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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI ASHWANI TANEJA
O R D E R
Per ASHWANI TANEJA, AM:
This appeal by the assessee is against the order of Commissioner of Income-tax (Appeals)-25, Mumbai [hereinafter called CIT(A)] dated 03-07- 2014 passed against the assessment order u/s 143(3) dated 28-03-2006 for A.Y. 2003-04 on the following grounds:
“Grounds of appeal against the order dated 06.03.2014 passed by the Commissioner of Income-tax (Appeals)-25, Mumbai.
Following grounds of appeal are without prejudice to each other:
1. The CIT (A) has erred in law and on facts in passing the order u/s. 251(1) r.w.s. S. 254(1) of the Act, which is illegal and bad in law.
2. The CIT (A) has erred in law and on facts in upholding the order of the Assessing Officer by which he had disallowed the claim of the appellant for deduction u/s. 24 of the Act amounting to Rs. 1,50,000/- while determining income from house property.
3. The CIT (A) has erred in law and on facts in sustaining disallowance of the following expenses incurred by the appellant while carrying on his proprietary business under the name and style of M/s. Saibaba Enterprises: (i) Rs. 23,890/- out of electricity expenses of Rs. 47,780/-; and (ii) Rs. 6,420/- out of telephone expenses of Rs. 12,840/-. The CIT (A) ought to have deleted the aforesaid disallowances as the related expenses were incurred for the purposes of the business of the appellant.
4. The CIT (A) has erred in law and on facts in confirming disallowance of the following expenses incurred and claimed by the appellant in respect of his proprietary business under the name and style of M/s. Dear Impex: (i) Rs. 2,456/- towards of bank charges and interest; (ii) Rs. 1,12,028/- being interest on loans; (iii) Rs. 18,836/- being depreciation; (iv) Rs. 5,170/- being brokerage; and (v) Rs. 4,000/- as office expenses. The CIT (A) ought to have deleted the aforesaid disallowances as the related expenses were incurred for the purposes of the business of the appellant.
5. The CIT (A) has erred in law and on facts in concurring with the disallowance of the claim of the appellant for deduction u/s. 80HHC of the Act amounting to Rs. 8,99,586/- on incorrect interpretation of the provisions of the Act. The CIT (A) ought to have allowed the claim of the appellant it was in accordance with law. 6. The CIT (A) has erred in law and on facts in sustaining the levy of interest u/s. 234A, 23413, 234C and 234D of the Income-tax Act.” 2. Grounds 1 & 2 were not pressed and therefore, dismissed.
3. Ground 3: In this ground, the assessee has challenged the action of Ld. CIT(A) in sustaining disallowance of electricity and telephone expenses made by the AO @50% on the ground that assessee was having more than one proprietary concern and the expenses claimed by the assessee were not fully substantiated.
During the course of hearing before us, it was submitted by the Ld. Counsel that though complete details were not submitted and all the expenses were incurred wholly and exclusively for the purposes of business, but even if the entire expenses were not substantiated with complete evidences, the disallowance made @50% was too harsh and highly unfair and, therefore, it should be reduced to 10%.
Per contra, the Ld. DR submitted that the disallowance was justified as complete documentary evidences were submitted to prove that the entire expenses were incurred for the purposes of business of the assessee but he stated that fairly speaking the disallowance may be reduced to 25% of the total expenses.
We have gone through the facts and circumstances of the case. After taking into account all the facts and circumstances, we find it appropriate to reduce the disallowance to 20% of the total expenses.
The AO is directed to give relief accordingly. This ground may be treated as partly allowed.
Ground 4: In this ground, the assessee has challenged the action of lower authorities in making disallowance of expenses incurred in respect of his proprietary business under the name and style M/s Dear Impex. During the course of hearing it was submitted by the Ld. Counsel that the assessee is having many proprietorship units and business is being regularly done in all the units. In the case of M/s Dear Impex, the assessee could not receive export orders; therefore no income could be booked. But all the assets and liabilities continued to exist and assessee was making efforts to receive orders and earn income. Under these circumstances, expenses incurred on previous liabilities and for keeping the business alive are certainly meant for business and should be allowed as such.
Per contra, the Ld. DR submitted that in absence of export orders, it cannot be said that the business was in continuation and, therefore, the expenses cannot be allowed.
We have gone through the orders passed by the lower authorities. It is noted that the AO has disallowed expenses on account of bank charges, interest on loans, depreciation, brokerage and office expenses. It has been explained that interest has been paid on the loans received in earlier years which are still repayable. It is further noted that the assessee has reported in its return of income, the following incomes from its proprietary concerns: (a) M/s Saibaba Enterprises Rs.9,953
(b) M/s Peace International Exports Rs.18,20,939 (export activity) (c) M/s Dear Impex (-) Rs.1,42,490 Thus, from the above, it is clear that in the year under consideration the assessee very much continues to be in the business as all other proprietary units are admittedly continuing to do business. The only doubt could be with regard to business of M/s Dear Impex. It is noted from the balance-sheet and P & L Account of M/s Dear Impex that the assessee continues to hold assets and liabilities. The expenses incurred are routine expenses required to keep the business alive. Further, as stated above, all other units are functioning as usual and thus it cannot be said that assessee’s business ceased to exist. Under these circumstances, it will be not justified to say that these expenses have not been incurred for the purpose of business of the assessee. Therefore, we direct the AO to allow all these expenses as have been claimed by the assessee in the P&L Account of M/s Dear Impex. This ground may be treated as allowed.
Ground 5: In this ground, the assessee has challenged the action of lower authorities in denying the benefit of deduction u/s 80HHC on the amount of sale of DEPB licence amounting to Rs.8,99,586. During the course of hearing it was submitted by the Ld. Counsel that now this issue is covered in favour of the assessee in view of judgment of Hon’ble Supreme Court in the case of Topman Exports vs CIT 247 CTR 353 (SC). According to this judgment, only profit element is to be excluded while computing deduction u/s 80HHC on the amount of sale of DEPB. It was further argued that the AO has not correctly taken the amount of turnover. The AO stated that only that part of turnover would be considered which is actually realised. The assessee submitted that only that part of turnover has been considered while claiming deduction u/s 80HHC which has actually been realised, as would be evident from the details furnished before us (enclosed in the paper book pages 29 to 31 of the paper book). It was further submitted that the AO has wrongly aggregated the turnover of all the three proprietary units while computing amount of deduction u/s 80HHC. It was submitted that separate books of account are maintained and, therefore, only turnover of export unit should be considered for computing benefit of deduction u/s 80HHC. In his support, the Ld. Counsel relied upon the judgment of Hon’ble Madras High Court in the case of CIT vs Suresh Mehta 291 ITR 462, CIT vs Rathod Bros 254 ITR 656 (ad) and CIT vs Padmini Technologies Ltd 245 ITR (Del).
Per contra, the Ld. DR submitted that since there has been lot of legal developments on this issue and facts are not properly brought out, all these issues raised by the assessee may be sent to the AO for proper adjudication.
We have gone through the orders passed by lower authorities and find it appropriate to send this issue back to the file of the AO. The assessee shall furnish requisite details and documentary evidences for which the AO shall give adequate opportunity of hearing. The assessee is free to raise all legal and factual issues before the AO as were raised before us. The AO shall take into account all the aforesaid judgements while computing the deduction u/s 80HHC. The AO shall grant relief as per law and facts. With these directions, this ground is sent back to the file of the AO and may be treated as allowed, for statistical purpose.
In the result, the appeal may be treated as partly allowed.
Order was pronounced in the open court at the conclusion of hearing.