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Income Tax Appellate Tribunal, KOLKATA BENCH ‘D’, KOLKATA
Before: Shri N.V.Vasudevan, J.M. &Dr.A.L.Saini, A.M.)
ORDER Per Dr. A.L.Saini, A.M.:
The above cited captioned appeal filed by the assessee pertaining to assessment year 2008-09, is directed against the order passed by the Commissioner of Income-tax (Appeals)-16, Kolkata in Appeal No. 288/CIT(A)-16/Kol/2014-15/C- 8(1), dated 03-02-2016, which in turn arises out of the order passed by the Assessing Officer u/s. 143(3) of the Income-Tax Act, 1961 (in short, the Act),dated 31-12- 2010.
The facts of the case are stated in brief. The assessee company filed its e- return of income belated on 31-03-2009 showing total loss of Rs.1,85,90,613/-.The
M/s. Chatterjee Management Services Pvt.Ltd case was selected for scrutiny under CASS by issuing of statutory notices. Later on, the AO made the assessment at Rs.20,57,710/- by observing as under:- Again, on examination of activity of assessee company it is seen from Profit & Loss A/c that assessee company received following incomes during the year under consideration:
A. Consultancy Income of Rs.16,85,400/- out of which a sum of Rs. 15,11,804/- was not received but shown as debtor, from Group company Celcious Technologies Pvt Ltd, 9B, Wood street, Kolkata- 16. No other income was received by company except dividend of Rs.5,OO,OOO/- and Income Tax Refund of Rs.3,72,307/- which are Income from Other Sources.
B. Against the aforesaid activity, assessee claimed Operating & Administrative Expense of Rs.1,87,99,058/-, Interest Payment Rs.1,57,070/- fully related to Investment activity, Bad Debts W/off of Rs.6,66,667/-. No detail of the same were filed nor explanation was furnished on the nature of debt.
C. On examination of break up of details of Salary, it is seen that Salary of Rs.29,38,623/- was paid to person specified U/s.40A{2b) out of total salary payment claimed at Rs.66,47,086/-. It is seen that this person is employed to look after the activities of other group companies and projects carried out by different group associates as it is evident from the nature of activity of accommodation carried out by assessee whereby the assessee company made advance for Project of Rs.1,73,34,782/- to Group companies. No interest was charged by assessee company nor does the project belong to the assessee. So the entire expense reimbursed and claimed by assessee company on account of Salary, Staff Welfare, Office Maintenance, Rent Communication, Electricity, Traveling reimbursed is related to group companies and no such expenses were actually incurred by assessee in course of its own business activity. Therefore, the expenses claimed by assessee company incurred on behalf of related party's business are not an allowable claim and hence, is disallowed and not considered.
M/s. Chatterjee Management Services Pvt.Ltd
D. On examination of detail of Consultancy charges paid, it seen that a sum of Rs. 7,50,000/- was paid to K. Bhattacharya. On 31.03.2008 the said consultancy payment was transferred in the name of Group companies viz: BIP Developers, TCG Software Park for expenses amounting to Rs.6,71,OOO/-. Furthermore, it is observed that Total Consultancy payment claimed by assessee amounting to Rs. 24,18,707/- has not been incurred in connection with earning of income, but to merely accommodate its group associates. From the details filed it is observed that: (i) consultancy paid to Kaushik Chakraborty for Public Relationship, (2) K. Bhattacharya Rs.79,OOO/- for Real Estate Consultant, (3) Anudeep Rs.5,71,500/- for Advisory, (4) Rajneesh Agarwal Rs.7,50,842/- for Tax Consultancy, (5) K: Sekhar RS.4,22,500/- for Company Law, (6) For Data Entry Rs.1,75,OOO/-. From the aforementioned details of payments made it is clearly evident that various group companies have taken services of these professionals in their part but consultancy fee was claimed in the assessee company. The aforesaid consultancy payment is not related to assessee business and is hence, disallowed and not considered.
E. The assessee claimed Rent payment of Rs.34,15,618/- for Kolkata, Mumbai & Delhi Office out of which sum of Rs.2,16,OOO/- only was reimbursed from one Group company. No other payment was reimbursed but the aforementioned office premises were enjoyed by various Group companies. Hence, in absence of any agreement etc. produced, the same is disallowed and not considered.
In view of aforesaid facts it is very clear that assessee company is merely an accommodating company for its group companies and does not, carry out any real business activity. Consultancy Charges received from group Companies amounting to Rs.16,85,400/- is Income from Other Sources and accordingly assessed. Interest on IT Refund of Rs.3, 72,307/- is also an Income from Other Sources and accordingly assessed. The Business expenditure and other claims in Profit & loss A/c are merely accommodation expenses on behalf of the assessee's group associates and not related to assessee's earning of income. Hence, it is disallowed.” M/s. Chatterjee Management Services Pvt.Ltd
Aggrieved from the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals)-16, Kolkata, who also confirmed the action of the Assessing Officer by observing the following:- “5. The AO has made the addition on the ground that as per para 5, consultancy income of Rs.16,85,000/- which is being shown by the assessee. Rs.15,11,804/- is not received by the assessee, but shown as debts from group company of the assessee. No other income except dividend and Income Tax Refund. are received. In para 5(0) of the assessment order, the AO has tried to give break- up and the nature of various expenses by the assessee. As per the break-up, it is clear that all the payments have been made to the group companies only. Hence, it is evident as per the order of the AO that consultancy income is received from the group concerns and all the expenses are also made to the group concerns only. 6. Before me, the written submission has been filed. The .case has been made out the expenses have been incurred, and they may be allowed u/s 37(1) of the IT Act. 7. I have gone through the contention of the AR. I find no force in the contention that these expenses are to be allowed u/s 37(1) of the IT Act. The AO has clearly made out the case that no business activity is done during the year. Consultancy income is received from the group concern. It is also shown as debtor. Payments are made to the group concerns only. Only artificial loss is created in this year. 8. Contention of the A.R that the income has increased in subsequent years is not acceptable here as Income Tax proceeding of every year is a different proceeding. Time and again, it has been held by various courts that resjudicata is not to be applicable in the Income Tax proceedings. 9. Hence, the A.O. has clearly made out the case that artificial loss has been created by the assessee. 10. Hence, The addition of the A.O. is sustained and the appeal of the assessee is dismissed.“
M/s. Chatterjee Management Services Pvt.Ltd
Not being satisfied with the order of the Commissioner of Income-tax (Appeals) the assessee is in further appeal before us and has taken the following grounds of appeal:- 1) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in dismissing the appeal of the Appellant Company by way of passing an order dated 3rd February, 2016 on arbitrary conclusions based on irrelevant considerations, suspicion, surmises and conjectures and therefore the same is illegal, invalid, bad in law.
2) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in dismissing the appeal without properly considering the written submissions and various evidences furnished before him in support of various issues raised in Grounds of Appeal.
3) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in confirming the disallowance made by the Assessing Officer of the entire business expenditure claimed in the profit & loss a/c on the alleged ground that the same were mere accommodation expenses not related to earning of assesee's income.
4) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in confirming the disallowance of Rs.6,66,667 made by the Assessing Officer, on account of bad debts claimed by the Assessee Company, in complete disregard of the binding judgment of the Hon'ble Apex Court rendered in T.R.F. Ltd. Vs. CIT [2010] 323 ITR 397 (SC).
5) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in upholding the disallowance made by the Assessing Officer on account of the Depreciation of Rs.10,97,669 which was admissible as per the provisions of Income Tax Act, 1961 read with Income Tax Rules, 1962.
6) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in upholding the disallowance made by the Assessing Officer of the deduction of Rs.4,90,000 claimed by the Appellant Assessee company under section 80G of the Income Tax Act, 1961.
