ANIL HARISHCHANDRA JOSHI, MUMBAI V. ITO 19(3)1), MUMBAI

ITA 7919/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8060 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 16-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K GUPTADR PER R K
• Assessee Lawyers: S S PHADKAR
• Keywords: Proportionate interest

Judgement Text

1 ITA NO.7919/MUM/2010 . (ASST YEAR 2005-06) IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI SMC SMC SMC SMC BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI R K PANDA, A BEFORE SHRI R K PANDA, A BEFORE SHRI R K PANDA, A BEFORE SHRI R K PANDA, ACCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER ITA NO.7919/MUM/2010 . . . . (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2005 2005 2005 2005- -- -06 0606 06) )) ) ANIL HARISHCHANDRA JOSHI B/68/661 M I G COLONY OPP PATRAKAR M K ROAD BANDRA (E) MUMBAI 51 VS THE INCOME TAX OFFICER WARD 19(3)(1), MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AABPJ8309C AABPJ8309C AABPJ8309C AABPJ8309C ASSESSEE BY SHRI S S PHADKAR REVENUE BY SHRI R K GUPTA, DR PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 2.8.2010 OF THE CIT(A) -30 MUMBAI RELATING TO ASSES SMENT YEAR 2005-06. 2 THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS CHALLEN GED THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF EXPENDITUR E OF RS. 1,81,626/- MADE BY THE ASSESSING OFFICER . 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS THE PROPRIETOR OF M/S MAGRAN FINANCES. THE BUSINESS CARRIED OUT BY THE AS SESSEE INCLUDES RECEIVING INVESTMENTS FROM VARIOUS PEOPLE ON SIMPLE INTEREST AND ADVANCING THE FUNDS RECEIVED TO VARIOUS SMALL SCALE BUSINESS PERSONS AT CERTAIN RATE OF INTEREST. 2 ITA NO.7919/MUM/2010 . (ASST YEAR 2005-06) DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED FROM THE INCOME & EXPENDITURE ACCOUNT OF THE ASSESSEE THAT AS AGAIN ST INTEREST INCOME OF RS. 60,000/- RECEIVED FROM ONE MRS RABIA SHEIKH, THE AS SESSEE HAS CLAIMED VARIOUS EXPENSES TOTALLING TO RS. 1,81,626.01. THE ASSESSI NG OFFICER ASKED TO ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES CLAIMED AGAINST THE INTEREST INCOME SHOULD NOT BE DISALLOWED AS THEY HAVE NO RELEVANCE WITH TH E SAID INTEREST INCOME. IT WAS EXPLAINED BY THE ASSESSEE THAT DURING THE YEAR VARIOUS FINANCING BUSINESSES CARRIED OUT IN PERSONAL NAMES OF THE ASSESSEE AND H IS SON SHRI NARANJAN, IN THE NAME OF M/S MAGRAN FINANCES AND THE PARTNERSHIP CON CERN OF M/S EVEREST FINANCES WERE MERGED TOGETHER IN THE HANDS OF THE ASSESSEE. HE HAS ALSO PREPARED SEPARATE ACCOUNTS OF HIS PERSONAL BUSINESS AND ONLY INTEREST FROM MRS RABIA SHAIKH WAS SHOWN IN THE ACCOUNTS. ALL EXPENS ES PERTAIN TO HIS OFFICE, WHICH HE HAD TO CONTINUE TO MAINTAIN. REFERRING T O A COUPLE OF DECISIONS, IT WAS SUBMITTED THAT EXPENSES INCURRED ON MAINTENANCE OF OFFICE ARE ADMISSIBLE IRRESPECTIVE OF THE FACT WHETHER THE INCOME IS RECE IVED OR EARNED. THE QUESTION OF REASONABLENESS OR OTHERWISE CANNOT BE ENQUIRED I N. IT WAS SUBMITTED THAT THE EXPENSES OF RS. 1,81,626/ ARE INCURRED DURING THE COURSE OF CARRYING ON BUSINESS AS FINANCER AND ARE INCURRED FOR THE PURPOSE OF BUS INESS AND NO PERSONAL OR CAPITAL NATURE OF EXPENDITURE IS INVOLVED. 2.2 HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCE D WITH THE EXPLANATIONS GIVEN BY THE ASSESSEE. FROM THE VARIOUS DETAILS FUR NISHED BY THE ASSESSEE, HE NOTED THAT THE ASSESSEE HAS TAKEN LOAN AMOUNTING T O RS. 5,05,911/- AND BANK OD FROM NKGSB BANK OF RS. 2,72,244/- TOTALLING TO R S. 7,78,155/-. AGAINST THE ABOVE LOAN, THE ASSESSEE HAS PAID INTEREST OF RS. 9 7,360/- WHICH HAS BEEN 3 ITA NO.7919/MUM/2010 . (ASST YEAR 2005-06) DEBITED IN THE INCOME & EXPENDITURE ACCOUNT. HOWEV ER, THE ASSESSEE HAS GIVEN LOAN OF RS. 3,50,000/- ONLY TO MS RABIA SHAIKH. ON BEING ASKED TO EXPLAIN THE SOURCE OF LOAN GIVEN TO MS RABIA SHAIKH, IT WAS SIM PLY SUBMITTED THAT IT IS AS PER BOOKS OF ACCOUNT. THE ASSESSING OFFICER NOTED THA T THE ASSESSEE HAS NOT ESTABLISHED THAT THE SAID LOAN IS GIVEN OUT OF LOAN TAKEN AND BANK OD FROM NKGSB BANK. THEREFORE, INTEREST DEBITED AMOUNTING T O RS. 97,360/- HAS NO RELEVANCE WITH THE ASSESSEES INTEREST INCOME OF RS . 60,000/- FROM MS RABIA SHAIKH. 2.3 AS REGARDS THE REMAINING EXPENSES SUCH AS ELEC TRICITY CHARGES, LEGAL EXPENSES, OTHER LOAN CHARGES, PROCESSING FEES, PROF ESSIONAL FEES, SERVICE TAX, TELEPHONE CHARGES ETC., THE ASSESSING OFFICER NO TED THAT THE ASSESSEE HAS FAILED TO ESTABLISH HOW HE HAS ARRIVED AT THE BIFU RCATION OF THE EXPENSES DEBITED IN HIS PERSONAL INCOME AND EXPENDITURE ACCOUNT. SIN CE THE ASSESSEE HAS NOT SHOWN INTEREST INCOME FROM MS RABIA SHAIKH, THE ASS ESSING OFFICER CAME TO THE CONCLUSION THAT INTEREST EARNED FROM THE REMAINING LOANS HAS BEEN SHOWN IN THE PROPRIETARY CONCERN M/S MAGRAN FINANCES. THE REASO NS FOR NOT SHOWING INTEREST INCOME ON OTHER LOANS GIVEN, APPEARING IN THE BALAN CE SHEET HAVE NOT BEEN EXPLAINED BY THE ASSESSEE. FURTHER, THE ASSESSING OFFICER NOTED FROM THE DETAILS OF LOANS AND ADVANCES GIVEN BY THE ASSESSEE IN HIS PROPRIETARY CONCERN M/S MAGRAN FINANCES, THAT THE ASSESSEE HAS ADVANCED TH E FOLLOWING AMOUNTS AS LOAN TO RABIA SHAIKH ON WHICH CORRESPONDING INTERES T HAS BEEN OFFERED IN THE HANDS OF HIS PROPRIETARY CONCERN M/S MAGRAN FINANCE S AND DETAILS OF WHICH ARE AS UNDER: 4 ITA NO.7919/MUM/2010 . (ASST YEAR 2005-06) DETAILS OF LOANS GIVEN: DETAILS OF LOANS GIVEN: DETAILS OF LOANS GIVEN: DETAILS OF LOANS GIVEN: I) RABIA SHAIKH RS. 5,60,000/- II) RABIA SHAIKH RS. 2,80,000/- III) RABIA SHAIKH RS. 56,000/- DETAILS OF INTEREST RECEIVED DETAILS OF INTEREST RECEIVED DETAILS OF INTEREST RECEIVED DETAILS OF INTEREST RECEIVED: I) RABIA SHAIKH RS. 96,000/- II) RABIA SHAIKH RS. 96,000/- III) RABIA SHAIKH RS. 48,000/- 2.4 THE ABOVE INTEREST INCOME HAS BEEN SHOWN BY THE ASSESSEE IN HIS PROPRIETARY CONCERN M/S MAGRAN FINANCES, WHEREAS TH E INTEREST RECEIVED OF RS. 60,000/- FROM THE SAME PERSON HAS BEEN SHOWN IN HIS PERSONAL INCOME AND EXPENDITURE ACCOUNT. SINCE THE ASSESSEE HAS ADVAN CED LOANS TO MS RABIA SHAIKH AND RECEIVED INTEREST FROM THE SAME PERSON, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THERE WAS NO NECESSITY TO SH OW INTEREST RECEIVED SEPARATELY IN HIS PERSONAL INCOME & EXPENDITURE ACC OUNT. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE, THE ASSESSING O FFICER DISALLOWED THE ENTIRE EXPENDITURE OF RS. 1,81,626/-. WHILE DOING SO, HE FURTHER NOTED THAT THE ASSESSEE HAS PREPARED A SEPARATE INCOME AND EXPENDITURE ACCO UNT JUST TO CLAIM THE LOSS TO BE SET OFF AGAINST THE INTEREST EARNED FROM HIS PROPRIETARY CONCERN M/S MAGRAN FINANCES. 3 IN APPEAL, THE CIT(A) AFTER OBTAINING THE REMAND REPORT FROM THE ASSESSING OFFICER AND AFTER CONFRONTING THE SAME TO THE ASS ESSEE AND CONSIDERING THE VARIOUS ARGUMENTS ADVANCED BEFORE HIM, UPHELD THE ACTION OF THE ASSESSING OFFICER. WHILE DOING SO HE OBSERVED THAT INCURRING EXPENDITURE OF RS. 1,81,626/- 5 ITA NO.7919/MUM/2010 . (ASST YEAR 2005-06) FOR EARNING A MEAGRE INCOME OF RS. 60,000/- IS UNB ELIEVABLE AND HIGHLY IMPROBABLE. FURTHER, THE ASSESSEE COULD NOT EXPLAI N AS TO WHY ONLY INTEREST INCOME FROM RABIA SHEIKH IS SHOWN IN THE PERSONAL I NCOME & EXPENDITURE ACCOUNT. EVEN DURING THE REMAND PROCEEDINGS, THE A SSESSEE COULD NOT EXPLAIN AS TO WHY HE WAS REQUIRED TO INCUR EXPENSES OF RS. 1,81,626/- FOR EARNING A MEAGRE INCOME OF RS. 60,000/-. CONSIDERING THE TOT ALITY OF THE FACTS HE HELD THAT THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE ENTIRE EXPENDITURE OF RS. 1,81,626/-. 4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. 5 THE LD COUNSEL FOR THE ASSESSEE REITERATED THE SA ME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER AND THE CIT(A). HE SU BMITTED THAT HE HAS NOT CLOSED DOWN HIS PERSONAL BUSINESS AND THERE IS ONLY TEMPOR ARY LULL IN THE BUSINESS. THE ASSESSING OFFICER HAS ACCEPTED THE BOOK RESULT OF M /S MAGRAN FINANCES AS ITS COMPLETE INCOME AND EXPENDITURE ACCOUNT IN HIS PERS ONAL ACCOUNT, WHICH IS NOT JUSTIFIED. 5.1 REFERRING TO THE DETAILS OF EXPENDITURE INCURRE D FOR EARNING THE INTEREST INCOME, WHICH HAS BEEN EXTRACTED AT PAGE 2 OF THE A SSESSMENT ORDER, HE SUBMITTED THAT ONLY TELEPHONE CHARGES AND ELECTRICI TY CHARGES MAY BE DISALLOWED 6 ITA NO.7919/MUM/2010 . (ASST YEAR 2005-06) BUT THE OTHER EXPENSES BEING RELATED TO EARNING OF INTEREST INCOME SHOULD BE ALLOWED AS DEDUCTION. 5.2 THE LD DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). HE SUBMITTED THA T THE ASSESSEE HAS MISERABLY FAILED TO ESTABLISH THE INCURRING OF VARIOUS EXPENS ES FOR THE PURPOSE OF ITS BUSINESS. 6 I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE PARTIES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESS EE HAS SHOWN TO HAVE RECEIVED INTEREST INCOME FROM MS RABIA SHAIKH AND HAS SHOWN TO HAVE INCURRED EXPENSES OF RS. 1,81,626.01 FOR EARNING SUCH INTEREST INCOME . IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE IS THE PROPRIETOR OF M/S MAGRAN F INANCES. IN THE SAID CONCERN, THE ASSESSEE HAS SHOWN TO HAVE GIVEN LOAN TO MS RAB IA SHAIKH OF RS. 9,96,000 ON WHICH INTEREST INCOME OF RS. 2,40,000/- HAS BEEN EARNED. THEREFORE, THERE IS NO NECESSITY TO SHOW SEPARATE INTEREST INCOME FROM THE SAID PARTY IN THE PERSONAL NAME OF THE ASSESSEE AND CLAIM VARIOUS EXP ENSES. 6.1 FURTHER, AS AGAINST THE LOAN OBTAINED AT RS. 7, 72,155/- THE ASSESSEE HAS GIVEN LOAN OF RS. 3,50,000/- ONLY TO MS RABIA SHAIK H ON WHICH THE INTEREST INCOME HAS BEEN EARNED. REGARDING THE BALANCE AMOUNT OF L OAN, NOTHING HAS BEEN 7 ITA NO.7919/MUM/2010 . (ASST YEAR 2005-06) EXPLAINED BY THE ASSESSEE. FURTHER, THE ASSESSEE HA S ALSO FAILED TO JUSTIFY THE VARIOUS OTHER EXPENSES INCURRED AS WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS. IT IS THE SUBMISSION OF THE LD COUNSEL F OR THE ASSESSEE THAT HE HAS NOT CLOSED DOWN HIS PERSONAL BUSINESS AND THERE IS ONLY TEMPORARY LULL IN HIS BUSINESS AND THEREFORE, THE ENTIRE EXPENDITURE SHOU LD BE ALLOWED AS DEDUCTION. I AM UNABLE TO ACCEPT THE ARGUMENTS ADVANCED BY THE L D COUNSEL FOR THE ASSESSEE. THERE IS NO BAR ON THE PART OF THE ASSESSEE TO HAVE ANY NUMBER OF PROPRIETARY CONCERN BUT THE FACT REMAINS THAT THE ASSESSEE HAS GIVEN LOAN TO MS RABIA SHAIKH IN THE NAME OF PROPRIETARY CONCERN M/S MAGRA N FINANCES IN WHICH HE HAS RECEIVED INTEREST INCOME OF RS. 2,40,000/- OUT OF T HE LOAN OF RS. 9,96,000/-. IT IS NOT UNDERSTOOD AS TO WHY AND HOW HE HAS SHOWN SEPAR ATE LOAN OF RS. 3,50,000/- TO RABIA SHAIKH ON WHICH HE HAS EARNED INTEREST INC OME OF RS. 60,000/-. FURTHER, THE ASSESSEE HAS NOT EXPLAINED EITHER BEFORE THE AS SESSING OFFICER OR BEFORE THE CIT(A) OR EVEN BEFORE ME AS TO THE UTILIZATION OF T HE BALANCE AMOUNT OF RS. 4,28,155/- (RS. 7,78,155 3,50,000)). SI MILARLY, THE ASSESSEE HAS ALSO NOT EXPLAINED EITHER BEFORE THE ASSESSING OFFICER OR BE FORE THE CIT(A) OR BEFORE THE TRIBUNAL AS TO THE GENUINENESS OF THE VARIOUS EXPEN SES INCURRED AS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 7 IN VIEW OF THE ABOVE OBSERVATIONS, THE VARIOUS EX PENSES CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED AS DEDUCTION. HOWEVER, IN MY OPINION, INTEREST EXPENDITURE ATTRIBUTABLE TO THE LOAN OF RS. 3,50,00 0/- GIVEN TO MS RABIA SHAIKH ON WHICH INTEREST OF RS. 60,000/- HAS BEEN EARNED SHOULD BE ALLOWED AS DEDUCTION. I THEREFORE, DIRECT THE ASSESSING OFFIC ER TO ALLOW PROPORTIONATE INTEREST EXPENDITURE ON RS. 3,50,000/- ONLY WHICH H AS BEEN ADVANCED TO MS 8 ITA NO.7919/MUM/2010 . (ASST YEAR 2005-06) RABIA SHAIKH OUT OF BORROWALS. WHILE CALCULATING THE INTEREST EXPENDITURE, THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. I HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY T HE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 16 TH , DAY OF MAR 2011. SD/- ( R K PANDA ) ( R K PANDA ) ( R K PANDA ) ( R K PANDA ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED:16 TH , MAR 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI