DCIT-3(2)(1), AAYKAR BHAWAN V. MARSHALL PRODUCE BROKERS COMPANY PVT LTD, NARIMAN POINT

ITA 5092/MUM/2024

AI Insights

The case involves Marshall Produce Brokers Company Pvt. Ltd., which appealed against the orders of the Commissioner of Income-tax (Appeals) regarding the assessment years 2016-17 and 2017-18. The primary issues revolved around the method of accounting (cash vs. mercantile), the admissibility of certain business expenses, and the computation of income under Section 115JB of the Income-tax Act. The Tribunal examined the consistency of the accounting method used by the assessee, the nature of the expenses claimed, and the legal provisions governing the taxation of such incomes.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 38019 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Other Referred Cases: Cyber Media (India) Ltd. v. CIT, United Commercial Bank v. CIT, Pradip Commercial (P.) Ltd. v. CIT, Ambalal Mody v. S.A.L. Narayan Row, CIT, McMillan & Co. v. CIT, A. Krishnaswami Mudaliar v. CIT, Shiv Prasad Ram Sahai v. CIT, Prajatantra Prachar Samiti v. CIT, State Bank of Travancore v. CIT, V.S. Dempo & Co. Pvt. Ltd. v. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R.R. MAKWANA
• Assessee Lawyers: HARSH KOTHARI
• Keywords: Set aside; Business income; Business expenditure; Corroborative evidences; Depreciation; Fair market value; Gift
• Section: 143(3); 13; 145; 44AB; 115JB

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SUNIL KUMAR SINGH (JUDICIAL MEMBER) ITA Nos. 4917 & 4918/MUM/2024 Assessment Years: 2016-17 & 2017-18 Marshall Produce Brokers Company Pvt. Ltd., 22/23 Jolly Maker Chamber No. 2, 225 Nariman Point, Mumbai-400021. Vs. Asst. CIT Circle 3(2)(1), Room No. 608, Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN NO. AAACM 7312 G Appellant Respondent ITA No. 5092/MUM/2024 Assessment Year: 2017-18 DCIT -3(2)(1), Room No. 608, 6th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. Marshall Produce Brokers Company Pvt. Ltd., 22/23 Jolly Maker Chamber No. 2, 225 Nariman Point, Mumbai-400021. PAN NO. AAACM 7312 G Appellant Respondent Assessee by : Mr. Harsh Kothari Revenue by : Mr. R.R. Makwana, Sr. DR Date of Hearing : 28/01/2025 ; 18/12/2024 Date of pronouncement : 30/01/2025 PER OM PRAKASH KANT, AM The captioned appeals by the assessee for 2016-17 and 2017- assessment year 2017 orders, both dated 02.08.2024 Income-tax (Appeals) short ‘the Ld. CIT(A)’]. As common issues these appeals, therefore, same were heard together and disposed off by way of this consolidated order for sake of convenience and avoid repetition of facts. 2. Firstly, we take up the appeal year 2016-17. The grounds raised by the assessee in its appeal are reproduced as under: 1. The Learned Commissioner of Income deleting the addition of Rs. 1,69,14,269/ business receipts as determined under the cash system followed by the appellant and that as determined under the mercantile system of accounting without appreciating the fact that the appellant has consistently employed cash syste business income. 2. The CIT(A) erred in not deleting the addition of Rs. 1,28,38,105/ the difference in the interest income offered to tax under the head Income from other sources as determined under the cash sys appellant and that as per the mercantile system of accounting without appreciating the fact that the appellant has consistently employed cash system of accounting for determining its business income. 3. Without prejudice to grounds 1 an the AO to reduce the income of the appropriate year in which the aforesaid Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 ORDER PER OM PRAKASH KANT, AM The captioned appeals by the assessee for assessment year -18 and cross appeal of the Revenue for assessment year 2017-18 have been preferred against two separate orders, both dated 02.08.2024, passed by the Ld. Commissioner of tax (Appeals) – National Faceless Appeal Centre short ‘the Ld. CIT(A)’]. As common issues in dispute therefore, same were heard together and disposed off by way of this consolidated order for sake of convenience and avoid ke up the appeal of the assessee 17. The grounds raised by the assessee in its appeal are reproduced as under: The Learned Commissioner of Income-tax (Appeals) (\"CIT(A)) erred in not deleting the addition of Rs. 1,69,14,269/- being the difference in the business receipts as determined under the cash system followed by the appellant and that as determined under the mercantile system of accounting without appreciating the fact that the appellant has consistently employed cash system of accounting for determining its business income. The CIT(A) erred in not deleting the addition of Rs. 1,28,38,105/ the difference in the interest income offered to tax under the head Income from other sources as determined under the cash system followed by the appellant and that as per the mercantile system of accounting without appreciating the fact that the appellant has consistently employed cash system of accounting for determining its business income. 3. Without prejudice to grounds 1 and 2, the CIT(A) erred in not directing the AO to reduce the income of the appropriate year in which the aforesaid Marshall Produce Brokers Company Pvt. Ltd., 2 , 5092 & 4918/MUM/2024 assessment year 18 and cross appeal of the Revenue for 18 have been preferred against two separate passed by the Ld. Commissioner of National Faceless Appeal Centre, Delhi [in in dispute are involved in therefore, same were heard together and disposed off by way of this consolidated order for sake of convenience and avoid of the assessee for assessment 17. The grounds raised by the assessee in its appeal are tax (Appeals) (\"CIT(A)) erred in not ing the difference in the business receipts as determined under the cash system followed by the appellant and that as determined under the mercantile system of accounting without appreciating the fact that the appellant has m of accounting for determining its The CIT(A) erred in not deleting the addition of Rs. 1,28,38,105/ - being the difference in the interest income offered to tax under the head Income tem followed by the appellant and that as per the mercantile system of accounting without appreciating the fact that the appellant has consistently employed cash d 2, the CIT(A) erred in not directing the AO to reduce the income of the appropriate year in which the aforesaid sums are offered to tax by the Appellant on cash basis so as to avoid double taxation of the same sums. 4. The CIT(A) erred in not deleting th the AO while computing income for the purposes of minimum alternate tax under section 115JB without appreciating the fact the appellant has already determined its book profits based on mercantile system of accounting for the purposes of section 115JB and making an addition again results in double taxation. 5. The CIT(A) erred in not upholding the appellant's claim for depreciation on the office premises at Andheri to the extent the premises were used for the purposes of appreciating that once the asset has entered into the block of assets on which depreciation has been allowed in the first year, depreciation cannot be denied in the subsequent years. 6. The CIT(A) erred in upholding the addition of deemed notional rental income of Rs. 26,94,240 made by the AO in respect of the 60 percent of the Andheri office premises without appreciating that the said premises were used by the Appellant for the purposes of its busi 7. The CIT(A) erred in upholding the addition of Rs. 19,000 in respect of the rental income received by the appellant for the let out portion of the Andheri premises without appreciating that the said amount had already been offered to tax in the sub The CIT(A) erred in not deleting the disallowance made by the AO in respect of society charges and property taxes paid by the appellant in respect of its office premises at Mumbai and Delhi. 9. The CIT(A) erred in not deleting the disallowanc business promotion expenses aggregating to Rs. 1,51,740/ appreciating that the said expenses were incurred for the purpose of the Appellant's business. 3. Briefly stated, facts of the case are that the assessee engaged in earning brokerage for vessels/tankers saili clients like Shipping corporation of India, Indian Bharat Petroleum Corporation Ltd., Hindustan Petroleum Corporation Ltd. etc. The assessee filed return of income for the year under consideration declaring total income at Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 sums are offered to tax by the Appellant on cash basis so as to avoid double taxation of the same sums. 4. The CIT(A) erred in not deleting the addition of Rs. 2,97,71,374 made by the AO while computing income for the purposes of minimum alternate tax under section 115JB without appreciating the fact the appellant has already determined its book profits based on mercantile system of or the purposes of section 115JB and making an addition again results in double taxation. The CIT(A) erred in not upholding the appellant's claim for depreciation on the office premises at Andheri to the extent the premises were used for the purposes of the appellant's business. The CIT(A) further erred in not appreciating that once the asset has entered into the block of assets on which depreciation has been allowed in the first year, depreciation cannot be denied in the subsequent years. erred in upholding the addition of deemed notional rental income of Rs. 26,94,240 made by the AO in respect of the 60 percent of the Andheri office premises without appreciating that the said premises were used by the Appellant for the purposes of its business. 7. The CIT(A) erred in upholding the addition of Rs. 19,000 in respect of the rental income received by the appellant for the let out portion of the Andheri premises without appreciating that the said amount had already been offered to tax in the subsequent year. The CIT(A) erred in not deleting the disallowance made by the AO in respect of society charges and property taxes paid by the appellant in respect of its office premises at Mumbai and Delhi. 9. The CIT(A) erred in not deleting the disallowance made by the AO of business promotion expenses aggregating to Rs. 1,51,740/ appreciating that the said expenses were incurred for the purpose of the Appellant's business. Briefly stated, facts of the case are that the assessee brokerage income by way of arranging charter for vessels/tankers sailing in international waters for various clients like Shipping corporation of India, Indian Oil Corporation, Bharat Petroleum Corporation Ltd., Hindustan Petroleum Corporation Ltd. etc. The assessee filed return of income for the year under consideration declaring total income at Marshall Produce Brokers Company Pvt. Ltd., 3 , 5092 & 4918/MUM/2024 sums are offered to tax by the Appellant on cash basis so as to avoid e addition of Rs. 2,97,71,374 made by the AO while computing income for the purposes of minimum alternate tax under section 115JB without appreciating the fact the appellant has already determined its book profits based on mercantile system of or the purposes of section 115JB and making an addition The CIT(A) erred in not upholding the appellant's claim for depreciation on the office premises at Andheri to the extent the premises were used for the appellant's business. The CIT(A) further erred in not appreciating that once the asset has entered into the block of assets on which depreciation has been allowed in the first year, depreciation cannot erred in upholding the addition of deemed notional rental income of Rs. 26,94,240 made by the AO in respect of the 60 percent of the Andheri office premises without appreciating that the said premises were 7. The CIT(A) erred in upholding the addition of Rs. 19,000 in respect of the rental income received by the appellant for the let out portion of the Andheri premises without appreciating that the said amount had already The CIT(A) erred in not deleting the disallowance made by the AO in respect of society charges and property taxes paid by the appellant in e made by the AO of business promotion expenses aggregating to Rs. 1,51,740/- without appreciating that the said expenses were incurred for the purpose of the Briefly stated, facts of the case are that the assessee is mainly arranging charter ng in international waters for various Oil Corporation, Bharat Petroleum Corporation Ltd., Hindustan Petroleum Corporation Ltd. etc. The assessee filed return of income for the year under consideration declaring total income at Rs.25,43,57,419/- under the normal provisions of the Income Act, 1961 (in short ‘the Act’) and Rs.25,28,55,778/ u/s 115JB of the Income 23.09.2016. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Act issued and complied with. In the assessment completed u/s 143(3) of the Act on 22.12.2018, the Assessing Officer made various additions/disallowances to the returned income. the Ld. CIT(A) partly sustained the additions. additions sustained by the Ld. CIT(A), the assessee is in appeal before the Income-tax Appellate Tribunal (in short ‘the Tribunal’) raising the grounds as reproduced above. 4. Before us, the Ld. Counsel for the assessee filed a Paper Book containing pages 1 to 129. 5. The ground Nos addition made in respect of business receipt of Rs.1,69,14,269/ and interest receipt of Rs.1,28,38,105/ Assessing Officer, the assessee submit system of accounting for tax purposes and said cash system of accounting followed consistently in the past and accepted by the Income Department. As per the basis of accounting Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 under the normal provisions of the Income t, 1961 (in short ‘the Act’) and Rs.25,28,55,778/- u/s 115JB of the Income-tax Act, 1961 (in short ‘the Act’) on 23.09.2016. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Act issued and complied with. In the assessment completed u/s 143(3) of the Act on 22.12.2018, the Assessing Officer made various additions/disallowances to the returned income. On f partly sustained the additions. Aggrieved additions sustained by the Ld. CIT(A), the assessee is in appeal tax Appellate Tribunal (in short ‘the Tribunal’) raising the grounds as reproduced above. Before us, the Ld. Counsel for the assessee filed a Paper Book ning pages 1 to 129. s. 1 to 3 of the appeal of the assessee relate to addition made in respect of business receipt of Rs.1,69,14,269/ and interest receipt of Rs.1,28,38,105/- respectively. Before the Assessing Officer, the assessee submitted that it was following cash system of accounting for declaring its business income tax purposes and said cash system of accounting followed consistently in the past and accepted by the Income Department. As per the profit and loss account maintained on cash for income-tax purposes, the assessee shown Marshall Produce Brokers Company Pvt. Ltd., 4 , 5092 & 4918/MUM/2024 under the normal provisions of the Income-tax - as book profit tax Act, 1961 (in short ‘the Act’) on 23.09.2016. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Act were issued and complied with. In the assessment completed u/s 143(3) of the Act on 22.12.2018, the Assessing Officer made various On further appeal, Aggrieved with the additions sustained by the Ld. CIT(A), the assessee is in appeal tax Appellate Tribunal (in short ‘the Tribunal’) Before us, the Ld. Counsel for the assessee filed a Paper Book . 1 to 3 of the appeal of the assessee relate to addition made in respect of business receipt of Rs.1,69,14,269/- respectively. Before the ted that it was following cash its business income for income- tax purposes and said cash system of accounting was being followed consistently in the past and accepted by the Income-tax account maintained on cash tax purposes, the assessee shown brokerage income of Rs.29,45,83,445/ and profit before tax of Rs.25,28,55,778/ that it also maintained a separat mercantile system of accounting the brokerage income of Rs.31,02,70,709/ Rs.12,27,005/- and profit before tax at Rs.28,32,84,743/ shown. The relevant chart of the var assessee for year under consideration mercantile system of accounting Assessing Officer in the impugned assessment order. For ready reference, the said chart is reproduced as unde Particulars of Income Receipts as per Mercantile System (Rs.) Brokerage 310270709 Interest 40655616 Rent 2138500 Exchange Gain 1227005 Total 5.1 The Assessing Officer added the variation in brokerage income amounting to Rs.1,56,87,264/ gain of Rs.12,27,005/ Rs.1,69,14,269/- as business income under the normal provisions of the Act. Similarly, interest income of Rs.1 other sources’. Before the Ld. CIT(A), the assessee submitted that Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 brokerage income of Rs.29,45,83,445/-, exchange and profit before tax of Rs.25,28,55,778/-. The assessee also maintained a separate books of accounts mercantile system of accounting for company Act purposes, the brokerage income of Rs.31,02,70,709/-, exchange and profit before tax at Rs.28,32,84,743/ . The relevant chart of the various incomes for year under consideration as per alleged of accounting has been reproduced by the Assessing Officer in the impugned assessment order. For ready reference, the said chart is reproduced as under: Receipts as per Mercantile (Rs.) Receipts as per alleged Cash System (Rs.) Variation (Rs.) 310270709 294583445 156872264 40655616 27817511 12838105 2119500 19000 0 1227005 29771374 The Assessing Officer added the variation in brokerage income 56,87,264/- along with variation in exchange of Rs.12,27,005/- and thus made total addition of as business income under the normal provisions of the Act. Similarly, the AO made addition for the variation of the interest income of Rs.1,28,38,105/- under the head ‘Income from Before the Ld. CIT(A), the assessee submitted that Marshall Produce Brokers Company Pvt. Ltd., 5 , 5092 & 4918/MUM/2024 , exchange gain of Rs. Nil . The assessee claimed e books of accounts following the for company Act purposes, where exchange gain of and profit before tax at Rs.28,32,84,743/- was incomes shown by the alleged cash and has been reproduced by the Assessing Officer in the impugned assessment order. For ready (Amount in Rs.) (Rs.) Amount of Variation added to income head Business Income Other Sources House Property Business Income The Assessing Officer added the variation in brokerage income along with variation in exchange and thus made total addition of as business income under the normal provisions made addition for the variation of the under the head ‘Income from Before the Ld. CIT(A), the assessee submitted that section 145(1) of the Act provides head ‘profit and gains business or profession sources’ to be computed in accordance with method of accounting regularly followed by the assessee and since the assessee was following cash receipt of accounting for past several was no justification for adding the income as per the mercantile basis that too when expenses were allowed as per the cash system of accounting. Before the Ld. CIT(A), the assessee submitted that receipt declared on cash basis might include advances also. The assessee relied on the various decisions cited in the submission of the assessee reproduced by the Ld. CIT(A). The Ld. CIT(A) without giving any explicit to the tune of Rs.2,97,52,374/ same was deferred to subsequent years addition made by the Assessing Officer well as to Income from other sources. 5.2 Before us, the Ld. Counsel for the assessee referred to Paper Book page 13, which is part of return of income prescribing other information in the said return of income accounting implied Further, the Ld. Counsel for the assessee referred to the assessment order for on Paper Book page 65 noted that the assessee was following cash system of accounting for Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 section 145(1) of the Act provides for income chargeable under the head ‘profit and gains business or profession’ or ‘income from other be computed in accordance with method of accounting by the assessee and since the assessee was following cash receipt of accounting for past several no justification for adding the income as per the mercantile too when expenses were allowed as per the cash system of accounting. Before the Ld. CIT(A), the assessee submitted that receipt declared on cash basis might include advances he assessee relied on the various decisions cited in the on of the assessee reproduced by the Ld. CIT(A). The Ld. A) without giving any explicit reasons, simply held that receipt to the tune of Rs.2,97,52,374/- was not offered to tax and rather same was deferred to subsequent years, therefore, he upheld the addition made by the Assessing Officer, both to business income as well as to Income from other sources. . Before us, the Ld. Counsel for the assessee referred to Paper which is part of return of income prescribing other he said return of income where the in the previous year is mentioned as cash. Further, the Ld. Counsel for the assessee referred to the for assessment year 2012-13, which is on Paper Book page 65, wherein in para 4, the Assessing Officer noted that the assessee was following cash system of accounting for Marshall Produce Brokers Company Pvt. Ltd., 6 , 5092 & 4918/MUM/2024 income chargeable under the income from other be computed in accordance with method of accounting by the assessee and since the assessee was following cash receipt of accounting for past several years, there no justification for adding the income as per the mercantile too when expenses were allowed as per the cash system of accounting. Before the Ld. CIT(A), the assessee submitted that receipt declared on cash basis might include advances received he assessee relied on the various decisions cited in the on of the assessee reproduced by the Ld. CIT(A). The Ld. simply held that receipt was not offered to tax and rather therefore, he upheld the , both to business income as Before us, the Ld. Counsel for the assessee referred to Paper which is part of return of income prescribing other where the method of mentioned as cash. Further, the Ld. Counsel for the assessee referred to the , which is available rein in para 4, the Assessing Officer noted that the assessee was following cash system of accounting for income-tax purpose and same had after year. The Ld. Counsel for the assessee relied on the decision of the Hon’ble Delhi High Court in the case of Cyber Media (India) Ltd. v. CIT reported in 338 ITR 177 (Delhi), decision of Hon’ble Supreme Court in the case of United Commercial Bank v. CIT reported in 240 ITR 355 (SC) and decision of Hon’ble Calcutta High Court in the case of Pradip Commercial (P.) Ltd. v. CIT reported in 344 ITR 171 (Calcutta). 5.3 On the other hand, the Ld. Departmental Representative (DR) relied on the order of the lower authorities. 5.4 We have heard the rival submissions of the parties and carefully perused the relevant material placed on record. The main issue under consideration pertains to whether the income of the assessee should be computed in accordance with the cash system of accounting, which has been followed by the assessee over the years. of the assessee, matter was fixed for clarification on 28/01/2025. On said date, the ld counsel for the assessee filed copies of balance sheet and profit and loss accounts have been maintained as per cash method of accounting. On perusal of the Significant Accounting and Notes to financial statements for all the three year including the assessment year involved, we find that on Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 tax purpose and same had been consistently followed year after year. The Ld. Counsel for the assessee relied on the decision of hi High Court in the case of Cyber Media (India) Ltd. v. CIT reported in 338 ITR 177 (Delhi), decision of Hon’ble Supreme Court in the case of United Commercial Bank v. CIT reported in 240 ITR 355 (SC) and decision of Hon’ble Calcutta High Court in the e of Pradip Commercial (P.) Ltd. v. CIT reported in 344 ITR 171 On the other hand, the Ld. Departmental Representative (DR) relied on the order of the lower authorities. We have heard the rival submissions of the parties and perused the relevant material placed on record. The main issue under consideration pertains to whether the income of the assessee should be computed in accordance with the cash system of accounting, which has been claimed to have been followed by the assessee over the years. For verification of this claim of the assessee, matter was fixed for clarification on 28/01/2025. the ld counsel for the assessee filed copies of balance sheet and profit and loss accounts for last three years claimed to have been maintained as per cash method of accounting. On perusal of the Significant Accounting and Notes to financial statements for all the three year including the assessment we find that only Revenue and Expenses are Marshall Produce Brokers Company Pvt. Ltd., 7 , 5092 & 4918/MUM/2024 been consistently followed year after year. The Ld. Counsel for the assessee relied on the decision of hi High Court in the case of Cyber Media (India) Ltd. v. CIT reported in 338 ITR 177 (Delhi), decision of Hon’ble Supreme Court in the case of United Commercial Bank v. CIT reported in 240 ITR 355 (SC) and decision of Hon’ble Calcutta High Court in the e of Pradip Commercial (P.) Ltd. v. CIT reported in 344 ITR 171 On the other hand, the Ld. Departmental Representative (DR) We have heard the rival submissions of the parties and perused the relevant material placed on record. The main issue under consideration pertains to whether the income of the assessee should be computed in accordance with the cash system claimed to have been consistently For verification of this claim of the assessee, matter was fixed for clarification on 28/01/2025. the ld counsel for the assessee filed copies of balance for last three years claimed to have been maintained as per cash method of accounting. On perusal of the Significant Accounting and Notes to Account to the financial statements for all the three year including the assessment ly Revenue and Expenses are accounted on cash basis. liabilities have been noted. The ld Counsel explained that those liabilities are not having impact on the income of the assessee computed and offered as per cash acco AO has rejected the books of account of the assessee and only substituted the income as per mercantile method. But in our opinion, the assessee has followed cash method of accounting for recording revenue and expenses item items, which is evident from the submission of the ld Counsel. For ready reference relevant part of his submission is reproduced as under: “10. During the hearing, the Hon'ble members had raised a question with respect to the item Provisions appearing in the Audited Balance Sheet tendered along with the Profit & Loss account maintained as per cash system of accounting. 11. In this regard, the appellant wishes to submit as under: a. The figure of provisions a as at 31st March 2016 - 17) is Rs. 31,88,94,438. The same comprises of three items namely, (i) tax provision of Rs. 31,86,44,000, (ii) Security Deposit received from Licencee employees contribution to ESIC collected from staff salary 438. b. The Appellant humbly submits that none of these three items appearing in the balance sheet have any bearing for determination of business income as per cash system f by the appellant. c. Tax provision of Rs. 31,86,44,000 presentation, the tax liability for the balance sheet period is shown as Provision on Balance sheet date. Corresponding Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 accounted on cash basis. Similarly, in balance sheet, current liabilities have been noted. The ld Counsel explained that those liabilities are not having impact on the income of the assessee computed and offered as per cash accounting. He submitted that AO has rejected the books of account of the assessee and only substituted the income as per mercantile method. But in our opinion, the assessee has followed cash method of accounting for recording revenue and expenses item only and not for balance sheet items, which is evident from the submission of the ld Counsel. For ready reference relevant part of his submission is reproduced as During the hearing, the Hon'ble members had raised a question with respect to the item Current Liabilities and Provisions appearing in the Audited Balance Sheet tendered along with the Profit & Loss account maintained as per cash system of accounting. In this regard, the appellant wishes to submit as under: The figure of provisions as appearing in the Balance Sheet as at 31st March 2016 (relevant for present appeal for AY 17) is Rs. 31,88,94,438. The same comprises of three items namely, (i) tax provision of Rs. 31,86,44,000, (ii) Security Deposit received from Licencee - Rs. 2,50,000 and (iii) employees contribution to ESIC collected from staff salary The Appellant humbly submits that none of these three items appearing in the balance sheet have any bearing for determination of business income as per cash system f by the appellant. Tax provision of Rs. 31,86,44,000 - For the purpose of presentation, the tax liability for the balance sheet period is shown as Provision on Balance sheet date. Corresponding Marshall Produce Brokers Company Pvt. Ltd., 8 , 5092 & 4918/MUM/2024 Similarly, in balance sheet, current liabilities have been noted. The ld Counsel explained that those liabilities are not having impact on the income of the assessee unting. He submitted that AO has rejected the books of account of the assessee and only substituted the income as per mercantile method. But in our opinion, the assessee has followed cash method of accounting for d not for balance sheet items, which is evident from the submission of the ld Counsel. For ready reference relevant part of his submission is reproduced as During the hearing, the Hon'ble members had raised a Current Liabilities and Provisions appearing in the Audited Balance Sheet tendered along with the Profit & Loss account maintained as per cash In this regard, the appellant wishes to submit as under: s appearing in the Balance Sheet 2016 (relevant for present appeal for AY 17) is Rs. 31,88,94,438. The same comprises of three items namely, (i) tax provision of Rs. 31,86,44,000, (ii) Security ,50,000 and (iii) employees contribution to ESIC collected from staff salary - Rs. The Appellant humbly submits that none of these three items appearing in the balance sheet have any bearing for determination of business income as per cash system followed For the purpose of presentation, the tax liability for the balance sheet period is shown as Provision on Balance sheet date. Corresponding effect is given in Profit & Loss account as a line i Profit / (Loss) before Taxation. Tax paid from time to time against the above provision is reflected under the head Loans & Advances in balance sheet. The Appellant submits that the above presentation of tax provision has no bearing with respect to computation of income as per cash basis of accounting followed in accordance with section 145 of the Act. In this regard, attention is drawn to the computation of income at page 1 of the Paper book which refers to Net profit of Rs. 25,28,55,778 as per P from Business & Profession' which is the figure appearing in the Cash Profit & Loss Account for financial year 2015 prior to reduction of provision for taxation of Rs 8,90,36,000 for the year under consideration. In for taxation is not claimed as deduction from the business income computed as per cash system of accounting. d. Deposit received from Licencee had rented part of its office premises to Dynacom Tankers Management Pvt. Ltd. in financial year of Rs. 2,50,000 was received as Security deposit from the Licencee which is refundable and has to be paid back at the time of vacating as a Current lia submits that this item also has no bearing for determination of business income as per cash system of accounting followed by the appellant. e. Employees Contribution to ESIC of Rs. 438 collected from staff salary - contribution from his March salary which is paid after the balance sheet date and, hence, shown as current liability. f. The Appellant, therefore, humbly submits that none of the above items have any bearin computed as per cash system of accounting followed by the appellant. In light of the above submissions, the appellant prays that its ground on computation of income as per the cash system of accounting regularly followed by the 5.5 The section 145 of the Act prescribe mercantile system and therefore, assessee have option to follow Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 effect is given in Profit & Loss account as a line item after Profit / (Loss) before Taxation. Tax paid from time to time against the above provision is reflected under the head Loans & Advances in balance sheet. The Appellant submits that the above presentation of tax provision has no bearing with to computation of income as per cash basis of accounting followed in accordance with section 145 of the Act. In this regard, attention is drawn to the computation of income at page 1 of the Paper book which refers to Net profit of Rs. 25,28,55,778 as per P & L Account under the head 'Income from Business & Profession' which is the figure appearing in the Cash Profit & Loss Account for financial year 2015 prior to reduction of provision for taxation of Rs 8,90,36,000 for the year under consideration. In other words, the provision for taxation is not claimed as deduction from the business income computed as per cash system of accounting. Deposit received from Licencee - Rs. 2,50,000 - Appellant had rented part of its office premises to Dynacom Tankers Management Pvt. Ltd. in financial year 2013 - 14. An amount of Rs. 2,50,000 was received as Security deposit from the Licencee which is refundable and has to be paid back at the time of vacating the premises. Accordingly, the same is shown as a Current liability in the balance sheet. The Appellant submits that this item also has no bearing for determination of business income as per cash system of accounting followed by the appellant. Employees Contribution to ESIC of Rs. 438 collected from This amount is collected from employee for ESIC contribution from his March salary which is paid after the balance sheet date and, hence, shown as current liability. The Appellant, therefore, humbly submits that none of the above items have any bearing with respect to the income computed as per cash system of accounting followed by the In light of the above submissions, the appellant prays that its ground on computation of income as per the cash system of accounting regularly followed by the appellant be allowed ection 145 of the Act prescribe to follow either cash or mercantile system and therefore, assessee have option to follow Marshall Produce Brokers Company Pvt. Ltd., 9 , 5092 & 4918/MUM/2024 tem after Profit / (Loss) before Taxation. Tax paid from time to time against the above provision is reflected under the head Loans & Advances in balance sheet. The Appellant submits that the above presentation of tax provision has no bearing with to computation of income as per cash basis of accounting followed in accordance with section 145 of the Act. In this regard, attention is drawn to the computation of income at page 1 of the Paper book which refers to Net profit of Rs. & L Account under the head 'Income from Business & Profession' which is the figure appearing in the Cash Profit & Loss Account for financial year 2015 - 16 prior to reduction of provision for taxation of Rs 8,90,36,000 other words, the provision for taxation is not claimed as deduction from the business Appellant had rented part of its office premises to Dynacom Tankers 14. An amount of Rs. 2,50,000 was received as Security deposit from the Licencee which is refundable and has to be paid back at the the premises. Accordingly, the same is shown bility in the balance sheet. The Appellant submits that this item also has no bearing for determination of business income as per cash system of accounting followed by Employees Contribution to ESIC of Rs. 438 collected from This amount is collected from employee for ESIC contribution from his March salary which is paid after the balance sheet date and, hence, shown as current liability. The Appellant, therefore, humbly submits that none of the g with respect to the income computed as per cash system of accounting followed by the In light of the above submissions, the appellant prays that its ground on computation of income as per the cash system of appellant be allowed.” to follow either cash or mercantile system and therefore, assessee have option to follow either cash or mercantile method of hybrid method of accounting. are reproduced as under: “[Method of accounting. 145. (1) Income chargeable under the head \"Profits and gains of business or profession\" or \"Income from other sources\" shall, subject to the provisions of sub accordance with either cash or mercantile system of accounting regularly employed (2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by a respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2)], the Assessing Officer may make an assessment in the manner provided in 5.6 The Hon'ble Supreme Court, in the case of Ambalal Mody v. S.A.L. Narayan Row, CIT unequivocally held that mandatory in nature. Consequently, post the amendment to Section 145, effective from 1st April 1997, the assessee is obligated to maintain its books of account either on a cash or mercantile system of accounting. The mixed system of accounting has not been recognized or permitted under Section 145 of the Act after the said amendment. Further, in the case of Supreme Court held that even when the Assessing Officer (AO) accepts the method of accounting followed by the assessee, the AO Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 or mercantile method of accounting system hybrid method of accounting. The relevant provisions of section 145 reproduced as under: Method of accounting. (1) Income chargeable under the head \"Profits and gains of business or profession\" or \"Income from other sources\" shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure standards] to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) [has regularly followed by the assessee, or income has not been computed in accordance with the standards notified under section (2)], the Assessing Officer may make an assessment in the manner provided in section 144.]” The Hon'ble Supreme Court, in the case of Ambalal Mody v. S.A.L. Narayan Row, CIT (61 ITR 428), unequivocally held that Section 145 of the Income mandatory in nature. Consequently, post the amendment to Section om 1st April 1997, the assessee is obligated to maintain its books of account either on a cash or mercantile system of accounting. The mixed system of accounting has not been recognized or permitted under Section 145 of the Act after the said amendment. Further, in the case of McMillan & Co. (33 ITR 182) Court held that even when the Assessing Officer (AO) accepts the method of accounting followed by the assessee, the AO Marshall Produce Brokers Company Pvt. Ltd., 10 , 5092 & 4918/MUM/2024 accounting system and not provisions of section 145 (1) Income chargeable under the head \"Profits and gains of business or profession\" or \"Income from other sources\" shall, computed in accordance with either cash or mercantile system of accounting (2) The Central Government may notify in the Official Gazette from time to time [income computation and disclosure ny class of assessees or in (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or section (1) [has regularly followed by the assessee, or income has not been computed in accordance with the standards notified under section (2)], the Assessing Officer may make an assessment The Hon'ble Supreme Court, in the case of Nalinikant (61 ITR 428), has Section 145 of the Income-tax Act is mandatory in nature. Consequently, post the amendment to Section om 1st April 1997, the assessee is obligated to maintain its books of account either on a cash or mercantile system of accounting. The mixed system of accounting has not been recognized or permitted under Section 145 of the Act after the said amendment. (33 ITR 182), the Hon’ble Court held that even when the Assessing Officer (AO) accepts the method of accounting followed by the assessee, the AO is not bound by the profit figures reflected in the accounts. I incumbent upon the AO to identify and substantiate any inherent defects in the accounting system adopted and record a clear finding that such a system does not enable the computation of correct profits. However, it is not open to the AO to intervene a a different system of accounting than the one consistently followed by the assessee merely because the AO believes an alternate system is preferable as has been Funds (P.) Ltd. [1985] 155 ITR 442 (AP). Income-tax Appellate Tribunal in the case of (P.) Ltd. vs Assistant Commissioner Of Income ITD 386 (DELHI), held that hybrid system of accounting is not permitted. The relevant finding of the Tribunal under: ORDER 5. On consideration of the material the claim made by the assessee is not acceptable for the reasons as follows: 5.1 For all practical purposes such as recording of the business transactions, compliance with requirements of presentation of the accounts before the share purpose of filing returns under the cash system of accounting which was admittedly accepted in past. However, from the current year the assessee changed over to method of mercantile system of accounting for all practical purposes other than meeting its liability under the Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 is not bound by the profit figures reflected in the accounts. I incumbent upon the AO to identify and substantiate any inherent defects in the accounting system adopted and record a clear finding that such a system does not enable the computation of correct However, it is not open to the AO to intervene a a different system of accounting than the one consistently followed by the assessee merely because the AO believes an alternate system as has been reiterated in CIT v. Margadarsi Chit [1985] 155 ITR 442 (AP). The Delhi bench of the tax Appellate Tribunal in the case of Amarpali Mercantile (P.) Ltd. vs Assistant Commissioner Of Income-Tax [1993] 45 held that hybrid system of accounting is not permitted. The relevant finding of the Tribunal is reproduced as 5. On consideration of the material the claim made by the assessee is not acceptable for the reasons as follows: 5.1 For all practical purposes such as recording of the business transactions, compliance with requirements of the Companies Act presentation of the accounts before the share-holders etc. and also for the purpose of filing returns under the Income-tax Act, the as cash system of accounting which was admittedly accepted in past. However, from the current year the assessee changed over to method of mercantile system of accounting for all practical purposes other than meeting its liability under the Income-tax Act. This is not permissible as Marshall Produce Brokers Company Pvt. Ltd., 11 , 5092 & 4918/MUM/2024 is not bound by the profit figures reflected in the accounts. It is incumbent upon the AO to identify and substantiate any inherent defects in the accounting system adopted and record a clear finding that such a system does not enable the computation of correct However, it is not open to the AO to intervene and substitute a different system of accounting than the one consistently followed by the assessee merely because the AO believes an alternate system CIT v. Margadarsi Chit Delhi bench of the Amarpali Mercantile Tax [1993] 45 held that hybrid system of accounting is not is reproduced as 5. On consideration of the material the claim made by the assessee is not 5.1 For all practical purposes such as recording of the business Companies Act, holders etc. and also for the , the assessee followed cash system of accounting which was admittedly accepted in past. However, from the current year the assessee changed over to method of mercantile system of accounting for all practical purposes other than . This is not permissible as the same is not in accordance with law while interpreting the words 'method of accounting regularly employed by the assessee' it was held in the case of Sarangpur Cotton Mfg. Co. Ltd. a method of accounting regularly employed by the assessee for his own purposes, that is to say, for the purposes of his business and did not relate to a method of making up the statutory return for assessment to income-tax. Similar principle was Singari Bal [1945) 13 assessee could not for the purpose of more conveniently carrying on his own business adopt the mercantile basis and then for the purpose of income-tax assessment adopt the cash system of accounting. See pages 1159/60 of Kanga and Palkhiwala's The Law and Practice of Income Eighth Edition and also pages 4231/32 of Sampath Iyengar's Law of Income-tax, Eighth Edition. In our opinion the principle in these two cases still hold the field of assessments. Mr. Vaish contended that the change from cash system to mercantile system was effected only to comply with the amended provisions of the Act. But the fact remains that the assessee did change over to mercantile system of accounting for all practical purposes except one for preparing the statutory return for Income Tax purpose. Mr. Vaish further contended that had the assessee continued to fol then at the most there could have been only a qualification in the statutory report to be obtained from the statutory auditors under the Companies Act is accepted that there were no other compelling reasons or penalties not envisaged under the system of accounting, yet aspect and that itself clarifies the intention of the assessee to change over to mercantile system of accounting for all practical purposes though in the Resolution passed by the Board of Directors it is stated purpose of Income- system of accounting. 5.2 It was further submitted that there would be hardships to the assessee in case the assssees were to mercantile system of accounting because in that eventthe assessee would be paying tax on interest even on sticky or doubtful loans or even where Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 the same is not in accordance with law while interpreting the words 'method of accounting regularly employed by the assessee' it was held in Sarangpur Cotton Mfg. Co. Ltd. (supra) that section related to a method of accounting regularly employed by the assessee for his own purposes, that is to say, for the purposes of his business and did not ethod of making up the statutory return for assessment to Similar principle was laid down in the case of [1945) 13 ITR 224 (All.) (FB) where it was held that the assessee could not for the purpose of more conveniently carrying on his own business adopt the mercantile basis and then for the purpose of tax assessment adopt the cash system of accounting. See pages 1159/60 of Kanga and Palkhiwala's The Law and Practice of Income Eighth Edition and also pages 4231/32 of Sampath Iyengar's Law of tax, Eighth Edition. In our opinion the principle these two cases still hold the field of assessments. Mr. Vaish contended that the change from cash system to mercantile system was effected only to comply with the amended provisions of the . But the fact remains that the assessee did change over to mercantile system of accounting for all practical purposes except one for preparing the statutory return for Income Tax purpose. Mr. Vaish further contended that had the assessee continued to follow the cash system of accounting then at the most there could have been only a qualification in the statutory report to be obtained from the statutory auditors under and there were no other penal provisions. Even if it is accepted that there were no other compelling reasons or penalties not envisaged under the Companies Act for not switching over to mercantile system of accounting, yet the assessee did change over in spite of this aspect and that itself clarifies the intention of the assessee to change over to mercantile system of accounting for all practical purposes though in the Resolution passed by the Board of Directors it is stated -tax Act only, the company shall follow the cash system of accounting. 5.2 It was further submitted that there would be hardships to the assessee in case the assssees were to be taxed on income on the basis of mercantile system of accounting because in that eventthe assessee would be paying tax on interest even on sticky or doubtful loans or even where Marshall Produce Brokers Company Pvt. Ltd., 12 , 5092 & 4918/MUM/2024 the same is not in accordance with law while interpreting the words 'method of accounting regularly employed by the assessee' it was held in (supra) that section related to a method of accounting regularly employed by the assessee for his own purposes, that is to say, for the purposes of his business and did not ethod of making up the statutory return for assessment to the case of CIT v. Smt. ITR 224 (All.) (FB) where it was held that the assessee could not for the purpose of more conveniently carrying on his own business adopt the mercantile basis and then for the purpose of tax assessment adopt the cash system of accounting. See pages 1159/60 of Kanga and Palkhiwala's The Law and Practice of Income-tax, Eighth Edition and also pages 4231/32 of Sampath Iyengar's Law of tax, Eighth Edition. In our opinion the principle laid down these two cases still hold the field of assessments. Mr. Vaish contended that the change from cash system to mercantile system was effected only to comply with the amended provisions of the Companies . But the fact remains that the assessee did change over to mercantile system of accounting for all practical purposes except one for preparing the statutory return for Income Tax purpose. Mr. Vaish further contended low the cash system of accounting then at the most there could have been only a qualification in the statutory report to be obtained from the statutory auditors under ther penal provisions. Even if it is accepted that there were no other compelling reasons or penalties not for not switching over to mercantile the assessee did change over in spite of this aspect and that itself clarifies the intention of the assessee to change over to mercantile system of accounting for all practical purposes though in the Resolution passed by the Board of Directors it is stated that for the only, the company shall follow the cash 5.2 It was further submitted that there would be hardships to the be taxed on income on the basis of mercantile system of accounting because in that eventthe assessee would be paying tax on interest even on sticky or doubtful loans or even where interest received is deferred. Probably his submission was based on the decision of the Hon'ble Supreme Court in the case of State Bank of Travancorev. CIT [1986] 158 ITR 102 where, by majority decision, it was held that such accrual of interest would be taxed even when the loans are sticky since there would be an agreement betwe regard to the payment of interest. First of all there is no evidence brought to our notice in respect of any such amount of interest having been taken as accrued about which the assessee is not certain of recovery. No such position is found from the accounts filed before us. Besides there are sufficient guide-lines in respect of such matters where if the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim the Revenue recognition postponed to the extent of un Guidance Notes, Vol. II, 2nd Edition issued by the Institute of Chartered Accountants of India on pages 47 to Section 209 of Companies Act) and, therefore, there should not be difficulty at least on the basis of upon the fact that the assessee itself had charg debtor's account and had taken the credit to the suspense account. Besides the Central Board of Direct Taxes also issues from time to time appropriate Circulars in this regard so as to remove the hardships of the assessees. 5.3 It was further submitted that such approach should be adopted, which shall protect the interest of Revenue and also not cause any undue hardships to the assessee. On this aspect, in our opinion, the approach adopted by the tax authorities is quite correct being in consonance with the law, if the assessment is based on the books maintained for all purposes except for tax purpose then the assessee will not be required to maintain another set of books of accounts, nor will it be necessa Section 44AB as otherwise, in our opinion, it would be necessary, besides detailed time consuming enquiries will not be resorted to by the Assessing Officer to find out what exactly are the amounts received by the assessee and what is the element of interest/principal paid by the assessee and re-conciling the same with books of accounts maintained on mercantile system of accounting. All these undue hardships will be Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 interest received is deferred. Probably his submission was based on the ision of the Hon'ble Supreme Court in the case of State Bank of Travancorev. CIT [1986] 158 ITR 102 where, by majority decision, it was held that such accrual of interest would be taxed even when the loans are sticky since there would be an agreement between the parties with regard to the payment of interest. First of all there is no evidence brought to our notice in respect of any such amount of interest having been taken as accrued about which the assessee is not certain of recovery. No such ound from the accounts filed before us. Besides there are lines in respect of such matters where if the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim the Revenue recognition is advised to be postponed to the extent of un-certainty involved (See Compendium of Guidance Notes, Vol. II, 2nd Edition issued by the Institute of Chartered Accountants of India on pages 47-15, consequent to amendment of Companies Act) and, therefore, there should not be difficulty at least on the basis of the said decision which was resting upon the fact that the assessee itself had charged interest by debiting the debtor's account and had taken the credit to the suspense account. Besides the Central Board of Direct Taxes also issues from time to time appropriate Circulars in this regard so as to remove the hardships of the It was further submitted that such approach should be adopted, which shall protect the interest of Revenue and also not cause any undue hardships to the assessee. On this aspect, in our opinion, the approach adopted by the tax authorities is quite correct because apart from that being in consonance with the law, if the assessment is based on the books maintained for all purposes except for tax purpose then the assessee will not be required to maintain another set of books of accounts, nor will it be necessary for the assessee to have audit under Section 44AB as otherwise, in our opinion, it would be necessary, besides detailed time consuming enquiries will not be resorted to by the Assessing Officer to find out what exactly are the amounts received by sessee and what is the element of interest/principal paid by the conciling the same with books of accounts maintained on mercantile system of accounting. All these undue hardships will be Marshall Produce Brokers Company Pvt. Ltd., 13 , 5092 & 4918/MUM/2024 interest received is deferred. Probably his submission was based on the ision of the Hon'ble Supreme Court in the case of State Bank of Travancorev. CIT [1986] 158 ITR 102 where, by majority decision, it was held that such accrual of interest would be taxed even when the loans en the parties with regard to the payment of interest. First of all there is no evidence brought to our notice in respect of any such amount of interest having been taken as accrued about which the assessee is not certain of recovery. No such ound from the accounts filed before us. Besides there are lines in respect of such matters where if the ability to assess the ultimate collection with reasonable certainty is lacking at the is advised to be certainty involved (See Compendium of Guidance Notes, Vol. II, 2nd Edition issued by the Institute of Chartered 15, consequent to amendment of Companies Act) and, therefore, there should not be which was resting ed interest by debiting the debtor's account and had taken the credit to the suspense account. Besides the Central Board of Direct Taxes also issues from time to time appropriate Circulars in this regard so as to remove the hardships of the It was further submitted that such approach should be adopted, which shall protect the interest of Revenue and also not cause any undue hardships to the assessee. On this aspect, in our opinion, the approach because apart from that being in consonance with the law, if the assessment is based on the books maintained for all purposes except for tax purpose then the assessee will not be required to maintain another set of books of ry for the assessee to have audit under Section 44AB as otherwise, in our opinion, it would be necessary, besides detailed time consuming enquiries will not be resorted to by the Assessing Officer to find out what exactly are the amounts received by sessee and what is the element of interest/principal paid by the conciling the same with books of accounts maintained on mercantile system of accounting. All these undue hardships will be removed by the course adopted by the Assessing Offic advantage that will accrue from our this decision would be there will not be need of any modification of the assessment and if the Tribunal's Order is accepted then litigation will come to an end not only for this year but for all subsequent years. To our mind this too is a great advantage to the assessee. 5.4 While ending we would like to refer to one more aspect, the intention behind the amendment made to Sachar Committee, formed for reforms in the that certain Corporate Bodies maintained all or certain accounts on cash basis in which event a true and fair picture of the state of Company might not always be reflected and, therefore, it was desired by the Committee to make it obligatory on all Companies to maintain accounts only on mercantile system of accounting (Para 8.6 of the Report) and based on this recommendati Companies Act had been amended. The newly inserted Sub reads as under : (3) For the purposes of Sub shall not be deemed to be kept with respect to the matters specified therein:- (a) if there are not kept such books as are necessary to give a true and fair view of the state of affairs of the company or branch office, as the case may be and to explain its transac (b) if such books are not kept on accrual basis and according to the double entry system of accounting. Because of the amendment now it is obligatory on the part of all the Companies to record its business transactions only on the basis of accrual, that is to say, method of mercantile system of accounting and that is why as we have stated earlier the judicial principle by the Privy Council and Allahabad High Court is directly applicabl further find on reading section (5) prescribes for compulsory compliance by the Company with the requirements of amended section and in case of wilfull defaul Company the officials mentioned in Sub imprisonment and/or fine. Therefore, the submission of Mr. Vaish that the Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 removed by the course adopted by the Assessing Offic advantage that will accrue from our this decision would be there will not be need of any modification of the assessment and if the Tribunal's Order is accepted then litigation will come to an end not only for this year but years. To our mind this too is a great advantage to the 5.4 While ending we would like to refer to one more aspect, the intention behind the amendment made to Section 209 of the Companies Act. har Committee, formed for reforms in the Companies Act that certain Corporate Bodies maintained all or certain accounts on cash basis in which event a true and fair picture of the state of Company might not always be reflected and, therefore, it was desired by the Committee to make it obligatory on all Companies to maintain accounts only on mercantile system of accounting (Para 8.6 of the Report) and based on this recommendation Sub-section (3) to Section 209 Companies Act had been amended. The newly inserted Sub (3) For the purposes of Sub-sections (1) and (2) proper books of account t be deemed to be kept with respect to the matters specified (a) if there are not kept such books as are necessary to give a true and fair view of the state of affairs of the company or branch office, as the case may be and to explain its transactions; and (b) if such books are not kept on accrual basis and according to the double entry system of accounting. Because of the amendment now it is obligatory on the part of all the Companies to record its business transactions only on the basis of al, that is to say, method of mercantile system of accounting and that is why as we have stated earlier the judicial principle the Privy Council and Allahabad High Court is directly applicabl further find on reading Section 209 of the Companies Act that Sub section (5) prescribes for compulsory compliance by the Company with the requirements of amended section and in case of wilfull defaul Company the officials mentioned in Sub-section (6) are punishable with imprisonment and/or fine. Therefore, the submission of Mr. Vaish that the Marshall Produce Brokers Company Pvt. Ltd., 14 , 5092 & 4918/MUM/2024 removed by the course adopted by the Assessing Officer. Immediate advantage that will accrue from our this decision would be there will not be need of any modification of the assessment and if the Tribunal's Order is accepted then litigation will come to an end not only for this year but years. To our mind this too is a great advantage to the 5.4 While ending we would like to refer to one more aspect, the intention of the Companies Act. Companies Act. had found that certain Corporate Bodies maintained all or certain accounts on cash basis in which event a true and fair picture of the state of affairs of the Company might not always be reflected and, therefore, it was desired by the Committee to make it obligatory on all Companies to maintain accounts only on mercantile system of accounting (Para 8.6 of the Report) Section 209 of the Companies Act had been amended. The newly inserted Sub-section (3) sections (1) and (2) proper books of account t be deemed to be kept with respect to the matters specified (a) if there are not kept such books as are necessary to give a true and fair view of the state of affairs of the company or branch office, as the (b) if such books are not kept on accrual basis and according to the Because of the amendment now it is obligatory on the part of all the Companies to record its business transactions only on the basis of al, that is to say, method of mercantile system of accounting and that is why as we have stated earlier the judicial principle laid down the Privy Council and Allahabad High Court is directly applicable. We of the Companies Act that Sub- section (5) prescribes for compulsory compliance by the Company with the requirements of amended section and in case of wilfull default by the section (6) are punishable with imprisonment and/or fine. Therefore, the submission of Mr. Vaish that the company could invite only qualification in the report of the statutory auditors if it had not changed incorrect. 5.5 The decision in the case of the case of the Revenue because it was held that para materia with power but in the context it imposed a statutory duty on the Assessing Officer to examine in the assessee. In this case we have already stated that the Assessing Officer examined the method of accounting employed by the assessee on the basis of decision of the Privy Council and Allahabad High Court referred to earlier and the Assessing Officer also found that the changed method had been regularly employed and he further agreed that profits and gains could appropriately be deduced therefrom. decision in the case of A. Krishnaswami Mudali that Section 13 of the Old Act did not compel the Assessing Officer to accept a balance-sheet of cash receipts and out books of accounts but he had to the method of accounting regularly employed by the assessee. the decision in the case of the case of Revenue. It chosen the mercantile system and had regularly employed that system it was not open to him unilaterally at any time during subsequent accounting year to change that system because the variation could only be by mutual consent. In this case as we have stated earlier except for Income-tax purposes, the assessee changed the system of accounting and to which consent is accorded by the Assessing Officer. Departmental Representative had placed reliance on Cuttack Bench of the Tribunal in the case of Prajatantra Prachar Samiti (supra) where it was held that the assessee was prohibited from adopting regularly one method of accounting for his own purpose and yet another method of accounting fo controvert this principle by showing how the decision of Cuttack Bench was not applicable to the facts of the case. Haryana High Court in case of into service was totally on different point. In that case the assessee who maintained books on accrual method had received decretal amount, but the decree passed by Lower Court was subject matter of further appea and it was held that the amount could not be said to have accrued to the assessee. But such is not the case here. The controversy is entirely different. Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 company could invite only qualification in the report of the statutory auditors if it had not changed over to mercantile system of accounting, is 5.5 The decision in the case of McMillan & Co. (supra) in fact supports the case of the Revenue because it was held that Section 13 Section 145 does not confer a mere discretionary power but in the context it imposed a statutory duty on the Assessing Officer to examine in every case the method of accounting employed by the assessee. In this case we have already stated that the Assessing Officer examined the method of accounting employed by the assessee on the basis of decision of the Privy Council and Allahabad High Court referred to earlier and the Assessing Officer also found that the changed method had been regularly employed and he further agreed that profits and gains could appropriately be deduced therefrom. decision in the case of A. Krishnaswami Mudaliar (supra) it was held of the Old Act did not compel the Assessing Officer to sheet of cash receipts and out-going prepared from the books of accounts but he had to compute the income in accordance with the method of accounting regularly employed by the assessee. the decision in the case of Shiv Prasad Ram Sahai (supra) also supports the case of Revenue. It was held therein that if the assessee had once chosen the mercantile system and had regularly employed that system it was not open to him unilaterally at any time during subsequent accounting year to change that system because the variation could only y mutual consent. In this case as we have stated earlier except for tax purposes, the assessee changed the system of accounting and to which consent is accorded by the Assessing Officer. Departmental Representative had placed reliance on Cuttack Bench of the Tribunal in the case of Prajatantra Prachar Samiti (supra) where it was held that the assessee was prohibited from adopting regularly one method of accounting for his own purpose and yet another method of accounting for Income-tax purposes. Mr. Vaish did not controvert this principle by showing how the decision of Cuttack Bench was not applicable to the facts of the case. Decision of Punjab and Haryana High Court in case of Salig Ram Kanhaya Lal into service was totally on different point. In that case the assessee who maintained books on accrual method had received decretal amount, but the decree passed by Lower Court was subject matter of further appea and it was held that the amount could not be said to have accrued to the assessee. But such is not the case here. The controversy is entirely Marshall Produce Brokers Company Pvt. Ltd., 15 , 5092 & 4918/MUM/2024 company could invite only qualification in the report of the statutory over to mercantile system of accounting, is (supra) in fact supports Section 13 which is in does not confer a mere discretionary power but in the context it imposed a statutory duty on the Assessing every case the method of accounting employed by the assessee. In this case we have already stated that the Assessing Officer examined the method of accounting employed by the assessee on the basis of decision of the Privy Council and Allahabad High Court referred to earlier and the Assessing Officer also found that the changed method had been regularly employed and he further agreed that profits and gains could appropriately be deduced therefrom. Similarly the ar (supra) it was held of the Old Act did not compel the Assessing Officer to going prepared from the compute the income in accordance with the method of accounting regularly employed by the assessee. Similarly (supra) also supports was held therein that if the assessee had once chosen the mercantile system and had regularly employed that system it was not open to him unilaterally at any time during subsequent accounting year to change that system because the variation could only y mutual consent. In this case as we have stated earlier except for tax purposes, the assessee changed the system of accounting and to which consent is accorded by the Assessing Officer. The learned the decision of Cuttack Bench of the Tribunal in the case of Prajatantra Prachar Samiti (supra) where it was held that the assessee was prohibited from adopting regularly one method of accounting for his own purpose and yet another tax purposes. Mr. Vaish did not controvert this principle by showing how the decision of Cuttack Bench Decision of Punjab and (supra) pressed into service was totally on different point. In that case the assessee who maintained books on accrual method had received decretal amount, but the decree passed by Lower Court was subject matter of further appeal and it was held that the amount could not be said to have accrued to the assessee. But such is not the case here. The controversy is entirely 6. In the result the appeal is dismissed. 5.7 In view of the foregoing judicial precedents, it is evi when an assessee partly partly mercantile method, the books of accounts of the assessee are liable to be rejected deduce the correct income for tax purpose Revenue's contention brokerage or interest income has been properly declared by the assessee or not need circumstances of the case, we feel it appropriate to finding of the ld CIT(A) and officer for proper verification of the profit from the business activity of brokerage income and interest income. Officer may issue commission to computation of income following the methods allowed as per law. The ground Nos. 1 and 2 of the appeal of the assessee are allowed for statistical purposes. alternative ground and same is not required as the ground Nos. 1 and 2 AO, therefore, the ground No. 3 is being dismissed. 6. The ground No. 4 of the appeal of the assessee relate to addition of Rs.2,97,71,374/ the purpose of section 115JB of the Act Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 6. In the result the appeal is dismissed. In view of the foregoing judicial precedents, it is evi partly follows the cash system of accounting partly mercantile method, the books of accounts of the assessee are and it is difficult for the Assessing officer to deduce the correct income for tax purpose. Revenue's contention that the entirety of cash receipts from brokerage or interest income has been properly declared by the or not need also merits consideration. circumstances of the case, we feel it appropriate to finding of the ld CIT(A) and restore the matter back to the Assessing officer for proper verification of the profit from the business activity of brokerage income and interest income. If required, the Assessing Officer may issue commission to a tax Auditor for correct computation of income following the methods allowed as per law. . 1 and 2 of the appeal of the assessee are allowed for statistical purposes. . The ground No. 3 of the appeal being an alternative ground and same is not required to be adjudicated upon . 1 and 2 have already been restored back to the therefore, the ground No. 3 is being infructuous The ground No. 4 of the appeal of the assessee relate to addition of Rs.2,97,71,374/- made by the AO to the the purpose of section 115JB of the Act. The Ld. CIT(A) has noted Marshall Produce Brokers Company Pvt. Ltd., 16 , 5092 & 4918/MUM/2024 In view of the foregoing judicial precedents, it is evident that follows the cash system of accounting and partly mercantile method, the books of accounts of the assessee are and it is difficult for the Assessing officer to Therefore, the the entirety of cash receipts from brokerage or interest income has been properly declared by the also merits consideration. In facts and circumstances of the case, we feel it appropriate to set aside the restore the matter back to the Assessing officer for proper verification of the profit from the business activity If required, the Assessing a tax Auditor for correct computation of income following the methods allowed as per law. . 1 and 2 of the appeal of the assessee are allowed . The ground No. 3 of the appeal being an to be adjudicated upon restored back to the infructuous and same is The ground No. 4 of the appeal of the assessee relate to AO to the book profit for . The Ld. CIT(A) has noted the book profit was and therefore, addition made by the AO was justified. Whereas before us, the Ld. Counsel for the assessee submitted that book profit for the purpose of been worked out on the basis of mercantile system of account followed under the Companies Act, by the AO amounts to double addition. 6.1 We have heard the rival submissions of the parties and carefully examined the material placed on record. The assessee has submitted a copy of t mercantile system of accounting, which is available on record at page 41 of the Paper Book. In this financial statement, the profit before tax has been reported as the return of income, available at pages 12 and 15 of the Paper Book, along with the schedule of Minimum Alternate Tax (MAT) calculation at paper book income under Section 115JB of the Income declared at ₹25,28,55,778/ basis of profit determined under the The learned counsel for the assessee submitted return of income did not accept the figure derived as per the mercantile system of accounting and instead automatically populated the book profit figure from other columns the return of income Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 offered as per the cash system of accounting nd therefore, addition made by the AO was justified. Whereas before us, the Ld. Counsel for the assessee submitted that book purpose of provisions of section 115JB of the Act been worked out on the basis of mercantile system of account followed under the Companies Act, and therefore the addition made to double addition. We have heard the rival submissions of the parties and carefully examined the material placed on record. The assessee has submitted a copy of the financial statement prepared under the mercantile system of accounting, which is available on record at page 41 of the Paper Book. In this financial statement, the profit before tax has been reported as ₹28,32,84,743/-. Upon reviewing me, available at pages 12 and 15 of the Paper Book, along with the schedule of Minimum Alternate Tax (MAT) paper book page 36, it is noted that the deemed total income under Section 115JB of the Income-tax Act has been 25,28,55,778/-. This figure has been computed on the basis of profit determined under the ‘cash method The learned counsel for the assessee submitted before us return of income did not accept the figure derived as per the e system of accounting and instead automatically populated the book profit figure from other columns the return of income. Consequently, the assessee separately Marshall Produce Brokers Company Pvt. Ltd., 17 , 5092 & 4918/MUM/2024 offered as per the cash system of accounting nd therefore, addition made by the AO was justified. Whereas before us, the Ld. Counsel for the assessee submitted that book provisions of section 115JB of the Act, has been worked out on the basis of mercantile system of accounting the addition made We have heard the rival submissions of the parties and carefully examined the material placed on record. The assessee has he financial statement prepared under the mercantile system of accounting, which is available on record at page 41 of the Paper Book. In this financial statement, the profit . Upon reviewing me, available at pages 12 and 15 of the Paper Book, along with the schedule of Minimum Alternate Tax (MAT) page 36, it is noted that the deemed total tax Act has been . This figure has been computed on the cash method’ of accounting. before us that the return of income did not accept the figure derived as per the e system of accounting and instead automatically populated the book profit figure from other columns/schedule of . Consequently, the assessee separately declared the income under Section 115JB of the Act, in accordance with the books prepared under the mercantile system of accounting as per the Companies Act. However, no corroborative evidence has been submitted before us to substantiate this claim. In view of the foregoing, we deem it appropriate to remand this matter file of the Assessing Officer for verification. The Assessing Officer shall examine whether, in the return of income filed, the assessee has declared income under the MAT provisions, i.e., the book profit, based on the books of account prepared under the Compani The assessee is directed to furnish all relevant documentary evidence to support its contention that the income under Section 115JB of the Act was computed as per the mercantile system of accounting, in compliance with the provisions of the Compani Act. The Assessing Officer shall consider these documents and decide the matter in accordance with law. appeal is accordingly 7. The grounds No. 5 to building premises at Andheri assessee is agitated with the 60% depreciation disallowed by the Assessing Officer. In ground No. 6, the assessee is agitated with the deemed notional rental income in respect of 60% portion of the Andheri building added by the Assessing Officer. In ground No. 7, the assessee is aggrieved with the addition of Rs.19,000/ Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 declared the income under Section 115JB of the Act, in accordance epared under the mercantile system of accounting as per the Companies Act. However, no corroborative evidence has been submitted before us to substantiate this claim. In view of the foregoing, we deem it appropriate to remand this matter f the Assessing Officer for verification. The Assessing Officer shall examine whether, in the return of income filed, the assessee has declared income under the MAT provisions, i.e., the book profit, based on the books of account prepared under the Compani The assessee is directed to furnish all relevant documentary evidence to support its contention that the income under Section 115JB of the Act was computed as per the mercantile system of accounting, in compliance with the provisions of the Compani Act. The Assessing Officer shall consider these documents and decide the matter in accordance with law. The ground No. 4 of the accordingly allowed for statistical purposes. The grounds No. 5 to 7 of the appeal of the assessee relate premises at Andheri, Mumbai. In ground No. 5, the assessee is agitated with the 60% depreciation disallowed by the Assessing Officer. In ground No. 6, the assessee is agitated with the deemed notional rental income in respect of 60% portion of the added by the Assessing Officer. In ground No. 7, the assessee is aggrieved with the addition of Rs.19,000/ Marshall Produce Brokers Company Pvt. Ltd., 18 , 5092 & 4918/MUM/2024 declared the income under Section 115JB of the Act, in accordance epared under the mercantile system of accounting as per the Companies Act. However, no corroborative evidence has been submitted before us to substantiate this claim. In view of the foregoing, we deem it appropriate to remand this matter back to the f the Assessing Officer for verification. The Assessing Officer shall examine whether, in the return of income filed, the assessee has declared income under the MAT provisions, i.e., the book profit, based on the books of account prepared under the Companies Act. The assessee is directed to furnish all relevant documentary evidence to support its contention that the income under Section 115JB of the Act was computed as per the mercantile system of accounting, in compliance with the provisions of the Companies Act. The Assessing Officer shall consider these documents and The ground No. 4 of the allowed for statistical purposes. e appeal of the assessee relate to . In ground No. 5, the assessee is agitated with the 60% depreciation disallowed by the Assessing Officer. In ground No. 6, the assessee is agitated with the deemed notional rental income in respect of 60% portion of the added by the Assessing Officer. In ground No. 7, the assessee is aggrieved with the addition of Rs.19,000/- in respect of society charges and property taxes in respect of premises at Mumbai. 7.1 The facts in brief qua the had acquired a commercial property admeasuring 3745.20 sq. ft. Andheri Kurla Road for Rs.7,66,75,000/ contention of the assessee that as the whole of the premises were not required for the own a part of premises on rent to minimize ideal cost income from the same was offered house property’. The Assessing Officer disallowed the claim of depreciation on the let out not been disputed by the assessee. The Assessing Officer held that the balance 60% of the possession was not put to use for its business purpose depreciation on the same Assessing Officer relied on the order of the Assessing Officer in assessment year 2014 denied the depreciation CIT(A), the assessee relied on the order of the ITAT dated 19.12.2019, for assessment year 2014 observed that assessee had not 60% of the asset was being put to use consideration, therefore Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 of society charges and property taxes in respect of Andheri premises at Mumbai. The facts in brief qua the issue in dispute are that assessee commercial property admeasuring 3745.20 sq. ft. Andheri Kurla Road for Rs.7,66,75,000/- on 21.05.2013. It is the contention of the assessee that as the whole of the premises were the own business, the management decided part of premises on rent to minimize ideal cost income from the same was offered under the head ‘ . The Assessing Officer disallowed the claim of depreciation on the let out portion i.e. 40% of the area not been disputed by the assessee. The Assessing Officer held that the balance 60% of the property which remained in the assessee’s put to use for its business purpose the same could not be availed by the Assessing Officer relied on the order of the Assessing Officer in assessment year 2014-15, where the Ld. Assessing Officer had denied the depreciation on the ‘Andheri building’ . Before the Ld. assessee relied on the order of the ITAT dated for assessment year 2014-15. However, the Ld. CIT(A) observed that assessee had not demonstrated that 60% of the asset was being put to use in the year under therefore, the depreciation on 60% portion of Marshall Produce Brokers Company Pvt. Ltd., 19 , 5092 & 4918/MUM/2024 Andheri building issue in dispute are that assessee commercial property admeasuring 3745.20 sq. ft. At on 21.05.2013. It is the contention of the assessee that as the whole of the premises were the management decided to give part of premises on rent to minimize ideal costs. The rental under the head ‘income from . The Assessing Officer disallowed the claim of portion i.e. 40% of the area, which has not been disputed by the assessee. The Assessing Officer held that in the assessee’s put to use for its business purpose, therefore, availed by the assessee. The Assessing Officer relied on the order of the Assessing Officer in where the Ld. Assessing Officer had . Before the Ld. assessee relied on the order of the ITAT dated 15. However, the Ld. CIT(A) demonstrated that the remaining in the year under on 60% portion of building was not allowable. The relevant finding of the Ld. CIT(A) is reproduced as under : “6.15 | have also perused the order of ITAT and found that ITAT has relied on finding of CIT (A) that the asset is being put to has not given any finding towards asset being put to use as contested by the appellant. Stepping back into CIT (a) order to find out if such finding has been given by CIT(A) or not, it is observed in the assessment order for Ay 2016 issue already at para no.6.4.1. It is observed that Cit (a) as well has not give any findings that asset is being put to use, he had direct eth AO to verify and allow depreciation. 6.16 The appellant has not proved that remaining 60% o is being put to use therefore depreciation is not allowable and the addition carried out by the Ld.AO is being upheld. 7.2 We have heard the rival submissions of the parties and have carefully perused the material on record. The sole issue for adjudication before us is whether 60% of the used by the assessee for its business purposes during the assessment year under consideration. The assessee has placed reliance on the decision of the Income Tax Appellate Tribunal (ITAT) for the preceding assessment year 2014 has argued that, in that year, the Learned Commissioner of Income Tax (Appeals) [CIT(A)] had merely directed the Assessing Officer (AO) to verify whether 60% of the building was put to use, and such verification was not conclusively carried out while givin the CIT(A)’s order and t the CIT(A) had verified the use of the 60% portion of the building. In our considered view, whether 60% of the building was put to use in the year under consideration is a factual matter requiring specific Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 was not allowable. The relevant finding of the Ld. CIT(A) is reproduced as under : 6.15 | have also perused the order of ITAT and found that ITAT has relied on finding of CIT (A) that the asset is being put to use and ITAT has not given any finding towards asset being put to use as contested by the appellant. Stepping back into CIT (a) order to find out if such finding has been given by CIT(A) or not, it is observed in the assessment order for Ay 2016-17 the AO has dealt with this issue already at para no.6.4.1. It is observed that Cit (a) as well has not give any findings that asset is being put to use, he had direct eth AO to verify and allow depreciation. 6.16 The appellant has not proved that remaining 60% od the asset is being put to use therefore depreciation is not allowable and the addition carried out by the Ld.AO is being upheld.” We have heard the rival submissions of the parties and have carefully perused the material on record. The sole issue for adjudication before us is whether 60% of the Andheri building used by the assessee for its business purposes during the year under consideration. The assessee has placed reliance on the decision of the Income Tax Appellate Tribunal (ITAT) for the preceding assessment year 2014-15. However, the Revenue has argued that, in that year, the Learned Commissioner of Income peals) [CIT(A)] had merely directed the Assessing Officer (AO) to verify whether 60% of the building was put to use, and such verification was not conclusively carried out while givin the CIT(A)’s order and the ITAT, therefore, erroneously recor the CIT(A) had verified the use of the 60% portion of the building. In our considered view, whether 60% of the building was put to use in the year under consideration is a factual matter requiring specific Marshall Produce Brokers Company Pvt. Ltd., 20 , 5092 & 4918/MUM/2024 was not allowable. The relevant finding of the Ld. CIT(A) is 6.15 | have also perused the order of ITAT and found that ITAT has use and ITAT has not given any finding towards asset being put to use as contested by the appellant. Stepping back into CIT (a) order to find out if such finding has been given by CIT(A) or not, it is observed in has dealt with this issue already at para no.6.4.1. It is observed that Cit (a) as well has not give any findings that asset is being put to use, he had direct eth d the asset is being put to use therefore depreciation is not allowable and the We have heard the rival submissions of the parties and have carefully perused the material on record. The sole issue for Andheri building was used by the assessee for its business purposes during the year under consideration. The assessee has placed reliance on the decision of the Income Tax Appellate Tribunal (ITAT) 15. However, the Revenue has argued that, in that year, the Learned Commissioner of Income peals) [CIT(A)] had merely directed the Assessing Officer (AO) to verify whether 60% of the building was put to use, and such verification was not conclusively carried out while giving effect to he ITAT, therefore, erroneously recorded that the CIT(A) had verified the use of the 60% portion of the building. In our considered view, whether 60% of the building was put to use in the year under consideration is a factual matter requiring specific verification. The determination of its us whether it was used in the preceding assessment year. This is a matter of record, and it is essential to verify the actual use during the relevant assessment year. Accordingly, we find it appropriate to remand this issue to the file verification. The assessee is directed to provide all necessary evidence to substantiate that 60% of the building was used for its business purposes during the year under consideration. This evidence may include details the premises, the names and roles of employees working from the said building, and any confirmations from those employees. The AO is also at liberty to examine such employees, if necessary. Additionally, the assessee records of computer installations or other items used in the brokerage business at the premises. The AO shall consider all evidence presented and adjudicate the matter in accordance with the law. The ground No. 5 of t accordingly allowed for statistical purposes. 8. The ground No. 6 is in respect of addition for the deemed notional rental income in respect of 60% of the Andheri office premises. Since the issue depends on whether the 60% por the building was used has been restored back to the Assessing Officer, while adjudicating ground no. 5 of the appeal, Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 verification. The determination of its use cannot rest solely on whether it was used in the preceding assessment year. This is a matter of record, and it is essential to verify the actual use during the relevant assessment year. Accordingly, we find it appropriate to remand this issue to the file of the Assessing Officer for fresh verification. The assessee is directed to provide all necessary evidence to substantiate that 60% of the building was used for its business purposes during the year under consideration. This evidence may include details of brokerage activities conducted from the premises, the names and roles of employees working from the said building, and any confirmations from those employees. The AO is also at liberty to examine such employees, if necessary. Additionally, the assessee may submit supporting evidence such as records of computer installations or other items used in the brokerage business at the premises. The AO shall consider all evidence presented and adjudicate the matter in accordance with The ground No. 5 of the appeal of the assessee is accordingly allowed for statistical purposes. The ground No. 6 is in respect of addition for the deemed notional rental income in respect of 60% of the Andheri office premises. Since the issue depends on whether the 60% por the building was used for the business of the assessee has been restored back to the Assessing Officer, while adjudicating ground no. 5 of the appeal, therefore, this issue is Marshall Produce Brokers Company Pvt. Ltd., 21 , 5092 & 4918/MUM/2024 e cannot rest solely on whether it was used in the preceding assessment year. This is a matter of record, and it is essential to verify the actual use during the relevant assessment year. Accordingly, we find it appropriate to of the Assessing Officer for fresh verification. The assessee is directed to provide all necessary evidence to substantiate that 60% of the building was used for its business purposes during the year under consideration. This of brokerage activities conducted from the premises, the names and roles of employees working from the said building, and any confirmations from those employees. The AO is also at liberty to examine such employees, if necessary. may submit supporting evidence such as records of computer installations or other items used in the brokerage business at the premises. The AO shall consider all evidence presented and adjudicate the matter in accordance with he appeal of the assessee is The ground No. 6 is in respect of addition for the deemed notional rental income in respect of 60% of the Andheri office premises. Since the issue depends on whether the 60% portion of business of the assessee, which issue has been restored back to the Assessing Officer, while adjudicating is also restored back to the file of the Assessing Officer the documentary evidence furnished by the assessee to support that building was used for the purpose of business. 6 of the appeal of the assessee is accordingly allowed for statistical purposes 8.1 The ground No. 7 of rental income. The assessee declared the receipt from the rental income following the cash accounting system and the amount of Rs.19,000/-, though pertaining to rental income for the year, it was received in subsequent year, so it year as income under the head of ‘income form house property’ While declaring the income under the head ‘income from house property’ the assessee is required to declare the income received or receivable in respect of property ‘Mercantile’ accounting to the assessee is available for declaring income under the head ‘profit and gains of the business or profession’ or ‘income from other sources’ only and not for the purpose of declaring income under the ‘Income form house property’. Therefore, the assessee was required to declared the receipt of Rs.19,000/ we reject the contention of the assessee that no addition should be made as that income was However, if the assessee accepted this finding, then may file for rectification Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 back to the file of the Assessing Officer for deciding the documentary evidence furnished by the assessee to support that building was used for the purpose of business. 6 of the appeal of the assessee is accordingly allowed for statistical The ground No. 7 relates to addition of Rs.19,000/ of rental income. The assessee declared the receipt from the rental income following the cash accounting system and the amount of , though pertaining to rental income for the year, it was subsequent year, so it was declared in the subsequent as income under the head of ‘income form house property’ While declaring the income under the head ‘income from house property’ the assessee is required to declare the income received or le in respect of property. The option of following ‘Cash’ or ‘Mercantile’ accounting to the assessee is available for declaring income under the head ‘profit and gains of the business or profession’ or ‘income from other sources’ only and not for the se of declaring income under the ‘Income form house herefore, the assessee was required to declared the ,000/- in the year under consideration. Accordingly, we reject the contention of the assessee that no addition should be that income was declared in the subsequent year. if the assessee accepted this finding, then rectification of income under house property Marshall Produce Brokers Company Pvt. Ltd., 22 , 5092 & 4918/MUM/2024 deciding on the basis of the documentary evidence furnished by the assessee to support that building was used for the purpose of business. The ground No. 6 of the appeal of the assessee is accordingly allowed for statistical ,000/- in respect of rental income. The assessee declared the receipt from the rental income following the cash accounting system and the amount of , though pertaining to rental income for the year, it was was declared in the subsequent as income under the head of ‘income form house property’. While declaring the income under the head ‘income from house property’ the assessee is required to declare the income received or . The option of following ‘Cash’ or ‘Mercantile’ accounting to the assessee is available for declaring income under the head ‘profit and gains of the business or profession’ or ‘income from other sources’ only and not for the se of declaring income under the ‘Income form house herefore, the assessee was required to declared the in the year under consideration. Accordingly, we reject the contention of the assessee that no addition should be in the subsequent year. if the assessee accepted this finding, then the assessee of income under house property in the subsequent year. The ground No. 7 of the appeal is accordingly rejected. 8.2 The ground No. 8 relates to society charge and property tax paid by the assessee at office premises Mumbai and Delhi. AO disallowed Rs. 31,105(= Rs. 1,94,825 excess property tax deduction claimed in respect of ‘Nariman Point office’. Further, the AO disallowed entire claim of Ts. 72,749/ respect of property tax for ‘Delhi office’ as against claim of the assessee that property tax bill of Rs. 70,557/ assessment proceedings. Before the ld CIT(A) the assessee claimed that amount of Rs. 31,105/ of but inadvertently claimed as 6.34 of impugned order evidence in support of its claim 8.3 We have heard rival submission of the parties and perused the relevant material on record. recorded that such bills been produced before them. Before us also no such evidences have been filed. Therefore back to the file of the Assessing Officer with the direction to the assessee to file copies of which deduction has been claimed f Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 The ground No. 7 of the appeal is accordingly The ground No. 8 relates to society charge and property tax paid by the assessee at office premises Mumbai and Delhi. AO disallowed Rs. 31,105(= Rs. 1,94,825- Rs. 1,63,710) being operty tax deduction claimed in respect of ‘Nariman Point office’. Further, the AO disallowed entire claim of Ts. 72,749/ respect of property tax for ‘Delhi office’ as against claim of the assessee that property tax bill of Rs. 70,557/- was presented d assessment proceedings. Before the ld CIT(A) the assessee claimed that amount of Rs. 31,105/- was actually society charges in claimed as property tax. The Ld. CIT(A) 6.34 of impugned order has recorded that the assessee failed to file in support of its claim. We have heard rival submission of the parties and perused the relevant material on record. Both the lower authorities recorded that such bills of society charges and receipt have not before them. Before us also no such evidences have herefore, we feel it appropriate to restore this issue back to the file of the Assessing Officer with the direction to the assessee to file copies of bills / receipts for the exact amo ich deduction has been claimed for verification by the Assessing Marshall Produce Brokers Company Pvt. Ltd., 23 , 5092 & 4918/MUM/2024 The ground No. 7 of the appeal is accordingly The ground No. 8 relates to society charge and property tax paid by the assessee at office premises Mumbai and Delhi. The ld Rs. 1,63,710) being operty tax deduction claimed in respect of ‘Nariman Point office’. Further, the AO disallowed entire claim of Ts. 72,749/- in respect of property tax for ‘Delhi office’ as against claim of the was presented during assessment proceedings. Before the ld CIT(A) the assessee claimed was actually society charges in respect The Ld. CIT(A) in para sessee failed to file We have heard rival submission of the parties and perused the authorities have and receipt have not before them. Before us also no such evidences have we feel it appropriate to restore this issue back to the file of the Assessing Officer with the direction to the the exact amount for by the Assessing Officer. The ground No. 8 of the appeal statistical purposes. 9. The ground No. 9 of the appeal relate to business promotion expenses of Rs rejected the contention of the assessee that said expenses gold bangle (Rs. 84,166/ mobile phone instruments ( Rs. 67,574/ incurred for the purpo Ld. CIT(A) is reproduced as under: “6.36 In the P&L A/c. the appellant has claimed expenses of Rs.9,90,222/- under the head 'Trade Expenses'. 6.37 On perusal of the same, it is seen that one invoice issued by Tanisha pertains to purchase of One Gold Bangle worth Rs.84, 166/ . Further the appellant had furnished bills to the extent of Rs.8,99,143/- out of the expenditure of Rs.9,66,717l 6.38 The appellant contested that \"Gold Bangle purchased from Tanishq was given as a gift to the wife of foreign principal who visited out Delhi Office for business meet regarding chartering business\" 6.39 Further the appellant has also submitted another 2 bills amounting to Rs.67,574/ But on perusal of the bills for the purchase of mobiles, it is seen that one of the bill amounting to Rs.33,000/ a good 7 months prior to Diwali in the year 2015. 6.40 The contention of the appellant are considered but not found be acceptable. The appellant has not provided any explanation towards nature of these expenses. In case of business promotion expense, it is pertinent to note that it is a very wide terminology being used in common parlance and it could comprise of vari Having regard to the nature of expenses it is imperative to provide the explanation by the appellant that why such expenses are incurred. The appellant has also not filed the details of the person to Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 he ground No. 8 of the appeal is according allowed for The ground No. 9 of the appeal relate to business promotion expenses of Rs.1,51,740/-. The Ld. CIT(A) has rejected the contention of the assessee that said expenses (Rs. 84,166/-) to wife of one of the customer phone instruments ( Rs. 67,574/-) to customers, incurred for the purpose of the assessee. The relevant finding of the Ld. CIT(A) is reproduced as under: 6.36 In the P&L A/c. the appellant has claimed expenses of under the head 'Trade Expenses'. 6.37 On perusal of the same, it is seen that one invoice issued by Tanisha pertains to purchase of One Gold Bangle worth Rs.84, 166/ . Further the appellant had furnished bills to the extent of out of the expenditure of Rs.9,66,717l-. 6.38 The appellant contested that \"Gold Bangle purchased from given as a gift to the wife of foreign principal who visited out Delhi Office for business meet regarding chartering 6.39 Further the appellant has also submitted another 2 bills amounting to Rs.67,574/- in respect of purchase of mobile phones. But on perusal of the bills for the purchase of mobiles, it is seen that one of the bill amounting to Rs.33,000/- was issued on 07/04/2015, a good 7 months prior to Diwali in the year 2015. 6.40 The contention of the appellant are considered but not found The appellant has not provided any explanation towards nature of these expenses. In case of business promotion expense, it is pertinent to note that it is a very wide terminology being used in common parlance and it could comprise of varieties of expenses. Having regard to the nature of expenses it is imperative to provide the explanation by the appellant that why such expenses are incurred. The appellant has also not filed the details of the person to Marshall Produce Brokers Company Pvt. Ltd., 24 , 5092 & 4918/MUM/2024 according allowed for The ground No. 9 of the appeal relate to disallowance of . The Ld. CIT(A) has rejected the contention of the assessee that said expenses on gift of ) to wife of one of the customer and gift of ) to customers, were se of the assessee. The relevant finding of the 6.36 In the P&L A/c. the appellant has claimed expenses of 6.37 On perusal of the same, it is seen that one invoice issued by Tanisha pertains to purchase of One Gold Bangle worth Rs.84, 166/- . Further the appellant had furnished bills to the extent of 6.38 The appellant contested that \"Gold Bangle purchased from given as a gift to the wife of foreign principal who visited out Delhi Office for business meet regarding chartering 6.39 Further the appellant has also submitted another 2 bills in respect of purchase of mobile phones. But on perusal of the bills for the purchase of mobiles, it is seen that was issued on 07/04/2015, 6.40 The contention of the appellant are considered but not found to The appellant has not provided any explanation towards nature of these expenses. In case of business promotion expense, it is pertinent to note that it is a very wide terminology being used in eties of expenses. Having regard to the nature of expenses it is imperative to provide the explanation by the appellant that why such expenses are incurred. The appellant has also not filed the details of the person to whom search expensive items are distr associated with the business of the appellant. 6.41 In view of the above, I am of the considerate opinion that the appellant has not provided proper justification for incurring the underlined expenses and the expenses are not suppor appropriate documentary evidences. Further, the appellant has not proved that how underlined expenses have nexus with the business carried out by the appellant. The appellant has failed grossly to discharge its primary owners to prove genuineness of incurred and has also failed to establish the admissibility of said expenses as business expenditure. Therefore, the addition made by Ld. AO is found to be correct and the same is liable to be upheld. 6.42 Accordingly, Ground 7 of the appeal is d based on information/documents available on records. 9.1 We have heard rival submissions of the parties and perused the relevant material on record. asked the assessee to provide detail of persons were distributed , but t party to whom gold bangle and the mobile phones were distributed by the assessee and whether same were customer of the assessee. If the assessee succeeds, in the persons to whom those items were distributed are the assessee then same can be treated as part of the business promotion expenses but unless the assessee gives name and address of those persons cannot be accepted on a statement by the assessee to restore this issue also back to the file of the Assessing Officer with the direction to assessee to pro Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 whom search expensive items are distributed and how they are associated with the business of the appellant. 6.41 In view of the above, I am of the considerate opinion that the appellant has not provided proper justification for incurring the underlined expenses and the expenses are not suppor appropriate documentary evidences. Further, the appellant has not proved that how underlined expenses have nexus with the business carried out by the appellant. The appellant has failed grossly to discharge its primary owners to prove genuineness of incurred and has also failed to establish the admissibility of said expenses as business expenditure. Therefore, the addition made by Ld. AO is found to be correct and the same is liable to be upheld. 6.42 Accordingly, Ground 7 of the appeal is disposed on merits and based on information/documents available on records.” We have heard rival submissions of the parties and perused material on record. The lower authorities specifically asked the assessee to provide detail of persons to expensive items were distributed , but the assessee did not disclose the name of the party to whom gold bangle and the mobile phones were by the assessee and whether same were customer of . If the assessee succeeds, in establish the persons to whom those items were distributed are the assessee then same can be treated as part of the business promotion expenses but unless the assessee gives name and address of those persons subject to verification by the AO, cannot be accepted as incurred for the business purposes on a statement by the assessee. Accordingly, we feel it appropriate to restore this issue also back to the file of the Assessing Officer with the direction to assessee to provide complete name and Marshall Produce Brokers Company Pvt. Ltd., 25 , 5092 & 4918/MUM/2024 ibuted and how they are 6.41 In view of the above, I am of the considerate opinion that the appellant has not provided proper justification for incurring the underlined expenses and the expenses are not supported by appropriate documentary evidences. Further, the appellant has not proved that how underlined expenses have nexus with the business carried out by the appellant. The appellant has failed grossly to expenses incurred and has also failed to establish the admissibility of said expenses as business expenditure. Therefore, the addition made by Ld. AO is found to be correct and the same is liable to be upheld. isposed on merits and We have heard rival submissions of the parties and perused The lower authorities specifically to expensive items he assessee did not disclose the name of the party to whom gold bangle and the mobile phones were allegedly by the assessee and whether same were customer of establishing that same the persons to whom those items were distributed are customer of the assessee then same can be treated as part of the business promotion expenses but unless the assessee gives name and n by the AO, same incurred for the business purposes merely . Accordingly, we feel it appropriate to restore this issue also back to the file of the Assessing Officer vide complete name and address and PAN numbers of the persons to wh been distributed. 10. Now, we take up the appeal year 2017-18. The grounds raised by the assessee are reproduced as under: 1. The CIT(A) depreciation on the office premises at Andheri to the extent the premises were used for the purposes of the appellant's business. The CIT(A) further erred in not appreciating that once the asset has entered the block of assets on which depreciation has been allowed in the first year, depreciation cannot be denied in the subsequent years. 2. The CIT(A) erred in not deleting the disallowance made by the AO of society charges of Rs. 2,20,208 and office furniture 2,947 incurred by the Appellant in respect of its Andheri office premises though the said office premises were used by the Appellant for the purpose of its business. 3. The CIT(A) erred in upholding the addition of deemed notional rental income of Rs. 26,94,240 made by the AO in respect of 60 percent of the Andheri office premises without appreciating that the said premises were used by the Appellant for the purposes of its business. 4. The CIT(A) erred in upholding the disallowance of busi expenses of Rs. 6,93,164 and Diwali and New year expenses of Rs.10,38,490 incurred by the Appellant for the purposes of its business. 11. The ground No. 1 raised in the present appeal is identical to ground No. 5 of the appeal of the assessee 2016-17. Accordingly, the issue in dispute is decided mutatis mutandis. The ground purposes. The ground No. 2 of the appeal is identical to ground No. 8 of the appeal of the assessee for asse therefore, same is also adjudicated mutatis mutandis and allowed Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 address and PAN numbers of the persons to whom such gifts had we take up the appeal of the assessee for assessment 18. The grounds raised by the assessee are reproduced 1. The CIT(A) erred in not upholding the appellant's claim for depreciation on the office premises at Andheri to the extent the premises were used for the purposes of the appellant's business. The CIT(A) further erred in not appreciating that once the asset has entered the block of assets on which depreciation has been allowed in the first year, depreciation cannot be denied in the subsequent years. 2. The CIT(A) erred in not deleting the disallowance made by the AO of society charges of Rs. 2,20,208 and office furniture expenses of Rs. 2,947 incurred by the Appellant in respect of its Andheri office premises though the said office premises were used by the Appellant for the purpose of its business. 3. The CIT(A) erred in upholding the addition of deemed notional rental ncome of Rs. 26,94,240 made by the AO in respect of 60 percent of the Andheri office premises without appreciating that the said premises were used by the Appellant for the purposes of its business. 4. The CIT(A) erred in upholding the disallowance of business meeting expenses of Rs. 6,93,164 and Diwali and New year expenses of Rs.10,38,490 incurred by the Appellant for the purposes of its The ground No. 1 raised in the present appeal is identical to ground No. 5 of the appeal of the assessee for assessment year 17. Accordingly, the issue in dispute is decided mutatis mutandis. The ground No. 1 is accordingly allowed for statistical purposes. The ground No. 2 of the appeal is identical to ground No. 8 of the appeal of the assessee for assessment year 2016 therefore, same is also adjudicated mutatis mutandis and allowed Marshall Produce Brokers Company Pvt. Ltd., 26 , 5092 & 4918/MUM/2024 om such gifts had of the assessee for assessment 18. The grounds raised by the assessee are reproduced erred in not upholding the appellant's claim for depreciation on the office premises at Andheri to the extent the premises were used for the purposes of the appellant's business. The CIT(A) further erred in not appreciating that once the asset has entered the block of assets on which depreciation has been allowed in the first year, depreciation cannot be denied in the subsequent years. 2. The CIT(A) erred in not deleting the disallowance made by the AO of expenses of Rs. 2,947 incurred by the Appellant in respect of its Andheri office premises though the said office premises were used by the Appellant 3. The CIT(A) erred in upholding the addition of deemed notional rental ncome of Rs. 26,94,240 made by the AO in respect of 60 percent of the Andheri office premises without appreciating that the said premises were used by the Appellant for the purposes of its business. ness meeting expenses of Rs. 6,93,164 and Diwali and New year expenses of Rs.10,38,490 incurred by the Appellant for the purposes of its The ground No. 1 raised in the present appeal is identical to for assessment year 17. Accordingly, the issue in dispute is decided mutatis allowed for statistical purposes. The ground No. 2 of the appeal is identical to ground No. ssment year 2016-17 and therefore, same is also adjudicated mutatis mutandis and allowed for statistical purposes. The ground No. 3 of the appeal of the assessee is identical to ground No. 6 of the appeal for assessment year 2016-17 and therefore, same is allowed for statistical purposes. The ground No. 4 of the appeal of the assessee is identical to ground No. 9 of the appeal of the assessee for assessment year 2016 decided mutatis mutandis and allowed 12. Now, we take up the appeal of the Revenue for assessment year 2017-18. The grounds raised by the Revenue are reproduced as under: 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is righ incentive payment to the director to the extend without considering the fact that the subject law 5% of the net profit of the company which contravens the provisions of Section 40A(2/b) of the i. T. Act, 1961C/T(A) r.w.s. 194(1) of the Company's Act, 2013. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the addition made of Rs. 28,53,602/-as incentive to three that the subject payment of incentive is not governed by any agreement. 12.1 The issue in dispute raised in ground No relate to salary/incentive payments to related person which has been disallowed by then the market value as under: “6.25 The contention of the appellant is found to be acceptable. The amount paid by the appellant constitutes income for the recipie Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 for statistical purposes. The ground No. 3 of the appeal of the assessee is identical to ground No. 6 of the appeal for assessment 17 and therefore, same is decided mutatis mutandis and allowed for statistical purposes. The ground No. 4 of the appeal of the assessee is identical to ground No. 9 of the appeal of the assessee for assessment year 2016-17 and therefore, same is decided mutatis mutandis and allowed for statistical purposes. we take up the appeal of the Revenue for assessment 18. The grounds raised by the Revenue are reproduced Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) is right in deleting the addition made on the issue of incentive payment to the director to the extend Rs.2,27,48,292/ without considering the fact that the subject law payment is more than 5% of the net profit of the company which contravens the provisions of ection 40A(2/b) of the i. T. Act, 1961C/T(A) r.w.s. 194(1) of the Company's Act, 2013. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the addition made of Rs. as incentive to three persons without considering the fact that the subject payment of incentive is not governed by any The issue in dispute raised in ground Nos. 1 of the appeal to salary/incentive payments to related person which has been disallowed by the Assessing Officer holding to be excessive then the market value, whereas the Ld. CIT(A) has deleted observing 6.25 The contention of the appellant is found to be acceptable. The amount paid by the appellant constitutes income for the recipie Marshall Produce Brokers Company Pvt. Ltd., 27 , 5092 & 4918/MUM/2024 for statistical purposes. The ground No. 3 of the appeal of the assessee is identical to ground No. 6 of the appeal for assessment decided mutatis mutandis and allowed for statistical purposes. The ground No. 4 of the appeal of the assessee is identical to ground No. 9 of the appeal of the 17 and therefore, same is for statistical purposes. we take up the appeal of the Revenue for assessment 18. The grounds raised by the Revenue are reproduced Whether on the facts and in the circumstances of the case and in t in deleting the addition made on the issue of Rs.2,27,48,292/- payment is more than 5% of the net profit of the company which contravens the provisions of ection 40A(2/b) of the i. T. Act, 1961C/T(A) r.w.s. 194(1) of the 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting the addition made of Rs. persons without considering the fact that the subject payment of incentive is not governed by any . 1 of the appeal to salary/incentive payments to related person which has the Assessing Officer holding to be excessive whereas the Ld. CIT(A) has deleted observing 6.25 The contention of the appellant is found to be acceptable. The amount paid by the appellant constitutes income for the recipient and the recipient is also taxable at same rate that of appellant company. There is no revenue leakage which is observed. It is also found that the Ld.AO has not provided any adverse comment on the contractual arrangement between the appellant and its em settled position that the assessing officer cannot step into the shoes of businessman and take calls at business arrangements. 12.2 Similarly, regarding persons other than relative amounting to deleted by the ld CIT(A), “6.30 The contention of the appellant is considered and found to be acceptable. The underline payments are made to non related party and are in the accordance of contractual terms. The Ld.A that the appellant has not filed the copy of contract and thus he had disallowed the payments. 12.3 We have considered the rival submission of the parties and perused the relevant material on record. dispute are that the Director Mr Ashok Trehan was paid remuneration of Rs. 3,14,37,344/ 2,51,37,912/-. According to the AO salary/ was excessive as compared to fair market value. The assessee explained that business of the Trehan is one of the best chartering broker of the company , working since 1980 and hence was promoted as director w.e.f. 2005. Mr Trehan already paid tax on the salary and incentive. The AO disallowed the incentive a company Act, does not permit incentive more than 5 % of the net profit, therefore it was excessive and he restricted the incentive to the amount prescribed as per company Act and held the balance amount of Rs. 2,27,48, Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 the recipient is also taxable at same rate that of appellant company. There is no revenue leakage which is observed. It is also found that the Ld.AO has not provided any adverse comment on the contractual arrangement between the appellant and its employee. Its also the settled position that the assessing officer cannot step into the shoes of businessman and take calls at business arrangements.” Similarly, regarding disallowance of salary/incentive to persons other than relative amounting to Rs.28,53,602/ by the ld CIT(A), observing as under: 6.30 The contention of the appellant is considered and found to be acceptable. The underline payments are made to non related party and are in the accordance of contractual terms. The Ld.AO contested that the appellant has not filed the copy of contract and thus he had disallowed the payments.” We have considered the rival submission of the parties and perused the relevant material on record. The facts qua the issue in the Director Mr Ashok Trehan was paid remuneration of Rs. 3,14,37,344/- including incentive of Rs. According to the AO salary/incentive was excessive as compared to fair market value. The assessee explained that business of the assessee is of ship chartering and Mr Trehan is one of the best chartering broker of the company , working since 1980 and hence was promoted as director w.e.f. 2005. Mr Trehan already paid tax on the salary and incentive. The AO disallowed the incentive amount for the reason that section 197 company Act, does not permit incentive more than 5 % of the net profit, therefore it was excessive and he restricted the incentive to the amount prescribed as per company Act and held the balance amount of Rs. 2,27,48,292/- was disallowed invoking section Marshall Produce Brokers Company Pvt. Ltd., 28 , 5092 & 4918/MUM/2024 the recipient is also taxable at same rate that of appellant company. There is no revenue leakage which is observed. It is also found that the Ld.AO has not provided any adverse comment on the contractual ployee. Its also the settled position that the assessing officer cannot step into the shoes of disallowance of salary/incentive to 28,53,602/- has been 6.30 The contention of the appellant is considered and found to be acceptable. The underline payments are made to non related party O contested that the appellant has not filed the copy of contract and thus he had We have considered the rival submission of the parties and The facts qua the issue in the Director Mr Ashok Trehan was paid including incentive of Rs. incentive to Sh Trehan was excessive as compared to fair market value. The assessee assessee is of ship chartering and Mr Trehan is one of the best chartering broker of the company , working since 1980 and hence was promoted as director w.e.f. 2005. Mr Trehan already paid tax on the salary and incentive. The mount for the reason that section 197 company Act, does not permit incentive more than 5 % of the net profit, therefore it was excessive and he restricted the incentive to the amount prescribed as per company Act and held the balance was disallowed invoking section 40A(2)(b) of the Act. On further appeal addition observing as under: “6.24 The appellant also submitted the agreement copy between Mr Ashok Trahan and the appellant company, which clearly states that Mr Ashok Trah is entitled to business incentives of 10% on commission eared on vessel chartered. 6.25 The contention of the appellant is found to be acceptable. The amount paid by the appellant constitutes income for the recipient and the recip appellant company. There is no revenue leakage which is observed. It is also found that the Ld.AO has not provided any adverse comment on the contractual arrangement between the appellant and its employee. Its also the assessing officer cannot step into the shoes of businessman and take calls at business arrangements. 6.26 In view of thee above I am of the considerate opinion that the addition carried out by Ld.AO is excessive and the same being deleted. 12.4 We have heard rival submission and perused the relevant material on record. Ashok Trehan is concerned, the identical issue has been adjudicated in favour of the assessee by the Tribunal 7177/Mum/2017 for assessment year 2014 Tribunal(supra) has followed the decision of the Hon’ble Bombay High Court in the case of (supra). The Hon’ble Bombay High Court in the said decision he that when the payments in the hand of the director of the assessee concerned is subjected to same rate of taxation evasion, hence no disallowance was called for. The relevant finding of the Tribunal is reproduced as under: Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 ) of the Act. On further appeal, the ld CI(A) deleted the addition observing as under: 6.24 The appellant also submitted the agreement copy between Mr Ashok Trahan and the appellant company, which states that Mr Ashok Trah is entitled to business incentives of 10% on commission eared on vessel chartered. 6.25 The contention of the appellant is found to be acceptable. The amount paid by the appellant constitutes income for the recipient and the recipient is also taxable at same rate that of appellant company. There is no revenue leakage which is observed. It is also found that the Ld.AO has not provided any adverse comment on the contractual arrangement between the appellant and its employee. Its also the settled position that the assessing officer cannot step into the shoes of businessman and take calls at business arrangements. 6.26 In view of thee above I am of the considerate opinion that the addition carried out by Ld.AO is excessive and the same being deleted.” We have heard rival submission and perused the relevant material on record. As far as salary/incentive to the director Sh is concerned, the identical issue has been adjudicated in favour of the assessee by the Tribunal 17 for assessment year 2014-15, w has followed the decision of the Hon’ble Bombay High Court in the case of Indo South Services Travels Pvt. Ltd. The Hon’ble Bombay High Court in the said decision he that when the payments in the hand of the director of the assessee is subjected to same rate of taxation, then there is no tax hence no disallowance was called for. The relevant finding of the Tribunal is reproduced as under: Marshall Produce Brokers Company Pvt. Ltd., 29 , 5092 & 4918/MUM/2024 , the ld CI(A) deleted the 6.24 The appellant also submitted the agreement copy between Mr Ashok Trahan and the appellant company, which states that Mr Ashok Trah is entitled to business incentives of 10% on commission eared on vessel chartered. 6.25 The contention of the appellant is found to be acceptable. The amount paid by the appellant constitutes income for the ient is also taxable at same rate that of appellant company. There is no revenue leakage which is observed. It is also found that the Ld.AO has not provided any adverse comment on the contractual arrangement between the the settled position that the assessing officer cannot step into the shoes of businessman and take calls at business arrangements. 6.26 In view of thee above I am of the considerate opinion that the addition carried out by Ld.AO is excessive and the same is We have heard rival submission and perused the relevant alary/incentive to the director Sh is concerned, the identical issue has been adjudicated in favour of the assessee by the Tribunal in ITA No. 15, wherein the has followed the decision of the Hon’ble Bombay Indo South Services Travels Pvt. Ltd. The Hon’ble Bombay High Court in the said decision held that when the payments in the hand of the director of the assessee then there is no tax hence no disallowance was called for. The relevant finding “19. We note in this case the disallowance was made by the AO the ground that the commission was excessive and unreasonable by comparing the same to the incentive paid to another director @ 0.1% and thus disallowed 8% of the We further find that the rate applicable to the assessee and Shri Ashok Trehan was same and therefore there is no question of tax evasion. The Ld. CIT(A) has followed the Board's circular No.6P dated 06.07.1968 which is to be made only where this payment to the related party results in tax evasion but in the present case there is no tax evasion as the rate applicable to both the parties is same. The case of the assessee is supported by the ratio laid d Indo South Services Travel Pvt. Ltd. (supra) and CIT vs. V.S. Dempo & Co. Pvt. Ltd. (supra). Under these facts and circumstances, we are inclined to dismiss ground No.6 & 7 raised by the Revenue by upholding the order 12.5 Respectfully, following the finding the Tribunal assessee’s own case, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute. 12.6 Regarding the disallowance of incentive to non amounting to Rs.28,53,602/ the facts qua the issue in dispute are that incentive paid to three employees namely Sh Siddharth Trehan ( Rs. 24,98,190/ Vijayan Balkrishan (Rs. 1,77,706/ 1,77,706/-) was disallowed by the AO for the reason that the assessee failed to submit agreements made with those employees. The ld CIT(A) deleted the addition observing that the assessee demonstrated that the payments made were as per contractual terms only. 12.7 We have heard rival submission of the parties. The ld CIT(A) after appreciation of the evidence filed Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 note in this case the disallowance was made by the AO the ground that the commission was excessive and unreasonable by comparing the same to the incentive paid to another director @ 0.1% and thus disallowed 8% of the commission paid to Shri Ashok Treha We further find that the rate applicable to the assessee and Shri Ashok Trehan was same and therefore there is no question of tax evasion. The Ld. CIT(A) has followed the Board's circular No.6P dated 06.07.1968 which clearly stated in para No.74 that the disallowance is to be made only where this payment to the related party results in tax evasion but in the present case there is no tax evasion as the rate applicable to both the parties is same. The case of the assessee is supported by the ratio laid down in two decisions namely Indo South Services Travel Pvt. Ltd. (supra) and CIT vs. V.S. Dempo & Co. Pvt. Ltd. (supra). Under these facts and circumstances, we are inclined to dismiss ground No.6 & 7 raised by the Revenue by upholding the order of Ld. CIT(A).” following the finding the Tribunal assessee’s own case, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute. Regarding the disallowance of incentive to non amounting to Rs.28,53,602/- raised in ground no. 2 of the appeal , the facts qua the issue in dispute are that incentive paid to three employees namely Sh Siddharth Trehan ( Rs. 24,98,190/ Vijayan Balkrishan (Rs. 1,77,706/-) and Mr Douglas Naikar (Rs. ) was disallowed by the AO for the reason that the assessee failed to submit agreements made with those employees. The ld CIT(A) deleted the addition observing that the assessee onstrated that the payments made were as per contractual We have heard rival submission of the parties. The ld CIT(A) appreciation of the evidence filed before him Marshall Produce Brokers Company Pvt. Ltd., 30 , 5092 & 4918/MUM/2024 note in this case the disallowance was made by the AO on the ground that the commission was excessive and unreasonable by comparing the same to the incentive paid to another director @ 0.1% commission paid to Shri Ashok Trehan. We further find that the rate applicable to the assessee and Shri Ashok Trehan was same and therefore there is no question of tax evasion. The Ld. CIT(A) has followed the Board's circular No.6P dated the disallowance is to be made only where this payment to the related party results in tax evasion but in the present case there is no tax evasion as the rate applicable to both the parties is same. The case of the assessee is namely - CIT vs. Indo South Services Travel Pvt. Ltd. (supra) and CIT vs. V.S. Dempo & Co. Pvt. Ltd. (supra). Under these facts and circumstances, we are inclined to dismiss ground No.6 & 7 raised by the Revenue by following the finding the Tribunal (supra) in assessee’s own case, we do not find any infirmity in the order of the Regarding the disallowance of incentive to non-related person raised in ground no. 2 of the appeal , the facts qua the issue in dispute are that incentive paid to three employees namely Sh Siddharth Trehan ( Rs. 24,98,190/-) : Sh ) and Mr Douglas Naikar (Rs. ) was disallowed by the AO for the reason that the assessee failed to submit agreements made with those employees. The ld CIT(A) deleted the addition observing that the assessee onstrated that the payments made were as per contractual We have heard rival submission of the parties. The ld CIT(A) before him held that payments were made as per the contractual terms between assessee and concerned parties been able to point out any discrepancy or evidence of non of services by them. In such circumstances, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in di accordingly, we uphold the same. Both the ground appeal of the Revenue are accordingly dismissed. 13. In the result, the appeals of the assessee are allowed partly for statistical purposes whereas the appeal of the Revenue is dismissed. Order pronounced in the open Court on Sd/ (SUNIL KUMAR SINGH JUDICIAL MEMBER Mumbai; Dated: 30/01/2025 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Marshall Produce Brokers Company Pvt. ITA Nos. 4917, 5092 payments were made as per the contractual terms between assessee and concerned parties. Before us the Revenue has not been able to point out any discrepancy or evidence of non services by them. In such circumstances, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in di we uphold the same. Both the ground appeal of the Revenue are accordingly dismissed. In the result, the appeals of the assessee are allowed partly for statistical purposes whereas the appeal of the Revenue is nounced in the open Court on 30/01 Sd/- Sd/ (SUNIL KUMAR SINGH) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Marshall Produce Brokers Company Pvt. Ltd., 31 , 5092 & 4918/MUM/2024 payments were made as per the contractual terms between the Revenue has not been able to point out any discrepancy or evidence of non-rendering services by them. In such circumstances, we do not find any infirmity in the order of the Ld. CIT(A) on the issue in dispute and Nos. 1 and 2 of In the result, the appeals of the assessee are allowed partly for statistical purposes whereas the appeal of the Revenue is 01/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai "