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Income Tax Appellate Tribunal, KOLKATA BENCH ‘C’, KOLKATA
Before: Shri M. Balaganesh, A.M. & Shri S.S.Viswanethra Ravi, J.M.)
ORDER Per Shri S.S.Viswanethra Ravi, J.M. This is an appeal preferred by the assessee against the order dated 15.11.2011 passed by the CIT(Appeals)-XX, Kolkata in Appeal No. 144/CIT(A)-XX/Wd-36(4)/09-10/Kol for the assessment year 2007-08 framed under section 143(3) of the I.T.Act.
The assessee preferred the above-said appeal on the following grounds of appeal. “1. That the Ld. C.I.T.(A) erred in confirming addition u/s 69A Rs.4,44,295/- representing realization of assets inherited from mother pursuant to her ‘WILL”.
2. That the Ld. C.I.T.(A) erred in sustaining disallowances Car Exp. Rs.10,993/-, Depreciation on car Rs.6,328/- + Telephone Expenses Rs.7,523/- although the 2 Ved Prakash Lohia Assessment Year: 2007-08 expenses related wholly and exclusively to business activities. Without prejudice the disallowances are excessive.”
3. The assessee is the proprietor of M/s. Lohia Ispat Udyog. The return of income for the assessment year was filed on 12.10.2007 declaring a total income of Rs.1,39,760/-. The case was taken up for scrutiny assessment under section 143(3) and notices under section 143(2) were issued. During the scrutiny assessment, the A.R. of the assessee appeared from time to time and furnished books of accounts, bills/vouchers which were examined by the AO. During the course of assessment proceedings, the AO found a fresh capital said to have been introduced by the assessee to an extent of Rs.4,30,000/- into his business. The AO treated the same as undisclosed source of income and added the same to the income of the assessee. Apart from that, the AO also disallowed motor car expenses, depreciation on motor car and business expenditure on account of telephone usage.
3.1 The mother of the assessee, i.e. Smt. Kaushalaya Devi Lohia during her life time, purchased immovable and movable properties out of her own funds. She also claimed to have received by way of gifts from her ancestors as well as her relatives on some ceremonial occasions. In the year 2005, she executed a WILL wherein she bequeathed her current assets to the assessee in the form of shares and others and balance thereon i.e., jewellery and ornaments were given to her daughter-in-law i.e. wife of the assessee. The assessee sold all his current assets and the proceeds thereon to an extent of Rs.4,28,795/- was received and deposited in personal bank account of the assessee. Later a sum of Rs.4,30,000/- was transferred periodically from the said bank account to business account of the assessee.
3 Ved Prakash Lohia Assessment Year: 2007-08 3.2 Regarding the genuineness of the WILL, the AO was of the view that the WILL has been executed on a plain white paper and all the requisite conditions which are said to be followed while executing the same are not complied. AO was further of the view that the WILL has not been certified by any Advocate and not been attested by an independent witness and found the signature of the assessee as a witness whereby, the AO disbelieved the said WILL and the amounts transferred to business account were added to the income of assessee.
3.3 The assessee claimed expenditure of motor car to an extent of Rs.1,09,933/- but the AO disallowed the same to the extent of Rs.21,987/- being 20% against Rs.1,09,933/-. The assessee claimed depreciation on motor car for Rs.63,280/-. The AO disallowed the same to the extent of Rs.12,656/- being 20% of the claim and the AO disallowed the telephone expenses at Rs.15,046/- as against the claim of Rs.75,229/-. Thereby, the AO assessed the taxable income at Rs.6,33,744/-. Against the same, the assessee preferred an appeal before the ld. CIT(A).
The ld. CIT(A) in the appellate proceedings also took the same view as that of the AO with reference to the WILL executed by the mother of the assessee. The ld. CIT(A) reiterated the same grounds on which the AO took the view with reference to the WILL. The ld. CIT(A) found that 20% disallowance is too high for the expenditure on motor car, depreciation on motor car and telephone expenses and however restricted the same to 10%. Ld. CIT(A) allowed the appeal of the assessee partly, against which the assessee is before us.
Before us, the ld. Counsel for the assessee contended that the assessee produced all the relevant materials including the books of 4 Ved Prakash Lohia Assessment Year: 2007-08 accounts of the assessee and his mother, his personal bank account and the bank account relating to his business concern and explained in detail that he got shares from his mother through a WILL. The same were sold and proceeds thereon transferred to the personal savings bank account maintained with Oriental Bank of Commerce, Liluah branch, Howrah, and thereafter, periodically to his business account of M/s. Lohia Ispat Udyog maintained with ING Vysya Bank, Liluah branch, Howrah. In this regard, the ld. Counsel drew our attention to the page no.13 of paper book to para 4 of the WILL wherein he pointed that the mother of the assessee expressed her intention to grant all her current assets to a tune of Rs.4,28,795/- to the assessee. Supporting the same, the ld. Counsel for the assessee also pointed to the balance-sheet of his mother at page no.16 of the paper book where all her investments in shares totaling to Rs.4,28,795/- and the same were transferred to the assessee’s business concern from his personal account and accordingly pleaded to allow ground no.1 in favour of the assessee. The ld. DR vehemently contended that the AO is right in observing that the contents of the WILL are nothing but a concocted story, which, by no means, can be acceptable and relied on the orders of the ld. CIT(A) and the AO and prayed to confirm the addition made by the AO and dismiss the ground of the assessee.
Heard and perused the orders of the lower authorities and considered the arguments of both the representatives. Now the question before us whether the AO and the ld. CIT(A) are right in not accepting the WILL as it does not measure upto a requisite standard of valid WILL.
6.1 It is pertinent to mention that there is no specific format for WILL and in order to declare a WILL as a valid WILL, there are general
5 Ved Prakash Lohia Assessment Year: 2007-08 procedures which should be adopted while writing a WILL by the testator which includes declaration in the beginning, details of property and document, the details of ownership by the testator, attestation and the execution thereon. In the present case, the AO doubted only the attestation part of the said WILL but whereas it is noticed except attestation, all other ingredients, which are necessary to prove a WILL valid, are contemplated in the said WILL. In respect of attestation, no doubt, it is observed the assessee himself signed has been noticed in comparison with a signature of the assessee but if a WILL does not specify that requirements, any person who would have a financial interest in the estate under the laws of descent and distribution can start an action in the court of law to challenge the validity of the WILL. It is also noticed in the said WILL that the executor, i.e. the mother of the assessee stated that she has three children i.e., two sons and one daughter. Amongst them is the assessee before us but none challenged the said WILL before the Court of law. In fact, no contrary evidence has been brought to our notice. Therefore, it can be safely concluded that the said WILL is a valid WILL and the same regulated the succession as declared by the testator, i.e. the mother of the assessee. In respect of page no.16, where the Profit & Loss account belonging to the mother of the assessee is produced, wherein it shows that she has invested in shares, particularly, in MKJ Development Ltd., Starlight Credit (I) Ltd. and Kherapati Vanijya Ltd. which altogether come to Rs.4,28,795/-. Therefore, in our view, the amount to an extent of Rs.4,28,795/- is validly proved to have been invested by the assessee in his business concern from his personal account which is the sale proceeds of such shares which he got from WILL. Therefore, the nature and source of the fund was received from the mother of the assessee is proved. As regards the balance sum of Rs.16,000/- (Rs.4,44,795/- -
6 Ved Prakash Lohia Assessment Year: 2007-08 Rs.4,28,795/-), no arguments were advanced by the assessee before us. Hence, we dismiss the claim of the assessee in this regard. Accordingly, the ground no.1 raised by the assessee is partly allowed.
In respect of ground no.2 relating to the ad hoc disallowance @ 20% out of car expenses, depreciation on car and telephone expenses treating the expenses incurred for personal use. When the matter went before the ld. CIT(A), the ld. CIT(A) restricted to all the expenses incurred by the assessee to 10%, i.e. Rs.10,993/- out of car expenses, Rs.6,328/- regarding depreciation on car and Rs.7,523/- out of telephone expenses on the ground that the personal use in the above expenses cannot be ruled out.
Before us, the ld. Counsel for the assessee argued that the expenses were incurred in the normal course of the business and no ad hoc disallowance is justified. The ld. Counsel submitted that the assessee maintained a motor car for facilitating travelling for his business purposes and incurred the expenditure on account of car running expenses. The ld. Counsel further stated that the assessee and his employees had to undertake extensive travel for the business and used the car for business purpose only. The ld. Counsel further submitted that though the assessee appeared from time to time and filed the required details but the AO, without any reason whatsoever, disallowed one-fifth of the car expenses and depreciation on car and telephone expenses on ad hoc basis. Therefore, the ld. Counsel prayed for deletion of the above disallowances. In reply, the ld. DR supported the orders of the lower authorities and argued that the ld. CIT(A) is justified in restricting the disallowance to 10% of the expenses. After hearing the submissions of both the representatives, we are of the view
7 Ved Prakash Lohia Assessment Year: 2007-08 that on mere presumption the AO just made the additions on ad hoc basis without any basis. The AO himself opined that the expenses of personal use could not be ascertained in the absence of log book. The ld. CIT(A) himself has admitted that the AO has not identified any specific item of personal expenses. The ld. CIT(A), without going into the details of the expenses and the basis of disallowance, restricted to 10% of the expenses on ad hoc basis. Ad hoc disallowance is always made without having any concrete evidence that the assessee has incurred the expenses for personal use. We, therefore, find no reason to disallow the above expenses incurred by the assessee. Hence, we delete the same. Thus, the ground no.2 of the assessee is allowed and against the Revenue.
In the result, the appeal filed by the assessee is partly allowed.
Order Pronounced in the Open Court on 4th December, 2015.