DCIT 1(3)(2), MUMBAI vs. THESEUS GLOBAL RESEARCH P.LTD, MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M):

6. Ground No. 1 to 4 relates to levy of penalty of Rs. 27,00,000/- u/s 271(1)(c) of the IT Act, 1961. During the course of assessment proceedings, the AO disallowed expenses of Rs. 86,65,690/-for the reason that there was no business activity carried out during the year. Consequently, the total income was determined at a positive figure of Rs. 1,26,620/-. In view of disallowance of expenses made in the assessment, the AO imposed penalty for furnishing incurred particulars of its income to the extent of Rs. 27,00,000/-. 6.1 During the course of assessment proceedings, the AO has observed that the appellant had not carried out any business activity and the only income credited to the P&L A/c was interest on Income-tax Refund amounting to Rs. 1,26,617/-. The appellant had, however, claimed deduction of the following expenditure and thereby computed loss of Rs. 85,39,073/-. The major heads debited to P&L A/c are – (a) Employee benefit expenses Rs. 20,47,611/- (b) Depreciation and amortization expenses Rs. 24,43,393/- (c) Other expenses Rs. 45,29,523/- 6.2 The AO was not satisfied with the explanation regarding the allowability of these expenses, especially when there was no business activity carried out during the year under consideration. Under the circumstances, the above expenditure claimed by the appellant was disallowed resulting in returned loss being converted into a positive income of Rs. 1,26, 620/-. On this account, the AO held that the appellant had furnished inaccurate particulars of its income to the tune of Rs. 85,65,690/- and claimed carry forward loss to the extent of Rs.

M/s. Thesus Global Research Pvt. Ltd., 6.3 The AO has further noticed that the AR agreed that expenses are personal in nature during the course of assessment proceedings. Having noticed so, the AO came to the conclusion that the appellant has furnished inaccurate particulars of total income and imposed penalty of Rs. 27,00,000/- in view of the disallowances made. 6.4 On the other hand the appellant submitted that during the course of assessment proceedings the AO disallowed business expenses of Rs.86,65,690/- on the ground that there is no income earned during the year under consideration and thus, the said expenses are personal expenses not incurred for the purpose of business. The AO initiated penalty u/s. 271(1)(c) for showing inaccurate particulars of income. During the course of penalty proceedings u/s, 271(1) (c) it was submitted to the AO that the expenses disallowed of Rs. 86,65,690/- are incurred for business purpose only and are not personal in nature. Further, it was explained to the AO that the company is engaged in the business of financial services for its clients and during the year under consideration the company was not able to get fruitful results for its clients and hence, no fees were earned by the company during the year under consideration. However, since, the expenses are of fixed and administrative nature, they had to be incurred by the company during the year under consideration. Thus, there was no case of concealment of income nor there was any case of furnishing inaccurate particulars since the expenses incurred by the company are pertaining to the company itself and duly reflected in the return of income filed u/s 139(1) for the year under consideration i.e. A.Y. 2012-13. 6.5 I have carefully considered the rival submissions. The AO has raised two issues during the penalty proceedings. One is that disallowance of expenses of Rs. 85,39,073/- made by the AO during the course of assessment proceedings as the appellant has not carried out any business during the year. The second issue raised was that expenses claimed by the appellant are of personal nature. 6.6 As regards the first issue is concerned the facts is that the appellant has not earned income except the interest on Income-tax Refund of Rs. 1,26,617/-, whereas the appellant claimed expenses of Rs. 86,65,690/-and claimed loss of Rs. 85,39,073/-. The AO has M/s. Thesus Global Research Pvt. Ltd., disallowed the entire expenses treating that there was no business activity carried out during the year. The AO has treated the expenses as personal in nature and therefore the appellant has knowingly made wrong claim and thereby furnished inaccurate particulars of its income. 6.7 During the course of appeal proceeding the AR reiterated its stand taken before the AO and also submitted the details of expenses incurred during the financial year. Perusal of detail clearly indicates that the expenses incurred are purely for business purposes which were disclosed in the return of income filed for the year under consideration. The AO had not pointed out as to which of the expense is of personal purpose also did not bring any corroborative evidence on record in support his assumption. 6.8 As per the AO, the expenses are admissible only when there is a business activity during the year and there is a positive income in the P&L A/c. The AO's observation is not correct. It is not necessary that a businessman always earns income as when he incurs expenses. Even if there is no business activity, certain expenses are fixed which are to be incurred to continue the existence of the entity and the business activity. 6.9 Whatever expenses the appellant has claimed are clearly of fixed nature, namely Employee benefit expenses, which include salaries to the director and staff, depreciation and amortization expenses, pertaining to fixed assets which the appellant has owned and entitled for depreciation as per IT Act and Other expenses, also of fixed nature, such as rent, repair and maintenance, insurance, rates and taxes, communication expenses, travelling and conveyance, printing and stationery, legal and professional fees, payment to auditors and miscellaneous expenses of petty nature. The AO did not point out any expenses which are inadmissible under the IT Act even if there is no business income during the year. His observation that there is no business activity during the year, that these expenses are inadmissible are to be disallowed. This notion of the AO is wrong and not in accordance with the provisions of IT Act in determining the taxable income. The fundamental principle of determining the taxable income is that income includes loss. There are circumstances in the day to day business M/s. Thesus Global Research Pvt. Ltd., activity when there is no income in the business activity but the fixed expenses are bound to incur. In view of the same, I am in not in agreement with the observation of the AO that expenses are inadmissible, if there is no business activity during the year. 6.10 The second issue raised by the AO is that the expenses incurred by the appellant company are of personal nature. This fact has been verified from the assessment record as to how the AO has arrived to such conclusion. There is no admission on the part" of the AR in his submission except the fact that AO has written the order sheet stating therein that, "It is seen that the assessee has not done any business activities during the year. Hence expenses claimed are mainly for personal purposes and not for business purposes." It seems that the AO has obtained the signature of the appellant in a routine manner and however did not point out the nature of personal expenses. 6.11 Perusal of the details of the expenses claimed the appellant did not indicate any personal expenses debited to the P&L A/c. The AO's presumption that the expenses incurred by the appellant company are for personal nature on the ground that the same is admitted by the authorized representative at the time of personal hearing is not sufficient to arrive at the conclusion that nature of expense became personal. Nowhere in any submission made by the appellant company or by the authorized representative himself for and on behalf of the appellant company before the AO during the course of assessment proceedings has stated that the expenses incurred by the appellant company during the year under consideration are not incurred for business purpose and are in personal in nature. Further, Director of the appellant company has also filed an affidavit during the course of appeal proceeding in this regard. 6.12 The Hon'ble ITAT 'B' Bench Delhi in the case of CSB Solution Pvt. Ltd. vs ACIT Circle 3(1), [ITANo. 2353/061/2014] AY 2009-10 has held that merely because the assessee agreed for the addition, it in now way, saddle the assessee with the penalty u/s 271(1)(c) of the IT Act, and same is deleted. In another case, the ITAT, Madras Bench has held that the assessee will not normally have any grievance against an assessment order if the same was made on the basis of an agreement made by himself. This being so, it could not be said that the assessee was not aggrieved by the orders of assessment M/s. Thesus Global Research Pvt. Ltd., made by the Assessing Officer on the basis of the agreement made by theAR and consequently he could not be denied the right of vindicating his grievance before a higher forum. 6.13 The Hon'ble Bombay High Court in the case of Dayaram Vasudeo [57 Taxman 209 (Bom)], held that it u;as agreed by the representative on behalf of the assessee to make the addition if the assessee filed an affidavit before the Tribunal stating that though the Chartered Accountant had agreed to the addition, the ITO has erred in adding Rs. i3,i77/~ and as such there could be estoppel against the assessee with regard to the addition. It was held that it was not proper to remand the matter to the Tribunal for giving effect to the Court's order on the factual aspects of the merits, as the affidavit of the Chartered Accountant of the assessee gave full details of the merits of the case and the contents thereof had been totally accepted by the Tribunal itself. Under the circumstances, the Tribunal was justified in deleting the addition made by the ITO. 6.14 The Hon'ble Calcutta High Court in the case of CIT vs Ganga Properties Ltd. [1992] 62 Taxman 285, has held that:- "A limited company, even if it does not carry on business, even if it derives income from other sources, has to maintain its establishment for complying with statutory obligation so long it is in operation and its name is not struck off the register or unless the company is dissolved which means cessation of all corporate activities of the company for all practical purposes. So long as it is in operation, it has to maintain the status as a company and it has to discharge certain legal obligations and for that purpose it is necessary to appoint clerical staff and secretary or accountant and incur incidental expenses." 6.15 In the case of Mokul Finance (P) Ltd. [2007] no TTJ Delhi 445, ITATDelhi Bench held that:- "We find that the whole cause of action of disallowance of expenses is in the background of AO's observation that the assessee did not carry out any business transactions which at best was AO's finding about an activity of business not being functional in the relevant previous year. In our opinion, not carrying on business activity in a particular period cannot be equate with closure of business as it takes an unsustainably narrow view of the scope of cessation of a business.

M/s. Thesus Global Research Pvt. Ltd., 6.16 The Hon'ble Delhi High Court in the case of CIT vs. Integrated Technologies Ltd. has held that:- "In our opinion, no substantial question of law arises from the decision of the Tribunal. It has been found as a fact by the Tribunal that the assessee had not closed its business and had every intention to revive the same. The basis for this funding is the fact that the assessee had kept its establishment alive by paying salary and other allowances to the staff and had also acquired plant and machinery in the relevant previous year and had further incurred repair expenditure on its existing plant and machinery." 6.17 On both the issues the AO has not done justice to conclude that the expenses are inadmissible if there is no business activity and the expenses are of personal purposes and not for business purposes. The AO failed to demonstrate as to why and which expenses are inadmissible under the IT Act and which expenses are of personal nature. It seems that action of the AO is whimsical and without any basis and not supported by any documentary evidence. Perusal of the expenses claimed by the appellant are allowable expenses under the IT Act, even if there is no income and no business activity, since some of the expenses are fixed in nature and bound to incur even if there is no income during the financial year. On the contrary, the AO "should have done justification to the appellant by determining the loss after allowing the expenses as all expenses are of revenue nature and allowable u/s 37 of the IT Act. 6.18 In view of the above facts and circumstances of the case, I am of t the firm opinion that even if the appellant has not carried any business during the previous year relevant to the assessment year, the expenses debited towards depreciation, bad debts, administrative expenses which are statutory in nature are to be incurred for complying with legal and statutory requirements under various laws are allowable deductions. 1 Even if the AO disallowed these expenses during the course of Assessment, penalty is not leviable as the AO has not to point out the concealment of particulars of income or furnished inaccurate particulars of income by appellant. In view of the same, no penalty is leviable in the case and, therefore, Ground No. 1 to 4 are allowed.

M/s. Thesus Global Research Pvt. Ltd., 4. Against the above order of CIT(A), Revenue is in further appeal before us.