISALLOWABLE. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT THE MOTOR CAR INSURANCE AND INTEREST ON THE MOTOR C AR HAD BEEN ALLOWED BY THE AO IN THE PRECEDING YEAR,THAT THE MOTOR CAR EXPENSES OF RS.14 ,185/- AND INTEREST ON CAR LOAN AMOUNTING TO RS. 6,725/- WERE ALLOWABLE EXPENDITURE,THAT THE VEH ICLES WERE UTILISED FOR PURPOSE OF EARNING BUSINESS INCOME. REGARDING THE INTEREST PAYMENT OF RS. 5,55,883/-,FAA HELD THAT WHILE THE APPELLANT HAD AVAILED LOAN TO THE TUNE OF RS. 82,79 ,458/-,HE HAD DEBIT BALANCE IN TWO FIRMS, I.E. M/S. BELLAS ELECTRONICS AND M/S. BELLAS APPLIANCE,T HAT HE HAD POSITIVE CAPITAL BALANCE OF RS.4, 19,492/-IN THE FIRM M/S. BELLAS SHOES(MAHIM),THAT H E HAD EARNED INTEREST OF RS.50,835/- AND REMUNERATION OF RS. 35,103/ - FROM THE SAID FIRM,THAT SAME WAS ASSESSED IN HIS HA NDS AS BUSINESS INCOME.FINALLY,HE HELD THAT LOAN FUNDS TO THE TUNE OF RS. 4,19,492/- WAS UTILIZED FOR EARNING THE BUSINESS INCOME,THAT PROPORTIONATE INTEREST ATTRIBU TABLE TO THE CAPITAL BALANCE OF RS.4,19,492/- IN M/S.BELLAS SHOES (MAHIM),AMOUNTING TO RS.28,164/-WA S ALLOWABLE ON PRO-RATA BASIS,THAT THE BALANCE INTEREST OF RS. 5,27,719/- WAS NOT ALLOWABL E AS BUSINESS EXPENDITURE.DISCUSSING THE ISSUE OF THE SALARY EXPENSES OF RS.4,65,000/-,FAA HELD TH AT THE HE HAD CLAIMED THAT THE PERSON EMPLOYED BY HIM WAS A GRADUATE AND WAS ACTUALLY HEL PING HIM IN LOOKING AFTER HIS BUSINESS INTEREST,THAT THE PERSON ALSO DROVE THE ASSESSEES CAR,THAT THE ASSESSEEBEING SICK AND OVER-WEIGHT WAS DEPENDING ON THAT EMPLOYEE FOR LOOKING AFTER HI S BUSINESS INTEREST,THAT THERE WAS ALSO SOME FORCE IN THE AOS CONTENTION THAT THIS SALARIED PER SON WAS LOOKING AFTER THE BUSINESS AFFAIRS OF THE PARTNERSHIP FIRM AND HE WAS NOT RENDERING SERVICE W HOLLY AND EXCLUSIVELY TO THE ASSESSEE.UNDER THESE FACTS AND CIRCUMSTANCES,HE HELD THAT ONLY 25% OF THE SALARY EXPENSES OF RS. 4,65,000/- WAS TO BE ALLOWED OUT OF THE BUSINESS INCOME OF THE APP ELLANT. FINALLY HE HELD THAT THE ASSESSEE WAS ENTITLED TO D EDUCTION OF DEPRECIATION ON MOTOR AND MOTOR CYCLE (RS.1,29,155/-),MOTOR CAR EXPENSES(RS.14,L85/ -),INTEREST ON MOTOR CAR LOAN OF RS.(6,725/-), INTEREST PAYMENT RS.(28,164/-) - AND SALARY EXPENSES (RS.1,16,250/-). 4 ITA NO. 5669/MUM/2012 JAMALUDDIN K. MASALAWALLA 2.2. BEFORE US,NO ONE APPEARED ON BEHALF OF THE ASSESSEE ,NOR WAS ANY APPLICATION FOR ADJOURNING THE MATTER WAS FILED.THEREFORE,THE MATTER IS BEING DECIDED ON MERITS AND ON THE BASIS OF MATERIAL AVAILABLE WITH US.DEPARTMENTAL REPRESENTATIVE (DR)S UPPORTED THE ORDERS OF THE FAA. 2.3. WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT ADJUDICATING UPON THE ISSUE OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE,FAA HAD HE LD THAT MOTOR CAR INSURANCE AND INTEREST ON MOTOR CAR HAD TO BE ALLOWED,AS THE AO HIMSELF HAD A LLOWED THE SAME ITEMS OF EXPENDITURE IN THE EARLIER YEAR.ABOUT THE TOTAL INTEREST EXPENDITURE O F RS.5,55,883/-,HE HELD THAT THE ASSESSEE HAD AVAILED LOAN OF RS.82.79 LAKHS ON WHICH INTEREST WA S PAID,THAT HE HAD DEBIT BALANCE IN TWO FIRMS. HE ACCEPTED THE CONTENTION OF THE ASSESSEE THAT LOA N FUNDS TO THE TUNE OF RS.4.19 LAKHS WERE UTILISED FOR EARNING BUSINESS INCOME.HE ALLOWED INT EREST EXPENDITURE OF RS.28,164 ON PRO-RATA BASIS. AFTER CONSIDERING THE ABOVE FACTS WE ARE OF THE OPI NION THAT THE DISALLOWANCE CONFIRMED BY THE FAA FOR THE INTEREST EXPENDITURE OF RS.5.27 LAKHS W AS JUSTIFIED.ONCE THE ASSESSEE HAD CLAIMED CERTAIN EXPENDITURE FOR CARRYING OUT HIS BUSINESS,I T WAS HIS DUTY TO PRODUCE EVIDENCE THAT SAME WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINES S PURPOSES.IN THE PAPER BOOK FILED BY THE ASSESSEE,THERE IS NO EVIDENCE TO PROVE THAT CONCLUS ION DRAWN BY THE FAA WAS NOT AS PER THE PROVISIONS OF THE ACT.SIMILARLY,THE ISSUE OF ALLOWA BILITY OF SALARY EXPENDITURE OF RS.4.65 LAKHS HAS BEEN ALSO DEALT AT LENGTH BY THE FAA.AFTER CONSIDER ING THE RELEVANT FACTS OF THE MATTER,HE HELD THAT ONLY 25% OF THE SAID EXPENDITURE WAS TO BE ALLOWED OUT OF THE SALARY EXPENDITURE.WE FIND THAT THE ASSESSEE HAD SALARY TO A PERSON WHO WAS HELPING HIM IN CARRYING OUT HIS BUSINESS AS WELL AS ATTENDING HIS PERSONAL NEEDS.CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE,DISALLOWANC E SHOULD BE RESTRICTED TO 50% OF THE SALARY EXPENDITURE IN PLACE OF 25%,AS HELD BY THE FAA. SECTION 37 OF THE ACT CASTS BURDEN OF PROOF ON THE ASSESSEE TO JUSTIFY THE CLAIMS MADE BY HIM. HONBLE JURISDICTIONAL HIGH COURT IN THE MATTER OF RAMANAND SAGAR (256ITR134) HAS HELD THAT SECTION 37 OF THE ACT DEALS WITH THE QUESTION RELAT ING TO THE ALLOWABILITY OF THE EXPENDITURE 5 ITA NO. 5669/MUM/2012 JAMALUDDIN K. MASALAWALLA INCURRED FOR THE PURPOSES OF BUSINESS,THAT THE ONUS OF PROOF IS UPON THE ASSESSEE TO PROVE EACH OF THE FOLLOWING INGREDIENTS BEFORE THE EXPENDITURE CA N BE ALLOWED AS DEDUCTION : (A) THE ITEM OF EXPENDITURE MUST NOT BE OF THE NATURE DESCRIBED UND ER SECTIONS 30 TO 36 OF THE ACT ; (B) THE ITEM OF EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL OR PERSONAL EXPENSES OF THE ASSESSEE ; (C) THE EXPENDITURE MUST BE LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION, THAT IF THE ASSESSEE FAILS TO SATISFY ANY OF THESE TESTS, THE EXPENDITURE CLAIMED IS NOT ALLOWABLE.IN OUR OPINION,IN THE CASE UNDER CONSIDERATION THE ASS ESSEE HAS FAILED TO DISCHARGE THE INITIAL ONUS TO PROVE THAT THE EXPENDITURE INCURRED UNDER THE HEADS INTEREST PAID AND SALARY PAID WAS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE,PARTLY ALLOWING THE APPEAL,WE DECIDE GROU ND NO.1 IN FAVOUR OF THE ASSESSEE,IN PART. 3. NEXT GROUND OF APPEAL IS ABOUT UPHOLDING THE ACTION OF THE AO IN ASSESSING THE LTCG ON TRANSFER OF TENANCY RIGHT IN PROPERTY AT RS.14.57 L AKHS.DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD SOLD HIS RIGHT IN THE P ROPERTY AT CTS NO. 750/750-1 TO 26 AS PER DEED OF CONVEYANCE DATED 27.11.2008 FOR A TOTAL CONSIDER ATION OF RS.78,00,000/-. HOWEVER, AS PER INDEX II OF THE REGISTRATION OF THE CONVEYANCE DEED ,HE FOUND THAT THE MARKET PRICE ADOPTED BY THE REGISTRATION AUTHORITIES FOR STAMP DUTY PURPOSE WAS RS.1,18,39,500/-,THAT THE ASSESSEE HAD RECEIVED RS. 28,00,000/-OUT OF TOTAL CONSIDERATION OF RS.78,00,000/-AS PER THE CONVEYANCE DEED. BY APPLYING THE RATIO TO THE MARKET PRICE AS MENTIO NED AND ASSESSED BY STAMP DUTY AUTHORITY OF RS.L,18, 39, 500/-,HE DETERMINED THE SHARE OF THE A SSESSEE AT RS. 42,50,076/-.BY CONSIDERING THE SUM OF RS. 42, 50, 076/- AS SALE PRICE,HE COMPUTED THE TAXABLE LTCG OF THE APPELLANT AT RS. 14, 57,829/-. 3.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FAA.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT O RDER HE HELD THAT THE PROVISIONS OF SECTION 50C WERE APPLICABLE TO THE FACTS OF THE CASE UNDER CONS IDERATION.HE REFERRED TO THE MATTERS OF ARIF AKHTAR HUSSAIN (ITA NO./541/MUM/2010-AY.2006-07DATE D.22.12.2010) AND MRS. ARLETTEE RODRIQUES (ITA NO./343/MUM/2010,DATED 18.02.2001) U PHELD THE ACTION OF THE AO. 6 ITA NO. 5669/MUM/2012 JAMALUDDIN K. MASALAWALLA 3.2. BEFORE US,DR SUPPORTED THE ORDER OF THE FAA.WE HAVE PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE CASE BEFORE US,IN THE YEAR 1959 THE PRO PERTY WAS TRANSFERRED TO MOHAMMAD UMAR CHAPRA BY NOOR MOHAMMED KHATRI.CHAPAR TRANSFERRED T HE RIGHT OF THE PROPERTY IN FAVOUR OF MARIABAI EBRAHIM.IN THE YEAR 1963,FATHER OF THE ASS ESSEE TOOK OVER THE RIGHTS IN THE PROPERTY.IN THE YEAR 1981,ON DEMISE OF HIS FATHER,THE ASSESSEE INHERITED THE RIGHT IN THE PROPERTY.IN THE YEAR 2008 HE SOLD THE PROPERTY THAT GAVE RISE TO CAPITAL GAINS.REGISTRATION AUTHORITIES ADOPTED MARKET RATE FOR STAMP DUTY PURPOSES AT RS.1,18,39,500/-.WE ARE OF THE OPINION THAT THE FAA WAS JUSTIFIED IN ADOPTING THE MARKET VALUE FOR COMPUTING LTCG AND THAT HE HAS RIGHTLY ENDORSED THE DECISION OF THE AO OF INVOKING THE PROVISIONS OF SECTION 50C OF THE ACT.IN THE MATTER BEFORE US, PROPERTY WAS SOLD AND THE VALUE SHOWN BY THE ASSESSEE IN THE RET URN OF INCOME WAS AT VARIANCE WITH VALUE ADOPTED FOR REGISTRATION PURPOSES.THEREFORE,THE AO AND THE FAA WERE JUSTIFIED IN HOLDING THAT PROVISIONS OF THE SECTION 50C WERE APPLICABLE.AS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE FAA,SO,WE ARE DECIDING GROUND NO.2 AGAINST THE ASSE SSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. /)0 !1) ( .)0 3 ( ) 45 . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MAY,2014. . ( +,' 6 7! 29 ,2014 , ( - 8 SD/- SD/- ( /VIJAY PAL RAO ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 7! /DATE:29.05.2014 SK . . . . ( (( ( %) %) %) %) 9 ') 9 ') 9 ') 9 ') / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT (A) / : ; , 4. THE CONCERNED CIT / : ; 5. DR J BENCH, ITAT, MUMBAI / <- %)! , . . . 6. GUARD FILE/ - / &) &) &) &) %) %)%) %) //TRUE COPY// .! / BY ORDER, = / 4 DY./ASST. REGISTRAR , /ITAT, MUMBAI