Mumtaz Vardhan,, v. ITO, Ward-31(2),,

ITA 70/DEL/2006 | 2002-2003
Pronouncement Date: 08-01-2010 | Result: Partly Allowed

Appeal Details

RSA Number 7020114 RSA 2006
Bench Delhi
Appeal Number ITA 70/DEL/2006
Duration Of Justice 3 year(s) 11 month(s) 30 day(s)
Appellant Mumtaz Vardhan,,
Respondent ITO, Ward-31(2),,
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 08-01-2010
Date Of Final Hearing 24-12-2009
Next Hearing Date 24-12-2009
Assessment Year 2002-2003
Appeal Filed On 09-01-2006
Judgment Text
ITA NO. 70/DEL/2006 A.Y. 2002-03 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI RAJPAL YADAV JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 70/DEL/2006 A.Y. : 2002-03 MUMTAZ VARDHAN VS. INCOME TAX OFFICER WARD 31(2) D-II/89 PANDARA ROAD NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANAT KAPOOR ADV. DEPARTMENT BY : SHRI KISHORE B. SR. DR O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDERS OF THE LD. CIT(A) DATED 05.09.2005 PERTAINING TO ASSES SMENT YEAR 2002-03. 2. THE FIRST ISSUE RAISED IS THAT LD. CIT(A) ERRED IN SUSTAINING THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST BY T REATING THE SAME AS INCOME FROM OTHER SOURCES AMOUNTING TO RS. 229578/-. 2.1 ON THIS ISSUE THE ASSESSEES CLAIM WAS THAT THE INTEREST INCOME ON THESE FDRS SHOULD BE TREATED AS INCOME F ROM BUSINESS BECAUSE THESE FDRS ARE PLEDGED WITH THE BANK FOR O BTAINING LOANS AND PROVIDING BANK GUARANTEES TO INDIAN NEWSPAPER S OCIETY. IT WAS CONTENDED THAT THIS WAS A COMPULSION ON THE PART OF THE ASSESSEE TO ITA NO. 70/DEL/2006 A.Y. 2002-03 2 GIVE BANK GUARANTEE TO REMAIN ACCREDITED WITH THE I NDIAN NEWSPAPER SOCIETY AND RUN ITS ADVERTISEMENT BUSINES S AND IT WAS A CONDITION PRECEDENT FOR RUNNING THE BUSINESS. HOW EVER THESE EXPLANATIONS WERE NOT ACCEPTED BY THE AUTHORITIES B ELOW. 2.2 AGAINST THIS ASSESSEE IS IN APPEAL BEFORE US. 2.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. IT TRANSPIRES THAT THIS TRIBUNAL IN ASSESSEES OWN CAS E IN ITA NO. 5381/DEL/2004 VIDE ORDERS DATED 23.3.2009 HAS CONSI DERED THE SAME ISSUE AND CONCLUDED AS UNDER:- 10. WE HAVE HEARD THE PARTIES PERUSED THE RECORD O F THE CASE. THE ASSESSEE HAS PLACED THE DETAILS OF FIXED DEPOS ITS AND INTEREST FROM CORPORATION BANK WITH VARIOUS BANKS. THE FDR WERE PLEDGED WITH BANK FOR OBTAINING CC LIMIT AND TO GIVE BANK GUARANTEE OF INS. THUS THE INTEREST EARNED O N FDR HAS DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. TH EREFORE INTEREST INCOME OF THE ASSESSEE WITH THE BUSINESS O F THE ASSESESSEE. THEREFORE INTEREST INCOME OF THE ASS ESSEE IS TO BE TREATED AS INCOME FROM BUSINESS. WE THEREFORE R EVERSE THE ORDER OF THE LD. CIT(A). 2.4 LD. DR HOWEVER POINTED OUT THAT THE INTEREST IN COME HAVE TO BE TREATED AS INCOME FROM OTHER SOURCES AS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL IN 291 ITR AT 16. WE HAVE CA REFULLY CONSIDERED THE SUBMISSIONS. WE FIND THAT IN THE CAS E LAW REFERRED ABOVE BY THE LD. DR THE ISSUE WAS ESTIMATION OF INC OME FROM ITA NO. 70/DEL/2006 A.Y. 2002-03 3 BUSINESS OF CIVIL CONTRACT AND IN THAT CONTEXT IT WAS HELD THAT INTEREST INCOME SHOULD NOT BE INCLUDED IN THAT ESTI MATION. HENCE WE DO NOT FIND THIS DECISION APPLICABLE IN THE FAC TS OF THE PRESENT CASE. HOWEVER SINCE IN ASSESSES OWN CASE ON TH E SAME ISSUE THE TRIBUNAL HAS DECIDE THE ISSUE IN FAVOUR OF THE ASSE SSEE FOLLOWING THE SAME WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 3. THE NEXT ISSUE RAISED IS THAT LD. CIT(A) ERRED IN TREATING THE INCOME OF RS. 79 200/- AS INCOME FROM HOUSE PROPERTY. 3.1 LD. COUNSEL OF THE ASSESSEE SUBMITTED BEFORE US T HAT HE SHALL NOT BE PRESSED THIS GROUND. HENCE THIS GROUND IS DISMIS SED AS NOT PRESSED. 4. THE NEXT ISSUE RAISED IS THAT LD. CIT(A) ERRED I N SUSTAINING THE ADDITION OF RS. 2 26 711/- ON ACCOUNT OF INTEREST EXPENS ES OF THE ASSESSEE. 4.1 THE APPELLANT HAS SHOWN INTEREST OF RS. 2 93 852/ - AS INTEREST EXPENDITURE PAID TO BANK AND OTHER PARTIES AND OTHER P ARTIES AND FURTHER A SUM OF RS. 77 747/- WAS CLAIMED INTEREST E XPENDITURE IN THE PROFIT & LOSS ACCOUNT OF MMBR. THE AO HAS DISALLOWED T HIS INTEREST PAID TO BANK ON THE GROUND THAT THIS LOAN WAS NOT UTILIZ ED FOR THE BUSINESS PURPOSES OF THE APPELLANT AND FROM THE DETAI LS IT WAS SEEN THAT AN AMOUNT OF INTEREST OF RS. 1 75 034/- WAS PAID TO M&M FINSEE PVT. LTD. AND THE REMAINING INTEREST WAS PAID TO BANK AND IT WAS SEEN THAT ITA NO. 70/DEL/2006 A.Y. 2002-03 4 THE APPELLANT HAD PURCHASED A MERCEDEZ CAR AND TAKE N A LOAN OF RS. 13 LACS TO PURCHASE THE CAR DESPITE HAVING OTHER CARS T HERE WAS NO IMMEDIATE NECESSITY FOR ANY LUXURY CAR. HENCE THE A O HAS DISALLOWED THE INTEREST ON LOAN AS IT WAS NOT FOR THE BUSINESS PU RPOSES OF THE APPELLANT AND REGARDING THE OTHER LOAN THE AO HAS STA TED THAT THE APPELLANT WAS HAVING A CAPITAL ACCOUNT IN MMMMS WHIC H SHOWED A DEBIT BALANCE OF RS. 15 77 499/- AND DESPITE THE AD DITION OF RS. 19 34 175/- SHE WITHDREW HEAVY AMOUNTS SO THAT T HE CLOSING BALANCE REMAINED AT RS. 5 61 542/-. THIS SHOWS THAT THE FUNDS WERE UTILIZED FOR THE PERSONAL USE OF THE PROPRIETOR AND FUR THER IT SHOWS THAT A SUM OF RS. 9 36 964/- WAS ALSO ADVANCED TO THE PROPR IETARY CONCERN OF THE HUSBAND OF THE APPELLANT AND FURTHER TOTAL ADVANC ED TO HUSBAND ON WHICH NO INTEREST WAS CHARGED WAS RS. 16 53 729/-. FURTHER THE AO HAS ALSO STATED THAT THE DEBIT IN THE CAPITAL ACCOUNT OF T HE PROPRIETOR ALONGWITH THE AMOUNT ADVANCED TO THE CONCERNS AND PERSON S SPECIFIED U/S. 40A(2)(B) OF THE ACT FOR EXCEEDS THE AMOUNT OF LOAN S BORROWED. HENCE HE HAS DISALLOWED THE TOTAL INTEREST PAID. HE FURTHER FOUND THAT THESE ADDITIONS WERE ALSO MADE IN ASSESSMENT YEAR 200 1-02 AND AFFIRMED BY THE LD. CIT(A). 4.2 UPON ASSESSEES APPEAL IN THIS REGARD LD. CIT(A) CONSIDERED THE ITA NO. 70/DEL/2006 A.Y. 2002-03 5 SUBMISSIONS AND HELD AS UNDER:- CONSIDERING THIS REPLY OF THE APPELLANT AND THE PAS T HISTORY OF THE CASE IT IS SEEN THAT IN THE PREVIOUS YEAR INTER EST PAID ON C/C LIMIT OF CORPORATION BANK WAS ALLOWED. HENCE INTEREST OF RS. 17 141/- IS ALLOWED AND CONSIDERING THE FACT THA T THE APPELLANT HAD A DEBIT BALANCE AND SHE HAS ALSO MADE INTEREST F REE ADVANCES TO HER HUSBAND AND AS MENTIONED BY THE AO THAT HER DE BIT BALANCES AND LOANS ADVANCED BY HER FAR EXCEED THE LOA NS TAKEN BY HER A SUM OF RS. 50 000/- IS ALLOWED AS INTEREST PAI D FOR BUSINESS PURPOSES AND THE BALANCE AMOUNT OF RS. 2 26 711/- STAN DS DISALLOWED. THIS IS DONE IN VIEW OF THE FACT THAT INT EREST PAID TO M&M FINSEE PVT. LTD. APPEARS TO BE STATIONERY BALANCE WHICH WAS TAKEN BACK IN 1996 AND DESPITE MANY REPAYMENTS IT H AS NOT BEEN REPAID AND THE APPELLANT HAS BEEN WITHDRAWING FROM THAT SISTER CONCERN FOR HER PERSONAL USE HENCE LOOKING TO THE FACT THAT THE APPELLANT HAS MADE INTEREST FREE LOANS TO THE HUSBAND AND MADE HUGE WITHDRAWALS FOR HER PERSONAL USE INTEREST TO THE EXTENT OF RS. 50 000/- (+) RS. 17 141/- IS ALLOWED AND THE BAL ANCE OF RS. 2 26 711/- STANDS CONFIRMED. 4.3 AGAINST THE DISALLOWANCE OF RS. 2 26 711/- THE AS SESSEE IS IN APPEAL BEFORE US. ITA NO. 70/DEL/2006 A.Y. 2002-03 6 4.4 BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED T HAT THE ISSUE IS SAME AS IN ASSESSMENT YEAR 2001-02 AND NO FRESH LOAN HAS BEEN GRANTED AND SAME LOANS AS APPEARING IN 2001-02 ARE C ONTINUING. WE NOTE THAT CIT(A) HAS SUSTAINED THE ADDITION OF RS. 2 2 6 711/- IN VIEW OF THE FACT THAT HE WAS OF THE OPINION THAT BALANCE OF M/S M&M FINSEE PVT. LTD. APPEARED TO BE A STATIONERY BALANCE WHICH W AS TAKEN BACK IN 1996 AND THE SAME HAS NOT BEEN REPAID. LD. COUNSEL C ONTENDED THAT IN ASSESSMENT YEAR 2001-02 THIS TRIBUNAL VIDE ORDER DA TED 23.3.2009 HAS SET ASIDE THE ORDERS OF THE LD. CIT(A) ON THE SAME ISS UE WHICH ARE REPRODUCED HEREUNDER:- 6. WE HAVE HEARD THE PARTIES AND PERUSED THE REC ORD OF THE CASE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ADVERTISEMENT AGENCY. IN ORDER TO AVAIL CREDIT FACIL ITIES AND TO RUN ITS BUSINESS EFFICIENTLY IT HAS TO GET AFFILIA TED WITH INS ON FURNISHING BANK GUARANTEE IN THE SHAPE OF FDRS WIT H THE SAID SOCIETY. THE ASSESSEE ALSO PLEDGED FDRS WITH TH E BANK FOR OBTAINING CASH CREDIT LIMITS. THE FACTS THAT TH E BORROWED FUNDS HAVE BEEN UTILIZED FOR FURNISHING FDRS TO INS HAVE NOT BEEN DISPUTED BY THE REVENUE. FURTHER DEBIT BALAN CE HAS OCCURRED DUE TO CONSTANT LOSS SUFFERED BY THE ASSESSEE IN EARLIER YEAR HAS ALSO NOT BE DISPUTED. THE OBSERVATION OF THE ITA NO. 70/DEL/2006 A.Y. 2002-03 7 ASSESSING OFFICER THAT THE AMOUNT OF RS. 25 42 081/- WAS WITHDRAWN OUT OF OPENING BALANCE IS INCORRECT. IT MAY BE MENTIONED THAT DURING THE YEAR THE ASSESSEE HAS INTR ODUCED A CAPITAL OF RS. 58.05 LACS OUT OF WHICH AN AMOUNT OF RS . 25 42 081/- WAS WITHDRAWN. THE GROUND OF THE ASSESSI NG OFFICER TO MAKE THE IMPUGNED ADDITION IS ON ACCOUNT OF THE OPENING DEBIT BALANCE OF THE PROPRIETOR. HOWEVER HE H AS NOT APPRECIATED THE FACT THAT DEBIT BALANCE AROSE ON A CCOUNT OF CONSTANT LOSSES IN THE EARLIER AS IS EVIDENT FROM THE COPIES OF CAPITAL ACCOUNT OF EARLIER YEARS. FURTHER T HERE IS NO MATERIAL ON RECORD TO ESTABLISH THAT BORROWED FUND HA VE BEEN USED FOR NON-BUSINESS PURPOSES. IT MAY BE MENT IONED THAT ONCE THE BORROWED FUNDS HAVE BEEN USED FOR BUSINES S PURPOSE OF THE ASSESSEE NO INTEREST IS TO BE DISALLOWED EVEN IF THERE ARE DEBIT BALANCE. A RELIANCE IN THIS RE GARD IS PLACED ON THE DECISION IN THE CASE OF REGAL THEATRE VS. CIT 2 25 ITR 205 (DEL) WHEREIN IT HAS BEEN HELD AS UNDER:- CONDITIONS FOR GETTING DEDUCTION UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT 1961 IN RESPECT OF INTEREST ARE : (I) MONEY MUST HAVE BEEN BORROWED BY THE ASSESSEE; (II) IT MUST HAVE BEEN BORROWED FOR THE PURPOSE OF BUSINESS; AND (III) THE ASSESSEE MUST HAVE ITA NO. 70/DEL/2006 A.Y. 2002-03 8 PAID INTEREST ON THE SAID AMOUNT AND CLAIMED IT AS A DEDUCTION. 7. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE WE DIRECT TO DELETE THE IMPUGNED ADDITION OF RS. 1 LAC SUSTAINED B Y LD. CIT(A). 4.3 ACCORDINGLY LD. COUNSEL CONTENDED THAT THIS ISSU E IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. THE LD. DR DID NOT CONTROVERT THIS SUBMISSION. ACCORDINGLY FOLLOWING THE PRECEDENT AS A BOVE WE SET ASIDE THE ORDERS OF THE LD. CIT(A) AND DECIDE THE IS SUE IN FAVOUR OF THE ASSESSEE. 5. NEXT ISSUE RAISED IS THAT LD. CIT(A) ERRED IN NOT ALLOWING 50% OF THE CAR LOAN EXPENSES. 5.1 ON THIS ISSUE THE AO HAS NOTED THAT RS. 77747/- INTEREST PAID ON CAR LOAN FOR PURCHASE OF MERCEDES BENZ CAR. THE AO H AS STATED THAT ASSESSEE HAS MANY CARS FOR PERSONAL BUSINESS USE AND SHE DOES NOT NEED TO BUY ANOTHER CAR. HOWEVER SINCE CAR HAS BEEN PURCHASED BY THE ASSESSEE AND AS SHE WAS CARRYING ON THE BUSINESS . AO HAS CONSIDERED 50% OF THE INTEREST TO BE ON ACCOUNT OF PERSON AL USE OF THE VEHICLE. 5.2 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT WHILE DISALLOWING THE VEHICLE RUNNING AND MAINTENANCE EXPENSES AND THE EXPENSES RELATED TO THE SAID MERCED ES BENZ CAR WERE ITA NO. 70/DEL/2006 A.Y. 2002-03 9 ALSO CONSIDERED AND ONLY 1/10 TH WERE DISALLOWED BY THE AO. UNDER THE CIRCUMSTANCES WE DO NOT SEE ANY REASON WHY MORE THAN 1/10 TH SHOULD BE DISALLOWED ON ACCOUNT OF INTEREST ON ACCOUNT OF CAR LOAN EXPENSES. HENCE WE RESTRICT THE DISALLOWANCE ON THIS ISSUE TO 1 0%. 6. THE NEXT ISSUE RAISED IS THAT LD. CIT(A) HAS ERR ED IN SUSTAINING THE ADDITION TO THE TUNE OF 1/5 TH OF THE EXPENDITURE INCURRED ON WEBSITE DEVELOPMENT. 6.1 ON THIS ISSUE THE AO NOTED THAT ASSESSEE HAD PAI D PROCESSING CHARGES OF RS. 2 85 000/- PAID TO SISTER CONCERN. IT WAS CLAIMED THAT THIS WAS PAID AS EXPENSES FOR SITE UPLOADING AND MODIFICATI ON CHARGES. EXCEPT FOR THE BILLS NO FURTHER DETAIL AS TO THE NA TURE OF THE UPLOADING OR MODIFICATION CARRIED OUT WAS PROVIDED. HENCE AO DI SALLOWED 1/5 TH OF THIS AMOUNT UNDER SECTION 40A(2)(B). 6.2 UPON ASSESSEES APPEAL LD. CIT(A) CONFIRMED THE ADDITION. 6.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE HAS NOT PROVIDED ANY DETAIL OF NAT URE OF WORK DONE BY THE SISTER CONCERN THOUGH THE SAME WERE ASKED BY THE AO. IN THE ABSENCE THE DETAIL OF WORK DONE BY THE SISTER CONCERNS AOS DISALLOWANCE OF 1/5 TH OF THE AMOUNT CANNOT BE SET ASIDE. UNDER THE ITA NO. 70/DEL/2006 A.Y. 2002-03 10 CIRCUMSTANCES WE DO NOT FIND ANY INFIRMITY OR ILLEGAL ITY IN THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE REVENUE. 7. NEXT ISSUE RAISED IS THAT THE LD. CIT(A) ERRED I N SUSTAINING THE ADDITION TO THE TUNE OF 1/3 RD OF THE ASSESSEE FOR CLAIM OF WATER AND ELECTRICITY EXPENSES. 7.1 ON THIS ISSUE AO NOTED THAT TOTAL EXPENSES OF RS . 79.960/- WAS CLAIMED FOR PREMISES AT D-34 GULMOHAR PARK AND H-2 HAUZ KHAS NEW DELHI. ASSESSEE HAD INFORMED THAT BESIDES THE ASSES SEES PROPRIETY CONCERN OTHERS SISTER CONCERNS WERE HAVING THEIR OF FICE IN THE SAID PREMISES. AO ASKED AS TO WHETHER EXPENSES WERE PR OPORTIONATELY ALLOTTED /BOOKED BUT NO EXPLANATION WAS SUBMITTED. HENC E AO DISALLOWED 1/3 RD OF THE EXPENSE IN THIS REGARD. 7.2 UPON ASSESSEES APPEAL LD. CIT(A) CONFIRMED THE ADDITION. 7.3 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE HAS HERSELF ADMITTED THAT OFFICE OF SISTER CONCERN WAS THERE AND HAS ALSO NOT BEEN EXPLAINED WHETHER THE E XPENSES HAVE ITA NO. 70/DEL/2006 A.Y. 2002-03 11 BEEN PROPORTIONATELY INCURRED. UNDER THE CIRCUMSTANC ES WE UPHOLD THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. 8. THE LAST ISSUE RAISED IS THAT THE LD. CIT(A) ER RED IN SUSTAINING THE ADDITION TO THE TUNE OF 1/10 TH OF THE EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT VEHICLE RUNNING AND MAINTENANCE AND TELEP HONE EXPENSES. 8.1 ON THIS ISSUE OF VEHICLE MAINTENANCE EXPENDITURE INCLUDING DEPRECIATION AO WAS OF THE OPINION THAT ASSESSEE WAS HA VING 4 CARS AND PERSONAL USE WAS ALSO THERE. AO DISALLOWED THE 1/10 TH OF RS. 3 53 014/- FOR PERSONAL USES. SIMILARLY AS REGARDS THE TELEP HONE EXPENSES 1/10 TH WAS DISALLOWED. HERE AO WAS OF THE OPINION THAT THERE IS ALWAYS NON- BUSINESS ELEMENT REGARDING THE EXPENSES IN RESPECT OF TELEPHONE INSTALLED AT THE RESIDENCE. 8.2 WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT ORDERS OF THE AUTHORITIES BELOW ARE REASONABLE AND WE DO NOT FIND ANY INFIRMITY IN THE SAME. HENCE WE UPHOLD THE SAME. ITA NO. 70/DEL/2006 A.Y. 2002-03 12 9. IN THE RESULT THE ASSESSES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/01/2010. SD/- SD/- [RAJPAL YADAV] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE:08/01/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES