NEW INDIA EXPORTS PRIVATE LIMITED ,MUMBAI vs. INCOME TAX OFFICER WARD 7(1)(1), MUMBAI

New India Exports Pvt. Ltd New India Exports Pvt. Ltd 3 & 2656/MUM/2025 & 2656/MUM/2025 expenses since these were incurred by the Appellant expenses since these were incurred by the Appellant expenses since these were incurred by the Appellant essentially on a day essentially on a day-to-day basis to maintain the running of day basis to maintain the running of the business i.e. Renting of premises, Partner in MG New the business i.e. Renting of premises, Partner in MG New the business i.e. Renting of premises, Partner in MG New India Furnitures Caf India Furnitures Café LLP and investment in shares of é LLP and investment in shares of Rs.15,23,32,392l Rs.15,23,32,392l-.

7. The Ld. CIT(A) further erred in holding that the Appellant The Ld. CIT(A) further erred in holding that the Appellant The Ld. CIT(A) further erred in holding that the Appellant has not submitted any documentary proof to substantiate has not submitted any documentary proof to substantiate has not submitted any documentary proof to substantiate that they are running the business and intend to do it. that they are running the business and intend to do it. that they are running the business and intend to do it.

4.1 During the course During the course of scrutiny proceedings, the Assessing of scrutiny proceedings, the Assessing Officer observed that no active business operations had been Officer observed that no active business operations had been Officer observed that no active business operations had been carried out by the assessee during the relevant previous year. The carried out by the assessee during the relevant previous year. The carried out by the assessee during the relevant previous year. The assessee had disclosed only passive or incidental receipts such as assessee had disclosed only passive or incidental receipts such as assessee had disclosed only passive or incidental receipts such as rental income, leave rental income, leave and licence fees, interest, dividend, sundry and licence fees, interest, dividend, sundry balances written back, and profit on investments in mutual funds. balances written back, and profit on investments in mutual funds. balances written back, and profit on investments in mutual funds. No revenue from operations was credited in the profit and loss No revenue from operations was credited in the profit and loss No revenue from operations was credited in the profit and loss account. The Assessing Officer further noticed that in the preceding account. The Assessing Officer further noticed that in the preceding account. The Assessing Officer further noticed that in the preceding assessment year also, the assessee had declared income only under ar also, the assessee had declared income only under ar also, the assessee had declared income only under New India Exports Pvt. Ltd New India Exports Pvt. Ltd 4 & 2656/MUM/2025 & 2656/MUM/2025 the head “Income from Other Sources” “Income from Other Sources” and “Income from House “Income from House Property”. The dividend income was claimed as exempt . The dividend income was claimed as exempt . The dividend income was claimed as exempt 4.2 Upon perusal of the balance sheet, the Assessing Officer found Upon perusal of the balance sheet, the Assessing Officer found Upon perusal of the balance sheet, the Assessing Officer found that the assessee had b that the assessee had borrowed certain funds which were diverted orrowed certain funds which were diverted to related concerns without charging any interest thereon. Being of to related concerns without charging any interest thereon. Being of to related concerns without charging any interest thereon. Being of the view that the borrowed capital was not utilised for the purposes the view that the borrowed capital was not utilised for the purposes the view that the borrowed capital was not utilised for the purposes of business, the Assessing Officer disallowed a sum of ₹69,73,933/- of business, the Assessing Officer disallowed a sum of of business, the Assessing Officer disallowed a sum of under section 36(1)(iii) of the Act. tion 36(1)(iii) of the Act.

4.3 Further, Further, Further, observing observing observing that that that the the the assessee assessee assessee had had had claimed claimed claimed administrative administrative administrative and and and establishment establishment establishment expenses expenses expenses aggregating aggregating aggregating to to to ₹31,82,243/- despite having no business activity, the Assessing despite having no business activity, the Assessing despite having no business activity, the Assessing Officer disallowed the said expenditure under section 37(1) of the Officer disallowed the said expenditure under section Officer disallowed the said expenditure under section Act. The assessment was accordingly completed under section Act. The assessment was accordingly completed under section Act. The assessment was accordingly completed under section 143(3) of the Act by order dated 23rd December, 2018. 143(3) of the Act by order dated 23rd December, 2018. 143(3) of the Act by order dated 23rd December, 2018.

New India Exports Pvt. Ltd New India Exports Pvt. Ltd 5 & 2656/MUM/2025 & 2656/MUM/2025 The Learned Departmental Representative ( The Learned Departmental Representative (Ld. DR) supported the Ld. DR) supported the order of the authorities below. order of the authorities below.

“4(a). I have considered the facts & 4(a). I have considered the facts & circumstances of the case. I circumstances of the case. I have also considered the assessee's submissions. From the have also considered the assessee's submissions. From the have also considered the assessee's submissions. From the facts of the case, it is seen that the assessee declared interest facts of the case, it is seen that the assessee declared interest facts of the case, it is seen that the assessee declared interest income of Rs. 22,48,687/ income of Rs. 22,48,687/- and the assessee debited interest and the assessee debited interest charges of Rs. 97,82,036/ charges of Rs. 97,82,036/-. In this regard, the AO proceeded to the AO proceeded to analyse the details of borrowed funds and investments thereof. analyse the details of borrowed funds and investments thereof. analyse the details of borrowed funds and investments thereof. From the analysis of financials, it is known that the assessee From the analysis of financials, it is known that the assessee From the analysis of financials, it is known that the assessee utilised borrowed funds of Rs. 2,25,00,000/ utilised borrowed funds of Rs. 2,25,00,000/- to invest in one of to invest in one of the group concerns by name MG New India Furn the group concerns by name MG New India Furnitures Café LLP. itures Café LLP. In this regard, the assessee further contended that the above In this regard, the assessee further contended that the above In this regard, the assessee further contended that the above investment was done as a part of commercial expediency. investment was done as a part of commercial expediency. investment was done as a part of commercial expediency. However, during the current AY, the assessee did not show any However, during the current AY, the assessee did not show any However, during the current AY, the assessee did not show any revenue from business operations, which clearly indicates t revenue from business operations, which clearly indicates t revenue from business operations, which clearly indicates that except diversion of borrowed funds to group concerns, there except diversion of borrowed funds to group concerns, there except diversion of borrowed funds to group concerns, there was no real income generated out of business operations. Thus, was no real income generated out of business operations. Thus, was no real income generated out of business operations. Thus, since the capital borrowed was not utilized for the purpose of since the capital borrowed was not utilized for the purpose of since the capital borrowed was not utilized for the purpose of current business but only invested in group concerns, therefore, current business but only invested in group concerns, therefore, current business but only invested in group concerns, therefore, the disallowance made by the AO on account of relatable he disallowance made by the AO on account of relatable he disallowance made by the AO on account of relatable

New India Exports Pvt. Ltd New India Exports Pvt. Ltd 6 & 2656/MUM/2025 & 2656/MUM/2025 interest expenses amounting to Rs. 69,73,933/ interest expenses amounting to Rs. 69,73,933/- clearly falls clearly falls under the provisions of section 36(1) (iii) of the IT Act. Further, under the provisions of section 36(1) (iii) of the IT Act. Further, under the provisions of section 36(1) (iii) of the IT Act. Further, there was no revenue from business operations in the current there was no revenue from business operations in the current there was no revenue from business operations in the current year. Financials, clearly reveals that the assessee company cials, clearly reveals that the assessee company cials, clearly reveals that the assessee company was only having other income such as interest income, dividend was only having other income such as interest income, dividend was only having other income such as interest income, dividend income, purchase & sale of investments. Thus, the proportionate income, purchase & sale of investments. Thus, the proportionate income, purchase & sale of investments. Thus, the proportionate disallowance of interest made by the AO is found to be in order disallowance of interest made by the AO is found to be in order disallowance of interest made by the AO is found to be in order and the same is and the same is hereby upheld. Accordingly, the grounds of hereby upheld. Accordingly, the grounds of appeal raised by the assessee in this regard is hereby appeal raised by the assessee in this regard is hereby appeal raised by the assessee in this regard is hereby dismissed.” 7.1 The Ld. Departmental Representative (DR) submitted that the The Ld. Departmental Representative (DR) submitted that the The Ld. Departmental Representative (DR) submitted that the assessee has failed to explain the commercial expediency of assessee has failed to explain the commercial expediency of assessee has failed to explain the commercial expediency of extending the loan to extending the loan to partnership concern M/s MG New India partnership concern M/s MG New India Furnitures Care LLP. Furnitures Care LLP.

7.2 Before us, also, the assessee has failed to adduce any credible Before us, also, the assessee has failed to adduce any credible Before us, also, the assessee has failed to adduce any credible material to justify that the advances were made out of business material to justify that the advances were made out of business material to justify that the advances were made out of business exigency or that they yielded any direct or indirect commercial exigency or that they yielded any direct or indirect commercial exigency or that they yielded any direct or indirect commercial advantage. The mere assertion of business relationship does not dvantage. The mere assertion of business relationship does not dvantage. The mere assertion of business relationship does not ipso facto establish business purpose within the meaning of section ipso facto establish business purpose within the meaning of section ipso facto establish business purpose within the meaning of section 36(1)(iii) of the Act. In these circumstances, we find no infirmity in 36(1)(iii) of the Act. In these circumstances, we find no infirmity in 36(1)(iii) of the Act. In these circumstances, we find no infirmity in the finding of the Ld. CIT(A) sustaining the disallowance. We the finding of the Ld. CIT(A) sustaining the disallowa the finding of the Ld. CIT(A) sustaining the disallowa accordingly uphold the same, and Ground Nos. 1 and 2 of the accordingly uphold the same, and Ground Nos. 1 and 2 of the accordingly uphold the same, and Ground Nos. 1 and 2 of the assessee’s appeal stand dismissed. assessee’s appeal stand dismissed.

8. We next advert to We next advert to ground Nos. 3 to 7 of the appeal 3 to 7 of the appeal concerning disallowance of ₹31,82,243/ 31,82,243/- representing establishment and representing establishment and administrative administrative administrative expenses expenses expenses under under under various various various heads, heads, heads, such such such as as as advertisement, travelling, insurance, audit fee, and motor-car advertisement, travelling, insurance, audit fee, and motor advertisement, travelling, insurance, audit fee, and motor expenses. The authorities below were of the view that since no expenses. The authorities below were of the view that since no expenses. The authorities below were of the view that since no New India Exports Pvt. Ltd New India Exports Pvt. Ltd 7 & 2656/MUM/2025 & 2656/MUM/2025 business operations were carried o business operations were carried out during the year, these ut during the year, these expenditures could not be said to have been incurred wholly and expenditures could not be said to have been incurred expenditures could not be said to have been incurred exclusively for the purpose of business. for the purpose of business. The relevant finding of the he relevant finding of the Ld. CIT(A) on the issue in dispute is reproduced as under: Ld. CIT(A) on the issue in dispute is reproduced as under: Ld. CIT(A) on the issue in dispute is reproduced as under:

“5(b). I have considered the facts & 5(b). I have considered the facts & circumstances of the case. I circumstances of the case. I have also considered the assessee's submissions. From the have also considered the assessee's submissions. From the have also considered the assessee's submissions. From the facts of the case, it is known that the assessee debited facts of the case, it is known that the assessee debited facts of the case, it is known that the assessee debited establishment expenses of RS. 31,82,243/ establishment expenses of RS. 31,82,243/- under the the various heads such as advertisement expenses, insurance, tra heads such as advertisement expenses, insurance, tra heads such as advertisement expenses, insurance, travelling and conveyance etc which are as under: and conveyance etc which are as under:- Amount Particulars Particulars Advertisement Expenses 15,000 Advertisement Expenses Insurance Insurance 97,071 Travelling & Conveyance Travelling & Conveyance : 9,91,660 Miscellaneous Expenses 2,738 Miscellaneous Expenses Service Tax Service Tax 1,23,564 Audit Fees Audit Fees 34,350 Telephone 8s Trunk call charges 61,587 Telephone 8s Trunk call Profession Tax 2,500 Profession Tax License & Filing fees 10,482 License & Filing fees Sales Promotion Expenses Sales Promotion Expenses 1,46,803 Printing & Stationery Printing & Stationery 1,040 General Maintenance General Maintenance 28,489

New India Exports Pvt. Ltd New India Exports Pvt. Ltd 8 & 2656/MUM/2025 & 2656/MUM/2025

Motor Car Expenses Motor Car Expenses 15,95,877

Repair & Maintenance to Other Assets Repair & Maintenance to Other Assets 71,082

Total 31,82,243

From the perusal of financials, it is seen that the assessee has From the perusal of financials, it is seen that the assessee has From the perusal of financials, it is seen that the assessee has not shown any business revenue during the year but debited not shown any business revenue during the year but debited not shown any business revenue during the year but debited the above expenses which is not correct. As mentioned in the above expenses which is not correct. As mentioned in the above expenses which is not correct. As mentioned in section 37(1) of the IT Act, business expenditure is only section 37(1) of the IT Act, business expenditure is only section 37(1) of the IT Act, business expenditure is only allowable if it w allowable if it was incurred wholly & exclusively for the purpose as incurred wholly & exclusively for the purpose of business operations. However, during the year, there was no of business operations. However, during the year, there was no of business operations. However, during the year, there was no business operations and there was no business revenue, business operations and there was no business revenue, business operations and there was no business revenue, therefore, debiting the expenses under the pretext that it was therefore, debiting the expenses under the pretext that it was therefore, debiting the expenses under the pretext that it was incurred for conducting bu incurred for conducting business is far from truth. Therefore, siness is far from truth. Therefore, since the above expenses were not spent for the business since the above expenses were not spent for the business since the above expenses were not spent for the business purposes, the same was disallowed by the AO. I concur with purposes, the same was disallowed by the AO. I concur with purposes, the same was disallowed by the AO. I concur with the action of the AO and the same is hereby upheld. the action of the AO and the same is hereby upheld. the action of the AO and the same is hereby upheld. Accordingly, the assessee's grounds are hereby Accordingly, the assessee's grounds are hereby dismissed. issed.” 8.1 Before us, the Learned Counsel for the assessee has Before us, the Learned Counsel for the assessee has Before us, the Learned Counsel for the assessee has contended that the expenses were minimal and were incurred for contended that the expenses were minimal and were incurred for contended that the expenses were minimal and were incurred for maintaining the corporate existence of the assessee. It was urged maintaining the corporate existence of the assessee. It was urged maintaining the corporate existence of the assessee. It was urged that there was merely a temporary lull in the business due to that there was merely a temporary lull in the business due to that there was merely a temporary lull in the business due to adverse market conditions, and such a lull does not amount to dverse market conditions, and such a lull does not amount to dverse market conditions, and such a lull does not amount to cessation of business. Reliance was placed upon the principle that cessation of business. Reliance was placed upon the principle that cessation of business. Reliance was placed upon the principle that even where business operations are temporarily suspended, even where business operations are temporarily suspended, even where business operations are temporarily suspended, expenses incurred to preserve the business structure are allowable. expenses incurred to preserve the business structure are allowable. expenses incurred to preserve the business structure are allowable. The Ld. counsel submitted that similar expenses e Ld. counsel submitted that similar expenses were allowed in were allowed in earlier years and there is no change in the nature of expenses earlier years and there is no change in the nature of expenses earlier years and there is no change in the nature of expenses incurred.

New India Exports Pvt. Ltd New India Exports Pvt. Ltd 9 & 2656/MUM/2025 & 2656/MUM/2025

New India Exports Pvt. Ltd New India Exports Pvt. Ltd 10 & 2656/MUM/2025 & 2656/MUM/2025 Conveyance Conveyance- Rs. 30,72,345/-, Legal & Professional , Legal & Professional Charges Charges - Rs.3,90,900/-, Sales Promotion Expenses , Sales Promotion Expenses - Rs. 91,576/ 91,576/-, Repairs & Maintenance Building , Repairs & Maintenance Building - Rs. 7,55,219/ 7,55,219/-, Loss on shares -Rs. 360/-, Depreciat , Depreciation- 7,85,730/ 7,85,730/-, Expenses considered under other heads, , Expenses considered under other heads, Income under other heads Income under other heads- Rs. (74,672l-), Total ), Total - Rs. 3,78,91,348 3,78,91,348-.

2. The Ld. CIT(A) further erred confirming the disallowance The Ld. CIT(A) further erred confirming the disallowance The Ld. CIT(A) further erred confirming the disallowance of the depreciation of Rs. 7,85,730 without even verifying of the depreciation of Rs. 7,85,730 without even verifying of the depreciation of Rs. 7,85,730 without even verifying that depreciation that depreciation is already disallowed in the statement is already disallowed in the statement of total income and in income tax return in Sr. no. A - 11 of total income and in income tax return in Sr. no. A of total income and in income tax return in Sr. no. A of Schedule BP of Schedule BP - Computation of income from business or Computation of income from business or profession. profession.

3. The Ld. CIT(A) further erred confirming the disallowance The Ld. CIT(A) further erred confirming the disallowance The Ld. CIT(A) further erred confirming the disallowance of the Expenses considered under of the Expenses considered under the head Income from the head Income from House property of Rs. 32,77,732 without even verifying House property of Rs. 32,77,732 without even verifying House property of Rs. 32,77,732 without even verifying that expenses are already disallowed in the statement of that expenses are already disallowed in the statement of that expenses are already disallowed in the statement of total income and in income tax return in Sr. no. A - 7 of total income and in income tax return in Sr. no. A total income and in income tax return in Sr. no. A Schedule BP Schedule BP - Computation of income from business or Computation of income from business or profession. profession.

4. The Ld. CIT(A) further erred confirming the addition of The Ld. CIT(A) further erred confirming the addition of The Ld. CIT(A) further erred confirming the addition of income considered under other heads Rs. 48,405 without income considered under other heads Rs. 48,405 without income considered under other heads Rs. 48,405 without even verifying that the same has been already offered in even verifying that the same has been already offered in even verifying that the same has been already offered in the statement of total income and in income tax return in the statement of total income and in income tax return in the statement of total income and in income tax return in Sr. no. 2 and 4 of Schedule E Sr. no. 2 and 4 of Schedule EI-Details of Exempt Income. Details of Exempt Income.

5. The Ld. CIT(A) failed to appreciate and ought to have The Ld. CIT(A) failed to appreciate and ought to have The Ld. CIT(A) failed to appreciate and ought to have held that: a. there was a temporary lull in the business held that: a. there was a temporary lull in the business held that: a. there was a temporary lull in the business and that does not amount to non and that does not amount to non-carrying of business carrying of business activities; b. considering the nature of expenses, the activities; b. considering the nature of expenses, the activities; b. considering the nature of expenses, the same are same are allowable expenses since these were incurred allowable expenses since these were incurred by the Appellant essentially on a day by the Appellant essentially on a day-to-day basis in day basis in order to run order to run the business. 10.1 As the facts and issues are As the facts and issues are pari materia, we, following our , we, following our findings for A.Y. 2016 findings for A.Y. 2016-17, restore the matter to the file of the 17, restore the matter to the file of the Assessing Officer with identical directions. Accordingly, the grounds Assessing Officer with identical directions. Accordingly, the grounds Assessing Officer with identical directions. Accordingly, the grounds for this year also stand allowed for statistical purposes. for this year also stand allowed for statistical purposes. for this year also stand allowed for statistical purposes.

Order pronounced in the open Court on ounced in the open Court on 27/10/2025. /10/2025.