ITO 11(3)(3), MUMBAI V. VRUSHAL TRADING P. LTD, MUMBAI

ITA 6200/MUM/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4252 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 21-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR SINGH LD
• Assessee Lawyers: RAJEN DAMANI LD
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income; Rule 8D; Set aside; Capital Gains
• Section: 143(3); 14A; 115JB; 37(1)

Judgement Text

1 ITA NO. 6200/MUM/2016 M/S. VRUSHAL TRADING P. LTD. ASSESSMENT YEAR-2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6200/MUM/2016 ( / ASSESSMENT YEAR: 2011-12) INCOME TAX OFFICER - 1 1 (3)(3) ROOM 429, 4 TH FLOOR AAYKAR BHAVAN, M.K. ROAD MUMBAI-400 020 / VS. VRUSHAL TRADING PVT. LTD. 607, 215, A WING ATRIUM, CHAKALA, ANDHERI KURLA RD. ANDHERI (EAST), MUMBAI-400 069. ! ./ ./PAN/GIR NO. AAACV-2730-K ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : MANOJ KUMAR SINGH- LD. DR / RESPONDENT BY : RAJEN DAMANI- LD.AR /DATE OF HEARING : 06/03/2019 / DATE OF PRONOUNCEMENT : 13/03/2019 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2011-12 CONTEST THE ORDER OF LD. COMMISSIO NER OF INCOME-TAX (APPEALS)-18, MUMBAI, [IN SHORT REFERRED TO AS CIT (A)], APPEAL NO.CIT(A)- 2 ITA NO. 6200/MUM/2016 M/S. VRUSHAL TRADING P. LTD. ASSESSMENT YEAR-2011-12 18/IT-34/8(3)(4)/14-15 DATED 09/06/2015 ON FOLLOWING EFFECTIVE GROUNDS OF APPEAL: - I) WHETHER IN LAW AND ON THE FACTS AND IN THE CIRC UMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF EXPENSES OF RS.75,36,5267- MADE BY THE A.O. WITHOUT APPRECIATIN G THE FACT THAT THERE WAS NO NEXUS BETWEEN THE INCOME CREDITED TO THE PRO FIT AND LOSS ACCOUNT AND THE ALLEGED BUSINESS EXPENSES CLAIMED BY THE ASSESSEE. II) WHETHER IN LAW AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS E RRED IN ALLOWING THE EXPENSES CLAIMED BY THE ASSESSEE HOLDING THAT SUCH EXPENSES HAVE BEEN ALLOW ED IN EARLIER YEARS WITHOUT APPRECIATING THE FACT THAT THE PRINCIPLE OF RES JUDICATA' IS NOT APPLICABLE TO INCOME-TAX PROCEEDINGS AND EACH ASSESSMENT IS A SEP ARATE & INDEPENDENT PROCEEDING.' III) 'WHETHER IN LAW AND ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HA S ERRED IN NOT APPRECIATING THAT THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT IS NOT COMMENSURATE WITH THE BUSINESS RECEIPT, AS IT IS HIGHLY IMPROBAB LE AND UNBELIEVABLE THAT FOR EARNING CONSULTANCY INCOME OF A MEAGRE SUM OF RS.12,000/-, THE ASSESSEE WOULD HAVE EXPENDED SUCH A HUGE SUM OF RS.75,36,526/-.' IV) 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O, BE RESTORED.' THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. IN COME TAX OFFICER- 8(3)(4) U/S 143(3) ON 28/02/2014 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.71.60 LACS UNDER NORMAL PROVISIONS AFTER CERTAIN ADDITIONS /ADJUSTMENTS. THE BOOK PROFITS U/S 115JB WAS DETERMINED AT RS.53.12 LACS AS AGAINST RS.41.81 LACS COMPUTED BY THE ASSESSEE IN RETURN OF INCOME E-FILED ON 30/09/2011. THE ASSESSE E BEING RESIDENT CORPORATE ENTITY WAS STATED TO BE ENGAGED IN THE BUSINESS OF INVESTMENTS IN SHARES, SECURITIES, DEBENTURES ETC. 2.1 DURING ASSESSMENT PROCEEDINGS, THE PERUSAL OF F INANCIAL STATEMENTS REVEALED THAT THE ASSESSEE WAS IN RECEIPT OF FOLLOW ING INCOMES: - NO. NATURE OF INCOME AMOUNT (RS.) ROUNDED OFF HEAD UNDER WHICH OFFERED BY THE ASSESSEE 1. CONSULTANCY FEES 0.12 LACS BUSINESS INCOME 3 ITA NO. 6200/MUM/2016 M/S. VRUSHAL TRADING P. LTD. ASSESSMENT YEAR-2011-12 2. INTEREST ON FDRS & OTHER INTEREST 67.80 LACS BUS INESS INCOME 3. DIVIDEND INCOME 26.22 LACS CLAIMED TO BE EXEMPT 4. PROFIT ON SALE OF INVESTMENT 47.76 LACS CAPITAL GAINS AS AGAINST THE BUSINESS INCOME, THE ASSESSEE CLAIME D BUSINESS EXPENDITURE TO THE TUNE OF RS.75.36 LACS WHICH INCL UDED DIRECTORS REMUNERATION, SALARY TO EMPLOYEES, DEPRECIATION ON BUILDING, FINANCIAL EXPENSES AND ADMINISTRATIVE EXPENSES . THE LD. AO OPINED THAT EARNING OF INTEREST WAS NEITHER THE BUSINESS ACTIVITY OF THE A SSESSEE NOR IT WAS DEMONSTRATED THAT THE ASSESSEE WAS INVOLVED IN INVE STING MONEY TO EARN MORE INTEREST BY ACCEPTING LOANS AT LOWER RATE OF I NTEREST. THEREFORE, INTEREST INCOME WAS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND AGAINST THE SAME, ONLY THOSE EXPENSES WHICH WE RE INCURRED WHOLLY AND EXCLUSIVELY TO EARN THE SAME COULD BE AL LOWED U/S 57. SINCE IT WAS NOTED THAT THE FDRS WERE SOURCED OUT OF EXCESS FUNDS AVAILABLE WITH THE ASSESSEE, NO EXPENDITURE COULD BE ALLOWED AGAIN ST THE SAME. 2.2 AS AGAINST REMAINING MEAGRE BUSINESS INCOME OF RS.12,000/- REPRESENTING CONSULTANCY INCOME , THE EXPENDITURE WAS CLAIMED TO THE TUNE OF RS.75.35 LACS, WHICH, IN THE OPINION OF LD. AO, WAS NOT JUSTIFIABLE. IT WAS NOTED THAT THE ASSESSEE EARNED VERY MEAGRE CONS ULTANCY FEES RIGHT FROM FY 2006-07 TO FY 2010-11 WHICH RANGED FROM MER E RS.5,000/- TO RS.12,000/-. IT WAS ALSO NOTED THAT THE ASSESSEE RA ISED ONLY TWO CONSULTANCY BILLS DURING THE IMPUGNED AY AND THE CO NSULTANCY WAS STATED TO BE PROVIDED BY A PERSON NAMELY JINESH PAREKH WHEREAS THE ASSESSEE PAID HEFTY SUM OF RS.11.40 LACS TO ONE OF ITS DIREC TORS NAMELY NIPA 4 ITA NO. 6200/MUM/2016 M/S. VRUSHAL TRADING P. LTD. ASSESSMENT YEAR-2011-12 PAREKH. THE FACTUAL MATRIX LED THE LD. AO TO BELIEVE THAT T HE CORPORATE ENTITY WAS NOTHING BUT A COLORABLE DEVICE USED IN T HE PRETEXT OF BUSINESS ACTIVITY TO CLAIM EXPENSES RELATED TO ASSESSEES SI STER CONCERNS, DIRECTORS, AND TO EARN EXEMPT INCOME AND TO SIPHON OUT TAXABLE INCOME. FINALLY, THE BUSINESS EXPENDITURE OF RS.75.36 LACS AS CLAIMED BY THE ASSESSEE WAS DISALLOWED. ANOTHER DISALLOWANCE OF RS.1.85 LACS WA S ALSO MADE ON ACCOUNT OF WRITE-BACK OF SUNDRY CREDITORS, DIVIDEND, SHORT PAY MENT AGAINST SALE OF SHARES. 2.3 AS AN ALTERNATIVE PROPOSITION, LD. AO OPINED TH AT THE DIRECTOR REMUNERATION OF RS.11.40 LACS WAS QUITE EXCESSIVE A ND NOT RELATED TO BUSINESS INCOME EARNED BY THE ASSESSEE DURING THE Y EAR AND THEREFORE, THE SAME WAS TO BE DISALLOWED. THE PERUSAL OF DETAI LS OF BUSINESS PROMOTION EXPENSES OF RS.0.65 LACS CLAIMED BY THE ASSESSEE REVEAL THAT THE SAME WERE GENERALLY INCURRED ON HOTEL BILLS AND THEREFORE, THE SAME COULD NOT BE SAID TO HAVE BEEN INCURRED FOR BUSINES S PURPOSES. THE FIELD INSPECTION OF THE PREMISES OWNED BY THE ASSESSEE RE VEALED THAT THE PREMISES WAS BEING USED BY OTHER THREE SISTER CONCE RNS OF THE ASSESSEE COMPANY AND THEREFORE, ONLY OF THE TOTAL REMAININ G EXPENDITURE OF RS.65.10 LACS WOULD BE ALLOWABLE TO THE ASSESSEE. F URTHER, SINCE THE ASSESSEE EARNED EXEMPT INCOME OF RS.26.22 LACS, LD. AO WORKED OUT DISALLOWANCE U/S 14A READ WITH RULE 8D FOR RS.11.31 LACS. FINALLY, THE INCOME UNDER NORMAL PROVISIONS WERE DETERMINED AT R S.71.60 LACS. 5 ITA NO. 6200/MUM/2016 M/S. VRUSHAL TRADING P. LTD. ASSESSMENT YEAR-2011-12 3. AGGRIEVED, THE ASSESSEE AGITATED THE SAME WITH P ARTIAL SUCCESS BEFORE LD. CIT (A) VIDE IMPUGNED ORDER DATED 09/06/ 2015 WHEREIN IT WAS NOTED THAT THERE WAS NO CHANGE IN THE BUSINESS ACTI VITIES CARRIED OUT BY THE ASSESSEE DURING THE IMPUGNED AY AND THE ASSESSE E WAS FOLLOWING CONSISTENT METHOD OF ACCOUNTING AND CLAIMING SIMILA R EXPENDITURE IN EARLIER YEARS AND THEREFORE, THE SAME WERE ALLOWABLE TO THE ASSESSEE. RELIANCE WAS PLACED ON CERTAIN JUDICIAL PRONOUNCEMENTS WHILE ARRIVING AT SUCH CONCLUSION, THE RELEVANT EXTRACT OF WHICH HAS ALREA DY BEEN GIVEN ON PAGE NOS. 10-11 OF THE IMPUGNED ORDER. THE LD. FIRST APPELLATE AUTH ORITY ALSO OBSERVED THAT LD. AO COULD NOT DISALLOW THE EXPENDI TURE ON THE GROUND THAT BUSINESS INCOME WAS LOW. HOWEVER, THE DISALLOW ANCE OF RS.0.89 LACS MADE BY LD. AO WAS CONFIRMED FOR WANT OF REQUISITE EVIDENCES. THE ACTION OF LD. AO IN TREATING THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES WAS ALSO CONFIRMED. THE ALTERNATIVE DISALLOWANCES O F DIRECTORS REMUNERATION, BUSINESS PROMOTION EXPENSE, ADMINISTR ATIVE FINANCE AND DEPRECIATION EXPENSES AS DISALLOWED BY LD. AO WERE DELETED. THE DISALLOWANCE U/S 14A WAS CONFIRMED SUBJECT TO CORRE CTION OF CERTAIN MISTAKE AS POINTED OUT BY THE ASSESSEE. AGGRIEVED, BY AFORESAID DIRECTIONS, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] SUBMITT ED THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE HAD NO RELATION WITH CONSULTANCY FEES AND THEREFORE, THE SAME WERE NOT ALLOWABLE TO THE ASSESSEE. PER 6 ITA NO. 6200/MUM/2016 M/S. VRUSHAL TRADING P. LTD. ASSESSMENT YEAR-2011-12 CONTRA, LD. AR SUBMITTED THAT SIMILAR EXPENSES HAVE BEEN ALLOWED IN EARLIER YEARS. 5. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS AN D PERUSED RELEVANT MATERIAL ON RECORD. AFTER THOUGHTFUL CONSIDERATION, WE ARE OF THE CONSIDERED OPINION THAT IT IS UNDISPUTED FACT THAT INVESTMENTS IN THE SHAPE OF FIXED DEPOSITS WERE OUT OF EXCESS FUNDS HELD BY THE ASSESSEE AND SECONDLY, EARNING OF INTEREST ON FDRS WAS NOT THE PRIME OBJECTIVE OF THE ASSESSEE COMPANY AND THEREFORE, THE SAME WAS RIGHTL Y HELD TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES . NO INTERFERENCE IS CALLED FOR, IN THIS REGARD. 6. PROCEEDING FURTHER, WE FIND THAT THE ASSESSEE HA S EARNED MEAGRE CONSULTANCY FEES OF RS.12,000/- DURING THE IMPUGNED AY WHICH IS AS PER THE TRENDS IN EARLIER YEARS. THE LD. FIRST APPELLAT E AUTHORITY HAS PROVIDED RELIEF TO THE ASSESSEE BY OBSERVING THAT LD. AO COU LD NOT QUESTION THE BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE ON TH E BASIS OF QUANTUM OF BUSINESS RECEIPTS. HOWEVER, THE FACT REMAINS THAT T HE EXPENDITURE SHOULD FULFIL THE CONDITIONS AS ENVISAGED BY SECTION 37(1) OF THE ACT SO AS TO QUALIFY FOR DEDUCTION UNDER THE HEAD BUSINESS INCOME . IN OUR OPINION, ONLY THOSE EXPENDITURE COULD BE ALLOWED TO THE ASSESSEE WHICH WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES OF THE ASSESSEE. THE PLEA, AS RAISED BY LD. AR, THAT THE DIRECTORS REMUNERATI ON HAS BEEN OFFERED TO TAX BY THE DIRECTOR COULD NOT BE A CONCLUSIVE OR DE CISIVE FACTOR IN DETERMINING ITS DEDUCTIBILITY IN THE HANDS OF THE A SSESSEE SINCE THE ONUS 7 ITA NO. 6200/MUM/2016 M/S. VRUSHAL TRADING P. LTD. ASSESSMENT YEAR-2011-12 WAS ON ASSESSEE TO DETERMINE THE DEDUCTIBILITY OF T HE SAME IN TERMS OF SECTION 37(1). ANOTHER PLEA THAT SIMILAR EXPENDITUR E WAS INCURRED IN THE EARLIER YEARS WHICH WAS ALLOWED BY THE REVENUE ALSO COULD NOT HELP THE ASSESSEE SINCE THE PRINCIPLE OF RES JUDICATA ARE NOT APPLICABLE TO INCOME TAX PROCEEDINGS AND EACH YEAR IS A SEPARATE AS WELL AS UNIQUE UNIT OF ASSESSMENT WHEREIN THE ONUS IS ON ASSESSEE TO DEMON STRATE ITS ELIGIBILITY TO CLAIM ANY EXPENDITURE. SO FAR AS THE CLAIM REGAR DING FINANCE CHARGES & DEPRECIATION ON OFFICE PREMISES IS CONCERNED, IT IS UNDISPUTED FACT THAT OTHER THREE SISTER CONCERNS OF THE ASSESSEE WERE OP ERATING FROM THE SAID PREMISES. ON ONE HAND NO RENTAL INCOME HAS BEEN CHA RGED / OFFERED BY THE ASSESSEE AGAINST THE SAID BUSINESS PREMISES AND ON THE OTHER HAND FULL EXPENDITURE OF BUSINESS PREMISES HAVE BEEN CLA IMED. 7. KEEPING IN VIEW THE ABOVE FACTUAL MATRIX, THE BE NCH FORMED AN OPINION THAT THE COMPUTATION OF INCOME REQUIRES RE- ADJUDICATION / REWORKING IN THE LIGHT OF ABOVE OBSERVATIONS. THERE FORE, THE MATTER STANDS REMITTED BACK TO THE FILE OF LD.AO FOR RE-ADJUDICAT ION WITH A DIRECTION TO THE ASSESSEE TO DEMONSTRATE THE FULFILMENT OF PRIMARY I NGREDIENTS OF SECTION 37(1). 8. RESULTANTLY, THE APPEAL STANDS ALLOWED FOR STATI STICAL PURPOSES IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MARCH, 2019. SD- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 8 ITA NO. 6200/MUM/2016 M/S. VRUSHAL TRADING P. LTD. ASSESSMENT YEAR-2011-12 MUMBAI; DATED : 13/03/2019 SR.PS:-JAISY VARGHESE ! '! / 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.