DCIT 1(3), MUMBAI vs. SUKARMA INVESTMENTS P. LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य ,राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार- PER RAJENDRA, AM- अनुसार Challenging the order,dated 16/12/2013 of the CIT(A)-7,Mumbai the Assessing Officer (AO) has filed the present appeal.Assessee- company,engaged in the business of investment and leasing property,filed its return of income on 20/10/2007,declaring total income Nil. Assessment was completed, u/s. 143(3) of the Act,on 23/12/200,determining its total income at Rs.20.46 lakhs. 2.First Ground of appeal is with regard to deleting the disallowance of interest expenditure claimed u/s.36(1)(iii) of the Act. During the assessment proceedings,the AO found that the assessee had made certain adjustment to the net loss as per the P&L account, that it was in receipt of dividend income, rental income and share of profit from partnership firm, that the loss on sale of investment was given a separate treatment under the head capital loss. He observed that assessee was not carrying out any business .Vide his order sheet entry dated 17/12/2009,he directed the assessee to explain as to why the expenses claimed in the P&L account should not be disallowed in absence of business activities carried out by it. As per the AO,the assessee did not file any satisfactory reply in that regard.Accordingly,he held that the assessee was not carrying out any business activity, that all the expenses claimed by it in P&L account were to be disallowed.

1909/M/14-M/s. Sukarma Investments Pvt.Ltd.

2.1.Aggrieved by the order of the AO the assessee preferred and appeal before the First Appellate Authority (FAA) and filed detailed submissions. It was argued that as per the tax audit report nature of business was investments and leasing of property, that it had incurred total expenditure of Rs.1.85 crores,that Rs.1.72 crores were paid as interest and finance charges on loans borrowed for the business, that the interest expenditure in question was allowable as per the provisions of section 36(1)(iii) of the Act under the head profits and gains from business and profession, that a period of lull in business could not be turned as closure of business.He relied upon the cases of Harish Chander Jagganath Prasad (43ITR231) and Chandra Corpn. Ltd.(3 ITR350).After considering the available material and relying upon the cases referred to by the assessee,the FAA deleted the disallowance made by the AO. 2.2.During the course of hearing before us, the Departmental Representative(DR) supported the order of the AO and stated that there was no justification for allowing the expenditure when the assessee was not carrying out any business during the year under consideration, that it was not proved that interest was paid for the business of the assessee. The Authorised Representative (AR) supported the order of the FAA and stated that while computing the income for AY.2009-10 the AO had computed the income of the assessee under the head business income, that there was temporary lull in the business. 2.3.We have heard the rival submissions.We find that the AO has disallowed all the expenses, amounting to Rs.1.72 crores,while completing the assessment,he had held that assessee did not carry out any business,that he had not made any enquiry about interest paid during the year under consideration.We further find that in the very next year the AO , while computing the income of the assessee had held that assessee was deriving income from business.In our opinion,the FAAwas justified in holding that lull in business for the year under consideration would not disentitle the assessee to claim expenditure.It is also a fact that it is a corporate entity and assessee has to incur certain expenditure to maintain its corporate existence.As we do not find any infirmity in the order of the FAA ,especially in the light of the judgments relied upon by him,so,confirming the same we decide the first Ground of appeal against the AO. 3.Next Ground of appeal is about deleting the disallowance of short term capital loss (STCL). During the assessment proceedings,the AO found that the assessee had claimed STCL of Rs. 1.54 crores on sale of shares of Mafatlal Denim Ltd. (MDL), that it had purchased Rs.29.57 lakhs shares on 28/3/2006 at Rs.19.40 per share,that on 10.7.2006 it sold all the shares at Rs.14.16 per share.He directed the assessee to file necessary details alongwith the supporting 2 1909/M/14-M/s. Sukarma Investments Pvt.Ltd. documentary evidences for claiming STCL. He held that the shares were not listed in any of the recognized stock exchanges,that the genuineness of the transactions was not proved by the assessee.He held that the artificial LTCL had to be ignored. 3.1.During the appellate proceedings,before FAA the assessee filed additional evidences. He called for a remand report from AO in that regard.After examining the additional evidence and documents submitted by the assessee,the AO held that the facts of the case under consideration are similar to the facts of a sister concern namely M/s. Suremi Trading Pvt.Ltd. (STPL),that in case of STPL the then FAA had accepted the claim made by the assessee, that the STCL could be allowed. 3.2. Before us, the DR stated that matter could be decided on merits. The AR referred to the order of the FAA for the AY 2007-08. We have heard the rival submissions and perused the material on record.We find that while adjudicating the appeal ,for the AY.2007-08,in the case STPL the FAA has dealt with the identical issue and has decided the matter in favour of the assessee.Considering the above,we decide ground no.2 against the AO. 4.Last ground of appeal is about 14A disallowance.During the assessment proceedings,the AO found that the assessee had received exempt income of Rs. 300/- against which it had not added back any amount as expenditure attributable to earning exempt income.Referring to the provisions of section 14A r.w.r.8D of the Income tax Rules, 1962,he made an addition of Rs.1.64 crores.Since the entire business expenses claimed by the assessee had been disallowed by him, so,no separate disallowance was made u/s.14A. 4.1. We find that in the case of STPL the Tribunal has dealt with the identical issue (ITA.s/ 6007 and 5313/Mum/AY.s. 2007-08,2008- 09, dtd.17.09/2013)as follows:

2. Issue of disallowance under section 14A: Assessee raised grounds on this issue in both the assessment years. Assessing Officer invoked Rule-8D and disallowed the amounts accordingly. Ld. CIT(A) while confirming the disallowance in A.Y 2008-09 following the decision of High Bombay High Court in the case of Godrej & Boyce Mfg. Company Ltd., 328 ITR 81, deleted the disallowance on the basis of Rule 8D while estimating the disallowance at 5% of the dividend earned, as attributable to earning the exempt income. 2.1 Assessee withdrew the ground in A.Y 2008-09 whereas it was contesting the same in A.Y 2007-08 on the reason that 5% of dividend income is arbitrary and in the alternate excessive, considering the expenditure of business. Revenue is aggrieved on restricting the same to 5% of the dividend income by Ld. CIT(A). We have heard the rival contentions in detail. 2.2 It was the contention of the Ld. Counsel that assessee’s expenditure is very reasonable in the business and restricting the same to 5% is not warranted. Even otherwise he submitted that the disallowance at 5% is excessive. Ld. DR relied on the order of the AO. 2.3 We have examined the contentions. IN A.Y 2008-09 assessee earned dividend of Rs.1,16,23,602/- and invoking Rule 8D the AO made disallowance of Rs. 17,38,739/-, which was accepted by assessee as the ground pertaining to that was withdrawn. In A.Y 2007-08, assessee earned dividend of Rs.1,75,91,591/-. AO disallowed amount of Rs. 2,62,92,591/- including 3 1909/M/14-M/s. Sukarma Investments Pvt.Ltd. interest expenditure. Ld. CIT(A) restricted to 5% of the dividend to an extent of Rs.8,79,579/-. This amount is reasonable when compared to the dividend earned and disallowance made in A.Y 2008-09. The assessee also disallowed interest in A.Y 2008-09 which was not done in A.Y 2007- 08. Therefore, we do not see any reason to interfere with the order of Ld. CIT(A), which is very reasonable on the facts of the case. Consequently, assessee’s ground No.1 is rejected. Since Rule 8D is not applicable for A.Y 2007-08, revenue’s ground is also rejected.” Respectfully following the above,we direct the AO to restrict the disallowance to 5% of the dividend income.Third ground of appeal is decided against the AO,as we do not want to disturb the order of the FAA.