DCIT 3(2)(2), MUMBAI vs. NUEVO CONSULTANCY SERVICES LTD, MUMBAI

Date of hearing 08-04-2021 Date of pronouncement 12-05-2021 O R D E R Per: Saktijit Dey (JM): Captioned appeals by the revenue are in respect of the same assessee and arise out of three separate orders of learned Commissioner of Income Tax (Appeals), Mumbai for the assessment years 2012-13, 2013-14 and 2014-15. 2. The grounds raised in all these appeals are more or less identical. However, since the substantive order of learned Commissioner of Income Tax (Appeals) is in 2 ITA 5650/Mum/2018 ITA 7382/Mum/2018 ITA 7383/Mum/2018 assessment year 2013-14, we propose to take up as the lead appeal. (Assessment year 2013–14)

3. In grounds 1 to 4, the revenue has challenged deletion of disallowance of interest expenditure made under section 36(1)(iii) of the Income Tax Act, 1961.

4. Briefly the facts are, the assessee hitherto is a resident company and is stated to be engaged in the business of online lottery and running project management services. For the assessment year 2013-14, it filed its return of income on 30-09-2013 declaring loss of Rs.2,96,71,157/-. In course of assessment proceedings, the assessing officer, while examining the financial statements of the assessee, noticed that the assessee has debited expenses of Rs.1,54,20,268/- .Whereas, the assessee has not shown any operating income from business. Therefore, he called upon the assessee to explain why the expenditure claimed should not be disallowed, as, there is no business activity being carried on by the assessee. In response to the query raised, the assessee submitted that though the online lottery business has been temporarily held in abeyance, however, it has started a new business activity of rendering project management service. Further, it was submitted, since the borrowed funds on which the interest expenditure was claimed was utilized for the business activity and is also being utilized for payment of salary, etc. to the employees, the expenditure incurred being for the purpose of business, has to be allowed.The assessing officer, however, was not convinced with the submissions of the assessee. He observed, when the assessee is not carrying on any business activity, the only expenditures which can be allowed to the assessee are those which are required for 3 ITA 5650/Mum/2018 ITA 7382/Mum/2018 ITA 7383/Mum/2018 maintaining the corporate status of the assessee like salary of clerical staff, secretary, accountant and incidental expenses. Therefore, he allowed expenditure of Rs.8,59,712/- and disallowed balance amount of Rs.1,45,60,556/-.Assessee contested the aforesaid disallowance before the first appellate authority. After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner of Income Tax (Appeals) found that though the assessee had no business activity during the year due to the temporary lull in the lottery business, however, it cannot be said that the borrowed funds were not utilized for the purpose of business. Further, he observed, the fact that the assessee has started new business activity of providing project management services is also correct. Thus, he allowed assessee’s claim of expenditure by deleting the disallowance made by the assessing officer.

7. In grounds 5 and 6, the revenue has challenged deletion of disallowance of depreciation claimed by the assessee.

8. Briefly the facts are, in the year under consideration assessee claimed depreciation on the written down value of land, machinery, computer, motor car, furniture and fixtures, etc. The assessing officer disallowed the depreciation claimed by stating that the assets were not put to use for the purpose of business. Assessee contested the aforesaid disallowance before learned Commissioner of Income Tax (Appeals). However, having found merit in the submissions of the assessee, learned Commissioner of Income Tax (Appeals) allowed claim of depreciation.

9. We have considered rival submissions and perused materials on record. It appears from the assessment order, the only probable reason for which the claim of depreciation was disallowed is, the assessee had not offered any operating income during the year, meaning thereby, it had no business activity. However, as 5 ITA 5650/Mum/2018 ITA 7382/Mum/2018 ITA 7383/Mum/2018 could be seen from the materials on record as well as the observations of learned Commissioner of Income Tax (Appeals), there is no dispute that the assessee is the owner of the assets on which depreciation was claimed and they were part of block of assets on which depreciation was allowed earlier. Merely because there is a temporary lull in one stream of business activity, assessee’s claim of depreciation on the written down value of the block of assets cannot be denied. Therefore, we uphold the decision of learned Commissioner of Income Tax (Appeals) by dismissing the grounds.