2023 (3) TMI 1340 - AT - Income Tax

Jurisdiction of Single Member Bench of the Income Tax Appellate Tribunal - Monetary limit Rs.50 lakhs for hearing Appeal - appeals where total income determined by AO does not exceed Rs.50 lakhs - question for determination here is as to what is the impression left on the mind by the use of the clause total income as computed by the AO - HELD THAT - It may be noted here that the criterion adopted for determining the jurisdiction of Single Member Bench is not the quantum of addition but the quantum of assessed addition. In the present case, the assessee returned loss of (-)Rs.1,05,73,207/-. AO made addition of Rs.1,06,13,329/- (disallowance of interest at Rs.99,02,829/- and disallowance of expenses at Rs.7,10,500/-) and finally he determined the income of ( ) Rs.40,120/-. Thus, assessed income in this case is only Rs.40,120/- and as such jurisdiction in this case will definitely be of SMC. It is therefore, have to look into only assessed income as stipulated in sub-section (3) of section 255 of the Act, therefore, the argument of ld. D.R. in this case is devoid of merit. Accordingly, this primary objection of ld. D.R. is dismissed. For this purpose, order of this coordinate bench of Tribunal in the case of Cawnpore Textiles Ltd 1990 (6) TMI 88 - ITAT ALLAHABAD-A wherein the Tribunal has taken a similar view on this issue. Delay of 93 days in filing the appeal - reasonable cause in filing the appeal by delay of 93 days - There is a technical defect in the appeals since the appeals were not filed within the period of limitation. The assessee filed an affidavit stating that the appeals were not filed because of the improper service of notice by the Department. The Revenue has not filed any counter-affidavit to deny the allegation made by the assessee. Tribunal is bound to remove the injustice by condoning the delay on technicalities. If the delay is not condoned, it would amount to legalising an illegal order which would result in unjust enrichment on the part of the State by retaining the tax relatable thereto. Under the scheme of Constitution, the Government cannot retain even a single pie of the individual citizen as tax, when it is not authorised by an authority of law. Therefore, if we refuse to condone the delay, that would amount to legalise an illegal and unconstitutional order passed by the lower authority. Therefore, in my opinion, by preferring the substantial justice, the delay of 93 days has to be condoned. Whether delay was excessive or inordinate? - There is no question of any excessive or inordinate when the reason stated by the assessee was a reasonable cause for not filing the appeal. As seen the cause for the delay. When there was a reasonable cause, the period of delay may not be relevant factor When there is sufficient cause for not filing the appeal within the period of limitation, the delay has to be condoned irrespective of the duration/period. In this case, the non-filing of an affidavit by the Revenue for opposing the condonation of delay itself is sufficient for condoning the delay in filing the appeals before the CIT(A). In case the delay was not condoned, it would amount to legalise an illegal and unconstitutional order. The power given to the Tribunal is not to legalise an injustice on technical ground but to do substantial justice by removing the injustice. The Parliament conferred power on this Tribunal with the intention that this Tribunal would deliver justice rather than legalise injustice on technicalities. Therefore, when this Tribunal was empowered and capable of removing injustice, in my opinion, the delay in filing the appeals before the CIT(A) has to be condoned and the appeals of the assessee have to be admitted and disposed of on merit. Thus we condone the delay in filing the appeal before the CIT(A) and remit the issue to the file of the ld. CIT(A) to decide the issue on the merit of the additions made by the Assessing Officer. Since the assessment order was passed ex parte u/s. 144 of the Act, the CIT(A), if required, may call for the remand report from the Assessing Officer and confront the same to the assessee before deciding the appeal. Disallowance of interest payment - A.R. submitted that the averments of the learned Assessing Officer in the order that the interest paid on loan to acquire shares of the promoters is the pre-acquisition cost and should therefore be added to the cost of shares is incorrect - HELD THAT - In the present case there is specific provision in the memorandum that the assessee is permitted to acquire controlling interest as mentioned earlier, cl. 21 in the incidental objects clearly permits the assessee not only to acquire but also to hold shares in any other company. This power to hold shares is enough to permit the company to acquire and hold controlling interest in any other company. In my opinion, as such an activity can itself constitute a business when the real intention of the company is not to earn profit but to acquire and exercise control of the group company. When it is said that the shares were acquired to have controlling interest, it does not necessarily mean that the acquiring company should have majority share holding in the other company. Many group concerns may be holding shares in the other company and all their holdings put together will enable the group as a whole to exercise control on the other company. We observe that it is for the assessee to decide as a businessman as to how much number of shares would be sufficient to control its stake and the motive of the company cannot be to earn profit if, it was to acquire controlling interest, which is the commercial expediency. Thus as given a finding that the business of the assessee is to invest in shares and that the borrowing was for the purpose of business, the entire interest has to be allowed under s. 36(l)(iii) of the Act. Ground of appeal of the assessee allowed. Disallowance being the expense incurred on legal and professional charges debited to P L account - HELD THAT - While adjudicating the earlier ground for making investment in shares is for business activity of the assessee company and it was carried in terms of the object clause mentioned in the Memorandum of Articles of Association and it cannot be considered as acquisition of capital assets. Accordingly, hold that the above expenditure incurred under the head Professional and legal charges to be allowed as expenditure incurred for wholly and exclusively for the purpose of business of the assessee and accordingly, this ground of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Single Member Bench.
2. Condonation of delay in filing the appeal.
3. Disallowance of interest under Section 36(1)(iii).
4. Disallowance of legal and professional charges.
5. Chargeability of interest under Section 234-B.

Issue-wise
Detailed Analysis:

1. Jurisdiction of the Single Member Bench:
The preliminary objection raised by the Department was regarding the jurisdiction of the Single Member Bench (SMC) to hear the appeal, citing that the addition in this case was Rs.1,06,13,329/-. However, as per Section 255(3) of the Income Tax Act, the jurisdiction is determined based on the "total income as computed by the Assessing Officer" not exceeding Rs.50 lakhs. The Tribunal clarified that the assessed income in this case was only Rs.40,120/-, making the SMC competent to hear the appeal. The objection of the Department was dismissed.

2. Condonation of Delay in Filing the Appeal:
There was a delay of 93 days in filing the appeal, attributed to miscommunication between the Senior Managing Director and the Group Managing Director of the assessee company. The Tribunal emphasized the principle of advancing substantial justice and considered the delay reasonable and condonable. The Tribunal relied on several precedents, including the Supreme Court's principles in Collector, Land Acquisition v. Mst. Katiji, which favor a liberal approach towards condonation of delay to ensure justice. The delay was condoned, and the appeal was admitted for adjudication.

3. Disallowance of Interest under Section 36(1)(iii):
The assessee claimed a deduction for interest paid on a loan borrowed for the purpose of acquiring shares. The AO disallowed the interest, arguing that the shares were not allotted in the assessment year under consideration and that the interest was a pre-acquisition cost. The Tribunal, however, found that the investment in shares was made out of commercial expediency and was part of the business activity of the assessee. The Tribunal referred to various judgments, including the Supreme Court's decision in S.A. Builders Ltd. v. CIT, which held that interest on borrowed funds used for business purposes, including investments made out of commercial expediency, is deductible. The Tribunal concluded that the interest paid was for the purpose of business and allowed the deduction under Section 36(1)(iii).

4. Disallowance of Legal and Professional Charges:
The AO disallowed the legal and professional charges incurred for the acquisition of shares, treating them as capital expenditure. The Tribunal, however, noted that the acquisition of shares was part of the business activity of the assessee and not merely an investment in capital assets. The expenditure was held to be incurred wholly and exclusively for the purpose of business and was allowed as a revenue expenditure.

5. Chargeability of Interest under Section 234-B:
The assessee contended that it should not be charged interest under Section 234-B. However, since the primary grounds of appeal were allowed, the Tribunal did not delve deeply into this issue. The interest charge under Section 234-B was not specifically addressed in the final order.

Conclusion:
The appeal of the assessee was allowed in full. The Tribunal condoned the delay in filing the appeal, dismissed the Department's jurisdictional objection, allowed the deduction of interest paid under Section 36(1)(iii), and permitted the deduction of legal and professional charges as revenue expenditure.