DCIT, Circle - 4, Kolkata, Kolkata V. M/s. Everest Agro Industries Pvt. Ltd., Kolkata

ITA 1776/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54583 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 15-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K R MONDAL
• Assessee Lawyers: G R SAHA
• Keywords: Business income; Business expenditure
• Section: 143(3); 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND , ! . '# . ) [BEFORE SRI MAHAVIR SINGH, JM & SHRI C. D. RAO, AM] $ $ $ $ / I.T.A NO. 1776/KOL/2010 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEAR : 2005-06 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. EVERES T AGRO INDUSTRIES PVT. LTD. CIRCLE-4, KOLKATA. (PAN AAACE 5713 B) (*+ /APPELLANT ) (,-*+/ RESPONDENT ) DATE OF HEARING: 17.10.2011 DATE OF PRONOUNCEMENT: 17.10.2011 FOR THE REVENUE: SHRI K. R. MONDAL. FOR THE ASSESSEE: SHRI G. R. SAHA . / ORDER PER MAHAVIR SINGH, JM ( , , , , ) THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-XVI, KOLKATA IN APPEAL NO 317/CIT(A)-XVI/CIR.4/08-09 DATED 10.06.2010. ASSESS MENT WAS FRAMED BY ACIT, CIRCLE-4, KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2005-06 VIDE DATED 28.12.2007. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF EXPENSES DEBITED TO THE P&L ACCOUNT AT RS.31,35,635/-. (HOWEVER, CIT(A) ALLOWED EXPENSES TO THE EXTENT OF RS.9,95,228/- AS AGAINST THE CLAIM OF RS.31,35,635/- BY THE ASSESSEE IN THE P&L ACCOUNT). FOR THIS, REVENUE HA S RAISED FOLLOWING GROUND NO. 1: 1. THAT LD. CIT(A)-XVI, KOLKATA HAS ERRED IN LAW A S WELL AS ON FACTS OF THE CASE IN PARTLY DELETING THE DISALLOWANCE OF THE EXPENSES DEBITED T O THE P&L ACCOUNT TO TUNE OF RS.31,35,635/- MADE BY THE A.O. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT CIT(A) HAS ALLOWED THE CLAIM OF ASSESS EE REGARDING CARRYING ON BUSINESS OF MANAGEMENT CONSULTANCY QUA WHICH BUSINESS INCOME WA S COMPUTED AT RS.8,34,516/-. FOR THIS, CIT(A) HAS DECIDED THE ISSUE IN PARA 6 OF HIS APPEL LATE ORDER AS UNDER: 6. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND PERUSED THE ASSESSMENT ORDER. ON PERUSAL OF COMPUTATION OF INCOME FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME, IT IS SEEN THAT IT HAS DECLARED BUSINESS LOSS OF RS.23,09,869/- AND CAPITAL GAIN OF RS.30,98,229/-. IN THE PROFIT & LOSS ACCOUN T FOR THE YEAR ENDED ON 31.03.2005, THE APPELLANT HAS CREDITED INCOME ON ACCOUNT ON DIV IDEND, INTEREST, PROFIT ON SALE OF SHARES, SERVICE CHARGES AND MISCELLANEOUS INCOME. T HE INTEREST INCOME, SERVICE CHARGES AND MISCELLANEOUS INCOME HAS BEEN TREATED B Y THE APPELLANT AS BUSINESS INCOME. AS PER THE ASSESSMENT ORDER, THE A.O. WAS O F THE OPINION THAT THE APPELLANT HAS 2 ITA 1776/K/2010 EVEREST AGRO IND. PVT. LTD.., A.Y.2005-06 NOT CARRIED BUSINESS ACTIVITIES DURING THE YEAR UND ER CONSIDERATION AND THE SERVICE CHARGES RECEIVED BY THE APPELLANT COMPANY WAS ON AC COUNT OF CONSULTANCY GIVEN BY THE DIRECTOR OF THE APPELLANT COMPANY IN HIS INDIVIDUAL CAPACITY. THEREFORE, HE HAS DISALLOWED ENTIRE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT AGGREGATING TO RS.31,35,635/- AND COMPUTED THE BUSINESS INCOME AT RS.8,34,516/- AS AGAINST THE BUSINESS LOSS OF RS.23,09,869/- DECLARED BY THE APP ELLANT. ON CAREFUL CONSIDERATION OF THE FACTS, I FIND FORCE IN THE SUBMISSION OF THE AP PELLANT THAT AT ONE PLACE A.O. HAS DISALLOWED ENTIRE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT HOLDING THAT THE APPELLANT DID NOT CARRY ANY BUSINESS ACTIVITY AND O N THE OTHER HAND, HE HIMSELF HAS COMPUTED BUSINESS INCOME OF RS.8,34,516/- IN THE AS SESSMENT ORDER. THEREFORE, THE ACTION OF THE A.O. IS CONTRARY TO WHAT HE HAS HELD IN THE ASSESSMENT ORDER. I ALSO FIND FORCE IN THE SUBMISSION OF THE APPELLANT THAT THE A PPELLANT COMPANY BEING A CORPORATE ENTITY IS NOT CAPABLE OF CARRYING ANY PHYSICAL ACTI VITY BY ITSELF AND ENGAGED ITSELF IN ANY BUSINESS ACTIVITY THROUGH ITS EMPLOYEES AND DIRECTO RS. THEREFORE, THE APPELLANT COMPANY HAS CARRIED BUSINESS ACTIVITY OF MANAGEMENT CONSULTANCY THROUGH ITS DIRECTOR AND HAS EARNED CONSULTANCY CHARGES. IN VIEW OF ABO VE FACTS, I AM OF THE OPINION THAT THE A 0 WAS NOT JUSTIFIED IN HOLDING THAT THE APPEL LANT COMPANY DID NOT CARRY ANY BUSINESS ACTIVITY. IT IS TO BE HELD THAT DURING TH E YEAR UNDER CONSIDERATION THE APPELLANT COMPANY DID CARRY THE BUSINESS OF MANAGEMENT CONSUL TANCY. THE GROUND NO. 1 IS ALLOWED. 4. FURTHER, WE FIND THAT THE CIT(A) HAS ALLOWED THE CLAIM OF EXPENSES AT RS.9,95,228/- AS AGAINST TOTAL CLAIM OF ASSESSEE AT RS.31,35,635/-. CIT(A) FOR THE SAME HAS GIVEN FOLLOWING FINDING IN PARA 9 OF HIS APPELLATE ORDER AS UNDER: 9.I HAVE CONSIDERED THE SUBMISSION OF THE APPELLAN T AND PERUSED THE ASSESSMENT ORDER. ON PERUSAL OF PROFIT & LOSS ACCOUNT, IT IS OBSERVED THAT THE APPELLANT HAS DEBITED THE PROFIT & LOSS ACCOUNT ON ACCOUNT OF VARIOUS EXPENSE S AGGREGATING TO RS.31,35,635/-. I AM NOT INCLINED TO AGREE WITH THE SUBMISSION OF THE APPELLANT THAT THE ACTUAL EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT WERE APPROXIMA TELY OF RS.22,00,000/- ONLY. WHATEVER AMOUNT HAS BEEN DEBITED BY THE APPELLANT T O THE PROFIT & LOSS ACCOUNT HAS TO BE TREATED AS EXPENDITURE IRRESPECTIVE OF THE FACT WHETHER THERE WAS ACTUAL OUTFLOW OF THE MONEY OR NOT BECAUSE BY DEBITING AN AMOUNT TO T HE PROFIT & LOSS ACCOUNT IT RESULTS INTO REDUCTION IN NET PROFIT/INCREASE IN THE LOSS. THEREFORE, IT CANNOT BE SAID THAT THE ACTUAL EXPENDITURE WERE OF APPROXIMATELY RS.22,00,0 00/- AND NOT RS.31,35,635/- AS OBSERVED BY THE A.O. HOWEVER, ON CAREFUL CONSIDERAT ION OF THE FACTS OF THE CASE, I AM OF THE OPINION THAT THE A.O. WAS NOT JUSTIFIED IN MAKI NG DISALLOWANCE OF ENTIRE EXPENSES CLAIMED BY THE APPELLANT BY HOLDING THAT IT WAS NOT CARRYING ON ANY BUSINESS ACTIVITY, THOUGH THE A.O. HIMSELF HAS COMPUTED THE INCOME UND ER THE HEAD BUSINESS INCOME. BUT, ON THE OTHER HAND ALL THE EXPENSES/DEBITS AGGREGATI NG TO RS.31,35,635/- ARE NOT ALLOWABLE, AS DEDUCTION AS CLAIMED BY THE APPELLANT BECAUSE IT HAS FAILED TO PROVE THAT ALL THESE EXPENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND ALLOWABLE AS PER LAW. FOR EXAMPLE, THE APPELLANT HAS DEBITED AN AMOUNT OF RS.5,73,027/- UNDER THE HEAD IRRECOVERABLE DEBT WHICH ARE NOT ALLOWABLE EITHER U /S. 36(2) OR SECTION 28 AS CLAIMED BY THE APPELLANT. SIMILARLY, THE EXPENDITURE ON ACC OUNT OF BUSINESS PROMOTION EXPENSES AMOUNTING TO RS.5,30,888/- WHICH WAS MAINLY ON ACCO UNT OF PAYMENTS TO CLUB, HOTELS AND FOREIGN TRAVEL ARE NOT ALLOWABLE AS DEDUCTION A S THE APPELLANT HAS FAILED TO PROVE THAT THESE EXPENSES WERE INCURRED FOR THE PURPOSE O F BUSINESS. THE APPELLANT HAS ALSO DEBITED MEETING EXPENSES OF RS.2,90,997/- WHICH WER E MOSTLY PAYMENTS TO THE CLUBS AND HOTELS AND THE APPELLANT HAS FAILED TO PROVE THAT T HESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS SPECIFI CALLY KEEPING IN MIND THAT SINCE LAST SO MANY YEARS THE APPELLANT HAS NOT CARRIED OUT TEA EXPORT BUSINESS AND IN THE YEAR UNDER CONSIDERATION IT HAS EARNED COMPARATIVELY A S MALLER AMOUNT OF INCOME AS CONSULTANCY SERVICES DECLARED AS BUSINESS INCOME. A S MENTIONED ABOVE, DURING THE APPELLATE PROCEEDINGS, THE APPELLANT HAS SUBMITTED A LIST OF EXPENSES AGGREGATING TO RS,9,95,228/- WHICH WERE NECESSARY TO RUN THE COMPA NY. ON PERUSAL OF LIST OF SUCH EXPENSES, IT IS OBSERVED THAT THESE EXPENSES WERE E ITHER STATUTORY EXPENSES IN THE FORM 3 ITA 1776/K/2010 EVEREST AGRO IND. PVT. LTD.., A.Y.2005-06 OF AUDITORS REMUNERATION, TAX AUDIT FEES, COMPLIAN CE CERTIFICATE FEES, BANK CHARGES, DEPOSITORY CHARGES, FILING FEES, PROFESSIONAL TAX A ND RATES AND TAXES ETC. OR THE ADMINISTRATIVE EXPENSES IN THE FORM OF A.C. HIRE CH ARGES, ELECTRICITY, CAR HIRE CHARGES, PRINTING AND STATIONERY, COMPUTER EXPENSES, SALARY, TELEPHONE CHARGES AND TRAVELING AND CONVEYANCE ETC. I AM OF THE OPINION THAT THESE EXPENSES ARE NECESSARY TO MAINTAIN THE BUSINESS ESTABLISHMENT AND TO CARRY ON THE BUSI NESS ACTIVITIES BECAUSE IT CANNOT BE SAID, ON THE FACTS OF THE CASE, THAT THE APPELLANT COMPANY HAS CLOSED ITS BUSINESS ESTABLISHMENT OR HAS DISCONTINUED ITS BUSINESS ACTI VITIES. THEREFORE, THE A.O. IS DIRECTED TO ALLOW EXPENSES TO THE EXTENT OF RS.9,95,228/ AS AGAINST THE CLAIM OF RS.31,35,635/ MADE BY THE APPELLANT IN THE PROFIT & LOSS ACCOUNT. THE GROUND NOS. 2 & 3 ARE PARTLY ALLOWED AND GROUND NO. 4 IS DISMISSED. 5. WE FIND THAT ONCE, CIT(A) HELD THE ASSESSEES C ONSULTANCY AS BUSINESS INCOME AND THE REVENUE HAS NOT CHALLENGED THE FINDING OF CIT(A) RE GARDING THE CLAIM OF ASSESSEE OF CARRYING ON BUSINESS OF CONSULTANCY QUA BUSINESS EXPENDITURE WAS CLAIMED. WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF EXPENSES AT RS.9,95,228/- AND WE DO NOT FIND ANY REASON TO INTERFERE WITH THE SAME. HOWEVER, AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THE POSITION THAT ASSESSEE IS NOT I N APPEAL AGAINST RETENTION OF DISALLOWANCE OF BALANCE EXPENSES. ACCORDINGLY, APPEAL OF REVENUE I S DISMISSED. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 5. ORDER PRONOUNCED IN OPEN COURT. SD/- SD/- . '# '#'# '# . ! , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( #! #! #! #!) )) ) DATED : 17TH OCTOBER, 2011 /0 %12 3 JD.(SR.P.S.) . 4 ,5 6 5'7- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT DCIT, CIRCLE-4, KOLKATA. 2 ,-*+ / RESPONDENT, M/S. EVEREST AGRO INDUSTRIES PVT. LTD ., 7A/1A, MIDDLETON STREET, KOLKATA-71. 3 . .% ( )/ THE CIT(A), KOLKATA 4. .% / CIT, KOLKATA 5 . >? ,% / DR, KOLKATA BENCHES, KOLKATA -5 ,/ TRUE COPY, .%@/ BY ORDER, 2 /ASSTT. REGISTRAR .