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

1 Manjari Stud Farm Pvt Ltd IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI

Before Shri D.T. Garasia (JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER)

I.T.A No.3842/Mum/2012 - AY 2008-09 I.T.A No.4329/Mum/2012 - AY 2009-10

The Manjari Stud Farm Pvt vs The Joint CIT-2(2)(4), Mumbai Ltd, 41/44, Shapoorji Pallonji Centre, Minoo Desai Marg Colaba, Mumbai-400 005 PAN :AAACT1947J APPELLANT RESPONDEDNT I.T.A No.4807/Mum/2012 (Assessment year 2009-10)

The Joint CIT(OSD), Circle- vs The Manjari Stud Farm Pvt Ltd, 41/44, 2(2)(4), Mumbai Shapoorji Pallonji Centre, Minoo Desai J Marg Colaba, Mumbai-400 005 PAN :AAACT1947 APPELLANT RESPONDEDNT

Assessee by Shri Chetan Karia Revenue by Shri R.S. Arneja (CIT-DR) / Shri Suman Kumar

Date of hearing 26-09-2017 Date of pronouncement 10-11-2017

O R D E R Per G Manjunatha, AM : These cross appeals by the assessee and the revenue for the assessment

year 2009-10 and the appeal filed by the assessee for the assessment year

2 Manjari Stud Farm Pvt Ltd 2008-09 are directed against separate, but identical orders of the CIT(A)-5,

Mumbai dated 25-04-2012 and 01-03-2012 for the assessment years 2008-09

& 2009-10. Since, the facts are identical and issues are common in these

appeals, for the sake of convenience, they were heard together and are

disposed of by this common order.

that the assessee company is engaged in the business of development of

information technology, infrastructure services, development of residential

township and development of special economic zones, filed its return of

income for the assessment year 2009-10 on 29-09-2009 declaring total income

at Nil. The case was selected for scrutiny and notices u/s 143(2) dated 24-08-

2010 and u/s 142(1) dated 08-02-2011 along with questionnaire were issued

calling for various details. In response to notices, the authorized

representative of the assessee appeared from time to time and furnished the

details, as called for. The assessment was completed u/s 143(3) on 29-12-2011

determining the total income at Rs.179,50,73,585 interalia making additions /

disallowances towards unexplained share capital, expenses attributable to

income from house property, professional fees to be amortised, depreciation

on service apartments, interest disallowance on assets not put to use and

unexplained credits. Aggrieved by the assessment order, the assessee

3 Manjari Stud Farm Pvt Ltd preferred appeal before the CIT(A).

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.

I.T.A No.4807/Mum/2012 4. The revenue in its appeal, has raised the following grounds of appeal:-

“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."

share capital u/s 68 of the Act. The Ld.DR submitted that the Ld.CIT(A) erred in

coming to the conclusion that share capital contribution amounting to

US$2,02,62,114 equivalent to INR 168,78,00,431 of M/s Strand Developers

Mauritius Ltd stands explained by the communications dated 22-12-2011 of

Mauritius Revenue Authorities, without scrutinizing and bringing on record the

reasons for the difference in the communication of Mauritius Revenue

Authorities dated 21-11-2011 on which addition u/s 68 had been made. The

Ld.DR further submitted that the Ld.CIT(A) erred in technically not giving

opportunity to the AO to comment on the difference between the two

communications of Mauritius Revenue Authorities and drawing a unilateral

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.

order of the CIT(A) and submitted that the Ld.CIT(A) deleted the addition made

by the AO towards share capital u/s 68 of the Act, on the basis of letter dated

22-12-2011 received from Mauritius Revenue Authorities through proper

channel, i.e. the FT & TR Division of Department of Revenue, Ministry of

7 Manjari Stud Farm Pvt Ltd Finance which is the authorized agency under the bilateral treaty with each

country by India u/s 90 of the Income-tax Act, 1961. The communication

received from Mauritius Revenue Authorities through FT & TR clearly

establishes the fact that the assessee company has received share capital and

share application money from M/s Strand Developers Mauritius Ltd. The Ld.AR

further submitted that the Mauritius Revenue Authorities in their letter dated

26-12-2011 explained the reasons for difference in earlier communication sent

vide letter dated 21-11-2011 which states that the earlier letter sent along with

the income-tax return filed with Mauritius Revenue Authorities was

incomplete and computer print out of the return, where all the details had

through oversight not been input. The subsequent communication dated 22-

12-2011 contains the return filed by M/s Strand Developers Mauritius Ltd,

which establishes the fact of investment in assessee company. The said

communication also forwarded the full details like name, address and

citizenship of directors, copy of share certificate issued by the assessee, bank

statements of M/s Strand Developers Mauritius Ltd, the business customer

information and account opening form of HSBC Bank Mauritius Ltd, the income

statement of Strand Developers Mauritius Ltd. All these documents were

received from the Mauritius Revenue Authorities which was forwarded by the

Under Secretary (FT & TR) to CBDT FTD Division-II on 10-01-2012. Based on

8 Manjari Stud Farm Pvt Ltd these details, the CIT(A) has come to the conclusion that the assessee has

discharged the identity, genuineness of transaction and creditworthiness of

the parties.

received from outside India, the required enquiry to be carried out by the AO

should be through FT & TR Division of Department of Revenue, under the

Ministry of Finance and hence, the AO cannot ignore the documents received

through proper channel to hold that the assessee has failed to discharge its

onus in proving the credits. Neither the AO, nor the assessee had any power

to cause necessary enquiry except requesting the designated authority. In this

case, the AO has received the information through FT & TR Division which has

been forwarded by the AO to the CIT(A) in the appellate proceedings and the

CIT(A) has given opportunity of hearing to the assessee on the said

communication which is evidenced from the fact that the CIT(A) in his order

has clearly stated that he had the benefit of discussion with the AO on the

subject matter. Therefore, there is no merit in the argument of the revenue

that the CIT(A) has decided the issue without conducting necessary enquiries

and also not giving proper opportunity to the AO. The assessee has fully

discharged its onus by furnishing necessary evidence to prove the genuineness

of share capital received from M/s Strand Developers Mauritius Ltd and hence,

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.

and gone through the orders of authorities below. The AO made addition

towards share capital on the ground that the assessee has failed to discharge

onus cast upon it by filing necessary evidence to prove genuineness of

transactions and creditworthiness of the parties. The AO never disputed the

identity of the shareholder. The AO has accepted the fact that the assessee

has received share capital as well as share application money from M/s Strand

Developers Mauritius Ltd. The AO made addition solely on the basis of

communication received from Mauritius Revenue Authorities which suggest

that the Mauritius company did not have funds to make investment in

assessee company. Based on the reply and evidences furnished by the FT &

TR, Department of Revenue, the AO came to the conclusion that the assessee

has failed to discharge capacity and creditworthiness of the shareholder. The

contention of the assessee is that it has discharged the initial onus cast upon it

by proving identity, genuineness of the transaction and creditworthiness of the

party. The assessee further contended that though initial communication

received from Mauritius Revenue Authorities did not contain full details about

investment made by M/s Strand Developers Mauritius Ltd, subsequent

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.

Developers Mauritius Ltd has not been disputed by both the authorities. The

AO has disputed the fact that there is a difference in two communications

received from Mauritius Revenue Authorities which has not been properly

explained by the assessee with necessary evidences. The AO has never

disputed the subsequent communication received from the Mauritius Revenue

Authorities through proper channel. The AO also not disputed the fact that

such communications can be received only through FT & TR Division,

Department of Revenue, Ministry of Finance as the said authority is the

designated authority under the bilateral treaty with each country by India u/s

90 of the Income-tax Act, 1961. The second communication received from the

Mauritius Revenue Authorities contains full details sought by the AO including

the name, address and citizenship of directors, copy of share certificate issued

by the assessee company, income-tax return filed by Mauritius company with

12 Manjari Stud Farm Pvt Ltd 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. The AO also not disputed the fact that the reasons for

difference in two communications sent by the Mauritius Revenue Authorities

has been clarified by the Director General of Mauritius Revenue Authorities in

their communication dated 21-12-2011 which has been extracted by the CIT(A)

in his order at para 3.4.1. The other documents sent by the Mauritius Revenue

Authorities has also been listed by the CIT(A) in the same paragraph. By these

documents, a clarification has been received from the Director General of

Mauritius Revenue Authorities which was forwarded by the Under Secretary,

FT & TR-II, CBDT directly to the AO. Therefore, we are of the view that there is

no merit in the arguments of the Ld.DR that the CIT(A) has not considered the

necessity of further enquiry with regard to the genuineness of transactions and

creditworthiness of the parties. We further are of the opinion that once

communication received from the designated authority through FT & TR which

is the authorized agency for exchanging information between two countries

u/s 90 of the Income-tax Act, 1961 and such information has been received

through proper channel, then there is no scope for the AO as well as the CIT(A)

to conduct further enquiries with regard to the creditworthiness of the parties.

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 & ITA No.4329/Mum/2012 – Assessee’s appeals

for the assessment year 2008-09 and 2009-10 is disallowance of proportionate

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.

the revised return filed by the assessee rejected in view of the fact that it has

barred by limitation. The AO further observed that the assessee’s business

consists of letting out of premises alongwith fit outs. The assessee itself has

admitted the fact that in some cases, the premises were let out along with fit

outs and in some other cases, only premises were let out. The assessee

company has entered into separate agreements for premises and fit outs. The

assessee has not maintained separate account for its business activity and its

income from house property. The assessee has maintained consolidated

accounts wherein it debited various expenditure including expenditure

attributable to the activity of income from house property. The assessee also

claimed separate deduction u/s 24(a) @30% of the annual letting value (ALV)

in computing income from house property. However, the assessee has not

18 Manjari Stud Farm Pvt Ltd disallowed proportionate expenditure debited to the P&L Account which are

relatable to the activity of income from house property. Therefore,

considering the total expenditure, the AO has worked out proportionate

expenses relatable to the activity of income from house property and

determined total disallowance of Rs.3,11,63,455. The AO has determined

expenses relatable to the activity of income from house property on the basis

of income earned by the assessee from various heads of income. Since the

assessee has already disallowed an amount of Rs.1,17,97,918, the balance

amount of Rs.1,93,65,537 has been added to the income of the assessee.

the CIT(A). Before the CIT(A), the assessee has reiterated its submissions made

before the AO. The assessee further contended that the AO was incorrect in

disallowing proportionate expenditure on the basis of gross income from

various heads of income ignoring the fact that the assessee itself has

disallowed expenses which are directly relatable to the activity of income from

house property while computing the income from business. The assessee

further submitted that the method followed by the AO to determine the

disallowance is incorrect inasmuch as he has taken proportionate

disallowances on the basis of gross income excluding certain expenses already

disallowed by the assessee. The CIT(A), after considering relevant submissions

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.

upholding the disallowance of property maintenance expenses incurred by the

assessee for the purpose of earning income taxable under the head ‘Profits

and gains of business’ on the ground that the claim of the assessee is not made

in the return of income. The Ld.AR further submitted that the assessee itself

has disallowed certain expenses directly attributable to the activity of income

from house property and the AO while working out proportionate disallowance

has not considered the expenses already disallowed by the assessee like rates

and taxes, property maintenance expenses, donation and professional fees.

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.

record and gone through the orders of authorities below. The AO has

disallowed proportionate expenses debited in the P&L account on the basis of

income earned from different heads of income. The AO has disallowed

expenses relatable to income under the head ‘ Income from house property’

on the ground that the assessee has claimed separate deductions as provided

u/s 24(a) & 24(b) in the computation of income under the head ‘ Income from

house property’ whereas failed to disallow corresponding expenditure debited

in the P&L Account while computing income under the head ‘Income from

business’. The AO has determined total disallowance of Rs.1,85,29,602, the

calculation of which is reproduced in the order of CIT(A) at para 3.3. on page

expenses incurred in relation to house property, the AO has wrongly excluded

expenditure suoto moto disallowed by the assessee in its computation to the

extent of Rs.97,94,884 as against total disallowances made by the assessee for

Rs.1,20,45,714. The assessee further contended that it had disallowed

expenses like rates and taxes, property maintenance expenses, professional

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.

Ld.Counsel for the assessee that the AO while calculating disallowance of

expenditure relatable to income from house property has allowed deductions

towards property maintenance expenses already disallowed by the assessee in

its computation and failed to deduct rates and taxes, professional fees and

23 Manjari Stud Farm Pvt Ltd donations without any reason. We further observe that the assessee has

already disallowed on its own expenses directly relatable to the activity of

income from house property. The other expenses debited in the P&L Account

are purely in the nature of corporate / routine expenses allowable u/s 37. The

AO has not given any reasons for not considering the expenses already

disallowed by the assessee in its computation and also corporate and other

routine expenses, which are allowable u/s 37. Therefore, we are of the

considered view that the issue needs to be examined by the AO in the light of

the submissions of the assessee that it had already disallowed expenses of

Rs.1,20,45,714 out of total expenses debited in the P&L Account and also

certain expenses are purely in the nature of corporate / routine expenses

allowable u/s 37 of the Act. Hence, we set aside the issue to the file of the AO

and direct him to consider the issue afresh in accordance with law after giving

opportunity of hearing to the assessee.

challenged the disallowance of proportionate expenses worked out by the AO

on the basis of income generated from the activity of income from house

property, income from business and income from other sources, except to the

extent of Rs.1,17,97,918 being property maintenance expenses. The assessee

has disallowed a sum of Rs.1,17,97,918 while computing income under the

24 Manjari Stud Farm Pvt Ltd head ‘Income from house property’ in its original return of income. During the

course of assessment proceedings, the assessee has filed revised return

claiming property maintenance expenses disallowed in computing income

from house property against gross receipt received from the activity of

property maintenance charges from the tenants. The assessee further

contended that by mistake it has suo moto disallowed expenditure incurred

towards property maintenance like security, watch and ward and other

expenses which are incurred exclusively in connection with property

maintenance charges recovered from the tenants which is deductible against

income from business. The assessee further contended that it has filed a

revised return revising its claim in respect of property maintenance charges.

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.

we find that the assessee has suo moto disallowed property maintenance

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.

course of assessment proceedings to make a claim of deduction towards

property maintenance expenses against business income which has not been

taken cognizance on account of limitation. Therefore, we are of the

considered view that considering the facts and circumstances of the case and

also relying upon the decision of Hon’ble Supreme Court in the case of Goetze

(India) Ltd and Bombay High Court in the case of CIT vs Prithvi Brokers &

Shareholders Pvt Ltd (supra), the claim of the assessee with regard to the

deduction towards property maintenance expenses against business income

needs to be considered in the lights of the facts without going into the

technicality of the issue of limitation of filing revised return. Therefore, we set

aside the issue to the file of the AO and direct him to consider the issue afresh

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

ITA No.4329/Mum/2012 are allowed for statistical purpose. The appeal filed

by the revenue in ITA No.4807/Mum/2012 for the assessment year 2009-10 is

dismissed. Order pronounced in the open court on 10th November, 2017.

Sd/- sd/- (D.T. Garasia) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 10th November, 2017 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order

Asstt. Registrar, ITAT, Mumbai