J.R. ASSOCIATES, MUMBAI v. ITO 12(3)(1), MUMBAI

ITA 3578/MUM/2009 | 1999-2000
Pronouncement Date: 16-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 357819914 RSA 2009
Assessee PAN AACPV4048C
Bench Mumbai
Appeal Number ITA 3578/MUM/2009
Duration Of Justice 1 year(s) 9 month(s) 15 day(s)
Appellant J.R. ASSOCIATES, MUMBAI
Respondent ITO 12(3)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 16-03-2011
Date Of Final Hearing 21-02-2011
Next Hearing Date 21-02-2011
Assessment Year 1999-2000
Appeal Filed On 01-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 3578/MUM/2008 (ASSESSMENT YEAR: 2005-06) SHRI BALRAM L. VASANDANI INCOME TAX OFFICER - 22(2 ) 2/2 ATUR PARK CHEMBUR NAVI MUMBAI MUMBAI 400071 VS. PAN - AACPV 4048 C APPELLANT RESPONDENT APPELLANT BY: NONE RESPONDENT BY: SHRI SHRAVAN KUMAR O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXII MUMBAI DATED 23.04.2008. 2. ASSESSEE HAS RAISED THE FOLLOWING THREE GROUNDS: - 1. THE LEANED I.T.O. HAS ERRED IN TREATING INCOME FROM PROPERTY AS INCOME FROM OTHER SOURCES WITHOUT APPRECIATING T HE EVIDENCE ON RECORD THAT ASSESSEE IS THE OWNER OF TWO SHOP PR EMISES WHICH IS NOT DENIED BY LEARNED I.T.O. AND WRONGLY D ISALLOWED DEDUCTION OF RS.40950/- U/S 24 OF THE I.T. ACT. THE LEARNED CIT(A) HAS WRONGLY CONFIRMED THE SAME. 2. THE LEARNED I.T.O. HAS ERRED IN DISALLOWING INTE REST OF RS.37884/-. THE SAID INTEREST IS PAID ON LOANS FOR PURCHASING ABOVE TWO SHOPS ON THE YEAR 2001 AND THUS ALLOWABLE AGAINST PROPERTY INCOME. 3. THE LEARNED I.T.O. HAS ERRED IN MAKING DISALLOWA NCE OUT OF EXPENSES HAVING ASSESSED THE INCOME U/S 44AF @ 5% O F THE TURNOVER. 3. ASSESSEE IS A SMALL BUSINESS PERSON HAVING BUSINESS OF SELLING GARMENTS AND DURING THE ASSESSMENT YEAR UNDER CONSI DERATION DECLARED INCOME FROM PROPERTY AT ` 95 550/- AND BUSINESS INCOME AT ` 5 739/-. ASSESSEE ALSO HAD OTHER INCOME LIKE INTEREST ON WHI CH DEDUCTION UNDER SECTION 80L WAS CLAIMED THUS DECLARING THE TOTAL I NCOME AT ` 89 290/-. ITA NO. 3578/MUM/2008 SHRI BALRAM L. VASANDANI 2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O . ASKED FOR COPY OF THE LEASE AGREEMENTS ON WHICH THE ASSESSEE HAS SHOWN RE NTAL INCOME OF ` 1 36 500/- AND FURTHER AFTER EXAMINING THE BOOKS OF ACCOUNT ESTIMATED THE INCOME UNDER SECTION 44AF AND FURTHER DISALLOWED VA RIOUS EXPENDITURES CLAIMED IN THE P & L ACCOUNT. ASSESSEE AGGRIEVED ON THE ABOVE ADDITIONS AND ADJUSTMENTS CONTESTED THE SAME BEFORE THE CIT(A ) WITHOUT ANY SUCCESS. HENCE THE ABOVE GROUNDS. 4. ASSESSEE WAS NOT PRESENT WHEN THE CASE WAS POSTED A ND SO THE CASE WAS CONSIDERED EXPARTE AFTER HEARING THE LEARNED D. R. THIS APPEAL WAS ORIGINALLY DISMISSED AS UNADMITTED BY THE ORDER DAT ED 10.10.2009 AND WAS RECALLED CONSEQUENT TO THE ORDER IN MA NO. 44/MUM/2 010 DATED 5 TH MARCH 2010. 5. ASSESSEES SUBMISSIONS ARE AS UNDER: - ASSESSEE IS AGED 61 YEARS AND NOT KEEPING GOOD HEA LTH. HE WAS DOING BUSINESS OF READY MADE GARMENTS FROM BUSINESS PREMISES NAMELY SHOP NO. 10/11 PLOT NO. 285 SECTOR 28 VAS HI AND ALSO WAS GIVING THE PREMISES ON L/L BASIS AND SAID PREMISES WAS USED FOR STORING OF GOODS BY VARIOUS DEALERS AND WAS RECEIVI NG COMPENSATION FROM YEAR TO YEAR. ASSESSEE HAS DECLARED THE COMPEN SATION INCOME SINCE SEVERAL YEARS IN THE RETURN OF INCOME AND HAD ALSO CLAIMED 30% DEDUCTION OF COMPENSATION AMOUNT UNDER SECTION 24 O F THE I. TAX ACT. THE SAID SHOP PREMISES ARE DULY SOLD DURING THE YEA R. THE PURCHASE/SALE AGREEMENT OF BOTH THE SHOPS ARE FILED WITH WORKING OF CAPITAL GAINS SHOWN IN THE STATEMENT OF ACCOUNTS AT TACHED WITH THE RETURN OF INCOME. THUS ASSESSEES INCOME IS AS UNDE R: - PROPERTY INCOME : TOTAL COMPENSATION RECEIVED RS.136500/- 30% DEDUCTION U/S 24 RS. 40950/- ------------------- RS.95550/- ------------------ THE LEARNED I.T.O. HAS DISALLOWED DEDUCTION U/S 24 OF RS.40950/- ALLEGING THAT THE SAID INCOME IS FROM OTHER SOURCES . THE LEARNED I.T.O. HAS FAILED TO APPRECIATE THAT FACTS ON RECOR D. 1) ASSESSEE IS THE OWNER OF TWO SHOPS NAMELY SHOP NO. 10/11 PLOT NO. 285 SECTOR 28 VASHI. PURCHASED IN THE YEA R 2001. ASSESSEE HAS DECLARED PROPERTY INCOME DURING LAST SEVERAL YEARS WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. TH E OWNERSHIP OF THE SAID SHOPS HAS NOT BEEN DENIED BY LEARNED I.T.O. EXCEPT SE HAS NOT L/L/ ARGUMENTS. ITA NO. 3578/MUM/2008 SHRI BALRAM L. VASANDANI 3 2) THE LEARNED I.T.O. HAS WRONGLY TREATED THE PROPERTY INCOME AS INCOME FROM OTHER SOURCES WITHOUT ANY IOTA OF EV IDENCE WITH THE LEARNED I.T.O. BUSINESS INCOME THE LEARNED I.T O. HAS TAKEN 50% N.P. OF THE T.O. O F RS.484786 U/S 44AF RS.24237/- 44AF(2) STATE ANY DEDUCTION UNDER THE PROVISIONS OF SECTION 30 TO 38 SHALL FOR THE PURPOSE OF SUB SECTION (I) BE DEEMED TO HAVE BE EN ALREADY GIVEN FULL EFFECT TO AND NO FURTHER DEDUCTION UNDER THOSE SECT IONS SHALL BE ALLOWED. THUS SECTION 44AF IS CRYSTAL CLEAR THAT ALL THE EXP ENSES U/S 30 TO 38 DEEMED TO HAVE ALREADY BE DISALLOWED. THUS THE ADDI TIONS MADE OUT PROFIT/LOSS A/C TO THE NET PROFIT U/S 44AF IS ILLEG AL ARBITRARY AND UNJUSTIFIED. THE ADDITIONS/DISALLOWANCES MADE INCLU DE DEPRECIATION. I RELY UPON THE JUDGEMENT OF MANGAT RAM BHAGWAT SWA RUP VS I.T.O. ITA NO. 2953/DEL/2007 BENCH SMC A.Y. 2001-2002 DT. 08.08.07 BCAJ PAGE 29 VOLUME 39E PART 1 OCTOBER 2007. AS TO TELEPHONE EXP AND ELECTRICITY CHARGES AND CAR EXPENSES ARE DE EMED TO HAVE BEEN DISALLOWED SINCE THEY FALL UNDER SECTION 30 TO 38 OF I.T. ACT 1961. THUS FURTHER QUESTION OF ADDITION/DISALLOWANC E DOES NOT ARISE. 