Mahendra Shipping Ltd., New Delhi V. ITO, New Delhi

ITA 420/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3970 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 28-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: V K JAIN
• Keywords: Business income; Depreciation; Business expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL ITA NO. 420(DEL)/2011 ASSESSMENT YEAR: 2006-07 MAHENDRA SHIPPING LTD., INCOME-TAX OFFICER, 302, WORLD TRADE CENTRE, VS. W ARD 6(1), NEW DELHI. BABAR ROAD, NEW DELHI. PAN-AAACM3391F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.K. JAIN, C.A. RESPONDENT BY : MS. Y. KAKKAR, SR. DR ORDER PER K.G. BANSAL : AM IN THIS CASE, THE ASSESSEE HAD FILED THE RETURN ON 25.10.2006 DECLARING TOTAL INCOME OF RS. 2,94,010/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE AO THAT THE ASS ESSEE HAS NOT CARRIED OUT ANY BUSINESS IN THIS YEAR. ACCORDINGLY, THE ASSE SSEE WAS REQUIRED TO JUSTIFY THE CLAIM OF EXPENSES. AFTER HEARING THE ASSESS EE, THE INCOME WAS COMPUTED AT RS. 17,57,350/- AS UNDER:- INCOME FROM BUSINESS NIL INCOME FROM HOUSE PROPERTY RENTAL INCOME 23,32,800 LESS: DEDUCTION U/S 24(A) 6,99,840 16,32,960/- ITA NO. 420(DEL)/2011 2 INCOME FROM OTHER SOURCES OTHER INCOME 6,16,447 LESS: DIVIDEND (EXEMPT AS CLAIMED) 4,38,750 1,77,697 LESS: LUMP-SUM DEDUCTIONS U/S 57 (30%) 53,309 1,24,388/- TOTAL INCOME 17,57,348/- SAY 17,57,350/- 2. IN APPEAL BEFORE THE LD. CIT(APPEALS), IT WA S SUBMITTED THAT THE BUSINESS OF THE ASSESSEE CONSISTS OF INVESTING AND TRADING IN SHARES. IN THIS YEAR, NO SALE WAS CONDUCTED, HOWEVER, THE ASSESSEE RECEIVED DIVIDEND, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCO ME U/S 10. THE ABSENCE OF SALE DOES NOT LEAD TO INFERENCE OF CESSATION OF BUSINESS. IT WAS FURTHER SUBMITTED THAT NORMAL EXPENSES WERE INCURRED, AN D SUCH EXPENSES WERE INCURRED IN PAST ALSO. SUCH EXPENSES AMOUNTED TO ABOUT RS. 16.30 LAKH IN ASSESSMENT YEAR 2004-05, ABOUT RS. 17.58 LAKH IN ASSESSMENT YEAR 2005- 06 AND ABOUT RS. 13.72 LAKH IN THIS YEAR. THE REFORE, IT WAS AGITATED THAT NO EXPENDITURE COULD BE DISALLOWED MERELY BE CAUSE NO SALE WAS CONDUCTED IN THIS YEAR. THE ASSESSEE HAD ALSO N OT DISALLOWED ANY AMOUNT U/S 14A, BEING EXPENDITURE INCURRED IN CONNECTION WITH EARNING OF THE DIVIDEND INCOME. HOWEVER, A CALCULATION WAS FUR NISHED UNDER RULE 8D, ACCORDING TO WHICH AS SUM OF RS. 55,161/- COULD BE DISALLOWED U/S 14A. THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF TH E CASE AND SUBMISSIONS MADE BEFORE HIM. IT WAS HELD THAT EVEN IF NO BU SINESS IS CONDUCTED, SOME ITA NO. 420(DEL)/2011 3 EXPENSES WERE REQUIRED TO BE INCURRED FOR MAINTA INING THE COMPANY AND COMPLYING WITH STATUTORY REQUIREMENTS. THEREFO RE, THE ASSESSEE WAS GRANTED A RELIEF OF RS. 6,32,911/- ON THIS ISSUE . AGGRIEVED BY THIS ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 3. IN THE GROUND, IT IS MENTIONED THAT THE LD. CI T(APPEALS) ERRED IN DISALLOWING THE BUSINESS EXPENDITURE OF RS. 6,86,2 21/-, BEING 50% OF THE EXPENSES CLAIMED AND DEBITED IN P& L ACCOUNT. T HESE EXPENSES ARE IN THE NATURE OF SALARIES, FINANCIAL EXPENSES, ADMIN ISTRATIVE EXPENSES AND DEPRECIATION. WITHOUT PREJUDICE, IT IS MENTIONED THAT A SUM OF RS. 55,161/- IS DISALLOWABLE U/S 14A READ WITH RULE 8D. 3.1 THE CASE OF THE LD. COUNSEL IS THAT THE EXPE NSES ARE ROUTINE EXPENSES, THE DETAILS OF WHICH HAVE BEEN PLACED ON PAGE NO. 83 OF THE PAPER BOOK IN THE FORM OF COMPARATIVE CHART FOR T HIS AND EARLIER FOUR YEARS. THE DETAILS OF TRADING IN SHARES HAVE ALSO BEEN PLACED IN THE PAPER BOOK ON PAGE NO. 68, WHICH ARE AS UNDER:- ASSTT. YEAR SALE OF SHARES PURCHASE OF SHARES CLOSING STOCK OPENING STOCK OTHER BUSINESS INCOME 2006-07 - - 6916551 6916551 616447 ITA NO. 420(DEL)/2011 4 2005-06 2295260 2262750 6916551 3167608 968724 2004-05 3560000 - 3167608 3567608 212405 2003-04 67326 1000000 3567608 2632224 131530 2002-03 165000 165000 2632224 2680965 47284 2001-02 - 6300 2680965 2482242 87536 2000-01 88030 100920 2482242 2567490 350652 3.2 IN REPLY, THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE HAVE ALSO PERUSED THE DETAILS OF T HE EXPENSES INCURRED BY THE ASSESSEE AND PLACED ON PAGE NO. 83 OF THE PA PER BOOK. IT IS SEEN THAT THE EXPENSES ARE DEDUCTIBLE IN COMPUTING THE INC OME. THE DETAILS PLACED IN THE PAPER BOOK ON PAGE NO. 68 REGARDING TRADI NG IN SHARES IN VARIOUS YEARS DOES NOT LEAD TO THE INFERENCE THAT THE T RADING ACTIVITY HAS BEEN CLOSED DOWN. THE ASSESSEE STILL HAS CLOSING STO CK OF RS. 69,16,551/-. THEREFORE, WHAT CAN BE SAID THAT THIS IS THE LU LL PERIOD IN THE BUSINESS AND THE CASE IS NOT ONE OF CESSATION OF BUSINESS. ACCORDINGLY, IT IS HELD THAT NO PART OF THE EXPENDITURE COULD BE DISALLOWED ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS IN THI S YEAR. ITA NO. 420(DEL)/2011 5 THE ASSESSEE HAS FURNISHED A CALCULATION OF DIS ALLOWABLE AMOUNT UNDER RULE 8D AT RS. 55,161/-. THIS AMOUNT IS ADMITTED LY DISALLOWABLE UNDER SECTION 14A. SINCE THIS CALCULATION HAS NOT BEEN VERIFIED BY ANY OF THE AUTHORITIES BELOW, THE AO IS DIRECTED TO VERIFY THE CALCULATION AND COMPUTE THE AMOUNT DISALLOWABLE AS PER LAW. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 1 3 MAY, 2011. SD/- SD/- (I.P. BANSAL) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 13TH MAY, 2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- MAHENDRA SHIPPING LTD., NEW DELHI. ITO, WARD 6(1), NEW DELHI. CIT CIT(A) THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR .