Ashok Surana vs Commissioner of Income Tax-XX, Kolkata

The subject matter of appeal is a judgment and order dated 19th March, 2007 passed by the Income-tax Appellate Tribunal, "D" Bench, Kolkata pertaining to the assessment year 2001- 02.

The assessee is an individual. He is in the business of producing tele serials. He has offices at Calcutta, Bangalore, Delhi and Mumbai. He had shown to have incurred expenses on account of telephone a sum of Rs.4,69,883/- and a sum of Rs.35,041/-. The assessing officer disallowed 20% of the aforesaid expenditure amounting to a sum of Rs.1,06,385/- on the ground that the assessee did not maintain call book for monitoring calls and that a part of such calls were for personal and non-business use. The CIT(A) upheld that order. The learned Tribunal restricted the dis-allowance to a sum of Rs.80,000/-. In other words, the learned Tribunal granted relief to the extent of a sum of Rs.26,385/-.

The assessee had claimed to have spent a sum of Rs.4,06,820/- on account of expenses of the Mumbai office. Part of the expenses were supported by internal debit vouchers. The assessing officer, however, chose to disallow 20% of such expenses amounting to a sum of Rs.81,364/-. The assessee had claimed a sum of Rs.92,421 and Rs.39,523 under the heading of ''General Expenses and Tea and Tiffin'' respectively, supported by debit vouchers. The assessing officer in this case also disallowed 20% of the expenses amounting to a sum of Rs.26,389.

In an appeal, the Tribunal restricted the dis-allowance with respect to telephone expenses to Rs.70,000/- thereby effectively granting him relief of Rs.11,364/- and further restricted the dis-allowance on account of Tea and Tiffin to a sum of Rs.20,000/- thus granting relief to the assessee to the extent of a sum of Rs.6,389/-. The assessee is under an obligation to show that the expenditure claimed to have been incurred by him were for the purpose of his business. The assessee, in this case, appears to have discharged his onus. The assessing officer disallowed part of the expenses on the ground that they were not verifiable.

Mr. Agarwal was unable to show us any authority for the proposition that an expenditure which the assessing officer thinks to be not verifiable can straightaway be disallowed. It is not the case of the assessing officer that the assessee was unable to adduce satisfactory evidence that the expenditure was incurred for the purpose of his business. When appropriate evidence has been adduced, it is not in the power of the assessing officer to arbitrarily disallow any item of expenditure on the ground that the sums are not verifiable. There is no indication as to what step was taken by the assessing officer to have those expenses verified. If the assessing officer takes no pains to have the expenses verified he cannot resort to disallowing any portion of the expenditure on the ground that they are not verifiable. This was a sheer act of arbitrariness which the assessing officer could not have done. The learned Tribunal did not realise the aforesaid position. They chose to bring down the amount of dis-allowance without any reasons. The question always shall be whether the assessee has been able to prove the expenditure alleged to have been incurred by him for the purpose of his business. If the answer is in the affirmative, no part of the expenditure can be disallowed. But if the answer is in the negative, the entire expenditure may be disallowed.

The last item is with regard to silver utensils allegedly sold by the assessee at a loss of Rs.1,60,562/-. The assessing officer was of the opinion that silver wares being personal effects were not within the purview of the capital assets as per definition of Section 2(14) of the Income Tax Act. The CIT(A) upheld that part of the order. But the learned Tribunal took a different view which is as follows:-

"We have examined the rival submissions. We are of the view that if the assessee has purchased silver items they were for the use in the business and, therefore, could not be treated as personal effects. It is also difficult for us to believe that the assessee could buy silver jewellery and sell the same at a loss after a lapse of several years. Over a period of time the value of silver and gold always appreciates. Therefore, it is difficult to believe that the assessee sold silver utensils at a loss. Accordingly, we confirm the orders of the AO and the CIT(A) and dismiss the assessee''s appeal on the 9th & 10th grounds."

It appears that the learned Tribunal did not agree with the assessing officer and the CIT(A) that the silver utensils were sold by the assessee as his personal effects but at the same time the learned Tribunal refused to believe that the silver utensils were sold at a loss. Therefore, the order disallowing loss of the sum of Rs. 1,60,562/- was maintained. Mrs. Banerjee, learned advocate, appearing for the appellant-assessee submitted that the learned Tribunal has accepted the contention of the assessee that the silver utensils were purchased for business purposes. Therefore, the loss arising out of the sale should have been allowed to be carried forward.

We have not been impressed by the submission for the simple reason that the silver utensils, according to the assessee, were purchased in the year 1966-67. The occasion to use the silver utensils for the purpose of business of the assessee arose at least 30 years after the silver utensils were allegedly purchased. Therefore, the silver utensils can by no stretch of imagination be said to have been purchased for the business of the assessee.

Both CIT(A) and the assessing officer were right in their opinion that the silver utensils were the personal effects of the assessee and the same were out of the purview of capital assets. In that view of the matter, the order of the learned Tribunal is maintained but for different reasons.

At the time when the appeal was preferred the following question of law was formulated:-

"1. Whether the Tribunal was justified in law in disallowing the long term capital loss on sale of the capital asset, being silver utensils, computed in accordance with the provisions of sections 48 and 55(2) (b) of the Income Tax Act, 1961 which required adoption of fair market value as on 1.4.81 and indexation thereof and its purported findings in that behalf are arbitrary, unreasonable and perverse ?

Whether the Tribunal was justified in law in upholding partial disallowance of business expenditure under different heads incurred by the appellant wholly and exclusively for the purposes of his business ignoring the material facts and the settled legal position that the Assessing Officer could not substitute his own views in place of those of the businessman who was the best judge of commercial expediency and its purported findings in that behalf are arbitrary, unreasonable and perverse ?"

For the reasons already discussed, the question no.1 is answered in the affirmative and in favour of revenue. The question no.2 is answered in the negative and in favour of the assessee. The appeal is thus partly allowed.

Parties shall, however, bear their own costs.