CHATTERJEE MANAGEMENT SERVICES PVT. LTD.,KOLKATA vs. THE DCIT, CIR-8, KOLKATA, KOLKATA

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

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.“

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.

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.

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:- . ITA No.2940/Mum/2011 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

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.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 9 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd

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 10 ITA No. 610/Kol/2016 M/s. Chatterjee Management Services Pvt.Ltd

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