RELIANCE SHARE & STOCK BROKERS P.LTD, MUMBAI V. ASST CIT CIR 4(2), MUMBAI

ITA 735/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3764 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 03-02-2015
• Court: TRIBUNAL
• Assessee Lawyers: JITENDRA B SANGHAVI
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 143(3); 11

Judgement Text

, - , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI , ! ' , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, ITA NO.735/MUM/2015 ASSESSMENT YEAR:2011-12 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED, TOWER II, 901-A 9 TH FLOOR, ONE INDIABULLS CENTER, 841, SENAPATI BAPAT MARG, ELPHINSTONE ROAD, MUMBAI-400013 / VS. ACIT, CIRCLE-4(2), ROOM NO.642, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / ASSESSEE / REVENUE P.A. NO . AAACR2801B $ % & / ASSESSEE BY SHRI JITENDRA B. SANGHAVI $ % & / REVENUE BY SHRI ABHISHEK SHARMA-DR / DATE OF HEARING 03/08/2016 & / DATE OF ORDER: 01/09/2016 & / O R D E R THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 24/12/2014 OF THE LD. FIRST APPELLATE AUTHORI TY, MUMBAI. THE ONLY GROUND RAISED IN THE PRESENT APPEA L ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 2 PERTAINS TO CONFIRMING THE DISALLOWANCE OF BUSINESS LOSS OF RS.1,18,14975/-, CLAIMED BY THE ASSESSEE IN ITS RET URN, HOLDING THAT THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YEAR, THEREFORE, THE L OSS IS NOT ALLOWABLE. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSEE, SHRI JITENDRA B. SANGHVI, CONTENDED THAT ASSESSEE IS A SHARE BROKER AND NO BUSINESS WAS CARR IED OUT DUE TO LULL IN THE BUSINESS BUT THE SAME WAS NO T CLOSED DOWN BY EXPLAINING THAT THE ASSESSEE CONTINU ED TO HOLD THE MEMBERSHIP CARD. IT WAS EXPLAINED THAT THE ASSESSEE WAS HAVING FIVE CARDS, OUT OF WHICH FIRST WAS SURRENDERED IN DECEMBER 2011, THREE CARDS IN AUGUST SEPTEMBER AND NOVEMBER, 2012 AND THE LAST CARD WAS SURRENDERED IN MARCH 2016. IT WAS CONTENDED THAT SE BI CONDUCTED ENQUIRIES, THE CARDS OF THE ASSESSEE WERE SUSPENDED FOR FOUR MONTHS BY ORDER DATED 11/12/2006 , PENALTY OF RS.50 LAKH WAS IMPOSED UPON THE ASSESSEE ON 31/11/2007 AND THE SAME WAS PAID BY THE ASSESSEE. T HE CRUX OF THE ARGUMENT IS THAT DUE TO IMPOSITION OF P ENALTY UPON THE ASSESSEE, THE ASSESSEE STOP THE BUSINESS B UT DID NOT CLOSE THE SAME AND THE ASSESSEE WAS WAITING FOR THE MARKET TO IMPROVE. 2.1. ON THE OTHER HAND, SHRI ABHISHEK SHARMA, LD. DR, STRONGLY DEFENDED THE ADDITION CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL) BY EXPLAINING T HAT OUT OF ELEVEN YEARS, THE ASSESSEE HAS DONE BUSINESS ONLY ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 3 IN FOUR YEARS AND THE IN THE REMAINING YEAR, NO BUS INESS ACTIVITY WAS CARRIED OUT, THUS, THE EXPENSES WERE W RONGLY CLAIMED. IT WAS ALSO NOT EXPLAINED AS TO HOW THE EX PENSES WERE INCURRED AND NEITHER IN THE ASSESSMENT ORDER N OR IN THE IMPUGNED ORDER, THERE IS MENTION OF ANY ENQUIRY CONDUCTED BY SEBI, THUS, THE EXPENSES CANNOT BE ALL OWED. 2.2. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT S, IN BRIEF, ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF SHARE BROKING. THE ASSESSEE WAS HOLDING MEMBERSHIP CARDS OF VARIOUS STOCK EXCHANGES IN INDI A. THE ASSESSEE, FOR THE RELEVANT ASSESSMENT YEAR, DEC LARED LOSS OF RS.1,06,82,120/-, WHICH IS SUMMARIZED AS UN DER:- RUPEES BUSINESS INCOME NET LOSS AS PER PROFIT AND LOSS ACCOUNT ( 1,32,35,106) ADDITIONS I . EXPENDITURE ON INCREASE IN SHARE CAPITAL 6,00,000 11 . ADDITION U/S.37 43,400 II1. DEPRECIATION AS PER PROFIT AND LOSS ACCOUNT 3,75,267 IV. DISALLOWANCE U/S.14A 24,31,968 (34,50,365) (97,84,471) DEDUCTIONS I . EXEMPT INCOMES 6,45,750 IF. PROFIT ON SALE OF INVESTMENTS 11, 32,855 II1. PROFIT ON SALE OF FIXED ASSETS 10,000 IV . DEPRECIATION AS PER INCOME TAX 2,41,899 20,30,504 NET BUSINESS LOSS (1,18,14,975) ============= ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 4 DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED FOR THE JUSTIFICATION FOR THE CLAIM OF BUSINE SS LOSS AS NO BUSINESS ACTIVITY WAS CARRIED OUT BY THE ASSESSE E DURING THE RELEVANT PERIOD. SHOW-CAUSE NOTICE WAS I SSUED TO THE ASSESSEE WHICH WAS REPLIED VIDE LETTER DATED 31/01/2014. FINALLY, THE LD. ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND DISALLOWE D THE CLAIMED EXPENSES. 2.3. ON APPEAL BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS), IDENTICAL PLEA WAS RAISED AND FINALLY THE STAND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRME D, ON IDENTICAL LINES, AS HAS BEEN MENTIONED IN THE ASSES SMENT ORDER. THE RELEVANT FINDING OF THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) IS REPRODUCED HEREUNDER FOR R EADY REFERENCE AND ANALYSIS:- IN VIEW OF THE ABOVE, IT IS APPARENT THAT THE APPE LLANT HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY DURING THE YE AR AND ALSO NOT TILL 19.12.2014. (THE AR ADMITTED THAT BUS INESS HAS NOT COMMENCED TILL 19.12.2014 (VIDE ORDERSHEET ENTR Y DTD.19.12.2014). THEREFORE, AS THE BUSINESS ACTIVIT Y HAS NOT BEEN CARRIED OUT BY THE APPELLANT DURING THE YEAR, THE DISALLOWANCE OF BUSINESS LOSS OF RS.1,18,14,975/- I S IN ORDER CONSIDERING ABOVE AND ALSO FOR THE REASONS MENTIONE D BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSE SSING OFFICER HAS RIGHTLY FOR THE REASONS MENTIONED BY TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSE SSING OFFICER HAS RIGHTLY DISALLOWED THE BUSINESS LOSS OF RS.1,18,14,975/- AND THEREFORE, THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER IS UPHELD. THE GROUND OF APPE AL IS THUS, DISMISSED. 2.4. THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNA L. IF THE OBSERVATION MADE IN THE ASSESSMENT ORDER, LEADI NG TO ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 5 ADDITION MADE TO THE TOTAL INCOME, CONCLUSION DRAWN IN THE IMPUGNED ORDER, MATERIAL AVAILABLE ON RECORD, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSELS, IF KEPT IN JUXTAPOSITION AND ANALYZED , I FIND THAT THE TRIBUNAL IN THE CASE OF TANSY INVESTMENT PVT. LTD. VS ACIT (ITA NO.3722/MUM/2009, VIDE ORDER DATED 24/11/2010 HELD AS UNDER:- 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDIC ATE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED I N UPHOLDING THE DISALLOWANCE OF EXPENDITURE OF RS 12,55,869, ON THE