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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ NEW DELHI
Before: SHRI J.S. REDDY & SHRI CHANDRAMOHAN GARG
Lovi Mehrotra & Associates, vs DCIT, Chartered Accountants, Circle 37(1), IInd Floor, 21-22, New Delhi. Krishna Nagar, Safdarjung Enclave, New Delhi. (PAN: AACFL4092R) (Appellant) (Respondent) Appellant by: Shri S.C. Mehrotra, CA Respondent by: Shri Nirmaljeet Singh, Sr. DR O R D E R PER C.M. GARG, J.M.
This appeal by the assessee has been preferred against the order of CIT(A)-XXVIII, New Delhi dated 07.08.2013 passed in Appeal No. 110/2012- 13 for Assessment Year 2010-11.
Ground no. 1 & 5 of the assessee are general in nature, remaining effective grounds read as follows:- “1. The order of the Ld. CIT(Appeal) - XXVIII, New Delhi dated: 07.08.2013 is bad in law and on facts. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in confirming the disallowance of partners remuneration to the extent of Rs. 15,000 paid to Shri Rishi Raj Omar.
I.T.A. 5907/Del/13 Assessment Year: 2010-11 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in confirming the disallowance of rent paid for Kolkata office of the firm amounting to Rs. 85,872.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in confirming the disallowance of conference expenses to the extent of Rs.58,142 out of the total disallowance of Rs.88,772 by the Assessing Officer.” Ground No. 2 3. Apropos ground no.2, the ld. AR submitted that the ld. CIT(A) erred in confirming the disallowance of partners remuneration to the extent of Rs. 15,000 paid to Shri Rishi Raj Omar whereas this amount was being reimbursed regularly in the earlier assessment years. Ld. DR strongly supported the action and stand of the authorities below.
On careful consideration of above rival submissions, we note that the assessee submitted written submissions before CIT(A) dated 26.7.2013 and explained as follows:-
“The disallowance of the Rs.15,000/- pertains to excess amount debited towards Partners remuneration in respect of Remuneration to Shri Rishi Raj Omar as authorized in the Partnership Deed. The said amount related to his claim for telephone expenses which by sheer mistake had been debited to partners remuneration accounts instead of telephone expenses account. In the connection we would like to clarify that this does not make much difference as in both the cases the expenses has been permissible business expenditure in as much as even adjusting the expenditure towards partners remuneration it falls within the permissible limits as laid down under section 40(b) (v) of the Act. Incidentally we wish to point out that Shri Rishi Raj Omar taken the increased the amount of Rs. 735,000/- in his personal return for the year under reference copy of his Return I.T.A. 5907/Del/13 Assessment Year: 2010-11 along with his Computation are being furnish red herewith for your kind perusal. We feel that once the increased amount of remuneration had been taken by Shri Rishi Raj Omar in his personal Return same should not be included in the firm’s assessment.”
In view of above, we note that the CIT(A) did not address and adjudicate the issue and merely confirmed the addition as sustained as the claim is inadmissible as per provisions of section 40(b) of the Act. Per contra, the claim of the assessee is that the expense relates to telephone expenses which by sheer mistake was debited to partner’s remuneration account instead of telephone expense account and the same was reimbursed to Shri Rishi Raj Omar and he has also shown this receipt in his return of income along with salary income.
We are in agreement with the submissions of ld. AR that once increased amount of remuneration which includes reimbursement of telephone expense had been taken by Shri Rishi in his personal return and in both the cases, either as partners’ salary or as telephone expenses, both are allowable as permissible business expenditure and thus no addition can be made in this regard.
Accordingly, ground no. 2 of the assessee is allowed.
Ground no. 3
Apropos ground no. 3, ld. AR submitted that disallowance of rent of Kolkata office was allowable as professional business used to be carried out from said office address, therefore, there was no case for disallowing the same u/s 30 of the Act or alternatively u/s 37 of the Act. Ld. AR vehemently I.T.A. 5907/Del/13 Assessment Year: 2010-11 contended that as the expenditure was incurred wholly and exclusively for the purpose of professional business, rent paid by way of sub tenancy are allowable.
Ld. DR supported the order of Assessing Officer and CIT(A) and submitted that there was no rent agreement in the name of assessee firm, hence, disallowance was correctly made and upheld.
On careful consideration of above and perusal of assessee’s paper book pages 21 to 49, we note that for similar premises, rent was being paid for Assessment Year 2003-04 and 2006-07 and it was also allowed in Assessment Year 2004-05 and 2007-08 in scrutiny assessment u/s 143(3) of the Act; the assessee also paid electricity charge and the assessee has also undertaken professional services for M/s Shopper Stop, Kolkata Branch and M/s Thomas Cook. These facts have not been controverted by the Assessing Officer. It is also observed from assessee’s paper book pages 30 to 43 and 44 to 49 that the assessee provided professional services to these entities/clients and bills have been raised which were also offered for taxation as professional receipts. In view of aforesaid uncontroverted facts, we are inclined to hold that observations of the Assessing Officer in para 4.2 are baseless and has no legs to stand.
Merely because the rent deed is not in the name of the assessee and tenancy stands in the name of M/s Mittal and Mehrotra Associates, the genuine claim of rent paid cannot be dismissed. We set aside the orders of the authorities below I.T.A. 5907/Del/13 Assessment Year: 2010-11 and thus ground no. 3 of the assessee is allowed and the Assessing Officer is directed to allow the amount of rent paid relevant to Kolkata office.
Ground No. 4
Apropos ground no.4, ld. AR submitted that the CIT(A) grossly erred in disallowing the conference expense to the extent of Rs.28,087 as these were cash payments but the same was adjustment by assessee’s client The Langoona Resorts Pvt. Ltd. from professional fees account which is amply clear from copy of account with the said client available at page 50 of assessee’s paper book.
Ld. DR supported the orders of the authorities below and submitted that the Assessing Officer rightly made disallowance u/s 40A(3) of the Act as assessee has incurred expenses otherwise than an account payee cheque/bank draft in excess of Rs.20,000/-.
On careful consideration of above rival submissions and operative para 5.1 and 5.2 of the assessment order, we note that the Assessing Officer made disallowance of Rs.88,772 u/s 40A(3) of the Act. On first appeal, the CIT(A) held that the addition made by the Assessing Officer u/s 40A(3) of the Act for cash payment in respect of purchase of railway tickets from Mumbai to Jaipur and back being admissible cannot be sustained. However, the CIT(A) disallowed expense on Langoona Resort treating the same as personal in nature.
I.T.A. 5907/Del/13 Assessment Year: 2010-11 12. As per submissions of the assessee dated 26.7.2013 Rs.58142 (including Rs.28087 pertaining to hotel expense to Langoona Resort at Lonavala) adjusted against professional bill of the assessee’s firm account (page 50 of the paper book). This expense was never alleged by the Assessing Officer as personal expenses, however, he made addition based on the allegation of cash payment in excess of Rs.20,000 u/s 40A(3) of the Act. Per contra, from statement of account and bill raised by the Langoona Resort, it is amply clear that there was no cash payment and the client of the assessee CA firm, M/s Langoona adjusted the bill amount in the professional fees due to them and there was no element of cash payment.
Furthermore, the CIT(A), except Rs.28,087/-, allowed all expenses pertaining to purchase of railway tickets but disallowed said part of expenses by making a new case and by holding the same being personal in nature. We do not agree with this conclusion that while the expenses of travelling are being allowed as official and business expense, then stay in hotel cannot be termed as personal affair and expense thereon cannot be alleged as personal nature and thus assessment order as well as first appellate order based on wrong factual finding can be sustained and we dismiss and demolish the same. Accordingly, ground no. 4 of the assessee is allowed and the Assessing Officer is directed to allow entire claim of the assessee in this regard.
In the result, appeal of the assessee is allowed.
I.T.A. 5907/Del/13 Assessment Year: 2010-11 Order pronounced in the open court on 16.12.2015.