2007 (9) TMI 289 - AT - Income Tax

Assessee appeal partly allowed: Reopening of assessment upheld, claims on various expenses allowed.

The appeal filed by the assessee was partly allowed. The reopening of assessment was upheld, but the Tribunal allowed the claims related to the ... Business Income Issues Involved:1. Reopening of assessment under section 147/148 of the Income-tax Act.2. Commencement of the assessee's investment and financing business.3. Allowability of Rs. 1,51,668 incurred on renovation of furniture as revenue expenditure.4. Disallowance of 50% of expenses claimed in respect of payments made to employees.5. Allowability of Rs. 6,21,250 paid to Little & Co. as legal expenses.6. Allowability of Rs. 13,98,467 out of traveling expenses incurred by the assessee.7. Allowability of telephone expenses of Rs. 8,76,195 and miscellaneous expenses of Rs. 3,64,762.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147/148:The assessee challenged the reopening of assessment on two grounds: (i) the pendency of proceedings under section 154; and (ii) reassessment being initiated on account of a change of opinion. The Tribunal held that the Assessing Officer had powers to issue notice under section 148 even though notice under section 154 was issued. However, the Tribunal concluded that the reopening of the assessment was based on a change of opinion, which is not permissible under the law. The Hon'ble Third Member agreed with the Accountant Member that the reopening was justified, leading to the dismissal of this ground.2. Commencement of the Assessee's Investment and Financing Business:The assessee claimed that it had commenced its business of investment and financing. The Tribunal noted that the Board of Directors had passed a resolution on 3-4-1993 to treat ancillary objects as the main objects of the company. The Tribunal held that the assessee was entitled to adopt such a resolution, and the income earned from these activities should be treated as business income. The Hon'ble Third Member agreed with the Judicial Member that the investment and financing business of the assessee had commenced in the assessment year in question.3. Allowability of Rs. 1,51,668 Incurred on Renovation of Furniture as Revenue Expenditure:The Tribunal found that the expenditure was incurred for the renovation of existing furniture and no new asset was brought into existence. Therefore, it was held to be revenue in nature and allowable as such. The Hon'ble Third Member concurred with this view.4. Disallowance of 50% of Expenses Claimed in Respect of Payments Made to Employees:The Tribunal observed that the assessee had provided detailed information about the employees and their salaries. Given that there was no allegation of payments to relatives and considering the nature of the assessee's business, the Tribunal allowed the full claim of salary expenses. The Hon'ble Third Member agreed with the Judicial Member, allowing the expenses in full.5. Allowability of Rs. 6,21,250 Paid to Little & Co. as Legal Expenses:The Tribunal noted that the legal expenses were incurred for fund management agreements and other business-related activities. It was held that these expenses were incurred wholly and exclusively for business purposes and should be allowed. The Hon'ble Third Member agreed with the Judicial Member, allowing the expenses as business expenditure.6. Allowability of Rs. 13,98,467 Out of Traveling Expenses Incurred by the Assessee:The Tribunal found that the traveling expenses were incurred in connection with the assessee's business activities. Complete details were provided, and there was no allegation of personal use. The Tribunal allowed the expenses in full. The Hon'ble Third Member agreed with this view, allowing the expenses.7. Allowability of Telephone Expenses of Rs. 8,76,195 and Miscellaneous Expenses of Rs. 3,64,762:The Tribunal observed that the assessee had provided detailed information regarding these expenses. The disallowances were made on an ad hoc basis without proper justification. The Tribunal allowed the expenses in full. The Hon'ble Third Member agreed with the Judicial Member, allowing these expenses.Conclusion:In view of the majority opinion, the appeal filed by the assessee was partly allowed. The reopening of the assessment was upheld, but the Tribunal allowed the assessee's claims regarding the commencement of business, renovation expenses, employee expenses, legal expenses, traveling expenses, and other business expenses.