M/s Coffeeday Enterprises Ltd , Bangalore V. The Assistant commissioner of Income TAx Circle-2(1)(1), Bangalore

ITA 1367/BANG/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7195 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 15-06-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PALANI KUMAR
• Assessee Lawyers: C RAMESH
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH B, BANGALORE BEFORE SHRI AK GARODIA, ACCOUNTANT MEMBER ITA NO.1367/BA NG/2017 (ASST. YEAR 2009-10) M/S COFFEEDAY ENTERPRISES LTD., (FORMERLY KNOWN AS COFFEEDAY RESORTS (P) LTD., NO.23/2, COFFEEDAY SQUARE, VITTAL MALLYA ROAD, BENGALURU. . APPELLANT VS. THE INCOME-TAX OFFICER, WARD-5(2) (3), BANGALORE. RESPONDENT APPELLANT BY : SHRI C RAMESH, C.A RESPONDENT BY : SHRI PALANIKUMAR, ADDL. CIT DATE OF HEARING : 22-11-2017 DATE OF PRONOUNCEMENT : 29-11-2017 O R D E R PER SHRI AK GARODIA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 2, BANGALORE DATED 13/4/2017 FOR ASSESSMENT YEAR 2009-10. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: - 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS OPPOSED TO THE FACTS OF THE CASE AND L AW APPLICABLE TO IT. ITA NO.1367/B/17 2 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE TO THE EXTENT OF RS.32,80,8221- BEING THE INTEREST ON BORROWED CAPIT AL WHICH WAS ALLOWABLE UNDER THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN GIVING A FINDING THAT, THE APPELLANT HAD N OT COMMENCED THE BUSINESS AND HENCE THE INTEREST EXPEN SES IS NOT ALLOWABLE, IGNORING THE FACT THAT, THE APPELLAN T WAS ALREADY SETUP AND READY FOR BUSINESS AND UNDER THE CIRCUMSTANCES, THE INTEREST EXPENSES COULD NOT HAVE BEEN DISALLOWED. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT, THE APPELL ANT HAD RECEIVED INTEREST INCOME ON ADVANCES MADE AND THE INTEREST EXPENSES IF NOT ALLOWABLE UNDER THE HEAD B USINESS SHOULD HAVE BEEN ALLOWED UNDER THE HEAD OTHER SOURC ES, WHEREIN THE INTEREST INCOME HAS BEEN CONSIDERED FOR TAXATION. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT, THERE WAS A DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE ADVANCES M ADE ON WHICH INTEREST INCOME WAS RECEIVED AND UNDER THE CIRCUMSTANCES, THE INTEREST EXPENSES SHOULD HAVE BE EN ALLOWED AS EXPENDITURE AGAINST THE INTEREST INCOME. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF FUND RAISIN G ITA NO.1367/B/17 3 CHARGES OF RS.2,64,7561- AS NOT RELATABLE TO BUSINE SS IGNORING THE FACT THAT, THE EXPENDITURE IS REVENUE IN NATURE AND ALLOWABLE IN THE YEAR SUCH EXPENDITURE WAS INCU RRED. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT, THE APPELL ANT COMPANY WAS SETUP AND READY FOR BUSINESS AND UNDER THE CIRCUMSTANCES, THE FUND RAISING CHARGES SHOULD HAVE BEEN ALLOWED AS REVENUE EXPENDITURE. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ALLOWANCE OF EXPENDITURE OF RS.1,21,657/- FOR THE REASON THAT, THE APPELLANT HA S NOT COMMENCED THE BUSINESS IGNORING THE FACT THAT, THE COMPANY WAS INCORPORATED AD WAS READY FOR BUSINESS AND HENCE THE EXPENDITURE WAS ALLOWABLE. 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACT THAT, THE COMPAN Y WAS INCORPORATED AND THE EXPENDITURE WAS IN THE NATURE OF RUNNING EXPENSES TO KEEP THE COMPANY IN OPERATION A ND HENCE ALLOWABLE AS REVENUE. 10. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN NOT APPRECIATING THE FACT THAT, THE APPELL ANT HAS DECLARED INCOME UNDER THE HEAD OTHER SOURCES AND IF THE EXPENDITURE IS NOT ALLOWABLE UNDER THE HEAD BUSINES S, SHOULD HAVE BEEN ALLOWED UNDER THE HEAD OTHER SOURC ES, SINCE THE EXPENDITURE WAS REVENUE IN NATURE AND REQ UIRED FOR DAY TO DAY RUNNING OF THE COMPANY. ITA NO.1367/B/17 4 11. IT THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN NOT FOLLOWING THE RATIO TAID DOWN BY THE H ON'BLE SUPREME COURT IN THE CASE OF CIT V. M/S.SARABHAI MANAGEMENT CORPORATION LTD (1991) 192 ITR 151 (SC). 12. THE APPELLANT CRAVES PERMISSION TO ADD, DELETE OR ALTER ANY OF THE GROUNDS AT THE TIME OF HEARING. PRAYER THE APPELLANT PRAYS THAT, THE HONOURABLE TRIBUNAL TO KINDLY DELETE THE ADDITION CONSEQUENT TO I) DISALLOWANCE OF INTEREST PAID ON BORROWED CAPITAL OF RS.32,80,822/- II) DISALLOWANCE OF EXPENDITURE ON FUND RAISING CHARGES DISALLOWED OF RS.2,64,576/-. III) DISALLOWANCE OF EXPENDITURE SUCH AS RENT, SALARIES AND BANK CHARGES OF RS.1,21,657/-. 3. IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE TH AT GROUND NO.1 IS GENERAL AND THE ISSUE INVOLVED IN GROUND NOS.2,3 ,4 AND 5 IS ONE AND THE SAME AND IT WAS SUBMITTED THAT THE ASSESSEES SUBMISSIONS ON THIS ISSUE IS AVAILABLE IN THE WRITTEN SUBMISSIONS AT PA GES 3 AND 4 OF THE PAPER BOOK. 4. THE LD DR OF THE REVENUE SUPPORTED THE ORDER OF THE CIT(A). 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. I FIND THAT THE CLAIM OF THE ASSESEE IS THIS THAT AS PER THE MEMORANDUM & A RTICLES OF ASSOCIATION OF THE ASSESSEE COMPANY, THE MAIN BUSIN ESS OF THE ASSESSEE COMPANY IS TO DEAL AND INVESTMENT IN SHARES. AS PE R THE BALANCE SHEET ITA NO.1367/B/17 5 OF THE ASSESSEE COMPANY AVAILABLE AT PAGE NOS.1 TO 11 OF THE PAPER BOOK, IT IS SEEN THAT THE ASSETS OF THE COMPANY INC LUDES INVESTMENTS OF RS.192 CRORES AND DEPOSIT WITH A COMPANY M/S MYSORE AMALGAMATED COFFEE ESTATES LTD. RS.17.95 CRORES AND YES BANK RS .49 LAKHS AND THERE IS NO INVENTORY OR STOCK IN TRADE. AS PER P&L ACCO UNT AVAILABLE AT PAGE 12 OF THE PAPER BOOK, THE ASSESSEE IS SHOWING INCOM E OF RS.3,44,869/- ON ACCOUNT OF INTEREST ON FDS AND THE ACTIVITY IN R ESPECT OF PURCHASE OF SHARES OF VARIOUS COMPANIES IS NOT SHOWN AS PURCHAS E AND CLOSING STOCK IN TRADE. SPECIFIC QUERY WAS RAISED BY THE BENCH AND IN REPLY IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THAT THERE I S NO STOCK IN TRADE AND IN MY CONSIDERED OPINION, IN THE FACTS OF THE PRESENT CASE, IT CANNOT BE SAID THAT THE ASSESSEE IS DOING ANY BUSINESS ACT IVITY AND ANY INCOME IS TO BE TAXED UNDER THE HEAD INCOME FROM BUSINESS . THEREFORE, NO DEDUCTION IS ALLOWABLE U/S 36(1)(III) IN RESPECT OF INTEREST PAID BY THE ASSESSEE AND CLAIMED AS ALLOWABLE EXPENDITURE BECAU SE AS PER THE SEC. 36(1)(III), INTEREST IS ALLOWABLE IF IT IS INCURRED IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS. SINCE THERE IS NO BUSINESS ACTIVITY, NO DEDUCTION IS ALLOWABLE U/S 36 (1)(III) . HENCE, I REJECT THESE GROUNDS. 6. REGARDING GROUND NOS. 6 AND 7, IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THAT THE ISSUE INVOLVED IS ONE AND SAME I.E. REGARDING DISALLOWANCE OF FUND RAISING CHARGES OF RS.2,64,75 6/-. IN THIS REGARD ALSO, THE CONTENTIONS OF THE LD AR OF THE ASSESSEE WERE SAME THAT THE SAME IS ALLOWABLE AS INTEREST EXPENDITURE U/S 36(1) (III) BECAUSE AS PER THE PROVISIONS OF SEC. 2(28A) INTEREST INCLUDES SE RVICES FEE OR OTHER CHARGES IN RESPECT OF MONEY BORROWED OR DEBT INCURR ED OR IN RESPECT OF ANY CREDIT FACILITY WHICH HAS NOT BEEN UTILIZED. ITA NO.1367/B/17 6 7. IN MY CONSIDERED OPINION ON THIS ISSUES ALSO, TH E ASSESSEE IS BOUND TO FAIL BECAUSE WHEN IT IS SEEN AND HELD THAT ASSESSEE HAS NOT COMMENCED ANY BUSINESS ACTIVITY AND NO DEDUCTION IS ALLOWABLE U/S 36 (1) (III) IN RESPECT OF INTEREST EXPENDITURE BECAUS E IT IS NOT IN RESPECT OF ANY BUSINESS ACTIVITY, THE FUND RAISING CHARGES ALS O CANNOT BE ALLOWED FOR THE SAME REASON. ACCORDINGLY, GROUNDS 6 AND 7 A RE ALSO REJECTED. 8. REGARDING GROUND NO.8 TO 1,1 IT WAS SUBMITTED BY THE LD AR OF THE ASSESSEE THAT ISSUE INVOLVED IN THESE GROUNDS I S ALSO ONE AND THE SAME I.E. REGARDING DISALLOWANCE OF BUSINESS EXPEND ITURE OF RS.1,21,657. HE SUBMITTED THAT IT WAS DISALLOWED BY THE AO ON THIS BASIS THAT THE ASSESSEE HAS NOT COMMENCED THE BUSIN ESS IGNORING THE FACT THAT THERE WERE SOME ACTIVITIES FOR BUSINESS A ND THEREFORE, EXPENDITURE IS ALLOWABLE. MY ATTENTION WAS DRAWN TO PAGE NO.12 OF THE PAPER BOOK REGARDING DETAILS OF EXPENDITURES AND IT WAS POINTED OUT THAT THIS INCLUDES RENT RS.65,419/-, SALARY AND WAGES RS .56,000/- AND BANK CHARGES RS.238/-. IN THIS REGARD, MY ATTENTIO N WAS DRAWN TO PAGE NOS.7 AND 8 OF THE PAPER BOOK, WHERE THE WRITTEN SU BMISSIONS ARE MADE IN RESPECT OF THIS ISSUE. THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS AT PAGE 8 OF THE PAPER BOOK :- I) CIT VS. SARABHAI MANAGEMENT CORPORATION LTD., (1991 ) 192 ITR 151 (SC) II) SPPS SYSTEMS (P) LTD., VS. DCIT (2015) 154 ITD 465 (HYD- TRIB) III) CIT VS. ASPENTECH INDIA (P) LTD., (2010) 187 TAXMAN 25 (DELHI) IV) CIT (CENTRAL), LUDHIANA VS. MAJESTIC AUTO LTD., (20 13) 38 TAXMANN.COM 214 (P & H) V) CIT VS. RAMPUR TIMBER & TURNERY CO., LTD., (1981) 6 TAXMAN 241 (ALL) ITA NO.1367/B/17 7 VI) PREIMUS INVESTMENT AND FINANCE LTD., VS. DCIT (ITAT MUMBAI) 9. THE LD DR VEHEMENTLY FOLLOWED THE ORDER OF THE C IT(A). 10. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. I FIND THAT THIS IS NOT THE OBJECTION OF THE AO THAT NO SALES AND REVENUE H AS BEEN GENERATED. THE OBJECTIONS OF THE AO IS THIS THAT THE ASSESSEE COMPANY HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY BUT EARNED THE IN COME. I HAVE ALSO SEEN THAT IN THE P & L ACCOUNT THE ASSESSEE IS GET TING INTEREST INCOME AND AS PER THE BALANCE SHEET, THE ASSESEE HAS SHOWN INVESTMENTS OF RS.192 CRORES AND DEPOSITS IN A COMPANY RS.17.95 C RORES AND FD WITH BANK RS.49 LACS APART FROM SMALL AMOUNT OF CASH IN HAND, CASH AT BANK, INTEREST ON FD ACCRUED AND TDS ETC., AND, THEREFOR E, IT IS APPARENT THAT NO BUSINESS ACTIVITY WAS UNDERTAKEN BY THE ASSESEE IN THE PRESENT YEAR. IN THE LIGHT OF THESE FACTS, I EXAMINE THE APPLICAB ILITY OF VARIOUS JUDGMENTS CITED BY THE LD AR OF THE ASSESEE AT PAGE NO.8 OF THE PAPER BOOK AS NOTED ABOVE. 11. THE FIRST JUDGMENT CITED IS A JUDGMENT OF HONB LE APEX COURT RENDERED IN THE CASE OF CIT VS. SARABHAI MANAGEMEN T CORPORATION LTD., (SUPRA). IN THAT CASE, THE ASSESSEE HAD PURCH ASED PROPERTY AND IT WAS ON THE LOOKOUT OF THE PERSONS TO WHOM IT COULD BE LET OUT AND IT HAD BEEN ABLE TO GET CUSTOMER AND IT HAD CARRIED OUT RE PAIRS/INSTALLATION ETC., AND TAKEN OTHER STEPS IN THE PREMISES FOR CONVERTIN G FROM RESIDENTIAL HOUSE INTO BUSINESS ACCOMMODATION IN LINE WITH THE REQUIREMENTS OF THE CUSTOMER AND UNDER THIS FACTS, IT WAS HELD BY THE H ONBLE HIGH COURT IN THAT CASE THAT THE ASSESEES BUSINESS HAS COMMENCED BUT IN THE PRESENT CASE, THE FACTS ARE TOTALLY DIFFERENT. IT IS SEEN T HAT IN THE PRESENT CASE, NO ACTIVITY WAS UNDERTAKEN BY THE ASSESSEE WHICH CAN B E SAID TO BE ITA NO.1367/B/17 8 BUSINESS ACTIVITY. THEREFORE, IN THE FACTS OF THE P RESENT CASE, THIS JUDGMENT IS RENDERING NO HELP TO THE ASSESSEE. 12. THE SECOND JUDGMENT CITED IS OF THE TRIBUNAL RE NDERED IN THE CASE OF SPPS SYSTEMS (P) LTD., VS. DCIT (SUPRA). IN THAT CASE, THE ASSESSEE COMPANY EMPLOYED A SOFTWARE PROFESSIONAL A ND PAID SERVICES CHARGES AND INCURRED OTHER EXPENSE AND THE ASSESSEE COULD NOT GET ANY WORK AND HENCE, NO BUSINESS ACTIVITY WAS DISCLOSE D BY THE ASSESSEE. UNDER THESE FACTS, IT WAS HELD BY THE TRIBUNAL IN T HAT CASE THAT THERE WAS BUSINESS ACTIVITY THOUGH THERE WAS NO REVENUE DURIN G THE YEAR UNDER CONSIDERATION. IN THE FACTS OF THE PRESENT CASE, T HIS TRIBUNAL ORDER IS ALSO NOT RENDERING ANY HELP TO THE ASSESSEE BECAUSE IN THE PRESENT CASE, IT WAS NOT BEEN SHOWN THAT THERE IS ANY BUSINESS A CTIVITY UNDERTAKEN BY THE ASSESSEE. 13. THE NEXT JUDGMENT CITED IS A JUDGMENT OF HONBL E DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS. ASPENTECH IND IA (P) LTD., (SUPRA). IN THAT CASE, IT WAS HELD BY THE CIT(A) AND TRIBUNA L THAT THE BUSINESS HAS ALREADY STARTED AND AO WAS SWAYED AWAY BY THE HUGE EXPENDITURE AGAINST MEAGER INCOME. IT WAS HELD UNDER THESE FAC TS THAT SINCE BUSINESS HAS ALREADY BEEN COMMENCED, ENTIRE EXPENDI TURE IS ALLOWABLE. IN THE PRESENT CASE, THIS JUDGMENT IS ALSO NOT REND ERED ANY HELP SINCE IN THE PRESENT CASE, BUSINESS HAS NOT COMMENCED. 14. NEXT CITED JUDGMENT IS RENDERED IN THE CASE OF CIT VS. RAMPUR TIMBER & TURNERY CO., LTD. (SUPRA). IN THAT CASE, I T WAS HELD BY HONBLE ALLAHABAD HIGH COURT THAT EXPENDITURE CLAIM ED BEING FOR PROPER DISPOSAL OF THE ASSETS OWNED BY THE COMPANY AND IT WAS ALLOWABLE U/S 57(III) OF THE INCOME-TAX ACT. THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. ITA NO.1367/B/17 9 15. THE REMAINING TWO CASES CITED ARE NOT REPORTED IN ANY JOURNAL AND COPY OF THE JUDGMENT WAS NOT PROVIDED AND THERE FORE, APPLICABILITY OF THESE JUDGMENTS CANNOT BE EXAMINED. 16. AS PER THE ABOVE DISCUSSION, I HAVE SEEN THAT N ONE OF THE ABOVE DECISIONS RELIED ON BY THE LD AR OF THE ASSESEE HAS RENDERED ANY HELP TO THE ASSESSEE AND IN MY VIEW, AS PER THE FACTS OF TH E PRESENT CASE, BUSINESS OF THE ASSESEE HAS NOT BEEN STARTED BECAUS E IT WAS NOT SHOWN THAT ANY BUSINESS ACTIVITY WAS UNDERTAKEN BY THE AS SESSEE. HENCE, I FIND NO REASON TO INTERFERE IN THE ORDER OF THE CIT(A). 17. IN THE RESULT, THE ASSSESSEES APPEALS IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH NOVEMBER, 2017. SD/- (AK GA RODIA) ACCOUNTANT ME MBER VMS. BANGALORE DATED : 29/11/2017 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, IT AT, BANGALORE.