M/s. Chatterjee Management Services Pvt.Ltd
7) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata erred in confirming the assessment of income of rs.16,85,400 under the head of “Income from other sources”against the head “business income” as claimed by the Appellant Assessee Company. 8) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata had erred in refusing to allow the benefit of carry forward of business losses of Rs.1,85,90,613 on arbitrary grounds being total contrary to the facts and evidences on record. 9) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata had erred in refusing to allow the set of brought forward unabsorbed depreciation against the income assessable to tax for the Assessment Year 2008-09. 10) That the Learned Commissioner of Income Tax (Appeals)-16, Kolkata had erred in refusing to allow credit of tax deducted at source of Rs.1,69,950 and Advance Tax of Rs.2,00,000 being prepaid taxes claimed by the Appellant Assessee company.
5. First three grounds of appeal relate to the disallowance made by the AO on account of ‘ accommodation entries ‘and observation of the AO that the assessee does not have any business activity. Briefly stated, that the assessee is a private limited company engaged in investment activities. The said first three grounds of appeal raised by the assessee are likely to be technical in nature therefore we are going to deal with them first. The main grievance of the assessee is that the observation of the Assessing Officer that ‘the assessee company engages in accommodation entries and does not have any business activities’ is wrong and without any base. The Assessing Officer made the additions and disallowed assessee’s expenses based on the findings that the assessee company does false entries in its books ( accommodation entries) and does not have business activities.
M/s. Chatterjee Management Services Pvt.Ltd
The ld.AR for the assessee has submitted that the AO was wrong in treating the assessee company being engaged in the transaction of accommodation entries. The AO has considered that the assessee company was not doing any business activity during the previous years. It was engaged in accommodation entry/transaction during the year, which was treated by the AO as bogus transaction. The stand of the AO was that the assessee company was not doing any business activity and motive to earn profit is absent, these allegations made by the AO are without any basis. In fact, the assessee company has been doing its business since last several years and filed its return regularly. The ld.AR for the assessee further submitted that filing of returns of income proved that the assessee company in question was in existence and it is not a new company. In support of the contentions, the ld.AR of the assessee has relied on the following judgments:- . AY 2007-08, the order dated 27-07-2016 in the case of Pinebridge Investments Capital (I) P.Ltd (formerly known as AIG Capital (I) P.Ltd Vs. ITO, Range 6(1)(4), Mumbai, wherein on identical issue, disallowance being consultancy charges paid to the legal advisor was partly allowed by the ITAT.
The ld.DR for the revenue primarily has reiterated the stand as taken by the Commissioner of Income-tax (Appeals), which we have already noted in our earlier para of this order, and is not being repeated for the sake of brevity.
Having heard the rival submissions and perused the material available on record, we are of the view that there is merit in the submissions of the assessee. As the propositions canvassed by the ld.AR for the assessee are supported by the Judgment of the ITAT (supra) and facts narrated above, Ld.AR has adduced the proof by showing the I.T return for the previous year that the so-called assessee
M/s. Chatterjee Management Services Pvt.Ltd company was in existence. The assessee also produced before us the object clause of the memorandum of Association, date of incorporation, comparative chart of revenue earned by the company and lease agreement where the registered office of the company is situated. All these evidences show that the company was in existence. Therefore, we allow the ground No. 1, 2 and 3 raised by the assessee.
In the result, the ground Nos. 1,2 and 3 are allowed.
The ld. CIT(A) has disallowed/confirmed the following expenses of the assessee based on presumption that the assessee engaged in accommodation entries and no any business activities are carried on by him. The details of disallowances confirmed by the ld.CIT(A) are as under:- a. disallowance of Rs.6,66,667/- made on a/c of bad debts b. disallowance of Rs.10,97,669/- made on account of depreciation c. disallowance of Rs.4,90,000/- made u/s. 80G of the Act d. AO assessed income of Rs. 16,85,400/- under the head ‘income from other sources ‘ against the head of ‘business income ‘, as claimed by the assessee e. disallowance of Rs.1,85,90,613/- being carry forward of business loss, and f. disallowances of Rs.1,69,950/- and Rs.2,00,000/- made on a/c of TDS and Advance Tax The ld.AO has disallowed/made the above cited expenses,which are narrated bythe assessee in the form of Grounds of Appeal. As we explained in earlier para that AO has disallowed these expenses observing that no business activity was carried on by the assessee during the year under consideration. The ld. CIT(A) has confirmed this action of the AO.
M/s. Chatterjee Management Services Pvt.Ltd
The ld.AR for the assessee has submitted that the assessee has been carrying on its business during the previous and subsequent years. The ld.AR of the assessee has shown before us by filing the Income & Expenditure by way of P & L account. He has also shown to us the main object of the assessee company by filing the copy of Memorandum of Association, which shows that the assessee company was engaged in the activity of business as per its object. The ld.AR for the assessee explained the entries made in the P & L account, where it is noticed that the assessee company in question received consultancy fees during the previous year ending on 31-03-2007 of Rs.47,91,526/-. The assessee has received consultancy fees of Rs.16,85,400/- as on 31-03-2008. The consultancy fees are subject to deduction of tax at source. The assessee company has incorporated on 11-11-1994. The assessee has shown a comparative chart of income being consultancy charges receipt during the previous years ending in 2008, 2013, 2014 and 2015. The ld.AR also demonstrated before us the lease agreement of the building where the assessee company is situated/registered office of the company is situated. He has also explained that the assessee company has been doing its business continuously since its inception/incorporation. It is not necessary for a businessman that he should earn always profit. During the year under consideration, the assessee has shown loss by way of heavy incurred expenditure. Looking to the facts and nature of heavy expenditure which occurred heavy loss, the AO presumed that the assessee company has not been doing any business activity. It engaged in providing accommodation entires. The AO in his order finally mentioned that the assessee company in question was engaged in the business of providing of accommodation entry. In this regard, the ld.AR of the assessee has submitted that the AO did not bring any cogent material/evidence on record to show that the assessee company was engaged in the business of providing accommodation entry and did not do any business. The AO M/s. Chatterjee Management Services Pvt.Ltd without examining the details of income and expenditure as filed before him came to a conclusion that the assessee company was not doing any business during the previous year. Therefore, the AO was of the view that the entire expenditure on various heads as claimed by the assessee before him was bogus and ingenuine.
The ld.DR for the revenue has stated that no doubt the assessee company has its own memorandum of association. The object and function of the assessee company was mentioned in the said memorandum of association. But the assessee company was not doing any business during the previous years and the year under consideration. Merely because the object mentioned in the memorandum of association about the business activity it is not mean that the assessee company has done its business activity during the previous years. The assessee has not discharged its primary onus being business carried on by it. The AO has not noticed any business activity of the assessee company.
Having heard the rival submissions and perused the material available on record, we are of the view that there is merit in the submissions of the assessee. As the propositions canvassed by the ld.AR for the assessee are supported by the facts narrated above, he adduced the proof by showing the I.T return for the previous year that the so-called assessee company was in existence. We do not find any force in the submissions of the ld.DR. We find that the memorandum of association of a company is mandate. We find that the AO made the said disallowances on his presumption only on the ground that the assessee company was not engaged in any activity. The assessee has shown before us the object of the company by way of its memorandum of association. The assessee has also demonstrated before us the previous years figures of income and expenditure by way of its P & L account. The M/s. Chatterjee Management Services Pvt.Ltd assessee company since its inception/incorporation i.e on 11-11-1994 has been doing its business. Before us the assessee has also filed the comparative chart of the revenue receipts during the previous and subsequent years. The ld.AR of the assessee has also shown before us the copy of lease agreement of the building, where the company’s registered office is situated. On verification of the documents/evidences as submitted by the assessee before us, we are of the view that there is business activity. We find that the matter in hand requires further examination by the AO. Therefore, it is appropriate to remit the matter/case to his file to examine the details of expenditure and receipts afresh as submitted by the assessee before us. Therefore, we set aside the case to the file of the AO to make the assessment afresh after considering the details of bills, vouchers, evidences, agreements etc. as submitted by the assessee. We have confirmed that the assessee has been doing business activities during the assessment year under consideration and the AO again need not to examine it. We direct the AO to make the assessment afresh based on the evidences/documents as available/ filed/submitted by the assessee.
In the result, the appeal filed by the assessee for the AY 2008-09 is allowed for statistical purposes. Order Pronounced in the Open Court on 19.10-2016