DILIP M. KEJARIWAL, MUMBAI V. ITO WD 14(20(3), MUMBAI

ITA 6517/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55881 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 21-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Business income; Opportunity of being heard; Earning of tax free income; Bad and doubtful debts
• Section: 14A; 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI R K PANDA , AM & SHRI VIJAY PAL RAO, JM ITA NO. 6517/MUM/2009 (ASST YEAR 2005-06 ) SH DILIP M KEJARIWAL C/O PRIYA INTERNATIONAL 413 COTTON EXCHANGE BLDG 134 KALBADEVI ROAD, MUMBAI VS THE INCOME TAX OFFICER WARD 14(2)(3), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AABPK9487E ASSESSEE BY SH |V|IJAY KOTHARI REVENUE BY SH R K SANU DT.OF HEARING 28 TH NOV 2011 DT OF PRONOUNCEMENT 30 TH , NOV 2011 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED OF THE CIT(A) FOR THE AY 2005-06. 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN DISALLOWING RS. 27,899/- OUT OF TELEPHONE EXPENSES BY ATTRIBUTING 15 % OF THE TOTAL TELEPHONE EXPENSES TO BE PERSONAL IN NATURE. 2. THE LEARNED. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN DISALLOWING RS. 8,057/- OUT OF MOTOR CAR EXPENSES BY ATTRIBUTING 15% OF THE TOTAL MOTOR CAR EXPENSES TO BE PERSONAL IN NATURE. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN DISALLOWING RS. 28,941/- OUT OF TRAVELLING EXPENSES BY ATTRIBUTING 15% OF THE TOTAL TRAVELLING EXPENSES TO BE PERSONAL IN NATURE. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE MADE U/S. 14A OF RS. 3,19,4321- AS EXP ENDITURE INCURRED IN RELATION TO EXEMPT INCOME. 5. WITHOUT PREJUDICE TO GROUND OF APPEAL NO. 4, THE L EARNED COMMISSIONER OF 2 INCOME TAX (APPEALS) ERRED IN NOT ALLOWING CLAIM OF DEDUCTION OF BAD DEBTS OF RS. 2,00,000/-. 3 GROUND NOS 1 TO 3 THE ASSESSING OFFICER HAS DISALLOWED 1/3 RD OF THE TELEPHONE EXPENSES WHICH ALSO INCLUDES MOBILES PHONE EXPENSES . THE ASSESSING OFFICER ALSO DISALLOWED 1/5 TH OF MOTOR CAR EXPENSES ON ACCOUNT OF PERSONAL USE. APART FROM THIS, THE ASSESSING OFFICER DISALLOWED 50% OF TRAVELLING EXPENSES CONSIDERING IT PERSONAL IN NATURE. THE ASSESSEE CHALLENGED THE ACTION OF THE A SSESSING OFFICER BEFORE THE CIT(A). THE CIT(A) FOUND THAT THE 1/3 RD DISALLOWANCE IN RESPECT OF TELEPHONE EXPENSE IS EXCESSIVE AND UNREASONABLE. THEREFORE, THE CIT(A) RESTRICTED THE DISALLOWANCE AT 15% OF THE TOTAL EXPENDITURE WHICH COMES TO RS.27,899/- AND THE REMAINING DISALLOWANCE WAS DELETED. SIMILARLY, THE DISALLOWANCE ON ACCOUNT OF MOTOR CAR AND TRAVELLING EXPENSES WERE ALSO RESTRIC TED TO 15%. IN NUTSHELL, THE CIT(A) HAS RESTRICTED THE DISALLOWANCE ON ALL THESE THREE ITEMS TO 15%. 4 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF T HE CASE AS WELL AS THE RIVAL CONTENTIONS OF THE PARTIES, WE ARE OF THE VIEW THAT SINCE THE ASSESSEE IS AN INDIVIDUAL; THEREFORE, PERSONAL USE OF THE EXPENDITURE ON ACCOU NT OF TELEPHONE, MOTOR CAR AND TRAVELLING CANNOT BE RULED OUT. THEREFORE, THE DISA LLOWANCE RESTRICTED BY THE CIT(A) TO 15% IS JUST AND PROPER. WE DO NOT FIND ANY REASO N TO INTERFERE WITH THE ORDER OF THE LD CIT(A), QUA THIS ISSUE. ACCORDINGLY, GROUND NO S 1 TO 3 ARE DISMISSED. 5 GROUND NO 4 & 5 REGARDING DISALLOWANCE MADE BY THE ASSESSING OFFIC ER U/S 14A. 6 THE ASSESSEE IS DOING BUSINESS AS PROPRIETOR OF M /S PRIYA INTERNATIONAL AS WELL AS IN THE PERSONAL NAME. THE ASSESSEE PREPARED TWO SEPARATE P&L ACCOUNT SHOWING THE INCOME EARNED IN PERSONAL NAME AS WELL AS IN THE PROPRIETARY CONCERN M/S PRIYA INTERNATIONAL. THE ASSESSING OFFICER FOUN D THAT IN THE P&L ACCOUNT, THE 3 ASSESSEE HAS NOT SHOWN ANY BUSINESS INCOME AND THE ONLY INCOME WAS ON ACCOUNT OF DIVIDEND, INTEREST ON PPF AND INTEREST ON SB ACC OUNT AS WELL INTEREST ON INCOME TAX REFUND WAS SHOWN. THE ASSESSEE DEBITED VARIOUS EXP ENDITURE INCLUDING SUNDRY DEBTORS WRITTEN OFF AT RS 2 LAC. THE ASSESSING OF FICER DISALLOWED THE ENTIRE EXPENDITURE ON THE GROUND THAT THERE WAS NO BUSINES S INCOME CREDITED IN THE P&L ACCOUNT IN THE NAME OF THE ASSESSEE. SINCE THE INCO MES CREDITED ARE OF IN THE NATURE OF EXEMPT INCOME, THE SAID EXPENDITURE, IN V IEW OF THE ASSESSING OFFICER, IS HIT BY PROVISIONS OF SEC. 14A. ON APPEAL, THE CIT(A) CO NFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL FINANCE LTD . 7 BEFORE US, THE LD AR HAS MAINLY CONTENDED THAT TH E DISALLOWANCE U/S 14A IS RESTRICTED ONLY TO THE EXPENDITURE, WHICH IS INCURR ED FOR EARNING THE EXEMPTED INCOME. THE LD AR HAS FORCEFULLY SUBMITTED THAT THE LOWER AUTHORITIES HAVE COMMITTED ILLEGALITY BY DISALLOWING THE ENTIRE EXPE NDITURE BY INVOKING THE PROVISIONS OF SEC. 14A, WHICH IS NOT JUSTIFIED. HE HAS FURTHE R SUBMITTED THAT THE CLAIM OF RS. 2 LACS IS PERTAINING TO THE BAD DEBTS WRITTEN OFF BY THE A SSESSEE AND THEREFORE, THIS CANNOT BE DISALLOWANCE U/S 14A. 7.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT THE ONLY INCOME SHOWN BY THE ASSESSEE IS DIVIDEND AND INTEREST ON PPF WHICH ARE EXEMPTED INCOME APART FROM A SMALL AMOUNT OF INTEREST ON SB ACCOUNT AND INCOME TAX REFUND. THEREFORE, EVEN OTHERWISE, THE EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED AGAINST THE INCOME FROM OTHER SOURCE, WHEN NO BUSINESS INCO ME WAS SHOWN BY THE ASSESSEE DURING THE YEAR. 7.2 IN REBUTTAL, THE LD AR HAS SUBMITTED THAT THOUG H TECHNICALLY THE ASSESSEE HAS PREPARED TWO P&L ACCOUNTS BUT WHEN THE ASSESSEE IS DOING THE BUSINESS AND SHOWN 4 BUSINESS INCOME IN ITS PROPRIETARY CONCERN M/S PRIY A INTERNATIONAL, THE ENTIRE EXPENDITURE OTHERWISE ALLOWABLE AGAINST THE BUSINES S INCOME. 8 WE HAVE CONSIDERED THE RIVAL CONTENTION AND PERUS ED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE APPROAC H OF THE LOWER AUTHORITIES IN DISALLOWANCE THE ENTIRE EXPENDITURE U/S 14A IS NOT SUSTAINABLE BECAUSE ONLY THAT PART OF THE EXPENDITURE IS DISALLOWED U/S 14A WHICH IS INCURRED FOR EARNING DIVIDEND INCOME OR RELATED TO EXEMPTED INCOME. THEREFORE, TH E ENTIRE EXPENDITURE, WHICH IS NOT RELATED TO THE EXEMPTED INCOME, CANNOT BE DISAL LOWED BY INVOKING THE PROVISIONS OF SEC. 14A. FURTHER THE CIT(A) HAS FOL LOWED THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASED OF DAGA CAPITAL FINANCE LTD .,WHICH HAS BEEN REVERSED BY THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF GODREJ BOYCE MFG CO LTD VS DCIT REPORTED IN 328 ITR 81. ACCORDINGLY, THIS ISSUE REQUIRES PROPER VERIFICATION AND ADJUDICATION IN THE LIGHT OF THE D ECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO LTD ( SUPRA). HENCE, WE RESTORE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR FR ESH ADJUDICATION AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE AND IN THE LIGHT OF THE DECISION CITED SUPRA AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 14 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 30 TH , DAY OF NOV 2011. SD/ SD/- ( R K PANDA ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH , NOV 2011 RAJ* 5 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI