WHITEN COLOUR INDUSTRIES P.LTD, MUMBAI V. ITO 8(3)(4), MUMBAI

ITA 3822/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8700 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 25-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: KISHOR J DEVANI
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 3822 / MUM/2017 ( ASSESSMENT YEAR : 2012 - 13 ) M/S. WHITEN COLOUR INDUSTRIES PVT. LTD., 82/89, STUMBH TIRTH R.A. KIDWAI ROAD, WADALA, MUMBAI 400 031 VS. ITO 8 (3 )(4), MUMBAI 400 020 PAN/GIR NO. AACW5482B APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI KISHOR J DEVANI REVENUE BY SHRI RAM TIWARI DATE OF HEARING 26 / 09 /201 7 DATE OF PRONOUNCEME NT 25 / 10/ 201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 14, MUMBAI DATED 27/03/2017 FOR A.Y.2012 - 13 IN THE MATTER OF ORDER PASSED U/S. 143(3) OF THE IT ACT. 2. IN THIS APPEAL, ASSESSEE IS AGGRIEVED FOR DISALLOWANCE OF FOLLOWING EXPENDITURE: - I) ACCOUNTING CHARGES RS.60,000/ - II)BANK INTEREST PAID RS.3,95,351/ - III)CONVEYANCE RS.15,423/ - IV)DIRECTORS REMUNERATION RS.6,20,000/ - V) PROFESSIONAL FEES RS.1,66,180/ - VI)SALARY TO STAFF RS.1,62,000/ - ITA NO. 3822/MUM/2017 M/S. WHITEN COLOUR INDUSTRIES PVT. LTD., 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT ASSESSEE IS A COMPANY FILED ITS RETURN AT INCOME OF RS.63,338/ - . THE ASSESSING OFFICER AFTER HAVING MADE DISALLOWANCE OF RS.14,18,954/ - ADDE D TO THE INCOME OF THE ASSESSEE ON THE PLEA THAT NO BUSINESS ACTIVITY HAS BEEN CARRIED OUT BY ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 4. DURING THE ASSESSMENT PROCEEDINGS, THE AR WAS ASKED TO EXPLAIN AS TO WHY DIRECTORS' REMUNERATION AND OTHER EXPENSES CLAIMED SHOULD NOT BE DISALL OWED SINCE NO BUSINESS ACTIVITIES HAVE ACTUALLY BEEN CARRIED OUT BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 5. THE ASSESSEE VIDE ITS REPLY IN NO. KJD/146/2015, DATED 11.03.2015 HAS REPLIED AS UNDER: 'THE ASSESSEE INVESTED SURPLUS FUND IN THE FI XED DEPOSIT OF BANK IN THE NAME OF COMPANY IS NOT FOR INTEREST INCOME IVHICH CON BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES, BUT OT MINIMIZE THE LOSS WHICH IS LIKELY TO BE PILED UP TOWARDS ESTABLISHMENT EXPENSES AND ULTIMATELY CLOSING DOWN OF TT - E B USINESS ACTIVITY. IN ORDER TO MEET BUSINESS EXPENSES SUCH OPTION TO TRANSFER MONEY FROM CURRENT ACCOUNT TO FIXED DEPOSIT ACCOUNT AND TO RAISE ADDITIONAL FUND TO MEET BUSINESS EXPENSES IS IN ACCOUNTANCY AND IN COMMERCIAL SENSE PURELY OF A BUSINESS NATURE. H ENCE INTENTION IS VERY CLEAR TO CONTINUE THAT INVESTMENT TILL THE BUSINESS ACTIVITY IS REVIVED AND COMPANY HAD FOLLOWING OPTIONS AT THE TIME OF INVESTMENTS: A) TO ADVANCE TO THIRD PARTIES FOR BUSINESS INTEREST; B) TO ADVANCE TO DIRECTORS THEMSE LVES WHICH WO ULD BE LIABLE FOR TAX U/S. 2(22) (E); C) TO INCUR EXPENSES TO LEASE OUT OR TRANSFER MANUFACTURING LICENSE AND D) TO LIQUIDATE THE COMPANY UNDER COMPANIES ACT. ALL THESE ABOVE POSSIBILITIES WERE TAKEN INTO CONSIDERATION BEFORE PARKING THE AMOUNT IN FIXED DEPOSIT IN BANK AS LEASING OF MANUFACTURING LICENSE WERE UNDER ACTIVE CONSIDERATION OF ALL DIRECTORS TILL IT IS MATERIALIZE AND NEGOTIATED AND FINALIZE. 6. NOT CONVINCED WITH THE ASSESSEES REPLY, THE EXPENSES CLAIMED WAS RESTRICTED TO R S. 25,303/ - AND THE BALANCE AMOUNT WHICH COMES TO ITA NO. 3822/MUM/2017 M/S. WHITEN COLOUR INDUSTRIES PVT. LTD., 3 RS.14,18,954/ - (RS.14,44,257/ - ( - ) RS. 25,303/ - ) WA S DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 7. BY THE IMPUGNED ORDER, CIT(A) CONFIRMED THE ACTION OF THE AO. 8. IT WAS ARGUED BY LEARNE D AR THAT A BUSINESS MAY BE INACTIVE FOR A CERTAIN PERIOD AND MERELY BECAUSE OF THE DORMANCY OF THE BUSINESS THE CONCLUSION THAT IT HAS CEASED TO RUN THE COMPANY BUSINESS ACTIVITY DOES NOT ARISE AS IT WAS CONTINUATION OF ALL ACTIVITY AT FULL FLEDGED LEVEL TO REVIVE A ND RESTORE AGAIN THE BUSINESS THERE WAS NO PURCHASE AND SALE BUT CERTAINLY MAINTENANCE AND ALL ACTIVITIES IN THE ESTABLISHMENT WHICH WAS CARRIED OUT FROM REGISTERED OFFICE THAT IS FROM RESIDENCE AND COMPANY WAS GOING CONCERN AND IT WAS MANAGING DIRECTOR WI SH TO UPLIFT ALL ACTIVITIES AND WITH THE SUPPORT OF STAFF AND ASSESSING OFFICER HAS NO DOUBT OF GENUINE OF ACTIVITY BUT WENT ON DISALLOWANCE THE ESTABLISHMENT EXPENSES ALTHOUGH ASSESSING OFFICER AGREED THAT IN ORDER TO CONTINUED BUSINESS AND LEGAL ENTITY T HE COMPANY ARE REQUIRED TO INCUR EXPENSES WHETHER THE EFFECT PURCHASE OR SALE OR WHETHER THE PROFIT AND LOSS IT IS ONLY A COMPLETE DISCONTINUANCE OF THE BUSINESS THAT WILL PUT AN END TO ITS EXISTENCE. THUS DISALLOWANCE MAD E BY ASSESSING OFFICER AND CI T APP EAL I N HIS OPINION ALLOWED RS.1,66, 1 80 / - FOR PROFESSIONAL FEES FOR LEGAL MATTERS WHICH ARE INCURRED FOR RUNNING AND STATUTORY REQUIREMENTS. THEREFORE THE PROFESSIONAL FEE WERE ALSO ALLOWED. 9. I HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT EXCEPT DIRECTORS REMUNERATION, ALL THE EXPENDITURE SO INCURRED BY THE ASSESSEE WAS FOR THE ITA NO. 3822/MUM/2017 M/S. WHITEN COLOUR INDUSTRIES PVT. LTD., 4 PURPOSE OF BUSINESS AND AS A MINIMUM SUBSTANCE, THESE EXPENDITURE WERE REQUIRED TO BE INCURRED FOR KEEPING ASSESS EE - COMPANY ALIVE. THERE WAS TEMPORARY LULL IN THE BUSINESS DURING THE YEAR UNDER CONSIDERATION. I, THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW ALL EXPENSES, EXCEPT DIRECTORS REMUNERATION OF ` 6,20,000/ - . 10. IN THE RESULT, THE APPEAL IS ALLOWED IN PAR T. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 25 / 10 /2017 SD/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 25 / 10 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//