Shamim Yahya, Accountant Member
1. This appeal by the assessee is directed against order of Ld. CIT-A dated 29.11.2013 and pertains to assessment year 2010-11.
2. The grounds of appeal read as under:
1) On facts and circumstances, The Learned Commissioner of Income-tax (Appeals)-5, Mumbai, has erred in holding that the Appellant has not been carrying on any business or has not carried on any activity to revive the business and thereby erred in confirming the order of the Assessing Officer.
Multi Act Trade & Investments P. Ltd., ITA no.240/Mum./2014
2) On facts and circumstances, The Learned Commissioner of Income-tax (Appeals)-5, Mumbai, has erred in holding that the business is closed whereas the business of the Appellant is to do equity research and to maximize and/or guard against the risk of fluctuations in equity market and thereby erred in not allowing expenditure incurred in payment of salaries, rent, telephones, conveyance etc. which is incurred for carrying on business as Investors and/or traders in shares, securities, mutual funds etc. and has erred in confirming the order of the Assessing Officer.
3) On facts and circumstances, The Learned Commissioner of Income-tax (Appeals)-5, Mumbai, has erred in holding that the Investments of the funds in fixed deposit for a short term, pending decision to invest in shares, securities etc. depending upon market conditions is an "income from other sources" and has erred in not holding that it is an income from business activities.
4) On facts and circumstances, The Learned Commissioner of Income-tax (Appeals)-5, Mumbai, has erred in confirming disallowance of Rs. 93,00,890/- being travelling and salaries paid to staff on the ground that no business is carried on.
5) The Appellant reserves right to add, alter or amend the above grounds of appeal as and when found necessary.
3. The facts are that assessee company has shown income from investment activities such as interest, dividend and gain on sale of shares and Mutual funds. The total income of Rs 1,24,06,953/- there from is credited to the P&L A/c. As against that, the total expenses at Rs 1,32,07,059/- has been debited therein. Accordingly, the loss of Rs 8,00,106/- has been shown.
Multi Act Trade & Investments P. Ltd., ITA no.240/Mum./2014 Before the AO it was pleaded that assessee is registered as Non Banking Non Financial Company with RBI and carried on business of equity research, financing and investing in shares etc. The AO observed that the kind of activity done by the assessee cannot be considered as business activity or NBFC business. The was of the view that the interest income earned on fixed deposits with banks, public debentures with LIC Housing Finance and L&T Finance Ltd, REC Bonds and interest on IT refunds cannot be treated as business income just because assessee company is registered as NBFC with RBI. The AO also observed that when the assessee was not engaged in the business of money lending, the interest income earned by it can be assessed as "income from other sources" only. For that reason the AO assessed the interest income amounting to Rs 29,04,598/- as income from other sources u/s. 56 of the IT Act and held that the deduction there from could be allowed only u/s 57 of the IT Act. The assessee had shown dividend income of Rs 22,16,1281- on FMPs & Equity, gain on sale of shares and Mutual funds of Rs 47,86,055/-. The dividend and long term capital gain have been claimed as exempt. Thus AO held that expenses claimed could also not be covered u/s 48. In the context, by giving detailed reasoning Multi Act Trade & Investments P. Ltd., ITA no.240/Mum./2014 the AO held that the expenses totalling to Rs 1,32,07,059/- claimed by the assessee cannot be allowed as a deduction u/s 48 & Sec. 57 of the IT Act. The assessee had claimed travelling expenses amounting to Rs 6,12,858/- on account of air ticket of Prashant K. Trivedi on his foreign visits. The AO noted that the expense was not allowable because the activities carried out by the assessee was that of investment in shares and units of Mutual funds and interest on FDs; and that the investment activity was also carried out by portfolio management service from the bank. No separate disallowance thereon was however made as the same was part of the disallowance made otherwise. Since the assessee had added back Rs 39,06,169/- suo moto [disallowance u/s 14A], the AO disallowed the balance amount of Rs 93,00,890/- [Rs 1,32,07,059/- minus Rs 39,06,169/-
4. Upon assessee's appeal Ld. CIT-A confirmed the action of the A.O. He held as under:
I have perused the relevant P&L A/c and Balance sheets and taken note of the submissions made by the assessee. I find that the basic activity of the assessee is the investment in shares, capital bonds and Mutual funds. The dividend income thereon stands exempted from tax. The long term capital gain on sale of those investments is also exempted. The short term capital gain is taxed at concessional rates. The income during the year, as credited in the P&L A/c is from interest [Rs Multi Act Trade & Investments P. Ltd., ITA no.240/Mum./2014 29,04,598/-], dividend [Rs 32,16,128/-] and gain on sale of shares and Mutual funds [Rs 47,86,355/-]. No income from trading of any shares have been shown during the year. The Balance sheet reflects the shares held as stock in trade at Rs 76,021 I-only. The same amounts stands reflected in its Balance sheet for A.Y. 2008-09 [i.e as on 31.03.2008]. It is also noted that out of the total share capital and reserves & surplus shown at Rs.33,89,88,239/-, the investments in shares and Mutual funds amounts to Rs.30,26,31,463/-. The goods block [fixed assets] is shows at Rs.31,89,346/-. Thus it is very evident that no business activity has been undertaken by the assessee. The income is mainly from the investment and as such the assessee's plea that its investments in shares as well as fixed deposits are to be considered as its stock in trade is misplaced. The income on sale of shares/Mutual funds itself have been shown by the assessee as capital gain and that itself negates the argument/stand taken by the assessee. This is a case where assessee has deployed competent personnel staff to carry out equity research and after due consideration, the decision is taken for investment in equity shares/ Mutual funds. In between when a study suggests adverse scenario of the market for investment in shares/Mutual funds, the funds are placed in banks as fixed deposits. Therefore, its plea that fixed deposits are also held as stock in trade and investment thereof should be treated as its business activity is also misplaced and cannot be accepted. The AO has rightly rejected such claim of the assessee. The perusal of the P&L A/c further indicates that the major cost debited, to the P&L al c has been on account of employee cost [Rs.91,35,418/-] and other expenses [Rs.36,89,952/-]. The break-up of other cost is given in Schedule 9. That includes the expenses on account of postage & telephone expenses [Rs.2,20,919/-] repairs & maintenance [Rs.83,795/-, printing & stationery [Rs.58,313/-], audit fees [Rs.42,465/- plus Rs.11,030/-], subscription [Rs.7,041/-], vehicle expenses [Rs.1,34,910/-, travelling expenses [Rs.10,97,159/-], professional fees [Rs.5,02,895/-], rent [Rs 9,82,776/-], electricity charges [Rs 2,43,376/-] etc. Thus it is observed that major activity of the assessee is to make investment in equity and Mutual funds based on the Multi Act Trade & Investments P. Ltd., ITA no.240/Mum./2014 professional advice of its own competent personnel who are engaged in devoting their prime time in equity research by obtaining/collecting the relevant information. The expenses shown in Schedule 9 towards other cost mainly relates to such activities. The dividend as well as the long term capital gain is totally exempt thereon. Thus these expenses [employee cost as well as other cost] are with regards to the investment activities only, the income from which stands exempted and thus are to be excluded u/s 14A. Since in the present case there is no business income, the AO has rightly disallowed any such expenses out of the interest income which is taxable under the head "income from other sources". The short term capital gain too has been shown at Rs.9,94,215/-. The deduction there from is allowable u/s 48 of the IT Act. The AO did not give any allowance thereof for the reason that such expenses could not be covered u/s 48 also. In the facts of the case, in my considered view the AO has taken the correct and just view and does not call for any interference.
5. Against the above order assessee is in appeal before us. We have heard both the counsel and perused the records. Ld. Counsel of the assessee submitted that there has only been a temporary lull in the business. He submitted that assessee has shown substantial income in assessment year 2007-08 and 2008-09. No such disallowance was made in those year. He further submitted that subsequently in financial year 2015-16 and 2016-17 the business has substantially picked up. For this purpose he submitted that profit and loss account and balance sheet for financial year 2015-
16. He further submitted that profit and loss account and balance sheet for assessment year 2016-17 are under preparation. For the proposition that when there is a temporary lull in the business, Multi Act Trade & Investments P. Ltd., ITA no.240/Mum./2014 expenditure incurred in the intervening period cannot be disallowed Ld. Counsel of the assessee placed reliance upon the decision of Hon'ble Bombay High Court reported in 83 ITR 1 Karsondas Ranchhoddas Vs. CIT.
6. Upon careful consideration we find that it is the submission of the Ld. Counsel of the assessee that assessee has shown substantial income in assessment year 2007-08 and 2008-09. It is also the submission of the Ld. Counsel of the assessee that there was a temporary lull in the business activity. However he has claimed that subsequently the business has picked up and in financial year 2015- 16 and financial year 2016-17 assessee has shown substantial business income. We note that the balance sheet for the financial year 2015-16 was not
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before the authorities below. Furthermore the submission that there was a temporary lull and the business has subsequently picked up, was also not before the authorities below. However the proposition that when there is a temporary lull in the business, it cannot be said that there is a cessation of business by the assessee, is supported by the decision of Hon'ble High Court decision as cited above. When there is no cessation of business, assessee is engaged in doing business and the business expenditure as appropriate deserves to be allowed. Multi Act Trade & Investments P. Ltd., ITA no.240/Mum./2014 7. However since we note that the additional evidence and the new submissions were not before the authorities below, hence in the interest of justice we remit this issue the file of the A.O. The A.O shall examine the issue afresh in light of the additional submissions of the ld. Counsel of the assessee. Needless to add assessee should be granted adequate opportunity of being heard. Both the counsel fairly agreed with this proposition The result this appeal by the assessee is allowed for statistical purposes.