Sh. Vijay Latha Jain, New Delhi V. JCIT, New Delhi

ITA 6952/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3681 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 24-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S N BHATIA
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 14A; 37

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH C, NEW DELHI BEFORE : SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 6952/DEL./2014 ASSESSMENT YEAR: 2010-11 VIJAY LATHA JAIN, PROP. M/S. DIAMOND EXPORTS, E-44, CONNAUGHT PLACE, NEW DELHI. PAN ACUPJ6248H (APPELLANT) VS. J.C.I.T. RANGE 31, NEW DELHI. (RESPONDENT) APPELLANT BY SH. V.P. GUPTA & NEM SINGH, ADVOCATE RESPONDENT BY SH. S.N. BHATIA, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF LD. CIT(A)- XXVI, NEW DELHI DATED 18.09.2014 FOR THE ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUNDS : 1. THAT THE ORDER PASSED BY THE LD. CIT(A)-XXVI U/S . 250 OF THE INCOME TAX ACT IS BOTH BAD IN LAW AND WRONG ON THE FACTS OF THE CASE. 2. THAT THE LD. CIT(A) ERRED IN UPHOLDING DISALLOWAN CE OF RS.8,76,355/- MADE BY THE AO UNDER SECTION 14A OF THE ACT WITHOUT APPRECIATING FACTS OF THE CASE AND THE LEGAL POSITION IN THIS REGARD. 3. THAT THE LD. CIT(A) ERRED IN UPHOLDING DISALLOWANC ES MADE BY THE AO OF RS.5,970/- OUT OF TELEPHONE EXPENSES AND OF RS.2,67 ,722/- OUT OF VEHICLE EXPENSES, INCLUDING DEPRECIATION ON CARS WITHOUT AP PRECIATING THE CORRECT FACTUAL POSITION IN THIS REGARD. DATE OF HEARING 03.10.2017 DATE OF PRONOUNCEMENT 09 .11.2017 ITA NO. 6952/DEL./2014 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN DECLARING INCOME OF RS. 5,77,63,590/- ON 15.10.2010 . THE CAS E WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE W HICH WERE SERVED UPON THE ASSESSEE WITHIN TIME. THE ASSESSEE WAS ENGAGED MAIN LY IN THE BUSINESS OF EXPORT OF READY-MADE GARMENTS THROUGH HER PROPERTY CONCERNS M/S DIAMOND EXPORTS APART FROM A BUSINESS INCOME THE ASSESSEE H AS SHOWN HOUSE PROPERTY INCOME, CAPITAL GAIN INCOME AND INCOME FROM OTHER S OURCES. DURING THE YEAR THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.3,19,44 3/-IN THE FORM OF DIVIDEND FROM THE COMPANIES MUTUAL FUNDS ETC. THE E XEMPT INCOME IS ONLY 0.553% OF THE TOTAL INCOME OF THE ASSESSEE. THERE W AS OPENING BALANCE OF INVESTMENTS AS ON 01.04.2009 OF RS.14,99,91,195/- A ND CLOSING BALANCE OF INVESTMENTS AS ON 31ST MARCH 2010 OF RS. 20,05,51, 195/-. THE LD. ASSESSING OFFICER RELIED ON M/S DAGA CAPITAL MANAGEMENT PRIVA TE LIMITED (ITA NO. 8057/MUM/2003) AND APPLIED TO SECTION 14A AND ACCOR DINGLY HE COMPUTED DISALLOWANCE OF RS.8,67,355/- TOWARDS EARNING THE E XEMPT INCOME AS PER RULE 8D (2)(III) OF THE INCOME TAX RULES 1962, I.E. 0.5 % OF AVERAGE INVESTMENTS FOR THE IMPUGNED YEAR. FURTHER THE LD. ASSESSING OFFICE R ALSO DISALLOWED 10% ON ADHOC BASIS ON TELEPHONE & MOBILE EXPENSES OF RS. 5970/-. FURTHER ON THE SCRUTINY OF VEHICLE EXPENSES THE LD. ASSESSING OFFI CERS OBSERVED THAT THE ITA NO. 6952/DEL./2014 3 ASSESSEE HAS GIVEN DETAILS OF VEHICLE EXPENSES OF R S.10,97,584/- AND CLAIMED DEPRECIATION ON VEHICLES OF RS.82,804/- . FROM THE DETAILS FILED BY THE ASSESSEE, IT WAS OBSERVED THAT THERE IS A TOTAL 13 NUMBER OF VEHICLES WHICH WERE USED. THEREFORE, THE ASSESSING OFFICER DISALLOWED ON THE BASIS OF THE AVERAGE EXPENDITURE OF 13 VEHICLES OF RS.2,67,722/-. THE LD . ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED ANY LOGBOOK, T HEREFORE, PERSONAL ELEMENT CANNOT BE RULED OUT . AGGRIEVED BY THESE ADDITIONS, THE ASSESSEE PREFERRE D AN APPEAL BEFORE THE CIT(A) AND THE LEARNED CIT(A) APP EAL UPHELD THE DISALLOWANCE OF RS. 8,76,355/- TOWARDS EARNING OF E XEMPT INCOME UNDER SECTION 14A AND ALSO CONFIRMED THE ADDITION OF RS. 5970/- AND 2,67,722/- TOWARDS TELEPHONE EXPENSES AND VEHICLE EXPENSES RES PECTIVELY. AGGRIEVED BY THE ADDITIONS THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. THE LD. AR REITERATED THE SUBMISSIONS MADE BEFOR E THE CIT (A) AND SUBMITTED A WRITTEN SYNOPSIS WHICH IS AS UNDER : DISALLOWANCE U/S 14A AS MENTIONED IN THE ASSESSMENT ORDER (PARA 4.1) THE EXEMPT INCOME RECEIVED WAS OF RS.3,19,443/-. INCOME WAS MAINLY FR OM MUTUAL FUNDS AS PER DETAILS GIVEN IN ANNEXURE-1. AS AGAINST CLAIM O F THE APPELLANT THAT NO EXPENSE WAS INCURRED, THE ASSESSING OFFICER MADE DI SALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES OF RS.8,76,355/- AT 0.5% OF AVERAGE TOTAL INVESTMENTS. THE CLAIM OF THE APPELLANT IS THAT NO EXPENDITURE HA D BEEN INCURRED IN RELATION TO EXEMPT INCOME. IN ANY CASE, DISALLOWANC E CANNOT EXCEED THE ITA NO. 6952/DEL./2014 4 EXEMPT INCOME IN VIEW OF SETTLED LEGAL POSITION BY VARIOUS DECISIONS, INCLUDING THE DECISIONS OF JURISDICTIONAL HIGH COUR T AND THIS HON'BLE TRIBUNAL, AS PER LIST ENCLOSED AS ANNEXURE-2. THE ASSESSING OFFICER IN ASSESSMENT ORDERS FOR IMMED IATELY PRECEDING YEARS I.E. A.YRS. 2008-09 AND 2009-10, COPY EACH OF THE ORDERS IS ENCLOSED AS ANNEXURES 3 & 4, HAD RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME (REFER PARA 6 AND 7 OF AFORESAID ORDE RS ON PAGES 6 AND 10). DISALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSES THE ASSESSING OFFICER HAS CONSIDERED 10% OF TELEPHON E EXPENSES INCURRED ON LANDLINE AND MOBILE TELEPHONES USED BY THE APPEL LANT I.E. RS.5,975/- OF TOTAL EXPENSES OF RS.59,706/-. IT IS SUBMITTED THAT THE USE OF THE TELEPHONES BY THE APPELLANT WAS GENERALLY FOR THE PURPOSE OF E XPORT BUSINESS AND THERE WAS NO PERSONAL ELEMENT. VEHICLE RUNNING EXPENSES THE APPELLANT WAS HAVING TOTAL 13 VEHICLES FOR THE U SE IN BUSINESS. TOTAL EXPENDITURE INCURRED WAS RS.34,80,388/-. THE ASSESSI NG OFFICER ON PROPORTIONATE BASIS DETERMINED EXPENSE OF ONE CAR A T RS.2,67,722/- AND HAS DISALLOWED THE SAME. THE CONTENTION OF THE APPEL LANT IS THAT THERE HAS BEEN NO PERSONAL USE. THE ASSESSING OFFICER IN ASSES SMENT ORDERS PASSED FOR EARLIER YEARS I.E. A.YRS. 2008-09 AND 2009-10, REFERRED ABOVE, HAD MADE DISALLOWANCE OF ONLY 10% OF PROPORTIONATE EXPENSES DETERMINED IN RESPECT OF ONE CAR AS CAN BE OBSERVED FROM PARA 5 ON PAGE 5 AND PARA 5 ON PAGE 9 FROM THE ORDERS FOR A.YRS. 2008-09 AND 2009-10. ON THIS BASIS DISALLOWANCE FOR THE YEAR UNDER REFERENCE COULD BE RS.26,772/-. IN SUBSEQUENT ASSESSMENT YEARS I.E. IN ASSESSMENT ORDE RS PASSED FOR A. YRS. 2012-13, 2013-14 AND 2014-15 NO DISALLOWANCE HAS BE EN MADE OUT OF VEHICLE RUNNING EXPENSES. A COPY EACH OF ASSESSMENT ORDERS IS ENCLOSED AS ANNEXURES 5,6, & 7. 4. ON THE OTHER HAND THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND HE SUBMITTED THAT THE LOWER AUTHORITIES HAVE DO NE REASONED ORDERS WHICH DO NOT REQUIRE ANY INTERFERENCE. HE FURTHER SUBMITT ED THAT THE EVERY ASSESSMENT YEAR IS A DIFFERENT ASSESSMENT YEARS AND PRINCIPLE OF RES JUDICATA ITA NO. 6952/DEL./2014 5 DOES NOT APPLY IN THE INCOME TAX ACT. THE CASE LAWS RELIED BY THE ASSESSEE ARE DISTINGUISHABLE BEING BASED ON DIFFERENT FOOTINGS. 5. AFTER HEARING BOTH THE SIDES AND PERUSING THE MA TERIALS AVAILABLE ON RECORDS AND CASE LAWS RELIED BY THE ASSESSEE WE OBS ERVE THAT IN RESPECT OF GROUND NO. 2, ADDITION OF RS. 8,76,355/- WAS CONF IRMED BY THE LD. CIT (A) ON THE REASONS GIVEN BY THE ASSESSING OFFICER. DURING THE IMPUGNED YEAR, TOTAL INVESTMENTS HAVE INCREASED BY RS. 5,05,60,000/-, TH EREFORE, IT CANNOT BE DENIED THAT THE SOME ADMINISTRATIVE EXPENDITURES MA Y HAVE BEEN INCURRED. THE ASSESSEE HAS RECEIVED A SUM OF RUPEES 3,19,443/ - AS EXEMPTED INCOME DURING THE YEAR. THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT IN THE NEXT ASSESSMENT YEARS THE LEARNED AO HAS RESTRICTED TO THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF EXEMPTED INCOME RECEIVED. THE COPY OF THE ASSESSMENT ORDERS WERE PRODUCED FOR THE ASSESSMENT YEAR 08-09 AND 09-10 PAGES MARKED AS ANNEXURE 3 AND 4. THE ASSESSEES CA SE IS ALSO COVERED BY THE JURISDICTIONAL HIGH COURTS AS WELL AS TRIBUNALS ORDERS AS CITED SUPRA. IN VIEW OF THE ABOVE THE GROUND NO. 1 IS PARTLY ALLOWED AND ADDITION IS SUSTAINED TO THE EXTENT OF EXEMPTED INCOME RECEIVED OF RS. 3,19, 443/-. ITA NO. 6952/DEL./2014 6 6. IN RESPECT OF GROUND 3, THE LD. CIT (A) HAS RIGH TLY UPHELD THE ACTION OF THE ASSESSING OFFICER. THE ASSESSEE WAS UNABLE TO P RODUCE ANY LOGBOOKS OR ANY EVIDENCES FOR THE VEHICLES RUN BY HIM. THE FINDINGS OF THE CIT(A) ARE AS UNDER, WHICH WE DO NOT FIND TO BE UNJUSTIFIED OR UNREASONA BLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE : 6.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE APPELLANT. THE AO MAY ENTERTAIN A DOUBT THAT THE APPELLANT AND HIS FAMILY MEMBERS MIGHT HAVE USED CARS AND TELEPHONES FOR NON BUSINESS PURPOSES PARTICULARLY WHEN THE APPELLANT FIRM FAILE D TO DEMONSTRATE, WITH THE HELP OF ANY LOG BOOKS OF CARS AND CALL DETAILS OF TELEPHONES THAT VEHICLE RUNNING & MAINTENANCE AND TELEPHONE EXPENSES HAVE B EEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS PURPOSES. HER E, THE CIRCUMSTANTIAL EVIDENCE IS NON-PRODUCTION OF THE LOG BOOKS OF CARS AND CALL DETAILS OF TELEPHONES. NOW, IT IS THE APPELLANT WHO HAS TO DEM ONSTRATE, WITH THE HELP OF EVIDENCE THAT THE VEHICLE RUNNING & MAINTENANCE AND TELEPHONE EXPENSES HAVE BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS PURPOSE. THIS DEMONSTRATION PRESUPPOSES NOT RELYING UPON VARIOUS DECISIONS OR ORDERS BUT DEMONSTRATE BY WAY OF EVIDE NCE. IT WAS NOT DEMONSTRATED THAT THE APPELLANT AND HIS FAMILY MEMB ERS HAVE VEHICLE AND TELEPHONE IN THEIR PERSONAL CAPACITY WHOSE EXPENSES ARE NOT DEBITED INTO THE BOOKS OF ACCOUNT OF THE BUSINESS CONCERN. THEREF ORE, THE VEHICLE RUNNING & MAINTENANCE INCLUDING DEPRECIATION ON CAR S AND TELEPHONE EXPENSES WHICH HAVE NOT BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES ARE HELD DISALLOWABLE U/S 37 AND 38. FURTH ER, IF EVIDENCE BEYOND REASONABLE DOUBT IS NOT AVAILABLE, THE TOTALITY OF CIRCUMSTANCES HAS TO BE LOOKED INTO TO EVOLVE A PROCESS WHICH WOULD ADAPT T O SITUATION IN PURSUIT OF THE TRUTH & JUSTICE. IN SUPPORT OF THE VIEW THAT WHERE DIRECT EVIDENCES ARE NOT AVAILABLE, THE CIRCUMSTANTIAL EVIDENCES COU LD BE TREATED AS SUFFICIENT FOR DECIDING A CASE HAS BEEN CONSISTENTL Y HELD BY THE HON'BLE COURTS. HERE, ALL THE FACTS AND CIRCUMSTANTIAL EVID ENCE JUSTIFY THE FINDINGS OF THE AO REGARDING DISALLOWANCE OUT OF VEHICLE RUN NING & MAINTENANCE INCLUDING DEPRECIATION ON CARS AND TELEPHONE EXPENS ES. I DO NOT FIND MERIT IN THE APPELLANT ARGUMENT THAT HE HAS USED ONLY ONE CAR FOR PERSONAL PURPOSE AND THEREFORE, THE DISALLOWANCE OUT OF ONE CAR EXPENSES MAY BE DONE PARTICULARLY WHEN THE APPELLANT FAILED TO DEMO NSTRATE THAT HOW ITA NO. 6952/DEL./2014 7 OTHER CARS ARE USED WHOLLY AND EXCLUSIVELY FOR BUSI NESS PURPOSES. THEREFORE, IN SUCH FACTS & CIRCUMSTANCES, I FIND MER IT IN THE AO'S FINDING THAT IT CAN NOT BE RULED OUT THAT THERE IS NO PERSO NAL/NON-BUSINESS ELEMENT EMBEDDED IN THE VEHICLE RUNNING & MAINTENANCE INCLU DING DEPRECIATION ON CARS AND TELEPHONE EXPENDITURES. IN VIEW OF ABOV E, I AM OF THE CONSIDERED VIEW THAT THE DISALLOWANCE RS.5,970/- OU T OF TELEPHONE EXPENSES, RS.2,57,722/- OUT OF VEHICLE EXPENSES INC LUDING DEPRECIATION ON CARS IS JUSTIFIED AND THEREFORE, THE SAME IS SUSTAI NED. THE AO MAY LOOK INTO THE TAXABILITY OF 13 CARS OWNED BY THE APPELLANT UN DER THE WEALTH TAX ACT AS CARS ARE CHARGEABLE WEALTH UNDER THE WEALTH TAX A CT. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.11.2017. SD/- SD/- (H.S. SIDHU) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09.11.2017 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI