KASHMITA PROPERTIES PVT. LTD.,MUMBAI vs. ITO 12(3)(2), MUMBAI

Aforesaid appeal by assessee for Assessment Year (AY) 2012-13 arises out of order of learned Commissioner of Income Tax (Appeals)- 21, Mumbai [CIT(A)] in the matter of assessment framed by Ld. Assessing Officer (AO) u/s 25/03/2015. Though the assessee has raised multiple grounds of appeal, however, in sum & substance, the assessee is aggrieved by disallowance of business expenses as well as by the fact that interest on bank fixed deposits has been assessed as ‘Income from other sources’. The assessee being resident corporate assessee is stated to be engaged in brokerage business.

Having heard rival submissions and upon perusal of relevant material on record, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. Assessment Proceedings

1 The assessee earned brokerage income of Rs.4.48 Lacs, other income of Rs.14 Lacs and interest on bank deposits for Rs.24.56 Lacs. The assessee claimed business expenses of Rs.40.77 Lacs. The major expenses have been tabulated in para-4 of the assessment order. These were in the nature of salary expenses, office rent, telephone, repair, motor car, advertisement and office maintenance expenses etc. The assessee reflected losses from brokerage business as shown in earlier years.

2 Upon perusal of advertisement bills, it was seen that the advertisement was placed by a person namely Ashish Mehta purportedly for sale of property. However, Shri Ashish Mehta was not the employee of the assessee. It was submitted that the advertisement were placed on behalf of the clients and expenses were incurred by the assessee. However, no brokerage was received against the advertisement. The same led Ld. AO to believe that non-business expenses were being booked by the assessee.

3 Further, the premises from where the assessee was operating, was a rented premises. Three other concerns including proprietary concerns (M/s Kashmita Corporation and M/s Kids Concept) of the directors were also being operated from the said premises. Though there were 7 employees working for the assessee, however, they confirmed that all of them were working for all the three concerns. M/s Kashmita Corporation was also engaged in similar brokerage business but no expenses were booked in that concern. On the basis of above observations, it was concluded by Ld. AO that the assessee was claiming expenses and setting off the same against interest receipts. The repairs & renovation expenses were incurred for entire business premises and booked by assessee though 4 concerns were running from the said premises.

4 Finally, the books were rejected. The expenses to the extent of brokerage income of Rs.18.48 Lacs earned by the assessee were allowed. The interest on fixed deposits was to be treated as ‘income from other sources’. The remaining business expenses of Rs.22.28 Lacs were disallowed. Appellate Proceedings

1 During appellate proceedings, the assessee submitted that it had permitted other 3 concerns to use this address only for correspondence purposes. The level of expenses incurred by the assessee was in line with expenses incurred in earlier years. The assessee objected to rejection of books of account. The attention was drawn to the fact that one of the entity did not carry out any business activity during the year whereas the other two concerns had their own respective staff. It was further submitted that the entire premises was used only by the assessee himself and the expenses were incurred by the assessee for its own business purposes. The assessee also assailed the other conclusion drawn by Ld. AO.

2 However, Ld. CIT(A) held that income and expenditure did not reflect correct and true picture of profit earned by the assessee and the books were not reliable. Therefore, the books were rightly rejected. The Ld. CIT(A) also upheld the action of Ld.AO in assessing the interest income as ‘income from other sources’ in terms of the decision of Hon’ble Apex court in Tuticorin Alkali Chemicals & Fertilisers Ltd. (227 ITR 172) wherein it was held that where the assessee had surplus funds which were invested, the same would be assessed as Income from other sources. Further, Ld. AO had established that the assessee carried out business of sister concerns from one premises only and therefore, the Ld. AO was justified in disallowing the expenditure. Aggrieved, the assessee is in further appeal before us.

So far as the rejection of books of accounts is concerned, we find that Ld.AO has not disturbed the revenue earned by the assessee and he has only disallowed expenditure of Rs.22.28 Lacs which is the main grievance of the assessee. The other grievance is that interest income has been assessed as ‘income from other sources’. The Ld. AR has placed before us a chart to controvert the findings and conclusions drawn by lower authorities which we have duly considered. We have also gone through written submissions filed by the assessee before us. The perusal of financial statements would show that the assessee has reserves of more than Rs.418.94 Lacs which is the main source of funding for the assessee. The fixed deposits have primarily been funded out of accumulated reserves and surplus. As noted in the assessment order for AY 2010-11, the assessee was engaged in the business of estate development and estate booking. The earning of interest was not the main objective of the assessee. The assessee has submitted that interest on FDR was assessed as business income in assessment order for AY 2010-11. However, the principle of res-judicata is not applicable to Income Tax proceedings. Another argument is that the assessee has not made any investment but the assessee has simply selected one of the products offered by the Bank. Further, the fixed deposits were shown under the head current assets. However, in the backdrop of the fact that deposits were funded out of reserves and earning of interest was not the main objective of the assessee, all these arguments do not convince us to accept the plea that the interest on fixed deposits was to be assessed as ‘Business Income’. The same, in our considered opinion, has rightly been assessed as ‘Income from other sources’ and the ratio of case laws as relied upon by Ld. CIT(A) in the impugned order were applicable to the fact of the case. Further, this interest income is net of interest debited by the bank and therefore, no further deduction would be available to the assessee against the same. In nutshell, interest on FDR has rightly been assessed on net basis under the head ‘Income from Other sources’.

Regarding deduction of business expenditure, we are of the considered opinion that deduction would be available to the assessee as per the provisions of the Act irrespective of the fact whether any revenues were generated during the year or not. The only requirement is that the expenditure should have been laid down wholly and exclusively for the business purposes. It could be seen that the assessee has claimed business expenditure of Rs.40.77 Lacs during the year. As per comparative table on record, these expenditure are in line with the expenditure claimed in earlier years. Further, one of the entities i.e. M/s Exceleon Private Limited has not carried out any business during the year. M/s Kids Concept was operating from other address and it has claimed separate expenditure on account of salaries, labour, securities etc. and thus maintaining separate books of accounts. Similarly, the third entity i.e. M/s Kashmita Corporation has claimed separate salaries, telephone, electricity and other expenditure in its financial statements which would show that this entity was also maintaining separate books and booking its own expenditure. Therefore, the conclusion of Ld. AO is not based on sound reasoning. So far as the repair and renovation expenditure of Rs.9.96 Lacs is concerned, the same is in the nature of payment for carpentry work, labour charges, painting charges, POP work charges, electrical fittings, tiling flooring etc. which are of routine in nature. The benefit may be enduring in nature but the nature of expenditure was revenue since no new asset came into existence. Therefore, we are inclined to hold that business expenditure of Rs.40.77 Lacs as claimed by the assessee would be allowable business expenditure. We order so. The Ld. AO is directed to re-compute the income in terms of our above order.

Resultantly, Ground Nos.1 & 3 stand allowed. Ground No.2 has not been pressed. Ground No.4 stand dismissed.

The appeal stand partly allowed in terms of our above order. Order pronounced on 13th September, 2021. (Amarjit Singh) (Manoj Kumar Aggarwal) न्याययक सदस्य / Judicial Member लेखा सदस्य / Accountant Member मुंबई Mumbai; यदनांक Dated : 13/09/2021 Sr.PS, Dhananjay आदेशकीप्रधिधलधपअग्रेधर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant प्रत्यथी/ The Respondent 2. 3. आयकरआयुक्त(अपील) / The CIT(A) आयकरआयुक्त/ CIT– concerned 4. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai 5. गार्डफाईल / Guard File 6. आदेशाि सार/ BY ORDER,