The ACIT, 2(1), Bhopal V. M/s. M.P.STATE INDUSTRIES CORPORATION, Bhopal

ITA 749/IND/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5739 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Section: 37; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO.749/IND/2014 A.Y. : 2010-11. ACIT, 2(1) BHOPAL VS. M/S.M.P.STATE INDUSTRIES CORPORATION, BHOPAL APPELLANT RESPONDENT PAN NO. AABCM9653P APPELLANT BY : SHRI R.A. VERMA, DR RESPONDENT BY : NONE O R D E R PER D.T.GARASIA, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A)-I, BHOPAL, DATED 15.09.2014 FOR THE ASSE SSMENT YEAR 2010-11. DATE OF HEARING : 01.03 .2016 DATE OF PRONOUNCEMENT : 01 .0 3 .2016 ACIT,2(1), BHOPAL VS. M/S. M.P. STATE INDUSTRIES CO RPORATION, BHOPAL I.T.A.NO. 749/IND/2014 A.Y. 2010-11 2 2 2. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY OWNED BY THE M.P. GOVERNMENT. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING I N VARIOUS PRODUCTS I.E. FURNITURE, POTTERIES, SHOES, SUGAR, A LCOHOL, WATCHES ETC. THE AO OBSERVED THAT THE ASSESSEE COMP ANY WAS RUNNING IN HEAVY LOSSES AND IT WAS DECIDED BY THE C OMPANY TO DISCONTINUE ITS BUSINESS ACTIVITY. THE ASSESSEE COM PANY HAS SHOWN THE INCOME ONLY FROM MANAGEMENT FEE RECEIPT A ND INTEREST INCOME. THE AO OBSERVED THAT THE ASSESSEE COMPANY VIDE ITS REPLY DATED 10.12.2012 CLEARLY STATED THAT NO MANUFACTURING/TRADING ACTIVITY WAS UNDERTAKEN DURIN G THE YEAR UNDER CONSIDERATION. SINCE THERE WAS NO BUSINE SS ACTIVITY DURING THE YEAR UNDER CONSIDERATION, THE AO HELD TH AT NO EXPENSES CAN BE CLAIMED U/S 37 OF THE ACT, AS NO IN COME UNDER THE HEAD BUSINESS WAS NOT TO BE COMPUTED. ACC ORDINGLY, THE AO DISALLOWED THE TOTAL EXPENSES OF RS. 46,93,0 27/- CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCO UNT. 3. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) DELETED THIS APPEAL BY OBSERVING AS UNDER :- ACIT,2(1), BHOPAL VS. M/S. M.P. STATE INDUSTRIES CO RPORATION, BHOPAL I.T.A.NO. 749/IND/2014 A.Y. 2010-11 3 3 5.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND FACTS OF THE CASE. IT IS AN ADMITTED F ACT THAT THE APPELLANT WAS EARLIER ENGAGED IN THE MANUFACTURING AND TRADING ACTIVITIES LIKE FURNITURE, POTTERIES, SHOES, SUGAR, ALCOHOL, WATCHES ETC. BUT T HE APPELLANT HAD DISCONTINUED ITS BUSINESS AND TWO OF ITS UNITS VIZ. DEWAS UDYOG, DEWAS AND RATLAM ALCOHOL PLANT, RATLAM W ERE GIVEN ON MANAGEMENT CONTRACT IN JUNE, 1998 AND JANUARY, 1997 AND THE APPELLANT RECEIVED MANAGEMENT CONTRACT FEES FROM THESE TWO UNITS. SINCE THE APPELLANT HAD NOT UNDERTAKEN ANY BUSINESS ACTIVITY DURING ANY PART OF THE YEAR UNDER CONSIDERATION, THE INCOME OF THE APPELLANT COULD NOT BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. HOWEVER, THE INCOME EARNED BY THE APPELLANT WAS INCOME FROM OTHER SOURCES, ASSESSABLE U/S 56 OF THE ACT. SECTION 57(III) OF THE ACT CLEARLY PROV IDES THAT ANY OTHER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL ACIT,2(1), BHOPAL VS. M/S. M.P. STATE INDUSTRIES CO RPORATION, BHOPAL I.T.A.NO. 749/IND/2014 A.Y. 2010-11 4 4 EXPENDITURE) LAID OUT OR EXPENDED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME IS ALLOWABLE AS EXPENDITURE. THUS, THE EXPENDITURE INCURRED F OR THE PURPOSE OF MAKING OR EARNING INCOME FROM OTHER SOURCES IS AN ALLOWABLE DEDUCTION. IT MAY FURTHER BE NOTED THAT AS HELD IN THE CASES OF CIT VS. RAMPUR TIMBER AND TANNERY CO. LTD, (1981 )129 ITR 58 (ALL ) AND THE CHINA & CO. PVT. LTD VS. CIT, (1994) 206 ITR 616 (BOM), THE EXPENSES INCURRED FOR THE PURPOSE TO MAINTAIN THE STATUS OF THE COMPANY AND TO EARN INCOME FROM INTEREST ARE ALSO ALLOWABLE DEDUCTIONS. THERE MUST BE A NEXUS BETWEEN THE CHARACTER OF EXPENDITURE AND THE MAKING AND EARNING OF INCOME. THEREFORE, THE APPELLANT COMPANY WAS ENTITLED TO CLAIM ESTABLISHMENT EXPENSES IN THE FORM OF SALARY ETC. NECESSARY FOR IT TO MAINTAIN ITS STATUS AS A COMPANY AND TO EARN INCOME IN THE FORM OF INTEREST AND DIVIDEND. IT IS NOT THE CASE OF THE AO THAT THE ACIT,2(1), BHOPAL VS. M/S. M.P. STATE INDUSTRIES CO RPORATION, BHOPAL I.T.A.NO. 749/IND/2014 A.Y. 2010-11 5 5 EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT WER E NOT INCURRED FOR EARNING OF MANAGEMENT CONTRACT FEE AND INTEREST INCOME. THEREFORE, THE EXPENSES INCURR ED BY THE APPELLANT AS SALARY, TRAVELING, LEGAL EXPENSE S. MISC. EXPENSES ETC. DEBITED IN PROFIT AND LOSS ACCOUN T WERE ALLOWABLE DEDUCTIONS U/S 57(III) OF THE ACT AGAINST INCOME FROM MANAGEMENT FEE AND INTEREST INCOME. IT MAY NOT BE OUT OF PLACE TO MENTION HERE THAT THE HON'BLE JURISDICTIONAL INDORE I.T.A.T. HAD ALSO DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN ITS OWN CASE FOR A. Y. 2008-09 IN I.T.A.NO. 259/IND/2012 ORDER DATED 01.11.2012. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND LEGAL POSITION ON THE ISSUE INVOLVED, I AM OF THE CONSIDERED VIEW THAT THE A.O. WAS NOT JUSTIFIED IN MAKING DISALLOWANCE OF RS. 46,97,027/- OF EXPENSES CLAIMED BY THE APPELLANT. HENCE, THE DISALLOWANCE OF RS.46,97,027/- IS DELETED. ACIT,2(1), BHOPAL VS. M/S. M.P. STATE INDUSTRIES CO RPORATION, BHOPAL I.T.A.NO. 749/IND/2014 A.Y. 2010-11 6 6 4. HAVING HEARD BOTH THE PARTIES, WE FOUND THAT THE LD . CIT(A) HAS RELIED UPON THE ORDER OF THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 IN I.T.A.NO. 259/IND/2012 DATED 1.11.2012, WHEREIN SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THE RELEVAN T FINDING OF THE I.T.A.TS ORDER IS REPRODUCED AS UNDER :- IF THE EXPENSES INCURRED BY THE ASSESSEE UNDER DIFFERENT HEADS ARE ANALYSED, IN THE LIGHT OF FINDI NG RECORDED BY THE LD. CIT(A), WE FIND THAT THE AMOUNT OF RS. 30,89,247/- WAS INCURRED ON ACCOUNT OF MAINTENANCE AND OPERATION OF HEAD OFFICE ESPECIALLY WHEN THE ASSESSEE IS A CORPORATE ENTITY AND HAS NOT WOUND UP ITS BUSINESS. SUCH EXPENSES HAVE BEEN INCURRED FOR SMOOTH RUNNING AND TO KEEP THE CORPORATE ENTITY LIVE. REGARDING THE REMAINING EXPENSES OF RS. 78,71,664/- OUT OF TOTAL EXPENSES O F RS. 1,28,95,256/- WHEREVER THE LD. CIT(A) FOUND THA T SUCH EXPENSES WERE ESSENTIALLY NOT INCURRED FOR GENUINE PURPOSES, THE SAME WERE DISALLOWED AND THE GENUINE EXPENSES TO THE EXTENT OF RS. 30,89,247/- WHICH WERE NECESSARY FOR SMOOTH FUNCTIONING WERE ONLY ALLOWED BY THE LD. CIT(A). WHILE COMING TO THI S ACIT,2(1), BHOPAL VS. M/S. M.P. STATE INDUSTRIES CO RPORATION, BHOPAL I.T.A.NO. 749/IND/2014 A.Y. 2010-11 7 7 CONCLUSION, RELIANCE HAS ALREADY BEEN PLACED IN CIT VS. RAMPUR TIMBER & TANNERY CO. P.LTD., 129 ITR 58 ( ALL) AND CHENNAI & CO. P.LTD. VS. CIT, 206 ITR 61 6. IT IS PERTINENT TO MENTION HERE THAT NO EXPENSES IN RESPECT OF MANUFACTURING ACTIVITIES HAVE BEEN ALLOWED BY THE LD. CIT(A). IT IS FURTHER NOTED THAT THE EXPENSE LIKE SALARY, EMPLOYEES CONTRIBUTION TO PF AND PENSION FUND, STAFF WELFARE, TELEPHONE, SALARY TO HOME GUARD, TRAVELLING EXPENSES, PRINTING AND POSTAGE, LEGAL EXPENSES, ELECTRICITY AND WATER CHARGES, ETC. ARE NECESSARY TO KEEP THE CORPORATE ENTITY LIVE. NOWHERE THE AO HAS BROUGHT ON RECORD THAT ANY EXPENDITURE WAS INCURRED FOR EXTRANEOUS CONSIDERATION, THEREFORE, THE ITO IS NOT EXPECTED T O DECIDE THE REASONABLENESS BECAUSE IT IS THE ASSESSEE WHO KNOWS HIS BUSINESS INTEREST BETTER. REASONABLENESS IS TO BE DECIDED BY THE ASSESSEE THOUGH THE AO IS EMPOWERED TO DISALLOW THE PAYMENT/EXPENDITURE IF MADE FOR EXTRA COMMERCIAL CONSIDERATION. IN VIEW OF THE UNCONTROVERTED FINDIN G RECORDED BY THE LD. CIT(A), WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THE ISSUE AND CONFIRM TH E SAME, RESULTING INTO DISMISSAL OF THE GROUND. ACIT,2(1), BHOPAL VS. M/S. M.P. STATE INDUSTRIES CO RPORATION, BHOPAL I.T.A.NO. 749/IND/2014 A.Y. 2010-11 8 8 5. WE UPHOLD THE ACTION OF THE LD. CIT(A) AND RESPECT FULLY FOLLOWING THE ORDER OF I.T.A.T. INDORE BENCH, DISMI SS THE REVENUES APPEAL. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH, 2016. SD/- (B.C.MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 1 ST MARCH, 2016. CPU*