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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by the assessee against the order of the ld CIT (A)-19, New Delhi dated 31.10.2014, wherein, the only grievance is the disallowance of expenses of Rs. 5455200/- confirmed by the ld CIT (A).
The brief facts of the case is that the assessee is a company who filed its return of income on 29.09.2010 declaring income of Rs. 405050/-. In the computation of total income, the assessee has shown income from house property, income from other source and business loss. Profit as per Profit and loss account is shown as Rs. 2.07/- lacs . From it rental income Rs. 79.20 lacs is offered as income from house property and interest income of Rs. 242686/- is shown as income from other source. This resulted into net business loss of Rs. 5455204/- . To it assessee has added depreciation of Rs. 1.13 lacs debited in the books of accounts and disallowed interest expenditure of Rs. 5000/-. There from, the depreciation as per income tax was claimed of Rs. 45296/- and net business loss of Rs. 5381641/- was shown. There is no dispute on income taxed as income from house property and income from other sources. Only dispute is whether the loss shown under the head income from business or profession on account of administrative and other general expenditure and whether such expenditure is allowable to the assessee as deduction despite no business income earned by the assessee. View of the AO is that there is no business carried on during the year by the assessee and hence such expenditure is not allowable.
During the course of assessment proceedings, the ld AO noted that except the rental income and interest from bank, there is no business activity being carried out by the assessee and therefore, it has claimed expenses in the form of retainership, salary, HRA, ex gratia, repairs, maintenance, and gifts, which are not allowable as deduction. The ld AO noted that the directors of the company are nonresident and remained out of India for most of the time. It was further noted that all these expenditure are with respect to Mr. B. S. Talwar, and other persons who are employed by another company and other expense of gifts etc. Therefore, the ld AO noted that payment other employees are also not related to the services and business of the assessee company in absence of any business. Therefore, the ld AO computed the income from house property and income from other source determining the total income of the assessee at Rs. 5762418/-. Assessment order u/s 143(3) of the Act was passed on 04.03.2013. The assessee aggrieved with the order preferred appeal before the ld CIT(A) claiming that business expenditure incurred by the assessee of Rs. 54.55 lakhs are wrongly disallowed. The ld CIT (A) confirmed the disallowance following the decision of the CIT (A) in assessee‟s own case for Assessment Year 2008-09. Therefore, the assessee is in appeal before us.
The ld AR mainly relied upon the letter dated 25.02.2013 and also the decision of coordinate bench in assessee„s own case for Assessment Year 2008-09 which is placed at page No. 52 of the paper book and stated that issue is squarely covered in favour of the assessee.
The ld DR vehemently supported the order of the lower authorities and stated that when there is no proof of carrying on any business activity during the year, there is no reason to allow any expenditure from the business income.
We have carefully considered the rival contentions. The Assessee is mainly banking on the decision of the coordinate bench in assessee‟s own case which has dealt with this issue in its decision from page No. 4 to 8 of the order for AY 2008-09 as under:-
“5. We have heard the rival submissions and perused the material on record. It is a fact that the assessee has not shown any receipt from business or profession during the year but claimed expenses in the nature of Establishment Expenses, Administrative and General Expenses, Financial Charges and the Depreciation under the head profit and gains of the Business or profession. Before us, the assessee has submitted detail of expenses of similar nature incurred from assessment year 2002-03 to 2014-15. The expenses of similar nature have been allowed to the assessee in earlier and subsequent years and the claim of the assessee has even been allowed in the scrutiny assessment completed in AY: 2008-09 V.S.P. Stores P. Ltd Page | 4 assessment year 2002-03. Thus, we are of the considered opinion that the principle of consistency requires that the assessee should have been allowed the similar expenses claimed under the head profit and gains from business or profession in the year under consideration also. The jurisdictional High Court in the case of CIT versus Dalmia Promoters Developers Private Limited (supra) has held that where there are no material change in facts in subsequent year, view taken for earlier years would continue on principle of consistency. The relevant finding of the Hon'ble High Court is as under:
"7. The question in the above backdrop is whether the Tribunal was justified in upholding the order passed by the CIT(A) on the principles of consistency. In Radhasoami Satsang's case (supra), the apex Court declared that although the principles of res judicata do not apply to IT proceedings, each assessment year being a unit by itself, yet in cases, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to be Page | 5 sustained by not challenging the order, it may not be appropriate to allow that position to be changed in a subsequent year. Their Lordships extracted with approval the following passage from Hoystead vs. Commr. of Taxation (1926) AC 155 (PC) :
"Parties are not permitted to begin fresh litigations because of the view they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle."
8. The Court reiterated the following observation made by it in Parashuram Pottery Works Co. Ltd. vs. ITO. 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC) :
"At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of Page | 6 time must induce repose in and set at rest judicial and quasi- judicial controversies as it must in other spheres of human activity."
9. Following the above decisions, this Court has in A.R.J. Security Printers' case (supra) and CIT vs. Neo Poly Pack (P) Ltd. (2000) 245 ITR 492 (Del), held that even when the doctrine of res judicata does not apply to income-tax proceedings, where an issue has been decided consistently in a particular manner for earlier assessment years, the same view should prevail even during the subsequent years unless there is a material change in the facts. The law is, therefore, fairly well settled. For rejecting the view taken for the earlier assessment years, there must be a material change in the fact situation. There is no gainsaying that the previous view will have no application even in cases where the law itself has undergone a change but before an earlier view can be upset or digressed from, one of the two must be demonstrated namely a change in the fact situation or a material change in law whether enacted or declared by the Supreme Court. The CIT(A) and the Tribunal have in the instant case correctly held Page | 7
that there was no change in the fact situation. The income earned on fixed deposits for the previous three assessment years was, in the context of the very same facts and circumstances as are relevant for the year under consideration, treated as business income of the assessee. In the absence of a change in facts or any Addl. input there was no compelling reason for taking a different view. The CIT(A) and the Tribunal were, therefore, justified in holding that the view taken for the earlier assessment years continued to be applicable even for the year under consideration."
6. Further, from the details filed for the earlier and subsequent years, we find that the assessee was engaged in professional activity and maintained infrastructure in the form of office space and also incurred travelling expenses. It is quite possible that the assessee may not have been able to bring business or professional receipt during the year, AY: 2008-09 V.S.P. Stores P. Ltd however, he was required to maintain the office setup and other infrastructure to remain in the profession. The fact that assessee was engaged in the profession is evident from the details filed for subsequent years as the assessee has shown Page | 8
receipt from professional activity in assessment year 2012-13 and 2014-15. In the case of CIT versus Rajendra Prasad Moody (supra), while deciding the issue for deduction for expenses under the head income from other sources, the Hon'ble court has held that what section 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income and the section does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction and it does not say that the expenditure shall be deductible only if any income is made or earned. The same principle applies for allowability of deduction of expenditure under the head profit and gains of business. Thus in our considered view the expenses of Rs. 12,51,610/- debited by the assessee in the profit and loss account and claimed under the head profit and gains of the business are allowable both on the principle up consistency as well as business expediency. Accordingly the findings of the Ld. Commissioner of Income- tax( Appeals) on the issue in dispute are reversed.
7. The Assessing Officer has also disallowed the depreciation of Rs. 94,330/-on building on the ground that the building was let out and the rental income from the same Page | 9
was claimed under the head income from house property and thus necessary deduction has already been allowed under that head. Before the Assessing Officer, the assessee submitted that depreciation was claimed on the building which was for the personal use of the assessee, notwithstanding the fact that the substantial portion of the AY: 2008-09 V.S.P. Stores P. Ltd building was rented out and the standard deduction under section 24 was claimed and therefore the depreciation claimed in the circumstances merits to be suitably adjusted vis-a-vis the claim preferred. However the Assessing Officer disallowed the entire depreciation of Rs. 94,330/-. The Ld. Commissioner of Income-tax( Appeals) have noted in his order that there was no serious objections from the assessee for the proposed action of the Assessing Officer and even no arguments were made before him in appellate proceedings. The disallowance of depreciation was accordingly confirmed by the Ld. Commissioner of Income-tax( Appeals). However before us, the Ld. Authorised Representative disputed the findings recorded by the Ld. Commissioner of Income-tax( Appeals) that the assessee has not objected in respect of the disallowance before either the AO or the CIT (A). Without going into the dispute as whether the assessee objected or not, it is clear that part of the building was let out and therefore the depreciation corresponding to that part cannot be allowed to the assessee. In subsection (2) of section 38 of the Act, it is clearly laid down that where any building is not exclusively used for the purpose of business or profession the deductions under clause (ii) of subsection (1) of section 32 shall be restricted to fair proportionate part thereof which the Assessing Officer may determine having regard to the use of such building for the purpose of business or profession. Thus in view of the clear provisions of the Act in this regard, we restore the issue to the file of the Assessing Officer and direct the Assessing officer to allow the depreciation in accordance with the provisions of section 38(2) of the Act. Accordingly the ground No 1 is allowed partly for statistical purpose and ground No. 2 of the appeal is allowed.”
Now we come to the facts for the current year and compare it with the year in which the issue is decided by the Coordinate bench. It shows that assessee has only two types of income (i) income from other sources in the form of interest and (ii) rental Income. However assessee has incurred huge expenditure in the nature of establishment expenses of Rs 2282792/-, Page | 11 Administrative and general expenses of Rs 30,57830/- which includes retainer ship fees expenses of Rs 1775000/- . It has also incurred Gift expenses of Rs 6.11 lakhs. Assessee has not earned a single rupee from the business not in this year but also in several earlier years i.e. in March 2008, 2009 and 2010. Last income earned by the assessee is in AY 2002-03. For salary and other administrative expenses, assessee has entered in to agreement with various persons for payments of salaries and retainer ship fees. One of the agreements is with One Mr. Rajiv Johar , which is placed at page no 35-37 of the paper book. Vide para no 2 of the agreement scope of work is stated to be as per annexure attached; however, no such annexure was provided in the paper book. Page no 35 and 36 are the agreement, page no 37 is the extension of the agreement, form no 16A is attached at page no 38. He is designated as General Manager (Business Development) who will work with the assessee company or any other affiliated company as per Clause 1 of agreement. Such salary expenses are Rs. 22.82 lakhs. Assessee has also incurred Administrative expenses of Rs. 30.57 Lakhs which alos include gift expenses of Rs 6.11 lakhs. Assessee has also claimed depreciation on assets, which are small assets such as air conditioners computers etc. There is no indication at all in the balance sheet or profit and loss account that assessee is carrying on any business, it does not have any contract for doing any work with the foreign parties or any other persons. Before Ld AO two letters are produced which are dated 25/2/2013 and 12/2/2013, there is no indication in both the letters that assessee has carried on any business during the year. It cannot be denied that if there is no income, it cannot be said that assessee has not carried on any business during the year. However, the prime condition is that assessee should be carrying on any business during the year. There are many such instances of business where the revenue streams starts later on and organization starts incurring expenses earlier. One of the examples is start up business. However, in the present case the assessee does not have even any explanation about the nature of business it is carrying on. It is an admitted fact by the assessee that it has not earned a single penny as business income during the year and preceding many assessment years. Last revenue earned by it was only in AY 2002-03 and 2003-04 titled as Professional Income. It is also claimed that is providing services to foreign parties, however we were not appraised with any such contract with a foreign party. It was also stated in AY 2012-13 and 2014-15 that assessee has earned commission income. We are also not appraised of the amount of revenue earned by the assessee in those years also. In any case, those were the earnings of different years and it might be the fact that assessee has carried on business during those years. Issue before us is whether the assessee has carried on any business during the year.
Mainly the coordinate bench has allowed the claim of the assessee for the reason that in AY 2002-03 the claim of the assessee was allowed, therefore the principles of consistency should be followed. However, for the present year, no details are produced before us that whether on the similar facts the expenditure incurred by the assessee was allowed or not. What was the nature of that expenditure and what is the magnitude of those expenses was also not shown. Further in AY 2002-03 assessee has earned income, therefore the facts of that year i.e. AY 2002-03 are not at all comparable with the facts for the impugned year. Further in the year in which issue is decided by the coordinate bench only expense incurred by the assessee was of Rs 12.51 lakhs where as in the current year such expenses are more than Rs. 55 lakhs and depreciation too. There is no exhibition by the assessee that expenses in AY 2008-09 were of similar nature. In absence of such details, it cannot be said that facts and circumstances of the case are similar. It is obligatory on the party, who claims that issue is covered in its favour by judicial precedent, to demonstrate that facts and circumstances of the case were similar in the years involved. Further during the course of hearing Ld AR submitted a chart where comparative expenditure for AY 20007-08 to 2009-10 were tabulated. In those years also there was no business income earned by the assessee and only interest and rental income were shown. The amount of expenditure was increasing year to year from 14.82 lakhs to Rs 21.11 lakhs for AY 2009-10 and in this year Rs 54.55 lakhs. The reason explained is new recruitment, and ld AR vehemently stated that expenses is not bogus. We are of the view that that stage comes when prima facie it is shown that assessee is carrying on any business. When that argument is not accepted by the AO , there is no reason for him to comment on the nature of the expenditure. Further, during the year assessee has incurred gift expenses of Rs 6.11 lakhs. What is the purposes of those expenditure when there are no foreign party contracts, assessee did not show that how it is wholly and exclusively incurred for the purposes of the business. As deduction of expenditure is allowable only when same are incurred wholly and exclusively for the purposes of carrying on of business or profession at any time during the year. Further according to section 28 (1) of the act the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year is chargeable to tax and expenses incurred wholly and exclusively for carrying on such business are definitely allowable to the assessee under the scheme of the act. Therefore, there should be enough indications that there is a business carried on by the assessee at anytime during the previous year. Merely debiting the expenditure in the books with vague purposes cannot be said that assessee is carrying any business. Reference to the income stream of five years before and five years subsequent to the impugned assessment year is merely a camouflage to claim the expenditure under the guise of business expenditure. Where an assessee seeks to deduct from his business profits certain items of expenditure. The onus of proving that such permissible deduction falls on the assessee. In present case, assessee has not produced any evidences before lower authorities or before us what is the business of the assessee and how it can be said to be carried on during the year. In view of the above facts, the case of the assessee for this year is different and clearly distinguishable on the facts of the case compared with the issue decided by the coordinate bench.
We find that this is not the objection of the assessing officer that no sales and Revenue has been generated. The objection of the assessing officer is this that the assessee company has not carried out any business activity. No evidences were laid down before us or lower authorities to show that the assessee carries out any business during the year.
Ld AR has further relied up on the decision of the honourable supreme court in case of 115 ITR 519 CIT V Rajendra Prasad Mody. The facts of the case show that assessees were brothers and each of them had borrowed monies for making investment in shares of certain companies. During the relevant assessment year, they paid interest on the monies borrowed but did not receive any dividend on the shares purchased with those monies. Both of them made a claim for deduction of the amount of interest paid on the borrowed monies but this claim was negatived by the ITO and on appeal by the AAC on the ground that during the relevant assessment year the shares did not yield any dividend and, therefore, interest paid on the borrowed monies could not be regarded as expenditure laid out or expended wholly and exclusively for the purpose of making or earning income chargeable under the head 'Income from other sources', so as to be allowable as a permissible deduction under section. 57(iii). The Tribunal, however, on further appeal, disagreed with the view taken by the taxing authorities and upheld the claim of each of the two assessees for deduction under section 57(iii). Honourable Supreme Court allowed the claim of the assessee holding that there is no need that there should be income during the year. The facts of that case show that there was an investment in shares and no earning of dividend for that year and claim of expense were with respect to interest, which was borrowed for acquisition in those shares. In the case before us there is no indication what business asssessee is carrying on and to whom it is providing professional services, there is no evidence of any contract with the foreign parties. Stray earning of income once or twice in a decade and claim of the expenses for all the years do not show that assessee is carrying on any business during the year. Hence, the facts of the case before us are distinguishable and reliance placed up on decision cited is rejected.
Ld AR also relied up on decision of Hon. Sc in case of Shree Meenakshi mills V CIT [62 ITR SHN 1] . We are of the view that facts in that case are quite distinct as in that case there was no