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TMI Blog2020 (3) TMI 1225X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Assessment Year 2010-11 against the order of the CIT - A [7] , New Delhi dated 20/1/2017 wherein the assessee preferred an appeal against the order of The Deputy Commissioner of Income tax , Circle 14 (1) , New Delhi [ The learned assessing officer/ AO] passed under section 143 (3) of The Income Tax Act 1961 [ The Act] on 15 March 2013 wherein the returned loss of assessee of Rs. 2258653756/- as per return dated 8/10/2010 was assessed at Rs. 2054110/-:- "1.0 That on the facts and circumstances of the case, the Ld. CIT(Appeals) was not justified & grossly erred in confirming disallowance of expenditure incurred towards professional fee of Rs. 2,50,00,000/- in computing total income of the appellant. 2.0 That on the facts and circumstances of the case, the Ld. CIT(Appeals) was not justified & grossly erred in confirming the disallowance of interest expenses of Rs. 2,23,03,31,321/- in computing total income of the appellant. 3.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified & grossly erred in holding that no business activity was carried out by the appellant without considering the fact that transaction of purchase of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t carry on any business v. adjustment of brought forward unabsorbed of Rs. 437968/- 6. Assessee preferred appeal before the learned CIT - A. He held that the expenditure claimed as professional charges for investment advisory services of Rs. 25000000/- is not allowable as no business is carried on by the assessee. Similarly, he also confirmed disallowance of deduction of expenditure of interest of Rs. 2230331321/-. He held that interest paid in respect of capital borrowed is not for the purposes of the business. He also dismissed the claim of the assessee that income of Rs. 1528000/- is not business income but income assessable under the head income from house property, as before him the appellant is stated to have received the rental income from Punjab National Bank for provision of ATM machines and except the agreement, no other evidences were furnished. He further held that interest income of Rs. 2982000/- being interest on fixed deposit receipt is chargeable to tax as income from other sources and not as profits and gains of business as claimed by the assessee. However he directed the learned assessing officer to verify the allowability of the brought forward depreciation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red loan and schedule pertaining to unsecured loan in the form of debentures. He also referred to profit and loss account of the company placed at page number [5] of the paper book and referred administrative and other expenditure of Rs. 25025000 has been incurred by the assessee, which are listed at schedule [15]. He further referred to schedule [15] of the profit and loss account wherein the total expenditure of Rs. 2 5025000 has been shown as administrative and other expenditure. He further referred to schedule [6] of the balance sheet wherein the securities of Rs. 13873081/- has been held to be as "current assets‟ of the company. He further referred to schedule [6] to show that assessee has invested in unquoted equity shares of Wireless TT Info services Ltd being 75596524 shares at the face value of Rs. 10/- each. He further referred to notes on account placed at page number 12 to show that the nature of the business of the company is of setting up ATM sites for the banks and providing complete infrastructure in terms of space, power supply, security, ATM machines, air-conditioners and interiors as specified by the bank. He further stated that the stocks acquired by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness activity, which is accepted by the revenue in the subsequent year on sale of shares. Therefore, he was of the view that the learned assessing officer could not have stated that assessee is not carrying on the business. Therefore, he submitted that assessee is carrying on the business and therefore the professional fees paid as well as the interest expenditure incurred should have been allowed to the assessee. Thus, the order of the learned assessing officer as well as the order of the learned Commissioner of Income Tax Appeals holding that assessee is not carrying on the business cannot be sustained. He further referred to circular number 6 of 2016 dated 29/2/2016 placed at page number 91 of the paper book wherein it has been stated that wherein the assessee itself, irrespective the period of holding the listed shares and securities, opts to treat it as stock in trade, the income arising from transfer of shares / securities would be treated as its business income. He therefore submitted that the assessee itself treated the stocks/shares invested by the assessee company are stock in trade and therefore the income arising there from is a business income. Thus, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest expenditure. However, the fact shows that As per resolution passed by the Board of Directors on 11/6/2008 the assessee company was authorised to acquire 49% on sticky in one of the companies of Tata Tele Info services Ltd namely WT TIL engaged in the business of erecting and installation of towers. It entered into an agreement based on which success based fees was payable to one Mr. Sahai for organizing investors to fund the purchase of the shares. As the company was interested in raising its equity or any other means of finance up to Rs. 900 crores from potential financial investors or private equity funds for organic growth for acquisition of 49% stake in that the demerged tower business of assessee, the services of Mr. Sahai who is an investment advisor, were obtained. The investment advisor was to provide investment advisory services to the assessee for finding of probable investor and assessee was to pay a fee in accordance with the terms and conditions of that agreement. Thus, it is clear that appellant company was to acquire 49-percentage stake in that the demerged tower business of Tata tally services Ltd. As per share purchase agreement dated 24/12/2008, it d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rganization; it is not a transaction of purchase and sale of securities, which can result into carrying on of the activities of purchase, and sale of securities as a business. The above facts have been exhaustively considered by the lower authorities. The learned CIT - A has considered these facts in para number 4.4 to para number 4.13 of his order. It is further important to note that reference to page number five being profit and loss account of the assessee wherein in schedule number 15 administrative and other expenditure to the extent of Rs. 25025000 are considered and claimed that it shows that assessee was carrying on the business is devoid of any merit because the expenditure of Rs. 25,000 000 is the fees involved for arranging the finance which has been disallowed by the learned assessing officer and confirmed by the learned CIT - A which is for raising of the fund in the merger scheme for acquisition of shares. Thus, it is part of the business reorganization scheme of the assessee. It is the answer with respect to the secured loan and unsecured loan obtained by the assessee. Thus, reference to them does not help to show that assessee was carrying on any business activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged into Wireless TT info services Ltd as a going concern. This itself shows that the business of the assessee has been transferred and no other business remains with the assessee. Further, on 28 August 2009 the company along with Wireless TT info services Ltd filed a scheme of arrangement in accordance with the above sections of The Companies Act, which was sanctioned by the honourable Delhi High Court as per order dated 29 May 2010 and honourable Andhra Pradesh High Court per order dated 28 June 2010. The effective date of the scheme is 1 April 2009 as the appointed date. Further, on looking at schedule [5] of fixed assets, the assessee has transferred all its assets except few related to renting of ATMs were left with the assessee company. The company did not have any of the debtors left on transfer of the above business. It is important to note that even the company does not have any cash or balances with the bank, except in deposit account as margin money. All its loans and advances also were transferred. With respect to the current liabilities, it has only the advances received and other petty liabilities. Thus, on verification of the balance sheet also it does not show that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1, 2 and 3 of the appeal are dismissed. 11. The fourth ground is with respect to treating the revenue of Rs. 1528000 earned because of renting of space of ATM. The lower authorities have concurrently held that appellant is in receipt of rental income from Punjab National Bank for provision of ATM. Except for agreement with the Punjab National Bank, no other details were furnished before the lower authorities as to how the above business can be assessed as a business income. Therefore, we conquer with the findings of the lower authorities and dismiss ground number four of the appeal. 12. Ground number five of the appeal of treating the interest income from fixed deposit receipts of Rs. 2982000/- as income from other sources, we also do not find any infirmity in the order of the lower authorities as assessee has merely placed fixed deposits with the banks and it has not been shown that how the earning of the bank‟s deposit receipt interest can be said to be interest income chargeable to tax under the head business income. Thus, ground number five of the appeal is also dismissed. 13. In the result, ITA number 2006/del/2017 filed by the assessee for assessment year 2010 - 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly erred in imposing penalty on the disallowance of expenditure incurred towards professional fees amounting to Rs. 2,50,00,000/-. 7.0 That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in imposing penalty on the disallowance of interest expenses of Rs. 2,23,03,31,321/- incurred for the purpose of business of the appellant. 8.0 That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in upholding the penalty levied by the AO, inspite of the fact that in the original notice u/s 274 r.w.s 271(l)(c), the AO did not specify as to whether the penalty proceedings was intiated for 'furnishing inaccurate particulars of income' or 'concealing particulars of income'." 16. The fact shows that the learned assessing officer has disallowed professional service expenditure claimed by the assessee under section 37(1) of the act holding that assessee is not carrying on any business as well as disallowed interest expenditure under section 36 (1) (iii) of the act claimed by the assessee holding that it is carrying on business and therefore same is allowable. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correctly made by the assessing officer. 21. Before him the assessee also raised an additional ground of appeal on 13/1/2017 at paragraph number [2] of the order of the learned CIT - A wherein assessee challenged that in notice under section 274 the assessing officer did not specify under which Limb of section 271 (1) (C) of the act the penalty proceedings have been initiated and thus the penalty order is liable to be quashed. The learned CIT - A in para number 4.6 of the order held that the learned assessing officer has clearly recorded his satisfaction in the assessment order for furnishing inaccurate particulars of income; hence, he dismissed this ground of appeal. Thereafter relying upon the decision of the honourable Delhi High Court in CIT V Zoom Communications Limited 327 ITR 510 and CIT V Escorts Finance Limited 188 taxman 87, he confirmed the penalty levied by the AO. Therefore, assessee is in appeal before us. 22. The learned authorised representative vehemently submitted that a. Penalty cannot be levied for a different reason than for which it was initiated. He referred to the notice dated 15/3/2013 issued under section 274 of the income tax act wherein the assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 322 ITR 158 as well as the decision of the honourable Delhi High Court in 275 CTR 291. c. He further submitted that where the assessee has made a complete disclosure of all material facts before the lower authorities it cannot result into penalty stating that assessee has furnished inaccurate particulars of income. He submitted that penalty cannot be levied were disclosure of all material facts were made by the assessee before the lower authorities. For this proposition, he relied upon the decision of the honourable Delhi High Court in 52 taxman.com 80 and 48 DTR 19. d. He further submitted that the meaning of concealment of income and furnishing of inaccurate particulars of income carry two different connotations. Referring to the fact that there is a direction in the assessment order, he submitted that merely direction in the assessment order could not be the basis to determine the basis of charge in penalty proceedings if there is no strike off in the notice under section 274 of the income tax act. e. In the end, he submitted that because of the loss claimed by the assessee, the penalty has been levied. He submitted that such losses have lapsed and assessee does not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was provided to the assessee. She further submitted that the LD AO has correctly recorded finding in the assessment order. For this proposition she relied on the decision of the honourable madras High Court in 403 ITR 407 as well as the decision of the coordinate bench in 150 TTJ 195 wherein it has been held that from combined reading of notice and assessment order, it is inferred that for what default the assessee has been put to notice for levy of penalty. Thus, she submitted that the assessee has been correctly informed about the violation of the law in the assessment order itself and hence non striking of one of the limb cannot invalidate the penalty. On the merit, she submitted that the claim of the assessee was found to be false and such expenditure is not deductible, as assessee was not carrying on any business. 24. We have carefully considered the rival contention and perused the orders of the lower authorities. One of the issues involved in this appeal is whether the AO without striking out one of the limb i.e. furnishing of inaccurate particulars of income or concealment of income can levy penalty under section 271 (1) (c) of the act. The honourable Delhi High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts." In that case, assessee was held to be liable for penalty for concealment of income as well as for furnishing inaccurate particulars of income. Further, in that case, even assuming that there is a defect in notices, for delay and latches, the argument of assessee was rejected. In case of the assessee, he is charged with only furnishing inaccurate particulars of income, therefore the AO should have strike off the Concealment of income limb in the notice. Further, the issue was raised before the LD CIT (A) as an additional ground but was dismissed as CIT A held that LD AO has recorded correct satisfaction. 26. Even otherwise, the claim of the assessee is that assessee is carrying on business of sale and purchase of securities. Such claim assessee tried to substantiate with the annual audited accounts of the assessee. It also supported the same with the other objects mentioned in the memorandum of Association along with share purchase agreements and the relevant scheme of demerger. On careful perusal of the assessment order for assessment year 2011 - 12 where the assessee has shown the sale of shares and resultant gain or loss from under the head business income, the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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