World Media P.Ltd, New Delhi V. Addl.CIT, Special Range-9, New Delhi

ITA 4776/DEL/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0506 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 03-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL GANDHI
• Keywords: Set aside
• Section: 37; 143(3); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “F” : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITA No.4776/Del./2018 Assessment Year 2014-15 World Media Pvt. Ltd., K-9, Connaught Circus, New Delhi -110 001. vs., The Addl. CIT, Spl. Range-9, New Delhi. (Appellant) (Respondent) For Assessee : Shri Madhur Agarwal, Advocate For Revenue : Shri Anil Gandhi , Sr. DR. Date of Hearing : 09.12.2021 Date of Pronouncement : 06.01.2022 ORDER PER R.K. PANDA, A.M. This appeal by the Assessee is directed against the order dated 14.05.2017 of the Ld. CIT(A)-16, New Delhi, relating to the A.Y. 2014-15. 2. Facts of the case, in brief, are that the assessee company is a holding company of the TV Today Group and Living Media i.e the companies which are engaged in print 2 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. and electronic media. It filed its return of income declaring income of Rs.5,40,49,840/-. During the course of assessment proceedings, the A.O. noted that the assessee has a very nominal income of Rs.1,25,000/- on operations and has shown other income of Rs.6,11,38,102/-. However, the assessee has claimed expenses under various heads of Rs.77,94,580/-. He further noted that ‘Income from the other sources’ was mainly from interest income of Rs.5,72,70,227/- and rental income of Rs.31,75,375/-. He, therefore, asked the assessee to justify and prove the nexus of the expenses claimed with the revenue earned. Rejecting the various explanations given by the assessee and distinguishing the various decisions cited before him, the A.O. held that the assessee failed to establish the nexus of expenditure incurred with the income earned. He, therefore, disallowed 50% of the expenses claimed on account of employee benefit expenses of Rs.25,80,244/- and other expenses of Rs.43,08,171/- both totaling to Rs.34,44,207/-. 3 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. 2.1. In appeal, the Ld. CIT(A) upheld the action of the A.O. by observing as under : Finding:- Ground no 2 to 5 pertains to disallowance of Rs.34,44,207/- out of expenses claimed. The fact of the case that the appellant filed return of income declaring total income of Rs.5,40,49,840/-. The appellant has shown income from interest, rental income and profit from sale of investment. The AO noted that the appellant has shown nominal income of Rs.1,25,000/- on operations and other income of Rs.6,11,38,102/-. However the appellant has claimed expenses under various head of Rs.77,94,580/-. The finding of the AO is as follows : "The above explanation of the assessee has been perused and the same appears to be an afterthought and correct. The assessee has stated that they are facing slum in the 4 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. market and because of that they did not have income from the operation. However, it is seen that even in the last 3-4 years the assessee is showing negligible income from operation and main source of income is income from other sources/other heads. Further even if the assessee contention is accepted that they are trying to revive their business buy still the expenses/expenditure claimed did not appear to have any nexus with the income earned. Thus it appears that these expenses are basically claimed to reduce the profitability because to earn income from the bank deposits and rental income. One need not require to incur huge legal and professional fees and entertain expenses and other such expenses. Thus the assessee claim the they require the services of several staff members and also required administrative and other infrastructure for 5 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. earning income, which in the instant year is mainly from the income from other sources does not appears to be convincing. According as the assessee has failed to establish the nexus of the expenditure incurred with the income shown 50% of the expenses claimed on account of employees benefit expenses of Rs.25,80,244/- and other expenses claimed of Rs.43,08,171/- i.e. totaling to Rs.34,44,207/- are hereby disallowed and added back to the income of the assessee." In appeal a Ld. AR submitted that the justification of expenses has already been filed before AO. Ld. AR furnished the nature of expenses incurred, which are payment to auditor, legal and professional fees, insurance, rates and taxes, printing and stationary expenses, business promotion expenses, travelling expenses, telephone expenses, general expenses for officer 6 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. work, repairs and salary paid to employee. However no justification that these expense are related to business of the appellant, has been submitted. The Ld. AR further submitted that expenses in the nature provision has already been added back. On perusal of the computation of income submitted its shows that part of the expenses such as provisions, House tax etc. has been added back, However these are nominal amounts in relation to the total claim of the expenses. No details of justification for allowability of business promotion of expenses, travelling expenses, general expenses salary paid to staff has been furnished. Even in the course of hearing Ld.AR has not argued on this point. Simply by furnishing further bifurcation of expense and some of the sample bills, are not sufficient enough to allow the claim of the appellant. The expense are allowable as per section 37 of the Act. The primary condition that the expenses should be incurred for 7 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. business purpose. The AO has made categorical finding that even in preceding last 3-4 years no business income has been earned. The AO has already allowed 50% of the expenses which takes care suo motto disallowance by the appellant. In view of the discussion I do not find any reason to interfere in the finding of the AO. The disallowance made by the AO is confirmed and the ground of appeal is dismissed. In the result, the appeal is dismissed.” 3. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal, by raising the following grounds : 1. That the learned Commissioner of Income Tax (Appeals) has grossly erred in law and on facts in sustaining an adhoc disallowance of Rs.34,44,207/- (i.e., 50 percent of the expenses claimed on account of employees benefit expenses 8 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. of Rs.25,80,244/- and other expenses of Rs.43,08,171/-). 1.1. That in doing so, the learned Commissioner of Income Tax (Appeals) has also failed to appreciate the fact that disallowance so made by learned assessing officer was based on preconceived notions and by arbitrarily brushing aside the detailed submissions/evidences/material placed on record, which were furnished in order to support the fact that no addition was called for in the instant case. 1.2. That the learned Commissioner of Income Tax (Appeals) has further failed to appreciate the fact that the disallowance to the tune of Rs.34,44,207/- has been made on estimated and ad-hoc basis @ 50% of various expenses, which is impermissible in law and on this ground alone, the disallowance deserved to be deleted. 9 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. 1.3. That the learned Commissioner of Income Tax (Appeals) has further gone wrong that there is no nexus between the expenditure incurred and the income shown, such finding is factually incorrect and contrary to material available on record”. 4. Learned Counsel for the Assessee strongly challenged the order of the Ld. CIT(A) in sustaining the disallowance of 50% of the employees benefit expenses and other expenses. Referring to the decision of Coordinate Bench of the Tribunal in the case of ACIT vs., Ganapati Enterprises reported in 142 ITD 158 (Del.), he submitted that the Tribunal in the said decision has held that where the A.O. failed to give details of expenses which were found unverifiable and made an adhoc disallowance, the said disallowance was to be deleted. Referring to the decision of the Hon’ble Calcutta High Court in the case of CIT vs., Ganga Properties Ltd., reported in [1993] 199 ITR 94 (Calcutta), he submitted that the Hon’ble High Court in the said decision has held that a company even if it does not 10 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. carry on business or even if it derives income from other sources has to maintain its establishment for complying with the statutory obligation so long as it is in operation and its name is not struck-off the register or unless the company is dissolved which means cessation of all corporate activities of the assessee-company for all practical purposes. Therefore, the order of the Tribunal allowing the expenses incurred treating the same as wholly and exclusively for the activities to earn income was held to be a reasonable conclusion. The appeal filed by the Revenue was dismissed. Relying on various other decisions, he submitted that since the Revenue in the preceding and subsequent assessment years has not disallowed any expenses out of employees benefit expenses and other expenses, therefore, following the rule of consistency and also in view of the various decisions cited (supra), the order of the Ld. CIT(A) should be set aside and the grounds raised by the assessee should be allowed. 11 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. 4.1. The Learned Counsel for the Assessee further submitted that in the instant case the genuineness of the expenses is not in dispute. The A.O. is only making the disallowance on the ground that assessee has claimed the expenses basically to reduce its profitability because to earn income from the bank deposits and rental income, one need not require to incur huge legal and professional fees and entertainment expenses and such other expenses. He submitted that in the subsequent year the income from operation has substantially gone-up, details of which are at Page-49 of the PB. Further neither in the preceding nor in the subsequent assessment years, such disallowance has been made. For the above proposition, the Learned Counsel for the Assessee drew the attention of the Bench to the following chart showing the consistency of the expenses claimed on account of employee benefit expenses and other expenses and treatment accorded by the Revenue. 12 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. AY Employee Benefit Expenses (in Rs) Other Expenses (in Rs) Income from Operation (in Rs) Other Income (in Rs) Status of Assessment u/s 143(3) or 143(1) 2010-11 - 5,07,993 45,00,000 31.03.047 No disallowance made in assessment u/s 143(1) 2011-12 - 5.70,495 3,75.000 34,10,261 No disallowance made in assessment u/s 143(1) 2012-13 - 3,38,639 - 32,01,308 No disallowance made in assessment u/s 143(1) 2013-14 2,14,503 2,58,488 - 1,02,82,1 1.356 No disallowance made u/s 143(3) on account ol Adhoc Expenses 2014-15 25,80,244 43,08,171 1,25,000 6,11,38,102 Impugned Appeal 2015-16 25,84,741 34,65,651 3,00,000 5,09,52,559 No disallowance made u/s 143(3) on account of Adhoc Expenses 2016-17 26,81,118 1,63,73,903 78,72,786 11,56,06,796 No disallowance made u/s !43( 1) 2017-18 25,49,960 2,18,46,073 20,66,803 1,64,44,202 No disallowance made u s 143(3) on account of Adhoc Expenses. 13 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. 