GM APPAREL P.LTD, MUMBAI V. ITO 8(1)(4), MUMBAI

ITA 1176/MUM/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2467 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 07-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VISHWAS S JADHAV
• Keywords: Business income
• Section: 143(3); 234B; 56

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 1176 /MUM/2016 ( / ASSESSMENT YEAR : 2012-13) M/S G.M. APPAREL PVT. LTD., 206, MAROL BHAVAN, MAROL CO-OP. INDUSTRIAL ESTATE, M.V. ROAD, ANDHERI (E), MUMBAI 400059. / V. INCOME TAX OFFICER 8(1)(4) AAYAKAR BHAVAN, MUMBAI. ./ PAN : AABCG 9734 B ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI DHARMESH SHAH ASSESSEE BY : SHRI VISHWAS S. JADHAV / DATE OF HEARING : 17.05.2016 / DATE OF PRONOUNCEMENT : 28-07-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING ITA NO. 1176/MUM/2016, IS DIRECTED AGAINST THE APPELLATE OR DER DATED 11 TH JANUARY, 2016 PASSED BY LEARNED COMMISSIONER OF INCOME TAX ( APPEALS)- 16, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSME NT YEAR 2012-13, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARI SING FROM THE ASSESSMENT ORDER DATED 25 TH AUGUST, 2014 PASSED BY THE LEARNED ASSESSING OFFIC ER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INC OME TAX ACT,1961 (HEREINAFTER CALLED THE ACT). ITA 1176/MUM/2016 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE COM PANY IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL , MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE L EARNED CIT(A) LEGALLY ERRED IN CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFICER FOR A SUM OF RS.L,38,000/- PAID AS SALARY TO DIRECTOR . 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT (A) LEGALLY ERRED IN CONFIRMING THE CHARGING OF INTEREST U/S 234B OF THE ACT AT RS.16,356/- BY ASSESSING OFFICER. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE CO MPANY IS CLAIMED TO HAVE BEEN ENGAGED IN THE BUSINESS OF TRADING AND EXPORT OF READYMADE GARMENTS. HOWEVER, FOR THE YEAR UNDER CONSIDERATION THERE WAS NO BUSINESS ACTIVITY EXCEPT RECEIPT OF INTEREST INCOME. FROM THE ACCOUN TS OF THE ASSESSEE COMPANY, IT WAS OBSERVED BY THE AO THAT THE ASSESSE E COMPANY WAS IN RECEIPT OF INTEREST INCOME OF RS. 2,58,861/- IN RES PECT OF FIXED DEPOSIT MAINTAINED WITH M/S KOTAK MAHINDRA BANK LTD. THE AS SESSEE COMPANY HAD TREATED THE SAME AS INTEREST INCOME AND COMPUTED TH E PROFIT FROM THE BUSINESS AT RS. 1,02,995/- AFTER CLAIMING EXPENDITU RE OF RS. 1,55,866/- IN THE RETURN OF INCOME FILED WITH THE REVENUE. THE A.O. ASKED THE ASSESSEE COMPANY TO EXPLAIN AS TO WHY THE INTEREST INCOME BE NOT BROUGHT TO TAX UNDER THE RESIDUARY HEAD OF INCOME FROM OTHER SOURCES A ND THE EXPENDITURE CLAIMED AGAINST THE INTEREST INCOME IS NOT ALLOWABL E UNDER THE PROVISIONS OF THE ACT . THE ASSESSEE COMPANY SUBMITTED THAT IT HA S CLAIMED CERTAIN LEGAL EXPENSES, AUDIT EXPENSES, BANK CHARGES AND MISCELLA NEOUS EXPENSES AT RS. 17,866/- AND APART FROM THE ABOVE IT HAS CLAIMED DI RECTORS REMUNERATION OF RS. 1,38,000/-. THE ASSESSEE COMPANY FURTHER SUBMI TTED THAT THOUGH THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR BUT THE B USINESS FUNDS WERE UTILIZED FOR COMMERCIAL PURPOSES AND HENCE THE EXPENSES CANN OT BE DISALLOWED. ITA 1176/MUM/2016 3 THE A.O. OBSERVED THAT THERE WAS NO BUSINESS ACTIVI TY CARRIED ON BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATIO N AND MAJORITY OF THE EXPENDITURE WAS INCURRED ON ACCOUNT OF DIRECTORS RE MUNERATION. THE A.O. HELD THAT IN THE ABSENCE OF ANY BUSINESS ACTIVITY B Y THE ASSESSEE COMPANY, SUCH EXPENDITURE AGAINST THE INTEREST INCOME WAS NO T ALLOWABLE. AS PER THE A.O. THE INTEREST INCOME HAS TO BE TAXED UNDER THE RESIDUARY HEAD OF INCOME FROM OTHER SOURCES U/S 56 OF THE ACT, AND THEREFOR E, THE ATTRIBUTABLE EXPENDITURE ALLOWABLE TO EARN SUCH INCOME IS THE EX PENDITURE AS LAID DOWN U/S 57 OF THE ACT. THE ASSESSEE COMPANY HAS CLAIMED DIRECTORS REMUNERATION OF RS.1,38,000/- WHICH HAS NO DIRECT NEXUS WITH THE INTEREST INCOME EARNED BY THE ASSESSEE COMPANY. SIMILARLY , THE OTHER EXPE NSES EXCEPT THE EXPENDITURE ON ACCOUNT OF BANK CHARGES OF RS.850/- IS NOT ALLOWABLE. THUS, INTEREST INCOME OF RS. 2,58,861/- WAS CONSIDERED AS INCOME FROM OTHER SOURCES. HOWEVER, BANK CHARGES OF RS. 850/- WAS AL LOWED AS DEDUCTION FROM INTEREST INCOME AND BALANCE AMOUNT OF RS. 2,58,011/ - WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE COMPANY UNDER THE HEAD INCO ME FROM OTHER SOURCES VIDE ASSESSMENT ORDER DATED 25-08-2014 PASSED BY TH E AO U/S 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 25-08-20 14 PASSED BY THE A.O. U/S. 143(3) OF THE ACT , THE ASSESSEE COMPANY FILED ITS FIRST APPEAL BEFORE THE LD. CIT(A). 5. BEFORE THE LD. CIT(A), THE ASSESSEE COMPANY SUBM ITTED THAT THERE WAS A SLOW DOWN OR LULL IN THE BUSINESS BUT THE ASSESSEE COMPANY HAD NOT STOPPED THE CARRYING ON OF ITS BUSINESS. THE EXPENDITURE C LAIMED WAS BARE MINIMUM AND TO KEEP THE COMPANY AFLOAT, THESE EXPENSES WERE VERY MUCH REQUIRED. IN SUPPORT, THE ASSESSEE COMPANY PLACED RELIANCE ON TH E DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. PRAYASHVIN B. PATEL, 240 ITR 931AS ITA 1176/MUM/2016 4 WELL AS THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF AATUR HOLDING P. LTD., 112 TAXMAN 75 (MAG.) AND DELHI TRIBUNAL IN THE CASE OF ACIT V. JNG BUILDERS P. LTD. TO CONTEND THAT THERE ARE CERTAIN EXPENSES SUCH AS AUDIT FEES, SALARIES, PROFESSIONAL FEE , INSURANCE , PRINTING AND STATION ARY, BANK CHARGES, HOUSE KEEPING CHARGES , REPAIRS AND MAINTENANCE ETC WHICH ARE NECESSARY TO MAINTAIN THE CORPORATE ENTITY AND ARE ALLOWABLE EXP ENSES AND IT IS ALSO NOT NECESSARY THAT EVERY YEAR THE ASSESSEE COMPANY MUST HAVE EARNED INCOME FROM BUSINESS OR PROFESSION . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE COMPANY AND THE ASSESSMENT ORDER OF THE A.O. OBSERVED THAT THE ASSESSEE COMPANY HAS EARNED INTEREST INCOME FROM FDRS WITH KOTAK MAHIND RA BANK. THE FDRS WERE MADE OUT OF SURPLUS FUNDS AVAILABLE WITH THE A SSESSEE COMPANY FOR EARNING INTEREST INCOME WHICH IS NOT CONNECTED WITH THE BUSINESS OF THE ASSESSEE COMPANY, HENCE, THE A.O. WAS CORRECT IN AS SESSING THE INTEREST INCOME EARNED FROM SURPLUS FUNDS BY INVESTING IN TH E FDRS AS INCOME FROM OTHER SOURCES. THE QUANTUM OF SALARY TO DIRECTORS A RE ALLOWED IN ACCORDANCE TO ITS EFFORTS AND CONTRIBUTION TO THE BUSINESS CAR RIED OUT BY THE COMPANY BUT IN THE PRESENT CASE, THERE WAS NO EFFORTS WERE REQU IRED FOR EARNING INTEREST INCOME FROM SURPLUS FUND INVESTED IN FDRS AND THE A SSESSEE COMPANY HAS NOT CARRIED OUT ANY OTHER BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION. HENCE, THE A.O.S ACTION WAS UPHELD BY THE LEARNED CIT(A) WHEREBY DISALLOWANCE OF DIRECTORS REMUNERATION OF R S.1,38,000/- WAS UPHELD BY THE LEARNED CIT(A). HOWEVER, IN VIEW OF THE DEC ISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. PRAYASHVIN B. PATE L, 240 ITR 931, STATUTORY EXPENSES LIKE AUDIT FEES, BANK CHARGES, PROFESSIONA L CHARGES, INSURANCE ETC. TOTALING TO THE AMOUNT OF RS. 17,866/- WAS ALLOWED BY THE LEARNED CIT(A) VIDE APPELLATE ORDERS DATED 11.01.2016. ITA 1176/MUM/2016 5 6. AGGRIEVED BY THE APPELLATE ORDERS DATED 11.01.2 016 PASSED BY THE LD. CIT(A), THE ASSESSEE COMPANY IS IN SECOND APPEAL BE FORE THE TRIBUNAL. 7. BEFORE THE TRIBUNAL, THE LD. COUNSEL FOR THE ASS ESSEE COMPANY SUBMITTED THAT THE SALARY OF RS. 1,38,000/- WAS PAI D TO THE DIRECTORS. IT WAS SUBMITTED THAT THERE WAS NO BUSINESS OF TRADING AND EXPORT OF GARMENTS CARRIED ON BY THE ASSESSEE COMPANY. THE A.O. HAS D ISALLOWED THE ENTIRE EXPENSES OF RS.1,38,000/- INCURRED TOWARDS DIRECTOR REMUNERATION. THE LD. CIT(A) ALTHOUGH ALLOWED THE STATUTORY EXPENSES AMOU NTING TO RS. 17,866/-, THE DISALLOWANCE OF THE ENTIRE DIRECTORS REMUNERATI ON OF RS.1,38,000/- PAID BY THE ASSESSEE COMPANY WERE DISALLOWED. IT IS SUB MITTED THAT THE ASSESSEE COMPANY HAS EARNED INTEREST INCOME OF RS. 2,58,861/ - FROM FDRS MAINTAINED WITH KOTAK MAHINDRA BANK WHICH IS A BUSINESS INCOME ALTHOUGH THE A.O. HAS TREATED THE SAME AS INCOME FROM OTHER SOURCES, WHIC H IS CONFIRMED BY THE LD. CIT(A). IT IS SUBMITTED THAT THE ASSESSEE COMPANY IS PRIVATE LIMITED COMPANY AND IT IS ESSENTIAL TO MAINTAIN THE COMPANY AND TO KEEP THE DIRECTORS AND HENCE DIRECTORS REMUNERATION PAID TO THE DIRECTORS IS ALLOWABLE . THERE ARE NO EMPLOYEES IN THE COMPANY AND EFFORTS WERE MADE T O CARRY ON THE BUSINESS OF THE COMPANY. IT IS SUBMITTED THAT IN THE PAST, INTEREST INCOME WAS ASSESSED TO TAX AS BUSINESS INCOME AND ONLY IN THIS IMPUGNED ASSESSMENT YEAR THE INTEREST INCOME HAS BEEN CHARGED UNDER THE HEAD INCOME FROM OTHER SOURCES. 8. THE LD. D.R. SUBMITTED THAT THE ASSESSEE COMPANY HAS EARNED INTEREST INCOME ON THE FDRS MAINTAINED WITH THE BANK AND TH E A.O. HAS RIGHTLY BROUGHT TO TAX THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES. THE LD DR SUBMITTED THAT THE ASSESSEE COMPANY HAS NOT CARR IED ON ANY BUSINESS ACTIVITY DURING THE RELEVANT PREVIOUS YEAR AND HENC E DIRECTORS REMUNERATION WAS RIGHTLY DISALLOWED BY AO AND THE DISALLOWANCE S USTAINED BY LEARNED CIT(A). THE LD. DR RELIED ON THE ORDERS OF THE AUTH ORITIES BELOW. ITA 1176/MUM/2016 6 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS RELIED UPON. WE HAVE OBSERVED THAT THE ASSESSEE IS A PRIVATE LIM ITED COMPANY WHICH HAS CLAIMED TO BE IN THE BUSINESS OF TRADING AND EXPORT OF READYMADE GARMENTS. NO BUSINESS ACTIVITY HAS BEEN CARRIED ON BY THE ASS ESSEE COMPANY DURING THE RELEVANT PREVIOUS YEAR. WE HAVE OBSERVED THAT THE ASSESSEE COMPANY HAS ONLY PLACED THE SURPLUS FUNDS IN FDRS WITH THE KOTA K MAHINDRA BANK ON WHICH INTEREST INCOME HAS BEEN EARNED DURING THE RE LEVANT PREVIOUS YEAR. THERE IS NO BUSINESS ACTIVITY CARRIED ON BY THE ASS ESSEE COMPANY DURING RELEVANT PREVIOUS YEAR AND IT IS MERELY INTEREST IN COME WHICH HAS BEEN EARNED OUT OF FDR. THE ASSESSEE COMPANY DECLARED INTEREST INCOME AS INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION IN TH E RETURN OF INCOME FILED WITH THE REVENUE. AS PER SECTION 56 OF THE ACT INTE REST INCOME FROM FDRS IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V. PRAYASHVIN B. PATEL, 240 ITR 931 AS WELL AS THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF AATUR HOLDING P. LTD., 112 TAXMAN 75 (MAG.) AND DELHI TRIBUNAL IN THE CASE OF ACIT V. JNG BUILDERS P. LTD. HAVE HELD THAT THERE ARE CERTAIN EXPENSES S UCH AS AUDIT FEES, SALARIES, PROFESSIONAL FEE , INSURANCE , PRINTING AND STATION ARY, BANK CHARGES, HOUSE KEEPING CHARGES , REPAIRS AND MAINTENANCE ETC WHICH ARE NECESSARY TO MAINTAIN THE CORPORATE ENTITY AND ARE ALLOWABLE EXP ENSES AND IT IS NOT NECESSARY THAT EVERY YEAR THE ASSESSEE MUST HAVE EA RNED INCOME FROM BUSINESS OR PROFESSION AND THE ASSESSEE MAY BE REQU IRED TO SPEND THE AMOUNT FOR CARRYING ON ITS ACTIVITIES . THE ASSESSE E COMPANY INCURRED EXPENSES OF RS. 17,866/- TOWARDS LEGAL EXPENSES, AU DIT FEES, BANK CHARGES AND MISCELLANEOUS EXPENSES WHICH HAD BEEN ALLOWED B Y THE LD. CIT(A). HOWEVER AS PER THE FACTS EMERGING FROM THE RECORDS, THERE WERE NO EFFORTS OR CONTRIBUTIONS MADE BY THE DIRECTORS TO CARRY ON THE BUSINESS OF THE COMPANY AS IN-FACT NO BUSINESS WAS CARRIED ON BY THE ASSESS EE COMPANY DURING THE ITA 1176/MUM/2016 7 ENTIRE PREVIOUS YEAR, HENCE IN OUR CONSIDERED VIEW , THE REMUNERATION OF RS. 1,38,000/- PAID TO DIRECTORS WAS RIGHTLY DISALLOWE D BY THE A.O. AND CONFIRMED BY THE LD. CIT(A). THUS, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) IN WHICH WE HAVE NOT FIND ANY INFIRMITY. WE ORDER A CCORDINGLY. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA N0. 1176/MUM/2016 FOR THE ASSESSMENT YEAR 2012-13 IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JULY , 2016. # $% &' 28-07-2016 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 28-07-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI D BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI