SUHAIL AMIN NATHANI, MUMBAI v. ACIT 11(3), MUMBAI

ITA 4240/MUM/2008 | 2003-2004
Pronouncement Date: 23-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 424019914 RSA 2008
Assessee PAN ACAPN0531D
Bench Mumbai
Appeal Number ITA 4240/MUM/2008
Duration Of Justice 3 year(s) 3 month(s) 7 day(s)
Appellant SUHAIL AMIN NATHANI, MUMBAI
Respondent ACIT 11(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 23-09-2011
Date Of Final Hearing 08-09-2011
Next Hearing Date 08-09-2011
Assessment Year 2003-2004
Appeal Filed On 16-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI D.K. AGARWAL (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH (ACCOUNTANT MEMBER) ITA NO.4240/MUM/2008 ASSESSMENT YEAR : 2003-04 SUHAIL AMIN NATHANI 11 NEW DELUX APARTMENT 664 ALTAMOUNT ROAD MUMBAI-400 036. ..( APPELLANT ) P.A. NO. (ACAPN 0531 D) VS. ASSTT. COMMISSIONER OF INCOME TAX -11(3) AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020. ..( RESPONDENT ) APPELLANT BY : MS. M . SUBRAMANIAN RESPONDENT BY : SHRI D. S. SUNDER SINGH DATE OF HEARING : 8.9.2011 DATE OF PRONOUNCEMENT : . SEPTEMBER 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 7.4.2008 OF CIT(A) FOR THE ASSESSMENT YEAR 2003-04 . THE ONLY DISPUTE IS REGARDING THE ALLOWABILITY OF EXPENSES ON ACCOUNT O F DEPRECIATION ON MOTOR CAR AND COMPUTER INTEREST ON CAR LOAN OR SALARIES INCLUDING DRIVERS SALARY AMOUNTING TO RS.2 43 575/-. ITA NO4240/M/08. A.Y:03-04: 2 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE WAS A LEGAL CONSULTANT WAS PRACTICING AS A PARTNER OF THE LAW F IRM M/S. ECONOMIC LAW PRACTICE. THE ASSESSEE HAD RECEIVED PROFIT OF RS.1 7 42 740/- FROM THE FIRM WHICH WAS EXEMPT UNDER SECTION 10(2A). THE ASSESSE E HAD ALSO RECEIVED REMUNERATION FROM PARTNERSHIP AMOUNTING TO RS.16 80 000/-. THE ASSESSEE HAD INCURRED EXPENSES OF RS.2 43 575/- BEING EXPEND ITURE ON DEPRECIATION ON MOTOR CAR AND COMPUTER INTEREST ON CAR LOAN AND SALARIES INCLUDES DRIVERS SALARY. THE AO OBSERVED THAT THE EXPENSES WERE NO S EPARATED BY DOCUMENTARY EVIDENCE SUCH AS BILLS AND VOUCHERS AND THAT THE BOOKS WERE ALSO NOT AUDITED AS REQUIRED UNDER SECTION 44AB. T HE ASSESSEE DISPUTED THE DECISION OF THE AO AND SUBMITTED BEFORE THE CIT(A) THAT THE EXPENSES HAD BEEN DISALLOWED MAINLY ON THE GROUND THAT THE BOOKS WERE NOT AUDITED. IT WAS ARGUED THAT THE AO WAS REQUIRED TO TAKE A DECIS ION EVEN IF BOOKS WERE NOT AUDITED. IT WAS FURTHER SUBMITTED THAT THE ASS ESSEE WAS A PROFESSIONAL AND THEREFORE USE OF CAR AND ITS MAINTENANCE INCLU DING DRIVERS SALARY WAS NECESSARY FOR EFFICIENT WORKING AS A PARTNER. IT W AS ALSO SUBMITTED THAT THE ASSESSEE WAS HAVING ONLY SHARE OF PROFIT AND REMUNE RATION AND THEREFORE AUDIT UNDER SECTION 44AB WAS NOT REQUIRED. CIT(A) WAS NOT SATISFIED BY THE ARGUMENTS ADVANCED. IT WAS OBSERVED BY HIM THAT RE MUNERATION WAS RECEIVED BY THE ASSESSEE WAS HIS PROFESSIONAL INCOM E UNDER SECTION 28(V). IT WAS THEREFORE HELD THAT BOOKS WERE REQUIRED TO BE AUDITED AS THE PROFESSIONAL INCOME EXCEEDED THE LIMIT PRESCRIBED U NDER SECTION 44AB. CIT(A) ALSO HELD THAT THOUGH ASSESSEE HAD MAINTAINE D VOUCHERS THE ASSESSEE COULD NOT PROVE THE NEXUS OF SUCH EXPENSES WITH THE PROFESSIONAL ITA NO4240/M/08. A.Y:03-04: 3 INCOME AND THUS THE ASSESSEE HAD NOT DISCHARGED THE BURDEN PLACED UPON HIM TO PROVE THAT THE EXPENSES INCURRED WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF PROFESSION. THE CIT(A) FURTHER OBSERVED THAT EXPENSES INCURRED WERE MOSTLY PERSONAL IN NATURE. CIT(A) THEREFORE CONFIRMED THE DISALLOWANCE AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL IN WHICH IN ADDITION TO MERIT OF DISALLOWA NCE THE ASSESSEE HAS ALSO RAISED A GROUND REGARDING NOT ALLOWING PROPER OPPOR TUNITY. 3. BEFORE US THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE ARGUED THAT THE TRIBUNAL DIFFERED UNDER SECTION 44AB IN RE SPECT OF INCOME FROM SALARY. SHARE OF PROFIT FROM THE FIRM WAS NOT REQUI RED AS TAXES OF THE FIRM WERE ALREADY AUDITED. HE PLACED RELIANCE ON THE JUD GMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GHAI CONSTRUCTI ON VS. STATE OF MAHARASHTRA (184 TAXMAN 52) IN WHICH IT WAS HELD T HAT THE PROVISIONS OF SECTION 44AB WOULD APPLY ONLY IN RESPECT OF BUSINES S INCOME AND INCOME IN RESPECT OF OTHER INCOME. IT WAS ALSO SUBMITTED THA T SINCE REMUNERATION FROM FIRM WAS TO BE ASSESSED AS INCOME FROM PROFESSION T HE EXPENSES HAD TO BE ALLOWED AGAINST REVENUE EVEN THOUGH SHARE OF PROFIT FROM FIRM WAS EXEMPT UNDER SECTION 10(2A). RELIANCE FOR THIS PROPOSITIO N WAS PLACED ON THE DECISION OF THE JUDGMENT OF MUMBAI BENCH OF THE TRI BUNAL IN THE CASE OF SUDHIR DATTARAM PATIL VS. DCIT (2 SOT 678) IN WHIC H INTEREST ON BORROWINGS FOR MAKING CAPITAL CONTRIBUTION TO THE FIRM WAS FOU ND ALLOWABLE AGAINST INCOME FROM SALARY FROM THE FIRM. THE SAID DECISIO N WAS FOLLOWED BY THE TRIBUNAL IN CASE OF HITESH D. GAJARIA IN ITA NO.993 /MUM/2007 FOR ITA NO4240/M/08. A.Y:03-04: 4 ASSESSMENT YEAR 2003-04 ORDER DATED 14.11.2008. IT WAS ACCORDINGLY URGED THAT THE EXPENSES SHOULD BE ALLOWED AGAINST THE INC OME FROM REMUNERATION. THE LD. DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDER OF AUTHORITIES BELOW AND PLACED RELIANCE IN THE FINDINGS GIVEN IN THE RESPECTIVE ORDERS. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE ASSESSEE HAS NOT ARGUED ON THE GROU ND RELATING TO LACK OF PROPER OPPORTUNITY. WE ALSO NOTE THAT CIT(A) HAS P ASSED THE ORDER AFTER HEARING THE ASSESSEE. THIS GROUND IS THEREFORE DIS MISSED. AS REGARDS THE MERIT THE DISPUTE IS REGARDING ALLOWBAILITY OF EXP ENDITURE ON ACCOUNT OF CAR AND COMPUTER EXPENSES AGAINST THE INCOME FROM REMUN ERATION FROM THE FIRM. THE ASSESSEE HAD RECEIVED SHARE OF PROFIT FROM THE FIRM OF RS.17 42 740/- WHICH WAS EXEMPT UNDER SECTION 10(2A). THE ASSESSE E HAD ALSO RECEIVED REMUNERATION OF RS.16 80 000/- WHICH HAS TO BE ASSE SSED AS PROFESSIONAL INCOME UNDER SECTION 28(V). THE ASSESSEE HAD CLAIM ED EXPENSES AGAINST PROFESSIONAL INCOME. THE AO DISALLOWED EXPENSES ON THE GROUND THAT THERE WERE NO VOUCHERS AND THAT BOOKS WERE NOT AUDITED. CIT(A) HAS GIVEN A FINDING THAT THE EXPENSES WERE VOUCHED BUT DISALLOW ED THE SAME ON THE GROUND THAT THESE WERE PERSONAL EXPENSES. HE HAS A LSO HELD THAT BOOKS WERE REQUIRED TO BE AUDITED UNDER SECTION 44AB. IT HAS ALSO BEEN HELD THAT THE ASSESSEE COULD NOT PROVE THAT THE EXPENSES HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING REMUNERATION . ITA NO4240/M/08. A.Y:03-04: 5 4.1 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND THE VARIOUS ASPECTS OF THE MATTER. IN REGARD TO GR OUND RAISED AS TO WHETHER BOOKS ARE REQUIRED TO BE AUDITED OR NOT WE ARE TO HOLD THAT BOOKS ARE REQUIRED TO BE AUDITED UNDER SECTION 44AB AS REMUNE RATION HAS TO BE CONSIDERED AS PROFESSIONAL INCOME UNDER SECTION 28( V) WHICH HAS EXCEEDED THE LIMIT OF RS.10.00 LACS. HOWEVER WE ALSO MAKE I T CLEAR THAT THE EXPENSES CANNOT BE DISALLOWED ONLY ON THE GROUND THAT THE BO OKS ARE NOT AUDITED. FOR FAILURE TO GET THE BOOKS AUDITED THERE ARE PENALTI ES PRESCRIBED TO ENSURE AUDIT BUT IN CASE BOOKS ARE NOT AUDITED THE AO HAD TO TAKE A DECISION ON THE BASIS OF MATERIAL INCLUDING BILLS AND VOUCHERS AVAI LABLE ON RECORD. CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS MAINTAINED V OUCHERS AND REVENUE IS NOT IN APPEAL AND THEREFORE THERE IS NO DISPUTE A BOUT EXPENSES BEING VOUCHED. THE DISPUTE IS AS TO WHETHER THE ENTIRE E XPENSES CAN BE ALLOWED AGAINST PROFESSIONAL INCOME WHEN THE SHARE OF PROFI T FROM THE FIRM IS EXEMPT. THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE TRIBUNAL IN SUDHIR DATTARAM PATIL (SUPRA) REGARDING ALLOWABILITY OF E XPENSES AGAINST PROFESSIONAL INCOME BUT IN OUR VIEW THE SAID CASE I S DISTINGUISHABLE AS THE LIMITED ISSUE WAS REGARDING ALLOWABILITY OF INTERE ST ON BORROWINGS UNDER SECTION 36(1)(III) AGAINST THE REMUNERATION INCOME. EVEN IN THAT CASE THE TRIBUNAL CLEARLY HELD THAT EXPENSES RELATING TO SHA RE OF PROFIT OF THE FIRM WHICH WAS EXEMPT COULD NOT BE ALLOWED. THE TRIBUNA L ALSO HELD THAT SINCE REMUNERATION INCOME WAS TO BE ASSESSED AS BUSINESS INCOME INTEREST PAID BY THE PARTNER FOR THE PURPOSE OF EARNING REMUNERAT ION MUST BE DEDUCTED UNDER SECTION 36(1)(III). HOWEVER THE TRIBUNAL CON SIDERED THE ENTIRE INTEREST ITA NO4240/M/08. A.Y:03-04: 6 AGAINST THE REMUNERATION EARNED. THERE WAS NO ALLO CATION OF INTEREST MADE TOWARDS THE PROFIT EARNED FROM THE FIRM. THE HONBL E BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. COMPANY LTD. (328 ITR 81) HAVE HELD THAT ATTRIBUTION OF EXPENSES TOWARDS EXEMPT INCOME HAS T O BE MADE ON A REASONABLE BASIS. THIS JUDGMENT WAS NOT AVAILABLE AT THE TIME OF PASSING OF THE ORDER BY THE TRIBUNAL. THEREFORE FOLLOWING THE JUDGMENT OF HONBLE BOMBAY HIGH COURT (SUPRA) WE HAVE TO MAKE ALLOCATIO N OF EXPENSES TOWARDS THE SHARE OF PROFIT FROM THE FIRM. THE ASSESSEE IS A PARTNER IN A LEGAL FIRM AND THE INCOME OF THE FIRM IS MAINLY FROM THE WORK DONE BY THE PARTNERS AND THEREFORE THE EXPENSES INCURRED BY THE PARTNER HAV E TO BE ATTRIBUTED BOTH TOWARDS REMUNERATION RECEIVED AND TOWARDS THE SHARE OF PROFIT OF THE FIRM. IN THE PRESENT CASE THE SHARE OF PROFIT OF THE FIR M AND REMUNERATION ARE ALMOST EQUAL AND THEREFORE IN OUR VIEW THE EXPENSE S ARE TO BE APPORTIONED EQUALLY AGAINST THE TWO HEADS BUT BEFORE DOING SO EXPENSES HAVE ALSO TO BE ALLOCATED AGAINST THE PERSONAL EXPENSES OF THE PART NER BECAUSE USE OF CAR AND COMPUTER FOR PERSONAL PURPOSES CAN NOT BE RULED PARTICULARLY WHEN THERE IS NO LOG BOOK MAINTAINED. WE ALLOCATE 10% OF EXPE NSES TOWARDS PERSONAL EXPENSES OF THE PARTNER AND OUT OF THE BALANCE 90% 45% WILL BE ALLOCATED TOWARDS REMUNERATION AND 45% TOWARDS SHARE OF PROFI T FROM THE FIRM. SINCE SHARE OF PROFIT IS EXEMPT 45% OF EXPENSES CAN NOT BE ALLOWED. IN OTHER WORDS ONLY 45% OF EXPENSES CLAIMED BY THE ASSESSEE WILL BE ALLOWED AGAINST INCOME FROM REMUNERATION. WE HOLD ACCORDINGLY. ITA NO4240/M/08. A.Y:03-04: 7 5. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 /9/11 SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 23/9/2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI. ITA NO4240/M/08. A.Y:03-04: 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 19.9.11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 20/9/11 SR.PS/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.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER