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TMI Blog2012 (5) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... essee had appealed against the order of the Assessing Officer, Ward 10(3), New Delhi for disallowance of salary of Rs.1,00,000/-. 4. The learned CIT(A) has enhanced the income of the appellant by disallowing the expenditure claimed by the appellant by Rs.8,09,391/-. 5. The learned CIT(A) has taken an opinion that the main activity of the company was not for earning income hence he disallowed the 90% of the expenditure claimed by the appellant. The view taken by the learned CIT(A) is his personal view not based on any concrete facts. All the expenditure claimed by the appellant were incurred for the purpose of the business. The learned Assessing Officer disallowed Rs.1.00 lac towards the establishment expenditure as the same was on a higher side in his opinion. The appeal was filed against his order. All the details regarding the expenditure were filed during the course of assessment. No question could be raised about the authenticity of the expenses claimed. But learned CIT(A) ignored this fact and enhanced the disallowances to Rs.9,09,391/- which is not as per the law. What the Act purports to tax is the business profits and business profits are the true profits of a businessman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer ("A.O". in short) noticed that the assessee conducted a daily deposit scheme, where under it accepted deposits on a daily basis from the public. The minimum amount of deposit was Rs.10/- per day with the maturity period of one year. These daily deposits were reflected by way of unsecured loans in the balance sheet. On perusal of profit and loss account, the AO noticed that the assessee earned interest of Rs.1,59,413/- on FDRs with the bank beside interest of Rs.21,500/- from Combined Couriers. The assessee claimed establishment expenses of Rs.3,68,393/- as against Rs. 6,40,648/- in the preceding year. To a query by the AO, as to why these expenses were disproportionate vis-à-vis income earned, the assessee explained that their application for registration as Non Banking Finance Company (NBFC) was rejected by the RBI due to which business of the company declined. However, AO did not accept the submissions of the assessee on the ground that the explanation of the assessee was general and not supported by any evidence. Accordingly, the AO disallowed an estimated amount of Rs.1 lac, out of establishment expenses besides disallowance of 50% of the telephone expenses in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest free loan on which no income has been earned. The motive of the appellant company is not to earn the income on the funds available. The purpose of these activities is not to earn the income. The expenses claimed by the appellant company on these activities are at Rs.11,50,913/- while in the earlier year the expenses were claimed at Rs.13,80,868/-. The income earned by way of interest, hire charges, and from chit funds received and misc. income and profit from venture is only Rs. 276193/- while in the earlier year income was earned at Rs.14,02,280/-. The current year income earned as interest on FDRs and hire charges on the transactions which were completed in the preceding year and also earned income from-chit funds i.e interest income. These incomes are earned only on 5% of funds, which were advanced by the appellant company. Therefore. 95% expenses claimed by the appellant company were not incurred for earning the income. The same have been incurred only for managing the funds for group companies, directors and their relatives. These activities are not being carried out for earning the income. Hence, no interest has been charged by the appellant company. The expenses claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hotel and the vehicles have *to be disposed of according to their requirement. Moreover the vehicles were required for day-to-day operations of the company like to look after the site (land) to liaison with the advocates etc. Hence the company has to maintain the vehicles. Therefore, the expenses were incurred wholly and exclusively for the business. 5. I have considered the submissions made by the appellant company. It is observed that the appellant company has claimed total expenses of Rs.11.50 lakhs against income from interest, hire charges and misc. i.e. income from chit fund amounting to Rs.3.76 lakhs. The expenses claimed by the appellant company are not incidental to the income earned as discussed above. The main source of income was interest income of Rs.1.80 Iakhs out of which interest on FDR of Rs. 6.79 lakhs hire charges Income at Rs.15,530/- and income from chit funds at Rs.79,959/-. The interest income and chit fund income is received against the investment of the funds. It is important to mention here that for earning this income the appellant company has utilized less than 10% off its funds. Remaining 90% funds were given as interest free loans to sister conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has decided in the case of Ram Bhahdur Takur vs. CIT 261 ITR 390 (ker) that where an assessee seeks to deduct from him or its business profit certain items of expenditure the onus of proving that such deductions are permissible is on the assessee. This is patently so when the claims are based on the facts which are exclusively within the knowledge of the assessee. Thus it is for the assessee to plead and prove before the authorities that the expenses were incurred wholly and exclusively for the purpose of the business of the assessee. When the claim for deduction under section 37(1) of the Income-tax Act, 1961 is made by an assessee the A.O. is bound to conduct an inquiry as to whether the assessee satisfies all the requirements of the section before either allowing or rejecting the claim. Therefore, there is no motive to earn the income of the appellant company as the expenses have been incurred for raising funds and also Incurred for management of the funds because the appellant company has itself not charged interest on the advances made to different parties. The claim of the appellant company that the income has been reduced substantially because the Reserve Bank of India ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the assessee could not accept deposits. The company was set up on 1991 as revealed from page 118 of the paper book. To carry on the business of leasing and hire purchase, the company accepted daily deposits. Since 90% of the expenditure was not related to earning interest income or hire purchase income, the ld. CIT(A) was justified in disallowing the said amount. The ld. DR further pointed out that share application money of Rs.28,35,000/- was transferred from the unsecured loans and there was no commercial expediency in advancing the interest free loans to other persons. While referring to decision in Punjab Stainless Steel Inds. vs. CIT, 324 ITR 396(Del.), the ld. DR contended that simply because the AO test checked the books does not imply that the entire expenditure was genuine. As regards visit of the directors to Dubai, the ld. DR relied upon the decision in the case of Trade Wings Ltd.vs. CIT,185 ITR 267(Bom.) and contended that the foreign travel expenses were not related to the business of the assessee for earning interest income, especially when the directors had gone to Dubai to establish a new venture. While referring to page 103 and 104 of the paper book, the ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) disallowed 90% of the expenses of Rs.10,10,743/-on the ground that 90% of the activities were for managing loans and advances of other group concerns and their directors or their relatives. Whether or not the establishment expenses were incurred wholly and exclusively for the purpose of business, there is no finding by the AO. The ld. CIT(A) observed that the expenses claimed by the company towards establishment, foreign travel, depreciation on cars, postage and telephone etc. were not incidental directly or indirectly, for the purpose of earning any income. It is further held by him that foreign travel expenses, insurance and depreciation on cars were claimed without any business activity carried on by the assessee company. Indisputably, the RBI rejected the application of the assessee company for registration as NBFC only in January,2011/- and before that the assessee continued to collect daily deposits or fixed deposits for the public besides having unsecured loans on which interest has been allowed by the lower authorities. Details of daily deposits and fixed deposits as on 31.3.2001 are placed on page 55 to 62 of the paper book. The AO or the ld. CIT(A) did not identify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was paid to the directors in that capacity. Once those facts are found, seldom can the revenue or the court justifiably claim to put itself in the arm-chair of a businessman or in the position of the board of directors and assume the role of ascertaining how much is a reasonable remuneration, having regard to all the circumstances. That is a matter of business expediency and should be wisely left to the businessman concerned or the board of directors. But that is not to say that the revenue or the court should simply take it for granted that once the payment has been as a fact made as remuneration, it is necessarily wholly and exclusively laid out for the purpose of the business. There may be cases where the quantum of remuneration claimed to have been paid is so patently excessive that it may throw doubt at the honesty and purpose of the outgoing. But, as we observed, no such question arises on the facts of this case. We noticed above the point put forward before the Tribunal for the revenue. We do not think that it is a correct approach for the purpose of applying section 10(2)(xv) to determine so much of remuneration has to be allowed as may be justified by so much of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness, the nature of the duties to be performed, and the special aptitude of the employee, future prospects of extension of the business and a host of other related circumstances. The rule that increased remuneration can only be justified if there be corresponding increase in the profits of the employer was erroneous. In CIT vs. City Ahmedabad Spinning and Weaving Manufacturing Co.,207 ITR 427(Guj), it was held that where it is found as a matter of fact that the said expenditure was incurred and it did relate to the business activity of the assessee., merely because the assessee's income, after incurring such expenses, was found to be little or negligible, it cannot be said that the said expenditure became an impermissible deduction. Once it is found that the expenditure was bona fide incurred and that the same related to the business activity, then it would become deductible as the same is permitted by the provisions of law. In the light of view taken in these decisions, we are of the opinion that disallowance of a portion of establishment expenses by the ld. CIT(A) was not justified. 7.2 Adverting now to the claim for deduction of foreign travel expenses, the assessee pleaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may come out. The AO in fact did not disallow this expenditure and the ld. CIT(A) even while holding that expenditure was not incured wholly and exclusively for the purpose of business of the assessee company, disallowed only 90% of the expenses. This approach of the ld. CIT(A) is not in accordance with law. In the absence of any finding that foreign travel expenditure was capital in nature or was incurred for altogether new business, applying normal, prudent businessman's approach, we do not think that the expenses incurred by the assessee on a foreign trip in order to have business collaboration could be said to be not for the purposes of the business of the assessee-company. In view thereof, disallowance of a portion of foreign travel expenses by the ld. CIT(A) was also not justified. 7.3. Now adverting to other expenses on account on depreciation on assets, insurance or postage and telephone as also conveyance, legal aand professional, printing and stationery, auditors' remuneration, repair and miscellaneous expenses, the ld. CIT(A) disallowed 90% of these expenses for reasons mentioned already hereinbefore. In CIT v. Rampur Timber and Turnery Co. Ltd. [1981] 129 ITR 58, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the assessee was maintaining the establishment and waiting for the improved market conditions in arecanuts and there was nothing to show that he completely abandoned or closed the business forever, the business must be deemed to be continuing". In the light of this legal position, it follows that unless the business is abandoned or closed and even if business is at a dormant stage waiting for proper market conditions to develop, the expenditure incurred in the course of such a business is to be allowed as deduction. A similar view was taken in ITO vs. Mokul Finance Ltd.,110 TTJ (Del.) 445. 7.4 As regards decision in Punjab Stainless Steel Inds.(supra), we are of the opinion that reliance by the ld. DR on this decision is totally misplaced, same having been rendered in the context of disallowance of interest on borrowed funds attributable to interest free funds advanced by the assessee in that case. Similarly the decisions in Elmer Havell Electrics and Others (supra) and Accelerated Freeze Drying Co. Ltd.(supra) were rendered in the context of disallowance of interest in relation to interest free funds advanced to a sister concern. In the instant case, the issue of disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces dated 18.12.2006 and 20.12.2006 fixing the hearing on 22.12.2006 and 8.1.2007 respectively in connection with the levy of penalty for concealment. On 8.1.2007 Sh. Sunil Trehan, CA filed POA and the question of levy of penalty u/s 271(1)(c), proceedings for which hazs been initiated by my predecessor in an appellate order dated 25.2.2004 (A.No.127/03-04), has been discussed. Hearing got adjourned to 16.1.2007 on which date one Sh. C.N. Mathur attended the office with POA Sh. Mathur requested for adjournment and accordingly granted for 12.2.2007. Today on 12.2.2007 again a letter has been filed for adjournment but the same has been rejected as on an earlier occasion also the date was given as per/the convenience of the learned AR. Time and again seeking adjournment shows that/the appellant is not really interested in representing the case to support it view points against levy of penalty u/s 271(1)(c). In these circumstances, I do not have any other option but to rely on the appellate order dated 25.2.2004 passed by my learned predecessor. The appellate order has been gone through and it is noticed that the appellant has been receiving interest free loans as well as advancing int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. ACIT, 265 ITR 562 (SC) held that ordinarily, penalty cannot stand if the assessment itself is set aside. Where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee, has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled. Hon'ble Delhi High Court in the case of CIT vs. R.Dalmia,(1992)107 Taxation 107, held that no penalty survives after deletion of additions, forming the basis for the levy of penalty. Since the very basis upon which the penalty has been imposed does not exist in view of aforesaid order in ITA No. 2410/Del./2004, we are of the opinion that penalty levied in relation to the additions upheld by the ld. CIT(A) does not survive and impugned orders are, therefore, set aside. With these observations, ground no.1 in the appeal is allowed. 13. No additional ground having been raised in terms of the residuary ground no.2 in the appeal, accordingly, this ground is dismissed. ITA No. 1781/Del./2009 14. Coming now to appeal against an order dated 12.2.2007 u/s 154 of the Act of the learned CIT(A), at the outset, we noticed that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. But the ld. AR did not explain the circumstances leading to such belief and made only a perfunctory and general statement. It is not the law when an application seeking condonation of delay is filed by a party, Court must invariably condone the delay, irrespective of whether sufficient cause is shown or not. The conduct of the assessee before us reflects that the right granted under law to challenge the order was abandoned. No material has been placed before us, evidencing that the assessee was under the belief that appeal was not required to be filed against the order dated 12.2.2007 u/s 154 of the Act and when and how that belief was shaken. No evidence has been filed by the assessee as to when the assessee was advised and who advised to file appeal belatedly nor any affidavit in support has been filed. There is nothing to suggest that the assessee was diligent in pursuing the matter after the order u/s 154 was passed. In these circumstances, there being no sufficient cause for delay of 778 in filing the appeal, the appeal can not be admitted. Regarding 'sufficient cause', in the case of Gopal Films vs. CIT and others, 237 ITR 655(Kar) it was held by the Hon'ble Court that 'W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as under: "Law of limitation may harshly affect a particular party but it has to be applied with all its rigour when the statute so prescribes and the courts have no power to extend the period of limitation on equitable grounds. The discretion exercised by the High Court, was, thus, neither proper nor judicious. The order condoning the delay cannot be sustained. This appeal, therefore, succeeds and the impugned order is set aside. Consequently, the application for condonation of delay filed in the High Court would stand rejected and the miscellaneous first appeal shall stand dismissed as barred by time. No costs." 16.4 The ITAT, in the case of Sri Venkatesa Paper and Boards Ltd. vs. DCIT,98 ITD 200, held that in granting indulgence and condonation of delay, appellate authority must be satisfied that there had been diligence on the part of the appellant. In the instant case, there is no material before us, establishing diligence on the part of the assessee, even when specific opportunity was allowed to the assessee. 16.5 In the case of Vinay Extraction (P) Ltd. v. Vijay Khanna [2004] 271 ITR 450 (Guj), it was held by the Hon'ble High Court that "It is true that the apex court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that "14. At this juncture, we have to be guided by the judgment reported in [1990] 1 LLN 457 in the case of T.N.M. BANK LTD. v. APP. AUTY., SHOPS ACT. In that particular case, the Division Bench of this court has held that, ".................. We are of the view that the question of limitation is not merely a technical consideration. Rules of limitation are based on principles of sound policy and principles of equity. Is a litigant liable to have a Damocles' sword hanging over his head indefinitely for a period to be determined at the whims and fancies of the opponent?" In that decision, this Court has held that the delay of 285 days in preferring the appeal could not be condoned. It was held that the condonation of delay was not justified on facts and evidence of the case. As rightly pointed out that the Rules of limitation are based on principles of sound public policy and principles of equity. Though there is no presumption that the delay is occasioned deliberately or on account of culpable negligence, if the admitted facts in that case are taken note of, there is no doubt that the delay on the part of the appellant is deliberate and the appellant is clearly guilty of cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. Accordingly, the prayer for condonation of delay is rejected." 17. In the instant case also, the asseessee seems to be quite negligent by not taking the necessary steps for filing the appeal within the time prescribed by the statute. The conduct of the assessee reveals that the assessee takes the condonation of delay provision as granted. The assessee did not care to submit any request for condonation of delay, even when it was brought specifically to their notice. In granting the indulgence and condoning the delay, it must be proved beyond the shadow of doubt that the assessee was diligent and was not guilty of negligence whatsoever. The sufficient cause within the contemplation of the limitation provision must be a cause which is beyond the control of the party invoking the aid of the provisions. In the case of Ramlal v. Rewa Coalfields Ltd., AIR 1962 SC 361, the Hon' ble Apex Court held that the cause for the delay in filing the appeal, which by due care and attention, could have been avoided, cannot be a sufficient cause within the meaning of the limitation provision. The rule of limitation also contains a rule of justice, especially where a person chooses not to take ..... 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