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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
स्थधमी रेखध सं./जीआइआय सं./PAN. :AAACR6065R अऩीरधथी ओय से / Assessee by Shri Dhanesh Bafna and Ms.Chandni Shah प्रत्मथी की ओय से/Revenue by Shri Subachan Ram सुनवधई की तधयीख / Date of Hearing : 16.9.2015 घोषणध की तधयीख /Date of Pronouncement: 9.12.2015 आदेश / O R D E R Per BENCH:
These cross appeals relate to the assessment years 2003-04, 2005- 07 and 2006-07 and are directed against the orders passed by Ld CIT(A)- 2, Mumbai. Since identical issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
The assessee is a non-banking financial company engaged in advancing loans and making investments. We shall first take up the 3 ITA No-2511-3168-2512- 3844-2513-3845/Mum/11 appeal filed by the assessee for assessment year 2003-04. The only issue urged on merits relate to the eligibility of the assessee to claim exemption u/s 10(23G) of the Act on the interest income of Rs.7.80 crores. The AO denied the exemption on the ground that the assessee has not earned the interest income out of investment activities, but out of business activities and the Ld CIT(A) also confirmed the same.
Identical issue has been decided in favour of the assessee by the co- ordinate bench of Tribunal in AY 2004-05 in the assessee’s own case in and CO No.243/Mum/2009 in the order dated 18.3.2010 and the same was also followed by the Tribunal in the assessee’s own case in AY 2002-03 in ITA No.2510/Mum/2011 in the order dated 29.10.2014. It was further submitted that the order passed by the Tribunal for AY 2004-05 has since been upheld by the Hon’ble Bombay High Court in its order dated 25.11.2012 passed in ITA No.6983 of 2010. Hence, following the above said order, we set aside the order of Ld CIT(A) and direct the AO to allow exemption u/s 10(23G) of the Act.
We shall now take up the appeal filed by the revenue for AY 2003- 04. The first issue relates to rejecting of the claim of the assessee that the loss arising on sale of investment is a business loss. The Ld CIT(A) has allowed the same by following his order passed for AY 2002-03. The assessee has filed a chart with regard to the stand taken by the revenue with regard to the profit/loss arising on sale of investments. A perusal of the same shows that the assessing officer has accepted the claim of the assessee that the loss arising on sale of investments is a business loss in AY 2000-01, 2001-02, 2004-05 and 2005-06. In AY 2002-03, the AO treated the same as capital loss, but it has been reversed by the Ld CIT(A) and the revenue has accepted the same. We notice that the Ld CIT(A) has allowed the claim in AY 2002-03 by considering the business activities of the assessee. Since the AO has accepted the claim of the assessee in a 4 ITA No-2511-3168-2512- 3844-2513-3845/Mum/11 number of years, we are of the view that the AO was not justified in taking different view in this year. Accordingly, we uphold the order of Ld CIT(A) on this issue.
The next issue contested by the revenue relates to the treatment of leasehold improvements as capital expenditure, which the assessee claimed the same to be revenue expenditure. The Ld CIT(A) allowed the same on observing that the assessee has incurred the expenditure on lease hold premises and no asset has come into existence. Accordingly he directed the AO to allow the same as revenue expenditure. The Ld A.R submitted that an identical issue was considered by the Tribunal in the assessee’s own case relating to AY 2004-05 (referred supra) and was decided in favour of the assessee. Consistent with the view taken therein, we uphold the order of Ld CIT(A) on this issue.
The assessee has also urged a ground challenging the validity of reopening of assessment. Since we have decided all the issues urged in the appeals of both the parties, we are of the view that this ground becomes academic in nature. Accordingly, we decline to adjudicate the same.
We shall now take up the appeals filed for AY 2005-06 by both the parties. The first issue urged in the appeal of the assessee relates to the rejection of claim for exemption u/s 10(23G) of the Act on the interest income. Following the decision taken by us in the earlier paragraphs for AY 2003-04, we set aside the order of Ld CIT(A) on this issue and direct the AO to allow exemption u/s 10(23G) of the Act to the assessee.
The second issue urged by the assessee relates to the assessment of interest arising on “Non Performing assets” on accrual basis. The Ld A.R submitted that this issue is covered by the decision rendered by the 5 ITA No-2511-3168-2512- 3844-2513-3845/Mum/11 Tribunal in the assessee’s own case for AY 2004-05 (referred supra), wherein the Tribunal has decided this issue in favour of the assessee. He further submitted that the decision taken by the Tribunal was in accordance with the decision rendered by the Hon’ble Bombay High Court in the case of CIT Vs. KEC Holdings Limited (ITA No.221 of 2012 dated 11.06.2014). Hence, consistent with the view taken by the Tribunal in the assessee’s own case, se set aside the order of Ld CIT(A) on this issue and direct the AO to delete this addition.
The next issue relates to the rejection of claim of Bad debts written off relating to the TDS certificate not received by the assessee. The Ld A.R submitted that an identical issue was considered by the Tribunal in the case of Indian Products Trading Co Pvt Ltd Vs. ITO (ITA No.4509/Mum/2009 dated 30-09-2010), wherein it was held as under:- “….It is not correct to say that once the debtor has withheld the amount towards TDS, he ceases to be a debtor to the assessee for this amount. The debtor would continue to owe this amount to the account on behalf of and to the credit of the assessee. It is only after the debtor has deposited the TDS with the Government, the assessee cannot claim the amount from the debtor… therefore the amount withheld by the debtor has TDS is certainly due to the assessee and when the assessee writes off this debt as irrecoverable, the same is allowable as deduction u/s 36(1)9vii), applying the ratio of the Apex Court in the case of TRF Ltd (2010- TIOL-15-SC-IT).” In the instant case also, it is stated that the assessee did not receive TDS certificates from the debtor and hence it could not claim credit for the tax deducted at source amount. Accordingly the assessee has written off the TDS amount as irrecoverable. We notice that this issue identical with the issue decided by the Tribunal in the case of Indian Products Trading Co. Pvt Ltd (supra). Following the said decision, we set aside the order of Ld CIT(A) and direct the AO to allow this claim.
6 ITA No-2511-3168-2512- 3844-2513-3845/Mum/11 10. The next issue relates to the adhoc disallowances made out of following expenses:- (a) Business development expenses - 5,78,258 (b) Entertainment expenses - 3,10,606 (c) Advertisement and Publicity - 1,72,647 The assessee had incurred all these expenses in connection with the business promotion. The AO noticed that most of the expenses were in the nature of sponsorship of conferences, sponsorship for dinners, break- fasts, golf tournaments, musical programs, donations to the schools etc. Hence the AO disallowed 30% of business promotion and entertainment expenses and also a portion of expenses out of advertisement and publicity. The Ld CIT(A) also confirmed the same. The Ld A.R placed reliance on the decision of Sayaji Iron & Engg Co. Vs. CIT (253 ITR 749)(Guj) and also other decisions to contend that there is no element of personal expenses in case of private limited companies. However, we notice that the assessing officer has, in addition to the element of personal expenses, also taken the view that they have been incurred for non- business purposes. Before us also, the assessee has failed to establish the business connection in incurring all these expenses. Accordingly we are of the view that some portion of expenses needs to be disallowed to take care of deficiencies, if any, but the disallowance of 30% appears to be on the higher side. Accordingly, in the case of Business development and entertainment expenses, we sustain an addition of 10% of expenses and modify the order of Ld CIT(A) accordingly. In the case of advertisement and publicity expenses, we sustain the addition of Rs.1.00 lakh pertaining to the donation made to Doon School and Dutch National daily and 10% of the remaining portion of the expenses listed out in the table given in page 32 of the assessment order. The order of Ld CIT(A) stands modified accordingly.
7 ITA No-2511-3168-2512- 3844-2513-3845/Mum/11 11. The next issue urged by the assessee relates to the short credit of TDS. We direct the assessing officer to look into it and decide the same in accordance with the law, after giving opportunity of being heard to the assessee.
We shall now take up the appeal filed by the revenue for AY 2005- 06. The first issue relates to the disallowance of “write off of the loan” as irrecoverable. This issue is covered by the decision of the Tribunal rendered in the assessee’s own case for AY 2004-05 (referred supra). Accordingly, we uphold the order of Ld CIT(A) on this issue.
The next issue relates to the disallowance of write off of deposit of RS.46.50 lakhs as irrecoverable. The assessee had given a deposit of Rs.46.50 lakhs to a land lord as deposit in respect of a flat occupied by employees. The land lord refused to repay the same and it was noticed that bankruptcy proceedings have been initiated against him in connection with the loan taken from State Bank of India. Hence the assessee wrote off the rent deposit as irrecoverable. Since the assessee failed to give the details of employee, terms and conditions of employment etc, the AO disallowed the same. Further, the AO also observed that it is a capital loss. The Ld CIT(A) allowed the same by holding that the same is related to the business of the assessee.
Before us, the ld. AR relied upon the decision dated 19.11.2010 rendered by the Co-ordinate Bench of the Mumbai Tribunal in the case of ITO V/s Reliance Engineering Associates Pvt. Ltd in relating to assessment year 2003-04 and submitted that rent deposit paid in respect of accommodation provided to the employees is a trade loss and is allowable under section 28 of the Act. However, we notice that the AO, inter alia, has stated that the assessee has failed to prove that the accommodation, for which the rent deposit of 8 ITA No-2511-3168-2512- 3844-2513-3845/Mum/11 Rs.46.50 lakhs was paid, was hired for the purposes of residence of the employees. Before us also, the assessee did not furnish the relevant details to support the said contention. In our view, the decision rendered by the Co-ordinate Bench of the Tribunal in the case of Reliance Engineering Associates Pvt.Ltd (supra) can be applied only if the assessee proves that the rent deposit was paid in respect of accommodation hired for the staff members. Hence, in the interest of natural justice, we are of the view that the assessee should be provided one more opportunity to prove the same. We shall make it clear that the addition made by the AO shall be sustained, if the assessee fails to prove to the satisfaction of the AO that the concerned accommodation was taken for the residential purposes of staff members of the assessee. The order of ld. CIT(A) on this issue stands modified accordingly.
The next issue relates to disallowance of “out of pocket expenses” incurred in relation to Yes Bank. The assessee claimed a sum of Rs.7,87,500/- as the amount written off, as the expenses incurred jointly with YES Bank could not be recovered from “Yes Bank”. Since, the assessee did not furnish relevant details, the AO disallowed the same.
15.2 Before the ld. CIT(A), the assessee submitted that it had incurred expenses through their employees for an on behalf of “Yes Bank” while executing the joint project which did not materialize ultimately and since the amount was not recoverable from “Yes Bank”, it has been written off. However, we notice that the assessee failed to file details of expenditures, purpose for which it was incurred, how it was incurred and how it was not recoverable from “Yes Bank” and steps taken for recovery of the same etc., either before the AO or before Ld CIT(A). In our view, the relevant details are necessary in order to decide about the allowability of this expenditure. Accordingly, we modify the order of ld. CIT(A) and restore
9 ITA No-2511-3168-2512- 3844-2513-3845/Mum/11 the same to the file of the AO in order to provide an opportunity to the assessee to furnish relevant details. We shall make it clear that the addition made by the AO shall be sustained, if the assessee fails to furnish the details to the satisfaction of the AO.
We shall now take up the appeals for the assessment year 2006-07
The first issue urged by the assessee relates to the claim put forth before the ld.CIT(A) for the first time with regard to amount of Rs.10 lakhs refunded by the assessee. The ld. Counsel submitted that the assessee did not put forth this claim before the AO but made the same for the first time before the ld.CIT(A). However, the ld. CIT(A) declined to adjudicate upon the said claim on the ground that the same is not arising out of assessment order. The ld. Counsel placed reliance on the decision of Hon’ble Bombay High Court in the case of Pruthvi Brokers & Shares Pvt. Ltd [2012] 349 ITR 336 (Bom) and submitted that the additional claim is maintainable before the appellate authority. Accordingly, he prayed that the ground of the assessee may be accepted and the same may be restored to the file of the AO for examining the same. Since, the claim of the assessee is admissible in view of the decision of the Jurisdictional High Court in Pruthvi Brokers & Shares Pvt. Ltd (supra), we admit the same and also restore the same to the file of the AO with a direction to examine it and take appropriate decision in accordance with law.
The next issue relates to the rejection of claim for exemption u/s 10(23G) of the Act on the interest income. Following the decision taken by us in the earlier paragraphs for AY 2003-04, we set aside the order of Ld CIT(A) on this issue and direct the AO to allow exemption u/s 10(23G) of the Act to the assessee.
The next issue relates to the assessment of interest arising on “Non Performing assets” on accrual basis. An identical issue was considered by us in the earlier paragraph in AY 2005-06 and we have deleted the addition by following the decision rendered by the co-ordinate Bench of the Tribunal in assessee’s own case for AY-2004-05(referred supra). Consistent with the view taken therein, we set aside the order of ld. CIT(A) on this issue and direct the AO to delete this addition.
The next issue urged by the assessee relates to short credit of TDS. We direct the AO to look into it and decide the same in accordance with law, after giving opportunity of being heard to the assessee.
We shall now take up the appeal filed by the Revenue.
The first issue relates to the loss on sale of investment. An identical issue was considered by us in the earlier paragraphs in assessment year 2003-04 and we have held that the loss on sale of investment is allowable as business loss. Consistent with the view taken therein, we uphold the order of ld. CIT(A) on this issue.
The next issue relates to disallowance of “out of pocket expenses”. An identical issue was considered by us in the earlier paragraph in AY- 2005-06, wherein, we have restored the same to the file of AO for examining the same afresh. Consistent with the view taken therein, we set aside the order of ld. CIT(A) on this issue and restore the same to the file of AO with a direction to examine the same afresh by duly considering the details, if any, which may be filed by the assessee. We shall make it clear, if the assessee, fails to furnish the relevant details, the addition made by the AO shall be sustained.