2020 (8) TMI 799 - AT - Income Tax

Disallowance of fees paid to ROC - disallowance by the AO by holding that the same was of capital in nature - as alleged by the Ld. AR that out of the total amount part amounts pertains to fee for filing of annual return with the ROC - HELD THAT - We agree with the contention of the Ld. AR that this amount cannot be disallowed. Therefore, we delete the amount of ₹ 5,500/- and since the remaining amount is not pressed, we confirm the remaining amount of ₹ 2,21,000/-. Thus, this ground stands partly allowed. Disallowance on account of expenditure claimed in the profit and loss account - Addition on ground that there was no business activity - as argued by the Ld. AR that out of this amount, amount of ₹ 2,26,500/- is a double disallowance which is covered by ground No. 1 and the business of the assessee was duly set up and merely because there was no expenditure earned by the assessee during the year under consideration, the expenditure could not be disallowed as the expenses were in the nature of administrative expenses - HELD THAT - Having gone through the records, we are in agreement with the contention of the Ld. AR that the amount of ₹ 2,26,500/-, which was pertaining to expenses of ROC, was also a part of total expenditure at ₹ 26,22,677/- and, thus, double disallowance has been made on this account. We accordingly direct deletion of this double disallowance. As perused the profit and loss account and have also considered the submissions made in this regard - perusal of the audited financial statements that investments were made by the company during the year under consideration also as the assessee company is an investment company. Merely because no income/revenue resulted from such activity, it does not mean that the business was not set up or was not in a running condition. It has been held in the following judicial precedents that once the business is set up, the expenditure is allowable - See Western India Vegetable Products Ltd. 1954 (3) TMI 59 - BOMBAY HIGH COURT , Sarabhai Management Corporation Ltd 1991 (8) TMI 6 - SUPREME COURT Similarly, there are judicial precedents to the effect that even if there is no business, expenses incurred for retaining the status of the company are allowable. See GANGA PROPERTIES LIMITED 1989 (5) TMI 10 - CALCUTTA HIGH COURT - Respectfully following the judicial precedents enumerated above we delete the disallowance. Addition as deemed dividend u/s 2(22)(e) - HELD THAT - There are pleadings which were not made before the authorities below. It will be in fitness of things if this issue is restored to the file of the AO to examine and adjudicate this issue afresh after giving proper opportunity to the assessee. The assessee shall be at liberty to produce the documents and rely on pleadings as have been made before us in this respect. Accordingly, ground Nos. 3 4 stand allowed for statistical purposes. Addition being amount of loan taken as unexplained investment u/s 68 - HELD THAT - It is undisputed that the loan was given by M/s. Mega Trading Corporation through banking channel. It is also undisputed that M/s. Mega Trading Corporation is duly assessed to tax. The loan amount is duly reflected in the bank statement of M/s. Mega Trading Corporation which was filed before the AO. It is also undisputed fact that the AO had issued notice u/s 133(6) of the Act to M/s. Mega Trading Corporation which was duly responded to by the said company and the advancing of the loan was confirmed directly by the lender company. It is also evidenced from record that this amount was subsequently refunded by the assessee company to the lender company. Thus, these factual evidences prove the bona fide of the assessee company in this regard and we are unable to subscribe to the view of the lower authorities that this amount remains unexplained. We set aside the order of the Ld. CIT (A) and direct the deletion of this addition. Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of fees paid to ROC.
2. Disallowance of expenditure claimed in the profit and loss account.
3. Addition of deemed dividend under Section 2(22)(e).
4. Addition of credits under Section 68.

Detailed Analysis:

1. Disallowance of Fees Paid to ROC:
Issue: The assessee challenged the disallowance of ?2,26,500/- on account of ROC fees, arguing that ?5,500/- was for filing the annual return, which should not be disallowed.
Judgment: The Tribunal agreed that ?5,500/- paid for filing the annual return could not be disallowed. The remaining amount of ?2,21,000/- was confirmed as disallowed since it was not pressed by the assessee. Thus, this ground was partly allowed.

2. Disallowance of Expenditure Claimed in the Profit and Loss Account:
Issue: The assessee contested the disallowance of ?26,22,677/- on the grounds that no business activity was carried out during the year.
Judgment: The Tribunal noted that ?2,26,500/- was a double disallowance as it was part of the total expenditure already disallowed. It was further observed that the business was set up and expenses were administrative in nature, thus allowable even if no revenue was earned. Citing various judicial precedents, the Tribunal deleted the disallowance of ?26,22,677/-.

3. Addition of Deemed Dividend under Section 2(22)(e):
Issue: The assessee challenged the addition of ?2,90,27,890/- as deemed dividend, arguing that loans from three companies did not constitute deemed dividend.
Judgment: The Tribunal found that several pleadings were not considered by the lower authorities. It was decided to restore this issue to the Assessing Officer (AO) for a fresh examination, allowing the assessee to present additional documents and arguments. Thus, this ground was allowed for statistical purposes.

4. Addition of Credits under Section 68:
Issue: The assessee contested the addition of ?72,00,000/- received as a loan from M/s. Mega Trading Corporation, which was treated as unexplained investment.
Judgment: The Tribunal noted that the loan was given through banking channels, confirmed by the lender, and subsequently repaid. These facts evidenced the genuineness of the transaction. The Tribunal set aside the order of the CIT (A) and directed the deletion of this addition. Thus, this ground was allowed.

Conclusion:
The appeal was partly allowed, with specific disallowances and additions being deleted or remanded for further examination. The Tribunal's decision emphasized the importance of substantiating claims with proper documentation and the necessity of considering all relevant facts and legal precedents.