Mr Harsh Singh, New Delhi V. ITO, New Delhi

ITA 6/DEL/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5600 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-03-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 01-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Business income; Depreciation; Salary income
• Section: 37(1)

Judgement Text

ITA NO. 06/DEL/2010 A.Y. 2006-07 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 06/DEL/2010 A.Y. : 2006-07 MR. HARSH SINGH VS. INCOME TAX OFFICER, 12, ARD COMPLEX, WARD NO. 9(3), RK PURAM, SECTOR-13, NEW DELHI NEW DELHI [PAN : ABJPS5578H] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ARUN KISHORE, FCA DEPARTMENT BY : SMT. MONA MOHANTY, SR. DR O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. CIT(A) DATED 24.7.2009 PERTAINING TO ASSESS MENT YEAR 2006-07. 2. THE FIRST GROUND RAISED IS THAT LD. CIT(A) ERRE D IN CONFIRMING THE DISALLOWANCE OF RS. 180108/- CLAIMED AS EXPENS ES GENUINELY INCURRED FOR THE PURPOSES OF EARNING OF INCOME UNDE R THE HEAD BUSINESS OR PROFESSION AS COVERED U/S 37(1) OF THE ACT. 2.1 THE ASSESSEE IN THIS CASE IS AN INDIVIDUAL. DURING THE YEAR UNDER CONSIDERATION ASSESSEE DERIVED INCOME FROM SA LARY FROM ITA NO. 06/DEL/2010 A.Y. 2006-07 2 PARTNERSHIP FIRM AS WELL AS PRIVATE LIMITED COMPAN Y AND ALSO INTEREST FROM FIRM. AO OBSERVED THAT ASSESSEE IS A PARTNER IN M/S FRONTLINE ASSOCIATES HAVING 50% SHARES IN THE PROF IT AND HAD ALSO RECEIVED SALARY AMOUNTING TO RS. 9,00,000/-. HOWEV ER, THE ASSESSEE HAS OFFERED ONLY RS. 6,65,165/- OF THE SAL ARY AS TAXABLE. ASSESSEE CLAIMED THAT SINCE THE SALARY INCOME REC EIVED FROM PARTNERSHIP FIRM WAS TAXABLE AS BUSINESS INCOME, TH E ASSESSEE WAS ENTITLED TO ADJUST THE EXPENSES TO EARN THAT INCOME . AO HELD THAT ASSESSEE IS PARTNER IN TWO FIRMS AND GETTING SHARE IN THE PROFITS OF THE FIRMS. ALL EXPENSES HAVE BEEN CLAIMED OUT OF IN COME OF THE FIRMS ITSELF. MOREOVER THREE IS NO INCOME FROM PRO PRIETY CONCERN OF THE ASSESSEE. HENCE HE HELD THAT THERE IS NO QUEST ION OF CLAIMING ANY OTHER EXPENSES WHATSOEVER AGAINST THE INTEREST INCOME AND SHARE IN PROFIT RECEIVED FROM PARTNERSHIP FIRM. HEN CE HE DISALLOWED THE CLAIM OF RS. 180108/- MADE BY THE ASSESSEE. 2.2 UPON ASSESSEES APPEAL LD. CIT(A) AFFIRMED THE AOS ACTION. 2.3 BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE FIRM IN WHICH THE ASSESSEE IS A PARTNER IN ONE OF THE FOUR ACCREDITED TRANSPORTERS OF TATA STEELS, JAMSHEDPUR. HE FURTH ER CLAIMED THAT UNDER THE PARTNERSHIP THE ASSESSEE HAS TO INCUR VAR IOUS EXPENSES FOR VISITING SURROUNDING AREAS AND INCUR LOCAL E XPENSES WHICH ARE FOR THE PURPOSE OF PARTNERSHIP BUSINESS. HENCE HE CLAIMED THAT ASSESSEES INCOME FROM SALARY AND INTEREST FROM PAR TNERSHIP FIRM BEING BUSINESS INCOME, THE ASSESSEE IS ENTITLED TO CLAIM EXPENDITURE IN THIS REGARD TO EARN THE SAID INCOME. LD. COUNSEL ITA NO. 06/DEL/2010 A.Y. 2006-07 3 SUBMITTED THAT EXPENSES INCURRED FOR PROMOTING THE BUSINESS OF THE FIRM AND FOR MAXIMIZING ITS PROFITS, CAN BE CLAIMED US/ 37(1) EVEN THOUGH THERE WAS NO COMPULSION ON THE ASSESSEE TO I NCUR SUCH EXPENDITURE. HE FURTHER CLAIMED THAT IN THE CASE OF JK COMMERCIAL CORP. LTD. VS. CIT (1969) 72 ITR 296 (ALL.), IT WAS HELD THAT EVEN IF THE ASSESSEE INCURRED EXPENDITURE VOLUNTARILY FOR THE PURPOSE OF HIS BUSINESS, IT WOULD BE ALLOWABLE AS DEDUCTION OU T OF BUSINESS INCOME. 2.4 AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. 2.5 LD. DR ON THE OTHER HAND SUBMITTED THAT ASSESSE E HAS ITSELF CLAIMED THAT THIS EXPENDITURE WERE INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE PARTNERSHIP FIRM. THERE IS NO MENT ION IN THE PARTNERSHIP DEED THAT ASSESSEE WILL INCUR THESE EX PENSES PERSONALLY. UNDER THE CIRCUMSTANCES, SHE SUBMITTE D THAT THERE WAS NO CONNECTION WITH THE EXPENSES TO THE ASSESSEE S INCOME. HENCE, HE CLAIMED THAT LOWER AUTHORITIES HAVE RIGHT LY DISALLOWED THE EXPENDITURE. 2.6 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED TH E RECORDS. AS PER THE ADMITTED FACTS OF THE CASE THE ASSESSEE HAS EARNED SALARY AND INTEREST INCOME FROM PARTNERSHIP FIRM WH ICH ARE ASSESSABLE AS BUSINESS INCOME. IT IS A SETTLED LA W THAT AGAINST THE INCOME EARNED, THE EXPENDITURE WHICH IS SPENT TO EA RN THE SAID INCOME OR IN RELATION TO THE SAID INCOME IS ALLOWAB LE. LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT IT IS ADMITTED THAT EXPENDITURE CLAIMED BY THE ASSESSEE WERE MEANT FOR FURTHERANCE OF THE ITA NO. 06/DEL/2010 A.Y. 2006-07 4 ASSESSEES PARTNERSHIP BUSINESS. HE WAS NOT IN A POSITION TO SHOW THAT THERE WAS ANY SUCH AGREED TERM IN THE PARTNE RSHIP DEED. UNDER THE CIRCUMSTANCES THE EXPENDITURE CLAIMED BY THE ASSESSEE WHICH INCLUDE ELECTRICITY, WATER CHARGES, SALARY, M EMBERSHIP FEES, INTEREST ON CAR LOAN, BANK CHARGES, COMMISSION /PRO FESSIONAL CHARGES ARE CLEARLY NOT ALLOWABLE, AS NO NEXUS HA S BEEN ESTABLISHED BETWEEN THIS EXPENDITURE AND EARNING OF THAT BUSINESS INCOME BY WAY OF SALARY AND INTEREST FROM PARTNER SHIP FIRM. HOWEVER, AS REGARDS THE CLAIM OF VEHICLE MAINTENA NCE AND DEPRECIATION, IN OUR CONSIDERED OPINION A PART THER EOF CAN BE CONSIDERED TO HAVE SOME NEXUS WITH THE EARNING OF T HE AFORESAID INCOME. THE ASSESSEE WILL BE ATLEAST EXPECTED TO ATTEND THE OFFICE OF THE PARTNERSHIP FIRM TO DISCHARGE HIS DUTIES AS PARTNER OF THE FIRM AND HENCE WILL INEVITABLY INCUR EXPENDITURE ON VEHICLE RUNNING AND DEPRECATION. THIS IS OF COURSE SUBJECT TO THE EXAMINATION AS TO WHETHER THIS EXPENDITURE HAVE NOT ALREADY BEEN CLAI MED IN THE HANDS OF THE PARTNERSHIP FIRM. THE TOTAL EXPENDITUR E IN THIS REGARD IS AS FOLLOWS AS PER THE ASSESSEES SUBMISSIONS. V EHICLE MAINTENANCE RS.95266/- AND DEPRECIATION OF RS. 6907 26/-. AGAINST WHICH THE ASSESSEE HAS CLAIMED 47633/- AND RS. 3953 6/- RESPECTIVELY. IN OUR CONSIDERED OPINION, THE ASSES SEE SHOULD BE ALLOWED 50% OF THE ABOVE EXPENDITURE PROVIDED THEY HAD NOT BEEN CLAIMED IN THE HANDS OF THE FIRM IN WHICH THE ASSE SSEE IS A PARTNER. ACCORDINGLY, WE DIRECT THE AO TO EXAMINE THIS ASPEC T AND TO ALLOW 50% OF VEHICLE MAINTENANCE AND DEPRECIATION AS MENT IONED ABOVE ITA NO. 06/DEL/2010 A.Y. 2006-07 5 AFTER THE NECESSARY EXAMINATION. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BE ING HEARD. 3. THE NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ERR ED IN CONFIRMING THE DISALLOWANCE OF RS. 2,00,160/- CLAIMED AS DEDUC TION TOWARDS BROKERAGE PAYABLE OUT OF INCOME UNDER THE HEAD CAP ITAL GAINS. 3.1 BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE SHALL NOT BE PRESSING THIS GROUND. HENCE THIS GROUND IS D ISMISSED AS NOT PRESSED. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/03/2010. SD/- SD/- [RAJPAL YADAV] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 05/03/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES