TMI Blog2021 (10) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... the same - HELD THAT:- CIT-A had declined the assessee's claim for deduction of the aforesaid expenses, for the reason, that the same pertained to salaries that were paid to certain employees who were engaged in financial and marketing activities, which as were him was not the nature of business of the assessee company. At this stage, we may herein observe that as the assessee was apart from the business of rendering consultancy services and trading in cotton liner, foam insole and gel insole was also carrying on the business of finance, therefore, we are unable to persuade ourselves to subscribe to the view taken by the CIT(A) that the aforesaid employee benefit expenses could not be related to its business activities. We, thus, in the backdrop of our aforesaid deliberations vacate the disallowance of the assessee‟s claim for deduction of employee benefit expenses - we herein set-aside the order of the CIT(A) and vacate the disallowance of the employee benefit expenses. Disallowance of legal and professional fees - HELD THAT:- As we have held that the interest income was rightly reflected by the assessee as its business income, therefore, its claim for deduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 45,65,970/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assessee company which was engaged in the business of trading in cotton lines, foam insole, gel insole etc. had not reported any purchases and sales in its profit and loss account for the year under consideration. On a perusal of the profit and loss account it was noticed by the A.O that the assessee had therein credited consultancy income and interest income. Observing that the assessee company was neither a NBFC nor had a license of money lending, the A.O called upon it to explain as to why the interest income credited in the profit and loss account may not be brought to tax under the head Other sources . In reply, it was submitted by the assessee that it was during the year in question carrying on the business of finance and providing consultancy services. It was further submitted by the assessee that even in the preceding years it was inter alia carrying on the business of finance. Elaborating its aforesaid claim, it was submitted by the assessee that as in the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her sources‟. Apart from that, the A.O taking cognizance of the fact that the assessee in the course of the assessment proceedings had failed to substantiate on the basis of documentary evidence its claim for deduction of Employee Benefit Expenses‟ of ₹ 10,71,000/-, thus, disallowed the same. Also, the assessee‟s claim for deduction of Legal and professional fees‟ of ₹ 5,84,745/- was disallowed by the A.O, for the reason, that the assessee had failed to substantiate as to how the said expenditure was incurred wholly and exclusively for the purpose of its business. Backed by his aforesaid observations, the A.O vide his order passed u/s 143(3) dated 05.03.2016 assessed the income of the assessee company at ₹ 67,90,330/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). Insofar the aforesaid re-characterization of the business income as income from other sources and the aforesaid disallowances made by the A.O were concerned, the CIT(A) not finding favor with the contentions advanced by the assessee upheld the view taken by the A.O. 5. The assessee being aggrieved with the order of the CIT(A) has carried the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee did not have a license to conduct money lending business it would not mean that its claim of bad debts should be denied. Also, a similar view had been taken by the ITAT, Mumbai in the case of ITO Vs. Khyati Realtors Pvt. Ltd., ITA No. 6537/Mum/2017, dated 16.09.2019. Insofar the judgment of the Hon‟ble High Court of Madras in the case of South India Shipping Corporation Ltd. vs. CIT (2000) 163 CTR 617 (Mad) is concerned, we find that as the issue before the Hon‟ble High Court was in respect of assessing of the interest income on bank deposits, which is not the issue in the case before us, therefore, the same is distinguishable on facts. Also, the judgment of the Hon‟ble High Court of Madras in the case of CIT Vs. Gimpex Pvt. Ltd. (2004) 268 ITR 377 (Mad) was rendered in context of interest income earned by the assessee on its surplus funds prior to the commencement of the assessee‟s business, therefore, the same being distinguishable on facts would also not assist the case of the revenue before us. Be that as it may, we find, that the fact that the interest income had been offered by the assessee in the immediately two preceding years i.e A.Y 2011-12 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 1,80,000/- in the immediately preceding year to ₹ 10,71,000/- during the year under consideration, the A.O taking cognizance of the fact that the assessee had failed to furnish the complete details, therein, called upon it to explain that as to why its aforesaid claim for expenses may not be disallowed. Although, the assessee in compliance to the directions of the A.O had furnished certain details with respect to the aforesaid expense, i.e the names, assigned jobs, PAN numbers and the amount paid to the respective employees, however, he is stated to have failed to substantiate that the aforesaid expenses were incurred wholly and exclusively for the purpose of its business. In the absence of the requisite details which would prove to the hilt that the expenses claimed by the assessee were incurred wholly and exclusively for the purpose of its business the A.O disallowed the same. On appeal, the CIT(A) upheld the disallowance of the aforesaid expenses made by the A.O. 8. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record as regards the aforesaid issue in hand. As obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere incurred wholly and exclusively for the purpose of its business. In our considered view, the A.O had neither sought any further details in respect of the aforesaid expenses nor carried out any independent inquiries before concluding as hereinabove. Neither is there anything discernible from the records which would reveal that the A.O after perusing the details that were furnished by the assessee had directed him to substantiate as to how the expenses therein incurred were wholly and exclusively for the purpose of its business, nor anything has been brought to our notice by the ld. D.R in the course of hearing of the appeal. Insofar the CIT(A) is concerned, we find that he had declined the assessee‟s claim for deduction of the aforesaid expenses, for the reason, that the same pertained to salaries that were paid to certain employees who were engaged in financial and marketing activities, which as were him was not the nature of business of the assessee company. At this stage, we may herein observe that as the assessee was apart from the business of rendering consultancy services and trading in cotton liner, foam insole and gel insole was also carrying on the business of fin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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