M/s. Gagrat & Co., Supreme Court Advocates, New Delhi V. DCIT, New Delhi

ITA 6067/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7111 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 08-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN
• Assessee Lawyers: VIKA S MADAN
• Keywords: Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C : NEW DELHI BEFORE SH. H.S. SIDHU , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO . 6067/DEL/2013 ASSESSMENT YEAR: 2010 - 11 M/S. G AGRAT & CO., SUPREME COURT ADVOCATES, PLAZA CINEMA BUILDIN G, CONNAUGHT CIRCU S, NEW DELHI (PAN: AAAFG1726H ) VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 37(1), NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. VIKA S MADAN, ADV. RESPONDENT BY SH. T. VASANTHAN, SR.DR DATE OF HEARING 16.12.2015 DATE OF PRONOUNCEMENT 08.02.2016 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 16.08.2013 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XXVIII, NEW DELHI, PASSED FOR THE ASSESSMENT YEAR 2010 - 11. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEAL) - XVIII, NEW DELHI IS BAD IN FACT AND IN LAW. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX(A) HAS NOT BEEN PLEASED TO APPRECIATE THE EVIDENCE AND OTHER MATERIAL ON RECORD PROPERTLY. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 6 LACS MADE BY THE ASSESSING OFFICER 2 ITA NO. 606 7 /DEL/2013, AY: 2010 - 11 DISALLOWING THE EXPENSES PAID TO MR. U.A. RANA (RESIDE NT PARTNER) AS REIMBURSEMENT OF RS. 4,00,000/ - PER ANNUM FOR RUNNING AND MAINTAINING THE MOTOR CAR AND RS. 1,20,000/ - PER ANNUM GIVEN FOR MAINTENANCE OF CONSULTATION ROOM AT HIS RESIDENCE AND RS. 80,000/ - PER ANNUM AS ENTERTAINMENT EXPENSES, FOR ENTERTAINM ENT OF CLIENTS AT THE CONSULTATION ROOM ETC., ACCORDING TO THE RESTRICTIONS AS PER CLAUSE 10.1 OF PARTNERSHIP DEED DATED 1 ST JULY 2008. HENCE, THE ADDITION MADE IS ILLEGAL, ARBITRARY, UNJUSTIFIED AND AGAINST THE FACTS AND BAD IN LAW, MAY KINDLY BE DELETED. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD/AMEND/WITHDRAW OR MODIFY THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE, A PARTNERSHIP FIRM OF ADVOCATES, FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING INCOME OF RS. 2,87,75,710/ - ON 13.10.2010. THE CASE WAS SELECTED FOR S CRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ). IN THE COURSE OF SCRUTINY PROCEEDINGS, THE LD. ASSESSING OFFICER OBSERVED FROM THE PROFIT AND LOSS ACCOUNT THAT THE EXPENSES OF RS. 5,20 ,000/ - ON PARTNER CONVEYANCE & CAR MAINTENANCE AND UPKEEP OF CONSULTATION ROOM AT THE RESIDENCE OF THE RESIDENT PARTNERS , AND RS. 80,000/ - TOWARDS ENTERTAINING THE CLIENTS AT THE RESIDENTS WERE CLAIMED . THE ASSESSEE SUBMITTED THAT THE EXPENSES OF RS. 4,00,000/ - PER ANNUM WERE TOWARDS CONVEYANCE , INCLUDING MAINT ENANCE, UPKEEP AND USE OF MOTOR CAR AND RS. 1,20,000/ - PER ANNUM FOR ESTABLISHMENT, MAINTENANCE AND UPKEEP OF CONSULTATION ROOM AND LIBR ARY AT THE RESIDENCE OF THE RESIDENT PARTNERS. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE FIRM DID NOT OWN ANY CAR AND THE EXPENSES OF CONVEYANCE WAS RESTRICTED TO RS. 4,00,000/ - AS PER CLAUSE 10.1 OF THE PARTNERSHIP DEED . I N RESPECT OF RS . 80,000/ - PER ANNUM TOWARDS ENTERTAINMENT TO PARTNERS, T HE ASSESSEE SUBMITTED THAT THE EXPENSES WERE TOWARDS ENTERTAINING THE CLIENTS AT THE CONSULTATION ROOM 3 ITA NO. 606 7 /DEL/2013, AY: 2010 - 11 MAINTAINED AT THE RESIDENCE OF THE RESIDENT PARTNERS FOR WORKING LATE HOURS AND ON SUNDAY AND HO LIDAYS AND THE AMOUNT WAS RESTRICTED TO RS. 80,000/ - AS PER CLAUSE 10.1 OF THE PARTNERSHIP DEED. THE ASSESSEE ALSO CLAIMED TO PRODUCE VOUCHERS FOR THE SAID EXPENSES, HOWEVER, THE LD. ASSESSING OFFICER NOTICED THAT THE VOUCHERS WERE IN RESPECT OF MONTHLY RE IMB URSEMENT OF THE EXPENSES AND NO ACTUAL BILLS/INVOICE S WERE ATTACHED WITH THOSE VOUCHERS. ACCORDING TO THE LD. ASSESSING OFFICER, THOSE PAYMENTS WERE MADE TO THE RESIDENT PARTNER , MR. U.A. RANA, HOWEVER , THERE WAS NO ACTUAL EXPENDITURE MADE BY THE ASSESSEE FIRM. HE FURTHER OBSERVED THAT THE PAYMENTS WERE MADE ONLY TO ONE RESIDENT PARTNER AND ONLY ON SALARY AND INTEREST PAID TO THE PARTNER WAS ELIGIBLE FOR DEDUCTION SUBJECT TO THE RESTRICTIONS CONTAINED IN SECTION 40B OF THE ACT. IN VIEW OF THE OBSERVATION S , THE LD. ASSESSING OFFICER DISALLOWED THE EXPENSES OF RS. 6,00,000/ - AND ADDED TO THE INCOME OF THE ASSESSEE. THE OTHER ADDITIONS WERE ALSO MADE BY THE LD. ASSESSING OFFICER WHICH ARE NOT IN DISPUTE BEFORE US IN PRESENT APP EAL . AGGRIEVED BY THE ABOVE ADDITIONS , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHO CONFIRMED THE SAID ADDITIONS OF RS. 5,20,000/ - TOWARDS PARTNERS CONVEYANCE AND OFFICE MAINTENANCE EXPENSES AND R S. 8 0 ,000/ - TOWARDS ENTERTAINMENT EXPENSES. AGGRIEVED, THE ASSESSEE IS BEFORE US. 3. GROUND NOS. 1 AND 4 ARE GENERAL IN NATURE, HENCE, NOT REQUIRED TO ADJUDICATE UPON. 4 ITA NO. 606 7 /DEL/2013, AY: 2010 - 11 4. IN GROUND NOS. 2 AND 3, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 6,00,000/ - TOWARDS CO NVEYANCE EXPENSES TO PARTNERS, OFFICE MAINTENANCE AND ENTERTAINMENT TO CLIENTS. 4. THE L EARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ADDRESSING THE BACKGROUND OF THE CASE , SUBMITTED THAT THE SAID AMOUNT OF RS. 6,00,000/ - WAS PAID TO THE RESIDENT PARTN ER, MR. U.A. RANA IN ACCORDANCE WITH THE PARTNERSHIP DEED. THE LEARNED AUTHORIZED REPRESENTATIVE REFERRED TO PAGE NOS. 19, 35 AND 40 OF THE PAPER BOOK AND SUBMITTED THAT THE EXPENSES WERE ACTUALLY INCURRED BY MR. U.A. RANA ON BEHAL F OF THE ASSESSEE FIRM AS APPEARING IN THE LEDGER ACCOUNTS OF MR. U.A. RANA. HE FURTHER SUBMITTED THAT THE FIRM DOES NOT OWN ANY CAR AND, THEREFOR E, THE CAR OWNED BY THE PARTNER WAS UTILIZED BY THE FIRM. HE FURTHER SUBMITTED THAT THE SAID EXPENSES HAVE BEEN ALLOWED IN THE EARLIER YEARS AND, THEREFORE, THOUGH THE RES JUDICATA IS NOT APPLICABLE TO INCOME - TAX PROCEEDINGS , B UT IN VIEW OF THE CONSISTENCY PRINCIPLE , THE EXPENSES SHOULD HAVE BEEN ALLOWED. 5. ON THE OTHER HAND, LEARNED SR. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER S OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD, INCLUDING THE ORDER S OF THE LOWER AUTHORITIES AND THE PAPER BOOK FILED BY THE ASSESSEE. THE ASSESSEE HAS CLAIMED EXPENSES OF RS. 4,00,000/ - FOR THE AMOU NT REIMBURSED TO THE RESIDENT PARTNER SH. U.A. RANA FOR THE USE AND MAINTENANCE OF THE MOTOR CAR . IT IS NOT IN DISPUTE THAT T HE VOUCHERS IN RESPECT OF REIMBURSEMENT WERE PRODUCED BEFORE THE LD. ASSESSING OFFICER BUT THE ACTUAL BILLS / INVOICES OF 5 ITA NO. 606 7 /DEL/2013, AY: 2010 - 11 EXPENSES I NCURRED BY SH. U.A. RANA WERE NOT PRODUCED BEFORE THE LD. ASSESSING OFFICER. THE ASSESSEE HAS SUBMITTED A COPY OF LEDGER ACCOUNT OF SH. U.A. ARANA IN RESPECT OF CAR MAINTENANCE, WHICH IS PLACED AT PAGE NO. 19 OF THE PAPER BOOK. ACCORDING TO THE LEDGER ACCO UNT, TOTAL AMOUNT OF RS. 4,01,917/ - WAS INCURRED ON CAR MAINTENANCE BY SH. U.A. RANA, OUT OF WHICH, RS. 4 LACS WAS TRANSFERRED TOWARDS THE ASSESSEE FIRM AND RS. 1,917/ - WAS CLAIMED BY HIM IN HIS RETURN OF INCOME. SIMILARLY, ACCORDING TO COPY OF LEDGER ACC OUNT PLACED AT PAGE NO. 35 OF THE PAPER BOOK IN RESPECT OF OFFICE MAINTENANCE EXPENSES, SH. U.A. RANA HAS DEBITED EXPENSES OF RS. 1,21,720/ - , OUT OF WHICH RS. 1,20,000 WERE TRANSFERRED TO THE ASSESSEE FIRM. FURTHER , ACCORDING TO PAGE NO. 40 OF THE ASSES SEE S PAPER BOOK, SH. U.A. RANA DEBITED ENTERTAINMENT EXPENSES OF RS. 8,27,737/ - , OUT OF WHICH, RS. 80,000/ - WERE REIMBURSED TO HIM BY THE ASSESSEE FIRM AND BALANCE OF RS. 2,737/ - WERE CLAIMED BY SH. U A RANA IN HIS INDIVIDUAL RETURN OF INCOME. THE LD. ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE OF RS. 6,00,000/ - ON THE GROUND THAT THE BILLS OF THE EXPENSES DEBITED BY SH. U.A. RAN A WERE NOT PRODUCED BEFORE HIM AND IN THE ABSENCE OF THE BILLS, THE SAID EXPENSES COULD NOT BE ESTABLISHED INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION OF THE ASSESSEE FIRM . ON PERUSAL OF THE ASSESSMENT ORDERS OF THE PRECEDING YEARS, WE FIND THAT THIS ISSUE WAS NOT EXAMINED BY THE LD. ASSESSING OFFICER AND THUS THE RULE OF CONSISTENCY WILL NOT APPLY IN THE PRESENT FACTS. IN OUR OPINION , THE EXPENSES ON CAR MAINTENANCE, OFFICE MAINTENANCE AND ENTERTAINMENT TO CLIENTS HAVE BEEN DEBITED BY SH. U.A. RANA IN HIS BOOKS OF ACCOUNTS AND SAME 6 ITA NO. 606 7 /DEL/2013, AY: 2010 - 11 HAVE BEEN REIMBURSED TO HIM BY THE ASSESSEE FIRM CLAIMING TO HAVE INCURRED FOR THE PURPOSES OF THE BUSINESS AND PROFESSIONS OF THE AS SESSEE FIRM, H OWEVER, SUCH BILLS WERE NOT PRODUCED BEFORE THE LD. ASSESSING OFFICER FOR VERIFICATION WHETHER INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROF ESSION OF THE ASSESSEE FIRM. T HEREFORE, IN THE INTEREST OF JUSTICE, WE RESTORE THE MATTER TO THE FI L E OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH , IN ACCORDANCE WITH LAW , AND ALSO DIRECT THE ASSESSEE TO PRODUCE ALL THE SAID BILLS FOR VERIFICATION AND IF THE SAME ARE INCURRED WHOLLY AND EXCLUSIVE FOR THE PURPOSES OF THE BUSINESS/PROFESSION CARRIED ON BY THE ASSESSEE FIRM, THE SAME SHOULD BE ALLOWED. WE O RDER ACCORDINGLY. THE GROUND OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT , THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE . THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 8 T H FEBRUARY , 2016 . S D / - S D / - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8 T H FEBRUARY , 2016 . RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI