JT CIT (OSD) 2(2), MUMBAI vs. THE MANJIRI STUD FARM P.LTD, MUMBAI

Before the CIT(A), the assessee has filed elaborate written submissions to challenge each and every additions made by the AO. The CIT(A), for the detailed reasons recorded in his order dated 25-04-2012, partly allowed appeal filed by the assessee, wherein he sustained additions towards disallowance of proportionate expenses attributable to income from house property, depreciation on service apartments, interest disallowance on assets not put to use; however, deleted additions made by the AO towards professional fees to be amortised, unexplained credits and addition towards share capital u/s 68 of the Income-tax Act, 1961. Aggrieved by the order of CIT(A), the assessee as well as the revenue are in appeal before us.

“1.(a) "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in coming to the conclusion that the share capital contribution amounting to US $ 2,02,62,114, equivalent to INR 168,00,78,431/- by M/s. Strand Developers Mauritius Ltd., stands explained by the communications dated 22- 12-2011 of Mauritius Revenue Authority, without scrutinising and bringing on record the reasons for the difference in the communication of Mauritius Revenue Authority dated 21-1 1-201 1 on which the addition u/s. 68 had been made and the later communication dated 22-12-201 1."

(b) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in technically not giving an opportunity to the A.O to comment on the difference between the two communications of Mauritius Revenue Authority and drawing a 4 Manjari Stud Farm Pvt Ltd unilateral conclusion."

(b) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in failing to follow principles of natural justice by failing to provide an opportunity to the A.O. to rebut the evidence furnished by the assessee during the appellate proceedings iii clew contravention of Rule 46A of Income Tax Rules."

5 Manjari Stud Farm Pvt Ltd conclusion. The CIT(A) erred in coming to the conclusion that the assessee had discharged the onus cast upon it relying upon the reconciliation provided by the assessee without there being no enquiry made either by himself or through the AO. The Ld.DR further submitted tht the initial communication received from Mauritius Revenue Authorities on 21-11-2011 contains income-tax returns filed by Strand Developers Mauritius Ltd with Mauritius Revenue Authorities does not indicate any investment by the creditor in the assessee company. The letter received from the Mauritius Revenue Authorities clearly states that the company had filed income-tax returns as per which it has returned a net loss of Mauritius Rs.3,802 and the balance-sheet attached with the communication does not show any investment in the assessee company.

The subsequent income-tax return filed by Strand Developers Mauritius Ltd, though contains the details of investment in Indian company, the said document has not been relied upon by the AO because it had not been received through proper channel. The Ld.DR further submitted that any information with regard to the investment from outside India, verification can be conducted through FT & TR Division of Department of Revenue, under the Ministry of Finance as the said authority is the designated authority under the bilateral treaty with each country u/s 90 of the Income-tax Act, 1961. The initial communication received from the Mauritius Revenue Authorities

6 Manjari Stud Farm Pvt Ltd through FT & TR clearly establishes a fact that Strand Developers Mauritius Ltd does not have capacity to invest such a huge amount in the assessee company.

Therefore, the AO came to the conclusion that the assessee has not discharged the onus of proving the capacity and creditworthiness of the investor. Though the subsequent communication received from Mauritius Revenue Authorities through proper channel indicates investment in assessee company by Strand Developers Mauritius Ltd, the reasons for difference between the two communications received from Mauritius Revenue Authorities has not been explained by the assessee to the satisfaction of the AO. The CIT(A), without conducting any further enquiry with regard to the communication received from Mauritius Revenue Authorities and also without affording any opportunity to the AO to offer his comments on such deviation, deleted addition made by the AO towards share capital simply on the basis of second communication received from Mauritius Revenue Authorities by holding that the assessee has proved the genuineness and creditworthiness of the party.

9 Manjari Stud Farm Pvt Ltd the CIT(A) was right in deleting the addition made by the AO and his order should be upheld.

10 Manjari Stud Farm Pvt Ltd communication received on 21-12-2011 from Mauritius Revenue Authorities proves the fact of investment made by M/s Strand Developers Mauritius Ltd in the share capital and share application money of the assessee company. The assessee further contended that the Mauritius Revenue Authorities in their letter dated 21-12-2011 has clarified the reasons for difference for two communications sent about M/s Strand Developers Mauritius Ltd and also clarified such difference in the earlier communication is on account of incomplete computer print out of the return where all details had through oversight had not been considered. The Mauritius Revenue Authorities has sent a subsequent communication as per the request of the AO though it has received by the AO subsequent to completion of assessment, the said communication received from the Director General of Mauritius Revenue Authorities contains all necessary details required by the AO like name, address and citizenship of directors, copy of share certificate issued by the assessee company, income-tax return filed by Mauritius company with Mauritius Revenue Authorities, bank statements of M/s Strand Developers Mauritius Ltd, the business customer information cum account opening form of HSBC Mauritius Ltd and financial statement of M/s Strand Developers Mauritius Ltd for the year ended 31-03-2009. The said communication has been received through proper channel, through, the FT & TR Division of 11 Manjari Stud Farm Pvt Ltd Department of Revenue, Ministry of Finance which was forwarded by the Under Secretary, FT & TR-II, CBDT on 10-01-2012 to the jurisdictional AO. The AO has forwarded the second communication received from the Mauritius Revenue Authorities to the CIT(A) in the remand report and submitted that copy of return and balance-sheet furnished by Mauritius Revenue Authorities was found to be correct.

13 Manjari Stud Farm Pvt Ltd 10. Coming to the other arguments of the Ld.DR. The Ld.DR submitted that the CIT(A) has not given proper opportunity to the AO to comment on the difference between two communications received from Mauritius Revenue Authorities and also failed to conduct necessary enquiries either by himself or through AO which violates Rule 46A of the Income-tax Rules, 1962. We do not find any merit in the argument of the Ld.DR for the simple reason that the CIT(A) has relied upon the document received through a designated authority which has been forwarded by Under Secretary, FT & TR-II, CBDT directly to the AO. The AO has forwarded such information in a closed cover to the CIT(A) and also stated in the remand report that the information received from the Mauritius Revenue Authorities including the financial statement of M/s Strand Developers Mauritius Ltd was found to be correct. We further notice that the CIT(A) has given a categorical finding in his order to the effect that he had an occasion to discuss with the AO on the communication received from the Mauritius Revenue Authorities and hence, there is no merit in the argument of the revenue that the CIT(A) has passed the order in violation of Rule 46A in the back of the AO. We further notice that the communication received from the Mauritius Revenue Authorities has proved the fact that M/s Strand Developers Mauritius Ltd has investment in the share capital of the assessee company and also that such investment has been disclosed in their income-tax return filed

14 Manjari Stud Farm Pvt Ltd with the Mauritius Revenue Authorities. We further notice that the letter of the Mauritius Revenue Authorities dated 21-12-2011 forwarded by the FT & TR Division to the Commissioner vide letter dated 28-12-2011 clearly stated to the Commissioner of Income-tax that after examining the above received information, if any further information is required, the same may be informed to them. Even the second letter of the Mauritius Revenue Authorities dated 26-12-2011 was forwarded by FT & TR Division to the AO again clearly stated to the AO that if any further information was required, the same may be informed to them. The AO, after receipt of information from the FT&TR Division has not chosen to call for any other information with regard to the amount received from M/s Strand Developers Mauritius Ltd and now accusing the CIT(A) of not giving proper opportunity to comment on the difference between the two communications of Mauritius Revenue Authorities. We further observe that the reasons for difference between two communications sent by Mauritius Revenue Authorities has been clarified by the Director General of Mauritius Revenue Authorities in their second communication dated 21-12-2011 which clearly states that the initial communication sent along with income-tax return of M/s Strand Developers Mauritius Ltd is incomplete and also subsequent income-tax return copy is a full fledged return filed by the assessee which clearly establishes investment made in assessee

15 Manjari Stud Farm Pvt Ltd company. The other details like share certificate issued by the assessee company and bank statement of M/s Strand Developers Mauritius Ltd clearly establishes receipt of money by the assessee company. The assessee also furnished copies of FCGPR and other compliances with respect to RBI and Foreign Inward Remitance Certificate which clearly proves the identity, genuineness of transactions of investment received from M/s Strand Developers Mauritius Ltd. The subsequent communication received from Mauritius Revenue Authorities alongwith the income-tax return further prove the fact of creditworthiness of the share and capacity to invest in assessee company. Therefore, we are of the considered view that the AO was incorrect in holding that the assessee has failed to discharge the genuineness of transactions and creditworthiness of the parties. The CIT(A), after considering relevant facts has rightly deleted additions made by the AO towards share capital received from M/s Strand Developers Mauritius Ltd. We do not find any error or infirmity in the order of CIT(A). Hence, we are inclined to uphold the order of CIT(A) and dismiss the ground raised by the revenue.

ITA No. 3842/Mum/2012 & – Assessee’s appeals

16 Manjari Stud Farm Pvt Ltd administrative and other sales and marketing expenses attributable to Income from house property. The factual matrix of the impugned addition are that the assessee company is in the business of developing and rendering information technology and infrastructure park called ‘Ozone IT Park’ at Pune. The assessee generally enters into two separate agreements, one for letting out of premises and another one for letting out of amenities . Income from letting out of premises is offered to tax under the head income from house property and income from letting out of amenities is offered to tax under the head Income from business or profession. The assessee has prepared consolidated books of account for its business activity. The assessee has claimed various expenditure in the P&L account, predominantly most of the expenditure are in the nature of general administration and other expenses. The expenses, specifically relates to income from house property has been suo moto disallowed by the assessee in the computation of income. The assessee has treated income from letting out of premises under the head Income from house property and computed income by allowing statutory deductions provided u/s 24(a) & (b).

During the course of assessment proceedings, the AO called upon the assessee to explain as to why administrative and other expenses should not be proportionately disallowed in proportion to Income from house property and Income from business. In response to the show cause notice, the assessee

17 Manjari Stud Farm Pvt Ltd submitted that it has disallowed expenses specifically related to the activity of income from house property in the computation of income. The assessee further contended that the remaining expenses are in the nature of general admistrative and other expenses, but mainly incurred in the business activity of the assessee, therefore, no further disallowance is called for in proportion to income earned from the activity of letting out of premises and letting out of fit outs.

19 Manjari Stud Farm Pvt Ltd of the assessee and also relying upon the decision of Supreme Court in the case of Goetze (India) Ltd 328 ITR 323(SC) observed that the assessee could have claimed deduction of property maintenance expenses u/s 37 of the I.T.

Act only by filing a revised return. Since the assessee has not filed the revised return within the time, the AO was right in not entertaining the claim of the assessee and also disallowance of proportionate expenses out of the administrative and selling and other expenses which are relatable to the activity of income from house property. Aggrieved by the order of CIT(A), the assessee is in appeal before us.

The Ld.AR further referring to the decision of Hon’ble Supreme Court in the case of Rajasthan State Warehousing Corporation vs CIT 242 ITR 451 (SC)

20 Manjari Stud Farm Pvt Ltd submitted that once the assessee is into the undivisible business, disallowance of administrative and other expenses on the basis of income received from various activities cannot be disallowed. The Ld.AR further submitted that if at all disallowance is required towards administrative and other expenses, disallowances worked out by the AO is incorrect as he did not consider certain expenses disallowed suo motu by the assessee in the return of income and expenses in nature of corporate and routine expenses allowable u/s 37 of the Act, therefore, if at all any expenditure is disallowable, it can be disallowed to the extent of Rs.36,29,367 but not the disallowance worked out by the AO of Rs.1,17,97,918. The assessee has filed a paper book explaining the defects in disallowance worked out by the AO and also filed copy of disallowance worked out explaining the reasons for exclusion of certain expenses.

The Ld.DR further submitted that the AO has righty worked out proportionate expenses as the assessee has failed to disallow expenses incurred in relation to income from house property out of total administrative and other expenses incurred. Though the assessee has incurred various expenditure, failed to disallow expenses relatable to the activity of income from house property even though it has claimed separate deductions towards income from house property u/s 24(a) of the Act. Since the assessee has failed to disallow

21 Manjari Stud Farm Pvt Ltd expenditure and also maintained a common set of books of account for both the activities, the AO was right in disallowing proportionate expenditure on the basis of income generated from various activities.

22 Manjari Stud Farm Pvt Ltd fees and donations which works out to Rs.1,20,45,714. The assessee has filed working explaining the computation for disallowance by the AO and actual disallowances required to be made while computing income under the head ‘Income from business. According to the assessee, the AO has failed to exclude rates taxes, donation and professional fees. The assessee further contended that expenses in the nature of corporate / routine expenses allowable u/s 37 exclusively pertains to business activity of the assessee also has been included by the AO in determining the total disallowances. The assessee further contended that all expenses relatable to the activity of income from house property has been suo moto disallowed by it in the computation and if all further disallowance is required towards general administrative and other expenses including sales and marketing, the same shall be worked out excluding the disallowances already made by the assessee in its computation and also routine corporate and other expenses, which are purely relatable to the business activity of the assessee.

However, the AO has disallowed its claim merely on the ground that the revised return filed by the assessee is belated and hence cannot be allowed in view of the decision of Hon’ble Supreme Court in the case of Goetze (India) Ltd vs CIT (supra). The assessee further submitted that the AO has not disputed the fact that property maintenance expenditure has been incurred against property maintenance charges received from the tenants. He denied the claim on technical ground that return filed by the assessee is barred by limitation.

25 Manjari Stud Farm Pvt Ltd expenses of Rs.117,97,918 while computing income from business on the ground that such expenditure cannot be allowed as deduction. The assessee further contended that it has revised its return of income revising the claim of disallowance of property maintenance expenses against income from house property. The assessee further contended that expenditure incurred under the head ‘property maintenance expenses are in the nature of security, watch and ward and other expenses incurred against property maintenance charges received from the building. We further observe that the AO has not disputed the fact that expenses incurred by the assessee have nexus with the income earned from the property. The AO has denied the deduction only on the ground that the revised return filed by the assessee is beyond limitation. We do not find any merits in the findings of the AO for the reason that it is settled position of law that just assessment does not depend on as to what is claimed by the assessee, but on proper computation of income deduced based upon the provisions of law. The assessing authority cannot allow the claims of the assessee if the related facts and provisions of law did not approve it and similarly, it is also the duty of the AO to allow even those benefits about which the assessee is ignorant, but otherwise legally entitled to. There is no estoppels against the proper application of law. The Hon’ble Bombay High Court in the case of CIT vs Prithvi Brokers & Shareholders Pvt Ltd 349 ITR 336

26 Manjari Stud Farm Pvt Ltd (Bom) observed that if a claim is not made before the AO it can be made before an appellate authority. The jurisdiction of the appellate authority to entertain such a claim has not been negated by the Supreme Court in the case of Goetze (India) Ltd vs CIT (supra). The Hon’ble Bombay High Court also observed that the Supreme Court in Goetze (India) Ltd has made a point that issue in the case of powers of the assessing authority and the judgement does not impinge on the powers of the Tribunal to entertain and allow additional claims.

27 Manjari Stud Farm Pvt Ltd after affording reasonable opportunity of hearing to the assessee.