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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: SHRI N.K. BILLAIYA & SHRI S. S. GODARA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER
This appeal by the Assessee is preferred against the order of the Ld. CIT(A)-9, Ahmedabad dated 22.01.2015 pertaining to A.Y. 2011-12.
ITA No. 463/Ahd/2015 2 . A.Y. 2011-12 2. The only grievance of the assessee is that the ld. CIT(A) erred in confirming the addition of Rs. 19,26,441/-.
Briefly stated the facts of the case are that the appellant company field its return of income declaring total income at Rs. 1,58,570/-. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.
During the course of the scrutiny assessment proceedings, the A.O. found that in its financial statements, the assessee had shown income from the following sources: (i) Dividend Income Rs. 420/- (ii) Other interest Income Rs. 62,500/- (iii) Share of Profit from Gujarat Steel and Pipes Rs. 7,19,875/- (iv) Interest income Rs. 19,75,876/-.
The A.O. further noticed that the assessee had not carried out any business activity during the year under consideration. The income shown by the assessee do not suggest any business activity done by the assessee during the year. The A.O. found that against the income shown by the assessee, it has claimed expenditure of Rs. 19,26,441/- as under:- (i) Director’s Remuneration Rs. 7,20,000 (ii) Salary and Bonus Expenses Rs. 11,00,000 (iii) Various Other Expenses Rs. 1,06,441/-
The A.O. asked the assessee to justify its claim of expenditure as no business activity was found to be carried out during the year.
ITA No. 463/Ahd/2015 3 . A.Y. 2011-12 7. In its reply, the assessee stated that it is not correct to say that there was no business activities carried out. The assessee strongly contended that since it contemplated to commence trading activities in Iron and Steel and has started market survey and sources of supplies for which staff were employed. In support of its contention, the assessee filed subsequent year’s details to show that purchase and sales were actually done in those years.
The reply of the assessee was considered but was not accepted by the A.O. who was of the firm belief that merely because assessee had business activity in the subsequent years, the same cannot be the basis for claiming expenses in the year under consideration.
Not satisfied with the explanation of the assessee, the A.O. disallowed the claim of expenditure and completed the assessment.
Assessee carried the matter before the ld. CIT(A) but without any success.
Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities and in support relied upon two decision of the Hon’ble Delhi High Court in the case of Samsung India Electronics Ltd. 356 ITR 354 and Carefour WC & C India Pvt. Ltd. 368 ITR 692.
Per contra, the ld. D.R. strongly supported the findings of the lower authorities.
We have given a thoughtful consideration to the orders of the authorities below. We find that the assessee has heavily relied upon the enquiries made
ITA No. 463/Ahd/2015 4 . A.Y. 2011-12 from various persons in relation to the purchase and sales of Iron and Steel trading. However, we do not find any documentary evidence brought on record which could suggest the assessee has registered itself as a trading concern and has procured statutory licences from the State/Local authorities. There is not even a single evidence to suggest some purchase were made during the year under consideration. Merely because, the assessee had done some correspondences with some parties would not lead to carrying on any business activity.
At the same time, we find that the assessee is a partner in the firm Gujarat Steel and Pipes from where its has received its share of profit. We can understand that to protect its interest in the partnership firm, the directors of the assessee company must have devoted sometime in the business of the partnership firm. To this extent, in our considered opinion, some expenditure relating to Director’s remuneration is allowable. Therefore, on the given set of fact, Director’s remuneration and salary to the extent of Rs. 4.50 lacs should meet the ends of justice on this account.
Since the appellant company is a body corporate, therefore, to maintain the corporate status, the assessee must have incurred some expenditure and in our considered opinion, the same can be allowed to the extent of Rs. 50,000/-.
On the peculiar facts of the case in hand, we direct the A.O. to allow expenditure to the extent of Rs. 5 lacs only. The balance stands confirmed. Assessee gets partial relief and the appeal is partly allowed.
ITA No. 463/Ahd/2015 5 . A.Y. 2011-12 17. Before closing as mentioned elsewhere, the assessee is relied upon two judgments of Hon’ble Delhi High Court but we find that those judgments are on different set of facts. Therefore, clearly distinguished.
Order pronounced in Open Court on 15 - 11- 2017
Sd/- Sd/- (S. S. GODARA) (N. K. BILLAIYA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad: Dated 15/11/2017 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad