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TMI Blog2014 (2) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... years as well - The assessee has failed to prove the genuineness and bonafide of the expenses - Decided against assessee. - I.T.A. Nos. 6571/M/2009, 8007/M/2010 & 783/M/2012 - - - Dated:- 31-1-2014 - Shri B. R. Mittal, JM And Shri Sanjay Arora, AM,JJ. For the Appellant : Shri Hiro Raj For the Respondent : Shri R. K. Sahu ORDER Per Sanjay Arora, A. M. This is a set of three Appeals by the Assessee directed against the Orders by the Commissioner of Income Tax (Appeals)-23, Mumbai ('CIT(A)' for short), dismissing the assessee's appeals contesting its assessments u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for three consecutive assessment years (A.Ys.), being AY 2006-07 to 2008-09. The appeals raising common issues, were heard together, and are accordingly being disposed of vide a common, consolidated order. 2. The first issue, raised per ground no. 1 for all the years, is the disallowance of unverifiable cash expenses at 25% of such expenses. The assessee, a Custom House Agent (CHA), providing clearing and forwarding services to his clients, was found during the course of the assessment proceedings to have claimed expenses in cash, i.e., apart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, whether reimbursed separately by his clients or not, would be eligible for deduction u/s. 37(1) or any other specific provision of the Act in the computation of the business income u/s.28. There is as such no merit in the contention that these are not the assessee's expenses, or stand not claimed by him. Further, there is no question of any profit element being allowed by the clients and, consequently, of assessment thereof by the Revenue, which only seeks to, rather than disallowing the entire such expenditure, allowing benefit of doubt to the assessee inasmuch as third party vouchers may not be available for all the expenses (which though would need to be specified, and a finding in their respect rendered), reasonably estimated a sum that could be said to have not to be incurred for the purposes of business (also refer: Ramanand Sagar vs. Dy. CIT [2002] 256 ITR 134 (Bom)). Apart from the decisions afore-cited, this is the normal rate of disallowance being confirmed by the Mumbai Benches of the tribunal in such cases. We, accordingly, find little merit in the assessee's claim of disallowance being not warranted and, in any case, excessive, being only in the nature of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision continues to hold the field, being followed by hon'ble high courts across the country, including by the jurisdictional high court, as in the case of CIT vs. Mulla Mulla Craigie Blunt Caroe (supra): 'The true test for the application of the rule of diversion of income by an overriding charge, is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied.' Wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall presently see, by the said brother himself, and not by itself or its own, so as to be considered as arising out of the property. What, therefore, in our view, stands bequeathed is the right to a defined, subject to a minimum, share in the profits of the assessee's business. That is, the nature of the obligation cast on the assessee is to share a part of his profits with his younger brother. 5.3 The assessee has also argued -without substantiation though, of the payee, Shri Deepak Karnani, as having returned the compensation as his income. The same is of no moment inasmuch as that income is to be brought to tax in the hands of the right person alone, and merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income (refer: ITO v. Ch. Atchaiah [1996] 218 ITR 239 (SC)). 5.4 The assesse, as afore-noted, has relied upon case law. The propositions laid down are trite and undisputable. What is therefore essentially required is the application of those principles in the facts and circumstances of the case, obligations, as explained by the apex court in Sitaldas Tirathd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs. No policy was similarly (or even for a lesser sum) taken on the life of the latter person, and no basis for according a special treatment to Shri Deepak Karnani was stated. Accordingly, it was inferred by the A.O. that the said policy had been taken not for business, but on personal considerations. The same was disallowed following the decision in the case of CIT vs. Cama Motors [1998] 147 ITR 361 (Guj.). The same stood confirmed in view of the assessee failing to establish before the ld. CIT(A) of the insured being the key person of the assessee's business. 7. We have heard the parties, and perused the material on record, and given our careful consideration to the matter. 7.1 The assessee has before the Revenue authorities sought to emphasize that Shri Deepak Karnani is a key man of its business inasmuch as his services are invaluable for the firm. There could, in fact, be no two views about it inasmuch as neither could the assessee's judgment and wisdom as a businessman be doubted nor even the extent of the expenditure incurred, inasmuch as the same is subject to validation and assessment by the insurer, a third person, and a professional at that. Keyman, as any other ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r its quantum to the extent it may throw light on the bona fide nature. Continuing further, it has not even as much as entered into a long term contract with the insured, seeking to retain him, a valuable resource, inasmuch as there is no contention, much less material, toward the same? While an unfortunate demise, howsoever unlikely, is a contingency that could arise at any time, catching one unawares, efforts (at retention) is a pre-requisite that would establish the bona fides of the assessee's case as being qua a genuine business expense. The same, in fact, requires no separate cost. Further, only a long term service contract or engagement understanding would, apart from retaining the resource, provide it with security of an assured source of income and, thus, certainty and stability, so essential for retention. It needs to be appreciated that insurance can be taken only of/qua an asset which, or the beneficial interest in which, belongs to the policy holder, so that he can be said to have an insurable interest therein. What value the insurance to the assessee if the employee were to leave at any time? This shall emphasize the crucial and critical significance of retention in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecover the investment, which thus stands passed on to the assignee. The expenditure, ostensibly incurred for the purposes of the business inasmuch as the beneficial interest therein was of the assessee himself, even as explained by him to the A.O. (vide letter dated 22.11.2008/PB pgs. 19-20), gets thus translated into a sum allowed to an employee. The same would without doubt attract s. 40A(2)(a). We say so as the entire edifice on which the claim for the impugned expenditure rested is lost. While application of s. 40A(2)(a) would normally require a comparison of the value of the benefit arising on expenditure, or that of the goods and services purchased thereby, with the fair market value thereof, in the instant case, there is clearly no benefit arising inasmuch as while the expenditure was incurred only to secure oneself against a possible loss, no benefit thereunder is retained by the assessee. There is no explanation for the same. In fact, the nexus of the 'expenditure' with the business itself is in view thereof not established. Further on, save the mortality premium, which can only be said to be the expenditure incurred in relation to the risk, actuarially valued, the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to discharge the burden of proof on it toward it being incurred wholly and exclusively for business purposes, with in fact we finding that in the facts and circumstances of the case, even the bona fides and the genuineness of the expenditure itself are in serious doubt. The assessee, besides failing to exhibit the same as incurred in the capacity of a trader, also likewise fails to explain the assignment within a short span of time in terms of a business decision, which also changes the character of the expenditure incurred from that on insurance of a business asset to that of salary to a related person, specified u/s. 40A(2)(b), in a sum far beyond his annual salary, clearly attracting s.40A(2)(a), besides rendering it liable to be considered as a capital expenditure. 7.5 We, therefore, have no hesitation in confirming the impugned disallowance. The relevant sum is not deductible u/s. 37(1) and, in any case of the matter, u/s. 40A(2)(a). This decides Ground No. 3 for the first two years. 8. Ground No. 4 for the said years, which is again common, assails the disallowance of 20% of the depreciation on motor cars toward personal expenditure. The expenditure, in principle, can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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