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Income Tax Appellate Tribunal, ‘C‘ BENCH
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal in A.Y.2011-12 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-21, Mumbai in appeal No.CIT(A)-21/DCIT-14(3)(1)/IT-396/2014-15 dated 30/09/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/03/2014 by the ld. Dy. Commissioner of Income Tax-10(1), Mumbai (hereinafter referred to as ld. AO).
M/s. Centaurus Group Research (India) P. Ltd., (Formerly known as Transmarket Group Research India Pvt. Ltd.,)
The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in deleting the disallowance of expenses made u/s.37(1) of the Act in the facts and circumstances of the instant case.
None appeared on behalf of the assessee. We have heard ld. DR and perused the materials available on record. We find that assessee company is engaged in the business of analysis, investment, research, financial consultancy and providing related services and solutions and also trading in multi commodity exchange and in currency futures. The return of income for the A.Y.2011-12 was filed by the assessee company on 30/11/2011 declaring total loss of Rs.5,72,02,195/-. We find that assessee had shown the receipt of service charges of Rs.93,93,878/- and other income of Rs.22,23,526/- as business income and the same has been assessed as such by the ld. AO. These two sums were duly credited in profit and loss account of the business activity of the assessee. The assessee had debited total expenditure of Rs.10,66,45,068/- in its profit and loss account and had claimed loss of Rs.9,50,27,664/-. The ld. AO show-caused the assessee to justify the claim of huge expenditure vis-à- vis the income credited in the profit and loss account. In response thereto, the assessee submitted that even though substantial business activity has not been carried out during the previous year, still certain mandatory business expenditure had to be incurred by the assessee and that the income earned by the assessee in the form of service charges and other income are not on account of cessation of business. Accordingly, it was pleaded that the entire expenditure debited in the profit and loss account is an allowable business expenditure. We find that the ld. AO did not heed to the aforesaid contentions of the assessee and the ld. AO observed that since the expenditure debited by the assessee is M/s. Centaurus Group Research (India) P. Ltd., (Formerly known as Transmarket Group Research India Pvt. Ltd.,)
11 times more than the income declared by the assessee, he proceeded to allow only 25% of the total expenditure claimed by the assessee and disallowed the remaining 75% of the expenditure in the sum of Rs.3,32,27,022/- after reducing the suomoto disallowance of expenses made by the assessee in the return of income.
3.1. Before the ld. CIT(A), the assessee reiterated the submissions by stating that the assessee company was incorporated in 2004 and is a subsidiary of Transmarket Group LLC-USA and that the assessee company was run on a 24 hour shift basis. Its’ staff strength was 45 excluding 2 Directors. The assessee also gave break-up of expenditure of Rs.10,66,45,068/- as under:-
Loss from Commodity Futures : Rs.1,46,29,741 Depreciation : Rs.1,18,34,254 Rs.2,64,63,995 Payment/provision for employees: Rs. 87,83,374 Operating Expenses : Rs. 7,11,66,145 Finance Charges : Rs. 2,31,454 Rs.8,01,80,973 Total : Rs.10,66,45,068 3.2. Assessee also gave detailed explanation for major expenses incurred by it together with the copy of ledger account and explanation thereon as under:-
M/s. Centaurus Group Research (India) P. Ltd., (Formerly known as Transmarket Group Research India Pvt. Ltd.,)
Nature of Amount Remarks Annexure expenses Rent 1,90,53,809 The said expenditure pertains to rent paid 3A for space occupied for setting up the office and was paid in Advance. The said expense not being directly relatable to the project was debited to profit and loss account Directors 70,54,243 3B Remuneration / Staff Salaries The said expenses not being directly relatable to the project was debited to profit and loss account Repairs and 22,16,980 The said expenditure was incurred by the 3C Maintenance- Appellant in relation to repair and Others maintenances carried out in office. The said expenses not being directly relatable to the project was debited to profit and loss account Legal and 1,52,74,908 The said expenditure was incurred by the 3D professional fees Appellant for seeking assistance from professionals on various matters such as fee paid for filing of income tax return. Accountancy, PF/ESIC/PT/TDS obtaining transfer pricing certificate and other tax related queries The said expense not being directly relatable to the project was debited to profit and loss account Electricity 12,31,193 The entire office has a backup UPS 3E expenses The said expense not being directly relatable to the project was debited to profit and loss account Payment to 9,92,700 The said expenditure was incurred by the 3F auditors Appellant in relation to statutory audit carried for the subject year The said expense not being directly relatable to the project was debited to profit and loss account Telephone/ 38,31,082 The company has multiple 20MEG 3G Communication leased line from Mumbai to London and expenses 45MEG Internet Lines and similar
M/s. Centaurus Group Research (India) P. Ltd., (Formerly known as Transmarket Group Research India Pvt. Ltd.,) ancillary infrastructure The said expense not being directly relatable to the project was debited to profit and loss account Finance Costs 231,454 This includes interest expense charged by 3H bank The said expense not being directly relatable to the project was debited to project was debited to profit and loss account. Loss on sale of 1,36,18,402 This includes sale of various Assets to 3I Assets fund various expenses as the Cash shortfall due to business loss was very high The said expense not being directly relatable to the project was debited to project was debited to profit and loss account General 50,14,454 3J Expenses The said expense not being directly relatable to the project was debited to project was debited to profit and loss account 3.3. The assessee pleaded that the genuineness of the expenses incurred by the assessee has not been doubted by the ld. AO. The assessee even pointed out that the reason for having reduced receipt of service charges was in view of the fact that assessee’s major client in London had to wind up their business. As a result, the assessee’s mark up was reduced from 20% to 5%. It was also pointed out that no defects were pointed out in the books of accounts / vouchers and supporting evidences submitted by the ld. AO. The book results of the assessee has not been rejected u/s.145(3) of the Act by the ld. AO. Hence, it was vehemently argued that the ld. AO ought not to have made any adhoc disallowance of expenditure in the assessment merely on the ground that M/s. Centaurus Group Research (India) P. Ltd., (Formerly known as Transmarket Group Research India Pvt. Ltd.,) the same did not commensurate with the business receipts earned by the assessee.
3.4. We find that the ld. CIT(A) had deleted the entire disallowance of expenditure on adhoc basis made by the ld. AO by giving a categorical finding that the ld. AO had not even whispered in the assessment order as to how a particular expenditure of the assessee is excessive and not incurred for the purpose of business u/s.37(1) of the Act. The ld.CIT(A) also observed that it is not the case of the ld. AO that the expenditure debited by the assessee are personal in nature. The ld. CIT(A) thereafter, relied on the decision of the Hon’ble Supreme Court in the case of J.J. Enterprises vs. CIT reported in 254 ITR 216 and proceeded to delete the adhoc disallowance made by the ld. AO. Before us none of the categorical findings recorded by the ld. CIT(A) had been controverted by the Revenue. It is not in dispute that assessee had indeed earned business income in the form of service charges of Rs.93,93,878/- and same has been assessed as business income by the ld. AO. This itself goes to prove that assessee had indeed carried on business during the year. Once, it is accepted that assessee had carried on business during the year, and when the expenditure debited in the P & L account are not doubted either on its genuineness or on its incurrence for the purpose of business of the assessee by the ld. AO, the expenditure thereon, claimed as deduction by the assessee would become allowable expenditure. It is not the case of the ld. AO that the expenditure claimed by the assessee are personal in nature or expenditure incurred were in the capital field. We further hold that the incurrence of business expenditure whether it is commensurate with the business receipts earned thereof is of absolutely no relevance to decide the allowability of business expenditure. Hence, we do not find
M/s. Centaurus Group Research (India) P. Ltd., (Formerly known as Transmarket Group Research India Pvt. Ltd.,) any infirmity in the order of the ld. CIT(A), granting relief to the assessee. Accordingly, the grounds raised by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 12/08/2021 by way of proper mentioning in the notice board.