SUSHIL K. BHATIA HUF, MUMBAI v. ITO WD 19(3)(4), MUMBAI

ITA 6420/MUM/2009 | 2006-2007
Pronouncement Date: 18-03-2011 | Result: Allowed

Appeal Details

RSA Number 642019914 RSA 2009
Assessee PAN AAAHS4601R
Bench Mumbai
Appeal Number ITA 6420/MUM/2009
Duration Of Justice 1 year(s) 3 month(s) 4 day(s)
Appellant SUSHIL K. BHATIA HUF, MUMBAI
Respondent ITO WD 19(3)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 18-03-2011
Date Of Final Hearing 10-03-2011
Next Hearing Date 10-03-2011
Assessment Year 2006-2007
Appeal Filed On 14-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI PRAMOD KUMAR ACCOUNTANT MEMBER I T A NO: 6420/MUM/2009 (ASSESSMENT YEAR: 2006-07) M/S SUSHIL K BHATIA HUF MUMBAI APPELLANT (PAN: AAAHS4601R) VS INCOME TAX OFFICER 19(3)(4) MUMBAI RESPONDENT APPELLANT BY: MR Y P TRIVEDI / MS USHA DALAL RESPONDENT BY: MR R S SRIVASTAV O R D E R R V EASWAR PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2006-07. THE ASSESSEE IS A HINDU UNDIVIDED FAMILY ENGAGED IN FINANCE BUSINESS AND ALSO IN THE ACTIVITY OF HIRING OF CARS TO ASSOCIATED CONCERNS IN CONSIDERATION OF HIRE CHARGE S. THE APPEAL ARISES OUT OF THE ASSESSMENT MADE ON 18 TH DECEMBER 2008 UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. 2. THOUGH FOUR GROUNDS HAVE BEEN TAKEN BEFORE THE T RIBUNAL THE ISSUE IS WHETHER THE INCOME TAX AUTHORITIES WER E JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF THE FOLLOWING CLAIMS MADE BY THE ASSESSEE: - ITA NO: 6420/MUM/2009 2 (I) DEPRECIATION OF ` 6 96 861/-; (II) SOCIETY CHARGES OF ` 73 695/-; AND (III) OTHER EXPENSES OF ` 63 671/- ON PROPORTIONATE BASIS. 3. THE BRIEF FACTS GIVING RISE TO THE APPEAL MAY BE NOTED. IN THE RETURN OF INCOME THE ASSESSEE DECLARED RENTAL CHARG ES OF ` 14 31 250/- BEING HIRE CHARGES FOR HIRING OUT THE C ARS. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO PRODUCE THE REGISTRATION CERTI FICATES OF THE VEHICLES GIVEN ON HIRE. THEY WERE PRODUCED AND THE ASSESSING OFFICER FOUND THAT THE VEHICLES WERE REGISTERED IN THE NAME OF SUSHIL BHATIA WHO WAS THE KARTA OF THE ASSESSEE HUF. HE ALSO FOUND THAT THE ASSESSEE HAD NOT OBTAINED PERMISSION FROM THE MOTOR VEHICLE AUTHORITIES FOR RUNNING THE VEHICLES ON HIR E. HE THEREFORE ISSUED A PROPOSAL TO THE ASSESSEE TO TREAT THE BUSI NESS OF HIRING OUT THE CARS AS ILLEGAL. THE ASSESSEE OBJECTED TO THE SAME POINTING OUT THAT THE ACTIVITY OF HIRING OUT THE CARS WAS NOT AN ILLEGAL ACTIVITY PER SE AND THE MERE NON-OBTAINING OF THE PERMIT COULD A T THE MOST INVITE SOME PENAL ACTION FROM THE MOTOR VEHICLE AUTHORITIE S. THE ASSESSING OFFICER APPARENTLY NOT SATISFIED WITH TH E ASSESSEES REPLY REFERRED THE MATTER TO THE REGIONAL TRANSPOR T OFFICER WADALA WHO REPLIED THAT A PERMIT WAS REQUIRED FOR CARS WHI CH ARE GIVEN ON HIRE AND THAT ANY VIOLATION OF THE CONDITION WOULD INVITE PENAL CONSEQUENCES AS WERE LAID DOWN IN SECTION 192(A) OF THE MOTOR VEHICLES ACT 1988. ON RECEIPT OF THE INFORMATION FROM THE RTO THE ASSESSING OFFICER AGAIN SENT A PROPOSAL TO THE ASSE SSEE TO TREAT THE BUSINESS AS ILLEGAL. AFTER OVERRULING THE ASSESSEE S OBJECTIONS HE HELD THAT THE ACTIVITY OF RUNNING CAR ON HIRE BY THE ASSESSEE WAS ITA NO: 6420/MUM/2009 3 PROHIBITED BY LAW AND THEREFORE NO DEDUCTION OF EXP ENDITURE IS ALLOWABLE AS PER THE PROVISO OF SECTION 37(1) OF TH E ACT . IN THIS VIEW OF THE MATTER HE DISALLOWED THE CLAIM OF DEPRE CIATION AND THE SOCIETY CHARGES IN FULL. AS REGARDS THE OTHER EXPE NSES SUCH AS SALARIES TELEPHONE ELECTRICITY CHARGES ETC. WHIC H AGGREGATED TO ` 1 72 475/- THE ASSESSING OFFICER NOTICED THAT THE HIRE RECEIPTS AMOUNTED TO 36.80% OF THE TOTAL RECEIPTS OF THE ASS ESSEE AND THEREFORE ON PRO-RATA BASIS HE DISALLOWED 36.80% OF THE TOTAL EXPENSES OF ` 1 72 475/- WHICH CAME TO ` 63 471/-. 4. THE DISALLOWANCES HAVING BEEN ENDORSED BY THE CI T(A) THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS. WE ARE UNABLE TO ACCEPT AS CORRECT THE FINDING OF THE DEPA RTMENTAL AUTHORITIES THAT THE ACTIVITY OF RUNNING THE CARS O N HIRE IS AN ILLEGAL BUSINESS. SUCH ACTIVITY IS NOT PROHIBITED BY LAW I N THE SENSE IN WHICH SMUGGLING ACTIVITY DEALING IN DRUGS ETC. AR E PROHIBITED. THE ACTIVITY IF AT ALL REQUIRES PERMISSION FROM THE M OTOR VEHICLE AUTHORITIES AND AS THE COMMUNICATION FROM THE RTO T O THE ASSESSING OFFICER SHOWS IF THERE IS A BREACH OF TH E CONDITION THE OWNER OF THE VEHICLES WOULD BE LIABLE TO PENAL CONS EQUENCES. IT IS THEREFORE NOT CORRECT TO SAY THAT THE HIRING OUT OF THE VEHICLES AMOUNTED TO AN ILLEGAL BUSINESS. THE CONCLUSION OF THE DEPARTMENTAL AUTHORITIES TO THE CONTRARY IS CLEARLY ERRONEOUS. 6. THE DEPARTMENTAL AUTHORITIES HAVE INVOKED THE EX PLANATION BELOW SECTION 37(1) OF THE INCOME TAX ACT 1961. I N OUR OPINION THE EXPLANATION IS CLEARLY INAPPLICABLE FOR TWO REASONS . SO FAR AS ITA NO: 6420/MUM/2009 4 DEPRECIATION IS CONCERNED IT CANNOT BE CALLED AN E XPENDITURE AS HELD BY THE SUPREME COURT IN THE RECENT JUDGMENT IN NECTAR BEVERAGES (P) LTD. VS. DCIT (2009) 314 ITR 314 (SC) . THE EXPLANATION APPLIES ONLY TO AN EXPENDITURE INCURRED BY THE ASSESSEE FOR A PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. DEPRECIATION IS NOT AN EXPENDITURE. SECON DLY NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR A NY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. DEPRECIATION EVEN IF IT IS CONSIDERED TO BE EXPENDITURE DOES NO T FALL UNDER THIS CATEGORY AT ALL. IT REPRESENTS NORMAL WEAR AND TEA R TO THE VEHICLES. AS REGARDS THE SOCIETY CHARGES THERE IS NO EVIDENC E TO SHOW THAT IT FALLS UNDER THE CATEGORY COVERED BY THE EXPLANATION BELOW SECTION 37(1) OF THE ACT. THE SAME POSITION HOLDS GOOD IN RESPECT OF THE OTHER EXPENDITURE AGGREGATING TO ` 1 72 475/-. IN THE ABSENCE OF ANY EVIDENCE TO SHOW THAT ANY OF THE ITEMS OF THE E XPENDITURE REFERRED TO IN PARAGRAPHS 12 AND 14 OF THE ASSESSME NT ORDER WAS INCURRED BY THE ASSESSEE FOR A PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW THE DECISION OF THE INCOME TA X AUTHORITIES CANNOT BE UPHELD. IN ADDITION THERETO SO FAR AS D EPRECIATION IS CONCERNED IT CANNOT ALSO BE HELD TO BE AN EXPENDIT URE ON THE BASIS OF THE JUDGMENT OF THE SUPREME COURT CITED ABOVE. THUS THE DISALLOWANCES ARE DELETED. 7. IN THE COURSE OF THE ARGUMENTS THE LEARNED DEPAR TMENTAL REPRESENTATIVE RAISED THE POINT THAT THE ASSESSEE H UF WAS NOT THE OWNER OF THE VEHICLES SINCE THEY WERE NOT REGISTERE D IN THE NAME OF THE HUF. APART FROM BEING A POINT WHICH WAS NOT RA ISED IN THE ITA NO: 6420/MUM/2009 5 ASSESSMENT OR THE FIRST APPELLATE PROCEEDINGS IT D OES NOT ALSO HAVE ANY MERIT BECAUSE THE VEHICLES CANNOT OBVIOUSLY BE REGISTERED IN THE NAME OF THE HUF WHICH IS NOT AN INCORPORATED B ODY AND CAN BE REGISTERED ONLY IN THE NAME OF THE KARTA. IN ANY C ASE THERE SEEMS TO BE NO DISPUTE THAT THE FUNDS OF THE HUF WERE UTI LIZED FOR ACQUIRING THE VEHICLES. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH 2011. SD/- SD/- (PRAMOD KUMAR) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 18 TH MARCH 2011 SALDANHA COPY TO: 1. M/S SUSHIL K BHATIA HUF 301 MANGAL SIMRAN 28 TH ROAD BANDRA (WEST) MUMBAI 400 050 2. ITO 19(3)(4) MUMBAI 3. CIT-19 MUMBAI 4. CIT(A)-30 MUMBAI 5. DR H BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI