KUMAKA INDUSTRIES LTD., MUMBAI V. CIT (A)- 7 , MUMBAI

ITA 3950/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7109 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2014-2015
• Appeal Filed On: 03-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURBINDER SINGH LD
• Assessee Lawyers: KINJAL BHUTA LD
• Keywords: Unexplained investment; Depreciation; Business expenditure; Earning of tax free income; Capital expenditure
• Section: 43B; 143(3); 14A; 69A; 69

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI , , BEFORE HONBLE SHRI VIKAS AWASTHY, JM AND HONBLE SHRI MANO J KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO. 3950 /MUM/201 9 ( / ASSESSMENT YEAR : 20 14 - 15 ) M/S KUMAKA INDUSTRIES LTD. 5 TH FLOOR, RAMKRISHNA CHAMBERS, BPC RD. ALKAPURI, VADODARA - 390 007, GUJARAT. / VS. A C IT - 1(2 ) ( 1 ) MUMBAI 400 020 ./ ./ PAN/GIR NO . A AACA - 3371 - M ( / APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : MS. KINJAL BHUTA LD. AR REVENUE BY : SHRI GURBINDER SINGH LD. SR. DR / DATE OF HEARI NG : 18 /08 /2021 / DATE OF PRONOUNCEMENT : 25/08/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. A GGRIEVED BY CONFIRMATION OF CERTAIN DISALLOWANCES FOR ASSESSMENT YEAR (AY) 2014 - 15, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. TH E ASSESSMENT WAS FRAMED BY LD. ASSESSING OFFICER (AO) U/S 143(3) ON 30/12/2016 MAKING CERTAIN DISALLOWANCES WHICH WERE CONFIRMED BY LD. LEARNED COMMI SSIONER OF INCOME - TAX (APPEALS) - 7 , MUMBAI [CIT (A) ], VIDE ORDER DATED 01/04 /20 19 . AGGRIEVED, THE ASSESSEE IS IN FURTHER 2 APPEAL BEFORE US. THE ASSESSEE HAS FILED REVISED GROUND OF APPEAL ON 22/06/2021 WHICH READ AS UNDER: - 1. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF AO OF NOT ALLOW ING BUSINESS EXPENDITURE OF RS.1 ,26,94,934/ - . YOUR APPELLANTS SUBMIT THE BUSINESS WAS ON REVIVAL MODE AND A GOING CONCERN AND THE EXPENSES OUGHT TO BE ALLOWED AS CLAIMED. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO VERIFY AND ALLOW THE EXPENSES WHICH ARE PERTAINING TO EARLIER YEARS IN W HICH BUSINESS WAS CARRIED OUT. YOUR APPELLANTS SUBMIT THAT THOSE EXPENSES ARE STATUTORY PAYMENTS AND ALLOWABLE IN THE YEAR IN WHICH IT IS PAID AS PER SECTION 43B OF THE ACT, IRRESPECTIVE WHETHER BUSINESS ACTIVITY WAS THERE OR NOT.' 3. THE LD. CIT(A) HAS ERRED IN UPHOLDING DISALLOWANCE OF RS. 1,08,94,901/ - UNDER SECTION 69 WITHOUT APPRECIATING THAT THE LOAN IS NOT ADVANCED IN THE AY: 2014 - 15 AND IS AN OLD LIABILITY. THE ACTION OF CIT(A) OF MAKING THE ADDITION U/S. 69A IS INVALID AND OUGHT TO BE DELETED. T HE ASSESSEE BEING RESIDENT CORPORATE ASSESSEE IS STATED TO BE ENGAGED IN MANUFACTURING OF CHEMICALS. HOWEVER, DURING THE YEAR, THE OPERATION REMAINED SUSPENDED WHICH ARE STATED TO BE DUE TO NON - VIABILITY OF OPERATIONS . 2. HAVING HEARD RIVAL SUBMISSIONS AN D AFTER DUE CONSIDERATION OF MATERIAL ON RECORD, OUR ADJUDICATION TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. THE ASSESSEE HAS SUFFERED TWO DISALLOWANCES WHICH ARE THE SUBJECT MATTER OF APPEAL BEFORE US. 3. DISALLOWANCE U/S 14A AND DISALLOWANCE OF BUSINESS EXPENSES 3.1 THE ASSESSEE EARNED EXEMPT INCOME OF RS.7.43 LACS AGAINST WHICH LD. AO COMPUTED AGGREGATE DISALLOWANCE U/R 8D FOR RS.11.95 LACS WHICH COMPRISED - OFF OF INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.0.09 LACS AND IN DIRECT EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS.11.86 LACS. 3.2 FURTHER, THE ASSESSEE DEBITED EXPENDITURE OF RS.138.90 LACS WHICH COMPRISED - OFF OF SALARIES, DIRECTORS REMUNERATION, MISC. EXPENSES, ADVERTISEMENT, PAYMENT TO AUDITORS, ELECTRICITY CHARGES ETC. THE 3 EXPENSES WERE STATED TO BE INCURRED FOR BUSINESS PURPOSES. HOWEVER, CONSIDERING THE FACT THAT THERE WAS NO BUSINESS ACTIVITY AND THE FACT THAT THE ASSESSEE COULD NOT PROVE THAT THE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOS E, THE WHOLE OF THE EXPENSES WERE DISALLOWED. SINCE AN AMOUNT OF RS.11.95 LACS WAS ALREADY DISALLOWED U/S 14A, THE BALANCE EXPENSE S OF RS.126.94 LACS WERE SEPARATELY DISALLOWED WHILE FRAMING THE ASSESSMENT. 3.3 UPON FURTHER APPEAL, LD. CIT(A) DIRECTED LD. AO TO CONSIDER ONLY THOSE INVESTMENTS WHICH ACTUALLY YIELDED EXEMPT INCOME DURING THE YEAR WHILE COMPUTING DISALLOWANCE U/S 14A. REGARDING ALLOWANCE OF REMAINING BUSINESS EXPENSES. LD. CIT(A) OBSERVED THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS ACTIVI TY DURING THE YEAR AND THEREFORE, THE SAME COULD NOT BE ALLOWED TO THE ASSESSEE . SOME EXPENDITURE PERTAINED TO EARLIER YEARS. ACCORDINGLY, LD. AO WAS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE AND ALLOW THOSE EXPENSES PERTAINING TO EARLIER YEARS WHEN BUS INESS ACTIVITIES WERE CARRIED OUT . AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. OUR ADJUDICATION 4. UPON DUE CONSIDERATION OF MATERIAL FACTS, IT COULD BE GATHERED THAT THE BUSINESS EXPENDITURE OF RS.126.94 LACS AS DISALLOWED BY LD. AO INCLUDE E MPLOYEE BENEFIT COSTS, FINANCE COST, DEPRECIATION, ADMINISTRATIVE, SELLING AND OTHER EXPENSES. AS PER THE SUBMISSIONS OF LD. AR, THE SE EXPENSES INCLUDE STATUTORY DUES (EXCISE DUTY AND EMPLOYEES PROVIDENT FUND) FOR RS.41.88 LACS WHICH, THOUGH PERTAINED TO E ARLIER YEARS, HAVE BEEN PAID DURING THE YEAR BEFORE DUE DATE OF FILING OF RETURN OF INCOME U/S 139(1). THEREFORE, THE SAME WOULD BE ALLOWABLE TO THE ASSESSEE U/S 43B. TO SUPPORT THE SAME, THE LEDGER EXTRACTS AND COPIES 4 OF THE CHALLANS HAVE BEEN PLACED ON R ECORD. C ONCURRING WITH THE SAME , WE MODIFY THE DIRECTIONS GIVEN BY LD. CIT(A) AND DIRECT LD. AO TO VERIFY THE CLAIM AND ALLOW THE DEDUCTION U/S 43B IRRESPECTIVE OF THE FACT WHETHER THE BUS INESS ACTIVITY WAS THERE OR NOT. GROUND NO.2 STAND ALLOWED FOR STATI STICAL PURPOSES . 5. THE DEPRECIATION OF RS. 8.35 LACS AS CLAIMED BY THE ASSESSEE HAS ALREADY BEEN ADDED BACK BY THE ASSESSEE IN ITS COMPUTATION OF INCOME AND THEREFORE, NO DIRECTION IS REQUIRED TO THAT EXTENT . SO FAR AS THE REMAINING EXPENSES ARE CONCERNED , THESE ARE IN THE NATURE OF EMPLOYEE BENEFIT COSTS, FINANCE COST, ADMINISTRATIVE, SELLING AND OTHER EXPENSES. U PON PERUSAL OF FINANCIAL STATEMENTS OF FINANCIAL Y EARS 20 1 4 - 15 TO 2019 - 20 AS PLACED ON RECORD , IT COULD BE SEEN