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Income Tax Appellate Tribunal, Kolkata Bench, KOLKATA
Before: SHRI P.M. JAGTAP
For the Appellant Shri V.N. Purohit, CA For the Respondent Shri Bani BrataDutta, JCIT Date of Hearing 08.03.2017 Date of Pronouncement 15.03.2017 ORDER
These two appeals filed by the assessee are directed against two separate orders passed by the Ld. CIT(A)-18, Kolkata dt. 18/11/2015 for assessment year 2006-07 and the Ld. CIT(A)-3, Kolkata, dt. 03/03/2015 for assessment year 2010-11. same have been heard together and are being disposed of by a single consolidated order, for the sake of convenience.
First we take up the appeal of the assessee for the A.Y. 2006-07, which is directed against the order of the Ld. CIT(A)-18, Kolkata, dt. 18/11/2015.
The relevant facts of the case giving rise to this appeal are that the assessee is a company, which filed its return of income for A.Y. 2006-07 on 07/11/2006, declaring total loss of Rs.1,04,61,604/-. In the said return, the income arising from various sources including interest, profit on sale of shares etc. was offered by the assessee under the head “income from other sources” and expenses aggregating to Rs.1,20,03,739/- were claimed against the said income as deduction. During the course of assessment proceedings, the claim of the assessee for deduction of the said expenses was examined by the Assessing Officer, as per the provisions of Section 57(iii) of the Income Tax Act, 1961 (hereinafter the “Act”), and since the assessee could not establish, to his satisfaction, that the said expenses were laid out or expended, wholly or exclusively for the purpose of making or earning of income offered under the head “income from other sources”, the assessing officer held that the same were not allowable under the provisions of Section 57(iii) of the Act.He, however, allowed the expenses claimed by the assessee to the extent of Rs.50,000/-, being the amount incurred for maintaining the status of the 2 the assessment completed u/s 143(3).
Against the order passed by the Assessing Officer u/s 143(3), an appeal was filed by the assessee before the ld. CIT(Appeals). During the appellate proceedings before the Ld. CIT(A), it was contended on behalf of the assessee that its business was suspended temporarily, as a result of the lull in the business during the relevant period and there being no permanent closure of the business, the expenses claimed by it are liable for deduction as business expenses. The Ld. CIT(A), however, did not find merit in this contention of the assessee and rejected the same for the following reasons given in paragraph 5 of his order.
“5. I have carefully gone through the submissions of the assessee. During the course of the appellate proceedings, I have also perused the balance sheet for three subsequent assessment years. It is seen that assessee has no business activity in the three subsequent assessment years as well. During the appellate proceedings the A.R. of the assessee also confirmed that in none of the subsequent years till date, assessee has carried out any business activity.
Under the circumstances it is clear that assessee had stopped business activity prior to the commencement of the current assessment year. Hence A.O. is justified in disallowing the business expenses claimed by the assessee.”
5. The Ld. CIT(A) also rejected the contention of the assessee that the expenses to the extent of Rs.25,08,477/-, at least were allowable as Fringe reasons given in paragraph 6 of his impugned order.
“6. In the grounds of appeal [no. 2] assessee has mentioned that A.O. has assessed F.B.T return shows that A.O. has not made any additions / disallowances in F.B.T assessment. Rather he has accepted the F.B.T return filed by the assessee. Here I would like to clarify that mere payment of F.B.T tax on a part of the expenses would not legitimize the entire expenses. A.O. is well within his rights to disallow any claim of expenses if he is not satisfied about the genuineness of the expenses. In any case the issue relating to F.B.T. are dealt separately in appeal filed by the assessee in respect of its F.B.T.”
The Ld. CIT(A), thus confirmed the disallowance of Rs.1,19,53,739/-, made by the AO on account of various expenses claimed by the assessee and dismissed the appeal filed by the assessee before him. Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal on the following grounds:
“l. The orders of the lower authorities are erroneous, arbitrary, without proper reasons, invalid and ab-initio void to the extent to which they are prejudicial to the interests of the appellant.
2. On the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the finding of the CIT(A} that since in this year there were no regular business transactions, the Assessing Officer had been right in denying the claim of the appellant assessee towards allowances of various expenses which had to be necessarily incurred by the appellant company for its maintenance, except to the meagre extent of Rs.50,000/-.
3. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the argument on behalf of the appellant assessee that since the A.O. had assessed FBT expenses at Rs.25,08,477/-, his actions in still disallowing the entire expenses were arbitrary, unreasoned and improper. 4
4. On the facts and in the- circumstances of the case, the learned CIT(A) erred in upholding and confirming the assessment order passed u/s 143(3) dated 03.12.2008 and in dismissing the appeal against the said assessment order.
The Appellant craves leave to amend, alter, substitute, modify, revise and/or add to or rescind any or all of the above grounds.”
I have heard the arguments of both the sides and also perused the materials available on record. As submitted by the Ld. Counsel for the assessee, Ground no. 1,4 & 5, raised in this appeal of the assessee, are general in nature, which do not call for any specific adjudication. As regards the issue raised in Ground no. 2, the limited relief sought for by the Ld. Counsel for the assessee is that, there are some expenses incurred by the assessee such as interest etc. which have been expended or laid out wholly and exclusively for the purpose of making or earning income such as interest etc. which is offered to tax under the head “income from other sources”. He has contended that since the assessee was harping on the point of temporary lull in the business and claiming the said expenses as business expenses even before the Ld. CIT(A), there was no occasion for him to make out his case on this point. He has urged that one more opportunity may, therefore, be given to the assessee to put forth his case by sending the matter back to the Assessing Officer. I find merit in this argument of the Ld. Counsel for the assessee and since the Ld. DR, has not raised any objection in this regard, I set aside this issue to the file of the AO for the limited purpose of giving the assessee an impugned expenses u/s 57 (iii). Ground No. 2 of the assessee’s appeal for A.Y. 2006-07 is treated as partly allowed.
As regards the issue raised in Ground No. 3, I find merit in the stand of the Revenue that the expenses of Rs.25,08,477/-, cannot be allowed as deduction merely on the basis that FBT has been paid by the assessee on the said expenses especially when there is no income earned by the assessee under the head “income from business”. The entire income having been offered by the assessee company itself, under the head “income from other sources”, only those expenses which are laid out or expended wholly or exclusively, for the purpose of making or earning of such income are liable to be allowed u/s 57(iii) and not otherwise merely on the basis of payment of FBT. I, therefore, find no merit in Ground No. 3 of the assessee’s appeal and dismiss the same.
As regards the appeal of the assessee for A.Y. 2010-11 being which is directed against the order of the Ld. CIT(A)-3, Kolkata,dt. 03/03/2015, it is observed that the main issue involved therein, as raised in Ground no. 3, is similar to the one involved in A.Y. 2006-07 which has already been decided by me in the foregoing paragraph of this order. Following the conclusion drawn in the A.Y. 2006-07, I, restore the 6 deciding the same afresh as per the same directions as given in A.Y. 2006-07.
Ground No. 3 of the assessee’s appeal for A.Y. 2010-11 is accordingly treated as partly allowed.
As regards the issue involved Ground No. 2 of the assessee’s appeal for A.Y. 2010-11, relating to the disallowance of Rs.1,21,442/-, made by the Assessing Officer and confirmed by the Ld. CIT(A) u/s 14A r.w. Rule 8D, the limited contention raised by the Ld. Counsel for the assessee is that the disallowance as worked under Rule 8D, is after taking into consideration the entire investment made by the assessee in shares instead of only that investment which has given rise to the exempt dividend income. Since this contention of the Ld. Counsel for the assessee is duly supported by the decision of the co-ordinate bench of this Tribunal in REI Agro Ltd. Vs. DCIT Central Circle-XXVII (ITA No. 1331 & 1423/Kol/2011, order dt. 19/06/2013), I, restore this issued to the file of the Assessing Officer, for the limited purpose of re-computing the disallowance u/s 14A by applying Rule 8D by excluding the investment on which no exempt income was actually received by the assessee during the year under consideration. Ground No. 2 of the assessee’s appeal for the A.Y. 2010-11 is thus partly allowed. are general in nature which do not call for any adjudication.
In the result, both the appeals of the assessee are treated as partly allowed.
Order pronounced in the Court on 15/03/2017.