RICKY LAMBA, MUMBAI V. ITO WD 5(1)(3), MUMBAI

ITA 6458/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4186 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: UDAY K JAKKE
• Assessee Lawyers: PRAMOD K PARIDA
• Keywords: Rule of consistency; Deemed to accrue or arise in india
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI BEFORE SHRI B.R. BASKARAN, AM AND SHRI SANDEEP GOSA IN, JM ./ I.T.A. NO. 6458/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) SHRI RICKY LAMBA BANGLOW NO.4, MADHULI SHIV SAGAR ESTATE, WORLI, MUMBAI-400 061. / VS. ITO-5(1)(3), MUMBAI. ./ ./PAN/GIR NO. AAAPL 2247E ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI PRAMOD K. PARIDA / RESPONDENT BY : SHRI UDAY K. JAKKE / DATE OF HEARING : 03/12/2015 !'# / DATE OF PRONOUNCEMENT : 06/04/2016 $% / O R D E R PER SANDEEP GOSAIN, J. M.: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)- 9, DATED 13.0 9.2013 WHEREBY CIT(A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGA INST THE ORDER OF AO DATED 23.12.2011ON THE GROUNDS OF APPEAL MENTIONED HEREIN BELOW. 2 ITA NO. 6458/MUM/2013 (A.Y. 2009-10) RICKY LAMBA VS. ITO 1. DISALLOWANCE OF BUSINESS ASSOCIATE'S FOREIGN TRAVEL LING EXPENSES I) THE ID. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES PERTAINING TO APPELLANT'S WIFE, WITHOUT APPRECIATING THAT SHE IS A BUSINESS ASSOCIATE IN TH E APPELLANT'S BUSINESS FOR MORE THAN 18 YEARS AND SHE HAD BEEN RE GULARLY CONTRIBUTING AS A DESIGNER TO THE APPELLANT'S BUSIN ESS FOR MANY YEARS; THEREFORE, THE DISALLOWANCE OF HER FOREIGN T RAVELLING EXPENSES IS UNCALLED FOR AND THE SAME MAY BE DELETE D. II) THE ID. CIT(A) FURTHER ERRED BY INFERRING THAT THE FOREIGN VISIT OF MRS. LAILA LAMBA WAS ONLY TO TAKE CARE OF HER CHILD RENS WITHOUT APPRECIATING THAT SHE IS A TECHNICAL PERSON WITH RI CH EXPERIENCE AND ALL HER CHILDRENS ARE MAJOR; THEREFORE, THE DIS ALLOWANCE ON DOUBTS AND SURMISES IS NOT JUSTIFIED AND THE SAME M AY BE DELETED. III) THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THAT ALL F OREIGN TRAVELLING AND RELATED EXPENSES PERTAINING TO CHILD RENS INCURRED BY THE APPELLANT HAD NOT BEEN DEBITED TO HIS BUSINESS ACCOUNTS BUT TO HIS PERSONAL ACCOUNT; THEREFORE, THE LEGITIMATE BUS INESS TRAVELLING EXPENSES PERTAINING TO HIS ASSOCIATE HAVING DIRECT NEXUS TO APPELLANT'S BUSINESS ACTIVITIES SHOULD NOT HAVE BEE N CONFIRMED FOR DISALLOWANCE AND THE SAME MAY BE DELETED. IV) THE ID. CIT(A) FAILED TO APPRECIATE THAT ALL EXPENS ES PERTAINING TO HER ASSOCIATION WITH THE APPELLANT'S BUSINESS INCLU DING EXPENSES ON HER FOREIGN TRAVELLING IN RESPECT OF ALL EARLIER YEARS HAD BEEN ALLOWED BY THE REVENUE; THEREFORE, ON THE PRINCIPLE OF CONSISTENCY, THE PRESENT YEAR'S EXPENSES AS EXCLUSIVELY INCURRED FOR THE PURPOSE OF APPELLANT'S BUSINESS SHOULD HAVE BEEN ALLOWED. 3 ITA NO. 6458/MUM/2013 (A.Y. 2009-10) RICKY LAMBA VS. ITO 2. ADDITION U/S. 41(1) - RS. 1,60,306/- I) THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION U/S . 41 (1) WITHOUT APPRECIATING THAT AGE OF THE CLIENTS' RUNNING ACCOU NT BALANCE IS NOT THE SOLE CRITERIA TO CONFIRM THE ADDITION SINCE THE TRADE ADVANCES RECEIVED BY THE APPELLANT WAS AGAINST FUTURE SUPPLI ES WHICH SHOULD NOT PARTAKE THE CHARACTER OF DEEMED INCOME AS IT IS NOT A SUO MOTU CEASED LIABILITY; THEREFORE, NO ADDITION U/S. 41 (1 ) IS CALLED FOR AND THE SAME MAY BE DELETED. II) THE LD. CIT(A) FURTHER ERRED BY NOT APPRECIATING TH AT THE APPELLANT HAS NOT WRITTEN OFF THE SAID AMOUNT IN HIS ACCOUNTS AND EFFLUXION F TIME IS NOT A FACTOR TO INVOKE SECT.41(1) TO BRAND IT AS A CASE OF CEASED LIABILITY; HENCE, THE ADDITION MAY BE DELETE D. 3. LEVY OF PENAL INTERESTS THE APPELLANT, ON MERITS, DENIES HIS LIABILITY TO P ENAL INTEREST. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER A LL OR ANY OF THE ABOVE GROUND OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS THE PROPRIETOR OF M/S. DOLPHIN EXPORTS WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FURNITURE. THE ASSESSEE IS MAINLY EXPORTING THE FURNITURE AND ALSO DERIVES INCOME FROM AGRICULTURE. THE RETURN OF INCOME DECLARING TOTAL I NCOME OF RS.5,45,189/-INCLUDING AGRICULTURAL INCOME OF RS.50,000/- WAS FILED ON 29/ 09/2009. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE I.T. ACT. THE CASE OF THE ASSESSEE WAS SELECTED FOR 4 ITA NO. 6458/MUM/2013 (A.Y. 2009-10) RICKY LAMBA VS. ITO SCRUTINY AND STATUTORY NOTICE U/S 143(2) WAS ISSUED AND SERVED ON THE ASSESSEE. AFTER SEEKING EXPLANATION FROM THE ASSESSEE, THE AO PASSED THE ORDER OF ASSESSMENT DATED 23.12.2011 THEREBY MAKING ADDITION S U/S 143(3) OF THE INCOME- TAX ACT, 1961 ON ACCOUNT OF CESSATION OF TRADING LI ABILITY AMOUNTING TO RS.1,60,306/-. APART FROM THAT FOREIGN TRAVELLING E XPENSES AMOUNTING TO RS.19,28,230/- WERE ALSO DISALLOWED AND ADDED TO TH E TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) PARTLY ALLOWED THE APPEAL FIL ED BY THE ASSESSEE BUT SUSTAINED BOTH THE ADDITIONS MENTIONED ABOVE. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSE E FILED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. GROUND NO. 1 5. THIS GROUND RELATES TO DISALLOWANCE OF BUSINESS ASSOCIATES FOREIGN TRAVELLING EXPENSES. WE HAVE HEARD THE COUNSELS FOR BOTH THE P ARTIES AND WE HAVE ALSO PERUSED THE DOCUMENTS PLACED ON RECORD AND THE ORDE RS PASSED BY REVENUE AUTHORITIES. WE FOUND THAT CIT(A) WHILE DECIDING TH E SAID GROUND HAS CATEGORICALLY MENTIONED THAT THE APPELLANT IS IN BUSINESS OF HIGH END SPECIALIZED FURNITURE, WHICH 5 ITA NO. 6458/MUM/2013 (A.Y. 2009-10) RICKY LAMBA VS. ITO ALSO INCLUDE EXPORT OF ANTIQUE FURNITURE TO VARIOUS COUNTRIES INCLUDING EUROPEAN COUNTRIES AS WELL AS ASIAN COUNTRIES. THEREFORE, CI T(A) HAS HELD THAT IT CAN BE REASONABLE ACCEPTED FACT THAT WHILE GOING ON FOREIG N TRIPS TO VARIOUS COUNTRIES ALONG WITH THE ENTIRE FAMILY, THE ASSESSEE WOULD AL SO TRY TO BOOST HIS BUSINESS ACTIVITIES IN THE PLACES WHICH ARE VISITED BY HIM ALONG WITH FAMILY DURING THE FOREIGN TRIPS. BUT THE EXPENSES INCURRED BY WIFE MR S. LAILA LAMBA ON ACCOUNT OF FOREIGN TRIPS WAS REJECTED BY THE AO AND UPHELD BY THE CIT(A) ON THE GROUND THAT DURING SUCH FOREIGN TRIPS, THE CHILDREN OF THE APPE LLANT WERE ALSO ACCOMPANYING THEM THEREFORE, IT WAS HELD THAT SUCH TRIPS APPEARS TO BE ENJOYMENT TRIPS AND AFTER ANLAYSING THE WRITTEN SUBMISSIONS FILED BY THE ASSE SSEE. WE FOUND THAT IT IS CLAIMED BY ASSESSEE THAT HIS WIFE MRS. LAILA LAMBA IS ASSOC IATED IN THE BUSINESS OF ASSESSEE FOR THE LAST 19 YEARS BUT THE SAID FACT HAS NOT BEE N ACCEPTED BY THE AO. THE AO HAS CARRIED OUT DETAILED INVESTIGATION AND ONLY THEREAF TER COME TO THE CONCLUSION THAT ENTIRE AMOUNT OF RS.19,28,230/- BEING FOREIGN TRAVE LLING EXPENSES IS HELD TO BE INCURRED NOT FOR THE PURPOSE OF BUSINESS AND THEREF ORE DISALLOWED THE SAME AND CONSEQUENTLY ADDED TO THE TOTAL INCOME OF THE ASSES SEE. LD. CIT(A) ALSO CONSIDERED THE SAID ISSUE AND AFTER CONSIDERING DOCUMENTS PLAC ED ON RECORD UPHELD THE ORDERS PASSED BY AO. WE HAVE NOTICED THAT ALTHOUGH THE LD. AR HAS ARGUED AT LENGTH IN ORDER TO SUPPORT THIS ISSUE, BUT THERE IS NO DOCUME NTARY EVIDENCE WHICH COULD SUPPORT THE CLAIM OF THE ASSESSEE THAT HIS WIFE HAS ACTUALLY ASSISTED HIM THROUGHOUT 6 ITA NO. 6458/MUM/2013 (A.Y. 2009-10) RICKY LAMBA VS. ITO THESE TRIPS IN ANY OF HIS BUSINESS ACTIVITY. THE AS SESSEE HAS NOT PLACED ON RECORD ANY DOCUMENTARY EVIDENCE WHICH CAN CONNECT THE WIFE OF THE ASESSEE WITH THE AFFAIRS OF HIS BUSINESS. 6. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS OF THIS CASE WE ARE OF THE CONSIDERED VIEW THAT, WE SEE NO REASONS TO INTERFER E OR DEVIATE FROM THE FINDINGS RECORDED AND ORDERS PASSED BY THE CIT(A) AND HENCE THIS GROUND OF APPEAL RAISED BY ASSESSEE STANDS DISMISSED AND THE ORDERS PASSED BY CIT(A) ARE UPHELD. THEREFORE, WE DISMISS THIS GROUND OF APPEAL RAISED BY ASSESSEE. GROUND NO. 2 7. THIS GROUND RELATES TO ADDITIONS MADE BY AO AND CONFIRMED BY CIT(A) U/S 41(1) OF THE I.T. ACT. WE HAVE HEARD THE COUNSELS F OR BOTH THE PARTIES AND WE HAVE ALSO PERUSED THE DOCUMENTS PLACED ON RECORD AND THE ORDERS PASSED BY REVENUE AUTHORITIES. WE HAVE NOTICED THAT THE AO HAS SUO MOTTO TREATED THE OUTSTANDING BALANCE OF RS.1,60,306/- AS CESSATION OF LIABILITIE S U/S 41(1) OF I.T. ACT. SINCE THE SAME HAS BEEN FOUND TO BE APPEARING FOR MORE THAN T HREE YEARS AND ACCORDINGLY ADDITIONS WERE MADE BY AO AND UPHELD BY THE CIT(A). IN THIS CONNECTION LD. AR CLAIM THAT ALL THREE PARTIES ARE REGULAR CLIENTS AN D HAD PURCHASED FURNITURE FROM THE ASSESSEE. SINCE THEY WERE TO PURCHASE FURNITURE FRO M THE ASSESSEE AGAINST WHICH 7 ITA NO. 6458/MUM/2013 (A.Y. 2009-10) RICKY LAMBA VS. ITO THEY HAD LEFT CERTAIN AMOUNT AS ADVANCE WITH THE AS SESSEE AND SINCE THESE PARTIES ARE FROM ABROAD THEREFORE THEY HAD SAID THAT THEY W OULD BE PURCHASING FURNITURE FROM THE ASSESSEE IN FUTURE AND THE ADVANCE PAID BY THEM WOULD BE ADJUSTED LATTER ON AT THE TIME OF ACTUAL SALES. LD. AR ALSO RELIED UPON THE JUDGEMENTS WHICH ARE CITED BELOW: (2011) 141 TTJ 248 (DEL) DY. CIT VS. HOTEL EXCELSI OR LTD. MERELY BECAUSE ACCOUNTS HAS BECOME NON-OPERATIONAL FOR A PERIOD OF 3 YEARS, IT DOES NOT MEAN THAT OUTSTANDING LIABILIT IES OF ASSESSEE HAS CEASED TO EXIST, MORE SO WHEN ASSESEE HAD NOT WRITT EN OFF SUCH LIABILITIES IN HIS P & L A/C. MERELY BECAUSE THE OUTSTANDING ARE APPEARING IN THE ACCOUNTS FOR SEVERAL YEAR THE SAME CANNOT BE TAXED BY INVOKING T HE DEEMING PROVISION OF SEC.41(1) THIS VIEW FINDS THE SUPPORT OF THE FOLLOWING JUDICIAL RULINGS: (199) 236 ITR 518 (SC) CIT VS. SAGAULI SUGAR WORKS PVT. LTD. (2010) 325 ITR 593 (P&H) CIT VS. SMT. SITADEVI JUNE JA PERMASEAL AUTO PRODUCTS PVT. LTD. VS. ITO ITA NO.2360/M/2010, DATE OF ORDER:25.05.2011. 7.1 WE HAVE NOTICED THAT IN THE PRESENT CASE AO HAS MADE ADDITIONS MERELY ON THE GROUND THAT THE NAME OF SUNDRY CREDITORS ARE FO UND TO BE APPEARING FOR MORE 8 ITA NO. 6458/MUM/2013 (A.Y. 2009-10) RICKY LAMBA VS. ITO THAN THREE YEARS AND ONLY ON THIS BASIS ADDITIONS H AVE BEEN MADE. AFTER APPRECIATING THE FACTS OF THE CASE WE ARE OF THE CO NSIDERED VIEW AND HOLD THAT MERELY BECAUSE THE ACCOUNTS HAVE BECOME NON OPERAT ION FOR A PERIOD OF THREE YEARS IT DOES NOT MEAN THAT OUTSTANDING LIABILITY O F ASSESSEE HAS CEASE TO EXIST MORE SO WHEN ASSESSEE HAD NOT WRITTEN IT OFF SUCH LIABIL ITY IN HIS P & L A/C. WE ALSO FOUND SUPPORT FROM THE JUDGEMENTS MENTIONED ABOVE. 7.2 FROM THE CO-JOINT READING OF ALL THE CITATION R EFERRED ABOVE AND CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS HELD THAT THE PROVISIONS OF SECTION 41 OF THE I.T. ACT ARE NOT APPLICABLE IN THE PRESENT C ASE. HENCE, WE ALLOWED THIS GROUND AND DIRECT THE AO TO DELETE THE ADDITIONS OF RS.1,60,306/- MADE ON ACCOUNT OF CESSATION OF TRADING LIABILITY. THEREFORE, THE P RESENT GROUND ALSO STANDS ALLOWED. 8. GROUND NO.3 HAS BECOME INFRUCTUOUS IN VIEW OF THE FINDINGS RECO RDED ABOVE. 9. GROUND NO. 4 IS GENERAL IN NATURE AND NEEDS NO SEPARATE ADJUDIC ATION IN VIEW OF THE DECISION ON ABOVE GROUNDS. 10. IN THE RESULT, THE ASSESSEES APPEAL IS PARTY A LLOWED. 9 ITA NO. 6458/MUM/2013 (A.Y. 2009-10) RICKY LAMBA VS. ITO ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH APRIL, 2016 SD/- SD/- ( B.R. BASKARAN ) (SANDEEP GOSAIN) $ / ACCOUNTANT MEMBER &' $ / JUDICIAL MEMBER ( ) MUMBAI; *$ DATED :06.04.2016 PS. ASHWINI / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI