A.F. FERGUSON ASSOCIATES, MUMBAI V. ACIT 11(2), MUMBAI

ITA 6962/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75738 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 19-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A , MUMBAI BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 6962/M/2012 ASSESSMENT YEAR: 2008 - 09 M/S. A.F. FERGUSON ASSOCIATES C/O DELOITTE HASKINS & SELLS , 12, DR. ANNIE BESANT ROAD, OPPOSITE SHIV SAGAR ESTATE, WORLI, MUMBAI 400 018 PAN: AAAFA1448A VS. ACIT - 11(2), 4 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG , MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GIRISH DAVE, A.R. REVENUE BY : SHRI M.L. PERUMAL, D.R. DATE OF HEARING : 23.01. 201 4 DATE OF PRONOUNCEMENT : 28.02.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 09.10.12 . THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: 1. ALLEGED UNDISCLOSED PROFESSIONAL RECEIPTS THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.6 ,49,383 MADE BY THE ASSESSING OFFICER (AO) ON THE BASIS OF DIFFERENCE BETWEEN INFORMATION GATHERED FROM THE ANNUAL INFORMATION RETURN AND PROFESSIONAL RECEIPTS AS PER BOOKS OF ACCOUNT. 2. PROFESSIONAL INDEMNITY INSURANCE THE LEARNED CIT(A) ERRED IN CON FIRMING THE ADDITION OF RS. 2 , 10,000 MADE BY THE AO ON ACCOUNT OF PROFESSIONAL I NDEMNITY ITA NO .6962/M/2012 M/S. A.F. FERGUSON ASSOCIATES 2 I NSURANCE PREMIUM ON THE BASIS THAT THE SAME REPRESENTS PERSONAL INSURANCE OF THE PARTNERS. 3. ADHOC DISALLOWANCES IN RESPECT OF EXPENDITURE INCURRED ON TRAVELLING, MOTOR - CAR AND TELEPHONE THE LEARNED CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE TO 1/10 TH OF THE EXPENDITURE AS AGAINST 1/5 TH MADE BY THE AO IN RESPECT OF EXPENSES INCURRED ON TRAVELLING, MOTOR - CAR AND TELEPHONE. GROUND NO.1 2. THE ASSESSEE, A PARTNE RSHIP FIRM, FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,49,82,816/ - . DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS AO ), ON THE BASIS OF AIR INFORMATION RECEIVED BY HIM, OBSERVED THAT THE ASSESSEE DURING THE YEAR HAD RECEIVED PROFESSIONAL FEES OF RS.2,37,06,063/ - . THE ASSESSEE FILED A RECONCILIATION STATEMENT OF THE PROFESSIONAL RECEIPTS OUT OF WHICH HE COULD NOT RECONCILE RECEIPTS OF RS.6 , 49 , 383/ - . THEREFORE THE AO TREATED THE SAME AS CONCEALED INCOME OF TH E ASSESSEE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN APPEAL THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT ALL THE PROFESSIONAL FEES WAS RECEIVED BY THE ASSESSEE THROUGH BANKING CHANNELS AND WAS OFFERED FOR TAX. THE ASSESSEE RECONCILED THE FUR THER RECEIPTS OF RS.6,44,408/ - OUT OF UNRECONCILED RECEIPTS OF RS.6,49,383/ - EXCEPT THE BALANCE AMOUNT OF RS.4,975/ - . IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE WAS A LARGE SIZE FIRM OF CHARTERED ACCOUNTANTS AND THE ABOVE RECEIPTS WERE RECE IVED FROM VARIOUS PARTIES DURING THE YEAR AND ALMOST OF THE AMOUNT AS PER THE AIR INFORMATION WAS RECONCILED EXCEPT A MEAGER AMOUNT OF RS.4,975/ - . IT WAS FURTHER SUBMITTED THAT THE ASSESSEE EVEN HAD RECEIVED MORE AMOUNT AS PROFESSIONAL FEES THAN WHAT WAS INFORMED THROUGH AIR INFORMATION AND ALL THE RECEIPTS WERE DULY ACCOUNTED FOR AND TAXED ACCORDINGLY. THE LD. CIT(A) HOWEVER REJECTED THE RECONCILIATION SUBMITTED BY THE ASSESSEE ON THE GROUND THAT THE SAID DOCUMENTS AMOUNT TO FU RNISHING OF ADDITIONAL EVID ENCE. HE ITA NO .6962/M/2012 M/S. A.F. FERGUSON ASSOCIATES 3 FURTHER OBSERVED THAT THE ASSESSEE HAD NOT BEEN ABLE TO FURNISH REASONS AS TO WHY THE SAME WAS NOT FURNISHED BEFORE THE AO H E THEREFORE REJECTED THE SAID EVIDENCE PRODUCED BY THE ASSESSEE AND CONFIRMED THE ADDITIONS SO MADE BY THE AO. 3. WE HA VE HEARD THE RIVAL SUBMISSIONS PUT FORTH BY THE L EARNED REPRESENTATIVES OF BOTH THE PARTIES AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD . IN OUR VIEW, WHILE REFUSING TO TAKE INTO CONSIDERATION THE RELEVANT DOCUMENTS WHICH WERE VERY MUCH NECES SARY FOR THE JUST DECISION OF THE CASE, LD. CIT(A) FAILED TO EXERCISE HIS APPELLATE JURISDICTION U/S 250 OF THE ACT. THE DUTY WAS ALSO CAST UPON THE LD. CIT(A) TO ADMIT AND CONSIDER THE EVIDENCE PRODUCED BEFORE HIM BY THE ASSESSEE. THE HONBLE BOMBAY HIG H COURT IN THE CASE OF SMT. PRABHAVATI S. SHAH V. CIT [(1998) 231 ITR 1 (BOM.)] HAS HELD THAT THE POWERS CONFERRED ON THE FIRST APPELLATE AUTHORITY UNDER SUB - SECTION (4) OF SECTION 250 OF THE ACT, BEING A QUASI - JUDICIAL POWER, IT IS INCUMBENT ON HIM TO E XERCISE THE SAME, IF THE FACTS AND CIRCUMSTANCES JUSTIFY. EVEN OTHERWISE UNDER RULE 46A(4) OF THE INCOME TAX RULES, THE CIT(A) HAS BEEN GIVEN POWER TO CALL FOR PRODUCTION OF ANY DOCUMENT OR THE EXAMINATION OF ANY WITNESSES TO ENABLE HIM TO DISPOSE OF THE APPEAL. THERE IS NO DOUBT ABOUT THE LEGAL POSITION THAT IF ANY DOCUMENT FURNISHED BY THE ASSESSEE BEFORE THE COMMISSIONER (APPEALS) IS IN THE NATURE OF CLINCHING EVIDENCE , WHICH GOES TO THE ROOT OF THE CASE THEN IN THE INTEREST OF JUSTICE SUCH TYPES OF EV IDENCE SHOULD NOT BE REJECTED. THE DOCUMENTS RELIED UPON BY THE ASSESSEE WE RE VERY MUCH RELEVANT AND NECESSARY FOR THE JUST AND PROPER DECISION OF THE CASE. THE CONFIRMATIONS WHICH WERE SUBMITTED BY THE ASSESSEE BEFORE LD. CIT(A) WERE NOT THE FRESH EVIDE NCES RATHER WERE IN THE SHAPE OF CORROBORATIVE EVIDENCE. ITA NO .6962/M/2012 M/S. A.F. FERGUSON ASSOCIATES 4 4. FROM A PERUSAL OF THE ORDER OF THE LD. CIT(A) IT REVEALS THAT ALL THE RECEIPTS AS PER AIR INFORMATION EXCEPT THE RECEIPT OF RS.4,975/ - W ERE RECONCILED BY THE ASSESSEE BEFORE THE LD. CIT(A). TH E ASSESSEE HAS ALSO GIVEN A REASONABLE EXPLANATION OF RE GA RDING THE NON RECONCILIATION OF THE REMAINING MEAGER AMOUNT OF RS.4,975/ - . HENCE THE ACTION OF THE LD. CIT(A) IN REJECTING THE CONFIRMATIONS/RECONCILEMENT OF THE AMOUNT WAS NOT JUSTIFIED. ACCORDIN GLY, THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE ADDITIONS MADE BY THE AO AND FURTHER CONFIRMED BY THE LD. CIT(A) RELATING TO THE ABOVE ISSUES ARE HEREBY ORDERED TO BE DELETED. GROUND NO.2 5. GROUND NO.2 RELATES TO THE DISALLOWANC E ON ACCOUNT OF PREMIUM PAID FOR PROFESSIONAL INDEMNITY INSURANCE. THE AO DISALLOWED THE INSURANCE PREMIUM EXPENDITURE OF RS.2,10,000/ - OBSERVING THAT THE SAID EXPENDITURE WAS MADE ON THE LIFE INSURANCE OF THE PARTNERS OF THE FIRM. SINCE THE ABOVE PAYMEN TS WERE MADE ON THE PERSONAL INSURANCE OF THE PARTNERS AND THE EXPENSES WERE NOT RELATED TO THE PROFESSIONAL ACTIVITY OF THE ASSESSEE FIRM HE THEREFORE DISALLOWED THE SAID EXPENDITURE. 6. THE LD. CIT(A) MAKING THE SAME OBSERVATIONS CONFIRMED THE SAID DI SALLOWANCE MADE BY THE AO. 7. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. THE LD. REPRESENTATIVE OF THE ASSESSEE SUBMITTED BEFORE US THAT THE SAID EXPENDITURE WAS NOT INCURRED ON THE LIFE INSURANCE O F THE PARTNERS RATHER THE SAME WAS IN RELATION TO PROFESSIONAL INDEMNITY INSURANCE OF THE PARTNERS OF THE FIRM. 8. SINCE THE FIRM IS PROVIDING PROFESSIONAL SERVICES AND AS SUCH THE PROFESSIONAL INDEMNITY INSURANCE PREMIUM THUS WAS RELATED TO THE PROFESS IONAL ITA NO .6962/M/2012 M/S. A.F. FERGUSON ASSOCIATES 5 ACTIVITY OF THE PARTNERS OF THE FIRM AND WAS FOR INDEMNIFICATION OF ANY LOSS ARISING OUT OF ANY CLAIM OF DAMAGES OR COMPENSATION PAYABLE BY THE ASSESSEE FIRM OR ITS PARTNERS IN RELATION TO THE PROFESSIONAL SERVICES PROVIDED BY THEM TO THEIR CLIENTS. UNDER SUCH CIRCUMSTANCES THE OBSERVATION OF THE LOWER AUTHORITIES THAT THE SAID EXPENDITURE WAS IN RELATION TO PERSONAL EXPENDITURE IS WRONG AND ACCORDINGLY THE ADDITION MADE UNDER THIS HEAD IS HEREBY SET ASIDE. THIS GROUND OF APPEAL IS ALSO ALLOWED IN F AVOUR OF THE ASSESSEE. GROUND NO.3 9. GROUND NO.3 IS IN RELATION TO ADHOC DISALLOWANCE IN RESPECT OF EXPENDITURE RELATING TO MOTOR - CAR, TELEPHONE AND EXPENSES INCURRED ON TRAVELLING . THE ASSESSEE BEFORE THE AO CLAIMED TRAVELLING EXPENSE OF RS.7,05,046/ - , MOTOR CAR DEPRECIATION OF RS.11,77,739/ - AND TELEPHONE EXPENSES OF RS.1,06,414/ - RESPECTIVELY. THE AO OBSERVED THAT THE PERSONAL USE OF MOTOR CAR AND TELEPHONE AND PERSONAL EXPENSES IN RESPECT OF TRAVELLING WERE NOT RULED OUT. HE THEREFORE RESTRICTED THE SAME TO THE 1/10 TH OF THE TOTAL EXPENSES. 10. BEFORE US THE LD. A.R. HAS RELIED UPON AN AUTHORITY OF THE TRIBUNAL IN THE CASE OF M/S. ARTHUR ANDERSEN AND COMPANY IN ITA NO.483/M/06 ETC. DECIDED ON 23.07.10 AND STRESSED THAT IN PARA 35 OF THE SAID O RDER , THE TRIBUNAL HAS OBSERVED THAT THE SUBMISSIONS OF THE ASSESSEE THAT THE EXPENDITURE UNDER THE HEAD SALARIES HAS BEEN REDUCED AND CONSEQUENTLY THE PROFESSIONAL FEES HAS INCREASED WERE IGNORED BY THE AO WHILE MAKING THE DISALLOWANCE IN RELATION TO MO TOR CAR EXPENSES, TELEPHONE EXPENSES ETC. AND THE SAID DISALLOWANCE WAS SET ASIDE BY THE TRIBUNAL FOR WANT OF PROPER APPRECIATION OF FACTS AND LACK OF INVESTIGATION BY THE LOWER AUTHORITIES. ITA NO .6962/M/2012 M/S. A.F. FERGUSON ASSOCIATES 6 11. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATI VES OF THE PARTIES. IT MAY BE OBSERVED THAT IN THE CASE LAW RELIED UPON BY THE LD. A.R. CERTAIN SPECIFIC EXPLANATION WAS GIVEN BY THE ASSESSEE RELATING TO THE INCREASE IN THE PROFESSIONAL FEES ETC. HOWEVER, IN THE CASE IN HAND , THE ASSESSEE HAS NOT GIVE N ANY SPECIFIC EXPLANATION AS TO WHY THERE SHOULD NOT BE ANY DISALLOWANCE IN RESPECT OF ABOVE MENTIONED EXPENDITURE. THE LD. CIT(A) HAS RIGHTLY OBSERVED THAT THE PERSONAL ELEMENT IN USE OF MOTOR CAR AND TELEPHONE EXPENSES AND TRAVELLING EXPENSES CANNOT BE RULED OUT. HE THEREFORE CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES REDUCED THE DISALLOWANCE FROM 1/5 TH OF THE EXPENSES MADE BY THE AO TO 1/10 TH OF THE TOTAL EXPENSES. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN THIS RESPECT. HEN CE, THE FINDING OF THE LD. CIT(A) RELATING TO THIS ISSUE IS HEREBY CONFIRMED AND THIS GROUND IS DECIDED AGAINST THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.02. 201 4 . SD/ - SD/ - ( D. KARUNAKARA RAO ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.02. 201 4 . * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.