RAMESH K VAIDYNATHAN,MUMBAI vs. ACIT 15(2), MUMBAI

Cross appeals by assessee and Department for the assessment year 2007–08 and appeal by the assessee for assessment year 2009– 10 are against two separate orders passed by the learned Commissioner (Appeals)–28, Mumbai.

Brief facts are, the assessee an individual is an advocate by profession. For the assessment year under consideration, assessee

Learned Authorised Representative submitted before us that the learned Commissioner (Appeals) has accepted the fact that these types of expenses are generally incurred in advocacy profession. Learned Authorised Representative submitted before the learned Commissioner (Appeals) as well as during the remand proceeding, assessee has submitted detail summary of misc. expenses along with vouchers and bills for an amount of ` 8,38,128. Therefore, expenditure to that extent should be allowed.

Learned Departmental Representative on the other hand submitted, the learned Commissioner (Appeals) having allowed misc. expenditure on reasonable basis after considering all facts and material on record, there is no need to interfere with the same.

In ground no.5, assessee has challenged confirmation of addition of ` 2,77,000 under section 68 of the Act.

Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee in the relevant previous year claimed to have taken unsecured loan of ` 20 lakh from various persons. As noted by the Assessing Officer, the assessee neither filed confirmation letters nor could prove how the loans were utilised for the purpose of business / profession. Accordingly, he treated the amount of ` 20 lakh as unexplained cash credit. Being aggrieved of such addition, assessee preferred appeal before the learned Commissioner (Appeals). In course of hearing of appeal before the first appellate authority, the assessee produced various additional evidences to prove the genuineness of the loan. On the basis of evidences produced, learned Commissioner (Appeals) called for a remand report. On a perusal of the remand report, the learned Commissioner (Appeals) found that out of the total unsecured loans of ` 20 lakh, an amount of ` 10 lakh is the opening balance, hence, was not introduced during the impugned assessment year. Therefore, cannot be treated as unexplained cash credit. As far as balance amount of ` 10 lakh is concerned, the learned Commissioner (Appeals) after perusing the remand report found that in respect of 39 creditors representing loan amounting to ` 7,23,000, the Assessing Officer has not raised any doubt about their genuineness. He, therefore, accepted such loans as genuine and deleted the addition. However, in respect of loan received from 16

Learned Authorised Representative submitted before us that the assessee has filed confirmation letters mentioning PAN and income tax particulars of all those 16 creditors before the learned Commissioner (Appeals) and the Assessing Officer. Learned Authorised Representative submitted, some of these creditors have also filed their income tax returns and have taxable income. Therefore, it is not improbable for them to provide unsecured loan of small amounts to the assessee as they have adequate means to provide such loans. In this context, learned Authorised Representative referred to the confirmation letters, income tax return, etc. of the creditors. She, therefore, submitted that there is no basis for such addition.

learned Departmental Representative on the other hand referring to the remand report of the Assessing Officer submitted, as none of these parties came forward to appear before the Assessing Officer. He submitted, in many cases summons returned back unserved due to insufficiency of address, hence, the loans cannot be treated as genuine as the assessee failed to prove creditworthiness of the creditors and genuineness of the transactions. He submitted, even in case of some

We have considered the submissions of the parties and perused the material available on record. Undisputedly, the 16 persons who advanced unsecured loans aggregating to ` 2,77,000 which was treated as unexplained cash credit, the assessee has produced confirmation letters from each of the creditors which not only contains the address but also the PAN. Even in respect of some of the creditors, the assessee has submitted copies of return of income filed by them. Therefore, as could be seen assessee has established the identity of all the 16 persons. As far as genuineness of the transaction and creditworthiness of the creditors is concerned, we have noted that a majority of the aforesaid creditors are income tax assessees and are filing their return of income which is evident from the income tax return copies submitted in the paper book. Therefore, it may not have been difficult for them to advance small amounts of unsecured loans to the assessee. Only because the creditors did not respond to the summons issued by the Assessing Officer, for whatever may be the reason, for that reason alone the loan transaction cannot be held to be not genuine. Moreover, it is observed from the remand report that some of the creditors did receive the summons issued to them which proves their existence. Moreover, when the learned Commissioner

In the result, assessee’s appeal is partly allowed. ./2012 – Department’s Appeal

In this appeal, the only issue raised by the Department is in relation to the deletion of an amount of ` 17,23,000, out of the total addition of ` 20 lakh made by the Assessing Officer as unexplained cash credit under section 68 of the Act.

Learned Counsels for both the parties agreed before us that the tax effect pertaining to the amount disputed by the Department is less than the monitory limit of ` 10 lakh fixed by the CBDT in Circular no.21 of 2015 dated 10th December 2015, in relation to appeal before the Income Tax Appellate Tribunal. Taking into consideration the aforesaid submissions of the parties and also finding that the CBDT circular under reference applies retrospectively, even to pending appeals, we dismiss the appeal of the Department as not maintainable.

In the result, Department’s appeal is dismissed.

We have considered the submissions of the parties and perused the material available on record. As could be seen, out of the total misc. expenditure of ` 8,20,886, claimed by the assessee as per the remand report of the Assessing Officer, assessee had submitted supporting evidence for an amount of ` 5,43,592 and could not produced any evidence in respect of balance amount of ` 2,77,294. Considering the nature of expenditure claimed as misc. expenses, it is always not possible to maintain and preserve each and every documentary evidence in respect of such expenditure. Therefore, a reasonable disallowance has to be made keeping in view the general trend. As could be seen in the assessment year 2007–08, learned Commissioner (Appeals) himself examining such expenditure incurred by other professionals had observed that about 10% to 15% of the gross receipts is generally incurred for such expenditure. We have noted in the impugned assessment year, the assessee has disclosed total receipts of ` 82,01,977. Thus, the misc. expenditure claimed at ` 8,20,886 roughly works out to 10% of the total receipt. That being the case, we are of the view that no disallowance out of misc. expenditure

In ground no.2, assessee has challenged disallowance of ` 1,32,037 out of conveyance and travelling expenses.

In the course of assessment proceedings, the Assessing Officer noticing that the assessee has claimed an amount of ` 7,18,526, towards conveyance and travel expenditure called upon the assessee to produce supporting evidence to justify the claim. It was observed by the Assessing Officer that as per the common practice, assessee being an advocate most of the time travels for his work at the cost of client. Therefore, in the absence of any proof submitted by the assessee that he has actually incurred expenditure towards conveyance and travel, he disallowed the claim made by the assessee. Assessee challenged the disallowance before the learned Commissioner (Appeals).

Learned Commissioner (Appeals) on perusing the remand report found that the assessee could not produce supporting evidence for an amount of ` 1,32,037 out of the total expenditure claimed of ` 8,66,551. However, he upheld the disallowance made by the Assessing Officer.

Learned Authorised Representative drawing the attention of the Bench to the remand report submitted the Assessing Officer having

Learned Departmental Representative relied upon the observations of the learned Commissioner (Appeals) and the Assessing Officer.

We have considered the submissions of the parties and perused the material available on record. On a perusal of the remand report as well as the observations made by the learned Commissioner (Appeals) in Para–6 of his order, we have noted that the Departmental Authorities has accepted that out of the total conveyance and travelling expenditure of ` 8,66,551, the assessee was not able to produce evidence for ` 1,32,037. Therefore, entire expenditure claimed by the assessee should not have been disallowed and, in our view, the disallowance should have been restricted to the quantum of expenditure for which the assessee could not produce any evidence. Accordingly, we restrict the disallowance under the head “conveyance and travelling expenses” to ` 1,32,037. Ground no.2 is partly allowed.

In ground no.3, assessee has challenged the disallowance of an amount of ` 73,620, out of electrical expenses.

On the basis of additional evidence produced by the assessee, learned Commissioner (Appeals) called for a remand report from the Assessing Officer. In the remand report, the Assessing Officer observed that the assessee could produce supporting evidence for an amount of ` 11,030 only. Therefore, in the absence of proper evidence, learned Commissioner (Appeals) upheld the disallowance.

We have considered the submissions of the parties and perused the material available on record. It is evident from the remand report of the Assessing Officer as well as observations made by the learned Commissioner (Appeals) in Para–7 of his order, the assessee was able to produce supporting evidence for an amount of ` 11,030. That being the case, we allow expenditure claimed by the assessee to that extent thereby upholding the disallowance for an amount of ` 73,620. Ground no.3, is partly allowed.

On the basis of additional evidence produced, learned Commissioner (Appeals) called for remand report. After examining the evidence produced by the assessee, the Assessing Officer in his remand report observed that the assessee could produce supporting evidence for an amount of ` 12,759.

The learned Commissioner (Appeals) after perusing the remand report upheld the disallowance made by the Assessing Officer.

We have considered the submissions of the parties and perused the material available on record. As could be seen from the remand report the Assessing Officer has acknowledged that the assessee had produced supporting evidence of ` 12,759. That being the case, expenditure to that extent should have been allowed. Accordingly, we restrict the disallowance to ` 83,813. Ground no.4, is partly allowed.

In ground no.5, assessee has challenged the disallowance made out of postage expenditure.

Brief facts are, while completing the assessment the Assessing Officer disallowed postage expenditure of ` 1,29,587 claimed by the assessee as the assessee could not produce supporting evidence. Assessee challenged the disallowance before the learned Commissioner (Appeals).

As observed by the learned Commissioner (Appeals), even during the remand proceedings as per the observations of the Assessing Officer, assessee could not produced any supporting evidence in respect of postage expenditure. However, taking into consideration the fact that assessee being a professional might have incurred certain postal expenses he allowed 50% of the amount claimed by the assessee.

We have considered the submissions of the parties and perused the material available on record. It is evident, the assessee has not been able to produce any evidence in support of postage expenditure claimed by him. That being the case, the decision of the learned Commissioner (Appeals) in allowing 50% of the expenditure claimed in our view is reasonable, hence, calls for no interference. Ground no.5, is dismissed.

In ground no.6, assessee has challenged disallowance of ` 6 lakh out of total consultancy charges of ` 15 lakh.

Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of ` 15 lakh on account of consultation charges paid to his wife Smt. Subhalaxmi Ramesh Vaidyanathan, for helping him in his consultation work, banking matter and routine office work. The Assessing Officer observed, assessee has not paid such huge amount to any other professional. He also observed, the assessee has also not furnished the qualification and experience of Smt. Subhalaxmi Ramesh Vaidyanathan. The Assessing Officer was of the view, as the assessee has not substantiated the consultation charges paid to his wife by furnishing the qualification or any other evidence to justify the payment, he restricted consultation charges to ` 50,000 per month by applying the provisions of section 40(b), which worked out to ` 6 lakh for the year and thereby disallowed balance amount of ` 9 lakh. Being aggrieved of such disallowance, assessee challenged the same before the learned Commissioner (Appeals).

Learned Commissioner (Appeals), however, upheld the disallowance made by the Assessing Officer.

Learned Departmental Representative supporting the order of the learned Commissioner (Appeals) submitted, when the payment is made to a relative the Assessing Officer in terms of section 40A(2) has to examine the reasonableness of the expenditure claimed. He submitted, as the assessee could not properly justify the reasonableness of the expenditure, the Assessing Officer was correct in quantifying the expenditure reasonably.

We have considered the submissions of the parties and perused the material available on record. Undisputedly, the assessee has paid an amount of ` 15 lakh towards consultancy charges to his wife Smt. Subhalaxmi Ramesh Vaidyanathan. As far as the genuineness of assessee’s claim is concerned, there cannot be any doubt as the Department has also accepted a part of the expenditure claimed by the assessee. Thus, the only dispute is with regard to the quantum of expenditure claimed. It is evident from the observations of the Assessing Officer, he has restricted the claim of the assessee to ` 50,000 per month for the reason that the assessee was not able to justify the payment made to his wife by producing her educational qualification and other details. However, the fact that Smt. Subhalaxmi Ramesh Vaidyanathan, is having adequate educational qualification to support and assist in not only professional work of his husband but also the overall management of the office / work has been established by the assessee. A list of activities carried on by assessee’s wife has also been enumerated in the written submission filed before the learned Commissioner (Appeals). It has also been brought to our notice that Smt. Subhalaxmi Ramesh Vaidyanathan, had filed her return of income for the impugned assessment year offering the consultancy charges of ` 15 lakh as her income. In the aforesaid circumstances, it needs to be examined whether the expenditure

Besides the aforesaid main grounds, assessee has raised six more additional grounds.

It was submitted by the learned Authorised Representative that these grounds were raised before the learned Commissioner (Appeals). However, he failed to decide these grounds and due to inadvertent mistake, the assessee could not raise these grounds in the memorandum of appeal, hence, these grounds are raised by way of additional grounds.

On a perusal of Form–35 filed before the learned Commissioner (Appeals), we have noted that the additional grounds raised by the assessee were also raised before the learned Commissioner (Appeals).

In grounds no.1 and 2 of additional grounds, assessee has challenged the decision of the learned Commissioner (Appeals) in not allowing the expenditure claimed on salary. During the assessment proceedings, the Assessing Officer noticing that the assessee has claimed expenditure of ` 9 lakh (wrongly mentioned as ` 8,20,886 in the assessment order) called upon the assessee to submit necessary evidence. However, as the assessee failed to submit supporting evidence, the Assessing Officer disallowed the entire salary expenditure.

Before the first appellate authority, the assessee while challenging the disallowance of salary expenditure produced documentary evidence by way of additional evidence to justify the claim. On the basis of evidence produced, though, the learned Commissioner (Appeals) called for the remand report from the Assessing Officer, however, in the order passed, he did not decide the issue.

Learned Authorised Representative referring to the remand report submitted by the Assessing Officer contended that after examining the evidence submitted, the Assessing Officer accepted the 23 Shri Ramesh K. Vaidyanathan genuineness of salary expenditure, therefore, there is no reason to disallow the same.

Learned Departmental Representative submitted, as the learned Commissioner (Appeals) has not decided the ground raised by the assessee on this issue it may be restored back to the file of the learned Commissioner (Appeals).

We have considered the submissions of the parties and perused the material available on record. Undisputedly, assessee has claimed an amount of ` 9 lakh towards payment of salary which was disallowed by the Assessing Officer solely for the reason that assessee could not produce supporting evidence. However, on a perusal of the remand report dated 2nd May 2013 of the Assessing Officer submitted to the learned Commissioner (Appeals) we have noted that the Assessing Officer has accepted that the assessee has produced supporting evidence on payment of salary and he has not made any adverse comment on the issue. That being the case, in our view, expenditure claimed having been proved by the assessee should be allowed. We may further observe that as the issue has already been examined by the Assessing Officer during the remand proceedings and he has not raised any doubt on the genuineness of such payment in the remand report, no useful purpose would be served in again restoring the matter back to either learned Commissioner (Appeals) or Assessing

In grounds no.3 and 4, assessee has challenged disallowance of expenditure claimed of ` 1,68,595 on account of books and periodicals As is evident, the Assessing Officer while completing the assessment, disallowed this expenditure for want of supporting evidence. However, before the learned Commissioner (Appeals), assessee produced additional evidence on the basis of which learned Commissioner (Appeals) called for a remand report. Though, the Assessing Officer submitted remand report on the issue, however, the learned Commissioner (Appeals) failed to adjudicate the issue raised by the assessee.

We have considered the submissions of the parties and perused the material available on record. On a perusal of the remand report dated 2nd May 2013, we have noted that after examining the supporting evidences produced by the assessee in respect of expenditure claimed on books and periodicals, he was satisfied with the genuineness of claim as he has not made any adverse comment. That being the case, the expenditure claimed by the assessee deserves to be allowed. As the matter has already been examined by the Assessing Officer during the remand proceedings, we do not consider it appropriate to again restore the matter back to the file of the 25 Shri Ramesh K. Vaidyanathan Assessing Officer or learned Commissioner (Appeals). Accordingly, grounds no.3 and 4 are allowed.

Grounds no.5 and 6 of additional grounds are challenging the disallowance under section 14A r/w rule 8D.

At the time of hearing, learned Authorised Representative did not press these grounds, hence, these grounds are dismissed as “not pressed”.

In the result, assessee’s appeal is partly allowed.

To sum up, ITA no.6376/Mum./2012 is partly allowed; ITA no.6729/Mum./2012 is dismissed and ITA no.7138/Mum./2013 is partly allowed. Order pronounced in the open Court on 19.08.2016