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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SH. SUDHANSHU SRIVASTAVA & SH. PRASHANT MAHARISHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER :
This appeal has been preferred by the assessee against order dated 02/02/2016 passed by the Ld. CIT (Appeals)-3, New Delhi for the assessment year 2012-13 .
The brief facts of the case are that the return declaring net taxable income of Rs. 8,98,171/- was filed for the year under (M/s. Decent Builders P. Ltd.) consideration and the case was selected for scrutiny under CASS.
During the year under consideration, the assessee company was engaged in providing consultancy and liaison services and had declared professional receipts of Rs. 5,00,000/-.This income was earned from M/s. D. Paul’s and Tours Ltd. for arranging loan from Kotak Mahindra Bank and also for related service tax matters. The assessment was completed at an income of Rs. 27,37,258/- after disallowing the entire loss of Rs. 18,39,087/- claimed by the assessee under ‘ business and profession’ on the ground that no business had infact been carried on by the assessee and, therefore, the loss was not allowable. The assessee preferred an appeal before the Ld. First Appellate Authority who also confirmed the disallowance of loss of Rs. 18,39,087/- claimed under the head ‘profit and gains’ from business and profession. Aggrieved, the assessee has now approached the ITAT and has challenged the action of the Ld. CIT(A) in disallowing the loss by raising the following grounds of appeal :-
The order dated 02.02.2016 passed by the learned Commissioner of Income-tax (Appeals) is bad in law and in facts.
(M/s. Decent Builders P. Ltd.) 2. That on the facts and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of loss Rs. 18,39,087/- claimed under the head of business and profession without considering the facts of the case. 3. That the grounds of appeal are without prejudice to each other.”
3. The Ld. Authorised Representative submitted that during the year the assessee company had declared professional receipts of Rs. 5,00,000/- and the AO had required the assessee to justify the quantum of expenditure incurred in relation to the professional receipts shown at Rs. 5,00,000/-. The Ld. Authorised Representative submitted that the AO had erred in coming to the conclusion that since there were low business receipts of Rs. 5,00,000/-, the expenditure incurred on the business, was not allowable as a deduction. It was further submitted that the assessee had filed the details of the professional receipts before the AO and the receipts had been credited to the assessee’s bank account and tax had also been duly deducted thereon at source. It was also submitted that the payment of the amount was also confirmed by M/s. D. Paul’s Travel and Tours Ltd. It was further submitted that (M/s. Decent Builders P. Ltd.) as far as the justification of expenditure of Rs. 21,65,252/- against the professional receipt earned by the assessee company was concerned, all the payments had been made through the banking channels and the expenses were incurred on salaries of assistant and accountant. Expenditure was also incurred with respect to electricity, water and telephone as well as auditor’s fee. It was submitted that the presumption of the Assessing Officer that the assessee company was not carrying any business during the year was incorrect. It was submitted that the assessee company had paid property tax amounting to Rs. 3,86,175/-, 3/4th of which was claimed as expenditure against house property and 1/4th was claimed against business receipts as 1/4th of the premises was being used for the purposes of business. It was also submitted that regular books of accounts, which were duly supported by vouchers and subjected to statutory audit, were being maintained and the same had been accepted by the AO. It was also submitted that these expenses were neither of capital nature nor of personal nature. It was also submitted that disallowance was made purely on ad hoc basis and the AO had not brought any evidence on record to show that the said expenses had not been incurred by the assessee
(M/s. Decent Builders P. Ltd.) company. It was also submitted that the AO had drawn an assumption on a mere suspicion that the professional receipt of Rs. 5,00,000/- was an arrangement entry so as to claim the set off the expenditure and this suspicion had no basis as there was no proof of this allegation. It was also submitted that the AO cannot step into the shoes of the businessman and guide him about the expenditure as to its reasonableness, commercial expediency and justifiability. It was also submitted that the expenses were wholly and exclusively for the purpose of the business of the assessee.
Reliance was placed on the judgment of the Hon’ble High Court in the case of S A Builders reported in 288 ITR1 (SC). Our attention was also drawn to the report obtained from the Registrar of Companies wherein the status of the company was being reflected as active. It was also submitted that the auditor had not given any adverse comment on the business activities of the company.
In response, the Ld. Sr. Departmental Representative placed extensive reliance on the concurrent findings of both the lower authorities and vehemently argued that loss had been correctly disallowed by the AO and that further there was no merit in the (M/s. Decent Builders P. Ltd.) case of the assessee and the assessee’s appeal deserved to be dismissed.
We have heard the rival submissions and have perused the relevant material on record. The only issue for our consideration is whether the assessee company can be allowed the benefit of set off of business loss against the professional receipts. It is the contention of the Department that the loss cannot be allowed to set off as the assessee was not carrying on any business activity and had incurred huge expenditure without there being any business in existence. It is also the department’s contention that the professional receipts were shown by the assessee company to avail the benefit of claim of set off of the loss. However, a perusal of the orders of both the lower authorities shows that the department has proceeded on a mere suspicion and nothing has been brought on record by the lower authorities to demonstrate and establish that the assessee was not carrying on any business during the year under consideration. It is undisputed that the assessee had filed details of the professional receipts before the AO and these receipts had been credited to the assessee’s bank account and tax had also been duly deducted thereon at source. It is also seen that the (M/s. Decent Builders P. Ltd.)
payment of the amount was also confirmed by M/s. D. Paul’s Travel and Tours Ltd. The expenditure claimed to have been incurred by the assessee has been made through the banking channels. It is not the department’s case that these expenses were bogus as the books of accounts, which were duly audited, were accepted by the AO and no adverse inference was drawn. In such a situation, we are unable to agree with the conclusion reached by the lower authorities as both the lower authorities have acted on mere suspicion and conjectures. We set aside the order of the Ld. CIT (A) and direct the AO to allow the impugned loss.
In the final result, the appeal of the assessee stands allowed.
(Order pronounced in the open court on 19th June, 2018).