Income Tax Appellate Tribunal - Mumbai
Devji N. Palani, Mumbai vs Asst Cit 13(3), Mumbai on 17 November, 2016
आयकर अपीऱीय अधिकरण, मुंबई न्यायपीठ "डी" मुंबई
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE SHRI MAHAVIR SINGH, JM AND SHRI RAJESH KUMAR, AM
आयकर अपीऱ सं./I.T.A. No.3594/Mum/2012
And ITA No.7362/Mum/2013
(ननधधारण वषा / Assessment Years : 2008-09 and 2009-10)
Shri Devji Nenshi Palani, बनधम/ The Asstt. Commissioner of
207, Nimbus Trade Centre, Income Tax. 13(3),
Opp. Malad Link Road, Vs. Aaykar Bhavan,
Andheri (W), M.K. Marg,
Mumbai-400 061 Mumbai-400 009
स्थधयी ऱेखध सं ./ PAN :AAAPP8974E
अपीऱार्थी ओर से / Assessee by Shri Jitendra Singh
प्रत्यर्थी की ओर से/Revenue by Shri B S Bist
सुनवाई की तारीख / Date of Hearing : 22.09.2016
घोषणा की तारीख /Date of Pronouncement : 17.11.2016
आदे श / O R D E R
PER RAJESH KUMAR, AM
These appeals by the assessee are directed against the order dated 26.03.2012 and 28.10.2013 of CIT(A), Mumbai for the A.Ys. 2008-09 and 2009- 10 respectively. Since, the appeals before us relate to the same assessee, therefore, for the sake of convenience, they are clubbed together, heard together and disposed of in this consolidated order.
2ITA No.3594/Mum/2012
And 7362/Mum/2013 I.T.A. No.3594/Mum/2012 (AY -2008-09)
2. Facts of the case are that the assessee has filed return of income on 24.9.2008 declaring total income of Rs.23,56,770/- which was processed u/s 143(1) of the Income Tax Act, 1961. Subsequently the case was selected for scrutiny and statutory notices u/s 143(2) and 142 (1) were issued and served upon the assessee.
3. The issue raised in ground No.A is against the confirmation of action of the AO by the ld.CIT(A) in treating the "Short Term Capital Gains" (STCG) of Rs.13,77,568/- as income from business.
4. Facts relating to the above issue are that the assessee has shown STCG of Rs.13,77,568/- on sale of investments. The AO observed that the activities of the assessee were of trading nature as he was involved in sale and purchase of shares and thus dealing in shares at a very frequent interval. The AO was of the opinion that the assessee was routinely involved in share transactions and therefore, the AO treated this gain as income from business by rejecting all the contentions of the assessee.
5. At the outset, the ld. AR fairly conceded that the issue involved in this ground is covered against the assessee by the decision of the Mumbai Bench of the Tribunal in assessee's own case in ITA No. 7881/Mum/2010 AY : 2007-08 dated 12.09.2012.
3ITA No.3594/Mum/2012
And 7362/Mum/2013
6. We have heard the rival submissions and perused the materials on records including the orders of authorities below. We find that an identical issue has been decided by the Tribunal in ITA No. 7881/Mum/2010(supra), against the assessee . The relevant operative portion of the order is reproduced below :
"7. The ld. AR for the assessee has relied on the decision of the Tribunal in the case of Gopal Purohit (29 SOT 171) to argue that income from all delivery based transactions has to be assessed as income as held by the Tribunal in the said case. We have carefully perused the order of the Tribunal in the case of Gopal Purohit (supra), but we find that there is no universal finding in that case that all delivery based transactions have to be treated as investment. It is pertinent to note that the Tribunal in case of Gopal Purohit (supra), had decided the case following the decision of Tribunal in case of Sarnath Infrastructure Pvt. Ltd vs. ACIT (2009) 120 TTJ 216 holding that facts in the case of Sarnath Infrastructure Pvt. Ltd (supra), were identical. However, it is noted that in Sarnath Infrastructure Pvt. Ltd (supra), the shares sold out of investment account had been held that 2-3 years and revenue could not show any shares sold which had been purchased during the year or in the immediately preceding year. Therefore, only in respect of such cases, the decision in case of Gopal Purohit (supra), could be applied. The Hon'ble High court of Bombay had upheld the decision of the Tribunal in the case of Gopal Purohit (supra), on the ground that there was no substantial question of law involved. Even before Hon'ble High Court there was no question raised that all delivery based transactions have always to be treated as investment activity. Thus the decision of the Tribunal as well as the Hon'ble High court in case of Gopal Purohit (supra), cannot be considered as a precedent for the proposition that all delivery based shares have to be treated as investment activity. The assessee can also be a trader in case of delivery based purchases and sales, which is a normal feature of any trading activity. Therefore, in our view reliance placed by the ld. AR on the decision in the case of Gopal Purohit is misplaced. Each case has to be decided based on its own facts. Considering the facts of this case, we hold that the share transactions from which the assessee has shown short term capital gain ITA No : 7881/Mum/2010 Shri Devji Nenshi Palani 8 were of the nature of trading activity of the assessee and accordingly we set aside the order of the CIT(A) treating the short term capital gain as business income." 4 ITA No.3594/Mum/2012
And 7362/Mum/2013 In view of the fact that in the assessee's own case the issue has been decided against the assessee. We, therefore , respectfully following the decision of the coordinate bench uphold the orders of authorities below in treating the STCG as income from business.
7. Grounds of appeal No.B is against the confirmation of the action taken by the AO in making the disallowance u/s 14A read with Rule 8D of Rs.18,91,670/- by the ld. CIT(A). During the course of assessment proceedings, the AO observed that the assessee has earned dividend income and no expenses for the earning of the dividend income were apportioned and disallowed as per the provisions of section 14A of the Act. The assessee was asked vide show cause notice dated 24.11.2010 as to why the provisions of section 14A read with rule 8D should not be invoked which was replied by the assessee by submitting that the provisions of section 14A r.w.r 8D were not applicable to the assessee as no expenses have been incurred in relation to exempt income. However the AO brushing aside the contentions of the assessee invoked the provisions of section 14A read with rule 8D and made disallowance of Rs.18,91,658/- comprising of Rs.17,73,678/- under rule 8D(2)(ii) and Rs.1,17,992/- under rule 8D(2)(iii). The ld. CIT(A) also upheld the action of the AO by rejecting the contention of the assessee that the disallowance u/s 14A cannot exceed the exempt income. 5 ITA No.3594/Mum/2012
And 7362/Mum/2013
8. The ld. AR vehemently submitted before us that during the year the assessee has earned exempt income by way of dividend of Rs.40,000/- and therefore if at all the disallowance u/s 14A r.w.r.8D was to be made that should not exceed the amount of income earned during the year. The ld. AR in defence of his argument heavily relied on a number of decisions namely (i) M/s Daga Global Chemicals V/s ACIT , ITA No.5592/MUM/2012(AY: 2009-10) dated 1.1.2015, (ii) M/s Arcadia Share & Stock Brokers P. Ltd. V/s Addl. CIT , ITA No.5871/Mum/2012 (AY-2010-11) dated 23/03/2016 (iii) DCIT V/s M/s Silvassa Wooden Drums in ITA No.5782/Mum/2013,(AY-2005-06) dated 9.2.2015.
9. The ld. DR on the other hand, opposed the arguments of the ld.AR by submitting that the assessee has earned interest free income during the year and therefore the application of provisions of section 14A r.w.r.8D were mandatory and was rightly applied by the AO and therefore the ld. CIT(A) judiciously upheld the action of the AO. Finally the ld DR finally prayed that the orders of authorities below be upheld.
10. We find that in the case of assessee the exempt income from dividend was Rs.40,000/- during the year. We are in agreement with the arguments advanced by the ld.AR that the disallowance u/s 14A r.w.r 8D should not exceed the exempt income earned during the year. The case of the assessee is also supported by the decisions referred and relied to by the ld AR in which it 6 ITA No.3594/Mum/2012 And 7362/Mum/2013 has been held that disallowance cannot be exceed the amount of exempt income. We, therefore, respectfully following the ratio laid down in (i) M/s Daga Global Chemicals (supra), (ii) M/s Arcadia Share & Stock Brokers P. Ltd. (supra) and M/s Silvassa Wooden Drums (supra) set aside the order of the ld. CIT(A) and direct the AO to delete the addition of Rs.18,51,670/- by sustaining the disallowance to the extent of Rs.40,000/- only.
11. The issue raised in ground No.C,D,E,F,G,H,I and J is against the confirmation of disallowance on account of car expenses, depreciation of motor car, telephone expenses, conveyance allowance and travelling expenses as under:-
Sr. Particulars Amount
No. (Rs)
A Adhoc disallowance of car expenses 54,408
B Adhoc disallowance of depreciation on Motor car 28,555
C Adhoc disallowance of Telephone expenses 43,912
D Adhoc disallowance of office expenses 63,550
E Adhoc disallowance of conveyance 10,786
F Adhoc disallowance of Misc. expenses 15,278
G Adhoc disallowance of foreign expenses 1,73,752
J Adhoc disallowance of traveling expenses 2,04,596
12. The AO during the course of assessment proceedings found that the above said expenses from C to E were incurred by the assessee and charged to the profit and loss account which included personal element as the assessee could not prove the genuineness of the said expenses by producing the necessary documentary evidences. Therefore all these expenses were not incurred wholly 7 ITA No.3594/Mum/2012 And 7362/Mum/2013 and exclusively for the purpose of business and accordingly made the disallowance at the rate of 20% of total expenses Rs. 7,64,255/- as per para 6 of the AO order thereby calculating the disallowance at Rs. 1,52,851/- . The matter carried to the ld. CIT(A), who confirmed the expenses to the extent of 1/6 of the total expenses by following the order of ITAT in ITA No 6280/Mum/2008 AY 2005-06 wherein the tribunal confirmed 1/6th of the total disallowance. Similarly in respect F, G, H , the AO noted that most of these expenses were incurred in cash and based upon the self made vouchers with no third party verification available. The AO further observed that the nature of expenses were such that it was very difficult to ascertain whether these were incurred for the purpose of business of the assessee and accordingly disallowed 20% of the aggregate expenses of Rs, 8,96,150 working out the disallowance at Rs. 1,79,230/-. In appeal proceedings ,the CIT(A), who confirmed the expenses to the extent of 10% of the total expenses by following the order of his predecessor in AY 2007-08 wherein the CIT(A) confirmed 10% of the total disallowance. As regards ground I and J the AO observed that most of these expenses were incurred on account of lodging and boarding in hotels and restaurants which the assessee could not substantiate to be exclusively incurred for business purposes and disallowed Rs. 3,78,348/- @ 20% of these expenses which was also upheld by the CIT(A) by holding that assessee could not prove 8 ITA No.3594/Mum/2012 And 7362/Mum/2013 these expenses before AO as well as before me and keeping in view the nature of these expenses personal element could not be ruled out.
13. We have heard the rival contentions and perused the material placed before us. We find that the adhoc disallowances has been made by the AO at the rate of 20% of the total expenses in respect of car expense, depreciation , telephone, office expenses, conveyance, miscellaneous expense, foreigen travel and other travelling. The ld CIT(A) reduced qua car , depreciation and telephone to 1/6th whereas the disallowance in respect of office expense, conveyance and miscellaneous was retained at 10% and the disallowance on account of foreign travel and other travel was confirmed. . Having seen the nature of expenses incurred , we find that the basis of confirmation is tribunal decision and CIT(A) decisions in the case of the assessee himself. Further we find that disallowances were purely on adhoc basis. We are therefore of the considered opinion that it would be justified and reasonable if the disallowances is restricted to 10% of the total expenses. Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to make the disallowance equal to 10% of total expenses claimed by the assessee. Accordingly, this ground is partly allowed. ITA No.7362/Mum/2013(AY -2009-10)
14. Ground No.A is against the confirmation of addition of Rs.27,49,000 by the ld.CIT(A) as made by the AO on account of commission income on the basis of 9 ITA No.3594/Mum/2012 And 7362/Mum/2013 AIR information available with the department by disregarding the facts that the assessee was following cash system of accounting.
15. Brief facts of the case are that the assessee was engaged in the business of commission agent and during the course of assessment proceedings, the AO found that the assessee has credited commission of Rs.86,51,000/- whereas as per the AIR information available with the AO the commission received was Rs.1.14 Cr. Accordingly, the AO called upon the assessee to explain the discrepancy of the amount of commission account for and as per AIR. In response to the said notice, the assessee vide letter dated 12.12.2011 submitted before the AO that he was following the cash system of accounting and therefore the commission received has been shown by the assessee on the basis of actual receipt from clients by following cash system of accounting whereas the income as per the AIR information was on the basis of accrual system of accounting and hence the difference. The AO did not agree with the explanation of the assessee and added the difference of Rs.27,49,671/- to the total income of the assessee.
16. In the appellate proceeding, the ld. CIT(A) upheld the action of the AO on the ground that the assessee was not able to reconcile Rs.27,49,671/- either at the assessment stage or in the appellate proceedings and accordingly dismissed the appeal of the assessee.
10ITA No.3594/Mum/2012
And 7362/Mum/2013
17. Before us, the ld. AR submitted that the assessee was following cash system of accounting and accordingly credited the commission received to the profit and loss account, whereas the amounts appearing in the AIR information were on the basis of mercantile system of accounting by the persons/entities who pay the commission. The ld. AR filed a copy of statement reconciling and explaining each and every item of commission as per the books of account and also filed form no.26 from 1.4.2008 to 31.3.2009 whereby it was shown that majority of payments were received either in the preceding year or in the succeeding years. The ld. DR opposed the arguments of the ld. AR stating that the difference in the books of account was according to the AIR information and it was correctly appreciated by the AO which deserved to be upheld. We find from the reconciliation statement that most of the entries attributing to the difference between the books of the assessee and Form 26A were duly recorded by the assessee either in the preceding or succeeding year. We, therefore, consider it fit and proper to restore the mater to the file of the AO to verify the facts and decide the matter on the basis of reconciliation statement filed by the assessee as per fact and law. This ground is allowed for statistical purposes.
18. The issue raised in ground No.B in confirming the action of disallowance of Rs.2000/- on account of foreign travel expenses.
11ITA No.3594/Mum/2012
And 7362/Mum/2013
19. We find from the record that the ld.CIT(A) while confirming the action of AO observed that the assessee failed to demonstrate that the expenses of Rs.2000/- were incurred wholly and exclusively for the purpose of business. We do not find any infirmity in the findings of the ld.CIT(A) and accordingly same is confirmed on this issue. This ground is rejected.
20. The next is "C" ground which is in respect of disallowance of travelling expenses of Rs.4,969/- made by the AO and confirmed by the ld.CIT(A).
21. We find that the ld.CIT(A) upheld the action of the AO on the ground that the assessee failed to prove that one of his employees visited Shirdi for cracking the business deal with one of the client but relevant documents have not been submitted as to which employee was sent to Shirdi, to whom did he meet and what business purpose was served. Since, the assessee failed to controvert the findings of the AO before the ld.CIT(A) and here also no contrary documents were submitted by the ld.AR to disprove the finding of the ld.CIT(A), we confirm the findings of the lower authorities. Ground taken by the assessee is rejected.
22. The next ground is in respect of disallowance u/s 14A r.w.r 8D of the Act amounting to Rs.18,23,688/-. We have already decided an identical issue in ITA No.3594/Mum/2012 (AY-2008-09) and therefore, our decision in ITA 12 ITA No.3594/Mum/2012 And 7362/Mum/2013 No.3594/Mum/2012 would, mutatis mutandis, apply to this ground also. The AO is directed accordingly.
23. The ground "Ë" is in respect of disallowance @ 20% of car expenses, car depreciation and telephone expenses amounting at Rs.98,053/-.
24. The assessee debited motor car expenses Rs.2,67,897/-, depreciation on motor car Rs.1,30,829/- and telephone expenses Rs.91,540/- aggregating to Rs.4,90,266/-. The AO on the basis of CIT(A)'s order for the preceding year following the order of ITAT order dated 30.10.2009 in ITA No.6280/M/2008 made disallowance at 20% i.e. Rs.98,053/-. In appeal, the ld.CIT(A) also confirmed the action of the AO.
25. We find from the record that the 20% disallowance is on higher side and also the basis of preceding previous year without giving any findings are not justified. In the present circumstances we are of the considered opinion 10% disallowance would be reasonable. Accordingly, we direct the AO to restrict the disallowance to 10%.
26.. The ground "F" is in respect of disallowance @ 20% qua office expenses, conveyance and miscellaneous expenses amounting to Rs.1,89,375/-.
27. The assessee debited office expenses Rs.7,49,131/-, Conveyance expenses Rs.1,12,498/- and Miscellaneous expenses Rs.85,245/- aggregating to 13 ITA No.3594/Mum/2012 And 7362/Mum/2013 Rs.9,46,874/-. The AO for want of verification made adhoc disallowance at 20% i.e. Rs.1,89,375/-. In appeal, the ld.CIT(A) also confirmed the action of the AO.
28. After hearing both the parties and on perusal of record we find that the 20% disallowance is on higher side and hence, we are of the considered opinion 10% disallowance would just and reasonable. Accordingly, we direct the AO to restrict the disallowance to 10%.
29. The ground "G" is in respect of disallowance of presentation Articles amounting to Rs.23,033/-.
30. The assessee debited office expenses Rs.2,30,331/- on account of presentation articles. The AO on the basis of ITAT order for the assessment year 2005-06 disallowed 10% of the same. In appeal the ld.CIT(A) confirmed the action of the AO mainly on the ground of that the assessee could not justify the expenses incurred wholly and exclusively for the purpose of business and disallowance was confirmed following the decision of the ITAT for the assessment year 2005-06.
31. Before us, the assessee could not controvert the finding of the lower authority. Moreover 10% disallowance is quite fair and reasonable. Therefore, we confirm the orders passed by the lower authorities. 14 ITA No.3594/Mum/2012
And 7362/Mum/2013
32. In the result, both the appeals of the assessee are partly allowed as indicated above.
Order pronounced in the open court on 17th Nov,2016.
Sd sd (MAHAVIR SINGH ) (RAJESH KUMAR) Judicial Member Accountant Member मंबई Mumbai; ददनधंक Dated : 17th 11.2016 Sr.PS:SRL:
आदे श की प्रनिलऱपऩ अग्रेपषि/Copy of the Order forwarded to :
1. अपीऱाथी / The Appellant
2. प्रत्यथी / The Respondent
3. आयकर आयुक्त(अपीऱ) / The CIT(A)
4. आयकर आयुक्त / CIT - concerned
5. ववभागीय प्रतततनधि, आयकर अपीऱीय अधिकरण, मुंबई / DR, ITAT, Mumbai
6. गाडड फाईऱ / Guard File आदे शधनसधर/ BY ORDER, True copy उऩ/सहधयक ऩंजीकधर (Dy./Asstt. Registrar) आयकर अऩीऱीय अधधकरण, मुंबई / ITAT, Mumbai