ITA No. 799 of 2004 IN HIGH COURT AT CALCUTTA Special Jurisdiction (Income Tax) ORIGINAL SIDE C. I. T. KOLKATA - II Versus WILLIAMSON MAGOR & CO. LTD. BEFORE: Hon'ble JUSTICE GIRISH CHANDRA GUPTA Hon'ble JUSTICE ARINDAM SINHA Date : 8th April, 2015. Mr. R.N. Bajoria, Sr.Advocate Mr.A.Gupta,Advocate for Respondent Court: appeal was presented on 23rd November, 2004. Thereafter, appellant did not take any step whatsoever. appeal has not as yet been admitted. On 13th January, 2015, appeal was listed under heading For Dismissal when no one appeared on behalf of appellant. matter was directed to be listed on 15th January, 2015 under heading For Dismissal for second time. On 15th January, Mr. R. K. Chowdhury appeared for appellant and prayed for liberty to serve which was granted. On 6th February, 2015, after service, matter appeared when matter was fixed by consent of parties for hearing after two weeks. matter is in list for some time. Everytime, matter was called on, learned advocate for respondent was found to be present but learned advocate for appellant was not present. In circumstances, learned advocate for respondent was requested to give notice to learned advocate for appellant. Such notice was given. duly receipted photocopy of such notice has been put on record by Mr. Bajoria, learned Senior advocate appearing on behalf of respondent. Today, matter is appearing under heading For Dismissal . When matter was taken up, learned advocate appearing for appellant prayed for adjournment. Such prayer is refused. appeal arises out of judgement and order dated 1st July, 2004 passed by learned Income Tax Appellate Tribunal pertaining to assessment years 1998-99 and 1999-2000. following questions of law have been suggested by appellant though no one appeared in support of appeal : a) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in deleting disallowance of Rs.71,53,542 for Assessment year 1998-1999 and Rs.2,92,99,950.00 for Assessment year 1999-2000 on account of interest made by Assessing officer proportionately on prorata basis and confirmed by Commissioner of Income Tax (Appeals) under Section 36(1)(III) of Income Tax Act, 1961 being interest under charged by respondent/assessee to extent of 5% on borrowed capital given on loan to its associate concerns following Judgment of Learned Tribunal in case of Respondent/assessee itself for Assessment years 1996-97 and 1997-98 ? b) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in holding that borrowed capital given on loan by respondent/assessee to its associate concerns undercharging interest was properly used by respondent/assessee for its business so as to eligible for deduction under Section 36(1)(III) of said Act? c) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in deleting disallowance of Rs.3,75,000.00 during Assessment year 1998-1999 being expenditures incurred, by respondent/assessee as flagship company purported to promote corporate image of group companies, in sponsoring races held by Royal Calcutta Turf club and not for any business carried on by respondent/assessee ? d) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in deleting disallowance of Rs.32,870.00 out of Rs.82,870 during assessment year 1998- 1999 on account of legal fee paid by respondent/assessee to Khaitan & Co. against bill dated 28th February, 1997 in spite of Respondent/assessee having maintained its account on mercantile basis ? e) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in deleting disallowance of Rs.50,000.00 out of Rs.82,870.00 during assessment year 1998- 1999 on account of legal charges incurred by respondent/assessee for amalgamation of its two subsidiary companies namely Desai Investment Limited and Fairlie Place Investment Limited by holding same as revenue expenditure of respondent/assessee? f) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in deleting disallowance of Rs.1,51,795.00 paid by respondent/assessee on account of entrance fees of club out of total of Rs.5,95,795.00 and in upholding disallowance for balance of Rs.4,44,201.00 paid towards subscription to club during year 1999-2000 following judgment of Hon ble Gujrat High Court in case of Gujrat State Export Corporation reported in 209 Income Tax Reports at page 649. g) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in deleting disallowance of Rs.4,03,44,000.00 paid by respondent/assessee to its employees during assessment year 1999-2000 under Voluntary Retirement Scheme ignoring Board Circular dated 23rd January 2001 referred to by Assessing Officer and provisions made under Section 35DDA of Income Tax Act, 1961 and without considering enduring nature of benefit therefrom derived by respondent/assessee? h) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in deleting estimated disallowance of proportionate interest of Rs.2,00,98,622 with reference to Section 36(1)(III) of said Act during year 1998-99 on borrowed capital for purpose of determining tax free dividend income earned by respondent/assessee in spite of there being no material before Learned Tribunal to come to conclusion that borrowed capital was not used by respondent/assessee for investment in shares? i) Whether in facts and in circumstances of case, Learned Income Tax Tribunal erred in law in deleting addition of Mesne Profit, due to respondent/assessee from Food Corporation of India, from income for respondent/assessee during assessment years 1998-1999 and 1999-2000 duly confirmed by Commissioner of Income tax (Appeals) and in directing inclusion thereof in Assessment Year 2000-2001? j) Whether in facts and in circumstances of case, finding of Learned Tribunal for purpose of deleting disallowance of Rs.77,37,000.00 and in upholding disallowance of Rs.39,43,031 on account of expenditures of respondent/assessee during assessment year 1999-2000 under head Building Repairs & Maintenance is perverse? question nos.(a) and (b) do not really arise for consideration because view taken by learned Tribunal is evidently based on judgement of Delhi High Court in case of CIT v. Sahani Silk Mills P. Ltd. reported in (2002) 253 ITR 294. question no.(c) pertains to view taken by learned Tribunal on basis of judgement of Delhi High Court in case of Addl. Commissioner of Income-Tax v. Delhi Cloth and General Mills Co. Ltd. (1983) 144 ITR 280 wherein it was held that expenditure incurred by assessee in organising tournaments was allowable deduction. question nos.(d) and (e) are questions on facts. learned Tribunal has allowed expenditure of sum of Rs.32,870/- on account of fees for legal assistance paid to Solicitors while sum of Rs.50,000/- was disallowed. It is not in dispute that expenditure was, in fact, incurred. only point was that payment was in connection with services rendered and billed for on 28th February, 1997 and therefore, expenditure could not be allowed in subsequent year but that question has not been given much importance by learned Tribunal for simple reason that appeal relating to year to which expenditure pertained was also pending and therefore there was, in substance, no reason why expenditure should not have been allowed. Therefore, question nos.(d) and (e) are of no substance altogether. So far as question no.(f) is concerned, learned Tribunal in allowing entrance fees paid to clubs relied on judgement of Gujrat High Court in case of Gujrat State Export Corporation Ltd. v. CIT reported in (1994) 209 ITR 649. question no. (g) does not really arise for consideration because money spent by assessee in meeting liability of voluntary retirement was recovered from subsidiaries. money so recovered has been offered for taxation and has been taxed as income arising from other sources whereas expenditure incurred on account of voluntary retirement was disallowed. obvious incongruity was removed by learned Tribunal. Therefore, this question is really based on non-application of mind. question no.(h) appears to have some substance in it. learned Tribunal has deleted disallowance following its judgement for earlier years. But no finding was arrived at by learned Tribunal indicating that borrowed capital was not utilized for purpose of earning exempt income. In absence of such finding disallowance could not have been deleted. Therefore, to that extent, judgement of learned Tribunal is set aside and matter is remanded to assessing officer. He shall give opportunity to assessee to adduce evidence to show what amount of interest, if any, was incurred for purpose of earning exempt income. Based on evidence, he shall arrive at finding in accordance with law. question no. (i) is again outcome of non-application of mind because order for payment of mesne profits attained finality on 30th July, 1999. Therefore, same can only be assessable in year 2000-2001. learned Tribunal did correct thing. But appellant has framed question without applying any mind. question no.(j) is equally outcome of non-application of mind. immovable property has partly been let out and there were other properties rented by assessee for purpose of its business. learned Tribunal advanced following reasoning amongst others:- However, A.O. has presumed that no expenditure at all was incurred by appellant in relation to such leased properties but incurred expenditure only in respect of own property at 4, Mangoe Lane, Kolkata. On facts of case therefore, we are of opinion that assumption made by A.O. are not proper and correct. If appellant had incurred over Rs.65 lakhs towards repairs in respect of property from which rental income of mere Rs.34.97 lakhs was earned, then it was wrong on part of A.O. to assume that expenditure of Rs.1,28,95,000.00 pertained to one property alone and no expenditure was incurred in relation to lease properties from which rent of over Rs.105 lakhs was earned. We, therefore, agree with contention of A/R that disallowance was made merely on surmise. Keeping in mind above factual position and also past history as referred by assessment orders for earlier years, we direct A.O. to disallow only Rs.39,43,031/- from business income as against Rs.77,37,000/- as disallowed in order of assessment. Ground No.11 is therefore allowed . view taken by learned Tribunal is evidently possible view and no reason is forthcoming why is same perverse. We have, thus, examined entire matter in absence of learned advocate for appellant with active assistance of Mr. Bajoria, learned Senior Advocate ably assisted by Mr. Gupta. appeal is partly admitted and also allowed as indicated above. exercise occasioned by remand shall be carried out at early date considering fact that matter is pretty old. (GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) ss AR(CR) C. I. T. Kolkata - II v. Williamson Magor & Co. Ltd