GEETANJALI TRADING & INVESTMENTS P.LTD, MUMBAI V. ITO 6(3)(1), MUMBAI

ITA 3165/MUM/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3599 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 05-05-2016
• Court: TRIBUNAL
• Department Lawyers: AJAY
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER I.T.A. NO.3165/M/2016 (ASSESSMENT YEAR: 2010 - 2011 ) GEETANJALI TRADING & INVESTMENTS PVT LTD., 3A, BARODAWALA MANSION, 81, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400018. / VS. ITO - 6(3)(1), MUMBAI. ./ PAN : AAACG3265A ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI DALPAT SHAH / RESPONDENT BY : SHRI AJAY, DR / DATE OF HEARING : 27.06.2016 / DATE OF PRONOUNCEMENT : 22 .08.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 5.5.2016 IS AGAINST THE ORDER OF THE CIT (A) - 13, MUMBAI DATED 16.2.2016 FOR THE ASSESSMENT YEAR 2010 - 2011. IN THIS APPEAL, ASSESSEE RAISED TWO MAIN GROUNDS IE (I) CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 4,4 0,523/ - U/S 37 OF THE ACT ON ACCOUNT OF BUSINESS EXPENDITURE AND (II) CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF ELECTRICITY EXPENSES OF RS. 1,81,016/ - AGAINST SUB - LEASE RENT. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF NBFC SINCE 1998. ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL LOSS OF RS. 3,21,350/ - UNDER THE NORMAL PROVISIONS AND RS. 12,58,312/ - U/S 115JB OF THE ACT. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME W AS DETERMINED AT RS. 3,00,189/ - . DURING THE ASSESSMENT PROCEEDINGS, AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT DONE BUSINESS IN THE YEAR UNDER CONSIDERATION . ACCORDINGLY, AO DISALLOWED SUM OF RS. 4,40,523/ - IN TUNE WITH DISALLOWANCE MADE IN THE PRECEDING ASSESSMENT YEAR 2009 - 2010. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 2 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) CONFIRME D THE SAME. AGAIN AGGRIEVED WITH THE SAID DECISION OF THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL BY RAISING GROUND NO.1 OF THE APPEAL. 4. DURING THE PROCEEDINGS BEFORE THE TRIBUNAL, LD COUNSEL FOR THE ASSESSEE BROUGHT MY ATTENTION TO P AGE 47 OF THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE DID NBFC BUSINESS IN THE YEAR UNDER CONSIDERATION. FURTHER, BRINGING OUR ATTENTION TO PAGE 8 OF THE PAPER BOOK, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DETAILS OF EXPENDITURE DEBITED IN THE P & L ACCOUNT UNDER THE GENERAL OFFICER EXPENSES. SCHEDULE - I SHOWS THE SAID EXPENSES ARE INCURRED FOR OFFICER EXPENDITURE, WHICH ARE PERMANENT IN NATURE. HE FURTHER MENTIONED THAT THE ASSESSEE HAS GIVEN LOANS EXCEEDING AN AMOUNT OF RS. 5 LAKHS AS PART O F THE NBFC ACTIVITY AND ALSO EARNED INCOME OF RS. 5,25,000/ - ON LOANS (PAGE 13 OF THE PAPER BOOK IS RELEVANT IN THIS REGARD). THUS, THIS IS THE CASE OF GIVING LOANS AND FOR EARNING INTEREST INCOME, THEREFORE, IT IS NOT PROPER FOR THE AO TO CONCLUDE THAT T HERE IS NO BUSINESS ACTIVITY IN THE YEAR UNDER CONSIDERATION. ON THE ISSUE OF ALLOWABILITY OF EXPENSES, WHICH ARE REQUIRED FOR MAINTENANCE OF THE OFFICE, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT IT IS A LEGALLY DECIDED ISSUE THAT THE ASSESSEE IS ENTITL ED TO THE CLAIM OF SUCH EXPENSES. RELYING ON THE JUDGMENT OF THE HONBLE KOLKATA HIGH COURT IN THE CASE OF CIT VS. GANGA PROPERTIES LTD (199 ITR 94) (KOL) AS WELL AS THE DIVISION BENCH DECISION OF THE ITAT IN THE CASE OF TANSY INVESTMENTS PVT LTD VS. ACIT (ITA NO.3722/MUM/2009) (AY 2004 - 05), LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER PARA 5 OF THE SAID ORDER OF THE TRIBUNAL, THE EXPENSES NEED TO INCUR TO KEEP AFLOAT AND HAVE ITS CONTINUED EXISTENCE AND SUCH EXPENSES SHOULD BE ALLOWED AS THERE IS NO BUSINESS OR OTHERWISE. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT LINES FROM THE SAID PARA ARE EXTRACTED AS UNDER: - 5. WE SEEN NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH, AND WE ARE IN CONSIDERED AGREEMENT WITH THE SAME. THE ASSESSEE BEING AN ARTIFICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERTAIN EXPENDITURE TO KEEP ITSE LF AFLOAT AND HAVE ITS CONTINUED EXISTENCE. UNLIKE A NATURAL PERSON, A COMPANY CAN ONLY OPERATE THROUGH OTHER NATURAL PERSONS WHETHER EMPLOYEES OR OTHERS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDITURE OF THE ASSESSEE - COMPANY ARE EXCE SSIVE OR UNREASONABLE VIS - A - VIS ITS LEGITIMATE BUSINESS REQUIREMENTS. THE HONBLE HIGH COURTS, AS REFERRED TO IN THE COORDINATE BENCH ORDER, HAVE CONSISTENTLY HELD THAT IN THE CASE OF CORPORATE ASSESSEES SUCH EXPENSES HAVE TO BE ALLOWED AS DEDUCTION 3 IRRES PECTIVE OF WHETHER OR NOT THE ASSESSEE IS ENGAGED IN ACTIVE BUSINESS AND EVEN IF ASSESSEE HAS ONLY PASSIVE INCOMES. THE MERE FACT THAT NO BUSINESS OPERATIONS HAVE BEEN CARRIED OUT IN THE RELEVANT PREVIOUS YEAR ALSO DOES NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE CEASED TO BE IN BUSINESS . UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF BUSINESS IS AT A DORMANT STAGE WAITING FOR PROPER MARKET CONDITIONS TO DEVELOP, THE EXPENDITURE INCURRED IN THE COURSE OF SUCH A BUSINESS IS TO BE ALLOWED AS DEDUCT ION. 5. THEREFORE, IT IS THE PRAYER OF THE LD COUNSEL FOR THE ASSESSEE THAT THEY WILL HAVE NO OBJECTION IF A DIRECTION IS GIVEN TO THE AO TO APPLY THE SAID DECISION TO THE FACTS OF THE PRESENT CASE. 6. ON HEARING BOTH THE PARTIES, I FIND MERIT IN THE LD C OUNSELS ARGUMENT AND DIRECT THE ASSESSING OFFICER TO EXAMINE AND DECIDE THE ISSUE AFRESH AFTER A PPLYING THE SAID SETTLED RATIO D E C I D E N D I TO THE FACTS OF THE PRESENT CASE. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE SET PRINC IPLES OF NATURAL JUSTICE. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE SECOND ISSUE RAISED BY THE ASSESSEE RELATES TO THE ALLOWABILITY OF THE ELECTRICITY EXPENSES OF RS. 1,81,016/ - AGAINST THE SUB - LEASE RENT RECEIVED BY THE ASSESSEE. BRIEFLY STATED RELEVANT FACTS IN THIS REGARD ARE THAT THE ASSESSEE LEASED A PROPERTY FOR HIS BUSINESS OPERATIONS AND WAS PAYING A LEASE RENT. CONSIDERING THE EXCESS PLACE AVAILABLE TO HIM, ASSESSEE SUB - LEASED THE SAID PROPERTY. ORIGINALLY, THERE IS A SUB - LEASE AGREEMENT ENTERED INTO BY THE ASSESSEE AND THE SAID LESSEE NAMED M/S. GUJURAT ORGANICS LIMITED (GOL) . AFTER 2009, IT APPEARS THERE IS A CHANGE IN THE SAID LEASE AGREEMENT ON THE TERMS AND CONDITIONS. ACCORDINGLY, ASSESSE E REDUCED THE SAID LEASE AREA TO 375 SQ FT AND KEPT THE MONTHLY LEASE RENT OF RS. 28,000/ - CONSTANT. FURTHER, VIDE THE SAID ALTERED AGREEMENT, ASSESSEE ACCEPTED THE LIABILITY TO PAY THE ELECTRICITY EXPENDITURE ON BEHALF OF THE SUB - LESSEE. ON THESE FACTS, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER DID NOT UNDERSTAND THE FACTS OF THE CASE IN RIGHT PERSPECTIVE AND CAME TO A CONCLUSION THAT NO CONFIRMATION LETTERS WERE FURNISHED BY THE SUB - LESSEE IN THIS REGARD. BRINGING OUR ATTENTION T O PAGE 44 OF THE PAPER BOOK, WHICH IS A CONFIRMATION LETTER DATED 1.10.2014, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE REQUIRES REVISITING THE FILE OF THE AO CONSIDERING THE FACT THAT THE SAID PAGE WAS NOT AVAILABLE TO THE 4 ASSESSING OFFICER. F OR THE FIRST TIME, THE ABOVE SAID LETTER WAS SUBMITTED TO THE CIT (A), WHO FAILED TO CALL FOR REMAND REPORT AS PER THE PRINCIPLES OF NATURAL JUSTICE. 8. AFTER HEARING BOTH THE PARTIES AN D ALSO GOING THROUGH THE FACTS ON THE ISSUE OF DISALLOWANCE ELECTRIC ITY EXPENSES, I FIND, IN ALL FAIRNESS PAGE 44 OF THE PAPER BOOK IS RELEVANT TO ISSUE UNDER CONSIDERATION AND THEREFORE, THE MATTER SHOULD BE REMANDED TO THE FILE OF THE AO FOR APPRECIATION OF THE FACTS AND DECIDE THE ISSUE AFRESH. ACCORDINGLY, GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRO NOUNCED IN T HE OPEN COURT ON 2 2 N D AUGUST, 2016. S D / - (D. KARUNAKA RA RAO) ACCOUNTANT MEMBER MUMBAI ; 22 .8.2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI