GANESH G. KAMTH, MUMBAI V. ITO WD 19(2)-3, MUMBAI

ITA 6678/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8567 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 24-09-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 17-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: ADITYA KUMAR
• Keywords: Deemed to accrue or arise in india

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 6678/MUM/2010 (ASSESSMENT YEAR: 2003-04) MR. GANESH G. KAMATH, 71-C, AJAY APTS. SARSWATI ROAD, SANTACRUZ (W), MUMBAI -400 012 PAN: AAMPK 1619 H VS ITO - 19(2)3, PIRAMAL CHAMBERS, LAL BAUG, PAREL, MUMBAI -400 012 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ADITYA KUMAR RESPONDENT BY : SHRI A.K. NAYAK DATE OF HEARING: 24-09-2012 DATE OF PRONOUNCEMENT: 10-10-2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL ARISES FROM THE ORDER OF CIT(A) 30, MUMBAI, DAT ED 14.06.2010, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE ORDER PASSED BY THE LEARNED CIT (A) SO FAR AS CONFIRMING VARIOUS ADDITI ONS IS ARBITRARY UNJUSTIFIED AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE UNDER THE HEAD FOOD EXPENSES AMOUNTING TO RS 94,826. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITIONS OF RS 1,0 9,200 MADE ON ACCOUNT OF DEEMED INCOME UNDER THE HEAD INCOME FROM HOUSE PROP ERTY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT (A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITIONS OF RS 23, 285 MADE ON ACCOUNT OF ALLEGED INTEREST INCOME. 5. THE ASSESSEE CRAVES LEAVE TO ADD, DELETE, ALTER/ MODIFY THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. THE ASSESSEE IS THE PROPRIETOR OF M/S JUST DESSERTS AND IS EN GAGED IN TRADING OF NATURAL BRAND ICE CREAM, AND MANUFACTURING OF OTHER EATABLE ITEMS. MR. GANESH G. KAMATH ITA NO. 6678/MUM/2010 2 3. GROUND NO. 1 IS GENERAL. 4. GROUND NO. 2 IS AGAINST THE DISALLOWANCE UNDER THE HEAD FOOD EXPENSES. 5. THE FACTS ARE THAT THE ASSESSEE HAD DEBITED RS. 1,89,6 52 AS STAFF WELFARE IN THE PROFIT & LOSS ACCOUNT. PERUSAL OF THE LEDGER A CCOUNT, IT WAS NOTICED BY THE AO, THAT THE ASSESSEE HAS MADE CASH PAYMENTS OF RS. 2,38,036/- TO A PARTY REFERRED TO AS ANTY FOR BREAKFAS T, LUNCH & DINNER OF THE STAFF AND HAS RECOVERED RS. 48,384/- FROM THE S TAFF. THE ASSESSEE WAS THEREFORE ASKED TO FURNISH THE SUPPORTING BILLS A ND VOUCHERS IN SUPPORT OF HIS CLAIM. THE ASSESSEE FILED THE REQUISITE DETAILS VIDE LETTER DATED 12.12.2005. FROM THE PERUSAL OF THE COPIES OF THE SO CALLED BILLS FILED, IT IS SEEN THAT THE SAME ARE ONLY PLAIN PAPERS ON WHICH HAND WRITTEN DETAILS OF SOME FOOD ITEMS ARE MENTIONED. ALL THE PAYME NTS HAVE BEEN MADE IN CASH. NO BILLS HAS BEEN ATTACHED ONLY PAPER S HOWING THE DETAILS OF FOOD CONSUMED HAS BEEN SUBMITTED. IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS DEBITED RS. 1,51,656/- AS SALARY IN THE PR OFIT & LOSS ACCOUNT. IT IS VERY STRANGE THAT THE ASSESSEE IS PAYI NG SALARY OF RS. 1,51,656/- AND IS INCURRING RS. 1,89,652/- ON PROVIDING BR EAKFAST, LUNCH & DINNER TO THE STAFF MEMBER. THIS FACT WHEN CONSIDE RED WITH THE NATURE OF BILLS FILED BY THE ASSESSEE AS DISCUSSED ABOVE, GIVE S ONLY ONE CONCLUSION THAT THE ASSESSEE HAS INFLATED HIS EXPENDIT URE BY BOOKING BOGUS EXPENSES WHICH CAN NOT BE VERIFIED. HOWEVER, THE ASSESSEE MUST HAVE INCURRED SOME EXPENSES FOR STAFF WELFARE DURIN G THE COURSE OF BUSINESS. THEREFORE, 20% OF THE TOTAL SALARY PAID BY THE ASSESSEE IS ALLOWABLE AS STAFF WELFARE EXPENSES. THE TOTAL SALARY PAID B Y THE ASSESSEE DURING THE YEAR IS RS. 1,51,656/- AND 20% OF THE SAME C OMES TO RS. 30,331/- WHICH IS ALLOWED AS STAFF WELFARE EXPENSES. TH E BALANCE AMOUNT OF STAFF WELFARE EXPENSES OF RS 1,89,652/- IS DISALLOWED. MR. GANESH G. KAMATH ITA NO. 6678/MUM/2010 3 6. AGAINST THIS, THE ASSESSEE APPROACHED THE CIT(A), WHO S USTAINED THE DISALLOWANCE TO 50% AS AGAINST 20%, GIVING A RELIEF OF RS . 64,496 (I.E. RS. 1,89,652 RS. 94,826). 7. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 8. BEFORE US, THE AR SUBMITTED THAT THE BUSINESS OF THE A SSESSEE BEING TRADING IN NATURAL BRAND ICE CREAM AND MANUFACTU RING OF OTHER FOOD ITEMS. FOR A SMOOTH RUNNING OF THE ROUND THE CLOCK B USINESS, IT IS NECESSARY THAT THE WORKERS ARE EMPLOYED ON SHIFT BASI S. SINCE THE EMPLOYEES ARE OF SHIFT BASIS, THEY HAVE TO BE FED BY THE O WNER, WHICH INCLUDES BREAKFAST, LUNCH, DINNER AND IN-BETWEEN TEA. 9. THE AR, THEREFORE, PLEADED THAT IT IS THE NATURE OF BUS INESS, WHICH HAS TO BE LOOKED, AND INTO THE CORRESPONDING EXPENSE TH ERETO, AND NOT THE CORRESPONDING SALARY PAID TO THESE EMPLOYEES. 10. DR ON THE OTHER HAND, RELIED ON THE ORDERS OF THE RE VENUE AUTHORITIES AND SUBMITTED THAT THE CIT(A) HAS ALREADY MAD E A VERY REASONABLE AND ADEQUATE REDUCTION IN THE DISALLOWANCE. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND HAVE PERUSED THE ORDER OF THE REVENUE AUTHORITIES. FROM THE FACTS, IT E MERGES THAT THE BUSINESS OF THE ASSESSEE IS TRADING IN PERISHABLE ITEM, I.E. IC E CREAMS, WHOSE MANUFACTURING AND SALES HAVE TO BE DELICATELY MONI TORED BY THE ASSESSEE AND HIS STAFF, ROUND THE CLOCK. IT IS BECAUSE O F THIS REASON, THAT THE ASSESSEE HAS TO EMPLOY HIS TEAM OF EMPLOYEES, ON SH IFT BASIS AND BECAUSE OF MAINTAINING AND COORDINATING SHIFTS THE ASSESSEE HAS TO PROVIDE ALL MEALS TO HIS EMPLOYEES. AS IS EVIDENT FROM THE O RDER OF THE CIT(A), THE REVENUE AUTHORITIES HAVE NOT DENIED THE FACT THAT THE ASS ESSEE WAS DUTY BOUND TO PROVIDE ALL MEALS, I.E. BREAKFAST, LUNCH AN D DINNER, BUT THESE EXPENSES ARE NOT BACKED UP BY PROPER MAIN TENANCE OF MR. GANESH G. KAMATH ITA NO. 6678/MUM/2010 4 VOUCHERS/BILLS, WE, AT OUR END, FEEL THAT THOUGH THE EXPEN SES DEBITED MUST BE ALLOWED, BEING EXPENDED WHOLLY FOR THE PURPOSES O F BUSINESS, BUT SINCE THE BILLS/VOUCHERS ARE NOT THERE TO SUPPORT T HE ASSESSEE CLAIM, A DISALLOWANCE OF 10% OF THE EXPENSES SHALL MEET THE ENDS OF JUSTICE. 12. WE, THEREFORE, SET ASIDE THE ORDER OF THE CTI(A) ON TH IS ISSUE AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS. 18,965, B EING 10% OF RS. 1,89,652. 13. THE GROUND IS PARTLY ALLOWED. 14. GROUND NO. 3 IS AGAINST THE ADDITION OF RS. 1,09,200 ON A CCOUNT OF DEEMED INCOME UNDER THE HEAD HOUSE PROPERTY. 15. THE AO, AFTER CONSIDERING THE DETAILED REPLY FROM THE ASSESSEE CONCLUDED THAT PROPERTIES AT NEW SONAL LINK INDL.-GALA (5 0% SHARE) AT RS. 4,80,003, INDRALOK FLAT NO. B-404 (50% SHARE) AT RS. 6 0,000 AND JUHU KOLIWADA AT RS. 48,000 WERE NOT USED FOR THE PURPO SE OF BUSINESS BY THE ASSESSEE. HE, THEREFORE, ESTIMATED THE NOTIONAL REN T OF THESE PROPERTIES AT RS. 1,56,000, ALLOWED 30% STANDARD DEDUCTION THEREON AND ADDED THE RESULTANT RS. 1,09,200 TO THE INCOME OF THE ASSESSEE. 16. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A) AND RE ITERATED HIS STAND BEFORE HIM. 17. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS, AS REPRODU CED IN THE IMPUGNED ORDER, CONCLUDED, AS THE PROPERTIES HAVE NOT BEEN LET OUT, ANNUAL LETTING VALUE OF THE PROPERTY WILL HAVE TO BE EST IMATED . HE, THEREFORE, SUSTAINED THE ADDITION MADE BY THE AO. 18. THE ASSESSEE IS NOW BEFORE THE ITAT, ON THIS ISSUE. MR. GANESH G. KAMATH ITA NO. 6678/MUM/2010 5 19. BEFORE US, THE AR REITERATED HIS SUBMISSIONS MADE BEFO RE THE REVENUE AUTHORITIES AND CONTENDED THAT ALL THE PROPERTIE S WERE BEING USED BY THE ASSESSEE WITH REGARD TO THE PROPERTY BEING INDUSTRIAL GALA AT SONAL LINK, IT IS SUBMITTED THAT THE SAID UNIT WAS PURCHASED TO START AN ICE-CREAM MANUFACTURING UNIT BUT COULD BE DONE SO IN TIME. AT PRESENT THE SAID UNIT IS IN ACTIVE BUSINESS USE AS THE ASSESSEE HAS BEEN RUNNING AN ICE CREAM MANUFACTURING UNIT IN THE PREMISES. ALTHOUGH THE SA ID UNIT, DURING THE RELEVANT TIME, WAS NOT IN ACTIVE USE BUT THE SAME W AS UTILISZED FOR STORING VARIOUS ITEMS INCLUDING PACKING MATERIAL BY THE FIR M IN WHICH THE ASSESSEE WAS A PARTNER AND THEREFORE THE LEARNED AO WAS NOT JUSTIFIED IN TAXING THE ANNUAL VALUE OF THE SAID PROPERTY. WITH REGARD TO THE PROPERTY AT INDRALOK IN WHICH TH E BROTHER OF THE ASSESSEE RESIDES, IT IS SUBMITTED THAT THE ASSESSEE IS THE CO-OWNER OF TWO RESIDENTIAL PREMISES HAVING 50% SHARES IN EACH PROP ERTY. ONE PROPERTY IS SOLELY OCCUPIED BY THE ASSESSEE AND THE PROPERTY BY HIS BROTHER EXCLUSIVELY. AS BOTH THE PROPERTIES WERE SELF OCCU PIED, NO ANNUAL DESERVE TO BE TAXED AND THEREFORE ADDITION DESERVES TO BE D ELETED. WITH REGARD TO JUHU KOLIWADA PREMISES, THE ASSESSEE SUBMITS THAT THE SAID PREMISES IS USED FOR HOUSING THE STAFF OF THE FIRM IN WHICH ASSESSEE IS A PARTNER AND IS THEREFORE USED FOR BUSINESS PURPOS ES AND NO TAX IS REQUIRED TO BE LEVIED. WITHOUT PREJUDICE TO ABOVE, IT IS FURTHER SUBMITTED THAT THE AO HAS NOT GIVEN ANY BASIS AS TO HOW DID HE CALCULATE THE ANNU AL VALUE OF THESE PROPERTIES. THE LEARNED AO HAS ALSO NOT ALLOWED MAI NTENANCE CHARGES PAID TO THE SOCIETY AND THE MUNICIPAL TAXES PAID TO THE MUNICIPAL CORPORATION. THE LEARNED AO HAS ALSO NOT CONSIDERED THE INTEREST PAID ON BORROWED CAPITAL. THE KIND ATTENTION OF YOUR GOOD S ELF IS ATTRACTED TO THE JUDGMENT IN THE CASE OF SHARMILA TAGORE VS JT. CIT 93 TTJ 483 (MUM) & BOMBAY OIL IND. (ITA NO.550/MUM/2000 DATED 15.10.20 00) WHERE IT WAS HELD THAT THE MAINTENANCE CHARGES HAVE TO BE DEDUCT ED EVEN WHILE COMPUTING ANNUAL LETTING VALUE. IN VIEW OF THE ABOV E FACTS AND THE CASES RELIED UPON BY THE ASSESSEE THE AD HOC ADDITION MAD E BY THE LEARNED WAS NOT JUSTIFIED AND DESERVE TO BE DELETED. 20. THE AR, PLEADED THAT THE REVENUE AUTHORITIES, WERE WRONG TO ESTIMATE NOTIONAL RENTAL INCOME IN THE CASE OF THE ASSESSE E AND AS SUCH, THE ADDITION NEEDS TO BE DELETED. 21. THE DR, RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 22. WE HAVE HEARD THE ARGUMENTS OF EITHER SIDE AND HAVE PERUSED THE IMPUGNED ORDERS. WITH REGARD TO THE IMPUGNED PROPERTIES, THE ASSESSEE ON ONE HAND SUBMITTED THAT THESE WERE BEING USED FOR T HE PURPOSE OF STORAGE AND HOUSING HIS EMPLOYEES, ON THE OTHER HAND, TH E REVENUE AUTHORITIES, EXCEPT FOR BRUSHING ASIDE THE CONTENTIONS OF T HE ASSESSEE, MR. GANESH G. KAMATH ITA NO. 6678/MUM/2010 6 HAD NOT BROUGHT IN ANY MATERIAL TO SUGGEST THAT THE ST ATEMENTS GIVEN BY THE ASSESSEE WAS WRONG OR INFIRM. TO DENY A BENEFIT OR TO MAKE AN ADDITION, THE ONUS LIES HEAVILY ON THE AO TO SUBSTANTIATE IT. IN THE INSTANT CASE, WE HAVE NOT COME ACROSS ANYTHING, WHICH CO ULD SUBSTANTIATE THE CASE OF THE REVENUE AUTHORITIES. AS OBS ERVED EARLIER, THE ASSESSEE HAD SUBMITTED BEFORE THE REVENUE AUTHORITIES, THAT THOSE PROPERTIES WERE BEING USED BY HIM FOR THE PURPOSE OF BUS INESS, EITHER TO STORE HIS EQUIPMENTS OR TO HOUSE AND ACCOMMODATE HIS O WN EMPLOYEES WHO WORK FOR HIM IN SHIFTS, ROUND THE CLOCK. 23. IN THESE CIRCUMSTANCES, WE CANNOT SUSTAIN THE ADDITIO N MADE BY THE REVENUE AUTHORITIES ON ACCOUNT OF NOTIONAL RENT BY TREATING THE SAME AS INCOME FROM HOUSE PROPERTY. 24. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) ON THE ISSUE & DIRECT THE AO TO DELETE THE IMPUGNED ADDITION OF RS. 1,56,00 0 (EFFECTIVE ADDITION MADE AFTER DEDUCTION RS. 1,09,200). 25. GROUND NO. 4 PERTAINS TO ADDITION ON ACCOUNT OF INTEREST INCOME. 26. THE ADDITION IS MADE BY THE AO ON ACCOUNT OF THE FACT THAT NO DETAILS WERE PROVIDED. THE AO THUS ADDED RS. 23,285 AS AG AINST RS. 7,313, INTEREST RECEIVED BY THE ASSESSEE, BEING 10% OF RS. 2,32,845. IT WAS EXPLAINED TO BOTH THE REVENUE AUTHORITIES THAT THE ASSESSEE HAD NOT RECEIVED RS. 23,285, BUT HAD RECEIVED ONLY RS. 4,594. AS RE GARDS RS. 7,313, IT WAS EXPLAINED THAT IT WAS IN ANY CASE DEDUCTIBLE U/S 80L. 27. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AN D CIT(A), SUSTAINED THE SAME. 28. THE ASSESSEE IS NOW BEFORE THE ITAT. MR. GANESH G. KAMATH ITA NO. 6678/MUM/2010 7 29. BEFORE US, THE AR REITERATED THE SUBMISSIONS AND PLEAD ED THAT NO ADDITION IS CALLED FOR. 30. THE DR CONCEDED THAT THERE IS NO EVIDENCE & HE THE REFORE, RELIES ON THE ORDER OF THE REVENUE AUTHORITIES. 31. AFTER GOING THROUGH THE ORDERS OF THE REVENUE AUTHO RITIES AND THE SUBMISSIONS, NO EVIDENCE COULD BE SEEN, WHICH COULD SUGGEST ANY ADDITION. WE, THEREFORE, DELETE THE SAME. 32. THE ORDER OF THE CIT(A) IS THUS SET ASIDE ON THIS ISSUE AND AO IS DIRECTED TO DELETE THE ADDITION OF RS. 23,285. 33. THE GROUND IS ALLOWED. 34. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 10/10/2012. SD/- (P.M. JAGTAP) ACCOUTANT MEMBER SD/- (VIVEK VARMA) JUDICIAL MEMBER MUMBAI, DATE: 10/10/2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-30, MUMBAI. 4) THE CIT CITY-19, MUMBAI, 5) THE D.R. G BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN