Income Tax Appellate Tribunal - Mumbai
Manju Sharma, Mumbai vs Assessee on 25 January, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'B' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI R.K. PANDA,(AM)
ITA No.2728/Mum/2008
Assessment Year : 2003-04
Mrs. Manju Sharma
13-14/B, Marol Naka
Andheri-Kurla Road
Andheri (E)
Mumbai-400 059. .....(Appellant)
P.A. No.(AAQPS 1852 G)
Vs.
Asstt. Commissioner of Income tax -20(2)
Mumbai. .....(Respondent)
Appellant by : Shri K.M. Kapadia
Respondent by : Shri Hari Govind Singh
ORDER
Per D.K. AGARWAL (JM).
This appeal preferred by the assessee is directed against the order dated 25.01.2008 passed by the ld. CIT(A) for the Assessment Year 2003-04.
2. Briefly stated facts of the case are that the assessee an individual is deriving income from export of marbles and stones. She filed return showing an income of Rs.37,70,472/- . However, the assessment was completed at an income of Rs.50,76,500/- vide order dated 21.2.2006 passed u/s.143(3) of the Income tax Act, 1961(the Act). On appeal, the ld. CIT(A) dismissed the assessee's appeal.
3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us.
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4. Ground No.I is against the sustenance of disallowance of consultancy and service charges Rs.1,63,000/-.
5. The brief facts of the above issue are that during the course of assessment proceeding the assessee was asked to give details of services rendered by Shri Shivdutta R. Sharma, Sunil Bheda and Ms. Mamta Dhupia to whom consultancy fees has been given along with confirmations. However, the assessee has filed confirmation from Shri Shivdutta R. Sharma only. In the absence of confirmation from Sunil Bheda and Ms. Mamta Dhupia regarding services rendered by them the Assessing Officer disallowed Rs.1,63,000/- being service charges paid and added to the income of the assessee . On appeal, before the ld. CIT(A) the assessee filed confirmations from the said two persons. However, the ld. CIT(A) was of the view that in the absence of circumstances listed in Rule 46A of the I.T. Rules, 1962 there is no justification to admit the additional evidence filed by the assessee at this stage. Further, the assessee was not able to give any details of the services rendered and hence, he upheld the disallowance made by the Assessing Officer.
6. At the time of hearing the ld. Counsel for the assessee submits that due to some confusion between the authorised representative of the assessee and the Assessing Officer the confirmation from the said two parties which were kept ready at the time of assessment proceeding could not be produced before the Assessing Officer. However, the same were produced before the ld. CIT(A), copy of which are appearing at page 1 and 2 of assessee's paper book. He therefore, submits that the same may kindly be admitted and relief may be allowed.
7. On the other hand the ld. DR submits that inspite of the opportunity provided to the assessee, the assessee has failed to file the 3 ITA No.2728/M/08 A.Y:03-04 confirmation, hence, the disallowance made by the Assessing Officer and sustained by the ld. CIT(A) be upheld.
8. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that assessee's stand that there was some confusion between the ld. AR of the assessee and the Assessing Officer regarding the filing of the confirmations of the above two parties was not doubted or rejected by the ld. CIT(A). This being so, and keeping in view that the assessee has filed the confirmation before the ld. CIT(A), we are of the view that in the interest of justice the matter should go back to the file of the Assessing Officer and accordingly we set aside the order passed by the revenue authorities on this account and send back the matter to file of the Assessing Officer who shall decide the same afresh and according to law after providing reasonable opportunity of being heard to the assessee . The ground taken by the assessee is, therefore, partly allowed for statistical purposes.
9. Ground No.II is against the sustenance of disallowance of travelling expenses of Rs.4,55,155/-.
10. The brief facts of the above issue are that during the course of assessment proceeding it was found that the assessee has debited Rs.18,36,439/- under the head travelling expenses. The assessee was asked to file complete details of the expenses on foreign travel including the names of the places visited, the persons who travelled and the nature of business done along with the bills and other evidences. In response, it was submitted that in most of the cases, Mr. Shivdutta Sharma had travelled abroad on business tours. From the details submitted. The Assessing Officer also found that out of the total expenses of Rs.18,36,439/-, Rs.15,17,185/- has been incurred on foreign travel. In this context, no proper details viz. the persons who have traveled, the places visited and the nature of business done were filed. Only certain 4 ITA No.2728/M/08 A.Y:03-04 bills were filed. In the absence of complete details the Assessing Officer disallowed 30% of foreign travel expenses as being for non-business purposes. On appeal the ld. CIT(A), in the absence of details while agreeing with the view of the Assessing Officer confirmed the disallowance made by the Assessing Officer .
11. At the time of hearing the ld. Counsel for the assessee submits that in the assessment order the names of Ms. Fazlulah Mumtaz, Mr. Faraz Mohd. and Mr. Rajiv Suhalka have been mentioned. The first two persons are the owners of Al Fahad Tiles & Mosaic Factory (The customer who accounts for more than 65% of the total turnover of the assessee ). They had come down to see the goods of the assessee and to finalise the purchase deal. The assessee had to bear the cost of their travel due to which the expenses were incurred. In view of this fact if the assessee has to incur some traveling expenses then the same should be allowed as business expenditure. In case of Mr. Rajiv Suhalka, he is the partner of Euro Marbles, who is the supplier of the goods to the assessee. He was required to travel on behalf of the assessee to inspect the type of material required by the assessee. The details called upon the assessment proceeding were duly submitted within the stipulated time. However, the Assessing Officer's contention that the part of the foreign travel expenditure is incurred 'not for the purpose of business' is not justified. He further submits that foreign travel expenditure incurred by the assessee were disallowed merely on the basis of assumption is against law of natural justice. Thus, the disallowance of Rs.4,55,155/- of the foreign expenses sustained by the ld. CIT(A) be deleted.
12. On the other hand the ld. DR submits that in the absence of complete details of travelling expenses to show that the same have been incurred for business purposes, the ld. CIT(A) was justified in upholding the disallowance made by the Assessing Officer.
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13. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the assessee has furnished details of travelling expenses amounting to Rs.18,36,439/- which has been reproduced by the Assessing Officer at page-3 of the assessment order. However, in the absence of complete details in respect of foreign travel expenses and details of persons travelled, place visited and the nature of business done the Assessing Officer made estimated disallowance of Rs.4,55,155/- being 30% Rs.15,17,185/- and the ld. CIT(A) for the same reasons upheld the disallowance made by the Assessing Officer . The claim of the assessee is that the foreign travel expenses have been incurred on the persons namely Ms. Fazlulah Mumtaz , Mr. Faraz Mohd. and Mr. Rajiv Suhalka to whom the assessee has sold the goods more than 65 % of the total turnover. However, this aspect of the matter does not borne out from the assessment order or from the order of the ld. CIT(A). We further find that after filing the details of travelling expenses, the Assessing Officer without asking for further details of persons travelled, place visited and the nature of business done has made the above estimated disallowance which in our view is a violation of rule of natural justice. This being so, and keeping in view that the disallowance was made on estimate basis, therefore, in the interest of justice we consider it fair and reasonable that the matter should go back to the file of the Assessing Officer and accordingly we set aside the orders passed by the revenue authorities on this account and send back the matter to the file of the Assessing Officer who shall examine the issue afresh in the light of our observation herein above and according to law after providing reasonable opportunity of being heard to the assessee . The ground taken by the assessee is therefore, partly allowed for statistical purposes.
14. Ground No.III is against the sustenance of disallowance of motor car expense of Rs.55,334/- including depreciation on car.
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15. The brief facts of the above issue are that the Assessing Officer in the absence of log book observed that the use of motor car by the assessee for personal purposes cannot be ruled out and accordingly he disallowed 1/5th of motor car expenses and 1/5th of motor car depreciation Rs.41,893/- and Rs.13,441/- respectively. On appeal the ld. CIT(A) for the same reasons upheld the disallowance made by the Assessing Officer .
16. At the time of hearing the ld. Counsel for the assessee submits that the personal user element for the use of motor car has been included in the drawings of the assessee and no such disallowance was made in the immediately preceding Assessment Year 2002-03 while making the assessment u/s. 143(3), which was later on corrected as 143(1), therefore, the disallowance of motor car expenses and depreciation made by the Assessing Officer and sustained by the ld. CIT(A) be deleted.
17. On the other hand the ld. DR submits that in the absence of log book to show that the car was used for business purposes, the ld. CIT(A) was fully justified in sustaining the disallowance made by the Assessing Officer and the same be upheld.
18. After carefully hearing the submissions of the rival parties and perusing the material available on record we find that the assessee has not placed any material to show that the car was exclusively used for business purposes. The ld. Counsel for the assessee has not substantiated that the personal expenses shown by the assessee includes car expenses. This being so, and keeping in view the facts and circumstances of the case and the consistent view of the Tribunal we consider it fair and reasonable that 1/6th disallowance of car expenses and depreciation would meet the ends of justice. We hold and order accordingly. The ground taken by the assessee is, therefore, partly allowed.
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19. Ground No. IV is against the sustenance of disallowance of Rs.30,000/- out of telephone expenses.
20. The brief facts of the above issue are that it was observed by the Assessing Officer that out of total expenses of Rs.3,66,008/- a sum of Rs.32,407/- was in respect of residential telephone and Rs.64,665/- was in respect of mobile telephone. The Assessing Officer relying on the decision in the case of Ambika Mills vs. CIT 235 ITR 264 (Guj.), disallowed Rs.30,000/- on account of personal use of phones. On appeal the ld. CIT(A) while agreeing with the reasoning of the Assessing Officer, confirmed the disallowance made by the Assessing Officer.
21. At the time of hearing the ld. Counsel for the assessee while reiterating the same submissions as submitted before the ld. CIT(A) further submits that since the assessee is engaged in the business of export, the telephone line at the residence was also used for business purposes because of difference in time zones of different countries, therefore, the expenses incurred by the assessee on telephones are for business purposes and are allowable.
22. On the other hand the ld. DR submits that the personal use of residential phone has not been ruled out, therefore, the disallowance sustained by the ld. CIT(A) be upheld.
23. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that the assessee has not placed any material to show that the residential telephones have not been used for personal purposes. However, keeping in view that the assessee has used the residential telephone for business purposes because of difference in time zones of different countries which has not been controverted by the revenue we are of the view that the disallowance of Rs.30,000/- made by the Assessing Officer is on higher side and accordingly the same is reduced to Rs.20,000/- . The assessee 8 ITA No.2728/M/08 A.Y:03-04 gets a relief of Rs.10,000/- on this account. The ground taken by the assessee is, therefore, partly allowed.
24. In Ground No.V the assessee contended that the bank interest received should be treated as income from business and there should be no reduction of export profits to calculate deduction u/s.80 HHC.
25. The brief facts of the above issue are that in the course of the assessment proceedings, it was found by the Assessing Officer that the assessee has credited interest of Rs.11,73,823/- to the profit and loss account, on which deduction u/s.80HHC was claimed. In this respect, verification of the TDS certificates showed that the assessee has received bank interest to the extent of Rs.20,47,120/- in respect of FDs in banks and also interest of Rs.73,500/- from M/s. Yogi Enterprises. The assessee has netted the interest received against interest paid for the purpose of business and credited the interest of Rs.11,73,823/- to the P&L Account and claimed deduction u/s.80HHC. It was the assessee's submission that the amount is net off of interest paid on bill discounting and overdraft facility availed by the assessee which was used for the export business. The assessee has relied on the various decisions as mentioned at para-5 of the assessment order. The assessee's contention was not accepted by the Assessing Officer in view of provisions of Explanation (baa) to section 80 HHC introduced w.e.f. 1.4.1992. The decisions relied on by the assessee were found by the Assessing Officer as relating to Assessment Years prior to the Assessment Year 1992-93. In the light of this, in terms of Explanation (baa) to section 80 HHC, the Assessing Officer reduced 90% of the interest in the computation of deduction u/s.80 HHC. Before the ld. CIT(A) it was submitted by the assessee that the fixed deposits kept with the nationalized banks are purely for the purpose of obtaining banking facilities. It was also submitted that the Assessing Officer has considered 90% of the total interest of Rs.21,20,620/- and not the net amount of Rs.11,73,823/-. Reliance was also placed in (i) Leatherage vs. ITO 86 ITD 482; 78 TTJ 937(Luck.); (ii) ITO vs. Shreeji Exports, 357 Mum 9 ITA No.2728/M/08 A.Y:03-04 2001; (iii) Lalsons Enterprises Vs. DCIT 82 TTJ 1048 (Del.); and CIT vs. Bangalore Clothing Co. 127 Taxmann 637 (Bom.). The ld. CT(A) after considering the assessee's submission observed that the interest income is not germane to assessee's business activities. The genesis of the interest income lies in fixed deposits with bank, assessable in terms of sec. 56 of the Act and for this proposition he also placed reliance in (i) Tuticorin Alkalies chemicals & Fertilizer Ltd. 227 ITR 172(SC); (ii) Pandian Chemicals Ltd. vs. CIT 262 ITR 278 (SC); (iii) CIT vs. Dr. V.P. Gopinathan 248 ITR 449(SC); (iv) CIT vs. Raviratna Exports Pvt. Ltd. 246 ITR 443 (Bom.) and (v) CIT vs. Shri Ram Honda Power Equip 289 ITR 475(Del.) and accordingly he held that the interest income is liable to be assessed as income from other sources and taken out of the equation of deduction u/s.80HHC. With regard to the netting off of interest the ld. CIT(A) in view of the decision in Lalsons Enterprises vs. DCIT 82 TTJ 1048(Del.)(SB) observed that the assessee has not been able to establish the nexus and further as per accounting principles there cannot be a profit and loss account within a profit and loss account and accordingly confirmed the Assessing Officer's action in this regard.
26. At the time of hearing the ld. Counsel for the assessee while reiterating the same submissions as submitted before the ld. CIT(A) further submits that the ld. CIT(A) was not justified in upholding the view of the Assessing Officer that the interest income is assessable under the head income from other sources as the same was earned out of export business . He further submits that netting off of interest is generally accepted accounting principle, therefore, the ld. CIT(A) was not justified in sustaining the reduction of claim u/s. 80HHC and the same be deleted.
27. On the other hand ld. DR while relying on the order of the Assessing Officer and ld. CIT(A) also relied on the recent decision of Hon'ble Jurisdictional High Court in CIT vs. Asian Star Co. Ltd. wherein even the netting off of interest was not allowed for the purpose of deduction u/s.80 HHC of the Act.
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28. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute. We further find that the interest income earned by the assessee out of surplus funds with the bank is beyond the first degree of nexus of the profits earned by the assessee from export business. In CIT vs. M/s. Asian Star Company in Income tax Appeal No.200 of 2009 dated 18/19.3.2010 , relied on by the ld. DR, Their Lordships while holding in para 21 of the judgment that the view taken by the Special Bench of the Tribunal in Lalsons Enterprises (2004) 89 ITD 25(SB) is impermissible has held as under :-
"22. In the circumstances, we allow the appeal by holding that the Tribunal was not justified in coming to the conclusion that the net interest on fixed deposits in the Bank received by the assessee should be considered for the purposes of working out the deduction under Section 80HHC and not the gross interest. The question of law would accordingly stand answered in the aforesaid terms in favour of the Revenue and against the assessee. There shall be no order as to costs".
In the absence of any distinguishing feature brought on record by the ld. Counsel for the assessee we respectfully following the recent judgment of Hon'ble Jurisdictional High Court supra, uphold the order passed by the ld. CIT(A) on this account. The ground taken by the assessee is therefore, rejected.
29. In the result, assessee's appeal stands partly allowed for statistical purposes.
Order pronounced in the open court on 9.9.2010.
Sd/- Sd/-
(R.K. PANDA) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 9.9.2010.
Jv.
11 ITA No.2728/M/08
A.Y:03-04
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.