M/S PUNJAB TOURISM DEVELOPMENET CORPORATION LIMITED,CHANDIGARH vs. DCIT,CIRCLE-1(1), CHANDIGARH

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 21 18/11/2019 in 1st Appeal No. 10371/18-19/AY 2014-15 which is hereinafter referred to as the Impugned order. The original assessment order u/s 143(3) is deleted on 18.11.2016 which was passed by ld. AO DCIT C(1), Chandigarh.

10.1 The Assessee Corporation had filed return of income for AY 2014-15 on 28/09/2015 wherein they had declared total loss of (-) Rs.1,15,89,635/-. The return of income was initially processed u/s 143(1) and subsequently the case was selected for scrutiny. Statutory notice u/s 143(2) was issued on 22.09.2015 which was duly served on the assessee. Subsequently, questionnaire along with statutory notices u/s 142(1) and 143(2) were issued on 09.06.2016. Required details were given. During the course of the Assessment proceedings it was noticed that assessee had debited following expenses in the P&L A/c (i) Rs.7,88,372/- expenses relating to previous year (ii) Expenses for modification of deed:-Rs.12,60,000/-. The explanation of the Assessee Corporation before ld. AO was (i) Expenses relating to previous year incurred during the year under consideration was with regard to ex-employees, litigation expenses of stic travel cases, and Provident Fund cases etc. (ii) Expenses for rectification of conveyance deeds during the year under consideration. The expenses related to legal fee paid and counsels expenses. Accordingly, the Assessee Corporation was called upon to Show Cause as to why (i) Expenses relating to previous year of Rs.7,88,372/- (ii) expenses on modification of deed of Rs.12,60,000/- should be disallowed. The Assessee corporation gave an explanation that expenses are incurred in real terms for the relevant assessment year and that the same has been claimed as an ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 22 expenditure during the year under consideration. Therefore, the Assessee Corporation has not furnished or made a false /wrong claim of its expenses incurred and that the Show Cause Notice be dropped and claim made be allowed as expenses incurred. With regard to Rs. 7,88,372/- the claim of expenses incurred which was disallowed on the Ground that the expenses pertained to the previous year and thus are clearly not allowable as the expenses for the year under consideration. The expenses of Rs. 12,60,000/- (modification of deeds) too was disallowed as there was no evidence in support of the same. In aggregate total disallowance of expenses (supra) was Rs. 20,48,372/-. An amount of Rs. 1658/- as interest on late payment of TDS was too disallowed.

10.2 That during the year under consideration main source of income of Assessee Corporation was Interest from FDRs with SBI (Patiala), HDFC Bank and lease rent from Indian Oil Corporation. Total receipt was Rs. 69,15,921/-. Out of these receipts Rs. 66,78,574/- was on account of income from interest on FDR. As per Profit and Loss account the Assessee Corporation claimed expenses amounting to Rs. 1,86,50,155/- under various heads, aggregating to total 34Heads and out of that against 27headsexpenses of Rs. 64,41,475/- was disallowed due to fact that receipts of Assessee during the year under consideration was “Income from other sources” and business of the Assessee corporation was discontinued one further to earn interest from FDRs from thebanks practically No expenditure was incurred. Assessee company was ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 23 thus disallowed Rs. 32,20,737/- [50% of Rs. 64,41,475/-] and that the same was added back to the income of the Assessee corporation.

10.3 The ld. A.O. computed the total income of the Assessee corporation as (-) Rs. 63,18,868/- in which amount of Rs. 20,48,372/- is added (supra), TDS interest of Rs. 1,658/- (supra) and amount of Rs. 32,20,737/- (supra). The impugned assessment order of the ld. A.O. is dated 18.11.2016, wherein aggregate addition is of Rs. 52,70,767/-(supra amounts). Assessed loss is of Rs. 63,18,868/- against returned loss of (-)Rs. 1,15,89,635/-.

“14.2.1. HELD From above, it is very much clear that the expenditure related to earlier year which crystallized during the year under consideration is eligible for deduction. Nonetheless, on perusal of assessment order, it is observed that the AO has disallowed the expense claimed to be pertained to modification of deed of Rs. 12,60,000/- on the basis that the assessee has failed to submit any evidence of such expenditure. However, even during the appellate proceedings, the assessee has not submitted and documentary evidence and material on record in support to his claim of such expenditure. Further, on addition of Rs.7,88,372/-, assessee claimed that the expenditure incurred on ex-employee litigation and stick travel matters etc. has crystallized in the current financial year. However, it. is observed that during the assessment as well as appellate proceedings, no satisfactory submission and documentary evidence has been filed by the assessee that how these expenses were related to previous year and crystallized in current year. Assessee has failed to appreciate this fact that mere written submissions without any supporting documentary evidence is not sufficient to rebut the disallowance or addition made by the Assessing Officer. Therefore, in view of facts and circumstances of the case, addition of Rs. 20,48,382/- made by the Assessing Officer is hereby upheld and Ground of appeal

No.2 and 3 is dismissed”. 2 “15.2 HELD: Have perused the order of the Assessing Officer and examined the reply of the assessee The issue at hand has been decided by the undersigned on identical facts at Para 5.2. in appellant's own case in ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17

24. Appeal No.10345/18-19/AY 2016-17. By placing reliance on above referred order, and considering the facts that assessee has no intention to revive the business as business is closed and transferred to other Government department, the case laws relied by the assessee are not on identical facts. Hence addition made by the AO of Rs.32,20,737/- is hereby confirmed and the Ground of Appeal

No. 4 is dismissed”. 3. “16.2 HELD. I have perused the order of the Assessing Officer and examined the reply of the assessee. The AO is hereby directed to reconsider the claim of the assessee for carry forward of losses and allow the same if found eligible as per the provisions of Income Tax Act, 1961. Needless to say, if loss is reduced by the AO after making additions to the returned income in the past, the same must be taken care of. This additional ground of appeal is allowed for statistical purposes”.

12. The Assessee Corporation being aggrieved by the aforesaid impugned order of ld. CIT(A) prefers second appeal before this Tribunal and has inter alia raised following Grounds of appeal inform 36 which is as under:-

1. That on the facts and circumstances of the case, the appellate order of the Hon’ble Commissioner of Income Tax Appeals 1, Chandigarh under section 250(6) is not a speaking order.

3. That the Hon’ble Commissioner of Income Tax Appeals 1, Chandigarh has erred in upholding an addition on account of expenses incurred of Rs. 7,88,372/- as expenses related to previous years. 4. That the Hon’ble Commissioner of Income Tax Appeals 1, Chandigarh has erred in upholding the addition of Rs. 32,20,737/- of administrative expenses without correctly appreciating the nature, quantum and reasonableness of the legitimate business expenditure incurred by the State Government undertaking in discharging its statutory and legitimate liabilities in performance of its duties. That the expenditure cannot be disallowed without analyzing the nature and the reasons for the expenditure on the basis of estimates. 5. That the appellant craves leave to add, to alter, to amend or vary from the aforesaid grounds of appeal at or before the time of hearing of the said appeal. Record of Hearing

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 25 13. The hearing in the matter took before this Tribunal when both ld. AR for the Assessee and ld. DR for Revenue were heard on merits. The ld. AR gave brief description of the Assessee corporation which we have already narrated hereinabove. The ld. DR has supported the orders of lower authorities i.e. ld. A.O. / ld. CIT(A).

13.1 The core contention of the ld. AR in respect of ground No.2:- (supra) where there is a disallowance of expenses on account of modification of deed amounting to Rs. 12,60,000/- was that the expenditure is Revenue in nature as ‘rectification of deeds’ erroneously registered in earlier years due to technical defect were carried out during the year under consideration. As the expenditure got crystalized in the year under consideration it should be allowed as per accounting standard of ICAI regarding the accounting standard on expenditure pertaining to previous years. This is a Revenue expenditure which has not been claimed in the years it pertains to and that. Under no circumstances, the provision of the same could have been created in the respective years, it is to be allowed in the year under consideration. It is not an error or omission in the previous year accounts. Hence, same may please be allowed. Reliance on clause 27(6) – guidance note on Tax Audit under section 44AB of the I.T. Act, 1961 was placed which states as under: -

That the expenditure pertaining to previous years is a Revenue expenditure which has crystalized during the relevant year was not to be considered as prior period expenditure to be disallowed. Only errors or omissions in the accounts of earlier years will be prior period items. It was therefore, prayed that it should not be disallowed.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 26 13.2 The ld. AR with regard to ground No.3 which pertains to disallowance of expenses relating to previous years of Rs. 7,88,372/- is concerned inter alia contended that the expenditure of Rs. 7,88,372/- were on “Employee litigation and stock travel matters etc.” which were too got crystalized in the year under consideration and relied upon ICAI Standard and in particular clause 27(6) of guidance note on Tax Audit under section 44AB of the I.T. Act,1961 which is reproduced as above (supra).

13.3 The ld. AR with regard to Ground No.4 which pertains to disallowance of expenses of Rs. 32,20,737/- being 50% of Rs. 64,41,475/- inter alia contended that these are administrative expenses and in all there are 27 Heads under which expenses are incurred. 50% of Rs.64,41,475/- which works out to Rs. 32,20,737/- is disallowed arbitrary and the ld. A.O. has not taken cognizance that expenses incurred are on real time basis and are actual. The ld. Assessing Officer has not appreciated nature, quantum and reasonableness of the expenses actually incurred merely on the premises that business has been discontinued. It was emphatically contended by the ld. AR that these expenses under 27 Heads aggerating to Rs. 64,41,475/- are essential to the Core of the Corporation’s is expenses after disinvestment for the activities of the Corporation which are legally to be performed. The disallowance by 50% is made of Rs. 32,20,737/- 50% of Rs. 64,41,472 on the premise that the only source of income of the Assessee Corporation is from bank interest and lease money of Indian Corporation. Further expenditure incurred of Rs. 64,41,475/- cannot be incurred to earn interest income and ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 27 rent income. The ld. A.O. failed to appreciate that Assessee was a huge public sector enterprise having 25 tourist complexes and few Petrol Pumps in earlier years. The primary motive of business was not profit generation but was promotion of tourism, employment generation and improving the infrastructure of State of Punjab at a very nominal profit. This aspect is ignored by the ld. Assessing Officer. There is no speaking order on the disallowance the expenses incurred are need based as per govt -guidelines and rules. It is not based on whims and fancies. In event the expenditure incurred are not made, the assets, the Court cases, the recovery of money, dues from various persons are not feasible. The remaining assets of the Corporation have to be managed, preserved and looked after till the time government is in a position to either restart or liquidate without too muchloss to the Punjab Govt. State exchequer. The expenses are no held to be excessive or exorbitant on or personal benefit of any individual. These expenses have been incurred for complying with the statutory and business requirements of the corporation. All exposes are legitimate as per government approved norms too. Without prejudice to what is averred and stated it was further contended that even if Punjab Tourism Development Corporation Ltd had no interest income or non-operative income or lease rental income, these expenses under total 27 heads would have to be incurred to maintain the remaining infrastructure, payment of salaries of accountants, chowkidar, employees left, payment of electricity, water bills auditor’s fees, bank charges etc. These expenses have been incurred to ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 28 comply with statutory laws and duties of staff etc. Disallowing 50% of genuine legitimate, business expenditure merely on the premise that the Assessee Cooptation has income from interest and lease rental is not at all logical and acceptable. It is illogical exercise. Reliance was placed on the decision of Coordinate Bench of ITAT Delhi in case of ITO v/s Mokul Finance (P) Ltd. reported in [2009] 29 SOT 11 (Delhi) wherein it was held that – “unless the business is abandoned or closed and even if business market condition is at dormant stage waiting for a proper market condition todevelop, the expenses incurred incourse of such a business is to be allowed as deduction”. Few other orders and judgements of ITAT, High Court, were relied upon. Per contra the ld. DR has fully supported the order of lower authority i.e. ld. Assessing Officer/ ld. CIT(A)/ and has prayed that the same be upheld as it is reasonable fair and just.

Observations, findings and Conclusions

14.1 With regard to disallowance of expenses on account of modification of deed amounting to Rs. 12,60,000/- is concerned which was on account for ‘rectification of deeds’ erroneously registered by the Corporation in earlier years due to technical defects; we are of the considered view basis submission made before us and material placed in paper book that the said expenditure was actually incurred in the year under consideration. The ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 29 expenses crystalized in the year under consideration as and by way of rectification of Deeds executed in earlier years. On page 12 of the paper book which was Profit & Loss account as on 31.3.2014 we notice that sum of Rs. 12,60,000/- is expended for modification of deed. On page 19which is minutes of 144thmeeting of the Board of Directors of the Assessee Corporation we notice that under Item No.144.5 there is an approval of board which stated that “Resoled that the incorrect wording in all the conveyance deeds be got rectified by executing a corrigendum of Conveyance deed in respect of each property sold by the Corporation and that Shri SPS Dhindsa, the Project Coordinator ( Admn.) PHTPB, be and is hereby authorized to approach the Tehsildar / Revenue Authorities for doing the needful”. Further “Resolved that Shri SPS Dhindsa, Project Coordinator (Admn.), PHTPB, be is hereby authorized to sign and execute such papers as he may deem fit to give effect to the above decision of the board”. “The Board decided that Mr. Dhindsa be paid Rs. 5000/- per registry, plus usual TA / DA and other statutory expenses for getting the corrections made in the Conveyance deeds”. On page 21, there is a Chart evidencing expenses of Rs. 12,60,000/-. On page 23 to 25 of paper book photocopy of receipts in support of list is attached.

14.2 Basis above we observe and hold that amount of Rs. 12,60,000/- is expended towards “modification of deeds” and the same is Revenue expenditure and ought to have been allowed. The order of lower authority is therefore set aside on this score. However, we hold in final analysis that since these documents were never produced before both the lower authorities i.e.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 30 ld. A.O. &CIT(A), we deem it fit and proper that documents now filed before us be only verified and cross checked for its authenticity and genuineness. We further direct the Assessee corporation to produce Hard copies of “rectification deeds” so that their claim is sustained before AO. Save and accept due verification no other exercise would be done. Additional Directions as per para 15 to be followed as directed.

14.3 With regard to disallowance of Rs. 7,83,372/- as expenses related to previous years which was disallowed and added to the returned income. We observe that in response to show cause notice as to why the said expenses be not allowed, the Assessee has failed to offer any plausible explanation with supporting material. There is only a simple explanation by the Assessee Corporation that the expenses of Rs. 7,88,372/- are on ex-employee litigation and stick travel matters etc. which got crystalized in the year under consideration hence should be allowed as Revenue expenditure. We observe that both the lower authorities i.e. ld. A.O. and ld. CIT(A) haveheld that no supporting documents /material evidence have been furnished. In present appeal before us in paper book filed there is no supporting material / evidence under these circumstances we hold that the claim of amount expended has no basis and accordingly we upheld the disallowance and further hold that addition is correctly made and sustained by ld. CIT(A). The claim of Assessee Corporation is rejected on this issue.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 31 14.4 With regard to disallowance ofRs. 32,30,737/- as Administrative expense (50% of Rs. 64,41,475/-), we adopt our observations, findings and conclusion which we have given for identical situation in (supra).

Order

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 32 referred to as the impugned order. The original assessment order u/s 143(3) is dated 30.11.2017 which was passed by Ld. AO DCIT Circle-1(3), Chandigarh.

“23.2 HELD- I have perused the order of the Assessing Officer and examined the reply of the assessee. The issue at hand has been decided by the undersigned on identical facts at Para 5.2 in appellant’s own case in Appeal No. 10345/18-19/AY 2016-17. By placing reliance on above referred order, addition made by the AO of Rs. 32,03,976/- is hereby confirmed and the Ground of Appeal No. 2 is dismissed.” “24.2 HELD: I have perused the order of the Assessing Officer and examined the reply of the assessee. On perusal of the order of Hon'bie High Court of Shimla, it is seen that the assessee entered into an agreement with collaborator on 28.10.1986. As per the agreement, the collaborator was to arrange for the sale of approx. 2000 sq. yards land to the Corporation for construction of Holiday Home. The construction was to be carried out by the collaborator as per the specifications and designs provided by the Corporation, within twenty months. This Holiday Home was being set up by the Corporation to be run on a time share basis for its members. The collaborator could charge the members of the Holiday Home Club for the facilities provided by it. Though the agreement was entered into in the year 1986. the collaborator failed to provide the various facilities. After seven years the facilities were not provided, the Corporation rescinded the contract and took over the possession of the complex in June 1994. Accordingly, thereafter., process of appointment of Arbitrator and passing of award was started and finally settled in the favour of the assessee vide Hon'bie High Court of Shimla's Order dated 05.01.2012. It is observed that the project of construction of Holiday Home started in the year 1986 and fell in dispute in the year 1994. During appellate proceedings the assessee has failed to demonstrate with evidence that which expenses it has incurred during execution of the project from 1986 to 1994. Accordingly the amount of Rs.50,93,087/- received as compensation by the assessee during the year under consideration is just a compensation amount for nonperformance of the contract and cannot be considered as his business income Therefore, this additional Ground of Appeal is hereby dismissed.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 34 20. The Assessee Corporation being aggrieved by the aforesaid impugned order of Ld. CIT(A) prefers second appeal before this Tribunal & has interalia raised following grounds of appeal in Form 36 which are as under:

2. That the Hon’ble Commissioner of Income Tax Appeals 1, Chandigarh has erred in upholding the addition of Rs. 32,20,737/- of administrative expenses without correctly appreciating the nature, quantum and reasonableness of the legitimate business expenditure incurred by the State Government undertaking in discharging its statutory and legitimate liabilities in performance of its duties. That the expenditure cannot be disallowed without, analyzing the nature and the reasons for the expenditure on the basis of estimates.

Record of Hearing 21. The hearing in the matter took place before this Tribunal when both Ld. AR for the assessee and Ld. DR for the Revenue were heard on merits. The Ld. AR gave brief description of the Assessee Corporation which we have already narrated hereinabove. The Ld. DR has supported the orders of lower authorities i.e; Ld. AO / Ld. CIT(A). 21.1 The core contention of Ld. AR in respect of Ground No. 2 wherein there is a disallowance of 50% of the expenditure incurred i.e; 50% of Rs. 64,07,951/- amounting to Rs. 32,03,976/- on the ground that nature of income was not from business as core business, had been discontinued, amounts to blanket disallowance. It was repeated and reiterated that the assessee corporation is a public sector undertaking owned and controlled by the Government of ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 35 Punjab. The main business of the Corporation was of tourism promotion, hotels, tourists complexes in the state of Punjab and a Petrol Pump at Madhopur District Pathankot, Punjab. Due to continuous and excessive losses in the business, the Government of Punjab disinvested in the corporation. The properties of the corporation were either sold or transferred to the Department of Tourism, Government of Punjab. In the A.Y. 2015-16 there is a payable demand of Rs. 15,11,120/- 50% of legitimate expenses of the corporation which has been made which is extremely unreasonable and uncalled for. 21.2 It was interalia contended that disallowance of Rs. 32,03,978/- being 50% of the Expenditure incurred of Rs. 64,07,951/- is harsh. There are in all 25 heads under which the aforesaid expenditure was incurred on real time basis. 21.3 It was once again repeated and reiterated that the Ld. AO & CIT(A) has just not taken cognizance of the fact that all the expenditure incurred under 25 heads in A.Y 2015-16 just cannot be disallowed without appreciating the nature, quantum and reasonableness of the expenses simply on the premises that business has been discontinued. 21.4 It was emphatically argued before us that these expenses are administrative expenses which are essential to the core of the Corporation existence after disinvestment and are towards various activities of the Assessee Corporation.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 36 21.5 The disallowance has been made on the premise that the only source of income of the assessee corporation is from bank interest and lease money of Indian Oil Corporation. Hence expenditure incurred of Rs. 64,07,951/- cannot be incurred to earn interest income and rental income. 21.6 Ld. Counsel emphasized that no speaking orders are passed by authorities below on each head on the disallowances.

21.7 Expenditure incurred is need based. 21.8 Arguments earlier made were repeated and reiterated (supra) 21.9 With regard to Ground No. 3 which pertains to treating compensation received of Rs. 50,38,276/- as non business receipt it was urged that authorities have failed to appreciate that the assessee corporation had filed a suit against a business partner as a result a compensation was received of Rs. 50,93,087/-. The corroborator had not completed his side of the contract signed in the year 1987 and kept on delaying the construction which resulted in the loss of business for some years. The amount of Rs. 50,38,276/- received was not an income from other sources but was a business receipt because of non performance of the contract by the corroborator who was not a contractor ipsofacto. Consequently there was loss of business to the corporation. The Hon’ble High Court of Himachal Pradesh at Shimla awarded this compensation alongwith separate interest on delay for payment of the above amount. Therefore the amount is a business receipt. 21.10 Lastly it was contended that no disallowance of expenditure incurred should be made as ancillary and incidental business activities are still being

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 37 carried on by the assessee corporation. Per contra the Ld. DR has fully supported the orders of the lower authorities i.e; Ld. AO and Ld. CIT(A) and has prayed that the same be upheld as it is reasonable, fair and just. Observations, Findings & Conclusions 22. We now examine the legality, validity and proprietary of the impugned order which is in appeal before us. 22.1 With regard to disallowance of Rs. 32,03,976/- as administrative expenses (50% of Rs. 6407951/-) we adopt our own observations, findings and conclusions which we have given for identical situation in (supra). 22.2 With regard to amount of Rs. 50,38,276/- we hold that same is income of the assessee corporation in pursuance to an arbitration award for breach of contract for which an arbitration award was made on 10.10.2002 which went in favour of assessee corporation and one Kuldeep Kumar Sood challenged the same before High Court of Himachal Pradesh at Shimla under section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the same but his application u/s 34 of Arbitration and Concilation Act, 1996 was rejected vide arbitration case no. 62/2003 dt. 11/11/2019. In the absence of copy of original Arbitration Award before Ld. AO, Ld. CIT(A) and even before us it is indeed difficult to decipher whether the amount of compensation ordered is towards the business income or compensation simplicitor for the breach of contract. We therefore for want of any argument basis the original arbitration award hold that compensation awarded is for the breach of ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 38 contract simplicitor and therefore the income from “other sources” and not a business income as there is no material in justification for that it was for or towards the core business activity of the assesse corporation which indeed resulted in business income loss. We concur with the findings of the Ld. CIT(A) who has held that the compensation received by the assesse corporation was towards the breach of contract only and not a business income. Be that as it may the finding of Ld. CIT(A) in para 24.2 (page 32 / 33 of impugned order) is reasonable fair and just. It is towards non-performance of the contract by the contractor / collaborator. We do not intend to further buttress the observation and findings of the Ld. CIT(A) made in the impugned order. Order 23. In the premises we allow the ground no. 2 where expense of 32,03,976/- as administrative expenses is disallowed. Additions on this count is directed to be deleted. Addition of Rs. 50,38,276/- is however sustained.

IV. Now we shall deal with A.Y 2016-17[In 1st Appeal No.- 10345/18-19/A.Y 2016-17, CIT(A) dated. 15/11/2019] for A.Y. 2016-17 is filed by the assessee corporation as they are aggrieved by order of Ld. CIT(A) dt. 11/01/2019 in 1st Appeal No. 10345/18-19/A.Y. 2016-17 which is hereinafter referred to as the impugned order. The original assessment order u/s 143(3) is dt. 12/12/2018 which was passed by ACIT Cir 1(1), Chandigarh.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 39

26.1 During the year under consideration, the main source of income of company was interest from FDRs with state Bank of Patiala and HDFC Bank and lease rent from Indian Oil Corporation. Further during the year, the Assessee Corporation had total receipts of Rs. 1,64,28,206/- out of these receipts, Rs. 1,12,00,536/- was on account of income from interest of FDRs and receipt of Rs. 50,00,000/- under non operative income. As per P&L Account, the assessee corporation had claimed expenses amounting to Rs. 69,75,254/-. Under total 24 Heads.

26.2 That the claim of the above expenditure was unacceptable due to nature of the receipts of the assessee during the year under consideration that is income from other sources as business of the assessee corporation was discontinued one. To earn interest from FDRs from the bank, practically no expenditure can be incurred. Assessee Corporation was therefore asked to show cause as to why 50% of these expenses claimed should not be disallowed. The assessee corporation made submission dt. 07/12/2018 wherein they interalia contended that (i) the assessee is a 100% Punjab

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 40 Government undertaking (ii) the earlier services and all facilities were meant for general public of India and not any individual, firm, corporate or any business house (iii) Assessee Corporation was not established for profit purpose but for providing facilities to improve tourism in State of Punjab & to provide employment to the youth and people of Punjab (iv) Expenditure incurred are need based and as per Government guidelines and rules. (v) In the events, the expenditure incurred was not made, the assets, the court cases, recovery of money/ dues from various persons is /are not feasible/possible (vi) the assets of the corporation have to be managed, preserved and looked after till the time Government is in a position to either restart or liquidate without too much loss to state of Punjab / State exchequer. (vii) Expenditure incurred are not excessive or exorbitant. They are not for personal benefit of any individual(viii) Expenses incurred are for complying with business requirements, statutory requirement of Assessee Corporation as a corporate legal entity (ix) All expenses under 24 heads are legitimate as per Government approved norms (x) Without prejudice even if assessee corporation had no interest income or non operative income, these expenses would have to be incurred to maintain the infrastructure, payment of salaries of accountants, chowkidar, employees, payment of electricity, water bills, auditor fees, bank charges etc. Further rationale of 50% of genuine legitimate business expenditure to be disallowed merely on the premise that the corporation has income from interest and lease rental is not logical and acceptable position. Reliance was placed on decision of Coordinate Bench ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 41 of ITAT Delhi in case of ITO v/s Mokul Finance (P) Ltd. reported in [2009] 29 SOT 11 (Delhi) and few other orders of ITAT and High Courts. It was finally contended in reply that the business expenditure cannot be disallowed solely on the ground that the assessee corporation has interest income and lease income only. The pertinent factor of nature of expenses, quantum of expenses, safeguarding the assets, carrying on with the fiduciary duties by the employees of the corporation is to be kept in consideration. The expenses incurred are reasonable, not excessive or personal in nature. Hence the disallowance should not be made. 26.3 That the Ld. AO was of the view that no actual business activity was carried out during the year under consideration by the assessee corporation. The business of the assessee is closed one hence these expenses cannot be allowed in the absence of any core business activity. There is no income from business. 26.4. The Ld. AO by an assessment order (supra) disallowed sum of Rs. 34,37,627/- (50% of Rs. 68,75,253/-) and added back to the income of the assessee. Total assessed income was computed as Rs. 1,32,77,807/-.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 42 activity was being carried out by the assessee. The business of the assessec has actually been closed since the past many years. Further, regarding the allowability of the other expenses being claimed by the assessee, it is once again reiterated that in the absence of any business activity, the assessee cannot be allowed these expenses. No income has been earned by the assessee out of business activity either." During the appellate proceedings, the counsel of the assessee submitted that the assessee corporation is a Public Sector undertaking owned and controlled by the Government ofPunjab. Themain, business of the Corporation was of tourism promotion, hotels, tourist complexes in the State of Punjab and a petrol pump at Madhopur, District Pathankot. Punjab. Due to continuous and excessive losses in the business, the Govt of Punjab 3 i sin vested in the Corporation The properties of the Corporation were either sold or transferred to the Department of Tourism. Government of Punjab Before going into the merits of the case let us discuss the provisions of Section 37(1) of Income Tax Act, 1981:

"37. (1) Any expenditure (no! being expenditure of the nature described in sections 30 to 36 and not being in the nature of capita! expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by taw shall not be deemed to /wt.« been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.

Explanation 2-—For the removal of doubts., it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession,w

5.2,1. From above, it is well established that for the purpose of claiming deduction under section 37(1) of the Act, expenditure should be incurred for the purpose of the business which is carried on by the assessee in the previous year and profits of which are to be computed and assessed. However, during the appellate proceedings, assessee has stressed only to justify that the claimed expenditure cannot be disallowed. Though, he failed to explain the nexus between claimed expenditure and the activities performed during the year asthere was no business activity performed during the year. The onus is, therefore, upon the assessee to prove that the assessee in fact, carried out any business activity and the expenditure to the tune of Rs.68,12,209/- had been made for exigency of business, which has not been proved by the assessee through any evidence or material on record during the assessment as well as appellate proceedings Further, the assessee has relied upon various judgments which are inapplicable in this case as the assessee has not even claimed and brought any evidence on record that the company is in the process for revival of business or incurred such expenditure in the expectation that business would be rejuvenated and it would be successful. Moreover, the assessee has stated that the Govt of Punjab disinvested in the Corporation and the properties of the Corporation

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 43 were either sold or transferred to the Department of Tourism. Therefore it is established that the assessee has neither proved any income earned from business nor explained the nexus between claimed expenditure and business activity made during the year under consideration. However, despite the facts discussed above, the Assessing Officer is generous enough to allow the 50% of expenses claimed by the assessee which is fair and reasonable and takes care of routine administrative/fixed expenses. Therefore, after considering the facts of the case. I hereby confirm the addition of Rs.34,37,627/- made by the AO. The Ground ofAppeal No.2 is dismissed..”

1. That on the facts and circumstances of the case, the appellate order of the Hon'ble Commissioner of Income Tax Appeals 1, Chandigarh under section 250 (6) is not a speaking order.

2. That the Hon'ble Commissioner of Income Tax Appeals 1, Chandigarh has erred in upholding the addition of Rs. 34,37,627/- of administrativeexpenses without correctly appreciating the nature, quantum andreasonableness of the legitimate business expenditure incurred by the State Government undertaking in discharging its statutory and legitimate liabilities in performance of its duties. That the expenditure cannot be disallowed without analyzing the nature and the reasons for the expenditure on the basis of estimates.

3. That the appellant craves leave to add, to alter, to amend or vary from the aforesaid grounds of appeal at or before the time of hearing of the said appeal.

Record of Hearing 29. The hearing in the matter took place before this Tribunal when both the Ld. AR for the assessee corporation and the Ld. DR for Revenue were heard on merits of their respective submissions. The Ld. AR gave brief description of the assessee corporation which we have already narrated hereinabove. The Ld. DR has supported the orders of the lower authorities i.e; Ld. AO and Ld. CIT(A).

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 44 29.1 The core contention of Ld. AR in respect of Ground No. 2 (supra) where there is disallowance of expenses incurred amounting to Rs. 34,37,627/- (50% of Rs. 68,75,253/-) was a blanket disallowance which has no logic and basis. The logic canvassed by the Department that there is no business consequently there is no business income. Business is discontinued.Income is by way of interest and lease by not treating the same as business income is unreasonable and cannot be legally sustained. It was contended that expenses incurred are administrative expenses. The lower authorities have not taken cognizance of the fact that the expenditure incurred are on real time basis and are actually incurred. The lower authorities including CIT(A) have not appreciated nature, quantum and reasonableness of the expenses actually incurred, merely on the premises that business has been discontinued. It was vehemently contended by the Ld. AR that expenses under 24 heads aggregating to Rs. 68,75,253/- are essential and vital to the core of the corporation existence. These expenses after disinvestment are for activities of the corporation which are legally to be performed. The disallowance of Rs. 34,57,627/- (50% of Rs. 68,75,253/-) on the premises that the only source of income of the assessee corporation is from bank interest and lease money / non operative income which is not business income. 29.2 The Ld. AR canvassed almost identical contentions which he has canvassed in earlier appeals and are not being repeated herein for sake of brevity.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 45 30. Per contra the Ld. DR has fully supported Ld. CIT(A) impugned order including that of Ld. AO. Observations, Findings and Conclusions 31. We now examine the legality, validity and proprietary of the impugned order which is in appeal before us.

31.1 With regard to disallowance of Rs. 34,37,627/- (50% of Rs. 68,75,253/-) we adopt our observations, findings and Conclusions which we have given for identical situation in particularly inpara 7.1, 7.4 7.5, 7.6 and 7.7.

31.2 We notice that in the impugned order the Ld. CIT(A) has laid much emphasis on section 37 of the Act. Section 37 falls under Chapter IV which deals with computation of total income, part D deals with profits and gains of business or profession (S 28) Section 36 deals with other deductions. Section 37 is general. Section 37 states that any expenditure (not being expenditure of the nature described in Section 30 to 36 and not being in the nature of capital expenditure or personal expenditure of the assessee) laid out or expended wholly and exclusion for the purpose of business or profession shall be allowed in computing the income chargeable under the head “profits & gains of business or profession.”

31.3 Basis above the Ld. CIT(A) has held that it is well established that for the purpose of claiming deduction under section 37(1) of the Act, expenditure should be incurred for the purpose of the business which is carried on by the ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 46 assessee in the previous year and the profits of which are to be computed and assessed. The assessee has not performed any business activities consequently no nexus between claimed expenditure and activities performed as business during the year under consideration. The onus is therefore upon the assessee to prove that the assessee in fact carried out any business activity and expenditure incurred is for exigency of business. There is no evidence that there would be revival of business or incurred such expenditure in the expectation that the business would be rejuvenated and it would be successful. It has been held by him that Government of Punjab has disinvested in the corporation and properties of the corporation were either sold or transferred to Department of Tourism. Therefore it is established that the assessee has neither proved any income earned from business nor explained the nexus between claimed expenditure and business activity made during the year under consideration. CIT(A) in the impugned order has termed 50% of expenses incurred as fair and reasonable with regard to routine administrative / fixed expenses and has termed the act of Ld. AO as generous in this regard.

31.4 In light of above categorical finding we are of the considered view that Revenue has gone by the fact that assessee corporation in order to claim expenditure incurred as allowable expenses must have its business activity in running condition and must earn some income out of its core business activity otherwise expenditure incurred would not be held to be allowable.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 47 31.5 We are of the considered view that the Ld. CIT(A) has erred in law. It is an admitted position that expenses are indeed incurred which are administrative in nature that is why they have allowed 50% otherwise they would not have allowed the same even 50% of amount expended. The fact that they have allowed 50% perse shows that Revenue recognizes administrative expenses incurred by assessee corporation as in relation to business activity of the assessee corporation. They have infact by allowing 50% of expenses towards administration of company have recognized one fact that these expenses are must for very survival of assessee corporation otherwise the assessee corporation as a cooperate entity / separate legal person having a distinct name, and identity would not even survive as a artificial person in law. Revenue thus has recognized at least these expenses are genuine, bonafidely incurred. By allowing 50% and disallowing 50% they have not held balance 50% is disallowed as the same are bogus, not genuine, unreasonable and excessive besides exorbitant. In absence of such finding expressly in the impugned order we hold entire expenditure are for business. Revenue has not held expressly that business is abandoned. We hold that merely because there is no operational Revenue of the assessee corporation from its core activities that perse does not mean and imply that corporate entity has abandoned themselves. Many times factory establishment are closed due to several reasons but fixed and required expenses are incurred, and that Revenue is allowing. If reasoning and logic of ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 48 Revenue is to be followed by disallowing such expenses then enterprise would deteriorate more speedly and public purpose would be defeated.

31.6 Be that as it may the assessee is a body corporate an artificial person and its basis necessity in form of administration expenses must be fulfilled. It cannot be allowed to die or perforced closed as public good would suffer. Further it is upto Government of Punjab being its 100% owner to take a final call as to how what they should do. Revenue should recognize that assesse has some income of its own and is not seeking 100% state funds. They have some legs to stand on its own.

31.7 Reliance was placed on the decision of Coordinate Bench of ITAT Delhi in case of ITO v/s Mokul Finance (P) Ltd. reported in [2009] 29 SOT 11 (Delhi) is correctly made by assessee. We hold that unless business activity is not totally abandoned in stricto senso expenditure incurred by assessee corporation as a separate legal person or artificial person would have to be allowed as these are bare minimum and must for very survival / subsistence. Further, in few cases Corporation has realized their dues too as aforesaid(supra). Would the assessee corporation realized their dues had they ceased to exist legally is left for Revenue to answer. Order 32. The impugned order is set aside and appeal of the assessee is allowed.

ITA 139 to 142/CHD/2020 A.Ys. 2012-13 and 2014-15 to 2016-17 49 2 Punjab Tourism Development Partly Allowed A.Y. 2014-15 Corporation Limited 3 Punjab Tourism Development Partly Allowed A.Y. 2015-16 Corporation Limited 4 ITA No. 142/Chd/2020 Punjab Tourism Development Allowed A.Y. 2016-17 Corporation Limited

Order pronounced in the open court on 18/11/2024.