M/S. RAMGOPAL & SONS, MUMBAI V. THE ITO 12(3)(2), MUMBAI

ITA 924/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2717 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 1994-1995
• Appeal Filed On: 08-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAMED USMAN
• Assessee Lawyers: JAIDEV
• Keywords: Business income; Source of fund
• Section: 41(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI A.L. GEHLOT, A.M. AND SMT. P. MADHAVI D EVI, J.M. ITA NO. 924/M/08 ASSESSMENT YEAR: 1994-95 M/S RAMGOPAL & SONS, APPELLANT 401, ARCADIA BUILDING, 195NC, NARIMAN POINT, MUMBAI 400 021. (PAN AAAFR8368) VS. INCOME TAX OFFICER 12(3)(2), RESPONDENT AAYAKAR BHAVAN, ROOM NO. 102, FIRST FLOOR, M.K. ROAD, MUMBAI 400 020. APPELLANT BY : MR. JAIDEV RESPONDENT BY : MR. MOHAMED USMAN ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF TH E ORDER PASSED BY THE CIT(A)-XII, MUMBAI, ON 15.11.2007 FOR THE ASSESSMENT YEAR 1994-95 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) XII, MUMBAI HAS ERRED IN NO T CONSIDERING THE FACT OF THE CASE AS SUBMITTED BY THE APPELLANT FIRM DURING THE COURSE OF APPELLATE PROCEEDING.S 2. THE LEARNED CIT(A)-XII, MUMBAI HAS ERRED IN ALLO WING ONLY 20% OF THE TOTAL CLAIMS WHICH IS NEITHER A REASONABLE N OR A FAIR FOR RUNNING THE BUSINESS OF THE APPELLANT FIRM. 3. THE LEARNED CIT(A) XII, MUMBAI HAS ERRED IN D ISALLOWING 80% OF THE TOTAL CLAIMS WHICH IS A VERY HIGHER SIDE . ITA NO. 924/M/08 M/S RAMGOPAL & SONS 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THIS IS A SECOND ROUND OF LITIGATION. IN THE FIRST ROUND OF LITIGATION, THE I TAT VIDE ITS ORDER DATED 28 TH SEPTEMBER, 2005 HAS SENT THE MATTER BACK TO THE FI LE OF THE AO. IN COMPLIANCE TO THE DIRECTIONS OF THE ITAT, THE AO EXAMINED THE ISSUE AND NOTICED THAT THE ASSESSEE IS TAKING LOANS AND INVESTING IN SHARES RATHER THAN LENDING IT. THE AO OBSERVED THAT FROM THE RECORD PRODUCED BY THE ASSESSEE, BASED ON WHICH, IT CANNOT BE SAID THAT THE ASSESSEE WAS ENGAGED IN MONEY LENDING BUSINESS. THE AO REJECTED THE ASSESSEES CONTENTION THAT HE WAS DOING MONEY LENDI NG BUSINESS. THE AO, ACCORDINGLY, ASSESSED THE INCOME OF THE ASSESSE E AS UNDER:- INCOME FROM HOUSE PROPERTY RS. 6,63,200 INCOME FROM OTHER SOURCES (-) RS.10,69,307 CESSATION OF LIABILITY AS DECLARED U/S 41(2) RS.20 ,19,977 TOTAL INCOME RS.16,13,870 ROUNDED OFF TO RS. 16,13,870 =========== 3. THE CIT(A) CONFIRMED THE ACTION OF THE AO OBSERV ING THAT THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE WAS EN GAGED IN MONEY LENDING BUSINESS WAS NOT SUSTAINABLE. THE CIT(A) FU RTHER OBSERVED THAT THE ASSESSEES NEGATIVE INCOME OF RS. 10,69,30 7/- FROM THE INTEREST HAS BEEN RIGHTLY ASSESSED BY THE AO UNDER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOME. SINCE THE INCOME WAS ASSESSED UNDER THE HEAD INCOME FROM OTHER SOUR CES, THEREFORE, THE CIT(A) ALLOWED ONLY 20% OF CERTAIN EXPENSES AND DISALLOWED THE BALANCE OBSERVING AS UNDER:- 1.24 NOW THE MAIN QUESTION IS WHETHER TO ALLOW OR N OT THE VARIOUS EXPENSES CLAIMED AND DEBITED TO P&L A/C BY THE APPELLANT. 1.25 ONCE THE UNDERSIGNED HAS CONFIRMED THE AOS AC TION OF NOT HOLDING THE APPELLANT AS ENGAGED IN THE BUSINESS OF MONEY LENDING AND OF HOLDING THE NEGATIVE INCOME FROM OTH ER SOURCES, NO EXPENSES CLAIMED IN THE P&L A/C WILL BE ALLOWED E XCEPT CERTAIN ESSENTIAL ONES. 1.26 IN VIEW OF THESE FINDINGS, THE AO IS DIRECTED TO ALLOW ONLY THE FOLLOWING:- ITA NO. 924/M/08 M/S RAMGOPAL & SONS 3 20% OF OFFICE RENT KTC OF RS. 1,80,000/- 20% OF SALARIES OF RS. 90,285/- 20% OF ELECTRIC CHARGES OF RS. 3,898/- 20% OF TELEPHONE EXPENSES OF RS. 11,330/- 1.27 IT WAS THOUGHT REASONABLE AND FAIR TO ALLOW ON LY 20% OF THE TOTAL CLAIMS AS THE ABOVEMENTIONED HEADS OF EXPENSE S WERE CONSIDERED AS ESSENTIAL ONES AND AS THE UTILIZATION OF THE BORROWED FUNDS IN THE SHARE TRADING/CAPITAL LOSS VS . DERIVING INCOME FROM OTHER SOURCES IS IN THE RATIO OF ONLY 8 0% : 20% APPROXIMATELY. 1.28 THE UNDERSIGNED IS OF THE OPINION THAT NO OTHE R EXPENSE IS ALLOWABLE TO THE APPELLANT AGAINST THE INCOME FROM OTHER SOURCES. 4. AFTER HEARING THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE I SSUE UNDER CONSIDERATION IS A LIMITED ONE IN THE SENSE THAT WH ETHER THE CIT(A) WAS RIGHT IN RESTRICTING THE ALLOWANCE OF 20% OF OF FICE RENT, SALARIES, ELECTRICITY CHARGES, AND TELEPHONE EXPENSES. WE FIN D THAT WHEN IT WAS FOUND BY THE CIT(A) THAT THESE EXPENSES WERE ESSENT IAL EXPENSES FOR THE PURPOSE OF BUSINESS AND TO EARN INCOME FROM OTH ER SOURCES, THE RESTRICTION OF ALLOWANCE OF EXPENSES TO THE EXTENT OF 20% IS WITHOUT ANY BASIS AND MOREOVER THE CIT(A) DID NOT GIVE ANY REASON AS TO WHY HE HAS RESTRICTED THOSE EXPENSES TO THE EXTENT OF 2 0% ONLY. WE FIND THAT THERE ARE VARIOUS SOURCES OF INCOME INCLUDING INCOME IN RESPECT OF CESSATION OF LIABILITIES U/S 41(1), WHICH IS ASS ESSABLE UNDER HEAD INCOME FROM BUSINESS. SINCE THERE IS NO BASIS OF RESTRICTION OF ALLOWING OF 20% OF THOSE EXPENSES, WE ARE OF THE VI EW THAT THESE EXPENSES ARE FULLY ALLOWABLE, THEREFORE, WE ALLOW T HE WHOLE EXPENSES AND THE DETAILS OF WHICH ARE AS UNDER:- OFFICE RENT KTC OF RS. 1,80,000/- SALARIES OF RS. 90,285/- ELECTRIC CHARGES OF RS. 3,898/- TELEPHONE EXPENSES OF RS. 11,330/- 5. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A) W ITH THE ABOVE MODIFICATION BY ALLOWING ABOVE EXPENDITURES. ITA NO. 924/M/08 M/S RAMGOPAL & SONS 4 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED ON THIS 10 TH DAY OF DECEMBER, 2009. SD/- SD/- (P. MADHAVI DEVI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 10 TH DECEMBER, 2009 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INITLS 1. DRAFT DICTATED ON 02.12.09 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 03.12.09 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER