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IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI `C' BENCH,
NEW DELHI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No. 3158/DEL/2016 [A.Y 2011-12]
The Income tax Officer Vs. Nahar Retail Trading Services Pvt. Ltd
Ward 17(3) [Previuolsy known as Nahar Theatres
New Delhi Pvt Ltd] 402, Ansari Bhawan
16, K.G. Marg, Connaught Place
New Delhi
PAN: AAACN 0194 R
ITA No. 2883/DEL/2016 [A.Y 2011-12]
Nahar Retail Trading Services Pvt. Ltd Vs. The Income tax Officer
[Previuolsy known as Nahar Theatres Ward 17(3)
Pvt Ltd] 402, Ansari Bhawan New Delhi
16, K.G. Marg, Connaught Place
New Delhi
PAN: AAACN 0194 R
(Applicant) (Respondent)
Assessee By : Shri Vishal Kalra, Adv
Shri S.S. Tomar, Adv
Department By : Shri S.N. Meena, Sr. DR
Date of Hearing : 27.01.2020
Date of Pronouncement : 29.01.2020
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ORDER
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
The above two captioned cross appeals by the revenue and
assessee are preferred against the order of the ld. CIT(A) 20, New
Delhi dated 16.03.2016 pertaining to assessment year 2011-12. Since
both these appeals were heard together, these are being disposed of
by this common order for the sake of convenience and brevity.
ITA No. 3158/DEL/2016 [Revenue's appeal]
2. The solitary grievance of the revenue is that the CIT(A) erred in
deleting the addition of Rs. 55,86,303/- made by the Assessing Officer
u/s 24(b) of the Income-tax Act, 1961 [hereinafter referred to as 'the
Act' for short].
3. As can be seen from the quantum involved in the Revenue's
appeal, the appeal has to be dismissed in the light of the CBDT Circular
No. 17/2019 dated 08.08.2019.
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4. The ld. DR vehemently stated that this Circular in not applicable
to the existing appeals as it is prospective in nature.
5. In our considered opinion, the language of the Circular 17/2019
dated 08.08.2019 clearly shows that it has referred to the earlier
Circular 3/2018 and its amendment dated 20.08.2018 vide which
monetary limit for filing of Income tax appeals by the department
before the ITAT, Hon'ble High Court, SLP/and appeals before the
Hon'ble Supreme Court have been specified. It would be pertinent to
refer to the Circular No. 17/2019 which reads as under:
"Circular No. 17/2019
New Delhi. 8th August 2019
Subject: - Further Enhancement of Monetary limits for
filing of appeals by the Department before Income Tax
Appellate Tribunal, High Courts and SLPs/appeals
before Supreme Court - Amendment to Circular 3 of
2018 - Measures for reducing litigation.-
Reference is invited to the Circular No.3 of2018 dated
11.07.2018 (the Circular) of Central Board of Direct Taxes
(the Board) and its amendment dated 20th August. 2018 vide
which monetary limits for filing of income tax appeals by the
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Department before Income Tax Appellate Tribunal. High
Courts and SLPs/appeals before Supreme Court have been
specified. Representation has also been received that an
anomaly in the said circular at para 5 may be removed.
2. As a step towards further management of litigation. it has
been decided by the Board that monetary limits for filing of
appeals in income-tax cases be enhanced further through
amendment in Para 3 of the Circular mentioned above and
accordingly, the table for monetary limits specified in Para 3
of the Circular shall read as follows:
S.No. Appeals/SLPs in IT matters Monetary Limit
(Rs.)
1. Before Appellate Tribunal 50,00,000/-
2. Before High Court 1,00.00.000/-
3. Before Supreme Court 2.00.00,000/-
3. Further, with a view to provide parity in filing of appeals in
scenarios where separate order is passed by higher appellate
authorities for each assessment year vis-a-vis where composite
order for more than one assessment years is passed. para 5 of
the circular is substituted by the following para:
"5. The Assessing Officer shall calculate the tax effect
separately for every assessment year in respect of the
disputed issues in the case of every assessee. If, in the
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case of an assessee, the disputed issues arise in more than
one assessment year, appeal can be filed in respect of such
assessment year or years in which the tax effect in respect
of the disputed issues exceeds the monetary limit specified
in para 3. No appeal shall be filed in respect of an
assessment year or years in which the tax effect is less
than the monetary limit specified in para 3. Further, even in
the case of composite order of any High Court or appellate
authority which involves more than one assessment year and
common issues in more than one assessment year, no appeal
shall be filed in respect of an assessment year or years in
which the tax effect is less than the monetary limit
specified in para 3. In case where a composite order/
judgement involves more than one assessee. each assessee
shall be dealt with separately."
4. The said modifications shall come into effect from the
date of issue of this Circular.
5. The same may be brought to the notice of all concerned.
6. This issues under section 268A of the Income-tax Act,
1961.
7. Hindi version will follow. "
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6. As mentioned elsewhere by Circular 17/2019, the CBDT has
further enhanced the monetary limit for filing of appeals and the same
is amendment to Circular 3/2018. We find that Clause 13 of Circular
3/2018 reads as under:
"The Circular will apply to SLPs/appeals/cross objections
/references to be filed henceforth in Hon'ble Supreme
Court/Tribunal and it shall also apply retrospectively to
pending SLPs/appeals/cross objections/ references.
Pending appeals below the specified tax limits in para 3
above may be withdrawn/not pressed."
7. In light of the above, we are of the considered opinion that
Circular No. 17/2019 shall also apply retrospectively to pending
appeals. In that view of the matter, the appeal filed by the Revenue
stands dismissed.
8. As a result, the appeal of the Revenue stands dismissed.
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ITA No. 2283/DEL/2016 [Assessee's appeal]
9. The solitary grievance of the assessee is that the CIT(A) erred in
confirming disallowance of business expenses of Rs. 16,16,065/- made
by the Assessing Officer u/s 24(b) of the Income-tax Act, 1961
[hereinafter referred to as 'The Act'].
10. On a perusal of the computation of the income vis a vis annual
account of the assessee, the Assessing Officer noticed that the
assessee has returned income from rent. The Assessing Officer further
observed that the assessee did not carry out any business activity and
yet claimed loss of Rs. 16,16,065/- under the head `Income from
business'. The assessee was asked to show cause as to why
expenditure may not be disallowed since there is no business activity.
11. In its reply, the assessee explained that it is engaged in renting
immovable property and for the year under consideration, the assessee
company has incurred the following expenses:
1. Professional & legal charges - 15,49,885/-
2. General expenses - 66,181/-
Total expenses - 16,16,066/-
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12. The Assessing Officer was of the firm belief that since the
assessee has not been engaged in any business activity, therefore,
there is no justification of claim of any expense on account of business
expenses. The Assessing Officer further observed that the assessee has
been allowed statutory deduction under the head `Income from house
property' and, therefore, expenses claimed to the tune of Rs.
16,16,065/- are not allowable expenses and accordingly, disallowed
the same.
13. The assessee carried the matter before the ld. CIT(A) but without
any success.
5. Before us, the ld. counsel for the assessee drew our attention to
the computation of income which is exhibited at pages 24 of the paper
book and pointed out that though for the accounting purpose rental
income has been shown as business receipts, but while computing the
taxable income for the year, rental income has been shown under the
head "Income from house property". The ld. counsel for the assessee
further drew our attention to the details of expenditure incurred which
included professional and legal charges paid to the CA firms for IT
matters and Company Law matters and further audit fees paid to
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statutory bodies. It is the say of the ld. counsel for the assessee that
such expenses are allowable expenses and should be allowed.
6. Per contra, the ld. DR strongly supported the findings of the
Assessing Officer and read the relevant observations/findings of the ld.
CIT(A).
7. We have given thoughtful consideration to the orders of the
authorities below and with the assistance of the ld. counsel for the
assessee, we have considered the relevant documentary evidence
brought on record in the form of paper book.
8. The bifurcation of expenses claimed by the assessee as exhibited
at page 40 of the paper book is as under:
Expense Head Amount
Professional & Legal 1,549,885
**
Charges Expenses
General ## 66,181
Total Expenses 1,616,066
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Prof & Legal Fees - Details Total (Rs)
Party Name
Aneja & Co. Income Tax 1 5,25,000
Parikh & Associates Company Law 13,236
Parikh Parekh & Company Law
5,037
Associates Matters
Company Law 6,612
Subramanian Srinivasan matters
& Associates
Grand Total 1 5,49,885
9. In our considered opinion, a body corporate has to incur certain
expenditure mandatory to maintain its corporate structure. A perusal
of the expenses mentioned hereinabove clearly show that all the
expenses have been incurred for maintaining corporate structure of
the assessee. In our considered view, such expenditure has to be
allowed while computing the income of the assessee. Our this view is
fortified by the decision of the co-ordinate bench in the case of Mokul
Finance Pvt Ltd 29 SOT 11. The relevant findings of the co-ordinate
bench read as under:
"3. The material facts of the case are like this. The assessee is
a domestic company and, in the relevant previous year, it had
income only from interest and dividend. In the course of
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scrutiny assessment proceedings, the AO noticed that no
business activities were carried out by the assessee. He thus
required the assessee to show cause as to "why not the
expenses of the assessee be disallowed as there was no business
activity during the year" and "the income earned be brought to
tax". The assessee submitted that the expenses incurred by the
assessee are only on account of salaries and conveyance to staff
which was required to run the office, and on account of payment
of property tax of the building from which office is run. It was
pointed out that there was no sale and purchase of shares in the
relevant previous year as the stock market was unstable and
market conditions were not stable. There is no dispute about the
fact that in the earlier years, the assessee was engaged in
business of buying and selling shares and its income from this
activity was brought to tax under the head "Business income".
The AO rejected the explanation of the assessee by observing
that as admittedly there was no business activity during the
relevant previous year, no expenses could be allowed. The loss
claimed by the assessee was disallowed, and the business income
was assessed at 'nil'. Aggrieved, assessee carried the matter in
appeal before the CIT(A). The CIT(A) held that the AO has not
doubted genuineness of the expenditure, that the expenditure
was necessary for running the organisation, that it was neither
extravagant nor excessive, and that, therefore, the AO was not
justified in disallowing the same. The AO is aggrieved of the
relief so given by the CIT(A) and is in appeal before us.
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4. Smt. Iyer, learned Departmental Representative, submits
that the CIT(A) was influenced by the factors which were not
relevant to decide whether or not the expenses in question
should be allowed as deduction in computation of business
income. She submits that genuineness of expenditure, on which
emphasis is placed by the CIT(A), is wholly irrelevant in coming
to the conclusion that the expenditure is to be allowed even as
there is no business activity during the relevant previous year.
It is also pointed out that reasonableness of expenditure also
has no bearing on this issue. It is further pointed out that the
reasoning of the CIT(A) is vague and lacks specific and cogent
reasons, germane to the context, for deleting the disallowance
of expenses. Learned Departmental Representative relies upon
Tribunals' order in the case of Adasoft (India) (P) Ltd. v. Dy.
CTT (2006) 9 SOT 31 (Del) in support of the disallowance of
expenditure when business is not in existence. She relies upon
the order of the AO, justifies the same, and urges us to restore
the order of the AO. Dr. Gupta, learned Counsel for the
assessee, supports and justifies the order of the CIT(A). Dr.
Gupta submits that the assessee is a company and the
expenditure incurred by the assessee are minimal expenditure
just to keep the company afloat. It is submitted that the
assessee was not carrying out business activity due to adverse
market conditions, but the assessee being an artificial juridical
person, has to incur expenditure for maintaining its existence
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and for carrying out whatever little activities that the assessee
is involved in. Our attention is invited to Hon'ble Calcutta High
Court's judgment in the case of CTT v. Ganga Properties Ltd.
(1993) 199 LTR 94 (Cal) wherein it is held that even when
company has only earnings income from other sources, the
expenditure incurred by the company for its continued existence
and for retaining clerical staff, secretary and accountant and
other incidental expenses, are allowable deduction. Dr. Gupta
then takes us through the judgment of Hon'ble Punjab and
Haryana High Court in the case of Nakodar Bus Service (P) Ltd.
v. CLT wherein it was held that even when the assessee's
business was discontinued, deduction in respect of salaries paid
to employees was allowable deduction against interest income.
The next judicial precedent he relies upon is a judgment of
Hon'ble Allahabad High Court in the case of CTT v. Rampur
Timber and Turnery Co. Ltd. . In this case, it was held that the
expenditure incurred by a company, for retaining its status as
company and for its continued existence as such, is allowable
deduction, even after discontinuation of business in certain
circumstances. On the strength of these precedents, he
justifies the conclusions arrived at by the CIT(A). His next tier
of defence consists of the proposition that only because no
business activity is carried on in the relevant previous year, and
in the absence of any categorical finding to the effect that
business has closed for good, the AO cannot jump to the
conclusion that the business has ceased. The distinction between
closure of business and suspension of business activity is sought
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to be highlighted and the relevant judicial precedents cited. In
rejoinder, Smt. Iyer accepts that there is no categorical finding
about closure of business, but she adds that the lack of such a
finding cannot mean that expenses are to be allowed even as
there is no business in existence. She reiterates her submissions
and urges us to restore the disallowance made by the AO."
10. Considering the totality of the facts in light of the decision of the
co-ordinate bench [supra] we direct the Assessing Officer to delete the
addition of Rs. 16,16,065/-.
11. Before parting, we find that the Assessing Officer has relied upon
various judicial decisions. A careful perusal of those decisions show
that all the decisions relate to the fact that rental income has to be
assessed under the head `Income from house property'. In the case in
hand, the assessee has itself assessed rental income under the head
"Income from house property'. Therefore, the decision relied upon by
the Assessing Officer/DR would do no good to the revenue.
Accordingly, the ground raised by the revenue is dismissed.
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12. In the result, the appeal of the revenue in ITA No.
3158/DEL/2016 is dismissed and that of the assessee in ITA No.
2883/DEL/2016 is allowed.
The order is pronounced in the open court on 29.01.2020.
Sd/- Sd/-
[KULDIP SINGH] [N.K. BILLAIYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 29th January, 2020.
VL/
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar,
ITAT, New Delhi
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Date of dictation
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dictating Member
Date on which the typed draft is placed before the Other
Member
Date on which the approved draft comes to the Sr.PS/PS
Date on which the fair order is placed before the
Dictating Member for pronouncement
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Date on which the file goes to the Head Clerk
The date on which the file goes to the Assistant Registrar
for signature on the order
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