URMILA S. MATONDKAR, MUMBAI V. ASST CIT RG 11(1), MUMBAI

ITA 6243/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3188 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: F
• Next Hearing Date: 03-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 25-10-2013
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST PASSED
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F MUMBAI. BEFORE SHRI SHAILENDRA KUMAR YADAV , JUDICIAL MEMBER AND SHRI RAMIT KOCHAR , ACCOUNTANT MEMBER ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11 . MISS URMILA S. MATONDKAR 901, SHANTANU, ST. MARTIN ROAD, BANDRA (W), MUMBAI 400 050. V. ASSTT. COMMISSIONER OF INCOME TAX, RANGE - 11 (1), AAYKAR BHAVAN, MUMBAI 400 020. PAN/GIR NO. AAEPM2069D APPELLANT RESPONDENT ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY C OMMISSIONER OF INCOME T AX (A PPEALS ) - 3,MUMBAI (HEREINAFTER CALLED THE CIT(A)) DATED 12.08.2013 FOR ASSESSMENT YEAR 2010 - 11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL IN MEMO OF APPEAL FILED : - 1. IN RESPECT OF DISALLOWANCE U/S'14A: ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.3,44,545/ - U/S 14A OF THE I . T. ACT MADE BY THE ASSESSING OFFICER. ASSESSEE BY SHRI HARI S. RAHEJA REVENUE BY SHRI ABANI KANTA NAYAK DATE OF HEARING 09.09.2015 DATE OF PRONOUNCEMENT 28 .09.2015 ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 2 I) THE LEARNED CIT( A) FAILED TO APPRECIATE THAT THE ASSESSING OFFICER DID NOT ESTABLISH ANY NEXUS BETWEEN THE EXPENSES DISALLOWED AND THE TAX FREE INCOME EARNED BY THE APPELLANT. II) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ENTIRE EXPENDITURE AS CLAIMED BY THE APPEL LANT WERE IN RESPECT OF PROFESSIONAL INCOME EARNED BY HER AND THE ASSESSING OFFICER DID NOT POINT OUT / PROVE ANY INSTANCE INVOLVING EXPENDITURE IN RELATION TO EARNING OF EXEMPT INCOME. III) NO REGULAR ACTIVITY CARRIED OUT BY THE APPELLANT FOR MAKING INVE STMENT, THEREFORE NO ADMINISTRATIVE EXPENSES CAN BE APPORTIONED FOR DISALLOWANCE U/S 14A. 2. IN RESPECT OF DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS OF EEFC A/ C : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERR ED IN CONFIRMING THE DISALLOWANCE OF RS.3,77,580/ - , BEING FOREIGN EXCHANGE FLUCTUATION LOSS SUFFERED BY THE APPELLANT RELATING TO HER DEPOSIT LYING IN THE EEFC A/ C WITH STATE BANK OF INDIA. I) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT IRRESPECTIVE OF CASH METHOD ACCOUNT FOLLOWED BY THE APPELLANT, SHE HAS BEEN CONSISTENTLY F OLLOWING ACCOUNTING STANDARD - 11 AS PROVIDED IN THE AS - 11 ISSUED BY THE ICAI AND ACCORDINGLY PROFIT/(I OSS) ON SUCH VALUATION OF FOREIGN CURRENCY HAS BEEN CONSIDERED AS INCOME/(LOSS) O F THE RESPECTIVE YEAR IN THE PAST. II) THE APPELLANT RELIES ON THE DECISION OF THE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. 312 ITR 254 (SC) AND PRAYS THAT THE LOSS IN RESPECT OF FOREIGN EXCHANGE FLUCTUATION BE ALLOWED. 3. IN RESPEC T OF DISALLOWANCE OF DENTISTRY EXPENSES U/S 40A(IA): ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,74,850/ - U/S 40A(IA) BEING DENTISTRY EXPENSES INCURRED BY THE APPELLANT DURIN G THE COURSE OF CARRYING ON HER PROFESSIONAL ACTIVITY. WITHOUT PREJUDICE TO THE ABOVE ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 3 I) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE PAYMENT MADE TO DR. SANDESH MAYEKAR AMOUNTING TO RS.1,74,850/ - , WAS INCLUSIVE OF RS.89,500/ - BEING COST OF MATERIAL USED BY THE DOCTOR FOR DENTAL TREATMENT OF THE APPELLANT. II) DETAILS OF DENTAL TREATMENT ALONGWITH DOCTOR'S BILL WAS FURNISHED TO THE ASSESSING OFFICER AND ALSO TO THE CIT(A) FOR THE REFERENCE AND IT WAS SUBMITTED THAT DISALLOWANCE IF AT ALL REQUIRED SH OULD BE RESTRICTED TO THE PROFESSIONAL CHARGES OF THE DOCTOR AND NOT THE ENTIRE BILL AMOUNT OF THE DOCTOR, WHICH INCLUDED COST OF MATERIAL USED BY HIM FOR THE DENTAL TREATMENT. 2. THE BRIEF F ACTS OF THE CASE ARE THAT THE ASSESSEE IS A CINE ARTIST AND FIL ED HER RETURN OF INCOME WITH REVENUE WHEREBY INCOME F ROM HOUSE PROPERTY, BUSINESS OR PROFESSION AND OTHER SOURCES ARE BEING DECLARED . 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE INCOME TAX ACT,1961 (HEREINAFTER CALLED THE ACT), THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED TAX FREE INCOME OF RS. 1 , 07 , 53 , 499/ - FROM DIVIDEND , PPF INTEREST , INTEREST ON RBI BONDS, D IVIDEND ON MUTUAL FUNDS AND L ONG T ERM C APITAL G AIN ON LISTED SECURITIES . T HE ASSESSING OFFICER OBSERVED THAT T HE ASSESSEE HAS NOT ALLOCATED ANY EXPENSES RELATING TO E ARNING EXEMPT INCOME AND IS NOT MAINTAIN ING ANY SEPARATE ACCOUNT FOR THE EXEMPT INCOME . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WAS DECLARING UTILIZATION OF EVERY RESOURCES FROM THE POOL FOR PURPOSES OF HER BUSINESS . THE ASSESSEE WAS ASKED BY THE ASSESSING OFFICER TO EXPLAIN AS TO WHY THE EXPENSES SHOULD NOT BE DISAL LOWED U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. T HE ASSESSEE SUBM ITTED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE IS AN ACTRESS HAVING INCOME FROM PROFESSION AND ALSO INCOME FROM BANK, RBI BONDS AND DIVIDEND ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 4 INCOME FROM HER INVESTMENTS IN SHARES AND MUTUAL FUNDS . THE ASSESSEE CONTENDED THAT TO EARN THESE EXEMPT INC OME, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE . THE ASSESSEE CONTENDED THAT THE ENTIRE INVESTMENTS IN RBI TAX FREE BONDS, MUTUAL FUNDS, SHARES ETC WAS MADE OUT OF SURPLUS FUNDS AVAILABLE WITH HER AND NO BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE AND HENCE NO INTEREST EXPENSES WERE INCURRED NOR THE ASSESSEE INCURRED ANY ADMINISTRATIVE EXPENSES WITH RESPECT TO MAKING / MAINTAINING OF THE INVESTMENTS IN WHICH EXEMPT INCOME IS EARNED . THE ASSESSEE ALSO CONTENDED THAT THE PROVISIONS OF SECTION 14A OF TH E ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 A RE NOT APPLICABLE IN THIS CASE AND TO DISALLOW THESE EXPENSES THERE HAS TO BE A NEXUS BETWEEN THE EXPENDITURE INCURRED AND TAX FREE INCOME EARNED BY THE ASSESSEE AND THE DISALLOWANCE CANNOT BE MADE MER ELY ON A PRESUMPTION . THE ASSESSEE RELIED UPON THE DECISION S OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF HERO CYCLE PRIVATE LIMITED 323 ITR 51, JINDAL PHOTO LIMITED ( DEL - TRIB. ) IN ITA NO. 14(DEL) 2011 AND HONBLE DELHI HIGH COURT IN THE CASE OF WIMCO SEEDING LIMITED 107 ITD 267, AUCHTEL PRODUCTS LIMITED (2012) 22 TAXMAN 99(MUM - TRIB.). THE ASSESSING OFFICER AFTER CONSIDERING THE REPLIES OF THE ASSESEE HELD THAT THE PLEA OF ASSESSEE THAT NO EXPENDITURE WAS INCURRE D FOR EARNING THE INCOME IS NOT ACCEPTABLE BECAUSE NO TAX FREE INCOME CAN BE EARNED WITHOUT MAKING EXPENDITURE. THE ASSESSING OFFICER HELD THAT E XPENDITURE MAY BE DIRECT OR INDIRECT, INVESTMENT MAY BE MADE / MAINTAINED BY APPLYING RESOURCES AND HENCE HE HE LD THAT IT IS CLEAR THAT THE EXEMPT INCOME CANNOT BE EARNED WITHOUT INCURRING EXPENSES BECAUSE THERE ARE SO MANY COMMON RE SOURCES LIKE COMPUTERS, ELECTRICITY, TELEPHONE, VEHICLE, OFFICE STAFF ETC., WHICH ARE USED FOR BOTH THE PURPOSES I.E. EARNING OF AN EX EMPT INCOME AND TAXABLE INCOME. THE A SSESSING O FFICER APPLI ED THE PROVISIONS OF SECTION 14A ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 5 OF THE ACT READ WITH RULE 8D(2)(III) OF INCOME TAX RULES,1962 AND MADE THE DISALLOWANCE OF RS.3,44,545/ - @ 0.5% OF THE AVERAGE INVESTMENT HELD BY THE ASSESSEE. 4 . AGGRIEVED, THE ASSESSEEE CARRIED THE MATTER IN APPEAL TO CIT(A) AND REITERATED ITS SUBMISSIONS AND ALSO STATED THAT THE ASSESSING OFFICER HAS FAILED TO ESTABLISH ANY NEXUS BETWEEN THE EXPENSES DISALLOWED AND THE TAX FREE INCOME EARNED BY THE ASSESSEE. SHE ALSO CONTENDED THAT THE AS SESSING OFFICER HAS FAILED TO RECORD ANY SATISFACTION TO SHOW THE INACCURACY IN RESPECT OF EXPE NSES CLAIMED BY THE ASSESSEE. SH E ALSO SUBMITTED THAT NO EXPENSE WERE INCURRED TO EARN THE TAX FREE INCOME. AFTER CONSIDERI NG TH E SUBMISSIONS OF THE ASSESSEE , THE CIT(A) HELD THAT THE ASSE SSEE HAS FAILED TO DISCHARGE THE INITIAL ONUS CAST ON THE ASSESSEE U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES ,1962 . THE CIT(A) HELD THAT THE A SSESSEE HAS MADE NO DISALLOWANCE I N HER COMPUTATION OF INCOME FILED ALONG WITH RETURN OF INCOME AS PER PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 AND HELD THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE EXPENDITURE OF RS 3,44,545 / - UNDER SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 AND THUS, THE CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. 5 . AGGRIEVED WITH THE ORDER S OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US AND REITERATED ITS SUBMISSION S AS MADE BEFORE THE AUTHORITIES BELOW . SH E CONTENDED THAT NO EXPENSES WERE INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. SH E ALSO CONTENDED THAT NO DISALLOWANCE SHOULD BE MADE U/S 14A OF THE ACT READ WITH RULE 8D(2)(II) OF INCOME TAX RULES,1962 . THE ASSESSEE REFERRED TO AND DREW OUR ATTENTION TO THE ITEMS OF EXPENSES IN THE P ROFIT & L OSS ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 6 ACCOUNT AND STATED THAT THE MOST OF THE EXPENSES HAVE NO RELATION WITH THE EARNING OF EXEMPT INCOME. SHE DREW OUR ATTENTION TO THE COMMISSION PAID OF RS. 1,90,0 00/ - WHICH WAS RELATED TO MANAGEMENT FEES IN RESPECT OF PROFESSIONAL WORK UNDERTAKEN BY THE ASSESSEE. SH E ALSO SHOWED THAT THERE IS A SALARY PAID T O PEON AND DRIVER OF THE ASSESSEE. SH E ALSO DREW OUR ATTENTION TO PAYMENTS OF RS. 1,26,536/ - MADE TO AUDIT ORS TOWARDS AUDIT ASSIGNMENT AND TAX MATTER S. SO IN NUTSHELL, THE ASSESEE SUBMITTED THAT ASSESSEE HAS NOT INCURRED ANY EXPENSE FOR EARNING THE EXEMPT INCOME. SH E RELIED UPON THE ORDER S OF MUMBAI B ENCH OF TRIBUNAL IN ITA NO. 7239/MUM/20 1 2 IN THE CASE OF SH RI HRITHIK RAKESH NAGRATH TO CONTEND THAT IN A SIMILAR CASE THE TRIBUNAL HAS DELETED THE DISALLOWANCE. THE ASSESSEE ALSO RELIED UPON THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF RAMU S DEORA IN ITA NO. 4860/MUM/2012 TO CONTEND THAT THE TRIBUNAL WHILE DEALING WITH THE SIMILAR CASE HAS RESTRICTED THE DISALLOWANCE TO RS. 10,000/ - . THE ASSESSEE FURTHER CONTENDED IF THE DISALLOWANCES A RE TO BE MADE THEN FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(III) OF INCOME TAX RULES,1962 , TH E INVESTMENT IN JEWELLERY BY THE ASSESSEE OF RS. 41,63,417 / - SHOULD BE EXCLUDED FROM THE VALUE DETERMINED OF AVERAGE INVESTMENTS TO COMPUTE DISALLOWANCE @0.5% OF THE AVERAGE INVESTMENT AS IN THE VIEW OF ASSESSEE, THE ASSESSING OFFICER HAS ERRONEOUSLY INCLUDED THE SAME FOR THE PURPOSE OF COMPUTATION OF DISALLOWA NCE BECAUSE GAIN FROM SALE OF JEWELLARY IS TAXABLE UNDER INCOME TAX ACT,1961. 6 . THE LD. DR ON THE OTHER HAND, RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND STATED THAT SINCE ASSESSEE HAS NOT OFFERED FOR DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT , THE A SSESSING O FFICER NOT BEING SATISFIED WITH THE CLAIM OF THE ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 7 ASSESSEE HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A(2) AND 14A(3) OF THE ACT TO APPLY RULE 8D OF INCOME TAX RULES ,1962 TO COM PUTE THE DISALLOWANCE OF RS.3,44,545/ - . 7 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME AND HAS NOT OFFERED FOR DISALLOWANCE OF EXPENDITURE WHIC H IS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES,1962 IS APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR. WE HAVE OBSERVED THAT ASSESSEE HAS INCURRED SEVERAL EXPENSES WHICH ARE COMMON IN NATURE SUCH AS SALARIES, CAR REPAIR AND RUNNING EXPENSE, ENTERTAINMENT, AUDIT FEES, SECRETARIAL EXPENSES, TELEPHONE EXPENSES AND DEPRECIATION ON ASSETS ETC. WHILE THE ASSESSEE HAS ALSO BROUGHT TO OUR NOTICE THAT SOME EXPENSES WHICH ARE SPECIFIC IN NATURE AND CONNECTED /A TTRIBUTABLE DIRECTLY WITH THE RENDERING OF PROFESSIONAL SERVICES AND THEREBY EARNING PROFESSIONAL INCOME . IT IS UNBELIEVABLE THAT THERE IS NO EXPENDITURE INCURRED BY THE ASSESSEE FOR MAKING AND MA INTAINING THE INVESTMENTS. THE MAKING AND MAINTAINING OF INV ESTMENTS TO THE MAGNITUDE OF RS 6,89,08,894/ - CRORES AS HELD BY THE ASSESSEE INVOLVES VERY CRUCIAL DECISION S FROM TIME TO TIME UNDERTAKEN TO MAKE AND MAINTAIN A SOUND DECISION FOR INVE STMENTS WHICH NEED INVESTMENT IN INFRASTRUCTURE AND RESOURCES. THE ASSE SSEE HAS EARNED EXEMPT FREE INCOME OF RS.1,07,63,499 DURING THE ASSESSMENT YEAR. SECTION 14A OF THE ACT IS BROUGHT TO STATUTE TO DISALLOW THE EXPENDITURE IN RELATION TO THE INCOME WHICH ARE EXEMPT FROM TAX. ON CAREFUL PERUSAL OF THE P ROFIT & L OSS ACCOUNT R EVEALS THAT THE COMMON EXPENDITURE IN AGGREGATE COMES TO RS. 12,83,814/ - AFTER EXCLUDING THE SPECIFIC EXPENSES HIGHLIGHTED BY THE ASSESSEE INCURRED SPECIFICALLY ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 8 AND EXCLUSIVELY FOR EARNING EXEMPT INCOME . WE HAVE ALSO OBSERVED THAT ASSESSEE HAS RECEIVED PRO FESSIONAL INCOME OF RS. 24 LAC DURING THE YEAR WHILE THE EXEMPT INCOME RECEIVED IS RS. 1,0 7 ,53,499/ - . THERE IS NO DOUBT THAT T HE ASSESSEE DEFINITELY HAS TO INCUR HIGHER EXPENSES FOR RENDERING PROFESSIONAL SERVICES AND THEREBY EARNING PROFESSIONAL RECEIPTS . THE CONTENTION OF THE ASSESSEE THAT THE VALUE OF JEWELLARY OF RS.41,63,417/ - INCLUDED BY THE ASSESSING OFFICER IN THE DETERMINATION OF AVERAGE INVESTMENT NEED TO BE EXCLUDED IS TO BE ACCEPTED AS ANY GAIN ON SALE OF JEWELLARY IS TAXABLE UNDER THE ACT. KEEPING IN VIEW THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE , T HE END OF JUSTICE WILL BE MET IF THE DISALLOWANCE OF THE EXPENSES IS RESTRICTED TO 10% OF COMMON EXPENSES OF RS 12,83,814/ - WHEREBY THE DISALLOWANCE WILL COME TO RS.1,28,381/ - U/S 14A OF THE ACT. THE AMOUNT OF DISALLOWANCE IS RESTRICTED TO RS.1,28,381/ - KEEPING IN VIEW THE PECULIAR FACTS AND CIRCUMSTA NCES OF THE CASE AND SHALL NEITHER BE CONSTRUED AS OUR MAKING ANY ASPERSION ON THE APPLICABILITY OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES,1962 FOR THE IMPUGNED ASSESSMENT N OR SETTING ANY PRECEDENT WHATSOEVER. 8 . THE NEXT GROUND OF APPEAL RELATES TO DISALLOWANCE OF FORE IGN EXCHANGE FLUCTUATION LOSS OF RS.3,77,580/ - ON BALANCE MAINTAINED IN FOREIGN CURRENCY IN EEFC A/C. 9 . THE ASSESSEE HAS CLAIMED RS. 3,77,580/ - BY WAY OF FOREIGN EXCHANGE FLUCTUATION LOSS IN RESPECT OF HER EEFC ACCOUNT, CONSEQUENT UPON RESTATEMENT OF YEAR E ND BALANCE, IN COMPLIANCE OF THE ACCOUNTING STANDARD OF THE ICAI . THE ASSESSING OFFICER DISALLOWED T HE CLAIM OF ASSESSEE BY CITING FOLLOWING REASONS: - ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 9 (I) THE EEFC ACCOUNT HAS BEEN DORMANT DURING THE FINANCIAL YEAR 1/4/2009 TO 31/03/2010, WITH ABSOLUTELY NO TRANSACTION RECORDED THEREIN. (II) THERE IS NO DEPOSIT OR PROFESSIONAL INCOME ROUTED THROUGH THE SAID EEFC ACCOUNT, THEREBY FORTIFYING THE CONCLUSION THAT THERE HAS BEEN NO P ROFESSIONAL ACTIVITY RESULTING IN ANY FOREIGN EXCHANGE TRANSACTION. (III) THE LOSS PURPORTED LOSS HAS ARISEN BY A MERE BOOK ENTRY, THAT TOO AT THE END OF THE YEAR BY PASSING A SINGLE JOURNAL ENTRY. (IV) IT IS PERTINENT TO NOTE THAT THE ASSESSEE IS REGULARLY FOLLOWING CASH METHOD OF ACCOUNT , WHICH HE DOES NOT PERMIT REORGANIZATION OF EXPENSES BY ACCRUAL METHOD, MERE PARTICULARLY BY JOURNAL ENTRIES. (V) THE PURPORTED LOSS IS A RESULTANT OF A MERE RESTATEMENT OF ACCOUNTING BALANCE ARISING FOR PURE TECHNICAL REASONS. (VI) BY NO STRETCH OF IMAGINATION CAN IT BE EVEN REMOTELY RELATABLE TO THE CARRYING ON OF PROFESSIONAL OF THE ASSESSEE AS NONE OF HER PROFESSIONAL ACTIVITY DURING THE YEAR HAS TOUCHED THE TRANSACTION WITH EEFC ACCOUNT. 10 . AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE CIT(A) AND SUBMITTED THAT THE EEFC ACCOUNT REPRESENTED HER FOREIGN E XCHANGE EARNINGS IN THE PRECEEDING YEAR S AL THOUGH THERE WAS NO FOREIGN EXCHANGE TRANSACTION /EARNINGS IN THE CURRENT YEAR. T HE ASSESSEE FURTHER SUBMITTED THAT THE LOSS FROM MARK TO MARKET VALUATION WAS ALLOWABLE KEEPING IN VIEW ACCOUNTING STANDARD 11 AS PRESCRIBED BY ICAI . FURTHER IT WAS SUBMITTED BY THE ASSESSEE THAT THE PROFIT ACCRUING FROM MARK TO MARKET RE - EVALUATION, IN THE PRECEDING YEAR, HAS BEEN OFFERED FOR TAXATION AND THE ASSESSEE HAD PAID TAX TO REVENUE ON SUCH NOTIONAL PROFIT ON VALUATION OF FOREIGN EXCHANGE BALANCE IN EEFC ACCOUNT. T HE ASSESS EE PLACED RE LIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD, 301 ITR 354, AND ALSO ON THE DECISION OF THE KOLKATA BENCH OF TRIBUNAL IN THE CASE OF ASHUTOSH ENTERPRISES LTD. IN ITA NO. 2103/KOL/2010. THE CIT(A) HELD THA T THE ASSESSEE IS FOLLOWING CASH BASIS OF ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 10 ACCOUNTING AS MENTIONED IN HER RETURN OF INCOME AND THIS CANNOT BE ALLOWED ON ACCRUAL BASIS. THUS, THE CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE ASSESSEE ON THIS GROUND. 11 . AG GRIEVED BY THE ORDER S OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US AND STATED THAT ASSESSEE IS CONSISTENTLY FOLLOWING THE POLICY FOR MANY YEARS OF BRINGING TO TAX LOSS/PROFIT ON MARK TO MARKET BASIS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IN THE E EFC ACCOUNT BALANCE AS AT YEAR END . T HE ASSESSEE MADE THE STATEMENT BEFORE US THAT IN THE EEFC ACCOUNT, THE PROCEEDS ARE CREDITED ON ACCOUNT OF PROFESSIONAL FEES RECEIVED BY THE ASSESSEE IN THE EARLIER YEARS ALTHOUGH THERE ARE NO PROFESSIONAL RECEIPTS EARN ED IN FOREIGN CURRENCY DURING THE RELEVANT ASSESSMENT YEAR . HENCE , THE ASSESSEE SUBMITTED THAT IT IS FOLLOWING THE HYBRID SYSTEM OF ACCOUNTING WHEREBY THESE MARK TO MARKET LOSSES/PROFITS ON FOREIGN EXCHANGE FLUCTUATION IN EEFC ACCOUNT AT THE END OF THE Y EAR ARE BROUGHT TO TAX IN THE RETURN OF IN COME FILED WITH THE REVENUE. SHE DREW OUR ATTENTION TO THE AUDITED ACCOUNT FOR THE FINANCIAL YEAR ENDING 31.03.2009 IE IMMEDIATELY PRECEDING ASSESSMENT YEAR TO CONTEND THAT MARK TO M ARKET PROFIT IN RESPECT OF FOREI GN EXCHANGE HELD IN EEFC ACCOUNT AS AT YEAR END , THE PROFIT OF RS. 7,19,280/ - WERE CREDITED TO THE P ROFIT & L OSS ACCOUNT AND WERE OFFERED FOR TAXATION IN THE RETURN OF INCOME FILED FOR ASSESSMENT YEAR 2009 - 10 AND DUE TAXES HAVE BEEN PAID TO THE REVENUE. H ENCE ON THE BASIS OF ACCOUNTING STANDARD 11 AS PRESCRIBED BY ICAI AND ALSO ON THE BASIS OF PRINCIPLES OF CONSISTENCY, THIS LOSS IS TO BE ALLOWED TO THE ASSESSEE . ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 11 1 2 . THE LD. DR ON THE OTHER HAND, RELIED UPON T HE ORDERS OF AUTHORITIES BELOW AND CONTENDED THAT THE ASSESSEE HAS REDUCED ITS INCOME BY CLAIMING FOREIGN EXCHANGE LOSS OF RS. 3,77,580/ - WHICH CANNOT BE ALLOWED ON ACCRUAL BASIS AS ASSESSEE IS FOLLOWING CASH BASIS OF ACCOUNTING. 1 3 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THE ACCOUNTING POLICY OF OFFERING TO TAX BOTH INCOME/LOSS ON MARK TO MARKET BASIS AS ON THE DATE OF BALANCE - SHEET IN TH E RETURN OF INCOME FILED WITH THE REVENUE WITH RESPECT TO THE EEFC ACCOUNT. THE LD AR HAS MADE STATEMENT BEFORE US THAT THE EEFC ACCOUNT IS BEING MAINTAINED BY THE ASSESSEE AND THE CREDITS IN THE EARLIER YEARS WERE ON ACCOUNT OF PROFESSIONAL FEE RECEIVED B Y THE ASSESSEE IN FOREIGN EXCHANGE IN THE EARLIER YEAR S . WE, THEREFORE, HOLD THAT ON THE BASIS OF PRINCIPLES OF CONSISTENCY IN THE ACCOUNTING POLICY FOLLOWED BY THE ASSESSEE FROM SEVERAL YEARS WHICH ACCOUNTING POLICY IS ALSO IN CONSONANCE WITH THE PRESCRIB ED INDIAN ACCOUNTING STANDARD S , THE LOSS OF RS. 3,77,580/ - INCURRED BY THE ASSESSEE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTU ATION LOSS IN THE EEFC ACCOUNT AS AT THE YEAR END IS TO BE ALLOWED AND THE ADDITION MADE BY THE ASSESSING OFFICER AND AS CONFIRMED BY THE CIT(A) NEEDS TO BE DELETED. WE ORDER ACCORDINGLY. 1 4 . THE THIRD GROUND OF APPEAL IS AGAINST THE DISALLOWANCE OF DENTISTRY EXPENSES OF RS. 1,74,850/ - U/S 40(A)(IA) OF THE ACT . 15 . THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THE ASSESEE I S ACTRESS AND THE SAID EXPENSES OF RS.1,74,850/ - ARE INCURRED FOR TREATMENT OF HER TEETH WHICH EXPENSES WERE INCURRED FOR BEAUTIFICATION OF THE ASSESSEE AND IS DIRECTLY LINKED TO HER PROFESSION AND SHOULD BE ALLOWED AS REVENUE EXPENDITURE ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 12 INCURRED WHOLLY AND EXCLUSIVELY FOR HER PROFESSION OF CINE ARTIST . THE ASSESSING OFFICER DISALLOWED THE SAID DENTAL TREATMENT EXPENSE BEING PAID TO DOCTOR FOR TREATMENT OF ASSESSEE TEETH CONSIDERING THE SAME TO BE PERSONAL IN NATURE TO MAINTAIN HER TEETH AND FURTHER THE ASSESSING OFFICER HELD THAT NO TDS HAS BEE N DEDUCTED ON THE SAID PAYMENTS UNDER CHAPTER XVI IB OF THE ACT AND HENCE THE EXPENSES OF RS.1,74,850/ - INCURRED BY THE ASSESSEE AND AS CLAIMED AS REVENUE EXPENSES OF PROFESSION OF CINE ARTIST CARRIED ON BY THE ASSESSEE WAS DISALLOWED U/S 40(A)(IA) OF THE ACT. 16. AGGRIEVED , THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE CIT(A) AND CONTENDED THAT SHE IS AN ACTRESS AND SHE HAS TO MAINTAIN HER PERSONALITY A ND BEAUTIFICATION WHICH IS THE NEED OF PROFESSION AND THE EXPENSES OF RS.1,74,850/ - INCURRED BY THE ASSESSEE IS REVENUE EXPENDITURE INCURRED FOR HER PROFESSION OF CINE ARTIST. THE CIT(A) ACCEPTED THAT SINCE THE ASSESSEE IS ACTRESS AND THE SAID EXPENSES ARE LINKED TO HER PROFESSION BUT THE CIT(A) UPHELD THE DISALLOWANCE OF THE SAID EXPENSE S OF RS.1,74,850/ - ON THE GROUND THAT NO TDS U/S 194J OF THE ACT WAS DEDUCTED AS THESE ARE PAYMENTS TO DENTIST WH ICH ARE PROFESSIONAL IN NATURE AND SECTION 40(A)(IA) OF T HE ACT IS INFRINGED. HENCE, THE APPEAL OF THE ASSESSEE ON THIS GROUND WAS REJECTED BY THE CIT(A). 1 7 . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US AND CONTENDED THAT SHE IS A CINE ARTIST/ ACTRESS AND TO GENERATE PROFESSIONAL REVENUE SHE HAS TO MAINTAIN H ER PERSONALITY AN D BEAUTY WHICH IS PREDOMINANT FOR HER PROFESSION. THE ASSESSING OFFICER HAD DISALL OWED THE SAME TO BE PERSONAL EXPENSES AND FURTHER ON THE GROUND THAT NO TDS WAS DEDUCED UNDER CHAPTER XVIIB OF THE ACT WHILE CIT(A) DISALLOWED THE SAME AS NO TDS WAS DEDUCTED U/S 194J OF THE ACT . THE A SSESSEE ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 13 CONTENDED THAT THE ASSESSEE HAS PAID RS. 1,74,850/ - TOWARDS THE TOTAL DENTISTRY CHARGES OUT OF WHICH 89,500/ - IS TOWARDS THE MATERIAL COST FOR WHICH THE EVIDENCE HAS AL SO BEEN PRODUCED BEFORE US BY WAY OF DOCTOR CERTIFICATE/INVOICES . THE ASSESSEE CONTENDED THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO RS . 85 , 350 / - BEING PROFESSIONAL CHARGES TO DOCTOR ON WHICH TDS HAS NOT BEEN DEDUCTED U/S 194J OF THE ACT. THE BALANCE BEING RS . 89500 / - BEING MATERIAL COST PAID BY THE ASSESSEE DOES NOT WARRANT DISALLOWANCE AS TDS PROVISIONS ARE NOT ATTRACTED ON PAYMENT OF MATERIAL COST. 1 8 . THE LD. DR ON THE OTHER HAND, RELIED UPON THE ORDER O F AUTHORITIES BELOW AND SUBMITTED THAT THE PAYMENT HAS BEEN MADE BY THE ASSESSEE TO THE DOCTOR AND HENCE WARRANTS DISALLOWANCE U/S 40(A)(IA) OF THE ACT AS NO TDS IS DEDUCTED UNDER CHAPTER XVIIB OF THE ACT 1 9 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE OBSER VED THAT THE ASSESSEE IS A CINE ARTIST / ACTRESS AND HER BEAUTY AND PERSONALITY IS ONE OF THE MOST IMPORTANT TRAIT FOR GENERATING BUSINESS AND REVENUE. THE ASSESSEE SPENT DENTISTRY CHARGES WHICH ARE PART AND PARCEL OF HER BEAUTIFICATION TO GENERATE THE REVENUE. THE ASSESSEE HA S PAID 89,500/ - TOWARDS THE MATERIAL COST WHILE THE REST RS 85350/ - IS TOWARDS THE PROFESSIONAL FEES PAID TO DOCTOR FOR TREATMENT OF HER TEETH . THE ASSESSEE IS REQ UIRED TO DEDUCT TDS U/S 194J OF THE ACT ON THE PROFESSIONAL FEES PAID TO DOCTOR WHI CH THE A SSESSEE HAS FAILED TO DEDUCT AND HENCE RS. 85,3 50/ - BEING PROFESSIONAL FEES OUT OF TOTAL EXPENDITURE OF RS. 1,74,850/ - IS HELD TO BE DISALLOWABLE EXPENDITURE U/S 40(A)(IA) OF THE ACT AS NO TDS WAS DEDUCTED BY THE ASSESSEE U/S ITA NO 6243/MUM/2013 ASSESSMENT YEAR: - 2010 - 11. PAGE | 14 194J OF THE ACT WHILE WE ALLO W EXPENDITURE OF RS.89,500/ - BEING INCURRED BY THE ASSESSEE TOWARDS THE MATERIAL COST PAID FOR HER TREATMENT . WE ORDER ACCORDINGLY 19. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 8 T H DAY OF SEPTEMB ER 2015. S D / - S D / - (SHAILENDRA KUMAR YADAV) (RAMIT KOCHAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER ) MUMBAI DATED 2 8 - 09 - 2015 SKS SR. P.S, COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, F BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI