KISHENS ACCOUNTING SOLUTIONS P.LTD,MUMBAI vs. ITO 9(2)(2), MUMBAI

The assessee has filed the present appeal against the order dated 29.10.2014 filed by the assessee passed by Commissioner of Income Tax (Appeals) 20, Mumbai [hereinafter referred to as the “CIT(A)”], Mumbai relevant to A.Y.2011-12.

The appellant has raised the following grounds:-

The brief facts of the case are that the assessee filed its return of income on 09.09.2011 declaring total loss to the tune of Rs.95,789/-. The return was processed u/s.143(1) of the Income Tax Act, 1961 ( in short “the Act”). Subsequently, the case was selected for scrutiny and notice u/s.143(2) of the Act was issued on 27.09.2012. Later on notice u/s.142(1) of the Act was issued on 16.08.2013 and 11.12.2013 and 03.01.2014. Thereafter, the Assessing Officer disallowed certain expenses and assessed the income of the assessee to the tune of Rs.2,11,507/-. Since the assessee was not satisfied with the assessment assessed by the Assessing Officer, therefore, the assessee filed an appeal before the CIT(A), who confirmed the order of the Assessing Officer, therefore the assessee has filed the present appeal before us.

Under this issue the assessee has challenged the confirmation of disallowance of rent to the tune of Rs.2,15,000/-. The rent has been paid

Under this issue the assessee has challenged the disallowance of deferred revenue expenditure to the tune of Rs.25,880/-. The Assessing Officer disallowed the same on the ground of that the paid up capital of the assessee company was only Rs.1,00,000/- and only 5% of the same can be allowed u/s.35D of the Act. Therefore, the assessee was found eligible for deduction claimed of Rs.1000/- being 1/5th claim of Rs.5000/- against the total claim of Rs.26,880/-. The appellant had incurred certain preoperative expenses amounting to Rs.1,35,395/-. In earlier this amount was deferred and claimed over a period of 5 years. The Assessing Officer disallowed the said expenses on the ground of that the same was not allowable u/s.35D of the Act. The contention of the appellant is that the appellant did not raise any claim u/s.35D of the Act but has deferred revenue expenses. The only question which is required to be decided by us is that whether the deferred revenue expense is required to be allowed or not. In this regard the matter of controversy has been adjudicated by the Hon’ble High Court of Bombay in case of Commissioner of Income Tax – 2, Mumbai V/s. Raymond Ltd. [2012] 21 taxmann.com.60 wherein it is specifically held that the preoperative expenses which are in nature of revenue is liable to be allowed in the interest of justice. In view of the said circumstances we are of the view that the learned CIT(A) has wrongly confirmed the order of Assessing Officer which is not liable to be sustainable in the eyes of law. In view of ITA 7581/M/14 A.Y.2011-12 the above said law we are of the view that the CIT(A) has wrongly confirmed the order passed by the Assessing Officer, therefore, we set aside the order of CIT(A) on this issue and direct the Assessing Officer to allow the deferred revenue expenses to the tune of Rs.25,880/-. Accordingly, this issue is decided in favour of the assessee against the revenue.

Under this issue the assessee has challenged the confirmation of disallowance to the tune of Rs.58,635/- u/s.69C of the Act. The contention of the assessee is that the employees of the appellant incurred various expenses on behalf of the appellant from time to time. The Accountant of the appellant used the account for these expenses on the date on which expenses were incurred by the employee and not on the day on which it was reimbursed to the employees. These circumstances left to negative balance being reflected in the cash book. However, in some cases the expenses and withdrawal from the bank were on the same date. As the expenses were booked before withdrawal entry, therefore there was no negative balance. The authority was of the view that no doubt there was negative entry in the cash book but it was also on record that no cash lies with the assessee company. The assessee company without having cash were claiming the expenditure, therefore, the Assessing Officer declined the claim of the assessee and the CIT(A) has also confirmed the same. On seeing the cash book the authority disallowed the claim. The matter was not properly examined by the authority to arrive at this conclusion that the expenditure was justifiable or not. The contention of the assessee was not discussed at all. All the negative cash balance was added to the income of the assessee u/s.69C of the Act. The expenditure is in connection with the ITA 7581/M/14 A.Y.2011-12 expenditure incurred by the employee of the assessee due to their exigency. All work and thereafter this expenditure was entered into the cash book without reimbursement to the said employees. However, after the reimbursement on record the entries were recorded in the account books. This contention was not discussed by the Assessing Officer as well as CIT(A). Therefore, in view of the said circumstances we are of the view that the expenditure to the tune of Rs. 58,635/- is required to be further examined in view of the accounts book / material available on record in accordance with law. Therefore, we set aside the finding of the CIT(A) on this issue and matter is hereby ordered to be restored to the Assessing Officer for re-examination of this issue by giving an opportunity of being heard to the assessee in accordance with law. Accordingly this issue is decided in favour of the assessee against the revenue.

In the result, the appeal filed by the assessee is hereby allowed for statistical purpose.