MAYURA MILIND NAIK,MUMBAI vs. ITO 18(2)(1), MUMBAI

-ableness of the expenditure including the bonafide nature of both the items of expenditure and its quantum remained unproved.Finally,he disallowed 75% of both the expenses and made an addition of Rs. 2.02 lakhs to the total income of the assessee. The AO further found that the assessee had debited Rs.73,115/- towards travelling expenses that was 15% of the turnover.He held that in absence of nexus of travelling expenses with the business whole of the travelling expenses has to be disallowed and was to be added to the income of the assessee. Similarly out of electric charges of Rs.19,111/- he disallowed 75% of the expenditure i.e. Rs.14,333/-.Out of the exhibition expenses of Rs.75,241/- he disallowed 50%(Rs.37,621/-) on estimate basis and added the same to the income of the assessee.Out of the expenditure under the head repairs and maintenance (Rs.40,692/-), rent-(Rs.36,000) and depreciation(Rs.1.74 lakhs),the AO disallowed 100% and 90% of the expenses respectively. 2.2.Aggrieved by the order of the AO, assessee preferred an appeal before the First Appellate Authority (FAA).After considering the submission of the assessee and the assessment order he held that the details of salary expenses were not enough to justify such a meager turnover, that the loss in business income had been created to set off house property income disclosed by the assessee, that 50% disallowance of the expenses under the head salary and conveyance would be reasonable enough to meet the ends of justice.Out of travelling expenses he upheld the disallowance upto 50%,whereas he confirmed the addition made by AO under the head electricity expenses.With regard to disallowance of exhibition expense the FAA held that same should be restricted to 50%. He upheld the disallowance made towards repair and maintenance as well as rent.With regard to depreciation, the FAA held that all the assets owned by assessee were personal in nature, that there was no evidence of being used for business, that depreciation Schedule had not been filed before the AO or during Appellate proceedings.The assessee herself had disallowed Rs.1.20 lakhs.He directed the AO to adjust the suo motu disallowance made by the assessee while giving effect to his order.Thus, he partly allowed the Ground of appeal pertaining to depreciation. 2.3.During the course of hearing before us,the AR argued that additions made by AO and confirmed by the FAA were on higher side,that the disallowance made by AO would increase the profit abnormally high,that the assessee was a small time entrepreneur. The Departmental Representative (DR)supported the order of the FAA. 2.4.We have heard the rival submissions and perused the material before us.We find that the assessee had made claims under various heads of expenses during the year under appeal, that the AO had partly/fully disallowed expenses claimed to have been incurred under the head 7908/M/11(06-07) Mayura Milind Naik salary and conveyance, travelling,electricity expenses,exhibition ,repairs and maintenance, rent and depreciation. It is true that assessee is running her business from residence only and most of the assets are of personal nature.the assessee herself had made a suo-motu disallowance of Rs.1.20 lakhs under the head depreciation, that the FAA had given partial relief with regard to certain expenses.Considering peculiar facts and circumstances of the case and quantum of business,we are of the opinion that disallowance under the various heads and contested by the assessee,should be restricted to 15% of the disallowances.GOA 3-8 stand partly allowed. 3.Last Ground of appeal is about confirming addition of interest on tax free RBI bonds. During the assessment proceedings,the AO found that the assessee had made investment of Rs.2 lakhs and Rs.8 lakhs in 8% RBI taxable bonds, that she had not offered corresponding interest on the said investments in the return of income. He worked out the interest at Rs. 63,615/- and added the same to the income of the assessee. 3.1.During the appellate proceedings the assessee stated that she herself had taken in on tax free bonds into her capital account, that the AO had not raised any query in that regard. The FAA held that the assessee had not produced any evidence of investment showing that the bonds were tax free, that the AO was justified in making the addition. 3.2.Before us,the AR argued that the AO had not called for details of taxable RBI bonds. He referred to the case of Vidyasagar B. Wahi-HUF (ITA3551/Mum/2010/AY06-07 dt.22.7. 2011).The DR supported the order of the FAA. 3.3.WE have heard the rival submissions and perused the material before us.We found that RBI bonds are not tax free.The AO/FAA has not discussed the terms and conditions of the bonds.Therefore,we are of the opinion that issue needs further verification by the AO.In the interest of justice we are restoring back the issue to the file of AO for fresh adjudication .He is directed to consider the case of Vidyasagar B. Wahi-HUF(supra) and afford a reasonable opportunity of hearing to the assessee before deciding the issue. As a result appeal filed by assessee stands partly allowed. फलतः िनधा�रती �ारा दािखल क� गई अपील अंशतःमंजूर क� जाती है. Order pronounced in the open court on 22nd ,March , 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 22 माच� , 2017 को क� गई । Sd/- Sd/- (अमरजीत �सह / Amarjit Singh ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांक/Dated : 22.03.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 3 7908/M/11(06-07) Mayura Milind Naik