M/s. Sakarlal Balabhai & Company Ltd, Mumbai V. The ITO, Ward-4(1)(1), Ahmedabad

ITA 1713/AHD/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9512 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 14-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIMLENDU BHUSAN
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Opportunity of being heard; Additional evidence; Cost of acquisition; Non-deduction of tax; Revenue expenditure; TDS; Capital Gains
• Section: 37; 143(3); 115JB; 40(a)(ia); 37(1); 143(2); 194J

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘A’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD ] ] BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND MS. MADHUMITA ROY, JUDICIAL MEMBER ITA No. 1713/Ahd/2019 Assessment Year : 2012-13 M/s. Sakarlal Balabhai & Co. Ltd., 1001/6, 10 th Floor, Ankush Apartment, 10 th Khetwadi Lane, Grant Road, Mumbai-400004 PAN : AADCS 0862 N Vs Income Tax Officer, Ward 4(1)(1), Ahmedabad / (Appellant) / (Respondent) Assessee by : Shri Bimlendu Bhusan, AR Revenue by : Shri V.K. Mangla, Sr. DR /Date of Hearing : 05/09/2022 /Date of Pronouncement: 07/09/2022 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals)-8, Ahmedabad [“CIT(A) in short]” dated 20.09.2019 and the grounds raised by the assessee therein read as under:- “1. Learned CIT(A) has neither discussed anything related to the disallowance made by the ld. Assessing Officer nor considered any grounds related to that raised by the us for which actually appeal has been filed by the appellant. 2. The Learned CIT(A) has claimed that the appellant is involved in only investment activity and does not have any business activity and we do not agree with it.” 2. The assessee, in the present case, is a company which filed its return of income for the year under consideration on 27.09.2012 declaring a total income of Rs.15,65,230/- under the normal provisions of the Income-tax Act, 1961 (“the Act” in short) and book profit of Rs.15,67,873/- under Section 115JB of the Act. The case of the assessee was selected for scrutiny and a notice under Section 143(2) of the Act was issued by the Assessing Officer to the assessee. In the Profit & Loss ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 2 Account filed along with the return of income, no business receipts were shown by the assessee; however, business loss of Rs.1,27,91,756/- was shown by the assessee in the computation of income. During the course of assessment proceedings, the claim of the assessee for business expenses aggregating to Rs.1,25,36,970/- was examined by the Assessing Officer; and, on such examination, he found that settlement expenditure of Rs.3,20,000/- and commission expenditure of Rs.15,00,000/- incurred for acquiring the land which was shown as the closing stock was required to be added to the value of the closing stock. He accordingly made a disallowance to that extent and after making a further disallowance of Rs.60,000/- on account of legal and professional charges paid to Mubin Jhatam for non-deduction of tax at source under Section 40(a)(ia) of the Act, the total income of the assessee was determined by the Assessing Officer at Rs.34,45,230/- in the assessment completed under Section 143(3) of the Act vide an order dated 28.01.2015. 3. Against the order passed by the Assessing Officer under Section 143(3) of the Act, an appeal was preferred by the assessee before the learned CIT(A) challenging the total disallowance of Rs.18,80,000/- made by the Assessing Officer on three counts. During the course of appellate proceedings, the learned CIT(A) found that profit on sale of investment amounting to Rs.1,43,56,984/- was offered by the assessee to tax as the Short Term Capital Gain after claiming the corresponding expenses while profit from partnership firm amounting to Rs.15,62,318/- was claimed and allowed as exempt from tax. He noted that the assessee-company thus did not have any business activity carried on in the year under consideration and the business expenses claimed by it aggregating to Rs. 1,27,89,111/- was entirely liable to be disallowed. He, therefore, issued a notice to the assessee requiring it to show-cause as to why the entire business expenditure claimed by it should not be disallowed in the absence of any regular business activity and an assessment to that extent should not be enhanced. In reply, the following explanation in writing was offered by the assessee:- ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 3 “i. This is to inform you that, the object of above mentioned assessee (M/s. Sakarlal Balabhai & Company Limited) has to acquire and undertake the whole or any part of the business, property lands, buildings leasehold rights and liabilities of any person or company carrying on any business which the company as authorized to carry on or possess of properties suitable for the purpose of this company. ii. In schedule 10 of Financial Statement i.e. Non Current Investment, it is seen that assessee has made investment in agricultural land and non-agricultural plot which is main activity of business as mention in sub-point (i) of point No. (4) and in schedule 15 of Financial Statement i.e. Other Income, it is seen that, one of the head, profit on sale of investment that is nothing but revenue from operation. So, expenses claim in response the same could not be disallowed just because of wrongly disclosures in other income head. iii. Appellant contention on why following expenses claimed in profit and loss account should not be disallowed:- i. Salaries and wages This is expenses for salary and wages paid to the employees of the organization which is required to manage all the activity of business form management to ground level and which is major expenses for any organization. The appellant company wants to submit that Sec. 37(1) of the Income-tax Act, 1961 provides that any expenditure (Not being expenditure of the nature described in Section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purpose of the business or Profession shall be allowed in computing the income chargeable under the head ‘Profits and gains of Business and Profession’. A bare perusal of the section 37 of the Act shows that when an expenditure is laid out wholly and exclusively for the purpose of business it can be deducted in computing the income under the head Profit and Gains business. ii. Interest Expenses :- Interest on Car Loan:- This is interest paid to party from which loan taken for car which used exclusive for business purpose. Interest on Loan for business :- This is interest paid to various parties from which loan have been taken for business which is evident from our balance sheet Note No.5. Short Term Borrowing as our borrowing has increased from last year. iii. Electricity Charges This is Electricity charges of property from which business has been carried down by the assessee ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 4 iv. Rent:- This is rent paid to landlord for utilizing his property/premises for carried out business. The appellant urged that these expenses are integral part of appellant’s business model which is involved in the trading business. Hence, disallowance of the expenses which is purely expended for the business is not justified. v. Repairs and Maintenance:- This is repairs and maintenance charges paid to various parties for some repairing work done in office for smooth functioning of business. vi. Legal and Professional Charges:- During the year 2011-12, Ld. Assessing Officer has disallowed the legal and professional charges for the amount of Rs.60,000/- by mentioning that TDS has not deducted on that. Fact of that, assessee has made this payment of Rs.60,000/- to Mr. Mubin Jhatam and bifurcation of the same is here. • Advocate Fees Rs.20,000/- • Typing Fees Rs.12,000/- • Stationary Fees Rs.5,000/- • Travelling Expenses Rs.18,000/- • Xerox charges Rs. 5,000/- It is seen from the above that, actual legal fees paid to him for their professional fees was below limit of TDS, as TDS was not applicable on that payment made to him as their professional capacity, so the TDS was not deducted thus all the expenses along with court fees and legal fees are allowable as expenditure. The invoice/bill copy of the same is attached herewith this letter. In case of GourangaLal Chatterjee, Kolkata vs. Assessee on 18 th January, 2012 in the Income Tax Appellate Tribunal “A” Bench : Kolkata [Before Shri N. Vijaykumaran, JM & Shri C.D. Rao, AM] Ground No. 3 is relating to disallowance of certain expenses, which were disallowed by invoking the provision of section 40(a)(ia) of the Act. The details of expenses are legal expenses paid to 4 advocates, which relate to reimbursement of expenses, we are of the view that the reimbursement will not attract the TDS. Hence, to that extent application of section 40(a)(ia) has no play. Disallowance u/s 40(a)(ia) in so far as is oncerned is not justified. Hence, to that extent, we direct the Assessing Officer to delete the disallowance and allow the claim of the assessee. Hence, ground no.3 is partly allowed only to the extent of reimbursement of expenses like traveling expenses, stamp charges, court fees charges, out of pocket expenses, conveyance and other expenses on conducting cases in the proceedings before the court of law. Those ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 5 reimbursements, according to the ld. Counsel, it comes to Rs.3,44,500/-, which the AO has to verify and allow the same, if it is found correct. In the result, appeal of the assessee is allowed. As per decision of the above case, we have paid reimbursement of the expenses which cannot be considered to be in the nature of income and therefore, it is not income by way of fees for technical service in hands of recipient, hence there was no obligation to deduct tax at source there from under Section 194J of the Act. vii. Audit Fees: This was fees paid to auditor and professional service (Tax Consultancy) given to the business. viii. Travelling and Conveyances:- This is travelling expenses paid to employee and other for various business visits and also include reimbursement expenses paid to employee for local travel. ix. Commission Expenses:- During the year 2011-12, ld. Assessing Officer has disallowed the commission expenses for the amount of Rs.15,00,000/- by mentioning that it should be capitalized with the cost of stock, while as per Accounting Standard “16”. Borrowing Cost and other cost that are directly attributable to the acquisition, construction or production of a qualifying asset and should be capitalized as part of that asset. The amount of borrowing cost eligible for capitalization should be determined in accordance with the standard. Other borrowing cost should be recognized as an expense in the period in which they are incurred. Facts:- During the course of assessment proceedings in the case of above mention assessee for the AY 2012-13, earlier assessment proceedings were attended by some other professional and at that time due to lack of sufficient evidence they were not able to prove assessee’s contention, at the result ld. AO has passed order which is prejudicial to me and, if additional evidences is not allowed in appeal proceeding it amounting to against the law, we have some major evidences which are sufficient to prove our contention on strong basis which is also very important for the decision of the case. Rule 46A of Income Tax Rules, 1962 – production of additional evidence before the Deputy Commissioner (Appeals) (1) The appellant shall not be entitled to produce before the Deputy Commissioner (Appeals) [or, as the case may be, the Commissioner ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 6 (Appeals)], any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the Assessing Officer, except in the following circumstances, namely :— (a) where the [Assessing Officer] has refused to admit evidence which ought to have been admitted ; or (b) where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the [Assessing Officer] ; or (c) where the appellant was prevented by sufficient cause from producing before the [Assessing Officer] any evidence which is relevant to any ground of appeal ; or (d) where the [Assessing Officer] has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. So we would like to produce following major ground/evidences under Rule 46A of Income Tax Rules, 1962. Fact of case is that, assessee has paid commission expenses for the purpose arranging the loan fund which are shown in short term borrowing and our short term borrowing increased from Rs.4,89,26,894/- to Rs.17,69,24,382/- which is evident from our balance sheet Note No. 5 Short Term Borrowing. We have also deducted TDS on the same. For genuineness of transaction, we have attached ledger confirmation of all this parties. This loan amount is received by company to keep the company going and make its expenses on time to time basis. Provided that any amount of the commission paid, in respect of capital borrowed for extension of existing business or profession. The Income tax Department cannot disallow this item on the ground that borrowing of money was not required and the rate of interest could be scaled down. The borrowed money may be used in the acquiring of capital assets or stock-in-trade or expansion of the business. It is essential that the money should have been utilized in the assessee’s business or profession. The borrowing cost and other cost that are not directly attributable to the any acquisition, construction or production of a qualifying asset but made exclusively for the purpose of main line business should be debited to profit and loss account instead of capitalizing the same. Conditions for Expenditures considered as Revenue Expenditures:- All the expenditures which are incurred in the day to day conduct and administration of a business and the effect of which is completely exhausted within the current accounting year are known as ‘revenue expenditures’. These expenditures are recurring by nature i.e. which are incurred for meeting day to day requirements of a business and the effect of these expenditures is always short lived i.e.e the benefit thereof is enjoyed by the business within the current account year. ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 7 These expenditures are also known as ‘expenses or expired costs’ e.g. purchase of goods, salaries paid, postages, rent, traveling expenses, stationary purchased, wages paid on goods purchased etc. This expenditure is incurred on items or services which are useful to the business but are used up in less than one year and, therefore, only temporarily increase the profit-making capacity of the business. Short-term debt is an account shown in the current liabilities portion of a company’s balance-sheet. This account is made up of any debt incurred by a company that is due within one year. The debt in this liabilities account is usually made up of short term bank loans taken out by a company. We have paid commission to three parties namely (1) Swetha R. Chandan Rs. 5,00,000/-, 2) Ramesh P. Chandan Rs.5,00,000/- 3) Ramesh P. Chandan HUF Rs.5,00,000/- for arranging that short term borrowing and the effect of that expenses is completely exhausted within the current that year itself. Here, Commission expenditure is incurred on loan arranging services which is useful to the business but are used up in less than one year and, therefore, only temporarily increase the profit making capacity of the business. Conclusion, we have paid commission expenses for the purpose of arranging the short term loan which used exclusively for business purpose, hence, cannot be capitalized hence, this expenses debited to profit and loss account.” 4. The learned CIT(A) did not find merit in the submissions made by the assessee and proceeded to enhance the income of the assessee by Rs.1,09,09,111/- after disallowing the entire business expenditure of Rs.1,27,89,111/- claimed by the assessee for the following reasons given in paragraph No.3.2 of his impugned order:- “3.2 I have carefully considered the impugned Assessment Order, the reply filed by the appellant and the Return of Income filed by the appellant. From the Return of income filed electronically it is seen that appellant has sold land at Kanchipuram, Village Randha and has earned a Short Term Capital Gain of Rs. 1,43,56,984/-. The ledger account copy submitted by the appellant to the AO is as below: Annexure-F Particulars Amount in Rs. Cost of acquisition 4,204,133 Commission paid on sale of investments 9,420,038 Registration and other charges 967,500 Fencing work done 1,195,345 15,787,016 ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 8 Less : Consideration 30,114,000 Profit on sale of investment 14,356,984 Apart from the above appellant has earned share of profit from partnership firm namely RM Prime Solution amounting Rs. 15,62,318/- which has been claimed and allowed as exempt. From the reply filed it is seen that appellant's main business is investment in agriculture land and non agriculture plot. The income from this activity has been returned under the head Short Term Capital Gains. As mentioned in the enhancement notice appellant did not have any other business. Against the Short Term Capital Gain only specified expenses u/s.48 of the Act are allowable which has been claimed and allowed as evident from the working of such STCG filed before the AO and reproduced in earlier part of this order. Appellant has claimed a sum of Rs.42.04 lacs as cost of acquisition, commission on sales at Rs.94.20 lacs, registration charges 9.67 lacs and fencing work expenses of Rs.11.95 lacs against the total consideration of Rs.3.01 crore and offered a capital gain of Rs.1,43,56,984/-. Clearly, all the expenses related to the sale of investment which is the main activity of the appellant has been claimed and allowed. Since, appellant does not have any other business activity and admittedly the main activity is investments income from which is offered and assesses as STCG. The other expenses claimed in the P&L A/c. cannot be allowed as the same are not relatable to appellant’s business. Therefore, the same are disallowed and added to the total income. The total expenses claimed are as below:- (a) Employee Benefit expenses - Rs.8,44,531/- (b) Finance Cost - Rs.79,76,278/- (c) Depreciation - Rs.2,52,141/- (d) Other expenses - Rs.37,16,161/- Total Rs.1,27,89,111/- (The show cause notice total amount mentioned is Rs.1,25,36,970/- which was taken from the assessment order page 3; however, the fact of disallowance of total expenses paid in P&L A/c. was duly mentioned) Out of these expense AO has already disallowed a sum of Rs.18,80,000/- and hence, the balance of Rs.1,09,09,111/- is disallowed and added to the total income. Assessment is enhanced to this extent.” 5. Aggrieved by the order of the learned CIT(A), the assessee has preferred this appeal before the Tribunal. 6. We have heard the arguments of both the sides and also perused the relevant material available on record. The learned Counsel for the assessee has submitted that the assessee-company during the year under consideration was engaged in the business of purchase, development and selling of agricultural and ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 9 non-agricultural land and this position was accepted even by the Assessing Officer while completing the assessment under Section 143(3) of the Act. He submitted that the assessee-company during the course of the said business had purchased land and the land so purchased worth Rs.12,19,54,301/- was duly reflected as inventory in the balance-sheet of the assessee-company as on 31.03.2012. He has contended that the learned CIT(A), however, ignored this vital aspect and doubted the existence of any business activity carried on by the assessee during the year under consideration merely because there were no business receipts generated by the assessee-company. In order to support and substantiate the case of the assessee-company of having engaged in the business of purchase and sale of land, the learned Counsel for the assessee has filed before the Tribunal following additional evidences:- i) Certified true copy of resolution passed in the board meeting of the assessee-company on 17.03.2011 approving the trading business of agricultural and non-agricultural land in addition to the investment activity in purchase of land; ii) Copies of Profit & Loss Account and computation of total income for the succeeding two years, i.e. AYs 2013-14 and 2014-15 to show that the land purchased in the year under consideration and shown as inventory was subsequently sold and the income arising from the said sales was offered to tax as business income; 7. The assessee-company has also filed an application seeking admission of the aforesaid additional evidence and keeping in view the reasons given therein as well as relevancy of the additional evidence to adjudicate upon the issue involved in the case of the assessee, the additional evidence filed by the assessee is admitted by us. Even the learned Departmental Representative has not raised any objection for the admission of the additional evidence. He, however, has contended that an opportunity may be given to the learned CIT(A) to verify the ITA No. 1713/Ahd/2019 Sakarlal Balabhai & Company Ltd Vs. ITO AY : 2012-13 10 said additional evidence filed by the assessee for the first time and dispose of the appeal of the assessee afresh in the light of the said additional evidence. We find merit in this contention of the learned DR. The impugned order of the learned CIT(A) is accordingly set aside and the matter is remitted back to him for disposing of the appeal of the assessee afresh after verifying the additional evidence filed by the assessee and after giving the assessee a proper and sufficient opportunity of being heard. 8. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. Order pronounced in the open Court on 7 th September, 2022 at Ahmedabad. Sd/- Sd/- (MADHUMITA ROY) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad, Dated 07/09/2022 *Bt /Copy of the Order forwarded to : 1. ! / The Appellant 2. "# ! / The Respondent. 3. $%$&' # # ( / Concerned CIT 4. # # ( ) (/ The CIT(A)- 5. + , # &' , # # &' /DR,ITAT, Ahmedabad, 6. , ./ 0 /Guard file. / BY ORDER, TRUE COPY ह # $ज (Asstt. Registrar) # # &' ITAT, Ahmedabad 1. Date of dictation- 05.09.2022......Eight pages dictation pad attached ...... 2. Date on which the typed draft is placed before the Dictating Member ...05.09.2022 ............ Other member.... 06.09.2022.......... 3. Date on which the approved draft comes to the Sr.P.S./P.S. - 06.09.2022.................. 4. Date on which the fair order is placed before the Dictating Member for Pronouncement ...07.09.2022........ 5. Date on which the file goes to the Bench Clerk...07.09.2022............ 6. Date on which the file goes to the Head Clerk.................................. 7. The date on which the file goes to the Assistant Registrar for signature on the order..................... 8. Date of Despatch of the Order..................