TMI Blog2019 (1) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... ication 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 & 3 are allowed for statistical purpose. Disallowance of Legal and Professional fees - Held that:- We are of the considered view that the aforementioned disallowance was carried out by the A.O not only for the reason that certain vouchers were not verifiable, but also for the reason that the assessee had failed to maintain any log book/record which could rule out incurring of any part of the aforementioned expenses for non business purposes. In the absence of irrefutable documentary evidence which could substantiate the claim of expense raised by an assessee, the assessing authority is left with no other option but in all fairness to disallow a part of such expenditure so claimed by the assessee. In the case before us, as the assessee had failed to maintain the log book/records, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec. 41(1). Addition u/s 36(1)(va) - delay on the part of the assessee in depositing the amount of the employees contribution to ESIC and PF - Held that:- We find that though the assessee had made the payments towards employees contribution to provident fund and ESIC beyond the stipulated time period, however the said amounts were paid before the “due date” of filing of the return of income by the assessee under Sec. 139(1) of the Act. We are of the considered view, that now when the aforementioned amounts had been deposited by the assessee before the “due date” of filing of the return of income, thus no disallowance of the said amount was called for in the hands of the assessee. We find that the issue under consideration is squarely covered by the judgment of the Hon”ble High Court of Bombay in the case of CIT Vs. Ghatge Patil Transports Ltd. (2014 (10) TMI 402 - BOMBAY HIGH COURT). The Hon”ble High Court in its aforesaid order had clearly observed that both employees and employers contribution would be covered under 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 amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined separate books of accounts for speculation and non-speculation income, thus in proportion of turnover had allocated expenses of ₹ 49,591/-, as having been incurred by the assessee in context of the speculation activity carried out by it. On the basis of the aforesaid deliberations, the A.O had worked out the total speculation loss in the hands of the assessee at ₹ 15,42,375/- [i.e. ₹ 14,92,784/- + ₹ 49,591/-]. We have deliberated at length on the issue under consideration and are persuaded to subscribe to the observations of the lower authorities as regards the recharacterization of the share trading loss of ₹ 14,92,784/-, and further allocation of expenses of ₹ 49,591/- towards the speculation activities of the assessee. We thus, finding no infirmity in the order of the CIT(A) who had approved the aforesaid view of the A.O, uphold his order to the said extent. The Additional Ground of Appeal raised by the assessee is dismissed. - ITA No(s). 149/Mum/2016, ITA No(s). 150/Mum/2016 - - - Dated:- 16-11-2018 - Shri G. Manjunatha, AM And Shri Ravish Sood, JM For the Appellant : Shri. S.S. Agarwal, A.R For the Respondent : Shri. Abi Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eet of your appellant. None of the creditor has waived the liability and accordingly the action of the CIT(A) was highly unjustified. Therefore it is liable to be deleted. The appellant further craves the leave to put in additional grounds of appeal if any at the time of hearing. 2. Briefly stated, the assessee company which is engaged in multiple streams of business viz. stock broking, trading of shares, travel agency, foreign exchange dealer, foreign depository services and other such advisory services had e-filed its return of income for A.Y. 2010-11, declaring total loss at ₹ 6,48,20,423/-. The return of income was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was taken up for scrutiny assessment under Sec. 143(2). 3. The A.O while framing the assessment inter alia made the following additions/disallowances : S. No. Particulars Amount 1. Disallowances under Sec. 14A ₹ 6,82,963/- 2. Disallowances under Sec. 68 ₹ 2,14,43,635/- 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies was accepted by the revenue in the immediate preceding year, however, taking a departure from its earlier view the said parties have been held as non-genuine by the A.O during the year under consideration. It was further submitted by the Ld. A.R that the CIT(A) substituted the addition of ₹ 2,14,43,635/- made by the A.O by an amount of ₹ 2,14,92,800/-, which thus had resultantly enhanced the assessed income of the assessee by an amount of ₹ 49,165/-. On the basis of his aforesaid submissions, the Ld. A.R submitted that the addition of ₹ 2,14,92,800/- (Rs. 2,14,43,635/- + ₹ 49,165/-) was liable to be vacated. The Ld. A.R further assailed the disallowance of 50% of legal professional fees of ₹ 95,55,123/-, which had resulted to an addition of ₹ 47,77,560/- in the hands of the assessee. The Ld. A.R submitted that as the legal professional expenses were incurred by the assessee in the normal course of its business, thus no disallowance on the said count was liable to be made. The Ld. A.R in order to fortify his aforesaid contention submitted that though complete details of the legal professional fees were furnished with the A.O, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,00,000/- were in the nature of capital expenditure. It was submitted by the Ld. A.R that as the assessee was operating from a rented premises, hence all the expenses of repairs incurred on a third party property would be in the nature of a revenue expenditure and could not be held as a capital expenditure. Lastly, the Ld. A.R assailed the validity of the disallowance of an amount of ₹ 5,57,78,625/- made by the A.O on account of cessation of liability under Sec. 41(1) of the Act. It was submitted by the Ld. A.R that as the revenue had failed to place on record any material from where it could be gathered that either of the creditors had foregone their claim, thus the same in a whimsical and fanciful manner had been inferred as a ceased liability in the hands of the assessee. The Ld. A.R in support of his aforesaid contentions relied on certain judicial pronouncements viz. (i) CIT Vs. Sugali Sugar Works Pvt. Ltd. (1999) 236 ITR 518 (SC); (ii) CCIT Vs. Kesari Tea Co. Pvt. Ltd. (2002) 254 ITR 434 (SC); and (iii) CIT Vs. Smt. Sita Devi Juneja (2010) 325 ITR 593(P H). 7. Per contra, the Learned Departmental Representative (for short D.R ) relied on the orders of the lower au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank accounts, as well as the PAN numbers of the aforesaid parties. Further, it is the contention of the Ld. A.R that the very same cash creditors which were not accepted by the A.O while framing the assessment in the case of the assessee for A.Y. 2009-10, were however on appeal accepted by the CIT(A). It is the claim of the assessee that the aforementioned amounts were the interest free unsecured loans raised by the assessee either from its directors or from the companies in which the said persons were holding substantial interest. We find from a perusal of the order of the CIT(A), that in the backdrop of the fact that his predecessor while disposing off the appeal of the assessee for A.Y. 2009-10 had held the loan creditors to be genuine, thus on the said count he had concluded that the identity of the said respective parties was not in doubt. However, it was observed by the CIT(A) that as the assessee had failed to discharge the onus as regards the creditworthiness of the said respective parties, thus the entire amount of ₹ 2,14,92,800/- which was raised during the year under consideration was to be treated as an unexplained cash credit under Sec. 68 of the Act. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties has been accepted by the CIT(A) and the same has not been assailed by the revenue before us, thus the same attains finality and is not dispute. However, we find that the matter as regards the creditworthiness of the respective parties from whom the assessee had received loans aggregating to ₹ 2,14,92,800/- had not been proved, thus on the said count the issue requires to be revisited by the A.O The matter is therefore 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 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 3 are allowed for statistical purpose. 10. We shall now advert to the upholding by the CIT(A) of the disallowance of Legal and Professional fees amounting to ₹ 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O, and thereafter sustained by the CIT(A). On a perusal of the orders of the lower authorities, it emerges that though the assessee had furnished the details of the legal and professional fees by placing on record the copy of the ledger account from where the complete details were discernible, however, there is nothing which could persuade us to conclude that the assessee was called upon by the A.O to place on record documentary evidence to substantiate that the said expenses were incurred in the course of its business. Rather, a perusal of the assessment order reveals that the A.O had disallowed the aforesaid expense for the reason that the assessee except for furnishing the ledger account of legal and professional fees as appearing in its books of account, had however not placed on record any other details as regards the nature of the legal and professional services received by the assessee alongwith the details of the persons who had provided the same, and also as to how the said expenditure was related to the business of the assessee. Further, on a perusal of the assessment order, it emerges that the A.O instead of making necessary verifications had rather chosen to resort t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 1. Travelling Conveyance and vehicle Expenses 30,46,773/- 2. Office and other expenses 8,13,380/- 3. Printing Stationery 5,01,197/- 4. Postage Courier Expenses 5,26,113/- 5. Telephone Expenses 12,63,976/- 6. Website Computer Expenses 18,64,103/- Total 80,15,542/- On being called upon to substantiate the aforesaid expenses with supporting bills/vouchers, and also to explain that the same were expended wholly and exclusively for business purposes, the assessee placed on record certain self made vouchers to support its aforesaid claim. The A.O not inspired by the aforesaid self made vouchers, observed that as the assessee had not maintained any log book/records in respect of said expenses, thus the personal element embedded in incurring of the said expenditure for want of itineraries, log ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 aforesaid expenditure. 15. We have given a thoughtful consideration and are unable to persuade ourselves to accept the observations of the lower authorities. We find that as observed by us hereinabove, the reason for making of the aforesaid disallowance is not clearly discernible from the orders of the lower authorities. Further, nothing can be gathered from the orders of the lower authorities as regards the basis for treating an amount of ₹ 1,00,000/- as a capital expenditure out of the total expenses of ₹ 6,83,086/- booked by the assessee under the head repair and maintenance charges. 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus 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 details of current liabilities and other details which were requisitioned by the A.O under Sec. 142(1) were not supplied by the assessee. Further, no details in respect of the outstanding sundry creditors was also furnished by the assessee despite specific directions by the A.O. Still further, the CIT(A) in all fairness during the course of the appellate proceedings vide his order sheet entry dated 01.07.2015 directed the assessee to file (i) confirmations from the creditors; (ii) details as regards the payments subsequently made by the assessee to the creditors with supporting evidence, bank payment statements highlighting relevant transactions; and (iii) any other submission in support of its aforesaid claim. However, as observed by the CIT(A), the assessee despite having been afforded another opportunity to substantiate its claim that there was no cessation of liability in terms of Sec. 41(1) of the Act, failed to place on record the aforesaid documentary evidence. We find that the CIT(A) taki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee had obtained some benefit in respect of the same by way of remission or cessation thereof. On the basis of our aforesaid observations, we are of the considered view that though a very heavy onus is cast upon the assessee to prove that there has been no remission or cessation of liability, but if he fails to so prove, then though it would be open for the revenue to assess the said amount as the deemed income of the assessee under Sec. 41(1) of the Act, however, it would be for the revenue to prove that pursuant to such remission or cessation of such trading liability the assessee had obtained some benefit during the year under consideration. 20. We are of the considered view that admittedly the assessee in the case before us had failed to prove despite having been afforded sufficient opportunities both by the assessing authority and CIT(A), that the liabilities under consideration viz. (i) current liabilities; and (ii) outstanding sundry creditors, had not ceased to exist and were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 disallowance the depreciation on car amounting to ₹ 4,44,492/- as claimed by your appellant. 5. The CIT(A) was highly justified in confirming the arbitrary addition of ₹ 2,46,78,611/- u/s 68 in spite of submission of confirmations from the respective parties. CIT(A) has deleted the addition in the assessment year 2008-09 and 2009-10 as the parties are same which are carried forward from year after years. 6. The CIT(A) was highly justified in confirming the arbitrary addition of ₹ 41,65,500/- being Legal Professional Fees out of ₹ 95,71,697/- in spite of giving full details with bills of expenditure incurred for the purpose of the business. The addition was deleted by CIT(A) in the assessment years 2008-09 and 2009-10. 7. The CIT(A) was highly justified in confirming the arbitrary addition of has wrongly disallowed 10% of various expenses ₹ 80,15,542/-. There was no disallowance under this head rather there was an addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 were deposited well before the due date of filing of the return of income by the assessee company for the year under consideration. The Ld. A.R in support of his aforesaid contention drew our attention to Page 6-7 of the CIT(A) order, wherein the complete details as regards the payments made by the assessee in respect of the employees contribution to ESIC and PF were found mentioned. The Ld. A.R submitted that as the aforementioned amounts were deposited prior to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 of ₹ 4,30,042/- made by the A.O under Sec. 36(1)(va) in context of the delayed deposit by the assessee of the employees contribution towards ESIC and PF. On a perusal of the details as are discernible from the orders of the lower authorities, it emerges that though the aforementioned amounts had been deposited by the assessee beyond the time limit contemplated under the respective acts, but the same are found to have been deposited prior to the due date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. The Ground of Appeal No. 3 is dismissed. 31. We shall now take up the disallowance of depreciation on car amounting to ₹ 4,44,492/-. We find that the A.O observed that a perusal of the invoice of the motor vehicle revealed that the same was purchased in the name of Mr. Uves Mohammed Younus Sareshwala, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 were the interest free unsecured loans raised by the assessee either from its direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 statistical purposes. 35. We shall now advert to the disallowance of the legal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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 assessee company in order to safeguard its interest cannot be held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 speculation business to the extent to which the business consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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