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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-I’, NEW DELHI
Before: Sh. N. K. Saini
ORDER This is an appeal by the assessee against the order dated 21.08.2014 of ld. CIT(A)-IX, New Delhi. 2. Following grounds have been raised in this appeal: “1. That the CIT(A) erred in upholding disallowance / addition of Rs. 9,30,738/- made by the Assessing Officer by rejecting the claim of the appellant under Section 10(2A) of the Income Tax Act on the ground that the amount was representing the profit received from the partnership firm and accordingly the same was exempt under the above section, without appreciating and considering the facts of the case and the contentions raised by the appellant before him. CIT(A) has also erred in making certain irrelevant observations referring certain case law, which are not at all applicable to the facts of the case.
2. That the CIT(A) also erred in not deleting the disallowance made by the Assessing Officer of Rs. 16,28,942/- made by the Assessing Officer on account of administrative expenses 2 Mahanivesh (India) Pvt Ltd. incurred by the appellant company for the purpose of legal compliances and for carrying on its business. He failed to appreciate the facts of the case and the need for incurring the expenses. He also failed to appreciate that similar expenses have been incurred, claimed and allowed in assessments for earlier assessment years and, therefore, the expenses under reference were duly allowable.
3. That the Appellant crave leave to add, amend or alter any of the grounds at any time hereinafter.”
3. Vide Ground No. 1, the grievance of the assessee relates to the sustenance of addition of Rs.9,30,738/- made by the AO by rejecting the claim of the assessee u/s 10(2A) of the Income Tax Act, 1961 (hereinafter referred to as the Act).
The facts related to this issue in brief are that the assessee filed the return of income on 31.03.2012 declaring a loss of Rs.4,609/- which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had claimed exempt income of Rs.9,30,738/-. The AO asked the assessee to furnish the details of such income. In response, the assessee stated that the income was the share in profit of partnership firm M/s Kartik Associates and furnished the copies of Income Tax Return, computation of income, balance sheet and profit & loss account of the partnership firm. The AO observed that the return of M/s Kartik Associates was filed by the assessee on 18.12.2013 and the said return was invalid and nonest as the same had been filed beyond the prescribed 3 Mahanivesh (India) Pvt Ltd. period. The AO also observed that the assessee had not filed any partnership deed confirming that the assessee was a partner of M/s Kartik Associates and that the balance sheet submitted by the assessee was unsigned and the name of the assessee was not present in the balance sheet. Accordingly, addition of Rs.9,30,738/- was made in the hands of the assessee.
Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: “The appellant company is a partner in partnership firm, namely, Kartik Associates. During the assessment year under reference the appellant company had received profit of Rs. 9,30,738/- from the partnership firm. Same was claimed as exempt under section 10(2A) of the Act. During the assessment proceedings the Assessing Officer had called for details in respect of partnership firm. The appellant company had submitted copy of acknowledgement for filing return of income along with computation of taxable income in the case of the firm and copy of Balance sheet and Profit & Loss Account. A copy of which are given in the Paper Book on pages 37-40 of the Paper Book. The Assessing Officer in the order of assessment has taken a view that since in the case of the firm return of income had not been filed within the prescribed time and same was filed on 18.12.2013, exemption under section 10(2A) of the Act is not available to the appellant company. It is submitted before the CIT(A) that the income of Rs. 9,41,290/- was earned by the partnership firm during the year 4 Mahanivesh (India) Pvt Ltd. on sale of long term shares. The net income as per Profit & Loss Account was of Rs. 9,40,140/- which was distributed amongst the partners. The appellant company, being holder of 99% of share in partnership firm had received Rs. 9,30,758/- as share of profit. Since after taking benefit of Indexation there was no taxable income in the case of partnership firm, the firm had not filed its return of income. However, the return of income had been duly filed subsequently on 18.12.2013. The Assessing Officer has wrongly rejected the claim of the appellant company for grant of exemption under section 10(2A) of the Act on the ground that return of income was filed after due date. It is submitted in this regard that; 1. Since the obligation for filing return of income was on the firm, the appellant company cannot be denied exemption under section 10(2A) of the Act on the ground of delay in filing the return of income by the firm. 2. The firm will be liable for the consequences, if any, for the delay in furnishing the return of income. For the default of the firm, exemption under section 10(2A) of the Act cannot be denied. 3. The taxable income in the case of the firm after taking Indexation was nil and no tax was payable by the firm. Hence, the firm was not liable to file return. In any case delay in filing the return of income by the firm has not caused any prejudice or loss to the department. 4. The meaning of the term "assessed" has to been considered in the light "assessable". If nothing was assessable, it is to be deemed as assessed. 5. Without prejudice to above even if it is said to be default on the part of the firm it was only a technical default. Return in 5 Mahanivesh (India) Pvt Ltd. any case had been filed. Therefore, exemption under section 10(2A) of the Act cannot be denied in the case of the appellant.
6. Levy of tax in the case of appellant would mean levy and recovery of tax, which is not otherwise payable on the profit / capital gain on sale of long term shares. This is against the concept of exemption available to partners u/s 10(2A) of the Act and is also against canons of taxation. Levy of tax is also unjustified and unreasonable. In view of above, it is humbly submitted that Hon'ble CIT(A) may be pleased to allow exemption under section 10(2A) of the Act in the case of the appellant. In this regard, the Assessing Officer has also mentioned that the appellant had not submitted copy of partnership deed. Copy of partnership deed is being submitted herewith as Annexure-A. Same could not be submitted before the Assessing Officer as at no stage he had asked the appellant company to submit the copy of partnership deed. Without prejudice to above, it is stated that the amount of income on sale of shares of Rs. 9,40,140/- earned by the firm and same had been in the nature of income for the purpose of Profit & Loss Account and for the purpose of distribution to the partners. For the purpose of determination of taxable income, there was no taxable income after taking benefit of Indexation. Calculations of capital gain are being submitted herewith in the statement enclosed as Annexure-B. Nature of profit distributed to the partners will remain the same as has been in the case of firm. Income in the case of the firm was not taxable. Same would also not be taxable in the case of the appellant company. Hence, in the alternative, it is submitted that Hon'ble CIT(A) may be pleased to grant exemption in respect of amount of Rs. 9,30,738/- received by the appellant company considering the same to be in the nature of profit on sale of shares, which is not chargeable tax in the case of the appellant company after taking benefit of indexation in respect of shares sold by the firm.”
6 Mahanivesh (India) Pvt Ltd.
The ld. CIT(A) after considering the submissions of the assessee observed that the assessee was holder of 99% of share in the partnership firm, so it could not do away with the responsibility of filing the return of income within the stipulated period and that by not filing the return of income, the assessee deliberately avoided the examination of income in the partnership firm and claiming the same as exempted by showing it as a share in the partnership firm. He further observed that the assessee did not file the proper documentary evidence before the AO denying the opportunity to examine the case and that the copy of the partnership deed filed by the assessee before me was not registered and also it was not known when said partnership deed was entered as the back side of the non-judicial stamp paper was not shown. The ld. CIT(A) while denying the claim of the assessee observed as under: “5.3.2 The relevant profit and loss account of the appellant indicates receipt from sales and services of Rs.45,53,29,177/- against which the cost of sale is declared as Rs.45,36,84,540/-. Out of the sale proceed,, Rs.14,35,00,000/- is the increase in valuation (revaluation of stock) of shares in Taurus Iron & Steel. The balance amount represent purchase and sale of Taurus Iron & Steel, (Rs.42,05,00,000/- as purchase and Rs.28,05,00,0007- as sale) and Religare (Rs.3,31,84,540/- as purchase and Rs.3,13,29,177/- as sale). Apart from this, no other trading is reported in the financial statement. Since, the profit of Rs.16,44;637/- is set off against administrative expense of Rs. 16,49,942/-, the appellant conveniently claim the profit from partnership firm Rs.9,30,738/- as exempt income.”
7 Mahanivesh (India) Pvt Ltd.
The ld. CIT(A) further observed that when the assessee failed to produce any satisfactory explanation and documentary evidence to substantiate the claim, it could be held that the apparent was not real. A reference was made to the judgment of the Hon’ble Supreme Court in the case of CIT Vs Durga Prasad More (1971) 82 ITR 540 and the decision of the ITAT in the case of Indo Tech Electric Co. Vs DCIT (2006) 282 ITR (AT) 197. Accordingly, the addition made by the AO was sustained.
Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the assessee was partner in the partnership firm M/s Kartik Associates and the share of profit from the partnership firm was exempt u/s 10(2A) of the Act. It was further submitted that obligation for filing the return of income was on the partnership firm and the assessee could not be denied the exemption u/s 10(2A) of the Act on the ground of delay in filing the return of income by the said firm.
In his rival submissions the ld. DR strongly supported the orders of the authorities below.
I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that the ld. CIT(A) categorically stated in para 5.3.1 of the impugned order that the assessee did not file proper documentary 8 Mahanivesh (India) Pvt Ltd. evidences before the AO during the appellate proceedings, the copy of partnership deed filed before him was not registered and it was not clear when it was entered. He also mentioned that the assessee did not file any application under Rule 46A of the Income Tax Rules, 1962. For the aforesaid reasons, the ld. CIT(A) sustained the addition made by the AO. In the present case, it is not clear as to whether the AO asked the assessee to furnish the aforesaid documents. It is also not clear as to whether the income declared by the partnership firm was assessed for the year under consideration and that the assessee’s name was mentioned in the partnership deed. I, therefore, considering the totality of the facts and in the absence of the relevant documents on record, deem it appropriate to set aside this issue back to the file of the ld. CIT(A) to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard. The assessee may also place on record by way of the proper application, any relevant documents before the ld. CIT(A) in support of its claim by giving the reasons which prevented it to furnish the same before the AO.
The next issue vide Ground No. 2 relates to the sustenance of disallowance of Rs.16,28,942/- made by the AO on account of administrative expenses.
The facts related to this issue in brief are that the AO during the course of assessment proceedings noticed that the 9 Mahanivesh (India) Pvt Ltd. assessee was a group concern of Sh. Tarun Goyal Group of cases which was engaged in providing entries of share capital, loans etc. and that a search and seizure operation u/s 132 of the Act was carried out by Investigation Wing of the Income Tax Department on 15.09.2008 at the business premises of Sh. Tarun Goyal Group of cases. He further observed that Sh. Tarun Goyal, during search proceedings and the assessment proceedings of group concerns had accepted vide letter dated 14.12.2010 that he was providing accommodation entries and earning commission on the said entries. He further observed that Schedule-D of the Investment furnished by the assessee revealed that fresh investment made by the assessee was Rs.9,30,738/- which in fact was the profit earned from M/s Kartik Associates. He also observed that no business activities had been ever performed by the assessee company. Hence, the expenses claimed by the assessee could not be allowed. The AO mentioned that the allowability of the business expenses has to be examined with reference to computation of income chargeable under the head profit and gains of business or profession u/s 28 of the Act. The AO allowed only the audit fee amounting to Rs.21,000/- and disallowed Rs.16,28,942/- claimed by the assessee on account of other expenses. The reliance was placed on the following case laws:
10 Mahanivesh (India) Pvt Ltd. � CWT Vs Ramaraju Surgical Cotton Mills Ltd. (1967) 63 ITR 478 (SC) � S.P.V. Bank Ltd. Vs CIT (1980) 126 ITR 773 (Kerala) � Perfect Pottery Ltd. Vs CIT 166 ITR 190 (MP) � Rani J. Sarla Devi Vs CIT 46 ITR 837 (AP) 13. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: “1. As will be seen by the Hon'ble CIT(A) from the Profit & Loss Account, the appellant company during the year has made sale and purchase of shares and there are other activities also. The AO has also in para 4 of the order stated that “From the perusal of details submitted by the assessee it has been gathered that the assessee is investing in various shares/securities as well as trading in these share/securities." Observation of AO in para 3 and para 4 are contradictory to each other. Activities of the company are also evident from the documents which are being submitted in the Paper Book which were before AO. On the facts it cannot be said that no activities were being carried on by the company.
The appellant company is a company incorporated under the provisions of Companies Act. It is also listed on Bombay Stock Exchange. Therefore, it is required to maintain its infrastructure for various legal compliances such as of companies Act, SEBI, Stock Exchange, Audit of Accounts, Tax Audit, Income-tax etc. Expenses aggregating to Rs 16,49,942/- were incurred on maintenance of bare minimum infrastructure. The appellant is enclosing herewith a statement giving details / description in 11 Mahanivesh (India) Pvt Ltd. regard to nature of each of the item of expenses debited to Profit & Loss Account as Annexure- C A statement giving month-wise details of Salary expenses is in the Paper Book on page 25.
Similar expenses have been incurred in the past and same have been duly allowed in assessments of the company. Figures for last five years are being given hereunder: Assessment Year AMOUNT OF EXPENDITURE 2006-07 9,69,279/- 2007-08 14,26,657/- 2008-09 15,22,185/- 2009-10 15,89,848/- 2010-11 13,01,539/- In view of the above, it is humbly prayed that Hon’ble CIT(A) may be pleased to direct the Assessing Officer to delete the disallowance of Rs.16,28,942/- made by him on account of administrative expenses.”
The ld. CIT(A) after considering the submissions of the assessee sustained the disallowance made by the AO by observing as under: “6.3 The reason given by the AO and the submission of the appellant are considered. As noted by AO in the assessment order and established by the Investigation Wing of the Department, during the search and seizure operation, the appellant belongs to a group of company involved in providing accommodation entries. Thus, transactions shown in the shares are nothing but paper work of the paper company. The revaluation of shares of one of the company to the tune of Rs.14,35,00,000/- itself 12 Mahanivesh (India) Pvt Ltd. indicates the grand design and the pattern adopted by the group to provide accommodation entries in the guise of share trading. The appellant failed to provide any documentary evidence in support of the claim that there was substantial meaningful real business during the relevant year to be entitled for expenses claimed. It is pertinent to note that the expenditure claimed is more or less equal to the profit declared from sales and purchases of the shares. In view of this, facts and circumstances of the case the addition made by the AO disallowing the expenses is confirmed and the ground of appeal
is dismissed.”
15. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the assessee is a listed company since 2001 and similar expenses were allowed in all the preceding years. It was further stated that the expenses were related to the business of the assessee, therefore, the disallowance made by the AO and sustained by the ld. CIT(A) was not justified.
16. In his rival submissions the ld. DR supported the orders of the authorities below.
17. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is not in dispute that the AO disallowed the expenses amounting to Rs.16,28,942/- out of the expenses of Rs.16,49,942/-. The said expenses incurred by the assessee were on account of salaries, conveyance charges, fees & subscription, professional fee, office & miscellaneous 13 Mahanivesh (India) Pvt Ltd. expenses and telephone expenses, which is evident from Schedule-H (copy of which is placed at page no. 10 of the assessee’s paper book). In the present case, the AO disallowed the expenses by observing that no business activity was undertaken by the assessee but nothing was brought on record that the business was closed by the assessee. In the instant case, it is noticed that in the preceding years also similar type of expenses had been allowed by the AO and when the AO himself allowed the audit expenses which were relating to the business then it cannot be said that the business was closed by the assessee. I, therefore, considering the totality of the facts delete the disallowance made by the AO and sustained by the ld. CIT(A).
18. In the result, appeal of the assessee is partly allowed for statistical purposes. (Order Pronounced in the Court on 16/12/2016)