Income Tax Appellate Tribunal - Kolkata
Somnath Roy Chowdhury, Kolkata vs Assessee on 20 January, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "B" KOLKATA
Before Shri Mahavir Singh, Judicial Member and
Shri Waseem Ahmed, Accountant Member
ITA No.615/Kol/2013
Assessment Year :2009-10
Sri Shomenath Roy V/s. Addl.JCIT, Range-30,
Chowdhury Aaykar Bhawan
15B, Mandevile Gardens, (Dakshin), 2 Gariahat
Kolkata - 700 019 Road,
[P AN No. ADJPR 7223 E] Kolkata - 700 068
अपीलाथ /Appellant .. यथ /Respondent
अपीलाथ क ओर से/By Appellant Shri Sunil Surana, FCA
यथ क ओर से/By Respondent Md. Ghayas Uddin, JCIT-SR-DR
सन
ु वाई क तार ख/Date of Hearing 11-12-2015
घोषणा क तार ख/Date of Pronouncement 20-01-2016
आदे श /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is arising out of order of Commissioner of Income Tax (Appeals)-XIV, Kolkata in appeal No.730.ctta-XIV/11-12 dated 15.02.2013. Assessment was framed by JCIT, Range-30, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 07.12.2011 for assessment year 2009-10. Assessee has raised the following grounds:-
"1. For that the order of the Ld. ITO is arbitrary, illegal, excessive, perverse and bad in law.ITA No.615/Kol/2013 A.Y. 2009-10
Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 2
2. For that the Ld. AO erred in not telescoping the interest expenditure of Rs.43,10,083/- with the interest earned of fixed deposited on presumptions ignoring the fact that the payment of interest had direct nexus with the income earned by way of interest to the extent of receipt of interest income and the remaining interest had nexus with the investment activities. The Ld. AO further erred in treating the interest income of Rs.19,144/- as business income.
3. For that the Ld AO erred in disallowing Rs.30,67,213/- from interest and Rs.5,71,648/- from expenses u/s 14A read with rule 8D when no such expenditure were incurred or claimed and further even otherwise the disallowance of any expenditure under rule 8D was not called for.
4. For that the Ld AO should have allowed deduction of Rs.31,290/- and Rs.34,604/- being actual expenditure incurred for earning the short term capital gain.
5. For that the Ld AO erred in treating the receipt of Rs.4,40,730/- as income from other sources and also was not justified in disallowing the depreciation of Rs.55,000/- claimed in accordance with law.
6. For that on the facts and circumstances of the case the Ld AO erred in treating the income of Rs.25,25,508/- as income from other sources and further erred in disallowing the expenses claimed for earning such income.
7. For that the Ld AO erred in disallowing Rs.12,00,000/- by applying the provisions of section 40(a)(ia) which was not applicable.
8. For that the Ld AO erred in not allowing the set off of the F & O loss of Rs.3,29,661/- being business loss with the speculation income which was claimed in accordance with law and was allowable as such."
2. At the time of hearing Ld. AR for the assessee has not pressed the ground No. 4 hence, the same is dismissed as not pressed.
3. The first issue raised by the assessee in this appeal is that Ld CIT(A) erred in confirming the action of Assessing Officer by disallowing the interest expenditure of Rs.43,10,083/- against the interest income of Rs. 26,59,463/-. Over and above, assessee has raised the issue that Ld. CIT(A) erred in treating the interest income of Rs.19,144/- as "business income".
ITA No.615/Kol/2013 A.Y. 2009-10Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 3 The facts of the case are that the assessee is an individual and engaged in the business of investing in shares and managing properties. During the year the assessee has declared income under the head salary, business & profession and income from other sources. The assessee during the year has made fixed deposit for an amount of Rs. 5 crores for 181 days beginning from 13.10.2008 and earned interest income of Rs. 26,59,277/- which was shown as income from other sources. The assessee has also the loan liability on which the interest was paid for an amount of Rs. 43,10,083/-. The assessee has adjusted this interest expenses against the interest income. However the AO during the assessment proceedings observed that the borrowed fund is coming from the earlier year which was used for the investment in shares and mutual funds. In the immediate preceding year the interest on such borrowed fund has been claimed for an amount of Rs. 45,73,146/- as an expenditure against the income from capital gains. This borrowed fund was not repaid by the assessee during the year. Therefore the AO observed that the borrowed fund was utilized in investment in shares and mutual funds. There was also no evidence that the borrowed fund was utilized for the investment in fixed deposit. So after comparison of the old accounts with the current year the AO opined that prima facie the assessee borrowed fund was making the investment in shares and mutual funds. So there is no nexus between the borrowed fund and investment in fixed deposit. The AO also observed that interest expense on borrowed fund was claimed against the capital gain income in the immediate preceding assessment year. In the relevant year under consideration there was loss to the assessee from the trading of the shares therefore the assessee has claimed the same against the interest income to escape from the tax liability. Besides the above the assessee has shown income from interest for Rs. 19144.00 only as income from other sources which the AO held as income from the business. Accordingly the AO disallowed the interest of Rs. 43,10,083/- which was claimed as an expenditure against the income from the other sources and added to the total income of the assessee.
ITA No.615/Kol/2013 A.Y. 2009-10Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 4
4. Aggrieved assessee preferred an appeal before Ld. CIT(A) who has upheld the action of AO by observing as under:-
" Having considered the finding by the Assessing Officer and submission of the appellant I am of the considered view that the appellant conveniently makes adjustment of interest expenditure against capital gain or interest income or business income as per his own requirements and in the total disregard of the provision of law. In a year if there are profits under the head income from capital gain, the interest expenditure is adjusted against the head, which has been the case in the immediate previous year i.e. 2008-09. During the present assessment year the assessee had income under the head income from interest, therefore the assessee adjusted the interest expenditure against the head income from other source. I agree with the view of the Assessing Officer that such adjustment is convenience based and it is aimed of avoiding the taxes. After examining the accounts of the appellant it is found that the assessee has borrowed fund and utilized the same for investment in share and mutual fund. In the immediate previous year the assessee had treated the interest paid on unsecured loan (Rs.45,73,146/-) as expenses incurred for earning capital gain. However, during this year the interest paid on secured loan of Rs.43,10,083/- has been treated by the appellant as interest expendit9ure against the interest income for the current year. The perusal of earlier's year account shows that the assessee has borrowed fund and has utilized them in his share trading activities. The same trend has continued during this year. The AO has also given findings that the assessee has not repaid any loan but as the same borrowed fund and it has been invested in share and mutual fund. I agree with the view of the Assessing Officer that there is no evidence to show that investment in fixed deposit was out of loan/borrowed fund. The comparison of accounts of earlier year and current year reveals that the assessee has borrowed fund for making investment in shares. I agree with the view of the Assessing Officer that the interest payable on such borrowed fund are not allowable as deduction on account of any income by way of capital gain. Since the interest expenditure claimed by the appellant is not allowable as deduction against the capital gain, the action of the Assessing Officer is confirmed on this ground. Besides, since the borrowed funds are not directly linked to the fixed deposit made by the appellant, the interest expenditure claimed by the appellant cannot be telescoped with the interest earned on fixed deposits. In the facts and circumstances of the case, I hold that the Assessing Officer was right in law and on facts in holding that there was no direct nexus between the interest expenditure claimed and the interest income earned on the fixed deposits. Accordingly, I find that the action of the AO is strictly in accordance with law. Therefore, the action of the AO is confirmed and ground No.2 of the appeal is dismissed. Besides, the ITA No.615/Kol/2013 A.Y. 2009-10 Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 5 action of the Assessing Officer in treating the interest income of Rs.19,144/- as income from business is also confirmed."
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
Shri Sunil Surana, Ld. Authorized Representative appearing on behalf of assessee and Md. Ghayas Uddin Ld. Departmental Representative appearing on behalf of Revenue.
5. We have heard both the parties and perused the materials available on record. Before us the Ld. AR has filed a paper book which is running into pages from 1 to 51. Before us the ld. AR submitted that the investment was made out of the borrowed fund only. In the earlier year the same borrowed fund was used in the shares trading business so the deduction was claimed against the capital gain income accordingly. However this year the borrowed fund was used in fixed deposit after the sale of the investment i.e. redemption of mutual funds and refund of unsecured loan. The ld. AR drew our attention on page 20 of the paper book where comparative balance sheet for the year ending March 2008 and March 2009 were furnished. It is clear from the same the FD of Rs. 5 crores was not there in the immediate preceding year but it was made in the year under consideration out of funds realized from the redemption of mutual funds and recovery of unsecured fund. The source of investment was duly explained which is placed on page 20A of the paper book, depicting the value of redemption of mutual funds and recovery of unsecured loans.
5.1 From the aforesaid discussions we find that the assessee has claimed the interest expenses on the borrowed fund against the income of other sources. The AO found that the same borrowed fund was utilized in the earlier year for the income under the head capital gain and the assessee claimed the interest expenses accordingly against the capital gain income. But in the year of consideration the assessee incurred loss under the head capital gain so the interest expense on the borrowed fund was claimed against the income from ITA No.615/Kol/2013 A.Y. 2009-10 Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 6 other sources to avoid from the tax liability. The AO also observed that the same borrowed fund was for the share investment business and there was no evidence to show that the same borrowed fund was utilized in the making the FD of Rs. 5.00 crores. However we find from the submission and records that the FD was made from the redemption of the mutual funds and recovery of the loans as per the details given below:-
Statement of fixed deposit Date Fixed deposit Amount Source of fund Amount 10.10.08 State Bank of India, 5,00,00,000 Redemption of Mutual Ballygunge Br. Fund For 181 days (10.10.08 to Reliance Medium 2,55,40,057 13.04.09) Term Fund HSBC Fixed term 1,21,56,840 series 58 Refund of unsecured loan Aditdya Vikram Roy 1,11,90,000 Chowdhury Sonali Roy 33,00,000 Chowdhury 5,00,00,000 5,23,86,897 The ld. DR has not brought anything contrary to the submission of the assessee. We also observe that the assessee is at liberty to utilize the borrowed fund in the best possible manner. There is nobody who can interfere in the working of the assessee. The fund utilized in the earlier year for investment in securities can be used for different activity like investment in FD.
There is no bar as such regarding the utilization of fund. So in the instant case the plea of the AO that fund borrowed for investment in securities was not utilized for the FD do not hold good. As regards the interest income of the assessee on the loan given to a party for an amount of 19,144/- we deem it to classify such income from other sources as the assessee is not into the money lending business. In view of above, we reverse the order of lower authorities. This ground of assessee's appeal is allowed.
ITA No.615/Kol/2013 A.Y. 2009-10Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 7
6. The second issue raised by the assessee in this appeal is that Ld. CIT(A) erred in confirming the disallowance of Rs. 30,67,213/- and Rs. 5,71,648/- on account of interest expenses and other expenses u/s 14A of the Act read with Rule 8D of the Income Tax Rules 1962.
6.1 During the year under consideration assessee has declared dividend income of Rs. 15,22,890/- being exempted income by virtue of the provisions of section 10(34) & 10(35) of the Act but the assessee did not make any disallowance of the expenses as per the provisions of section 14A read with rule 8D of the IT Rules. During the assessment proceedings it was also seen that the assessee has invested borrowed fund in shares and mutual funds which has given exempted income. The AO called upon the assessee for the justification for not disallowance the expenses in terms of the provisions of section 14A of the Act. The assessee explained that the borrowed fund has been invested in the fixed deposit and shares market for earning interest and short term capital gain. So question of disallowance under section 14A of the Act does not arise. Besides the above, the assessee further submitted that the rate of interest paid on the borrowed fund was less than the rate of income from interest and share market. The assessee also submitted that the borrowed fund was invested for the relevant year in FD, equity shares, mutual fund and speculation profit. Thus the application of section 14A of the Act is not applicable.
6.2 The AO concluded from the facts and the submission of the assessee that the borrowed fund has been invested in the share market which has given rise to capital gain income and other income. So the provisions of section 14A are very much attracting to the assessee for the relevant year. Accordingly the AO applied rule 8D of Income Tax Rules and worked out the disallowance as under :
i) Expenses directly relatable Rs. 31,290.00
ii) Interest expenses on borrowed fund Rs. 30,67,213.00
ITA No.615/Kol/2013 A.Y. 2009-10
Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 8
iii) ½ % of average value of investment Rs. 5,71,648.00
Total disallowance Rs. 36,70,151.00
7. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who upheld the action of AO by observing as under:-
"5.1 As per findings given in the ground No.1 of the appeal it has been held that the interest expenditure had no direct nexus with the interest income earned on FD. Therefore, the submission of the appellant that the interest expenditure of Rs.26,59,463/- had direct nexus that the FD interest is not acceptable. Therefore, the appellant's submission that the balance interest expenditure of Rs.16.5 lakhs only is available on which section 14A can be applied is not acceptable. Having considered the facts of the case and as discussed in ground No.2 of the appeal the interest expenditure of Rs.43,10,083/- is required to be considered while applying Rule 8D read with section 14A of the IT Act, 1961. Therefore, I do not find any infirmity in the action of the AO of making disallowance of Rs.30,67,213/- which has been worked out by the Assessing Officer in accordance with Rule 8D of the I.T Rule, 1962. Hence, the action of the AO on this issue is confirmed, Besides this, the addition of Rs.5,71,648/- has also been made by the AO on the basis of 0.5% of average value of investment in accordance with Rule 8D of the IT Rule, 1961. Therefore, it is held that there is no merit in the submission of the Ld. A/R of the appellant and the action of the Assessing Officer is confirmed. Hence, Ground No.3 of the appeal is dismissed."
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
8. We have heard rival contentions and gone through the facts and circumstances of the case. Before us the ld. AR submitted that the borrowed fund was utilized for part of the year in the share investment business. But the AO has considered the entire interest expenses of Rs. 43.10 lacs for the calculation of disallowance under rule 8D(ii) of Income tax Rules 1962. The ld. AR submitted that the interest pertaining to the period after the creation of FD should not be taken for the purpose of disallowance under rule 8D(ii) of Income tax Rules 1962. Accordingly the AO submitted that the interest expenses of Rs. 26.78 lacs has the direct nexus with the interest income from ITA No.615/Kol/2013 A.Y. 2009-10 Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 9 the bank on FD for Rs. 26.59 lacs and 0.19 lacs being other interest earned on unsecured loan. Therefore the AO should have taken an amount Rs. 16.31 lacs (43.10 lacs -26.78 lacs) for working out the disallowance in terms of the provision specified under rule 8D(ii) of Income tax Rules 1962. Accordingly the ld. AR offered the disallowance of Rs. 11.74 lacs (16.31 lacs X11.43 crores / 16.06 crores). As regards the disallowance under rule 8D(iii) of Income tax Rules 1962, the ld. AR submitted that the total expenses claimed by the assessee are of Rs. 1.06 lacs and out of this a sum of Rs. 0.31 lacs towards Demat charges has already been disallowed. For the balance expenses the ld. AR submitted that these are basic establishment & maintenance expenses and should be allowed. However the ld. AR offered another expense of Rs. 1597.00 towards the bank charges for the disallowance under rule 8D(iii) of Income tax Rules 1962.
8.1 Form the aforesaid discussion we find that the AO has applied the provisions of rule 8D of Income tax Rules 1962 in terms of the provisions specified under section 14A of the Act. However we find that while applying the provisions of rule 8D(ii), the AO has taken entire amount of interest expenditure though the part of the borrowed fund was utilized to generate the income from other sources. So in our view only the net interest should be considered while making the disallowance under rule 8D(ii) of Income tax Rules 1962. Regarding the disallowances under rule 8D(iii) of Income tax Rules 1962, we find that the assessee incurred a sum of Rs. 1.06 lacs but the AO has disallowed a sum Rs. 5,71,648.00 though the actual expenses in total claimed in the profit & loss account are very less i.e. 1.06 lacs only. Thus the expense worked out as per the provisions of rule 8D(iii) exceeds the actual expenses claimed by the assessee which does not hold any merit in the instant case. We are also relying the order of this Tribunal "A" Bench dated 30.03.2012 in the case of DCIT Vs. M.s. Trade Apartment Limited in ITA 1227/Kol/2011 for the A.Y 2008-09 the extracted para-4 is reproduced below:-
ITA No.615/Kol/2013 A.Y. 2009-10Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 10 "4. As learned CIT(A) has rightly observed, once there is no net interest expenditure, as is the case before us - upon setting off interest credited to profit and loss account, no part of interest debited can be disallowed as attributable to earning tax free dividend. The CIT(A) was thus quite justified in deleting the interest disallowance. We have also noted that entire expenses incurred by the assessee have been offered for disallowance, and once that happen, nothing remains for further disallowance u/s. 114A. The disallowance under section 14A can come into play only out of expenses claimed for deduction and expenses have been claimed for deduction, there cannot be any disallowance either.
The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A)."
Taking a consistent view in the case of M/s Trade Apartment Ltd. (supra) we restore this file to the AO for fresh adjudication as per law with the direction that :-
i) Regarding the disallowance as per rule 8D(ii), the net figures of interest should be taken into consideration.
ii) Regarding the disallowance as per rule 8D(iii), the disallowance should not exceed the total expenses claimed by the assessee.
Hence, in terms of above, this ground of appeal of the assessee is allowed for statistical purposes.
9. The next issue raised by the assessee in this appeal is that Ld CIT(A) erred in treating the receipt of Rs. 4,40,730/- as income from other sources and further erred in disallowing the depreciation of Rs. 55,000/-.
10. The relevant details of the case are that the assessee purchased Trade Mark for a value of Rs. 2 lacs on dated 09.03.2007 from M/s SAF Fermion Ltd. The assessee also incurred an expense of Rs. 20,000/- towards government charges for getting it transferred in his name. The assessee had no business activity where the trade mark can be utilized. However the assessee has given back the trade for use to M/s Fermion Ltd. and received consideration for an amount of Rs. 4,40,730/- during the year. The assessee has declared such ITA No.615/Kol/2013 A.Y. 2009-10 Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 11 receipt as business income. Besides this assessee claimed depreciation on the purchase of trade mark for an amount of Rs. 55,000/- against the above business income. During the assessment proceedings, assessee did not give any specific reply to the query raised by the AO for not allowing the depreciation, but submitted the agreement copy for the assignment of Trade Mark and copies of the provision contained under section 32 of the Act. The AO disregarded the claim of the assessee by observing as under :
1) There was no business activity of the assessee where the trade mark can be used.
2) As per the provisions of section 32 of the Act, depreciation is allowed on the assets if it is used for the business carried on by the assessee.
3) As such the trade mark has been used by M/s SAF Fermion Ltd. in its business activity.
4) The assessee in the instant case is also a promoter director in the company- SAF Fermion Ltd.
5) The whole transaction of buying the trade mark and renting out to the same company is a collusive deal. So it cannot be regarded as business income but income from other sources.
6) In the instant case the assessee has simply let out the assets, this activity cannot be regarded as business so income is chargeable only under the head income from the other sources.
7) The trade mark was developed by the company - M/s SAF Fermion Ltd.
and its stake was controlled by the assessee being a promoter director and shareholder of the company.
On the basis of above the AO treated the receipt of Rs.4,40,730/- as income from other sources and the depreciation for an amount of Rs.55,000/- was disallowed and added to the total income of the assessee.
11. Aggrieved assessee preferred appeal before Ld. CIT(A) who upheld the action of AO by observing as under:-
ITA No.615/Kol/2013 A.Y. 2009-10Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 12 "7.1 Having considered all the facts of the case, I find that the Assessing Officer has given the findings that by virtue of being promoter/director of the company, M/s SAF Fermion Ltd. the assessee became the undue beneficiary of the trade mark developed by the company. The same trade mark was let out to the same company and the assessee received payment for use by the company. As such the trade mark has been used in the business of the company and not the assessee's business. The AO disallowed the depreciation on this ground and held that the whole deal is a collusive deal aimed at defrauding the revenue and unduly enriching the assessee. The assessee is beneficiary of the collusive deal without doing any activity on his own. In light of the facts and circumstances of the case I am of the considered view that such income received by way of collusive deal has rightly been taxed under the head income from other source and the depreciation has rightly been disallowed by the Assessing Officer.
Accordingly the action of the AO on this issue is confirmed. Hence, ground no.5 of the appeal is dismissed."
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
12. We have heard rival submissions of both the parties and perused the materials available on record. Before us the ld. AR submitted that the assessee has genuinely purchased the trade marks for the consideration. In support of his claim the ld. AR drew our attention to page nos. 44 to 51 of the paper book where the deed of assignment of trade mark was placed. The same trade marks were allowed for use to M/s SAF Fermion Ltd. for the consideration in terms of agreement to use which is placed on page 40 to 42 of the paper book. The ld. AR also submitted that the confirmation from the party for charging the fees for the use of trademarks which is placed on page 34 of the paper book. Finally the AR prayed to treat the income charged from M/s Fermion Ltd. for the use of the trademarks as "business income" and also prayed for the allowance of depreciation on the trademarks. From the aforesaid discussion, we find that the AO has treated the receipt for allowing the use of trademarks as income from other sources as the assessee had no business activity and consequentially the depreciation was disallowed.
ITA No.615/Kol/2013 A.Y. 2009-10Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 13 12.1 However, we find that the assessee has produced necessary documents for the purchase of trade mark and details of the fees charged from the party for the use of the trademarks. The assessee has treated such receipts as business receipts and claimed depreciation on the purchase of trademarks. Now in the instant case the activity of letting out the use of the trademark is to be seen whether it is business of the assessee or not. There is no bar under the Act that if the commercial asset is used by the third party then the income will not be treated as "business income". In the instant case, the "commercial assets" is being exploited by the third party and the receipt arising from the exploitation of the commercial assets has been regarded as "business receipts". Besides this, even otherwise the income from the exploitation of commercial assets is shown as income from other sources then also the assessee is also entitled for depreciation on the trademarks being intangible assets. In view of above, we are inclined to treat the income arising from the exploitation of commercial assets as business income. Accordingly, we reverse the orders of authorities below and allow this ground raised by assessee.
13. The next issue raised by the assessee is that the Ld. CIT(A) erred in confirming the order of the AO by treating the receipt of Rs. 25,25,508/- as income from other sources and further erred in disallowing expenses incurred for earning such income.
14. Before coming to the specific issue, let us understand the brief history of the case. There are two Pvt. Companies namely M/s SNR Constructions Pvt. Ltd. and M/s SNR builders Pvt. Ltd. Both the companies own a premise in Ballygunge A.C. Market, Kolkata. The said premise was let out to M/s India Bull Security Ltd. and M/s Om Kotak Mahindra Life Insurance in the year 2003. There was also an agreement for the maintenance of the let out property with M/s Essar Fermion Pvt. Ltd which is another group company of the assessee. So the tenants entered into agreement with the company M/s ITA No.615/Kol/2013 A.Y. 2009-10 Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 14 Essar Fermion Pvt. Ltd. for the maintenance services. The maintenance contract was further sublet out by M/s Essar Fermion Pvt. Ltd. to the assessee in his proprietorship concern. The assessee further sublet this contract to M/s S.R. data services Pvt. Ltd. which is actually providing maintenance services to the tenants. During the year the assessee receipts service charges from the tenants for an amount of Rs.25,25,508/-. The AO observed that the assessee has not rendered any services for receiving the income. So the AO held such income chargeable under the head 'income from other sources.'
15. Besides the above, assessee claims several expenditure against the above stated income. Since the AO has held that the assessee is in receipt of service charges without doing any activity, so all the expenses claimed by the assessee are disallowed except the expenses of Rs. 12 lakh paid to M/s S.R. Data Services Pvt. Ltd. and AO added the following expenses to the total income of the assessee as follows:-
Sl Head of expenditure Amount (Rs)
No.
1 Travelling and conveyance 424/-
2 Audit fees 18,000/-
3 Business promotion expenses 2,94,001/-
4 Generator maintenance charges 8,999/-
5 Lift maintenance charges 36,000/-
6 Maintenance charges 36,390/-
7 Salary 1,89,000/-
8 Repairs & maintenance 33,000/-
9 Trade licence 1,375/-
10 Bonus 3,000/-
11 Telephone charges 2,020/-
16. Aggrieved, assessee preferred an appeal before Ld CIT(A) who upheld the action of AO by observing as under:-
ITA No.615/Kol/2013 A.Y. 2009-10Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 15 "8.1 Thus, the assessee by virtue of having controlling stake of various companies earned money for doing nothing but entering into a number of agreements with various companies. As the aforesaid income has been received by the appellant for doing nothing except for entering in a number of agreement with the group companies, I am of the considered view that the Assessing Officer has rightly taxed the aforesaid income of Rs.25,25,508/- under the head income from other source. Hence, the action of the AO on this issue is confirmed. In addition to this the appellant claimed expenditure on account of service charges, which has not been substantiated by any evidence. Hence, it is held that the Assessing Officer was right in law in disallowing the same holding that the appellant had not rendered ay service for receiving the aforesaid income. Accordingly, on this ground the action of the AO is confirmed.
Hence, ground No.6 of the appeal is dismissed"
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
17. We have heard rival submissions and perused the materials available on record. Before us the ld. AR submitted that the AO for the immediate preceding assessment year has charged the same income from the source of business, so the question of charging the same income of the subsequent year under the head of income from other sources does not arise. In support of his claim the ld. AR submitted the assessment order of the immediate preceding year. However for the disallowance of the expenses the ld. AR submitted that in the last assessment year some of the expenses were disallowed and prayed to disallow the expenses in the same manner.
18.1 From the aforesaid discussion we find that the assessee declared business income from the maintenance activity. But the AO treated the same as income from income from other sources on the ground that the assessee has outsourced the entire activity to a third party. It means that the assessee in the instant case was not actually performing any work of maintenance. The assessee during the year has claimed an expense of Rs.18.34 lacs towards the maintenance activity. The above said expenses were inclusive of Rs.12 lacs which were paid to the third party to whom the maintenance work was ITA No.615/Kol/2013 A.Y. 2009-10 Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 16 outsourced. The AO disallowed all the expenses except Rs.12 lacs. Since the same income has been held as business income of the assessee in the immediate preceding assessment year, we are not inclined to treat the same as income from other sources. Therefore to maintain the consistency we reverse the order of the lower authorities and treat the same as income from business. Regarding the disallowance of the expenses we find that in the immediate preceding assessment year, the AO has disallowed the expenses to the tune of Rs. 3,16,752.00 only. Now to maintain the consistency in the order of lower authorities, we are inclined to restore this file to the AO with the direction to work out the disallowance of the expenses in the light of assessment order of the earlier year. Hence this ground of appeal is allowed for statistical purpose.
19. The next ground raised by assessee is that Ld. CIT(A) erred in confirming the order of the AO by disallowing an expense of Rs. 12 lakh on account of violation of the provisions of section 40(a)(ia) of the Act.
Assessee has claimed an expense for an amount of Rs. 12 lacs but failed to deduct the TDS under section 194C of the Act. Therefore the AO disallowed the same and added to the income of the assessee.
20. Aggrieved assessee preferred appeal before Ld. CIT(A) who upheld the action of AO by observing as under:-
"9. Ground No. 7 of the appeal has been directed against disallowance of service charges of Rs.12,00,000/- u/s 40(a)(ia) of the I.T Act, 1961. In this regard the Ld. A/R of the appellant has stated that no amount was outstanding at the end of the year. Hence no disallowance u/s 40(a)(ia) called for, in view of the ratio laid down by Special bench of the Hon'ble ITAT, Vishakapattanam in the case of Mrilyn Shipping & Transports wherein it was held that TDS disallowance applies only to amounts "payable" as at 31st March and not to amounts already "paid" during the year. However, the Ld. A/R of the appellant has not produced any evidence to justify his submissions that the amount of Rs.12,00,000/- had been paid in the relevant previous year. Besides, the Hon'ble Special Bench decision relied upon by the Ld. A/R has been ITA No.615/Kol/2013 A.Y. 2009-10 Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 17 stayed/suspended by the Hon'ble High Court of Andhra Pradesh in TIR No. 304 of 2012. In view of the suspension/stay of the order of the Special Bench by Hon'ble High Court of Andhra Pradesh and also in view of the facts that the Ld. A/R of the appellant has failed to produce any cogent evidence to show that the amount had already been paid during the year, I hold that the addition made by the AO of Rs.12,00,000/- u/s 40(a)(ia) is justified in law and on facts of the case. Accordingly, ground No. 7 of the appeal is dismissed."
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
21. We have heard rival contentions of both the parties and perused the materials available on record.
Before us the ld. AR submitted that Rs. 12 lacs were paid to M/s S.R. Data Services Pvt. Ltd. for the maintenance services. The party has duly disclosed the income in its return of income tax. In support of his claim the assessee has submitted the copy of profit & loss account, computation of income, ITR acknowledgment, intimation under section 143(1) of the Act of the party which are placed at pages- 28, 26, 25 & 24 of the paper book. We find from the aforesaid discussion that the assessee failed to deduct TDS on the maintenance expenses and therefore, the AO disallowed the same and added to the income of the assessee in terms of the provisions of section 40(a)(ia) of the Act. However we find that the party to whom the maintenance charges were paid, have duly disclosed the receipt in its return of income and paid the due taxes on it. Now as per the amended provisions of the Finance Act 2012, the assessee shall not be treated as assessee in default if the recipient of the income has duly shown in its return of income. Accordingly we reverse the order of the lower authorities, hence, ground raised by assessee is allowed.
22. The last ground raised by assessee is that Ld. CIT(A) erred in allowing the loss of future & options for Rs.3,29,661/- against the speculation income. During the assessment proceedings the AO found that the assessee has ITA No.615/Kol/2013 A.Y. 2009-10 Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 18 claimed the set off of the brought forward loss arising from intraday trading of shares for Rs.3,29,661/- against the income of speculative transactions. However there was speculation profit in the immediate preceding year for an amount of Rs.40,51,405/- but then the loss was not set off in that year by the assessee. Accordingly the AO held that such brought forward loss which could have been set off in the immediate preceding, will not set off against the current year speculative income. So the loss for an amount of Rs.3,29,661/- was not allowed for set off against the current year income.
23. Aggrieved assessee preferred an appeal before Ld. CIT(A) who upheld the action of AO by observing as under:-
"From the above findings of the Assessing Officer, it appears that the loss of Rs.3,29,661/- pertains to the earlier year. Therefore, such loss ought to have been claimed and set off in the immediate preceding year. However, the AO has stated that the assessee did not set it off in that year. This finding of the Assessing Officer has not been controverted by the assessee by bringing any fact on record. The Ld. A/R has not been able to justify why speculation loss of Rs.32,96,61/- was not set off with the speculation profit of earlier year. The Ld. A/R has filed additional explanation wherein he has claimed it to be future and option loss without bringing on record any evidence in support thereof. Besides, the Ld. A/R has tried to change the colour, nature, character and substance of the transaction by claiming speculation as future and option loss. For want of any evidence, I am constrained to reject the explanting field by the Ld. A/R. Hence, the ground No. 8 of the appeal is dismissed."
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. The ld. AR before us submitted that there was no speculation profit available to the assessee in the immediate preceding assessment year. In support of his claim the assessee submitted the AO order under section 143(3). On the other hand the ld. DR relied on the orders of authorities below.
24. We have heard rival submissions of both the parties and perused the materials available on record.
ITA No.615/Kol/2013 A.Y. 2009-10Sh Shomenath Roy Chowdhury v. Addl.JCIT, Rng-30 Kol. Page 19 From the aforesaid discussion, we find that the brought forward speculation loss was not allowed for set off against the current year speculation income on the ground that the assessee failed to set off the same in the immediate preceding year. However from the submission of the Ld.AR we find that there was no speculation profit for set off in the immediate assessment year. We also observe from the order of AO that in the immediate preceding assessment year that there was no speculation profit. In view of above, we reverse the order of the lower authorities and this ground of appeal of assessee is allowed.
25. In the result, assessee's appeal is partly allowed.
Order pronounced in the open court 20/01/2016
Sd/- Sd/-
(Mahavir Singh) (Waseem Ahmed)
(Judicial Member) (Accountant Member)
Kolkata,
*Dkp
दनांकः- 20/01/2016 कोलकाता ।
आदे श क
त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-Sri Shomenath Roy Chowdhury, 15B, Mandeville Gardens, Kol-19
2. यथ /Respondent-Addl.JCIT, Range-30, Aaykar Bhawan (Dakshin), 2 Gariahat Road, Kolkata-700 068
3. संब*ं धत आयकर आय-ु त / Concerned CIT Kolkata
4. आयकर आय-
ु त- अपील / CIT (A) Kolkata
5. 0वभागीय 3त3न*ध, आयकर अपील य अ*धकरण, कोलकाता / DR, ITAT, Kolkata
6. गाड7 फाइल / Guard file.
By order/आदे श से, /True Copy/ उप/सहायक पंजीकार आयकर अपील य अ*धकरण, कोलकाता ।