North India Infratech Pvt. Ltd., Delhi V. ACIT, Circle- 18(2), New Delhi

ITA 497/DEL/2019

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0094 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2014-2015
• Appeal Filed On: 23-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Set aside
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBE R & SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 497/DEL/2019 ASSESSMENT YEAR: 2014-15 NORTH INDIA INFRATECH PVT. LTD. A-129, ASHOK VIHAR, PHASE-II, DELHI. PAN NO. AACCN4943N VS ACIT CIRCLE 18(2) NEW DELHI. APPELLANT RESPONDENT ASSESSEE BY SH. H.C. PARASHAR, ADV. SH. SANJAY JAIN, CA REVENUE BY MS. RINKU SINGH, SR. DR ORDER PER SHRI BHAVNESH SAINI, J.M. THIS APPEAL BY ASSESSEE HAS BEEN DIRECTED AGAINST T HE ORDER OF LD. CIT(APPEALS)-6, DELHI DATED 18.12.2018 FOR A Y 2014-15, CHALLENGING THE ORDERS OF THE AUTHORITIES BELOW IN CONFIRMING THE ADDITION OF RS. 16,37,409/- U/S 37 OF THE I.T. ACT, ADDITION OF RS. 85,821/- ON ACCOUNT OF SHORT TERM CAPITAL GAIN AND ADDITION OF RS. 19,65,584/- U/S 14 OF THE ACT ON ACCOUNT OF INCOME FROM OTHER SOURCES. DATE OF HEARING 28.03.2019 DATE OF PRONOUNCEMENT 01.04.2019 2 ITA NO. 497/DEL/ 2019 2. BRIEFLY THE FACTS OF THE CASE ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY AND FILED RETURN OF INCOME DECLARIN G TOTAL INCOME AT RS. 73,13,140/- AND DECLARED INCOME U/S 1 15JB AT RS. 73,43,685/-. THE AO CALLED FOR CERTAIN DETAILS WHI CH THE ASSESSEE PRODUCED TIME TO TIME. THE ASSESSEE COMPANY IS DEA LING IN TRADING IN SHARES, DEBENTURES AND OTHER INVESTMENTS . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED I NCOME FROM BUSINESS OR PROFESSION AND INCOME FROM CAPITAL GAIN S. THE AO OBSERVED FROM THE PROFIT AND LOSS ACCOUNT THAT ASSE SSEE HAS NOT EARNED ANY INCOME FROM THE BUSINESS. HOWEVER, THE ASSESSEE HAS CLAIMED INCOME AMOUNTING TO RS. 90,21,939/- FROM SH ORT TERM CAPITAL GAINS, INTEREST FROM LATE PAYMENTS AND INTE REST FROM FDR, AS OTHER INCOME SHOWN IN THE PROFIT AND LOSS ACCOUN T. THE ASSESSEE HAS CLAIMED EMPLOYEE BENEFIT EXPENSES, PAY MENT TO AUDITORS, BANK CHARGES, CONTRACT AND HIRE CHARGES, PROFESSIONAL FEE, DEMAT CHARGES, INTEREST ON LOAN, INTEREST ON S HARES AND MISCELLANEOUS EXPENSES ETC. IN A SUM OF RS. 16,37,4 09/-. OUT OF TOTAL EXPENSES ASSESSEE HAS ALSO CLAIMED AN EXPENSE OF RS. 7 LAKHS PAID TO M/S METROPOLITAN ENTERPRISES ON ACCOUNT OF CONTRACT AND HIRE CHARGES. THE AO ON VERIFICATION FOUND THA T THIS CONCERN WAS REGISTERED WITH THE DEPARTMENT ON 29.04.2014 BU T PRESENT STATUS IS SHOWN TO BE CANCELLED. THE INSPECTOR REP ORTED THAT NO SUCH ENTITY EXISTS AT THE GIVEN ADDRESS. THE AO, T HEREFORE, ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THESE E XPENSES SHOULD NOT BE DISALLOWED AS THERE WERE NO BUSINESS CARRIED OUT DURING THE YEAR AND THESE EXPENSES ARE NOT RELATED TO THE 3 ITA NO. 497/DEL/ 2019 BUSINESS. THE ASSESSEE FILED REPLY BEFORE AO WHICH IS REPRODUCED IN THE ORDER IN WHICH THE ASSESSEE EXPLAINED THAT I NTEREST ON LATE PAYMENT OF RS. 15 LAKHS WAS RECEIVED FROM M/S ENRIC H FINANCE & SECURITIES LTD. OF THE