M/s HMA Data Systems Pvt Ltd , Bangalore V. Deputy Commissioner of Income Tax Circle-11(4), Bangalore

ITA 776/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4151 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 15-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R PREMI JT BENGALU RU
• Assessee Lawyers: V NARENDRA SHARMA
• Keywords: Unexplained cash credit; Unexplained expenditure; Gift; Business income; Depreciation; Business expenditure; TDS; Rule 8D
• Section: 69C; 14A; 22; 32; 68; 37; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A K GARODIA , ACCOUNTANT MEMBER IT A NO. 776/BANG/2019 ASSESSMENT YEAR: 2010 - 11 HMA DATA SYSTEMS (P) LTD., G-1, RIO GRANDE, NO.7/3, BRUTON ROAD, BENGALURU 560 001. PAN: AAACH 3508D VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(4), BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI V. NARENDRA SHARMA, ADVOCATE RESPONDENT BY : SMT. R. PREMI , JT. CIT(DR)(ITAT ), BENGALURU. DATE OF HEARING : 22 .1 0.2020 DATE OF PRONOUNCEMENT : 28 . 1 0.2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 15.03.2019 OF THE CIT(APPEALS)-3, BENGALURU RELATING TO ASSESS MENT YEAR 2010-11. 2. GROUND NO.3 WAS NOT PRESSED BY THE ASSESSEE FOR ADJUDICATION AND THE SAME IS DISMISSED AS NOT PRESSED. 3. THERE ARE TWO ISSUES THAT REMAIN TO BE DECIDED I N THIS APPEAL. THE FIRST ISSUE IS AS TO, WHETHER THE CIT(APPEALS) WAS JUSTIFIED IN CONFIRMING THE ORDER OF AO IN MAKING DISALLOWANCE OF EXPENSES TO T HE EXTENT OF RS.1,22,50,626. THE BREAK-UP OF THE SUM DISALLOWED IS AS FOLLOWS:- ITA NO.776/BANG/2019 PAGE 2 OF 12 A. DEPREDATION OF RS. 55,11,911/-; B. EMPLOYEE COST OF RS. 27,34,237/-; C. REPAIRS AND MAINTENANCE OF RS. 10,48,926/-; D. TRAVELLING AND CONVEYANCE OF RS. 4,43,957/-; E. PROFESSIONAL & CONSULTANCY CHARGES OF RS. 5,55,0 00/-; F. AUDIT FEES OF RS. 4,41,930/-; G. INTEREST EXPENSES OF RS. 7,14,805/-; H. GIFTS OF RS. 11,998/- I. OTHER GENUINE BUSINESS EXPENDITURES - RS.7,87,86 2. 4. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF DISTRIBUTING SECURITY PRODUCTS LIKE SELF-SERVICE TERMINALS LIKE ATMS AND OTHER LINES OF BUSINESS INCLUDING SOFTWARE, HARDWARE, MIDDLEWARE A ND SWITCHING SOLUTIONS. 5. FOR THE AY 2010-11, THE ASSESSEE FILED A RETURN OF INCOME DECLARING TOTAL INCOME AT NIL. THE AO HAS NOTICED THAT IN TH E PAST ASSESSMENT YEARS, THE PERCENTAGE OF BUSINESS INCOME TO THE TOT AL INCOME DECLARED BY THE ASSESSEE WAS AS FOLLOWS:- A.Y. INCOME FROM BUSINESS OTHER INCOME AS RENT & INTEREST RECEIVED % OF BUSINESS INCOME OF TOTAL INCOME EXPENDITURE CLAIMED 07-08 2.20.000 2,13,12,630 1.02% 1,94,70,714 08-09 6,15,000 1,90,77.569 3.12% 2,15.56,158 09-10 8,02,240 1,12,56,015 6.65% 3,11,10,524 6. WITH THIS BACKGROUND, THE AO EXAMINED THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.3.2010 AND FOUND THAT THE EXP ENDITURE INCURRED WITH REFERENCE TO THE STREAM OF REVENUE EARNED BY THE AS SESSEE. THE AO FOUND THAT THE INCOME DECLARED WAS RENTAL INCOME I.E., CH ARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND INCOME IN THE FORM OF FEES FOR PROFESSIONAL OF RS.6 LAKHS WHICH WAS DECLARED AS IN COME DERIVED FROM ITA NO.776/BANG/2019 PAGE 3 OF 12 BUSINESS. APART FROM THAT, THE ASSESSEE DERIVED IN COME FROM OTHER SOURCES. THE DETAILS OF INCOME RECEIVED BY THE ASS ESSEE WAS AS FOLLOWS:- SCHE- DULE YEAR ENDED INCOME 31-MAR-2010 31-MAR-2009 FEES FOR PROFESSIONAL SERVICES 6,00,000 OTHER REVENUES 7 2,20,925 DIVIDEND RECEIVED 22,13.427 INTEREST RECEIVED (TAX DEDUCTED AT SOURCE RS. 4,21,724/-) 34,76,973 NET PROFIT (LOSS) ON SALE OF FIXED ASSETS 3.06,078 7. AS AGAINST THE AFORESAID STREAM OF INCOME, THE A SSESSEE HAS CLAIMED EXPENDITURE OF RS.1,34,00,000. THE AO THER EFORE EXAMINED THE VARIOUS EXPENSES DEBITED IN THE P&L ACCOUNT AND ALS O THE NEXUS OF THOSE EXPENSES WITH THE INCOME EARNED BY THE ASSESSEE. T HE AO FIRSTLY NOTICED THAT THE SUM OF RS.6 LAKHS WHICH WAS SHOWN AS FEES FOR PROFESSIONAL SERVICES RENDERED WAS BASED ON AN INVOICE RAISED AT THE FAG END OF MARCH, 2009 AND THE INVOICE WAS INV. NO.1. INVOICE WAS RA ISED ON A COMPANY BY NAME, VENCAP HOLDINGS P. LTD. [ VHPL ]. THE AO CALLED FOR A REPORT OF COMMISSION FROM ACIT, COMPANY CIRCLE 3(4), CHENNAI ON THE NATURE OF SERVICES RENDERED BY THE ASSESSEE TO VHPL FOR WHICH INVOICE OF RS.6 LAKHS WAS RAISED BY ASSESSEE. THE INSPECTOR DEPUTED TO M AKE ENQUIRY FOUND THAT THE ASSESSEE AND VHPL WERE LOCATED IN THE SAME FLOOR AND THE SAME ADDRESS AND THAT VHPL HAD NO STAFF FOR THE PAST 7 Y EARS AND DID NOT PAY ANY RENTS TO THE ASSESSEE. IT ALSO EMERGED THAT T HE DIRECTORS OF VHPL AND ASSESSEE WERE ONE AND THE SAME. VHPL HAD OFFERED L OSS OF RS.19,313 FOR AY 2012-13 AND RS.74,80,750 FOR AY 2010-11. THE NA TURE OF SERVICES RECEIVED COULD NOT BE EXPLAINED BY VHPL VICE PRESID ENT, MR. G. KISHOR ITA NO.776/BANG/2019 PAGE 4 OF 12 WHEN HE WAS EXAMINED. BASED ON THE ABOVE, THE AO C AME TO THE CONCLUSION THAT INCOME OF RS.6 LAKHS OFFERED BY THE ASSESSEE AS BUSINESS INCOME WAS UNEXPLAINED CREDIT AND REQUIRED TO BE AD DED U/S. 68 OF THE ACT. IN THE COMPUTATION OF TOTAL INCOME, THE AO INCLUDED A SUM OF RS.6 LAKHS. 8. THE AO THEN FOUND THAT OUT OF EXPENDITURE OF RS. 1.3 CRORES CLAIMED BY THE ASSESSEE IN THE P&L ACCOUNT, THE AO FOUND TH AT THE RENT OF RS.2,27,142 WAS CLAIMED BY THE ASSESSEE. THE ASSESS EE HAD OFFICE IN BANGALORE AND CHENNAI AND BOTH WERE OWNED BY ASSESS EE. THE GODOWN IN PONDICHERRY WAS TAKEN ON RENT OF RS.1,300 PER MO NTH. THE AOS CONCLUSION WAS THAT EXCEPT THE SUM OF RS.15,600 BEI NG RENT FOR GODOWN AT PONDICHERRY, THE REMAINING RENTAL EXPENDITURE DEBIT ED IN THE P&L ACCOUNT HAD TO BE TREATED AS UNEXPLAINED EXPENDITURE U/S. 6 9C OF THE ACT. THE AO, HOWEVER, HAS NOT MADE A SEPARATE ADDITION U/S. 69C AS HE HAD DISALLOWED THE ENTIRE EXPENDITURE CLAIMED IN THE P&L ACCOUNT. 9. THE AO THEN EXAMINED THE CLAIM OF DEPRECIATION O F ASSESSEE WHICH WAS AT A SUM OF RS.54,71,780. THE CONCLUSION OF TH E AO WAS THAT ONE OF THE ITEMS OF THE ASSET ON WHICH DEPRECIATION WAS CL AIMED WAS A BMW CAR, WHICH WAS USED BY DIRECTOR OF COMPANY FOR PERSONAL PURPOSE AND DEPRECIATION CANNOT BE ALLOWED. A PERUSAL OF DEPRE CIATION CHART REPRODUCED IN PARA 6.4.2 OF THE AOS ORDER SHOWS TH AT APART FROM VEHICLE, THE ASSESSEE OWNED SEVERAL OTHER ASSETS AND THE DEP RECIATION COMPONENT ON THE VEHICLE WAS ONLY RS.32,52,495. 10. THE AO THEREAFTER EXAMINED THE EMPLOYEE COST OF RS.27,34,237 AND CAME TO THE CONCLUSION THAT ONLY 3 EMPLOYEES WERE W ORKING FOR PAST 3 YEARS AND THEREFORE THE EMPLOYEE COST WAS NOT GENUI NE. 11. THEREAFTER THE AO GAVE THE FOLLOWING CONCLUSION FOR DISALLOWING EXPENDITURE DEBITED IN THE P&L ACCOUNT OF RS.1.34 C RORES:- ITA NO.776/BANG/2019 PAGE 5 OF 12 6.6.1. THE ABOVE DISCUSSION CLEARLY STATES THAT THE EXPENDITURE CLAIMED BY THE COMPANY IS NOT GENUINE. MOREOVER, TH E COMPANY HAS DEBITED EXPENDITURE TOWARDS BUSINESS PROMOTION, ENTERTAINMENT EXPENSES, GIFTS & DONATION AGAINST WH ICH NO SUPPORTING DOCUMENTS, VOUCHERS, BILLS ARE PRODUCED TO SUBSTANTIATE THE CLAIM. 6.6.2. HENCE, THE COMPANY HMA DATA SYSTEMS PVT LTD ., IS NEITHER HAVING A GENUINE BUSINESS INCOME NOR GENUIN E BUSINESS EXPENDITURE. HENCE, THE ENTIRE BUSINESS EXPENDITURE CLAIMED IS HEREBY DISALLOWED AS THERE IS NO BUSINESS INCOME. 12. BEFORE THE CIT(APPEALS), THE ASSESSEE POINTED O UT THAT IN AY 2009- 10, IDENTICAL DISALLOWANCE OF EXPENDITURE WAS MADE BY THE AO, BUT THE SAME WAS DELETED BY THE CIT(APPEALS) AND UPHELD BY THE TRIBUNAL VIDE ORDER DATED 30.12.2014 IN ITA NO.701/BANG/2013. APART FROM THE ABOVE, THE ASSESSEE SUBMITTED THAT IT WAS A GOING CONCERN AND HAD TO INCUR VARIOUS EXPENSES ON DAY TO DAY BASIS. THE ASSESSEE SUBMITTED THAT THE BUSINESS ACTIVITY OF THE ASSESSEE HAD NOT BEEN CLOS ED, BUT THERE WAS ONLY A TEMPORARY LULL IN ITS ACTIVITY. THE ASSESSEE POINT ED OUT THAT SINCE THERE WAS NO INTENTION ON ITS PART TO CLOSE DOWN ITS BUSINESS PERMANENTLY AND SINCE IT WAS EXPLORING POSSIBILITIES OF DOING BUSINESS, THE EXPENSES IN QUESTION HAD TO BE INCURRED. THE ASSESSEE POINTED OUT THAT IN L AW IT WAS NOT NECESSARY THAT FOR A BUSINESS TO BE IN EXISTENCE, IT SHOULD A LWAYS HAVE WORK AND THAT THERE MAY BE LONG INTERVALS OF INACTIVITIES, BUT ST ILL THE CONCERN WILL BE A GOING CONCERN. THE ASSESSEE RELIED ON JUDICIAL PRO NOUNCEMENTS IN SUPPORT OF THE ARGUMENTS SO ADVANCED. 13. THE CIT(APPEALS), HOWEVER, WAS NOT CONVINCED AN D WAS OF THE VIEW THAT THE AO WAS JUSTIFIED IN DISALLOWING EXPENSES. HE ALSO FOUND THAT VHPL WAS OPERATING FROM THE SAME PREMISES OF ASSESSEE AN D HAD NO EMPLOYEES FOR CARRYING OUT ITS DAY TO DAY FUNCTIONS AND EXPEN DITURE CLAIMED BY ASSESSEE INCLUDED EXPENDITURE OF VHPL ALSO. ON THE LEGAL PROPOSITION ADVANCED BY THE ASSESSEE THAT EXPENSES HAVE TO BE A LLOWED, WHEN THE ITA NO.776/BANG/2019 PAGE 6 OF 12 BUSINESS HAS NOT BEEN CLOSED PERMANENTLY AND THAT I N PERIODS OF LULL, THERE IS BOUND TO BE ABSENCE OF INCOME, BUT EXPENSES WILL HAVE TO BE INCURRED; THE CIT(A) TOOK THE VIEW THAT ASSESSEE HAS NOT BROU GHT ON RECORD ANY EVIDENCE TO SHOW THAT BUSINESS HAS NOT CEASED AND E XPENSES WERE INCURRED ONLY TO KEEP BUSINESS ALIVE. 14. ON THE ISSUE THAT SIMILAR EXPENSES WERE ALLOWED BY THE TRIBUNAL IN AY 2009-10, THE CIT(APPEALS) TOOK THE VIEW THAT THE FACT THAT PREVAILED IN AY 2009-10 WERE DIFFERENT AND THEREFORE THE DECISIO N FOR THAT YEAR WAS NOT RELEVANT, SINCE IN AY 2009-10 THERE WAS NO ENQUIRY CONDUCTED BY THE AO AS WAS DONE IN THE PRESENT AY 2010-11. 15. FOR ALL THE ABOVE REASONS, THE CIT(APPEALS) CON FIRMED THE ORDER OF AO. 16. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS THAT WERE MADE BEFORE THE CIT(APPEALS) AND FURTHER PLACED RELIANCE ON THE FOLLOWING DECISIONS:- 1. CIT V. LAWRENCE DSOUZA [2011] 203 TAXMAN 200 [KAR] 2. CIT V. INTEGRATED TECHNOLOGIES LTD. (ITA NO.530/201 1 DATED 16.12.2011). 3. DCIT V. IDEB BUILDERS PVT. LTD. (ITA NOS.517 & 1390/BANG/2014 DTD. 7.11.2018). 4. HIRSH BRACELET INDIA P. LTD. V. ACIT (ITA NO.3392/BANG/2018 DTD. 3.7.2019). 17. THE LD. COUNSEL FOR THE ASSESSEE ALSO BROUGHT TO OUR NOTICE THAT IN THE SUBSEQUENT ASSESSMENT YEAR I.E., AY 2012-13, TH E AO AFTER EXAMINING ALL THE EXPENSES AND AFTER ANALYSIS OF THE SUBMISSI ONS MADE BY THE ASSESSEE PASSED AN ORDER DATED 30.1.2015 U/S. 143(3 ) OF THE ACT WHEREIN NO DISALLOWANCE OF EXPENSES WHATSOEVER WAS MADE BY THE AO. IT WAS REITERATED BY HIM THAT THERE IS A DIFFERENCE BETWEE N A CLOSURE OF BUSINESS AND A TEMPORARY LULL IN BUSINESS AND IN CASE OF ASS ESSEE, THERE WAS ONLY A ITA NO.776/BANG/2019 PAGE 7 OF 12 TEMPORARY LULL AND NOT A CLOSURE. IN THIS REGARD, IT WAS ALSO SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT FOR THE SUBSE QUENT ASSESSMENT YEAR, THE BUSINESS OF ASSESSEE AS ATM SUPPLIERS HAD CONSI DERABLY INCREASED AND STREAMS OF REVENUE ALSO INCREASED. IT WAS THER EFORE SUBMITTED THAT ASSESSEE SHOULD BE ALLOWED DEDUCTION. 18. THE LD. DR RELIED ON THE ORDER OF CIT(APPEALS) AND BROUGHT TO OUR NOTICE THAT THE ORDER OF TRIBUNAL FOR AY 2009-10 WA S NOT RELEVANT BECAUSE IN THAT ASSESSMENT YEAR, THE AO DID NOT MAKE ANY EN QUIRIES WHEREAS IN THE PRESENT AY 2010-11, THE AO HAD MADE DETAILED ENQUIR IES. THE LD. DR REITERATED THE FINDINGS OF AO IN THE ORDER OF ASSES SMENT. 19. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. WE FIND THAT THE ACTION OF THE AO IN TREATING THE SUM OF RS.6 LAKHS WHICH WAS SHOWN AS INCOME IN THE FORM OF PROFESSIONAL FEES RE CEIVED AS UNEXPLAINED CREDIT U/S. 68 OF THE ACT CANNOT BE SUSTAINED. THE RE IS NO DISPUTE WITH REGARD TO THE IDENTITY AND CAPACITY OF VHPL. THE GE NUINENESS OF THE TRANSACTION CANNOT BE DISPUTED MERELY ON THE BASIS THAT NO SERVICES WERE RENDERED. THE BASIC PRESUMPTION U/S. 68 IS THAT TH E SUM TREATED AS UNEXPLAINED HAS TO BE ASSESSEES MONEY. TDS HAS BE EN DEDUCTED ON THE SUM PAYABLE BY VHPL. THE AO HIMSELF HAS FOUND THAT VHPL DOES NOT HAVE EMPLOYEES AND ASSESSEE CATERED TO THE NEEDS OF VHPL. IN THESE CIRCUMSTANCES, THE ADDITION OF RS.6 LAKHS U/S. 68 W AS NOT JUSTIFIED. 20. AS FAR AS DISALLOWANCE OF EXPENSES IS CONCERNED , WHAT WE NOTICE IS THAT OUT OF RENTAL EXPENDITURE OF RS.2,27,142 CLAIM ED BY ASSESSEE, THE AO HAS TREATED A SUM OF RS.2,11,542 AS UNEXPLAINED EXP ENDITURE U/S. 69C OF THE ACT. THE ASSESSEE HAS EXPLAINED THAT APART FRO M THE RENT FOR GODOWN OF THE PREVIOUS YEAR, WHICH WAS ALLOWED BY THE AO AT R S.15,600, THE BALANCE AMOUNT OF RS.2,11,542 WAS RENT PAID TO ACCOMMODATIO N PROVIDED TO THE ASSESSEES DIRECTOR. THIS FACT IS EVIDENCED IN THE NOTES TO THE ACCOUNTS AT ITA NO.776/BANG/2019 PAGE 8 OF 12 POINT NO.9. IN THESE CIRCUMSTANCES, THE ADDITION U /S. 69C OF THE ACT WAS NOT JUSTIFIED. 21. AS FAR AS DEPRECIATION CLAIMED BY THE ASSESSEE IS CONCERNED, THE FIRST THING WHICH WE NOTICE IS THAT THE ASSESSEE IS IN BUSINESS OF SECURITY PRODUCT DISTRIBUTION. A PERUSAL OF DEPRECIATION SC HEDULE GIVEN IN THE ORDER OF ASSESSMENT SHOWS THAT APART FROM BMW CAR, THERE ARE OTHER ASSETS ON WHICH DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE . DEPRECIATION IS AN ITEM OF EXPENDITURE WHICH HAS TO BE STATUTORILY ALL OWED U/S. 32 OF THE ACT, IRRESPECTIVE OF ITS USER IN VIEW OF THE CONCEPT OF BLOCK OF ASSETS. THE ONLY REASON GIVEN BY THE AO FOR DISALLOWANCE OF DEPRECIA TION IS USE OF BMW CAR BY THE DIRECTOR OF ASSESSEE. AS RIGHTLY CONTENDED, THERE IS USE OF CAR BY DIRECTOR OF COMPANY FOR THE PURPOSE OF BUSINESS OF ASSESSEE AND THIS IS NOT DISPUTED. THERE IS NOTHING TO SHOW THAT PROPERTY W AS USED ONLY FOR PERSONAL PURPOSES. THE CAR IN QUESTION WAS A BUSIN ESS ASSET AND DEPRECIATION HAD TO BE ALLOWED ON THE SAME. THE AO COULD HAVE DISALLOWED DEPRECIATION ON THE GROUND OF PERSONAL U SER IN RESPECT OF A PARTICULAR ITEM OF DEPRECIABLE ASSET. HE COULD NOT HAVE DISALLOWED THE ENTIRE CLAIM OF DEPRECIATION. DISALLOWANCE OF DEPR ECIATION ON THE GROUND THAT THERE WAS NO BUSINESS ACTIVITY, CANNOT ALSO BE SUSTAINED, FOR THE REASONS WHICH WILL BE GIVEN LATER. 22. SIMILARLY, THE EMPLOYEE COST WAS SALARY PAID TO 3 EMPLOYEES AND HAD TO BE ALLOWED AS A DEDUCTION. THERE IS NO DISP UTE THAT SALARY WAS PAID TO EMPLOYEES OF THE ASSESSEE. THUS, WE DO NOT FIND ANY VALID JUSTIFICATION FOR THE COMMENTS AND CONCLUSIONS OF AO IN THE ORDER OF ASSESSMENT WHICH WAS ENDORSED BY THE CIT(APPEALS). 23. AS FAR AS THE QUESTION WHETHER LACK OF BUSINESS ACTIVITY CAN RESULT IN DISALLOWANCE OF EXPENSES INCURRED BY THE ASSESSEE, FIRSTLY WE NOTICE THAT BUSINESS OF ASSESSEE HAS NOT BEEN CLOSED AND THERE HAS BEEN A TEMPORARY ITA NO.776/BANG/2019 PAGE 9 OF 12 LULL. THERE IS NOTHING BROUGHT ON RECORD THAT THE ASSESSEE HAS CEASED TO CARRY ON BUSINESS. AS A GOING CONCERN, EXPENSES HA VE TO BE INCURRED AND DISALLOWANCE OF EXPENSES ON THE GROUND THAT THERE I S NO FLOW OF REVENUE CANNOT BE SUSTAINED. AS FAR AS NATURE OF EXPENSES TO BE INCURRED IS CONCERNED, IT IS LEFT TO THE WISDOM OF A BUSINESSMA N. THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF LAWRENCE DSOUZA [2011] 203 TAXMAN 200 (KAR) HAS HELD THAT EXPENSES INCURRED TO KEEP THE BUSINE SS GOING EVEN IN ABSENCE OF INCOME SHOULD BE ALLOWED AS A DEDUCTI ON. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF INDERCHAND HARI RAM V. CIT, 23 ITR 437 (ALL) HELD THAT A COMPANY IS DEEMED TO BE CARRYING ON BU SINESS EVEN DURING THE PERIOD OF LULL AND INACTIVITY. IT IS NO T NECESSARY THAT THE BUSINESS IN EXISTENCE SHOULD HAVE WORK ALL THE TIME. THERE MAY BE A LONG INTERVAL OF INACTIVITY AND A CONCERN MAY STILL BE A GOING CONCE RN, THOUGH IT MAY FOR SOME TIME, BE QUIET AND DORMANT, WOULD NOT MEAN THA T IT HAS CEASED TO EXIST. IF THE ASSESSEE CONTINUES TO MAINTAIN AN ES TABLISHMENT AND INCUR EXPENSES IN THE EXPECTATION THAT WORK WOULD COME AN D THE BUSINESS WOULD BE SUCCESSFUL, THE EXPENSES HAVE TO BE ALLOWED AND HAS TO BE CONSIDERED AS HAVING BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF ASSESSEE. IN THE LIGHT OF THE LEGAL POSITION EMERGING FROM THE AFORE SAID DECISIONS AND IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE BUSINESS OF ASSESSEE HAD NOT COME TO A COMPLETE HAL T AND IT WAS A GOING CONCERN AND EXPENSES IN QUESTION HAD TO BE INCURRED TO KEEP THE CONCERN GOING. WE ARE THEREFORE OF THE VIEW THAT THE EXPEN SES IN QUESTION SHOULD BE ALLOWED AS A DEDUCTION. 24. WE ALSO FIND THAT THE TRIBUNAL IN THE APPEAL OF THE REVENUE FOR AY 2009-10, ON THE AFORESAID REASONING HAD UPHELD THE ORDER OF CIT(APPEALS) DELETING THE ADDITION MADE BY AO BY WAY OF DISALLOW ANCE OF EXPENSES. WE ARE THEREFORE OF THE VIEW THAT THE EXPENSES CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED AS A DEDUCTION AND IT HAS ALSO TO BE HEL D THAT INCOME OF RS.6 ITA NO.776/BANG/2019 PAGE 10 OF 12 LAKHS HAS TO BE REGARDED AS OPERATING BUSINESS INCO ME. WE HOLD AND DIRECT ACCORDINGLY. THE RELEVANT GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 25. THE NEXT ISSUE THAT ARISES FOR CONSIDERATION IS DISALLOWANCE OF EXPENSES U/S. 14A OF THE ACT. THE FIRST ASPECT WE NOTICE ON THIS ISSUE IS THAT THE AO HAD DISALLOWED A SUM OF RS.7,85,024 U/S . 14A. IT IS NOT IN DISPUTE THAT THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.22,13,427 WHICH WAS CLAIMED EXEMPT U/S. 10(35) OF THE ACT. THE BRE AK-UP OF DISALLOWANCE U/S. 14A MADE BY THE AO WAS AS FOLLOWS:- A TOTAL AMOUNT OF DIRECT INTEREST/OTHER EXPENSES PERTAINING TO TAX-EXEMPT INVESTMENTS 0 B TOT AL AMOUNT OF INDIRECT INTEREST PERTAINING TO TAX-EXEMPT INVESTMENTS 300000 2009-10 2010-11 AVERAGE C AVERAGE AMOUNT OF TAX EXEMPT INVESTMENTS 122608979 137507153 130058066 D AVERAGE AMOUNT OF TOTAL ASSETS 282039250 297140638 289589944 E PROPORTIONATE INDIRECT INTEREST DISALLOWED BX(C/D) 134733 F 0.5 % OF AVERAGE AMOUNT OF TAX EXEMPT INVESTMENTS 650290 TOTAL DISALLOWANCE ATTRACTED U/ S. 14A READ WITH RULE 8D A+E+F 785024 26. BEFORE THE CIT(APPEALS), THE ASSESSEE POINTED O UT THAT IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAD ALREA DY DISALLOWED A SUM OF RS.9,71,314 AS EXPENDITURE INCURRED FOR EARNING EXE MPT INCOME U/S. 14A. THE ASSESSEE HAS POINTED OUT THAT THE AO HAS MADE A MUCH LESS COMPUTATION OF DEDUCTION OF EXPENSES TO BE DISALLOW ED U/S. 14A. THE ASSESSEE THEREFORE SUBMITTED THAT THE DISALLOWANCE BEING A DOUBLE ITA NO.776/BANG/2019 PAGE 11 OF 12 DISALLOWANCE SHOULD BE DELETED. THE CIT(A), HOWEVE R, DID NOT AGREE THAT THE ASSESSEE HAS ALREADY DISALLOWED EXPENSES U/S. 1 4A OF THE ACT. HE GAVE THE FOLLOWING REASONS:- 6.2 THE SUBMISSIONS OF THE APPELLANT HAVE DULY BEE N CONSIDERED. AS REGARDS CLAIM OF THE APPELLANT THAT IN ITS RETURN OF INCOME IT HAD ALREADY DISALLOWED AN EXPENDITURE OF RS 9,71,317/- FOR EARNING OF SUCH INCOME, THE SAME IS NOT FOUND T O BE CORRECT. A PERUSAL OF THE RETURN OF INCOME SHOWS THAT IN PART A-OI(7)(G) RELATING TO 'AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME ' THE AMOUNT GIVEN IS 'NIL'. ALTHOUGH THE APPELLANT HAS DISALLOWED CERTAIN EXPEN SES UNDER PART A-OI(7)(I), BUT THE SAME ARE THE AMOUNT NOT AL LOWABLE UNDER SECTION 37 OF THE ACT. THE APPELLANT IS NOW TRYING TO CLAIM THAT THE SAME INCLUDE DISALLOWANCE UNDER SECTION 14A OF THE ACT, WHICH CANNOT BE ACCEPTED. 27. THE CIT(APPEALS) THEREAFTER HELD THAT SINCE HE HAD DISALLOWED THE ENTIRE EXPENDITURE, THERE WAS NO QUESTION OF MAKING DISALLOWANCE U/S. 14A. HE, HOWEVER, ADDED A RIDER THAT IN THE EVENT OF APP ELLATE AUTHORITIES ALLOWING THE CLAIM OF ASSESSEE FOR DEDUCTION, THE D ISALLOWANCE U/S. 14A WOULD SURVIVE. AGGRIEVED BY THE AFORESAID ORDER OF CIT(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 28. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE P ERUSED THE COMPUTATION OF TOTAL INCOME OF THE ASSESSEE WHICH I S AT PAGE 3 OF THE ASSESSEES PB, WHICH IS A LOSS OF (1,18,41,024). I T IS THUS CLEAR THAT THE DISALLOWANCE U/S. 14A AS MADE BY THE ASSESSEE IN CO MPUTATION OF INCOME HAS ALREADY BEEN SUBSUMED IN TOTAL INCOME DECLARED BY THE ASSESSEE. SINCE THE TOTAL INCOME OF ASSESSEE HAS BEEN COMPUTE D BY THE AO IN THE ORDER OF ASSESSMENT WITH THE STARTING POINT AS LOSS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME, WHICH ALSO INCLUD ES DISALLOWANCE U/S. 14A, THERE WAS NO OCCASION TO FURTHER MAKE A DISALL OWANCE U/S. 14A. MOREOVER, THE DISALLOWANCE MADE BY THE ASSESSEE IS GREATER THAN THE ITA NO.776/BANG/2019 PAGE 12 OF 12 DISALLOWANCE MADE BY THE AO. IN THESE CIRCUMSTANCE S, WE HOLD THAT NO SEPARATE DISALLOWANCE U/S. 14A IS WARRANTED IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. WE HOLD AND DIRECT ACCORDINGL Y. 29. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF OCTOBER, 2020. SD/- SD/- ( A K GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 28 TH OCTOBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.