MANISH G. DALAMAL, MUMBAI V. ASST CIT 12(3), MUMBAI

ITA 7414/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3266 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 16-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MATI BHARTI SINGH
• Assessee Lawyers: APURVA R SHAH
• Keywords: Business income; Depreciation
• Section: 142(1); 12

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO. 7414 /MUM/201 3 ( / ASSESSMENT YEAR : 20 10 - 11 ) MANISH G DALAMAL, 8, 2 ND FLOOR, SHIV SADAN, 131, NETAJI SUBHASH ROAD, MARINE DRIVE, MUMBAI - 400020 / VS. ASSTT. COMMISSIONER OF INCOME TAX 1 2 ( 3 ) , 1 ST FLOOR, AYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 ./ PAN : AAHPD4805H / ASSESSEE BY MS.APURVA R SHAH / REVENUE BY SHRI MATI BHARTI SINGH / DATE OF HEARING : 23. 5.2016 / DATE OF PRONOUNCEMENT : 8.6. 2016 / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24. 9.2013 OF COMMISSIONER OF INCOME TAX (APPEALS) - 2 3 , MUMBAI (HEREINAFTER CALLED AS THE CIT(A) FOR ASSESSMENT YEAR 20 10 - 11 . 2. THOUGH THERE ARE FOUR GROUNDS RAISED BY THE ASSE SSEE IN THIS APPEAL BUT THERE ARE ONLY TWO EFFECTIVE GROUNDS VIZ GROUND NO.1 RELATES BROKERAGE, LEGAL EXPENSES AND INSURANCE WHICH WERE DISALLOWED WHILE COMPUTING ANNUAL VALUE OF PROPERTY WHICH HAS BEEN LET OUT AND THE SECOND GROUND IS IN RESPECT OF 2 7414 /MUM/ 201 3 EX PENSES OF RS.21,06,469/ - WHICH WERE STATED TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF INVESTMENT ETC HOWEVER WAS NOT ALLOW ED BY THE AO AND ALSO UPHELD BY THE LD.CIT(A) . 3. FACTS IN BRIEF ARE THAT THE ASSESSEE FILED HIS RET URN OF INCOME DECLARING TOTAL INCOME OF RS.59,40,420/ - ON 3.8.2010. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE STATUTORY NOTICES U/S 143(2) AND 142(1) WERE ISSUED AND S ERVED UPON THE ASSESSEE. IT IS SEEN FROM THE PARA 4 OF THE ASSESSMENT ORDER THAT THE ASSESSEE HAS EARNED A RENTAL INCOME OF RS.90,13,537/ - AGAINST WHICH HE HAS CLAIMED VARIOUS EXPENSES SUCH AS BROKERAGE CHARGES OF RS.1,92,884/ - , LEGAL EXPENSES RS.3,24 ,258/ - , MAINTENANCE AND REPAIRS RS.2,44,653/ - AND INSURANCE CHARGES RS.3,863/ - THE AO DISALLOWED A SUM OF RS.7,65,658/ - BEING TOTAL ALL THESE EXPENSES. THE DETAILS OF THE SAME HAVE BEEN GIVEN HEREINABOVE BY HOLDING THAT NEITHER SECTION 23 NOR 24 OF THE ACT PROVIDE FOR DEDUCTION OF SUCH EXPENSES IN RESPECT OF PROPERTY LET OUT. 4 . BEFORE THE LD. CIT(A), THE ASSESSEE RAISED THE ISSUE OF DISALLOWANCE OF RS.7,65,658/ - ON ACCOUNT OF BROKERAGE CHARGES, LEGAL EXPENSES , MAINTENANCE CHARGES AND INSURANCE EXPENSE S AND THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY DIRECTING THE AO TO VERIFY WHETHER MAINTENANCE CHARGES WERE PAID TO THE HOUSING SOCIETY AND BY OBSERVING AND HOLDING AS UNDER : 3 7414 /MUM/ 201 3 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBM ISSIONS MADE BY THE ASSESSEE. I AGREE WITH THE OBSERVATION OF THE ASSESSING OFFICER THAT ONLY THOSE EXPENDITURES CAN BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME FROM HOUSE PROPERTY WHICH ARE SPECIFICALLY PROVIDED IN SECTION 23 AND SECTION 24 OF THE I .T. ACT, 1961. SINCE THE PROVISIONS OF SEC. 23 & 24 DO NOT PROVIDE FOR DEDUCTION ON ACCOUNT OF BROKERAGE, LEGAL EXPENSES AND INSURANCE IN COMPUTING THE INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY',NO DEDUCTION ON ACCOUNT OF EXPENDITURE INCURRED BY TH E ASSESSEE ON THE AFORESAID HEADS CAN BE ALLOWED AS CLAIMED BY HIM. 2.3.1 AS REGARDS THE ALLOWABILITY OF DEDUCTION ON ACCOUNT OF MAINTENANCE CHARGES, THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF SHARMILA TAGORE (SUPRA) IN SUPPORT OF HIS CONTENTION. HOWEVER, IN THE CASE OF SHARMILA TAGORE, WHAT WAS HELD TO BE ALLOWABLE AS A DEDUCTION BY THE HON'BLE TRIBUNAL EVEN WHILE DETERMINING THE ANNUAL VALUE OF THE PROPERTY U/S 23, WAS MAINTENANCE CHARGES PAID TO THE H OUSING SOCIETY. IN VIEW OF THE SAME, THE ASSESSING OFFICER IS DIRECTED TO VERIFY WHETHER THE MAINTENANCE CHARGES HAVE BEEN PAID TO THE HOUSING SOCIETY. IF THE SAME IS PAID TO THE HOUSING SOCIETY, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE MUMBAI TR IBUNAL IN THE CASE OF SHARMILA TAGORE (SUPRA), THE SAME SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE ANNUAL VALUE OF THE PROPERTY AND, CONSEQUENTLY, THE INCOME FROM HOUSE PROPERTY. HOWEVER, IF THE SAME IS NOT PAID TO THE HOUSING SOCIETY, NO DEDUCTION S HALL BE ALLOWED IN COMPUTING THE INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. THE GROUND OF APPEAL FILED BY THE ASSESSEE IS, ACCORDINGLY, PARTLY ALLOWED. 5. AFTER HEARING BOTH THE PARTIES AND CONSIDERING THE MATERIAL PLACED ON RECORD, WE ARE OF TH E VIEW THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF BROKERAGE CHARGES AND LEGAL EXPENSES, OF THE PROPERTY ARE NOT AS PER THE PROVISIONS OF SECTION 24 OF THE ACT WHICH DEALS WITH ALLOWABLE DEDUCTION S WHILE COMPUTING THE INCOME OF THE HOUSE PROPERTY . WE THEREFORE, DO NOT FIND ANY MERIT IN THE 4 7414 /MUM/ 201 3 CASE OF THE ASSESSEE AND THE ARGUMENTS AS ADVANCED BY THE LD.AR AND DISMISS THIS GROUND OF ASSESSEE BY UPHOLDING THE ORDER OF LD. CIT(A) ON THIS ISSUE. 6 . THE FACTS WITH REGARD TO THE SECOND GROUND OF APPEAL ARE THAT THE ASSESSEE HAS SHOWN AN INCOME OF RS.2,97,926 / - FROM BUSINESS AND PROFESSION. IN THE PROFIT AND LOSS ACCOUNT THE NET PROFIT OF RS. 2,73,917/ - WAS WORKED OUT AFTER CLAIMING EXPENSES OF RS.21,06,469/ - . THESE EXPENSES WERE CLAIMED AGAINST THE RECEI PT OF RS.23,80,386/ - WHICH CONSIST ED OF INTEREST INCOME OF RS.24,09,421/ - FROM BANKS DEPOSITS , COMMISSION OF RS.12,000/ - , SPECULATIVE PROFIT OF RS.24,009/ - AND LOSS FROM SHARES RS.65,044/ - . DURING THE COURSE OF SCRUTINY - ASSESSMENT PROCEEDINGS, THE AO OB SERVED THAT THE ASSESSEE HAS ONLY ACTIVITY OF BUSINESS FROM TRADING IN SHARES IN WHICH NO DELIVERY OF SHARES WERE TAKEN AND THEREFORE THE ACTIVITY IS OF SPECULATIVE IN NATURE . THEREFORE, THE AO HELD THAT THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS EXCE PT SHARE TRADING AND THEREFORE THE INTEREST INCOME FROM FDRS OF RS.24,09,421/ - WAS OF THE NATURE OF INCOME FROM OTHER SOURCES AND WAS ASSESSED ACCORDINGLY AND SO WAS THE COMMISSION OF RS.12,000/ - AND HELD THAT THE EXPENSES CLAIMED BY THE ASSESSEE OF RS. 21,06,469/ - WERE NOT RELATED TO EARNING OF INTEREST AT ALL WHICH ARE IN THE NATURE OF COMMUNICATION, CAR INSURANCE, REPAIRS SALARY, DEPRECIATION ETC. AND HAVING NO NEXUS WITH THE EARNING OF INTEREST INCOME AND ALSO HELD EXPENSES ARE NOT COVERED UNDER THE PROVISIONS OF SECTION 57 OF THE ACT. 5 7414 /MUM/ 201 3 7 . THE MATTER WAS CARRIED BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE SUBMITTED THAT THE BUSINESS WAS BEING C ONTINUED FOR THE LAST SEVERAL YEARS AND THE ASSESSEE HAS PROPER OFFICE SET UP IN ORDER TO T AKE DECISION S RELATING TO TRADING IN SHARES AND ON INVESTMENT OF SURPLUS FUNDS. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE INVESTMENT MADE IN THE FIXED DEPOSITS IN THE BANK IS A PART OF THE BUSINESS ACTIVITY OF THE ASSESSEE AND THEREFORE INTEREST ACCRU ED THEREON CONSTITUTE D BUSINESS RECEIPT AND THE ASSESSEE WAS ENTITLED TO CLAIM LEGITIMATE EXPENSES AS INCURRED BY THE ASSESSEE SOLELY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THE LD. CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE ON THI S GROUND BY OBSERVING AND HOLDING AS UNDER : 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE. I AGREE WITH THE DECISION OF THE ASSESSING OFFICER THAT BY NO STRETCH OF IMAGINATION THE INTEREST EARNED ON FIXED DEPOSITS CAN BE CONSIDERE D AS AN INCOME CHARGEABLE UNDER THE HEAD 'INCOME FROM BUSINESS AND PROFESSION'. THE ACTIVITY OF THE ASSESSEE OF MAKING FIXED DEPOSITS AND EARNING INTEREST THEREON CANNOT BE REGARDED AS A BUSINESS ACTIVITY. ALL THAT THE ASSESSEE IS DOING IS TO INVEST HIS SURPLUS FUNDS IN FIXED DEPOSITS OR MANAGE THE FIXED DEPOSITS. THE INCOME ON ACCOUNT OF INTEREST EARNED BY THE ASSESSEE ON SUCH FIXED DEPOSITS HAVE TO BE ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE EXPENDITURES IN QUESTION CANNOT BE ALLOWED AS A DEDUCTION U/S 37 OF THE I.T. ACT, 1961 AS CLAIMED BY THE ASSESSEE IN THE FACTS AND CIRCUMSTANCE') OF THE CASE. THE ASSESSEE HAS ALSO NOT SHOWN AS TO HOW THE EXPENDITURES IN QUESTION HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME FROM THE FIXED DEPOSITS. HENCE, NO DEDUCTION U/S 57 CAN BE ALLOWED TO THE ASSESSEE. THE ASSESSEE HAS ALSO NOT SHOWN THAT THESE EXPENSES HAVE BEEN INCURRED IN THE COURSE OF CARRYING OUT ANY BUSINESS AND THAT THE SAME WERE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED OUT BY HIM. IN VIEW OF THE AFORESAID REASONS, THE ACTION OF THE ASSESSING OFFICER 6 7414 /MUM/ 201 3 OF NOT ALLOWING THE DEDUCTION OF THE EXPENDITURE OF RS.21,06,469/ - IS UPHELD. THIS GROUND OF APPEAL FILED BY THE ASSESSEE IS DISMISSED. 8 . AGGRIEVED BY THE ORDER OF LD.CIT(A), THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL. 9 . AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE RECORD, WE FIND THAT THE AS SESSEE HAD CLAIMED THE EXPENSES OF RS.21,06,469/ - AGAINST THE RECEIPT OF INTEREST OF FDRS OF RS.24,09,421/ - , COMMISSION OF RS.12,000/ - , SPECULATIVE PROFIT OF RS.24,009/ - AND LOSS FROM SHARES RS.65,044/ - . THE AO WAS OF THE OPINION THAT ONLY RECEIPT OF RS.24, 009/ - IN THE NATURE OF BUSINESS ARISING OUT OF SPECULATION IN SHARES AND THE REMAINING RECEIPTS WERE IN THE NATURE OF INCOME OF OTHER SOURCES AND ACCORDINGLY HELD THAT THE EXPENSES OF RS.21,06,469/ - WERE NOT ALLOWABLE U/S 57 OF THE ACT. THE LD. CI T(A) ALSO CONFIRMED THE ACTION OF THE AO ON THIS POINT BY HOLDING THAT THE INCOME FROM INTEREST ON FDRS AN D COMMISSION HAVE TO BE TAXED AS INCOME FROM OTHER SOURCES AND CLAIM OF THE ASSESSEE AMOUNTING TO RS. 21,06,469/ - WAS NOT JUSTIFIED AS THESE HAVE N OT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING INTEREST INCOME FROM FDRS. FROM THE FACTS AS DISCUSSED ABOVE, WE FIND THAT THE ACTIVITY OF THE ASSESSEE OF INVESTING MONEY IN THE FDRS IN THE BANKS IN NO WAY CAN BE TREATED AS RECEIP T FROM THE BUSINESS AND WE AGREE WITH THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT THE SAME HAS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER 7 7414 /MUM/ 201 3 SOURCE S AND WAS RIGHTLY ASSESSED SO. SO FAR AS ADMISSIBILITY OF VARIOUS EXPENSES AGGREGATING TO RS.21,06,469 / - IS CONCERNED, WE ARE OF THE VIEW THAT HAVING REGARD TO THE NATURE OF EXPENSES, THESE WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF EARNING THE INCOME FROM OTHER SOURCES IN ORDER TO BE QUALIFIED FOR DEDUCTION U/S 57 OF THE ACT WHICH DEALS WITH THE DEDUCTION OF EXPENDITURE FROM THE INCOME AND OTHER SOURCES. AFTER CONSIDERING FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE ORDER PASSED BY THE LD. CIT(A) IS CORRECT AND ACCORDINGLY, WE UPHOLD HE ORDER OF THE LD. CIT(A) BY DISMISSING THE A PPEAL OF THE ASSESSEE ON THIS ISSUE. 10 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JUNE , 201 6 SD SD ( MAHAVIR SINGH ) (RAJESH KUMAR) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 8.6. 2016 SR.PS:SRL: / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 8 7414 /MUM/ 201 3 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI