BIREN DEVJI PALANI, MUMBAI v. ITO WD 20(1)(2), MUMBAI

ITA 1399/MUM/2010 | 2005-2006
Pronouncement Date: 25-10-2013 | Result: Partly Allowed

Appeal Details

RSA Number 139919914 RSA 2010
Assessee PAN AEWPP8926N
Bench Mumbai
Appeal Number ITA 1399/MUM/2010
Duration Of Justice 3 year(s) 8 month(s) 6 day(s)
Appellant BIREN DEVJI PALANI, MUMBAI
Respondent ITO WD 20(1)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-10-2013
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 25-10-2013
Date Of Final Hearing 15-10-2013
Next Hearing Date 15-10-2013
Assessment Year 2005-2006
Appeal Filed On 19-02-2010
Judgment Text
IN THE INCO ME TAX APPELLATE TRIBUNAL J BENCH MUMBAI BEFORE SHRI VIJAY PAL RAO JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO ACCOUNTANT MEMBER ./I.T.A. NO. 1399/M/2010 ( / ASSESSMENT YEAR : 2005 - 2 006 ) SHRI BIREN DEVJI PAL ANI 601 JEWEL MAHAL J.P. ROAD SEVEN BUNGLOW CIRCLE MUMBAI 600 061. / VS. THE ITO WARD - 20(1)(2) PIRAMAL CHAMBERS LALBAUG MUMBAI. ./ PAN : AEWPP 8926 N ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI JITENDRA SINGH / RESPONDENT BY : SHRI R.K. SAHU DR / DATE OF HEARING : 15.10 .2013 / DATE OF PRONOUNCEMENT : 25 .10 .2013 / O R D E R PER D. KARUNAKARA RAO AM: THIS APPEAL FILED BY THE ASSESSEE ON 12.3.2010 IS AGAINST THE ORDER OF CIT (A) - 31 MUMBAI DATED 4.1.2010 FOR THE ASSESSMENT YEAR 2005 - 2006 . 2. IN THIS APPEAL ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: A) DISALLOWA NCE OF INTEREST - RS. 6 34 7741 / - 1.1) THE LD CIT (A) ERRED ON FACTS AND LAW IN UPHOLDING THE DISALLOWANCE OF RS.6 34 774/ - MADE BY THE AO ON ACCOUNT OF INTEREST CLAIMED. 1.2) THE LD CIT (A) FAILED TO APPRECIATE THAT INTEREST HAD BEEN PAID ON FUNDS BORR OWED FOR THE PURPOSES OF BUSINESS AND HENCE NO DISALLOWANCE WAS CALLED FOR ON ACCOUNT OF INTEREST PAID. 1.3) THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.6 34.774/ - ON ACCOUNT OF INTEREST CLAIMED BE DELETED IN TOTO. B) DISALLOWANCE OF LOAN SANCTIONING CHARGES RS. 38 850/ - 2. 1) LD CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF LOAN SANCTIONING CHARGES MADE BY THE AO. 2. 2) THE LD CIT (A) FAILED TO APPRECIATE THAT LOAN PROCESSING CHARGES HAVE BEEN PAID THE PURPOSES OF BUSINESS AN HE NCE NO DISALLOWANCE WAS CALLED FOR ON ACCOUNT OF LOAN P ROCESSING CHARGES PAID . 2.3) YOUR APPELLANT SUBMITS THAT THE DISALLOWANCE OF RS. 38 850/ - ON ACCOUNT OF THE ABOVE EXPENSE BE DELETED IN TOTO. C) DISALLOWANCE OF TELEPHONE EXPENSES RS. 55 324/ - 3.1) THE LD CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE MADE BY THE AO AND RESTRICTED THE DISALLOWANCE TO 5% ON ACCOUNT OF TELEPHONE EXPENSES. 2 3.2) YOUR APPELLANT SUBMITS THAT AD - HOC DISALLOWANCE ON ACCOUNT OF TELEPHONE EXPENSES BE DELETED IN TOTO. D) DISALLOWANCE OF STAMP DUTY PAID FOR RAISING LOAN RS. 43 430/ - 4.1) THE LD CIT (A) ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE OF STAMP DUTY PAID ON RAISING LOAN AMOUNTING TO RS. 43 430/ - MADE BY THE AO. 4.2) YOUR APPELLANT PRAYS THAT THE DISALLOWANCE OF STAMP DUTY PAID FOR RAISING LOAN AMOUNTING TO RS. 43 430/ - MAY BE DELETED IN TOTO. E) DISALLOWANCE OF LOAN PROCESSING CHARGES CLAIMED U/S 57(III) RS. 53 73/ - 5.1) THE LD CIT (A) ERRED ON FACTS AND IN THE LAW UPHOLDING THE DISALLO WANCE OF LOAN PROCESSING CHARGES AMOUNTING TO RS. 53 730/ - CLAIMED BY THE APPELLANT U/S 57(III) MADE BY THE AO. 5.2) YOUR APPELLANT PRAYS THAT THE DISALLOWANCE OF LOAN PROCESSING CHARGES AMOUNTING TO RS. 53 730/ - MAY BE DELETED IN TOTO. 2. GROUND NO.1 RE LATES TO THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.6 34 778/ - DEBITED TO THE PROFIT AND LOSS ACCOUNT OF M/S. J.B. CORPORATION A PROPRIETORSHIP CONCERN OF THE ASSESSEE. ASSESSEE HAS A COUPLE OF PROPRIETORSHIP CONCERNS NAMELY M/S. J.B. CORPORATION AND M/S. J.B. SEEDS. ASSESSEE IS ALSO ENGAGED NOT ONLY IN THE BUSINESS OF COMMISSION AGENCY AND TRADING IN AGRICULTURE PRODUCE BUT ALSO DOING INVESTMENT ACTIVITIES IN SHARES. ASSESSE E ALSO HAD A PROPOSAL TO START OTHER NEW BUSINESS AND THIS PROPOSAL DID NOT TAKE OFF AND THEREFORE THE SAME WAS SUBSEQUENTLY ABORTED FOR COMMERCIAL REASONS AS STATED BY THE ASSESSEE . IT IS IN THIS BACKGROUND OF THE FACTS LD COUNSEL MENTIONED THAT THE UNSECURED LOANS TAKEN BY THE ASSESSEE SINCE THE ASSESSMENT YEAR 2001 - 2002 WER E MISTAKENLY CONSID ERED AS NON - BUSINESS PURPOSES. CONSEQUENTLY IMPUGNED CLAIM OF INTEREST EXPENDITURE WAS DISALLOWED BY THE AO IN THIS YEAR FOR WANT OF SUPPORTING EVIDENCES. IN THIS REGARD LD COUNSEL SUBMITTED THAT RELEVANT OLD UNSECURED LOANS WERE ADDE D U/S 68 OF THE ACT IN THE AY 2001 - 2002 AS UNEXPLAINED CASH CREDITS; BUT THE SAID ADDITION WAS SUBS EQUENTLY DELETED BY THE CIT (A) VIDE THE ORDER DATED 31.1.2005. IN THIS REGARD H E BROUGHT OUR ATTENTION TO PARA 4 AND 5 OF THE ORDER OF THE CIT (A). REFERR ING TO PAGE 34 OF THE PAPER BOOK LD COUNSEL MENTIONED THAT THE INTEREST OF RS. 6 34 744/ - PERTAINS TO BOTH OLD AND NEW LOANS AND THE TREATMENT SHOULD B E DIFFERED LEGALLY DEPENDING ON THE YEAR OF INTRODUCING OF THE LOANS INTO THE BUSINESS. FURTHER HE MEN TIONED THAT THIS AMOUNT PARTLY RELATES TO THE SAME CURRENT LOANS ALSO WHICH WAS ACCEPTED BY THE REVENUE AND NO ADDITION IN THIS REGARD WAS MADE U/S 68 OF THE ACT. FURTHER WHEN THE LD DR POINTED OUT THE EXISTENCE OF NEGATIVE BALANCE IN THE CAPITAL ACCOUNT OF THE ASSESSEE WITH M/S. J.P. CORPORATION CONSISTENTLY RIGHT FROM THE AY 2001 - 2002 ONWARDS LD COUNSEL MENTIONED THAT THESE LOANS WERE GIVEN 3 TO M/S. J.B. SEEDS & SPICES PAGES 18 AND 19 OF THE PAPER BOOKS ARE RELEVANT IN THIS REGARD. THESE ASPECTS WERE N OT EXAMINED BY THE REVENUE DURING THE PROCEEDINGS BEFORE THE AO AND THE CIT (A). IN THIS REGARD HE PRAYED THAT THE MATTER CAN BE REMANDED TO THE FILES OF THE AO FOR EXAMINING THE ISSUE AFRESH AND HE ASSURED TO FILE RELEVANT CASH IN AND CASH OUT FLOWS INV OLVING THE UNSECURED LOANS OF RS. 28.5 LACS. HE ALSO DEMONSTRATED THAT NONE OF THESE LOANS WERE TRANSFERRED INTO THE INVESTMENTS IN GOLD DIAMOND AND SHARES. T HEREFORE IT IS AN IMPERATIVE INFERENCE THAT THE LOANS ARE USED FOR THE BUSINESS PURPOSES ONLY. IN ALL FAIRNESS CONSIDERING THE OBVIOUS LACUNAE LEFT BY THE LOWER AUTHORITIES WE ARE OF THE OPINION THAT INSTEAD OF DISMISSING THE APPEAL OF THE ASSESSEE THE CONCLUSION OF THE CIT (A) SHOULD BE SET ASIDE AND THE ISSUE SHOULD BE REMANDED TO THE FILES OF THE AO FOR EXAMINING THE ISSUE AFRESH AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AS WELL AS THE FACT OF DELETION OF THE ADDITIONS MADE U/S 68 OF THE ACT FOR THE AY 2001 - 2002. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE I N THE SET ASIDE PROCEEDINGS. ACCORDINGLY GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES. 3. GROUND NO.2 4 AND 5 RELATE TO THE DISALLOWANCE OF (I) LOAN SANCTIONING CHARGES OF RS. 38 850/ - ; (II) STAMP DUTY PAID FOR RAISING LOANS OF RS. 43 430/ - AND (III) LOAN PROCESSING CHARGES CLAIMED U/S 57(III) OF RS. 53 730/ - . AO DISALLOWED THE AMOUNTS HOLDING THAT THESE ARE INCURRED IN CONNECTION WITH UNRELATED BUSINESS AND ALSO FOR WANT OF EVIDENCES . FURTHER HE MENTIONED THAT THESE AMOUNTS WERE INCURRED IN CONNEC TION WITH NEW PROJECT WHICH FINALLY ABORTED FOR THE REASONS OF COMMERCIAL CONTINGENCIES. IN THIS REGARD LD COUNSEL FILED A SERIES OF DECISIONS TO DEMONSTRATE THAT SUCH EXPENDITURE IS ALLOWABLE A S REVENUE EXPENSES . 4. ON THE OTHER HAND LD DR MENTIONED T HAT THE SAME EXPENSES WERE DISALLOWED FOR WANT OF EVIDENCES AND ALSO FOR ESTABLISHING THE NEXUS FOR THE BUSINESS PURPOSES OF THE ASSESSEE. 5. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. ON FINDING THAT THE LOANS WERE PAID TO KIRTIVARDHIKA CORPORATION AND THE STAMP DUTY AMOUNTS WERE PAID TO THE AGENCIES AND CONSIDERING THE NATURE OF THE EXPENDITURE WE ARE OF THE OPINION THAT THE GENUINENESS OF THE PAYMENT CANNOT BE DOUBTED. ON PERUSAL OF THE COPIES OF THE ORDERS FILED BEFORE US WE FIND THAT IN PRINC IPLE THE EXPENSES INCURRED IN CONNECTION 4 WITH THE ABORTED AND FUTILE PROJECTS OF THE ASSESSEE IN PRINCIPLE SUCH CLAIMS OF EXPENDITURE IS ALLOWABLE AS REVENUE EXPENSE. ACCORDINGLY WE ALLOW THE GROUNDS NO.2 4 AND 5 IN FAVOUR OF THE ASSESSEE. 6. GROUND NO.3 RELATED TO THE DISALLOWANCE OF TELEPHONE EXPENSES . AO DISALLOWED 40% OF THE TELEPHONE EXPENSES AND THE SAME WAS RESTRICTED TO THE 5% BY THE CIT (A). PARA 2.3.3 OF THE CIT (A)S ORDER IS RELEVANT IN THIS REGARD WHICH READS AS UNDER: 2.3.3. THE AO HAS DISALLOWED 40% OF THE TELEPHONE EXPENSES CLAIMED IN HIS PROFIT AND LOSS ACCOUNT CONTENDING THAT THE EXPENDITURE INCURRED IS INCLUSIVE OF HIS PERSONAL AND NON - BUSINESS CALLS MADE FOR WHICH NO SEPARATE DETAILS ARE MAINTAINED. ON THE OTHER HAND ACCOR DING TO THE AR THE ENTIRE EXPENDITURE PERTAIN TO THE TELEPHONE LINES INSTALLED IN HIS OFFICE AND NO EXPENSES INCURRED IN RESPECT T HIS RESIDENTIAL TELEPHONE LINE IS INCLUDED. IN THIS REGARD I FIND THAT THE AO IS NOT FULLY JUSTIFIED IN DISALLOWING 40% OF THE TELEPHONE EXPENSES CLAIMED BY THE APPELLANT ON AD - HOC OR ESTIMATION BASIS PARTICULARLY IN VIEW OF THE FACT THAT FROM THE NATURE OF THE BUSINESS UNDERTAKEN BY THE APPELLANT THE EXPENDITURE INCURRED UNDER THIS HEAD IS BOUND TO BE SUBSTANTIAL. BESIDES THE AR AS PER THE DETAILS FURNISHED HAS SUBSTANTIATED THAT THE EXPENDITURE INCURRED IS ONLY IN RESPECT TO THE TELEPHONES INSTALLED IN THE OFFICE OF THE APPELLANT. HOWEVER THE AR HAS ADMITTED THAT NO SEPARATE DETAILS OF THE PERSONAL CALLS MADE BY THE APP ELLANT ARE MAINTAINED. THEREFORE ON ACCOUNT OF THESE FACTS I FIND IT APPROPRIATE AND IT WOULD MEET THE JUSTICE IF THE DISALLOWANCE MADE IS RESTRICTED TO 5% OF THE TOTAL EXPENDITURE CLAIMED UNDER THIS HEAD INSTEAD OF 40% DISALLOWED BY THE AO. ACCORDINGL Y CONSIDERING THE OVERALL FACTS OF THE CASE THE DISALLOWANCE MADE ON THIS ACCOUNT IS CONFIRMED TO THE EXTENT OF 5% OF THE EXPENSES CLAIMED AND THE BALANCE DISALLOWANCE MADE IS DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 7 . CONSIDERING THE SMALLNESS OF THE DISALLOWANCE WE ARE OF THE OPINION THAT THE ORDER OF THE CIT (A) DOES NOT CALL F OR ANY AMENDMENT. THE CIT (A)S FINDING GIVEN VIDE PARA 2.3.3 OF HIS ORDER MENTIONED ABOVE IS CONFIRMED. ACCORDINGLY GROUND NO.3 IS DIS MISSED . 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ORDER PRO NOUNCED IN THE OPEN COURT ON 25 TH OCTOBER 2013. SD/ - SD/ - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 25 .10 .2013 . . ./ OKK SR. PS 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. / DR ITAT MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER / (DY./ASSTT. REGISTRAR) / ITAT MUMBA I