ACHILLES TRADING P.LTD, MUMBAI V. DCIT 5(1), MUMBAI

ITA 3575/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0128 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 11-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: NIMESH JAIN
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard
• Section: 143(3); 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM ITA NO. 3575 /MUM/2015 ( / ASSESSMENT YEAR: 2 0 11 - 12 ) M/S ACHILLES TRADING PVT LT D., 11, VALLABH APARTMENTS, 87,BHULABHAI DESAI ROAD, MUMBAI - 400036 / VS. DY. COMMISSIONER OF INCOME TAX - 5 ( 1 ), MUMBAI . ( / APPELLANT) : ( / RESPONDENT ) ./ PAN : AAFCA6447H ( / APPELLANT) : ( / RESP ONDENT ) / ASSESSEE BY : SHRI NIMESH JAIN / REVENUE BY : SHRI RAJAT MITTAL / DATE OF HEARING : 21 .6. .2017 / DATE OF PRONOUNCEMENT : 29 . 8 . 201 7 / O R D E R PER RAJESH KUMAR, A. M: THE CAPTIONED IS APPEAL BY THE ASSESSEE PERTAINING TO ASSESSMENT YEAR 20 11 - 12 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - 10 , MUMBAI , DATED 19.3.2015 WHICH IN TURN HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER DATED 27.1.2 014 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT) . 2 ITA NO. 3575 /MUM/2015 2. THE ASSESSEE HAS FILED THIS APPEAL AGAINST THE CONFIRMATION OF NON - GRANTING BUSINESS LOSSES AMOUNTING TO RS.34,34,738/ - AS MADE BY THE AO ON THE GROUND THAT THE EXPENSE S WERE NOT INCURRED IN CONNECTION OF BUSINESS ACTIVITY RELATING TO HYDRO ELECTRIC POWER PROJECT AND WERE CAPITAL IN NATURE. 3. THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSE E HAS INCURRED SOME EXPENSES WHIC H WERE CHARGED TO PROFIT AND LOSS ACCOUNT AND THERE WAS NO REASONABLE RELATION BETWEEN THESE EXPENSES AND BUSINESS ACTIVITY CARRIED OUT BY THE ASSESSEE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE VIDES LATTER DATED 13.1.2014 SUBMITTED DETAILS. THE REPLY FILED BY THE ASSESSEE REJECTED BY THE AO BY OBSERVIN G AND HOLDING AS UNDER: 5.6 IF THE PROPOSITIONS LAID DOWN IN ALL THE ABOVE CASES ARE TAKEN INTO ACCOUNT TOGETHER, ONE COMMON FACTOR THAT IS PREDOMINANTLY REQUIRED TO BE SATISFIED FOR TAKING ANY AC TIVITY AS BUSINESS IS THE MOTIVE OF PROFIT . SINCE THERE WAS NO TRANSACTION AT ALL DURING THE YEAR UNDER CONSIDERATION, THEREFORE IT CANNOT BE SAID THAT ASSESSEE HAS CARRIED ON THE BUSINESS DURING THE PREVIOUS YEAR RELEVANT TO AY 2011 - 12. FURTHER, ON GOING THROUGH THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAS ARRIVED AT BUSINESS LOSS OF RS.34,34,738/ - . THIS LOSS MAINLY REPRESENTS DEPRECIATION ON BUILDING, OTHER ASSETS INTEREST ON PROPERTY LOAN AND PROPERTY TAX WHICH MAINLY RELATES TO PROPERTY INCOME AND HENCE , CLAIM OF EXPENDITURE VIZ BUSINESS PROMOTION, ELECTRICITY, MEMBERSHIP AND SUBSCRIPTION, PROFESSIONAL FEES, SECURITY CHARGES, TRAVELLING EXPENSES, TELEPHONE , EXPENSES, REPAIRS, SOCIETY CHARGES, VEHICLE EXPENSES, PEST CONTROL EXPENSES, INTEREST ON CA R 3 ITA NO. 3575 /MUM/2015 LOAN ETC. CANNOT BE ALLOWED AGAIN THE SAME. THEREFORE, THE LOSS CLAIMED IN COMPUTATION AMOUNTING TO RS.34,34,738/ - IS DISALLOWED AND BUSINESS INCOME IS DE TE RMINED A T RS.NIL. PENALTY, PROCEEDINGS U/S 271(1)(C) IS INITIATED SEPARATELY FOR FURNISHING INACC URATE PARTICULARS OF INCOME 4 . IN THE APPELLATE PROCEEDINGS, THE LD.CIT(A) CONFIRMED THE DISALLOWANCE AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER(5.2 OF CIT(A) : 5.2 ..BOTH THE AO AND THE APPELLANT HAS RELIED UP ON VARIOUS CASE LAWS. IT IS HOWEVER NOTED THAT NONE OF THE DECISION RELIED UPON BY THE APPELLANT HAS SIMILAR FACTS. IT IS ALSO A SETTLED PRINCIPLE OF LAW THAT FOR CLAIMING ANY EXPENDITURE IT IS THE PRIMARY RESPONSIBILITY OF THE APPELLANT TO PROVE THAT THE EXPENDITURE IN QUESTION IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. IN THE INSTANT CASE SUCH RESPONSIBILITY FURTHER INCREASED BECAUSE THERE ARE NO CORRESPONDING BUSINESS RECEIPTS. IN FACT THE NOMINAL BUSINESS RECEIPTS SHOWN BY APPELLANT FROM PURCHASE & SALE OF FABRIC ALSO DOES NOT APPEAR GENUINE AS THE SALE BILL IS OF EARLIER DATE THAN PURCHASE BILL. UNDER SUCH FACTS AND CIRCUMSTANCES THE CLAIM OF THE APPELLANT THAT ALL THE EXPENSES INCURRED BY IT WERE IN RESPECT OF BUSINESS ACTIVITY ARE NOT SUPPORTED BY ANY CONVINCING DOCUMENTARY EVIDENCE. IT IS FURTHER NOTED THAT THE EXPENSES CLAIMED BY THE APPELLANT ARE NOT ROUTINE PETTY EXPENSES WHICH ARE NECESSARY FOR MAINTAINING THE CORPORATE STATUS OF THE APPELLANT, BUT THE EXPENSES C LAIMED ARE QUITE SUBSTANTIAL, FOR EXAMPLE, THE APPELLANT HAS CLAIMED VARIOUS EXPENSES SUCH AS DEPRECIATION ON BUILDING AND OTHER ASSETS AND INTEREST ON PROPERTY LOAN, BUSINESS PROMOTION, PROFESSIONAL F EES, SECURITY CHARGES, TRAVELLING EXPENSES, WELFARE EXP ENSES, REPAIRS, PEST CONTROL EXPENSES, INTEREST ON CAR LOAN ETC. IT IS NOT BELIEVABLE THAT SUCH HUGE EXPENSES WILL NOT RESULT IN SUBSTANTIAL BUSINESS INCOME. REGARDING THE CLAIM OF THE APPELLANT THAT IT HAD INCURRED MAJOR EXPENSES IN THE NEW PROJECT OF HY DRO ELECTRIC POWER, IT IS NOTED THAT EVEN IF SUCH EXPENSES ARE HELD GENUINE THEN ALSO THEY ARE CAPITAL EXPENSES WHICH CANNOT BE ALLOWED AS DEDUCTIBLE REVENUE EXPENSES. THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AND MORE 4 ITA NO. 3575 /MUM/2015 PARTICULARLY IN WANT OF ANY CONVINCING EVIDENCE OF INTIMATE CONNECTION OF THESE EXPENSES WITH THE BUSINESS ACTIVITY OF THE APPELLANT, THE AO HAS CORRECTLY DISALLOWED THE SAME WHICH IS CONFIRMED . AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSESSEE IS IN APPEAL BEFO RE US. 5 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW. IN THE ORDER OF FAA , THE FINDINGS HAVE BEEN RECORDED THAT THERE WERE NO BUSINESS ACTIVITY FROM THE SALE AND PURC HASES AND THE ACTIVITIES SHOWN BY THE ASSESSEE DOES NOT APPEAR GENUINE AS THE SALES BILLS WERE DATED PRIOR TO THE PURCHASE BILLS. WE ALSO AFTER HEARING EITHER SIDES AND AFTER EXAMINING THE RECORD, ARE IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD.FAA T HAT THE SALES AND PURCHASE WERE SHOWN IN ORDER TO CLAIM EXPENSES WHICH ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. AT THE MOST THE SAID EXPENSES COULD BE CAPITALIZED. ACCORDINGLY, WE AFFIRM THE ORDER OF THE LD.CIT(A) ON THIS ISSUE . GROUND NO.1 TAKEN BY THE ASSESSEE IS DISMISSED. 6 . THE SECOND GROUND TAKEN BY THE ASSESSEE IS WITH REGARD TO THE DISALLOWANCE OF INTEREST EXPENDITURE BY THE LD. CIT(A) AS MADE BY THE AO 5 ITA NO. 3575 /MUM/2015 ON THE GROUND THAT THE LOAN WAS NOT USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. 7. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS SANCTION ED A LOAN OF RS.650/ - LAKHS FROM NKGSB CO.OP BANK AS TERM LOAN FOR THE PURPOSE OF EXPANSION OF BUSINESS, WHICH IS USED TO ADVANCE TO ITS DIRECTORS SHRI RAJ H SHROFF. ACCORDING TO THE AO THE SAID LOAN WAS NOT USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AS THE MONEY WAS ADVANCED TO SHRI RAJ H SHROFF AND THEREFORE THE INTEREST CLAIM OF RS.22,57,656/ - COULD NOT BE ALLOWED. IN THE APPELLATE PROCEEDINGS, THE AFFIRME D THE ACTION OF THE AO BY DISMISSING THE CLAIM OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 5.4 ..WHILE DISALLOWING THE SAID INTEREST THE AO HAS OBSERVED THAT THE APPELLANT INITIALLY CLAIMED SUCH INTEREST AGAINST THE RENTAL INCOME FROM LET OUT PR OP ERTY, BUT WHEN IT WAS POINTED OUT THAT THE SAID LOAN WAS TAKEN AGAINST THE MORTGAGE OF THE PROPERTY, THE - APPELLANT CHANGED ITS STANDS AND CLAIMED THAT THE SAID LOAN WAS ADVANCED TO THE DIRECTOR FOR PURCHASE OF LAND, THEREFORE, THE SAME WAS A BUSINESS EXPENDITURE. THE AO DID NOT AGREE WITH THE CHANGED STAND OF THE APPELLANT BECAUSE NO BUSINESS WAS CARRIED OUT BY THE APPELLANT AND BESIDES PETTY INTEREST INCOME THE MAJORITY OF THE INCOME CAME FROM HOUSE PROPERTY THE EARLIER PARAGRAPH I HAVE ALSO HELD THAT DURING THE YEAR UNDER CONSIDERATION APPARENTLY THERE WAS NO BUSINESS ACTIVITY. AS REGARDS THE INTEREST ON LOAN IN QUESTION, IT IS CONCLUSIVELY TRUE THAT THE INITIAL CLAIM OF THE APPELLANT THAT IT IS DEDUCTIBLE FROM RENTAL INCOME WAS FOUND' INCORRECT. SIMI LARLY THE APPELLANT COULD ALSO NOT FILE ANY CONVINCING DOCUMENTARY EVIDENCE WHICH COULD PROVE THAT THE LOAN IN QUESTION, WHICH WAS ADVANCED TO THE DIRECTOR, WAS UTILIZED WHOLLY AND EXCLUSIVELY FOR GENUINE BUSINESS ACTIVITY. UNDER THESE CIRCUMSTANCES, THE C LAIM OF THE APPELLANT WAS CORRECTLY DISALLOWED 6 ITA NO. 3575 /MUM/2015 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IMPUGNED ORDERS ON THE ISSUE. AT THE TIME OF HEARING THE LD. AR FILED STATEMENTS AND CONTENTIONS AND DETAILS OF AMOUNT OF LOAN RAISED AND FURTHER ADVANCING THE LOANS TO I T S DIRECTOR SHRI R H SHROFF WHICH WAS FINALLY RETURNED BY THE DIRECTOR OF THE COMPANY AS THE SAID LOAN WAS NOT USED FOR T HE BUSINESS PURPOSES FOR WHICH IT WAS GIVEN TO THE DIRECTORS. THE LD. AR RAISED THE PLEA THAT SINCE THE MONEY WAS RECEIVED BACK AS NOT BEING USED FOR THE PURPOSE FOR WHICH IT WAS GIVEN TO THE DIRECTOR OF THE COMPANY AND THEREFORE NO DISALLOWANCE WAS ATTRACTED. AT THIS STAGE, WE FIND THAT THE STATEMENT PRODUCED BEFORE US CONTAINS THE DETAILS OF ADVANCES GIVEN ON DIFFERENT DATES A ND SAID STATEMENT W A S NOT BEFORE THE AUTHORITIES B ELOW THEREFORE, WE DEEM IT FIT AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE AO AS THE MATTER REQUIRES VERIFICATION. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY THE DETAILS AS SUBMITTED BY THE LD.AR BEFORE US AND DECIDE THE ISSUE AS PER FACTS AND LAW AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN CASE MONEY HAS NOT USED BY THE DIRECTOR FOR ANY PERSONAL PURPOSES AND RETURNED TO T HE COMPANY AS IT IS , THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE AND OTHERWISE 7 ITA NO. 3575 /MUM/2015 DECIDE THE ALLOWANCE AS PER LAW AND FACTS. THE AO IS DIRECTED ACCORDINGLY . THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 9 . IN THE RESULT, THE APPEAL OF THE AS SESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 29TH AUG , 2017. S D SD ( MAHAVIR SINGH ) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 29TH .2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE A PPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI