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Income Tax Appellate Tribunal, BENCH : COCHIN
Before: SHRI N. V. VASUDEVAN & Ms. PADMAVATHY S.
Date of hearing : 06.12.2022 Date of Pronouncement : 19.12.2022 O R D E R
Per Padmavathy S, Accountant Member:
The appeal is against the order of CIT(Appeals), National Faceless Assessment Centre, Delhi [NFAC] dated 20.8.2021 for the assessment year 2015-16 on the following grounds:-
“1. The Order of the Commissioner of Income Tax Appeals, National Faceless Appeal Centre is against law, facts and circumstances of the case. 2. The CIT Appeals has erred in holding that no business was carried on by the Appellant during the previous year relevant to the asst year 2015-2016 and disallowing expenditure of Rs 23,68,664/-, inspite of the fact that the Appellant's Sales Turnover of VKGUY Licenses itself was Rs 38,59,923/- and the other income earned was Rs 587936/- . The VKGUY licenses was an additional license same as DEPB licenses and on the transfer of which the Appellant achieved the above sales turnover.
3. The CIT Appeals has erred in not following the Supreme Court decision in the case of Topman Exports Vs CIT 342 ITR 49 , any profit on transfer of DEPB was taxable under the head profits or gains of business or profession. As the Appellant had earned profits and gains of business and profession , the entire business expenses claimed by them including depreciation on assets were allowable deductions.
The CIT Appeals has erred in sustaining the disallowance of overhead expenses and should have appreciated the fact that the Appellant had to maintain all their infrastructure for collecting amounts due to them and for paying off their debts, which was also part and parcel of the business carried on by them.
5. Without Prejudice to the above grounds , if only the administrative expenses were allowable as deduction , the following expenses being part and parcel of administrative expenses should have been allowed in full being business promotion expenses , ECGC premium which had to be incurred till the bank loans were fully repaid , Insurance Charges (Marine), which had to be paid till the entire Export proceeds were collected by the Appellant's Bankers , Sundry expenses and travelling expenses.
6. The CIT Appeals has erred in sustaining the disallowance of 4/5th of the fuel expenses and repairs and maintenance of vehicles and 9/10th of telephone charges made in an hypothetical manner even after admitting that these were administrative expenses. The rationale for determining 4/5th of fuel expenses and repairs and maintenance of vehicles and 9/10th of telephone charges are not allowable deduction has not been mentioned. The disallowances so made without finding out the above irregularities is only on hypothetical grounds and therefore sustainable disallowances.
7. The CIT Appeals has erred in disallowing the entire depreciation claim of Rs 22,87,020/- even after admitting that the administrative expenses are allowable since the business assets have to be maintained by the assessee. The CIT Appeals should have noted that the administrative office building depreciation of which was Rs 15,28,056/- , furniture and fittings , rack , electrical fittings and lightning arrester were all put to use during the year , the depreciation of which was Rs 1,12,573/-was an allowable deduction itself. The motor cars were also put to use for the business purposes of the Appellant and therefore the depreciation on these assets amounting to Rs 78,721/- was also an allowable deduction.
8. The Appellant craves leave to adduce additional grounds at the time of hearing.” 2. The assessee is a firm engaged in the business of processing and exporting of marine products. The assessee filed a return of income for AY 2015-16 on 25.9.2015 declaring a loss of Rs.29,91,054. The case was selected for scrutiny under CASS to verify the interest expenses, sundry creditors, sales turnover mismatch and low income and high loans/advances/investments.
During the course of hearing the AO found that no business was carried out by the assessee during the financial year relevant to AY whereas the assessee has claimed depreciation and other expenses. The assessment was converted into full scrutiny after obtaining necessary approvals.
4. The assessee submitted before the AO that the administrative expenses have to be incurred since the business of the assessee has to be maintained and accordingly should be allowed. The AO did not accept the submissions of the assessee and accordingly disallowed an amount of Rs.23,68,664 towards expenses and an amount of Rs.22,87,020 towards depreciation. Aggrieved, the assessee filed appeal before the CIT(A). The assessee submitted before the CIT(A) that during the year under consideration, the assessee has earned an income from sale of DEPB license which is assessable under the head profits & gains of business or profession and the expenses claimed are incurred towards the business of the assessee and therefore should be allowable. The CIT(A) rejected the contentions of the assessee and held that there was no business activity during the year under consideration and the income is derived only by way of sale of DEPB license for which no business expenditure is incurred by the assessee. The CIT(A) therefore upheld the disallowances made by the AO. Aggrieved, the assessee is in appeal before the Tribunal.
The ld. AR submitted that though there were no marine product export during the year under consideration, the entire infrastructure was to be maintained for facilitating collection of dues, settlement of debts and for sale of DEPB licenses. The actual discontinuation of business took place in the subsequent AY and in this regard, the assessee had already furnished a letter dated 9.10.2015 before the AO. The ld. AR further submitted that the income earned by the assessee is from the sale of DEPB licenses and the Hon’ble Supreme Court in the case of Topman v. CIT, 342 ITR 49 had held that the income derived from sale of DEPB licenses to be assessable under the head profits & gains of business. It is the submissions of the ld. AR that the assessee was compelled to maintain all the infrastructure and facilities to facilitate the sale of DEPB license and therefore the expenses incurred should be allowed as a deduction. With regard to claim of depreciation the ld. AR made similar submissions by stating that the assets had to be maintained for the purpose of business though there was no export during the year.
The ld. DR relied on the orders of lower authorities.
We have heard the rival submissions and perused the material on record. It is an admitted fact that during the year under consideration the assessee has not carried out any business activity with regard to export of marine products. It is noticed that the entire income during the year under consideration is derived from the sale of DEPB licenses. From the records, it is not clear whether the discontinuation of business is temporary or permanent. The contention of the ld. AR that the business infrastructure has to be maintained has to be examined whether there is requirement for such maintenance and whether the business is discontinued temporarily or permanently. Accordingly, we remit the issue back to the AO to examine the facts based on the details furnished by the assessee in support of the claim that the business infrastructure had to be maintained. The assessee is directed to furnish the relevant details and cooperate with the proceedings. It is ordered accordingly.
In the result, the appeal by the assessee is allowed for statistical purposes.
Pronounced in the open court on this 19th day of December, 2022.