Mohd Shafi Mohd Yusuf Patel, Raigad V. Deputy Commissioner of Income-tax, Circle - Panvel, Panvel

ITA 70/PUN/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8627 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 08-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 208

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, ‘B’ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI C.M. GARG, JUDICIAL MEMBER आयकर अपील सं. / ITA No.70/PUN/2018 िनधा रण वष / Assessment Year : 2014-15 Mohd. Shafi Mohd. Yusuf Patel, At & Post Taloja, Taluka Panvel, Dist. Raigad – 410 208 PAN : ABUPP8162B Vs. DCIT, Circle Panvel Appellant Respondent आदेश / ORDER PER R.S.SYAL, VP : This appeal by the assessee is directed against the order passed by the CIT(A)-2, Pune on 13-11-2017 in relation to the assessment year 2014-15. 2. The first issue assailed herein is against the confirmation of part disallowance of Rs.8,00,587/- on account of salary to watchman and salary to staff. 3. The facts which are germane to the issue under consideration are that the assessee declared gross rent received at Rs.51,20,160/- from the letting out of his ancestral property to M/s Balaji Warehousing and Assessee by : Shri Tanzil R. Padvekar Revenue by : Shri Piyush Kumar Singh Yadav Date of hearing : 12-11-2021 Date of pronouncement : 12-11-2021 ITA No.70/PUN/2018 Mohs. Shafi Mohd Yusuf Patel 2 Pest Control Services Pvt. Ltd. After claiming standard deduction at 30% u/s.24 of the Income-tax Act, 1961 (hereinafter also called ‘the Act.), the assessee declared income under the head `Income from house property’ at Rs.35,84,112/- There is no dispute on this aspect of the matter. In addition to the above rental income, the assessee also received a sum of Rs.36.00 lakh (at the rate of Rs.3.00 lakh per month) from M/s Balaji Warehousing and Pest Control Services Pvt. Ltd., for rendering assistance to M/s Balaji in conducting the warehousing business by shouldering responsibility of contacting the Revenue officials and other semi-Government officials pertaining to any matter and further agreeing to give permanent support for smooth functioning of the working of warehouse business. Such amount was shown as Commission/brokerage in the Profit and loss account. The assessee claimed certain expenses against such income which, inter alia, included a sum of Rs.16,01,175/-, being, “Employees cost”. The AO held that the sum of Rs.36.00 lakh received by the assessee from M/s Balaji was in the nature of compensation for loss of goodwill. Without allowing any deduction, he included the gross amount of Rs.36 lakh in the total income of the assessee. The assessee carried the matter before the ld. CIT(A), who held that the assessee gave all sort ITA No.70/PUN/2018 Mohs. Shafi Mohd Yusuf Patel 3 of assistance for the conduct of warehousing business to M/s Balaji for which he was compensated at the rate of Rs.3.00 lakh per month. He held such income as chargeable to tax under the head `Income from other sources’. While considering the grant of deduction claimed by the assessee against this income, inter alia, of Rs.16,01,175/- towards Employees cost, the ld. CIT(A) opined that only 50% of the same should be considered as having been incurred for running warehousing business and the remaining 50% was relatable to rental income received by the assessee which was charged to tax u/s.24 of the Act, subject to standard deduction of 30% of annual value. Aggrieved thereby, the assessee has come up in appeal before the Tribunal. 4. We have heard both the sides and gone through the relevant material on record. There is no dispute on the taxability of rental income under the head `Income from house property’, which was duly offered by the assessee as such. It is the sum of Rs.36.00 lakh, which was received by the assessee from M/s Balaji Warehousing for rendering assistance to them in the conduct of warehousing business, which is the core of controversy. As against the AO treating such amount of Rs.36.00 lakh as fully chargeable to tax as compensation ITA No.70/PUN/2018 Mohs. Shafi Mohd Yusuf Patel 4 for loss of goodwill, the ld. CIT(A) accepted such income to be chargeable under the head `Income from other sources’. There is no cross appeal filed by the Revenue assailing the finding of the ld. CIT(A). 5. Section 57 provides for deductions in computation of income under the head `Income from other sources’. Clause (iii) of section 57 provides for deduction of `any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income’. Thus it is manifested that any expenditure incurred by the assessee wholly and exclusively for the purpose of earning income is deductible. Instantly, we are concerned with the non-deductibility of Rs.8,00,587/- against such income from other sources. The assessee maintained staff for which salary of Rs.16.01 lakh was paid. Such staff was assisting the assessee in carrying on the operations of warehousing on behalf of M/s Balaji Warehousing. The ld. CIT(A), in principle, accepted that such an expenditure was incurred wholly and exclusively for earning the income, but attributed only 50% of the same at Rs.8,00,587/- for such business by holding the remaining amount relatable to `Income from house property’, for which no ITA No.70/PUN/2018 Mohs. Shafi Mohd Yusuf Patel 5 separate deduction was called for. We are unable to appreciate the logic behind such a decision because salary of staff has no relation with the earning of rental income from warehouse which has been given on rent without any provision for maintenance by the staff. Once the ld. CIT(A) accepted that the assessee received Rs.36.00 lakh from M/s Balaji Warehousing for rendering assistance in the conduct of warehousing business and also that the assessee incurred expenses on maintaining staff for that purpose, then there could have been no question of holding that only fifty percent of the staff helped in rendering income of Rs.3 lakh per month from M/s Balaji and the remaining 50% was for maintaining the premises yielding income chargeable under the head `Income from house property, for which, in fact, there is no such provision in the rent agreement. 6. Be that as it may, the rationale behind the decision of the ld. CIT(A) is that 50% of employee cost is in the nature of deductions contemplated against income from house property, for which composite deduction at the rate of 30% has been allowed. At this juncture, it is relevant to note that prior to the substitution of section 24 by the Finance Act, 2001 w.e.f., 01-04-2002, clauses (i) to (x) of section 24(1) of the Act [except clause (vi) dealing with interest on ITA No.70/PUN/2018 Mohs. Shafi Mohd Yusuf Patel 6 capital borrowed for construction, repairs, renewal or reconstruction of house property] provided for deductions of Expenses on repairs and collection of rent; Insurance premium; amount of annual charge; ground rent; land revenue; and vacancy allowance. Only clause (i) of section 24, dealing with expenses on repairs and collection of rent, provided for deduction at 25% of annual value. The substituted section 24, w.e.f. 01-04-2002, provides for a lump sum deduction at 30% of annual value in addition to separate deduction towards interest on capital borrowed for acquiring, constructing, renewing or re- constructing the property etc. On a comparative analysis of the section - before and as substituted - it transpires that the composite deduction of 30% of annual value is in lieu of expenses on repairs and collection of rent; Insurance premium; amount of annual charge; ground rent; land revenue; and vacancy allowance, which were separately incorporated in various clauses of section 24(1) of the Act except interest on borrowings. The legislature dispensed with the requirement of furnishing separate evidence for all such expenses and provided a composite deduction at 30% of annual value. The nature of expenses covered by the deductions, before and after substitution, ergo, remains the same. ITA No.70/PUN/2018 Mohs. Shafi Mohd Yusuf Patel 7 7. Turning to the nature of the expenditure in dispute, being, Employee costs, it is seen that the same was not included in any of the clauses of section 24 prior to substitution, which could have been replaced by inclusion in the composite deduction on substitution. When such an expenditure was not a part of pre-amended section 24, it could not have been made a part of the substituted provision by the ld. CIT(A) by necessary implication. 8. Moreover, we have noticed above that income received by the assessee as chargeable under the head `Income from house property’, in the facts of the extant case, does not admit of incurring any Employees cost. It is, therefore, held that the full amount of salary at Rs.16,01,175/- be allowed as deduction under the head `Income from other sources’ as against Rs.8,00,587/- allowed by the ld. CIT(A). 9. The next issue raised in this appeal is against the confirmation of disallowance of 50% of certain expenses by the ld. CIT(A) against `Income from other sources’. The facts apropos this issue are that the assessee incurred Travelling expenses at Rs.2,78,990; Vehicle Expenses at Rs.5,14,568/-; Printing and Stationery at Rs.6,818/-; and Miscellaneous expenses at Rs.46,151/-. The assessee claimed deduction for such total sum of Rs.8,46,527/- against the Commission ITA No.70/PUN/2018 Mohs. Shafi Mohd Yusuf Patel 8 income received from M/s Balaji Warehousing at Rs.36.00 lakh. The AO denied deduction for the same reasons as discussed earlier. The ld. CIT(A), following his view qua Employees cost, restricted the deduction to 50% at Rs.4,23,263/-. The assessee is aggrieved by the sustenance of disallowance at 50%. 10. It is seen that the facts and circumstances of this ground are mutatis mutandis similar to those of Employees Cost as discussed hereinabove. Following the same view, we hold that the full amount of Rs.8,46,527/- be allowed against the `Income from other sources’. 11. No other ground was pressed by the ld. AR. 12. In the result, the appeal is partly allowed. Order pronounced in the Open Court on 12 th November, 2021. Sd/- Sd/- (C.M. GARG) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 12 th November, 2021 Satish ITA No.70/PUN/2018 Mohs. Shafi Mohd Yusuf Patel 9 आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The Respondent; 3. The CIT(A)-2, Pune 4. 5. 6. The Pr.CIT-2, Pune DR, ITAT, ‘B’ Bench, Pune गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 12-11-2021 Sr.PS 2. Draft placed before author 12-11-2021 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *