ACIT 31(1), MUMBAI V. GUNDECHA BUILDERS, MUMBAI

ITA 6053/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9193 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 27-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATISH RAJORE
• Section: 143(3); 260A

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL G BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 6053/MUM/2017 (ASSESSMENT YEAR 2012-13 ) ACIT-31(1) ROOM NO. 111, C- 13, 1 ST FLOOR, B.K.C. BANDRA (E), MUMBAI-400051 VS. M/S GUNDECHA BUILDERS, 801, HUBTOWN SOLARIES, N.S. PHADKE MARG, OFF TELUI GALLI, NEAR ANDHERI FLYOVER, ANDHERI (E), MUMBAI-400062 . PAN: AAAFG0848E APPELLANT RESPONDE NT APPELLANT BY : SHRI SATISH RAJORE (SR. DR) RESPONDENT BY : SHRI VIMAL PUNMIYA (C.A.) DATE OF HEARING : 13.06.2019 DATE OF PRONOUNCEMEN T : 21.06.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-42 [THE LD. CIT(A)], MUMBAI DA TED 29.06.2017 FOR ASSESSMENT YEAR 2012-13. THE REVENUE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING RENTAL INCOME UNDER THE HE AD 'INCOME FROM HOUSE PROPERTY' BY FOLLOWING DECISIONS OF HON'BLE ITAT OF ASSESSEE'S OWN CASE FOR A.YS 2008-09 & 2009-10, WITHOUT CONSIDERING THE FAC T THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE HON'BLE ITAT FOR T HE AFORESAID A.YS AND APPEAL U/S 260A HAS BEEN FILED BEFORE HON'BLE HIGH COURT. 2. ' WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE ON AC COUNT OF EXCESS SALARY PAID OF RS. 12,21,267/- BY STATING THAT THE SAME EMPLOYE ES HAD BEEN WITH ASSESSEE IN ITA NO. 6053 MUM 2017-M/S GUNDECHA BUILDERS 2 THE PART ALSO, WITHOUT APPRECIATING THE MERITS OF T HE CASE THAT THE ASSESSEE FAILED TO PROVE THESE PERSONS WERE EMPLOYEE OF ASSESSEE AN D THE ASSESSEE NEITHER FURNISHED ANY APPOINTMENT LETTER NOR HAD IT FURNISH ED ADDRESS OF SAID EMPLOYED PERSONS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REGISTERED PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEVELOPMENT AND CONSTRUC TION OF RESIDENTIAL AS WELL AS COMMERCIAL PROJECTS, FILED ITS RETURN OF IN COME ON 20.09.2012 DECLARING TOTAL INCOME OF RS. 7.54 CRORE. THE RETUR N OF INCOME WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED UNDER SEC TION 143(3) OF THE ACT. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER BESIDES THE OTHER ADDITIONS /DISALLOWANCE TREATED THE INCOME FROM HOU SE PROPERTY AS INCOME FROM BUSINESS AND PROFESSION AND MADE ADHOC DISALLOWANCE OF 50% OF SALARY PAID TO THREE EMPLOYEES. ON APPEAL BEFORE TH E LD. CIT(A), THE ACTION OF ASSESSING OFFICER WAS REVERSED. THUS, AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE THI S TRIBUNAL. 3. WE HAVE HEARD THE SUBMISSION OF LD. DEPARTMENTAL R EPRESENTATIVE (DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) OF THE ASSESSEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. 4. AT THE OUTSET OF HEARING, THE LD. AR OF THE ASSESSE E SUBMITS THAT GROUND NO.1 OF THE APPEAL RAISED BY REVENUE IS COVERED IN FAVOU R OF ASSESSEE AND AGAINST THE REVENUE. THE LD. AR OF THE ASSESSEE FURTHER SUB MITS THAT FOR ASSESSMENT YEARS 2008-09, 2009-10, 2010-11 & 2011-12 SIMILAR I NCOME WAS TREATED AS INCOME FROM BUSINESS AND PROFESSION, HOWEVER, ON APPEAL BEFORE THE ITA NO. 6053 MUM 2017-M/S GUNDECHA BUILDERS 3 TRIBUNAL, THE ISSUE WAS DECIDED IN FAVOUR OF ASSESS EE. THE LD. AR OF THE ASSESSEE ALSO FILED COPY OF DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 IN ITA NO. 4475/MUM/2011, F OR ASSESSMENT YEAR 2009-10 IN ITA NO. 762/MUM/2013, FOR ASSESSMENT YEA R 2010-11 IN ITA NO. 3906/MUM/2014 AND FOR ASSESSMENT YEAR 2011-12 I N ITA NO. 6103/MUM/2014. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT SIMILAR RELIEF WAS GRANTED TO THE ASSESSEE IN APPEAL FOR AS SESSMENT YEARS 2006-07 & 2007-08 AND ON FURTHER APPEAL BY REVENUE BEFORE HON BLE JURISDICTIONAL HIGH COURT, THE APPEAL OF ASSESSEE WAS NOT ADMITTED ON T HIS GROUND, VIDE ITA NO. 21 OF 2017 DATED 11.03.2019. 5. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE AFTER GOING THROUGH THE ORDER OF TRIBUNAL FOR ASSESSMENT YEARS 2008-09, 2009-10, 201 0-11 & 2011-12 AND ORDER OF JURISDICTIONAL HIGH COURT IN APPEAL FOR AS SESSMENT YEAR 2006-07 & 2007-08 SUBMITS THAT HE RELIED UPON THE ORDER OF AS SESSING OFFICER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. WE HAVE NO TED THAT IN THE RETURN OF INCOME, THE ASSESSEE HAS SHOWN LEASE RENTAL INCOME OF RS. 1.87 CRORE AND CAR PARKING CHARGES OF RS. 3.18 LAKHS AND OFFERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSING OFFICER TREATED THE SAID RECEIPT AS INCOME FROM BUSINESS & PROFESSION. ON APPEAL BEFORE THE L D. CIT(A), THE LD. CIT(A) BY FOLLOWING THE DECISION OF TRIBUNAL IN ASS ESSMENT YEARS 2009-10, ITA NO. 6053 MUM 2017-M/S GUNDECHA BUILDERS 4 2010-11 AND DIRECTED THE ASSESSING OFFICER TO TREAT THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 7. WE HAVE NOTE THAT THE CO-ORDINATE BENCH OF TRIBUNAL IN APPEAL FOR ASSESSMENT YEAR 2008-0-9 IN ITA NO. 4475/MUM/2011 D ATED 09.02.2014 BY FOLLOWING THE ORDER OF TRIBUNAL IN EARLIER YEARS IN ASSESSEE/S OWN CASE FOR ASSESSMENT YEARS 2005-06, 2006-07 & 2007-08 ALLOWED THE SIMILAR GROUND OF APPEAL IN FAVOUR OF ASSESSEE. FURTHER IN APPEAL FOR ASSESSMENT YEAR 2009- 10 SIMILAR RELIEF WAS GRANTED TO THE ASSESSEE AND I N APPEAL FOR ASSESSMENT YEAR 2009-10 AGAIN IN ASSESSMENT YEAR 2010-11 & 201 1-12. THEREFORE, CONSIDERING THE CONSISTENT VIEW IF THE COORDINATE B ENCH OF TRIBUNAL, WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED B Y REVENUE. 8. IN THE RESULT, GROUND NO.1 OF THE APPEAL IS DISMISS ED. 9. GROUND NO.2 RELATES TO ADHOC DISALLOWANCE OF SALARY OF RS. 12,21,267/-. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSES SING OFFICER. THE LD. DR FURTHER SUBMITS THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 24,42,535/- ON ACCOUNT OF SALARY PAID TO EMPLOYEES NAMELY MAHENDRA K. JAIN, GOPAL SHARMA AND LALIT V. JAIN. THE ASSESSING OFFICER HAS NOT CARRIED OUT ANY PROJECT FROM LAST SEVERAL YEARS. THEREFORE, THE ASS ESSING OFFICER AFTER ISSUING SHOW-CAUSE NOTICE TO SUBSTANTIATE THE EXPENSES OF S ALARY PAID TO THE EMPLOYEE WHEN THE ASSESSEE HAS NOT UNDER TAKEN ANY WORK. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY OF ASSESSEE RIGHTLY CONCLUDED THAT ASSESSEE FAILED TO PROVE THAT THESE PERSONS WERE IN THE EMPLOYMENT OF ASSESSEE. THE ASSESSEE ITA NO. 6053 MUM 2017-M/S GUNDECHA BUILDERS 5 FAILED TO PROVE THEIR EMPLOYMENT WITH THE ASSESSEE. THE ASSESSING OFFICER MADE A REASONABLE DISALLOWANCE. 10. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUBMI TS THAT ASSESSING OFFICER MADE ADDITION ON MERE ASSUMPTION AND PRESUMPTION BA SED ALL THREE EMPLOYEES NAMELY MAHENDRA K. JAIN, GOPAL SHARMA AND LALIT V JAIN WERE EMPLOYEE IN PRECEDING YEARS. THE ASSESSING OFFICER HAS NOT DISALLOWED ANY SUCH EXPENDITURE ON ACCOUNT OF SALARY PAID TO THOSE EMPLOYEES. THE OBSERVATION OF ASSESSING OFFICER THAT THERE WAS NO INCOME FROM THE SALES OF HOUSING PROJECT AND HENCE, THESE EXPENSES NEITHER W ERE NOR REQUIRED. AS A MATTER OF FACT, THE OBSERVATION OF ASSESSING OFFICE R IS WRONG. THE ASSESSEE HAS SOLD THE FLATS EARNED INCOME OF RS. 2.04 CRORE. THERE IS NO DISPUTE THAT ASSESSEE PAID SALARY FOR REGULAR COURSE OF BUSINESS . IT IS NOT THE JURISDICTION, THE ASSESSING OFFICER TO DECIDE THE FACT WHETHER TH E ASSESSEE-FIRM SHOULD INCUR THE EXPENSES OR NOT FOR CARRYING ITS BUSINESS . IT IS THE DISCRETION OF BUSINESSMEN AS TO WHETHER ANY EXPENDITURE SHOULD BE INCURRED ON THE COST OF EMPLOYEE OR NOT. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N CASE OF HERO CYCLES PVT. LTD. [2015] 379 ITR 347 (SC)], WHEREIN IT WAS HELD THAT ONCE IT IS ESTABLISHED THAT THERE IS NEXUS BETWEEN THE EXPENDI TURE AND PURPOSE OF BUSINESS, REVENUE CANNOT JUSTIFIABLE CLAIM TO PUT I TSELF IN THE ARM CHAIN OF BUSINESSMEN AND TO ASSUME THE ROLE OF BOARD OF DIRE CTOR TO DECIDE HOW MUCH REASONABLE EXPENDITURE BE MADE. THE LD. AR OF THE A SSESSEE FURTHER SUBMITS ITA NO. 6053 MUM 2017-M/S GUNDECHA BUILDERS 6 THAT THERE MUST BE ADVERSE MATERIAL ON RECORD TO DI SPUTE THE EXPENSES. THE ADDITION CANNOT BE MADE ON THE BASIS OF PRESUMPTION AND ASSUMPTION. THE ASSESSING OFFICER DISALLOWED 50% OF SALARY. HOWEVER , THE BALANCE SALARY WAS NOT DISPUTED. THE DISALLOWANCE OF 50% OF SALARY WAS NOT BASED ON ANY SCIENTIFIC METHOD OR BY SPECIFYING A DEFECT. IN SU PPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE FURTHER RELIED UPON THE DECI SION OF CIT VS. ROMAN & CO. [1986] 67 ITR 11 (SC), CIT VS. CALCUTTA DISCOUN T CO. LTD. [1973] 91 ITR 8(SC), OMAR SALAY MOHAMED SAIT VS. CIT [1995] 3 7 IR 151 (SC), DHIRAJLAL GIRDHARILAL VS. CIT [226 ITR 734 (SC)], D R. ANITA SAHAI VS. DIT [266 ITR 597 (ALL)] AND MODI CREATIONS PVT. LTD. VS . ITO [2011] 13 TAXMANN.COM 114 (DELHI)]. THE LD. AR ALSO FURNISHED THE COPY OF FROM-16 OF MAHENDRA K. JAIN, GOPAL SHARMA AND LALIT V JAIN ALO NG WITH SLIP OF CONTRIBUTION OF EMPLOYMENT PROVIDENT FUND (EPF). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO DELIBERAT ED ON VARIOUS CASE LAWS RELIED BY LOWER AUTHORITIES AND LD. REPRESENTATIVE OF THE PARTIES. THE ASSESSING OFFICER MADE ADDITION ON TAKING VIEW THAT ASSESSEE HAS NOT FURNISHED APPOINTMENT LETTER OR ADDRESS OF THE EMPLOYEE. THE ASSESSING OFFICER CONCLUDED THAT THE INCOME OF ASSESSEE-FIRM MAINLY F ROM INCOME FROM HOUSE PROPERTY AND INTEREST AND HAS SOLD 1-2 PROPERTY DUR ING THE YEAR. KEEPING IN VIEW THE ACTIVITIES OF THE ASSESSEE, THE ASSESSING OFFICER TREATED THE SALARY OF THREE EMPLOYEES AS HUGE SALARY AND DISALLOWED 50% ( I.E. 50% OF RS. ITA NO. 6053 MUM 2017-M/S GUNDECHA BUILDERS 7 24,42,535/-). THE LD. CIT(A) DELETED THE ADDITION H OLDING THAT THE ASSESSING OFFICER MADE ADDITION ON ADHOC BASIS. THE LD. CIT(A ) OBSERVED THAT THE SAME EMPLOYEES WERE WORKING WITH THE ASSESSEE IN PAST YE ARS AND THEIR SALARY HAVE NOT BEEN DISPUTED BY ASSESSING OFFICER. THE ASSESSE ES OWN CERTAIN LITIGATED PROPERTIES IN ITS WORK-IN-PROGRESS WHICH ALSO INFER S THAT ASSESSEE WOULD NEED A MANAGERIAL LEVEL OF EMPLOYEES AND THAT ASSESSING OFFICER CANNOT STEP INTO SHOES OF THE ASSESSEE AND DELETED THE DISALLOWANCE. 12. WE HAVE NOTED THAT THE LD AR FOR THE ASSESSEE CLAIM ED THAT ALL THREE PERSONS WHOSE SALARY PAYMENT WAS DISPUTED BY ASSESSING OFFI CER WERE IN THE EMPLOYMENT OF ASSESSEE DURING THE ASSESSMENT YEARS 2010-11, 2011-12 & 2012-13. THIS FACT IS NOT DISPUTED BY LD. DR FOR TH E REVENUE. THE ASSESSEE PROVIDED THE NAME, DESIGNATION AND PAN OF ALL THREE EMPLOYEES BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT BR OUGHT ANY ADVERSE MATERIAL ON RECORD, EXCEPT HOLDING THAT THE ASSESSEE FAILED THE PROVE THE EMPLOYMENT. THE LD AR FOR THE ASSESSEE ALSO FURNISHED THE FORM- 16 OF MAHENDRA K. JAIN, GOPAL SHARMA AND LALIT V. JAIN ALONG WITH COPY OF E PF CONTRIBUTION. MOREOVER, THE ASSESSING OFFICER HAS ADMITTED THE EM PLOYMENT OF ALL THREE EMPLOYEES BY ALLOWING 50% OF THE SALARY. THE DISALL OWANCE OF SALARY IS NOT BASED ON ANY SCIENTIFIC METHOD. ONCE THE EMPLOYMENT ADMITTED BY ALLOWING 50% SALARY, THE ASSESSING OFFICER HAS NO RIGHT TO D ISPUTE THE QUANTUM OF SALARY IN ABSENCE OF ANY MATERIAL OR EVIDENCE ON RE CORD. THE HONBLE SUPREME COURT IN HERO CYCLES PVT. LTD. (SUPRA) HELD THAT ONCE IT IS ITA NO. 6053 MUM 2017-M/S GUNDECHA BUILDERS 8 ESTABLISHED THAT THERE IS NEXUS BETWEEN THE EXPENDI TURE AND PURPOSE OF BUSINESS, THE REVENUE CANNOT PUT ITSELF IN THE ARM CHAIR OF BUSINESSMEN OR IN A POSITION OF BOARD OF DIRECTOR TO ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMS TANCES OF THE CASE. 13. IN OUR VIEW, THE ACTION OF ASSESSING OFFICER IN ABS ENCE OF ANY MATERIAL WAS NOT JUSTIFIED TO DISALLOW THE 50% OF THE WAGES, THE REFORE, WE AFFIRM THE ACTION OF LD. CIT(A). 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21/06/2019. SD/- SD/- M. BALAGANESH, PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 21.06.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI