NAR NARAYAN SARAF, MUMBAI V. ADDL CIT RG 12(3), MUMBAI

ITA 6096/MUM/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9693 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-05-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 02-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Assessee Lawyers: HITESH P SHAH
• Keywords: Earning of tax free income; Tax effect
• Section: 14A

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./I.T.A./6096/MUM/2011, /ASSESSMENT YEAR: 2006-07 MR. NAR NARAYAN SARAF M/S. CPM & ASSOCIATES A-102, RASSAZ CASTLE,MALPA DONGARI NO.1, OFF. SERVICE ROAD, W.E. HIGHWAY, ANDHERI-(EAST),MUMBAI-400 093. PAN:AAPPS 7379 K VS. DC-12(3) MUMBAI. ( /APPELLANT) ( / RESPONDENT) / REVENUE BY: SHRI N.P. SINGH-CIT-DR /ASSESSEE BY: SHRI HITESH P. SHAH / DATE OF HEARING: 05/05/2017 / DATE OF PRONOUNCEMENT: 31/07/2017 , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 03/06/2011 OF THE CIT ( A) -23,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE, AN INDIVIDUAL, DERIVING IN COME FROM HOUSE PROPERTY SHARE TRADING AND AGRICULTURE, FILED HIS RETURN OF INCOME ON 30/1 0/2006, DECLARING TOTAL INCOME OF RS. 2.85 CRORES.THE ASSESSING OFFICER (AO) COMPLETED THE ASS ESSMENT U/S. 143 (3) OF THE ACT, ON 24/12/2008, DETERMINING HIS INCOME AT RS. 2.93 CROR E. 2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) STATED THAT THE ASSESSEE WAS NOT INTERESTED IN PURSUING LAST GROUND OF APPEAL CONSIDERING THE TAX EFFECT INVOLVED. HENCE,GROUND NUMBER 4 STANDS DISMISSED, A S NOT PRESSED. 3. FIRST GROUND OF APPEAL IS ABOUT MAKING ADDITION OF RS. 7.71 LAKHS ON ACCOUNT OF EXPENSES DISALLOWED U/S. 14 A OF THE ACT. DURING THE ASSESSM ENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD EARNED EXEMPT INCOME, THAT NO DISALLOW ANCE AS PER THE PROVISIONS OF SECTION 14A WAS MADE IN THE STATEMENT OF INCOME FILED WITH THE RETURN. HE DIRECTED THE ASSESSEE TO SHOW CAUSE AS TO WHY APPROPRIATE DISALLOWANCE U/S. 14A SHOULD NOT BE MADE.AFTER CONSIDER - ING THE SUBMISSION OF THE ASSESSEE, HE HELD THAT AS SESSEE HAD CLAIMED THAT NO EXPENSES HAD BEEN INCURRED FOR EARNING THE EXEMPT INCOME, THAT I T COULD NOT BE CONCLUDED THAT NO EXPENSES WERE INCURRED.HE MADE A DISALLOWANCE OF RS. 7.7 LAK HS, RS.6.17 LAKHS UNDER THE HEAD INTEREST EXPENDITURE AND RS. 1.53 LAKHS PUBLICITY EXPENSES). 6096/M/11(06-07) NAR NARAYAN SARAF 2 3.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE ELABORATE SUBMISS IONS AGAINST THE ADDITION. AFTER CONSIDERING THE AVAILABLE MATERIAL,THE FAA HELD THA T THE ASSESSEE HAD RECEIVED DIVIDEND INCOME, THAT HE HAD MADE INVESTMENT IN SHARES AND H AD EARNED CAPITAL GAINS, THAT EXPENSES HAD BEEN INCURRED ON MAKING AND MANAGING THE INVEST MENT AND EARNING INCOME, THAT THERE WERE EXPENSES INDIRECTLY USED FOR EARNING NON-TAXAB LE INCOME EVEN IF NO DIRECT EXPENSES WERE BOOKED, THAT THE AO HAD RIGHTLY INVOKED THE PR OVISIONS OF SECTION 14A, REASONABLE DISALLOWANCE UNDER THE SAID SECTION HAD TO BE MADE, THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME OF RS. 1.48 CRORE, THAT IT WAS 4.77 TIMES OF THE GROSS PROFIT SHOWN ON SALE OF SECURITIES, THAT IT HAD CLAIMED EXPENSES OF RS. 27.29 LAKHS IN THE P&L ACCOUNT, THAT DISALLOWANCE OF 25% OF THE EXPENSES WOULD BE REASONABLE. FINALLY SHE DI RECTED THE AO TO RESTRICT THE DISALLOWANCE TO RS. 6.82 LAKHS. 3.2. DURING THE COURSE OF HEARING BEFORE US, THE AR STAT ED THAT IT HAD NOT CLAIMED ANY INTEREST EXPENDITURE, THAT THE DISALLOWANCE MADE BY THE REVE NUE AUTHORITIES WERE WITHOUT ANY BASIS, THAT THE ASSESSEE HAD CLAIMED TRANSACTIONS WORTH RS . 15.34 LAKHS UNDER THE HEAD FUTURE AND OPTION SEGMENT. WITH REGARD TO ADMISSIBLE EXPENSES HE LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.THE DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTE D THE ORDER OF THE FAA. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ASSESSEE HAD EARNED DIVIDEND IN OF RS. 15.98 LAKHS, THAT IT HAD NOT INCURRED ANY INTEREST EXPENDITURE FOR EARNING EXEMPT INCOME, THAT THE AO HAD MADE A DISALLOWANCE OF RUBY 7.71 LAKHS, THAT THE FAA APPLIED A NEW FORMULA AND UPHEL D THE DISALLOWANCE TO THE EXTENT OF RUBY 6.28 LAKHS. AS THE ASSESSEE HAS NOT INCURRED ANY IN TEREST EXPENDITURE THEREFORE, IN OUR OPINION, NO DISALLOWANCE CAN BE MADE IN THAT REGARD. AS FAR AS OTHER EXPENSES ARE CONCERNED WE ARE OF THE OPINION THAT TO MEET THE END OF JUSTICE IT SHOU LD BE RESTRICTED TO 5% OF THE EXPENSES OR 5% THE EXEMPT INCOME WHICHEVER IS LESS. FIRST EFFECTIV E GROUND OF APPEAL (GOA-1 &2) IS ALLOWED IN FAVOUR OF THE ASSESSEE, IN PART. 4. GROUND 3(A) DEALS WITH CONFIRMING THE ADDITION OF R S. 62,697/-WITH REGARD TO THE PROPERTY NAME TAX CENTRE. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED EXPENSES TOWARDS STAMP DUTY IN PROGRESS, TH AT HE HAD REDUCED THE SAME FROM THE RENT RECEIVED FROM HOUSE PROPERTY CALLED TAX CENTRE. DIS ALLOWING THE CLAIM MADE BY THE ASSESSEE, THE AO HELD PROVISIONS OF THE ACT DID NOT ALLOW ANY SUCH DIRECTION WHILE COMPUTING THE INCOME FROM HOUSE PROPERTY, THAT EXPENSES WERE NOT INCURRED ONLY FOR PURCHASE STAMP DUTY. 6096/M/11(06-07) NAR NARAYAN SARAF 3 4.1. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE RELIED U PON THE CASE OF GOVIND S. SINGHANIA (ITA/4581/MUM/2006,DATED 03/04/2008).AFTER CONSIDER ING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA REFERRED TO THE MA TTER OF EXCELLENT ASSOCIATES (96 ITD 57) WHEREIN ONE MONTHS RENT WAS PAID TOWARDS BROKERAGE AND THE TRIBUNAL HAD HELD THAT SUCH AN EXPENDITURE COULD NOT BE CLAIMED AS A DEDUCTION UND ER SECTION 23(1)(B) OF THE ACT. HE FURTHER OBSERVED THAT WHILE DECIDING THE APPEAL IN THE CASE OF GOVIND S SINGHANIA,THE TRIBUNAL HAD NOT CONSIDERED CASE OF EXCELLENT ASSOCIATES.FOLLOWI NG THE ORDER OF EXCELLENT ASSOCIATES, THE FAA CONFIRMED THE ORDER OF THE AO. 4.2. BEFORE US,THE AR ARGUED THAT .THE DR SUPPORTED THE ORDER OF THE FAA.WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT SECTION 24(1)(VIII) WAS OMITTED WITH EFFECT FROM 1/04/1993 AND HENCE COULD NOT BE APPLIED FOR THE AY.UNDER CON SIDERATION.WHILE OMITTING SECTION 24(1)(VIII),THE LEGISLATURE HAD AMENDED SECTION 24( 1)(I).AS PER THE AMENDED PROVISIONS,A LUMP SUM DEDUCTION OF ONE-FIFTH OF ANNUAL LETTING V ALUE IS TO BE ALLOWED FOR REPAIRS AND COLLECTION OF RENT FROM THE PROPERTY IRRESPECTIVE O F ACTUAL AMOUNTS SPENT ON THESE ITEMS.EVEN IF THE ASSESSEE'S CONTENTION THAT BROKERAGE WAS TO BE ALLOWED AS COLLECTION CHARGES WAS TO BE CONSIDERED THE AO HAD HIMSELF ALREADY ALLOWED ONE-FIFTH OF THE ANNUAL LETTING VALUE FOR REPAIRS AND COLLECTION CHARGES.THUS,THE CLAIM OF TH E ASSESSEE WAS NOT ALLOWABLE UNDER THE HEADS BROKERAGE-CHARGES AND STAMP DUTY PAID.GROUND 3(A)IS DISMISSED. 5. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE WAS OWNER OF A FLAT NAMELY NISHANT,THAT IT ALSO OWNED A HOUSE PROPERTY AT RATANGARH,THAT HE HAD NOT DECLARED INCOME FROM BOTH THE PROPERTIES IN THE STATEMENT OF INCOME.HE DIRECTED THE ASSESSEE TO FILE EXPLANATION IN THAT REGARD, WHO STATED THAT EVEN TH OUGH THE RATANGARH PROPERTY WAS REFLECTED IN THE BALANCE SHEET OF THE INDIVIDUAL BUT THE PROP ERTY WAS JOINTLY OWNED BY THE FAMILY CONSISTING ASSESSEE AND HIS FIVE BROTHERS. IT WAS A LSO ARGUED THAT THE PROPERTY WAS LOCATED IN A SMALL VILLAGE AND IT WAS DIFFICULT TO LET OUT THE P ROPERTY. 5.1. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FAA,THE ASSESSEE STATED THAT PROPERTY WAS ANCESTRAL,THAT INCOME THEREFROM COULD NOT BE ADDED IN HIS HANDS.THE FAA HELD THAT THE ASSESSEE HAD ADMITTED THAT HE WAS A CO-OWNER ALONG WITH HIS BROTHERS, THAT HE HAD ALSO DECLARED THE PROPERTY IN HIS BALANCE SHEET,THAT IT COULD NOT BE SAID THAT HES NOT THE OWNER OF THE PROPERTY.REFERRING TO THE CASE OF MOHAN KUMAR S ABOO(18TTJ 131), HE HELD ANNUAL LETTING VALUE HAS TO BE DETERMINED IN THE CASE OF CO-OWNER, THAT THE AO HAD RIGHTLY TAKEN THE PROPERTY INTO CONSIDERATION FOR DETERMINING THE INCOME FROM HOUSE PROPERTY,THAT THE AO HAD ESTIMATED THE ALV AFTER CONSIDERING VARIOUS FACTORS.HE CONFIR MED THE ORDER OF THE AO. 6096/M/11(06-07) NAR NARAYAN SARAF 4 5.2. BEFORE US,THE AR REITERATED THE ARGUMENTS THAT WERE PART OF THE SUBMISSIONS MADE BEFORE THE FAA AND THE DR SUPPORTED THE ORDER OF THE FAA. WE FIND THAT THE ASSESSEE HAS NOT DENIED THE OWNERS HIP OF THE PROPERTY AT RATANGARH AND THE ALV WAS DETERMINED AFTER CONSIDERING THE RELEVANT F ACTORS.THEREFORE,WE DO NOT WANT TO DISTURB THE ORDER OF THE FAA,AS SAME IS BASED ON TH E JUDGMENT OF CASE OF MOHAN KUMAR SABOO(SUPRA).GROUND 3(B)IS DISMISSED. 6. GROUND 3(C)IS ABOUT NOT ALLOWING DEDUCTION UNDER SE CTION 24(A) FOR REPAIRS ON ADDITION MADE OF RS.80,897/-.DURING THE APPELLATE PROCEEDING S,THE ASSESSEE STATED THAT THE AO HAD NOT ALLOWED DEDUCTION OF 30% IN RESPECT OF THE ADDITION S MADE I.E. RS.62, 697/- PLUS RS. 18,000/-, THAT THE DEDUCTION WORKED OUT OF RS. 24, 209/-, THA T SAME WAS ALLOWABLE U/S.24(A). 6.1. DURING THE APPELLATE PROCEEDING,THE FAA HELD THAT T HE GROUND WAS CONSEQUENTIAL,THAT THE ADDITIONS MADE BY THE AO HAD BEEN UPHELD,THAT THE G ROUND RAISED BY THE ASSESSEE REGARDING GIVING DIRECTION WAS INFRUCTUOUS. 6.2. BEFORE US,THE AR ARGUED THAT IF DISALLOWANCES WERE TO BE MADE DEDUCTION SHOULD BE ALLOWED @30%.THE DR SUPPORTED THE ORDER OF THE FAA. IN OUR OPINION,IF THE HOUSE PROPERTY INCOME OF THE ASSESSEE IS ASSESSED AT A HIGHER FIGURE, CORRESPONDING DEDUCTION SHOULD BE ALLOWED ACCORDING LY.GROUND 3(C)IS ALLOWED. AS A RESULT, APPEAL FIL ED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY,2017. 2017 SD/- SD/- ( . . / C.N.PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 31 .07.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.