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Income Tax Appellate Tribunal, ‘D’ BENCH : CHENNAI
Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN
PER BENCH:-
These are appeals filed by the assessee directed against orders dated 24.10.2016 of ld. Commissioner of Income Tax (Appeals)- 3, Madurai.
Common issue raised by the assessee for all the years is on disallowance of expenses incurred by it at its Head Office. Apart from ITA Nos.3382 to 3384/2016 :- 2 -:
this, for assessment year 2007-08, there is one other issue which is on an addition of �10,12,209/- on exchange rate fluctuation.
Ld. Counsel for the assessee in support of its first issue 3. submitted that assessee was a Corporate entity involved in plantation and money lending business. As per the ld. Authorised Representative, ld. Assessing Officer had treated the interest income returned by the assessee, from its money lending business under the head ‘’income from other sources’’. According to the ld. Authorised Representative, ld. Assessing Officer had taken a view that assessee did not do any business during the previous year relevant to the impugned assessment years. Submission of the ld. Authorised Representative was that one of the objects of the assessee was to do money lending business and just because there was a decline in interest receipts, it would not mean that assessee was not in such business. Further, as
per the ld. Authorised Representative, ld. Assessing Officer not only assessed the interest income under the head ‘’income from other sources’’ but also disallowed the claim of expenditure for the impugned assessment years. According to ld. Authorised Representative, while making such disallowance the ld. Assessing Officer took a view that no such expenditure could be allowed u/s.57 of the Income Tax Act, 1961 (in short ‘’the Act’’). As per the ld. Authorised Representative even if it was accepted that assessee was not doing any business, still the
ITA Nos.3382 to 3384/2016 :- 3 -: expenditure incurred by the assessee for maintaining its corporate status had to be allowed. Relying on the judgment of Hon’ble Calcutta High Court in the case of CIT vs. Ganga Properties Ltd, 199 ITR 94, ld. Authorised Representative submitted that expenditure incurred for maintaining status as a corporate entity and discharging the legal obligation associate with such status could not have been disallowed.
Reliance was also placed on the decisions of Mumbai Bench of the Tribunal in the case of KNP Securities Ltd vs. ACIT, (2010) 33 DTR 0210, Preimus Investment & Finance Ltd vs. DCIT, (2015)122 DTR 106, of Bangalore Bench of the Tribunal in the case of East West Hotels Ltd. vs. ACIT, (2006) 9 SOT 0048, and decision of Delhi Bench of the Tribunal in the case of M and M Estate P. Ltd vs. ITO, (2010) 2 ITR (Trib) 755. As per the ld. Authorised Representative, this argument of the assessee was never addressed by the lower authorities. According to him, ld. Assessing Officer should be directed to verify the expenditure incurred by the assessee for maintaining its Corporate status and for discharging its legal obligations, to allow it irrespective of the head of income under which assessee was assessed.
Per contra, ld. DR submitted that the very same issue had come up before this Tribunal in assessee’s own case for assessment year 2006-2007 (in dated 09.10.2015). As ITA Nos.3382 to 3384/2016 :- 4 -:
per the ld. DR, the Tribunal in its order dated 09.10.2015 had held that such expenditure could not be allowed u/s.57 of the Income Tax Act, 1961 (in short ‘’the Act’’). Further, as per the ld. DR, nature of expenditure claimed by the assessee for the impugned assessment years were very similar to those which were subject to disallowance for assessment year 2006-07 for which the Tribunal gave the decision.
According to him, there being no change of facts, order of the Co- ordinate Bench had to be followed.
We have considered the rival contentions and perused the 5. orders of the authorities below. Expenditure which was considered for disallowance for assessment year 2012-2013 came to �47,72,214/-.
However, ld. Assessing Officer had restricted the disallowance to �20,32,202/- since the income assessed under the head income from other sources was �20,32,202/- only. For assessment year 2008-09, expenditure which was disallowed came to �12,51,911/- and for assessment year 2007-08 it came to �15,62,698/-. Breakup of the expenditure incurred for the assessment year 2007-08 show that the heads under which it was incurred were more or less representative in character to other years. Such breakup is reproduced hereunder:-
ITA Nos.3382 to 3384/2016 :- 5 -:
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1 Salary and Bonus 2,53,900 2 Audit fees paid 10,115 3 Legal fees paid 47,500 4 Directors’ sitting fees and travelling 35,500 expenses 5 Managing Director’s remuneration and 4,50,000 commission 6 Director’s remuneration 2,40,000 7 Travelling expenses 31,143 8 Bank charges 5,303 9 Motor Car expenses 1,69,266 10 Postage and telephone expenses 75,367 11 Miscellaneous expenses 1,66,687 12 Printing and stationery 2,107 13 Subscription 14,883 14 Advertisement charges 15,000 15 Journals and periodicals 1,795 16 Legal expenses 11,004 17 Loss on sale of car 33,128
Total 15,62,698 Breakup of the expenditure which was subjected to a similar disallowance, for assessment year 2006-07 was as under:-
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Salary and Bonus : 11,61,594/- Managing Director Remuneration and Commission : 14,06,799/- Vehicle Maintenance : 2,15,908/- Postage & Telephone expenses : 1,12,743/- Travelling Expenses : 2,81,078/- Rates and Taxes : 32,860/- Repairs & Maintenance : 34,150/- Income tax paid : 10,89,929/- ------------------ Total : 43,35,061/- -----------------
ITA Nos.3382 to 3384/2016 :- 6 -:
We cannot say that there is much variance in the nature of expenditure between various years. Claim of the ld. Authorised Representative is that expenditure was incurred by the assessee for maintaining its corporate status and for discharging the legal obligations associated with such status. Such a claim was made by the assessee before the ld. Commissioner of Income Tax (Appeals) also.
However, assessee failed to clearly demarcate and identify the quantum of expenditure which was incurred for the purpose of maintaining its legal status. Assessee had failed to discharge the onus which was on it, to substantiate its claim that part of the expenditure incurred was for the purpose of maintaining its corporate status.
Assessee could not identify any business activity in India and its claim that it was doing any money lending business was never substantiated.
It was due to this reason that non business income of the assessee was considered by the lower authorities under the head income from other sources. This Tribunal had considered very same issue in assessee’s own case for assessment year 2006-07 in ITA No.2773/Mds/2014. What was held by the Tribunal at para 8 & 9 of its order dated 09.10.2015 is reproduced hereunder:-
The facts relating to the issue are that the Assessing Officer observed that in the profit and loss account for the year ended 2006-07, the assessee received interest income from bank and others and dividend receipt of �12,70,603/-. From the interest income and dividend receipts, the assessee has claimed major expenses as under:-
ITA Nos.3382 to 3384/2016 :- 7 -:
Salary and Bonus : �11,61,594/- Managing Director Remuneration and Commission : �14,06,799/- Vehicle Maintenance : � 2,15,908/- Postage & Telephone expenses : � 1,12,743/- Travelling Expenses : � 2,81,078/- Rates and Taxes : � 32,860/- Repairs & Maintenance : � 34,150/- Income tax paid : �10,89,929/- ------------------ Total : �43,35,061/- ----------------- The Assessing Officer held that as the interest income from banks is to be taxed as income from other sources, the above expenses cannot be claimed as per Sec.57 of the I.T. Act. The Assessing Officer also held that the assessee has no known business activity in India. Hence, the Assessing Officer disallowed the expenses to the tune of �43,35,061/- and computed accordingly. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us.
9.We have heard both the sides and perused the material on record. Under section 57 only expenditure incurred in connection with earning of income was allowable as deduction. The assessee admitted that the entire income is by way of interest from the bank deposits. It was seen that the expenditure made by the assessee towards salary, remuneration, commission, building maintenance etc, these expenses have no nexus with earning of interest on bank deposits and cannot be allowed as deduction u/s.57 of the Act. Further, the assessee made a plea before us that expenditure at head office at �15,65,918/- instead of �43,35,061/-. In our opinion, the Assessing Officer already brought on record the total expenditure at �43,35,061/- as recorded in earlier para. Being so, the contention of assessee counsel is devoid of merit as it is not based on any evidences. Accordingly, this ground of the appeal of the assessee is rejected. Various case laws relied on by the assessee will not help it for the simple reason that it failed to identify these expenditure, which it claim was incurred for the purpose of maintaining its corporate
ITA Nos.3382 to 3384/2016 :- 8 -: identity. We are therefore inclined to follow the order of the Tribunal in assessee’s own case for assessment year 2006-07. Related grounds of the assessee stand dismissed.
Only other issue which appear in the appeal for assessment 6. year 2007-2008 is on an addition of �10,12,209/- on a exchange rate fluctuation.
Assessee had claimed before the ld. Assessing Officer that this represented an adjustment entry passed for equalizing the balances between head office and branch office and it did not partake the nature of income. However, ld. Assessing Officer had not accepted this contention. Assessee also did not meet with any success on this issue before the ld. Commissioner of Income Tax (Appeals).
8. Now before us, ld. Authorised Representative submitted that the amount was a mere accounting entry for equalization. As per the ld. Authorised Representative, there was no foreign exchange fluctuation income.
Per contra, ld. DR submitted that this issue also was 9.
covered in favour of the Department in assessee’s own case for assessment year 2006-07 in dated 09.10.2015
ITA Nos.3382 to 3384/2016 :- 9 -:
We have considered the rival contentions and perused the 10. orders of the authorities below. What we find is that similar issue had come up before the Tribunal in assessee’s own case for assessment year 2006-07 also. Very same arguments were taken by the assessee in the said year also. What was held by this Tribunal at paras 13 to 15 of its order dated 09.10.2015 is reproduced hereunder:-
The ld. Authorised Representative for assessee submitted that the sum of �8,06,423/- was shown in the profit and loss account for the year ended 31st March, 2006 with the narration “Amount adjusted for the purposes of finalizing the balance between the head office and the branch owing to fluctuation in foreign exchange’’ and is a mere notional entry made for the purpose of equalizing the balance between the head office and the Malaysian branch office. The assessee further submitted that the sum of �8,06,423/- was a notional amount and not a gain real terms, being an accounting entry relating to the assessee’s own branch in Malaysia which cannot result in any income.
The ld. Departmental Representative relied on the orders of the lower authorities.
We have heard both the sides and perused the material on record. The assessee admittedly received the above amount on account of exchange rate fluctuation which is revenue receipt and the same to be liable to be taxed and it cannot be considered as notional entry Accordingly, this ground of the appeal of the assessee is dismissed.
Fact situation being same, judicial discipline requires us to follow the order of the Co-ordinate Bench. Related grounds of the assessee stand to 3384/2016 :- 10 -: dismissed.
In the result, all the appeals filed by the assessee stand dismissed. Order pronounced in the open court at the time of hearing on Thursday, the 1st February, 2018, at Chennai.