C.M. BELEKAR, MUMBAI v. ITO 11(2)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI T. R. SOOD AM I.T.A. NO.: 4515/MUM/2009 ASSESSMENT YEAR : 2004-05 M/S. C.M. BELEKAR B BLOCK GR. FLOOR INDRAVADAN C.H.S. LTD. PADMADEVI THAKKAR ROAD MAHIM MUMBAI-400 016 PAN NO: AACFC2109A ITO 11(2)(2) AAYAKAR BHAVAN MUMBAI (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI V.V. KHARE & SHRI G.V. KHARE RESPONDENT BY : MRS. MALTI SAIDHARAN ORDER PER T.R. SOOD (AM) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 03.04.2009 OF COMMISSIONER OF INCOME TAX (APPEALS)- XI MUMBAI AND RELATES TO THE ASSESSMENT YEAR 2004-05. 2. IN THIS APPEAL DETAILED GROUNDS WERE FILED AND THEREFORE ASSESSEES COUNSEL WAS DIRECTED TO FILE CONCISE GROUNDS WHICH HAS BEEN FILED TO-DAY WHICH READS AS UNDER:- 1. EARNEST MONEY & DEPOSIT:- THE LEARNED COMMISSIOER OF INCOME TAX HAS ERRED IN REJECTING THE CLAIM OF YOUR APPELLANT OF THE ADDITI ON MADE BY THE INCOME-TAX OFFICER OF RS.1 25 250/-. 2. MOTOR CAR EXPENSES: - THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED IN DISALLOWING 10% OF MOTOR CAR EXPENSES AND CAR DEPRE CIATION. YOUR APPELLANTS PLEAD THAT MOTOR CAR EXPENSES AND C ARE DEPRECIATION MAY BE ALLOWED IN FULL. 2 3. CONVEYANCE EXPENSES:- THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED IN DISALLOWING RS.15 000/- OUT OF CONVEYANCE EXPENSES. YOUR APPELLANTS PLEAD THAT CONVEYANCE EXPENSES CLAIMED M AY BE ALLOWED IN FULL. 4. RESTRICTIONS OF REMUNERATION PAID TO PARTNERS :- THE LEARNED COMMISSIONER OF INCOME TAX HAS ERRED IN HOLDING INTEREST INCOME AS INCOME FROM OTHER SOURCE S AND CONSEQUENTLY MAKE ADJUSTMENT ON PAYMENT TO PARTNERS REMUNERATION. YOUR APPELLANTS PLEAD THAT INTEREST I NCOME IS PART OF BUSINESS INCOME AND THE ADJUSTMENT ON PAYMENT TO PARTNERS ON REMUNERATION IS CORRECT AND THAT NO ADJUSTMENTS BE MADE TO PARTNERS REMUNERATION. 3. GROUND NO.1 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS SHOWN A SUM OF RS.76 59 942/- AS EARNEST MONEY DEPOSITS AND CORRE SPONDING FIGURE FOR 31.03.2003 AMOUNTING TO RS.72 83 272/-. IT WAS NOTI CED THAT SOME OF THE ITEMS WERE VERY OLD WHICH WERE BEING CARRIED FORWAR D FROM YEAR TO YEAR WITHOUT SHOWING ANY WORK DONE. IN ASSESSMENT YEAR 2003-04 50% OF BALANCES IN RESPECT OF FOLLOWING PARTIES WAS CONSID ERED TO BE CEASED LIABILITIES :- DATE NAME AMT. REMARKS 12.03.1990 K Y FATEHI CONSTRU CO. 100000 OLD NOT RETURNED 18.01.1991 K Y FATEHI CONSTRU CO. 50000 -DO- 28.08.1991 K Y FATEHI CONSTRU CO. 50000 -DO- 30.06.2000 POWER GRID 10500 -DO- THERE WAS A SECURITY FROM ANOTHER PARTY KNOWN AS RE UNION ENGG CO. P LTD. WHICH WAS SHOWN EARLIER YEAR ALSO AND WAS BEING SHO WN THIS YEAR. THEREFORE IN THIS YEAR THE BALANCE SUM OF 50% WAS ADDED AS CEASED LIABILITY. 4. ON APPEAL THE ADDITION WAS CONFIRMED BY THE LEA RNED CIT (APPEALS). 5. BEFORE US THE LEARNED COUNSEL OF THE ASSESSEE SU BMITTED THAT IN SOME CASES THE WORK KEEPS ON GOING AND THAT IS WHY THE S ECURITY DEPOSITS WAS 3 REFLECTED THERE. ON THE OTHER HAND THE LEARNED DR RELIED ON THE ORDER OF THE LEARNED CIT (APPEALS). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND OBSERVED THAT THE LEARNED COUNSEL COULD NOT PRODUCE ANY AGREEMENT S IN RESPECT OF THESE PARTIES OR DETAILS OF WORK BEING EXECUTED. HE COULD NOT SATISFACTORILY POINT OUT WHAT HAPPENED TO ADDITIONS MADE IN EARLIER YEAR S AS NOTED BY THE AO. SINCE AO HAS CATEGORICALLY OBSERVED THAT 50% OF THE BALANCE WERE CONSIDERED AS CEASED LIABILITY IN THE ASSESSMENT YE AR 2003-04 THEREFORE IN THE ABSENCE OF DETAILS WE CONFIRM THE ADDITIONS. 7. GROUND NO.2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT NO LOG BOOK OR DETAILS WERE BEING MAINTAINED FOR CAR USAGE AND PERSONAL USE COU LD NOT BE DENIED AND THEREFORE 15% OF THE CAR EXPENSES WERE ADDED TO TH E INCOME OF THE ASSESSEE. ON APPEAL THESE ADDITIONS HAVE BEEN REDU CED TO 10%. 8. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE GROUND RAISED BEFORE US AND POINTED OUT THAT OFFICE AND RE SIDENCE ARE LOCATED AT A VERY SHORT DISTANCE OF ABOUT 2 KM AND THEREFORE T HERE WAS NO ELEMENT OF PERSONAL USE. 9. ON THE OTHER HAND THE LEARNED DR RELIED ON THE ORDER OF THE LEARNED CIT(APPEALS). 10. AFTER CONSIDERING THE RIVAL SUBMISSION CAREFULL Y WE DO NOT FIND FORCE IN THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESS EE THAT NO PERSONAL USE IS THERE BECAUSE OF VERY LOW DISTANCE BETWEEN OFFICE A ND RESIDENCE. BUT THERE ARE OTHER PERSONAL USES FOR WHICH ASSESSEE MUST HAV E USED VEHICLE FOR HIS FAMILY NEEDS AND HENCE PERSONAL USE HAS NOT BEEN D ENIED BEFORE US. THE DISALLOWANCE OF 10% OF MOTOR CAR EXPENSES MADE BY T HE LEARNED CIT (APPEALS) IS VERY REASONABLE AND ACCORDINGLY WE CO NFIRM THE SAME. 11. GROUND NO.3 DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT CER TAIN MONTHLY ADHOC PAYMENTS WERE BEING MADE ON ACCOUNT O F CONVEYANCE TO SHRI 4 S.M. BELEKAR WHO IS SON OF ONE OF THE PARTNER. AO FURTHER MENTIONED THAT IN PREVIOUS YEAR A SUM OF RS.15 000/- ON ACCOUNT OF C ONVEYANCE CHARGES WAS DISALLOWED. MOREOVER THERE WERE NO SPECIFIC VO UCHERS AVAILABLE AND THEREFORE A SUM OF RS.20 000/- WAS DISALLOWED. THE LEARNED CIT(APPEALS) RESTRICTED THE ADDITION TO RS.15 000/- VIDE PARA 5. 2 WHICH IS AS UNDER:- 5.2 I HAVE CONSIDERED THE RIVAL SUBMISSION AND THE MATERIALS ON RECORD. THE A.O. HAS STATED THAT UNDER SIMILAR HEAD RS.15 000/- WAS DISALLOWED IN THE PRECEDING YEAR. NEITHER THE AO NO R THE APPELLANT HAS STATED ANYTHING AS TO WHAT HAPPENED IN APPEAL. IN I S THEREFORE SAFE TO PRESUME THAT THE SAID DISALLOWANCE WAS CONFIRMED IN APPEAL. MOREOVER SINCE FACTS ARE SIMILAR I AM FURTHER OF T HE OPINION THAT THE DISALLOWANCE SHOULD HAVE BEEN RESTRICTED TO RS.15 0 00/- AS IN THE PRECEDING YEAR. THE APPELLANT THEREFORE GETS A RE LIEF OF RS.5 000/- THIS YEAR. 12. BEFORE US THE LEARNED COUNSEL OF THE ASSESSEE S HOWED US A LIST OF CONVEYANCE EXPENSES BUT THAT SIMPLY MENTIONED THE N AME OF THE PAYEE AND NO OTHER DETAILS WERE MENTIONED LIKE THE PLACE WHIC H WERE VISITED OR THE PURPOSE OF VISIT WERE NOT MENTIONED IN DETAIL. THER E WAS NO EVIDENCE ON RECORDS THAT PARTNERS SON WAS WORKING WITH THE FIR M IN A PROFESSIONAL CAPACITY. THEREFORE IN THE ABSENCE OF THESE DETAIL S WE ARE OF THE VIEW THAT THE LEARNED CIT (APPEALS) HAS ALREADY CONFIRMED ONL Y REASONABLE ADDITION AND ACCORDINGLY WE CONFIRM HIS ORDER. 13. GROUND NO.4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD RECEIVED CERTAIN INTEREST ON CASH CERTIFICATE AND BANK INTEREST. AO WAS OF THE VIEW THAT THESE INTERESTS COULD NOT FORM PART OF THE BUSINESS PROFI T FOR THE PURPOSE OF CALCULATING THE REMUNERATION TO PARTNERS. 14. ON APPEAL THE ACTION OF THE AO WAS CONFIRMED B Y THE LEARNED CIT (APPEALS). 15. BEFORE US IT WAS MAINLY SUBMITTED THAT ASSESSEE HAD RECEIVED VARIOUS SECURITY DEPOSITS WHICH WAS PUT IN FDS JUST TO KEE P THIS MONEY IN SAFE CUSTODY. THE ASSESSEE WAS NOT REQUIRED TO PAY ANY I NTEREST TO THE CUSTOMERS AND THEREFORE THIS WAS BASICALLY IN THE NATURE OF BUSINESS INCOME. IN ANY 5 CASE THE JAIPUR BENCH OF THE TRIBUNAL IN CASE OF SP EQUIPMENT SERVICES VS. ACIT [2010] 36 SOT 325 (JP.) HAS HELD THAT INTERES T INCOME ETC. CANNOT BE IGNORED FROM THE DEFINITION OF BOOK PROFIT IN VIEW OF EXPLANATION3 FOR THE PURPOSE OF COMPUTING PARTNERS REMUNERATION U/S.40 (B). 16. ON THE OTHER HAND LEARNED DR SUBMITTED THAT RE MUNERATION HAS TO BE ALLOWED ONLY IN TERMS OF SECTION 40(B) AS PROVID ED IN CLAUSE-V OF THE SECTION. SHE FURTHER SUBMITTED THAT AS PER EXPLANAT ION-3 THE BOOK PROFIT COULD BE ONLY BUSINESS PROFIT BECAUSE THERE IS SPEC IFIC REFERENCE TO COMPUTATION OF PROFIT IN THE MANNER LAID DOWN IN CH APTER-IVD. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSION CAREFUL LY AND FIND THAT REMUNERATION TO THE PARTNERS IS TO BE PAID ONLY IN TERMS OF SECTION 40(B) CLAUSE V WHICH IS AS UNDER:- (V) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER WHICH IS AUTHORISED BY AND IS IN ACCORDAN CE WITH THE TERMS OF THE PARTNERSHIP DEED AND RELATES TO ANY PERIOD FALL ING AFTER THE DATE OF SUCH PARTNERSHIP DEED IN SO FAR AS THE AMOUNT OF SU CH PAYMENT TO ALL THE PARTNERS DURING THE PREVIOUS YEAR EXCEEDS THE A GGREGATE AMOUNT COMPUTED AS HEREUNDER :- (1) IN CASE OF A FIRM CARRYING ON A PROFESSION REFERRED TO IN SECTION 44AA OR WHICH IS NOTIFIED FOR THE PURPOSE OF THAT SECTIO N (A) ON THE FIRST RS.1 00 000/- OF THE BOOK PROFIT OR IN CASE OF A LOSS RS.50 000/- OR AT THE RATE OF 90 PER CENT OF THE BO OK-PROFIT WHICHEVER IS MORE; (B) ON THE NEXT RS.1 00 000/- OF THE BOOK-PROFIT AT THE RATE OF 60 PER CENT; (C) ON THE BALANCE OF THE BOOK-PROFIT AT THE RATE OF 40 PER CENT; (2) IN THE CASE OF ANY OTHER FIRM- (A) ON THE FIRST RS.75 000/- OF THE BOOK-PROFIT OR IN CASE OF A LOSS RS. 50 000 OR AT THE RATE OF 90 PER CENT OF THE BOO K-PROFIT WHICHEVER IS MORE. (B) ON THE NEXT RS.75 000 OF THE BOOK-PROFIT AT THE RATE OF 60 PER CENT; ON THE BALANCE OF THE BOOK-PROFIT AT THE RATE OF 40 PER CENT; 18. FROM THE ABOVE IT IS CLEAR THAT REMUNERATION HA S TO BE CALCULATED WITH REFERENCE TO THE BOOK PROFIT THOUGH THE EXPLANATIO N-3 GIVES THE MANNER IN WHICH THE BOOK PROFIT HAS TO BE COMPUTED BUT AT THE SAME TIME INTEREST RECEIVED ON DEPOSIT WHICH WERE MADE OUT OF THE EARN EST MONEY RECEIVED FROM 6 THE CLIENTS COULD NOT HAVE BEEN POSSIBLY ASSESSED A S INCOME FROM OTHER SOURCES. INFACT NO PORTION OF THE INCOME HAS BEEN A SSESSED AS INCOME FROM OTHER SOURCES BY AO HIMSELF AND HE HAS TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES WHILE CALCULATING THE DIS ALLOWANCE OF THE PARTNERS REMUNERATION. THIS IS NOT POSSIBLE BECAUSE SECTION 40(B) (V) REFERS TO THE BOOK PROFIT AND NOT BUSINESS PROFITS. THERE FORE IN OUR VIEW ADDITIONS MADE ON ACCOUNT OF PARTNERS REMUNERATION ARE NOT J USTIFIED AND THEREFORE THE ORDER OF THE LEARNED CIT (APPEALS) DIRECTS AO T O DELETE THE ADDITION ON ACCOUNT OF PARTNERS REMUNERATIONS. 19. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF FEBRUARY 2011. SD/- SD/- (D. MANMOHAN) (T. R. SOO D) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DT: 28/02/2011 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. 4. CIT (A) 5. THE DR C - BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ROSHANI