Mansinghka Exim Pvt. Ltd., Kolkata V. ACIT, CIR-9, KOLKATA, Karnataka

ITA 1212/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9160 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 06-12-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 30-05-2016
• Court: TRIBUNAL
• Department Lawyers: BANIBRATA DUTTA
• Assessee Lawyers: V N PUROHIT
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, KOLKATA (BENCH- SMC) BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 1212/KOL/2016 ASSESSMENT YEAR: 2006-07 I.T.A. NO. 525/KOL/2015 ASSESSMENT YEAR: 2010-11 FOR THE APPELLANT SHRI V.N. PUROHIT, CA FOR THE RESPONDENT SHRI BANI BRATADUTTA, JCIT DATE OF HEARING 08.03.2017 DATE OF PRONOUNCEMENT 15.03.2017 ORDER THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. CIT(A)-18, KOLKAT A DT. 18/11/2015 FOR ASSESSMENT YEAR 2006-07 AND THE LD. CIT(A)-3, KOLKA TA, DT. 03/03/2015 FOR ASSESSMENT YEAR 2010-11. M/S. MANSINGHKA EXIM PVT. LTD. P-36, INDIA EXCHANGE PLACE, R/NO. 48C, 3 RD FLOOR, KOLKATA-700 001 [PAN : AACCM1808K] -VS- ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-9, KOLKATA, 110, SHANTI PALLY, AAYAKAR POORVA, KOLKATA-700 107 (APPELLANT) (RESPONDENT) M/S. MANSINGHKA EXIM PVT. LTD. P-36, INDIA EXCHANGE PLACE, R/NO. 48C, 3 RD FLOOR, KOLKATA-700 001 [PAN : AACCM1808K] -VS- DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-8, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA-700 069 (APPELLANT) (RESPONDENT) 2 I.T.A. NO. 525/KOL/2015 ASSESSMENT YEAR: 2010-11 & I.T.A. NO. 1212/KOL/2016 ASSESSMENT YEAR: 2006-07 2 SINCE THE MAIN ISSUE INVOLVED IN THESE TWO APPEALS IS COMMON, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSE D OF BY A SINGLE CONSOLIDATED ORDER, FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL OF THE ASSESSEE FOR THE A.Y. 2006-07, WHICH IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-18, KOLKATA, DT. 18/11/2015. 3. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS APPEAL ARE THAT THE ASSESSEE IS A COMPANY, WHICH FILED ITS RETURN OF IN COME FOR A.Y. 2006-07 ON 07/11/2006, DECLARING TOTAL LOSS OF RS.1,04,61,604/ -. IN THE SAID RETURN, THE INCOME ARISING FROM VARIOUS SOURCES INCLUDING INTER EST, PROFIT ON SALE OF SHARES ETC. WAS OFFERED BY THE ASSESSEE UNDER THE H EAD INCOME FROM OTHER SOURCES AND EXPENSES AGGREGATING TO RS.1,20,03,739 /- WERE CLAIMED AGAINST THE SAID INCOME AS DEDUCTION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF THE SAID EXPENSES WAS EXAMINED BY THE ASSESSING OFFICER, AS PER THE PROVISIONS OF SEC TION 57(III) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT), AND SINCE THE AS SESSEE COULD NOT ESTABLISH, TO HIS SATISFACTION, THAT THE SAID EXPENSES WERE LA ID OUT OR EXPENDED, WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING OF INCOME OFFERED UNDER THE HEAD INCOME FROM OTHER SOURCES, THE ASSESSING OFF ICER HELD THAT THE SAME WERE NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 57(III) OF THE ACT.HE, HOWEVER, ALLOWED THE EXPENSES CLAIMED BY THE ASSESS EE TO THE EXTENT OF RS.50,000/-, BEING THE AMOUNT INCURRED FOR MAINTAIN ING THE STATUS OF THE 3 I.T.A. NO. 525/KOL/2015 ASSESSMENT YEAR: 2010-11 & I.T.A. NO. 1212/KOL/2016 ASSESSMENT YEAR: 2006-07 3 ASSESSEE COMPANY AND DISALLOWED THE BALANCE AMOUNT OF RS.1,19,53,739/- IN THE ASSESSMENT COMPLETED U/S 143(3). 4. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R U/S 143(3), AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT(APPEAL S). DURING THE APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT ITS BUSINESS WAS SUSPENDED TEMPORARILY, AS A R ESULT OF THE LULL IN THE BUSINESS DURING THE RELEVANT PERIOD AND THERE BEING NO PERMANENT CLOSURE OF THE BUSINESS, THE EXPENSES CLAIMED BY IT ARE LIABLE FOR DEDUCTION AS BUSINESS EXPENSES. THE LD. CIT(A), HOWEVER, DID NOT FIND MER IT IN THIS CONTENTION OF THE ASSESSEE AND REJECTED THE SAME FOR THE FOLLOWING RE ASONS GIVEN IN PARAGRAPH 5 OF HIS ORDER. 5. I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS O F THE ASSESSEE. DURING THE COURSE OF THE APPELLATE PROCEE DINGS, I HAVE ALSO PERUSED THE BALANCE SHEET FOR THREE SUBSE QUENT ASSESSMENT YEARS. IT IS SEEN THAT ASSESSEE HAS NO B USINESS ACTIVITY IN THE THREE SUBSEQUENT ASSESSMENT YEARS A S WELL. DURING THE APPELLATE PROCEEDINGS THE A.R. OF THE AS SESSEE ALSO CONFIRMED THAT IN NONE OF THE SUBSEQUENT YEARS TILL DATE, ASSESSEE HAS CARRIED OUT ANY BUSINESS ACTIVITY. UNDER THE CIRCUMSTANCES IT IS CLEAR THAT ASSESSEE H AD STOPPED BUSINESS ACTIVITY PRIOR TO THE COMMENCEMENT OF THE CURRENT ASSESSMENT YEAR. HENCE A.O. IS JUSTIFIED IN DISALLOWING THE BUSINESS EXPENSES CLAIMED BY THE AS SESSEE. 5. THE LD. CIT(A) ALSO REJECTED THE CONTENTION OF T HE ASSESSEE THAT THE EXPENSES TO THE EXTENT OF RS.25,08,477/-, AT LEAST WERE ALLOWABLE AS FRINGE 4 I.T.A. NO. 525/KOL/2015 ASSESSMENT YEAR: 2010-11 & I.T.A. NO. 1212/KOL/2016 ASSESSMENT YEAR: 2006-07 4 BENEFIT TAX (F.B.T.) WAS DULY PAID BY THE ASSESSEE THERE ON FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH 6 OF HIS IMPUGNED ORDER. 6. IN THE GROUNDS OF APPEAL [NO. 2] ASSESSEE HAS M ENTIONED THAT A.O. HAS ASSESSED F.B.T RETURN SHOWS THAT A.O. HAS NOT MADE ANY ADDITIONS / DISALLOWANCES IN F.B.T ASSESSM ENT. RATHER HE HAS ACCEPTED THE F.B.T RETURN FILED BY TH E ASSESSEE. HERE I WOULD LIKE TO CLARIFY THAT MERE PAYMENT OF F .B.T TAX ON A PART OF THE EXPENSES WOULD NOT LEGITIMIZE THE ENTIR E EXPENSES. A.O. IS WELL WITHIN HIS RIGHTS TO DISALLOW ANY CLAI M OF EXPENSES IF HE IS NOT SATISFIED ABOUT THE GENUINENESS OF THE EXPENSES. IN ANY CASE THE ISSUE RELATING TO F.B.T. ARE DEALT SEP ARATELY IN APPEAL FILED BY THE ASSESSEE IN RESPECT OF ITS F.B. T. THE LD. CIT(A), THUS CONFIRMED THE DISALLOWANCE OF RS.1,19,53,739/-, MADE BY THE AO ON ACCOUNT OF VARIOUS EXPENSES CLAIM ED BY THE ASSESSEE AND DISMISSED THE APPEAL FILED BY THE ASSESSEE BEFORE H IM. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS: L. THE ORDERS OF THE LOWER AUTHORITIES ARE ERRONE OUS, ARBITRARY, WITHOUT PROPER REASONS, INVALID AND AB-INITIO VOID TO THE EXTENT TO WHICH THEY ARE PREJUDICIAL TO THE INTERESTS OF T HE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) ERRED IN UPHOLDING THE FINDING OF THE CIT(A} THAT SINCE IN THIS YEAR THERE WERE NO REGULAR BUSINESS TRANSACTIO NS, THE ASSESSING OFFICER HAD BEEN RIGHT IN DENYING THE CLA IM OF THE APPELLANT ASSESSEE TOWARDS ALLOWANCES OF VARIOUS EX PENSES WHICH HAD TO BE NECESSARILY INCURRED BY THE APPELLA NT COMPANY FOR ITS MAINTENANCE, EXCEPT TO THE MEAGRE E XTENT OF RS.50,000/-. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) ERRED IN REJECTING THE ARGUMENT ON BEHALF OF THE APPELLANT ASSESSEE THAT SINCE THE A.O. HAD ASSESSED FBT EXPENSES AT RS.25,08,477/-, HIS ACTIONS IN STILL DI SALLOWING THE ENTIRE EXPENSES WERE ARBITRARY, UNREASONED AND IMPR OPER. 5 I.T.A. NO. 525/KOL/2015 ASSESSMENT YEAR: 2010-11 & I.T.A. NO. 1212/KOL/2016 ASSESSMENT YEAR: 2006-07 5 4. ON THE FACTS AND IN THE- CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) ERRED IN UPHOLDING AND CONFIRMING THE ASSESS MENT ORDER PASSED U/S 143(3) DATED 03.12.2008 AND IN DISMISSIN G THE APPEAL AGAINST THE SAID ASSESSMENT ORDER. 5. THE APPELLANT CRAVES LEAVE TO AMEND, ALTER, SUB STITUTE, MODIFY, REVISE AND/OR ADD TO OR RESCIND ANY OR ALL OF THE A BOVE GROUNDS. 6. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, GROUND NO. 1,4 & 5, RAISED IN THIS APPEAL OF THE ASSESSEE, ARE GENERAL IN NATURE, WHICH DO NOT CALL FOR ANY SPECIF IC ADJUDICATION. AS REGARDS THE ISSUE RAISED IN GROUND NO. 2, THE LIMITED RELIE F SOUGHT FOR BY THE LD. COUNSEL FOR THE ASSESSEE IS THAT, THERE ARE SOME EX PENSES INCURRED BY THE ASSESSEE SUCH AS INTEREST ETC. WHICH HAVE BEEN EXPE NDED OR LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNIN G INCOME SUCH AS INTEREST ETC. WHICH IS OFFERED TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. HE HAS CONTENDED THAT SINCE THE ASSESSEE WAS HARPING O N THE POINT OF TEMPORARY LULL IN THE BUSINESS AND CLAIMING THE SAID EXPENSES AS BUSINESS EXPENSES EVEN BEFORE THE LD. CIT(A), THERE WAS NO OCCASION FOR HI M TO MAKE OUT HIS CASE ON THIS POINT. HE HAS URGED THAT ONE MORE OPPORTUNITY MAY, THEREFORE, BE GIVEN TO THE ASSESSEE TO PUT FORTH HIS CASE BY SENDING THE M ATTER BACK TO THE ASSESSING OFFICER. I FIND MERIT IN THIS ARGUMENT OF THE LD. C OUNSEL FOR THE ASSESSEE AND SINCE THE LD. DR, HAS NOT RAISED ANY OBJECTION IN T HIS REGARD, I SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF GIVING THE ASSESSEE AN 6 I.T.A. NO. 525/KOL/2015 ASSESSMENT YEAR: 2010-11 & I.T.A. NO. 1212/KOL/2016 ASSESSMENT YEAR: 2006-07 6 OPPORTUNITY TO SUPPORT AND SUBSTANTIATE ITS CASE FO R DEDUCTION OF THE IMPUGNED EXPENSES U/S 57 (III). GROUND NO. 2 OF THE ASSESSEES APPEAL FOR A.Y. 2006-07 IS TREATED AS PARTLY ALLOWED. 7. AS REGARDS THE ISSUE RAISED IN GROUND NO. 3, I F IND MERIT IN THE STAND OF THE REVENUE THAT THE EXPENSES OF RS.25,08,477/-, CA NNOT BE ALLOWED AS DEDUCTION MERELY ON THE BASIS THAT FBT HAS BEEN PAI D BY THE ASSESSEE ON THE SAID EXPENSES ESPECIALLY WHEN THERE IS NO INCOME EA RNED BY THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS. THE ENTIRE I NCOME HAVING BEEN OFFERED BY THE ASSESSEE COMPANY ITSELF, UNDER THE H EAD INCOME FROM OTHER SOURCES, ONLY THOSE EXPENSES WHICH ARE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY, FOR THE PURPOSE OF MAKING OR EARNING O F SUCH INCOME ARE LIABLE TO BE ALLOWED U/S 57(III) AND NOT OTHERWISE MERELY ON THE BASIS OF PAYMENT OF FBT. I, THEREFORE, FIND NO MERIT IN GROUND NO. 3 OF THE ASSESSEES APPEAL AND DISMISS THE SAME. 8. AS REGARDS THE APPEAL OF THE ASSESSEE FOR A.Y. 2 010-11 BEING ITA NO.525/KOL/2015, WHICH IS DIRECTED AGAINST THE ORDE R OF THE LD. CIT(A)-3, KOLKATA,DT. 03/03/2015, IT IS OBSERVED THAT THE MAI N ISSUE INVOLVED THEREIN, AS RAISED IN GROUND NO. 3, IS SIMILAR TO THE ONE IN VOLVED IN A.Y. 2006-07 WHICH HAS ALREADY BEEN DECIDED BY ME IN THE FOREGOI NG PARAGRAPH OF THIS ORDER. FOLLOWING THE CONCLUSION DRAWN IN THE A.Y. 2 006-07, I, RESTORE THE 7 I.T.A. NO. 525/KOL/2015 ASSESSMENT YEAR: 2010-11 & I.T.A. NO. 1212/KOL/2016 ASSESSMENT YEAR: 2006-07 7 SIMILAR ISSUE INVOLVED IN A.Y. 2010-11 TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN IN A.Y. 2006-07. GROUND NO. 3 OF THE ASSESSEES APPEAL FOR A.Y. 2010 -11 IS ACCORDINGLY TREATED AS PARTLY ALLOWED. 9. AS REGARDS THE ISSUE INVOLVED GROUND NO. 2 OF TH E ASSESSEES APPEAL FOR A.Y. 2010-11, RELATING TO THE DISALLOWANCE OF RS.1, 21,442/-, MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) U /S 14A R.W. RULE 8D, THE LIMITED CONTENTION RAISED BY THE LD. COUNSEL FOR TH E ASSESSEE IS THAT THE DISALLOWANCE AS WORKED UNDER RULE 8D, IS AFTER TAKI NG INTO CONSIDERATION THE ENTIRE INVESTMENT MADE BY THE ASSESSEE IN SHARES IN STEAD OF ONLY THAT INVESTMENT WHICH HAS GIVEN RISE TO THE EXEMPT DIVID END INCOME. SINCE THIS CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS D ULY SUPPORTED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN REI AGRO LTD. VS. DCIT CENTRAL CIRCLE-XXVII (ITA NO. 1331 & 1423/KOL/2011, ORDER DT. 19/06/2013) , I, RESTORE THIS ISSUED TO THE FILE OF THE ASSESSING OF FICER, FOR THE LIMITED PURPOSE OF RE-COMPUTING THE DISALLOWANCE U/S 14A BY APPLYIN G RULE 8D BY EXCLUDING THE INVESTMENT ON WHICH NO EXEMPT INCOME WAS ACTUAL LY RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. GROUN D NO. 2 OF THE ASSESSEES APPEAL FOR THE A.Y. 2010-11 IS THUS PARTLY ALLOWED. 8 I.T.A. NO. 525/KOL/2015 ASSESSMENT YEAR: 2010-11 & I.T.A. NO. 1212/KOL/2016 ASSESSMENT YEAR: 2006-07 8 10. GROUNDS NO. 1 & 4 RAISED IN THE APPEAL OF THE A SSESSEE IN A.Y. 2010-11, ARE GENERAL IN NATURE WHICH DO NOT CALL FOR ANY ADJ UDICATION. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 15/03/2017. SD/- ( P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 15 TH DAY OF MARCH, 2017 {SHAMIKCHAKRAVORTY, SPS} COPY OF THE ORDER FORWARDED TO: 1. M/S. MANSINGHKA EXIM PVT. LTD., P-36, INDIA E XCHANGE PLACE, R/NO.- 48C, 3 RD FLOOR, KOLKATA-700 001 2. A.C.I.T., CIRCLE-9, KOLKATA, 110, SHANTI PALLY, AAYAKAR POORVA, KOLKATA- 700 107 3. DCIT, CIRCLE-8, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 4.CIT(A)-18, KOLKATA 5.CIT 6.CIT(DR) - TRUE COPY BY ORDER AS SISTANT REGISTRAR, ITAT, KOL KATA BENCHES, KOLKATA