Sh. Virender Khanna, New Delhi V. JCIT, New Delhi

ITA 908/DEL/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2908 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 20-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 14-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AASISH MOHANTY
• Keywords: Depreciation; Charitable institution; Earning of tax free income; Additional evidence
• Section: 14A; 80G; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI R.S. SYAL, AM & SMT. BEENA A. PILLAI, JM ITA NO.908/DEL/2013 ASSESSMENT YEAR : 2009-10 VIRENDER KHANNA, M-62, SAKET, NEW DELHI. PAN: AAJPK7142G VS. JCIT, RANGE-37, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANDEEP SAPRA, ADVOCATE DEPARTMENT BY : SHRI AASISH MOHANTY, SR. DR DATE OF HEARING : 20.01.2016 DATE OF PRONOUNCEMENT : 21.01.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER PASSED BY THE CIT(A) ON 12.12.2012 IN RELATION TO THE ASSESSMENT YEAR 2009-10. ITA NO.908/DEL/2013 2 2. IT IS A RECALLED MATTER INASMUCH AS THE EARLIER EX PARTE ORDER PASSED BY THE TRIBUNAL WAS SUBSEQUENTLY RECALLED VIDE ORDE R DATED 4.9.2015 IN MA NO.221/DEL/2014. 3. GROUND NO.1 IS GENERAL WHICH DOES NOT REQUIRE AN Y ADJUDICATION. 4. GROUND NO. 2 DEALS WITH CERTAIN DISALLOWANCE OF EXPENSES. SUB- GROUND (I) IS AGAINST THE CONFIRMATION OF DISALLOWA NCE OF RS.1,58,318/- OUT OF VEHICLE AND TELEPHONE EXPENSES. 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS AN ARCHITECT BY PROFESSION, WHO FILED A RETURN FOR THE YEAR DECLARING TOTAL INCOME OF RS.3,60,17,900/-. DEDUCTION , INTER ALIA , WAS CLAIMED FOR A SUM OF RS.2,43,438/- ON ACCOUNT OF VEHICLE RUNNING AND MAINTENANCE EXPENSES AND RS.1,89,669/- FOR TELEPHONE EXPENSES. THE AO OBSERVED THAT THE EXPENSES UNDER THESE HEADS HAD SUBSTANTIAL LY INCREASED OVER THE PRECEDING YEAR. ON BEING CALLED UPON TO JUSTIFY HI GHER DEDUCTION, THE ASSESSEE SUBMITTED THAT HIS PROFESSIONAL FEE DRASTI CALLY INCREASED FROM RS.2.17 CRORE IN THE PRECEDING YEAR TO RS.6.61 CROR E IN THE CURRENT YEAR. THE AO OBSERVED THAT THERE WERE SEVERAL BILLS PERTA INING TO THE ITA NO.908/DEL/2013 3 ASSESSEES WIFE/FAMILY MEMBERS WHO WERE INDIVIDUAL INCOME-TAX ASSESSEES. AS THE ASSESSEE COULD NOT PRODUCE THE L OG BOOKS TO JUSTIFY THE CLAIM OF TELEPHONE AND VEHICLE EXPENSES, THE AO MAD E DISALLOWANCE AT 1/6 TH OF THE TELEPHONE EXPENSES, VEHICLE RUNNING AND MAI NTENANCE EXPENSES, INTEREST ON CAR LOAN, CAR INSURANCE AND V EHICLE DEPRECIATION. THIS RESULTED INTO DISALLOWANCE OF RS.1,58,318/-, W HICH CAME TO BE CONFIRMED IN THE FIRST APPEAL. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED AS AN ADMITTED F ACT THAT THE VEHICLES AND TELEPHONE WERE ALSO USED BY THE ASSESSEE FOR HI S PERSONAL PURPOSES AS HE HAS OFFICE-CUM RESIDENCE. IN SUCH CIRCUMSTANC ES, THE PERSONAL USE OF VEHICLES AND TELEPHONE CANNOT BE RULED OUT. TAK ING INTO CONSIDERATION THE ENTIRETY OF PECULIAR FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE JUST AND FAIR IF SUCH DISALLOWANCE IS REDUCED FROM 1/6 TH TO 1/10 TH . WE ORDER ACCORDINGLY. 7. GROUND NOS. 2(II) AND (III) ARE AGAINST THE CONF IRMATION OF DISALLOWANCE OF RS.35,974/- OUT OF SECURITY EXPENSE S AND RS.39,894/- ITA NO.908/DEL/2013 4 OUT OF ELECTRICITY AND WATER EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE WAS LIVING WITH HIS FAMILY AT M-62, SAKET, NEW DELHI, WHICH PREMISES WA S USED AS OFFICE- CUM-RESIDENCE. IN THE ABSENCE OF THE ASSESSEE HAVI NG APPORTIONED SUCH EXPENSES FOR BUSINESS AND PERSONAL USE, THE AO DISA LLOWED 1/3TH OF SECURITY EXPENSES AND ELECTRICITY EXPENSES, WHICH RESULTED INTO ADDITION OF RS.35,974/- IN RESPECT OF IN RESPECT OF SECURITY EXPENSES AND RS.39,894/- IN RESPECT OF ELECTRICITY AND WATER EXP ENSES. THESE DISALLOWANCES WERE CONFIRMED IN THE FIRST APPEAL. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE ASSESSE E HAS USED THE PREMISES M-62, SAKET, NEW DELHI BOTH AS OFFICE AND RESIDENCE . UNDER SUCH CIRCUMSTANCES, FULL AMOUNT OF SECURITY AND ELECTRIC ITY CHARGES PAID IN RESPECT OF THE SAID PREMISES CANNOT BE ALLOWED AS D EDUCTION AGAINST THE PROFESSIONAL INCOME. TAKING INTO CONSIDERATION THE ENTIRE FACTUAL POSITION PREVAILING IN THIS CASE, WE ARE OF THE CON SIDERED OPINION THAT IT WOULD BE REASONABLE AND FAIR IF THE DISALLOWANCE SU STAINED BY THE LD. ITA NO.908/DEL/2013 5 CIT(A) AT 1/3 RD OF SECURITY AND ELECTRICITY EXPENSES IS REDUCED T O 1/4 TH . WE ORDER ACCORDINGLY. 9. GROUND NO.2 (IV) IS AGAINST CONFIRMATION OF ADDI TION OUT OF TRAVELLING EXPENSES AMOUNTING TO RS.3,62,696/-. TH IS DISALLOWANCE HAS CERTAIN PARTS WHICH ARE BEING DISCUSSED SEPARATELY. THE ASSESSEE, INTER ALIA , CLAIMED DEDUCTION OF RS.13,432/- ON ACCOUNT OF AI R TRAVEL OF HIS DAUGHTER MRINALINI KHANNA FROM DELHI-MUMBAI-DELHI. THE AO MADE DISALLOWANCE FOR THE SAID SUM WHICH WAS UPHELD IN T HE FIRST APPEAL. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS MADE OUT A CAS E FOR DEDUCTION ON THE PREMISE THAT HIS DAUGHTER WAS ASSISTING IN PROF ESSION CARRIED ON BY HIM AND THIS VISIT TO MUMBAI WAS IN FURTHERANCE OF HIS PROFESSION. ON BEING CALLED UPON TO ADDUCE DIRECT EVIDENCE ABOUT H ER VISITING MUMBAI FOR ATTENDING A MEETING IN CONNECTION WITH THE PROJ ECT UNDERTAKEN WITH ACC LTD., THE ASSESSEE FAILED TO FURNISH IT. THE M ERE FACT THAT MRINALINI KHANNA IS AN ARCHITECT, DOES NOT JUSTIFY TRAVEL TO MUMBAI UNLESS A DIRECT EVIDENCE IS SHOWN OF HER HAVING ATTENDED MEETING FO R THE PURPOSE OF ITA NO.908/DEL/2013 6 ASSESSEES PROFESSION. IN THE ABSENCE OF ANY SUCH EVIDENCE, WE UPHOLD THIS DISALLOWANCE. 11. THE ASSESSEES WIFE MRS. ANURADHA KHANNA INCURR ED TRAVEL EXPENSES OF RS.39,398/- FOR VISITING MUMBAI ON TWO OCCASIONS AND HYDERABAD ON THE THIRD OCCASION. THE AO MADE THE D ISALLOWANCE WHICH WAS CONFIRMED IN THE FIRST APPEAL. 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THERE CAN BE NO JU STIFICATION FOR DEDUCTION UNLESS THE VISITS ARE ASSOCIATED WITH THE PROFESSION CARRIED ON BY THE ASSESSEE. THE LD. AR SUBMITTED THAT SHE WAS PAID CONSULTANCY FEES OF RS.5 LAC DURING THE YEAR WHICH WAS ALLOWED AS DEDUCTION. ON A SPECIFIC QUERY AS TO HOW THIS CONSULTANCY FEES WAS PAID, THE LD. AR SUBMITTED THAT IT WAS FOR CERTAIN SPECIFIC PROJECTS WHOSE DETAILS WERE NOT IMMEDIATELY AVAILABLE. HE CONTENDED THAT SUCH DETA ILS ARE AVAILABLE AND CAN BE FILED. DEDUCTIBILITY OF SUCH TRAVEL EXPENSES IS DIRECTLY LINKED WITH THE RENDERING OF SERVICES BY MRS. KHANNA IN THE CAR RYING ON OF THE ASSESSEES PROFESSION. IF THIS EXPENDITURE IS LINK ED WITH THE ASSIGNMENTS ITA NO.908/DEL/2013 7 GIVEN TO HER FOR WHICH SHE WAS ALSO PAID CONSULTANC Y FEES, THEN DEDUCTION HAS TO BE ALLOWED AND VICE VERSA . IN THE ABSENCE OF ANY DETAILS OF ASSIGNMENTS GIVEN TO MRS. ANURADHA KHANN A, WE CANNOT CO- RELATE HER VISITS TO MUMBAI AND HYDERABAD WITH THE PURPOSE OF PROFESSION. SINCE THE RELEVANT DETAILS ARE NOT REA DILY AVAILABLE WITH THE LD. AR, WE CONSIDER IT EXPEDIENT TO SET ASIDE THE I MPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF AO. WE O RDER ACCORDINGLY AND DIRECT HIM TO FIRSTLY ASCERTAIN THE DETAILS OF CONS ULTANCY FEES PAID TO HER BY TAKING INTO ACCOUNT THE PROJECTS FOR WHICH SHE W AS PAID SUCH CONSULTANCY FEES AND THEN CO-RELATE SUCH PROJECTS W ITH THE DATES AND PLACES VISITED BY HER FOR WHICH TRAVELLING EXPENSES HAVE BEEN CLAIMED. IF SOME DIRECT NEXUS IS ESTABLISHED BETWEEN HER GIV ING CONSULTANCY AND THE PLACES VISITED, THEN, THE DEDUCTION SHOULD BE A LLOWED. IN THE OTHERWISE SCENARIO, THE DISALLOWANCE BE SUSTAINED. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED AN ADEQUATE OPPORTUNITY OF HEARING BY THE AO. 13. THE NEXT DISALLOWANCE IS OF RS.40,255/- BEING T HE TRAVELLING EXPENSES OF SHRI NARENDRA KHANNA, SON OF THE ASSESS EE. THESE EXPENSES ITA NO.908/DEL/2013 8 ARE ON ACCOUNT OF TRAVEL FROM LONDON TO DELHI AND F ROM DELHI TO BOMBAY TO DELHI. THE AO MADE DISALLOWANCE FOR THE SAME WHICH WAS AFFIRMED IN THE FIRST APPEAL. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR WAS REQUIRED TO SHOW THE PURPOSE FOR WHICH SHRI NARENDRA KHANNA VISITED LONDON AND MUMBA I. ON FURTHER PROBING, IT TRANSPIRED THAT SHRI NARENDRA KHANNA CO MPLETED HIS EDUCATION IN LONDON AND CAME BACK TO INDIA AND THES E EXPENSES ARE IN CONNECTION WITH SUCH VISIT ONLY. SINCE THESE EXPEN SES HAVE NO RELATION WHATSOEVER WITH THE CARRYING ON OF THE PROFESSION B Y THE ASSESSEE AND ARE IN THE NATURE OF HIS PERSONAL EXPENSES, THE SAM E ARE HELD TO BE RIGHTLY DISALLOWED. 15. THE NEXT DISALLOWANCE IS ON ACCOUNT OF TRAVEL E XPENSES OF RS.7,066/- INCURRED ON VISIT OF DEVKI KHANNA, DAUGH TER OF THE ASSESSEE TO HYDERABAD. THIS EXPENDITURE WAS DISALLOWED BY T HE AO AND SUCH DISALLOWANCE WAS UPHELD IN THE FIRST APPEAL. ITA NO.908/DEL/2013 9 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE DO NOT FIND ANY SUBSTANCE IN THE ASSESSEES CONTENTION THAT THE VISIT TO HYDERABAD WAS IN CONNE CTION WITH SOME EXHIBITION OF THE ASSESSEES WORK. EVEN THOUGH MS DEVKI KHANNA WAS PAID SALARY @ RS.27,500/- PER MONTH, BUT, THE ASSES SEE FAILED TO CONNECT HER VISIT TO HYDERABAD WITH THE PROFESSION CARRIED ON BY HIM. WE, THEREFORE, UPHOLD THE DISALLOWANCE. 17. THE LAST AMOUNT IS RS.2,62,545/- BEING THE EXPE NSES INCURRED BY THE ASSESSEE HIMSELF ON TRAVELLING. FIRST ITEM IS RS.11,172/- ON ACCOUNT OF HIS VISIT TO BOMBAY. AS THE ASSESSEE WAS HAVING SOME PROJECTS WITH ACC LTD., WE HOLD THAT SUCH EXPENDITURE IS DEDUCTIB LE. THE REMAINING EXPENDITURE OF RS.1,66,873/- AND RS.84,500/- IS ON ACCOUNT OF AIR TICKET FROM DELHI TO LONDON AND BACK TO DELHI AND EXPENSES INCURRED ON SUCH VISIT. THE AO MADE DISALLOWANCE OF THIS EXPENDITUR E WHICH WAS UPHELD IN THE FIRST APPEAL. 18. AFTER GOING THROUGH THE RELEVANT MATERIAL ON RECORD, WE FIND THAT SAFDARJUNG HOSPITAL, NEW DELHI, INVITED INTERNATION AL COMPETITIVE BIDS. ITA NO.908/DEL/2013 10 THE ASSESSEE APPLIED FOR THE SAME. IN ORDER TO FUL FILL THE REQUIREMENTS OF SAFDARJUNG HOSPITAL, THE ASSESSEE CONTACTED MR. RIC HARD IN LONDON IN CONNECTION WITH A JV TIE UP WITH CONSULTANCY GROUP SPECIALIZING IN MEDICARE/HEALTHCARE PROJECTS. THOUGH, EVENTUALLY, IT DID NOT FRUCTIFY, BUT, THE MATERIAL ON RECORD FROM PAGES 93-98, BEING CORRESPONDENCE BETWEEN THE ASSESSEE AND MR. RICHARD IN THIS REGARD , AMPLY PROVES THE NEXUS OF VISIT TO LONDON WITH THE PROFESSION CARRIE D ON BY THE ASSESSEE. WE, THEREFORE, ALLOW DEDUCTION FOR THIS EXPENDITURE . 19. GROUND NO.2(V) IS AGAINST THE CONFIRMATION OF D ISALLOWANCE OF RS.1 LAC OUT OF ADVERTISEMENT EXPENSES. THE ASSESSE E CLAIMED DEDUCTION OF RS.1 LAC. ON BEING CALLED UPON TO JUSTIFY THE D EDUCTION, THE ASSESSEE STATED THAT HE PAID THE AMOUNT TO BALAJI CHARITABLE TRUST FOR ADVERTISEMENT OF HIS ORGANIZATION BY DISPLAY OF HOA RDING AT THE VENUE OF CONCERT ORGANIZED BY THEM. COPY OF PAMPHLETS AND B ANK STATEMENT WERE ALSO GIVEN. THE AO REFUSED TO GRANT ANY DEDUCTION BECAUSE THE DONATION PAID BY THE ASSESSEE TO THIS ORGANIZATION WAS NOT S UPPORTED BY ANY ITA NO.908/DEL/2013 11 CERTIFICATE ISSUED FOR THE PURPOSES OF SECTION 80G. THE LD. CIT(A) UPHELD THE DISALLOWANCE. 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS P LACED ON RECORD A COPY OF CERTIFICATE ISSUED U/S 80G TO THIS ORGANIZATION AS AN ADDITIONAL EVIDENCE. ONCE AN AMOUNT HAS BEEN PAID AS DONATION , THE SAME CANNOT BE ALLOWED AS AN ADVERTISEMENT EXPENSE. HOWEVER, TH E SAME HAS TO BE ALLOWED AS DEDUCTION IN TERMS OF THE SECTION 80G. E RGO, WE HOLD IN PRINCIPLE THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTI ON U/S 80G IN RESPECT OF THIS DONATION OF RS.1 LAC. THE AO IS DIRECTED TO V ERIFY THE CORRECTNESS OF THIS CERTIFICATE AND THEN ALLOW DEDUCTION U/S 80G A S PER LAW. 21. GROUND NO.3 IS AGAINST THE CONFIRMATION OF ADDI TION OF RS.68,846/- IN RESPECT OF CREDIT BALANCE IN THE ACCOUNTS OF ARV IND KUMAR RS.41,817/-, UBEROI SOOD & KAPOOR RS.15,300/- AND VIJAY SALES CORP. RS.11,729/-. THE AO MADE ADDITION OF RS.68,846/- ON ACCOUNT OF THE ABOVE THREE CREDITS BECAUSE THE ASSESSEE DID NOT PR OVIDE ANY DETAILS LIKE COMPLETE ADDRESS, INCOME-TAX PARTICULARS, ETC., WHI CH RESULTED INTO THE ITA NO.908/DEL/2013 12 AO HOLDING THAT THE CREDIT BALANCES WERE NOT VERIFI ABLE. THE LD. CIT(A) UPHELD THE ADDITION. 22. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND FROM PAGE 6 OF THE ASSE SSMENT ORDER, WHERE A TABLE OF THESE CREDITORS HAS BEEN DRAWN THAT THESE AMOUNTS REPRESENT OPENING BALANCE. THERE IS NEITHER ANY DEBIT NOR CR EDIT ENTRY FOR THE YEAR IN QUESTION IN ANY OF THESE THREE ACCOUNTS. SINCE THESE CREDITS WERE GENERATED IN THE PRECEDING YEARS, THERE CAN BE NO Q UESTION OF EXAMINING THE GENUINENESS OF SUCH CREDITS IN THE INSTANT YEAR . SECTION 68 APPLIES ONLY IN RESPECT OF CREDITS WHICH GENERATE DURING TH E YEAR ITSELF. AS SUCH, WE ORDER FOR THE DELETION OF THIS ADDITION. 23. GROUND NO.4 IS AGAINST THE CONFIRMATION OF DISA LLOWANCE OF RS.27,350/- U/S 14A READ WITH RULE 8D IN RESPECT OF EXEMPT INCOME OF RS.82,481/-. 24. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE TH AT THE ASSESSEE EARNED EXEMPT INCOME OF RS.82,481/- AND DID NOT OFFER ANY DISALLOWANCE. ON BEING CALLED UPON TO JUSTIFY THE CLAIM, THE ASSESSE E SUBMITTED THAT NO ITA NO.908/DEL/2013 13 EXPENDITURE WAS INCURRED FOR EARNING THIS INCOME. THE AO REJECTED THIS CONTENTION THROUGH PARA 9.3 OF HIS ORDER BY SPECIFI CALLY RECORDING SATISFACTION. HE, THEREAFTER MADE DISALLOWANCE @ 0 .5% OF THE AVERAGE OF THE VALUE OF INVESTMENTS WITHIN THE MEANING OF RULE 8D(2)(III). THE LD. CIT(A) SUSTAINED THE ADDITION. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE T HROUGH THE MATERIAL ON RECORD. IT IS FOUND THAT THE AO HAS REJ ECTED THE ASSESSEES CONTENTION ABOUT NOT HAVING INCURRED ANY EXPENDITUR E TO EARN THIS INCOME. THIS ASPECT HAS BEEN SPECIFICALLY DEALT WI TH BY THE AO IN PARA 9.3 OF HIS ORDER WHEREIN A CASE HAS BEEN MADE OUT F OR THE ASSESSEE HAVING INCURRED EXPENSES FOR EARNING THIS EXEMPT IN COME. THIS DEMONSTRATES RECORDING OF A PROPER SATISFACTION BY THE AO. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2009-10. AS PER THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F MAXOPP INVESTMENTS LTD. VS. CIT (2012) 347 ITR 272 (DEL) , THE PROVISIONS OF RULE 8D ARE APPLICABLE FROM ASSESSMENT YEAR 2008-09. AS THE AO HAS MADE DISALLOWANCE U/S 14A ONLY IN TERMS OF RULE 8D(2)(II I), WE FIND THAT NO ITA NO.908/DEL/2013 14 EXCEPTION CAN BE TAKEN TO THE SUSTENANCE OF THIS DI SALLOWANCE. WE, THEREFORE, UPHOLD THE DISALLOWANCE. THIS GROUND FAI LS. 26. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.01.201 6. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 21 ST JANUARY, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.