GROUND THAT THERE ARE NO BUSINESS ACTIVITIES DURING THE YE AR UNDER CONSIDERATION AND THAT THE ASSESSEES INCOME OF DIV IDEND, INTEREST AND OTHER INCOME BEING TAXABLE UNDER THE H EAD INCOME FROM OTHER SOURCES. THE ASSESSMENT YEAR IN VOLVED IN 2004-05 AND THE IMPUGNED ASSESSMENT WAS FRAMED UNDE R SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE ISSUE IN APPEAL LIES IN A VERY NARROW COMPAS S OF MATERIAL FACTS. DURING THE COURSE OF THE ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER NOTICED THAT THE WHILE THE ASSESS EE HAS SHOWN INCOME OF RS 29,44,729 AGAINST DIVIDEND, INTEREST A ND OTHER INCOMES WHICH ARE TAXABLE UNDER THE HEAD INCOME FR OM OTHER SOURCES, THE ASSESSEE HAS CLAIMED AN EXPENDITURE O F RS 12,55,869 WHICH IS IN THE NATURE OF EXPENDITURE WHI CH CAN ONLY BE ALLOWED DEDUCTION FOR BUSINESS INCOME. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER DISALLOWED THE EXPENSES OF RS 12,55,869. AGGRIEVED, ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE THE CIT(A). IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE WAS AN INVESTMENT COMPANY AND WAS ASSESSED AS SUCH IN PAST. SINCE THE ASSESSEE WAS IN THE BUSINESS OF INVESTMENT, THE EXPENDITURE RELATING TO ITS BUSINESS WAS TO BE ALLOWED AS DEDUCTION IN COMPUTATION OF BUSINESS INCOME. THE MA IN BUSINESS OF THE ASSESSEE WAS CLAIMED TO BE INVESTME NT. IT WAS ALSO CONTENDED THAT TO CARRY ON BUSINESS IT HAD TO HAVE ITS OWN INFRASTRUCTURE, AND, FOR THIS PURPOSES, THE ASSESSE E HAD INCURRED EXPENDITURE. IT WAS ALSO SUBMITTED THAT MOST OF THE EXPENSES CONSIDERED ABOVE ( I.E. SALARY, REPAIRS AN D ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 6 MAINTENANCE, ELECTRICITY AND PHONE CHARGES, AUDITOR S REMUNERATION, DEPRECIATION, PRINTING AND STATIONERY ETC) WERE STATUTORY IN NATURE AND HAD TO BE INCURRED EVEN IF NO INCOME COULD HAVE ARISEN DURING THE YEAR AND THAT, OTHER THAN SUCH EXPENSES, THE EXPENSES WERE FOR DAY TO DAY MAINTEN ANCE OF OFFICE. IT WAS THUS CONTENDED THAT MERELY BECAUSE INCOME EARNED BY THE ASSESSEE WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, THE DEDUCTION OF EXPENSES COUL D NOT BE DECLINED. THE CIT(A) WAS NOT REALLY IMPRESSED BY TH ESE ARGUMENTS. HE OBSERVED THAT THE APPELLANT HAD NOT BROUGHT ON RECORD ANY MATERIAL TO SUGGEST THAT THE APPELLAN T IS CONDUCTING INVESTMENT ACTIVITIES THROUGHOUT THE YEA R WITH A VIEW TO EARN PROFIT AND TOOK NOTE OF THE ASSESSING OFFICERS FINDING THAT INVESTMENTS HAVE NOT CHANGED DURING TH E YEAR. HE ALSO NOTED THAT THOUGH, AS STATED IN THE REMAND REP ORT, THE ASSESSEE COMPANY WAS TREATED AS INVESTMENT COMPANY IN PAST, IT CANNOT BE TREATED AS INVESTMENT COMPANY IN VIEW OF HIS ABOVE OBSERVATIONS. IT WAS ALSO NOTED THAT THE EXP ENDITURE IN QUESTION COULD NOT BE ALLOWED AS DEDUCTION UNDER TH E HEAD INCOME FROM OTHER SOURCES. THE CIT(A) THUS UPHELD , AND IN FACT FURTHER FORTIFIED, THE IMPUGNED DISALLOWANCE. THE ASSESSEE IS NOT SATISFIED WITH THE ORDER OF THE CIT(A) AND I S IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. WE FIND THAT THE ISSUE IN THIS APPEAL IS SQUAREL Y COVERED BY A COORDINATE BENCHS DECISION IN THE CASE OF ITO VS M OKUL FINANCE PVT LTD (110 TTJ 445), WHEREIN THE TRIBUNAL HAS, INTER ALIA, OBSERVED AS FOLLOWS : 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSING OFF ICER IS AGGRIEVED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELE TING THE ADDITION OF RS. 6,36,210 ON ACCOUNT OF EXPENSES CLA IMED DURING THE YEAR, WHEN NO BUSINESS WAS CONDUCTED BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. 3. THE MATERIAL FACTS OF THE CASE ARE LIKE THIS. T HE ASSESSEE IS A DOMESTIC COMPANY AND, IN THE RELEVANT PREVIOUS YEAR, IT HAD INCOME ONLY FROM INTEREST AND DIVIDEND. IN THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICED THAT NO BUSINESS ACTIVITIES WERE CARRIED OU T BY THE ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 7 ASSESSEE. HE THUS REQUIRED THE ASSESSEE TO SHOW CAU SE AS TO WHY NOT THE EXPENSES OF THE ASSESSEE BE DISALLOWED AS THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR AND THE INCOME EARNED BE BROUGHT TO TAX. THE ASSESSEE SUBMITTED T HAT THE EXPENSES INCURRED BY THE ASSESSEE ARE ONLY ON ACCOU NT OF SALARIES AND CONVEYANCE TO STAFF WHICH WAS REQUIRED TO RUN THE OFFICE, AND ON ACCOUNT OF PAYMENT OF PROPERTY T AX OF THE BUILDING FROM WHICH OFFICE IS RUN. IT WAS POINTED O UT THAT THERE WAS NO SALE AND PURCHASE OF SHARES IN THE REL EVANT PREVIOUS YEAR AS THE STOCK MARKET WAS UNSTABLE AND MARKET CONDITIONS WERE NOT STABLE. THERE IS NO DISPUTE ABO UT THE FACT THAT IN THE EARLIER YEARS, THE ASSESSEE WAS ENGAGED IN BUSINESS OF BUYING AND SELLING SHARES AND ITS INCOM E FROM THIS ACTIVITY WAS BROUGHT TO TAX UNDER THE HEAD BU SINESS INCOME. THE ASSESSING OFFICER REJECTED THE EXPLANA TION OF THE ASSESSEE BY OBSERVING THAT AS ADMITTEDLY THERE WAS NO BUSINESS ACTIVITY DURING THE RELEVANT PREVIOUS YEAR , NO EXPENSES COULD BE ALLOWED. THE LOSS CLAIMED BY THE ASSESSEE WAS DISALLOWED, AND THE BUSINESS INCOME WAS ASSESSE D AT NIL. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). THE CIT(A) HELD THAT THE ASSESSING OFFI CER HAS NOT DOUBTED GENUINENESS OF THE EXPENDITURE, THAT TH E EXPENDITURE WAS NECESSARY FOR RUNNING THE ORGANISAT ION, THAT IT WAS NEITHER EXTRAVAGANT NOR EXCESSIVE, AND THAT, THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE SAME. THE ASSESSING OFFICER IS AGGR IEVED OF THE RELIEF SO GIVEN BY THE CIT(A) AND IS IN APPEAL BEFORE US. 4. SMT. IYER, LEARNED DEPARTMENTAL REPRESENTATIVE, SUBMITS THAT THE CIT(A) WAS INFLUENCED BY THE FACTORS WHICH WERE NOT RELEVANT TO DECIDE WHETHER OR NOT THE EXPENSES IN QUESTION SHOULD BE ALLOWED AS DEDUCTION IN COMPUTAT ION OF BUSINESS INCOME. SHE SUBMITS THAT GENUINENESS OF EXPENDITURE, ON WHICH EMPHASIS IS PLACED BY THE CIT (A), IS WHOLLY IRRELEVANT IN COMING TO THE CONCLUSION THAT THE EXPENDITURE IS TO BE ALLOWED EVEN AS THERE IS NO BU SINESS ACTIVITY DURING THE RELEVANT PREVIOUS YEAR. IT IS A LSO POINTED OUT THAT REASONABLENESS OF EXPENDITURE ALSO HAS NO BEARING ON THIS ISSUE. IT IS FURTHER POINTED OUT THAT THE R EASONING OF THE CIT(A) IS VAGUE AND LACKS SPECIFIC AND COGENT R EASONS, GERMANE TO THE CONTEXT, FOR DELETING THE DISALLOWAN CE OF EXPENSES. LEARNED DEPARTMENTAL REPRESENTATIVE RELIE S UPON TRIBUNALS ORDER IN THE CASE OF ADASOFT (INDIA) (P. ) LTD. V. DY. CIT [2006] 9 SOT 31 (DELHI) IN SUPPORT OF THE DISALLOWANCE OF EXPENDITURE WHEN BUSINESS IS NOT IN ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 8 EXISTENCE. SHE RELIES UPON THE ORDER OF THE ASSESSI NG OFFICER, JUSTIFIES THE SAME, AND URGES US TO RESTORE THE ORD ER OF THE ASSESSING OFFICER. DR. GUPTA, LEARNED COUNSEL FOR T HE ASSESSEE, SUPPORTS AND JUSTIFIES THE ORDER OF THE C IT(A). DR. GUPTA SUBMITS THAT THE ASSESSEE IS A COMPANY AND TH E EXPENDITURE INCURRED BY THE ASSESSEE ARE MINIMAL EXPENDITURE JUST TO KEEP THE COMPANY AFLOAT. IT IS SUBMITTED THAT THE ASSESSEE WAS NOT CARRYING OUT BUSINESS ACT IVITY DUE TO ADVERSE MARKET CONDITIONS, BUT THE ASSESSEE BEIN G AN ARTIFICIAL JURIDICAL PERSON, HAS TO INCUR EXPENDITU RE FOR MAINTAINING ITS EXISTENCE AND FOR CARRYING OUT WHAT EVER LITTLE ACTIVITIES THAT THE ASSESSEE IS INVOLVED IN. OUR AT TENTION IS INVITED TO HONBLE CALCUTTA HIGH COURTS JUDGMENT I N THE CASE OF CIT V. GANGA PROPERTIES LTD. [1993] 199 ITR 941 WHEREIN IT IS HELD THAT EVEN WHEN COMPANY HAS ONLY EARNINGS INCOME FROM OTHER SOURCES, THE EXPENDITURE INCURRED BY THE COMPANY FOR ITS CONTINUED EXISTENCE AND FOR RETAINING CLERICAL STAFF, SECRETARY AND ACCOUNTANT AND OTHER INCIDENTAL EXPENSES, ARE ALLOWABLE DEDUCTION. DR. G UPTA THEN TAKES US THROUGH THE JUDGMENT OF HONBLE PUNJA B & HARYANA HIGH COURT IN THE CASE OF NAKODAR BUS SERVI CE (P.) LTD. V. CIT [1989] 179 ITR 5062 WHEREIN IT WAS HELD THAT EVEN WHEN THE ASSESSEES BUSINESS WAS DISCONTI NUED, DEDUCTION IN RESPECT OF SALARIES PAID TO EMPLOYEES WAS ALLOWABLE DEDUCTION AGAINST INTEREST INCOME. THE NE XT JUDICIAL PRECEDENT HE RELIES UPON IS A JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. RAMPUR TIMBERY & TURNERY CO. LTD. [1981] 129 ITR 583. IN T HIS CASE, IT WAS HELD THAT THE EXPENDITURE INCURRED BY A COMPANY, FOR RETAINING ITS STATUS AS COMPANY AND FO R ITS CONTINUED EXISTENCE AS SUCH, IS ALLOWABLE DEDUCTION , EVEN AFTER DISCONTINUATION OF BUSINESS IN CERTAIN CIRCUM STANCES. ON THE STRENGTH OF THESE PRECEDENTS, HE JUSTIFIES T HE CONCLUSIONS ARRIVED AT BY THE CIT(A). HIS NEXT TIER OF DEFENSE CONSISTS OF THE PROPOSITION THAT ONLY BECAU SE NO BUSINESS ACTIVITY IS CARRIED ON IN THE RELEVANT PRE VIOUS YEAR, AND IN THE ABSENCE OF ANY CATEGORICAL FINDING TO TH E EFFECT THAT BUSINESS HAS CLOSED FOR GOOD, THE ASSESSING OF FICER CANNOT JUMP TO THE CONCLUSION THAT THE BUSINESS HAS CEASED. THE DISTINCTION BETWEEN CLOSURE OF BUSINESS AND SUS PENSION OF BUSINESS ACTIVITY IS SOUGHT TO BE HIGHLIGHTED AN D THE RELEVANT JUDICIAL PRECEDENTS CITED. IN REJOINDER, S MT. IYER ACCEPTS THAT THERE IS NO CATEGORICAL FINDING ABOUT CLOSURE OF BUSINESS, BUT SHE ADDS THAT THE LACK OF SUCH A FIND ING CANNOT MEAN THAT EXPENSES ARE TO BE ALLOWED EVEN AS THERE IS NO ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 9 BUSINESS IN EXISTENCE. SHE REITERATES HER SUBMISSIO NS AND URGES US TO RESTORE THE DISALLOWANCE MADE BY THE AS SESSING OFFICER. 5. HAVING GIVEN OUR CAREFUL CONSIDERATION TO THE RI VAL CONTENTIONS AND THE MATERIAL ON RECORD, WE ARE INCL INED TO UPHOLD THE CONCLUSIONS ARRIVED AT BY THE CIT(A). AS DR. GUPTA RIGHTLY CONTENDS, THE ASSESSEE BEING AN ARTIF ICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERTAIN EXPENDI TURE TO KEEP ITSELF AFLOAT AND HAVE ITS CONTINUED EXISTENCE . UNLIKE1 A NATURAL PERSON, A COMPANY CAN ONLY OPERATE THROUGH OTHER NATURAL PERSONSWHETHER EMPLOYEES OR OTHERS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDITURE OF THE ASSESSEE COMPANY ARE EXCESSIVE OR UNREASONABLE VIS- A-VIS ITS LEGITIMATE BUSINESS REQUIREMENTS. THE HONBLE HIGH COURTS HAVE CONSISTENTLY HELD THAT IN THE CASE OF THE CORP ORATE ASSESSEES SUCH EXPENSES HAVE TO BE ALLOWED AS DEDUC TION IRRESPECTIVE OF WHETHER OR NOT THE ASSESSEE IS ENGA GED IN ACTIVE BUSINESS AND EVEN IF ASSESSEE HAS ONLY PASSI VE INCOMES. THE CIT(A) WAS, THEREFORE, JUSTIFIED IN HI S CONCLUSIONS. THAT IS, HOWEVER, NOT THE ONLY REASON WHY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS UNSUSTAINABLE IN LAW. WE AGREE WITH DR. GUPTAS SEC OND LINE OF ARGUMENT AS WELL. WE FIND THAT THE WHOLE CAUSE O F ACTION OF DISALLOWANCE OF EXPENSES IS IN THE BACKGROUND OF ASSESSING OFFICERS OBSERVATION THAT THE ASSESSEE D ID NOT CARRY OUT ANY BUSINESS TRANSACTIONS WHICH AT BEST W AS ASSESSING OFFICERS FINDING ABOUT AN ACTIVITY OF BU SINESS NOT BEING FUNCTIONAL IN THE RELEVANT PREVIOUS YEAR. IN OUR OPINION, NOT CARRYING ON BUSINESS ACTIVITY IN A PAR TICULAR PERIOD CANNOT BE EQUATE WITH CLOSURE OF BUSINESS AS IT TAKES AN UNSUSTAINABLY NARROW VIEW OF THE SCOPE OF CESSAT ION OF A BUSINESS. IN THE CASE OF LVE. VAIRAVAN CHETTIAR V. CIT [1969] 72 WR 114, THEIR LORDSHIPS OF HONBLE MADRAS HIGH COURT WERE IN SEISIN OF A SITUATION WHERE THE ASSES SEE HAD OBTAINED AN IMPORT LICENCE FOR DOING ARECA NUT BUSI NESS BUT DUE TO ADVERSE CONDITIONS IN MARKET, HE TEMPORARILY SUSPENDED THE ARECA NUT BUSINESS FOR THE ASSESSMENT YEAR IN QUESTION. NEVERTHELESS, HE WAS MAINTAINING THE ESTABLISHMENT AND WAS WAITING FOR IMPROVED MARKET CONDITIONS IN ARECA NUT. IT WAS THUS AN ADMITTED PO SITION THAT NO ACTIVITIES WERE CARRIED OUT SO FAR AS THIS PART OF THE BUSINESS WAS CONCERNED. ON THESE FACTS, THEIR LORDS HIPS TOOK NOTE OF THE POSITION THAT THERE IS NOTHING ON RECO RD TO SHOW THAT HE COMPLETELY ABANDONED OR CLOSED THE BUSINESS FOREVER. ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 10 ON THE OTHER HAND, HIS BOOKS OF ACCOUNT REVEALED TH AT HE WAS MEETING THE ESTABLISHMENT CHARGES AND INTEREST PAYMENTS AS DETAILED IN THE ACCOUNTS IN THE YEAR OF ACCOUNTS. IT WAS THEN OBSERVED THAT THE QUESTION W HETHER THE BUSINESS IS BEING CARRIED ON MUST DEPEND IN EAC H CASE ON ITS OWN FACTS AND NOT ON ANY GENERAL THEORY OF LAW. THEIR LORDSHIPS THEN REFERRED TO, WITH APPROVAL, LORD SUM MERS OBSERVATION IN IRC V. SOUTH BEHAR RAILWAY CO. LTD. [1925] 12 TAX CASES 657 THAT BUSINESS IS NOT CONFINED TO B EING BUSY; IN MANY BUSINESSES LONG INTERVALS OF INACTIVI TY OCCUR. ...THE CONCERN IS STILL A GOING CONCERN THOUGH A V ERY QUIET ONE. AFTER ELABORATE SURVEY OF JUDICIAL PRECEDENTS ON THE ISSUE, THEIR LORDSHIPS CONCLUDED, IN THE LIGHT OF, AS NOTED ABOVE, THE FACTUAL POSITION THAT THERE IS NOTHING ON RECORD TO SHOW THAT HE COMPLETELY ABANDONED OR CLOSED THE BUSINESS FOREVER. ON THE OTHER HAND, HIS BOOKS OF ACCOUNT RE VEALED THAT HE WAS MEETING THE ESTABLISHMENT CHARGES AND I NTEREST PAYMENTS AS DETAILED IN THE ACCOUNTS IN THE YEAR OF ACCOUNT, THAT THE LOSS IN ARECANUT BUSINESS, IN WHICH ADMITT EDLY NO ACTIVITY WAS CARRIED OUT DURING THE RELEVANT PREVIO US YEAR, WAS TO BE SET OFF AGAINST ASSESSEES BUSINESS INCOM E IN THE YEAR. AS THE RATIO OF THE AFORESAID JUDGMENT IS SUM MED UP IN THE ITR HEADNOTES AT P. 115 OF THE REPORT, AS THE ASSESSEE WAS MAINTAINING THE ESTABLISHMENT AND WAITING FOR T HE IMPROVED MARKET CONDITIONS IN ARECANUTS AND THERE W AS NOTHING TO SHOW THAT HE COMPLETELY ABANDONED OR CLO SED THE BUSINESS FOREVER, THE BUSINESS MUST BE DEEMED TO BE CONTINUING. IN THE LIGHT OF THIS LEGAL POSITION, I T WOULD FOLLOW THAT UNLESS THERE IS SOME MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS COMPLETELY ABANDONED THE SHAR E DEALING BUSINESS, MERELY BECAUSE THERE ARE NO BUSIN ESS TRANSACTIONS IN THE RELEVANT PREVIOUS YEAR CANNOT B E REASON ENOUGH TO COME TO THE CONCLUSION THE BUSINESS HAS C OME TO AN END. IT COULD NOT THUS BE SAID; AS WAS THE CASE BEFORE THE HONBLE MADRAS HIGH COURT, THAT THE ASSESSEE HAD COMPLETELY ABANDONED OR CLOSED THE BUSINESS FOREVE R. UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF BUSINESS IS AT A DORMANT STAGE WAITING FOR PROPER M ARKET CONDITIONS TO DEVELOP, THE EXPENDITURE INCURRED IN THE COURSE OF SUCH A BUSINESS IS TO BE ALLOWED AS DEDUCTION. F OR THIS REASON ALSO, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED, AND THE CIT(A) RIGHTLY DELETED T HE SAME. 5. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH, AND WE A RE IN ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 11 CONSIDERED AGREEMENT WITH THE SAME. THE ASSESSEE BE ING AN ARTIFICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERT AIN EXPENDITURE TO KEEP ITSELF AFLOAT AND HAVE ITS CONTINUED EXISTE NCE. UNLIKE A NATURAL PERSON, A COMPANY CAN ONLY OPERATE THROUGH OTHER NATURAL PERSONSWHETHER EMPLOYEES OR OTHERS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDITURE OF THE ASSESSEE COMPANY ARE EXCESSIVE OR UNREASONABLE VIS- A-VIS ITS LEGITIMATE BUSINESS REQUIREMENTS. THE HONBLE HIGH COURTSS, AS REFERRED TO IN THE COORDINATE BENCH ORDER, HAVE CON SISTENTLY HELD THAT IN THE CASE OF THE CORPORATE ASSESSEES SU CH EXPENSES HAVE TO BE ALLOWED AS DEDUCTION IRRESPECTIVE OF WHE THER OR NOT THE ASSESSEE IS ENGAGED IN ACTIVE BUSINESS AND EVEN IF ASSESSEE HAS ONLY PASSIVE INCOMES. THE MERE FACT THAT NO BUS INESS OPERATIONS HAVE BEEN CARRIED OUT IN THE RELEVANT PR EVIOUS YEAR ALSO DOES NOT LEAD TO THE CONCLUSION THAT THE ASSES SEE CEASED TO BE IN BUSINESS. UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF BUSINESS IS AT A DORMANT STAGE WAITING FOR PROPER MARKET CONDITIONS TO DEVELOP, THE EXPENDITURE INCUR RED IN THE COURSE OF SUCH A BUSINESS IS TO BE ALLOWED AS DEDUC TION. 6. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING I N MIND THE ENTIRETY OF THE CASE, THE IMPUGNED DISALLOWANCE IND EED DESERVES TO BE DELETED. FOR THE REASONS SET OUT ABO VE, WE DELETE THE IMPUGNED DISALLOWANCE OF RS 12,55,869. THE ASSE SSEE GETS THE RELIEF ACCORDINGLY. 7. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERM S INDICATED ABOVE. 2.5. I FIND THAT WHILE COMING TO A PARTICULAR CONCLUSION, IN THE AFORESAID ORDER, AN ELABORATE DI SCUSSION HAS BEEN MADE BY THE BENCH AND FURTHER THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF INCOME TAX OFF ICER VS MOKUL FINANCE PVT. LTD. (110 TTJ 445) HAS BEEN FOLL OWED ALONG WITH VARIOUS DECISIONS FROM HON'BLE HIGH COUR TS. HOWEVER, IT IS NOTICED THAT THE ASSESSEE HAS NOT CA RRIED ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 12 OUT ANY BUSINESS ACTIVITY DURING THE YEAR AND TILL 19/12/2014. THIS FACTUAL MATRIX WAS ALSO ADMITTED B Y THE ASSESSEE THAT NO BUSINESS COMMENCED TILL 19/12/2014 . EVEN OTHERWISE, NO BUSINESS INCOME WAS APPEARING IN THE PROFIT & LOSS ACCOUNT AND THE OTHER INCOME RELATES TO CAPITAL GAIN AND INCOME FROM OTHER SOURCES. THE ASS ESSEE COMPANY WAS MERELY HOLDING MEMBERSHIP CARDS OF VARIO US STOCK EXCHANGES IN INDIA BUT DID NOT COMMENCE ANY BUSINESS ACTIVITY BY TRADING ON THESE STOCK EXCHANG ES. THE ONLY PLEA OF THE ASSESSEE IS THAT THE ASSESSEE INCU RRED CERTAIN EXPENDITURE WHICH WAS REQUIRED FOR MAINTAIN ING INFRASTRUCTURE. HOWEVER, FACT REMAINS THAT NO BUSIN ESS ACTIVITY WAS CARRIED OUT. THE FUNDAMENTAL CONCEPT O F MATCHING PRINCIPLE OF ACCOUNTING IS THAT OFFSETS RE VENUE AGAINST EXPENSES ON THE BASIS OF THEIR CAUSE AND EF FECT RELATIONSHIP. THE MATCHING PRINCIPLE OF ACCOUNTING STATES THAT, IN MEASURING NET FOR AN ACCOUNTING PERIOD, TH E COST INCURRED IN THAT PERIOD SHOULD MATCH AGAINST THE RE VENUE GENERATED IN THE SAME PERIOD. IT IS ALSO NOTED THA T THE MEMBERSHIP CARD OF DIFFERENT EXCHANGES WERE ALSO SURRENDERED BY THE ASSESSEE ON VARIOUS DATES. THE S EBI CONDUCTED ENQUIRIES AGAINST THE ASSESSEE AND THE CA RDS WERE SUSPENDED FOR FOUR MONTHS VIDE ORDER DATED 11/12/2006 AND PENALTY OF RS.50 LAKHS WAS IMPOSED A ND THE SAME WAS PAID BY THE ASSESSEE. THE ASSESSEE, NE ITHER DID ANY BUSINESS ACTIVITY NOR GENERATED ANY INCOME AND EVEN CLOSED THE BUSINESS. SINCE, NO BUSINESS ACTIVI TY WAS CARRIED OUT BY THE ASSESSEE TILL 19/12/2014 (AS ADM ITTED ITA NO.735/MUM/2015 RELIANCE SHARE & STOCK BROKERS PRIVATE LIMITED 13 BY THE ASSESSEE EVEN BEFORE THE LD. APPELLATE COMMISSIONER AS MENTIONED IN PARA 2.7 OF THE IMPUGN ED ORDER), THEREFORE, THE DISALLOWANCE OF BUSINESS LOS S WAS RIGHTLY DENIED BY THE ASSESSING OFFICER AND CONFIRM ED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL). THE AP PEAL OF THE ASSESSEE, IS THEREFORE, DISMISSED. FINALLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN IN T HE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 03/08/2016. SD/- (JOGINDER SINGH) ! ' / JUDICIAL MEMBER MUMBAI; DATED : 01/09/2016 F{X~{T? P.S / ! & $ )!*+ ,&+-* / COPY OF THE ORDER FORWARDED TO : 1. '#$%& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. ) ) * / THE CIT, MUMBAI. 4. ) ) * / CIT- , MUMBAI 5. +,- ' , ) '#$ ' / , / DR, ITAT, MUMBAI 6. -0 1$ / GUARD FILE. & / BY ORDER, (+# ' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI