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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: Shri Pawan Singh (JM) & Shri Rifaur Rahman (AM) Shri Vishal Vithal Kamat vs Shri Vishal Vithal Kamat
O R D E R PER PAWAN SINGH, JM : 1. These cross appeals filed by the assessee as well as by revenue are directed against the order of CIT(A)-34, Mumbai dated 09-03-2018 for assessment year 2013-14, which arises from the assessment order passed under section 143(3) dated 15.03.2016. The assessee in its appeal has raised the following grounds of appeal:- “
1. TREATING INTEREST INCOME AS INCOME FROM OTHER SOUCES
2 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat On the facts and circumstances of the case and in law, the Id. CIT (A) has erred in treating interest income as income from other sources instead of business income as claimed by the appellant. The Id. CIT (A) also erred in law and facts by not following the principles laid down in the case of Premiums Investment & Finance Limited v. DCIT [2015] 63 taxmann.com 23 (Mum-Trib) 2. DISALLOWANCE OF BUSINESS EXPENDITURE OF Rs. 13,61,0247-: (a) On the facts and circumstances of the case and in law, the Id. CIT(A) erred in confirming the disallowance made by the assessing officer in respect of expenditure of Rs. 13,61,0247- (comprising of rent paid Rs. 3,86,1297-; salaries to staff Rs. 3,72,0007-, depreciation on computer and furniture of Rs. 1,47,0007- and general and administrative expenses of Rs. 4,55,8957-) incurred by the appellant during the course of carrying on his consultancy business 7 profession of hospitality services. (b) The Id. CIT(A) having held that the appellant had indeed carried out consultancy business, failed to appreciate that the above expenditure were incurred wholly and exclusively for the purpose of the said business and he ought to have deleted the disallowance made by the assessing officer.”
Further, the assessee substituted ground No.2 in the following manner:-
“2. DISALLOWANCE OF BUSINESS EXPENDITURE (a) On the facts and circumstances of the case and in law, the Id. CIT(A) erred in confirming the disallowance made by the assessing officer in respect of expenditure of rent paid Rs. 3,86,1297-; sales promotion expense of Rs. 43,450/-; staff welfare expenses of Rs. 62,3207- and general expenses of Rs. 2,35,0007- incurred by the appellant during the course of carrying on his consultancy business 7 profession of hospitality services.
3 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat (b) The Id. CIT(A) having held that the appellant had indeed carried out consultancy business, failed to appreciate that the above expenditure were incurred wholly and exclusively for the purpose of the said business and he ought to have deleted the disallowance made by the assessing officer.”
The revenue, in its cross appeal, has raised the following grounds of appeal:-
“1. "Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the benefit of deduction u/s 54 of the Act to the full extent of Rs. 1,81,67,513/- by stating that the assessee has purchased a new residential property within two years of sale by availing 20:80 scheme(ADF from HDFC Ltd) for payment and complied with the conditions laid down u/s 54(1) and 54(2) of the Act ?" 2. "Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the deduction u/s 54 of the IT Act without appreciating the fact that Assessing Officer rightly restricted the deduction u/s 54 of the IT Act to Rs 55,44,000/- as the sale proceeds or the Capital Gain accrued to the assessee was not wholly appropriated towards the purchase of new residential house within a specified period ?" 3. "Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the deduction u/s 54 of the IT Act without appreciating the fact that on the date of purchase of new residential property the assessee had own funds ofRs 3,50,00,OOO/-from sale of flat in Bandra (old residential property) and purchased the new property by availing 20:80 scheme (under the ADF scheme from HDFC Ltd. i.e. Rs 55,44,000/- from sale of old property and balance from borrowed funds) and thereby utilizing the 4 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat major portion of the sale proceeds of Rs 3,50,00, 000/ -for different purposes ? " 4. "Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in allowing the deduction u/s 54 of the IT Act without appreciating the fact that the section 54 clearly states that assessee is required either to purchase a residential house out of the sale proceeds of old residential house within a period of (one year before or two years after the date on which the transfer took place or purchased)or has within a period of three years after that date (constructed, a residential house) or if the assessee is not able to appropriate the sale proceeds of old residential house before the date of furnishing of ROI u/s 193(1), he/she is required to deposit the same before furnishing return of income in Capital Gain Account Scheme ?"
Facts in brief are that assessee is an individual, filed his return of income for assessment year (AY) 2013-14 on 15-01-2014 declaring income at Rs.7,27,170/-. The case was selected for scrutiny and after serving statutory notices u/s 143(2) and 142(1), the assessing officer completed assessment under section (u/s) 143(3) on 15-03-2016. The AO, while passing the assessment order, disallowed the exemption of long term capital gain of Rs.1,26,23,513/-, disallowed expenditure of Rs.13,61,024/- claimed against interest income on the ground that assessee has not done any business during the relevant period and assessee failed to prove the nexus of expenditure vis-a-vis income and accordingly, the income received by the assessee as service charge as 5 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat interest income was treated under the head, “Income from other sources”.
On appeal before learned CIT(A), the assessee was allowed exemption u/s 54 on long term capital gain earned on sale of residential flat at Bandra. However, out of the expenses of Rs. 13,61,024/-, claimed by assessee, an amount of Rs.3,86,000/- incurred on account of rent on residential premises, sale promotion expenses of Rs. 43,450/-, staff welfare of Rs. 62,320/- and general expenses of Rs. 2,35,000/- was sustained. Thereby granted relief of Rs.634,125/-. Thus, aggrieved by the order of Ld. CIT(A), both the parties have filed their respective appeal raising the grounds of appeal, which we have extracted above.
We have heard the Ld.AR of the assessee and Ld. DR for the revenue and perused the material available on record. At the outset of hearing, the Ld. AR of the assessee submits that the tax effect in the revenue’s appeal is less than the monetary limit Rs. 50 Lacks as fixed by CBDT in its circular No.17 of 2019. The tax effect in revenue’s appeal is Rs.26,00,444 only which is less than Rs.50 lakhs fixed by CBDT.
Accordingly, the appeal of revenue is not maintainable and liable to be dismissed. The Ld.AR of the assessee also furnished the working of tax effect involved in the revenue’s appeal.
6 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat 7. On the other hand, the Ld. DR for the revenue, after going through the working of tax effect of Rs.26,00,444/- fairly conceded that the tax effect in revenue’s appeal is admittedly less than the monetary limit of Rs.50 lakhs. The Ld. DR, however, submits that revenue may be given opportunity to get the appeal revived in case at a later stage it is discovered that the case of revenue is covered by any exception clause of the CBDT Circular No. 3 as amended vide dated 20-08-2018.
Considering the contention of both the parties, we find that admittedly the tax effect involved in revenue’s appeal is less than the monetary limit of Rs. 50 Lacks as prescribed by CBDT vide its circular No.17 of 2019 dated 20-08-2019; hence, the appeal of the revenue is dismissed being not maintainable. However, the revenue is given liberty to get the appeal revived in case if at a later stage it is discovered that the case of revenue is covered by any exception clause at para 10(e) of circular dated 20-08- 2018.
In the result, revenue’s appeal is dismissed.
Now adverting to the assessee’s appeal. The Ld.AR of the assessee submits that he is not pressing the ground 1 raised originally by assessee and same may be dismissed being not pressed. Considering the submission of Ld.AR of the assessee, ground 1 of appeal is dismissed, as not pressed.
7 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat 11. Ground 2 relates to disallowance of business expenditure of Rs.3,86,129/- on account of rent paid, Rs.43,450/- on account of sales promotion expenses; Rs. 62,320/- on account of staff welfare expenses and Rs.2,35,000/- on account of consultancy business / hospitality services. The Ld.AR of the assessee submits that the AO disallowed the expenditure by taking view that the assessee failed to prove the nexus of expenditure vis-a-vis income and entire expenditure was disallowed. The ld. CIT(A) confirmed the action of Assessing Officer on disallowance of rent of Rs. 3,86,129/-, sale promotion expenses of Rs. 43,450/- staff welfare expenses of Rs. 62,320/- and general expenses of Rs. 2,35,000/- and on remaining disallowance the assessee was allowed relief. The ld. AR of the assessee submits that the assessee is entitled for entire expenses.
On the other hand, the Ld. DR for the revenue supported the order of lower authorities. The Ld. DR further submits that assessee failed to prove the nexus of expenditure. No documentary evidence for incurring such expenses by assessee. The assessee failed to prove the expenses as wholly and exclusively incurred for the purpose of business. Therefore, the orders of lower authorities are liable to be upheld.
We have considered the rival submissions of parties and have gone through the orders of authorities below. The Assessing Officer during the 8 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat assessment noted that the assessee has shown income of Rs. 2,00,000/- as a Professional Income on account of service charge from Lilavati Hospital for Professional & Technical Services. The assessee has also shown interest income of Rs. 15,80,981/-. The assessee debited expenses of Rs. 13,61,024/-. The Assessing Officer vide show-cause dated 11.03.2016 asked the assessee as to why the consultancy/service charge fees should not be treated as Income from Other Sources. The assessee filed its reply vide reply dated 07.03.2016 and stated that the assessee incurred expenditure on rent, staff salary, sale promotion and general expenses and submits that the expenses are allowable expenses. The explanation furnished by assessee was not accepted by taking view that the assessee has not proved the nexus between the income receipt and expenditure claimed. The income receipt of Rs. 2,00,000/- from Lilavati Hospital has no connection with expenditure of Rs. 13,61,042/- as claimed by assessee. Accordingly, the Assessing Officer disallowed the entire expenditure. Before the ld. CIT(A), the assessee submits the similar submission as submitted before the Assessing Officer. The ld. CIT(A) after considering the submission and the material brought before him concluded that against the total gross receipt of Rs. 17,80,981/- (Rs.
15,80,981 + Rs. 2,00,000), Rs. 2,00,000/- is the only from professional income and rest of the receipt are interest from loan or Fixed Deposit in 9 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat the form of Saving Accounts, which are assessable under section 57. In case any claim of expenses against the Income from Other Sources, the criteria prescribed under section 57(iii) has to be fulfilled which prescribed that the expenses were incurred wholly and exclusively for the purpose of earning that income. None of the expenses debited by assessee in the Profit & Loss A/c are having any nexus with the interest income i.e. Income from Other Sources. On the aforesaid observation, the ld. CIT(A) upheld the disallowance, which consist of rent of Rs. 3,86,000/-, general expenses of Rs. 2,35,000/-, sale promotion expenses of Rs. 43,450/- and staff welfare expenses of Rs. 62,320/-. And disallowance on rest of the expenses was deleted. Before us, the assessee has not filed any evidence to show that the assessee carried out any business activity from residential property for which the assessee paid rent of Rs. 3,86,000/-. Similarly, no breakup of general expenses of Rs. 2,35,000/- and sale promotion expenses of Rs. 43,450/- and staff welfare expenses of Rs. 62,320/- and/or any document or evidence showing nexus with professional receipt is placed before us. Though, the ld. AR of the assessee has filed copy of several decision of Tribunal, however, the ld. AR while making his submission has neither referred nor made any prayer for making reliance on those decisions. Therefore, we have not gone through those decisions by treating them as not pressed.
10 ITA 2865/Mum/2018 & 4122/Mum/2018 Vishal Vithal Kamat Considering the fact that assessee failed to prove any nexus of expenses either with the professional receipts that the expenses were incurred wholly and exclusively for the purpose of professional receipt. The assessee also failed to show that the said expenditure has any nexus with the Income from Other Sources. Therefore, we do not find any merits in the ground of appeal raised by assessee. In the result, Ground No.2 of the appeal is dismissed.
14. In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 20-12-2019.