C.R.H. READYMONEY P.LTD, MUMBAI V. ITO 2(1)(2), MUMBAI

ITA 1778/MUM/2010

• Counselvise Citation: 177819914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Business income; Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTNAT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1778/MUM/2010 ASSESSMENT YEAR: 2006-2007 C.R.H. READYMONEY PVT. LTD., MISTRY MANSION, 3 RD FLOOR, 107, M.G. ROAD, FOUNTAIN, MUMBAI 400 023. PAN : AAACC136B VS. THE INCOME TAX OFFICER 2(1)(2), AYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJAY R. PARIKH. RESPONDENT BY : SHRI. SURENDRA KUMAR. O R D E R PER ASHA VIJAYARAGHAVAN, J.M: THIS APPEAL PREFERRED BY THE ASSESSE IS DIRECTED AGAINST THE ORDER DATED 01-02-2010 PASSED BY THE LD. CIT (A)-4 FOR TH E ASSESSMENT YEAR 2006-2007. 2. THE ASSESSEE IS AGGRIEVED BY ACTION OF THE A.O. IN DETERMINING THE BUSINESS LOSS AT NIL AS AGAINST CLAIM OF THE APPELL ANT AT RS.5,60,817/-. ACCORDING TO THE A.O. THERE WAS NO BUSINESS CARRIED ON BY THE ASSESSEE DURING THE YEAR IN QUESTION AND HENCE NO LOSS IS TO BE ALLOWED. THE A.O. HELD THAT SINCE THE LOSS IS NOT INCIDENTAL TO CARRY ING ON THE BUSINESS, THE LOSS CLAIMED BY THE APPELLANT CANNOT BE ALLOWED. TH E A.O. FURTHER HELD AS FOLLOWS. THE ASSESSEES SUBMISSION HAVE BEEN CONSIDERED AND ARE NOT ACCEPTABLE FOR THE REASON THAT THE ASSESSEE DOES NO T HAVE ANY EMPLOYEES IN ITA NO.1778/MUM/2010 A.Y 2006-2007: 2 THEIR PAY ROLL STILL WELFARE EXPENSES OF RS. 11,431 IS DEBITED TO THE P&L A/C, DEPRECIATION OF RS. 65,546/- ON WHICH ASSESSEE IS S HOWING PROPERTY INCOME ARE DEBITED. DEPRECIATION ON PROPERTY CANNOT BE AL LOWABLE DEDUCTION U/S 24 OF THE I.T.ACT. THE ASSESSEE HAS CLAIMED AN EXORBI TANT AMOUNT OF RS. 2,91,713/- AS ELECTRICITY CHARGES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PAID A SUM OF RS. 1 LAKH AS DONATI ON THOUGH IT IS ADDED BACK TO THE TOTAL INCOME THERE IS NO JUSTIFICATION ON THE PART OF THE ASSESSEE TO PAY RS. 1 LAKH BY WAY O0F CHARITY WHEN ASSESSEE-C OMPANY IS NOT DOING WELL. 3. AGGRIEVED BY THE ORDER, THE ASSESSEE PREFERRED A PPEAL BEFORE LD. CIT (A) AND THE A.R. OF THE ASSESSEE SUBMITTED THAT THE APPELLANT MADE EFFORTS TO SELL THE GOODS AND EARN THE COMMISSION INCOME. HOW EVER, THE APPELLANT DID NOT RECEIVE ANY COMMISSION DURING THE YEAR UNDER CO NSIDERATION. BUT THE ASSESSEE HAS INCURRED CERTAIN EXPENSES WHICH ARE AL LOWABLE AS THERE WAS MERELY A LULL IN THE BUSINESS AND THE BUSINESS ACTI VITY HAD NOT CEASED OR STOPPED AND THE BUSINESS ACTIVITY CONTINUES TILL DA TE. HE SUBMITTED THE CHART TO SHOW THAT THERE WAS LULL IN BUSINESS. YEAR ENDED ON COMMISSION / PROFESSIONAL INCOME (RS.) 31.03.2004 2,65,000/- 31.03.2005 2,03,950/- 31.03.2006 NIL 31.03.2007 NIL 31.03.2008 2,15,000/- ITA NO.1778/MUM/2010 A.Y 2006-2007: 3 HE FURTHER SUBMITTED THAT THE ASSESSEE TRIED HIS BE ST TO GET BUSINESS AND EARN COMMISSION BUT IT DID NOT MATERIALIZE DURING T HE YEAR IN QUESTION. HOWEVER, ONCE THE BUSINESS IS SET-UP, THE EXPENSES CLAIMED BY THE APPELLANT ARE REQUIRED TOBE ALLOWED AS DECIDED IN THE CASE OF WESTERN INDIA VEGETABLE PRODUCTS LTD. (1954) 26 ITR 121 (BOM) AND CWT V/S. RAMARAJU SURGICAL COTTON MILLS LTD. (1967) 63 ITR 478 (SC). HE ALSO R ELIED ON THE FOLLOWING CASE LAWS. A) KARSONDAS RANCHHODAS VS. COMMISSIONER OF INCOME TAX 83 ITR 1 (BOM) B) COMMISSIONER OF INCOME TAX VS. BHARAT NIDHI LTD. 60 ITR 520 (PUNJ) C) INDERCHAND HARI RAM VS. COMMISSIONER OF INCOME T AX (1953) 23 ITR 437 (ALL) D) LVE VAIRAVAN CHETTIAR VS. COMMISSIONER OF INCOME TAX 72 ITR 114 (MAD) E) GENERAL CORPORATION LTD. VS. CIT 3 ITR 350 (MAD) F) SUMERPUR CO-OP. MARKETING SOC. LTD. VS. ACIT 75 TTJ 324 (JODH) HE FURTHER SUBMITTED THAT STAFF WELFARE EXPENSES AR E NOTHING BUT EXPENSES INCURRED ON TEA, COFFEE ETC., FOR CUSTOMERS AND CLI ENTS. FURTHER THE DEPRECIATION AND ELECTRICITY EXPENSES ARE RELATED T O OFFICE PREMISES OF THE ASSESSEE. HE ALSO CLAIMED THAT RS. 1 LAKH DONATION WAS GIVEN FOR MAINTAINING BETTER BUSINESS RELATIONS AND OUT OF BU SINESS EXPEDIENCY. ACCORDINGLY, HE SUBMITTED THAT LOSSES CLAIMED BY TH E APPELLANT ARE ALLOWABLE IN VIEW OF THE FOLLOWING DECISION: RADHASOAMI SATSANG VS. COMMISSIONER OF INCOME TAX ( 1992) 193 ITR 321 (SC) WHEREIN THE HONBLE SUPREME COURT HELD AS UNDER: BHARAT SANCHEZ NILAM LTD. AND ANOTHER VS. UNION OF INDIA AND OTHERS 282 ITR 273 WHEREIN THE HONBLE SUPREME COURT HELD AS UNDER: ITA NO.1778/MUM/2010 A.Y 2006-2007: 4 4. THE A.R. OF THE ASSESSEE FURTHER SUBMITTED THAT THE LOSSES CLAIMED BY THE APPELLANT BE ALLOWED AS THE COMMISSIONER OF INC OME TAX (A) HAS ALLOWED THE CLAIM OF THE APPELLANT IN A.Y. 1997-1998 ON SIM ILAR SET OF FACTS. THE LD. CIT (A) HELD AS FOLLOWS. I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE A.R. AND I FIND THAT THERE WAS NO BUSINESS DURING THE YEAR IN QUESTION. THE ASSESSEE HIMSELF HAS ADMITTED THAT THE ASSESSEE WAS CARRYING ON THE BUSI NESS OF CANVASSING OF INDENTING BUSINESS FOR SALE OF PRODUCTS AND SERVICE S IN DOMESTIC AND INTERNATIONAL MARKETS. THE ASSESSEE OFFERED ITS CU STOMERS PRODUCTS SUCH AS METALS, METAL SCRAP, ENGINEERING PRODUCTS, CHEMICAL S INCLUDING PETRO PRODUCTS, BANKING AND FINANCIAL SERVICES, SHIPPING, CLEARING ND FORWARDING AND OTHER RELATED SERVICES AND LOGISTICS FOR IMPORT AND EXPOR T AND SPECIALIZED SOFTWARE PACKAGE ETC. IT IS UNBELIEVABLE THAT THE ASSESSEE DID NOT RECEIVE ANY INCOME DURING THE YEAR IN QUESTION IN RESPECT OF ANY OF TH E BUSINESS CONDUCTED BY THE ASSESSEE. FROM THE DATA FURNISHED BY THE ASSESSEE IT IS SEEN THAT THE ASSESSE HAS NOT RECEIVED ANY INCOME NOT ONLY IN THI S YEAR BUT NEXT YEAR ALSO. THERE IS NO EVIDENCE THAT THERE IS TEMPORARY LULL I N THE BUSINESS. HENCE THE A.O. IS JUSTIFIED IN DISALLOWING THE CLAIM OF BUSIN ESS LOSS AS THE LOSS SHOULD BE INCURRED FOR EARNING ANY BUSINESS INCOME. IF THE L OSS WAS NOT IN CONNECTION WITH THE BUSINESS, THEN NO SUCH LOSS CAN BE ALLOWED . ADMITTEDLY, THE ASSESSEE WAS NOT HAVING ANY BUSINESS FROM ANY SOURC E DURING THIS YEAR. THEREFORE, IT CANNOT BE SAID THAT THERE WAS A TEMPO RARY LULL IN THE BUSINESS. THEREFORE, THE DISALLOWANCE OF LOSS IS CONFIRMED. THE CASE LAWS CITED BY THE APPELLANT ARE DISTINGUISHABLE ON FACTS. IN CASE OF COMMISSIONER OF INCOME TAX V/S. KAR VALVES LTD. 168 ITR 416 (KER) IT WAS H ELD THAT EXPENDITURE OF A ITA NO.1778/MUM/2010 A.Y 2006-2007: 5 DISCONTINUED BUSINESS CANNOT BE ALLOWED MERELY BECA USE DEEMED PROFIT U/S. 41 (2) IN RELATION TO SUCH BUSINESS ARE TAXED IN TH E RELEVANT A.Y. THE HONBLE BOMBAY HIGH COURT HAS HELD IN CASE OF CHENNAI & CO. PVT. LTD. V/S. COMMISSIONER OF INCOME TAX 206 ITR 606 ITR 606 (BOM ) THAT IN THE CASE OF STOPPAGE OF BUSINESS, NO EXPENDITURE IS ALLOWABLE. SAME IS THE DECISION IN THE CASE OF J.R. MEHTA VS. COMMISSIONER OF INCOME T AX 126 ITR 476 (BOM). HEMCE, I HOLD THAT THE A.O. IS JUSTIFIED IN DISALLO WING THE CLAIM OF BUSINESS LOSS BY THE APPELLANT. THIS GROUND OF APPEAL IS DI SMISSED. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. D.R. RELIED ON THE ORDER OF ASSESSING OFFICER & LD. CIT (A). THE LEARNED COUNSEL REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH PARTIES AND PERUSED THE MATER IAL AVAILABLE IN THE RECORD AND GONE FOR THE ORDER OF THE AUTHORITIES. 7. WE FIND THAT THE ASSESSEE HAD MADE EFFORTS TO SE LL THE GOODS AND EARN COMMISSION INCOME. THE ASSESSEE DID NOT RECEIVE AN Y COMMISSION DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE WAS CAR RYING ON BUSINESS IN CANVASSING OF INDENTING BUSINESS AND FOR SALE OF PR ODUCTS AND SERVICES IN DOMESTIC AND INTERNATIONAL MARKETS. THE ASSESSEE W AS MAKING EFFORTS TO PROMOTE BUSINESS AND IN THIS REGARD HE HAS ENCLOSED COPIES OF EMAILS, CORRESPONDENCE ENTERED INTO WITH VARIOUS PARTIES WH ICH ARE AT PAGES 72 TO 160 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO ENCLO SED A COPY OF DRAFT SALE AND PURCHASE AGREEMENT FOR JET-FUEL BETWEEN PACIFIC OIL AND FUEL DISTRIBUTORS AND THE BUYERS WHICH IS ENCLOSED AT PA GES 80 TO 102. HOWEVER, IT APPEARS THAT THE DEAL DID NOT GO THROUGH AND THE ASSESSEE COULD NOT EARN ANY COMMISSION FROM THE TRANSACTION. SIMILAR NEGOT IATIONS WITH OTHER ITA NO.1778/MUM/2010 A.Y 2006-2007: 6 PARTIES ARE ALSO PLACED IN THE PAPER BOOK. THE ASS ESSEE HAS ALSO SUBMITTED A DETAILED CHART FROM THE A.Y. 2004-2008 FROM WHICH WE FIND THAT THE ASSESSEE HAS EARNED COMMISSION IN THE LATER YEARS A ND ALSO IN THE EARLIER YEARS WITH RESPECT OF PRESENT YEAR (EXCEPT FOR TO I NTERMEDIATE YEARS). THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO BROUGHT T O OUR NOTICE THAT THE LD. CIT (A) HAS ALLOWED THE CLAIM OF LOSS IN THE A.Y. 1 997-1998. 8. WE ARE OF THE OPINION THAT THE MERE FACT THAT TH E ASSESSEE DID NOT RECEIVE ANY COMMISSION DURING THE YEAR UNDER CONSID ERATION THOUGH HE MADE SINCERE EFFORTS TO STRIKE A DEAL CANNOT LEAD T O THE INFERENCE THAT THE APPELLANT DOES NOT CARRY ON BUSINESS. THERE SEEMS TO BE MERELY A TEMPORARY LULL IN EARNING OF BUSINESS INCOME. THER EFORE, IT CANNOT BE SAID THAT THE BUSINESS HAS COMPLETELY CEASED AND EXPENS ES ARE NOT ALLOWABLE. 9. THE DEPRECIATION HAS BEEN CLAIMED ON OFFICE EQUI PMENTS, AIR CONDITIONERS, FURNITURE AND FIXTURES, COMPUTERS WHI CH ARE MERELY INSTALLED IN OFFICE PREMISES AND ARE USED FOR THE PURPOSE OF BUSINESS. 10. AS REGARDS STAFF WELFARE EXPENSES, WE FIND FROM THE PROFIT & LOSS ACCOUNT THAT THE STAFF WELFARE EXPENSES ARE MERELY CUSTOMER RELATIONSHIP EXPENSES. THE FOREIGN VISITORS AND THE REPRESENTAT IVES WHO VISIT THE OFFICE ARE OFFERED COMMON COURTESIES LIKE SNACKS, TEA AND COFFEE WHICH ARE LEGITIMATE BUSINESS EXPENSES AND HENCE ALLOWABLE. 11. THE ELECTRICITY EXPENSES ARE SUPPORTED BY BILLS PLACED AT PAGES 36 TO 41 OF THE PAPER BOOK. THOUGH THE EXPENSES ARE SLI GHTLY ON THE HIGHER SIDE, THE BUSINESS CANNOT BE CONTINUED WITHOUT THE SAME. ITA NO.1778/MUM/2010 A.Y 2006-2007: 7 12. AS REGARDS THE DONATION OF RS. 1 LAC IT HAS BEE N CLAIMED THAT THE DONATION HAS BEEN GIVEN IN THE COURSE OF BUSINESS A ND FOR MAINTAINING BETTER BUSINESS RELATIONSHIP AND OUT OF BUSINESS EX PEDIENCY. WE ARE NOT CONVINCED AND HOLD THAT IT IS MERELY A DONATION AND NOT EXPENDITURE FOR BUSINESS PURPOSES. 13. TO CONCLUDE WE FIND FROM THE CORRESPONDENCE, E- MAILS ETC., FILED IN THE PAPER BOOK THAT THE ASSESSEE CARRIED ON BUSINESS DU RING THE YEAR UNDER CONSIDERATION AND HENCE WE PARTLY ALLOW THE GROUND NO.1 RAISED BY THE ASSESSEE. GROUND NO.1 IS PARTLY ALLOWED, THE CLAIM FOR EXPENDITURE OTHER THAN THE DONATION OF RS. 1 LAKH IS ALLOWED. 14 GROUND NO.2 WHICH IS WITH RESPECT TO SET OFF UNA BSORBED DEPRECIATION OF EARLIER YEARS IS CONSEQUENTIAL AND ALLOWED. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 27 TH DAY OF MAY, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (ASHA VIJAYAR AGHAVAN) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) MUMBAI, DATED 27 TH MAY, 2011. RJ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI 4. COMMISSIONER OF INCOME TAX, CONCERNED 5. DEPARTMENTAL REPRESENTATIVE, BENCH C, MUMBAI TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI