vk;dj vihyh; vf/kdj.

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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh foe flag ;kno] ys[kk lnL; ds le{k
BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YADAV, AM

vk;dj vihy la-@ ITA No.615/JP/15

fu/kZkj.k o"kZ@Assessment Year : 2008-09

Shakti S. Singh, cuke DCIT, Circle, Sawai Madhopur
23/175 Mokha Para, Vs.
Kaithooni Pole, Kota
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AUOPS 4774P

vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri Vinod Kumar Gupta (C.A.)

jktLo dh vksj ls@ Revenue by : Shri G.R. Pareek (JCIT)

lquokbZ dh rkjh[k@ Date of Hearing : 25.05.2016

?kks"k.kk dh rkjh[k@ Date of Pronouncement : 29/06/2016.

vkns'k@ ORDER

PER SHRI VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the assessee against the order of ld. CIT(A),
Ajmer dated 31.03.2015 wherein the assessee has taken following effective
grounds of appeal:
 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur
(i) Under the facts and circumstances the ld. CIT(A) has erred by sustaining
disallowance of Rs. 5,28,250/- being 40% of the total expenses claimed.
The addition made is unjustified , illegal or excessive.
(ii) Under the facts and circumstances the ld. CIT(A) has erred by making
addition of Rs. 7,05,500/- by treating cash introduced in business as
undisclosed income, further CIT(A) erred by confirming the same.
(iii) Under the facts and circumstances of the case, the ld. AO has erred by
not allowing telescoping for expenses disallowed against addition for
alleged unexplained investment in business.

2. Regarding ground no. 1, briefly the facts of the case are that assessee
has claimed various expenses of Rs. 10,70,610/- against the receipts of Rs.
21,42,500/-. The AO has disallowed the whole of the expenses however the ld
CIT(A) has restricted the disallowance of expenses to Rs. 4,28,250/- i.e. 40% of
the total expenses claimed and balance amount was allowed.

2.1 The Ld. AR submitted that the appellant was rendering his services as
consultant to the one of the most prestigious institute at Kota M/S. Resonance.
The Appellant declared his income under the head Income from Business &
Profession, whereas, Ld. A.O. while making the assessment, assessed his total
receipts as salary income and consequently, disallowed the entire expenses
claimed against the receipts from M/S. Resonance. Further, by giving finding
also disallowed the entire expenditure saying without prejudice to his action of
considering the entire receipt as salary. Under the facts, once, if a receipt has
been taxed as salary income then there is no scope of allowing any deduction
out of salary, therefore, disallowance of expenses separately does not have
any meaning as far as action of the A.O. is concerned, and, hence, finding given

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 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur
in this respect is also not very much relevant since even if, all is proper in view
of the A.O., no such expenditure can be allowed under the head Salary.

LR AR further submitted that the Ld. CIT(A) has already confirmed the
income declared by the assessee as Income from Business and Profession,
rather than Salary as assessed by the Ld. A.O. Further, department has also
accepted said version of CIT(A). After considering the receipt under
consideration as income from Business and Profession, Ld. CIT(A) made adhoc
disallowance of 40%,out of total expenditure claimed on whole sale basis.

Ld AR further submitted that during the assessment proceedings, books

of accounts were produced, copies of the bills and vouchers were filed,
however, it is alleged that the employees and original bills were not produced.
In this regard, it is important to bring into the all notices were duly complied
except notice dated 29.12.2010 and AO passed the order on 30.12.2010.
Therefore, under the facts and circumstances, it is clear that no effective
opportunity was given to produce the employees or original bills, moreover,
the disallowances were also not relevant once the entire receipt has been
assessed as salary, therefore, such findings made in haste. Ld. CIT(A) has erred
by considering the finding of the A.O. without taking into account the fact that
no such effective opportunity was given to the Appellant. In this regard, we
place our reliance on the judgments of the (i) Honble Calcutta High Court
given in the case of CIT vs. Panna Devi Saraogi (1970) 78 ITR 728, wherein, it is
observed by the Honble Court that It is the opportunity of being heard which
introduces the principle of natural justice. The opportunity, no doubt, must be
reasonable and effective opportunity. It should not be a mere paper
opportunity or any illusory opportunity. (ii) In Olga Tellis v. Bombay Municipal

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 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur
Corporation (1985) 3 SCC 545, the Constitution Bench says Any action taken
by a public authority which is invested with statutory powers has, therefore, to
be tested by the application of two standards; the action must be within the
scope of authority conferred by law and secondly, it must be reasonable. If any
action, within the scope of the authority conferred by law, is found to be
unreasonable, it must mean that the procedure established by law under which
that action is taken is itself unreasonable.

Ld AR further submitted that the Ld. CIT(A) while allowing 60% of the
expenditure has admitted that it cannot be said that this income was earned
without incurring any expenses as held by the AO means requirement and
incurrence of expenditure is not under doubt and have accepted by the
department. As far as adhoc disallowance of 40% is concerned on whole sale
basis, it was submitted that disallowance on whole sale basis at the rate of 40%
on all the expenditure are grossly wrong, since the list of total expenditures
contains various such expenditures which cannot be treated as inflated or
wrong or bogus such as Depreciation Rs. 1,37,175/-, Interest on Car Loan Rs.
19,613/-, Telephone Expenses Rs. 59,667/-, Audit Fees Rs. 12,500/- and
Insurance Rs. 7,485/-. Perusal of the above shows that once the purchases of
the fixed assets are not under doubt, such adhoc whole sale disallowance
cannot be made for depreciation. Similarly, once the loan has been accepted
to be taken and bank balance have been accepted then no such disallowance
can be made for interest. Similarly, for telephone expenses which have been
paid to the Telephone Company and audit fees to the Auditors, who himself
have certified the financial statements and insurance premium have been
made to the Insurance Company. Under the facts and circumstances, at the
outset, no such disallowance can be made which amounts to Rs. 94,576/-.

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 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur
LR AR further submitted that for remaining disallowance of (Rs.4,28,250 - Rs.
94,576) Rs. 3,33,674/-,it is mainly towards salary, rent, travelling, conveyance,
vehicle expenses, periodicals etc. It is important to see the duty of the
Appellant to be performed under the contract, which has been reproduced by
the CIT(A) in Para 4.3 of his order. A Perusal of the duty to be performed under
the contract shows that a wide spectrum of activities has to be carried out by
the Appellant. Appellant is engaged as lecturer to IIT aspirants with one of the
most prestigious institute of the country namely M/S. Resonance. As we all
aware, the examination of IIT is very tough and demanding to keep himself
updated on various fronts of teaching. Further, the prestigious institutes like
Resonance have their own methodology of teaching and demanding from
teachers as well to keep the institute front runner among the successful
students. It is also well known fact that the most of aspirant students are very
talented, laborious and deeply concern with their career, hence, teachers have
to be keep himself updated with the subject, trends, latest development of the
subject etc. To meet all the challenges, Appellant have to be carried out
various activities which requires assistance from others also. It is important to
bring in notice that clause (j) of the duty assigned to the consultant under the
agreement as reproduced in Para 2.5 hereinbefore. Appellant have to design,
prepare and make available to the institute guidance note for the topics which
are to be covered by the consultant at his own cost. That agreed condition
itself shows that Appellant is required his own office and staff to prepare such
guidance note apart from the requirement of the office and staff to carried out
other activities. Under the facts and circumstances, the finding of the A.O. is
grossly misplaced that office and staff is only required, when fees are being
received from students.

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 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur
LR AR further submitted that the duties require lot of research, analysis
and time bound delivery of material for carrying out weekly test, solving the
problem of students and for all these works, assisting staff and space is
required. The expenses incurred on space are Rs. 7,000/- p.m. and on staff Rs.
30,000/- p.m. is very reasonable, looking to the technically involved in the
work of the Appellant. The other expenditure claimed, are also very
reasonable, looking to the nature of expenditure and requirement in reference
to the contract for service.

LR AR further submitted that It is a fact that books of accounts of the

appellant are Audited u/s 44AB of the Income Tax Act, further, during the
assessment proceedings books and accounts were produced along with
supporting, therefore, it is an undisputed fact that expenditure have incurred
and after examining the same it is not the case of Ld AO that expenditure
under consideration is bogus. Further, expenditure under consideration is not
capital in nature. These expenditures have been incurred wholly and
exclusively for the purpose of carrying out business activity. Under such
circumstances, these expenditures are qualify for deduction in full.

LR AR further submitted that Ld AO has not come out with any single
specific instance which shows that expenditure are not deductible. It is
apparent from the findings of the Ld. AO in most of these disallowances that
expenditures are incurred in cash. It is important to note that payment in cash
within prescribed limited is not debarred, therefore, on the basis of such
apprehension the disallowances are not more than based on suspicion.
Therefore, in absence of any specific instance, the ad-hoc disallowance is not
more than surmises or suspicion and does not deserves to be hold good.

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 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur

2.2 The ld DR is heard who has relied upon the order of the lower
authorities.

2.3 We have heard the rival contentions and perused the material available
on record. The nature of receipts in the hands of the appellant have been
accepted as Professional receipts. The Ld. CIT(A) has given a categorical finding
that the assessee was required to incur various expenses against his
professional receipts and it cannot be said that income was earned without
incurring any expenses. Thus, the necessity of incurrence of the expenditure
as well as the fact that the expenditure has been incurred by the appellant has
been accepted and is thus not under dispute. At the same time, ld CIT(A) has
held that since the assessee has not maintained external evidence in support
of its claim of expenses, it would be reasonable to restrict the disallowance to
40% of the expenses claimed. The limited issue under consideration therefore
relates to quantum of allowability of various expenses which have been
claimed by the appellant against the professional receipts from M/s
Resonance. The ld CIT(A) has not given any basis or justification as to how he
has arrived at the figure of 40% of the expenditure which cannot be allowed to
the appellant. We find merit in the contentions of the ld. AR that given nature
of the expenses such as depreciation, interest on car loan, audit fee etc. once
purchase of assets in the nature of computer, car, books etc. and the utilization
thereof for the purposes of earning professional income has been accepted,
where is the question of disallowing 40% of the depreciation claim or interest
on car loan. Similarly, once the books of accounts have been audited and audit
fee is payable, there is no basis for disallowing 40% of the audit fees. Similarly

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 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur
the duty of the appellant require lot of research and analysis of time bound
delivery on study material and guidance note and all these works requires
involvement of staff and related office space. Even though the appellant has
access to the infrastructure and office space at the Institute, the appellant has
submitted that he has maintained office and hired staff at his own cost to
assist him in discharge of his consulting engagement which cannot be refuted
in absence of any contrary evidence on record. In our view, the expenses
incurred on space for Rs. 7000/- per month and on staff Rs. 30,000/- per
month and other related travel and other expenses appears to be reasonable.
Further, the ld. CIT(A) has not specified any specific transactions or the
expenses which the appellant has claimed and the same has not found favour
with the ld. CIT(A). In our view, it is clear case of adhoc disallowance of
expenses which cannot be sustained in the eye of law. We accordingly delete
the disallowance of 40% of the expenses of Rs. 5,28,250/- claimed by the
appellant hence ground of the assessees appeal is allowed.

3. Regarding next ground of appeal, briefly the facts of the case are that
the AO required the assessee to explain the source of cash introduced by the
assessee of Rs. 7,05,500/- on different dates in the cash book. The assessee
was specifically required to explain the source of deposits in the cash book on
different dates as the onus lies on the assessee to explain the individual
deposits alongwith the source thereof which has not been discharged. As per
the AO, no such explanation was filed by the assessee explaining the source of
Rs. 7,05,500/- except claiming that net investment made was only Rs.
2,52,609/-. In view of the above, the addition of Rs 7,05,500 was made in the
hands of the appellant which was subsequently confirmed by the ld CIT(A).

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 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur
3.1 We have heard the rival contentions and perused the material available
on record. Firstly, it is noted that the appellant is maintaining separate set of
financial statements in respect of his consultancy activities. And in respect of
his personal affairs, there is no requirement to maintain any books of accounts
and the appellant has submitted estimated personal statement of affairs for
the period 1.4.2004 to 31.3.2008. On perusal of the capital account which is
available on record, it is noted that the appellant has an opening balance of
11,34,013 and introduced fresh capital of Rs. 2,52,609/- during the year under
consideration in his professional consultancy business. The appellant
introduced a sum of Rs. 7,05,500/- in his profession on various dates and he
has withdrawn a sum of Rs.4,52,891 from his capital account on various dates.
Thus the net capital amounting to Rs. 2,52,609/- was introduced in the
profession consultancy activities. In our view, the addition, if at all, is required
to be made should therefore be restricted to Rs 2,52,609 as the appellant has
demonstrated the clear linkage between the deposits and the withdrawals of
the same amount in his capital account. Further, regarding the source of Rs.
252,609/- introduced in the profession, a perusal of estimated personal state
of affairs shows the appellant had cash in hand of Rs 6,30,581 at the beginning
of the year which is sufficient to demonstrate the deposit of Rs 252,609 as
fresh capital in his consultancy activities. In light of above and given the past
professional earnings and household withdrawals and availability of cash
standard of living. In the light of above, we are of the view that the appellant
has adequately demonstrated the source of cash deposits and the explanations
are found to be reasonable and supported by the professional and personal
statement of accounts and we hereby delete the amount of Rs. 7,05,500/-
treated by the AO as undisclosed income of the appellant. Hence the ground
of the appellant is allowed.

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 ITA No. 615/JP/15
Shakti S. Singh, Kota vs. DCIT, Circle Sawai Madhpur

4. Regarding ground No.4, in the light of our decision in ground No .3, we

donot deem it necessary to be examined. Hence, the same is dismissed in view
of our decision in ground no. 3.

In the result the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 29 /06/2016.

Sd/- Sd-
(R.P. TOLANI) (VIKRAM SINGH YADAV)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur
Dated:- 29/ 06/2016
Pillai
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Shri Shakti S. Singh, Kota

2. izR;FkhZ@ The Respondent- DCIT, Circle, sawai Madhopur
3. vk;dj vk;qDr@ CIT Kota
4. vk;dj vk;qDrvihy@The CIT(A)-Ajmer
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 615/JP/2015)

vkns'kkuqlkj@ By order,
lgk;d iathdkj@ Assistant. Registrar

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