M/s Lovi Mehrotra & Associates, Chartered Accountants, New Delhi V. DCIT, New Delhi

ITA 5907/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98156 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 04-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRMALJEET SINGH
• Assessee Lawyers: S C MEHROTRA
• Keywords: Business expenditure; Salary income
• Section: 40A(3); 143(3); 37

Judgement Text

I.T.A. 5907/DEL/13 ASSESSMENT YEAR: 2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER ITA NO.5907/DEL/2013 ASSTT. YEAR: 2010-11 LOVI MEHROTRA & ASSOCIATES, VS DCI T, CHARTERED ACCOUNTANTS, CIRCLE 37(1), IIND FLOOR, 21-22, NEW DELHI. KRISHNA NAGAR, SAFDARJUNG ENCLAVE, NEW DELHI. (PAN: AACFL4092R) (APPELLANT) (RE SPONDENT) APPELLANT BY: SHRI S.C. MEHROTRA, CA RESPONDENT BY: SHRI NIRMALJEET S INGH, SR. DR O R D E R PER C.M. GARG, J.M. THIS APPEAL BY THE ASSESSEE HAS BEEN PREFERRED AG AINST THE ORDER OF CIT(A)-XXVIII, NEW DELHI DATED 07.08.2013 PASSED IN APPEAL NO. 110/2012- 13 FOR ASSESSMENT YEAR 2010-11. 2. GROUND NO. 1 & 5 OF THE ASSESSEE ARE GENERAL IN NATURE, REMAINING EFFECTIVE GROUNDS READ AS FOLLOWS:- 1. THE ORDER OF THE LD. CIT(APPEAL) - XXVIII, NEW DELHI DATED: 07.08.2013 IS BAD IN LAW AND ON FACTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF PARTNERS REMUNERATION TO THE EXTENT OF RS. 15,000 P AID TO SHRI RISHI RAJ OMAR. I.T.A. 5907/DEL/13 ASSESSMENT YEAR: 2010-11 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RENT PAID FOR KOLKATA OFFICE OF THE FIRM AMOUNTING TO RS. 85,872. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF CONFERENCE EXPENSES TO THE EXTENT OF RS.58,142 OUT OF THE TOTAL DISALLOWANCE OF RS.88,772 BY THE ASSESSING OF FICER. GROUND NO. 2 3. APROPOS GROUND NO.2, THE LD. AR SUBMITTED THAT T HE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF PARTNERS REMUNERATIO N TO THE EXTENT OF RS. 15,000 PAID TO SHRI RISHI RAJ OMAR WHEREAS THIS AMOUNT WAS BEING REIMBURSED REGULARLY IN THE EARLIER ASSESSMENT YEARS. LD. DR STRONGLY SUPPORTED THE ACTION AND STAND OF THE AUTHORITIES BELOW. 4. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSI ONS, WE NOTE THAT THE ASSESSEE SUBMITTED WRITTEN SUBMISSIONS BEFORE CIT(A ) DATED 26.7.2013 AND EXPLAINED AS FOLLOWS:- THE DISALLOWANCE OF THE RS.15,000/- PERTAINS TO EX CESS AMOUNT DEBITED TOWARDS PARTNERS REMUNERATION IN RESPECT OF REMUNERATION TO SHRI RISHI RAJ OMAR AS AUTHORIZED I N THE PARTNERSHIP DEED. THE SAID AMOUNT RELATED TO HIS CL AIM FOR TELEPHONE EXPENSES WHICH BY SHEER MISTAKE HAD BEEN DEBITED TO PARTNERS REMUNERATION ACCOUNTS INSTEAD OF TELEPHONE EXPENSES ACCOUNT. IN THE CONNECTION WE WOULD LIKE TO CLARIFY THAT THIS DOES NOT MAKE MUCH DIFFERENCE AS IN BOTH THE CASES THE E XPENSES HAS BEEN PERMISSIBLE BUSINESS EXPENDITURE IN AS MUCH AS EVEN ADJUSTING THE EXPENDITURE TOWARDS PARTNERS REMUNERA TION IT FALLS WITHIN THE PERMISSIBLE LIMITS AS LAID DOWN UNDER SE CTION 40(B) (V) OF THE ACT. INCIDENTALLY WE WISH TO POINT OUT THAT SHRI RISHI RAJ OMAR TAKEN THE INCREASED THE AMOUNT OF RS. 735,000/ - IN HIS PERSONAL RETURN FOR THE YEAR UNDER REFERENCE COPY O F HIS RETURN I.T.A. 5907/DEL/13 ASSESSMENT YEAR: 2010-11 3 ALONG WITH HIS COMPUTATION ARE BEING FURNISH RED HE REWITH FOR YOUR KIND PERUSAL. WE FEEL THAT ONCE THE INCREASED AMOUNT OF REMUNERATION HAD BEEN TAKEN BY SHRI RISHI RAJ OMAR IN HIS PERSONAL RETURN SAME SHOULD NOT BE INCLUDED IN THE FIRMS ASSESSMENT. 5. IN VIEW OF ABOVE, WE NOTE THAT THE CIT(A) DID N OT ADDRESS AND ADJUDICATE THE ISSUE AND MERELY CONFIRMED THE ADDITION AS SUST AINED AS THE CLAIM IS INADMISSIBLE AS PER PROVISIONS OF SECTION 40(B) OF THE ACT. PER CONTRA, THE CLAIM OF THE ASSESSEE IS THAT THE EXPENSE RELATES TO TELE PHONE EXPENSES WHICH BY SHEER MISTAKE WAS DEBITED TO PARTNERS REMUNERATION ACCOU NT INSTEAD OF TELEPHONE EXPENSE ACCOUNT AND THE SAME WAS REIMBURSED TO SHRI RISHI RAJ OMAR AND HE HAS ALSO SHOWN THIS RECEIPT IN HIS RETURN OF INCOME ALONG WITH SALARY INCOME. WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF LD. AR THAT ONCE INCREASED AMOUNT OF REMUNERATION WHICH INCLUDES REIMBURSEMENT OF TEL EPHONE EXPENSE HAD BEEN TAKEN BY SHRI RISHI IN HIS PERSONAL RETURN AND IN B OTH THE CASES, EITHER AS PARTNERS SALARY OR AS TELEPHONE EXPENSES, BOTH ARE ALLOWABLE AS PERMISSIBLE BUSINESS EXPENDITURE AND THUS NO ADDITION CAN BE MA DE IN THIS REGARD. ACCORDINGLY, GROUND NO. 2 OF THE ASSESSEE IS ALLOWE D. GROUND NO. 3 6. APROPOS GROUND NO. 3, LD. AR SUBMITTED THAT DISA LLOWANCE OF RENT OF KOLKATA OFFICE WAS ALLOWABLE AS PROFESSIONAL BUSINE SS USED TO BE CARRIED OUT FROM SAID OFFICE ADDRESS, THEREFORE, THERE WAS NO C ASE FOR DISALLOWING THE SAME U/S 30 OF THE ACT OR ALTERNATIVELY U/S 37 OF THE AC T. LD. AR VEHEMENTLY I.T.A. 5907/DEL/13 ASSESSMENT YEAR: 2010-11 4 CONTENDED THAT AS THE EXPENDITURE WAS INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF PROFESSIONAL BUSINESS, RENT PAID BY WAY OF SUB TENANCY ARE ALLOWABLE. 7. LD. DR SUPPORTED THE ORDER OF ASSESSING OFFICER AND CIT(A) AND SUBMITTED THAT THERE WAS NO RENT AGREEMENT IN THE N AME OF ASSESSEE FIRM, HENCE, DISALLOWANCE WAS CORRECTLY MADE AND UPHELD. 8. ON CAREFUL CONSIDERATION OF ABOVE AND PERUSAL OF ASSESSEES PAPER BOOK PAGES 21 TO 49, WE NOTE THAT FOR SIMILAR PREMISES, RENT WAS BEING PAID FOR ASSESSMENT YEAR 2003-04 AND 2006-07 AND IT WAS ALSO ALLOWED IN ASSESSMENT YEAR 2004-05 AND 2007-08 IN SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT; THE ASSESSEE ALSO PAID ELECTRICITY CHARGE AND THE ASSES SEE HAS ALSO UNDERTAKEN PROFESSIONAL SERVICES FOR M/S SHOPPER STOP, KOLKATA BRANCH AND M/S THOMAS COOK. THESE FACTS HAVE NOT BEEN CONTROVERTED BY TH E ASSESSING OFFICER. IT IS ALSO OBSERVED FROM ASSESSEES PAPER BOOK PAGES 30 T O 43 AND 44 TO 49 THAT THE ASSESSEE PROVIDED PROFESSIONAL SERVICES TO THESE EN TITIES/CLIENTS AND BILLS HAVE BEEN RAISED WHICH WERE ALSO OFFERED FOR TAXATION AS PROFESSIONAL RECEIPTS. IN VIEW OF AFORESAID UNCONTROVERTED FACTS, WE ARE INCL INED TO HOLD THAT OBSERVATIONS OF THE ASSESSING OFFICER IN PARA 4.2 ARE BASELESS A ND HAS NO LEGS TO STAND. MERELY BECAUSE THE RENT DEED IS NOT IN THE NAME OF THE ASSESSEE AND TENANCY STANDS IN THE NAME OF M/S MITTAL AND MEHROTRA ASSOC IATES, THE GENUINE CLAIM OF RENT PAID CANNOT BE DISMISSED. WE SET ASIDE THE OR DERS OF THE AUTHORITIES BELOW I.T.A. 5907/DEL/13 ASSESSMENT YEAR: 2010-11 5 AND THUS GROUND NO. 3 OF THE ASSESSEE IS ALLOWED AN D THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE AMOUNT OF RENT PAID RELEVANT TO KOLKATA OFFICE. GROUND NO. 4 9. APROPOS GROUND NO.4, LD. AR SUBMITTED THAT THE C IT(A) GROSSLY ERRED IN DISALLOWING THE CONFERENCE EXPENSE TO THE EXTENT OF RS.28,087 AS THESE WERE CASH PAYMENTS BUT THE SAME WAS ADJUSTMENT BY ASSESS EES CLIENT THE LANGOONA RESORTS PVT. LTD. FROM PROFESSIONAL FEES ACCOUNT WH ICH IS AMPLY CLEAR FROM COPY OF ACCOUNT WITH THE SAID CLIENT AVAILABLE AT PAGE 5 0 OF ASSESSEES PAPER BOOK. 10. LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSING OFFICER RIGHTLY MADE DISALLOWANCE U/S 40A(3) OF THE ACT AS ASSESSEE HAS INCURRED EXPENSES OTHERWISE THAN AN AC COUNT PAYEE CHEQUE/BANK DRAFT IN EXCESS OF RS.20,000/-. 11. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISS IONS AND OPERATIVE PARA 5.1 AND 5.2 OF THE ASSESSMENT ORDER, WE NOTE THAT T HE ASSESSING OFFICER MADE DISALLOWANCE OF RS.88,772 U/S 40A(3) OF THE ACT. O N FIRST APPEAL, THE CIT(A) HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICE R U/S 40A(3) OF THE ACT FOR CASH PAYMENT IN RESPECT OF PURCHASE OF RAILWAY TICK ETS FROM MUMBAI TO JAIPUR AND BACK BEING ADMISSIBLE CANNOT BE SUSTAINED. HOW EVER, THE CIT(A) DISALLOWED EXPENSE ON LANGOONA RESORT TREATING THE SAME AS PERSONAL IN NATURE. I.T.A. 5907/DEL/13 ASSESSMENT YEAR: 2010-11 6 12. AS PER SUBMISSIONS OF THE ASSESSEE DATED 26.7.2 013 RS.58142 (INCLUDING RS.28087 PERTAINING TO HOTEL EXPENSE TO LANGOONA RE SORT AT LONAVALA) ADJUSTED AGAINST PROFESSIONAL BILL OF THE ASSESSEES FIRM AC COUNT (PAGE 50 OF THE PAPER BOOK). THIS EXPENSE WAS NEVER ALLEGED BY THE ASSES SING OFFICER AS PERSONAL EXPENSES, HOWEVER, HE MADE ADDITION BASED ON THE AL LEGATION OF CASH PAYMENT IN EXCESS OF RS.20,000 U/S 40A(3) OF THE ACT. PER CON TRA, FROM STATEMENT OF ACCOUNT AND BILL RAISED BY THE LANGOONA RESORT, IT IS AMPLY CLEAR THAT THERE WAS NO CASH PAYMENT AND THE CLIENT OF THE ASSESSEE CA F IRM, M/S LANGOONA ADJUSTED THE BILL AMOUNT IN THE PROFESSIONAL FEES DUE TO THE M AND THERE WAS NO ELEMENT OF CASH PAYMENT. 13. FURTHERMORE, THE CIT(A), EXCEPT RS.28,087/-, AL LOWED ALL EXPENSES PERTAINING TO PURCHASE OF RAILWAY TICKETS BUT DISAL LOWED SAID PART OF EXPENSES BY MAKING A NEW CASE AND BY HOLDING THE SAME BEING PER SONAL IN NATURE. WE DO NOT AGREE WITH THIS CONCLUSION THAT WHILE THE EXPEN SES OF TRAVELLING ARE BEING ALLOWED AS OFFICIAL AND BUSINESS EXPENSE, THEN STAY IN HOTEL CANNOT BE TERMED AS PERSONAL AFFAIR AND EXPENSE THEREON CANNOT BE ALLEG ED AS PERSONAL NATURE AND THUS ASSESSMENT ORDER AS WELL AS FIRST APPELLATE OR DER BASED ON WRONG FACTUAL FINDING CAN BE SUSTAINED AND WE DISMISS AND DEMOLIS H THE SAME. ACCORDINGLY, GROUND NO. 4 OF THE ASSESSEE IS ALLOWED AND THE ASS ESSING OFFICER IS DIRECTED TO ALLOW ENTIRE CLAIM OF THE ASSESSEE IN THIS REGARD. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. I.T.A. 5907/DEL/13 ASSESSMENT YEAR: 2010-11 7 ORDER PRONOUNCED IN THE OPEN COURT ON 16.12.2015. SD/- SD/- ( J.S. REDDY ) ( C.M. GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 16TH DECEMBER, 2015 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR