M/s. Nanda Mint & Pine Chemicals Ltd., New Delhi V. DCIT, New Delhi

ITA 3830/DEL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5084 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 30-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Speculation loss
• Section: 40A(3); 37

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH E, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 3829 & 3830/DEL/2016 ASSESSMENT YEAR: 2010-11 & 2011-12 NANDA MINT & PINE CHEMICALS LTD., 1/10, MUNSHI NIKETAN, ASAF ALI ROAD, NEAR KAMLA MARKET, NEW DELHI. PAN AACCN0965G (APPELLANT) VS. DCIT, CIRCLE 13(1), NEW DELHI. (RESPONDENT) APPELLANT BY SH. K. SAMPATH, ADVOCATE & SH. RAJ KUMAR, ADVOCATE RESPONDENT BY MS. RINKU SINGH, SR. DR ORDER PER B.R.R. KUMAR, A.M.: IN ITA NO. 3829/DEL/2016 FOR A.Y. 2010-11, FOLLOWI NG GROUNDS HAVE BEEN RAISED BY THE ASSESSEE : 1. THAT THE ORDER PASSED BY THE LD. CIT(A) IS ARBITRA RY, ERRONEOUS, MISCONCEIVED AND AGAINST LAW AND MUST BE QUASHED; 2. THAT THE CONFIRMATION OF FOLLOWING DISALLOWANCES MADE BY THE ASSESSING OFFICER BY THE LD. CIT(A) IS FALLACIOUS AND UNJUST AND MUST BE QUASHED; I) RS.25,000/- U/S 40A(3) OF THE ACT II) RS.7,67,103/- ON ACCOUNT OF SALES TAX DEMAND III). RS.22,00,295/- ON ACCOUNT OF OFFICE AND ADMIN ISTRATIVE EXPENSES. DATE OF HEARING 14.08.2019 DATE OF PRONOUNCEMENT 19 .08.2019 ITA NOS. 3829 & 3830/DEL/2016 2 3. THAT THE ENHANCEMENT OF INCOME IN A SUM OF RS.7,1 7,554/- BY THE LD. CIT(A) IS GROSSLY ARBITRARY, CAPRICIOUS, UNWARRA NTED AND UNJUST AND MUST BE QUASHED. 2. DISALLOWANCE U/S. 40A(3): DURING THE ASSESSMENT PROCEEDINGS,, THE ASSESSING OFFICER FOUND THAT AN AMOUNT OF RS.25,000 /- HAS BEEN PAID IN CASH TO ONE MR. KUMAR JHA ON ACCOUNT OF EXPENSES INCURRED B Y HIM. THE LD. CIT(A) CONFIRMED THE ADDITION HOLDING THAT THE PROVISIONS OF SECTION 40A(3) ARE VERY SPECIFIC AND CLEAR. 3. SECTION 40A(3) READS AS UNDER : WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPE CT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAY EE BANK DRAFT, 45 OR USE OF ELECTRONIC CLEARING SYSTEM THROUGH A BANK ACCOUNT, EXCEEDS TEN THOUSAND RUPEES, NO DEDUCTION SHALL BE ALLOWED IN R ESPECT OF SUCH EXPENDITURE. 4. BEFORE US, DURING THE ARGUMENTS, THE LD. AR ARGU ED THAT THIS AMOUNT WAS INCURRED AS LEGAL FEE PAID TO THE ADVOCATE AS WELL AS REIMBURSEMENT OF STATIONERY AND CLERKAGE INCURRED BY THE ADVOCATE. H ENCE, IT CONSISTS OF DIFFERENT ITEMS AND THE REIMBURSEMENT OF ITEMS CANN OT FALL INTO THE PROVISIONS OF SECTION 40A(3). 5. WE FIND THAT EVEN THE ASSESSMENT ORDER MENTIONS THE FACT THAT THE AMOUNTS HAVE BEEN REIMBURSED. SINCE THE AMOUNT CONS ISTS OF ADVOCATE FEE AND FILING EXPENSES, IT CANNOT BE TREATED AS AN AGG REGATE AMOUNT SPENT IN A ITA NOS. 3829 & 3830/DEL/2016 3 DAY. HENCE, IN THE PECULIAR FACTS OF THE CASE, THE ADDITION MADE BY THE ASSESSING OFFICER IS TO BE DELETED. 6. SALES TAX PAYMENT: WE FIND FROM THE RECORD THAT THIS PAYMENT IS ON ACCOUNT OF ADDITIONAL SALES TAX PAID ON ACCOUNT OF VAT LIABILITY. SINCE THE AMOUNT IS ON ACCOUNT OF SALES TAX LIABILITY WHICH I S ALLOWABLE U/S. 37 AND NOT ANY PENALTY PAID AS HELD BY THE ASSESSING OFFICER, WE HEREBY DELETE THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT O F SALES TAX DEMAND. 7. ADMINISTRATIVE EXPENSES: THE AMOUNT OF ADMINISTRATIVE EXPENSES HAS BEEN DISALLOWED BY THE ASSESSING OFFICER ON THE PREMISE THAT THERE WAS NO BUSINESS ACTIVITY IN THE YEAR IN QUESTION. 8. DURING THE ARGUMENTS BEFORE US, IT WAS SUBMITTED THAT THE EXPENSES ARE CARRIED OUT NECESSARILY FOR MAINTAINING THE BUSINES S STRUCTURE OF THE COMPANY FOR OFFICE MAINTENANCE AND FOR OTHER ADMINISTRATIVE CONTINGENCIES. THE LEGAL EXPENSES, LOSS ON SALE OF ASSETS, PLANT REPAIR AND MAINTENANCE EXPENSES, BANK COMMISSION, SALARY AND WAGES TO THE EXISTING EMPLOY EES HAVE TO BE PAID EVEN THOUGH THE COMPANY IS NOT IN PONDERABLE FIELD OWING TO UNREST AND THE CHANGE OF POLICY IN THE GEOGRAPHICAL AREA OF JAMMU. WE HOL D THAT THE EXPENSES CANNOT BE DISALLOWED BASED ON THE PREMISE THAT NO SALES HA VE BEEN UNDERTAKEN BY THE ASSESSEE. THE EXPENSES INCURRED BY THE ASSESSEE FOR MAINTENANCE OF BUSINESS HAVE TO BE ALLOWED AS PER THE PROVISIONS OF SECTION 37 OF THE IT ACT. HENCE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS HEREB Y DELETED. ITA NOS. 3829 & 3830/DEL/2016 4 9. REGARDING GROUND NO. 3, WHEREIN THE LD. CIT (A) ENHANCED THE AMOUNT OF DISALLOWANCE ON THE PREMISE THAT THE BUSINESS OF MA NUFACTURING OR OTHERWISE WAS NOT CARRIED DURING THE YEAR IN QUESTION. THE EN TIRE EXPENSES CANNOT BE DISALLOWED IN VIEW OF THE FACT THAT THE PROVISIONS DO NOT ENTITLE THE REVENUE TO ALLOW EXPENSES ONLY IN CASE OF EARNING OF INCOME. T HE BUSINESS EXPENSES ARE TO BE ALLOWED U/S. 37 IRRESPECTIVE OF THE FACT WHET HER SALES HAVE BEEN UNDERTAKEN OR REVENUES HAVE BEEN EARNED OR NOT. WH AT NEEDS TO BE EXAMINED IS WHETHER THE EXPENSES INCURRED ARE GENUINE OR BOG US. IN THE ABSENCE OF ANY EVIDENCE TO PROVE THAT THE EXPENSES HAVE NOT BEEN B OGUS, NO DISALLOWANCE IS CALLED FOR. SINCE THE ASSESSEE HAS TO MAINTAIN THE PLANT AND MACHINERY IN RUNNING CONDITION EVEN THOUGH NO SALE HAS TAKEN PLA CE, THE EXPENSES HAVE TO BE ALLOWED AS PER THE PROVISIONS OF THE ACT. HENCE, WE, HEREBY DELETE THE ENHANCEMENT MADE BY THE LD. CIT(A). ITA NO. 3830/DEL/2016 (A.Y. 2011-12): 10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN : 1. NOT ALLOWING EXPENSES INCURRED ON MAINTAINING AN D RUNNING THE BUSINESS OF THE ASSESSEE WHILE COMPUTING THE INCOME FROM BUSINESS AND OTHER SOURCES; 2. ENHANCING INCOME BY RS.1,29,840/- ON ACCOUNT OF ELECTRICITY REFUND; 3. NOT DETERMINING SPECULATION LOSS AND ALLOWING TH E SAME. ALL THE ABOVE ACTIONS BEING ARBITRARY, ERRONEOUS, M ISCONCEIVED AND UNJUST MUST BE QUASHED WITH DIRECTIONS FOR RELIEF . ITA NOS. 3829 & 3830/DEL/2016 5 11. THE ASSESSING OFFICER DISALLOWED THE EXPENSES O N THE PREMISE THAT NO BUSINESS IS IN EXISTENCE. 12. BEFORE US, IT WAS ARGUED THAT THE ASSESSEE COMP ANY HAS NEITHER DISSOLVED NOR THE BUSINESS UNDERTAKING WAS SOLD OUT . THE BUSINESS CONTINUED TO EXIST AS A JURISTIC ENTITY. THE BUSINESS PRODUCT ION WAS NIL AND HENCE, NO SALES WERE EFFECTED WHICH DOES NOT MEAN THAT THE BU SINESS IS NOT IN EXISTENCE. THE BUSINESS WAS IN EXISTENCE WITH FUTURE PROSPECTS OF RUNNING OF BUSINESS AND EARNING OF INCOME. WE HOLD THAT EXPENSES CANNOT BE DISALLOWED JUST BECAUSE NO OPERATION OR SALES HAVE BEEN EFFECTED. T HE PLANT AND MACHINERY HAVE TO BE MAINTAINED AND THE PERSONAL EMPLOYED HAV E TO BE PAID, OFFICE AND FACTORY HAVE TO BE KEPT IN A RUNNING CONDITION. REL IANCE IS PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F KARSONDAS RANCHODDASS, 83 ITR 1, WHEREIN IT HAS BEEN EXPLAINE D THAT EVEN IF THE BUSINESS DEALINGS HAVE NOT BEEN CARRIED OUT BY THE ASSESSEE DURING THE YEAR STILL THE LOSS INCURRED DURING THE YEAR WAS REQUIRE D TO BE ALLOWED IF THE BUSINESS ESTABLISHMENT BY ITSELF EXISTED. WE ALSO NOTE THAT IN THE ASSESSMENT YEAR 2013-14, IN THE SIMILAR CIRCUMSTANCES, THE REV ENUE HAS ALLOWED THE EXPENSES INCURRED ON THE GROUND THAT IT IS NOT THE NUMBER OF TRANSACTIONS THAT DETERMINES EXISTENCE OF A BUSINESS BUT WHETHER THE ENTITY HAS WOUND UP IN ITS ENTIRETY THAT COUNTS. KEEPING IN VIEW ENTIRE GAMUT OF CIRCUMSTANCES, WE HEREBY HOLD THAT THE ADDITIONS MADE BY THE ASSESSIN G OFFICER ARE NOT LEGALLY SUSTAINABLE. ELECTRICITY REFUND (GROUND NO. 2): ITA NOS. 3829 & 3830/DEL/2016 6 13. SINCE ALL THE EXPENSES ARE ADJUDICATED TO BE AL LOWABLE, THE ELECTRICITY EXPENSES WOULD ALSO BE COVERED UNDER THE SAME AND A NY REFUND RECEIVED WOULD ONLY RESULT INTO DECREASE OF THE LOSS RETURNE D BY THE ASSESSEE. 14. THE ASSESSEE HAS INCLUDED SPECULATION LOSS OF R S.7,67,620/- IN THE OTHER EXPENSES CLAIMED BY THE ASSESSEE. THE LD. CIT(A) DI RECTED THE ASSESSING OFFICER TO DETERMINE THE SAME IN ACCORDANCE WITH LA W, HENCE, WE DECLINE TO INTERFERE WITH THE ISSUE. 15. IN THE RESULT, THE APPEAL FOR A.Y. 2010-11 IS A LLOWED AND THAT FOR A.Y. 2011-12 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (B.R. R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19.08.2019 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI