MANU M. PARPIA, MUMBAI v. ACIT 10(2), MUMBAI

ITA 8511/MUM/2010 | 2007-2008
Pronouncement Date: 03-07-2013 | Result: Allowed

Appeal Details

RSA Number 851119914 RSA 2010
Assessee PAN AACPP8377R
Bench Mumbai
Appeal Number ITA 8511/MUM/2010
Duration Of Justice 2 year(s) 6 month(s) 27 day(s)
Appellant MANU M. PARPIA, MUMBAI
Respondent ACIT 10(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-07-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 03-07-2013
Assessment Year 2007-2008
Appeal Filed On 07-12-2010
Judgment Text
B IN THE INCOME TAX APPELLATE TRIBUNAL B BENC H MUMBAI !' $ % BEFORE SHRI I.P. BANSAL JM AND SHRI KARUNAKARA RAO AM ./I.T.A. NO.8507/M/2010 (AY:2003-2004) ./I.T.A. NO.8508/M/2010 (AY:2004-2005) ./I.T.A. NO.8509/M/2010 (AY:2005-2006) ./I.T.A. NO.8510/M/2010 (AY:2006-2007) ./I.T.A. NO.8511/M/2010 (AY:2007-2008) M R. MANU M. PARPIA 72. TENERIFE LITTLE GIBBS ROAD NO.2 MALABAR HILL MUMBAI 400006. & / VS. DCIT - 10(2) R.NO.432 4 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMABI 400 020. ' $ ./PAN : AACPP 8377 R ( '( /APPELLANT) .. ( )*'( / RESPONDENT) '( + / APPELLANT BY : MRS. AARTI VISSANJI )*'( + / RESPONDENT BY : SHRI MOHIT JAIN DR & + -$ /DATE OF HEARING : 26.6.2013 ./0 + -$ /DATE OF PRONOUNCEMENT : 3.7.2013 1 1 1 1 / O R D E R PER BENCH: THERE ARE FIVE APPEALS BY THE ASSESSEE UNDER CONSIDERATION INVOLVING FIVE ASSESSMENT YEARS FROM AY 2003-04 TO 2007-08. ALL T HE FIVE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE DIFFERENT ORDERS OF THE CIT (A )-22 MUMBAI. SINCE IDENTICAL ISSUES ARE INVOLVED IN ALL THE FIVE APPEALS FOR TH E SAKE OF CONVENIENCE THEY ARE CLUBBED HEARD COMBINEDLY AND DISPOSED IN THIS CONS OLIDATED ORDER. FIRSTLY WE SHALL TAKE UP THE APPEALS FOR THE AYS 2003-04 AND 2004-05 AS THE GROUNDS IN THESE APPEALS INVOLVE THE ISSUE RELATING TO THE VALIDITY OF THE REOPENING PROCEEDINGS U/S 147 OF THE ACT. 2 ITA NO.8507/M/2010 (AY: 2003-2004) ITA NO. 8508/M/2010 (AY: 2004-2005) 2. BOTH THESE APPEALS FILED BY THE ASSESSEE ON 7.1 2.2010 ARE AGAINST THE DIFFERENT ORDERS OF CIT (A)-22 MUMBAI DATED 16.9.2 010 FOR THE AYS 2003-2004 & 2004-2005. GROUNDS RAISED IN BOTH THE APPEALS ARE R EPRODUCED AS UNDER: GROUNDS RAISED FOR THE AY 2003-04: 1. THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF AO OF REOPENING ASSESSMENT US 147 OF THE ACT. YOUR APPELLANT SUBMITS THAT THE REOPE NING IS ILLEGAL VOID AND SAME OUGHT TO BE QUASHED. WITHOUT PREJUDICE TO THE ABOVE YOUR APPELLANT SUBMITS THAT THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE BY RESTRICTING ALLOWANCE OF EXPENSES ONLY TO 10% OF FEES RECEIVED. YOUR APPELLANT SUBMITS THAT THE EXPENSES CLAIMED BY YOUR APPELLANT ARE ALLOWABL E AS CLAIMED. 2. THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF AO OF CHARGING INTEREST U/S 234B AT RS. 1 41 493/- FROM THE FIRST DAY OF THE ASSESSM ENT YEAR TO THE DATE OF ASSESSMENT YEAR TO THE DATE OF ASSESSMENT ORDER U/S 143(3) R.W.S. 147. YOUR APPELLANT SUBMITS THAT INTEREST U/S 234B OUGHT TO H AVE BEEN CHARGES FROM THE DATE OF DETERMINATION OF TOTAL INCOME U/S 143(1) / 143(3) IE REGULAR ASSESSMENT TILL THE COMPLETION OF REASSESSMENT U/S 143(3) R.W. S. 147 OF THE ACT. GROUNDS RAISED FOR THE AY 2004-05: 1. THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF AO OF REOPENING ASSESSMENT US 147 OF THE ACT. YOUR APPELLANT SUBMITS THAT THE REOPE NING IS ILLEGAL VOID AND SAME OUGHT TO BE QUASHED. WITHOUT PREJUDICE TO THE ABOVE YOUR APPELLANT SUBMITS THAT THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE BY RESTRICTING ALLOWANCE OF EXPENSES ONLY TO 10% OF FEES RECEIVED. YOUR APPELLANT SUBMITS THAT THE EXPENSES CLAIMED BY YOUR APPELLANT ARE ALLOWABL E AS CLAIMED. 3. FROM THE ABOVE IT IS EVIDENT THAT THE GROUNDS 1 IN BOTH THESE APPEALS RELATE TO REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT . OTHER COMMON GROUNDS IN BOTH THE RELATES TO THE RESTRICTING THE ALLOWABLE EXPEND ITURE U/S 14A TO 10% OF PROFESSIONAL FEE. FINALLY THE APPEAL FOR THE AY 20 03-04 VIDE ITA NO.8507/M/2010 CONTAINS GROUND 2 THAT RELATES TO CORRECTNESS OF TH E CALCULATION OF INTEREST U/S 234B OF THE ACT. GROUND WISE ADJUDICATION IS GIVEN IN T HE FOLLOWING PARAGRAPHS. 4. ON THE ISSUE OF VALIDITY OF REOPENING U/S 147 O F THE ACT AND AT THE VERY OUTSET MRS. ARATI VISSANJI LD COUNSEL FOR THE ASS ESSEE BROUGHT OUR ATTENTION TO THE REASONS RECORDED BY THE AO BEFORE THE ISSUE OF NOTICE U/S 147 OF TH E ACT AND DEMONSTRATED THE SAID REASONS ARE IDENTICAL IN SUBS TANCE. THE SAID REASONS ARE REPRODUCED AS UNDER: 3 AY: 2003-04 ON VERIFICATION OF THE STATEMENT OF INCOME FILED BY THE ASSESSEE IT IS SEEN THAT NET INCOME DISCLOSED BY THE ASSESSEE UNDE R VARIOUS HEADS ARE AS UNDER: 1. SALARY RS. 6303007/- 2. CAPITAL GAINS STCG RS. 905782/- LTCG RS. 6581353/- RS.7486135/- 3. INCOME FROM OTHER SOURCES DIVIDEND RS.2422289/- INTEREST ON FD & IT REFUND RS. 57626/- INTEREST ON DEBENTURE RS. 16000/- RS. 2563329 /- THE ASSESSEE HAS WRONGLY SET OFF RS. 4 23 376/- OF HIS PERSONAL EXPENSES AGAINST THE ABOVE CITED INCOMES. THE WRONG CLAIM OF THE ASSESSEE RESULTED IN ESCAPEMENT OF INCOME FROM TAX. IN VIEW OF THIS I HAVE REASON TO BELIEVE THAT INCOME OF RS. 4 23 376/-CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. PROCEEDINGS U/S 147 OF THE IT ACT 1961 IS BEING IN ITIATED IN THE MATTER. AY: 2004-05 ON VERIFICATION OF THE STATEMENT OF INCOME FILED BY THE ASSESSEE IT IS SEEN THAT NET INCOME DISCLOSED BY THE ASSESSEE UNDE R VARIOUS HEADS ARE AS UNDER: 4. SALARY RS. 7081162/- 5. CAPITAL GAINS STCG RS. 1429292/- LTCG RS. 6279589/- RS.7708881/- 6. INCOME FROM OTHER SOURCES INTEREST ON FD & IT REFUND RS. 32713/- INTEREST ON DEBENTURE RS. 3612/- RS. 36325/- THE ASSESSEE HAS WRONGLY SET OFF RS. 6 92 448/- OF HIS PERSONAL EXPENSES AGAINST THE ABOVE CITED INCOMES. THE WRONG CLAIM OF THE ASSESSEE RESULTED IN ESCAPEMENT OF INCOME FROM TAX. IN VIEW OF THIS I HAVE REASON TO BELIEVE THAT INCOME OF RS. 6 92 448/- CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. PROCEEDINGS U/S 147 OF THE IT ACT 1961 IS BEING IN ITIATED IN THE MATTER. 5. BRING OUR ATTENTION TO THE ABOVE EXTRACT LD COU NSEL MENTIONED THAT THE SOURCE OF THE INFORMATION IS THE STATEMENTS OF INC OME WHICH IS FILED BY THE ASSESSEE. THUS AO DOES NOT HAVE ANY TANGIBLE MATER IAL GATHERED FROM ANY SOURCE OTHER THAN THE RETURN AND ITS ENCLOSURES BEFORE ISS UE OF NOTICE U/S 147 OF THE ACT. FURTHER SHE MENTIONED THAT THE ASSESSMENT REOPENED FOR THE AY 2003-04 IS A SUMMARY ASSESSMENT AND THE ASSESSMENT FOR AY 2004-2 005 IS A REGULAR ASSESSMENT MADE U/S 143(3) OF THE ACT. WITH THESE SUBMISSIONS LD COUNSEL MENTIONED THAT WHEN THERE IS NO TANGIBLE MATERIAL IN POSSESSION OF THE AO FOR FORMATION OF A REASON TO BELIEVE ABOUT THE CONCEALMENT OF INCOME A ND IN SUCH CASES THE ASSESSMENTS WHETHER COMPLETED U/S 143(1) OR 143(3) CANNOT BE REOPENED AS SUCH REOPENING PROCEEDINGS DO NOT AMOUNT TO VALID ONES. FOR THIS PROPOSITION LD 4 COUNSEL RELIED ON THE ORDER OF THE COORDINATE BENCH DECISION OF ITAT IN THE CASE OF HV TRANSMISSIONS LTD VS. ITO VIDE ITA NO.2230/M/2010 DATED 7.10.2011 RE LEVANT FOR THE AY 2001-2002. IN THIS REGARD SHE READ OUT THE CONTENTS OF PARA 8 OF THE SAID ORDER OF THE TRIBUNAL. IN THAT ORDER THERE IS A REFERENCE TO THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. 291 ITR 500; DECISION OF ITAT MUMBAI IN THE CASE OF TELCO DADAJI DHACKJEE LTD. VS. DCIT VIDE ITA NO. 4613/M/2005 DATED 12.5.2010; SUP REME COURT JUDGMENT IN THE CASE OF KELVINATOR OF INDIA LTD 256 ITR 1 AND ALSO ANOTHER JUDGMENT OF APEX COURT IN THE CASE OF EICHER LTD. 320 ITR 561 BEFORE CONCLUDING AND RULING THAT AO SHOULD HAVE BEFORE HIM TANGIBLE MATERIAL JUSTIFY HIS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. 6. ON THE OTHER HAND LD DR HEAVILY RELIED ON THE O RDER OF THE CIT (A) AND STATED THAT THE ISSUANCE OF NOTICE IS JUSTIFIED AND RELIED ON THE CONTENTS OF PARA 2.4 OF THE IMPUGNED ORDER IN THIS REGARD. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AND THE CITED DECISIONS IN GENERAL AND THE ORDER OF THE TRIBUNAL DATED 7.10.2011 (SUPRA) IN PARTICULAR. SO FAR AS THE REO PENING OF THE SUMMARY ASSESSMENT FOR THE AY 2003-2004 IS CONCERNED THE CASE OF THE REVENUE IS THAT IN VIEW OF THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF RAJES H JHAVERI STOCK BROKERS (P) LTD (SURPA) THE REOPENING OF THE ASSESSMENT IS JUSTIFI ED AS THE SUMMARY ASSESSMENT DO NOT INVOLVE ANY FORMATION OF AN OPINION. REGARDING THE REOPENING FOR THE AY 2004- 2005 IS CONCERNED IT IS THE ARGUMENT OF THE CIT (A ) THAT THERE IS NO FORMATION OF OPINION ON THE ISSUE UNDER CONSIDERATION AND THEREF ORE THERE IS NO CHANGE OF OPINION. CONSIDERING THE REASONS RECORDED BY THE AO IT IS A VALID REOPENING OF THE ASSESSMENT. REGARDING THE CITED JUDGMENTS PERTAINI NG TO THE REQUIREMENT OF HAVING TANGIBLE MATERIAL IN POSSESSION OF THE AO LD DR RELIED ON THE PROVISIONS OF SECTION 147 AND 148 OF THE ACT AND MENTIONED THAT THERE NO SUCH REQUIREMENT IN LAW. 8. FURTHER WE HAVE PERUSED THE CITED ORDER OF THE T RIBUNAL BY LD COUNSEL IN THE CASE OF HV TRANSMISSIONS LTD (SUPRA) AND FIND THAT THE JUDGMENT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD (SUPRA) WAS DISCUSSED. THIS ORDER OF THE 5 TRIBUNAL APPLIES TO CASES OF ASSESSMENT ORIGINALLY COMPLETED SUMMARILY OR U/S 143(3) OF THE ACT. FOR THE SAKE OF COMPLETENESS OF THE OR DER WE REPRODUCE THE CONTENTS OF PARA 8 OF THE SAID TRIBUNALS ORDER WHICH ARE AS UN DER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO P ERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESS MENT COMPLETED IN THIS CASE ORIGINALLY U/S 143(1) WAS REOPENED BY THE AO FOR THE FOLLOWING REASONS R ECORDED U/S 148(2):.. AS IS CLEARLY EVIDENT FROM THE REASONS RECORDED BY THE AO THERE WAS NO NEW MATERIAL COMING TO THE POSSESSION OF THE AO ON THE BASIS OF WHICH THE ASSESSMENT COMPLETED U/S 143(1) WAS REOPENED AND THIS POSITION HAS NOT BEEN DISPUTED EVEN BY THE LEARNED DR. RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) HE HOWEVER HAS CONTENDED THAT THE REOPENING OF ASSESSMENT COMPLETED ORIGINALLY U/S 14 3(1) IS PERMISSIBLE WITHOUT THERE BEING ANY NEW MATERIAL COMING TO THE POSSESSION OF THE AO IF THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT ARE OTHERWISE VALID . THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTHER HAND HAS RELIED ON THE THIR D MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF TELCO DADAJI DHACKJEE LTD (SUPRA) ST ATING THAT A SIMILAR ISSUE INVOLVED IN THE SAID CASE HAS BEEN DECIDED BY THE THIRD MEMB ER IN FAVOUR OF THE ASSESSEE AFTER TAKING INTO CONSIDERATION OF THE HONBLE SUPR EME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (SUPRA) RELIED UPON BY THE LD DR. IN THE SAID CASE THE RETURN FILED BYTHE ASSESSEE WAS ORIGINALLY ACCEPTED U/S 14 3(1). IN THE SAID RETURN THE ASSESSEE HAD CLAIMED DEDUCTION FOR PAYMENT OF NON-C OMPLETE FEES OF RS. 75 LACS WHICH INCLUDED PAYMENT OF RS. 15 LACS TOWARDS DIREC TORS. THE ASSESSEE HAD ALSO CLAIMED DEPRECIATION OF RS. 1 41 858/- ON LEASE PRE MISES. THE AO ISSUED NOTICE U/S 148 ON THE GROUND THAT THESE WERE NOT ALLOWABLE EXP ENSES AND INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. HE ACCORDINGLY DISALLO WED BOTH THE ITEMS IN THE REASSESSMENT ORDER. WHEN THE MATTER REACHED TO THE TRIBUNAL THE LEARNED JUDICIAL MEMBER TOOK THE VIEW THAT THERE WAS NOT FRESH MATERI AL TO SUPPORT THE FORMATION OF THE BELIEF OF THE AO THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT AND IN THE ABSENCE OF ANY FRESH TANGIBLE MATERIAL HE CAME TO THE CONCLUSION THAT IT WAS NOT PERMISSIBLE FOR THE AO TO REOPEN THE ASSESSMENT. T HE LD ACCOUNTANT MEMBER HOWEVER TOOK A DIFFERENT VIEW RELYING ON THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. ( SUPRA) AND THE MATTER THEREFORE WAS REFERRED TO A THIRD MEMBER FOR RESOLVING INTER A LIA THE FOLLOWING POINT OF DIFFERENCE. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE PROC EEDINGS INITIATED BY THE AO U/S 147 IS LIABLE TO BE CONFIRMED OR QUAS HED WHEN THERE WAS NO FRESH MATERIAL AVAILABLE WITH THE AO AND THE ASS ESSMENT HAD BEEN COMPLETED ORIGINALLY U/S 143(1). THE THIRD MEMBER AGREED WITH THE VIEW TAKEN BY THE LD JUDICIAL MEMBER RELYING MAINLY ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA DLTD (SUPRA) AND EICHER LTD 320 ITR 561. IT WAS HE LD BY THE THIRD MEMBER THAT SECTION 147 APPLIED BOTH TO SECTION 143(1) AS WELL AS SECTION 143(3) AND THEREFORE EXCEPT TO THE EXTENT THAT A REASSESSMENT NOTICED IS SUED U/S 148 IN A CASE WHERE THE ORIGINAL ASSESSMENT WAS MADE U/S 143(1) CANNOT BE C HALLENGED ON THE GROUND OF A MERE CHANGE OF OPINION STILL IT IS OPEN TO AN ASSE SSEE TO CHALLENGE THE NOTICE ON THE GROUND THAT THERE IS NO REASON TO BELIEVE THAT INC OME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. AS REGARDS THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD (SUPRA) CITED BY THE REVENUE AND RELIED UPON BY THE ACCOUNTANT MEMBER THE THIRD MEMBER HELD THAT THE SAM E WAS APPLICABLE IN CASES 6 WHERE THE RETURN WAS PROCESSED U/S 143(1) BUT LATER ON NOTICE WAS ISSUED U/S 148 AND THE ASSESSEE CHALLENGES THE NOTICE ON THE GROUN D THAT IT IS PROMPTED BY A MERE CHANGE OF OPINION. THE THIRD MEMBER THEN REFERRED T O THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA (SUPRA) WHEREIN IT WAS HELD THAT THERE SHOULD BE TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT INCOME HAD ESCAPED ASSESSMENT. RELYING ON THE SAID DECISION IT WAS HELD BY THE THIRD MEMBER THAT WHILE RESORTING TO SECTION 147 EVEN IN CASE WH ERE ONLY AN INTIMATION HAD BEEN ISSUED U/S 143(1)(A) IT IS ESSENTIAL THAT THE AO S HOULD HAVE BEFORE HIM TANGIBLE MATERIAL JUSTIFYING HIS REASON TO BELIEVE THAT INCO ME HAD ESCAPED ASSESSMENT. SINCE THERE WAS NO SUCH TANGIBLE MATERIAL BEFORE T HE AO FROM WHICH HE COULD ENTERTAIN THE BELIEF THAT INCOME OF THE ASSES SEE CHANGEABLE TO TAX HAD ESCAPED ASSESSMENT THE THIRD MEMBER HELD THAT REASSESSMENT PROCEEDINGS INITIATED BY THE AO WERE LIABLE TO BE Q UASHED ON THE GROUND THAT THERE WAS NO TANGIBLE MATERIAL BEFORE THE AO E VEN THOUGH THE ASSESSMENT WAS COMPLETED ORIGINALLY U/S 143(1). IN OUR OPINION THE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF TELC O DADAJI DHACKJEE LTD (SUPRA) IS SQUARELY APPLICABLE IN THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE SAME WE HOLD THAT THE INITIATION OF REASSESSMENT PROCEEDINGS BY THE AO ITSELF WAS BAD IN LAW AND THE REASSESSMENT COMPLETED IN PURSUANCE THEREOF IS LIABLE TO BE QUAS HED BEING INVALID. WE ORDER ACCORDINGLY AND ALLOW GROUND NO.1 OF THE ASSE SSEES APPEAL. 9. FROM THE ABOVE IT IS EVIDENT THAT FOR ASSUMING THE JURISDICTION U/S 147 IN RESPECT OF THE ASSESSMENT COMPLETED EITHER U/S 143( 1) OR U/S 143(3) OF THE ACT THERE IS A NEED FOR TANGIBLE MATERIAL IN POSSESSION OF THE AO FOR SUCCESSFUL AND VALID ASSUMING JURISDICTION. THE SAID DECISION OF THE TRIBUNAL IN THE CASE OF HV TRANSMISSIONS LTD (SUPRA) HAS FOLLOWED THE THIRD MEMBER DECISION IN THE CASE OF TELCO DADAJI DHACKJEE LTD (SUPRA). THEREFORE CONSIDERING THE UNDISPUTED FA CT THAT AO DOES NOT HAVE TANGIBLE MATERIAL IN HIS POSSESSION BEFORE ISSUING NOTICE U/S 147 OF THE ACT WE ARE OF THE OPINION THAT THE REOP ENING OF BOTH THESE ASSESSMENTS IS NOT VALID AND THEREFORE THE REASSESSMENTS ARE L IABLE TO BE QUASHED BEING INVALID. ACCORDINGLY COMMON ISSUES RAISED IN BOTH THE APPEA LS VIDE GROUND NO.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 10. AS A RESULT OF OUR DECISION ON THE PRELIMINARY ISSUE RELATING TO QUASHING OR CANCELLING OF REASSESSMENTS MADE BY THE AO U/S 143( 1) R.W.S 147 AND 143(3) R.W.S 147 THE ADJUDICATION OF OTHER ISSUES RAISED IN THE APPEALS OF THE ASSESSEE IE (I) RESTRICTING THE DISALLOWANCE TO 10% OF THE INCOME A ND (II) THE COMPUTATION OF CHARGEABLE INTEREST U/S 234B OF THE ACT BECOME AN ACADEMIC EXERCISE. WE DO NOT FIND IT NECESSARY TO DECIDE THE SAME UNDER THESE CI RCUMSTANCES. THUS THE OTHER GROUNDS ARE DISMISSED AS ACADEMIC. 7 11. IN THE RESULT BOTH THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED PRO-TANTO . ITA NO.8509/M/2010 (AY:2005-2006) (BY ASSESSEE) ITA NO.8510/M/2010 (AY:2006-2007) (BY ASSESSEE) ITA NO.8511/M/2010 (AY:2007-2008) (BY ASSESSEE) 12. WE SHALL NOW TAKE UP THE REST OF THE THREE APPE ALS FOR ADJUDIDACTION. THESE THREE APPEALS ARE FILED BY THE ASSESSEE ON 7.12.201 0 IS AGAINST THE DIFFERENT ORDERS OF CIT (A)-22 MUMBAI COMMONLY DATED 16.9.2010 FOR THE AYS 2005-2006 2006- 2007 & 2007-2008 RESPECTIVELY. IN THESE APPEALS THE ASSESSEE COMMONLY RAISED THE FOLLOWING GROUND RELEVANT TO THE AY 2005-2006 . THE LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE BY RESTRICTING ALLOWANCE OF EXPENSES ONLY TO 10% OF FEES RECEIVED. YOUR APPELL ANT SUBMITS THAT THE EXPENSES CLAIMED BY YOUR APPELLANT ARE ALLOWABLE AS CLAIMED. 13. BRIEFLY STATED FACTS RELEVANT TO THE ADDITION A RE THAT THE ASSESSEE IS A MANAGING DIRECTOR OF GEOMETRIC SOFTWARE SOLUTIONS C O. LTD AND DECLARED THE INCOME FROM SALARY AND BUSINESS INCOME (PROFESSIONAL FEE R ECEIVED FROM A SOLITARY PARTY). THE AY-WISE PROFESSIONAL FEE EARNED BY THE ASSESSEE FOR ALL THE THREE ASSESSMENT YEARS ARE RS. 1.1 LACS; RS. 1.75 LACS AND RS. 1.5 L ACS RESPECTIVELY. AGAINST THESE BUSINESS INCOME ASSESSEE DEBITED EXPENDITURE IN T HE P & L ACCOUNT AMOUNTING TO RS. 8 52 460/- (AY: 2005-2006); RS. 8 49 107/- (AY: 2006-2007) AND RS. 7 94 270/- (AY: 2007-2008). 14. DURING THE ASSESSMENT PROCEEDINGS AO NOTED THA T ASSESSEE EARNED THE SAID BUSINESS INCOME (PROFESSIONAL FEE) FROM A SINGLE PA RTY IE WEP PERIPHERALS LTD. BANGALORE AND CLAIMED A HUGE EXPENSES AGAINST THE S AID INCOME AS MENTIONED ABOVE. FURTHER AO NOTED THAT THE ASSESSEE FAILED TO FURNISH EVIDENCES IN SUPPORT OF THE CLAIM THAT THE SAID EXPENDITURE IS I NCURRED FOR WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. HE ALSO FOUND THAT TELE PHONE AND ELECTRICITY BILLS RELATED TO THE RESIDENCE OF THE ASSESSEE ARE CLAIMED IN THE P AND L ACCOUNT. IT WAS ALSO MENTIONED THAT ASSESSEE CLAIMED THE EXPENDITURE REL ATABLE TO THE EXEMPT INCOME VIDE PARA 9 OF THE ASSESSMENT ORDER. DURING THE AS SESSMENT PROCEEDINGS ASSESSEE 8 FURNISHED REVISED EXPENDITURE SUBMITTING THAT IF YOU (AO) STILL WANT TO DISALLOW ONLY THE EXPENSES TO THE TUNE OF RS. ..SHOULD BE D ISALLOWED . AS PER THE REVISED ESTIMATES THE RS. 3 24 950/- EACH IS THE REVISED E XPENDITURE FOR ALL THE AY 2005-06; 2006-07 AND 2007-08. AO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND CONSIDERED THE REPLY OF THE ASSESSEE VIDE LETTER DATED 22.11.2 010 AND FINALLY THE AO DID NOT ALLOW ANY EXPENDITURE AT THE END OF THE ASSESSMENTS FOR ALL THE THREE YE ARS. AGGRIEVED WITH THE SAME ASSESSEE FILED THE THREE A PPEALS BEFORE THE FIRST APPELLATE AUTHORITY. 15. BEFORE THE FIRST APPELLATE AUTHORITY ASSESSEE MADE WRITTEN SUBMISSIONS. CIT(A) NOTED THAT THE AO MADE A DISALLOWANCE ON FI NDING THAT THE ASSESSEE DEBITED THE EXPENDITURE OF PERSONAL VIDE ELECTRICITY BILLS TELEPHONE BILLS MOTOR CAR EXPENSES SUBSCRIPTIONS ETC. CIT(A) ALSO FOUND THAT AO DID NO T ALLOW THE SAID CLAIM OF THE ASSESSEE AS THEY ARE NON-BUSINESS EXPENDITURE AND A LSO PARTLY INCURRED FOR EARNING OF THE EXEMPT INCOME. HE ALSO NOTICED THAT ASSESSE E EARNED BUSINESS INCOME OF RS. 1.1 LACS FOR THE AY 2005-06 AND RS. 1.75 LACS EACH FOR THE ASSESSMENT YEAR 2006-07 AND 2007-08 AND EXPENDITURE CLAIMED AGAINST THESE I NCOMES IS SUBSTANTIALLY HIGH AS DISCUSSED ABOVE. CIT (A) ALSO CONSIDERED THE ASSES SEES SUBMISSIONS THAT THESE EXPENSES ARE PRE-REQUISITES FOR RUNNING OF A BUSINE SS. CIT (A) ALSO CONSIDERED THE VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE IN SU PPORT OF THE CLAIM OF THE SAID EXPENDITURE. IN FACT THE CIT (A) REMANDED THE MATT ER TO THE FILES OF THE AO TO FIND OUT THE GENUINENESS OF THE CLAIM AND AFTER RECEIVIN G OF THE REMAND REPORT OF THE AO DATED 13.7.2010 CIT (A) HELD THAT THE CLAIM OF THE EXPENDITURE OF THE ASSESSEE SHOULD BE RESTRICTED UNIFORMLY TO 10% OF BUSINESS INCOME (PROFESSIONAL FEE) IN ALL THE ASSESSMENT YEARS UNDER CONSIDERATION. P ARA 3.3 OF THE IMPUGNED ORDER FOR THE AY 2003-2004 BEING A SPEAKING ORDER CONTAINS RE LEVANT DISCUSSION IN THIS REGARD WHICH WAS RELEVANT FOR ALL THESE ASSESSMENT YEARS A LSO. WHILE RESTRICTING TO 10% OF THE INCOME THE CIT (A) ESSENTIALLY CONSIDERED THE FACT THAT THE ASSESSEE FAILED TO PROVE THAT THE EXPENDITURE UNDER CONSIDERATION WAS INCURRED FOR BUSINESS PURPOSES. HE ALSO REFERRED TO AOS REMAND REPORT W HERE NO EVIDENCES IN SUPPORT OF THE EXPENSES WAS CLAIMED IN THE RETURN AND WERE NOT FURNISHED EVEN DURING THE REMAND PROCEEDINGS. HE ALSO MENTIONED ABOUT THE ABS ENCE OF ANY LETTER ISSUED TO 9 THE ASSESSEE IN THIS REGARD. THUS CIT (A) RESTRIC TED THE DISALLOWANCE ON AD-HOC BASIS ADOPTING THE FLAT RATE OF 10% OF THE INCOME R EPORTED BY THE ASSESSEE IN ALL THESE ASSESSMENT YEARS. AGGRIEVED WITH THE ABOVE D ECISION OF THE CIT (A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 16. DURING THE PROCEEDINGS BEFORE US LD COUNSEL FO R THE ASSESSEE CLAIMS THAT THE ASSESSEE HAS FILED ALL THE EVIDENCES AS DEMANDED BY THE AO DURING THE ASSESSMENT PROCEEDINGS. FURTHER LD COUNSEL MENTIONED THAT A SSETS LIKE COMPUTER AND CAR WERE UTILIZED FOR EARNING OF THE BUSINESS INCOME TO O. REGARDING OTHER EXPENDITURE LIKE ELECTRICITY TELEPHONE ETC ASSESSEE CLAIMS TH AT HE RUNS OFFICE AT THE RESIDENCE TOO AND THEREFORE THE CLAIMS ARE JUSTIFIED. REGAR DING THE EXPENDITURE INCURRED FOR EARNING OF THE DIVIDEND INCOME IT IS CLAIM OF THE ASSESSEE THAT NO EXPENDITURE IS DISALLOWABLE AS THERE ARE NO DIRECT EXPENDITURE INC URRED FOR EARNING OF THE SUCH EXEMPT INCOME. SHE IS ALSO CRITICAL OF THE DECISIO N OF THE CIT (A) IN RESTRICTING THE DISALLOWANCES LINKING TO THE INCOME OF THE ASSESSEE . SHE ALSO REASONED THAT AT TIMES EXPENDITURE IS MUCH MORE THAN INCOME EARNED BY THE ASSESSEE IN THE YEAR AND FOR THIS SHE RELIED ON THE FACTS RELATING TO TH E ASSESSEE FOR THE AYS 2009-10 AND 2010-2011.THIS DATA WAS NOT AVAILABLE TO AO / CIT ( A) AT RELEVANT POINT OF TIME. 17. ON THE OTHER HAND LD DR MENTIONED THAT ASSESSE E FAILED TO BRING EVIDENCES AND DISCHARGE THE ONUS TO SUBSTANTIATE THE CLAIM OF HUGE EXPENDITURE DEBITED AGAINST THE PROFESSIONAL FEES AGAINST RS. 1.1 LACS AND RS. 1.75 LACS AS THE CASE MAY BE. OTHERWISE HE RELIED ON THE ORDERS OF THE AO A ND THE CIT (A). 18. WE HAVE HEARD BOTH THE PARTIES PERUSED THE ORD ERS OF THE REVENUE AUTHORITIES AND THE INFORMATION AVAILABLE BEFORE US . IT IS AN UNDISPUTED FACT THAT THE PROFESSIONAL INCOME OF THE ASSESSEE AND THE EXPENDI TURE CLAIMED AGAINST SUCH INCOME HAS NO MATCH AND THE INCOME IS SUBSTANTIALLY LOWER FOR ALL THE YEARS UNDER CONSIDERATION. IT IS ALSO A FACT THAT THE EXPENDITUR E ACCOUNTS ARE COMPOSITELY MAINTAINED FOR BUSINESS AS WELL AS NON-BUSINESS/PERSONAL ACTI VITIES. IT IS A TRAIT LAW THAT THE EXPENDITURE INCURRED ONLY FOR BUSINESS PUR POSES ALONE ARE ALLOWABLE UNDER THE ACT. NO PERSONAL EXPENDITURE OR EXPENDITURE RE LATABLE TO THE EXEMPT INCOME IS ALLOWABLE U/S 37 OR U/S 14A OF THE ACT. IT IS ALSO SUBMITTED BY THE PARTIES THAT NO LOG 10 BOOKS ARE MAINTAINED SO FAR AS THE CAR AND COMPUTER ARE CONCERNED. THESE ASSETS WERE USED COMMONLY FOR BUSINESS AS WELL AS NON-BUSI NESS ACTIVITIES. THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE UP TO THE SATISFACTION OF THE AO THAT THE EXPENDITURE INCURRED FOR EARNING OF THE EXEMPT INCOME SHOULD BE ALLOWED UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. NO EFFORTS WERE MADE EITHER DURING THE ASSESSMENT PROCEEDINGS OR APPELLATE PROCEEDINGS TO EXAMINE AND ANALYZE THIS ASPECT. THEREFORE WE ARE OF THE OPINION THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS BY FURNISHING COGENT EVIDENCES. THE REVISED EXPENDITU RE OFFERED BY THE ASSESSEE ALSO ARE NOT BACKED WITH THE EVIDENCES AND DETAILED WORK INGS. FURTHER ON THE PERUSAL OF THE ORDERS OF THE CIT (A) IT IS NOTICED THAT HE RE LIED ON THE REMAND REPORT WHICH DOES NOT CONTAIN ANY INVESTIGATION AND EVIDENCE-BAS ED CONCLUSIONS. FURTHER THE ORDER OF THE CIT (A) RESTRICTED THE DISALLOWANCE TO A FLAT RATE OF 10% OF THE INCOME WITHOUT ANY BASE. IT IS NOT CLEAR AS TO WHY 10% CON STITUTES A REASONABLE PERCENTAGE AND WHY THE SAME IS LINKED TO THE PROFESSIONAL FEE/ INCOME OF THE ASSESSEE. IN OUR OPINION SUCH DISALLOWANCES LINKING TO THE INCOME W ITHOUT ANY COMPARABLES IS NOT SUSTAINABLE IN LAW. THE REVENUE SHOULD ALSO CONSID ER THE FACTS IN SUBSEQUENT YEARS THAT THE INCOME EARNED BY THE ASSESSEE IS MUCH HIGH ER THAN THE EXPENDITURE DEBITED TO THE P & L ACCOUNT. CONSIDERING ALL THE ABOVE SA ID FACTS WE ARE OF THE OPINION THAT THE ISSUES MUST BE SET ASIDE TO THE FILES OF T HE AO FOR DETAILED EXAMINATION INTO THE FACTS INVESTIGATION INTO THE CLAIMS OF THE ASS ESSEE. IN THE SET ASIDE ASSESSMENTS ASSESSEE IS DIRECTED TO DISCHARGE THE ONUS SINCE THE ISSUE INVOLVES THE CLAIM OF DEDUCTIONS TO THE BENEFIT OF THE ASSES SEE. WE ACCORDINGLY SET ASIDE THE ISSUE IN ALL THE THREE YEARS TO THE FILES OF THE AO FOR DE NOVO ASSESSMENT. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. ACCORDINGLY GROUNDS RAISED IN ALL THE THREE APPEALS ARE SET ASIDE. 19. IN THE RESULT ALL THE THREE APPEALS FILED BY TH E ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 20. IN TOTALITY TWO APPEALS RAISED BY THE ASSESSEE FOR THE AYS 2003-04 & 2004-05 ARE ALLOWED PRO-TANTO AND THREE APPEALS FOR THE AYS 2005-06; 2006-07 AND 2007-08 ARE ALLOWED FOR STATISTICAL PURPOSES. 11 ORDER PRONOUNCED IN THE OPEN COURT ON 3.7.2013 SD/- SD/- ( I.P. BANSAL) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER MUMBAI; 2& 3.7.2013 . & . ./ OKK SR. PS 1 1 1 1 + ++ + )-34 )-34 )-34 )-34 540- 540- 540- 540- / COPY OF THE ORDER FORWARDED TO : 1. '( / THE APPELLANT 2. )*'( / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 4 78 )-& / DR ITAT MUMBAI 6. 8!9 : / GUARD FILE. *4- )- //TRUE COPY// 1& 1& 1& 1& / BY ORDER ; ;; ; / < < < < = = = = (DY./ASSTT. REGISTRAR) / ITAT MUMBAI