SHRI PRAKASHBHAI PRAHLADBHAI GAMI,,SURAT vs. THE INCOME TAX OFFICER, WARD-2(3),, SURAT

आयकर अपील�य अ�धकरण, सुरत �यायपीठ, सुरत INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, Hon'ble JUDICIAL MEMBER AND Dr. ARJUN LAL SAINI, Hon'ble ACCOUNTANT MEMBER (Virtual Hearing) आ.अ.सं./I.T.A No.3129/AHD/2016 �नधा�रण वष�/Assessment Year: 2013-14 Prakashbhai Prahladbhai Gami, The Income Tax Officer, Gangakrupa Building, Ward-2(3)(3), Surat. B/h. Ramdev Complex, Pune Vs Village, Dist. Surat. [PAN: ADSPP 6520 F] अपीलाथ� / Appellant ��यथ�/Respondent �नधा�रतीक�ओर से /Assessee by Shri Manish J Shah – AR राज�वक�ओर से /Revenue by Smt. Anupama Singla – Sr.DR सुनवाई की तारीख/ Date of hearing: 26.04.2021 उ�घोषणा क� तार�ख/Pronouncement on: 04.06.2021 आदेश /O R D E R PER PAWAN SINGH, JUDICIAL MEMEBER: 1. This appeal by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-1, Surat hereinafter referred as “Ld.CIT(A)” dated 07.09.2016 for A.Y. 2013-14. The Assessee has raised following grounds of appeal: “1. The C.I.T.(Appeals) erred in law and on facts in confirming the action of assessing of addition of Rs.4,20,000/- to the returned income of the appellant under the head ‘Income from House Property’ by estimating notional rent of Rs.6,00,000/- in respect of property situated at Mumbai without appreciating the facts of the properly. 2. The C.I.T(Appeals) erred in law and on facts in sustaining adhoc disallowance of cash expenditure to the extent of 10% i.e. Rs.5,07,680/- out of total expenditure of Rs.50,76,800/- without appreciating the fact that net profit ratio of the appellant is improved in the year under consideration. 3. The C.I.T(Appeals) erred in law and on facts in confirming the disallowance of Rs.86,318/- being depreciation on two motor cars held by the appellant on the allegation of personal use.”

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 2. Brief facts of the case are that assessee is allegedly engaged in the business of cutting and polishing of diamond on job work basis. The assessee filed his return of income on 27.09.2013 for assessment year (AY) under consideration declaring income of Rs.14,39,800/-. The case was selected for scrutiny. The assessment was finalized on 08.03.2016 under section 143(3) of the Act determining the total income at Rs.29,61,480/-. The A.O. while passing the assessment order made additions/ disallowances of Rs.4,20,000/- on account of ‘income from house property’, ad-hock disallowance of cash expenditure of Rs.20,30,720/-, being 20% of total cash expenditure and further disallowance of Rs.86,318/- on account of depreciation on cars. 3. The Assessing Officer (AO) while passing the assessment order noted that the assessee is having more than one residential house. The assessee owned one residential house and another at Mumbai. The AO worked out notional rental value of residential house at Mumbai under section 23(a) of at Rs.6,00,000/- and after giving 30% standard deduction, made addition of Rs.4.20 lakhs under the head ‘income from house property’ disallowed 20% of expenditure of Rs.50,76,800/-, incurred in cash by taking view that sufficient evidence is not produced by the assessee and not maintain detailed record and the expenses are incurred in cash. The AO further disallowed the depreciation of three

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 cars owned by assessee by taking view that the vehicles were used for personal use. On appeal before the ld.CIT(A) the addition of Rs. 420,000/- under the head ‘income from house property’ and disallowance on depreciation on cars was upheld. However, the addition on account of cash expenses was restricted to 10%. Further aggrieved, the assessee has filed present appeal before this Tribunal. 4. We have heard the ld. Authorised Representative (AR) for the assessee and the ld. Senior Departmental Representative (Sr. DR) for the Revenue and perused the order of the lower authorities carefully. Ground No.1 relates to addition of Rs.4,20,000/- on account of ‘income from house property’ being notional rental value against residential house property situated in Mumbai. The ld.AR of the assessee submits that the AO made addition of Rs.4.20 lakhs on account of notional rent value for residential property at Lokhandwala Complex, Mumbai. It was submitted that the assessee is engaged in the business of diamonds and is frequently visiting Mumbai for business purpose and many times and required to stay frequently there. The assessee use this flat at Lokhandwala Complex to avoid the hotel expenses in Mumbai. The flat is used for business purpose. The assessee has not received any rent from this House Property. There is no evidence that assessee receives rental income from this property. There is no basis for making addition on account of notional rental

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 value @ Rs.50,000/- per month. The addition is guise work of the AO which was confirmed by the ld.CIT(A). To support his contention, the ld.AR relied upon the Hon'ble Gujarat High Court in CIT Vs Rasiklal Balabhai 119 ITR 303 (Guj). 5. On the other hand, the ld.Sr.DR for the Revenue supported the order of lower authorities. The ld. Sr. DR for the revenue further submits that the assessee has not furnished ay documentary evidences that the house property situated in Mumbai is used for business purpose. The ld. Sr. DR for the revenue further submits that Lokhandwala Estate, where the house property situated his far away from the Diamonds and Jewellery market situated in and around Opera House, near Marine Lines, Mumbai. The Sr ld. Dr prayed for upholding the action of the AO. 6. We have considered the rival submission of the parties and have gone through the orders of authorities below. The AO made addition under section 23 (a) by taking view that assessee has two residential house, one at Surat and another at Mumbai. The assessee has not offered any income under the head ‘income from house property’ for taxation, in respect of residential property in Mumbai. The assessee is residing in Surat and carrying its business activities from Surat. In response to the show cause notice, before the AO, the assessee stated that he is frequently visiting Mumbai and used this house for staying at Mumbai, thus the property is

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 used for business purpose for staying at Mumbai. The AO after considering the reply of assessee held that the assessee is carrying its business activity for cutting and polishing of diamond, the factory of assessee is located at Surat. The rough diamonds are procured through Angadias and finished products are also sent through Angadias. The AO has not accepted the plea of the assessee about use of this house property for business purpose. The AO estimated the notional rental income @ Rs.50,000/- per month and after allowing 30% statutory standard deduction for repair and maintenance treated Rs.4.20 lakhs as income from ‘house property’. The ld. CIT(A) confirmed the action of ld.AO by taking view that ‘house property’ located at Lokhandwala Complex, Mumbai in a very decent and high class society. Therefore, Rs.50,000/- per month is reasonable. Before us, the ld. AR of the assessee has not filed any documentary evidence about the use of house property for the purpose of business, except making self-serving statement that property is being used for business purpose as and when the assessee visits the Mumbai. The ld.AR of the assessee relied upon the decision of Hon'ble Gujarat High Court in CIT Vs Rasiklal Balabhai (supra). The facts of the said case are absolutely different. In the said case, the question before the Hon'ble Court was that if the Tribunal was justified by holding that annual letting value of go down owned by assessee used for

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 the purpose of business carried on by him in partnership. Clearly in the said case the house property was in the shape of Go-down. Go-down can only be used for business purpose. On the contrary the house property in the present case is a residential property situated in residential area. Thus, the case law relied by ld AR for the assessee is not helpful to the assessee. Hence, we affirms the order passed by ld. CIT(A). In the result, Ground No.1 of the appeal is dismissed. 7. Ground No.2 relates to sustaining adhoc disallowance of cash expenditure to the extent of 10%. The ld.AR of the assessee submits that during the assessment, the AO made disallowance @20% of the total expenses made in cash. The ld. CIT(A) restricted the disallowance to 10%. The ld.AR submits that 10% disallowance of expenses is on the higher side and it may be sustained to some reasonable basis. The ld.AR submits that as per trade practices in the business of diamond in Surat workers are not permanent employees. The employment and workers are depends on availability of works in the factory. As per requirement of work force the Manager through a group of workers under his supervision called the workers to work cutting and polishing. In such circumstances, it is not practical to maintain detailed record and the expenses are incurred in cash. In past, the similar expenses were accepted in the regular assessment under section 143(3) of the Act in other assessment years.

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 8. On the other hand, the ld.Sr.DR for the Revenue submits that assessee made similar submission before the First Appellate Authority (FAA). The FAA after considering the submissions of the assessee reasonably granted relief to the assessee by restricting disallowance to 10%. The disallowance restricted by the ld. CIT(A) is on reasonable basis and that the assessee is not entitled for further relief. It was clearly held by the lower authorities that assessee has not maintained record of expenses and the expenses were incurred in cash 9. We have considered the rival submission of both the parties and have gone through the orders lower authorities. During the assessment, the AO noted that the assessee has debited a total expenses of Rs.50,76,800/-. Rs.45,85,100/-on account of cutting and assorting and Rs.4,91,700/-, on laser Salary of totaling to Rs.50,76,800/-. All the payments were made in cash. Complete details of payments and proof of payment of expenses, has not been furnished except name and salary register. No other details like address, identity or other details were furnished. The mAO was of the view that in absence of complete details, he is unable to verify the veracity of expenses. Therefore, issued show cause notice on the 20% expenses should not be disallowed being unverifiable. The assessee in response to the show cause notice stated that workers are not permanent employees of the unit and as per the practice in the diamond trade the

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 workers may not work with the industry for more than a week or a month or a year and so it is not practical to maintain detailed record of all the workers. The explanation furnished was not accepted the AO. The ld.AO accordingly disallowed 20% of the total expenses. On appeal before the ld.CIT(A), the assessee made similar submission as made before us. The ld.CIT(A) after considering the submission of the assessee and considering the earning of better Net Profit (NP) during the year compared to immediately preceding year, although the Gross Profit (GP Ratio) was slightly lower in this year. The ld. CIT(A) held that in the past, the Gross Profit Ration has been accepted by the Department. Therefore, on his overall observation, the ld.CIT(A) took his view that it is to be fair and reasonable for both the parties, if the additions are sustained @10% of the expenses. Thus, the ld.CIT(A) allowed 50% relief to the assessee. Before us, the ld.AR of the assessee vehemently argued that the disallowance sustained by the ld. CIT(A) is on higher side and it may be reduced further. In our view, the ld. CIT(A) after considering the past practice and Net Profit ratio for the year under consideration generously accepted the contention of assessee in sustaining the 10% of the disallowance. In our view, the ld.CIT(A) has taken reasonable view, which we affirm. In the result, Ground No.2 of assessee is dismissed.

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 10. Ground No.3 relates to disallowance of depreciation on car. The ld.AR of the assessee submits that the assessee owned three cars are used for business purpose by assessee. One car is exclusively available for the use of office staff for cash withdrawal from bank and movement of diamonds from sub- contractors within the city for business purpose. The second car is used by assessee for own use of business for meeting and travel from home to office and factory within the city. The third car is used by owner for business purpose to travel from Surat to Mumbai frequently. The ld.AR submits that all three vehicles are used for business purpose. 11. On the other hand, the ld.Sr.DR for the Revenue supported the order of lower authorities. The ld. Sr. DR for the revenue submits that assessee is not maintaining any log book or furnished any corroborative evidence that all three vehicles are used for bossiness purpose. It was submitted that the ld. AR for assessee while arguing the other ground of appeal submits that most of the work are done through contractor. The assessee has not given the details of his office staff who is using the vehicles. The assessee is not having any employee in his office as no salary debited in the profit and loss account. Thus, the contention of assessee that vehicle is used by office staff is not correct. The ld. Sr DR submits that assessee miserably failed to prove that all three vehicles have been exclusively used by assessee for business purpose.

Prakashbhai Prahladbhai Gami Vs. ITO, Ward-2(3)(3), Surat../ ITA No.3129/AHD/2016 for A.Y. 2013-14 12. We have considered the rival submission of both the parties and have gone through the order of lower authorities. There is no dispute that assessee claimed depreciation of three cars. The assessee explained the one vehicle is exclusively available for the purpose of office staff. However, we find merit in the submission of ld.Sr.DR for the Revenue that the assessee has not debited any salary of staff in the profit and loss account. No name, post and proof of employment of staff is furnished before us. For remaining two cars, the assessee explained that one car is used within city of Surat for travelling from home to office and factory and other for frequent visit to Mumbai. The second contention of the assessee with regard to use of two vehicles i.e. one within the city and second is inter-state seems to be reasonable and plausible, therefore, we direct the AO to allow depreciation on two vehicles. Accordingly, this Ground No.3 is partly allowed. 13. In the result, appeal of the assessee is partly allowed. Order pronounced on 04 June, 2021 by placing result on notice board. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) (लेखा सद�य/ACCOUNTANT MEMBER) (�याियक सद�य/JUDICIAL MEMBER) सुरत/ Surat, �दनांक Dated: 04 June, 2021/#SGR Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat