TaxTMI 
TaxTMI 
2016 (2) TMI 837
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....d Commissioner of Income Tax (Appeals)-6, Mumbai [CIT (A)] u/s. 250 of the Income-tax Act, 1961 ["Act"], your appellant prefers this appeal, among others, on the following grounds of appeal, each of which is without prejudice to, and independent of, the other: 1. Disallowance of Business Expenditure: 1.1 On the facts and in the circumstances of the case, and also in law, the learned CIT(A) ) erred in partially confirming the disallowance made by the learned AO of 74.82% of all the expenses (including depreciation) debited to the profit & loss account in the ratio of nonbusiness receipts to the total receipts credited to the profit & loss account of the appellant. 1.2 On the facts and in the circumstances of the case, and also in law, the learned CIT(A) failed to appreciate and ought to have held that the AO having accepted that the appellant carried on the business during the year, there was no merit in disallowing the expenses on proportionate basis merely because the activity was negligible. 1.3 On the facts and in the circumstances of the case, and also in law, the learned CIT(A) failed to appreciate that the appellant indirectly carried on th....
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.... Rs. 3,30,741/- vi) Interest on I.T. refund Rs. 19,94,073/- vii) Prior period income Rs. 9,49,219/- viii) Provision for expenses w/back Rs. 1,26,199/- ix) Profit on sale of assets Rs. 1,84,852/- In the profit and loss account, the assessee company has shown net profit of Rs. 29,20,531/- after claiming the following expenses against the income earned:- 1 Employee's remuneration & Other expenses Rs.76,19,053/- 2 Loss on sale of investments Rs.3,59,065/- 3 Interest Rs.4,49,207/- 4 Depreciation, amortization and impairment Rs.19,60,006/- As per the computation of total income filed by the assessee company with the return of income, the assessee company has claimed business loss of Rs. 41,07,788/- and depreciation loss of Rs. 20,30,368/- and set off the losses against the income from house property of Rs. 46,78,892/-. The A.O. asked the assessee company to furnish the activity-wise profit and loss account. In reply, the assessee company submitted that it is not practical to allocate expenses to all the three types of income/activities(investment, rental and other income) and hence it is ....
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....usiness which was initially established by the assessee company and later transferred to WTFL, a 100% subsidiary company for certain strategic business objectives. At that time, the assessee company had a very ambitious business plan of setting up Finishing School in Bangalore as part of its training business which needed substantial funds and in order to procure investments for this venture, private equity was considered as the most favoured source of finance. For this purposes, the assessee company took strategic decision to transfer the DC-Business to WTFL. However, the promoters continued to support this DC-Business which is now carried by WTFL. However, due to certain unforeseen circumstances, the finishing school's ambitious project in Bangalore could not materialize and the entire purpose of transferring the DC-Business to the subsidiary did not yield the expected results. Accordingly the assessee company reversed its earlier decision and merged WTFL with itself w.e.f. 1-4-2009 and thus brought back the DC-Business into its own fold as was being carried on prior to its transfer to WTFL from 24/10/2007 to 31/03/2009 while during this intervening period the business was indire....
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....ess was transferred to the subsidiary company. The assessee company submitted that the expenditure were incurred for the purposes of the business that is carried on by the assessee company. The assessee company relied upon the decision of Hon'ble Supreme Court in the case of Rajendra Prasad Moody 115 ITR 519(SC). Without prejudice, the assessee company submitted that despite lull in the business or no business activity, still the expenses that are necessarily to be incurred in order to maintain corporate entity are to be allowed as business expenditure The A.O. after considering the submissions of the assessee company held that the assessee company despite the fact that the DCBusiness was transferred to the subsidiary company WTFL has not correlated and provided the breakup of expenses incurred against income taxable under various heads and the assessee company has justified the claim of expenses incurred to earn income taxable under various heads. on perusal of the audited annual accounts of the assessee company , the A.O. observed that the assessee company has earned income taxable under various heads of income as under:- Sr No. Particulars of income Amount &n....
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....pany has opted to claim all expenses in relation to various heads of income under the head business only which has resulted into huge and disproportionate claim of expenses under the head business. The assessee company has disallowed a sum of Rs. 1,18,422/- towards property expenses and claimed a sum of Rs. 20,05,239/- as deduction u/s 24 of the Act. Accordingly, the A.O. concluded that the assessee company's claim of expenses under the head business is exorbitant, excessive and unjustifiable and the expenses were allowed amounting to Rs. 26,15,530/- (25.18%) against the business income of Rs. 33,53,596/- (25.18%) and the remaining expenses amounting to Rs. 77,71,800/- were disallowed and added back to the total income of the assessee company vide assessment order dated 29.12.2011 passed by the AO u/s 143(3) of the Act. 5. Aggrieved by the assessment orders u/s 143(3) of the Act dated 29.12.2011 passed by the A.O., the assessee company preferred an appeal before the CIT(A). 6. Before the CIT(A), the assessee company submitted that the A.O. has accepted that during the relevant year the assessee company has carried on business though the activity was not substantial and simila....
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.....2013 passed by the CIT(A), the assessee company is in appeal before the Tribunal. 8. The ld. Counsel for the assessee company submitted that the assessee company is carrying on the business which is continuing , although now the business of financing is meager. The ld. Counsel reiterated the submissions as made before the authorities below which are not repeated for the sake of brevity. The ld. Counsel for the assessee company submitted that the A.O. has allowed business expenses to the extent of 25.18% based upon the proportion of the business income earned by the assessee company in comparison to the total income. The ld. Counsel for the assessee company drew our attention to the orders of the A.O. into the manner in which the AO has apportioned the expenses and the income as under:- Sr No. Particulars of income Amount of income Percentage Business income 1 Interest on loan and inter-corporate deposits 19,47,437/- 2 Misc. income 3,30,741 3 Prior period income 9,49,219....
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.... it has no impact on the assessee's corporate entity, as a holding company and its existence did continue notwithstanding the transfer of the DC business. There is no dispute by the A.O. that the business is continuing. The assessee company relied upon the decision of Hon'ble Supreme Court in the case of S A Builders Limited(supra) and submitted that the ratio of the said decision is directly applicable to the case of the assessee company as the assessee company has deep interest in the subsidiary company and investments are made based on commercial expediency. Accordingly, the ld. Counsel for the assessee company prayed that the expenses should be allowed as the assessee company is carrying on its business. 9. The ld. D.R., on the other hand, submitted that the assessee company is not carrying on any business and business is being carried on by the subsidiary company as the premises are same and the employees must also be same. The assessee company has earned meager income of Rs. 33.53 lacs and the A.O. has rightly disallowed the expenses proportionately. 10. In the rejoinder, the ld. Counsel for the assessee drew our attention to the assessee company's paper book filed with....
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....nce to substantiate that the expenses claimed by the assessee company are not attributable to the business carried on by the assessee company and the disallowance carried on by the assessee company are not correct . The appeal of the assessee company to this extent is accepted and allowed and we order deletion of addition of Rs. 77,71,800/- as made by the AO and confirmed by the CIT(A). We order accordingly. 12. In the result, appeal of the assessee company is allowed. ITA No. 3527/Mum/2013 (Revenue's appeal) 13 The brief facts relating to the issue involved in this appeal are that the A.O. on perusal of the schedule 'Ó' accounting policies and notes forming part of the accounts for the year ended 31-03-2009 observed that Note No. 4(D)(xix) mentioned that the premises was given for use to WTFL without charging rent for next few years. The assessee company was asked to explain as to why no rent was charged from WTFL . The assesse company submitted that WTFL is a wholly owned subsidiary company of the assessee company and the assessee company did not provide an ear marked area to this subsidiary company. The assessee company has allowed the subsidiary company to share....
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.... has taken the area occupied based on the average of percentage of gross income, salary expenses and total expenses as below: Sr.No. Name of the company Gross income in % Salary expenses in % Total expenses % Average% 1 M/s Walchand PeopleFirst Ltd. 9.88 5.02 6.31 7.07 2 M/s Walchand TalentFirst Ltd. 90.12 94.98 93.69 92.93 Based upon the above, 7,07% of area for 4343.40 square feet works out to 307.07 square feet and 92.93% works out to 4036.33 square feet whereby the A.O. held that WTFL has occupied 4036.33 sq. ft. of Construction Building, 1st floor. The A.O. accordingly worked out the deemed rental income under the head income from house property amounting to Rs. 71,57,947/- based on the average rental rates on which similar premises were given on rent in the Building 'Construction House' and added the same to the total income of the assessee company. The A.O. has allowed standard deduction of 30% u/s 24 of the Act and the total addition of Rs. 50,10,563/- was made vide assessment orders dated 29.12.2011 passed u/s 143(3) of the Act. 14. Aggrieved by the assessment orders dated 29.12.2011 ....
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....case of A. Raman & Co. (supra) wherein it has been held that "but the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands: income which he could have, but has not earned, is not made taxable as income accrued to him" therefore, the assessee company contended that the AO was not justified in assessing notional income, i.e. rent in the hands of the assessee company. The CIT(A) after considering the submission of the assessee company and the assessment order observed that the assessee company has not let out the property to its wholly own subsidiary company but has allowed its premises to be used by the subsidiary company. When the property has not been let out, the question of notional rent, does not arise. Further, the assessee company should have charged certain amount for allowing its infrastructure to be used by the subsidiary company as both the companies are separate and distinct entities. But as the assessee company has not charged any amount from its subsidiary company the notional income cannot be assessed as there is no concept of notional income under any other head of....
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....erated its submissions as made before the authorities below which are not repeated for the sake of brevity. 19. We have heard the rival contentions and also perused the material available on record. We have observed that the assessee company was carrying on the business of financing during the impugned assessment year, apart from having income from house property, dividend income, income from sale of investment and miscellaneous income. The assessee company has transferred its business of training to the subsidiary company WTFL w.e.f. 24.10.2007. The assessee company is stated to have deep interest in the subsidiary company. The assessee company has transferred its employees along with the business of training etc. to the subsidiary company and has allowed the subsidiary company to use its office. As per the facts as emerging from the records, no tenancy rights or lease is created by the assessee company in respect of the office premises owned by it in favour of the said subsidiary company. Section 22 & 23 of the Act stipulates that the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to be let from year to year. Thus....
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....nder:- Sr.No. Name of the party Area in sq. ft. Period Rent (Amt. in Rs.) 1 M/s Canara Robeco Asset Management Co. Ltd. 4,343.40 4,343.40 01/04/2008 to 31/03/2009 90,22,510/- 2 M/s Khaitan and Co. 4,343.40 01/04/2008 to 31/03/2009 64,18,755/- TOTAL 1,54,41,265/- Thus, it was observed by the A.O. that the assessee company has received nominal rent from M/s Walchand & Company Pvt. Ltd. of Rs. 35,450/- and the said premises have been let out by M/s Walchand & Company Pvt. Ltd. to M/s Canara Robeco Asset Management for rent of Rs. 90,22,510/-. Similarly, the assessee company has received rent from M/s Walchand & Company Pvt. Ltd. of Rs. 15,055/- and the said premises was let out by M/s Walchand & Company Pvt. Ltd. to M/s Khaitan and Co. and received rent of Rs. 64,18,755/-. The assessee company was asked to furnish the copies of rent agreement entered into with M/s Walchand & Company Pvt. Ltd. In response, the assessee company submitted the details in Tapal. The A.O. observed tha....
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....ses of section 22 of the Act, it is M/s Walchand & Co. Pvt. Ltd. who is the owner of the property leased to them and the rental income earned by M/s Walchand & Co. Private Limited from these premises was offered to tax by them under the head 'income from house property' which is assessed accordingly by the Revenue consistently year after year, hence, the rent received by the assessee company from M/s Walchand & Co. Pvt. Ltd. aggregating to Rs. 50,505/- should be assessed u/s 56 of the Act as income from other sources and Section 56 of the Act stipulate charging of actual income that is earned by the assessee company to be assessed to tax and there is no scope of any notional or hypothetical income being assessed on the ground of alleged fair market rent etc.. The A.O. held that the assessee company, itself mentioned in its submission that they are the legal owner of the premises leased to Walchand & Company Private Limited. Section 23 of the Act provides that for the purpose of Section 22 of the Act, annual value of any property shall be deemed to be: a. the sum for which the property might reasonably be expected to let from year to year. b. Where the property or ....
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....ncome from house property' and the assessee company himself has offered the said rental income correctly under the head 'income from house property' which is accepted by the Revenue. The A.O. accordingly held that the property had been sub-let by tenant who is a related party for Rs. 1,54,41,265/- and the assessee company has not charged rent which the property is reasonably expected to let from year to year and the same is treated as annual value for the assessee company and the same is brought to tax as the amount of Rs. 1,54,41,265/- is adopted as market rent of the premises let out to related party M/s Walchand and Company Private Limited without renewal of agreements , vide assessment orders passed u/s 143(3) of the Act dated 29.12.2011. 22. Aggrieved by the assessment orders dated 29.12.2011 passed by the AO u/s 143(3) of the Act, the assessee company has preferred an appeal before the CIT(A). 23. Before the CIT(A) , the assessee company submitted that M/s Walchand & Company Pvt. Ltd. has already been assessed to tax under the head 'Income from House Property' in respect of the rent received by it u/s 22 of the Act , since the assessment year 2004-05. The assessee compa....
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.... the same represented the market rental value of the said premise's which need to be brought to tax in the hands of the assessee company as per provisions of Section 22 and 23 of the Act. Whereas the ld. Counsel for the assessee company submitted that this building was constructed in the year 1930 by the Walchand Group. It is six storey building. Portion of this building is occupied by the Central Excise Department, Department of Revenue, Government of India since 1939 and they are also paying nominal rent of Rs. 10,452/- per annum for area of 2979 square feet occupied by them which should be taken as bench mark for computing rental income in the hands of the assessee company. The assessee company has given portion of this premises on fourth floor to M/s Walchand & Co. Pvt. Limited vide agreement dated 12-10-1994 for a period of 11 years 11 months . This lease agreement had expired on 11-09-2006 and a letter was issued by the assessee company on 15-01-2009 agreeing to renew the lease for a further period of 11 years and 11 months in response to letter of the lessee dated 05-01-2009 that the renewal shall be executed in due course. The ld. Counsel also submitted that portion of the ....
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....5/-. The property was given on rent since 1994 and the period as per lease agreement was 11 years 11 months and the same was not renewed, although the assessee company has expressed the intention to renew the said agreement vide letter dated 15- 01-2009 in response to the lessee letter dated 05-01-2009. M/s Walchand & Co. Pvt. Ltd. has duly paid the tax on the actual rent of Rs. 1,54,41,265/- received under the head 'income from house property' for which necessary supporting material was brought on record (paper book page 74 to 84) and the same has been accepted by the Revenue in the case of Walchand & Company Private Limited and accordingly framed the assessment order u/s 143(3) of the Act, further income tax return of the assessment year 2009-10 along with the intimation u/s 143(1) of the Act in the case of M/s Walchand and Company Private Limited has also been placed on record in paper book at page 78-86 . As could be seen from the documents filed, the rent received by M/s Walchand & Co. Pvt. Ltd. has been duly subjected to tax and that too under the head 'Income from house property' while the assessee company has received nominal rent from M/s Walchand & Co. Pvt. Ltd. which is ....