Case Law Details
ITAT CHANDIGARH BENCH ‘B’
Gurdas Mann
Versus
Deputy Commissioner of Income-tax
IT Appeal Nos. 300 to 304 (Chd.) of 2012
[ASSESSMENT YEARS 2006-07 TO 2008-09]
SEPTEMBER 28, 2012
ORDER
Ms. Sushma Chowla, Judicial Member.
These five appeals filed by two different assessees are against separate orders of the Commissioner of Income-tax (Appeals) relating to the assessment years 2006-07 to 2008-09 against orders passed under section 143(3) of the Act. Out of the five appeals, three appeals filed by the assessee relate to Shri Gurdas Mann and two appeals are filed Ms. Manjit Mann, wife of Shri Gurdas Mann.
2. All these appeals were heard together and are being this consolidated order for the sake of convenience.
3. The assessee had made a request for transfer of appeals to Mumbai which was objected to by the Revenue. The assessee thereafter had with-drawn his request for transfer of appeals to Mumbai and the present appeals were taken up for hearing.
I.T.A. No. 303/Chd/2012 : 2006-07 : Mrs. Manjit Mann :
4. The revised grounds of appeal filed by the assessee in I. T. A. No. 303/ Chd/2012 are as under :
“1. Disallowance of interest-Rs. 5,14,802
(a) The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance under section 24(b) without appreciating that the purchase of flats were made jointly, loan was sanctioned by UTI Bank in joint names and interest certificate was issued in joint name ; therefore, the disallowance (at 50 per cent.) under section 24(b) in the hands of the appellant is unjustified and the claim may be allowed.
(b) Without prejudice to the above, the repayment of principal and interest had been made from the joint accounts and the loans had been sanctioned on both flats ; therefore, the appellant had rightly claimed 50 per cent. of interest under section 24(b) which should be allowed.
2. Disallowance of expenses-Rs. 35,27,500
The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance without appreciating that the very expenses are exclusively business related on which vouchers and books were produced ; therefore, the disallowance on surmises is not justified and the same may be deleted.
3. Ad hoc disallowance of expenses-Rs. 10,00,000
The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance to the extent of Rs. 10,00,000 without appreciating to the business nature of claim and allowing in part and confirming the other part in the absence of rejection of books is not justified.
4. Disallowance of depreciation-Rs. 83,902
The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance without appreciating that the office premises was very much in use during the year and in the assessment year 2007-08, the same had gone for redevelopment ; therefore, the disallowance is not justified and the same may be deleted.
5. The appellant craves leave to add, alter or amend all or any of the above grounds of appeal.”
5. The brief facts of the case are that the assessee is the film maker and also an event manager. The assessee also releases music album. During the year under consideration, the assessee had filed return of income declaring loss of Rs. 1,06,06,222. During the course of assessment proceedings, the Assessing Officer noted that against the rental income of Rs. 3,60,000 the assessee had claimed interest expenditure of Rs. 10,49,604 on account of interest paid on borrowed capital taken from UTI bank, under the head “Income from house property”. The Assessing Officer has reproduced the loan certificate issued by the UTI bank at pages 3 and 4 of the assessment order and noted that similar certificate had been produced during the course of assessment proceedings of Shri Gurdas Mann. The Assessing Officer noted that deduction of Rs. 20,59,208 was claimed by both the husband and the wife as against eligible deduction of Rs. 10,29,604. The Assessing Officer further noted that the loan was issued to Shri Gurdas Mann for purchase of two flats in Oberoi Sky Heights, Oshiwara, Andheri Mumbai and the assessee is not entitled to the benefit of interest on borrowed loans. The rental income was thus computed excluding deduction of any interest on borrowed capital. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer holding that the assessee had not paid any interest to the bank for the reason that she had not taken any loan in her own name.
6. The assessee is in appeal against the order of the Commissioner of Income-tax (Appeals). The learned authorised representative for the assessee pointed out that both the husband and wife had purchased two flats side by side in the same society. One flat was purchased in the name of the assessee and second in the name of her husband. The learned authorised representative for the assessee fairly conceded that the total interest paid on the borrowed capital was Rs. 10,29,604. The learned authorised representative for the assessee drew our attention to the capital account of the assessee placed at page 5 of the paper book under which the interest on housing loan was shown to be totalling Rs. 5,14,802. The assessee pointed out that the flat purchase agreement was placed at pages 50 to 106 of the paper book and the flat No. 2801/B, Oberoi Sky Heights, Oshiwara, Andheri Mumbai, was purchased in the name of the assessee as is evident from the recital of the purchase agreement with special reference at pages 51 and 56 of the paper book. It was further pointed out by the learned authorised representative for the assessee that flat No. 2802 was purchased by the husband of the assessee as is apparent from the purchase agreement placed in the paper book of Shri Gurdas Mann at page 47 onwards of the paper book under which he had purchased flat No. 2802 in the said building. Our attention was further drawn to the interest certificate issued by UTI bank, reproduced by the Assessing Officer at pages 3 and 4 of the assessment order under which the first name is of Mr. Gurdas Gurdev Mann and co-applicant name is mentioned as that of the assessee. The language of the certificate clearly mentioned that the loan had been sanctioned for the purchase of two flats. The learned authorised representative for the assessee further submitted that in the hands of Shri Gurdas Mann an interest of Rs. 5,14,802 was claimed and was allowed by the Assessing Officer. However, in the hands of the assessee before us the interest was claimed at Rs. 10,29,604 by an error.
7. We have heard the rival contentions and perused the record. The assessee in the computation of income filed for the year under consideration, placed at pages 1 and 2 of the paper book had declared income from house property. The annual rental value of the said property was declared at Rs.3,60,000 against which deduction under section 24(a) of Rs. 1,08,000 was claimed. Further deduction was claimed by the assessee on account of interest on borrowed loans paid to UTI bank of Rs. 10,29,604. The copy of capital account reflects the assessee to have claimed interest on housing loan of Rs. 5,14,802.
8. The assessee is the owner of flat No. 2801/B in Oberoi Sky Heights, Oshiwara, Andheri Mumbai as is apparent from the perusal of the purchase agreement placed at pages 51 to 106 of the paper book. The rental income from property admittedly declared by the assessee has been accepted by the Assessing Officer. However, the deduction on account of interest paid on housing loan was not allowed to the assessee. The Assessing Officer was of the view that the said loan of Rs. 1.5 crores was granted to Shri Gurdas Mann, i.e., husband of the assessee and no loan being granted to the assessee, no interest on account thereof was allowable in the hands of the assessee. The Assessing Officer at pages 3 and 4 of the assessment order has reproduced the certificate issued by UTI bank. The said certificate is addressed to Shri Gurdas Gurdev Mann with co-applicant being Mrs. Manjit Mann. As per the said certificate, it is stated that housing loan of Rs. 1.50 crores for the purchase of flats No. 2 801/A/B/C and 2802/A/B/C at 28th floor, Oberoi Sky Heights, Oshiwara, Andheri Mumbai had been granted. In the financial year April 1, 2005 to March 31, 2006, EMIs payable on the said loan totalled to Rs. 16,43,148 and the break-up of the said amount into principal and interest was as under :
Principal component Rs. 6,13,544
Interest component Rs. 10,29,604
9. The perusal of the computation of income filed by Shri Gurdas Mann placed in his paper book at pages 1 and 2 reflect that the assessee had shown income from house property and claimed interest paid on housing loan at Rs. 10,39,604. The Assessing Officer while completing the assessment, computed the income from house property, i.e., flat No. 2802 in Oberoi Sky Heights, Oshiwara, Andheri Mumbai after taking rental income at Rs. 3,60,000, deduction of interest on borrowed capital was allowed at Rs. 5,14,802. Admittedly, the total interest paid by the assessee along with her husband on the borrowed loans during the year under consideration was Rs. 10,39,604 out of which deduction of Rs. 5,14,802 has been allowed in the hands of Shri Gurdas Mann. No deduction of the balance amount has been allowed in the hands of the assessee or Shri Gurdas Mann.
10. In the entirety of the facts and circumstances where the rental income from the individual flats owned by the assessee and her husband Shri Gurdas Mann have been included in their respective hands, the deduction on account of the interest paid on borrowed capital utilised for the purchase of the said flat is to be allowed in the equal proportion in the hands of the assessee and her husband Shri Gurdas Mann. The UTI bank in their certificate has clearly mentioned the name of the applicant to be Shri Gurdas Mann and name of co-applicant to be Smt. Manjit Mann. The total loan of Rs. 1.50 crores has been utilised for the purchase of the aforesaid two flats, i.e., flat No. 2801 and 2802 in Oberoi Sky Heights, Oshiwara, Andheri Mumbai, which admittedly are owned by the assessee and her husband Shri Gurdas Mann. In the abovesaid facts and circumstances we find merit in the claim of the assessee in relation to the interest paid on housing loan totalling Rs. 5,14,802. Consequently, we direct the Assessing Officer to allow interest paid on borrowed capital totalling Rs. 5,14,802 as deduction while computing the income from house property in the hands of the assessee. Ground No.1 raised by the assessee is thus allowed.
11. The issue in ground No. 2 raised by the assessee is against the disallowance of Rs. 35,27,500.
12. The brief facts relating to the issue are that during the year the assessee had shown receipt from films, music album and old film income. The assessee had claimed expenditure on account of production of films and music album and had claimed expenditure of Rs. 35,27,560. The explanation of the assessee in this regard is incorporated at pages 6 and 7 of the assessment order. The Assessing Officer was of the view that once the assessee is debiting the expenditure against the income or receipt of any film production or music album, no further expenditure was required to be debited to the profit and loss account. The income shown was on account of royalty or telecast rights of the film or music album of the assessee. The expenditure booked totalling Rs. 35,27,560 on account of professional fee, publicity, business promotion, dress and costume, etc., were held to be not in any way linked to the old film income and hence said expenditure was disallowed by the Assessing Officer.
13. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer in view of the assessee having followed project completion method in respect of various films and music albums. It was further observed by the Commissioner of Income-tax (Appeals) that in respect of the old films, no expenditure was allowable. The Commissioner of Income-tax (Appeals) also noted the assessee to have maintained separate profit and loss account for herself to meet her day-to-day expenses and hence the disallowance of expenditure was upheld by the Commissioner of Income-tax (Appeals).
14. The learned authorised representative for the assessee brought to our notice details of the said expenditure placed at page 19 of the paper book and pointed out that no disallowance out of the said expenditure was made either in the earlier years or in the subsequent years. The said expenses were claimed to be common expenses for running the business.
15. The learned Departmental representative for the Revenue placed reliance on the order of the Commissioner of Income-tax (Appeals).
16. We have heard the rival contentions and perused the record. The perusal of the profit and loss account placed at page 9 of the paper book reflects the assessee to have followed project completion method, i.e., it has shown the receipts and corresponding expenditure in respect of each of its venture separately and had over and above the same claimed expenditure of Rs. 35,27,560. The schedule of the said expenses totalling Rs. 35,27,560 is placed at page 19 of the paper book. The perusal of the said details reflects expenses under various heads like Diwali expenditure, printing and stationery, professional fee, conveyance, credit card charges, depreciation, dress and costume, interest on loan of Rs. 4,30,059, miscellaneous expenses of Rs. 1,82,195 and telephone charges of Rs. 3,60,325, etc. The assessee has followed project completion method in respect of its film business, the music album income and had shown loss from film business and profit from music album. In addition to the abovesaid income, the assessee had shown receipts from old film income, i.e., royalty of about Rs.12 lakhs, doordarshan, telecast rights of film of Rs. 5 lakhs, satellite rights of movie of Rs. 7,50,000. The assessee had further claimed common expenditure of Rs. 35,27,560. The perusal of the expenditure at page 19 of the paper book reflects its nature. Certain expenditure no doubt are for carrying on the business and being business expenditure are to be allowed as an expenditure. The details reflect the assessee to have booked certain day-to-day expenses which are directly relatable to the business being carried on by the assessee. However, certain expenses like dress and costume totalling Rs. 1,08,540, publicity expenses of Rs. 1,19,250, lodging and boarding expenses of Rs. 1,16,424, society maintenance expenses of Rs.62,152 and telecast expenses of Rs. 10,000 and title registration expenses of Rs. 6,500 cannot be attributed to the said common expenditure for running the business. We find no merit in the same as the assessee has failed to bring on record any evidence to establish its claim of having incurred the said expenditure for business purposes. Merely because the expense has been met through cheque does not warrant its allowance. Accordingly, we direct the Assessing Officer to recompute the disallowance in the hands of the assessee in view of the abovesaid expenditure. Ground No. 2 raised by the assessee is thus partly allowed.
17. The issue in ground No. 3 raised by the assessee is against disallowance of Rs. 10 lakhs out of total expenditure of Rs. 4,14,94,773. The assessee had booked the abovesaid expenditure and the Assessing Officer had disallowed 3 per cent. of the expenses being non verifiable, resulting in addition of Rs. 12,44,843. The Commissioner of Income-tax (Appeals) had restricted the addition to Rs. 10 lakhs. The addition made by the Assessing Officer is ad hoc addition as the assessee had furnished partial vouchers and bills raised by parties, were not maintained. The Commissioner of Income-tax (Appeals) has also upheld the ad hoc disallowance in the hands of the assessee. In the interest of justice and to plug the leakage of revenue we deem it fit to restrict the disallowance at one per cent. of the total expenditure of Rs. 4.14 crores. The disallowance is restricted to Rs. 4,14,947. Ground No. 3 raised by the assessee is thus partly allowed.
18. The issue in ground No. 4 is against disallowance of depreciation on office premises. The authorities below had disallowed the said depreciation in the hands of the assessee as the office was not being utilised for business purpose, as the same was given for re-development. The claim of the assessee before us was that re-development agreement was signed on January 18, 2010 and re-development had started in the assessment year 2009-10. The assessee claims to have utilised the office during the year under consideration. Consequently, the claim of depreciation is to be allowed to the assessee. We direct the Assessing Officer to allow the same. Ground No. 4 raised by the assessee is thus allowed.
19. The appeal filed by the assessee is partly allowed.
I.T.A. No. 304/Chd/2012 : 2008-09 : Mrs. Manjit Mann :
20. The revised grounds of appeal filed by the assessee in I. T. A. No. 304/ Chd/2012 are as under :
1. Disallowance under section 40A(3)-Rs. 1,66,732.
The learned Assessing Officer erred in confirming the disallowance under section 40A(3) without appreciating that the same were incurred under exceptional circumstances as recipients had insisted only cash and the individual payment in cash does not exceed more than Rs. 20,000 on a single day. Therefore, the disallowance is uncalled for and the same may be deleted.
2. Ad hoc (10 per cent.) disallowance of various expenses-Rs. 1,35,825
The learned Commissioner of Income-tax (Appeals) erred in confirming 10 per cent. disallowance summarily without appreciating that entire range of business expenses had direct business nexus and as substantial personal family withdrawals (Rs. 26,71,527) were made for a small family of three, no ad hoc disallowance on the alleged personal element is called for and the same may be deleted.
3. Ad hoc disallowance to cover up discrepancy in bills/vouchers Rs. 75,000
The learned Commissioner of Income-tax (Appeals) erred in confirming the summary disallowance without verifying any specific defects in the bills/vouchers and since the appellant is subject to tax audit, no summary disallowance, to meet the ends of justice, is called for and the same may be deleted.
4. Books of account not rejected, no summary disallowance is called for :
The learned Commissioner of Income-tax (Appeals) ought to have appreciated that when books of account which were duly tax audited, are not rejected, it is not justified to resort to various kinds of ad hoc disallowance.
5. The appellant craves leave to add, alter or amend all or any of the above grounds of appeal.
21. Ground No. 1 of the appeal raised by the assessee is against disallowance under section 40A(3) of the Act under the said section where the expenditure in cash is made over and above Rs. 20,000 by way of a single payment or aggregate of payments in a single day, otherwise than by an account payee cheque or draft, then such amount is to be disallowed in the hands of the assessee. The Assessing Officer vide paragraph 2 had noted the assessee to have made various cash payments totalling Rs. 1,66,732 to various parties for purchases on various dates and the same were disallowed in view of the provisions of section 40A(3) of the Act. The Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer.
22. The learned authorised representative for the assessee though stressed that no payment was made in cash over and above Rs. 20,000 but was unable to meet the observation of the Assessing Officer in this regard. In the entirety of the facts and circumstances of the case we confirm disallowance of Rs. 1,66,732. Ground No. 1 raised by the assessee is thus dismissed.
23. Ground No. 2 raised by the assessee is in respect of disallowance of various expenses totalling Rs. 1,35,825. The Assessing Officer had disallowed 20 per cent. of the expenses, i.e., conveyance, various vehicles related expenses, lodging and boarding, travelling, staff welfare, telephone, business promotion and publicity totalling Rs. 13,58,254. The Commissioner of Income-tax (Appeals) had restricted the disallowance to 10 per cent. In the entirety of the facts and circumstances and merely because the assessee had made personal withdrawals does not merit disallowance for personal use out of the vehicle related expenses and telephone expenses. We find no merit in any disallowance for personal use out of conveyance, lodging and boarding, travelling staff welfare, business promotion and publicity. Thus, ground No. 2 raised by the assessee is partly allowed.
24. Ground No. 3 raised by the assessee is against the disallowance of Rs. 75,000. The Assessing Officer vide paragraph 5 noted from the books of account and the bills/vouchers, certain discrepancies and it was noticed that some bills/vouchers were not verifiable. The said discrepancies were confronted to the assessee and after discussion disallowance of Rs. 75,000 was made to cover up the said expenses. The contention of the assessee that the vouchers were produced before the Assessing Officer was rejected by the Commissioner of Income-tax (Appeals) as the addition was made after discussion with the assessee. We find no merit in the present ground of appeal raised by the assessee where the said addition was agreed upon on confrontation during the assessment proceedings. Ground No. 3 raised by the assessee is thus dismissed.
25. Ground No. 4 raised by the assessee is general and argumentative and hence the same is dismissed.
I. T. A. No. 300/Chd/2012 : 2006-07 : Shri Gurdas Mann :
26. The revised grounds of appeal filed by the assessee in I. T. A. No. 300/ Chd/2012 are as under :
1. Addition on account of alleged non-accounting of receipt- Rs. 3,08,425.
The learned Commissioner of Income-tax (Appeals) erred in confirming the addition without appreciating that the appellant had fully accounted the same and the reconciliation to that extent were submitted before the lower authorities; therefore, the double addition is uncalled for and the same may be deleted.
2. Disallowance on account of foreign shows-Rs. 5,72,970
The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance without appreciating that the expenses incurred during and consequent to foreign tour were exclusively for the purpose involved and merely on the basis of doubts and surmises, no disallowance could be made.
3. Disallowance on account of alleged excess loss from income from house property-Rs. 5,14,602
The learned Commissioner of Income-tax (Appeals) erred in confirming the loss without appreciating that the appellant had duly complied with the norms of section 24(b) ; so the resultant loss declared is genuine and no disallowance thereof is called for.
4. Disallowance of depreciation-Rs. 80,555 and Rs. 2,40,630
The learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance without appreciating that the appellant had very much used the office premises during the relevant year; therefore, no disallowance is called for as the assets were put to use during the year.
5. Ad hoc disallowance ((5)10 per cent.) of various expenses- Rs. 3,01,141
The learned Commissioner of Income-tax (Appeals) erred in giving partial relief on ad hoc basis without appreciating that the appellant being an actor had to carry out extensive travel and on the face of high personal withdrawals, no ad hoc disallowance of expenses is further called for.
27. The issue in ground No. 1 is against the addition of Rs. 3,08,425. The Assessing Officer noted from the details of amount received from Indian shows, the assessee had shown sum of Rs. 16,575 as received from M/s. Cable Televideos (I) P. Ltd., whereas as per Form 16A, the amount issued was Rs. 3,25,000. The difference of Rs. 3,08,425 was treated as income of the assessee. The Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer. The explanation of the assessee was that in the ledger account of receipt from Indian shows differential sum of Rs.2,08,425 was credited to Hindustan Time Show and Rs. one lakh was shown in advance show account. The explanation of the assessee before the Commissioner of Income-tax (Appeals) is placed at page 43 of the paper book and copy of the ledger account is placed at pages 30 to 35. From the perusal of the abovesaid ledger account we find merit in the claim of the assessee and accordingly direct the Assessing Officer to delete the addition of Rs. 3,08,425. Ground No. 1 raised by the assessee is thus allowed.
28. Ground No. 2 raised by the assessee is against disallowance of Rs. 5,72,970 being foreign tour expenses. The Assessing Officer at page 4 under paragraph 4 had tabulated the details of foreign shows performed by the assessee along with dates of foreign shows. The expenditure booked by the assessee was on dates which were at variance with the dates of foreign shows. Consequent thereto, disallowance of Rs. 5,72,970 was made in the hands of the assessee. The learned authorised representative for the assessee though vehemently argued that the said expenditure was allowable in the hands of the assessee but was unable to explain the nature of the said expenditure and also the date of incurrence of the said expenditure in corelation with the dates of foreign shows. In the absence of the same, we find no merit in the claim of the assessee and disallowance of Rs. 5,72,970 is confirmed. Ground No. 2 raised by the assessee is dismissed.
29. Ground No. 3 raised by the assessee is not pressed and hence the same is dismissed as not pressed.
30. Ground No. 4 raised by the assessee is similar to ground No. 4 raised by Mrs. Manjit Mann in I. T. A. No. 303Chd/2012. Following our decision in paras hereinabove, we allow the claim of the assessee and direct the Assessing Officer to allow depreciation both on office premises and assets. Ground No. 4 raised by the assessee is thus allowed.
31. Ground Nos. 5 and 6 raised is against disallowance of 10 per cent. out of telephone and vehicle expenses and depreciation on vehicles. The element of personal use cannot be ruled out of the said expenses. We uphold the order of the Commissioner of Income-tax (Appeals) in disallowing one-tenth of the said expenses for personal use. Ground Nos. 5 and 6 are thus dismissed.
I.T.A. No. 301/Chd/2012 : 2007-08 : Shri Gurdas Mann :
32. The grounds of appeal raised by the assessee in I. T. A. No. 301/Chd/ 2012 are as under :
1. On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Chandigarh, (CIT) erred in confirming the addition of Rs. 4,37,430 made by the Assessing Officer disallowance under section 40(a)(ia) of the Act.
2. The Commissioner of Income-tax failed to appreciate that :
(a) The said expenses are towards the rent covered under section 194J and the individual payments have not crossed the threshold limits for tax deduction.
(b) The said expenses are not covered under section 194C
3. The appellant prays that the disallowance of Rs. 4,37,430 made be deleted.
Ground II
1. On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals), Chandigarh, (CIT) erred in confirming the addition of Rs. 4,37,158 made by the Assessing Officer disallowance considering the same as capital expenditure.
2. The Commissioner of Income-tax failed to appreciate that :
(a) The said expenses did not result in creation of any new asset.
(b) The expenses were the repair and replacement without adding any additional utility.
3. The appellant prays that the disallowance of repair expenses of Rs.4,37,158 made be deleted.
Ground III
On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Chandigarh, (CIT) erred in confirming the addition of Rs. 2,18,623 made by the Assessing Officer disallowance under section 40A(3) of the Act.
2. The Commissioner of Income-tax failed to appreciate that :
(a) The assessee did not have any expenditure covered under section 40A(3).
(b) No evidence is placed on record to justify the disallowance by the Assessing Officer and additions are made based on surmises and conjecture.
3. The appellant prays that the disallowance of expenses of Rs.2,18,623 made under section 40A(3) be deleted.
Ground IV
1. On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Chandigarh, (CIT) erred in confirming the aid of Rs. 8,01,254 made by the Assessing Officer disallowance out of the foreign travelling expenses.
2. The Commissioner of Income-tax failed to appreciate that :
(a) The assessee had classified the expenses relating to foreign tour and foreign travelling expenses all of which was not incurred during the visit.
(b) The Assessing Officer erred in co relating the date of expenditure with the foreign visit ignoring the submissions.
(c) No evidence is placed on record to justify the disallowance by the Assessing Officer and additions are made based on surmises and conjecture.
3. The appellant prays that the disallowance of expenses of Rs.8,01,254 made out of foreign travel be deleted.
Ground V
1. On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Chandigarh, (CIT) erred in confirming the ad hoc addition of Rs. 2,99,558 made by the Assessing Officer disallowance out of expenses.
2. The Commissioner of Income-tax failed to appreciate that :
(c) The assessee is a performing artist and the expenses are necessary for his profession.
(d) The assessee had sufficient drawings and expenses claimed as drawings to cover all the personal expenses.
(e) No evidence is placed on record to justify the disallowance by the Assessing Officer and additions are made based on surmises and conjecture.
3. The appellant prays that the ad hoc disallowance of Rs. 2,99,558 made be deleted.
33. The issue in ground No. 1 is against the disallowance of expenses under section 40(a)(ia) of the Act. The assessee had not deducted tax at source out of certain payments totalling Rs. 4,37,430, which were disallowed in view of section 40(a)(ia) of the Act. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer.
34. The learned authorised representative for the assessee fairly pointed out that the issue is squarely covered by the decision of the Special Bench of Vishakhapatnam in Merilyn Shipping & Transports v. Addl. CIT[2012] 136 ITD 23 wherein it was held as under :
“where the amounts have been paid during the year under consideration itself and nothing is payable at the close of the year, no disallowance was warranted under section 40(a)(ia) of the Act for non deduction of tax at source out of such amount paid during the year.”
35. Following the abovesaid parity of reasoning, we direct the Assessing Officer to verify the stand of the assessee and in case the said amounts have been paid by the assessee during the year under consideration, no disallowance is warranted out of said payments in line with the provisions of section 40(a)(ia) of the Act. Reasonable opportunity of hearing shall be afforded to the assessee by the Assessing Officer for adjudicating the issue. The grounds of appeal raised by the assessee are allowed for statistical purposes.
36. The issue in ground No. 2 raised by the assessee is against disallowance of Rs. 4,37,158 out of repair and maintenance expenses. The Assessing Officer, vide paragraph 3.1 of the assessment order had noted that the assessee had debited sum of Rs. 4,87,255 under the head “Repair and maintenance”. The Assessing Officer requisitioned the assessee to produce the bills for repair and maintenance. The Assessing Officer noted from the said bills that the same were on account of electrical installations and purchase of new furniture. The said items as per the Assessing Officer constituted capital expenditure. The issue was confronted to learned counsel for the assessee during the assessment proceedings but no reply was filed on this issue. The Assessing Officer held the said expenditure to be capital in nature, however, depreciation was allowed on the aforesaid amount and remaining sum of Rs. 4,37,158 was added as income of the assessee.
37. Before the Commissioner of Income-tax (Appeals), the contention of the assessee was the he had replaced certain electric installation and furniture during the year and no new fixed asset had come into existence. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer as the said addition was made on perusal of the bills by the Assessing Officer.
38. The learned authorised representative for the assessee stressed before us that the said expenditure was on replacement of already existing asset and merited allowance.
39. The learned Departmental representative for the Revenue placed reliance on the order of the Commissioner of Income-tax (Appeals).
40. We have heard the rival contentions and perused the record. The assessee had incurred expenditure of Rs. 4,87,255 under the head “repair and maintenance”. The said expenditure was claimed to be incurred on replacement of electricity installation and also for the purchase of new furniture. We find no merit in the claim of the assessee that it was a case of mere replacement and not the case of coming into existence of new fixed asset. The expenditure incurred on purchase of new furniture cannot be held to be replacement and the same being in the nature of capital expenditure, is not to be allowed as a deduction while computing the income of the assessee. Further, the assessee had failed to bring on record any evidence to establish its claim of having replaced the electric installation or the nature of the electric installation so replaced. In the absence of the evidence and because of the examination by the Assessing Officer of the requisite bills and documents in respect thereof, we find no merit in the claim of the assessee. Upholding the order of the Commissioner of Income-tax (Appeals) we dismiss ground No. 2 raised by the assessee.
41. Ground No. 3 raised by the assessee against disallowance under section 40A(3) of the Act is identical to ground No. 1 raised in I. T. A. No. 304Chd/ 2012. The claim of the assessee is that no single payment in cash was made above Rs. 20,000. However, the assessee has failed to bring on record any evidence to establish the same. Following our order in the paras hereinabove, we confirm the addition of Rs. 2,18,623 under section 40A(3) of the Act. Ground No. 3 raised by the assessee is dismissed.
42. Ground No. 4 raised by the assessee against disallowance of foreign travelling expenses is similar to ground No. 2 raised by the assessee in I.T.A. No. 300/Chd/2012. Following the same we dismiss ground No. 4 raised by the assessee against disallowance of foreign travelling expenses of Rs. 8,01,254.
43. Ground No. 5 raised by the assessee is against disallowance of one-tenth out of telephone and car expenses because of personal use by the Commissioner of Income-tax (Appeals) in paragraph 6.3 of the appellate order. The said disallowance is upheld in view of our reasoning in paras hereinabove. The said ground No. 5 is hereby dismissed.
I. T. A. No. 302/Chd/2012 : 2008-09 : Shri Gurdas Mann :
44. The grounds of appeal raised by the assessee in I. T. A. No. 302/Chd/ 2012 are as under :
Ground I
1. On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Chandigarh, (CIT) erred in confirming the addition of Rs. 3,85,172 made by the Assessing Officer disallowance under section 14A calculated under rule 8D.
2. The Commissioner of Income-tax failed to appreciate that :
(a) The assessee has shown the nexus of loans to the business.
(b) The assessee has not used any of the funds for earning/investing in the tax-free income.
3. The appellant prays that the disallowance of interest Rs. 3,85,172 made under section 14A be deleted.
Ground II
1. On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Chandigarh, (CIT) erred in confirming the addition of Rs. 12,44,250 made by the Assessing Officer disallowance out of interest paid.
2. The Commissioner of Income-tax failed to appreciate that :
(a) The assessee has shown the nexus of loans to the business.
(b) The assessee did not use any of the funds for advancing interest-free loans.
(c) The income earned and capital of the assessee is sufficient enough to cover the interest-free advances.
3. The appellant prays that the disallowance of interest Rs. 12,44,250 made under section 14A be deleted.
Ground III
1. On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Chandigarh, (CIT) erred in confirming the ad hoc addition of Rs. 13,68,392 made by the Assessing Officer disallowance out of expenses.
2. The Commissioner of Income-tax failed to appreciate that :
(d) The assessee is a performing artist and the expenses are necessary for his profession.
(e) The assessee had sufficient drawings and expenses claimed as drawing to cover all the personal expenses.
(f) No evidence is placed on record to justify the disallowance by the Assessing Officer and additions are made based on surmises and conjecture.
3. The appellant prays that the ad hoc disallowance of Rs. 13,68,392 made be deleted.
Ground IV
1. On facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Chandigarh, (CIT) erred in confirming the ad hoc addition of Rs. 50,000 made by the Assessing Officer disallowance out of expenses.
2. The Commissioner of Income-tax failed to appreciate that :
(g) The assessee’s books were audited, and the supporting vouchers were presented before the Assessing Officer.
(h) No evidence is placed on record to justify the disallowance by the Assessing Officer and additions are made based on surmises and conjecture.
3. The appellant prays that the ad hoc disallowance of Rs. 50,000 made be deleted.
The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.
45. The issue in ground No. 1 is against the disallowance under section 14A of the Act. The Assessing Officer had invoked the provisions of section 14A of the Act because of the investment made by the assessee in various securities including various concerns, LIC FD, with UTI, etc. The Assessing Officer had applied the provisions of rule 8D to compute disallowance of Rs. 3,85,172 under section 14A of the Act. The Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer.
46. The learned authorised representative for the assessee at the outset pointed out that the dividend income earned by the assessee was nil and consequently there was no merit in making the aforesaid disallowance.
47. The learned Departmental representative for the Revenue placed reliance on the order of the Commissioner of Income-tax (Appeals).
48. We have heard the rival contentions and perused the record. The year under appeal before us is the assessment year 2008-09 and the provisions of rule 8D are applicable from the instant assessment year in order to work out disallowance under section 14A of the Act, as held by the hon’ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT[2010] 328 ITR 81, ITA No. 626 of 2010.
49. In the facts of the present case the perusal of the computation of income furnished at pages 1 and 2 of the paper book reflects the assessee not to have declared any dividend income in the instant assessment year. In the absence of any income earned by the assessee, which is exempt under the provisions of section 14A of the Act, there is no merit in disallowance of any part of the expenditure being relatable to such exempt income, which in the case of the assessee is nil. We find no merit in the disallowance of Rs. 3,85,172 made by the Assessing Officer in this regard. We direct the Assessing Officer to delete the same. Ground No. 1 raised by the assessee is thus allowed.
50. Ground No. 2 is against the addition made on account of disallowance out of interest paid totalling Rs. 12,44,250 under the provisions of section 36(1)(iii) of the Act. The Assessing Officer noted the assessee to have advanced interest-free loans to various persons and on the other hand had paid interest on the secured loans raised by it. The Assessing Officer in view of the ratio laid down by the hon’ble jurisdictional High Court in CIT v. Abhishek Industries Ltd.[2006] 286 ITR 1 computed part disallowance out of the interest paid amounting to Rs. 12,44,250. The Commissioner of Income-tax (Appeals) confirmed the same.
51. The plea of the learned authorised representative for the assessee before us was that the perusal of the list of secured loans raised by the assessee at page 46 of the paper book reflects that the major part of the loans, on which interest was paid, were raised for financing the various vehicles owned by the assessee and interest was also paid on the housing loan raised by the assessee. The learned authorised representative for the assessee fairly admitted that the said aspect was not looked into by the Assessing Officer while making the disallowance under section 36(1)(iii) of the Act. In the interest of justice, we deem it fit to restore the issue back to the file of the Assessing Officer to give fact finding of the nature of the secured loans raised by the assessee and if the same are relatable to a specific purpose and are not part of the general pool of funds available to the assessee, there is no merit in disallowing any part of such interest relatable to such secured loans. However, the interest on secured loans raised for the purpose of carrying on the business of the assessee being part of mixed pool of funds warrants disallowance in view of the ratio laid down by the hon’ble jurisdictional High Court in Abhishek Industries Ltd. (supra). Ground No. 2 raised by the assessee is thus allowed for statistical purposes.
52. The issue in ground No. 3 is against the ad hoc disallowance out of expenses amounting to Rs. 13,68,392. The perusal of the assessment order reflects that vide paragraph 4 at page 4 of the assessment order the Assessing Officer had considered the undermentioned expenses incurred by the assessee :
|
(Rs.) |
||
|
(1) |
Diwali expenses |
2,25,575 |
|
(2) |
Flowers, bouquets and gift |
3,40,713 |
|
(3) |
Lodging and boarding |
1,71,709 |
|
(4) |
Repairs and maintenance |
7,49,536 |
|
(5) |
Telephone |
4,15,606 |
|
(6) |
Travelling |
17,77,703 |
|
(7) |
Vehicle maintenance |
10,37,770 |
|
(8) |
Business promotion |
4,62,837 |
|
(9) |
Conveyance |
6,34,873 |
|
(10) |
Petrol and parking |
3,74,807 |
|
(11) |
Staff welfare |
4,27,961 |
|
(12) |
Personal development expenses |
2,22,870 |
|
Total |
68,41,960 |
53. The Assessing Officer had disallowed 20 per cent. of the said expenditure for personal use by the assessee totalling Rs. 13,68,392. The Commissioner of Income-tax (Appeals) confirmed the said disallowance observing as per paragraph 5.2 of the assessment order that the said disallowance was made after discussion with the assessee.
54. We find no merit in the said disallowance of the Commissioner of Income-tax (Appeals) specially keeping in mind the nature of the expenditure considered by the Assessing Officer. The element of personal use out of telephone expenses, vehicle maintenance and petrol and parking cannot be doubted, but we find no merit in the disallowance out of the balance expenses for personal use. The Commissioner of Income-tax (Appeals) in the preceding year had disallowed one-tenth out of telephone and vehicle maintenance. Accordingly, we direct the Assessing Officer to disallow 10 per cent. out of the expenditure relatable to vehicle maintenance, petrol and parking and telephone expenses.
55. The Assessing Officer had further disallowed Rs. 50,000 to cover any discrepancies in the bills and vouchers maintained by the assessee, being not verifiable. The said disallowance made by the Assessing Officer is purely ad hoc disallowance without pointing out the nature of the discrepancies and the head of the expenditure to which it relates. We find no merit in the said disallowance. Thus ground No. 3 raised by the assessee is partly allowed and ground No. 4 raised by the assessee is allowed.
56. In the result, all the five appeals filed by the assessees are partly allowed.