4.2. He accordingly submitted that the order of the Ld. CIT(A) should be set aside and the grounds raised by the assessee should be allowed. 5. The Ld. D.R. on the other hand heavily relied on the order of the A.O. and the Ld. CIT(A). He submitted that the assessee has shown only interest income and rental income and has claimed huge employee benefit expenses and other expenses to reduce its taxable income. He submitted that the A.O. has already allowed 50% of such expenses since the assessee could not explain the nexus of such expenditure incurred for earning the income. Since the Ld. CIT(A) has passed a very detailed order giving justifiable reasons the same should be upheld and the grounds raised by the assessee should be dismissed. 6. We have considered the rival arguments made by both the sides, perused the orders of the A.O. and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the A.O. in the instant case disallowed 50% of the employee benefit expenses and other expenses on the ground 14 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. that assessee has a very nominal income of Rs.1,25,000/- from operations and the assessee could not justify and prove the nexus of the expenses claimed and the revenue earned. We find the Ld. CIT(A) upheld the action of the A.O, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the Learned Counsel for the Assessee that genuineness of the expenses are not in dispute and the only allegation of the Revenue is that because of the meagre income from operations, the assessee by claiming such expenditure on account of employee’s remuneration and other expenses has tried to reduce its profit and that the assessee failed to establish the nexus of the expenditure with the income shown. It is his submission that the expenses incurred by a Company even when it does not carry on any business activity has to be allowed as deduction since it has to maintain establishment for complying with the statutory obligations unless its name is struck-off by the Registrar of Companies or it is dissolved. 15 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. 6.1. We find merit in the above arguments of the Learned Counsel for the Assessee. We find an identical issue had come-up before the Hon’ble Calcutta High Court in the case of CIT vs., Ganga Properties (supra). In that case also the ITO disallowed certain expenses claimed by the assessee while computing income from other sources. On appeal, the Assistant Commissioner allowed further expenses, but, sustained certain additions made by the A.O. On further appeal by the assessee, the Tribunal was of the view that the assessee being a Company had to appoint a Secretary and an Accountant to meet all the requirements under the Companies Act and Labour Law and an office has to be maintained. It was accordingly held by the Tribunal that all the expenditure claimed by the assessee can be said to be wholly and exclusively required for its business activities to earn income. Accordingly, the Tribunal allowed the entire expenditure. 6.1.1. On appeal by the Revenue, the Hon’ble Calcutta High Court following the decision of Hon’ble Allahabad High Court in the case of CIT vs., Rampur Timber & Turnery Co. 16 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. Ltd., [1981] 129 ITR 58 (All.) dismissed the appeal filed by the Revenue by observing as under : 6. At the hearing it was contended by the learned counsel appearing for the petitioner that similar case came before the Allahabad High Court in the case of CIT v. Rampur Timber & Turnery Co. Ltd. [1981] 129 ITR 58. There the assessee claimed certain expenses which were disallowed. The expenditure incurred there is for retaining the status of the company, namely, miscellaneous expenses, salary, legal expenses, travelling expenses, etc. The Allahabad High Court held that such expenses are allowable for the purpose of keeping the business of the assessee-company alive and for retaining the status of the assessee -company. 7. In our view, a limited company, even if it does not carry on business, even if it derives income from other sources, has to maintain 17 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. its establishment for complying with statutory obligation so long it is in operation and its name is not struck off the register or unless the company is dissolved which means cessation of all corporate activities of the company for all practical purposes. So long as it is in operation, it has to maintain the status as a company and it has to discharge certain legal obligations and for that purpose it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses. In this background, the conclusion of the Tribunal that the expenses incurred were wholly and exclusively for the activities to earn income is pre-eminently a reasonable conclusion. We have considered a similar case in CIT v . New Savan Sugar & Gur Refining Co. Ltd. [IT Reference No. 360 of 1979, dated 19-4- 1989]”. 18 ITA.No.4776/Del./2018 World Media Pvt. Ltd., New Delhi. 6.2. Respectfully following the decisions cited (supra) and considering the fact that the genuineness of the expenditure is not in dispute and the Company in subsequent assessment years has shown income from operations, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the addition. The grounds raised by the assessee are accordingly allowed. 7. In the result, appeal of the Assessee is allowed. Order pronounced in the open court on 06.01.2022. Sd/- Sd/- [K. NARASIMHA CHARY] [R.K.PANDA] JUDICIAL MEMBER ACCOUNTANT MEMBER Delhi; Dated 06 th January, 2022. VBP/- Copy to 1. The assessee 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT ‘F’ Bench, Delhi 6. Guard File. // By Order // Assistant Registrar : ITAT Delhi Benches : Delhi.