M/S. M.V.KINI, MUMBAI V. ITO WARD-11(3) (4), MUMBAI

ITA 5838/MUM/2008

• Counselvise Citation: [2008] 114 COUNSELVISE.COM (IT) 2255 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2008
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-10-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 19-09-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M B REDDY
• Keywords: Gift; Depreciation; Business expenditure; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B: MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SHRI R.S. PADVEKAR (JM) ITA NO. 5838 & 5839/MUM/2008 (ASSTT. YEAR : 2003-04 & 2004-05) M/S M.V. KINI APPELLANT SAVLA CHAMBERS, 40, C.P. STREET, OPP. BLITZ, FORT, MUMBAI 400056 PAN : AADPK9318G V/S. INCOME TAX OFFICER /ACIT, RG. 11(3) RESPONDENT WARD 11(3)(4) MUMBAI APPELLANT BY :MR. DHARMESH SHAH RESPONDENT BY :MR. M.B. REDDY (D .R) : O R D E R : PER R.S. PADVEKAR, J.M THE ASSESSEE HAS FILED THESE TWO APPEALS CHALLENGIN G THE RESPECTIVE IMPUGNED ORDERS OF THE LD CIT(A)- CENTRAL VII, MUMB AI DATED 4.8.2008 FOR THE A.Y. 2003-04 AND DT. 21.7.2008 FOR THE A.Y. 20 04-05 RESPECTIVELY. 2. WE FIRST TAKE THE APPEAL FOR THE A.Y. 2003-04 BE ING ITA NO. 5839/MUM/2008 FOR DISPOSAL. 3. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT A S PER THE INSTRUCTIONS OF HIS CLIENT, HE IS NOT PRESSING GROUND NO. 1 AND 6. AS GROUND NO. 1 & 6 ARE NOT PRESSED, THE SAME ARE DISMISSED. 4. THE GROUND NO.2 IS IN RESPECT OF DISALLOWANCE OF RS. 2,25,038/- OUT OF MOTOR CAR EXPENSES, INTEREST AND DEPRECIATION CLAIM ED BY THE ASSESSEE. ITA NO. 5838 & 5839/MUM/2008 2 5. WE HAVE HEARD THE PARTIES. THE ASSESSEE IS AN A DVOCATE BY PROFESSION AND HE IS HAVING OFFICES AT MUMBAI, DELHI, PUNE, BA NGALORE, HYDERABAD, ALLAHABAD ETC., AND HIS MAIN CLIENTS ARE BANKS AND FINANCIAL INSTITUTIONS. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 20 03-04 DECLARING THE TOTAL INCOME OF RS. 53,33,652/-. THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS FRAMED U/S. 143(3). THE ASSESSEE HAS CLAIMED THE EXPENDITURE RELATING TO THE MOTOR CAR A S UNDER : 1) MOTOR CAR EXPENSES RS. 6,04,685/- 2) DEPRECIATION ON MOTOR CAR RS. 8,30,270/- 3) INTEREST ON CAR LOAN RS. 67,097/- RS.15,02052/- THE A.O. MADE THE DISALLOWANCE OF RS. 2,25,308 OUT OF THE SAID EXPENSES WHICH WAS AGGREGATING TO 15% ON THE REASON THAT TH E USAGE OF THE VEHICLE FOR NON-BUSINESS PURPOSE CANNOT BE RULED OUT. THE ASSE SSEE CHALLENGED THE SAME BEFORE THE LD CIT(A) BUT WITHOUT SUCCESS. THE LD C OUNSEL ARGUED THAT THERE IS NO BASE FOR MAKING DISALLOWANCE AT 15%. IT IS FURT HER ARGUED THAT NO DISALLOWANCE SHOULD BE MADE ON THE SURMISE BASIS AN D THERE IS NO SUPPORTING MATERIAL WITH THE A.O TO MAKE OUT THE CASE THAT THE VEHICLE WAS USED FOR THE NON-BUSINESS/PROFESSION PURPOSE ALSO. PER CONTRA, THE LD. D.R. SUPPORTED THE DISALLOWANCE MADE BY THE A.O. 6. WE HAVE GIVEN OUR CAREFUL CONSIDERATIONS TO THE FACTS BEFORE US. ADMITTEDLY, THE ASSESSEE IS NOT MAINTAINING THE LOG BOOK FOR THE VEHICLE. IT IS ALSO TRUE THAT THE A.O HAS MADE THE AD HOC DISALLOW ANCE AND IN OUR OPINION, THE AD HOC DISALLOWANCE MADE BY THE A.O IS EXCESSIV E THOUGH THE ASSESSEE PLEADED THAT THE VEHICLE IS NOT USED FOR ANY NON-BU SINESS PURPOSE. AT THE SAME TIME NOTHING HAS BEEN BROUGHT BEFORE US TO SHO W THAT THE ASSESSEE HAS ANOTHER VEHICLE, WHICH CAN BE USED FOR HIS FAMILY AND FOR HIS PERSONAL USE. HENCE, IN OUR OPINION, SOME DISALLOWANCE IS JUSTIFI ED. WE, THEREFORE, SUSTAINED THE DISALLOWANCE AT 5% IN PLACE OF 15% AS MADE BY THE A.O. WE, ACCORDINGLY, DIRECT THE A.O TO RESTRICT THE DISALLO WANCE TO 5% OF 15,02,252/-, ITA NO. 5838 & 5839/MUM/2008 3 IN RESPECT OF MOTOR CAR EXPENSE, INTEREST ON CAR LO AN AND DEPRECIATION. IN THE RESULT, GROUND NO. 2 IS PARTLY ALLOWED. 7. THE NEXT ISSUE IS IN RESPECT OF DISALLOWANCE OUT OF GIFTS AND ARTICLES WHICH WAS MADE TO THE EXTENT OF RS.47,840/-. 8. WE HAVE HEARD THE PARTIES. ON PERUSAL OF THE AS SESSMENT ORDER, IT IS SEEN THAT THE ASSESSEE HAS CLAIMED THE EXPENDITURE TOWARDS GIFT AND ARTICLE AT RS. 3,18,931/-. THE A.O. MADE THE DISALLOWANCE OUT OF THE SAID EXPENDITURE AT 15% TREATING THE SAME AS PERSONAL IN NATURE WHIC H WAS RS. 47,840/-. THE LD COUNSEL ARGUED THAT THE ASSESSEE IS A VERY REPU TED COUNSEL AND HE HAS TO ATTEND THE SOCIAL FUNCTIONS OF HIS CLIENTS FOR WHIC H HE HAS TO INCUR THE EXPENDITURE. PER CONTRA, THE LD D.R. SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 9. ON RIVAL SUBMISSIONS AND ON PERUSAL OF THE FACTS , WE FIND THAT THE A.O HAS MADE THE AD HOC DISALLOWANCE AT 15%, BUT, OTHE RWISE ACCEPTED 85% AS A GENUINE PERSONAL EXPENDITURE. IT IS NOT THE CASE OF THE A.O THAT THE ENTIRE GIFTS AND ARTICLES WERE IN THE PERSONAL NATURE. IN OUR O PINION, IF THE DISALLOWANCE IS RESTRICTED TO 5% TREATING THE SAME AS INVOLVING PER SONAL ELEMENT THAT MAY MEET THE ENDS OF JUSTICE AND WE, ACCORDINGLY, DO SO . THE A.O IS DIRECTED TO RESTRICT THE DISALLOWANCE OUT OF THE GIFTS AND ARTI CLE EXPENDITURE TO 5% AND BALANCE DISALLOWANCE IS DELETED. ACCORDINGLY, GROU ND NO. 3 IS PARTLY ALLOWED. 10. GROUND NO. 4 IS AS UNDER : 4. ON THE FACTS AND UNDER THE INSTRUCTIONS OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN REMANDING TO THE ASSESSING OFFICER FOR VERIFICATION THE ADDITION S OF RS. 8,32,207/- AND RS.3,61,661/- BEING YEAR END LIABILITY TOWARDS COUR T FEES EXPENSES AT MUMBAI AND AHMEDABAD OFFICES RESPECTIVELY REPRESENT ING TOWARDS BUSINESS PROMOTION EXPENSES. 11. IT WAS NOTICED BY THE A.O THAT THE ASSESSEE HA S DEBITED THE SUM OF RS.44,31,796/- TO THE PROFIT & LOSS A/C. BEING TH E COURT FEE EXPENSES INCURRED BY THE ASSESSEE IN THE VARIOUS BRANCHES. IT WAS FURTHER NOTICED BY ITA NO. 5838 & 5839/MUM/2008 4 THE A.O THAT THE AMOUNT OF RS. 8,32,207/- HAS BEEN SHOWN AS CLOSING BALANCE IN THE ACCOUNT AND AN AMOUNT OF RS3,61,661/- WAS AP PEARING IN THE BANGALORE BANCH ACCOUNT. THE A.O SOUGHT THE EXPLANATION OF T HE ASSESSEE. THE ASSESSEE FILED THE REPLY STATING THAT THE ASSESSEE HAS TO PAY COURT FEE STAMP FOR FILING HIS CLIENT CASES IN VARIOUS COURTS AND H AS ALSO TO INCUR DIFFERENT EXPENSES IN CONNECTION WITH THE CLIENT CASES. THE AMOUNTS ARE RECEIVED FROM THE CLIENTS BY CHEQUES. THE ASSESSEE ALSO PRODUCED THE COPY OF THE LEDGER ACCOUNT OF BOMBAY AND BANGALORE BRANCHES. THE AS SESSEE ALSO EXPLAINED THE PURPOSE FOR INCURRING THE EXPENDITURE ON BEHAL F OF THE CLIENTS. THE ASSESSEE WAS COLLECTING THE AMOUNT FROM THE VARIOU S CLIENTS TO MEET THE EXPENSES FOR THE PURPOSE OF COURT FEE STAMPS, STAMP PAPER, XEROX COPIES, TYPING ETC., AND THOSE EXPENSES WERE SEPARATELY AC COUNTED. THE EXCESS OF THE EXPENSES FOR THE AMOUNT RECEIVED ARE SHOWN IN T HE BALANCE SHEET AS A LIABILITY AGAINST THE RESPECTIVE CLIENT. THE ASSES SEE CONTENDED THAT HE IS FOLLOWING THE CASH SYSTEM AS A METHOD OF ACCOUNTING . THE A.O. WAS OF THE VIEW THAT THE EXCESS AMOUNT COLLECTED BY THE ASSES SEE OVER THE EXPENDITURE SHOULD HAVE BEEN TAXED AS A PROFESSIONAL RECEIPTS I N THE SAME YEAR AND AS THE ASSESSEE WAS FOLLOWING THE CASH SYSTEM OF ACCOUNTIN G, THERE IS NO QUESTION OF MAKING ANY PROVISION FOR FUTURE LIABILITY. THE LD A.O ALSO RELIED ON THE DECISION IN THE CASE OF NEW INDIA MINING CORPORATIO N PVT. LTD. V/S. CIT, 243 ITR 640 (S.C.). THE A.O, THEREFORE, TREATED THE EX CESS BALANCES APPEARING IN MUMBAI BRANCH AMOUNTING TO RS. 8,32,207/- AND RS. 3 ,61,661/-, TOTALING TO RS. 11,93,868 AS PROVISIONAL INCOME AND MADE ADDIT ION TO THE TOTAL INCOME. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD CIT(A). THE ASSESSEE CONTENDED THAT HE MAKES THE PAYMENT OF COURT FEES ON BEHALF OF THE CLIENTS AND THE SAME IS REIMBURSED SUBSEQUENTLY. SOMETIM ES THE PAYMENTS ARE COLLECTED IN ADVANCE AND THERE FROM THE PAYMENT TOW ARDS THE STAMP DUTY AND OTHER LEGAL EXPENSES FOR THE CLIENTS ARE MADE. IF ANY EXCESS AMOUNT IS THERE, THEN THE SAME IS REFUNDED TO THE CLIENT. THE ASSES SEE ALSO PRODUCED THE CONFIRMATION FROM THE CLIENT BEFORE THE LD CIT(A) T O SUBSTANTIATE THE CLAIM THAT IF ANY AMOUNT IS REMAINED AFTER EXPENDITURE, T HE SAME IS REFUNDED. IT WAS FURTHER CONTENDED THAT THE BALANCE APPEARING IN THE COURT FEE ACCOUNT IN THE BALANCE SHEET OF THE ASSESSEE IS NOT HIS PROP ERTY AND IN FACT, IT IS A LIABILITY AND THE SAID AMOUNT IS UTILIZED AS PER T HE INSTRUCTIONS OF THE HIS CLIENTS AND ALSO TO BE REFUNDED IF REMAINED UNUTILI SE. THE LD CIT(A) HAS NOTED ITA NO. 5838 & 5839/MUM/2008 5 THAT THE ASSESSEE AGREED THAT AS THE ASSESSEE WAS FOLLOWING THE CASH SYSTEM OF ACCOUNTING, HENCE THE VIEW OF THE A.O WAS CORREC T THAT ALL THE RECEIPTS ARE TREATED AS PROFESSIONAL RECEIPTS PROVIDED THE SAME ARE CREDITED TO PROFIT AND LOSS ACCOUNT, BUT IF THE SAID SUMS ARE SHOWN AS OUT STANDING BALANCE IN THE BALANCE SHEET AS A LIABILITY, THEN, THE LIABILITY C ANNOT BE TREATED AS INCOME OF THE ASSESSEE. THE LD CIT(A) WAS OF THE OPINION THA T THE ENTIRE CLOSING BALANCE CANNOT BE TREATED AS AN INCOME OF THE YEAR AND THE ADDITION WHICH COULD BE MADE IS IN RESPECT OF THE EXCESS COLLECTION OVER TH E EXPENDITURE SHOULD BE PERTAINING TO THE YEAR UNDER CONSIDERATION ONLY. HE DIRECTED THE A.O TO WORK OUT THE FIGURE ACCORDINGLY AND SET ASIDE THE MATTER TO THE A.O. 12. THE LD COUNSEL ARGUED THAT IT IS A NORMAL PRAC TICE OF THE ASSESSEE EITHER TO COLLECT THE EXPENDITURE OF STAMP DUTY AND OTHER RELATED PAYMENTS TOWARDS FOR OBTAINING CERTIFIED COPY OF THE ORDERS OR DOCUMENTS, PAYMENTS FOR INSPECTION OF THE RECORD, PROPERTY, DOCUMENTS OR TI TLE CLEARANCE CERTIFICATE. THESE EXPENDITURE ARE TO BE ON THE CLIENT BY THE AS SESSEE AND THE SAME ARE COLLECTED IN ADVANCE EITHER OR REIMBURSED SUBSEQUEN TLY. HE, THEREFORE, PLEADED THAT NO ADDITION SHOULD BE MADE AT ALL. 13. WE HAVE ALSO HEARD THE LD D.R. IN THIS CASE, T HE ASSESSEE SHOWED THE AMOUNTS ON THE NAME OF THE CLIENT IN THE BALANCE S HEET. THERE IS NO DISPUTE ABOUT THE FACT THAT THE AMOUNTS ARE PERTAINING TO T HE PAYMENTS OF THE STAMP DUTY AND OTHER EXPENDITURE RELATING TO THE COURT MA TTERS. IN THE OPINION OF THE LD CIT(A), THE EXCESS COLLECTIONS OVER THE PAYM ENTS PERTAINING TO THE YEAR UNDER CONSIDERATION IS AN INCOME OF THE ASSESSEE AN D AT THE SAME TIME, THE LD CIT(A) HAS ALSO OBSERVED THAT THE ASSESSEE PRODUCED THE CONFIRMATION LETTER FROM THE CLIENT STATING THAT IF ANY AMOUNT IS REMAI NED WITH THE ASSESSEE, THEN THE SAME IS REFUNDED. MOREOVER, WE FIND THAT IT IS A RUNNING ACCOUNT AND THERE ARE RECEIPTS AS WELL AS THE PAYMENTS TOWARDS THE CO URT FEE STAMPS AND OTHER LEGAL EXPENSES. IN OUR OPINION, THE ADDITION IS N OT SUSTAINABLE. THE LD CIT(A) HAS GIVEN THE DIRECTION THAT EVEN IF THERE IS AN EX CESS RECEIPT OVER THE EXPENSES ON ACCOUNT OF THE CLIENTS TOWARDS THE COU RT FEE STAMP ETC., BUT THE SAME IS IN THE NATURE OF DEPOSITS WITH THE ASSESSEE AND UNLESS AND UNTIL IT IS PROVED THAT THE ASSESSEE NEVER REFUNDED THE AMOUNT, THEN THE SAME SHOULD ITA NO. 5838 & 5839/MUM/2008 6 BE TREATED AS INCOME. IN OUR OPINION, FOR THE REAS ONS GIVEN ABOVE, SO FAR AS THIS YEAR IS CONCERNED, NO ADDITION IS JUSTIFIED AT ALL. WE, THEREFORE, CANCEL THE DIRECTIONS OF THE CIT(A) ON THIS ISSUE AND ACCORDIN GLY, GROUND NO. 4 IS ALLOWED. 14. THE NEXT ISSUE IS REGARDING 10% DISALLOWANCE OU T OF BUSINESS PROMOTION EXPENSES. 15. WE HAVE HEARD THE PARTIES. THE LD COUNSEL ARG UED THAT AD HOC DISALLOWANCE IS MADE, AND THE ASSESSEE HAS TO INCU R CERTAIN EXPENDITURE FOR KEEPING THE HEALTHY PROFESSIONAL RELATION WITH HIS CLIENTS. OTHERWISE ALSO, THE A.O HAS ALLOWED 90% OF THE EXPENDITURE. AT THE SAM E TIME, WE CANNOT TOTALLY REJECT THE VIEW OF THE A.O, THAT PERSONAL ELEMENT ALSO CANNOT BE RULED OUT. IF THE DISALLOWANCE IS RESTRICTED TO 5%, THEN THAT WOU LD MEET THE ENDS OF JUSTICE. WE, ACCORDINGLY, DIRECT THE A.O TO RESTRICT THE DIS ALLOWANCE IN RESPECT OF THE BUSINESS PROMOTION EXPENSES AT 5%. ACCORDINGLY, GR OUND NO. 5 IS PARTLY ALLOWED AND THE ASSESSEES APPEAL IS PARTLY ALLOWED . 16. NOW WE TAKE UP ASSESSEES APPEAL FOR THE A.Y. 2 004-05 BEING ITA NO. 5838/MUM/2008. 17. THE FIRST ISSUE IS IN RESPECT OF DISALLOWANCE O F 10% OF THE BUSINESS PROMOTION EXPENSES OUT OF RS. 5,69,506/- CLAIMED B Y THE ASSESSEE. WE HAVE HEARD THE PARTIES. IN THIS YEAR ALSO, THE ASSESSME NT OF THE ASSESSEE WAS FRAMED U/S. 143(3). THE A.O MADE THE ADHOC DISALLO WANCES AS IN THE IMMEDIATE PRECEDING YEAR AT 10% OUT OF THE BUSINESS PROMOTION EXPENSES CLAIMED BY THE ASSESSEE. WHILE DECIDING THE ASSES SEES APPEAL FOR A.Y. 2003- 04, WE HAVE SUSTAINED THE ADDITION AT 5%. WE, THER EFORE, FOLLOWING THE REASONS IN THE A.Y. 2003-04, DIRECT THE A.O TO WORK OUT THE DISALLOWANCE AT 5% OF RS. 5,69,506/-. IN THE RESULT, GROUND NO. 1 I S PARTLY ALLOWED. 18. THE NEXT ISSUE IS REGARDING THE ADHOC DISALLOWA NCE AT 15% OUT OF THE GIFTS AND PRESENTATION EXPENSES CLAIMED BY THE AS SESSEE WHICH WAS WORKED OUT BY THE A.O AT RS. 55,430/-. THE IDENTICAL ISSU E HAS BEEN DECIDED IN ITA NO. 5838 & 5839/MUM/2008 7 ASSESSEES CASE FOR THE A.Y. 2003-04 AND WE HAVE DI RECTED THE A.O TO RESTRICT THE DISALLOWANCE AT 5%. AS THE FACTS ARE IDENTICAL IN THIS YEAR, WE THEREFORE, FOLLOWING OUR REASONS AND FINDINGS ON THIS ISSUE IN THE IMMEDIATE PRECEDING YEAR, DIRECT THE A.O TO RESTRICT THE DISALLOWANCE A T 5%. ACCORDINGLY, GROUND NO. 2 IS PARTLY ALLOWED. 19. THE NEXT ISSUE IS DISALLOWANCE OF 10% OF RS. 9 ,11,744/- OUT OF THE BUSINESS EXPENSES WHICH WERE INCURRED FOR THE CRE DIT CARD. 20. WE HAVE HEARD THE PARTIES. THE A.O MADE 10% DI SALLOWANCE ON THE REASON THAT THE PAYMENTS WERE MADE THROUGH THE CRE DIT CARD. WE FAIL TO UNDERSTAND HOW THE PAYMENTS MADE THROUGH THE CREDI T CARD CAN BE TREATED IS INVOLVING PERSONAL ELEMENT. PAYMENT THROUGH THE CREDIT CARD IS ONE OF THE COMMERCIALLY RECOGNIZED MODE OF PAYMENT AND MERELY BECAUSE THE PAYMENTS ARE MADE THROUGH CREDIT CARD AND ON THAT BASIS NO I NTERFERENCE SHOULD BE DRAWN AGAINST THE ASSESSEE THAT THE PAYMENTS ARE IN VOLVING THE PERSONAL ELEMENT. THE ADDITION MADE BY THE A.O IS WITHOUT M ERIT, WE THEREFORE DELETE SAID ADDITION. WE, ACCORDINGLY, DELETE THE ENTIRE A DDITION. GROUND NO. 3 IS ALLOWED. 21. THE NEXT ISSUE IS ADHOC DISALLOWANCE OF 20% OUT OF MOTOR CAR EXPENSES, INTEREST ON CAR RENT AND DEPRECIATION OF MOTOR CAR. IDENTICAL ISSUE HAS BEEN DECIDED BY US IN THE A.Y. 2003-04. FOLLO WING THE REASONING, WE DIRECT THE A.O TO RESTRICT THE DISALLOWANCE AT 5% I N PLACE OF 20%, AS THERE IS NO OTHER JUSTIFIED REASON TO SUPPORT THE ENTIRE DIS ALLOWANCE MADE BY THE A.O. ACCORDINGLY, GROUND NO. 4 IS PARTLY ALLOWED. 22. THE NEXT ISSUE IS THE DISALLOWANCE MADE BY THE A.O AT 20% OUT OF THE MOBILE AND TELEPHONE EXPENSES. THE ASSESSEE HAD C LAIMED EXPENDITURE TOWARDS MOBILE CHARGES AND TELEPHONE CHARGES AMOUNT ING TO RS. 12,95,911/-. THE A.O. MADE THE AD HOC DISALLOWANCE AT 20%. THE LD COUNSEL TRIED TO ARGUE THAT THERE IS NO JUSTIFICATION TO MAKE THE DISALLOW ANCE OUT OF THE MOBILE CHARGE AND TELEPHONE BILLS AS IT IS A PROFESSIONAL NECESS ITY. NOTHING HAS BEEN PLACED ITA NO. 5838 & 5839/MUM/2008 8 BEFORE US TO SHOW THAT THE ASSESSEE WAS HAVING ANY OTHER PERSONAL MOBILE AS WELL AS TELEPHONE. MOREOVER, NOTHING HAS BEEN PLACE D BEFORE US SHOW THAT SOME EXPENSES TOWARDS PERSONAL USE OF MOBILE OR TEL EPHONE HAS BEEN DEBITED TO HIS CAPITAL OR CURRENT A/C. MOREOVER, THE PERSO NAL USE OF THE MOBILE AND TELEPHONE CANNOT BE RULED OUT. WE, THEREFORE, CONS IDER IT FIT TO RESTRICT THE DISALLOWANCE TO 10% IN PLACE OF 20% MADE BY THE A.O . WE, ACCORDINGLY, DIRECT THE A.O TO RESTRICT THE DISALLOWANCE IN RESP ECT OF THE MOBILE CHARGES AND TELEPHONE CHARGES TO 10% AND WORK OUT THE DISALLOW ANCE. ACCORDINGLY, GROUND NO. 5 IS PARTLY ALLOWED. 23. THE NEXT ISSUE IS REGARDING DISALLOWANCE OF 10% OUT OF RS. 20,38,997/- TOWARDS WELFARE, OFFICE EXPENSES AND GENERAL EXPE NSES. THIS ISSUE ARISES FROM GROUND NO. 6. 24. WE HAVE HEARD THE PARTIES. AS SEEN FROM THE AS SESSMENT ORDER, THE ASSESSEE HAS CLAIMED THE DIFFERENT EXPENDITURE UND ER THE HEAD STAFF WELFARE, OFFICE EXPENSES, GENERAL EXPENSES, MISCELLANEOUS EX PENSES AND OFFICE MAINTENANCE WHICH DETAILS ARE GIVEN ON PAGE NO. 3 O F THE ASSESSMENT ORDER TOTALING TO RS. 20,38,997/-. THE A.O MADE THE AD H OC DISALLOWANCES AT 10% WHICH WAS WORKED OUT TO RS.2,03,899/- FOR WANT OF V ERIFICATION OR NOT VOUCHED PROPERLY. ON APPEAL BEFORE THE LD CIT(A), THE LD C IT(A) DELETED THE ENTIRE ADDITION MADE ON THIS ISSUE BY GIVING THE REASON IN PARA NO. 11.2 OF HIS ORDER. HENCE, THE GROUND NO. 6 TAKEN BY THE ASSESSEE IS IN FRUCTUOUS AND THE SAME IS DISMISSED. 25. THE NEXT ISSUE IS IN RESPECT OF DISALLOWANCE MA DE TOWARDS THE COURT FEE EXPENSES ACCOUNT IN RESPECT OF MUMBAI AND AHMEDABA D OFFICES, WHICH WERE THE AMOUNTS DEPOSITED BY THE CLIENT OF THE ASSESSEE AND WHICH HAS BEEN SHOWN IN THE BALANCE SHEET AS OUTSTANDING LIABILITY . THE A.O HAS NOTED THAT THE ASSESSEE HAS DEBITED THE SUM OF RS. 49,12,484/- TO THE PROFIT AND LOSS A/C BEING THE COURT FEE EXPENSES. THE A.O HAS FURT HER NOTED THAT THE ASSESSEE FILED THE REPLY EXPLAINING THAT THE AMOUNT S WERE COLLECTED FROM THE VARIOUS CLIENTS TO MEET THE VARIOUS EXPENSES REQUIR ED TO BE INCURRED SUCH AS BUYING OF STAMP, STAMP PAPERS, XEROX CHARGES, TYPIN G CHARGES ETC., AND THOSE ITA NO. 5838 & 5839/MUM/2008 9 EXPENSES HAVE BEEN SEPARATELY ACCOUNTED UNDER THE SAID HEAD. THE EXCESS OVER THE EXPENSES IS SHOWN IN THE BALANCE SHEET AS A LIABILITY AGAINST THE SUNDRY CREDITORS/DEBTORS. THE A.O WAS OF THE OPINI ON THAT THE ASSESSEE HAS OPTED FOR CASH SYSTEM AS METHOD OF ACCOUNTING AND ALL THE AMOUNTS COLLECTED FOR VARIOUS EXPENSES FROM VARIOUS CLIENTS HAVE TO B E CREDITED TO THE RECEIPT AND PAYMENT A/C. AND WHATEVER ACTUAL EXPENSES ARE INCURRED BY THE ASSESSEE SAME SHOULD BE DEBITED IN THEIR RESPECTIVE HEAD OF EXPENSES. THE A.O MADE THE ADDITION OF RS. 3,53,768/- WHICH WAS CASH BALA NCE APPEARING IN MUMBAI BRANCH. THE ASSESSEE CHALLENGED THE SAID ADDITION BUT THE ADDITION MADE BY THE A.O. WAS CONFIRMED. THE LD COUNSEL FOR THE ASS ESSEE ARGUED THAT THERE IS NO JUSTIFICATION IN MAKING THE ADDITION AFTER CONSI DERING THE OPENING AND CLOSING BALANCES OF THE COURT FEE ACCOUNT. HE, FU RTHER, ARGUED THAT THE CLOSING BALANCE ACTUALLY REPRESENT A LIABILITY AND NOT AN INCOME. THE AMOUNT RECEIVED AND PAID DURING THE YEAR IS ALREADY ACCOUN TED AS EXPENDITURE IN THE BOOKS. THE CLOSING BALANCE IS THE UNSPENT AMOUNT W HICH IS TREATED AS A LIABILITY. HE FURTHER SUBMITTED THAT THE CONFIRMA TION FROM THE CLIENTS WERE FILED. PER CONTRA, THE LD D.R. SUPPORTED THE ORDER OF THE CIT(A). 26. ON RIVAL SUBMISSIONS, WE FIND THAT THOUGH THE A .O MADE THE ADDITION, THAT APPEARS TO BE THE DIFFERENCE BETWEEN THE OPEN ING AND CLOSING BALANCE OF THE COURT FEE ACCOUNT. THE IDENTICAL ISSUE HAS BEE N DECIDED BY US IN THE IMMEDIATE PRECEDING YEAR. FOLLOWING THE SAME REASO NING, AS THE FACTS ARE IDENTICAL IN THIS YEAR ALSO, WE HOLD THAT THERE IS NO JUSTIFICATION TO MAKE THE ADDITION OF RS. 3,53,768/- WHICH WAS IN RESPECT OF THE DIFFERENCE BETWEEN THE OPENING AND CLOSING BALANCE AS THE SAME REPRESENT THE LIABILITY OF THE CLIENTS. ACCORDINGLY, GROUND NO. 7 IS ALLOWED. 27. THE LD COUNSEL SUBMITTED THAT HE IS NOT PRESSIN G THE GROUND NO. 8. AS THE GROUND NO. 8 IS NOT PRESSED, THE SAME IS DISMIS SED. 28. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ITA NO. 5838 & 5839/MUM/2008 10 ORDER PRONOUNCED IN THE OPEN COURT ON 27TH DAY OF JANUARY , 2010. SD/- SD/- (PRAMOD KUMAR) (R. S. PADVEKAR) ACCOUNTANT MEMBER JUDICI AL MEMBER MUMBAI, ON THIS 27TH DAY OF JANUARY , 2010. :US COPY TO: 1. APPELLANT 2. RESPONDENT , 3.THE CIT(A)- VII, MUMBAI 4.THE CIT - XI, MUMBAI 5.THE DR, B BENCH, MUMBAI 6.GUARD FILE BY ORDER TRUE COPY ASSTT..REGISTRAR, ITAT, MUMBAI. ITA NO. 5838 & 5839/MUM/2008 11 US DATE INITIALS 1. DRAFT DICTATED ON 16/1/10 --------------- SR.P.S . 2. DRAFT PLACED BEFORE AUTHORITY 25/1/10 -------- ------ SR.P.S. 3. DRAFT PROPOSED & PLACED ----------- ---------- --- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED ----------- ----------- -- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO ----------- ------------ - SR.P.S. THE SR. P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON --------- ----------- -- SR.P.S. 7. FILE SENT TO THE BENCH CLERK --------- --------- ---- SR.P.S. 8. DATE ON WHICH FILE GOES TO THE ------- --------- ---- 9. DATE OF DISPATCH OF ORDER --------- --------- ----