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Income Tax Officer, Ward 6(4), New Delhi Vs. M/s Metallica Industries Ltd., 72, Janpath, New Delhi-110001
March, 26th 2015
           IN THE INCOME TAX APPELLATE TRIBUNAL
                 DELHI BENCH `E', NEW DELHI
     Before Sh. G. C. Gupta, Vice President And Sh. N. K. Saini, AM
             ITA No. 358/Del/2012 : Asstt. Year : 2007-08

Income Tax Officer,               Vs M/s Metallica Industries Ltd.,
Ward 6(4),                           72, Janpath,
New Delhi                            New Delhi-110001
(APPELLANT)                          (RESPONDENT)
PAN No. AAACM9033E
            Assessee by : Sh. Ashwani Taneja, Adv.
            Revenue by : Sh. P. Dam Kanunjha, Sr. DR
Date of Hearing : 23.03.2015     Date of Pronouncement : 25.03.2015

                                ORDER
Per N. K. Saini, AM:

       This is an appeal by the department against the order
dated 31.10.2011 of ld. CIT(A)-IX, New Delhi.

2.     Following grounds have been raised in this appeal:

      " 1. The order of the Learned CIT(A) is erroneous &
      contrary of facts & law.

      2. On the facts and in the circumstances of the case,
      the Learned CIT(A) has erred in deleting the
      disallowance of expenses of Rs. 12,04,401/- claimed
      u/s 43, deposit of sales tax of Rs. 12,71,627/- and
      legal expenses of Rs. 1,12,500/- as allowable
      business expenses, despite the fact that the business
      of the assessee was closed down on 28.02.1998, a
                                    2                   ITA No. 358/Del/2012
                                                        Metallica Industries Ltd.

     finding of fact recorded by the ITAT in its own case
     for A.Y. 2003-04.
     2.1 The ld. CIT(A) erred in not appreciating the legal
     principal that business expenses can be allowed only
     when business is being carried out by the assessee
     during the year under consideration. If the business
     is wound up, no expenses relatable to business
     carried out earlier can be allowed against income
     from other heads the year under consideration.

     3. The appellant craves leave to add, to alter, or
     amend any ground of the appeal raised above at the
     time of hearing. "

3.    Facts of the case in brief are that the assessee filed the return of
income on 31.10.2007 declaring a loss of Rs. 22,82,190/-. Later on, the
case was selected for scrutiny. The AO during the course of assessment
proceedings noticed that the assessee had credited income on account of
writing back the provisions made and sundry credits amounting to Rs.
12,26,489/-, against the same it had debited expenses amounting to Rs.
22,92,140/-, resultantly declared book losses of Rs. 10,68,906/- and that
in the computation of income besides other adjustments to arrive at the
taxable income for income tax purposes, it had reduced Rs. 12,04,401/-
on account of sales tax u/s 43B of the Income Tax Act, 1961 (hereinafter
referred to as the Act). The AO observed that the income for the
previous year was computed by the assessee at a loss of Rs. 22,82,190/-
but no reference/confirmation/evidence/justification whatsoever had
been filed for reducing the amount of Rs. 12,04,401/- out of the book
                                     3                   ITA No. 358/Del/2012
                                                         Metallica Industries Ltd.

profits. The AO disallowed the said amount of Rs. 12,04,401/-. The AO
further observed that since the business of the assessee was not in
operation, therefore, he disallowed 1,00,000/- out of salary, sales tax
paid of Rs. 12,71,627/- and legal and professional charges of Rs.
3,47,570/-.




4.   Being aggrieved the assessee carried the matter to the ld. CIT(A)
and submitted that the business of the assessee had been suspended but
had not been closed completely as there were various disputes with
regard to the sales tax liabilities and that the assets and liabilities were
not brought to Nil. It was further submitted that the assessee explained to
the AO that the company was contesting sales tax cases before the Sales
Tax Authorities and had also not paid tax in time which was disallowed
u/s 43B of the Act at the time of assessment of the respective years. It
was stated that ultimately the sales tax was paid in the Financial Years
2005-06 and 2006-07, therefore, it was claimed as allowable expenses. It
was explained that the assessee had paid total sales tax liability of Rs.
24,86,078/- which included sales tax liability of Rs. 12,14,451/- but
wrongly mentioned the figure of Rs. 12,04,401/- in the computation of
income, thus, the liability claimed was lesser by Rs. 10,050/-. It was
specified that current liabilities and provisions including other creditors
amounting to Rs. 41,38,907/- also included sales tax liability payable at
Rs. 12,14,451/- as on 31.03.2006. It was submitted that the sales tax
liability payable u/s 43B of the Act was wrongly disallowed by the AO
                                    4                   ITA No. 358/Del/2012
                                                        Metallica Industries Ltd.

without appreciating the complete facts of the case. It was also stated
that the sales tax liability paid during the year was not an expense other
than the business expense as it was paid only on account of business
done by the assessee. It was further stated that in the profit and loss
account, the assessee had shown compensation and other income
received by it during the year, which were from the same business
against which expenses were claimed and that the assessee had declared
total compensation and other income amounting to Rs. 12,26,489/-, so, it
was wrong to say on the part of the AO that the business was not in
operation.

5.    As regards to the disallowance on account of legal and professional
expenses , the assessee submitted that the AO had not given any specific
reason but made the disallowance by observing that the business was not
in operation and that the justification/evidences were not filed. It was
further submitted that the expenses were incurred for attending the sales
tax matters in Mumbai and for filing charges of annual return with ROC.
The assessee also furnished copy of Form No. 16A to justify the
payments made. The reliance was placed on the following case laws:

     Ø S. R. Koshti 276 ITR 165 (Guj.)
     Ø Snehlata (2004) 192 CTR 50 (J&K High Court)

6.    The ld. CIT(A) also asked the remand report from the AO who
stated that the business of the assessee had been closed down since
                                     5                   ITA No. 358/Del/2012
                                                         Metallica Industries Ltd.

28.02.1998 and the said finding was recorded in the order of the ITAT in
the case of the assessee itself for the assessment year 2003-04. The AO
also mentioned that the income earned in absence of any business
activity was taxable under the head `income from other sources'. It was
further submitted that the items of expenditure which were allowable
while carrying out business did not qualify for deduction while earning
`income from other sources'. The AO opined that the claim u/s 43B of
the Act, sales tax etc. which were purely business related items, could
not be allowed as business itself was closed down and that the
expenditure necessary for maintaining the corporate structure does not
mean expenditure incurred for carrying out a business.

7.   The ld. CIT(A) after considering the submissions of the assessee
and the remand report of the AO observed that it was not a case of the
AO that the amount of sales tax was not paid by the assessee during the
year under consideration and it cannot be said that the sales tax liability
was paid for other than business carried out by the assessee in the earlier
years. The ld. CIT(A) further observed that such liability was mentioned
in the challans, copies of which were filed by the assessee and when the
liability pertained to the earlier years when the business operation were
going on, it could not be said that the expenditure did not pertain to the
business of the assessee. The ld. CIT(A) also mentioned that the
evidences for payment of sales tax liability had been filed by the
assessee during the course of appellate proceedings which had also been
                                    6                   ITA No. 358/Del/2012
                                                        Metallica Industries Ltd.

examined by the AO to whom the same were forwarded. The ld. CIT(A)
allowed the claim of the assess for payment of Rs. 12,04,401/- u/s 43B
of the Act. He also deleted the disallowance amounting to Rs.
12,71,627/- made by the AO by observing that the sales tax liability was
paid by the assessee during the year under consideration. As regards to
the disallowance out of legal and professional expenses, the ld. CIT(A)
observed that in the absence of complete evidences on record, it was
difficult to accept that the entire payments made to the professionals
were related to the business of the assessee i.e. for the purpose of sales
tax litigation and to maintain corporate status. He also observed that it
cannot be said that the assessee did not incur any expenditure under this
head of expense and pointed out that the assessee produced bills for Rs.
1,12,500/-. He, therefore, directed the AO to allow a sum of Rs.
1,12,500/- out of the disallowance of Rs.3,47,570/- and remaining
disallowance was sustained by observing that no comments were offered
on the same by the assessee.

8.   Now the department is in appeal. The ld. Senior DR strongly
supported the order of the AO and further submitted that since the
business of the assessee was closed down. Therefore, the AO rightly
disallowed the expenses and the sales tax claimed by the assessee and
that the ld. CIT(A) was not justified in deleting the disallowances made
by the AO.
                                    7                   ITA No. 358/Del/2012
                                                        Metallica Industries Ltd.

9.    In his rival submissions the ld. Counsel for the assessee reiterated
the submissions made before the authorities below and further submitted
that the AO himself in the assessment order, computed the income from
business. Therefore, the disallowance made by the AO on this basis that
the expenses did not relate to the business of the assessee was not
justified and the ld. CIT(A) rightly deleted the disallowance made by the
AO.

10. We have considered the submissions of both the parties and
carefully gone through the material available on the record. In the
present case it is an admitted fact that the assessee made the payment of
the sales tax during the year under consideration and also pointed out to
the AO that the assessee company was contesting sales tax cases before
the Sales Tax Authorities. In the present case nothing was brought on
record to substantiate that the assessee did not make the payment of the
sales tax liabilities which were outstanding and were disallowed in the
earlier years u/s 43B of the Act and since the assessee furnished the
evidences for making the payments during the year under consideration
which were duly verified by the ld. CIT(A) and no adverse comments
were given by the AO in the remand proceedings, therefore, the
disallowances of Rs. 12,04,401/- and Rs. 12,71,627/- were rightly
deleted by the ld. CIT(A). As regards to the disallowance out of legal
and professional expenses, it is noticed that the AO disallowed the total
claim of the assessee amounting to Rs. 3,47,570/- on the grounds that the
                                       8                    ITA No. 358/Del/2012
                                                            Metallica Industries Ltd.




assessee did not file any evidence and that the business operation were
discontinued by the assessee. In the present case, the assessee furnished
the evidences for making the payments of Rs. 1,12,500/- to the various
legal firms, the bills relating to those expenses were verified by the ld.
CIT(A) and no adverse comment was given by the AO in his remand
report except that the business of the assessee discontinued. In our
opinion the ld. CIT(A) rightly directed the AO to allow the claim to the
extent of Rs. 1,12,500/- for which the assessee produced the evidences
and since these expenses were related to the sales tax litigation and for
maintaining corporate status it can be said that those were related to the
business of the assessee and were rightly allowed. We, therefore, do not
see any valid ground to interfere with the findings of the ld. CIT(A) on
this issue.

11.      In the result, the appeal filed by the department is dismissed.
 (Order Pronounced in the Court on 25/03/2015)

       Sd/-                                             Sd/-
  (G. C. Gupta)                                    (N. K. Saini)
VICE PRESIDENT                                ACCOUNTANT MEMBER
Dated: 25/03/2015
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
                                                     ASSISTANT REGISTRAR

 
 
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