THAT ASSESSEES B U SINESS HAS NOT CLOSED DOWN BUT IS CONTINUING ONE AND THE ASSESSEE HAS EARNED REVENUE FROM OPERATIONS IN SUBSEQUENT YEAR . THE ASSESSEE IS NOT A SICK INDUSTRIAL COMPANY. WE ARE OF THE CONSIDERED OPINION THAT TO CLAIM THE EXPENDITURE U/S 37(1), THE ONLY REQUIREMENT IS THAT THE EXPENDITURE SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THE SAME SHOULD NOT BE PERSONAL OR CAPITAL EXPENDITURE IN NATURE . THE EARNIN G OF THE REVENUE IS NOT A PRE - CONDITION TO CLAIM THE SAME. THEREFORE, LD. AO IS DIRECTED TO VERIFY THE REMAINING EXPENDITURE AND ALLOW THE SAME IGNORING THE FACT THAT NO REVENUE W AS EARNED BY THE ASSESSEE FROM BUSINESS OPERATIONS. GROUND NO.1 STANDS ALLOWED FOR STATISTICAL PURPOSES. 6. DISALLOWANCE U/S 69 6.1 THE ASSESSEE REFLECTED LOANS & A DVANCES OF RS.624.48 LACS RECEIVABLE FROM AN ENTITY I.E. M/S USM ENTERPRISES. HOWE VER, THE SAID PARTY REF LECTED BALANCE OF RS. 515.53 LACS . THE ASSESSEE SUBMITTED THAT 5 THE SAID AMOUNT WAS OUTSTANDING SINCE LAST M ANY YEARS AND NO AMOUNT WAS ADVANCED DURING T HE YEAR. SIMI LAR BALANCE W AS ACCEPTED DURING SC RUTINY ASSESSMENT PROCEEDINGS OF VARIOUS EARLIER ASSESSMENT YEARS. HOWE VER, LD. AO ADDED THE DIFFERENTIAL OF RS.108.94 LACS TO THE INCOME OF THE ASSESSEE U/S 69 AS UNEXPLAINED INVESTMENTS WHICH WOULD BE ASSESS ABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . 6.2 DURING APPELLATE PROCEEDINGS, THE ASSESSEE, INTER - ALIA, SUBMITTED THAT IT HAD PROPERLY RECORDED THE AMOUNTS ADVANCED TO M/S USM ENTERPRISES. IT WAS USM ENTERPRISES WHO UNDER - STATED / UNDER - REPORTED THE FIG URES IN THEIR BOOKS OF ACCOUNTS. IN SUCH A CASE, THE PROVISIONS OF SEC.69 WERE NOT APPLICABLE SINCE THERE WAS NO FRESH INVESTMENT DURING THE YEAR AND THERE WERE NO INVESTMENTS WHICH WERE NOT RECORDED IN THE ASSESSEES BOOKS OF ACCOUNT. HOWEVER, LD. CIT(A) CHOSE TO CONFIRM THE DISALLOWANCE AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. OUR ADJUDICATION 7. UPON CAREFUL CONSIDERATION OF MATERIAL FACTS, WE ARE OF THE CONSIDERED OPINION THAT IT IS NOT A CASE WHERE THE ASSESSEE HAS NOT DISCLOSED CERTA IN INVESTMENTS IN ITS BOOKS OF ACCOUNTS RATHER IT IS A REVERSE CA S E. THE ASSESSEE HAS REFLECTED HIGHER FIGURES IN ITS BOOKS OF ACCOUNT WHICH HAVE BEEN ACCEPTED IN SCRUTINY ASSESSMENT OF EARLIER YEARS. THE PERUSAL OF LEDGER EXTRACTS OF M/S USM ENTERPRISES F OR FINANCIAL YEARS 2011 - 12 TO 2013 - 14 WOULD SHOW THAT THERE ARE NO FRESH INVESTMENT S DURING THE YEAR. THE CLOSING BALANCE OF RS.624.48 LACS AS ON 31/03/2014 IS THE OPENING BALANCE ONLY. THIS BEING THE CASE, THERE ARE NO UNEXPLAINED INVESTMENTS MADE BY THE ASSESSEE AS ALLEGED BY LD. AO. THEREFORE, THE PROVISION OF SEC. 69 HAS NO APPLICABILITY TO THE FACT OF 6 THE CASE. THEREFORE, BY DELETING THIS ADDITION, WE ALLOW GROUND NO.3 OF THE APPEAL . 8. CONCLUSION THE APPEAL STAND PARTLY ALLOWED IN TERMS OF OUR ABOVE O RDER. ORDER PRONOUNCED ON 25 TH AUGUST, 2021. SD/ - SD/ - ( VIKAS AWASTHY ) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 25/08/2021 SR.PS, DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.