OCEAN ARTS & MERCANTIALE P.LTD, MUMBAI V. DCIT 8(1)(OSD), MUMBAI

ITA 6296/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8123 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 20-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 12-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PREMANAND J
• Assessee Lawyers: RASHMIKANT D KUNDALIA
• Keywords: Depreciation; Earning of tax free income; Additional evidence; Commercial expediency
• Section: 14A; 37(1)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - C BENCH. , ! , BEFORE S/SH.VIJAY PAL RAO, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.6296/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR-2008-09 M/S OCEAN ARTS & MERCANTILE P. LTD., 104, HILL N-N-SEA, 72 PALLI HILL SMT. NARGIS DUTT ROAD, BANDRA-WEST, MUMBAI-400050 PAN:AAACO2278Q VS DC IT 8(1)(OSD), 204, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI RASHMIKANT D. KUNDALIA + * / REVENUE BY : SHRI PREMANAND J. ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 30-09-2014 -.# + ), / DATE OF PRONOUNCEMENT : 17-10-2014 ' ' ' '1961 1961 1961 1961 + + + + 2 22 25 55 54 44 4( (( (1 11 1) )) ) )7) )7) )7) )7) 8 8 8 8 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ! ! ! ! ' ' ' ' : CHALLENGING THE ORDER DATED 28.06.2012 OF THE CIT(A )-25, MUMBAI,ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEALS: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT-A HAS ERRED IN CONFIRMING THE ADDITION OF : (I) FOREIGN TRAVEL EXPENSES TO THE TUNE OF RS. 1,56,762 /- (II) INTEREST ON PROPERTY LOAN TO THE TUNE OF RS.6,78,73 3/- ON THE GROUND THAT SINCE DEPRECIATION HAD NOT BEEN CLAIMED BY THE ASSESSEE T HE OFFICE PREMISES COULD NOT BE DEEMED TO HAVE BEEN USED FOR THE PURPOSE OF BUSINESS. 2. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT-A HAS ERRED IN CONFIRMING THE ADDITION OF RS.39,598/- UNDER SECTIO N 14A READ WITH THE RULE 8D OF THE INCOME TAX RULES, 1962. 3. THE APPELLANT CRAVES TO ADD, AMEND, MODIFY OR DELET E GROUND OF APPEAL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF FREIGHT COMMISSIONG,FILED ITS RETURN OF INCOME ON 27.09.2008,DECLARING TOTAL INCOME OF RS.64,90,130/- .ON 08.11.2010,ASSESSING OFFICER(AO) FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,DETE RMINING THE TOTAL INCOME AT RS.81,33,380/-. 2.1. FIRST GROUND OF APPEAL IS ABOUT FOREIGN TRAVEL EXPE NSES OF RS.1.56 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAI MED A SUM OF RS.7.97 LAKHS UNDER THE HEAD FOREIGN TRAVEL EXPENSES,THAT IT HAD CLAIMED THAT TH E PRINCIPLE HAD REIMBURSED RS.6.40 LAKHS OUT OF 2 ITA NO. 6296/M/2012 M/S OCEAN ARTS & MERCANTILE P. LTD. THE TOTAL EXPENDITURE.THE AO DISALLOWED THE BALANCE EXPENDITURE I.E.RS.1,56,762/- ON THE GROUNDS THAT NO EVIDENCE FOR THE SAME HAD BEEN FURNISHED. 2.2. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).AFTER CONSIDERING THE ASSESSMENT ORD ER AND SUBMISSIONS OF THE ASSESSEE,HE HELD THAT THAT THE MAIN OBJECTION OF THE AO WAS THAT THE RELEVANT VOUCHERS HAD NOT BEEN PRODUCED,THAT THE SHORTCOMING POINTED OUT BY THE AO HAD NOT BEEN REMOVED BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS.FINALLY,HE SUSTAINED THE ADDI TION MADE BY THE AO. 2.3. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)STATED T HE ASSESSEE WAS DUTY BOUND TO INCUR THE EXPENDITURE WITH RESPECT TO THE VISIT OF THE DIRECT OR,THAT ALL THE DETAILS OF THE FOREIGN TRAVEL EXPENSES HAD BEEN SUBMITTED TO THE AO,THAT EXPENDIT URE WAS INCURRED FOR THE BUSINESS PURPOSES. HE RELIED UPON THE AFFIDAVIT FILED BY THE DIRECTOR OF THE COMPANY.DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE FAA. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US. WE FIND THAT THE CASE UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED AN EX PENDITURE OF RS. 7.97 LAKHS AS FOREIGN TRAVEL EXPENSES OUT OF WHICH RS. 6.40 LAKHS HAD BEEN REIMB URSED BY THE PRINCIPLE, THAT RS. 1.56 LAKHS WERE CLAIMED BY IT IN THE P&L A/C, THAT THE ASSESSE E HAD PRODUCED CERTAIN VOUCHERS OF RS. 1.56 LAKHS BEFORE THE AO, THAT IT WAS CLAIMED THAT EXPEN DITURE WAS ON ACCOUNT OF FOOD AND LODGING EXPENSES, THAT NO EVIDENCE ABOUT THE EXPENDITURE WA S PRODUCED. THE ASSESSEE NOT ONLY FAILED TO ESTABLISH THE RELATION OF THE EXPENDITURE THAT BUSI NESS CARRIED OUT BY IT BUT IT FAILED TO PROVE THE GENUINENESS OF THE EXPENSES CLAIMED. EVEN BEFORE TH E FAA, THE RELEVANT VOUCHERS WERE NOT PRODUCED.WE FIND THAT THE MANAGING DIRECTOR OF THE COMPANY HAS FILED AN AFFIDAVIT DATED 13.03.2014 IN THIS REGARD AND HAD CLAIMED THAT PRIN CIPLE HAD REIMBURSED ONLY 6.40 LAKHS AND TOTAL EXPENDITURE WAS OF RS. 7.96 LAKHS. IN OUR OPINION, AFFIDAVIT IS A SELF-SERVING DOCUMENT AND WITHOUT THE RELIABLE DOCUMENTARY EVIDENCES, LIKE VO UCHERS, THE AFFIDAVIT IS NOT MORE THAN A PIECE OF PAPER.THE PROVISIONS OF SECTION 37(1) OF THE ACT CASTS A CLEAR BURDEN UPON THE ASSESSEE TO PROVE THAT CERTAIN EXPENDITURE WAS INCURRED FOR A PARTICU LAR YEAR AND IT WAS INCURRED WHOLLY AND 3 ITA NO. 6296/M/2012 M/S OCEAN ARTS & MERCANTILE P. LTD. EXCLUSIVELY FOR THE BUSINESS. AS THE ASSESSEE HAD N OT PRODUCED THE BASIC DOCUMENTS BEFORE BOTH THE REVENUE AUTHORITIES, THEREFORE, WE ARE OF THE O PINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.CONFIRMING HIS ORDER, WE D ECIDE GROUND NO.1 AGAINST THE ASSESSEE. 3. NEXT GROUND IS ABOUT DISALLOWANCE OF RS.6,78,733/-. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD CLAIMED INTEREST EXPEND ITURE OF RS.6.78 LAKHS.HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY THE INTEREST BY IT FOR PURCHAS ING PROPERTY SHOULD NOT BE DISALLOWED AS IT HAD NOT BEEN USED FOR THE PURPOSES OF THE COMPANY'S BUS INESS. IN RESPONSE TO THE SAID QUERY, THE ASSESSEE HAS SUBMITTED THAT ABOVE INTEREST EXPENDIT URE HAD BEEN INCURRED ON LOAN TAKEN FOR RENOVATION OF THE OFFICE PREMISES, SITUATED AT RUBY LIGHT CO-OPERATIVE HOUSING SOCIETY, BANDRA (W), MUMBAI. ON FURTHER ENQUIRY BY THE AO, THE ASSE SSEE SUBMITTED THAT THERE WAS NO TELEPHONE OR ELECTRICITY EXPENDITURE FOR THE SAID OFFICE PREM ISES AS DURING THE YEAR THE PREMISES WAS UNDER REDEVELOPMENT. AFTER CONSIDERING THE REPLY OF THE A SSESSEE,THE AO HELD THAT THE EXPLANATION OF THE ASSESSEE WAS INCORRECT,THAT THE OPENING AND CLOSIN G WDV OF THE SAID PROPERTY REMAINED UNCHANGED DURING THE YEAR,THAT THE INTEREST EXPENDI TURE WAS INCURRED FOR PURCHASE OF THE SAID PROPERTY,THAT PROPERTY HAD NOT BEEN PUT TO USE,THAT SAID EXPENDITURE SHOULD HAVE BEEN CAPITALISED. 3.1. DURING THE COURSE OF APPELLATE PROCEEDINGS,IT WAS S UBMITTED BEFORE THE FAA THAT THE SAID PROPERTY WAS VACATED FOR REDEVELOPMENT DURING F.Y. 2008-09.BEFORE HIM THE ASSESSEE FILED ADDITIONAL EVIDENCE IN THE SHAPE OF LETTER FROM KYR US INDUSTRIES, DATED 29.8.2008 ALONG WITH THE COPY OF THE COMPUTATION OF TOTAL INCOME FOR A.Y. 20 09-10 WHEREIN INCOME FROM THE SAID PROPERTY HAD BEEN NOTIONALLY COMPUTED U/S. 23(1)(A) OF THE A CT. THE FAA AFTER CONSIDERING THE AVAILABLE MATERIAL HE LD THAT THE ASSESSEE HAD COMPUTED THE INCOME FROM THE RUBY FLAT U/S 23(1)(A) I.E. INCOME FROM HO USE PROPERTY IN THE AY.2009-10,THAT IT WAS BEYOND COMPREHENSION AS TO HOW THE INTEREST PAID ON THE ACQUISITION OF THE SAID FLAT COULD BE CLAIMED U/S 36(1)(III) FOR A.Y. 2008-09,THAT THE AS SESSEE HAD NOT CLAIMED ANY DEPRECIATION ON THE SAID FLAT FOR A.Y. 2008-09,THAT THE SAID FLAT WAS N OT USED FOR THE PURPOSE OF BUSINESS DURING THE 4 ITA NO. 6296/M/2012 M/S OCEAN ARTS & MERCANTILE P. LTD. PREVIOUS YEAR. HE UPHELD THE ADDITION MADE BY THE A O. 3.2. BEFORE US,THE AR ARGUED THAT INTEREST WAS PAID BECA USE OF COMMERCIAL EXPEDIENCY, THAT PAYMENT OF INTEREST HAD DIRECT NEXUS WITH THE BUSIN ESS OF THE ASSESSEE.DR RELIED UPON THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD NOT CLAIMED ANY DEPRECIATION FOR THE FLAT IN QU ESTION FOR THE AY 2008-09.WHILE GOING THROUGH THE PAGE NO.12 TO 22 OF THE PAPER BOOK FILED BY THE ASSESSEE,WE FIND THAT THE CONSUMPTION OF ELECTRIC USED BY THE ASSESSEE IS ALMOST NEGLIGIBLE AND IN THE MONTH OF MAY IT HAD CONSUMED ZERO UNITS.SIMILAR IS THE POSITION OF WATER BILLS.IN OUR OPINION,THESE DOCUMENTS PROVED THAT ASSESSEE HAD TAKEN THE PREMISES BEFORE THE REDEVELOPMENT FOR SPECIFIC PURPOSES AND THE FLAT WAS NEVER USED FOR BUSINESS PURPOSES.THEREFORE,IF THE AO AND THE F AA HAD DISALLOWED THE INTEREST FOR THE PROPERTY IN QUESTION,THEY WERE JUSTIFIED IN DOING S O.IN THE AY 2009-10 THE ASSESSEE ITSELF HAS COMPUTED THE INCOME FROM THE FLAT U/S 23(1)(A) OF T HE ACT UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'.IN THESE CIRCUMSTANCES,THE CLAIM OF INTER EST U/S 36(1)(III) OF THE ACT,FOR THE YEAR UNDER CONSIDERATION CANNOT BE HELD TO BE AS PER THE PROVI SIONS OF LAW.GROUND NO.2 IS DECIDED AGAINST THE ASSESSEE. 4. LAST GROUND OF APPEAL PERTAINS TO THE DISALLOWANCE, AMOUNTING TO RS. 39,598/-,U/S.14A OF THE ACT R.W.RULE 8D OF THE INCOME TAX RULES,1962(RULES).DUR ING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD NOT APPORTIONED EXPENSE S TOWARDS THE EXEMPT INCOME INCURRED BY IT DURING THE YEAR UNDER CONSIDERATION.AFTER OBTAINING EXPLANATION OF THE ASSESSEE IN THAT REGARD HE MADE A DISALLOWANCE OF RS.39,598/-. 4.1. IN THE WRITTEN SUBMISSIONS MADE DURING THE COURSE O F APPELLATE PROCEEDINGS,THE ASSESSEE ARGUED THAT NO DIRECT EXPENSES HAD BEEN INCURRED TO EARN THE DIVIDEND INCOME,THAT THERE WAS HARDLY ANY INDIRECT EXPENDITURE WHICH MIGHT HAVE BE EN SAID TO HAVE BEEN INCURRED IN RELATION TO EARNING OF EXEMPT DIVIDENDS.AFTER CONSIDERING THE S UBMISSIONS OF THE ASSESSEE,THE FAA HELD THAT THE AO HAD CORRECTLY INVOKED THE PROVISIONS OF THE SECTION 14A OF THE ACT.HE UPHELD THE ORDER OF 5 ITA NO. 6296/M/2012 M/S OCEAN ARTS & MERCANTILE P. LTD. THE AO. 4.2. BEFORE US,THE AR SUBMITTED THAT NO INTEREST WAS PAI D BY THE ASSESSEE FOR EARNING EXEMPT INCOME,THAT THE ASSESSEE HAD HARDLY INCURRED DIRECT EXPENSES.HE ALSO REFERRED TO THE ALTERNATE COMPUTATION OF DISALLOWANCE.DR STATED THAT DISALLOW ANCE MADE BY THE AO AND UPHELD BY THE FAA WAS AS PER LAW. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 2.52 LAK HS AND DID NOT SHOW ANY EXPENDITURE TO EARN THE SAID INCOME, THAT THE AO MADE AN ADDITION OF RS . 39,598/- U/S.14A R.W.R. 8D OF THE RULES. DURING THE APPELLANT PROCEEDINGS, THE ASSESSEE STAT ED THAT NO DIRECT EXPENSES HAD BEEN INCURRED TO EARN DIVIDEND INCOME,HOWEVER, FOR INDIRECT EXPENSES IT HAD TAKEN ONE DAYS SALARY OF AN ACCOUNTANT CLERK,OFFICE RENT AND TELEPHONE EXPENSES .CONSIDERING THE PECULIAR FACTS AND CIRCUMSTAN -CES OF THE CASE, WE ARE OF THE OPINION THAT A DISA LLOWANCE MADE IS ON HIGHER SIDE.IN THE INTEREST OF JUSTICE,WE ARE RESTRICTING IT TO RS.10,000/-. GROUND NO.3 IS ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ( 9 '() + : + ) ;<. ORDER PRONOUNCED IN THE OPEN COURT ON 17TH OCTOBER,2014 . 8 + -.# > ?' 17 FLRACJ FLRACJ FLRACJ FLRACJ , 201 4 . + 7 @ SD/- SD/- ( / VIJAY PAL RAO) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER , / MUMBAI, ?' /DATE: 17.10 . 2014. SK 8 8 8 8 + ++ + &) &) &) &) A #) A #) A #) A #) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ B C , 4. THE CONCERNED CIT / B C 5. DR C BENCH, ITAT, MUMBAI / D7 &)' LH LHLH LH , . . . 6. GUARD FILE/ 7 E ') ') ') ') &) &)&) &) //TRUE COPY// 8' / BY ORDER, F / ; DY./ASST. REGISTRAR , /ITAT, MUMBAI