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Income Tax Appellate Tribunal, “C”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A) for the assessment year 2008-09, in the matter of order passed u/s.143(3) of the IT Act. 2. In this appeal, assessee is aggrieved for disallowance of business expenditure and for making addition on account of interest which was not received by the assessee during the year under consideration. 3. Rival contentions have been heard and record perused. 4. Facts in brief are that the assessee company was engaged in the business of indoor catering and housekeeping. During the previous year relevant to assessment year under consideration, the assessee company M/s. Patman & G. Hospitality Pvt. Ltd., had sold its business together with its fixed assets to Aramark Patman services private limited vide asset purchase agreement dated 01.10.2007 and declared profit on slump sale u/s 50B of the Act. The assessee also entered into an agreement of non-compete fee for five years from the closing date. The AO noticed that the assessee in the P&L account had shown the following income and expenses:-
Sale Rs. 1,500/- Other income a) Interest on fixed deposits Rs.63,06,101/-- b) Dividend income Rs. 14,000/- c) Rent income Rs. 15,12,000/-
The rental income was offered for taxation under the head income from house property, the dividend was claimed as exempt and the balance interest income was shown as business income. Against the said business income, the assessee claimed the following expenses:- Purchases Rs. 91,116/- Admin and other costs Rs.62,55,548/- Employee cost Rs. 24,48,369/- Financial cost Rs. 4,32,515/- Depreciation Rs. 4,16,814/-
Considering the nature of income credited, the AO held that there was no business activity during the year. The AO, therefore disallowed the expenditure incurred during the year.
By the impugned order, CIT(A) confirmed the disallowance against which assessee is in further appeal before us.
M/s. Patman & G. Hospitality Pvt. Ltd., 8. We have considered rival contentions and found from record that during the Assessment Year 2008-09 the assessee company sold a part of its business undertaking to Aramark India Private Limited. As part of the conditions of sale, the assessee company was to receive the income on behalf of Aramark India Private Limited and transfer the same to them. The business of the company did not cease to operate on sale of one of its business activities and hence expenses incurred during the year were incidental to the business of the company. We found that during the year the trade debts remained undischarged and the activity of collection from debtors approximately Rs 55.88 lakhs was continued throughout the year with continuous follow up and collection. Payments were made to creditors approximately Rs 50 lakhs throughout the year. Further as part of the contract with Aramark the assessee was required to collect the funds on contracts originally entered into by parties with the assessee and transfer the same to Aramark. The assessee has carried out activities pertaining to collection and reconciliation of party accounts and also transferred the same to Aramark. Company has expenses pertaining to Purchase Costs of Rs 91116. Communication and electricity costs, which have been incurred for carrying on the business of Rs 182373. The company has paid charges for ROC expenses and for obtaining a digital signature The company has paid legal and professional fees to the extent of Rs 175923 for consultation on property matters and other company affairs The company has taken insurance for its assets and paid a fee of Rs 28879.
M/s. Patman & G. Hospitality Pvt. Ltd., 9. As per our considered view, the business of assessee continued during the year and all these expenditure are required to be allowed in so far as expenses were incurred for the purpose of business. In the interest of justice, we restore this issue back to the file of the AO with a direction to verify the genuineness of expenses and supporting bills, vouchers of such expenses. The AO is to allow the same after giving due opportunity to the assessee. We direct accordingly.
Assessee is also aggrieved for addition of interest income alleged to be receivable from Aramark India Private Limited and during the course of scrutiny assessment, AO found that as per Form No.26AS submitted by M/s. Aramark India Private Limited, tax of Rs.2,22,372/- was deducted on the interest of Rs.19,62,690/-, Accordingly, AO added the same in assessee’s income for assessment year 2009-10. By considering the contention of assessee that interest income was offered in the assessment year 2011-12 amounting to Rs.35,36,889/-. The CIT(A) directed to include the interest income tax during the year. However, CIT(A) has upheld the action of AO for including the interest income of Rs.19,62,690/- during the year itself. From the record we found that the interest income from Aramark India Private Limited would accrue to the assessee company on fulfillment of certain criteria as laid down under the agreement for sale. Since there was an argument going on with Aramark India Private Limited with regard to the fulfillment of such criteria, the assessee company could have at no point of time included the interest income with certainty. In fact the payer themselves had not booked the M/s. Patman & G. Hospitality Pvt. Ltd., accrued liability till after the date of filing of the return as the matter was still pending. In October 2010, Aramark India Private Limited filed a revised return of TDS and the interest and TDS was reflected in the 26 AS report from then onward. Thus the assessee company has not erred in not taking the income in it's books till the actual receipt as the uncertainty remained. Accordingly, we direct the AO to tax interest income only after receipt of such income from Aramark India Private Limited. We direct accordingly.
In the result, appeal of the assessee is allowed in part.