JITENDRA KANTILAL SHAH,KHETWADI LANE, CHARNI ROAD, MUMBAI V. ACIT-19(2), MUMBAI , PIRAMAL CHAMBER, LAL BAUG, PAREL, MUMBAI

ITA 350/MUM/2025

AI Insights

The case involves Jitendra Kantilal Shah, who operates under three separate proprietorships, including M/s Gokul Construction. For the Assessment Year 2013-2014, Shah claimed business expenses amounting to INR 10,09,950 for M/s Gokul Construction. The Assessing Officer disallowed 50% of these expenses, citing lack of business activity evidence, as no purchases or sales were recorded during the year. Shah appealed this decision, which was partly upheld by the CIT(A). The Tribunal, after reviewing the documentation and arguments presented, found that the expenses were indeed related to business activities and thus should be allowed, except for a small portion which was not adequately verified.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 398089 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSEE
• Keywords: Business expenditure; Depreciation; Tax effect
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI SHRI OM PRAKASH KANT, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No.350/MUM/2025 (Assessment Year: 2013-2014) Jitendra Kantilal Shah 24, Bansi Bhavan, 3rdKhetwadi Lane, Charni Road, Mumbai – 400 004. Maharashtra. [PAN:AAIPS7178M].…………. Appellant Assistant Commissioner of Income Tax 19(2), Mumbai Piramal Chamber, Lal Baug, Parel, Mumbai - 400012. Maharashtra. Vs …………. Respondent Appearance For the Appellant/Assessee For the Respondent/Department : : Shri Rajkumar Singh Ms. Kavita P. Kaushik Date Conclusion of hearing Pronouncement of order : : 17.04.2025 02.06.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Assessee is directed against the order, dated 21/11/2024, passed by the Additional/Joint Commissioner of Income Tax (Appeals) – 4, Chennai[hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961[hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 22/03/2016, passed under Section 143(3)of the Act for the Assessment Year 2013-2014. 2. The Assessee has raised following grounds of appeal : “1. That the Ld. Addl./JCIT (A)-4, Chennai has erred in confirming the 50% disallowance made by ld. AO at Rs. 5,04,975/- out of ITA No.350/Mum/2025 Assessment Year 2013-2014 2 the total business expenses incurred and claimed by the appellant at Rs. 10,09,950/- in his proprietary business firm M/s Gokul Construction, erroneously treating and holding without any basis or evidence that the legtimate business expenditures as unrelated to business activity or may have been incurred for some other business without properly appreciating the facts of the case and law. (Tax Effect Rs.1,56,039/-). 2 That without prejudice to appeal ground no. 1, being 50% disallowance of the total business expenses of Gokul Construction made and confirmed by ld. AO & ld. Addl./JCIT (A) being very high and absolutely unreasonable therefore, appellant prays that the impugned 50% disallowance may kindly be reduced to the reasonable level of 5% to 10%..” 3. The relevant facts in brief are that the Assessee is an individual engaged in the construction and financing business. At the relevant time, the Assessee carried on his business under 3 separate proprietorships – (i) M/s. Jitendra K. Shah, (ii) M/s. Gokul Construction and (iii) M/s. Gokul Investments. The Assessee filed return of income for the Assessment Year 2013-2014 on 01/10/2013,which was revised on 14/10/2013 whereby the Assessee declared taxable income at INR.2,83,60,370/-. The case of the Assessee was selected for regular scrutiny. During the course of the assessment proceedings various details and documents were requisitioned by Assessing Officer. The Assessing Officer completed the assessment under Section 143(3) of the Act on 22/03/2016 after making, inter-alia, disallowance of INR.5,04,975/- being 50% of total expenses of INR.10,09,950/- claimed to be wholly and exclusively incurred by the Assessee from the business carried on under the proprietorship concern ‘M/s Gokul Construction’ [hereinafter referred to as ‘the Proprietorship’]. In appeal, the CIT(A) confirmed the disallowance. Being aggrieved, the Assessee has not preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above. 4. We have heard both the sides, perused the material on record. ITA No.350/Mum/2025 Assessment Year 2013-2014 3 5. On perusal of the Assessment Order we find that the Assessing Officer has made the disallowance on the ground that no business activity was carried out by the Proprietorship as there were no purchases and sales during the relevant previous year. However, the Assessing Officer did not make disallowance of entire expenses and restricted the disallowance to INR.5,04,975/- being 50% of total expenses of INR.10,09,950/- citing paucity of verification and keeping in view of the submission of the Assessee that the aforesaid expenses included payment towards mandatory dues. 6. We find that the Assessee had furnished the following break- up/details of the expenses during the assessment proceedings: Expenses Total Expenses Gokul Construction JK Shah Gokul Inv. Audit Fees 33,708 - 33,708 - Advertisement 3,000 3,000 - - Bank Interest & Charges 1,48,777 1,46,049 1,098 1,630 Conveyance 28,820 28,820 - - Electricity Charges 5,575 - 5,575 - Motor Car Insurance 40,426 4,045 36,381 - Office Expenses 62,066 62,066 - - Printing and Stationary 3,514 650 2,864 - Legal & Professional Fees 4,68,708 4,35,000 33,708 - Rates & Taxes 2,500 - 2,500 - Salary 5,52,130 3,10,000 2,42,130 - Telephone Expenses 4,782 - 4,782 - Travelling Expenses 17,825 17,825 - - Motor Car Expenses 54,500 - 54,500 - 14,26,331 10,07,455 4,17,246 - Depreciation claim 2,495 Total expenditure 10,09,950 7. In our view, once the above break-up was furnished by the Assessee, the Assessing Officer was not correct in making ad-hoc disallowance as a percentage of total expenses without any inquiry or verification. The Assessee had also filed ledger accounts, vouchers, bills and receipts along with Submission, dated 08/11/2024, filed before the CIT(A) [placed at pages 33 to 64 of the paper-book]. We find that documents/details filed by the Assessee were brushed aside by the authorities below without pointing out ITA No.350/Mum/2025 Assessment Year 2013-2014 4 any infirmity and without any inquiry. Further, we are of the view that the mere fact that there was no sales during the relevant previous year cannot be the sole basis of concluding that no business was carried out by the Proprietorship during the relevant previous year. We note that the Assessing Officer has itself recorded that “the opening stock and the closing stock are essentially the same properties”. Thus, it is admitted position that the Assessee was holding opening and closing stock. Therefore, it cannot be said that no business activity whatsoever. We note that the Assessee had incurred legal expenses in respect of legal disputes pertaining to properties during the relevant previous yearand has been paying interest on loans taken for the purpose of business. Therefore, we reject the contention of the Revenue that no business was carried out during the relevant previous year. We note that the Assessing Officer had notdisallowed the expenses in entirety but had only made disallowance of a percentage of expenditure. In our view, disallowance made by the AOwas merely an ad-hocdisallowance without any basis. On the other hand, the Assessee had explained that the Assessee was carrying out business during the relevant previous year, and the expenditure related to the same were booked/bifurcated for the each Proprietorship separately. The Assessee has filed audited financials (consolidated for all businesses), break up of expensesbusiness-wise and head-wise)and ledger accounts. The details/documents furnished support the contention of the Assessee that the expenses have been incurred for the purpose of the business of the Assessee carried out under the Proprietorship. We note that Expenses of INR.10,09,950/- under consideration include (a) depreciation INR.2,495/-,(b) Legal & Professional expenses of INR.4,35,000/- (incurred on legal disputes related to properties held), (c) INR.1,46,049/ paid to bank towards interest and bank charges’ (d) INR.3,10,000/- paid as Salary (in addition to salary of INR.2,42,130/- paid to staff employed for the ITA No.350/Mum/2025 Assessment Year 2013-2014 5 proprietorship ‘M/s JK Shah’) and (e) Printing & Stationery Expenses of INR.650/-. A perusal of ledger accounts shows that the Travelling Expenses of INR.17,825/- and Advertisement Expenses of INR.3,000/- are also related to legal disputes. Based upon the material on record related to the aforesaid expenses, we accept the contention of the Assessee that the same were incurred wholly and exclusively for the purpose of business. Therefore, we hold that the Assessee is entitled to claim deduction for the same (aggregating to INR.9,15,019/-)in full under Section 32/37(1) of the Act. As regards, the balance expenditure of INR. 94,931/- (INR.10,09,950/- minus INR.9,15,019/-) is concerned, while the Assessee has filed ledger accounts, the expenditure details cannot be verified. Therefore, weaccept the alternative contention of the Assessee and restrict the disallowance to 10% of the said expenditure. As a result, the disallowance made is restricted to INR.9,494/- and balance disallowance of INR.10,00,456/- is deleted. Thus, Ground No. 1 and 2 raised by the Assessee are partly allowed. 8. In terms of the paragraph 7 above,the present appeal preferred by the Assessee is partly allowed. Order pronounced on 02.06.2025. Sd/- Sd/- (Om Prakash Kant) Accountant Member (Rahul Chaudhary) Judicial Member मुंबई Mumbai; िदनांकDated :02.06.2025 Milan,LDC ITA No.350/Mum/2025 Assessment Year 2013-2014 6 आदेशकीŮितिलिपअŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent. 3. आयकरआयुƅ/ The CIT 4. Ůधान आयकर आयुƅ / Pr.CIT 5. िवभागीयŮितिनिध ,आयकरअपीलीयअिधकरण ,मुंबई/ DR, ITAT, Mumbai 6. गाडŊफाईल / Guard file. आदेशानुसार/ BY ORDER, सȑािपतŮित //True Copy// उप/सहायकपंजीकार /(Dy./Asstt.Registrar) आयकरअपीलीयअिधकरण, मुंबई / ITAT, Mumbai "