KUMAKA INDUSTRIES LTD.,MUMBAI vs. CIT (A)- 7 , MUMBAI

Aggrieved by confirmation of certain disallowances for Assessment Year (AY) 2014-15, the assessee is in further appeal before us. The assessment was framed by Ld. Assessing Officer (AO) u/s 143(3) on 30/12/2016 making certain disallowances which were confirmed by Ld. learned Commissioner of Income-Tax (Appeals)-7, Mumbai [CIT(A)], vide order dated 01/04/2019. Aggrieved, the assessee is in further appeal before us. The assessee has filed revised ground of appeal

Having heard rival submissions and after due consideration of material on record, our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. The assessee has suffered two disallowances which are the subject matter of appeal before us.

Disallowance u/s 14A and disallowance of Business Expenses 3.1 The assessee earned exempt income of Rs.7.43 Lacs against which Ld. AO computed aggregate disallowance u/r 8D for Rs.11.95 Lacs which comprised-off of interest disallowance u/r 8D(2)(ii) for Rs.0.09 Lacs and indirect expense disallowance u/r 8D(2)(iii) for Rs.11.86 Lacs. 3.2 Further, the assessee debited expenditure of Rs.138.90 Lacs which comprised-off of salaries, directors’ remuneration, misc. expenses, advertisement, payment to auditors, electricity charges etc. The expenses were stated to be incurred for business purposes. However, considering the fact that there was no business activity and the fact that the assessee could not prove that the expenses were incurred wholly and exclusively for business purpose, the whole of the expenses were disallowed. Since an amount of Rs.11.95 Lacs was already disallowed u/s 14A, the balance expenses of Rs.126.94 Lacs were separately disallowed while framing the assessment. 3.3 Upon further appeal, Ld. CIT(A) directed Ld. AO to consider only those investments which actually yielded exempt income during the year while computing disallowance u/s 14A. Regarding allowance of remaining business expenses. Ld. CIT(A) observed that the assessee did not carry out any business activity during the year and therefore, the same could not be allowed to the assessee. Some expenditure pertained to earlier years. Accordingly, Ld. AO was directed to verify the claim of the assessee and allow those expenses pertaining to earlier years when business activities were carried out. Aggrieved, the assessee is in further appeal before us. Our Adjudication 4. Upon due consideration of material facts, it could be gathered that the business expenditure of Rs.126.94 Lacs as disallowed by Ld. AO include employee benefit costs, finance cost, depreciation, administrative, selling and other expenses. As per the submissions of Ld. AR, these expenses include statutory dues (excise duty and employees provident fund) for Rs.41.88 Lacs which, though pertained to earlier years, have been paid during the year before due date of filing of return of income u/s 139(1). Therefore, the same would be allowable to the assessee u/s 43B. To support the same, the ledger extracts and copies of the challans have been placed on record. Concurring with the same, we modify the directions given by Ld. CIT(A) and direct Ld. AO to verify the claim and allow the deduction u/s 43B irrespective of the fact whether the business activity was there or not. Ground No.2 stand allowed for statistical purposes.

The depreciation of Rs.8.35 Lacs as claimed by the assessee has already been added back by the assessee in its computation of income and therefore, no direction is required to that extent. So far as the remaining expenses are concerned, these are in the nature of employee benefit costs, finance cost, administrative, selling and other expenses. Upon perusal of financial statements of Financial Years 2014-15 to 2019-20 as placed on record, it could be seen that assessee’s business has not closed down but is continuing one and the assessee has earned revenue from operations in subsequent year. The assessee is not a sick industrial company. We are of the considered opinion that to claim the expenditure u/s 37(1), the only requirement is that the expenditure should be incurred wholly and exclusively for the purpose of business and the same should not be personal or capital expenditure in nature. The earning of the revenue is not a pre-condition to claim the same. Therefore, Ld. AO is directed to verify the remaining expenditure and allow the same ignoring the fact that no revenue was earned by the assessee from business operations. Ground No.1 stands allowed for statistical purposes.

Disallowance u/s 69 6.1 The assessee reflected Loans & Advances of Rs.624.48 Lacs receivable from an entity i.e. M/s USM Enterprises. However, the said party reflected balance of Rs.515.53 Lacs. The assessee submitted that the said amount was outstanding since last many years and no amount was advanced during the year. Similar balance was accepted during scrutiny assessment proceedings of various earlier assessment years. However, Ld. AO added the differential of Rs.108.94 Lacs to the income of the assessee u/s 69 as unexplained investments which would be assessable under the head Income from other sources. 6.2 During appellate proceedings, the assessee, inter-alia, submitted that it had properly recorded the amounts advanced to M/s USM Enterprises. It was USM Enterprises who under-stated / under-reported the figures in their books of accounts. In such a case, the provisions of Sec.69 were not applicable since there was no fresh investment during the year and there were no investments which were not recorded in the assessee’s books of account. However, Ld. CIT(A) chose to confirm the disallowance against which the assessee is in further appeal before us. Our Adjudication 7. Upon careful consideration of material facts, we are of the considered opinion that it is not a case where the assessee has not disclosed certain investments in its books of accounts rather it is a reverse case. The assessee has reflected higher figures in its books of account which have been accepted in scrutiny assessment of earlier years. The perusal of ledger extracts of M/s USM Enterprises for financial years 2011-12 to 2013-14 would show that there are no fresh investments during the year. The closing balance of Rs.624.48 Lacs as on 31/03/2014 is the opening balance only. This being the case, there are no unexplained investments made by the assessee as alleged by Ld. AO. Therefore, the provision of Sec. 69 has no applicability to the fact of the case. Therefore, by deleting this addition, we allow ground no.3 of the appeal.

Conclusion The appeal stand partly allowed in terms of our above order. Order pronounced on 25th August, 2021. (Vikas Awasthy) (Manoj Kumar Aggarwal) न्याययक सदस्य / Judicial Member लेखा सदस्य / Accountant Member मुंबई Mumbai; यदनांक Dated : 25/08/2021 Sr.PS, Dhananjay आदेशकीप्रधिधलधपअग्रेधर्ि/Copy of the Order forwarded to : अपीलाथी/ The Appellant 1. प्रत्यथी/ The Respondent 2. 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT– concerned 5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai गार्डफाईल / Guard File 6. आदेशाि सार/ BY ORDER, उप/सहायक पुंजीकार (Dy./Asstt.