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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: Shri Amit Shukla, & Shri Ashwani Taneja
आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals) -4, Mumbai {(in short ‘CIT(A)’}, dated 12.02.2014 passed against assessment order u/s 143(3) dated 22.12.2011 for the Assessment Year 2009-10.
2 Gautam Premises P.L. 2. During the course of hearing, the Ld. Counsel of the assessee filed revised grounds of appeal and requested for substituting the same with the earlier grounds. With consent of both parties, the revised grounds were taken on record which read as under:
“1.The learned CIT(A) erred in confirming disallowance of administrative and operating expenses of Rs. 5,30,260/- without appreciating that the said expenses are incurred wholly and exclusively for business purposes and are also required to be incurred for maintaining the corporate entity as going concern and hence, the said expenses may be allowed as a deduction. 2.The learned CIT(A) erred in confirming disallowance of interest of Rs.16,97,184/- without appreciating that the interest expenses are incurred for the purposes of business and maintain the corporate entity and hence, the said interest expenditure may be allowed as a deduction. 3.The learned CIT(A) erred in confirming disallowance of depreciation of Rs. 1,25,796/- without appreciating that depreciation is claimed on block of assets and the assets are put to use and hence, depreciation may be allowed. 4.The learned CIT(A) erred in confirming treatment of assessing interest of Rs.2,88,416/- under the head income from other sources though the said income is taxable under the head business income.”
During the course of hearing, arguments were made by Dr. K. Shivaram, (AR) on behalf of the Assessee and by Shri K. Ravi Kiran, Departmental Representative (Ld. DR) on behalf of the Revenue.
3 Gautam Premises P.L. 4. During the course of hearing Ld. Counsel had filed brief synopsis in detail as well as facts sheet with respect to its submission on revised grounds.
Ground No. 1 & 3: These grounds deal with the disallowance of administrative and operating expenses of Rs. 5,30,260/- and depreciation of Rs. 1,25,796/- claimed on brought forward amount of block of assets. These expenses were disallowed by the AO on the ground that there was no income during the year and no business was carried out and therefore, these expenses could not have been allowed. During the course of hearing, it was submitted by the Ld. Counsel that though the assessee had exited from its project which was taken up in earlier years in joint venture agreement with M/s. Ras Resorts and Apart Hotels Ltd. for development of a property at Goa, because the same was found to be no more viable on commercial terms, but the assessee did not completely came out from its business. It could not be said that assessee was not in business merely on the ground that no business income was earned during the year under consideration. It was further submitted by the Ld. Counsel that in any case the assessee being a company and legal juristic person was compulsorily required to maintain its legal status and existence in the eyes of law. All these expenses were incurred in the normal course of business which was mandatory for survival of the company in the eyes of law and therefore these could not have been disallowed. It was further submitted that these very expenses were allowed in A.Y. 2008-09 u/s 143(3), although a revision order was 4 Gautam Premises P.L. passed u/s 263, but the same was subsequently quashed by the tribunal. Reliance was placed by the Ld. Counsel in this regard upon the judgment of Hon’ble Supreme Court in the case of CIT v. Excel Industries Ltd. 358 ITR 295. Further, reliance was placed on the judgment of Hon’ble Allahabad High Court in the case of CIT v. Rampur Timber & Turnery Co. Ltd. 129 ITR 58 for the proposition that expenditure incurred for retaining the status of the company were to be allowed. Per contra, Ld. DR relied upon the orders of the lower authorities.
5.1. We have gone through the facts of this case and judgments relied upon by the Ld. Counsel. It is noted at the outset by us that in A.Y. 2008-09 i.e. preceding year, similar expenses were allowed u/s 143(3) by the AO. The Ld. CIT(A) subsequently revised the assessment order u/s 263 on the ground that in absence of any business these expenses were not allowable. The assessee took the matter before the Tribunal. It was held by the Tribunal that assessment was originally completed u/s 143(3) of the Act, and AO allowed the claim of the assessee with regard to commencement of business as well as set off of the operational and other expenses against the rental income of the assessee. It was further held that AO had examined and studied the aspect of running of the business and these expenses were allowed by the AO after proper application of mind and the view taken by the AO could not be held to be perverse on the face of it. Thus,
5 Gautam Premises P.L. in this backdrop, we are required to decide the fate of these expenses in A.Y. 2009-10 i.e. the year before us.
5.2. The perusal of profit and loss account in the year under consideration shows that assessee has debited operating and administrative expenses in its balance sheet to the tune of Rs.6,89,907/- and depreciation for Rs.83,359/-. Perusal of further details of these expenses shows that these expenses have been incurred in the normal course of business which is must for survival of the company. However, we also find that business promotion expenses to the tune of Rs.1,03,458/- have also been debited. In our considered view business promotion expenses cannot be allowed in the given facts and circumstances of the case. Thus, we sustain the disallowance of Rs.1,03,458/- and direct the AO to delete the remaining disallowance. The AO is also directed to grant the benefit of depreciation as has been claimed by the assessee, as it has been claimed on the brought forward amount of WDV of fixed assets. Our view finds support from the judgment of Hon’ble Allahabad High Court in the case of CIT v. Rampur Timber & Turnery Co. Ltd, (supra) wherein it has been held that expenditure incurred for retaining the status of the company i.e. miscellaneous expenses, salary, legal expenses and traveling expenses, etc. are expenses incurred for keeping business alive and profitable disposal of the assets and therefore, these should be allowed. Accordingly these grounds are partly allowed as indicated above.
6 Gautam Premises P.L. 6. Ground No.2: This ground deals with the disallowance of interest of Rs.16,97,184/-.
6.1. In this regard, Ld. Counsel has filed petition under Rule 29 for filing additional evidences showing utilization of the Bank Overdraft for the purpose of business of the assessee and requested for sending this issue back to the file of the AO. The assessee has also filed the copy of the certified copy of bank statements showing utilization of overdraft for the purpose of business of the assessee. In our considered view, these evidences are crucial and go to the root of the matter and these evidences are generated from the bank and cannot be ignored or simply brushed aside, therefore, in all fairness and to meet the endsof justice, we allowe petition filed u/r 29 and send this issue to the file of the AO to decide it afresh after giving adequate opportunity of hearing to the assessee. The AO shall look into these details and evidences before deciding this issue afresh. This ground may be treated as allowed for statistical purposes.
7.Ground No.4: In this ground, the assessee has contended that interest income of Rs. 2,88,416/- should be treated as income from business as against the income from other sources as was held by the AO.
7.1. It is noted by us that assessee is not in the business of giving loan and advances. The assessee has not been able to demonstrate any valid reason as to why the interest income should be shown as income from business. Under these
7 Gautam Premises P.L. circumstances, we uphold the action of lower authorities in treating the income as income from other sources and dismiss the ground raised by the assessee.
In the result, this appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 13th July, 2016.