SAI FRAGRANCE AND FLAVOURS P. LTD, MUMBAI V. ASST CIT CIR 9(3), MUMBAI

ITA 7012/MUM/2011

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0467 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 30-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 17-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Keywords: Business income; Additional evidence; Bad and doubtful debts
• Section: 142(1); 37(1); 2

Judgement Text

1 SAI FRAGRANCE & FLAVOURS P LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.7012/MUM/2011 & I.T.A. NO.6085/MUM/2013 (ASSESSMENT YEARS: 2008-09 & 2010-11) SAI FRAGRANCE & FLAVOURS PVT LTD, SUMMER VILLE, 5 TH FLOOR, PLOT NO.426, JN OF 14 TH & 33 RD ROAD, KHAR (W), MUMBAI-400 052 PAN : AADCS6400Q VS THE ACIT-CIR.9(3), MUMBAI APPELLANT RESPONDEDNT APPELLANT BY MS. DINKLE HARIYA RESPONDENT BY SHRI V JUSTIN DATE OF HEARING 17-01-2018 DATE OF PRONOUNCEMENT 31-01-2018 O R D E R PER G MANJUNATHA, AM : THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST SEPARATE BUT IDENTICAL ORDERS OF CIT(A)-20, MUMBAI DATED 03-08-2011 AND 04-07-2013 FOR THE ASSESSMENT YEARS 2008-09 AND 2010-11. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THESE AP PEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE EXTRACTED FROM I.T.A NO .7012/MUM/2011 ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINE SS OF 2 SAI FRAGRANCE & FLAVOURS P LTD MANUFACTURING FRAGRANCE AND FLAVOURS FILED ITS RETU RN OF INCOME FOR THE ASSESSMENT YEAR 2008-09 ON 29-09-2008 DECLARING TOT AL INCOME OF RS.90,35,124. THE CASE HAS BEEN SELECTED FOR SCRUT INY AND ACCORDINGLY NOTICE U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED . IN RESPONSE TO NOTICES, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ATTENDED AND FURNISHED REQUISITE DETAILS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSEE HAS EARNE D INTEREST INCOME FROM LOANS AND THE SAME HAS BEEN TREATED AS RECEIPT S FROM BUSINESS. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS CLAIME D VARIOUS EXPENSES TO THE EXTENT OF RS.15,22,025 WHICH INCLUDES ADMINI STRATIVE AND OPERATIONAL EXPENSES AGAINST INTEREST INCOME AND OF FERED NET PROFIT OF RS.90,25,337 UNDER THE HEAD INCOME FROM BUSINESS. THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST FRO M LOANS SHALL NOT BE TREATED AS INCOME FROM OTHER SOURCES AND ALSO EXPEN SES CLAIMED AGAINST SUCH INTEREST INCOME SHALL NOT BE DISALLOWE D. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT DURI NG THE YEAR UNDER CONSIDERATION ITS MAIN BUSINESS ACTIVITY IS MONEY L ENDING TO ANOTHER CORPORATE AND EARN INTEREST. THEREFORE, INTEREST E ARNED FROM LOANS HAS BEEN RIGHTLY TREATED AS BUSINESS RECEIPTS. THE ASS ESSEE FURTHER SUBMITTED THAT THOUGH IT HAS TREATED INTEREST INCOM E IN THE PREVIOUS FINANCIAL YEAR UNDER THE HEAD INCOME FROM OTHER SO URCES, BECAUSE OF CHANGE IN FACTS AND CIRCUMSTANCES, IT CHANGED ITS B USINESS ACTIVITY FROM 3 SAI FRAGRANCE & FLAVOURS P LTD MANUFACTURING OF FRAGRANCE AND FLAVOURS TO FINANCIA L SERVICE AND IT HAS DISCONTINUED ITS MANUFACTURING OPERATIONS FROM AY 2 008-09 ONWARDS. THEREFORE, ITS CLAIM OF INTEREST INCOME UNDER THE H EAD INCOME FROM BUSINESS IS IN ACCORDANCE WITH LAW. IT WAS FURTHER SUBMITTED THAT IT HAS CLAIMED EXPENSES AGAINST BUSINESS RECEIPTS WHICH AR E MAINLY IN THE NATURE OF GENERAL ADMINISTRATIVE AND OTHER EXPENSES INCURRED TO KEEP CORPORATE ENTITY STATUS OF THE ASSESSEE. THEREFORE , WHETHER OR NOT BUSINESS IS CARRIED OUT, IT REQUIRED TO INCUR THESE EXPENSES TO KEEP THE CORPORATE STATUS, THEREFORE, IT HAS RIGHTLY CLAIMED EXPENSES AGAINST BUSINESS RECEIPTS. THE AO AFTER CONSIDERING RELEVA NT SUBMISSIONS OF THE ASSESSEE OBSERVED THAT DURING THE YEAR THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY AND EARNED ONLY INTEREST INCOME FROM LOANS AND ADVANCES GIVEN TO 7 PARTIES. THE AO FURTHER OB SERVED THAT THE ASSESSEE HAS TREATED INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE EARLIER YEARS AND WITHOUT THERE BEIN G ANY MATERIAL CHANGE IN FACTS TREATING INTEREST INCOME UNDER THE HEAD I NCOME FROM BUSINESS WAS NOT JUSTIFIED. INSOFAR AS EXPENSES CLAIMED AGA INST INTEREST INCOME, THE AO OBSERVED THAT THERE IS NO NEXUS BETWEEN EXPE NSES INCURRED AND INCOME EARNED. AS THE ASSESSEE HAS DISCONTINUED IT S BUSINESS OPERATIONS, THE QUESTION OF INCURRING ADMINISTRATIV E AND OTHER EXPENSES DID NOT ARISE. SINCE THE ASSESSEE HAS FAILED TO PR OVE NEXUS BETWEEN INTEREST INCOME AND EXPENDITURE, DISALLOWED TOTAL E XPENDITURE AND ADDED 4 SAI FRAGRANCE & FLAVOURS P LTD BACK TO THE TOTAL INCOME AND TREATED INTEREST INCOM E UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREFERR ED APPEAL BEFORE CIT(A). BEFORE CIT(A), ASSESSEE REITERATED ITS SUBMISSIONS MADE BEFORE THE AO. THE ASSESSEE FURTHER SUBMITTED THAT THOUGH IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FRAGRAN CE AND FLAVOURS, IT HAS DISCONTINUED ITS BUSINESS ACTIVITY AND CONTINUE D THE BUSINESS ACTIVITY OF MONEY LENDING IN ACCORDANCE WITH ITS OBJECT CLAU SE IN MEMORANDUM OF ASSOCIATION OF THE COMPANY AND HENCE RIGHTLY TREATE D INTEREST INCOME UNDER THE HEAD INCOME FROM BUSINESS. THE ASSESSE E FURTHER SUBMITTED THAT THE ASSESSEE HAS TREATED INTEREST INCOME AS IT S BUSINESS RECEIPTS WHICH IS SUPPORTED BY THE OBJECT CLAUSE OF MEMORAND UM OF ASSOCIATION AND ALSO THE TAX AUDITOR IN HIS TAX AUDIT REPORT SP ECIFIED THE NATURE OF BUSINESS OF THE ASSESSEE AS FINANCIAL OTHER RELEVAN T SERVICES WHICH CLEARLY INDICATES THAT ITS MAIN BUSINESS ACTIVITY I S EARNING INTEREST INCOME. INSOFAR AS EXPENDITURE CLAIMED AGAINST INT EREST INCOME, THE ASSESSEE SUBMITTED THAT BEING A COMPANY WHICH IS AN ARTIFICIAL JURIDICAL PERSON, REQUIRED TO MAINTAIN THE PLACE OF OFFICE TO RUN ITS COMMERCIAL ACTIVITY WHETHER OR NOT BUSINESS ACTIVITY IS CARRIE D OUT DURING THE YEAR UNDER CONSIDERATION. THE EXPENDITURE INCURRED DURI NG THE YEAR LIKE OFFICE RENT, AUDIT FEES AND OTHER MISCELLANEOUS EXPENSES A RE IN THE NATURE OF DAY TO DAY EXPENSES REQUIRED TO KEEP THE CORPORATE STATUS OF THE 5 SAI FRAGRANCE & FLAVOURS P LTD ASSESSEE AND, THEREFORE, IT HAS RIGHTLY CLAIMED EXP ENSES AGAINST INTEREST INCOME. THE CIT(A), AFTER CONSIDERING RELEVANT SUB MISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE COMPANY HAS OFF ERED INTEREST INCOME AS OTHER INCOME IN ITS FINANCIAL STATEMENTS FOR THE YEAR UNDER CONSIDERATION. THIS IMPLIES THAT THE SAME IS NOT F ROM ITS BUSINESS OPERATIONS. THE ASSESSEE ALSO FAILED TO PROVE ANY KIND OF BUSINESS ACTIVITY CONDUCTED DURING THE YEAR SO AS TO TREAT I TS INTEREST RECEIPTS UNDER THE HEAD INCOME FROM BUSINESS. THE CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS TREATED INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE EARLIER YEARS AND WITHOU T THERE BEING ANY MATERIAL CHANGES IN THE FACTS TREATING THE SAME UND ER THE HEAD INCOME FROM BUSINESS WAS NOT JUSTIFIED. AS REGARDS EXPEN SES CLAIMED BY THE ASSESSEE, THE ASSESSEE HAS NOT INCURRED EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE WHICH IS EVIDENT FROM THE IMPUGNED ASSESSMENT ORDER. THOUGH THE ASSESSEE HAS CLAIMED CERTAIN EXPENSES AGAINST INTEREST INCOME, FAILED TO PROVE N EXUS BETWEEN EXPENDITURE INCURRED AND INTEREST INCOME. THEREFOR E, THE AO WAS RIGHT IN DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE AND ALSO TREATING INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER S OURCES. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS IN APPEAL BEFOR E US. 4. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN COMPUTING THE IN TEREST INCOME UNDER 6 SAI FRAGRANCE & FLAVOURS P LTD THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF PRO FITS AND GAINS OF BUSINESS OR PROFESSION WITHOUT APPRECIATING THE FAC T THAT THE ASSESSEES BUSINESS ACTIVITY FOR THE YEAR UNDER CONSIDERATION IS FINANCIAL AND OTHER RELEVANT SERVICES WHICH IS EVIDENT FROM THE FACT TH AT THE TAX AUDITOR IN HIS REPORT, REPORTED THE BUSINESS ACTIVITY OF THE ASSES SEE AS SUCH. THE LD.AR FURTHER SUBMITTED THAT THOUGH IT WAS INVOLVED IN THE BUSINESS OF MANUFACTURING FRAGRANCE AND FLAVOURS, DISCONTINUED ITS BUSINESS ACTIVITY AND CONTINUED TO CARRY OUT THE BUSINESS ACTIVITY OF FINANCIAL SERVICES IN ACCORDANCE WITH ITS MAIN OBJECT CLAUSE IN THE MEMOR ANDUM OF ASSOCIATION, THEREFORE, THE AO WAS INCORRECT IN TRE ATING INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES MERELY B ECAUSE IN THE EARLIER YEARS INTEREST INCOME WAS CONSIDERED UNDER THE HEAD INCOME FROM OTHER SOURCES. AS REGARDS EXPENDITURE CLAIME D, THE LD.AR SUBMITTED THAT THE EXPENDITURE CLAIMED ARE IN THE N ATURE OF GENERAL ADMINISTRATIVE AND OVERHEAD EXPENSES INCLUDING OFFI CE RENT, AUDITORS REMUNERATION AND CONVEYANCE AND TRAVELLING AND OTHE R MISCELLANEOUS EXPENSES WHICH ARE REQUIRED TO BE INCURRED WHETHER OR NOT BUSINESS ACTIVITY IS CARRIED OUT BY THE ASSESSEE TO KEEP THE CORPORATE ENTITY STATUS INTACT. THEREFORE, THE AO WAS INCORRECT IN DISALLO WING EXPENDITURE BY HOLDING THAT THE ASSESSEE HAS NOT CARRIED OUT ANY B USINESS ACTIVITY. IN SUPPORT OF HER ARGUMENTS, SHE RELIED UPON THE DECIS ION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS GANGA PRO PERTIES LTD (1993) 7 SAI FRAGRANCE & FLAVOURS P LTD 199 ITR 94 (CAL). 5. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. THE LD.DR FURTHER SUBMITTED THA T THE ASSESSEE ALL ALONG OFFERED INTEREST INCOME UNDER THE HEAD INCOM E FROM OTHER SOURCES AND WITHOUT ANY MATERIAL CHANGES IN FACTS CONSIDERED INTEREST INCOME UNDER THE HEAD INCOME FROM BUSINESS. THER EFORE, THE AO WAS RIGHT IN TREATING INTEREST INCOME UNDER THE HEAD I NCOME FROM OTHER SOURCES. AS REGARDS EXPENDITURE, SINCE THE ASSESS EE HAS DISCONTINUED ITS BUSINESS OPERATIONS, THE AO WAS RIGHT IN DISALL OWING EXPENDITURE WHICH WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE AO TREATED INTEREST INCOME UNDER TH E HEAD INCOME FROM OTHER SOURCES ON THE GROUND THAT THE ASSESSEES MA IN ACTIVITY WAS MANUFACTURE OF FRAGRANCE AND FLAVOURS BUT NOT FINAN CIAL SERVICES. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS TREATED INTE REST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE EARLIER YEARS AND WITHOUT ANY MATERIAL CHANGE IN FACTS, INTEREST INCOME HAS B EEN TREATED UNDER THE HEAD INCOME FROM BUSINESS. SIMILARLY, THE AO HAS DISALLOWED EXPENDITURE INCURRED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT INCURRED EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE WHICH IS EVIDENT FROM THE FACT THAT IT HAS DISCONTINUED ITS 8 SAI FRAGRANCE & FLAVOURS P LTD BUSINESS ACTIVITY. IT IS THE CONTENTION OF THE ASS ESSEE THAT THOUGH IT WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FRAGRAN CE AND FLAVOURS, IT HAS DISCONTINUED ITS MANUFACTURING ACTIVITY AND CON TINUED TO CARRY OUT FINANCIAL SERVICES BUSINESS WHICH IS EVIDENT FROM T HE FACT THAT ITS ACTIVITY WAS SUPPORTED BY THE OBJECTS IN MEMORANDUM OF ASSOC IATION AND IT WAS FURTHER SUPPORTED BY THE REPORT OF THE TAX AUDITORS WHERE THE TAX AUDITOR HAS SPECIFIED THE NATURE OF BUSINESS OF THE ASSESSE E AS FINANCIAL SERVICES. THE ASSESSEE FURTHER CONTENDED THAT IT H AS INCURRED VARIOUS ADMINISTRATIVE AND OTHER EXPENSES IN THE NATURE OF OFFICE RENT, AUDITORS REMUNERATION, TRAVELLING AND CONVEYANCE AND OTHER M ISCELLANEOUS EXPENSES TO KEEP THE CORPORATE ENTITY STATUS WHETHE R OR NOT THE BUSINSS ACTIVITY IS CARRIED OUT IN THE YEAR. THEREFORE, TH E AO WAS INCORRECT IN DISALLOWING EXPENDITURE INCURRED BY HOLDING THAT EX PENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FRAGRANCE AND FLAVOURS. DURING THE YEAR, THE ASSES SEE HAS DISCONTINUED ITS BUSINESS OPERATIONS. THE ASSESSEE HAS EARNED I NTEREST INCOME FROM INTER CORPORATE DEPOSITS AND TREATED THE SAME AS OT HER INCOME IN ITS FINANCIAL STATEMENTS. THE ASSESSEE CLAIMS THAT IT HAS CHANGED ITS BUSINESS ACTIVITY FROM MANUFACTURING TO FINANCIAL S ERVICES WHICH IS 9 SAI FRAGRANCE & FLAVOURS P LTD AUTHORIZED BY ITS MEMORANDUM OF ASSOCIATION, THEREF ORE, THERE IS NO ERROR IN TREATING INTEREST INCOME UNDER THE HEAD IN COME FROM BUSINESS. WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE AS SESSEE FOR THE REASON THAT ALL ALONG THE ASSESSEE HAS TREATED INTE REST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND WITHOUT ANY CH ANGE IN MATERIAL FACTS, THE SAME HAS BEEN BROUGHT UNDER THE HEAD IN COME FROM BUSINESS WITHOUT ANY JUSTIFICATION. WE FURTHER NO TICE THAT THE ASSESSEE ITSELF HAS TREATED INTEREST INCOME AS OTHER INCOME IN ITS FINANCIAL STATEMENTS WHICH CLEARLY IMPLIES THAT THE SAME IS N OT FROM ITS BUSINESS OPERATIONS. THOUGH THE ASSESSEE CLAIMS THAT ITS AC TIVITY IS IN ACCORDANCE WITH ITS OBJECT CLAUSE IN MEMORANDUM OF ASSOCIATION, ON PERUSAL OF THE MEMORANDUM OF ASSOCIATION WE FIND TH AT THE ASSESSEES MAIN OBJECT IS TO MANUFACTURE FRAGRANCE AND FLAVOUR S. THOUGH THE ASSESSEE HAS FINANCIAL SERVICE AS AN ANCILLARY OBJE CT TO ITS MAIN OBJECT, SUCH ACTIVITY IS NOT THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO JUSTIFICATION FOR TREATING INTEREST INCOME UNDER THE HEAD INCOME FRO M BUSINESS. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS RIGHT IN TREATING INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THOUGH THE ASSESSEE HAS RELIED UPON VARIOUS JUDGMENTS, ON PERU SAL OF THE DECISIONS CITED BY THE ASSESSEE WE FIND THAT ALL ARE RENDERED IN DIFFERENT FACTS AND ARE NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. 10 SAI FRAGRANCE & FLAVOURS P LTD 8. COMING TO THE DISALLOWANCE OF EXPENDITURE CLAIMED A GAINST INTEREST INCOME, THE ASSESSEE HAS CLAIMED VARIOUS EXPENDITUR E INCLUDING OFFICE RENT, AUDITORS REMUNERATION, TRAVELLING AND CONVEY ANCE AND OTHER MISCELLANEOUS EXPENDITURE WHICH ARE IN THE NATURE O F GENERAL ADMINISTRATIVE AND OTHER EXPENSES NECESSARILY TO KE EP THE CORPORATE STATUS OF THE ASSESSEE WHETHER OR NOT THE BUSINESS ACTIVITY IS CARRIED OUT DURING THE YEAR UNDER CONSIDERATION. THE AO HAS DI SALLOWED EXPENDITURE ONLY ON THE GROUND THAT THE ASSESSEE HA S NOT CARRIED OUT ANY BUSINESS ACTIVITY AND EXPENDITURE ARE NOT INCUR RED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. WE DO NOT FIND ANY MERIT IN THE FINDINGS OF THE AO FOR THE REASON THAT WHETHER THE ASSESSEE HAS INCOME UNDER THE HEAD BUSINESSOR NOT , EXPENDITURE INCURRED TO MAINTAIN THE CORPORATE STATUS OF THE AS SESSEE NEEDS TO BE ALLOWED. IN THIS CASE, ON PERUSAL OF THE DETAILS O F EXPENDITURE WE FIND THAT THE ASSESSEE HAS INCURRED OFFICE RENT, AUDITOR S REMUNERATION AND OTHER SMALL MISCELLANEOUS EXPENSES WHICH ARE MAINLY INCURRED TO KEEP THE CORPORATE STATUS OF THE ASSESSEE. THEREFORE, W E ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN DISALLOWIN G EXPENDITURE INCURRED BY THE ASSESSEE. THIS LEGAL PROPOSITION I S SUPPORTED BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS GANGA PROPERTIES LTD (SUPRA) WHEREIN IT WAS OBSERVED THAT A LIMITED COMPANY, EVEN IF IT DOES NOT CARRY ON ITS BUSINESS, BUT IT D ERIVES INCOME FROM OTHER 11 SAI FRAGRANCE & FLAVOURS P LTD SOURCES HAS TO MAINTAIN ITS ESTABLISHMENT FOR COMPL YING WITH STATUTORY OBLIGATIONS SO LONG AS IT IS IN OPERATION AND ITS N AME IS NOT STRUCK OFF FROM THE REGISTER OF REGISTRAR OF COMPANIES OR UNLESS TH E COMPANY IS DISSOLVED WHICH MEANS CESSATION OF CORPORATE ACTIVI TIES OF THE COMPANY FOR ALL PRACTICAL PURPOSE. SO LONG AS IT IS IN OPE RATION, IT HAS TO MAINTAIN ITS STATUS AS A COMPANY AND IT HAS TO DISCHARGE CER TAIN LEGAL OBLIGATIONS AND FOR THAT PURPOSE IT IS NECESSARY TO MAINTAIN CL ERICAL STAFF AND SECRETARY OR ACCOUNTANT AND INCUR INCIDENTAL EXPENS ES. 9. COMING TO THE CASE LAWS RELIED UPON BY THE LD.DR, T HE LD.DR RELIED UPON THE DECISION OF MADHYA PRADESH HIGH COURT IN T HE CASE OF PERFECT BATTERY CO LTD VS CIT (1987) 166 ITR 196 (MP) AND S UBMITTED THAT ONLY EXPENDITURE INCURRED U/S 57(III) IN RELATION TO EAR NING OF INTEREST INCOME IS ALLOWABLE WHEREAS IN THIS CASE, THE ASSESSEE HAS IN CURRED EXPENDITURE HAVING NO NEXUS BETWEEN INTEREST INCOME AND EXPENDI TURE INCURRED. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ALLOWED AS DEDUCTION U/S 57(III) OF THE ACT. 10. WE HAVE GONE THROUGH THE CASE LAWS RELIED UPON BY T HE LD.DR IN THE LIGHT OF FACTS OF THE PRESENT CASE AND FIND THA T THE CASE LAWS RELIED UPON BY THE LD.DR IS IN THE CONTEXT OF CLAIM U/S 57 (III) WHEREAS THE FACTS OF THE ASSESSEES CASE ARE IN RELATION TO EXPENDITU RE CLAIMED U/S 37(1). THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE C ASE LAW RELIED UPON BY THE LD.DR IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE LD. 12 SAI FRAGRANCE & FLAVOURS P LTD DR RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS AMRITABEN R SHAH (1999) 238 ITR 777 (BOM) TO ARGUE THAT SECTION 57(III) IS LIABLE ONLY OF AN EXPENDITURE LA ID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME REFERRED TO IN THAT SECTION, I.E. INCOME FROM OTHER SOURCES. IN THIS CASE, THE ASSESSEE HAS INCURRED EXPENDITURE TO KEEP CORPORATE STATUS WHICH CANNOT BE ALLOWED U/S 57(III) OF THE INCOME-TAX ACT , 1961. WE FIND THAT THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT IS ON WHETHER, THE ASSESSEE COULD CLAIM GENERAL ADMINISTRATIVE AND OTH ER EXPENSES WHICH ARE HAVING NO NEXUS WITH INTEREST INCOME, U/S 57(II I) OF THE ACT OR NOT. BUT IN THIS CASE, THE ASSESSEE HAS CLAIMED EXPENDIT URE U/S 37(1), THEREFORE, THE CASE LAW RELIED UPON BY THE LD.DR IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 11. IN THIS VIEW OF THE MATTER AND CONSIDERING THE RATI OS OF THE CASE LAWS DISCUSSED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE . THEREFORE, WE DIRECT THE AO TO ALLOW EXPENDITURE CLAIMED BY THE A SSESSEE U/S 37(1) OF THE INCOME-TAX ACT, 1961. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.7102/2011 IS PARTLY ALLOWED. ITA NO. 6085/MUM/2013 13. IN THIS APPEAL, THE FACTS AND ISSUES INVOLVED ARE I DENTICAL TO THE FACTS 13 SAI FRAGRANCE & FLAVOURS P LTD AND ISSUES DISCUSSED IN ITA NO.7012/MUM/2011. THE FINDINGS GIVEN BY US IN ITA NO. 7012/MUM/2011 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL ALSO. THEREFORE, FOR THE DETAILED DISCUSSIO N IN THE PRECEDING PARAGRAPHS, WE DIRECT THE AO TO TREAT INTEREST INCO ME UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, THE GROU NDS RAISED BY THE ASSESSEE CHALLENGING ACTION OF AO IN TREATING INTER EST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES IS DISMISSED AND T HE GROUND RAISED BY THE ASSESSEE CHALLENGING DISALLOWANCE OF EXPENDITUR E OF RS.1,14,050 HAS BEEN ALLOWED. 14. THE ASSESSEE HAS FILED A PETITION FOR ADMISSION OF ADDITIONAL EVIDENCE TAKING A GROUND ON ALLOWABILITY OF BAD DEB TS WRITTEN OFF IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN T HE CASE OF TRF LTD VS CIT (2010) 323 ITR 397 (SC) TO ARGUE THAT THE ASSES SEE WAS ENTITLED TO CLAIM OF BAD DEBT FOR THE DEBTORS WRITTEN OFF DURIN G THE YEAR. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT ADDITIONAL GROUND R AISED BY THE ASSESSEE IS A LEGAL GROUND EMANATING FROM THE ORDER S OF LOWER AUTHORITIES AND NO NEW FACTS OR EVIDENCE BROUGHT ON RECORD IN SUPPORT OF ADDITIONAL GROUND. THEREFORE, THE ADDITIONAL GROUN D OF APPEAL MAY BE ADMITTED AND ADJUDICATED ON MERITS. 15. HAVING HEARD BOTH THE SIDES WE FIND THAT ADDITIONAL GROUND RAISED BY THE ASSESSEE IN THE LIGHT OF DECISION OF HONBLE SU PREME COURT TRF LTD VS CIT (SUPRA) IS EMANATING FROM THE ORDERS OF LOWE R AUTHORITIES AND NO 14 SAI FRAGRANCE & FLAVOURS P LTD NEW FACTS OR EVIDENCE HAS BEEN BROUGHT ON RECORD. THEREFORE, WE ADMIT ADDITIONAL GROUND RAISED BY THE ASSESSEE AND PROCEE D TO DISPOSE OF THE ISSUE ON MERITS. 16. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.AO WAS ERRED IN DISALLOWING BAD DEBTS WRITTEN OFF DURING THE YEAR W ITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS WRITTEN OFF BAD DEBTS IN THE BOOKS OF ACCOUNT AND INCOME FROM WHICH HAS BEEN OFFERED TO TAX IN TH E EARLIER YEARS. THE LD.AR FURTHER SUBMITTED THAT THE HONBLE SUPREME CO URT IN THE CASE OF TRF LTD VS CIT (SUPRA) HAS HELD THAT ONCE IT HAS WR ITTEN OFF IN THE BOOKS OF ACCOUNT, IT IS A SUFFICIENT COMPLIANCE OF PROVIS IONS OF SECTION 36(1)(VII) AND THERE IS NO NEED TO PROVE WHETHER DEBT HAS BECO ME REALLY BAD OR NOT. 17. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS WRITTEN OFF BAD DEBT AMO UNTING TO RS.5,00,129 AND DEBITED TO P&L ACCOUNT. THE ASSESSEE FURTHER C LAIMS THAT THE BAD DEBTS ARISE OUT OF SALES MADE IN THE EARLIER YEARS AND INCOME FROM WHICH HAS BEEN OFFERED TO TAX, THEREFORE, BAD DEBT WRITTE N OFF IS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT, 1961. THE ASSESSEE FURTHER CLAIMS THAT ONCE BAD DEBT IS WRITT EN OFF IN THE BOOKS OF ACCOUNT, THERE IS NO NEED TO PROVE WHETHER DEBT HAS BECOME REALLY BAD OR NOT IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD VS CIT(SUPRA). WE FIND MERITS IN THE ARGUM ENTS OF THE ASSESSEE 15 SAI FRAGRANCE & FLAVOURS P LTD FOR THE REASON THAT THE HONBLE SUPREME COURT IN TH E CASE OF TRF LTD VS CIT(SUPRA) HAS HELD THAT ONCE BAD DEBT IS WRITTEN O FF IN THE BOOKS OF ACCOUNT, THEN THE ASSESSEE IS NOT REQUIRED TO PROVE WHETHER DEBT HAS REALLY BECOME BAD OR NOT; BUT THE FACTS ARE NOT CLE AR. THE ASSESSEE HAS TAKEN THIS PLEA BY WAY OF ADDITIONAL GROUND BEFORE THE TRIBUNAL FOR THE FIRST TIME. THE AO DID NOT HAVE AN OCCASION TO EXA MINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF PROVISIONS OF SECTION 36(1 )(VII) AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD VS CIT(SUPRA). THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE I SSUE NEEDS TO BE EXAMINED BY THE AO IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD VS CIT(SUPRA). HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO AND DIRECT HIM TO DECID E THE ISSUE IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD VS CIT(SUPRA). 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO.6085/MUM/2013 IS PARTLY ALLOWED, FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (SAKTIJIT DEY) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 31 ST JANUARY, 2018 PK/- 16 SAI FRAGRANCE & FLAVOURS P LTD COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI