M/S MORGAN WALKER & CO. LTD.,KOLKATA vs. ACIT, CEN. CIR-2(1), KOLKATA, KOLKATA

The assessee has raised as many as seven grounds, amongst which, the ld.AR submits that Ground nos. 1 and 7 are general in natural and needs no adjudication. Ground nos. 2 to 4 are relating to the income derived from jute trading and interest and treating the same as income from other sources instead of Business income as claimed by the Assessee and submitted can be read and adjudicated as one issue. Ground nos. 5 & 6 are relating to disallowance made on account of administration expenses to an extent of Rs.9,36,484/-.

The brief facts of the case are that the assessee is a company and engaged in the business of letting out of properties and earns rental income. The assessee also earned interest income on the loans advanced to other parties. The assessee also declared its total income at 1 ITA No.1108/Kol/2016 M/s. Morgan Walker & Co. Ltd

Ground no’s. 2 to 4: During the scrutiny proceedings the AO found that the assessee purchased jute at Rs.51,92,658/- and sold the same to M/s. Auckland International Ltd for Rs.52,14,222/-, thereby the assessee earned a profit of Rs.21,564/- and the AO treated the same as income from other sources for which the AO has given following reasons:- (i) The transaction purchase & sale of jute was a single transaction in one day and it is not a regular business of assessee. (ii) The assessee has no trade licence, sales tax and VAT registration. (iii) The assessee did not incur direct expenditure i.e cartage, lorry hire charges and delivery charges.

Likewise, the AO treated the interest income from other sources. The AO observed that lending loans is not the business activity of assessee and rejected the claim of assessee in treating the same as business income.

Before the CIT-A the assessee contended that the finding of AO is wrong in respect of that the assessee had only one transaction in a day involving jute purchase and sale. The assessee also contended that the Respondent Revenue has been accepting the jute transaction and earning of interest income as business income in earlier years i.e 2006-07 and 2007-08 and submitted that Rule of consistency must be followed. The CIT-A relied on the decisions of Hon’ble High Court of Kerala in the case of Equity Intelligence India Pvt. Ltd Vs. ACIT reported in (2015) 376 ITR 321 and in the case of Kesardeo Morarka Vs. CIT of Hon’ble Supreme Court reported in 44 ITR 529 and dismissed the contention of assessee and confirmed the order of AO. The relevant portion of finding of CIT-A is reproduced herein below:- “I have carefully considered the facts of the case and the submissions of the assessee. Perusal of the documents submitted by the assessee reveals that assessee had earned a meager Rs. 10,954/ - in Jute Trading in assmt. year 2005-06, then there was no trading in jute in the assmt. year 2006-07 & 2007- 08. Again in assmt. year 2008-09 assessee has indulged in jute trading and has earned a profit of Rs.21,564/-. The facts brought out by the A.O. and the assessee's activities in the previous years reveals that assessee is not seriously involved in the 2 ITA No.1108/Kol/2016 M/s. Morgan Walker & Co. Ltd

Before us the ld.AR submits that Jute Trading and Interest Income amounting to Rs.21,564/- and Rs.16,71,322/- respectively shown by the assessee under head ‘Business Income’ but the AO has wrongly assessed the said income as income from ‘Other Sources’. The assessee raised 42 bills on jute transactions on Auckland Jute Mills Ltd. The finding of AO is wrong that the assessee had only single transaction and therefore, it cannot be said as income from ‘Other Sources’. The assessee has also received interest on loan from three parties and in the earlier assessment years the said income has been accepted as business income and placed on record the assessment orders for the assessment years 2006-07 & 2007-08 and submits that the said interest income as well as Jute Trading income has been treated as ‘Business Income’ by the A.O in the order passed u/s. 143(3) of the Act and argued that it cannot be said this is ‘Other Source’ income but it is a business activity of the assessee therefore, in the present year also the said income should be treated as ‘Business Income’.

The ld.AR referred to profit and loss account ended on 31-3-2008 relevant to the year under consideration and argued that the purchase and sale of jute trading and interest income have been shown. He also referred to pages 28 to 30 and argued that the Respondent revenue accepted the interest income as business income under scrutiny proceedings. He further referred to pages 31 to 33 and argued that Respondent Revenue accepted the interest income as business income and submits that the Rule of Consistency should be followed. For such proposition, the ld.AR relied on a decision dt. 16-09-2015 of Hon’ble Supreme Court in the case of CIT vs Dalmia Promoters & Developer Pvt. Ltd.

The ld.DR submits that the assessee derives income from house property and other sources. The ld.DR referred to pageno-14 and argued that the income from rent is major head and it is the main business of assessee. The income from jute trading and income from interest is not the main activity of the Assessee and that is why the AO treated the said income from other sources and relied on the orders of CIT-A and AO. For rule of consistency, the ld.DR argued that the CIT-A dealt with the issue in detail and rejected the submissions of assessee by relying on decisions of Hon’ble High Court of Kerala in the case of Equity Intelligence India Pvt. Ltd vs ACIT [2015] 376 ITR 321 and Hon’ble Supreme Court in the case of Dwarkadas Kesardeo Morarka reported in 44 ITR 529(SC). The ld.DR urged to remand the issue to the AO for verification.

Heard rival submissions and perused the material available on record. The assessee derives income from house property and from other sources and it is clearly evident from assessment order. The contention of the ld.AR is that the AO arbitrarily determined the income from jute trading and interest income from other sources as against the claim of income from business. For which, the ld.AR placed reference to earlier assessment order passed U/Sec. 143(3) of the Act for A.Y 2006-07 and 4 ITA No.1108/Kol/2016 M/s. Morgan Walker & Co. Ltd

Coming to the treatment of interest income as income from other sources, it is observed that the assessee has shown the income earned from interest as income to the profit & loss account for A.Ys 2007-08 and 2006-07, which are placed at pages 30 & 33 of paper book. The AO considered the same as income from business in his orders for said earlier years which is evident from page 28 and 31 of paper book, where he found that the net profit as per profit and loss account before taxation at Rs.29,73,799/- and Rs. 20,91,194/- for A.Ys 2007-08 and 2006-07 respectively. In view of the same, the ratio laid down by the Hon’ble Supreme Court in the case supra is clearly applicable to the facts in respect of interest income is concerned. Therefore, we hold the income earned from interest is business income. Accordingly, ground nos. 2 to 4 are allowed.

Ground nos. 5 & 6 are relating to disallowance of Ras.9,36,484/- made on account of expenditure. According to AO, the assessee claimed deduction U/Sec. 24(1) of the Act under the head house property. The 5 ITA No.1108/Kol/2016 M/s. Morgan Walker & Co. Ltd

In first appeal, the CIT-A opined that the assessee could not show the direct nexus with the income earned and confirmed the addition made by the AO by observing as under:-

Before us, ld.AR submits that the disallowance includes the salaries. The ld.AR argued that the similar expenditures were allowed in earlier assessment years i.e A.Y 2007-08 and 2006-07 and referred to page nos. 30 & 33 and submits that the expenditure claimed under the head ‘administration’ and other expenses were considered and allowed by the Respondent Revenue. The ld. AR argued that the Revenue must follow rule of consistency to the year under consideration.

The ld.DR submits that the main business of the Assessee is income from house property. The assessee claimed deduction from income from house property, which is automatic U/sec. 24(1) of the Act. Again the Assessee claiming deduction under the head ‘administration’ and other expenses which is not permissible as the expenditure claimed as rightly pointed out by the AO incurred in the course of rental income which was already granted u/sec 24(1) of the Act. The Ld.DR argued that the Assessee is claiming double expenditure and if the deduction is granted as claimed by the Assessee and it amounts to double deduction. It is against the provisions contemplated U/Sec. 37(1) of the Act and referred to page 25 of paper book and argued that the assessee has shown gross annual value from house property and claimed standard deduction U/sec. 23 & 24 of the Act. The ld.DR urged to remand the issue to AO to find out to which head and how Assessee determined an amount of Rs.33,47,445/- shown by the assessee as net profit as per profit and loss account .

Heard rival submissions and perused the material available on record. We find that the assessee claimed expenditure of Rs.20,78,158/- under the head administration and other expenses as per statement

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 31-05-2017