NIVI TRADING LTD, MUMBAI V. DCIT 7(1), MUMBAI

ITA 5455/MUM/2010

• Counselvise Citation: 545519914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 02-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P C MOURYA
• Keywords: Business income; Business expenditure; Earning of tax free income
• Section: 43B; 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ITA. NO. 5455/MUM/2010 ASSESSMENT YEAR 2005-2006 NIVI TRADING LIMITED MUMBAI 400 018 PAN AAACN2703L VS. DCIT, CIRCLE 7 (1) MUMBAI (APPELLANT) (RESPONDENT) FOR APPELLANT : MS. SAISUDHA MULTANI FOR RESPONDENT : SHRI P.C.MOURYA DATE OF HEARING : 03-10-2011 DATE OF PRONOUNCEMENT : 12-10-2011 ORDER PER D. MANMOHAN, V.P. 1. THIS APPEAL IS FILED AT THE INSTANCE OF THE ASS ESSEE- COMPANY AND IT PERTAINS TO THE ASSESSMENT YEAR 2005 -2006. THOUGH THE GROUNDS OF APPEAL ANNEXED TO FORM-36 RUNS INTO TWO PAGES, ESSENTIALLY THREE ISSUES EMERGE OUT OF THE GROUNDS URGED THEREIN I.E., (A) WHETHER ASSESSEE HAS INCURRED ANY EXPENDITURE F OR THE PURPOSE OF EARNING EXEMPT INCOME SO AS TO MAKE A REASONABLE DI SALLOWANCE BY APPLYING THE PROVISION OF SECTION 14A OF THE ACT ? (B) WHETHER THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING A SU M OF RS.59,833/-, AS EXPENDITURE NOT RELATABLE TO BUSINESS, MAINLY ON TH E GROUND THAT INCOME EARNED BY THE ASSESSEE IS ONLY IN THE FORM O F DIVIDEND INCOME, CAPITAL GAINS ON SALE OF UNITS AND IN THE ABSENCE O F NOT CARRYING OF ANY OTHER BUSINESS, BUSINESS EXPENDITURE CANNOT BE CLAI MED AND ALLOWABLE ? (C) WHETHER PROFESSIONAL FEES PERTAININ G TO THE PERIOD 1990-1991 TO 2003-2004 IS ALLOWABLE AS DEDUCTION IN THE ASSESSMENT YEAR 2005-2006 MAINLY ON ACCOUNT OF THE FACT THAT I T WAS ACTUALLY PAID IN THIS YEAR ? 2 2. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR UNDER CONSIDERATION ASSESSEE EARNED DIVIDEND INCOME AMOUNTING TO RS.3,05,314/- AND THE SAME HAS BEEN CLAIMED AS EXEM PT UNDER SECTION 10(34) OF THE ACT. ASSESSEE-COMPANY WAS ALS O IN RECEIPT OF INCOME FROM CAPITAL GAINS WHICH WAS OFFERED TO TAX UNDER THE HEAD CAPITAL GAINS. THOUGH THE COMPANY HAS NOT EARNED ANY BUSINESS INCOME IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSM ENT YEAR 2005- 2006, IT HAD TO INCUR CERTAIN EXPENDITURE TO MAINTA IN THE STATUS OF THE COMPANY. ASSESSEE INCURRED A SUM OF RS.59,833/- WHI CH WAS CLAIMED AS BUSINESS EXPENDITURE, DETAILS OF WHICH ARE AS FO LLOWS : 1 BANK CHARGES 2,940 2. ADVERTISEMENT EXPENSES 12,723 3. LISTING FEES 10,000 4. FILING FEES 1,500 5. AUDIT FEES 6,612 6. APPEAL FEES 7,712 7. DEPOSITORY SERVICE CHARGES 4,608 8. DEMATERIALISATION CHARGES 1,367.50 9. PROFESSION TAX 2,500 10. MISCELLANEOUS EXPENSES 410 11. PROFESSIONAL FEES-CERTIFICATION MATTERS 9,510 3. AS COULD BE NOTICED THEREFROM ASSESSEE-COMPANY INCURRED ONLY FIXED EXPENDITURE WHICH ARE REQUIRED FOR THE D AY TO DAY ACTIVITY AND IT HAS NO NEXUS TO EARNING OF DIVIDEND INCOME O R INCOME FROM CAPITAL GAINS BUT IT WAS AN EXPENDITURE NECESSARY T O CONTINUE THE IDENTITY AS COMPANY. THE ASSESSING OFFICER WAS OF T HE OPINION THAT A PORTION THEREFROM I.E., RS.37,512/- HAS TO BE TREAT ED AS EXPENDITURE CONNECTED TO EARNING OF TAX FREE INCOME AND HENCE, BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D, THE AS SESSING OFFICER 3 DISALLOWED THE SAID EXPENDITURE AND THE LEARNED CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 3.1. ASSESSING OFFICER FURTHER OBSERVED THAT IN TH E ABSENCE OF CARRYING ON ANY BUSINESS IN THE YEAR UNDER CONSIDER ATION ASSESSEE IS NOT ENTITLED TO CLAIM ANY BUSINESS EXPENDITURE AND ACCORDINGLY DISALLOWED A SUM OF RS.59,833/-. LEARNED CIT(A) WAS OF THE OPINION THAT IN THE ABSENCE OF ANY BUSINESS TRANSACTION IN THIS YEAR, QUESTION OF ALLOWING ANY DEDUCTION TOWARDS BUSINESS DOES NOT ARISE AND ACCORDINGLY CONFIRMED THE ACTION OF THE ASSESSING O FFICER. 4. WITH REGARD TO DEDUCTION OF RS.19,850/- CLAIMED BY THE ASSESSEE, REPRESENTING PROFESSIONAL TAX, THE ASSESS ING OFFICER AS WELL AS THE CIT(A) WERE OF THE OPINION THAT PRIOR PERIOD EXPENSES CANNOT BE CLAIMED AS DEDUCTION IN THE YEAR UNDER CONSIDERATIO N SINCE ASSESSEE- COMPANY WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. 4.1. AGGRIEVED, ASSESSEE-COMPANY IS IN APPEAL BEFO RE US. LEARNED COUNSEL, APPEARING ON BEHALF OF THE ASSESSE E, ADVERTED OUR ATTENTION TO THE NATURE OF THE EXPENDITURE INCURRED DURING THE FINANCIAL YEAR TO INDICATE THAT ONLY FIXED EXPENDIT URE WHICH ARE REQUIRED FOR DAY-TO-DAY ACTIVITY, SO AS TO MAINTAIN THE IDENTITY OF THE COMPANY, WAS INCURRED AND IT HAS NO NEXUS TO THE EA RNING OF DIVIDEND INCOME AND ALSO PLACED A COPY OF THE ORDER OF THE I TAT, F BENCH, MUMBAI IN ASSESSEES OWN CASE FOR THE ASSESSMENT YE AR 2001-2002 WHEREIN, UNDER IDENTICAL CIRCUMSTANCES. DISALLOWANC E MADE BY THE ASSESSING OFFICER UNDER SECTION 14A WAS SET ASIDE B Y THE APPELLATE TRIBUNAL. 5. SIMILARLY WITH REGARD TO DISALLOWANCE OF RS.59, 833/- THE PLEA OF THE ASSESSEE WAS THAT MERELY BECAUSE ASSESS EE-COMPANY COULD NOT TRANSACT ANY BUSINESS ASSESSEE CANNOT BE DISENT ITLED TO CLAIM DEDUCTION UNDER SECTION 37(1) OF THE ACT. IT WAS CO NTENDED THAT ASSESSEE IS CONTINUING IN THE BUSINESS THOUGH NO AC TIVITY WAS CARRIED 4 ON IN THIS YEAR AND THE NATURE OF EXPENDITURE CLEAR LY REFLECT THAT IT WAS THE BARE MINIMUM EXPENDITURE TO RUN THE DAY-TO-DAY ACTIVITY OF THE COMPANY AND HENCE IT HAS TO BE CONSIDERED AS EXPEND ITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. N OT EARNING INCOME THEREFROM IS NOT A CRITERIA TO DISALLOW THE CLAIM O F DEDUCTION. 6. WITH REGARD TO DISALLOWANCE OF RS.19,850/-, LEA RNED COUNSEL SUBMITTED THAT PROFESSIONAL TAX CAN BE CLAI MED AS DEDUCTION, UNDER SECTION 43B OF THE ACT, ONLY IN THE YEAR OF P AYMENT AND BY STATUTORY COMPULSION THE ASSESSEE-COMPANY HAS TO MA KE A CLAIM OF DEDUCTION IN THIS YEAR I.E., THE YEAR OF PAYMENT. 6.1. ON THE OTHER HAND, LEARNED DR STRONGLY RELIED UPON THE ORDERS PASSED BY THE TAX AUTHORITIES. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. AS REGARDS THE FIRST ISSUE WE F IND THAT RULE 8D IS NOT RETROSPECTIVE IN ITS OPERATION, IN THE LIGHT OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. 328 ITR 81. EVEN UNDER SECTION 14A OF THE ACT REASONABL E EXPENDITURE, WHICH WAS NECESSARY FOR THE PURPOSE OF EARNING TAX FREE INCOME HAS TO BE CONSIDERED FOR DISALLOWANCE. IN THE INSTANT CASE , AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL, THE EXPENDITURE INCURRE D BY THE ASSESSEE WAS ONLY TO RUN THE DAY-TO-DAY ACTIVITY AND EXPENDI TURE SUCH AS LISTING FEES, FILING FEES, AUDIT FEES, APPEAL FEES, ETC., CANNOT BE CONSIDERED TO BE HAVING ANY NEXUS WITH THE EARNING OF TAX FREE INCOME. UNDER THE CIRCUMSTANCES, BY RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT, F BENCH (SUPRA), WE HOLD THAT ADHOC DISALLO WANCE OF RS.37,512/- MADE BY THE ASSESSING OFFICER IS NOT IN ACCORDANCE WITH LAW. 8. SIMILARLY, THE ASSESSING OFFICER DISALLOWED A S UM OF RS.59,833/- MAINLY ON THE GROUND THAT NO ACTIVITY W AS CARRIED ON IN THE YEAR UNDER CONSIDERATION. IT IS WELL SETTLED TH AT IN ORDER TO CLAIM 5 DEDUCTION TOWARDS BUSINESS EXPENDITURE IT IS NOT NE CESSARY THAT AN ASSESSEE HAS TO EARN BUSINESS INCOME IN THE SAME YE AR SO LONG AS IT CAN BE SHOWN THAT THE COMPANY INTENDS TO CONTINUE I TS ACTIVITIES. THE EXPENDITURE REFLECTED IN THE ASSESSMENT YEAR CLEARL Y INDICATE THAT THESE ARE THE BASIC EXPENDITURE IN ORDER TO CONTINU E ITS STATUS AS A COMPANY AND IN THE ABSENCE OF PROVING THAT THE ASSE SSEE, BY ITS CONDUCT, HAD TAKEN A DECISION NOT TO CARRY ON ITS B USINESS FOREVER THE MINIMUM EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE DISALLOWED. WE THEREFORE, DIRECT THE ASSESSING OFFICER ACCORDIN GLY. 9. THE THIRD ISSUE IS WITH REGARD TO THE PRIOR PER IOD EXPENSES OF RS.19,850/-. THE CASE OF THE LEARNED DR IS THAT THE ASSESSEE- COMPANY FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING AN D HENCE PROFESSIONAL TAX PAYABLE HAS TO BE CLAIMED AS DEDUC TION IN THE YEAR TO WHICH IT PERTAINS TO AND ONLY UPON DISALLOWING SUCH CLAIM IN THE EARLIER YEARS A DEDUCTION WOULD BE PERMISSIBLE IN T HE YEAR OF PAYMENT IN THE LIGHT OF PROVISIONS OF SECTION 43B OF THE AC T. WE FAIL TO UNDERSTAND THE LOGIC BEHIND THE PLEA OF LEARNED DR. HEADING OF SECTION 43B STATES THAT CERTAIN DEDUCTIONS CAN BE A LLOWED UPON ACTUAL PAYMENT. IT IS NOT IN DISPUTE THAT PROFESSIONAL TAX CAN BE CLAIMED AS DEDUCTION, IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY AN ASSESSEE, IN THE YEAR OF ACTUAL PAYMENT. ADMITTEDLY , ASSESSEE PAID THE PROFESSIONAL TAX IN THE PREVIOUS YEAR RELEVANT TO T HE ASSESSMENT YEAR 2005-2006. UNDER THE CIRCUMSTANCES, WE ARE OF THE F IRM VIEW THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF RS.19,850/-. A SSESSING OFFICER IS DIRECTED ACCORDINGLY. 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE-CO MPANY IS ALLOWED. 6 ITA.NO.5455/MUM/2010 NIVI TRADING LIMITED ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 12 TH DAY OF OCTOBER, 2011. SD/- SD/- (PRAMOD KUMAR) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 12 TH OCTOBER, 2011 VBP/- COPY TO 1. NIVI TRADING LIMITED, READY MONEY TERRACE, 167, ANNIE BESANT ROAD, WORLI NAKA, MUMBAI 400 018 PAN AAACN270 3L 2. DCIT, CIRCLE 7(1), MUMBAI. 3. CIT(A)-13MUMBAI. 4. CIT-7 MUMBAI 5. DR B BENCH 6. GUARD FILE TRUE COPY BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI.