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2016 (5) TMI 263 - ITAT MUMBAI

2016 (5) TMI 263 - ITAT MUMBAI - TMI - Allowability of expenditure on car/s - nature of the professional expenses - whether the assessee could not establish any direct nexus of the impugned expenditure with the said business? - Held that:- The firm and the partners are separate & distinct entities/persons under the Act, even as the receipt of interest and remuneration by a partner from a firm is only in nature of share in the profits of the firm and, thus, assessable as business income. This pos .....

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The assessee, on the other hand, stating that the firms (of which he is a partner), as being not interested in investing in a car. In fact, in case of the same (common) car being used, the expenditure would necessarily have to be appropriated between the two firms, for which the car is thus used, and the assessee (refer s. 38(2)). In other words, the expenditure would required to be split three ways, i.e., the two firms for which the car is being also used, and the assessee. That, as we .....

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ack to the file of the A.O. to verify the assessee’s claims and determine the expenditure on car/s deductible in his hands in accordance with law, issuing definite findings of fact. The onus, we may clarify, to establish his claims, with materials and explanations, would only be on the assessee. We decide accordingly. - Decided in favour of assessee for statistical purposes.

Income assessable under the head ‘Income from House Property’ - Held that:- The adoption of an enhanced rate do .....

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n utilized for self occupied house property (residence), is of little relevance and, if anything, rather impugns the assessee’s case. We, accordingly, do not consider it as a fit case for remand. As regards maintenance charges (Rs.10,096/-) paid to the housing society, the payment thereof is certainly an expenditure that would be factored into while determining the rent, so that where paid/payable by the owner, who is legally liable therefor, the rent is increased to that extent, neutralizing it .....

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I.T.A. No. 6420/Mum/2011 - Dated:- 29-4-2016 - Shri Joginder Singh, JM And Shri Sanjay Arora, AM For the Appellant : Shri K. M. Modi For the Respondent : Shri Sanjeev Jain ORDER Per Sanjay Arora, A. M. This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-21, Mumbai ( CIT(A) for short) dated 21.06.2011, partly allowing the Assessee s appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessmen .....

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lish any direct nexus of the impugned expenditure with the said business. The user of the car for personal purposes could not, in any case, be ruled out. In appeal, the ld. CIT (A) was of the view that the income by way of interest and remuneration to a partner from a partnership firm is rightly assessable as income from other sources u/s. 56. That apart, the expenditure claimed, being on account of professional fees, car repair, car depreciation and interest on car loan (at ₹ 1,07,355/-), .....

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as under, where incurred for business purposes, is liable to be allowed u/s. 37(1) of the Act: Professional fees Rs.5,051 Car repairing charges Rs.25,789 Depreciation on motor car Rs.70,202 Interest on car loan Rs.6,313 Total Rs.1,07,355 The nature of the professional expenses is not clear, though the ld. counsel would submit that the same represents his fees for preparing and filing the assessee s return of income (presumably for the relevant year). Tax is a charge on income, and has nothing to .....

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no relation whatsoever with car expenses. As regards remuneration, we do not even know if the assessee is receiving the same from one or both the firms. Even assuming from both, what is there to show that the car/s is being deployed for the purposes of the firms. Where, we wonder, as also expressed during hearing, is the expenditure on car maintenance, i.e., on its running, incurred from, being not claimed by the assessee? That in fact would exhibit if the car is being actually used, as well as, .....

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This position gets further clarified after the amendments to the Act (viz. ss. 28, 40, 184, 185) by Finance Act, 1992, materially altering, firstly, the definition of income (of a partnership firm and its partners) and, secondly, the manner of its computation and bringing it to tax. On facts, assuming the car/s being used for the business purposes of the firms, why should a partner bear the expenditure of the firm, which, besides being not deductible in his hands, would only be to his own detri .....

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iture on car, stand to be incurred by the assessee himself. The question of actual incurring of the maintenance (running) expenditure, and source thereof, though continues. We are conscious that the expenditure on commuting, where claimed by the firm(s) as a part of their business expenditure u/s.37(1), could imply that the firm has extended the said facility to the partner, which though could only be where the car/s is owned by the partnership firms, as distinct from the partner/s. It could als .....

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and, stating that the firms (of which he is a partner), as being not interested in investing in a car. In fact, in case of the same (common) car being used, the expenditure would necessarily have to be appropriated between the two firms, for which the car is thus used, and the assessee (refer s. 38(2)). In other words, the expenditure would required to be split three ways, i.e., the two firms for which the car is being also used, and the assessee. That, as well as the proportionate incidental ex .....

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ee s claims and determine the expenditure on car/s deductible in his hands in accordance with law, issuing definite findings of fact. The onus, we may clarify, to establish his claims, with materials and explanations, would only be on the assessee. We decide accordingly. 4. The second Ground is in respect of income assessable under the head Income from House Property . The brief facts are that the assessee, who owns a flat and two garages at Priya Pushpakunj Co-operative Housing Society, 15 J. N .....

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Rs.48,000 The net income, i.e., after allowing standard deduction (on account of repairs), ₹ 88,315/-, was adjusted against interest paid on loan for the self occupied property, returning a net loss of ₹ 61,685/-. In the A.O s view, the assessee had, on account of close nexus between him and the tenant-firms, or otherwise to save on tax, had shown very nominal rental income. On the basis of market inquiries through his Inspector, he estimated ₹ 10,000/- per month and ₹ 7, .....

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ld. CIT (A) found the said case law distinguishable in-as-much as in that case the assessee-owner had used the house properties for the purposes of his own business, while in the present case the assessee owner & the company/partnership firms are separate legal entities. The annual value estimated by the A.O. was reasonable. The assessment being confirmed thus, aggrieved, the assessee is in second appeal. 5. We have heard the parties, and perused the material on record. Our first observation .....

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ference. The claim of the Santacruz (W), Mumbai residence could though be verified by the A.O. while determining the assessee s claim in respect of expenses covered vide Ground 1. On merits, we find the assesee s claim qua the use of the house properties for his business as misconceived. A company & its directors are separate legal persons. Similarly, as afore-stated, a firm & a partner are separate persons under the Act. In fact, the assessee has himself admittedly let his house propert .....

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oper, and would therefore normally warrant restoration of the proceedings to the stage at which the irregularity had occurred. Be that as it may, why, we wonder, did not the assessee seek the copy of the said report, if not at the assessment stage, at least at the appellate stage, and present his case on merits? The report, as made clear, is based on market inquiries, which states of the prevailing monthly rent to be at a minimum of ₹ 10,000/- & ₹ 7,000/- for the relevant propert .....

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d dependent on the cost of construction/acquisition of the house property, calculated to yield a reasonable rate. What is the going rate of the relevant properties in the relevant area at the relevant point of time? This, we understand to be the basic question, i.e., the point of difference between the assessee and the Revenue, and which, therefore, needs to be addressed. The assessee s case is completely silent, even up to the stage of the Tribunal, on all these relevant aspects and parameters. .....

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only where the actual rent exceeds the fair rental value that the same is taken as annual value u/s. 22. That the tenants are related entities, and the assessee entered into the rental arrangements (perhaps for the first time), as stated, with a view to set off the interest on loan utilized for self occupied house property (residence), is of little relevance and, if anything, rather impugns the assessee s case. We, accordingly, do not consider it as a fit case for remand. As regards maintenance .....

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