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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Shri R.K. Panda & Shri K. Narasimha Chary
Per R.K. Panda, A.M
This appeal filed by the Revenue is directed against the order dated 5.7.2022 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2017-18.
The only ground raised by the Revenue reads as under: “1. Whether on the facts and in the circumstances of the case, the learned CIT (A) has erred in deleting the business expenses and depreciation disallowance made by the Assessing Officer even when the company had discontinued or closed its business before the commencement of the previous year.
Facts of the case, in brief, are that the assessee company is engaged in the business of providing information
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technology solution and I.T services for media entertainment and to carry out the activities relating to I.T. Products and services. The assessee filed its return of income declaring total loss of Rs.2,45,12,940/-. The case was selected for scrutiny and statutory notices u/s 143(2) & 142(1) were issued and served on the assessee to which the AR of the assessee appeared before the Assessing Officer and furnished the requisite details.
During the course of assessment proceedings, the Assessing Officer noted that during the impugned A.Y, the company has shown no business income except dividend income from Mutual Fund which is exempted under the Act and other miscellaneous income. However, the assessee has claimed the following expenditure: (i) Employee Benefit expenses - Rs.66,33,528 (ii)Depreciation & Amortization - Rs. 20,95,753 (iii)Other Expenses - Rs.1,74,45,061
4.1 The Assessing Officer therefore, issued a show-cause notice asking the assessee to explain as to why the entire expenditure claimed at Rs.2,61,74,342/- should not be disallowed as the same was incurred for earning exempt income and the assessee has not undertaken any other business operation for the last 3 previous years.
4.2 The assessee replied that it is not necessary that there has to be business receipts for claim of expenditure and there may be circumstances wherein even if there are no business receipts, the assessee has to incur certain expenditure for continuing its essential activities. It was argued that the assessee being an artificial person inherently requires the services of Page 2 of 7
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natural persons and a workplace to conduct its operations. Further, obligatory expenses such as statutory audit fee, professional charges for availing services of professionals for compliances with various statutory laws has to be incurred irrespective of the business of the assessee. It was further submitted that even if a part of the business is stalled, a company has to incur certain fixed expenditure by way of employee benefits for retaining its current employees and key managerial persons etc. A detailed note was also filed before the Assessing Officer.
4.3 However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. Rejecting various explanations given by the assessee, the Assessing Officer made addition of Rs.2,45,12,940/- by observing as under:
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In appeal, the learned CIT (A) following his order for the A.Y 2016-17 directed the Assessing Officer to delete the addition by observing as under:
Aggrieved with such order of the learned CIT (A), the Revenue is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides and perused the record. We find an identical issue had come up before the Coordinate Bench of the Tribunal in assessee’s own case in the immediately preceding A.Y i.e. A.Y 2016-17. We find the Tribunal vide ITA No.1408/Hyd/2019 order dated 17.03.2022 restored the issue to the file of the Assessing Officer by observing as under: “8. We have considered the perused the material on record as well as gone through the orders of revenue authorities. It is an undisputed fact that the assessee has discontinued its business from October, 2014 and during Page 4 of 7
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the FY ending 31st March, 2014 the company has transferred its transportation and logistics software business and used the part of proceeds to refund it to the shareholders by way of dividends and reduction of share capital and further, the company acquired investments in subsidiary company engaged in e-commerce activities from which the assessee company has earned rival submissions and dividend income of Rs. 2,20,00,194/-, which is exempt from tax. The assessee company has incurred expenditure to the tune of Rs. 3,07,87,342 /- under different heads as per schedule No. 09, 10, 20 and 21 of financial statements, which is placed in the paper book. We find from the financial statements that the assessee has earned dividend income as per schedule 18 from non-trading investments. We also find from the schedule 11 of the financial statements that the assessee has invested its funds in its subsidiary companies and the dividend received by the assessee from them is exempt from the income tax. Once the assessee has incurred any expenditure towards earning exempt income, the same cannot be allowed as per the provisions of the Income Tax Act. With regard to the submission of the ld. AR of the assessee that assessee company is an artificial entity and some expenditure to be incurred towards statutory expenses and the same has to be allowed cannot be brushed aside . We also observe from the order of the Assessing Officer vide Para No, 4.4 in which the assessee's submissions have been incorporated by the AO, which are the details of the professional and consultancy charges paid to different professionals for rendering their services out of which some of the expenditure were incurred for acquiring of Software Service Company in Ireland and for acquiring a business in New Delhi, therefore, these expenses are in the nature of Preliminary Expenses and comes U/s 35D(1) (ii) and there might have been some other expenses incurred simultaneously for setting up of new business/units. In respect of payments to KMP (Key Managerial Persons), no payment details and proper arguments were advanced to establish that the payments are necessary for its business. Neither the A0 nor the assessee has worked out the details of the expenses which relate to setting up of new business/units. Further, the assessee has also not computed the expenditures related to statutory requirement, which are necessary to keep and maintain the company. The Assessing Officer also disallowed the total expenditure claimed by the assessee by holding that there was no business carried out by and the assessee during the impugned A.Y expenditure can be allowed against the exempt income earned. In view of the above observations and considering the totality of the facts and circumstances of the case, to meet the ends of justice, we remit this issue to the file of the A0 with a direction to make de-novo assessment after providing opportunity of
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being heard to the assessee in the matter. The assessee is directed to appear before the Assessing Officer with necessary documents to expedite the assessment by avoiding unnecessary adjournments. Accordingly, the grounds raised by the revenue are treated as allowed for statistical purposes.”
Since the learned CIT (A) while deleting the disallowance has followed his order for A.Y 2016-17 and since the Tribunal has restored the issue to the file of the Assessing Officer for A.Y 2016-17, therefore, respectfully following the decision of the Tribunal in assessee’s own case for the A.Y 2016-17we restore the issue to the file of the Assessing Officer for deciding the issue afresh in the light of the direction of the Tribunal in assessee’s own case for the A.Y 2016-17. The ground raised by the Revenue is accordingly allowed for statistical purposes.
In the result, appeal filed by the Revenue is allowed for statistical purposes. Order pronounced in the Open Court on 16th May, 2023.
Sd/- Sd/- (K. NARASIMHA CHARY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 16th May, 2023 Vinodan/sps Copy to: S.No Addresses 1 ACIT Circle 5(1) Room No.224, 2nd Floor, IT Towers, AC Guards, Hyderabad 2 Palred Technologies Ltd, 8-2-702/3/B Plot No.2, Road No.12, Banjara Hills, Hyderabad 500034 3 DR, ITAT Hyderabad Benches 4 Guard File
By Order
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