CHEMET, MUMBAI V. ADDL CIT RG 19(2), MUMBAI

ITA 5938/MUM/2010

• Counselvise Citation: 593819914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 28-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: H S PARIKH
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C,MUMBAI BEFORE SHRI D. MANMOHAN (VICE-PRESIDENT) & SHRI R.S. SYAL (ACCOUNTANT MEMBER) I.T.A.NO.5938/MUM/2010 (A.Y. 2006-07)) M/S. CHEMET, SPAN CENTRE, 2 ND FLOOR, 556, RAMKRISHNA MISSION MARG, SANTACRUZ (WEST), MUMBAI-400054. PAN: AAAFC0996P VS. ADDL. COMMR. OF INCOME-TAX, RANGE-19(2), MUMBAI. APPELLANT RESPONDENT APPELLANT BY SHRI H.S. PARIKH. RESPONDENT BY SHRI J ITENDRA YADAV. DATE OF HEARING 24 - 10 - 2011 DATE OF PRONOUNCEMENT 28 - 10 - 2011 O R D E R PER R.S. SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 21-05-2010 IN RELATION TO ASSESSMENT YEAR 2006-0 7. 2. THE FIRST GROUND IS ABOUT THE CONFIRMATION OF DI SALLOWANCE OF RS.2,18,868/- MADE BY THE AO ON ACCOUNT OF MOTOR CAR EXPENSES AND DEPRECIATION ON MOTOR CAR. BRIEFLY STATED, THE FACTS OF THE GROUND ARE TH AT THE AO OBSERVED THAT THE MOTOR CAR WAS NOT USED BY THE PARTNERS FOR THE BUSI NESS PURPOSE BUT ALSO FOR THE PERSONAL USE. KEEPING INTO CONSIDERATION THE MANDAT E OF SEC. 38(2), HE ITA NO. 5938/M/2010 M/S. CHEMET 2 DISALLOWED 1/5 TH OF THE MOTOR CAR EXPENSES AND DEPRECIATION AFTER A LLOWING CREDIT FOR THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE OF RS.2,14,385/- TOWARDS 1/5 TH EXPENSES OF MUMBAI HEAD OFFICE. THIS RESULTED INTO FURTHER DISALLOWANCE OF RS.2,18,868/-. NO RELIEF WAS ALLOWED IN THE FIRST A PPEAL. 3. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT THE MOTOR CAR WAS ADMITT EDLY NOT USED EXCLUSIVELY BY THE FIRM FOR ITS BUSINESS PURPOSES. WHEN MOTOR CAR IS ALSO USED PERSONALLY BY THE PARTNERS OF THE FIRM, THE EXPENDITURE AND DEPRECIAT ION SO RELATABLE TO PERSONAL USER CANNOT BE ALLOWED AS DEDUCTION IN COMPUTING TH E INCOME OF THE FIRM. TAKING INTO CONSIDERATION THE OVERALL CONSPECTUS OF THE C ASE, WE ARE SATISFIED THAT THE THE LD. CIT(A) WAS JUSTIFIED IN SUSTAINING THE DISA LLOWANCE AT 20% OF TOTAL MOTOR CAR EXPENSES INCLUDING DEPRECIATION AFTER GIVING CR EDIT FOR THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEEE AT 20% OF MOTOR CAR EXPENSES AT MUMBAI HEAD OFFICE. WE, THEREFORE, UPHOLD THE IMPUGNED ORD ER ON THIS ISSUE. 4. THE SECOND GROUND IS ABOUT CONFIRMATION OF DISAL LOWANCE OF RS.1,57,233/- ON ACCOUNT OF VARIOUS EXPENSES INCURRED IN CASH. T HE FACTS APROPOS THIS GROUND ARE THAT THE AO MADE DISALLOWANCE OF RS.3,14,467/- AT THE RATE OF 10% OF TOTAL MISCELLANEOUS EXPENSES FOR THE REASON THAT MOST OF THE EXPENSES WERE INCURRED FROM PETTY CASH AND WERE SUPPORTED BY SELF-MADE INT ERNAL VOUCHERS. THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO 5% , THEREBY ALLOWING RELIEF OF RS.1,57,233/. THERE IS NOTHING TO SHOW THAT THE REV ENUE IS ALSO IN APPEAL AGAINST THE RELIEF ALLOWED IN THE FIRST APPEAL. THE ASSESSE E IS AGGRIEVED BY THE SUSTENANCE OF THE PARTIAL DISALLOWANCE. ITA NO. 5938/M/2010 M/S. CHEMET 3 5. HAVING HEARD BOTH THE SIDES ON THE ISSUE AND PER USED THE RELEVANT MATERIAL ON RECORD, IT IS FOUND AS AN UNDISPUTED FA CT THAT THE DISALLOWANCE WAS MADE BY THE AO FOR THE REASON THAT THE EXPENSES WER E NOT PROPERLY SUBSTANTIATED. THIS FINDING OF THE AUTHORITIES BELO W HAS REMAINED UNCONTROVERTED BEFORE US. IN OUR CONSIDERED OPINION, THE LD. CIT(A ) WAS JUSTIFIED IN REDUCING THE DISALLOWANCE TO 5%. WE, THEREFORE, UPHOLD THE IMPUG NED ORDER ON THIS ISSUE. 6. THE LAST GROUND IS AGAINST THE CONFIRMATION OF D ISALLOWANCE OF REMUNERATION PAID TO PARTNERS U/S.40(B) OF THE ACT. THE FACTS OF THIS GROUND ARE THAT THE AO, WHILE CALCULATING REMUNERATION ALLOWAB LE TO PARTNERS, EXCLUDED ITEMS LIKE INTEREST INCOME, RENT INCOME AND MISC. INCOME FROM THE CALCULATION OF BOOK PROFITS. THIS RESULTED INTO DISALLOWANCE OF REMUNER ATION TO PARTNERS U/S.40(B) AT RS.9,27,812/-. THE LD. CIT(A) UPHELD THE ASSESSMENT ORDER ON THIS ISSUE AND SIMULTANEOUSLY DIRECTED THE AO TO APPLY THE PROVISI ONS OF SEC. 155(1A). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS SEEN THAT THE NATURE OF ITEMS OF I NCOME LIKE INTEREST INCOME, RENT INCOME AND MISC. INCOME, HAS NOT BEEN DISPUTED BY THE ASSESSEE AS NOT COVERED UNDER CHAPTER IV-D. BOOK PROFIT U/S.40(B) HAS BEE N DEFINED IN EXPLANATION 3 TO MEAN NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCO UNT FOR THE RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER I V-D AS INCREASED BY THE AGGREGATE AMOUNT OF REMUNERATION ETC. THE ALLOWABLE AMOUNT OF REMUNERATION TO PARTNERS IS GOVERNED BY THE LIMITS GIVEN IN SEC. 40 (B)(V). THE AMOUNT ALLOWABLE AS REMUNERATION TO PARTNERS HAS A DIRECT LINK WITH THE BOOK PROFIT AS DEFINED IN EXPLANATION 3 SINCE IT CONSTITUTES THE BASIS FOR AL LOWING REMUNERATION TO PARTNERS. AS THIS EXPLANATION RESTRICTS THE SCOPE OF `BOOK PR OFIT TO THE NET PROFIT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, NATURALLY THE INCOMES FALLING ITA NO. 5938/M/2010 M/S. CHEMET 4 UNDER OTHER HEADS OF INCOME ARE LIABLE TO BE EXCLUD ED. IN OUR CONSIDERED OPINION, THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE EXCLU SION OF INCOMES NOT FALLING UNDER CHAPTER IV-D FROM THE NET PROFIT FOR THE PURP OSE OF COMPUTING `BOOK- PROFIT UNDER EXPLANATION 3. IT IS FURTHER SEEN TH AT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DIRECTING THE AO TO APPLY THE PROVISIO NS OF SEC. 155(1A), AS PER WHICH ANY REMUNERATION TO PARTNER, WHICH IS NOT DEDUCTIBL E U/S.40(B), SHALL BE ACCORDINGLY REDUCED FROM THE ASSESSMENT OF THE PART NER WITH A VIEW TO ADJUST THE INCOME OF THE PARTNER ACCORDINGLY. WE, THEREFORE, D O NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER ON THIS SCORE. TH IS GROUND IS NOT ACCEPTED. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THE 28TH DAY OF OCTOBER, 2011. SD/- SD/- (D. MANMOHAN) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 28TH OCTOBER , 2011. NG: COPY TO : 1. ASSESSEE. 2. DEPARTMENT. 3 CIT(A)-30,MUMBAI. 4 CIT,CITY-19,MUMBAI. 5.DR,C BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA NO. 5938/M/2010 M/S. CHEMET 5 DETAILS DA TE INITIALS DESIGN ATION 1 . DRAFT DICTATED ON 24 - 1 0 - 2011 SR.PS/ 2 . DRAFT PLACED BEFORE AUTHOR 24 - 1 0 - 2011 SR.PS/ 3 . DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 . DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 . DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 . DATE O N WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER &