AKSHAY JAITLY,NEW DELHI vs. ACIT, CIRCLE- 63(1), NEW DELHI

I.T. Appeal 3830 (Del) of 2017 is filed by Shri Akshay Jaitly for assessment year 2013-14 against the order of the ld. CIT (Appeals)–20, New Delhi, dated 31.03.2017. I.T. Appeal 7052 (Del) of 2017 is filed by the same assessee for assessment year 2014-15 against the order of the ld. CIT (Appeals)–20, New Delhi, dated 25.09.2017.

Issue in assessment year 2013-14 is with respect to the confirmation of disallowance of expenditure amounting to Rs.11,51,875/- and Rs.9,98,401/- for assessment year 2014-15. 3. Facts in both the years are similar and, therefore, we first take the facts for assessment year 2013-14. The assessee is an Individual deriving income from profession and is a partner in a law firm. The assessee filed his return of income on 30th September, 2013 declaring income of Rs.2,85,00,130/-. The case of the assessee was selected for scrutiny. The assessee has debited expenses of Rs.13,88,556/- and out of which assessee has disallowed expenditure of Rs.2,36,681/-. In nutshell, assessee has claimed salary expenditure, communication expenditure, depreciation on car, equipment, and computers, interest on car loan, professional fees, car running expenses, entertainment expenses and postage and courier expenses. 4. The ld. Assessing Officer noted that assessee is a partner and is drawing remuneration from a partnership firm and, therefore, it is in the nature of salary income and no expenditure are allowable as deduction. The assessee submitted that income of the assessee is chargeable to tax under the head business income and, therefore, all the expenditure incurred for earning such remuneration would be allowable to the assessee if those were wholly and exclusively incurred for the purpose of the business of the assessee. The ld. Assessing Officer held that salary, communication expenditure, repairs, professional fees, entertainment expenditure and currier charges do not have any nexus with the salary income as partner earned by the assessee and, therefore, he made a disallowance of Rs.11,51,875/-. Consequently, total income of the assessee was assessed at Rs.2,96,52,000/- against the returned income of Rs.2,85,130/- by order under Section 143(3) of the Act dated 14.12.2015. 5. Assessee challenged the same before the ld. CIT (Appeals) wherein the disallowance was confirmed. 6. The ld. AR submitted that the issue in this case is squarely covered by the decision of the co-ordinate bench in the case of Mr. Anand Prasad in I.T.

The ld. DR relied upon the order of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee is a partner in a law firm and is deriving remuneration which is taxable under Section 28(v) of the Income Tax Act under the head business and profession. Thus, this income is chargeable under the head income from business and profession. According to section 29, income referred to in section 28 shall be computed in accordance with section 30 to 43 D of the act. Therefore from this income assessee is entitled to deduction of expenditure u/s 30 to 37 (1) subject to other sections. Thus, this income is not akin to salary income. There is no employer employee relationship between assessee and his partnership firm. The only issue is whether the expenditure incurred by the assessee wholly and exclusively for the purpose of earning remuneration from the partnership firm are allowable to the assessee or not from remuneration received from partnership firm which is chargeable to tax u/s 28 (v) of the act. It is not in dispute that assessee has already disallowed personal expenditure and expenditure under Section 14A of the Act. For assessment year 2013-14 the assessee has disallowed the expenditure on his own of Rs. 2,36,681/- and Rs. 4,13,145/- for assessment years 2013-14 and 2014-15 respectively. The identical issue has been considered in the case of Mr. Anand Prasad Vs. ACIT in I.T. Appeal No. 7053 (Del) of 2017 for assessment year 2014-15 dated 28.10.2020. The issue has been decided as under:- “7. We have carefully considered the rival contentions and perused the orders of the lower authorities. The fact shows that the assessee is an individual who is a partner in a law firm namely Trilegal and received a remuneration of Rs. 3,22,60,925/- which is offered for taxation u/s 28(v) of the Act. The assessee also received share of profit from the above firm of Rs. 31624561/- which is claimed as exempt u/s 10(2A) of the Act. The assessee incurred certain expenditure of running and maintenance of car with driver, communication expenditure, certain professional fees, depreciation on car and other miscellaneous expenditure amounting to Rs. 22,57,453/-. Out of above expenditure assessee identified Rs. 13,86,137/- on account of Page | 3 personal use and disallowances u/s 14A of the Act. Thus, only Rs. 871316/- were claimed as allowable expenditure. On careful examination of the facts and details of the expenditure, we find that there is no reason that the expenditure cannot be allowed to a partner whose income is taxed on account of remuneration and interest received from the firm u/s 28(v) of the Act as business income. The only criteria for allowance of the expenditure are that expenditure should have been incurred by the assessee wholly and exclusively for the purpose of the business. In the present case the assessee has given details of expenditure such as salary expenditure of driver, communication expenditure, insurance and depreciation on the vehicle. The total of such expenditure is Rs. 2257453/-. Out of the above expenditure the assessee himself has disallowed Rs. 1386137/- as part of personal expenditure and disallowance u/s 14A of the Act. The lower authorities could not say that in all these expenditure has not been incurred by the assessee wholly and exclusively for the purpose of his business. The allegation of the ld AO was that the expenses incurred by the assessee does not have any nexus with remuneration earned does not have any legal backing. He does not say that these expenditure are not incurred by the assessee for the purpose of the business. Naturally when the income is taxed as remuneration from firm as business income, any expenditure incurred to earn that income is an allowable business expenditure, if it satisfy the relevant criteria. It is not the case of the lower authorities that whole of the expenses incurred by the assessee were not incurred wholly and exclusively for the purposes of the business i.e. to earn remuneration from partnership firm. Therefore, disallowance made by the ld AO and confirmed by the ld CIT(A) cannot be sustained. In view of the fact that the assessee himself has disallowed personal expenditure and u/s 14 A of the act to the tune of Rs. 1386137/-. In view of this we direct the ld AO to delete the disallowance of expenditure of Rs. 871316/-. Accordingly ground no. 1 and 2 of the appeal are allowed.”

The ld. DR could not controvert the above finding in that decision as to why it does not apply. It is not case of revenue that assessee has not incurred those expenditure or those are not incurred in the business of the assessee. In view of this respectfully following the decision of the co-ordinate bench, we allow the appeal of the assessee in I.T. Appeal No. 3830 (Del) of 2017 for assessment year 2013-14.

The facts in the case of I.T. Appeal No. 7052 (Del) of 2017 for assessment year 2014-15 in the case of the assessee are also identical except the amount of disallowance. For the present year the assessee has debited total expenditure of Rs.14,11,546/-, disallowed its own sum of Rs.4,13,145/-. The ld. Assessing Officer disallowed the balance expenditure of Rs.9,98,401/- which was confirmed by the ld. CIT (Appeals). In view of the similar facts for the reasons given by us in allowing the appeal of the assessee for assessment year 2013-14, we also allow the appeal of the assessee for assessment year 2014-15. 11. Consequently, orders of lower authorities are reversed , ld. AO is directed to delete the disallowance for both the above years. 12. Appeals of the assessee for both years are allowed. Shri Ananad Prasad V ACIT A Y 2013-14

I.T. Appeal 3831 (Del) of 2017 for assessment year 2013-14 is filed by the assessee against the order of the ld. CIT (Appeals)–20, New Delhi, dated 31.03.2017. Assessee is a partner in a law firm deriving remuneration as a partner. He has incurred total expenditure of Rs.21,43,409/- out of which suo moto disallowance of Rs.13,02,133/- was made. The assessee in nut- shellclaimed deduction of expenditure of Rs.8,40,976/- as business expenditure against remuneration received from a partnership firm. Such remuneration is chargeable to tax as business income of the assessee. The Assessing Officer disallowed the same and the ld. CIT (Appeals) confirmed it.

On careful consideration of the rival contentions for assessment year 2014-15 in I.T. Appeal No. 7053 (Del) of 2017 identical issue was considered Page | 5 and the Assessing Officer was directed to delete the disallowance of the expenditure. The finding of the co-ordinate bench had already been reproduced above. As the issue is squarely covered in favour of the assessee by that appeal, we are reversing the orders of the lower authorities and direct the Assessing Officer to delete the disallowance of Rs.8,40,976/-. 15. Accordingly, appeal of the assessee is allowed.