ITO, New Delhi V. M/s. Metallica Industries Ltd., New Delhi

ITA 358/DEL/2012

• Counselvise Citation: 35820114 RSA 2012
• Duration Of Justice: 3 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 23-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJHA
• Assessee Lawyers: ASHWANI TANEJA
• Keywords: Business income; Business expenditure
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. G. C. GUPTA , VICE PRESIDENT AND SH. N. K. SAINI, AM ITA NO. 358 /DEL/2012 : ASSTT. YEAR : 2007 - 08 INCOME TAX OFF ICER, WARD 6(4), NEW DELHI VS M/S METALLICA INDUSTRIES LTD., 72, JANPATH, NEW DELHI - 110001 (APPELLANT) (RESPONDENT) PAN NO. A AACM9033E ASSESSEE BY : SH. ASHWANI TANEJA, ADV. REVENUE BY : SH. P. DAM KANUNJHA , SR. DR DATE OF HEARING : 23 .0 3 .2015 DATE OF PRONOUNCEMENT : 25 .03 .2015 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 31.10.2011 OF LD. CIT(A) - IX , NEW DELHI. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPE AL: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS & CONTRARY OF FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF EXPENSES OF RS. 12,04,401/ - CLAIMED U/S 43, DEPOSIT OF SALE S TAX OF RS. 12,71,627/ - AND LEGAL EXPENSES OF RS. 1,12,500/ - AS ALLOWABLE BUSINESS EXPENSES, DESPITE THE FACT THAT THE BUSINESS OF THE ASSESSEE WAS CLOSED DOWN ON 28.02.1998, A ITA NO . 358 /DEL /2012 METALLICA INDUSTRIES LTD. 2 FINDING OF FACT RECORDED BY THE ITAT IN ITS OWN CASE FOR A.Y. 2003 - 04. 2.1 THE LD. CIT(A) ERRED IN NOT APPRECIATING THE LEGAL PRINCIPAL THAT BUSINESS EXPENSES CAN BE ALLOWED ONLY WHEN BUSINESS IS BEING CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IF THE BUSINESS IS WOUND UP, NO EXPENSES RELATABLE TO BUSINESS CARR IED OUT EARLIER CAN BE ALLOWED AGAINST INCOME FROM OTHER HEADS THE YEAR UNDER CONSIDERATION. 3. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUND OF THE APPEAL RAISED ABOVE AT THE TIME OF HEARING. 3. FACTS OF THE CASE IN BRIEF ARE THAT TH E ASSESSEE FILED THE RETURN OF INCOME ON 31.10.2007 DECLARING A LOSS OF RS. 22,82,190/ - . LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD CREDITED INCOME ON ACCOUNT OF WRITING BA CK THE PROVISIONS MADE AND SUNDRY CREDITS AMOUNTING TO RS. 12,26,489/ - , A GAINST THE SAME IT HAD DEBITED EXPENSE S AMOUNTING TO RS. 22,92,140/ - , R ESULTANTLY DECLARED BOOK LOSSES OF RS. 10,68,906/ - AND THAT IN THE COMPUTATION OF INCOME BESIDES OTHER ADJUSTMEN TS TO ARRIVE AT THE TAXABLE INCOME FOR INCOME TAX PURPOSES, IT HAD REDUCED RS. 12,04,401/ - ON ACCOUNT OF SALES TAX U/S 43B OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE AO OBSERVED THAT THE INCOME FOR THE PREVIOUS YEAR WAS COMPUTED BY THE ASSESSEE AT A LOSS OF RS. 22,82,190/ - BUT NO REFERENCE/CONFIRMATION/EVIDENCE/JUSTIFICATION WHATSOEVER HAD BEEN FILED FOR REDUCING THE AMOUNT OF RS. 12,04,401/ - OUT OF THE BOOK ITA NO . 358 /DEL /2012 METALLICA INDUSTRIES LTD. 3 PROFITS. THE AO DISALLOWED THE SAID AMOUNT OF RS. 12,04,401/ - . THE AO FUR THER OBSERVED THAT SINCE THE BUSINESS OF THE AS SESSEE WAS NOT IN OPERATION, THEREFORE, HE DISALLOWED 1,00,000/ - OUT OF SALARY, SALES TAX PAID OF RS. 12,71,627/ - AND LEGAL AND PROFESSIONAL CHARGES OF RS. 3,47,570/ - . 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE BUSINESS OF THE ASSESSEE HAD BEEN SUSPENDED BUT HAD NOT BEEN CLOSED COMPLETELY AS THERE WERE VARIOUS DISPUTES WITH R EGARD TO THE SALES TAX LIABILITIES AND THAT THE ASSETS AND LIABILITIES WERE NOT BROUGHT TO NIL. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE EXPLAINED TO THE AO THAT THE COMPANY WAS CONTESTING SALES TAX CASES BEFORE THE SALES TAX AUTHORITIES AND HAD ALSO NOT PAID TAX IN TIME WHICH WAS DISALLOWED U/S 43B OF THE ACT A T THE TIME OF ASSES SMENT OF THE RESPECTIVE YEARS. I T WAS STATED THAT ULTIMATELY THE SALES TAX WAS PAID IN THE FINANCIAL YEARS 2005 - 06 AND 2006 - 07, THEREFORE, IT WAS CLAIMED AS ALLOWABLE EXPENSES. IT WAS EXPLAINED THAT THE ASSESSEE HAD PAID TOTAL SALES TAX LIABILITY OF RS. 24,86,078/ - WHICH INCLUDED SALES TAX LIABILITY OF RS. 12,14,451/ - BUT WRONGLY MENTIONED THE FIGURE OF RS. 12,04,401/ - IN THE COMPUTATION OF INCOME, THUS, THE LIABILITY CLAIM ED WAS LESSER BY RS. 10,050/ - . IT WAS SPECIFIED THAT CURRENT LIA BILITIES AND PROVISIONS INCLUD ING OTHER CREDITORS AMOUNTING TO RS. 41,38,907/ - ALSO INCLUDED SALES TAX LIABILITY PAYABLE AT RS. 12,14,451/ - AS ON 31.03.2006. IT WAS SUBMITTED THAT THE SALES TAX LIABILITY PAYABLE U/S 43B OF THE ACT WAS WRONGLY DISALLOWED BY THE AO ITA NO . 358 /DEL /2012 METALLICA INDUSTRIES LTD. 4 WITHOUT APPRECIATING T HE COMPLETE FACTS OF THE CASE. IT WAS ALSO STATED THAT THE SALES TAX LIABILITY PAID DURING THE YEAR WAS NOT AN EXPENSE OTHER THAN THE BUSINESS EXPENSE AS IT WAS PAID ONLY ON ACCOUNT OF BUSINESS DONE BY THE ASSESSEE. IT WAS FURTHER STATED THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD SHOWN COMPENSATION AND OTHER INCOME RECEIVED BY IT DURING THE YEAR, WHICH WERE FROM THE SAME BUSINESS AGAINST WHICH EXPENSES WERE CLAIMED AND THAT THE ASSESSEE HAD DECLARED TOTAL COMPENSATION AND OTHER INCOME AMOUNTING T O RS. 12,26,489/ - , SO , IT WAS WRONG TO SAY ON THE PART OF THE AO THAT THE BUSINESS WAS NOT IN OPERATION. 5. AS REGARDS TO THE DISALLOWANCE ON ACCOUNT OF LEGAL AND PROFESSIONAL EXPENSES , THE ASSESSEE SUBMITTED THAT THE AO HAD NOT GIVEN ANY SPECIFIC REASO N BUT MADE THE DISALLOWANCE BY OBSERVING THAT THE BUSINESS WAS NOT IN OPERATION AND THAT THE JUSTIFICATION/EVIDENCES WERE NOT FILED. IT WAS FURTHER SUBMITTED THAT THE EXPENSES WERE INCURRED FOR ATTENDING THE SALES TAX MATTERS IN MUMBAI AND FOR FILING CHARG ES OF ANNUAL RETURN WITH ROC. THE ASSESSEE ALSO FURNISHED COPY OF FORM NO. 16A TO JUSTIFY THE PAYMENTS MADE. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: S. R. KOSHTI 276 ITR 165 (GUJ.) SNEHLATA (2004) 192 CTR 50 (J&K HIGH COURT) 6 . THE LD. CIT(A) ALSO ASKED THE REMAND REPORT FROM THE AO WHO STATED THAT THE BUSINESS OF THE ASSESSEE HAD BEEN CLOSED DOWN SINCE ITA NO . 358 /DEL /2012 METALLICA INDUSTRIES LTD. 5 28.02.1998 AND THE SAID FINDING WAS RECORDED IN THE ORDER OF THE ITAT IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2003 - 04. THE AO ALSO MENTIONED THAT THE INCOME EARNED IN ABSENCE OF ANY BUSINESS ACTIVITY WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . IT WAS FURTHER SUBMITTED THAT THE ITEMS OF EXPENDITURE WHICH WERE ALLOWABLE WHILE CARRYING OUT BUSINESS DID NOT QUALIFY FOR DEDUCTION WHILE EARNING INCOME FROM OTHER SOURCES . THE AO OPINED THAT THE CLAIM U/S 43B OF THE ACT, SALES TAX ETC. WHICH WERE PURELY BUSINESS RELATED ITEMS , COULD NOT BE ALLOWED AS BUSINESS ITSELF WAS CLOSED DOWN AND THAT THE EXPENDITURE NECESSARY FOR M AINTAINING THE CORPORATE STRUCTURE DOES NOT MEAN EXPENDITURE INCURRED FOR CARRYING OUT A BUSINESS. 7. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE REMAND REPORT OF THE AO OBSERVED THAT IT WAS NOT A CASE OF THE AO THAT THE AMOU NT OF SALES TAX WAS NOT PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND IT CANNOT BE SAID THAT THE SALES TAX LIABILITY WAS PAID FOR OTHER THAN BUSINESS CARRIED OUT BY THE ASSESSEE IN THE EARLIER YEARS. THE LD. CIT(A) FURTHER OBSERVED THAT SUCH LIABILITY WAS MENTIONED IN THE CHALLANS , COPIES OF WHICH WERE FILED BY THE ASSESSEE AND WHEN THE LIABILITY PERTAINED TO THE EARLIER YEARS WHEN THE BUSINESS OPERATION WERE GOING ON, IT COULD NOT BE SAID THAT THE EXPENDITURE DID NOT PERTAIN TO THE BUSINESS OF THE ASSESSEE. THE LD. CIT(A) ALSO MENTIONED THAT THE EVIDENCES FOR PAYMENT OF SALES TAX LIABILITY HAD BEEN FILED BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS WHICH HAD ALSO BEEN ITA NO . 358 /DEL /2012 METALLICA INDUSTRIES LTD. 6 EXAMINED BY THE AO TO WHOM THE SAME WERE FORWARDED. THE LD. C IT(A) ALLOWED THE CLAIM OF THE ASSESS FOR PAYMENT OF RS. 12,04,401/ - U/S 43B OF THE ACT. HE ALSO DELETED THE DISALLOWANCE AMOUNTING TO RS. 12,71,627/ - MADE BY THE AO BY OBSERVING THAT THE SALES TAX LIABILITY WAS PAID BY THE ASSESSEE DURING THE YEAR UNDER C ONSIDERATION . AS REGARDS TO THE DISALLOWANCE OUT OF LEGAL AND PROFESSIONAL EXPENSES , THE LD. CIT(A) OBSERVED THAT IN THE ABSENCE OF COMPLETE EVIDENCE S ON RECORD , IT WAS DIFFICULT TO ACCEPT THAT THE ENTIRE PAYMENTS MADE TO THE PROFESSIONAL S WERE RELATED TO THE BUSINESS OF THE ASSESSEE I.E. FOR THE PURPOSE OF SALES TAX LITIGATION AND TO MAINTAIN CORPORATE STATUS. HE ALSO OBSERVED THAT IT CANNOT BE SAID THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE UNDER THIS HEAD OF EXPENSE AND POINTED OUT THAT THE ASSESSEE PRODUCED BILLS FOR RS. 1,12,500/ - . HE, THEREFORE, DIRECTED THE AO TO ALLOW A SUM OF RS. 1,12,500/ - OUT OF THE DISALLOWANCE OF RS.3,47,570/ - AND REMAINING DISALLOWANCE WAS SUSTAINED BY OBSERVING THAT NO COMMENTS WERE OFFERED ON THE SAME BY THE ASSESSEE. 8 . NOW THE DEPARTMENT IS IN APPEAL. THE LD. SENIOR DR STRONGLY SUPPORTED THE ORDER OF THE AO AND FURTHER SUBMITTED THAT SINCE THE BUSINESS OF THE ASSESSEE WAS CLOSED DOWN. THEREFORE, THE AO RIGHTLY DISALLOWED THE EXPENSE S AND THE SALES TAX CLAIMED BY THE ASSESSEE AND THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE S MADE BY THE AO. ITA NO . 358 /DEL /2012 METALLICA INDUSTRIES LTD. 7 9 . IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE AO HIMSELF IN THE ASSESSMENT ORDER , COMPUTED THE INCOME FROM BUSINESS. THEREFORE, THE DISALLOWANCE MADE BY THE AO ON THIS BASIS THAT THE EXPENSES DID NOT RELATE TO THE BUSINESS OF THE ASSESSEE WAS NOT JUSTIFIED AND THE LD. CIT(A) RIGHTLY DELETED THE DISALLOWA NCE MADE BY THE AO. 10 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE IT IS AN ADMITTED FACT THAT THE ASSESSEE MADE THE PAYMENT OF THE SALES TAX DURING THE YEA R UNDER CONSIDERATION AND ALSO POINTED OUT TO THE AO THAT THE ASSESSEE COMPANY WAS CONTESTING SALES TAX CASES BEFORE THE SALES TAX AUTHORITIES. IN THE PRESENT CASE NOTHING WAS BROUGHT ON RECORD TO SUBSTANTIATE THAT THE ASSESSEE DID NOT MAKE THE PAYMENT OF THE SALES TAX LIABILITIES WHICH WERE OUTSTANDING AND WERE DISALLOWED IN THE E ARLIER YEAR S U/S 43B OF THE ACT AND SINCE THE ASSESSEE FURNISHED THE EVIDENCES FOR MAKING THE PAYMENTS DURING THE YEAR UNDER CONSIDERATION WHICH WERE DULY VERIFIED BY THE LD. CIT( A) AND NO ADVERSE COMMENTS WERE GIVEN BY THE AO IN THE REMAND PROCEEDINGS, THEREFORE, THE DISALLOWANCE S OF RS. 12,04,401/ - AND RS. 12,71,627/ - WERE RIGHTLY DELETED BY THE LD. CIT(A). AS REGARDS TO THE DISALLOWANCE OUT OF LEGAL AND PROFESSIONAL EXPENSES , IT IS NOTICED THAT THE AO DISALLOWED THE TOTAL CLAIM OF THE ASSESSEE AMOUNTING TO RS. 3,47,570/ - ON THE GROUND S THAT THE ITA NO . 358 /DEL /2012 METALLICA INDUSTRIES LTD. 8 ASSESSEE DID NOT FILE ANY EVIDENCE AND THAT THE BUSINESS OPERATION WERE DISCONTINUED BY THE ASSESSEE. IN THE PRESENT CASE, T HE ASSESSEE F URNISHED THE EVIDENCES FOR MAKING THE PAYMENTS OF RS. 1,12,500/ - TO THE VARIOUS LEGAL FIRMS, THE BILLS RELATING TO THOSE EXPENSES WERE VERIFIED BY THE LD . CIT(A) AND NO ADVERSE COMMENT WAS GIVEN BY THE AO IN HIS REMAND REPORT EXCEPT THAT THE BUSINESS OF TH E ASSESSEE DISCONTINUED. IN OUR OPINION THE LD. CIT(A) RIGHTLY DIRECTED THE AO TO ALLOW THE CLAIM TO THE EXTENT OF RS. 1,12,500/ - FOR WHICH THE ASSESSEE PROD UCED THE EVIDENCES AND SINCE THE S E EXPENSES WERE RELATED TO THE SALES TAX LITIGATION AND FOR MAINTA INING CORPORATE STATUS IT CAN BE SAID THAT THOSE WERE RELATED TO THE BUSINESS OF THE ASSESSEE AND WERE RIGHTLY ALLOWED. WE, THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. 11 . IN THE RESULT, THE AP PEAL FILED BY THE DEPARTMENT IS DISMISSED. ( ORDER PRON OUNCED IN THE COURT ON 25 /03 /2015 ) SD/ - SD/ - (G. C. GUPTA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 25 /03 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR