Income Tax Appellate Tribunal - Mumbai
Manoj Mohanlal Mehta, Mumbai vs Ito 19(1)(1), Mumbai on 1 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " B" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
ITA No. 3272/Mum/2014
(A.Y:2009-10)
Shri Manoj Mohanlal Mehta Income Tax Officer Circle
Shop No.9, Ellora Apartment, 19(1)(1), Mumbai
4 t h Road, Khar (W ) Vs.
Mumbai-400 052
P AN No. AACPM8714M
Appellant .. Respondent
Assessee by .. Shri Jayant R. Bhatt, AR
Revenue by .. Shri Suman Kumar, DR
Date of hearing .. 23-08-2017
Date of pronouncement .. 01-09-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT(A)-30, Mumbai, in appeal No. CIT(A)-30/ITO-19(1)(1)/IT-99/11-12 dated 19-02- 2014. The Assessment was framed by ITO ward 19(1)(1), Mumbai for the A.Y. 2006-07 vide order dated 28-12-2011 under section 143(3) of the Income Tax Act, 1961(hereinafter 'the Act').
2. The first issue in this appeal of assessee is against the order of CIT(A) confirming the adhoc disallowance made by AO on account of Conveyance, Telephone and sundry expenses at 20% in the absence of verifiable vouchers. For this assessee has raised following ground No.1: -
"1. Under the facts and circumstances of the case and in law CIT(A) has erred in confirming the 2 ITA No. 3272/ Mum/2014 Shri Manoj Mohanlal Mehta (A.Y:2009-10) adhoc disallowance of Rs. 29,028/- out of conveyance, telephone and sundry expenses without appreciating the fact that no disallowance was warranted in absence of any infinity, brought on record from an audited account."
3. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the assessee has claimed conveyance expenses at 48,431/-, telephone expenses at Rs. 3,900/- and Sundry expenses at Rs. 62,811/-. As the assessee could not offer any explanation before AO whether there is element of personal in nature, the AO disallowed 1/5th of the same and added to the total income of the assessee. The CIT(A) also confirmed the same. Before us, the learned Counsel for the assessee only requested for a reasonable estimate.
4. After considering the submissions and gone through the facts and circumstances, we are of the view that 20% of disallowance on these type of expenses is on higher side and accordingly, we restricted the disallowance at 10%. This issue of the assessee's appeal is partly allowed.
5. The next issue in this appeal of assessee is against the order of CIT(A) confirming and enhancing the assessment made by AO by disallowing interest paid to parties under section 40A(2)(B) of the Act and charging notional interest of Rs. 3,33,345/- and CIT(A) enhancing the same to Rs. 9,47,460/-. For this assessee has raised following grounds: -
"2) (a) Under the facts and circumstances of the case and in law CIT(A) has erred in confirming and enhancing the assessment by Rs.9.47,460/- by 3 ITA No. 3272/ Mum/2014 Shri Manoj Mohanlal Mehta (A.Y:2009-10) disallowing the interest paid to parties referred to in section 40A(2)(b) of the Income Tax Act which interalia include / merge the notional interest of Rs.3,77,345/- added by the AO by invoking the provisions of section 40A(2)(b) of the Act.
(b) Under the facts and circumstances of the case and in law CIT(A) has erred in not appreciating the fact that the payment made to parties specified u/s 40A (2)(b) were reasonable looking to the terms and nature of advances received by the appellant and also effect thereof is tax neutral.
(c) Under the facts and circumstances of the case in law the CIT(A) has erred in making the alleged enhancement without appreciating the fact that proceedings u/s 154 were already tinder way and hence order of enhancement passed by the CIT(A) should be annulled and in such a case the addition of notional interest made by the AO be also deleted.
(d) In case if the enhancement made by the CIT(A) be deleted, as a consequence it is also prayed that notional income being interest changed on consequence it is also prayed that notional income being interest changed on interest free advance added by the AO amounting to Rs. 3,77,345/- be deleted."
6. Briefly stated facts are that the AO during the course of assessment proceedings noticed that the assessee has claimed interest expenses of Rs. 38,49,638/-. The AO required the assessee to explain the justification for utilization of loans taken from family member and interest paid and claimed against the business income. According to AO, 4 ITA No. 3272/ Mum/2014 Shri Manoj Mohanlal Mehta (A.Y:2009-10) the assessee has not charged in interest on the loan of Smt. Daksha Mehta and accordingly, he charged interest amounting to Rs. 3,77,345/- on loan advances to Smt. Daksha Mehta free of interest. For this AO has observed as under: -
"Considering the above explanation of the assessee's representative, the working of interest on funds available as loan in the hand of Smt. Daksha Mehta is as under:-
Period Loans in the hand of Interest @ 18% Smt. Daksha Mehta 01.04.2008 to 31.07.2008 Rs. 20,07,832 Rs. 120,470 01.09.2008 to 31.01.2009 Rs. 34,25,000 Rs. 256, 875 Total interest aroused Rs. 377,345 In view of the above, interest arising of Rs.
377,345/- on loan advanced to Smt. Daksha Mehta, wife of the assessee and the same is added to the assessee's total income under the head income from other sources."
Aggrieved, assessee preferred the appeal before CIT(A) apart from confirming this addition, also enhanced the interest @ 18% on all the persons whom assessee has paid interest @ 12%. For this CIT(A) observed in Paras 7.1 & 7.2 as under:
"7.1 I have duly considered the above submission of the appellant and find that it is not disputed that the appellant has taken loan from family members viz. Neetu Mehta & Manish Mehta and paid interest @18% to them, whereas to Tasneem Contractor, Mrs. Kanta P Parmar and Omkar Jewellers he has paid interest @ 12% and to Shubham Dev @ 15%.
Interest @ 18% has been paid only to one party, viz:
Monaco Export. Neetu Mehta is appellant's brother's 5 ITA No. 3272/ Mum/2014 Shri Manoj Mohanlal Mehta (A.Y:2009-10) wife and Manish Mehta is his brother. Therefore, these two persons fall tinder the purview of sec. 40A (2)(b) of the Act. The appellant has merely stated that interest has been paid to them as per the agreement with them and he was under contractual obligation to pay them higher rate of interest. I do not find any merit in this argument, because when the appellant was getting fund/ loan @12% to 15%, as to why he has paid interest @18% to his brother's wife and brother has not been justified. I, therefore, not only confirm the disallowance of interest paid at higher rate, but also enhance the same, as per the notice for enhancement of income.
The A.O is, therefore, directed to add Rs. 9, 47,460/- on the above a/c. instead of Rs.3,77,345/- only. Ground of appeal no. 1 is, therefore dismissed and income enhanced.
7.2 Ground of appeal no.2 is against disallowance of Rs. 29,028/- out of conveyance, telephone and sundry expenditure, which is @ 1/5th of above expenses of Rs.1,45,142/- on grounds of 1/5th amount being expenses on personal account. The A.O has also discussed that during the course of assessment proceedings AR could not submit any justification The appellant has not furnished any evidence during the course of appellate proceedings to show that during the course of assessment proceedings, he could, as asked by the ACO ascertain the nature of expenses from every bill. I, therefore, dismiss this ground of appeal. The disallowance, accordingly, gets confirmed and ground dismissed."
6 ITA No. 3272/ Mum/2014Shri Manoj Mohanlal Mehta (A.Y:2009-10) Aggrieved assessee is in second appeal before Tribunal.
7. We have heard the rival contentions and gone through the facts and circumstances of the case. First of all, the AO has charged interest by invoking the provisions of section 40A(2)(b) of the Act. According to us, the interest cannot be charged rather interest can be disallowed on the loan taken and that also on the amount which has been diverted for interest free advances. Secondly, the CIT(A) was of the view that interest paid to family Members @ 18%, is higher and he restricted the interest @ 12% and enhance the assessment from Rs. 3,77,342/- to Rs. 9,47,460/-. We find that the CIT(A) has not given any reason for enhancing the income and there is no indication as to how he has applied the provision of section 40A(2)(b) of the Act. We find that this issue is covered by the decision of Hon'ble Bombay High Court in the case of CIT vs. Indo Saudi Services (Travel) (P.) Ltd. [2009] 310 ITR 306 (Bombay), wherein it is held as under: -
"4. We have heard the learned advocates appearing for both sides. W7e have also perused the order passed by the Tribunal dated 21st Oct., 1999 which is impugned by the Revenue in the present appeals. We find that the following facts were established before the Tribunal and the same have been accepted by the Revenue even before us.
(i) That the assessee apart from paying handling charges @ 9 1/2 per cent to its sister concern, have paid handling charges at the same rate to other agents viz., M/s A.K.Travels, M/s Om Travels and M/s Jet Age Travels.
(ii) For asst. yrs. 1986-87 and 1987-88 the assessee had paid the handling charges @ 10 per cent to the sister 7 ITA No. 3272/ Mum/2014 Shri Manoj Mohanlal Mehta (A.Y:2009-10) concern of the assessee and such charges paid were considered to be reasonable by the appellant.
(iii) For asst.yrs. 1989-90 and 1990-91 the assessee had reduced the payment of handling charges to 9 1/2 per cent to its sister concern. The AO has considered the payment of commission to the sister concern in the asst. yr. 1989-90 and allowed the claim after due scrutiny. For asst. yr. 1990-91 also the claim of the assessee @ 9 1/2 per cent has been allowed though the same has not been dealt with by the AO specifically in the order.
(iv) For asst.yrs. 1993-94 and 1994-95 the assessment has been made by the AO under section 143(3) and handling charges paid to the sister concern @ 9.5 per cent have been considered to be reasonable and allowed.
(v) The sister concern of the assessee M/s Middle East International is also assessed to tax and income assessed for the asst. yr. 1991-92 is Rs. 9,38,510 and for asst.yr. 1992-93 is Rs. 14,65,880 and the said assessment orders have been placed on record.
(vi) Under the CBDT Circular No. 6-P, dated 6th July, 1968 it is stated that no disallowance is to be made under section 40A(2) in respect of the payments made to the relatives and sister concerns where there is no attempt to evade tax.
5. In view of the aforesaid admitted facts we are of the view that the Tribunal was correct in coming to the conclusion that the CIT(A) was wrong in disallowing half per cent commission paid to the sister concern of the assessee during the asst. yrs.1991-92 and 1992- 8 ITA No. 3272/ Mum/2014 Shri Manoj Mohanlal Mehta (A.Y:2009-10)
93. The learned advocate appearing for the appellant was also not in a position to point out how the assessee evaded payment of tax by alleged payment of higher commission to its sister concern since the sister concern was also paying tax at higher rate and copies of the assessment orders of the sister concern were taken on record by the Tribunal.
6. We, therefore, answer the above question of law raised in these appeals in affirmative and dismiss the above appeals filed by the appellant. There will, however, be no order as to costs."
8. In the given facts and circumstances, by following Hon'ble Bombay High Court decision in the case of Indo Saudi Services (Travel) (P.) Ltd. (Supra), we delete the addition and allow the appeal of the assessee. The appeal of the assessee is partly allowed.
9. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 01-09-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 01-09-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy//
BY ORDER,
Assistant Registrar
ITAT, MUMBAI