RNA LIFESTYLE P.LTD, MUMBAI V. ACIT CIR 2(3), MUMBAI

ITA 8233/MUM/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6623 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 17-04-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ABHA KALA CHANDA
• Keywords: Search and seizure
• Section: 143(3); 153A; 37(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI . . , !' #$%& , !' () ! BEFORE SHRI H.L. KARWA, PRESIDENT AND SHRI N.K. BILLAIYA, AM ./I.T.A. NO.8233/MUM/2010 ( * * * * / ASSESSMENT YEAR : 2005-06 AND ./I.T.A. NO.2116/MUM/2011 ( * * * * / ASSESSMENT YEAR : 2005-06 M/S.RNA LIFESTYLE PVT. LTD., RNA HOUSE, 3 RD FLOOR, 50, WEER NARIMAN ROAD, FORT, MUMBAI-400 023 THE ACIT, CIRCLE-2(3), AAYAKAR BHAVAN, MUMBAI-400 020 )+ !' ./ ,- ./PAN/GIR NO. : AADCR 1211J ( +. /APPELLANT ) .. ( /0+. / RESPONDENT ) +. 1 ! / APPELLANT BY : ` SHRI J.P. BAIRAGRA /0+. 2 1 ! /RESPONDENT BY : MRS. ABHA KALA CHANDA 2 3' / DATE OF HEARING :17.4.2014 45* 2 3' / DATE OF PRONOUNCEMENT :23.4.2014 (!6 / O R D E R PER BENCH: THESE TWO APPEALS BY THE ASSESSEE FOR THE SAME ASSE SSMENT YEAR ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE LD. CIT (A), MUMBAI DT. 16.8.2010 AND 20.12.2010 RESPECTIVELY. ITA NO.8233/M/2010 & ITA NO. 2116/M/2011 2 2. ITA NO. 8233/M/2010 RELATES TO THE ASSESSMENT MA DE U/S. 143(3) OF THE ACT WHEREAS ITA NO. 2116/M/2011 RELATES TO T HE ASSESSMENT MADE U/S. 143(3) R.W. SECTION 153A OF THE ACT. BOTH THE APPEALS HAVE COMMON GROUNDS OF APPEAL WHICH READ AS UNDER: 1. THE ID COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THE FINDING OF THE ASSESSING OFFICER THA T NO BUSINESS WAS CARRIED OUT BY THE APPELLANT COMPANY DURING THE YEAR. 2. THE ID. COMMISSIONER OF INCOME TAX (APPEALS) FUR THER ERRED IN CONFIRMING THE DISALLOWANCE OF THE TOTAL BUSINESS E XPENDITURE INCURRED BY THE APPELLANT COMPANY DURING THE YEAR, EXCEPT AUDIT FEES, FILING FEES, SALARIES AND DIRECTORS SITTING F EES. ITA NO. 8233/M/2010 3. THE ASSESSEE IS IN THE BUSINESS OF PROVIDING SER VICES OF MARKETING AND REAL ESTATE PROJECT AND ALSO GETTING LOANS SANC TIONED FROM THE BANKS TO THE INTENDING PURCHASERS. THE ORIGINAL RETURN OF I NCOME WAS FILED ON 24.10.2005 DECLARING LOSS AT RS. 26,58,784/-. THE ENTIRE LOSS WAS DISALLOWED BY THE AO WHO WAS OF THE FIRM BELIEF THA T SINCE NO INCOME OR BUSINESS ACTIVITY WAS CARRIED ON DURING THE YEAR BY THE ASSESSEE, THE EXPENSES CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED U/S. 37(1) OF THE ACT. SUBSEQUENTLY, SEARCH AND SEIZURE OPERATION WAS COND UCTED ON 30.11. 2007 IN THE CASE PERTAINING TO RNA BUILDERS OF CASES. T HE ASSESSEE IS ONE OF THE ENTITIES BELONGING TO RNA GROUP WHICH WAS ALSO COVERED IN THE SEARCH AND SEIZURE ACTION. NOTICE U/S. 153A WAS SERVED ON THE ASSESSEE. THE ASSESSEE FILED RETURN ON 27.10.2008 DECLARING TOTAL LOSS AT RS. 26,58,784/-. FOR SIMILAR REASONS, THE ENTIRE LOSS WAS DISALLOWED . 4. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A) AGAINST BOTH THE ASSESSMENT ORDERS SEPARATE LY. ITA NO.8233/M/2010 & ITA NO. 2116/M/2011 3 5. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) DIRECTED THE AO TO ALLOW ONLY SUCH EXPENSES AS ARE NECESSARY FOR THE STATUTORY EXISTENCE OF THE ASSESSEE COMPANY. WHILE DISPOSING OF THE APPEAL AGAINST ASSESSMENT U/S. 153A, THE LD. CIT(A) OBSERVED THAT THERE BEING NO CHANGE IN THE FACTS IN THE ASSESSMENT U/S. 153A COMPARED TO ASSESSMENT PASSED U/S. 143(3) OF THE ACT. THE LD. CIT(A) AGREED WITH THE DECISION OF THE CIT(A) FOR THE ASSESSMENT PASSE D U/S. 143(3) OF THE ACT AND DIRECTED THE AO TO FOLLOW THE DIRECTIONS CO NTAINED IN THAT ORDER AND DETERMINE THE TOTAL INCOME ACCORDINGLY. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US AGA INST BOTH THE ORDERS OF THE LD. CIT(A). 7. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMIT TED THAT THE LOWER AUTHORITIES HAVE DISALLOWED THE EXPENSES ONLY FOR T HE REASON THAT NO INCOME WAS SHOWN DURING THE YEAR UNDER CONSIDERATIO N. THE LD. COUNSEL FURTHER POINTED OUT THAT THIS IS THE SECOND YEAR OF THE OPERATIONS AND THE ASSESSEE IS ENGAGED IN PROVIDING SERVICES OF MARKET ING AND REAL ESTATE PROJECT AND ALSO GETTING THE LOANS SANCTIONED FROM THE BANKS TO THE INDENTING PURCHASERS AND ACCORDINGLY, THE LD. COUNS EL BROUGHT TO OUR NOTICE THAT, THE ASSESSEE HAS ENGAGED M/S. FRIDAY M ARKETING ON A RETAINER- SHIP BASIS FOR ADVISING THE COMPANY FOR RESEARCH, V ALUATION AND MARKETING REAL ESTATE PROJECTS. THE LD. COUNSEL FURTHER POINT ED OUT THAT IN SUBSEQUENT YEARS, THE ASSESSEE GOT THE SERVICE CHAR GES FROM KOTAK MAHINDRA BANK LTD AND ICICI BANK LTD. IT IS THE SA Y OF THE LD. COUNSEL THAT MERELY BECAUSE NO SALES AND PURCHASES WERE AFF ECTED DURING THE YEAR. IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT CARRYIN G ON ANY BUSINESS ACTIVITY DURING THE YEAR UNDER CONSIDERATION. ITA NO.8233/M/2010 & ITA NO. 2116/M/2011 4 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. 9. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE MATERIAL PLACED BEFORE US IN THE FORM OF PAPER BOOK. IT IS NOT IN DISPUTE THAT ASSESSMENT U/S. 143(3) AND THE ASSESSM ENT U/S. 153A OF THE ACT ARE BASED ON IDENTICAL FACTS. MEANING THEREBY THAT, NO INCRIMINATING MATERIAL WAS FOUND DURING THE COURSE OF THE SEARCH. A PERUSAL OF THE ORDER OF THE LD. CIT(A) FOR ASSESSMENT U/S. 143(3) R.W. SEC. 153A CLEARLY SHOWS THAT EVEN THE LD. CIT(A) HAS ALSO CONFIRMED T HE FINDINGS GIVEN FOR ASSESSMENT PASSED U/S. 143(3) OF THE ACT. BE THAT AS IT MAY, FACTS ON RECORD SHOW THAT THE ASSESSEE HAS ENTERED INTO AN A GREEMENT WITH M/S. FRIDAY MARKETING ON A RETAINER-SHIP BASIS FOR RESEA RCH, VALUATION AND MARKETING REAL ESTATE PROJECT. FACTS ON RECORD ALS O SHOW THAT THE ASSESSEE HAD EMPLOYED CERTAIN EMPLOYEES FOR CARRYING ON ITS BUSINESS ACTIVITIES. EXPENSES WERE INCURRED ON ADVERTISEMENT ALSO. A BU SINESS IS SAID TO BE SET UP THE MOMENT THE ASSESSEE IS IN A POSITION TO DO ITS BUSINESS ACTIVITY. THE WORD READY TO COMMENCE WOULD NOT NECESSARILY MEAN THAT ALL THE INTEGRATED ACTIVITIES ARE FULLY CARRIED OUT AND/OR WHOLLY COMPLETED. 9.1. THE OBSERVATIONS OF CHAGLA, CJ IN WESTERN INDI A VEGETABLE PRODUCTS LTD. VS CIT (1954) 26 ITR 151 (BOM) ARE AL SO RELEVANT TO QUOTE WHICH ARE AS UNDER: THAT IS WHY IT IS IMPORTANT TO CONSIDER WHETHER T HE EXPRESSION USED IN THE INDIAN STATUTE FOR SETTING UP A BUSINESS IS DIFFERENT FROM THE EXPRESSION MR. JUSTICE ROWLATT W AS CONSIDERING, VIZ., 'COMMENCING OF THE BUSINESS.' IT SEEMS TO US, THAT THE EXPRESSION 'SETTING UP' MEANS, AS IS DEFINED IN THE OXFORD ENGLISH DICTIONARY, 'TO PLACE ON FOOT' OR 'TO ESTABLISH', A ND IN CONTRADICTION TO 'COMMENCE'. THE DISTINCTION IS THI S THAT WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BU SINESS THEN IT ITA NO.8233/M/2010 & ITA NO. 2116/M/2011 5 CAN BE SAID OF THAT BUSINESS THAT IT IS SET UP. BUT BEFORE IT IS READY TO COMMENCE BUSINESS IT IS NOT SET UP. BUT THERE MA Y BE AN INTERREGNUM, THERE MAY BE AN INTERVAL BETWEEN A BUS INESS WHICH IS SET UP AND A BUSINESS WHICH IS COMMENCED AND ALL E XPENSES INCURRED AFTER THE SETTING UP OF THE BUSINESS AND B EFORE THE COMMENCEMENT OF THE BUSINESS, ALL EXPENSES DURING T HE INTERREGNUM, WOULD BE PERMISSIBLE DEDUCTIONS UNDER SECTION 10(2). IN THE LIGHT OF THE AFORESAID SETTLED LEGAL POSITI ON ALL THAT WE HAVE TO CONSIDER IS WHETHER THE ASSESSEE HAS MADE ALL PREPA RATIONS FOR PROVIDING SERVICES OF MARKETING REAL ESTATE PROJECT. 9.2. THE ASSESSEE HAS EMPLOYED CERTAIN PERSONS. TH E ASSESSEE HAS ALSO ENGAGED M/S. FRIDAY MARKETING FOR ADVISING THE COMP ANY FOR RESEARCH VALUATION AND MARKETING REAL ESTATE PROJECT FOR WHI CH THE ASSESSEE IS PAYING RETAINER-SHIP FEES. THE DETAILS OF EXPENSES CLAIMED THEMSELVES SHOW THAT THE ASSESSEE HAS STARTED ITS BUSINESS THE REFORE THE EXPENDITURE IS ALLOWABLE EVEN THOUGH THERE IS NO INCOME SHOWN BY T HE ASSESSEE IN THE YEAR UNDER CONSIDERATION. A PERUSAL OF SEC. 37(1) SHOWS THAT UNDER THIS SECTION ANY EXPENDITURE NOT BEING EXPENDITURE OF TH E NATURE DESCRIBED IN SEC. 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITA L EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE LAID OUT OR EXPEN DED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PRO FITS AND GAINS OF BUSINESS OR PROFESSION. THUS THE EXPENSES HAVE TO BE INCURRED FOR THE PURPOSE OF BUSINESS AND NOT FOR THE PURPOSE OF EA RNING PROFIT. THE EXPENSES INCURRED BY THE ASSESSEE DURING THE YEAR U NDER CONSIDERATION HAVE BEEN INCURRED FOR THE PURPOSES OF BUSINESS. 10. CONSIDERING THE FACTS IN TOTALITY, WE ARE OF TH E VIEW THAT THE ASSESSEE HAS COMMENCED ITS BUSINESS IN THE YEAR UND ER CONSIDERATION AND ITA NO.8233/M/2010 & ITA NO. 2116/M/2011 6 THE EXPENSES INCURRED ARE IN REVENUE NATURE AND THE SAME ARE ALLOWABLE. WE, ACCORDINGLY, SET ASIDE THE ORDER OF THE REVENUE AUTHORITIES AND ALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE. 11. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD APRIL, 2014 . (!6 2 5* '! 7 8( 9 23.4.2014 5 2 : SD/- SD/- (H.L. KARWA ) (N.K . BILLAIYA ) / PRESIDENT !' () / ACCOUNTANT MEMBER MUMBAI; 8( DATED 23.4.2014 . . ./ RJ , SR. PS (!6 (!6 (!6 (!6 2 22 2 /3# /3# /3# /3# ;!#*3 ;!#*3 ;!#*3 ;!#*3 / COPY OF THE ORDER FORWARDED TO : 1. +. / THE APPELLANT 2. /0+. / THE RESPONDENT. 3. < ( ) / THE CIT(A)- 4. < / CIT 5. #=: /3 , , / DR, ITAT, MUMBAI 6. : > / GUARD FILE. (!6 (!6 (!6 (!6 / BY ORDER, 0#3 /3 //TRUE COPY// ? ?? ? / @ @ @ @ , , , , (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI