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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI ABY T VARKEY & SHRI OM PRAKASH KANT
This appeal by the assessee is directed against order dated 26.10.2021 passed by the Ld. Commissioner of Income-tax (Appeals)-49, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2012-13, raising following grounds : 1. The Commissioner of Income-tax (Appeals) - 49, Mumbai (hereinafter referred to as the CIT(A)) erred in upholding
Classic Share & Stock Broking Services Ltd. Classic Share & Stock Broking Services Ltd. 2 ITA No. 2425/M/2021 the action of the Deputy Commissio the action of the Deputy Commissioner of Income ner of Income-tax, Central Circle Central Circle - 7(1). Mumbai (hereinafter referred to as the 7(1). Mumbai (hereinafter referred to as the Assessing Officer) in disallowing Rs 8,24,666, being Assessing Officer) in disallowing Rs 8,24,666, being Assessing Officer) in disallowing Rs 8,24,666, being miscellaneous expenses, on the ground that the appellants miscellaneous expenses, on the ground that the appellants miscellaneous expenses, on the ground that the appellants have not carried out any business activity during the year have not carried out any business activity during the year have not carried out any business activity during the year under reference. reference.
The appellants contend that on the facts and in the The appellants contend that on the facts and in the The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not circumstances of the case and in law, the CIT(A) ought not circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance inasmuch as to have upheld the impugned disallowance inasmuch as to have upheld the impugned disallowance inasmuch as the CIT(A) has not correctly appreciated the facts of the the CIT(A) has not correctly appreciated the facts of the the CIT(A) has not correctly appreciated the facts of the case in its entirety. case in its entirety.
The CIT(A) erred in upholding the action of the 2. The CIT(A) erred in upholding the action of the 2. The CIT(A) erred in upholding the action of the Assessing Officer in disallowing Rs 28,43,819, being Assessing Officer in disallowing Rs 28,43,819, being Assessing Officer in disallowing Rs 28,43,819, being business development expenses, on the ground that the business development expenses, on the ground that the business development expenses, on the ground that the appellants have not carried out any business activity appellants have not carried out any business activity appellants have not carried out any business activity during the year under reference. during the year under reference.
The appella The appellants contend that on the facts and in the nts contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not circumstances of the case and in law, the CIT(A) ought not circumstances of the case and in law, the CIT(A) ought not to have upheld the impugned disallowance inasmuch as to have upheld the impugned disallowance inasmuch as to have upheld the impugned disallowance inasmuch as the CIT(A) has not correctly appreciated the facts of the the CIT(A) has not correctly appreciated the facts of the the CIT(A) has not correctly appreciated the facts of the case in its entirety. case in its entirety.
2. Briefly stated, fact Briefly stated, facts of the case are that the assessee did not s of the case are that the assessee did not file its return of income u/s 139 of the Income file its return of income u/s 139 of the Income-tax Act, 1961 (in tax Act, 1961 (in short ‘the Act’) for the year under consideration and therefore, the short ‘the Act’) for the year under consideration and therefore, the short ‘the Act’) for the year under consideration and therefore, the Assessing Officer after recording reasons to believe that income Assessing Officer after recording reasons to believe that income Assessing Officer after recording reasons to believe that income escaped assessment, he issued notice u/s 148 of the Act on ssment, he issued notice u/s 148 of the Act on ssment, he issued notice u/s 148 of the Act on 15.07.2014. In response, the assessee filed its return of income on 15.07.2014. In response, the assessee filed its return of income on 15.07.2014. In response, the assessee filed its return of income on Classic Share & Stock Broking Services Ltd. Classic Share & Stock Broking Services Ltd. 3 ITA No. 2425/M/2021 25.03.2016 declaring total loss of (-) ₹6,51,970/ 6,51,970/-. During 25.03.2016 declaring total loss of ( reassessment proceedings, the Assessing Officer observed that there reassessment proceedings, the Assessing Officer observe reassessment proceedings, the Assessing Officer observe was no Revenue from operations and from operations and only income was shown as only income was shown as other income of ₹91,475/ 91,475/- which comprised of interest income which comprised of interest income, dividend income and other miscellaneous income. and other miscellaneous income. and other miscellaneous income. The assessee claimed expenses of ₹62,69,967/- and depreciation of and depreciation of ₹52,97/- claimed expenses of determining loss of ₹6,59,970/-. According to the assessee, there determining loss of . According to the assessee, there was no business activity by the assessee was no business activity by the assessee-company in the year company in the year under consideration and therefore, he disallowed the claim of the under consideration and therefore, he disallowed the claim of the under consideration and therefore, he disallowed the claim of the assessee of operating other expenses of ₹62,69,967/ assessee of operating other expenses of 62,69,967/-, in the reassessment order pass reassessment order passed u/s 143(3) r.w.s. 147 of the Act on ed u/s 143(3) r.w.s. 147 of the Act on 30.03.2016. 2.1 On further appeal before the Ld. CIT(A), the assessee On further appeal before the Ld. CIT(A), the assessee On further appeal before the Ld. CIT(A), the assessee submitted that assessee company was a member of National Stock submitted that assessee company was a member of National Stock submitted that assessee company was a member of National Stock Exchange of India Ltd. (NSE) Exchange of India Ltd. (NSE) and Bombay Stock Exchange (BSE). and Bombay Stock Exchange (BSE). He further submitted further submitted that Security Exchange Board of India that Security Exchange Board of India (SEBI), vide order dated 04.04.2001 order dated 04.04.2001 debarred the company for undertaking any business of stock brokers stock brokers/merchant bankers. The appeal filed The appeal filed by the assessee before the Security Appellate Tribunal (SAT) against by the assessee before the Security Appellate Tribunal ( by the assessee before the Security Appellate Tribunal ( the aforesaid order of the SEBI was also dismissed id order of the SEBI was also dismissed, , confirming the debarred/cancellation of certificate registration of the SEBI of the debarred/cancellation of certificate registration of the SEBI of the debarred/cancellation of certificate registration of the SEBI of the assessee company from carrying out any broking activity. The Ld. assessee company from carrying out any broking activity. The Ld. assessee company from carrying out any broking activity. The Ld. Counsel of the assessee submitted that though the broking activity Counsel of the assessee submitted that though the broking activity Counsel of the assessee submitted that though the broking activity remain discontinued however, there was no such order in respect of remain discontinued however, there was no such order in respect of remain discontinued however, there was no such order in respect of trading activity. He submitted that the assessee was having share trading activity. He submitted that the assessee was trading activity. He submitted that the assessee was Classic Share & Stock Broking Services Ltd. Classic Share & Stock Broking Services Ltd. 4 ITA No. 2425/M/2021 worth of ₹3,575/- stock in trade in the year end which could be sold stock in trade in the year end which could be sold stock in trade in the year end which could be sold in the open market and therefore, according to him it could not be in the open market and therefore, according to him it in the open market and therefore, according to him it said that no business was carried out during the year and he said that no business was carried out during the year and he said that no business was carried out during the year and he request for allowing expenses. However, the Ld. CIT(A) observed allowing expenses. However, the Ld. CIT(A) observed allowing expenses. However, the Ld. CIT(A) observed that there was no evidence in support of any trading activity carried that there was no evidence in support of any trading activity carried that there was no evidence in support of any trading activity carried the order of his out during the year and therefore he following out during the year and therefore he following the order of predecessor in the case of predecessor in the case of sister concern of the assessee concern of the assessee-company his own order for namely NH Securities Ltd. for Ay 2012 namely NH Securities Ltd. for Ay 2012-13 and his own order assessment year 2013 ssessment year 2013-14 and 2014-15 allowed 15 allowed all operating expenses except expenses under the expenses except expenses under the head of business business development of ₹28,43,819/- and miscellaneous expenses of and miscellaneous expenses of ₹8,24,866/-. and miscellaneous expenses of According to the Ld. CIT(A) According to the Ld. CIT(A) these expenses were not necessary for these expenses were not necessary for maintaining the status the status of the company and therefore same were not and therefore same were not allowable. Aggrieved with the disallowance sustained in respect of allowable. Aggrieved with the disallowance sustained in respect of allowable. Aggrieved with the disallowance sustained in respect of miscellaneous expenses and business development expenses, the miscellaneous expenses and business development expenses, the miscellaneous expenses and business development expenses, the tax Appellate Tribunal assessee is in appeal appeal before the Income-tax Appellate Tribunal (ITAT) raising, the grounds as repro (ITAT) raising, the grounds as reproduced above.
Before us, the Ld. Counsel of the assessee has filed a Paper Before us, the Ld. Counsel of the assessee has filed a Paper Before us, the Ld. Counsel of the assessee has filed a Paper Book containing pages 1 to 42. Book containing pages 1 to 42.
We have heard rival submissions of the parties We have heard rival submissions of the parties We have heard rival submissions of the parties on the issue- in-dispute and perused the relevant material on record. In ground dispute and perused the relevant material on record. In ground dispute and perused the relevant material on record. In ground No. 1, the assessee has challenged disallowance of miscellaneous ee has challenged disallowance of miscellaneous ee has challenged disallowance of miscellaneous expenses of at ₹8,24,668/ 8,24,668/-. We find that the assessee is one of the . We find that the assessee is one of the group company of Mr. Ketan Parikh wherein the SEBI barred Shri group company of Mr. Ketan Parikh wherein the SEBI group company of Mr. Ketan Parikh wherein the SEBI
Classic Share & Stock Broking Services Ltd. Classic Share & Stock Broking Services Ltd. 5 ITA No. 2425/M/2021 Ketan Parikh and broking firm broking firms which were controlled by and which were controlled by and connected connected with with them, th including including assessee assessee company company from undertaking any fresh business as stock broker and merchant undertaking any fresh business as stock broker and merchant undertaking any fresh business as stock broker and merchant banker vide order dated 04.04.2001 and thereafter broking banker vide order dated 04.04.2001 and thereafter broking banker vide order dated 04.04.2001 and thereafter broking registration of the company was also cancelled by the SEBI vide registration of the company was also cancelled by the SEBI vide registration of the company was also cancelled by the SEBI vide order dated 10.03.2004. The cancellati order dated 10.03.2004. The cancellation of all the on of all the Registratrion of the assessee company was also upheld by the Securities Appellate the assessee company was also upheld by the Securities Appellate the assessee company was also upheld by the Securities Appellate Tribunal vide order dated 04.05.2007. This restriction of the Tribunal vide order dated 04.05.2007. This restriction of the Tribunal vide order dated 04.05.2007. This restriction of the broking activity of the asessee company continued in the year broking activity of the asessee company continued in the year broking activity of the asessee company continued in the year under consideration also. The profit under consideration also. The profit and loss account of the and loss account of the assessee is available on page 32 of the Paper Book. On perusal of assessee is available on page 32 of the Paper Book. On perusal of assessee is available on page 32 of the Paper Book. On perusal of the profit and loss account, it is ev the profit and loss account, it is evident that there is no Revenue ident that there is no Revenue or earning from operations in the previous year corresponding to the operations in the previous year corresponding to the operations in the previous year corresponding to the assessment year as well as i assessment year as well as in earlier assessment year. The only n earlier assessment year. The only income which has been shown has been shown is other income which consist of which consist of interest on fixed deposit of interest on fixed deposit of ₹45,71,475/- dividend of dividend of ₹5,20,000/- and miscellaneous income of ₹80,00,000/-. The Assessing Officer and miscellaneous income of . The Assessing Officer rating expenses of ₹62,69,967/- has disallowed the entire ope has disallowed the entire operating expenses of holding that there was no business activity by the assessee holding that there was no business activity by the assessee holding that there was no business activity by the assessee company. However, the Ld. CIT(A) has allowed the expenses for company. However, the Ld. CIT(A) has allowed the expenses for company. However, the Ld. CIT(A) has allowed the expenses for maintaining the corporate status of the company and sustained maintaining the corporate status of the company and sustained maintaining the corporate status of the company and sustained disallowance of expenses under the head disallowance of expenses under the head ‘miscellaneous expenses’ ‘miscellaneous expenses’ and ‘business development expenses’. and ‘business development expenses’.
Before us, the Ld. Counsel of the assessee has filed a detail of Before us, the Ld. Counsel of the assessee has filed a detail of Before us, the Ld. Counsel of the assessee has filed a detail of the miscellaneous expenses which is as under : the miscellaneous expenses which is as under :
Classic Share & Stock Broking Services Ltd. Classic Share & Stock Broking Services Ltd. 6 ITA No. 2425/M/2021
Miscellaneous expenses Miscellaneous expenses ₹8,24,666 General expenses General expenses 564 Demat charges Demat charges 1,103 Insurance expenses Insurance expenses 644 For Office premises For Office premises Motor car expense Motor car expense 7,60,355 Amount paid to Daulat Automobiles Amount paid to Daulat Automobiles For petrol and parking charges For petrol and parking charges Donation 62,000 Amount paid to ISKON Amount paid to ISKON Total 8,24,666 5.1 During the course of hearing, the Ld. Counsel of the During the course of hearing, the Ld. Counsel of the During the course of hearing, the Ld. Counsel of the assessee was asked to substantiate these expenses by way of relevant was asked to substantiate these expenses by way of relevant was asked to substantiate these expenses by way of relevant voucher. However, no vouchers in support of claim were filed by voucher. However, no vouchers in support of claim were filed by voucher. However, no vouchers in support of claim were filed by him before us. On perusal of expenses, we find that majority of the him before us. On perusal of expenses, we find that majority of the him before us. On perusal of expenses, we find that majority of the expenses pertains to motor car expenses and donation. In absence expenses pertains to motor car expenses and donation. I expenses pertains to motor car expenses and donation. I of any vouchers in support of expenses, the cla of any vouchers in support of expenses, the claim of the assessee im of the assessee cannot be allowed. Accordingly, we uphold the disallowance cannot be allowed. Accordingly, we uphold the disallowance cannot be allowed. Accordingly, we uphold the disallowance sustained by the Ld. CIT(A). sustained by the Ld. CIT(A).
The ground No. 2 of the appeal relates to disallowance of The ground No. 2 of the appeal relates to disallowance of The ground No. 2 of the appeal relates to disallowance of business development expenses of ₹28,43,819/-. Before us, the Ld. business development expenses of . Before us, the Ld. Counsel of the assessee submitted that mainly expenses pertains to Counsel of the assessee submitted that mainly expenses pertains to Counsel of the assessee submitted that mainly expenses pertains to hotels and credit cards. The assessee has filed ledger account of the hotels and credit cards. The assessee has filed ledger account of hotels and credit cards. The assessee has filed ledger account of business development expenses along with supporting vouchers business development expenses along with supporting vouchers business development expenses along with supporting vouchers which are available on page 2 to page 24 of the Paper Book. The Ld. which are available on page 2 to page 24 of the Paper Book. The Ld. which are available on page 2 to page 24 of the Paper Book. The Ld. Counsel submitted that these expenses were incurred for meeting Counsel submitted that these expenses were incurred for meeting Counsel submitted that these expenses were incurred for meeting in relation to the ongoing in relation to the ongoing litigations etc. However, no ev etc. However, no evidence in support of claim are filed are filed. On perusal of the vouchers, we find that . On perusal of the vouchers, we find that expenses mostly for mostly for dining in Five Star Hotels. The assessee has in Five Star Hotels. The assessee has Classic Share & Stock Broking Services Ltd. Classic Share & Stock Broking Services Ltd. 7 ITA No. 2425/M/2021 failed to establish that these expenses were incurred wholly and failed to establish that these expenses were incurred wholly and failed to establish that these expenses were incurred wholly and exclusively for the purpose of business of the exclusively for the purpose of business of the assessee. In the light assessee. In the light of the observation that no income from either trading or broking of the observation that no income from either trading or broking of the observation that no income from either trading or broking was shown in the profit and loss account, in the profit and loss account, we uphold the we uphold the disallowance sustained by the Ld. CIT(A). disallowance sustained by the Ld. CIT(A).
Before us, the Ld. Counsel of the assessee brought our Before us, the Ld. Counsel of the assessee brought our Before us, the Ld. Counsel of the assessee brought our attention to the order of the Tribunal in for o the order of the Tribunal in ITA No. 2424/M/2021 for o the order of the Tribunal in ITA No. 2424/M/2021 for the assessment year 2011 the assessment year 2011-12 where the ‘SMC’ Bench of the 12 where the ‘SMC’ Bench of the Tribunal has restored the disallowance of identical expenses to the Tribunal has restored the disallowance of identical expenses to the Tribunal has restored the disallowance of identical expenses to the file of the Ld. Assessing Officer. We find that in the year under file of the Ld. Assessing Officer. We find that in the year under file of the Ld. Assessing Officer. We find that in the year under consideration, details of the expenses being ion, details of the expenses being made available before made available before us, there was no requirement of restoring back to the file of the here was no requirement of restoring back to the file of the here was no requirement of restoring back to the file of the Assessing Officer and therefore, this contention of the Ld. Counsel Assessing Officer and therefore, this contention of the Ld. Counsel Assessing Officer and therefore, this contention of the Ld. Counsel of the assessee was accordingly rejected. of the assessee was accordingly rejected. 7.1 In the result, bot In the result, both the ground No. 1 & 2 of the appeal of the h the ground No. 1 & 2 of the appeal of the assessee are dismissed. assessee are dismissed.
In the result, the appeal filed by the assessee is dismissed. In the result, the appeal filed by the assessee is dismissed. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court/under Rule 34(4) of Order pronounced in the open Court/under Rule 34(4) of Order pronounced in the open Court/under Rule 34(4) of the ITAT Rules, 1963 on the ITAT Rules, 1963 on 29/12/2022. Sd/- Sd/ Sd/- (ABY T VARKEY ABY T VARKEY) (OM PRAKASH KANT PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 29/12/2022
Classic Share & Stock Broking Services Ltd. Classic Share & Stock Broking Services Ltd. 8 ITA No. 2425/M/2021