SH. VIRENDER KHANNA,NEW DELHI vs. JCIT, NEW DELHI

This appeal filed by the assessee is directed against the order passed by the CIT(A) on 12.12.2012 in relation to the assessment year 2009-10.

It is a recalled matter inasmuch as the earlier ex parte order passed by the Tribunal was subsequently recalled vide order dated 4.9.2015 in MA No.221/Del/2014.

Ground No.1 is general which does not require any adjudication.

Ground No. 2 deals with certain disallowance of expenses. Sub- ground (i) is against the confirmation of disallowance of Rs.1,58,318/- out of Vehicle and Telephone expenses.

Briefly stated, the facts of the case are that the assessee is an architect by profession, who filed a return for the year declaring total income of Rs.3,60,17,900/-. Deduction, inter alia, was claimed for a sum of Rs.2,43,438/- on account of Vehicle running and maintenance expenses and Rs.1,89,669/- for Telephone expenses. The AO observed that the expenses under these heads had substantially increased over the preceding year. On being called upon to justify higher deduction, the assessee submitted that his professional fee drastically increased from Rs.2.17 crore in the preceding year to Rs.6.61 crore in the current year.

After considering the rival submissions and perusing the relevant material on record, it is observed as an admitted fact that the vehicles and telephone were also used by the assessee for his personal purposes as he has office-cum residence. In such circumstances, the personal use of vehicles and telephone cannot be ruled out. Taking into consideration the entirety of peculiar facts and circumstances of the instant case, we are of the considered opinion that it would be just and fair if such disallowance is reduced from 1/6th to 1/10th. We order accordingly.

Ground Nos. 2(ii) and (iii) are against the confirmation of disallowance of Rs.35,974/- out of Security expenses and Rs.39,894/- out of Electricity and water expenses. During the course of assessment proceedings, the AO observed that the assessee was living with his family at M-62, Saket, New Delhi, which premises was used as office- cum-residence. In the absence of the assessee having apportioned such expenses for business and personal use, the AO disallowed 1/3th of Security expenses and Electricity expenses, which resulted into addition of Rs.35,974/- in respect of in respect of Security expenses and Rs.39,894/- in respect of Electricity and water expenses. These disallowances were confirmed in the first appeal.

After considering the rival submissions and perusing the relevant material on record, it is observed that the assessee has used the premises M-62, Saket, New Delhi both as office and residence. Under such circumstances, full amount of Security and Electricity charges paid in respect of the said premises cannot be allowed as deduction against the professional income. Taking into consideration the entire factual position prevailing in this case, we are of the considered opinion that it would be reasonable and fair if the disallowance sustained by the ld. CIT(A) at 1/3rd of Security and Electricity expenses is reduced to 1/4th.

Ground No.2 (iv) is against confirmation of addition out of travelling expenses amounting to Rs.3,62,696/-. This disallowance has certain parts which are being discussed separately. The assessee, inter alia, claimed deduction of Rs.13,432/- on account of air travel of his daughter Mrinalini Khanna from Delhi-Mumbai-Delhi. The AO made disallowance for the said sum which was upheld in the first appeal.

We have heard the rival submissions and perused the relevant material on record. The assessee has made out a case for deduction on the premise that his daughter was assisting in profession carried on by him and this visit to Mumbai was in furtherance of his profession. On being called upon to adduce direct evidence about her visiting Mumbai for attending a meeting in connection with the project undertaken with ACC Ltd., the assessee failed to furnish it. The mere fact that Mrinalini Khanna is an architect, does not justify travel to Mumbai unless a direct evidence is shown of her having attended meeting for the purpose of assessee’s profession. In the absence of any such evidence, we uphold this disallowance.

The assessee’s wife Mrs. Anuradha Khanna incurred travel expenses of Rs.39,398/- for visiting Mumbai on two occasions and Hyderabad on the third occasion. The AO made the disallowance which was confirmed in the first appeal.

After considering the rival submissions and perusing the relevant material on record, we find that there can be no justification for deduction unless the visits are associated with the profession carried on by the assessee. The ld. AR submitted that she was paid consultancy fees of Rs.5 lac during the year which was allowed as deduction. On a specific query as to how this consultancy fees was paid, the ld. AR submitted that it was for certain specific projects whose details were not immediately available. He contended that such details are available and can be filed. Deductibility of such travel expenses is directly linked with the rendering of services by Mrs. Khanna in the carrying on of the assessee’s profession. If this expenditure is linked with the assignments given to her for which she was also paid consultancy fees, then deduction has to be allowed and vice versa. In the absence of any details of assignments given to Mrs. Anuradha Khanna, we cannot co- relate her visits to Mumbai and Hyderabad with the purpose of profession. Since the relevant details are not readily available with the ld. AR, we consider it expedient to set aside the impugned order on this score and remit the matter to the file of AO. We order accordingly and direct him to firstly ascertain the details of consultancy fees paid to her by taking into account the projects for which she was paid such consultancy fees and then co-relate such projects with the dates and places visited by her for which travelling expenses have been claimed.

The next disallowance is of Rs.40,255/- being the travelling expenses of Shri Narendra Khanna, son of the assessee. These expenses are on account of travel from London to Delhi and from Delhi to Bombay to Delhi. The AO made disallowance for the same which was affirmed in the first appeal.

We have heard the rival submissions and perused the relevant material on record. The ld. AR was required to show the purpose for which Shri Narendra Khanna visited London and Mumbai. On further probing, it transpired that Shri Narendra Khanna completed his education in London and came back to India and these expenses are in connection with such visit only. Since these expenses have no relation whatsoever with the carrying on of the profession by the assessee and are in the nature of his personal expenses, the same are held to be rightly disallowed.

The next disallowance is on account of travel expenses of Rs.7,066/- incurred on visit of Devki Khanna, daughter of the assessee to Hyderabad. This expenditure was disallowed by the AO and such disallowance was upheld in the first appeal.

After considering the rival submissions and perusing the relevant material on record, we do not find any substance in the assessee’s contention that the visit to Hyderabad was in connection with some exhibition of the assessee’s work. Even though Ms Devki Khanna was paid salary @ Rs.27,500/- per month, but, the assessee failed to connect her visit to Hyderabad with the profession carried on by him. We, therefore, uphold the disallowance.

The last amount is Rs.2,62,545/- being the expenses incurred by the assessee himself on travelling. First item is Rs.11,172/- on account of his visit to Bombay. As the assessee was having some projects with ACC Ltd., we hold that such expenditure is deductible. The remaining expenditure of Rs.1,66,873/- and Rs.84,500/- is on account of air ticket from Delhi to London and back to Delhi and expenses incurred on such visit. The AO made disallowance of this expenditure which was upheld in the first appeal.

After going through the relevant material on record, we find that Safdarjung Hospital, New Delhi, invited international competitive bids.

Ground No.2(v) is against the confirmation of disallowance of Rs.1 lac out of advertisement expenses. The assessee claimed deduction of Rs.1 lac. On being called upon to justify the deduction, the assessee stated that he paid the amount to Balaji Charitable Trust for advertisement of his organization by display of hoarding at the venue of concert organized by them. Copy of pamphlets and bank statement were also given. The AO refused to grant any deduction because the donation paid by the assessee to this organization was not supported by any certificate issued for the purposes of section 80G. The ld. CIT(A) upheld the disallowance.

After considering the rival submissions and perusing the relevant material on record, we find that the assessee has placed on record a copy of certificate issued u/s 80G to this organization as an additional evidence. Once an amount has been paid as donation, the same cannot be allowed as an advertisement expense. However, the same has to be allowed as deduction in terms of the section 80G. Ergo, we hold in principle that the assessee is eligible for deduction u/s 80G in respect of this donation of Rs.1 lac. The AO is directed to verify the correctness of this certificate and then allow deduction u/s 80G as per law.

Ground No.3 is against the confirmation of addition of Rs.68,846/- in respect of credit balance in the accounts of Arvind Kumar – Rs.41,817/-, Uberoi Sood & Kapoor – Rs.15,300/- and Vijay Sales Corp.

After considering the rival submissions and perusing the relevant material on record, we find from page 6 of the assessment order, where a table of these creditors has been drawn that these amounts represent opening balance. There is neither any debit nor credit entry for the year in question in any of these three accounts. Since these credits were generated in the preceding years, there can be no question of examining the genuineness of such credits in the instant year. Section 68 applies only in respect of credits which generate during the year itself. As such, we order for the deletion of this addition.

Ground No.4 is against the confirmation of disallowance of Rs.27,350/- u/s 14A read with Rule 8D in respect of exempt income of Rs.82,481/-.

Briefly stated, the facts of this ground are that the assessee earned exempt income of Rs.82,481/- and did not offer any disallowance. On being called upon to justify the claim, the assessee submitted that no expenditure was incurred for earning this income. The AO rejected this contention through para 9.3 of his order by specifically recording satisfaction. He, thereafter made disallowance @ 0.5% of the average of the value of investments within the meaning of Rule 8D(2)(iii). The ld. CIT(A) sustained the addition.

We have heard the rival submissions and gone through the material on record. It is found that the AO has rejected the assessee’s contention about not having incurred any expenditure to earn this income. This aspect has been specifically dealt with by the AO in para 9.3 of his order wherein a case has been made out for the assessee having incurred expenses for earning this exempt income. This demonstrates recording of a proper satisfaction by the AO. The assessment year under consideration is 2009-10. As per the judgment of the Hon’ble jurisdictional High Court in the case of Maxopp Investments Ltd. vs. CIT (2012) 347 ITR 272 (Del), the provisions of Rule 8D are applicable from assessment year 2008-09. As the AO has made disallowance u/s 14A only in terms of Rule 8D(2)(iii), we find that no exception can be taken to the sustenance of this disallowance. We, therefore, uphold the disallowance. This ground fails.

In the result, the appeal is partly allowed.