6. THE LEARNED D.R. HOWEVER REFERRED TO THE FACTS AN D RELIED ON THE ORDERS OF THE A.O. AND THE CIT(A). 7. WE HAVE CONSIDERED THE ISSUE. AS FAR AS THE ISSUE I N GROUND NO. 1 IS CONCERNED THE ASSESSEE HAD DISCLOSED THE RENTAL INC OME ` 1 36 500/- ON THE TWO SHOPS WHICH HE OWNED AND WHICH WERE ALSO SOLD D URING THE YEAR. LONG TERM CAPITAL GAINS WAS DECLARED ON THE SALE OF SHOP S AND THE A.O. ALSO HAS GIVEN EXEMPTION UNDER LONG TERM CAPITAL GAINS AS TH E ASSESSEE INVESTED THE FUNDS UNDER SECTION 54EC. WHEN THE ASSESSEE SUBMITT ED THAT HE HAS SOLD TWO SHOPS AND SINCE THE ASSESSEE HAS DECLARED THE R ENTAL RECEIPTS UNDER THE HEAD PROPERTY IN EARLIER YEARS FOLLOWING THE PRI NCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVEST MENT (P) LTD. 263 ITR 143 THE INCOME HAS TO BE ASSESSED UNDER HOUSE PROP ERTY ONLY. JUST BECAUSE THE ASSESSEE COULD NOT FURNISH THE LEASE AG REEMENTS IGNORING THE SUBMISSIONS OF THE ASSESSEE THE A.O. TREATED THE I NCOME DECLARED UNDER THE HEAD OTHER SOURCES JUST TO DENY THE DEDUCTION CLA IMED AT 30% UNDER SECTION 24 OF THE I.T. ACT. SURPRISINGLY THE CIT(A) ALSO WITHOUT EXAMINING THE ISSUE CONFIRMED THE SAME. WE ARE OF THE OPINIO N THAT THERE IS NO BASIS FOR DENYING THE BENEFIT TO THE ASSESSEE AND TREATIN G THE RENTAL INCOME ITA NO. 3578/MUM/2008 SHRI BALRAM L. VASANDANI 4 REPORTED AS INCOME FROM OTHER SOURCES. THE A.O. IS DIRECTED TO TREAT RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS DECLARED. TO THAT EXTENT ASSESSEES GROUND IS ALLOWED. 8. GROUND NO. 2 PERTAINS TO THE ISSUE OF DISALLOWING I NTEREST OF ` 37 884/- ASSESSEE CLAIMED THE INTEREST AS PER P & L ACCOUNT BUT THERE IS NO CLAIM IN THE RETURN OF INCOME UNDER THE HEAD HOUSE PROPERTY AS THE ASSESSEE ADMITTED ONLY RENTAL INCOME AND DEDUCTION UNDER SEC TION 24 THEREON AND OFFERED THE NET INCOME OF ` 95 550/-. AS PER THE ASSESSMENT ORDER ASSESSEE HAS BORROWED FUNDS TO THE EXTENT OF ` 15 54 939/- FROM THE FAMILY MEMBERS AND IT WAS STATED THAT THE AMOUNT WAS UTILIZED FOR FIXED DEPOSITS ON WHICH INTEREST OF ` 1 09 190/- HAS BEEN RECEIVED. THE BALANCE AMOUNT OF ` 37 884/- HAS STATED TO BE DIVERSION OF INTEREST TO THE FAMIL Y MEMBERS WHO ARE NOT BEING TAXED. THE CIT(A) AFTER CONSIDER THE SUBMISSION TH AT THE ASSESSEE HAD PAID INTEREST OF ` 1 47 074/- ON OLD LOANS AND THE SAME WERE UTILISED FOR INVESTMENT AND BUSINESS PURPOSES ONLY CONSIDERED THE BALANCE AMOUNT OF ` 37 884/- AS DIVERSION OF INCOME AND ACCORDINGLY CONFIRMED THE D ISALLOWANCE SO MADE BY THE A.O. AS SEEN FROM THE ORDERS OF THE AO AND THE CIT(A) IT IS NOT CLEAR WHETHER THE ASSESSEE HAS BORROWED FUNDS ANY FUNDS F OR INVESTING IN THE SHOPS. THE SUBMISSIONS BY THE ASSESSEE WAS THAT TH E INTEREST WAS PAID ON OLD LOANS AND THE SAME WERE UTILISED FOR INVESTMENT AND BUSINESS PURPOSES ONLY. EVEN BEFORE THE CIT(A) AS SEEN FROM PARA 3.2 OF THE ORDER THE ASSESSEE SET OFF THE INTEREST RECEIVED ON BANK FDRS TO THE I NTEREST PAID ON LOAN THEREBY INDICATING THAT THE DEPOSITS WERE MADE OUT OF BORRO WED FUNDS. FURTHER THE PROPERTY PURCHASED WAS IN JULY 1994 OF ` 4 32 135/- ON ONE SHOP AND ON OTHER SHOP THE INVESTMENT WAS ` 3 87 535/. EVEN AFTER INCLUDING THE STAMP DUTY THEREON THE AMOUNT BORROWED WAS MUCH MORE THA N THE INVESTMENT MADE IN THE SAID SHOPS. THE ASSESSEE FAILED TO JUST IFY THE CLAIM WITH THE DETAILS OF BORROWALS WHICH WERE USED IN INVESTMENT OF SHOPS. AS SEEN FROM THE BALANCE SHEET AS ON 31.03.2005 ASSESSEE HAD ONLY O NE INVESTMENT IN FLAT OF ` 58 261/- AND THE BALANCE ARE OF ASSETS OF FIXED DEP OSITS AND CASH AT BANK CASH IN HAND AND NHB BOND OUT OF ` 3 54 000/-. THE DEDUCTION OF INTEREST CLAIMED FROM HOUSE PROPERTY INCOME CANNOT BE ALLOWE D ON THE FACTS OF THE CASE. ACCORDINGLY GROUND NO. 2 IS DISMISSED. ITA NO. 3578/MUM/2008 SHRI BALRAM L. VASANDANI 5 9. GROUND NO. 3 PERTAINS TO THE DISALLOWANCE OF EXPENS ES MADE BY THE A.O. OUT OF THE AMOUNTS CLAIMED IN THE P & L ACCOUN T TOWARDS MOTOR CAR TRAVELLING ELECTRICITY AND TELEPHONE WHILE ASSESSI NG INCOME UNDER SECTION 44AF. AFTER CLAIMING VARIOUS EXPENSES IN THE P & L ACCOUNT THE ASSESSEE OFFERED THE NET BUSINESS INCOME OF ONLY ` 5 739/- IN THE COMPUTATION OF INCOME FILED. A.O. INVOKING SECTION 44AF ESTIMATE D THE BUSINESS PROFIT AT 5% ON THE TOTAL SALES TURNOVER THEREBY DETERMINING BUSINESS INCOME AT ` 22 239/-. AO SHOULD HAVE ACCEPTED ASSESSEES P & L ACCOUNT AND WORKED OUT THE DISALLOWANCE SO MADE OF SMALL AMOUNTS OF CA R EXPENSES OF ` 2 586/- CAR DEPRECIATION OF ` 2 992/- TELEPHONE AND ELECTRICITY CHARGES OF ` 14 450/-. SINCE THE INCOMES ARE ASSESSED INVOKING THE DEEMED PROVISIONS THERE IS NO NEED FOR DISALLOWING THE ABOVE EXPENDITURE FROM CL AIMS IN THE P&L ACCOUNT. CONSEQUENTLY ASSESSEES GROUND NO 3 ON DISALLOWANC E OF EXPENDITURE IS TO BE UPHELD. A.O. IS DIRECTED TO DELETE THE AMOUNTS S O DISALLOWED AND ADDED TO THE INCOME FROM BUSINESS. 10. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MARCH 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED: 16 TH MARCH 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXII MUMBAI 4. THE CIT XXII MUMBAI CITY 5. THE DR B BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.