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TMI Blog2019 (1) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... readjudicate the genuineness and veracity of the loan transactions under consideration after making necessary verification as regards the creditworthiness of the lender parties. Needless to say, the A.O shall afford a reasonable opportunity of being heard to the assessee during the course of the set aside proceedings. Further, the assessee shall remain at a liberty to place on record fresh documentary evidence in order of substantiate the creditworthiness of the parties under consideration. The Ground of Appeal No. 2 8,01,550/- in the hands of the assessee. We thus not finding any infirmity in the orders of the lower authorities, uphold the disallowed of 10% of the total expenses of 80,15,452/-. Disallowance of repairs and maintenance expenditure - Held that:- We though are in agreement with the observations of the lower authorities, that an expenditure which is in the nature of a “capital expenditure” cannot be allowed in the garb of claim of the same by the assessee as a revenue expenditure, but in the absence of any reference to any such “capital expenditure” of 1,00,000/- which had been claimed by the assessee as a “revenue expenditure”, we are unable to persuade ourselves to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the amendment to Sec. 43B. Disallowance u/s 40(a)(ia) - Held that:- The word “Payable” occurring in Sec. 40(a)(ia) refers not only to those cases where the amount is yet to be paid, but would also cover the cases where the amount has actually been paid. In the backdrop of the aforesaid settled position of law, the contention raised by the assessee is dismissed Disallowance of depreciation on car - Held that:- The assessee was duly entitled towards the claim of depreciation on the aforesaid motor car, set aside the order of the CIT(A) and delete the disallowance of depreciation sustained by the CIT(A). Addition u/s 68 - Held that:- The matter as regards the “nature” and “source” of the cash credits aggregating to 2,46,78,611/- appearing in the books of accounts of the assessee requires to be revisited. The matter is set aside to the file of the A.O, who is herein directed to readjudicate the genuineness and veracity of the loan transactions under consideration after making necessary verifications as regards the “nature” and “source” of the aforementioned cash credits. Needless to say, the A.O shall afford a reasonable opportunity of being heard to the assessee during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ama Karthikiyen, D.R ORDER PER RAVISH SOOD, JUDICIAL MEMBER: The present appeals filed by the assessee are directed against the respective orders passed by the Commissioner of Income Tax (Appeals)-9, Mumbai, dated 30.09.2015, which in turn arises from the orders passed by the A.O under Sec. 143(3) of the Income-tax act, 1961 (for short "Act"), dated 08.03.2013 and 29.03.2014 for the A.Y. 2010-11 and A.Y. 2011-12, respectively. As certain common issues are involved in the aforementioned appeals, thus the same are being disposed off by a consolidate order. We shall first take up the appeal of the assesses for A.Y. 2010-11. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal:- "1. On the facts and in the circumstance of the case the learned ACIT was not justified in confirming the addition of ₹ 6,82,963/- u/s. 14A. As the appellant is a stock broker and the dividend has been received by chance. 2. The ACIT has erred in law as well as on facts in confirming the addition of ₹ 2,14,43,635/- u/s 68 in spite of submission of confirmations and other required details from the respective parties. The same additions were made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowances under Sec. 41(1) ₹ 5,57,78,625/- , and assessed the income of the assessee at ₹ 1,93,43,460/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee did not find favour with the same and sustained the aforementioned additions/disallowances made by the A.O. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Learned Authorized Representative (for short "A.R") at the very outset of the hearing of the appeal submitted that the ground of appeal No. 1 is not being pressed. In the backdrop of the concession of the Ld. A.R the Ground of Appeal No. 1 is dismissed as not pressed. 