2016 (12) TMI 806 - AT - Income Tax

Disallowance on account of accommodation entries - whether the assessee does not have any business activity - Held that - AR has adduced the proof by showing the I.T return for the previous year that the so-called assessee company was in existence. The assessee also produced before us the object clause of the memorandum of Association, date of incorporation, comparative chart of revenue earned by the company and lease agreement where the registered office of the company is situated. All these evidences show that the company was in existence - Decided in favour of assessee Disallowance of expenses on the ground that the assessee company was not engaged in any activity - Held that - The assessee has shown before us the object of the company by way of its memorandum of association. The assessee has also demonstrated before us the previous years figures of income and expenditure by way of its P and L account. The assessee company since its inception/incorporation i.e on 11-11-1994 has been doing its business. Before us the assessee has also filed the comparative chart of the revenue receipts during the previous and subsequent years. The ld.AR of the assessee has also shown before us the copy of lease agreement of the building, where the company s registered office is situated. On verification of the documents/evidences as submitted by the assessee before us, we are of the view that there is business activity.We find that the matter in hand requires further examination by the AO. Therefore, it is appropriate to remit the matter/case to his file to examine the details of expenditure and receipts afresh as submitted by the assessee before us.

Issues Involved:
1. Disallowance of business expenditure claimed by the assessee.
2. Disallowance of bad debts claimed by the assessee.
3. Disallowance of depreciation.
4. Disallowance under section 80G of the Income Tax Act.
5. Assessment of consultancy income under "Income from Other Sources" instead of "Business Income."
6. Refusal to allow carry forward of business losses.
7. Refusal to allow set off of brought forward unabsorbed depreciation.
8. Refusal to allow credit of tax deducted at source (TDS) and advance tax.

Issue-wise Detailed Analysis:

1. Disallowance of Business Expenditure:
The Assessing Officer (AO) disallowed the entire business expenditure claimed by the assessee on the grounds that the assessee company was engaged in accommodation entries and did not carry out any real business activities. The Commissioner of Income-tax (Appeals) [CIT(A)] confirmed this disallowance. However, the Tribunal noted that the assessee had been in existence for several years, regularly filed returns, and provided evidence such as the Memorandum of Association, lease agreements, and comparative charts of revenue. The Tribunal found merit in the assessee's submissions and allowed the grounds of appeal, remitting the matter back to the AO for fresh examination based on the provided evidence.

2. Disallowance of Bad Debts:
The AO disallowed ?6,66,667 claimed by the assessee as bad debts, and the CIT(A) upheld this disallowance. The Tribunal, considering the overall evidence and submissions, directed the AO to reassess the matter afresh, taking into account the details and evidence provided by the assessee.

3. Disallowance of Depreciation:
The AO disallowed ?10,97,669 on account of depreciation, and this was confirmed by the CIT(A). The Tribunal, however, found that the AO's conclusion was based on the presumption of no business activity. It directed the AO to reassess the depreciation claim based on the evidence provided by the assessee.

4. Disallowance under Section 80G:
The AO disallowed ?4,90,000 claimed under section 80G of the Income Tax Act, and the CIT(A) upheld this disallowance. The Tribunal directed the AO to re-examine this disallowance afresh, considering the evidence and details submitted by the assessee.

5. Assessment of Consultancy Income:
The AO assessed ?16,85,400 received as consultancy income under "Income from Other Sources" instead of "Business Income." The CIT(A) confirmed this assessment. The Tribunal, however, found that the assessee had been engaged in business activities and directed the AO to reassess the nature of the consultancy income based on the evidence provided.

6. Refusal to Allow Carry Forward of Business Losses:
The AO refused to allow the carry forward of business losses amounting to ?1,85,90,613. The CIT(A) upheld this refusal. The Tribunal directed the AO to reassess the carry forward of business losses, considering the evidence and details provided by the assessee.

7. Refusal to Allow Set Off of Brought Forward Unabsorbed Depreciation:
The AO refused to allow the set off of brought forward unabsorbed depreciation. The CIT(A) confirmed this refusal. The Tribunal directed the AO to reassess the set off of unabsorbed depreciation based on the evidence provided by the assessee.

8. Refusal to Allow Credit of TDS and Advance Tax:
The AO refused to allow credit of TDS amounting to ?1,69,950 and advance tax of ?2,00,000. The CIT(A) upheld this refusal. The Tribunal directed the AO to reassess the credit of TDS and advance tax based on the evidence and details submitted by the assessee.

Conclusion:
The Tribunal found merit in the assessee's submissions and directed the AO to reassess the various disallowances and assessments afresh, based on the evidence and details provided by the assessee. The appeal filed by the assessee for the assessment year 2008-09 was allowed for statistical purposes.

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