JAYA SIVAKUMAR,CHENNAI vs. ITO NON CORPORATE WARD 10(2), CHENNAI

O R D E R

PER V. DURGA RAO, JUDICIAL MEMBER:

4. The next effective ground raised in the appeal for the assessment year 2010-11 relates to confirmation of disallowance of expenses of ₹.5,92,160/-.

4.1 Brief facts of the case are that the assessee is an individual and working partner in three firms viz., M/s. Ganesh Metal Industries, M/s. Muthalamman Metal Industries and M/s. Ramana Metals. She also received salary, interest on capital and share of profits. The assessee filed her return of income for the assessment year 2010-11 on 31.01.2012 admitting an income of Rs.6,49,555/- and assessment under section 143(3) of the Act was completed by accepting the returned income. Subsequently, the Assessing Officer has noticed from the assessment records that the assessee had received partner’s remuneration of Rs.12,69,333/- from 3 firms and had also claimed expenses to earn the remuneration. As there was reason to believe that income had escaped assessment, the case was reopened by issuing notice under section 148 of the Act dated 31.03.2017. After considering the submissions of the assessee, the Assessing Officer has completed the assessment under section 143(3) r.w.s. 147 dated 27.12.2017 determining total income at ₹.12,41,720/- by disallowing ₹.5,92,160/- claimed to be expenses in relation to earning of remuneration and interest income of ₹.12,82,139/-. On appeal against the disallowance of expenses of ₹.5,92,160/-, after considering the submissions of the assessee, the ld. CIT(A) confirmed the addition.

Similar claim of expenses of ₹.6,12,548/- in the assessment year 4.2 2013-14 is also subject matter in appeal since the ld. PCIT has passed revision order under section 263 of the Act directing the Assessing Officer to redo the assessment.

4.2 On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the ld. CIT(A) has erroneously held that there is no nexus between the expenses incurred by the assessee and the remuneration received. By filing confirmation along with the identity of the employees employed by the assessee for carrying out day-today activities, which was submitted before the ld. PCIT during revision proceedings for similar claim of expenses for the assessment year 2013-14 which was concluded prior to the appellate order for the assessment year 2010-11, the ld. Counsel has vehemently argued that the assessee has incurred the expenses and had a direct nexus to earning her remuneration and therefore prayed for allowance of expenses of ₹.5,92,160/- in the assessment year 2010-11 as well. The ld. Counsel for the assessee relied on the judgement of Hon’ble Supreme Court in the case of CIT v. Ramniklal Kothari in Civil Appeals Nos. 575 & 576 of 1966.

4.3 On the other hand, the ld. DR has supported the orders of authorities below.

4.4 We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book consist of confirmation letter of employees, allocation of work by firms to the assessee, salary given by firm to the staff in the firms in which the assessee is partner and profit and loss account of the firms, which were submitted during the revision proceedings with regard to the claim of expenses for the assessment year 2013-14 which was also subject matter in appeal and the revision proceedings under section 263 of the Act was conducted and concluded first and thereafter the appeal proceedings was also concluded. In the assessment year 2010-11, the assessee has claimed expenses of ₹.5,92,160/- for earning income. The Assessing Officer disallowed the claim of expenses on the ground that the assessee could not file any books of accounts or any evidence in support of expenses incurred by the assessee and their nexus to the remuneration earned by the assessee.

4.5 On perusal of the appellate order, it would be evident at page 3 of the order, wherein, in the grounds of appeal, the assessee has submitted that against the explanation called by the Assessing Officer, the assessee has furnished copy of the reply submitted to the ld. CIT during revision proceedings. It was also submitted that the Assessing Officer has not gone through any evidences of proof of interest payment or salary payments and simply stated that the assessee would not have incurred any expenditure. Further, while concluding the appellate order, the ld. CIT(A) has observed as under: “5.3 .................................................. Since the above issue was already under examination and genuineness of expenses have already been called for a re-look by Commissioner by setting aside the order for AY 2013-14, the AR of the appellant should have submitted the necessary details at the time of appeal proceedings for the current year which is in appeal where same issue is being adjudicated. It is true that assessee is not prohibited from making any claim of expenditure which he has actually incurred and directly related to the income earned. In this case, the income is only remuneration and interest from three firms where assessee is a partner. The concerned firms have already debited all expenses in their books of accounts in respect of the business activities. In such a scenario, it is for the assessee to substantiate with evidence that he has incurred expenses separately to earn his salary and interest income. ............” 4.6 It is an undisputed fact that the assessee was a working partner in three firms viz., M/s. Ganesh Metal Industries, M/s. Muthalamman Metal Industries and M/s. Ramana Metals. In order to cope up with the firms’ activities and as per allocation of work to the assessee-partner, such as, day-today banking operations, collections from parties in and around Chennai, staff management, production supervision, stock management & control and general office administration, etc., the assessee has engaged employees and made payments from her own remuneration. In fact, as per work allocation, the assessee-partner was permitted to hire personnel to assist her in clerical works by way of paying salary to them out of her share of partner salary received by her without any further delegation from the firm. On perusal of the details of employees engaged by the assessee and confirmation letters of having receipt of salary and also proved identity of the employees beyond doubt for the assessment year 2013-14, which is similar to the assessment year 2010-11 as has been submitted by the ld. Counsel for the assessee, we are of the considered opinion that the assessee should be allowed to claim the expenses incurred by her as the firms have already debited all expenses in their books of accounts in respect of the business activities. Moreover, the assessee was not prohibited from making such claim of expenditure, which she has actually incurred and directly related to the income earned. Under the above facts and circumstances, the expenditure claimed by the assessee is allowed.

5. So far as appeal for the assessment year 2013-14 is concerned, the assessee has challenged the order passed by the ld. PCIT under section 263 of the Act, wherein, the claim of expenses of Rs. 6,12,548/- was under dispute. Similar claim of expenses for the assessment year 2010-11 has been accepted by the Tribunal, herein above, in lieu of furnishing confirmation from the employees and their identity for the assessment year 2013-14. Since the Tribunal has accepted similar claim of expenses for the assessment year 2010-11, the claim of expenses for the assessment year 2013-14 is also accepted and the revision order passed by the ld. PCIT for the assessment year 2013-14 is quashed.