6. The Ld. A.R. assailed the addition of ₹ 2,14,43,635/- made by the A.O in respect of unsecured loans under Sec. 68 of the Act, which thereafter had been substituted by the CIT(A) by an amount of ₹ 2,14,92,800/-. It was submitted by the Ld. A.R that during the course of the assessment proceedings the confirmations of the respective parties was placed on record of the A.O. Further, as per the Ld. A.R the complete income tax c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the CIT(A). The Ld. A.R further submitted that the order of the CIT(A) deleting the adhoc disallowance of 50% of the legal & professional fees had been upheld by the Tribunal while disposing off the appeal of the revenue in the case of the assessee for A.Y. 2009-10 viz. ACIT, Circle-4(2), Mumbai Vs. M/s Parsoli Corporation Ltd. (ITA No. 6526/Mum/2013; dated 25.11.2016). On the basis of his aforesaid contentions, it was averred by the Ld. A.R that no disallowance out of the legal & professional fees was called for in the hands of the assessee. The Ld. A.R further assailed the disallowance of 10% out of total expenses of ₹ 80,15,542/- by the A.O on the ground that the expenses were not verifiable. The Ld. A.R submitted that as truck loads of vouchers were there, thus the assessee had produced sample vouchers for verification by the A.O. It was the contention of the Ld. A.R that the A.O had neither at any stage directed the assessee to produce the remaining vouchers, nor had pointed out any infirmity in either of the vouchers that was produced before him. The Ld. A.R submitted that the A.O without specifically pointing out as to which all vouchers were not verifiable, had t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the addition of ₹ 2,14,43,635/- made by the A.O under Sec. 68 of the Act, which thereafter was enhanced by the CIT(A) to an amount of ₹ 2,14,92,800/-. On a perusal of the order of the CIT(A), it emerges that he had not only upheld the addition of ₹ 2,14,43,635/-, but rather had enhanced the same by an amount of ₹ 49,165/-. We find from a perusal of the records that the assessee had raised unsecured loans aggregating to ₹ 2,14,92,800/- during the year under consideration from the following parties :- Particulars Op. Bal. Additions Repayment Balance (as on 31.03.2010) Parsoli Motors Pvt. Ltd. ₹ 1,10,00,000/- ₹ 44,20,000/- ₹ 5,20,000/- ₹ 1,49,00,000/- Uves Y Sareswala ₹ 20,27,700/- ₹ 1,20,606/- ₹ 3,70,606/- ₹ 17,77,700/- R.J Tradelinks Pvt. Ltd. ₹ 34,16,620/- ₹ 1,33,79,409/- ₹ 73,43,029/- ₹ 94,53,000/- Zafar Y Saraswala ₹ 80,67,700/- ₹ 10,70,000/- ₹ 27,86,684/- ₹ 63,51, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by placing on record the aforesaid documentary evidence had discharged the primary onus as was cast upon it. Further, we find substantial force in the contention of the Ld. A.R that as neither of the creditors was new, and in the previous year they have been taken as genuine, thus the veracity of the loan transactions in the backdrop of the same having duly been confirmed by them would substantially dispel the doubts as regards the same. However, we are also not oblivious of the fact that the creditworthiness of a party in respect of a loan transaction during a year, having been accepted by the revenue in context of a specific transaction, cannot have a precedential value as regards the creditworthiness of the party in respect of another transaction for a different amount in a subsequent year. Thus, acceptance of a loan transaction during a year cannot act as an estoppel, therein debarring the A.O from verifying the creditworthiness of the party in the backdrop of the independent facts involved in a subsequent transaction. Further, we are of the considered view that though the assessee had placed on record the copies of the bank accounts of the respective lenders, however neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e if required could be produced for verification. In order to fortify the veracity of its aforesaid claim of expense, it was submitted by the assessee that the payments towards legal and professional expenses were made through account payee cheques after deduction of tax at source, as and where applicable. Further, it is the contention of the Ld. A.R that a similar adhoc disallowance of 50% of legal and professional expense made by the A.O in the immediately preceding year viz. A.Y. 2009-10 was deleted by the CIT(A), which thereafter was upheld by the Tribunal, vide its order passed in ACIT, Circle-4(2), Mumbai Vs. M/s Parsoli Corporation Ltd. (ITA No. 6526/Mum/2013; dated 25.11.2016) for A.Y. 2009-10. 11. We have deliberated at length on the issue under consideration in the backdrop of the orders of the lower authorities and the contentions advanced by the authorized representatives for both the parties. We find ourselves as being in agreement with the observations of the CIT(A) that as the allowability of the expenses booked by the assessee under the head "legal and professional fees" is a question of fact and not a question of law, thus the mere fact that the same had been allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expense raised by the assessee. However, we are unable to endorse the adhoc 50% disallowance of the legal and professional fees. We find that neither the assessee had been able to successfully substantiate its claim of the aforesaid expense by placing on record irrefutable documentary evidence corroborating the same, nor the A.O had tried to put any effort and justifiably disallow only that part of the aforesaid expenditure which the assessee had failed to substantiate to his satisfaction as having been incurred in the course of its business and allowable under Sec. 37 of the Act. We thus, in all fairness are of the considered view that the matter requires to be revisited by the A.O. The A.O shall during the course of the set aside proceedings verify the genuineness and veracity of the legal and professional fees expense claimed by the assessee in the backdrop of the allowability of the same under Sec. 37 of the Act. We thus restore the matter to the file of the A.O in terms of our aforesaid observations. 12. We shall now take up the disallowance of 10% of various expense of ₹ 80,15,542/- carried out by the A.O, on the ground that the expenses were not verifiable. On appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es leading to a consequential addition of ₹ 8,01,550/- in the hands of the assessee. We thus not finding any infirmity in the orders o the lower authorities, uphold the disallowed of 10% of the total expenses of ₹ 80,15,452/-. The Ground of Appeal No. 5 is dismissed. 14. We shall now take up the disallowance of ₹ 1,00,000/- made by the A.O out of repairs and maintenance expenditure of ₹ 6,83,086/-. We find that though the aforesaid disallowance was made by the A.O on the ground that certain expenses booked by the assessee under the head "repair and maintenance" and claimed as a revenue expenditure were found to be in the nature of a capital expenditure, but thereafter the said adhoc disallowance of ₹ 1,00,000/- was made for the reason that the repair and maintenance expenses were not found to be properly vouched. Thus, on a perusal of the self contradictory observations of the A.O, nothing can be safely gathered as regards the exact basis for making of such disallowance by the A.O. Further, the CIT(A) had upheld the disallowance for the reason that the assessee had failed to prove that no enduring benefit got vested with it on incurring the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee under Sec. 41(1) of the Act. On the basis of his aforesaid observations, the A.O made a cumulative disallowance in respect of the outstanding sundry creditors and outstanding current liabilities of ₹ 5,57,78,625/- (Rs. 1,77,18,856/- + ₹ 3,80,59,769/-). 17. We find that the submissions of the assessee before the CIT(A) that the aforesaid liabilities were outstanding in its books of accounts, and there was nothing available on record from which it could be inferred that the creditors had written off the aforesaid amounts, thus only for the reason that the period of limitation prescribed under the Indian Limitation Act had expired, cannot justifiably prove that there was a cessation of liability in term of Sec. 41(1) of the Act, however, did not find favour with him. Further, the contention of the assessee that as the revenue had failed to prove that "any benefit" in respect of such trading liability was obtained by the assessee by way of remission or cessation thereof, thus no addition under Sec. 41(1) was called for in the hands of the assessee, was also rejected by the CIT(A). 18. We have perused the orders of the lower authorities, and find that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(1) of the Act. Rather, the fact that the assessee which is a public limited company had shown the liabilities under consideration in its "balance sheet" for the year viz. A.Y. 2010-11, though not conclusively, but substantially proves that the same is outstanding. Further, we are of the considered view that before the revenue treats a liability as having been remitted or ceased, it has to be shown that the assessee during the said year had obtained some benefit in respect of such liability. Still further, the term "...and subsequently during any previous year," appearing in the parent Sec. 41(1), clearly reveals that the value of benefit accruing to the assessee on account of remission or cessation thereof, shall be deemed to be profit and gains of business or profession and accordingly chargeable to income tax as the income of that previous year in which the assessee had obtained some benefit in respect of such trading liability, by way of remission or cessation thereof. We thus, are of the considered view that even in case of remission or cessation of a trading liability, the same can be brought to tax in the hands of the assessee only during any such previous year in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground of Appeal No. 7 is allowed for statistical purposes. 21. The appeal of the assessee is partly allowed for statistical purposes. ITA No. 150/Mum/2016 A.Y. 2011-12 22. We shall now take up the appeal of the assessee for A.Y. 2011-12. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal : 1. On the facts and in the circumstance of the case the learned CIT(A) was highly justified in confirming the arbitrary addition of ₹ 17,73,153/- u/s. 14A. As the appellant is a stock broker and the dividend has been received by chance in due course of business. 2. The CIT(A) was highly justified in confirming the arbitrary addition of ₹ 4,30,042/- u/s 36(1)(va) which was paid before the due date of filing of the return. In the assessment year 2010-11 CIT(A) has allowed this ground. 3. The CIT(A) was highly justified in confirming the arbitrary addition of ₹ 2,97,219/- u/s 40(a)(ia) for Transaction Charges paid during the year by your appellant to Stock Exchange and no part remained payable. This ground has been allowed by CIT(A) in the assessment year 2010-11. 4. The CIT(A) was highly justified in confirming the disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec. 68 ₹ 2,46,78,611/- 6. Disallowances of 50% of Legal & Professional fees ₹ 41,65,500/- 7. Disallowances of 10% of various expenses ₹ 8,01,554/- 8. Addition on treatment of business loss as a speculation loss by the A.O ₹ 15,42,375/- , and assessed the loss of the assessee company at ₹ 1,80,78,561/-. 25. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee did not find favour with the same and sustained the aforementioned additions/disallowances made by the A.O. 26. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Ld. A.R submitted that the ground of appeal No. 1 is not being pressed. In the backdrop of the concession made by the Ld. A.R the Ground of Appeal No. 1 is dismissed as not pressed. 27. The Ld. A.R has assailed the addition of ₹ 4,30,042/- made by the A.O under Sec. 36(1)(va). It was submitted by the Ld. A.R that though there was a delay on the part of the assessee in depositing the amount of the employees contribution to ESIC and PF, however, the said respective amounts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may be allowed to be withdrawn. In the backdrop of the concession advanced by the Ld. A.R in context of the Ground of appeal No. 7, the same is dismissed as not pressed. The Ld. A.R adverting to the additional ground of appeal submitted that the A.O had wrongly re-characterized the business loss of ₹ 15,42,375/- claimed by the assessee in its return of income, as a speculation loss under Sec. 73 of the Act. It was averred by the Ld. A.R that involving identical facts, the claim of business loss was accepted by the A.O while framing the assessment for A.Y. 2008-09 and A.Y. 2009-10. Further, it was averred by the Ld. A.R that on appeal the Tribunal while disposing off the cross appeals in the assesses own case for A.Y. 2008-09 and A.Y. 2009-10 had after necessary deliberations restored the matter to the file of the CIT(A), with a direction to adjudicate the same afresh in the light of Explanation to Sec. 73 of the Act. Per contra, the Ld. D.R relied on the orders of the lower authorities. 28. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We shall first advert to the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of an amount of ₹ 2,97,219/- made by the A.O under Sec. 40(a)(ia). On a perusal of the assessment order, it emerges that the A.O being of the view that the assessee while making the payment to the stock exchange for the services provided with regard to transactions in securities through the exchange, had wrongly deducted tax at source under Sec. 194C as against Sec. 194J. In the backdrop of his aforesaid conviction, the A.O disallowed the amount of the transaction charges of ₹ 2,97,219/- under Sec. 40(a)(ia) of the Act. The Ld. A.R submitted that as the amount of transaction charges had been "Paid" and were not "Payable", thus no disallowance under Sec. 40(a)(ia) of the Act was liable to be made. We are unable to accept the aforesaid contention of the Ld. A.R. We find that the aforesaid issue is squarely covered against the assessee by the judgment of the Hon"ble Supreme Court in the case of M/s Palam Gas Service Vs. CIT (2017) 394 ITR 300 (SC). The Hon"ble Apex Court in its aforesaid order had observed that the word "Payable" occurring in Sec. 40(a)(ia) refers not only to those cases where the amount is yet to be paid, but would also cover the cases wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of depreciation of ₹ 4,44,492/- sustained by the CIT(A). The Ground of Appeal No. 4 is allowed. 33. We shall now advert to the addition of ₹ 2,46,78,611/- made by the A.O under Sec. 68 of the Act, which thereafter had been sustained by the CIT(A). We find from a perusal of the records that the assessee had raised unsecured loans aggregating to ₹ 2,46,78,611/- during the year under consideration from the following parties :- Sr. No. Particulars Additions 1. Zafar Yunus ₹ 25,90,000/- 2. Parsoli Motor Works Pvt. Ltd. ₹ 1,64,59,423/- 3. R.J Tradelinks Pvt. Ltd. ₹ 19,45,000/- 4. Salecha Yunus ₹ 13,70,000/- 5. Parsoli Capital Markets ₹ 23,14,188/- Total ₹ 2,46,78,611/- On a perusal of the orders of the lower authorities, it emerges that the assessee is stated to have placed on record the confirmation letters of the aforesaid parties. Further, it is the contention of the Ld. A.R that the very same cash creditors which were disallowed by the A.O while framing the assessment for A.Y. 2009-10, were however on appeal deleted by the CIT(A). It is the claim of the assessee that the aforementioned amounts we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny doubts as regards the genuineness and veracity of the loan transactions under consideration to the satisfaction of the A.O, nor any such exercise for making necessary verifications on the basis of the confirmations placed on record by the assessee had been embarked upon by the A.O. We thus, in all fairness are of the considered view that the matter as regards the "nature" and "source" of the cash credits aggregating to ₹ 2,46,78,611/- appearing in the books of accounts of the assessee requires to be revisited. The matter is set aside to the file of the A.O, who is herein directed to readjudicate the genuineness and veracity of the loan transactions under consideration after making necessary verifications as regards the "nature" and "source" of the aforementioned cash credits. Needless to say, the A.O shall afford a reasonable opportunity of being heard to the assessee during the course of the set aside proceedings. Further, the assessee shall remain at a liberty to place on record fresh documentary evidence in order to substantiate the genuineness and veracity of the loan transactions of the parties under consideration. The Ground of Appeal No. 5 is allowed for statistica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company in the Securities Appellate Tribunal and the Hon"ble High Court of Bombay was liable to be drawn. 37. We have given a thoughtful consideration to the issue as regards the allowability of the legal and professional fees of ₹ 41,65,500/- paid by the assessee in respect of a SEBI related matter, and find substantial force in the claim of the Ld. A.R. We are in agreement with the observations of the lower authorities that as per Explanation 1 of 37(1) of the Act, any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and profession, and no deduction or allowance shall be made in respect of such expenditure. However, we are unable to persuade ourselves to accept the observations of the lower authorities that the expenditure incurred by the assessee in respect of an ongoing suit against it in the Securities Appellate Tribunal and the Hon"ble High Court of Bombay, was liable to be disallowed by bringing the same within the sweep of the Explanation 1 of Sec. 37(1) of the Act. We are of the considered view, that the aforesaid expenditure incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s Parsoli Corporation Ltd. (ITA No. 5804/Mum/2013; dated 25.11.2016). It was submitted by the Ld. A.R, that the Tribunal after deliberating at length on the issue under consideration had set aside the matter to the file of the CIT(A), with a direction to examine the same afresh in the light of Explanation to Sec. 73 of the Act. 39. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the claim of the Ld. A.R that the recharacterization of the business loss of ₹ 14,92,784/- as a speculation loss by the A.O suffers from an infirmity. We are of the considered view, that as per the Explanation to Sec. 73, where any part of the business of a company ([other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital Gains" and "Income from other sources"], or a company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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