VARIOUS MEETINGS HELD WITH NSE FOR RECOVERING THE OUTSTANDING DUES FROM THE BROKER. I NTEREST ON SHARES OF RS. 4,48,954.71 WAS PAID TO THE BROKER FO R BUYING SHARES ON CREDIT, SALARY, DEMAT CHARGES, INTEREST ON LOAN AND STT WERE ALL RELATED TO EARNING THE SHORT TERM CAPITAL GAIN. AL THOUGH THERE WERE NO BUSINESS ACTIVITIES CARRIED OUT DURING THE YEAR, THE ASSESSEE HAD A TOUGH TIME RECOVERING HIS OWN MONEY FROM THE BROKER. THERE ARE CERTAIN SET OF EXPENSES WHICH AR E INHERENT AND RELATABLE FOR THE EXISTENCE OF THE COMPANY. THE CO MPANY BEING A SEPARATE ENTITY HAS TO MAINTAIN ITS OFFICE, STAFF A ND PAY AUDIT FEES ETC. THESE EXPENSES ARE NECESSARY AND UNAVOIDABLE FOR A COMPANY TO EXIST. THEREFORE, DISALLOWANCE OF THE EXPENSES IS WHOLLY UNJUSTIFIED. THE AO, HOWEVER, DID NOT ACCEPT EXPLA NATION OF THE ASSESSEE BECAUSE THERE WAS NIL INCOME FROM BUSINESS AND PROFESSION AND MADE ADDITION OF RS. 16,37,409/- BY DISALLOWING THE ABOVE EXPENSES. 3. THE AO OBSERVED FROM THE PROFIT AND LOSS ACCOUNT THAT ASSESSEE HAS EARNED AN AMOUNT OF RS. 70,56,354/- FR OM SHORT TERM CAPITAL GAIN. THE ASSESSEE HAS EARNED THIS AM OUNT FROM TRADING OF EQUITY SHARES THROUGH ITS BROKER M/S ENR ICH FIN & SECURITIES LTD. THE AO ISSUED NOTICE TO THIS COMPANY U/S 133(6) OF THE ACT WHO REPLIED THAT THE ASSESSEE HAS ACTUAL LY EARNED RS. 71,42,175/- FROM SHORT TERM CAPITAL GAIN, THEREFORE , ASSESSEE WAS 4 ITA NO. 497/DEL/ 2019 FOUND TO HAVE SHOWN LESS SHORT CAPITAL GAINS AMOUNT ING TO RS. 85,821/- WHICH WAS ADDED TO THE INCOME OF ASSESSEE. 4. THE AO FURTHER NOTED THAT ASSESSEE HAS EARNED AN AMOUNT OF RS. 4,65,584/- AS INTEREST FROM FDR AND INTEREST ON LATE PAYMENTS OF RS. 15 LAKHS. THE ASSESSEE SUBMITTED BEFORE AO THAT INTEREST ON LATE PAYMENTS OF RS. 15 LAKHS WAS RECEIVED FROM M/S ENRICH FIN & SECURITIES LTD. OF THE VARIOUS MEETINGS HELD WITH THE NSE FOR RECOVERING THE OUTSTANDING DUES FROM THE BROKER. T HE REPLY OF THE ASSESSEE WAS NOT ACCEPTED BECAUSE ASSESSEE HAS NOT EARNED ANY INCOME FROM BUSINESS ACTIVITY, THEREFORE, AMOUNT OF RS. 19,65,584/- WAS TREATED AS INCOME FROM OTHER SOURCE S. 5. THE ASSESSEE CHALLENGED ALL THE THREE ADDITIONS BEFORE LD. CIT(A). THE LD. CIT(A) NOTED THAT SEVERAL NOTICES WERE SENT TO THE ASSESSEE FOR DISPOSAL OF THE APPEAL BUT EITHER NO O NE ATTENDED THE PROCEEDINGS, NOTICES RETURNED UNSERVED, SOME TIME A DJOURNMENT WAS SOUGHT AND ULTIMATELY THERE WAS NO COMPLIANCE. THE LD. CIT(A) IN ABSENCE OF ASSESSEE AND IN ABSENCE OF ANY MATERIAL ON RECORD DISMISSED THE APPEAL OF THE ASSESSEE IN DEFA ULT. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEV EL OF THE AO. THE LD. CIT(A) NOTED IN THE IMPUGNED ORDER THAT ASS ESSEE COMPANY IS DEALING IN TRADING OF SHARES, DEBENTURES AND OTHER INVESTMENTS AND DURING THE YEAR UNDER CONSIDERATION , ASSESSEE HAS INCOME FROM BUSINESS AND PROFESSION AND INCOME FROM CAPITAL GAINS. THE ASSESSEE CLAIMED CERTAIN STATUTORY EXPE NDITURE WHICH 5 ITA NO. 497/DEL/ 2019 WERE INCURRED FOR MAINTAINING EXISTENCE OF THE ASSE SSEE. IN OUR VIEW SUCH STATUTORY EXPENSES ARE ALLOWABLE DEDUCTIO N EVEN IF ASSESSEE EARNED ANY BUSINESS INCOME OR NOT BEING AS SESSEE A CORPORATE ENTITY. MANY TIMES THERE MAY BE A LOSS A LSO BUT THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION OF THE EXP ENDITURE IF THE SAME ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS. THE AO WITHOUT GIVING ANY SPECIFIC REASO NS DISALLOWED THE EXPENSES BECAUSE THERE WAS NIL INCOME FROM BUSI NESS AND PROFESSION. THIS ITSELF IS NOT A VALID REASON. F URTHER, LD. COUNSEL FOR ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE HAS TO REMAIN IN BUSINESS AND HAS TO MAINTAIN ITS EXISTENCE, THEREFO RE, CONSIDERING THE NATURE OF BUSINESS OF ASSESSEE, IT HAS TO INCUR EXPENSES FOR BUSINESS PURPOSES. THE EXPLANATION OF ASSESSEE HAS NOT BEEN CONSIDERED IN PROPER PERSPECTIVE. THE AO SHALL HAV E TO VERIFY STATUTORY EXPENSES INCURRED BY ASSESSEE COMPANY. T HE AO ALSO MADE ADDITION ON ACCOUNT OF DIFFERENCE IN CAPITAL G AINS. THE AO DID NOT RECORD IN THE ASSESSMENT ORDER, IF INFORMAT ION RECEIVED U/S 133(6) FROM M/S ENRICH FIN & SECURITIES LTD. WAS SUPPLIED TO THE ASSESSEE FOR ITS COMMENTS. THEREFORE, WITHOUT CONF RONTING THE ADVERSE MATERIAL TO THE ASSESSEE, SUCH AN ADDITION COULD NOT BE MADE AND MATTER REQUIRES RECONSIDERATION. SIMILARL Y, THE AO WHILE MAKING THE ADDITION ON ACCOUNT OF INCOME FROM OTHER SOURCES DID NOT CONSIDER THE EXPLANATION OF THE ASS ESSEE THAT INTEREST ON LATE PAYMENT WAS RECEIVED FROM M/S ENRI CH FIN & SECURITIES LTD. AFTER MEETING HELD WITH NSE FOR RECOVERING THE OUTSTANDING DUES FROM THE BROKER. THE CLAIM OF ASS ESSEE WAS 6 ITA NO. 497/DEL/ 2019 DENIED BECAUSE NO BUSINESS ACTIVITY WAS CARRIED OUT . THE AO DID NOT ADDRESS THE ISSUE PROPERLY, WHETHER, IT WAS COM PENSATION IN NATURE OR WHAT WAS THE NATURE OF THE INTEREST ON LA TE PAYMENT RECEIVED, WHETHER, IT WAS CONTRACTUAL OR OTHERWISE. IT, THEREFORE, APPEARS THAT ON ALL THE THREE ADDITIONS, THE AO DID NOT APPRECIATE THE EXPLANATION OF THE ASSESSEE IN PROPER PERSPECTI VE. THEREFORE, MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO PARTICULARLY WHEN LD. CIT(A) DID NOT DECIDE THE APPEAL ON MERITS . THE LD. CIT(A) IN ABSENCE OF ASSESSEE SIMPLY DISMISSED THE APPEAL OF ASSESSEE FOR DEFAULT. IN VIEW OF THE ABOVE DISCUSS ION, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE ALL THE ABOVE THREE ADDITIONS TO THE FILE OF AO WITH DIRECTION TO REDEC IDE THE SAME ISSUES IN THE LIGHT OF EXPLANATION OF ASSESSEE AND MATERIAL ON RECORD. THE AO SHALL GIVE REASONABLE SUFFICIENT OP PORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (O.P. KANT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 01.04.2019 *KAVITA ARORA 7 ITA NO. 497/DEL/ 2019 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 28/03/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28/03/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P S/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 01.04.19 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 01.04.19 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 01.04.19 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 01.0 4.19 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER