Paresh P/. Shah, Mumbai vs Assessee

आयकर अपीलीय अिधकरण, अिधकरण मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES 'C' MUMBAI सव ौी आय.पी. बंसल, याियक सदःय एवं ौी चं पुजारी, लेखा सदःय के सम । BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER

ITA NO. 2904/Mum/2013 (A.Y.2008-09)

Paresh P. Shah The ACIT -11(3), 302, K.K. Square Room No.446, Aayakar Bhavan , Above Skoda Showroom Vs. Churchgate 470-Cardinal Gracious Road Mumbai-400 020. Chakala, andheri (E) (Respondent) Mumbai-400 099. GIR No./PAN : AAIPS 4292 G (Appellant )

Appellant by : Dr. K. Shivaram, Shri Rahul Sarda Respondent by : Shri N. Padmanaban-DR

Date of hearing : 16/02/2015 Date of pronouncement : 25/02/2015

ORDER

PER CHANDRA POOJARI, A.M:

This appeal by the assessee is directed against the order dated 15/01/2013 passed by the ld. CIT(A) for the assessment year 2008-09. The assessee has raised the following grounds :-

"1. The ld. CIT(A) erred in confirming the addition of Rs.15,590/- without appreciating the fact that all the entries were explained and hence addition may be deleted.

2. The ld. CIT(A) erred in confirming the disallowance of Rs.54,271/- under section 14A r.w.r. 8D, without appreciating the fact that the assessee had not incurred any expenditure debited in the profit and loss account were wholly and exclusively incurred for the profession and not for earning any exempt income, hence the disallowance may be deleted.

2 ITA No.2904/Mum/13 3. The ld. CIT(A) erred in treating the derivative loss of Rs.15,96,479/- as capital loss instead of business loss and thus erred in enhancing the income without issue of mandatory notice under section 251.

4. The ld. CIT(A) erred in adjusting the derivative loss of Rs.15,96,479/- against capital gains instead of allowing the set off against business income.

5. The ld. CIT(A) erred in confirming the adhoc disallowance of Rs.1,14,125/- under the following heads:-

i) Conveyance @10% Rs. 7,017/- ii) Local Travelling @5% Rs. 5,243/- iii) Foreign Travelling @20% Rs. 52,014/- iv) Motor Car Expenses @20% Rs. 22,360/- v) Telephone Expenses @20% Rs. 27,491/- Rs.1,14,125/-

6. The ld. CIT(A) erred in conforming the interest levied under section 234B and 234C."

2. Before us, the ld. AR made an endorsement that the assessee is not interested in pressing ground No.1 and 2. The ld. DR raised no objection if the ground nos. 1 and 2 are not pressed. Accordingly these two grounds are dismissed as not pressed.

3. Ground No. 3 and 4 are inter-linked. The main grievance of the assessee is that the direction of CIT(A) in treating the derivative loss of Rs.15,96,479/- as capital loss instead of business loss which results in enhancement of income of the assessee without giving mandatory notice under section 251.

3.1 In this case the assessee claimed short term capital gains at Rs.21,56,073/-. At the same time there was claim of Rs.15,96,479/- as derivative loss. The assessee claimed the same as short term capital loss and set off against short term capital gains. The AO adjusted the above loss against short term capital gains but did not set off the same u/s. 43(5) from the other business income to arrive at the business income. The assessee's plea was that u/s. 70(1) of the Income tax Act the loss could be set off against income from one source against income from other sources under the same head of income and this loss to be set off from business income as per this provision. Accordingly the assessee carried on the appeal before CIT(A). The ld. CIT(A) observed that the assessee is dealing in securities as "investment" and gain from the dealing in 3 ITA No.2904/Mum/13

securities is to be considered as capital gain, loss to be considered as capital loss and it cannot be considered as business loss. Now the grievance of the assessee before us is that CIT(A) has taken a unilateral decision treating derivative loss as short term capital loss without giving mandatory notice u/s. 251 of the Income tax Act. Thus, according to the ld. AR there is violation of principles of natural justice. The ld. DR relied on the order of CIT(A).

4. We have heard both the parties on this issue. From the perusal of orders of CIT(A) we observe that CIT(A) has given a direction to the AO to treat the derivative loss as short term capital loss and not as business loss which resulted in enhancement of income of the assessee without the CIT(A) having complied with the provisions of section 251(2) of the Income tax Act. There is a mandatory requirement u/s. 251(2) that whenever there is enhancement of income the CIT(A) has to issue a notice so as to give a reasonable opportunity of hearing to the assessee. Since the CIT(A) failed to issue notice u/s.251(2) of the Income tax Act to the assessee the impugned finding of the CIT(A) on this issue stands vacated and matter is remitted to CIT(A) to decide the appeal on merit after giving reasonable opportunity of hearing to the assessee . Accordingly this issue is remitted to the file of CIT(A) for fresh consideration.

5. Ground No.5 regarding confirmation of adhoc disallowance of Rs.1,14,125/- under various heads like conveyance, local travelling, foreign travelling, motor car expenses telephone expenses etc.

5.1 The facts of the issue are that with regard to local travelling the assessee had claimed local travelling expenses of Rs.1,04,860/- which were incurred in cash. The authorized representative of the assessee was asked to produce ledger, bills and vouchers for the same. The authorized representative of the assessee produced the same out of which the AO found that many vouchers were self made. The authorized representative of the assessee was asked to explain why the expenses on self made vouchers be allowed. In reply, the AR of the assessee stated that the self made vouchers were business necessity. The AO after considering the submission of the 4 ITA No.2904/Mum/13

assessee made an adhoc disallowance of 5% amounting to Rs.5,243/- on account of self made vouchers in the absence of reliable proof and added back the same to the total income of the assessee. With regard to foreign travelling the assessee had claimed Rs.2,62,068/- towards foreign travelling expenses. The AR of the assessee was asked to explain as to why the expenses should not be treated as used for personal purposes. In his reply he stated that such expenses were incurred for business purposes only. The AO after considering the reply of the assessee disallowed 20% out of the above expenses claimed by the assessee amounting to Rs.52,014/- stating that personal element cannot be ruled out and added to the total income of the assessee . As regards motor car expenses and telephone expenses the assessee claimed Rs.1,11,800/- towards motor car expenses and Rs.1,37,456/- towards telephone expenses. The AR of the assessee was asked to explain as to why such expenses should not be treated as used for personal purposes. In reply the ld. AR of the assessee stated that such expenses were incurred for business purposes only. After considering the submission of the ld. AR the AO however observed that nature of expense is such that personal element cannot be ruled out and therefore, he disallowed 20% out of motor car expenses and telephone expenses to the extent of Rs.22,360 and Rs. 27,491/- respectively and added back to the total income of the assessee.

5.2 On appeal ld. CIT(A) confirmed the addition on the reason that the assessee has no requisite evidence in support of his claim of the expenditure. Now, the assessee is in appeal before us.

5.3 We have heard both the parties and perused the relevant material available on record. In this case the assessee has not produces requisite evidence to substantiate its claim in support of the expenditure. Whenever the assessee claims any expenditure it is incumbent upon the assessee to produce necessary bills, vouchers etc. to substantiate the expenditure incurred. The assessee has not fully discharged the burden cast upon it. Being so, we are inclined to hold that there is every chance of inflating expenses by self made vouchers. Hence, we direct the AO to disallow 5% of expenditure which is 5 ITA No.2904/Mum/13

supported only by self made cash vouchers. This ground raised by the assessee is partly allowed.

6. In the result appeal in ITA No. 2904/Mum/2013 is partly allowed for statistical purposes.

Order pronounced in the open court on 25/02/2015 आदे श क घोषणा खुले यायालय म$ %दनांकः 25/02/2015 को क गई ।

Sd/- Sd/- (आय.पी. बंसल / I.P. BANSAL) (चं पुजारी /CHANDRA POOJARI ) याियक सदःय / JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; %दनांक Dated 25/02/2015 व.िन.स./Jv, Sr. PS

आदे श क ूितिल+प अमे+षत/Copy षत of the Order forwarded to : 1. अपीलाथ. / The Appellant 2. ू/यथ. / The Respondent. 3. आयकर आयु0(अपील) / The CIT(A)- 4. आयकर आयु0 / CIT 5. +वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स/या+पत ूित //True Copy//

उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai