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TMI Blog2015 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the year of receipt even though the assignments were completed in the subsequent year 3. The brief facts of this issue is that the assessee is an individual and engaged in the legal profession under the name and style of 'Jhunjhunwala & Co' following regularly cash system of accounting. The total income comprises mainly of professional income, short term capital loss, long term capital gain and interest income from other sources. The entire books of accounts viz cash book, ledger, bills / vouchers, etc were produced by the assessee before the Learned AO and the same were examined on test check basis by the Learned AO. These facts on record are undisputed and indisputable. 3.1. During the course of assessment proceedings, the Learned AO found that the assessee had shown certain sums as 'Advance from Clients' in the liability side of the balance sheet. The assessee was confronted by the Learned AO as to why the same should not be taxed as income in the year of receipt in line with the cash system of accounting regularly followed by the assessee. The assessee replied that the advance payments are received from clients on account of court fees, counsel fees , stamp duty, regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The client makes over the money to the solicitor for some work being done by the solicitor as his agent. The money must be employed to that purpose and must not be treated as money received for any other purpose. This position is not altered by the fact that the solicitor retains a lien upon the balance of the money for his costs. The result of solicitor having a lien on the balance of the money is no more than a person having a charge on somebody else's money. When a solicitor receives money from his client, he does not do so as a trading receipt but he receives the money of the principal in his capacity as an agent and that also in a fiduciary capacity. The solicitor remains liable to account by this money to his client and hence it does not become the income of the assessee. 3.4. We find that the assessee has been consistently following this accounting practice for over two decades and no addition has been made by the Learned AO in the immediately preceding assessment years i.e Asst Years 2003-04 & 2004-05 on this issue. Though principle of res judicata do not apply to income tax proceedings and each assessment year is separate, the principle of consistency cannot be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dable. Thus, there was absolutely no rationale for excluding 55% from the income. It held that it was only a device to sweep the revenue. 3.5.1 But in the instant case, the assessee received certain amounts as advances from time to time to meet the expenses on behalf of their clients and the amount already spent is debited in their accounts and balance amounts have been carried forward to the next year and this accounting practice is a continuous process over the years. For the time being, the assessee was a custodian of that amount. Hence we hold that the decision of the Chennai Tribunal relied upon by the Learned AO is squarely distinguishable and cannot be applied to the facts of the instant case. 3.6. We find that the impugned issue is squarely covered by the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs Ratan Lal Gagar in ITAT NO. 80 of 2014 G.A.No. 1933 of 2014 vide order dated 12.9.2014 which dealt with the very same issue, wherein the questions raised before the court and the decision rendered thereon are as under:- Questions : i) Whether on the facts and in the circumstances of the case, the learned Tribunal has erred in law in deleting the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt by this money to his client." Md. Nizamuddin, learned advocate appearing on behalf of the appellant/ revenue does not dispute that the issue has been dealt with in the case cited. We find that as the issue is covered by the judgment of the jurisdictional court, In our view, no substantial question of law arises. Hence, the application and the appeal are dismissed. " 3.7. We also find that the impugned issue is also squarely covered by the recent decision of the Hon'ble Delhi High Court rendered in the case of CIT vs Om Prakash Khaitan reported in (2015) 93 CCH 0147 (Del HC) vide order dated 21.7.2015 , wherein it was held that :- "7. In the consequent appeal by the Department, the ITAT noticed inter alia that the addition for the AY under consideration was similar to the ones made by the AO for AYs 2001-02 and 2003-04 and which had been deleted by the CIT(A) and concurred with by the ITAT. Nothing had been brought on record to persuade the ITAT to differ from the Nothing had been brought on record to persuade the ITAT to differ from the view taken by the ITAT in the Assessee's own case for those years. The ITAT also followed its earlier order dated 3rd February 2006 in IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, the CITA had treated 10% of advances received from clients as income of the assessee and against which both the assessee as well as the department had preferred an appeal before ITAT. He states that in view of the various decisions on this issue and department's ultimate stand on this issue and the individual facts of the case, the AO is directed to re-examine this issue and take a decision after granting reasonable opportunity of being heard to the assessee. Accordingly he concludes that the order passed by the Learned AO in not bringing to tax the advances received from clients as income as erroneous in so far as it is prejudicial to the interest of revenue. We hold that the Learned CIT had not brought on record any facts or evidences to prove as to how the order passed by the Learned AO is erroneous and prejudicial to the interest of the revenue warranting invocation of section 263 of the Act. We also hold that the Learned CIT himself had stated that several decisions have been rendered already on the impugned issue and hence it can safely be concluded that the Learned AO had only taken one of the possible views in the matter and hence placing reliance on the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,658/- was paid to Sri S.Roychowdhury, receiver appointed by the Hon'ble Calcutta High Court; Rs. 35,700/- was paid as fee to the Arbitrator appointed by the Hon'ble Calcutta High Court and Rs. 10,514/- was paid to a Senior Advocate towards reimbursement of expenses and the assessee was under no obligation to deduct any Income Tax at source on such payments and that the assessee had deducted and deposited income tax at source on the balance amount of Rs. 13,600/-. 4.2. The Learned AR reiterated the facts stated by him before the lower authorities and produced evidences to the fact that the concerned persons i.e Shri.Samir Roy Choudhury / S.Roy Choudhury( both parties are one and the same) and Shri. Tapas Kr. Banerjee were appointed as Arbitrator and Receiver respectively under the orders of Hon'ble Calcutta High Court. He also placed evidence on record in the form of hotel bill that a sum of Rs. 10,514/- paid to Shri.J.P.Khaitan is only reimbursement of hotel expenses on which tax is not required to be deducted at source. He also placed evidence in the form of TDS remittance challan for the balance sum of Rs. 13,600/- paid to Shri.J.P.Khaitan and accordingly pleaded that no disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of hearing before us, the Learned Senior Counsel for the assessee informed the Bench that he is not pressing this ground and the same is considered as a Statement from the Bar. Hence the ground no. 4 of the assessee appeal on this issue in ITA No. 2000 / Kol /2010 for Asst Year 2005-06 is dismissed as not pressed. ISSUE IV - Disallowance of Electricity Expenses, Telephone Expenses, Car Maintenance, Motor Car depreciation, Car expenses representing Road tax, insurance on car and interest on loan for car 6. The brief facts of this issue is that the Learned AO during the course of assessment proceedings sought to disallow certain percentage of expenses ranging from 10-15% for various assessment years in respect of aforesaid expenditure on account of personal usage of the same. On first appeal, the Learned CITA restricted the disallowance to 10% of the said expenditure as attributable to personal element. Aggrieved, the assessee is in appeal before us for the various assessment years by raising various grounds. 6.1. The Learned AR argued that in the immediately preceding assessment years i.e Asst Years 2003-04 & 2004-05, the Learned CITA restricted the disallowance to 5% towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oing into each and every item of the exempt income as stated supra and stated the following :- * With regard to long term gains on sale/transfer of shares under section 10(38), the assessee incurred substantial expenses as and by way of brokerage and other expenses and the Assessee has shown the net realization, after accounting for brokerage, securities Transaction Tax, Service tax, stamp duty etc., as long term gains on sale/transfer of shares under section 10(38). Thus, income disclosed contains an element of expenses in the form of brokerage and tax thereon, stamp duty and securities Transaction Tax (STT). * With regard to long term gains on transfer of Mutual funds, the Assessee maintains a wealth maintenance account with Citi Bank NA. The Assessee, having an on-line Banking account facility, carried out sale transactions electronically and pursuant thereto, the Mutual Funds, lying with Citi Bank NA, were sold, On such sale, Citi Bank NA has paid STT and credited the net sale proceeds to the account of the Assessee. The Assessee has not incurred any expenses whatsoever for earning this income save and except STT. * With regard to the tax free dividends on shares and Units, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in relation to income not includible in total income. 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). 8.3. From the above, it is evident that the Learned AO had to first record his satisfaction that the claim made by the assessee that no expenditure has been incurred for earning exempt income or the expenditure incurred by assessee is not found to be correct. We find that the Learned AO had not considered the claim of the assessee at all and he has straight away embarked upon computing disallowance under Rule 8D. Without recording his satisfaction in terms of Rule 8D(1), he cannot directly proceed to implement Rule 8D(2) and accordingly we hold that the action of the Learned AO in making disallowance u/s 14A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITA No. 536/Kol/2011 for Asst Year 2007- 08 of the assessee appeals stand allowed. ISSUE VII - Restriction of addition u/s 94(7) of the Act on sale of shares 9. The brief facts of this issue is that during the course of assessment proceedings, the Learned AO noted that the assessee claimed short term capital loss of Rs. 1,99,330/- and that the said loss on sale of securities was adjusted against short term capital gains of Rs. 1,93,769/- which had suffered Securities Transaction Tax (STT). The Learned AO ignored the loss of above securities which were sold / transferred within a period of three months and since the dividend from the above securities were claimed. Further the Learned AO noted that the assessee claimed short term capital loss on purchase and sale of equity shares of Rs. 1,34,715/- Section 94(7) Where- (a) any person buys or acquires any securities or unit within a period of three months prior to the record date; [(b) such person sells or transfers- (i) such securities within a period of three months after such date; or (ii) such unit within a period of nine months after such date;] (c) the dividend or income on such securities or unit received or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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