SMT.PRIYAMVADA H MERCHANT,MUMBAI vs. INCOME TAX OFFICER 21(2)(5), MUMBAI

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ITA 6028/MUM/2018Status: DisposedITAT Mumbai27 November 2019AY 2013-146 pages

In favour of the Revenue: the assessee's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the disallowance of expenses, stating that the assessee failed to prove that the expenses were incurred wholly and exclusively for the purpose of earning business income. The claim of an oral understanding was not substantiated.

What were the facts?

The assessee claimed expenses of Rs. 5,38,947/- against remuneration and share of profit from a partnership firm. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) disallowed these expenses for lack of nexus and substantiation.

What were the issues?

Whether the expenses claimed by the assessee were wholly and exclusively for the purpose of earning business income and were properly substantiated with evidence.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C”, BENCH MUMBAI

Before: SHRI C.N.PRASAD & SHRI G. MANJUNATHASmt. Priyamvada H Merchant

For Appellant: Shri. Mandar Vaidya, AR
For Respondent: Shri. Kumar Padmapani Bora, DR, Shri. Mandar Vaidya, AR
Hearing: 19/11/2019Pronounced: 27/11/2019

This appeal filed by the assessee is directed against, the order of the Ld. Commissioner of Income Tax (Appeals) –48, Mumbai, dated 30/08/2018 and it pertains to the Assessment Year 2013-14.

2.

The assesee has raised the following grounds of appeal 1. a. On the facts and in the circumstances of the case as well as in law, the learned Income Tax officer erred in adding a sum of Rs,5,38,947/- to the total income of your appellant on the ground that such expenses wore not wholly and exclusively expended for the purposes of the earning the remuneration and share of profit from firm. b. The learned Income Tax Officer disallowed the total expenses claimed of Rs.5,38,947/- to earn the remuneration income & share of profit from the partnership firm M/s. System Rex where the appellant is a partner by observing that" All the expenses claimed by the assessee are general in nature and not relating to the expenses incurred for earning the remuneration/share of profit from the partnership firm. There is no nexus between the income earned and expenses incurred.” c. The learned CIT (A)-48 observed in her order "'These grounds are the only substantive grounds and are inter-related and collectively relate to disallowance of Rs 5^3S,947/. After considering the facts, I find no weight in the argument of the assessee, on facts and in Jaw and uphold the disallowance made by AO in the view of the following- Explanation u/s 37(1) is to be allowed for the expenditure (not in the nature of personal or capital expenditure) laid out or expended wholly and exclusively for the purpose of business and profession, However neither before AO nor in appeal assessee has substantiated with proper evidence as to how / and whether expenses claimed under different heads were wholly and exclusively for the purpose of business/ professional income. In this context, AO has stated that assessee has not been able to prove the nexus between income and claimed expenses. Assessee has not been able to bring on record any documentary evidence to support its claim. The expenses cannot be allowed simply because no similar expenses are incurred by firm". Thus the learned CIT (A)-48 Mumbai confirmed the addition made by the assessing officer.

2. The Appellant submit that action of the learned Income Tax Officer- 21(2)(5) Mumbai is against the weight of natural justice and evidence on record.

3.

The Appellant craves his right to add, alter, to delete and amend any grounds of grounds of appeal on or before the times of hearing.

3. The brief facts of the case are that the assesee is an individual, derives income from business being remuneration and shares of profit from partnership firm and income from other sources. The assesee has filed her return of income for AY 2013-14 on 28- 11-2013, declaring total income of Rs. 5,33,770/-. This case has been selected for scrutiny and during the course of assessment proceedings, the Ld. AO noticed that the assesee has earned remuneration income from partnership from M/s. System Rex of Rs. 10,39,040/- and as against this, she had claimed various expenses like accounting charges, bank charges, depreciation, salary expenses and motor expenses etc., amounting to Rs. 5,38,947/-. Therefore, he called upon the assesee to explain, as to how these expenses are incurred in relation to earning of business income. In response, the assesee stated that she had incurred various expenses, in relation to business income of remuneration from partnership firm, which are in the nature of day to day expenses and hence, the same needs to be allowed, as deduction against business income. The Ld. AO after considering submissions of the assesee observed that the expenses claimed by the assesee are general in nature and does not relates to expenses incurred for earning remuneration /share of profit from partnership firm. Further, there is no nexus between the income earned and the expenses incurred and accordingly, total expenses claimed against business income amounting to Rs. 5,38,947/- has been disallowed and added back to the total income of the assesee.

4. Aggrieved by the assessment order, the assesee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assesee has filed elaborate written submissions on the issue, which has been reproduced at para 4 on page 3 to 5 of Ld.CIT(A). The sum and substance of arguments of the assesee before the Ld.CIT(A) are that she had incurred various expenses as per the oral arrangements between the assesee and the partnership firm and said expenditure has not been accounted in firm books of accounts and hence, the deduction towards said expenditure needs to be allowed against remuneration received from partnership firm in her individual capacity.

5.

The Ld.CIT(A) after considering relevant submission of the assesee observed that in order to claim, the benefit of deduction towards expenditure u/s 37(1), the assesee needs to prove that said expenditure was incurred or expanded wholly and exclusively for the purpose of business and profession. However, the assesee neither before the AO, nor in appeal has substantiate with proper evidences, as to how and whether expenses claimed under different heads were wholly and exclusively incurred for the purpose of business or profession. Therefore, he opined that there is no error in the findings recorded by the AO, while disallowing expenditure claimed against business income and accordingly, confirmed additions made by the AO towards disallowances of expenditure. Aggrieved by the Ld.CIT(A) order, the assesee is in appeal before us.

6.

The Ld. AR, for the assesee submitted that the Ld.CIT(A) was erred in confirmed disallowances of expenses claimed against business income being remuneration and share of profit from the firm without appreciating the fact that as per oral understanding between the assesee and the partnership firm, the assesee needs to incur those expenditure in her individual capacity. Further, said expenses were not accounted in firm books of accounts and hence, the assesee has rightly claimed deduction for said expenditure against business income being remuneration from partnership firm. He, further submitted that if at all, the expenditure needs to be disallowed a reasonable amount of disallowances may be made.

7.

The Ld. DR , on the other hand, strongly supported order of the Ld.CIT(A).

8. We have heard both the parties, perused the material available on record and gone through order of the authorities below. In order to claim the benefit of deduction of any expenditure against business income, the assesee shall prove with necessary evidences that said expenditure arer laid down or expanded wholly and exclusively for the purpose of business profession. In this case, the ld. AO as well as, the Ld.CIT(A) has brought out clear facts to the effect that expenditure incurred against business income are in the nature of general expenditure, which do not relates to expenses incurred for earning business income being remuneration from partnership firm. We further noted that the Ld. AO has brought out clear facts to the effect that there is no nexus between the income earned and expenses incurred. Although, the ld. AR for the assessee claims that there was an oral understanding between the assessee and the firm for sharing expenditure of firm, but such claim was not substaintaited. Therefore, we are of the considered view that there is no error in findings recorded by the AO, as well as the Ld.CIT(A), while disallowing expenditure incurred against business income amounting to Rs. 5,38,947/-. Hence, we are inclined to uphold the findings of Ld.CIT(A) and dismissed appeal filed by the assesee.

8.

In the result, appeal filed by the assesee is dismissed

Order pronounced in the open court on this 27 /11/2019

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