MOBILE TRADING & INVESTMENT P.LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 7375/MUM/2016

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 6013 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 14-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Keywords: Gift; Depreciation; Onus to prove
• Section: 201; 37; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI BEFORE SHRI MAHAVIR SINGH , JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO S . 7375 & 7376 /M/20 16 ASSESSMENT YEAR S : 2010 - 11 & 2011 - 12 M/S. MOBILE TRADING & INVESTMENT P. LTD., 141, MITTAL TOWER, C - WING, NARIMAN POINT, MUMBAI 400 021 PAN: AACCM 1419N VS. DY. CIT, CIRCLE - 3(2), AAYAKAR BHAVAN, M.K. ROAD , MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI DINKLE HARIYA, A.R. REVENUE BY : SHRI CHAITANYA ANJARIA , SR. D.R. DATE OF HEARING : 15 . 11 .201 8 DATE OF PRONOUNCEMENT : 31 . 12 .2018 O R D E R PER RAJESH KUMAR , ACCOUNTANT MEMBER: THE ABOVE TITLED APPEALS HAVE BEEN PREFERRED BY THE ASSESSEE AGAINST T HE ORDER DATED 30.09.2016 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR S 2010 - 11 & 2011 - 12 . ITA NO. 7375/M/2016 (A.Y. 2010 - 11) 2. THE FIRST GROUND RAISED BY THE ASSESSEE IS AGAINST THE CON FIRMATION OF ORDER OF THE AO IN DISALLOWING THE REPAIR AND MAINTENANCE EXPENSES OF RS. 23,58,054/ - . 3. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO OBS ERVED THAT ASSESSEE HAS DEBITED UNDER THE REPAIR AND MAINTENANCE EXPENSES ACCOUNT A SUM OF ITA NOS.7375 & 7376/M/2016 M/S. MOBILE TRADING & INVESTMENT P. LTD. 2 RS. 25,49,248/ - BEING PAYMENT TO INFINITY INTERIOR PVT. LTD. THE ASSESSEE STATED BEFORE THE AO THAT SAID EXPENDITURE WAS INCURRED BY THE ASSESSEE ON REPAIR OF PREMISES WHICH WERE TAKEN ON LEASE AT SHAH AND NAHAR INDUSTRIAL ESTATE. THE S AID PREMISES WERE TAKEN ON RENT BY THE ASSESSEE AND WERE ALSO VACATED ON 05.07.2011. THE AO, HOWEVER, NOT AGREED WITH THE CONTENTION S OF THE ASSESSEE AND DISALLOWED THE ENTIRE REPAIR AND MAINTENANCE CHARGES AND HOWEVER ALLOWED DEPRECIATION OF RS. 1,91,193/ - AT THE RATE OF 7.5% BEING EQUAL TO 50% OF THE NORMAL DEPRECIATION AS THE ASSET WAS PUT TO USE FOR LESS THAN 182 DAYS RESULTING INTO THE DISALLOWANCE OF EXPENSE TO THE TUNE OF RS.23,58,054/ - . 4. THE LD. CIT(A) IN THE APPELLATE PROCEEDINGS AFFIRMED THE ORDER OF AO BY OBSERVING THAT THE ASSESSEE HAS DERIVED NEW ADVANTAGES BY CARRYING OUT THE REPAIRS . THE LD. CIT(A) FURTHER OBSERVED THAT THE SAID PREMISES WERE TAKEN ON LEASE AT A MONTHLY RENT OF RS.60,000/ - FOR A PERIOD OF 33 MONTHS AND THUS ASSESSEE WAS REQUIRED TO PAY RS.90,80,000/ - AS LICENSE FEE AGAINST WHICH THE ASSESSEE INCURRED RS.25,49,248/ - AS REPAIRS WHICH ANY PRUDENT PERSON WOULD INCUR EXPENSE OF MORE THAN THE RENTAL VALUE OF A PREMISES ONLY AND THUS JUSTIFIED THE DISALLOWANCE. 5. WE HAVE HEA RD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS TAKEN THE PREMISES ON LEASE WHICH WAS VACATED ON 05.07.2011 IN THE SUBSEQUENT ASSESSMENT YEARS. WE, FURTHER, FIND THAT AO HAS NOT DOUBTED THE GENUINENESS O F THE EXPENDITURE AND ACCEPT ED THE EXPENDITURE AS CAPITAL IN ITA NOS.7375 & 7376/M/2016 M/S. MOBILE TRADING & INVESTMENT P. LTD. 3 NATURE AND ALLOWED THE DEPRECIATION THEREON. IN OUR CONSIDERED VIEW THE ASSESSEE IS ENTITLED TO CLAIM THE SAID EXPENSES AS REVENUE IN NATURE AS THE REPAIRS WERE CA RRIED OUT IN A RENTED PREMISES WHICH DOES NOT BELONG TO THE ASSESSEE PARTICULARLY WHEN THE SAID PREMISES WERE VACATED ON 05.07.2011. WE ARE THEREFORE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY REVERSED THE F INDING ON THE ISSUE BY THE LD CIT(A) AND DIRECT THE AO TO ALLOW THE REPAIRS AND MAINTENANCE AS REVENUE IN NATURE. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED. 6. THE ISSUE RAISED IN 2 ND GROUND OF APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWA NCE TO THE TUNE OF RS. 9,36,986/ - AS MADE BY THE AO ON ACCOUNT OF SALE PROMOTION THEREBY UPHOLDING THE ACTION OF THE AO ON THIS ISSUE. 7. THE FACTS IN BRIEF ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT EXPENSES OF THE ASSESSE E ON ACCOUNT OF SALE PROMOTION HAVE BEEN INCREASED TO RS. 46.84 LAKHS FROM 6.3 LAKHS IN THE EARLIER YEAR AND THUS A SHOW CAUSE NOTICE WAS ISSUED TO JUSTIFY THE CLAIM OF THE EXPENSES UNDER SECTION 37 OF THE ACT WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER D ATED 17.12.2012 SUBMITTING THEREBY THAT THE SAID EXPENDITURE WAS INCURRED ON A SMALL GIFT ITEMS WHICH ARE USED IN THE BUSINESS OF THE ASSESSEE WHOLLY AND EXCLUSIVELY AND ARE GIVEN TO THE KEY PERSONNEL OF THE COMPANIES AND ALSO TO PROSPECTIVE CUSTOMERS ON F ESTIVE OCCASION S . IT WAS ALSO SUBMITTED THAT A PART OF THE EXPENDITURE WAS INCURRED ON FACILITATION OF CUSTOMERS BY WAY OF HOSTING LUNCH AND DINNERS. HOWEVER, ACCORDING TO THE AO THE ASSESSEE HAS FAILED TO PROVE ITA NOS.7375 & 7376/M/2016 M/S. MOBILE TRADING & INVESTMENT P. LTD. 4 THE PURCHASE OF GOLD BULLION, JEWELLERY, W ATCHES HAVE RESULTED INTO INCREASE IN TURNOVER OF THE ASSESSEE AND THUS HELD THAT THE SAID EXPENSES WERE INCURRED TO BENEFIT THE DIRECTORS AND THE KEY PERSONNEL OF THE COMPANY AND THUS DISALLOWED 20% OF THE TOTAL EXPENDITURE OF RS. 46,84,930/ - UNDER THE HE AD BUSINESS PROMOTION RESULTING INTO DISALLOWANCE OF RS.9,36,986/ - . 8. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALSO AFFIRMED THE ORDER OF AO ON THIS ISSUE BY HOLDING THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS TO PROVE THAT THE SAID EXPENSE S UNDER THE HEAD BUSINESS PROMOTION WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN THIS CASE THE ASSESSEE HAS INCURRED EX PENDITURE OF RS.46,84,930/ - DURING THE YEAR OF PURCHASE OF GIFT ITEMS, HOSTING OF LUNCH AND DINNERS AND OFFERING VARIOUS TYPES OF INCENTIVES ETC. TO THE PROSPECTIVE CUSTOMERS. WE OBSERVE FROM THE ORDER OF AO THAT A 20% OF DISALLOWANCE WAS MADE ON AD - HOC B ASIS ON THE GROUND THAT ASSESSEE COULD NOT PROVE THE FACT THAT THE SAID EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF ASSESSEE. THE LD. CIT(A) AFFIRMED THE SAME GIVING THE SAME RESONS . IN OUR OPINION, THIS IS A CASE OF MERE DISALLOWANCE BEING MADE ON THE BASIS OF SURMISES AND PRESUMPTION AND THEREFORE WE ARE OF THE CONSIDERED VIEW THAT IT WOULD BE REASONABLE AND FAIR IF THE DISALLOWANCE IS REDUCED TO 10% AS AGAINST THE 20% DONE BY LD. CIT(A). ACCORDINGLY, WE REVERSE THE ORD ER OF LD. CIT(A) AND DIRECT THE AO TO WORK OUT THE DISALLOWANCE AT THE RATE ITA NOS.7375 & 7376/M/2016 M/S. MOBILE TRADING & INVESTMENT P. LTD. 5 OF 10% WHICH COMES TO RS.46,84,930/ - . THIS GROUND IS PARTLY ALLOWED. ITA NO.7375/M/2016 (A.Y. 201 1 - 1 2 ) 10. THE ONLY ISSUE RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF S ALE PROMOTION EXPENSE OF RS.34,15,889/ - OUT OF TOTAL BUSINESS PROMOTION EXPENSES OF RS. 48,05,361/ - ON THE GROUND THAT THE SILVER, GOLD AND OTHER PRECIOUS ITEMS OF JEWELLERY PURCHASED TO THE TUNE OF RS.34,15,889/ - WERE NOT PROVED BY THE ASSESSEE TO BE INCUR RED IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. SINCE WE HAVE ALREADY DECIDED THE ISSUE IN ITA NO.7375/M/2016 FOR A.Y. 2010 - 11 WHEREIN WE HAVE WORKED OUT THE DISALLOWANCE AT 10% OF THE TOTAL SALE PROMOTION EXPENSES. ACCORDINGLY, WE DIRECT THE AO TO DISALLOW A SUM OF RS.4,80,536/ - . GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED HEREINABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 .1 2 . 201 8 . SD / - SD/ - ( MAHAVIR SINGH ) ( RAJESH KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 31 .1 2 . 201 8 . * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.